Karns Prime & Fancy Food, Ltd. - Page 3

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          provide some form of financial assistance to certain of its                 
          creditworthy and strategically important customers in order to              
          help them meet their respective financial needs.  The amount of             
          funds that Super Rite was willing to advance to a customer                  
          depended upon Super Rite’s estimate of its potential profit under           
          the supply agreement that it required of such customer.                     
               Before Super Rite agreed to provide financial assistance to            
          a customer, it required each such customer to (1) enter into a              
          written supply agreement (supply agreement) that, inter alia,               
          required the customer to purchase annually a minimum amount of              
          products and that contemplated that Super Rite would pay an                 
          advance price rebate to such customer at the inception of such              
          supply agreement and (2) execute a promissory note (note) payable           
          to Super Rite in the amount of any such advance rebate.  Although           
          Super Rite expected that the customer would satisfy the minimum             
          annual purchase requirement set forth in the supply agreement,              
          Super Rite nonetheless required the customer to execute a note              
          payable to it in order to facilitate repayment of all or a                  
          portion of such advanced funds in the event that the customer did           
          not satisfy such minimum annual purchase requirement or otherwise           
          materially breached the supply agreement.1  Super Rite intended             

               1Even in a situation where a customer of Super Rite did not            
          seek an advance of funds from Super Rite, Super Rite may have               
          agreed to enter into a supply agreement with such customer that,            
          inter alia, required the customer to purchase annually a minimum            

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Last modified: May 25, 2011