<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1994
Commission File Number 2-60487
UNITED GROCERS, INC.
OREGON 93-0301970
6433 S.E. Lake Road (Milwaukie, Oregon)
Post Office Box 22187, Portland, Oregon 97222
Registrant's telephone number, including area code: (503) 833-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __X__
State the aggregate market value of the voting stock held by non-affiliates
of the registrant.
$35,313,495 (computed on basis of 1994 offering price and number of shares
utstanding at December 15, 1994)
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
619,535 shares of common stock, $5 par value, as of December 15, 1994.
Documents incorporated by reference: None
<PAGE>
PART 1
Item 1. Business
The registrant, United Grocers, Inc. ("United" or "the Company"), a
wholesale grocery distributor, is an Oregon business corporation organized in
1915 which operates and is taxed as a cooperative.
The Company supplies groceries and related products to independent
retail grocers located in Oregon, western Washington and northern California.
United's goal is both to supply grocery products to retailers at prices which
enable them to compete effectively in the retail market, and to furnish them
other services, such as marketing assistance, engineering, accounting,
financing and insurance, which are important to the successful operation of a
retail grocery business.
United also sells groceries and related products at wholesale through 30
Cash and Carry depots, principally to nonmember grocers, restaurants and
institutional buyers.
Consolidated revenues by principal product lines and services appear in
the following table:
<TABLE>
<CAPTION>
For Fiscal Year Ended
September 30, 1994 October 1, 1993 October 2, 1992
================== ================ =================
(dollars in thousands)
Percentage Percentage Percentage
of Total of Total of Total
Product or Revenue Revenue Revenue Revenue Revenue Revenue
Service
<S> <C> <C> <C> <C> <C> <C>
Grocery<F1> 399,803 41.87 370,237 42.20 381,679 42.58
Dairy & Deli 105,336 11.04 97,425 11.11 101,868 11.36
Meat 86,893 9.11 86,115 9.82 86,115 9.60
Produce 47,709 5.00 46,462 5.30 44,672 4.98
Frozen Foods 53,803 5.64 49,078 5.60 51,787 5.78
Gen. Merchandise 45,285 4.75 42,494 4.85 44,901 5.01
Institutional<F2> 179,422 18.81 155,572 17.74 156,705 17.48
Retail Services 14,169 1.49 7,683 .88 7,477 .83
Store Finance 3,846 .41 2,374 .27 2,942 .33
Distribution
Segment 936,266 98.12 857,440 97.77 878,146 97.95
Insurance Segment 17,954 1.88 19,545 2.23 18,441 2.05
TOTAL $954,220 100.00 $876,985 100.00 $896,587 100.00
<FN>
<F1> Grocery revenues include sales from retail stores operated on a temporary basis.
<F2> Institutional revenues include sales of all product lines.
</TABLE>
Financial data regarding the Company's industry segments is included in
the financial statements appearing in Item 8.
United and its wholly-owned subsidiaries Grocers Insurance Group, Inc.,
Grocers Insurance Agency, Inc., Grocers Insurance Company, UGIC, Ltd.,
United Workplace Consultants, Inc., Western Passage Express, Inc., United
Store Development, Ltd., Northwest Process, Inc., Western Security Services,
Ltd., Premier Consulting, Inc., United Resources, Inc., U.G. Resources, Inc.,
and B.A.T. Enterprises, Inc. provide a variety of services to members.
Marketing and Distribution
Independent retail grocers within United's market area are eligible to
apply for membership. All applicants for membership are subject to approval
by United's Board of Directors on the basis of financial responsibility and
operational ability. On approval, applicants are required to purchase shares
of United's common stock. United has approximately 250 members operating a
total of approximately 360 retail grocery stores.
Members receive periodic order guides indicating the price and availability
of various merchandise. Members select the desired merchandise and place
their orders using United's computerized order system. The merchandise is
picked up by the member or delivered by truck to the member's retail
facility.
No member or other customer of United accounts for as much as 10 percent of
its sales. Management believes that the loss of any one or a few of its
members or other customers would not have a material effect on its business
or financial condition.
Members are eligible to join United's group advertising programs. Members
of advertising groups all do business under the group name, advertise items
jointly, are assessed fees for group marketing services, and take part in
group promotional programs. Each advertising group has its own coordinator
and acts independently in passing upon applications of membership within the
group and deciding on promotional and advertising programs.
United's Cash & Carry wholesale outlets provide a convenient, low cost
method of purchasing groceries and institutional products for non-member
grocers, restaurants, and institutional buyers. Cash & Carry customers
select their merchandise at the outlet much in the same manner that a
customer at a retail grocery store would. Cash & Carry customers provide
their own transportation.
Supplies
United purchases goods from a wide variety of sources ranging from local
farmers to large multinational corporations. United attempts to obtain the
lowest possible price by pooling the buying power of its members. United is
not dependent on any single supplier and the loss of any single supplier
would not have a material effect on its business.
United is one of the five stockholders of Western Family Holding Company, a
corporation which pools the buying power of its stockholders in order to
obtain lower cost merchandise. Purchases from Western Family Holding
Company, which account for about 11% of United's total purchases, are
distributed under labels such as "Western Family", and "Cottage."
<PAGE>
Retail Services
United provides a number of retail services to its members. Services which
do not carry a specific fee or charge include marketing information,
merchandising assistance, competitive retail price reporting and
developmental services such as store site selection, design and engineering.
United also offers its members, at a fee, complete bookkeeping, accounting
and tax services for their retail operations. A computerized payroll service
is also available. Other miscellaneous retail services which generally carry
a scheduled fee assessment include customized retail pricing, retail shelf
"unit pricing", and retail information service products.
United, where appropriate, leases retail space and subleases the space to
qualified members to enable them to obtain prime commercial space. At
September 30, 1994, United was obligated on 45 such leases. Each such
sublease requires that the sublessee pay all charges which may be incurred by
United. Lease insurance guaranteeing payment of rent in the event of default
covers a substantial amount of the lease payments. United's subsidiary UGIC,
Ltd. provides lease insurance for twenty-one such subleases. See "Notes to
Consolidated Financial Statements" for additional information on these
subleases.
Finance Services
United's subsidiary, United Resources, Inc., makes loans and provides other
financial services to members. Loans to members are generally made at one
and three quarters to two and one quarter percentage points over the prime
interest rate. Such loans generally are for terms of one to ten years. Loan
funds are obtained under a loan agreement with two commercial banks and a
note purchase agreement with National Consumer Cooperative Bank at rates
varying with market interest rates. At September 30, 1994, the aggregate
principal amount of member loans outstanding due the subsidiary was
$37,512,122. The subsidiary's interest income for the year then ended was
approximately $ 3,090,000. In the normal course of its activities, United
Resources, Inc. acquires retail stores through foreclosure or purchase and
operates them on a temporary basis. United Resources owned four such stores
at September 30, 1994. During 1994, United Resources acquired five stores
through foreclosure and disposed of eight stores through sale or closure.
Insurance Services
Overview
Grocers Insurance Group, Inc. was formed on October 25, 1990, and is a
holding company for United's insurance related subsidiaries. Grocers
Insurance Group, Inc. assists in marketing insurance related services offered
by those subsidiaries.
Grocers Insurance Agency, Inc., is an insurance agency offering
property, crime, workers' compensation, group life, group health and other
types of insurance. Sales of insurance, although primarily made to members,
are also made to nonmembers. Commissions earned totaled approximately
$804,000 for the year ended September 30, 1994.
Grocers Insurance Company (GIC), formerly United Employers Insurance Co.,
writes insurance policies for property and casualty, workers' compensation
and other types of insurance and provides some reinsurance services.
Premiums earned during 1994 decreased slightly to $24.6 million, from $24.9
million in 1993. GIC operates as a specialty insurer, concentrating on
grocery stores and related businesses for a customer base. Currently
licensed in 19 states located primarily in the western region of the United
States, GIC has applications pending in several additional states,
concentrated in the Midwest.
UGIC, Ltd. provides some reinsurance services for property and
casualty insurance and workers' compensation and provides underwriting for
lease insurance. Total written premiums for 1994 was $363,000.
United Workplace Consultants, Inc. offers rehabilitation
services to insurance companies, principally those owned by United. Total
revenue for the year ended September 30, 1994 was $451,000.
Affiliated General Agency, Inc., purchased by Grocers Insurance Agency,
Inc., in 1993 was closed during 1994.
Insurance Operations
The following analysis of insurance operations is limited to Grocers
Insurance Company, the significant underwriting subsidiary of the Company.
Premiums Written
An analysis of the GIC's premiums written during the last three years is
shown in the following table.
<TABLE>
<CAPTION>
$000
Direct ReinsuranceReinsuranceNet
Year Written Assumed Ceded Written
<C> <C> <C> <C> <C>
1992 $23,862 $1,183 $5,067 $19,978
1993 24,431 716 6,597 18,550
1994 23,992 861 6,652 18,201
</TABLE>
The three states accounting for the largest amounts of direct premiums
written for the year ending September 30, 1994 were Oregon with 41%,
California with 22%, and Washington with 15%. No other state accounted for
more than 5% of such premiums. In 1994, there were no significant changes in
business, geographic mix or types of risks assumed.
Underwriting Results
A commonly used industry measurement of property and casualty insurance
underwriting results is the combined loss and expense ratio. This ratio is
the sum of the ratio of net incurred losses and related loss adjustment
expenses to net premiums earned (loss ratio) plus the ratio of underwriting
expenses to premiums written (expense ratio). Underwriting results are
generally considered profitable when the combined ratio is under 100%. The
industry computes this ratio on a calendar year statutory accounting basis
for comparison purposes. The loss ratio, expense ratio, and combined ratio
for GIC for the last three calendar years are as follows:
<TABLE>
<CAPTION>
Loss Expense Combined
Year Ratio Ratio Ratio
<C> <C> <C> <C>
1991 84.1% 22.0% 106.1%
1992 79.1% 21.6% 100.7%
1993 89.6% 13.0% 102.6%
</TABLE>
These ratios compare to industry composite combined ratios of 107.6% for
1991, 114.6% for 1992, and 105.5% for 1993.
There have been no unusually large gains or losses from underwriting or
investment operations during the year ending September 30, 1994. There are no
effects from currency fluctuations, since all of GIC's business is transacted
within the United States.
Claims Operations
GIC establishes estimates for reported claims on an individual case
basis. Fast track types of reserving methods are not used. The estimates are
based on GIC's experience within the grocery industry and specific knowledge
of facts regarding each individual claim. These estimates are reviewed on a
regular basis or as additional information becomes available.
Incurred But Not Reported (IBNR) reserves are established for claims
which have occurred but are not yet reported to GIC as well as future
development on reported claims. IBNR estimates are principally derived from
analysis of historical patterns of development of both paid and incurred
losses by line of business and accident years. Independent professional
actuaries are engaged on an annual basis to analyze the overall reserving
accuracy of GIC. IBNR's account for approximately 42% of GIC's total unpaid
claims and claim adjustment expenses.
Net Unpaid Loss and Loss Adjustment Expenses (LAE) for the last three
fiscal years are:
<TABLE>
<CAPTION>
$000
% Increase or
Year Losses LAE Total (Decrease)
<C> <C> <C> <C> <C>
1992 $21,275 $3,663 $24,938 11.5%
1993 23,747 4,665 28,412 13.9
1994 22,968 4,671 27,639 (2.7)
</TABLE>
For additional historical information on loss reserve development and
reconciliation of claims reserves, please refer to Appendix 1 and Appendix 2
to this report.
During the year ending September 30, 1994, GIC adjusted reserves
recorded in prior years downward by approximately 3%, due to generally
favorable settlements on established case estimates for prior years claims
and an actuarially determined decrease in development factors previously used
in setting IBNR estimates.
There have been no other significant changes in reserving assumptions.
GIC does not typically use structured settlements of any materiality.
Reinsurance
In order to write policies above statutory limits, GIC reinsures limits
above $100,000 for all risks. Multiple layers of reinsurance treaties are
placed with upper limits of $20 million for workers' compensation and
liability exposures, and limits of up to $3 million for property risks.
Facultative reinsurance is purchased for property risks written with limits
above $3 million.
GIC utilizes a reinsurance intermediary for assistance in the design and
placement of reinsurance coverage. The structure of the reinsurance program
may vary slightly from year to year, but has remained essentially the same
since 1989. Treaties are primarily placed on an excess basis, with an
additional share treaty used for property risks. Current reinsurers on these
main working layers are all rated A- or better by A.M. Best.
GIC has not entered into any portfolio loss transfers or other types of
financial transactions involving loss reserves.
Risk Based Capital
The National Association of Insurance Commissioners (NAIC) has adopted,
effective December 31, 1994, a risk based capital formula for property and
casualty companies which will be used by insurance regulators in assessing
the capital adequacy of insurance companies. The formula computes a required
level of capital based on the risks assumed by the insurer. Various
regulatory actions are then prescribed if a company's ratio falls below its
minimum level. The actions range from requiring the insurer to submit a
comprehensive action plan to the state of domicile to placing the insurer
under regulatory control.
The ratio for GIC as determined at December 31, 1993 was significantly
above the levels which would require regulatory action.
IRIS Ratios
The NAIC produces an annual evaluation, the Insurance Regulatory
Information System (IRIS), utilizing data from the statutory annual
statements filed as of each December 31 with the state insurance departments.
The report is intended to assist regulators in analysis of the financial
conditions of insurers and to aid in targeting troubled companies. IRIS
identifies eleven industry values and specifies "unusual values" for each
ratio that falls outside a pre-determined range. Regulators use the "unusual
value" designation as an indication of potential problems.
GIC had no ratios designated as an "Unusual value" in its IRIS Report
for the year ended December 31, 1993.
A.M. Best Ratings
A.M. Best Company,Inc. ratings are indications of the solvency of an
insurer and are derived from analysis of the financial conditions and
operations of a company relative to the insurance industry in general. The
1993 A.M. Best letter ratings range from A++ ("Superior") to F ("In
Liquidation"). GIC applied for an initial rating in 1991 and was rated a B+.
In 1993, GIC was upgraded to a B++ rating, with a financial size category of
V.
GIC believes that the attainment of an "A" rating would have a favorable
impact on the marketing of its policies and accordingly makes a significant
number of underwriting and operational decisions with this goal in mind.
Other Services
Western Passage Express, Inc. provides freight services to United and
others. Northwest Process, Inc. provides store displays, advertising
materials, and printing services. U. G. Resources, Inc. leases retail space
which is subleased to member store operators. Two new subsidiaries, Western
Security Services, Ltd. and Premier Consulting, Inc.,provide various security
and employment management services.
Competition
The grocery industry is characterized by intense competition. In order
to compete effectively, a wholesale grocer must have the ability to meet
competitive market prices which fluctuate rapidly, provide a wide range of
perishable and nonperishable products, make prompt and efficient delivery and
provide the peripheral services which are required by modern supermarket
operations.
United believes that it accounts for a larger volume of sales of
groceries than any other wholesaler in its grocery marketing area, which is
comprised of Oregon, the northernmost part of California and western
Washington. United's principal competitors are two national grocery
wholesalers (which because of their operations in other areas are larger than
United) and three regional grocery wholesalers.
Other competitors include a number of local grocery wholesalers, many of
whom are limited to special product lines, such as candy or produce, or sell
only to limited market segments, such as restaurants or institutions. United
also competes with a significant number of producers which market their
products directly to retailers and with several chain store organizations
which control both their wholesale and retail operations. United's
competitors range from small local businesses to businesses significantly
larger than United. Based on information available to it, United estimates
that its members, many of whom are in competition with one another, account
for approximately 20% of the retail grocery market within United's marketing
area. Although members are free to purchase from sources other than United,
members generally purchase goods (except goods which United does not supply,
such as beer and wine) principally from United. United does not account for
a significant percentage of the national wholesale grocery market.
Recently, competition in the markets served by the Company's customers
has increased significantly. Warehouse and club format stores have gained
overall strength and are involved in major expansion activities. Direct
distributors of certain product lines (produce, general merchandise, etc.)
are becoming more aggressive in attempting to direct business away from the
Company. The Company has responded with new programs to be more price
competitive and has increased item selection and variety in several product
areas. The Company's recent warehouse expansion project at its Portland
facility was designed to increase its capabilities in frozen food, deli
items, general merchandise/housewares and specialty items to support its new
program strategies. Further, the Company's new member volume allowance
program has been designed to share the savings associated with larger order
efficiencies from its member stores, thereby reducing the participating
member's cost of product.
Recent trends in the results of the Company's member stores have
continued. In general, members outside major metropolitan areas, and those
operating newer stores, price oriented or super store formats registered
various gains in volume. Members operating average sized conventional stores
generally registered small volume losses overall. Like the grocery
industry, the insurance industry is highly competitive. Grocers Insurance
Group is well positioned to serve the retail food industry. Due to its
specialization in the retail food business, Grocers Insurance Group generally
operates on lower expense ratios than most of its competitors, allowing it to
offer competitive prices for its policies.
Employees
United employs approximately 1,700 persons. Approximately 880 of its
employees are members of Teamster or other unions. Collective bargaining
contracts with the unions are negotiated through an employer association to
which United and other major food distributors in its marketing area belong.
United considers its employee relations to be satisfactory.
Environment and Energy
United's operations are not of a type which ordinarily result in the
discharge of significant quantities of pollutants. United believes that its
operations substantially meet or exceed all applicable environmental
regulations.
United has, for a number of years, maintained a program of collecting
waste paper products from its members and from its own operations. This
waste paper is then sold to a paper company for recycling. Members
participating in this program receive weekly credits reflecting their
participation in the program.
United primarily uses electricity in the operation of its warehouses and
diesel fuel in the operation of its truck fleet. United believes that it has
adequate sources of supply to meet its anticipated energy needs. United's
energy suppliers have indicated that, because of the nature of United's
business, it would be entitled to priority in the event of any future energy
shortages.
Cost Savings
By pooling the buying power of its members, United is able to purchase
goods in large quantities at prices lower than the prices generally available
to independent retail grocers. The savings from the bulk purchases are
passed along to members in the form of rebates, allowances and patronage
dividends.
Sales to members are invoiced to their accounts at prices contained in
United's order guide. A partnership incentive program results in the
addition or subtraction of a percentage of the member's weekly invoice cost
based on the member's average weekly purchases by department for the
preceding four weeks, excluding purchases of drop shipments. The partnership
incentive percentages are designed to reflect the economies of scale realized
by United in servicing various sized accounts.
Rebates and allowances are paid to members periodically based upon their
purchases of particular items or their promotional and advertising
performance. Generally, such rebates and allowances stem from United's
margins and the merchandising or promotional programs of United's suppliers.
United also pays its members annual patronage dividends based on the
overage, or excess of revenues over expenses, on sales to members for the
year. Each year United's board of directors determines the portion of the
overage which is to be distributed as patronage dividends. Decisions
concerning the portion of the overage to be retained are based upon various
factors including United's future capital needs and the amount of earnings
available from operations not qualifying for distribution as patronage
dividends. The patronage dividends are allocated among the members in
proportion to the contribution to United's gross profit (before rebates and
allowances) attributable to their purchases from United. The patronage
dividends are paid partly in cash and partly in Membership Stock.
Government Contract Business
The Company does not generate significant business based upon contracts
with local, state or federal government entities.
<PAGE>
Income Taxes
United operates and is taxed as a cooperative. Accordingly, patronage
dividends are not included in United's taxable income but are instead taxed
to the individual members receiving the patronage dividends. The Internal
Revenue Code of 1986, as amended ("Code") requires that not less than 20
percent of each member's patronage dividend be paid in cash. United's
patronage dividend policy meets that requirement, providing for cash payments
of up to 100% of dividends based on ratios of the value of stock holdings by
member stores to their average weekly purchases, and total number of shares
of stock owned. Patronage dividends not paid in cash are paid in additional
Membership Stock. Members are required to agree to abide by all United's
bylaw provisions, including those applicable to federal income taxation of
patronage dividends. Accordingly, members must report as taxable income the
total amount of patronage dividends, whether paid in cash or Membership
Stock, in the year such patronage dividends are received, and such amounts
are not taxable to United.
United is taxed on income which does not qualify for distribution as
patronage dividends and on the portion of overage which is not distributed to
members. United's subsidiaries retain all profits (or losses) from their
operations and are part of the consolidated federal income tax return.
Item 2. Properties
United owns and operates two distribution centers. Its main
distribution center, located in Milwaukie, Oregon, contains over 815,000
square feet of warehouse space situated on a 62-acre site, owned by United.
Also at this location are 84,900 square feet of office space, a 20,000 square
foot truck repair shop and a 114,000 square foot frozen food distribution
center.
United's southern Oregon Division distribution center, located in
Medford, Oregon, contains approximately 200,000 square feet of warehouse
space, plus related office and maintenance areas.
United's distribution center warehouses are of modern, one-floor,
sprinklered, concrete construction. The warehouses are subject to various
mortgages, the terms of which are summarized in the Notes to the Consolidated
Financial Statements.
United and its subsidiaries operate a truck fleet consisting of 141
tractor cabs and 300 dry freight and refrigerated semitrailers, including
both owned and leased units.
United leases a mainframe computer, together with related peripheral
equipment, under various leases expiring in April, 1997. The leases calls
for annual rental of approximately $836,500.
United leases the facilities described in the following table for Cash
and Carry outlets at an aggregate annual rent of approximately $2,000,000.
Most of the leases contain renewal options.
<PAGE>
<TABLE>
<CAPTION>
Area in Lease
Location Square Feet Expires
<S> <C> <C>
Aloha, Oregon 20,500 2-28-97
Bend, Oregon 18,440 4-21-07
Coos Bay, Oregon 14,250 8-31-97
Gresham, Oregon 18,220 12-31-96
Newport, Oregon 16,000 11-30-07
Portland, Oregon 17,508 7-01-01
Portland, Oregon 20,000 5-31-96
The Dalles, Oregon 16,400 6-02-02
Arcata, California 23,000 10-31-97
Redding, California 25,380 10-31-00
Olympia, Washington 18,000 6-2-99
Seattle, Washington 23,500 5-22-99
Seattle, Washington 23,764 7-24-99
Tacoma, Washington 20,400 9-01-99
Clackamas, Oregon 21,000 6-01-01
Bellingham, Washington 20,000 11-30-99
Portland, Oregon 20,600 3-31-01
Salem, Oregon 19,600 9-04-06
Warrenton, Oregon 14,700 4-21-07
Everett, Washington 18,750 10-31-00
Kent, Washington 18,896 3-31-06
Federal Way, Washington 21,453 9-12-08
Lynnwood, Washington 22,000 6-12-08
Bellevue, Washington 18,000 12-14-03
Sacramento, California 23,120 1-14-09
</TABLE>
United plans to continue expansion of its Cash and Carry operations, with
three stores scheduled to be opened in the 1995 fiscal year.
Additionally, United owns Cash & Carry outlets as follows:
<TABLE>
<CAPTION>
Area in
Location Square Feet
<S> <C>
Pendleton, Oregon 10,800
Kelso, Washington 21,400
Eugene, Oregon 23,520
Klamath Falls, Oregon 17,500
Medford, Oregon 17,150
</TABLE>
United, as described under "Services," is also the prime lessee of
retail stores, which are subleased to members, totaling approximately
1,035,000 square feet. Further, United and its subsidiaries are the lessees
and operators of three retail stores acquired through foreclosure and
purchase totaling an additional 120,000 square feet. United owns and
operates an additional retail store occupying approximately 38,000 square
feet.
Item 3. Legal proceedings
The Company is regularly a party to routine legal proceedings not
expected to have a material effect on its business.
Item 4. Submission of Matters to a Vote of Security Holders None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
There is no market for United's Common Stock, which is
non-transferable. The approximate number of holders of United's Membership
Stock as of December 15, 1994, was 250.
United's earnings are distributed only in the form of patronage
dividends. Accordingly, no earnings are available for the purpose of paying
dividends on Membership Stock.
Item 6. Selected Financial Data
The following balance sheet data at September 30, 1994 and October 1,
1993 and the income statement data for the years ended September 30, 1994,
October 1, 1993, and October 2, 1992 have been derived from audited
consolidated financial statements and notes thereto appearing elsewhere in
this Annual Report on Form 10-K. The balance sheet data at October 2, 1992,
September 27, 1991, and September 28, 1990 and income statement data for the
years ended September 27, 1991 and September 28, 1990 have been derived from
audited financial statements not required to be included in this report. The
data should be read in conjunction with the consolidated financial statements
and related notes included elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years
Sept 30 Oct 1 Oct 2 Sept 27 Sept 28
1994 1993 1992 1991 1990
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement:
Net sales and operations $954,220 $876,985 $896,587 $882,878 $873,685
Income before members'
patronage dividends,
income taxes
and accounting change 11,294 11,291 13,314 13,126 12,408
Patronage dividends 8,730 9,000 10,211 10,427 10,000
Net income 1,563 1,714 2,723 1,712 1,394
Balance Sheet:
Working capital 45,258 41,819 53,326 61,032 49,912
Total assets 306,836 285,342 261,289 249,205 218,143
Long-term liabilities 114,669 105,539 104,645 98,685 82,918
Members' equity 40,425 39,112 39,141 36,431 33,299
Adjusted book value per
share 59.50 57.00 53.94 48.99 46.24
</TABLE>
Notes to Selected Financial Data
A. Data concerning net income per common share and cash dividends
per common share is omitted because United is a cooperative.
B. Adjusted book value per share is computed by subtracting from
total members' equity at year end, stock to be issued from patronage
and paid-in capital on such stock and undistributed equity from
investments accounted for on the equity method and dividing the
resulting number by shares outstanding at year end.
C. The amounts prior to 1993 have been restated to reflect changes
in accounting for inventories, income taxes and investments as
described in the notes to financial statements.
D. The amounts for 1993 have been restated to reflect changes in
accounting for reinsurance as described in the notes to the financial
statements.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
During fiscal year 1994, net sales and operations increased 8.8% to
$954.2 million. This compares to a 2.2% decrease in fiscal year 1993 to
$877.0 million. Income before members' allowances, patronage dividends, and
taxes increased $2.1 million to $22.7 million (2.38% of sales). This compares
to $20.6 million (2.35% of sales) and $20.7 million (2.31% of sales) in 1993
and 1992, respectively.
During 1994, the increase in net sales and operations was primarily
attributable to the distribution segment which enjoyed increased warehouse
unit volume, increased Cash & Carry unit volume, and increased equipment unit
sales. These gains in sales were offset by lower premium income of the
insurance segment.
In 1994, the Company generated increased profits within its
distribution segment from the Cash & Carry and service income areas. Within
the insurance segment, Grocers Insurance Company increased its profitability
despite lower premium income, mainly through the benefit of reduced loss and
loss adjustment expenses, which was partially offset by higher operating
expenses. The profit improvements in 1994 were offset by higher distribution
segment operating expenses, and increased member allowances paid ($2.0
million increase to $11.5 million) and operating losses in retail store
operations ($4.5 million in 1994 compared to $2.2 million in 1993).
During 1993, the decrease in net sales and operations was primarily
attributed to a 52 week accounting period, lower warehouse unit sales, and
lower levels of store financing interest income, which were partially offset
by increased service income, insurance segment written premiums, and sales
from retail store operations. The Company enjoyed increased profits in 1993
within the distribution segment's Cash & Carry and service income areas.
Within the insurance segment, Grocers Insurance Company increased its
profitability due to premium volume, increased investment income, and reduced
operating expenses. These profit improvements were more than offset by
increased member allowance payments and operating losses in retail store
operations.
NET SALES AND OPERATIONS
During 1994, sales of the Company's distribution segment increased
8.14% to $888.9 million compared to $822 million in 1993. The sales gain was
primarily attributable to an increase in unit volume. Inflation during 1994
impacted net sales by 1.0% of warehouse sales.
Member distribution sales increased due to additional new stores for
existing members, and acquisition of new member business. Management expects
the recent trend in increased retail store development to continue in 1995,
as several members are planning additional new stores.
Cash & Carry sales increased 15.3% to $179.4 million compared to $155.6
million in 1993. Sales at new units contributed 6.4% to the sales increase.
The balance of the increase was due primarily to higher unit sales volume at
existing stores.
Sales at company-owned retail stores, which are acquired as a result of
store finance activities, increased $4.9 million to $46.2 million. During
1994, the company disposed of eight retail stores, and acquired five stores,
decreasing the number of retail stores to four.
In 1994, the insurance segment's net insurance premiums, commissions,
and fees decreased by $1.7 million to $18.8 million. The decrease was
primarily attributed to lower commissions earned by the insurance segment's
Grocers Insurance Agency.
During 1993, the Company's distribution segment sales declined 3.6 %
compared to 1992. When compared to a 52 week period in 1992, the 1993 sales
decline was 1.9%. Inflation during 1993 added approximately 0.8 % to sales.
During 1993, a consumer trend towards lower cost items had a negative
impact on distribution segment sales. Cash & Carry sales increased slightly,
reflecting new store sales, while interest income declined, reflecting lower
interest rates during the 1993 year when compared to 1992.
Retail store sales increased $16.1 million in 1993, reflecting a net
increase of two stores during the year.
In 1993 the insurance segments's net insurance premiums, commissions,
and fees increased by $0.9 million over the 1992 total. The increase was
attributable to increased policy volume and rehabilitation fees, partially
offset by lower commission levels and increased reinsurance premiums paid.
GROSS OPERATING INCOME
Gross operating income increased to $137.5 million (14.4% of sales) in
1994 from $127.5 million (14.5% of sales) in 1993 and $123.7 million (13.8%
of sales) in 1992. The increase in gross operating income occurred due to
increased unit volume, and the continued shift in distribution segment's
sales mix towards Cash & Carry operations.
Improving trends in loss development experience in the insurance
segment also increased gross operating income. In 1994, loss and loss
adjustment expenses were 64.7% of total premium income, compared to 83.3% and
75.5% in 1993 and 1992 respectively.
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
In 1994, operating, selling, and administrative expenses increased $6.0
million to $103.5 million (10.9% of sales). These expenses amounted to $97.5
million (11.1% of sales) and $93.5 million (10.4% of sales) in 1993 and 1992,
respectively. The components of these expenses are summarized below:
<TABLE>
<CAPTION>
Percent of Total Sales
1994 1993 1992
<S> <C> <C> <C>
Salaries & Wages 6.0 6.3 5.9
Rents, Maintenance,
and Repairs 1.7 1.6 1.6
Taxes, Other Than
Income 0.9 0.9 0.8
Utilities, Supplies,
and Services 1.6 1.5 1.5
Other Expenses 0.5 0.5 0.4
Provision for Doubtful
Accounts 0.2 0.3 0.2
Total 10.9 11.1 10.4
</TABLE>
In 1994, operating, selling, and administrative expenses as a percent
of sales decreased primarily due to increased unit volume in the distribution
segment. Increased labor productivity resulting from these unit volume
increases was partially offset by increases in other operating expense areas,
notably supplies and transportation operating expenses and other taxes.
Insurance segment operating expenses increased to 36.3% of segment
income. The increase was primarily attributed to increased personnel costs,
other taxes, and building expenses associated with the new insurance
building. In 1993 and 1992, insurance segment operating expenses were 26.4%
and 28.1% of segment sales, respectively.
Provision for doubtful accounts was $2.0 million (0.2% of sales) in
1994. This compares to $2.2 million (0.3% of sales) and $2.1 million (0.2% of
sales) in 1993 and 1992, respectively.
Interest expense increased $0.9 million to $9.2 million (1.0% of
sales) in 1994. This increase was due to higher levels of average debt during
the year, as well as a higher average interest rate.
MEMBER ALLOWANCES AND DIVIDENDS
In 1994, total member allowances and dividends increased 9.9% to $20.2
million (2.1% of sales). In 1993, total allowances and dividends increased
4.0% to $18.4 million.
Total member allowances and dividends as a percent of member sales
increased to 2.84% in 1994, compared to 2.75% and 2.53% in 1993 and 1992,
respectively.
The Company's updated member allowance program was in place during all
of 1994, and management expects that the level of member allowances as a
percent of member sales should remain at approximately 1994 levels in future
years.
NET INCOME AND INCOME TAXES
In 1994, income before income taxes was $2.6 million (0.3% of sales)
compared to $2.3 million (0.3% of sales) and $3.1 million (0.3% of sales) in
1993 and 1992, respectively.
The Company's effective tax rate increased to 39.0% from 25.2% in 1993
and 29.2% in 1992. The increase in effective tax rate was primarily caused by
decreased tax refunds as a result of carrybacks that were utilized in 1993.
In 1994, net income after income taxes decreased to $1.6 million (0.2% of
sales) from $1.7 million (0.2% of sales) and $2.7 million (0.3% of sales) in
1993 and 1992, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATIONS
In 1994, the Company used $2.8 million in cash in its operating
activities. Increases in accounts receivable as a result of additional member
stores and member volume, and investments by the Company in its new
information services platform were the major factors contributing to the use
of cash in operations. The Company offset these uses of cash by increasing
patronage dividends payable with stock and increases in accounts payable.
CASH FLOW FROM INVESTING ACTIVITIES
In 1994, the Company used $16.3 million in its investing activities, a
decrease of $8.6 million from the $24.9 million used in 1993. Cash
requirements of the Company's retail member finance activities were reduced
in 1994 due to the substitution of a new Note Purchase Agreement during the
year. Purchases of property and equipment were reduced to $5.3 million from
$12.0 million in 1993. These favorable cash flow results were offset by
reduced proceeds from the sale of property and equipment, and equity
investments in certain affiliated companies.
In fiscal year 1995, anticipated capital expenditures will approximate
$8.0 million, representing $3.0 million in replacement assets, $2.0 million
for new Cash & Carry units, and $3.0 million in continuing investments in
upgraded operations software. In addition, the Company could undertake
certain acquisitions to enhance its distribution segment businesses.
CASH FLOW FROM FINANCING ACTIVITIES
In 1994, the Company provided $13.3 million from its financing
activities by increasing its levels of senior debt to fund its operations,
and the purchase of its new insurance building.
CAPITAL STRUCTURE AND RESOURCES
The following table summarizes the Company's capital structure for the
last two years:
<TABLE>
<CAPTION>
Year Ended
September 30, 1994 October 1, 1993
$000 % $000 %
<S> <C> <C> <C> <C>
Average Short Term
Borrowings $34,775 17.7 $17,000 10.1
End of Year Amounts
Senior Term Debt $67,597 34.4 $58,342 34.6
Subordinated Debt $53,848 27.4 $54,011 32.1
Equity $40,425 20.5 $39,112 23.2
Total $196,645 100.0 $168,465 100.0
</TABLE>
In 1994, the Company's capital structure shifted towards greater use of
senior debt capital, due to lower interest costs and increased funding needs.
The present components of the capital structure are within the Company's
long-term targets for funding sources.
Subsequent to September 30, 1994, the Company executed a Note Agreement
with an insurance company lender. Proceeds of the senior, unsecured debt
were $20 million. The proceeds were used to retire bank debt. The term of
the note is eleven (11) years. The note carries a fixed rate of 8.42 %.
In 1994, the Company's working capital increased $3.5 million to $45.3
million. The Company's main sources of funds include earnings, member capital
stock, capital investment notes, bank debt, private placement debt,and note
purchase programs. As of September 30, 1994, the Company had $19.0 million in
unused credit lines available. In addition, the Company had $12.6 million
available under its Note Purchase Agreement.
Grocers Insurance Company investments are held to support the payment
of claims. These investments are not available to the Company to meet its
capital needs due to restrictions imposed by insurance regulators regarding
intercompany loans and advances.
In addition, state regulators require that Grocers Insurance Company
maintain minimum amounts of capital and surplus. As a result of these
regulatory requirements, $3.4 million of Grocers Insurance Company's equity
may not be paid as dividends to the Company.
Item 8. Financial Statements and Supplementary Data
The following financial statements are filed as part of this report.
Independent Auditor's Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Members' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor's Report on Financial Statement Schedules
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
AUDIT REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 30, 1994
TABLE OF CONTENTS
Page
Independent auditor's report 1
Consolidated financial statements
Balance sheets 2
Statements of income 3
Statements of members' equity 4
Statements of cash flows 5-6
Notes to financial statements 7-28
Independent auditor's report on financial
statement schedules 29
Financial statement schedules included
Schedule V - Property, plant and equipment 30
Schedule VI - Accumulated depreciation, depletion
and amortization of property, plant
and equipment 31
Schedule VIII - Valuation and qualifying accounts 32-33
Schedule IX - Short-term borrowings 34
Schedule X - Supplementary income statement
information 35
Schedule XIV - Supplementary information concerning
property-casualty insurance
operations 36
Financial statement schedules not included Reason
Schedule I - Marketable Securities - Disclosure in notes to
Other Investments financial statements
Schedule II - Accounts Receivable from
Related Parties and
Underwriters, Promoters
and Employees Other Than
Related Parties Not applicable
<PAGE>
Schedule III - Condensed Financial Disclosure in notes to
Information of financial statements
Registrant
Schedule IV - Indebtedness of and to
Related Parties - Not
Current Not applicable
Schedule VII - Guarantees of Securities
of Other Issuers Not applicable
Schedule XI - Real Estate and
Accumulated Not applicable
Depreciation
Schedule XII - Mortgage Loans on Real
Estate Not applicable
Schedule XIII - Other Investments Disclosure in notes to
financial statements
<PAGE>
Board of Directors
United Grocers, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of United
Grocers, Inc. and subsidiaries as of September 30, 1994 and October 1, 1993,
and the related consolidated statements of income, members' equity and cash
flows for each of the three years in the period ended September 30, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United Grocers,
Inc. and subsidiaries as of September 30, 1994 and October 1, 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, the Company
changed its method of accounting for reinsurance in 1993-94. Also, as
discussed in Notes 4 and 7, the Company changed its method of accounting for
inventories in 1992-93 and for income taxes in 1991-92.
DeLap, White & Raish
Portland, Oregon
November 30, 1994
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND OCTOBER 1, 1993
ASSETS
1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,984,028 $ 18,807,473
Investments (Note 1.f. & 2) 36,939,578 34,397,583
Accounts and notes receivable
(Note 3 & 12) 60,290,461 44,008,137
Inventories (Note 1.d. & 4) 74,307,422 73,866,416
Other current assets (Note 12) 5,367,295 4,724,764
Deferred income taxes (Note 7 & 8) 2,811,914 2,823,829
------------ -----------
Total current assets 192,700,698 178,628,202
------------ -----------
Non-current assets:
Notes receivable (Note 3) 33,155,543 33,250,562
Investment in affiliated
companies (Note 1.c. & 17) 7,832,484 1,929,929
Other receivables and investments 6,899,133 8,875,247
Other non-current assets (Note 5) 7,730,575 3,156,301
---------- ----------
Total non-current assets 55,617,735 47,212,039
---------- ----------
Property, plant and equipment - (net
of accumulated depreciation) (Note 6) 58,517,120 59,501,356
---------- ----------
Total $306,835,553 $285,341,597
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY
1994 1993
------------ ------------
<S> <C> <C>
Current liabilities:
Notes payable - bank (Note 10) $ 31,020,667 $ 24,730,400
Accounts payable (Note 12) 64,629,410 59,133,838
Insurance reserves (Note 12) 32,038,408 32,515,397
Compensation and taxes payable 2,952,534 2,688,137
Other accrued expenses 3,159,900 3,712,105
Members' patronage payable 6,865,736 7,214,927
Current installments on long-term
liabilities (Note 11) 6,776,197 6,814,221
----------- -----------
Total current liabilities 147,442,852 136,809,025
----------- -----------
Long-term liabilities (Note 11) 114,669,266 105,539,231
----------- -----------
Deferred income taxes (Note 7 & 8) 3,744,109 3,281,135
----------- -----------
Deferred income (Note 15) 554,469 599,804
----------- -----------
Members' equity:
Common stock (authorized, 10,000,000
shares at $5.00 par value; issued
and outstanding, 619,881 shares in
1994 and 632,312 shares in 1993) 3,256,080 3,285,755
Additional paid-in capital 22,472,564 21,006,563
Retained earnings 14,696,213 14,820,084
----------- -----------
Total members' equity 40,424,857 39,112,402
----------- -----------
Commitments and contingencies (Note 19)
Total $306,835,553 $285,341,597
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993, AND OCTOBER 2, 1992
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net sales and operations $954,220,350 $876,985,353 $896,587,372
------------ ------------ ------------
Costs and expenses:
Cost of sales (Note 1.d.) 816,721,077 749,447,130 772,846,658
Operating expenses 93,991,529 88,046,293 83,656,610
Selling and administrative expenses 9,533,741 9,441,916 9,866,765
Depreciation 5,609,779 4,737,401 4,290,543
Interest:
Interest expense 9,156,822 8,217,017 8,724,766
Interest income (3,535,802) (3,552,107) (3,547,423)
------------ ------------ ------------
Interest expense, net 5,621,020 4,664,910 5,177,343
------------ ------------ ------------
Total costs and expenses 931,477,146 856,337,650 875,837,919
------------ ------------ ------------
Income before members' allowances
and patronage dividends, income
taxes and cumulative effect of
change in accounting principle 22,743,204 20,647,703 20,749,453
Members' allowances (11,449,305) (9,356,885) (7,435,167)
Members' patronage dividends (Note 9) (8,730,168) (9,000,000) (10,211,000)
------------ ------------ ------------
Income before income taxes and
cumulative effect of change in
accounting principle 2,563,731 2,290,818 3,103,286
Provision for income taxes (Note 8) (1,000,341) (576,435) (906,690)
Cumulative effect of change in
accounting principle (Note 7) -- -- 526,314
------------ ------------ ------------
Net income $ 1,563,390 $ 1,714,383 $ 2,722,910
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993, AND OCTOBER 2, 1992
<TABLE>
<CAPTION>
Common stock Additional
Number paid-in Retained
Description of shares Amount capital earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance, September 27, 1991 632,100 $3,563,500 $19,556,361 $13,973,938 $37,093,799
Stock: Issued 87,069* 32,345 334,723 -- 367,068
Repurchased (67,919) (339,595) (1,291,015) (1,662,395) (3,293,005)
Patronage dividend To be issued
41,697 shares -- 208,485 2,042,059 -- 2,250,544
Net income -- -- -- 2,722,910 2,722,910
Balance, October 2, 1992 651,250 3,464,735 20,642,128 15,034,453 39,141,316
Stock: Issued 57,448* 78,755 759,972 -- 838,727
Repurchased (76,386) (381,930) (1,687,165) (1,928,752) (3,997,847)
Patronage dividend To be issued
24,839 shares -- 124,195 1,291,628 -- 1,415,823
Net income -- --- 1,714,383 1,714,383
Balance, October 1, 1993 632,312 3,285,755 21,006,563 14,820,084 39,112,402
Stock: Issued 54,457* 148,090 1,515,656 -- 1,663,746
Repurchased (66,888) (334,440) (1,757,412) (1,687,261) (3,779,113)
Patronage dividend To be issued
31,335 shares -- 156,675 1,707,757 -- 1,864,432
Net income -- -- -- 1,563,390 1,563,390
Balance, September 30, 1994 619,881 $3,256,080 $22,472,564 $14,696,213 $40,424,857
* Includes prior year
patronage dividend to
be issued.
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993, AND OCTOBER 2, 1992
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 1,563,390 $ 1,714,383 $ 2,722,910
Adjustments to reconcile net
income to net cash (used in)
provided by operating activities:
Depreciation 5,609,779 4,737,401 4,290,543
Provision for doubtful accounts
and notes 1,992,589 2,182,551 2,108,346
Patronage dividends payable
in common stock 1,864,432 1,415,823 2,250,544
Loss (gain) on sale of assets 174,927 (472,126) (173,596)
Equity in loss (earnings) of
affiliates 191,760 (772) (1,170)
Deferred income taxes 474,889 341,209 (227,982)
Decrease (increase) in non-cash
current assets:
Accounts and notes receivable (15,343,787) 1,564,454 10,034,315
Inventories (441,006) (3,358,014) 623,364
Other current assets (642,531) 134,362 (639,411)
Increase (decrease) in non-cash
current liabilities:
Accounts payable and
insurance reserves 5,018,583 9,768,705 (1,588,806)
Compensation and taxes payable 264,397 (1,107,883) 122,475
Other accrued expenses (552,204) 239,803 872,465
Members' patronage and other
refunds (349,191) (525,047) 1,187,271
Decrease (increase) in other
non-current assets (2,598,160) 518,142 (1,955,120)
Net cash (used in) provided
by operating activities (2,772,133) 17,152,991 19,626,148
Cash flows from investing activities:
Loans to members (17,768,465) (18,766,639) (15,158,344)
Collections on loans to members 6,325,619 6,155,085 5,044,961
Proceeds from sale of member loans 8,606,739 900,373 5,805,685
Sale and redemption of investments 5,591,463 3,857,384 242,223
Purchase of investments (8,133,459) (8,039,512) (5,079,844)
Investment in affiliated companies (6,094,315) -- --
Sale of property, plant
and equipment 408,777 2,936,809 3,361,255
Purchase of property, plant
and equipment (5,254,582) (11,990,981) (20,479,941)
Net cash used in investing
activities (16,318,223) (24,947,481) (26,264,005)
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, OCTOBER 1, 1993, AND OCTOBER 2, 1992
1994 1993 1992
<S> <C> <C> <C>
Cash flows from financing activities:
Sale of common stock $ 1,663,746 $ 838,727 $ 367,068
Repurchase of common stock (3,779,113) (3,997,847) (3,293,005)
Proceeds of long-term liabilities:
Revolving bank lines of credit 807,500,000 510,100,000 519,500,000
Mortgages and notes 12,104,717 5,505,830 6,014,106
Redeemable notes and certificates 22,395,400 25,322,100 22,887,400
Repayment of long-term liabilities:
Revolving bank lines of credit (801,209,733)(499,918,520)(522,001,080)
Mortgages and notes (2,789,206) (10,893,362) (5,809,105)
Redeemable notes and certificates (22,618,900) (18,745,800) (13,957,700)
Net cash provided by
financing activities 13,266,911 8,211,128 3,707,684
Net (decrease) increase in cash
and cash equivalents (5,823,445) 416,638 (2,930,173)
Cash and cash equivalents,
beginning of year 18,807,473 18,390,835 21,321,008
Cash and cash equivalents,
end of year $12,984,028 $18,807,473 $18,390,835
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
1. Summary of significant accounting policies
a. Reporting year
United Grocers, Inc. and subsidiaries (the Company) reports on a
fiscal year of 52 or 53 weeks which is the fiscal year of the
distribution segment. The Company's fiscal closing date is the
Friday nearest September 30. The fiscal year of the subsidiaries
included in the insurance segment is September 30.
b. Organization
As a cooperative, the Company's stock is owned by its member
customers. Sales to these members account for approximately 80% of
wholesale grocery sales.
c. Principles of consolidation
The consolidated financial statements include the accounts of
United Grocers, Inc. and its wholly-owned subsidiaries as follows:
Grocers Insurance Group, Inc., Grocers Insurance Agency, Inc.,
UGIC, Ltd., Grocers Insurance Company (formerly United Employers
Insurance Co.), United Workplace Consultants, Inc., Western Passage
Express, Inc., United Store Development, Ltd., Northwest Process,
Inc., UG Resources, Inc., United Resources, Inc., Affiliated
General Agency, Inc., Premier Consulting, Inc. (formerly Employee
Management Services, Inc.), Western Security Services, Ltd. and BAT
Enterprises, Inc. All intercompany balances and transactions have
been eliminated upon consolidation. Investment in affiliated
companies is stated at cost plus the Company's share of
undistributed earnings since acquisition (see Note 17).
d. Inventories and cost of sales
Inventories are valued at the lower of cost or market. The cost of
all inventories is determined under the first-in, first-out (FIFO)
method. See Note 4 for change in accounting for inventories.
Cost of sales includes the cost of distribution and insurance
operations. The distribution operation costs include the purchases
of product, the net of allowances paid and received on purchases,
less the net advertising department margins, plus the handling
allowances made to members based upon the cost of servicing their
accounts. The insurance operation costs include losses reported, a
provision for losses incurred but not reported and premium refunds.
e. Treasury stock
The Company uses the par value method of accounting for treasury
stock. Under Oregon corporation law, treasury stock must be
canceled upon redemption.
f. Investments
Investments are primarily in non-equity securities and as such are
carried at cost. The Company's intent is to hold these securities
until maturity. Sales and redemptions of investments are primarily
the result of maturities. Any realized gains or losses are usually
the result of immaterial differences between the called amount and
amortized cost. The market value of these investments at September
30, 1994 and October 1, 1993 is $36,487,841 and $36,464,552,
respectively.
g. Property, plant and equipment
Property, plant and equipment is carried at cost and includes
expenditures for new facilities and those which substantially
increase the useful lives of the existing plant and equipment. The
Company capitalizes interest as a component of the cost of
significant construction projects. During the year ended October
1, 1993 and October 2, 1992, interest was capitalized in the amount
of $64,929 and $578,611, respectively, out of a total interest of
$8,281,946 and $9,303,377, respectively, which resulted in an
increase in the net income of approximately $49,000 and $410,000.
Depreciation is computed using the straight-line method over the
estimated useful lives of the respective assets. Estimated useful
lives are generally as follows:
Buildings 40 - 75 years
Building improvements Balance of building life
Warehouse equipment 5 - 20 years
Truck equipment 3 - 8 years
Office equipment 5 - 10 years
h. Amortization
Long-term liability loan costs, software costs, and non-competition
agreements are being amortized and charged to operating expenses on
a straight-line basis over five to twenty years.
i. Reinsurance
In the normal course of business, the Company seeks to reduce the
loss that may arise from catastrophes or other events that cause
unfavorable underwriting results by reinsuring certain levels of
risk in various areas of exposure with other insurance enterprises
or reinsurers. Amounts recoverable from reinsurers are estimated
in a manner consistent with the claim liability associated with the
reinsured policy. Amounts paid for prospective reinsurance are
reported as prepaid reinsurance premiums and amortized over the
remaining contract period in proportion to the amount of insurance
protection provided.
j. Income taxes
The Company and its subsidiaries file a consolidated federal income
tax return. The Company operates and is taxed as a cooperative.
Accordingly, amounts distributed as patronage dividends are not
included in its taxable income but are instead taxed to the
individual members receiving the patronage dividends. Deferred
income taxes are recorded to reflect the tax consequences on future
years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year end.
No valuation allowances were considered necessary to reduce
deferred tax assets to the amount expected to be realized. See
Note 8 for details of timing differences and Note 7 for change in
accounting method.
<PAGE>
k. Earnings per common share
The Company's policy is to distribute earnings only in the form of
patronage dividends. No dividends have ever been declared on the
common stock of the Company, and all earnings not distributed as
patronage dividends have been retained. Earnings per common share
are not shown because no earnings are available for the purpose of
paying dividends on the common stock.
l. Statement of cash flows
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
m. Restricted assets and net assets
Restricted assets and net assets that may not be transferred to the
parent company in the form of loans, advances, or cash dividends by
the insurance company subsidiary without the consent of various
state insurance agencies as of September 30, 1994 are as follows:
Cash and cash equivalents $ 725,000
Investments 15,370,300
-----------
Total $16,095,300
===========
In addition, although not formally restricted, the balance of the
investments of $21,569,278 represents assets that have been
accumulated for the possible payment of claims against the
insurance reserves.
n. Reclassifications
Certain reclassifications have been made to prior year balances to
conform to the current year classification.
2. Investments
The amortized cost and estimated market values of investments in debt
securities and other investments at the balance sheet date are as
follows:
<PAGE>
Carrying
amount and
Number amortized Market
Name of issuer and of shares cost of value of
title of each issue or units each issue each issue
------------------- ---------- ---------- ----------
1994:
United States Government
and its agencies 18,670,000 $19,303,713 $18,846,955
Any state of the United
States and its agencies 3,395,000 3,539,142 3,531,561
Political subdivision of
a state of the United
States and its agencies 8,275,000 8,604,835 8,615,517
Corporate bonds 5,410,000 5,490,407 5,487,134
---------- ----------
Subtotal - debt securities 36,938,097 36,481,167
Corporate stock 271 1,481 6,674
----------- -----------
Total $36,939,578 $36,487,841
=========== ===========
1993:
United States Government
and its agencies 16,010,000 $16,634,109 $17,824,552
Any state of the United
States and its agencies 2,275,000 2,375,434 2,480,717
Political subdivision of
a state of the United
States and its agencies 8,320,000 8,691,136 9,076,131
Corporate bonds 6,160,000 6,218,187 6,598,802
---------- ----------
Subtotal - debt securities 33,918,866 35,980,202
Corporate stock 271 1,481 7,114
Real estate mortgage -- 477,236 477,236
---------- ----------
Total $34,397,583 $36,464,552
=========== ===========
The amortized cost and estimated market value of debt securities at the
balance sheet date, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<PAGE>
1994 1993
--------------------- ---------------------
Amortized Market Amortized Market
cost value cost value
--------- --------- --------- ---------
Due in one year or less $ 4,136,043 $ 4,176,752 $ 3,546,086 $ 3,645,477
Due after one year
through five years 16,869,731 17,046,729 19,073,123 20,498,132
Due after five years
through ten years 15,882,892 15,207,218 9,852,844 10,323,560
Due after ten years 49,431 50,468 1,446,813 1,513,033
---------- ---------- ---------- ----------
Total $36,938,097 $36,481,167 $33,918,866 $35,980,202
=========== =========== =========== ===========
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities." The Company plans to
adopt this Statement in 1995 and does not anticipate any significant
change as a result of this Statement on the present accounting for
investments.
3. Accounts and notes receivable
These consist of amounts due principally from members at the balance
sheet date as follows:
1994 1993
----------- -----------
Accounts receivable $46,640,928 $31,048,455
Insurance premiums and related balances 10,898,715 10,503,463
Less allowance for doubtful accounts (1,270,987) (1,283,681)
----------- -----------
Net accounts receivable 56,268,656 40,268,237
----------- -----------
Notes receivable - current portion 4,057,961 3,788,864
Less allowance for doubtful notes (36,156) (48,964)
----------- -----------
Net current notes receivable 4,021,805 3,739,900
----------- -----------
Net current accounts and
notes receivable $60,290,461 $44,008,137
=========== ===========
Notes receivable - non-current portion $33,454,161 $33,577,706
Less allowance for doubtful notes (298,618) (327,144)
----------- -----------
Net non-current notes receivable $33,155,543 $33,250,562
=========== ===========
The notes receivable from members are generally for periods of two years
to ten years at interest rates of 4.25% to 10.00%. The annual
maturities for each of the next five fiscal years following September
30, 1994 are as follows:
Year Amount
---- -----------
1995 $ 4,057,961
1996 4,112,058
1997 4,289,174
1998 4,161,963
1999 4,089,972
The provision for doubtful accounts and notes charged to operating
expenses for the three years ended September 30, 1994 amounted to
$1,992,589, $2,182,551, and $2,108,346, respectively.
4. Change in accounting for inventories
Effective October 3, 1992, the Company changed its method of accounting
for the cost of the general wholesale grocery category of inventories
from the last-in, first-out (LIFO) method to the first-in, first-out
(FIFO) method. The Company believes that the use of the FIFO method
better matches current costs with current revenues and more
appropriately reflects its financial condition. This change has also
been made for income tax purposes.
The change has been applied retroactively and comparative amounts for
prior periods have been restated. The effect of this change on retained
earnings and net income for restated 1991-92 is as follows:
Change in beginning retained earnings:
As previously reported in 1991-92 $13,311,329
-----------
LIFO inventory adjustment 958,912
Less tax effect (296,303)
-----------
Net adjustment 662,609
-----------
As restated $13,973,938
===========
Change in net income:
As previously reported in 1991-92 $ 3,275,772
-----------
LIFO inventory adjustment (780,878)
Less tax effect 228,016
-----------
Net adjustment (552,862)
-----------
As restated $ 2,722,910
===========
Cumulative effect on ending
retained earnings October 2, 1992:
As previously reported in 1991-92 $14,924,706
-----------
LIFO inventory adjustment 178,034
Less tax effect (68,287)
-----------
Net adjustment 109,747
-----------
As restated $15,034,453
===========
5. Other non-current assets
Other non-current assets at the balance sheet date consist of the
following:
<PAGE>
1994 1993
----------- -----------
Covenant not to compete - net
of accumulated amortization of
$802,445 in 1994 and $518,059
in 1993 $ 765,953 $ 1,014,338
Software - net of accumulated
amortization of $1,295,466 in
1994 and $730,587 in 1993 4,802,562 1,559,449
Loan fees - net of accumulated
amortization of $584,847 in
1994 and $490,814 in 1993 460,097 322,630
Other 1,701,963 259,884
----------- -----------
Total $ 7,730,575 $ 3,156,301
=========== ===========
6. Property, plant and equipment (at cost)
Property, plant and equipment as of the balance sheet date consists of
the following:
1994 1993
----------- -----------
Land $ 3,421,277 $ 3,032,145
Buildings and improvements 54,204,591 50,265,721
Warehouse and truck equipment 34,291,075 32,212,528
Office equipment 8,564,659 7,515,498
Construction in progress 640,035 4,366,038
----------- -----------
Total property, plant and
equipment 101,121,637 97,391,930
Less accumulated depreciation (42,604,517) (37,890,574)
----------- -----------
Net property, plant and
equipment $58,517,120 $59,501,356
=========== ===========
7. Change in accounting for income taxes
The Company adopted, effective September 28, 1991, the Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes, issued in February, 1992. Under the method specified by SFAS No.
109, the deferred tax asset or liability is determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of
changes in the liability for deferred taxes. The principal types of
differences between assets and liabilities for financial statement and
tax return purposes are accumulated depreciation, insurance loss
reserves, allowance for doubtful accounts, and capitalized costs in
inventory.
The deferred method, used in the years prior to 1992, required the
Company to provide for deferred tax expense based on certain items of
income and expense which were reported in different years in the
financial statements and the tax returns as measured by the tax rate in
effect for the year the difference occurred.
As allowed by SFAS No. 109, the Company did not restate the years prior
to the year ended October 2, 1992 and, accordingly, the cumulative
effect of the accounting change on the prior years of $526,314 is
included in the earnings for the year ended October 2, 1992.
8. Income taxes
The provision for income taxes for the three years consists of the
following:
1994 1993 1992
---------- ---------- ----------
Current payable (refund):
Federal $ 439,200 $ 162,758 $ 624,516
State 86,252 72,468 (16,158)
Deferred 474,889 341,209 298,332
---------- ---------- ----------
Total $1,000,341 $ 576,435 $ 906,690
========== ========== ==========
The effective income tax rate for the three years ended September 30,
1994 does not correspond with the Federal tax rate. The reconciliation
of this rate to the effective income tax rate is as follows:
1994 1993 1992
---------- ---------- ----------
Statutory income tax rate (34%) $ 871,668 $ 778,878 $1,055,117
State income taxes, net of
Federal income tax benefit 56,926 47,829 (10,664)
Tax exempt interest (158,673) (133,080) (104,537)
Refunds as a result of carrybacks -- (184,980) --
Prior year under accrual 179,235 -- --
Other 51,185 67,788 (33,226)
---------- ---------- ----------
Income tax expense $1,000,341 $ 576,435 $ 906,690
========== ========== ==========
Effective income tax rate 39.0 % 25.2 % 29.2 %
==== ==== ====
The significant components of the deferred income taxes - current asset
and non-current liability as of the balance sheet date are as follows:
1994 1993
---------- ----------
Deferred income taxes -
current asset:
Insurance reserves $1,041,678 $1,230,094
Inventories 738,842 712,212
Unearned insurance premiums 541,417 496,405
Allowance for doubtful accounts 471,288 478,866
Other 18,689 (93,748)
---------- ----------
Total $2,811,914 $2,823,829
========== ==========
Deferred income taxes -
non-current liability:
Accumulated depreciation $4,589,568 $4,173,575
Deferred income (216,243) (230,325)
Allowance for doubtful notes (143,653) (140,364)
Deferred compensation (129,398) (89,598)
Advance deposits (52,004) (16,128)
Alternative minimum tax
(AMT) credit (304,161) (416,025)
---------- ----------
Total $3,744,109 $3,281,135
========== ==========
The significant components of deferred income tax expense for the
three years are as follows:
1994 1993 1992
---------- ---------- -----------
Decrease (increase) in deferred
income taxes - asset $ 11,915 $ 157,747 $ (273,942)
Increase in deferred income
taxes - liability after applying
AMT credit 462,974 183,462 572,274
---------- ---------- -----------
Total $ 474,889 $ 341,209 $ 298,332
========== ========== ===========
The Company has net operating loss carryovers of approximately
$3,500,000 to apply against future years' State income taxes,
expiring in years 2007 through 2009. These operating loss carryovers
are the result of the insurance company subsidiary being required to
file a separate calendar year State tax return and not giving the
parent the benefit of this offset on its State tax return. The
Company also has unused State energy tax credits of approximately
$45,000, expiring in 1998.
9. Members' patronage dividends
The Company's income from sales to members, before income taxes and
patronage dividends, is available at the discretion of the Board of
Directors, to be returned to the members in the form of patronage
dividends. As of year end, the Board of Directors voted to
distribute the following in patronage dividends:
1994 1993 1992
---------- ---------- -----------
Payable in cash and shown as
a current liability $ 6,865,736 $ 7,584,177 $ 7,960,456
Distributable in the form
of common stock 1,864,432 1,415,823 2,250,544
---------- ---------- ----------
Total $ 8,730,168 $ 9,000,000 $10,211,000
=========== =========== ===========
10. Notes payable - bank
Notes payable - bank consists of borrowings on bank lines of credit
at an average interest rate of 5.72% at September 30, 1994 and 3.95%
at October 1, 1993.
At September 30, 1994 and October 1, 1993, the Company had unused
lines of credit totaling $19,000,000 and $10,300,000, respectively;
and unused letters of credit totaling $350,000 and $450,000,
respectively.
In April of 1993, the Company entered into a three year reverse
interest swap agreement with a bank. Under the agreement, the
Company receives a fixed rate of 4.40% on $20 million (notional
amount) and pays a floating rate based on LIBOR, as determined in six
month intervals. The transaction effectively changes a portion of
the Company's interest rate exposure from a fixed rate to a floating
rate basis, accordingly, all gains or losses have been recognized as
adjustments to interest expense. This swap agreement has been
entered into with a major financial institution which is expected to
fully perform under the terms of the agreement thereby further
mitigating the risk from the transaction.
11. Long-term liabilities
Long-term liabilities at the balance sheet date consist of the
following:
1994 1993
------------ ------------
Notes payable - bank:
Credit agreement notes maturing
on April 30, 1995 with interest
rates of 5.77% per annum at
September 30, 1994 and 3.98% per
annum at October 1, 1993. The
interest rates ranged from 3.84%
to 5.89% in 1994 and from 3.94%
to 4.78% in 1993. $ 35,000,000 $ 25,000,000
Notes payable - insurance companies:
Senior notes payable to six
insurance companies with an
interest rate of 9.15% per annum.
Interest payable monthly. Principal
repayments annually commencing
October 1, 1992 in the amount of
$3,336,000 and each October 1
thereafter in the amount of
$3,333,000, maturing in full
October 2, 2000. 23,331,000 23,331,000
Notes payable - other:
Capital stock residual notes, payable
in twenty quarterly installments with
a variable interest rate based on the
current capital investment note rate. 3,810,679 2,878,311
Two notes (three in 1993) with
interest at 9.25% per annum
payable in monthly installments
of $28,136 ($50,660 in 1993)
beginning January 21, 1988
(secured by equipment). $ 83,123 $ 715,022
A real property contract for the
purchase of an office building,
payable in 180 monthly installments
of $2,346 including interest at
12.5% per annum until 1999 (secured
by real property). 101,734 116,171
Other note payable 27,500 55,000
Mortgage notes (secured by real property):
A note payable in monthly installments
of $41,449 including interest at 9%
until 1996. 878,279 1,276,922
A note payable in monthly installments
of $43,721 including interest at 10.30%
per annum until 1995. 457,059 909,026
A note payable in monthly installments
of $31,615 including interest at 7.25%
until 2013. 3,907,589 4,000,000
Redeemable notes and certificates:
Capital investment notes
(subordinated), interest ranging
from 5.75% to 8%. Maturity dates
range from 1993 to 2003 which is
ten years from dates of issue. 50,319,700 50,395,400
Registered redeemable building
notes (subordinated), interest
at 8%. No fixed maturity date. 3,482,400 3,615,600
Redeemable transferable notes,
(subordinated), interest at
5.75%. No fixed maturity. $ 46,400 $ 61,000
------------ ------------
Total 121,445,463 112,353,452
Less current installments (6,776,197) (6,814,221)
Total long-term liabilities $114,669,266 $105,539,231
============ ============
Total maturities of long-term liabilities in each of the next five
fiscal years are as follows:
Year Amount
---- ------------
1995 $ 6,776,197
1996 41,394,636
1997 6,971,062
1998 5,360,233
1999 5,706,690
The Company's bank loan agreements require the maintenance of certain
financial ratios and a minimum amount of capital and subordinated
debt. The Company was in compliance with these requirements as of
September 30, 1994 and October 1, 1993.
12. Reinsurance
The Company in 1994 adopted the Statement of Financial Accounting
Standards (SFAS) No. 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts, issued in December, 1992.
The Statement requires that transactions relating to reinsurance
transactions be reported at gross amounts rather than net amounts.
The effect on the consolidated financial statements of the Company is
to gross up the insurance liabilities by reclassifying the ceded
reinsurance amounts for reinsurance recoverables and prepaid
reinsurance premiums as assets. The change had the effect of
increasing 1993 total assets and total liabilities by $4,741,852 as
follows:
<PAGE>
Increase in current assets:
Reinsurance recoverables for ceded
loss reserves - now classified as
accounts and notes receivable $3,494,121
Prepaid reinsurance premiums - now
classified as other current assets 1,247,731
----------
Total $4,741,852
==========
Increase in current liabilities:
Insurance reserves $3,494,121
Unearned premiums - classified
as accounts payable 1,247,731
----------
Total $4,741,852
==========
There is no effect or change to the consolidated income statement as
the income statement classifications did not change. Net premiums
earned continue to be reported as net sales and operations while net
losses and loss adjustment expenses continue to be reported as cost
of sales.
Reinsurance contracts do not relieve the Company from its obligation
to policyholders. Failure of reinsurers to honor their obligations
could result in losses to the Company. The Company evaluates the
financial condition of its reinsurers and monitors concentrations of
credit risk arising from similar geographic regions, activities, or
economic characteristics of the reinsurers to minimize its exposure
to significant losses from reinsurer insolvencies. The Company holds
collateral under related reinsurance agreements in the form of
letters of credit totaling $338,000 that can be drawn on for amounts
that remain unpaid for more than 60 days.
Reinsurance amounts reflected in the financial statements are as
follows:
<PAGE>
1994 1993
For the balance sheet:
Reinsurance recoverable for
ceded losses $ 3,792,152 $ 3,494,121
Prepaid reinsurance premiums 1,394,254 1,247,731
----------- -----------
Total $ 5,186,406 $ 4,741,852
=========== ===========
1994 1993 1992
----------- ----------- -----------
For the income statement:
Premiums written:
Gross $23,992,639 $24,430,854 $23,861,615
Assumed 860,953 715,760 1,183,691
Ceded (6,652,410) (6,597,150) (5,067,239)
----------- ----------- -----------
Net premiums written $18,201,182 $18,549,464 $19,978,067
=========== =========== ===========
Percentage of amount
assumed to net 4.73 % 3.86 % 6.33 %
======= ====== ======
Premiums earned:
Gross $23,736,321 $24,185,628 $21,969,296
Assumed 829,978 750,619 1,151,517
Ceded (6,505,887) (6,493,811) (4,920,045)
----------- ----------- -----------
Net premiums earned $18,060,412 $18,442,436 $18,200,768
=========== =========== ===========
Percentage of amount
assumed to net 4.60 % 4.07 % 5.92 %
======= ====== ======
Expenses:
Losses and loss adjustment
expenses $15,079,858 $17,481,462 $15,604,171
Reinsurance recoveries (3,389,844) (2,121,602) (1,867,112)
----------- ----------- -----------
Net losses and loss
adjustment expenses $11,690,014 $15,359,860 $13,737,059
=========== =========== ===========
13. Segment reporting
The Company has two operating segments which are located primarily in
the Pacific Northwest. The distribution segment includes all
operations relating to wholesale grocery and related product sales,
retail grocery sales, service department revenues, and financing
income and fees. The insurance segment includes all operations
relating to insurance underwriting, commissions, and reinsurance
primarily to provide workers' compensation and property-casualty
coverage.
A summary of information about the Company's operations by segment
before intersegment eliminations for the three years is as follows:
<PAGE>
1994 1993 1992
----------- ------------ ------------
Net sales and operations:
Distribution $936,266,067 $857,439,871 $878,146,111
Insurance 18,788,523 20,525,392 19,555,963
Less intersegment sales
of insurance (834,240) (979,910) (1,114,702)
------------ ------------ ------------
Total $954,220,350 $876,985,353 $896,587,372
============ ============ ============
Income before allowances,
dividends, income taxes
and accounting change:
Distribution $ 19,791,157 $ 18,162,132 $ 17,860,059
Insurance 2,952,047 2,485,571 2,889,394
------------ ------------ ------------
Total $ 22,743,204 $ 20,647,703 $ 20,749,453
============ ============ ============
Total assets:
Distribution $243,267,148 $226,346,768 $209,063,967
Insurance 64,923,598 64,591,472 59,875,762
------------ ------------ ------------
Total $308,190,746 $290,938,240 $268,939,729
============ ============ ============
Depreciation expense:
Distribution $ 5,408,896 $ 4,643,401 $ 4,163,138
Insurance 200,883 94,000 127,405
------------ ------------ ------------
Total $ 5,609,779 $ 4,737,401 $ 4,290,543
============ ============ ============
Capital expenditures:
Distribution $ 5,161,425 $ 11,310,048 $ 19,922,924
Insurance 93,157 680,933 557,017
------------ ------------ ------------
Total $ 5,254,582 $ 11,990,981 $ 20,479,941
============ ============ ============
For net sales and operations, wholesale grocery sales (primarily to
members) during the three years ended September 30, 1994 accounted
for approximately 95%, 93% and 95%, respectively, of the distribution
total. Premium revenue (primarily from members) accounted for
approximately 95%, 90% and 86%, respectively, of the insurance total.
The change in the method of accounting for inventories (Note 4)
related to and affected only the distribution segment.
14. Pension plans
The Company has a Company-sponsored pension plan that covers
substantially all of its salaried employees. The Company also has
separate Company-sponsored 401(k) plans for salaried and union
employees. The Company has made annual contributions to the plans
equal to the amount annually accrued for pension expense. The
Company's funding policy is to satisfy the funding requirements of
the Employees' Retirement Income Security Act.
The Company also participates in several multi-employer pension plans
for the benefit of its employees who are union members. The data
available from administrators of the multi-employer plans is not
sufficient to determine the accumulated benefit obligation, nor the
net assets attributable to the multi-employer plans in which the
Company union employees participate.
The financial statements include pension expense for the Company-
sponsored pension plan as determined using Statement of Financial
Accounting Standards No. 87 (SFAS 87). The effect of SFAS 87 was a
decrease of pension expense in the amount of $546,894 for 1994,
$484,020 for 1993, and $317,193 for 1992. The Company's unrecognized
net asset resulting from the initial application of SFAS 87 is being
amortized over eighteen years.
In determining the actuarial present value of the projected benefit
obligation, a discount rate of 8% and a future maximum compensation
increase rate of 4% were used. The expected long-term rate of return
on assets was 8%.
Pension costs for all plans for the three years consist of the
following:
1994 1993 1992
----------- ----------- -----------
Company-sponsored:
Service costs of benefits
earned $ 918,423 $ 910,214 $ 832,866
Interest cost on the projected
benefit obligation 1,448,447 1,339,393 1,102,517
Expected return on plan assets (1,688,595) (1,443,513) (1,199,657)
Net amortization of unrecognized
net asset (168,168) (168,168) (154,154)
Unrecognized net gain (4,414) -- --
Unrecognized prior service cost 73,760 73,760 1,164
----------- ----------- -----------
Net salaried pension cost 579,453 711,686 582,736
Multi-employer plan costs 2,395,300 2,180,280 2,183,086
Matching costs of 401(k) plans 391,605 437,413 395,731
----------- ----------- -----------
Total pension expense $ 3,366,358 $ 3,329,379 $ 3,161,553
=========== =========== ===========
The following table sets forth the Company-sponsored plan's funded
status as of year end:
<PAGE>
1994 1993 1992
----------- ----------- -----------
Actuarial present value of
benefit obligations:
Vested $13,337,570 $12,397,747 $10,951,935
Non-vested 823,015 819,479 675,609
----------- ----------- -----------
Accumulated benefit obligation 14,160,585 13,217,226 11,627,544
Effect of projected future
compensation levels 4,881,117 4,501,814 4,237,333
----------- ----------- -----------
Projected benefit obligation 19,041,702 17,719,040 15,864,877
Plan assets at fair value,
primarily listed stocks, fixed
income, and bond and equity
funds 22,030,725 21,056,267 17,981,115
----------- ----------- -----------
Excess of plan assets over
projected benefit obligation 2,989,023 3,337,227 2,116,238
Unrecognized prior service cost 778,471 1,031,162 14,965
Unrecognized net gain (1,422,307) (2,273,777) (273,680)
Unrecognized net asset, net of
amortization (1,897,503) (2,065,671) (2,233,839)
----------- ----------- -----------
Prepaid (accrued)
pension cost $ 447,684 $ 28,941 $ (376,316)
=========== =========== ===========
In addition to pension benefits, the Company provides health benefits
for certain retired salaried employees. The Financial Accounting
Standards Board has issued Statement of Financial Accounting Standards
No. 106, "Employer's Accounting for Post Retirement Benefits Other Than
Pensions." This statement will require accrual of such benefits during
the years an employee provides services. The costs of these benefits
are currently expensed on a pay-as-you-go basis. The cost of this
retiree health care is funded out of current operations and was
approximately $356,000 in 1994, $282,000 in 1993 and $257,000 in 1992.
The impact of this new standard has not been fully determined, but the
change likely will result in a greater liability and expense being
recognized for these benefits. The Company has until 1995-96 to adopt
this Statement because fewer than 500 employees will be affected.
15. Leases
The Company is obligated under one hundred and five significant leases
in 1994. Forty-five of these leases are for twenty to twenty-five
years with renewal options and involve supermarket properties which are
subleased to members. Twelve of these leases are subleased to
affiliated companies. The remaining leases represent property and
equipment used by the Company. The leases expire at various dates, the
last expiring in 2013. Rental expense for the three years consists of
the following:
1994 1993 1992
----------- ----------- -----------
Minimum rentals $13,690,702 $14,082,104 $12,447,688
Less sublease income (5,971,461) (6,554,855) (6,355,385)
----------- ----------- -----------
Net rental expense $ 7,719,241 $ 7,527,249 $ 6,092,303
=========== =========== ===========
The following is a schedule by years showing future minimum rental
payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of September 30,
1994:
Fiscal Minimum Minimum Net
year payments (A) receipts (B) minimum
--------- ------------ ------------ -----------
1994-1995 $ 14,259,330 $ 6,788,922 $ 7,470,408
1995-1996 13,364,382 6,654,450 6,709,932
1996-1997 11,079,707 6,335,846 4,743,861
1997-1998 9,456,613 5,963,962 3,492,651
1998-1999 9,364,253 5,935,555 3,428,698
Later years 80,530,013 57,103,637 23,426,376
------------ ------------ -----------
Total $138,054,298 $ 88,782,372 $49,271,926
============ ============ ===========
Summary:
Building leases $129,755,112 $ 88,465,191 $41,289,921
Equipment leases 8,299,186 317,181 7,982,005
------------ ------------ -----------
Total $138,054,298 $ 88,782,372 $49,271,926
============ ============ ===========
(A) Minimum payments are those required by the Company over the terms
of the significant leases.
(B) Minimum receipts are those to be received by the Company from
sublease agreements.
Twenty-one of the subleases as of September 30, 1994, are
insured by the Company's foreign subsidiary, UGIC, Ltd. The
annual rental for these leases is approximately $2,440,000.
The total minimum payments over the lease term for these same
leases is approximately $54,100,000.
In 1992 and 1991, the Company entered into sale-leaseback
transactions for three cash and carry outlets. The sales resulted in
deferred gains of approximately $800,000 which are being amortized
over the leaseback period of fifteen years. The total lease
commitments are approximately $2,500,000 over fifteen years with an
annual rental of approximately $155,000 for each of the first five
years.
16. Supplemental cash flow information
1994 1993 1992
----------- ----------- -----------
Supplemental disclosures:
Cash paid during the year for:
Interest $ 8,898,144 $ 8,292,247 $ 8,952,346
Income taxes 336,810 647,836 982,169
Supplemental schedule of
noncash investing and
financing activities:
Patronage dividends payable
in common stock 1,864,432 1,415,823 2,250,544
<PAGE>
17. Investment in and transactions with affiliated companies
The Company owns 22.42% of the outstanding common stock of Western
Family Holding Company (the Affiliate). The Company and certain
other retailer owned grocery wholesalers located primarily in the
Pacific Northwest organized the Affiliate to provide a source for the
Affiliate private label brand. An officer of the Company is a
director of the Affiliate. The amount of consolidated retained
earnings represented by undistributed earnings of the Affiliate as of
September 30, 1994 is $1,679,869 and $1,654,629 as of October 1, 1993
in addition to the original investment of $275,300.
An approximate summary of transactions with this Affiliate by year is
as follows:
1994 1993 1992
----------- ----------- -----------
Purchases $89,179,000 $70,334,000 $71,994,000
Volume incentive rebate 1,561,000 1,231,000 1,260,000
Open accounts payable 6,006,000 5,150,000 4,000,000
The Company in 1994 made an approximately 22% minority equity
investment of $6,094,315 in the retail store operations of two
members. The Company's share of losses in these operations in 1994
was $217,000. Transactions with these two members for the short
periods in 1994 were sales of approximately $22,945,000 and open
accounts receivable as of September 30, 1994 were approximately
$1,860,000.
UGIC, Ltd. paid cash dividends to the Parent in 1992 in the amount of
$500,000.
18. Concentrations of credit risk
The Company holds its cash and cash equivalents in several banks
located in the Pacific Northwest and a zero balance bank account
located in the Midwest. Each bank is covered by FDIC insurance;
balances in excess of coverage are not insured.
As a cooperative, the majority of the Company's accounts receivable
represent sales to its members who are located throughout the Pacific
Northwest. These accounts are not generally secured by collateral
but each member has stock holdings in the Company as well as
patronage rebates which the Company could apply against account
balances.
The Company makes store financing loans to members from time to time
mainly to finance the acquisition of grocery store properties and
equipment. These loans are represented by notes receivable which are
secured by collateral consisting of personal property, securities and
guarantees.
The insurance subsidiaries have investments primarily in federal
securities and state municipal bonds which are backed by the full
faith and credit of the respective governmental agency.
19. Commitments and contingencies
a. During 1994, 1991 and 1990, the Company entered into agreements
under which it sold and continues to sell certain of its notes
receivable from members subject to limited recourse provisions.
These are secured by collateral which usually consists of
personal property, securities and guarantees. The Company is
responsible for collection of the notes, for which it receives a
collection fee, and remits the net proceeds to the purchaser on a
monthly basis. In 1994, 1993 and 1992, the Company sold notes
totaling approximately $8,625,000, $900,000 and $5,800,000,
respectively. The balances of transferred notes that were
outstanding and subject to recourse provisions were $13,652,000,
$13,441,000 and $20,934,000 at September 30, 1994, October 1,
1993 and October 2, 1992, respectively.
b. In connection with its loan activities to members, the Company
has approved loan applications totaling approximately $8,000,000
for which funds have been committed, but not disbursed, as of
September 30, 1994.
c. The Company is guarantor of a covenant by a member as of
September 30, 1994 totaling $350,000 with annual principal
payments of approximately $50,000.
d. The Company is a party to various litigation and claims arising
in the ordinary course of business. While the ultimate effect of
such actions cannot be predicted with certainty, the Company
expects that the outcome of these matters will not result in a
material adverse effect on the Company's consolidated financial
position or results of operations.
<PAGE>
Board of Directors
United Grocers, Inc.
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in United
Grocers, Inc.'s annual report to stockholders incorporated by reference
in this Form 10-K, and have issued our report thereon dated November 30,
1994. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. Schedules V, VI, VIII, IX, X and XIV listed
in the index under Item 14(a)2, are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of
the basic financial statements. These schedules have been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
DeLap, White & Raish
Portland, Oregon
November 30, 1994
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Identification of Directors:
<TABLE>
<CAPTION>
Name Age Principal Occupation
Directors whose terms began in 1992 and expire in 1995:
<S> <C> <C>
Gilbert A. Foster 55 President, Gil's Supermarkets, Inc.
H. Larry Montgomery 50 President, Larry's Market, Inc.
Marlin Smythe 64 President, MCS Management Company
Directors whose terms began in 1993 and expire in 1996:
Craig Danielson 46 President, Dan, Inc. Oregon
Dennis Blasingame 46 Owner, Da Boys #2
James C. Vickers 61 President, J. C. Markets, Inc.
Directors whose terms began in 1994 and expire in 1997:
Raymond Nidiffer 65 President, C & K Markets, Inc.
(Appointed to fill the remaining term of Arthur L. Thennell)
David Neal 44 President, SMN Company
Peter J. O'Neal 50 President, Quality Food Investments, Inc
Nominees for Director (these to be elected in 1995 for terms expiring
in 1998):
Deano Ryan 36 President, Tops Industries, Inc.
Gordon Smith 49 President, Market Place Foods, Inc.
Carol DeJardin 48 CEO, West Linn Thriftway, Inc.
Tom Miller 56 President, Five Corners Grocery, Inc.
Dick Leonard 55 President, L & L Market, Inc.
David Badger 52 President, Hopper Valley Enterprises, Inc.
B. Identification of Executive Officers:
Name Age Offices Held Officer Since
Alan C. Jones 52 President, Secretary, Treas. 1981
John W. White 41 Vice President 1988
George P. Fleming 54 Assistant Secretary 1980
</TABLE>
C. Identification of Certain Significant Employees:
None.
<PAGE>
D. Family Relationships
None.
E. Business Experience
All executive officers have been employed by United in various
management and executive capacities for more than the past five years.
All directors and nominees have been principally engaged in the
retail grocery business for more than the past five years with the firms
shown opposite their names. Except as described in Item 13 below, none of
such firms is a parent, subsidiary or other affiliate of United.
No director or nominee is a director in another company with a class
of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or subject to the requirements of Section 15(d) of such Act or
any company registered as an investment company under the Investment
Company Act of 1940.
F. Involvement in Certain Legal Proceedings
None
Item 11. Executive Compensation
A. Remuneration
The following table shows the compensation, during each of the years
in the three year period ended September 30, 1994, earned by each of the
Company's executive officers whose total annual salary and bonus for fiscal
1994 exceeded $100,000. The Company does not provide long term compensation
to its executive officers other than retirement benefits, as discussed
below.
<TABLE>
<CAPTION>
Name of
Individual Annual Compensation All
and Other
Principal Compen-
Position Year Salary Bonus sation <F1>
<S> <C> <C> <C> <C>
Alan C. Jones 1994 $252,398 $ 54,000 $54,111
President, 1993 222,826 149,620 40,040
Chief Executive 1992 221,670 121,889 0
Officer
John W. White 1994 108,959 35,000 4,823
Vice President, 1993 97,861 30,000 4,171
Chief Financial 1992 90,189 18,000 0
Officer
<FN>
<F1> Amounts shown for fiscal 1994 and 1993 include the dollar amount of
insurance premiums paid by the Company with respect to term life insurance
for the benefit of Mr. Jones, in the amount of $27,000 for 1994 and $27,000
for 1993. Such amounts also include matching contributions by the Company
under the United Grocers Special 401(k) Savings Plan as follows: Mr. Jones,
$5,197 and $4,625; Mr. White, $3,184 and $3,576.
</TABLE>
<PAGE>
B. Employment Agreement
Mr. Jones has an employment agreement with the Company pursuant to
which he is entitled to an annual base salary (subject to cost of living
adjustment) plus bonuses subject to performance targets set at the
discretion of the Board of Directors. The agreement further provides for
Mr. Jones to receive certain payments if the agreement is terminated
without "cause" (as defined) or in the event of a change in control of
United.
In the event Mr. Jones is terminated without cause during the term of
the agreement, he will be entitled to receive payments for the remaining
term of the agreement equal to 50% of his then current base salary plus the
annual premium for his life insurance policy. Further, Mr. Jones would be
entitled to be covered under the Company's medical and dental plans for the
remaining term of the agreement. As of September 30, 1994, the employment
agreement had a remaining term of 42 months.
In the event of a change of control of United (as defined), Mr. Jones
will have the right to terminate the employment agreement and receive a
severance payment equal to three times an amount which is 150% of his then
current base salary.
C. Retirement Plan
The Company's retirement plan is an actuarially funded defined
benefit plan. The following table shows the estimated annual benefits
payable upon retirement (assuming normal retirement at age 65) for
employees at specified annual salary levels (based upon the highest average
of five consecutive years) with various years of service.
<TABLE>
<CAPTION>
Annual Pension Plan Table
Remuneration Years of Service <F1>
10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
$50,000 $ 7,913 $11,869 $15,826 $19,782 $ 23,739 $27,695
$75,000 $12,538 $18,807 $25,076 $31,345 $ 37,614 $43,882
$100,000 $17,163 $25,744 $34,326 $42,907 $ 51,489 $60,070
$125,000 $21,788 $32,682 $43,576 $54,470 $ 65,365 $76,257
$150,000 $26,413 $39,619 $52,826 $66,032 $ 79,239 $92,445
<F1> Under the present terms of the Company's retirement plan, the maximum
salary level and number of years of service considered for the purposes of
determining benefits are $150,000 and 35 years, respectively.
</TABLE>
The number of years of service under the plan for the officers listed in
the table on the preceding page is as follows:
<TABLE>
<CAPTION>
Years of
Person Service
<S> <C>
Alan C. Jones 24
John W. White 7
</TABLE>
<PAGE>
The amount of compensation used in calculation of pension benefits
for Mr. Jones and Mr. White is the dollar amount shown under "salary" and
"bonus," subject to plan limitations, in the table for Item 11, Section A.
above.
[Amounts payable under the plan are not subject to deduction for
social security or other offset amounts.]
D. Remuneration of directors
Directors, except the Chairman of the Board, received $10, plus expenses,
for each board meeting attended. The Chairman received $25, plus expenses,
for each board meeting attended and for each additional day spent on the
conduct of United's business.
Item 12. Security Ownership of Certain Beneficial Owners and Management
A. Security Ownership of Certain Beneficial Owners
The following table sets forth information as of December 9, 1994,
regarding each person known to United to be the beneficial owner of more
than 5 percent of United's Common Stock.
<TABLE>
<CAPTION>
Title of Class Name and address Amount and nature of Percent of
of beneficial owner beneficial ownership class
<S> <C> <C> <C>
United Grocers, Raymond L. Nidiffer 51,289 shares <F1> 7.9% of class
Inc., Common P. O. Box 730
stock Brookings, OR 97415
<FN>
<F1> Includes 3,133 shares issuable as patronage dividends within 60
days. Mr. Nidiffer has sole voting and investment power with respect to
the shares indicated in the table.
</TABLE>
B. Security Ownership of Management.
As of December 9, 1994, the directors and nominees for
election as directors of United owned the indicated amounts of United's
Common Stock, United's only class of voting security.
<PAGE>
<TABLE>
<CAPTION>
Amount of
Beneficial Stock to Percent
Beneficial Owner Ownership <F1><F2> be issued <F9> of class
Directors:
<S> <C> <C> <C>
Craig Danielson 18,038 shares 1,880 shares 2.8 <F5>
Dennis Blasingame 1,621 shares 48 shares .2 <F3>
James. C. Vickers 10,100 shares -0- shares 1.6 <F6>
Marlin Smythe 2,575 shares 71 shares .4 <F3>
Ray Nidiffer 51,289 shares 3,133 shares 7.9 <F7>
Dave Neal 6,005 shares -0- shares .9 <F3>
Gilbert A. Foster 5,500 shares 727 shares .8 <F3>
H. Larry Montgomery 2,631 shares 68 shares .4 <F3>
Peter J. O'Neal 4,229 shares 99 shares .7
Directors and
officers as a group 101,988 shares 6,026 shares 15.7
Nominees: Deano Ryan 4,263 shares -0- shares .7
Gordon Smith 4,879 shares 52 shares .8 <F8>
Carol DeJardin 7,659 shares 402 shares 1.2
Tom Miller 3,455 shares 155 shares .5
Dick Leonard 4,133 shares -0- shares .6
David Badger 3,289 shares 84 shares .5 <F4>
<FN>
<F1> According to the bylaws, each stockholder of record is
entitled to one vote and one vote only, irrespective of
number of shares owned. All of the above-named individuals
have only one vote, except for Messrs. Smith, Danielson,
Badger and Vickers, who may be deemed to have more than one
vote because they have interests in various entities that own
shares.
<F2> Except as indicated below, all of the above-named individuals
have sole voting and investment power with respect to the
shares indicated in the table.
<F3> These shares are owned jointly by the person named and his
spouse or by a corporation whose stock is owned jointly by
the person named and his spouse.
<F4> These shares are owned by two corporations in which Mr. Badger
has an equity or voting interest.
<F5> These shares are owned by two corporations in which Mr.
Danielson has an equity interest.
<F6> These shares are owned by two corporations in which Mr.
Vickers has a controlling interest.
<F7> These shares are owned by a corporation in which Mr. Nidiffer
has a controlling interest.
<F8> These shares are owned by two corporations in which Mr. Smith
has an equity interest.
<F9> These shares are issuable as patronage dividends within 60 days
and are included in the total shown under "Amount of
Beneficial Ownership"
</TABLE>
<PAGE>
C. Changes in Control. None
Item 13. Certain Relationships and Related Transactions.
A. Transactions with Management and Others
All directors and nominees (or their firms), as members of United,
purchase groceries and related products from United in the ordinary course
of business at prices available to members generally.
In the ordinary course of business, United enters into prime leases
and subleases property to qualified members. United presently is a party
to subleases with entities affiliated with Ray Nidiffer, Craig Danielson
and Gil Foster, directors of United. At September 30, 1994, monthly
payments due pursuant to the subleases were as follows:
<TABLE>
<CAPTION>
<S> <C>
Danielson $63,874
Foster $15,000
Nidiffer $43,885
</TABLE>
United guarantees members' indebtedness under certain conditions and
loans money to members through its financing department. The Company has
guaranteed certain loan obligations of C&K Market, Inc., a corporation
owned and controlled by Ray Nidiffer, a director.
During 1994, entities in which Craig Danielson, a director, has an
equity interest purchased the assets of three retail stores at book value.
These entities also assumed sublease obligations of the stores.
On June 20, 1994, the Company purchased 142,256 shares (representing
22%) of the common stock of C&K Market, Inc., a corporation owned and
controlled by Ray Nidiffer, a director, for a purchase price of $5,750,000.
B. Certain Business Relationships
During fiscal year 1994, C&K Market, Inc., a corporation owned and
controlled by Ray Nidiffer, a director, purchased groceries and other
products in the ordinary course of business from United in the amount of
$76,229,400.
C. Indebtedness of Management
The following directors, officers, nominees or related persons or entities
were indebted to United during the fiscal year ended September 30, 1994, or
thereafter and prior to the date of this report:
<PAGE>
<TABLE>
<CAPTION>
Largest aggregate
amount of debt
outstanding during
year ended Balance at Number of Notes
Name of Debtor September 30, 1994 November 26, & Rate of Interest
1994
<S> <C> <C> <C>
Market Place Foods, Inc.
Gordon Smith - Nominee 27,722 -0- 1 @ variable %
West Linn Thriftway, Inc. 77,684 41,546 1 @ 7.99 %
Carol DeJardin - Nominee
SMN Company 217,379 145,575 1 @ 9.50 %
David Neal - Director
C & K Markets, Inc. 7,300,000 6,672,811 4 @ 9.25 %
Ray Nidiffer - Director 1 @ variable %
JC Market, Inc. 236,604 157,428 1 @ variable %
JC Market of Toledo, Inc. 1 @ 7.99 %
James C. Vickers - Director
Five Corners Grocery, Inc. 92,697 44,585 1 @ 7.99 %
Tom Miller - Nominee
Larry's Market Inc. 210,371 210,371 2 @ variable %
Lawrence Montgomery - Director 1 @ 8.5 %
MCS Management Company 189,774 170,476 1 @ 8.5 %
Marlin A. Smythe - Director
Gil's Supermarket, Inc. 2,048,635 2,481,539 1 @ 7.75 %
Gilbert Foster - Director 1 @ variable %
L & L Market, Inc. 16,930 -0- 1 @ variable %
Henry R. Leonard - Nominee
IFOR, Inc. 204,629 169,620 1 @ variable %
Dennis Blasingame - Nominee
Hopper Valley Enterprises, Inc. 45,050 19,544 2 @ variable %
David Badger - Nominee
</TABLE>
All of the above loans were for purchase of inventory and equipment
and are secured by inventory and equipment. Variable rate loans bear
interest at prime, plus 1.75 percent to 2.25 percent.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of the report
1. The following financial statements are filed as part of this report:
Independent Auditor's Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Members' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor's Report on Financial Statement Schedules
2. The following financial statement schedules are filed as part of
this report:
Schedule II - Amounts receivable from related parties and underwriters,
promoters and employees (other than related parties)
Schedule V - Property, plant and equipment
Schedule VI - Accumulated depreciation, depletion and amortization of
property, plant and equipment
Schedule VIII - Valuation and qualifying accounts
Schedule IX - Short-term borrowings
Schedule X - Supplementary income statement information
Schedule XIV - Supplementary information concerning property - casualty
insurance operations
3. Exhibits. The exhibits listed on the accompanying index to exhibits
are filed as part of this annual report.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
UNITED GROCERS, INC.
(Registrant)
Dated: December 14, 1994 By: /s/ Alan C. Jones
Alan C. Jones
President
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
Alan C. Jones President, Secretary and 12-14-94
Alan C. Jones Treasurer (Principal
executive officer)
John W. White Vice President 12-14-94
John W. White (Principal Financial Officer)
Dennis Blasingame Director 12-14-94
Dennis Blasingame
Craig Danielson Director 12-14-94
Craig Danielson
Peter J. O'Neal Director 12-14-94
Peter J. O'Neal
Dave Neal Director 12-14-94
Dave Neal
Gilbert A. Foster Director 12-14-94
Gilbert A. Foster
H. Larry Montgomery Director 12-14-94
H. Larry Montgomery
Marlin Smythe Director 12-14-94
Marlin Smythe
James C. Vickers Director 12-14-94
James C. Vickers
Ray Nidiffer Director 12-14-94
Ray Nidiffer
<PAGE>
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act.
No annual report covering the company's last fiscal year has been sent
to security holders. An annual report will be furnished to security
holders subsequent to the filing of the annual report on Form 10-K and
copies of the annual report shall be sent to the Commission when sent to
security holders.
Enclosed with this report are four copies of proxy soliciting material,
including the form of proxy, sent to United's shareholders for the January
14, 1995 annual meeting.
The enclosed proxy soliciting material and, when provided, the annual
report for the last fiscal year are, or will be, furnished to the
Commission for its information and shall not be deemed filed with the
Commission or otherwise subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934, except to the extent that the company
specifically incorporates them in its annual report on this form by
reference.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX 1
Analysis of Loss Reserve Development
($ in thousands)
(9 Mos) (9 Mos)
Year Ended 12/83 12/84 12/85 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 9/93 9/94
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Liability for
Unpaid Claims and
Claim Adjustment
Expenses 3,874 4,169 6,498 8,985 11,251 13,123 15,951 17,610 22,357 25,252 27,784 28,412 27,639
Paid (Cumulative)
as of:
One Year Later 1,474 1,808 2,558 4,568 4,534 4,580 6,219 5,311 5,620 7,466
Two Years Later 2,061 2,798 4,414 6,788 6,903 7,383 8,238 8,057 10,016
Three Years Later 2,403 3,666 4,844 8,233 8,399 8,084 9,390 10,349
Four Years Later 2,836 3,748 5,302 9,074 8,881 8,427 10,113
Five Years Later 2,713 3,782 5,424 9,296 8,972 8,644
Six Years Later 2,673 3,876 5,413 9,287 9,118
Seven Years Later 2,670 3,897 5,257 9,387
Eight Years Later 2,706 3,872 5,250
Nine Years Later 2,700 3,865
Ten Years Later 2,693
Reserves Re-
estimated
Year Ended 12/83 12/84 12/85 12/86 12/87 12/88 12/89 12/90 12/91 12/92
One Year Later 3,357 4,632 6,765 10,902 12,419 14,410 17,226 17,696 19,574 22,726
Two Years Later 3,089 4,577 6,898 11,188 12,875 13,927 14,673 15,024 18,058
Three Years Later 3,173 4,792 6,350 11,951 12,817 11,386 12,807 14,315
Four Years Later 3,222 4,457 6,831 11,903 11,026 10,337 12,298
Five Years Later 3,051 4,573 6,801 10,643 10,353 10,096
Six Years Later 3,095 4,603 6,140 10,142 10,215
Seven Years Later 3,058 4,284 5,720 10,132
Eight Years Later 2,927 4,128 5,533
Nine Years Later 2,847 3,999
Ten Years Later 2,774
Cumulative
Redundancy
or (Deficiency) 1,100 170 965 (1,147) 1,036 3,027 3,653 3,295 4,299 2,526
</TABLE>
<PAGE>
APPENDIX 2
<TABLE>
<CAPTION>
Reconciliation of claim reserves:
($ in thousands)
@ 9 mos @ 9 mos
1994 1993 1993 1992 1991
======= ======= ====== ====== ======
<S> <C> <C> <C> <C> <C>
a Net liabilities, beginning 27,784 25,252 25,252 22,357 17,610
of year
b Incurred claims & claim
adjustment expense
i Provision for current
accident year claims 11,837 14,429 18,426 16,933 14,288
ii Increase/(decrease) in
prior year claims (1,425) (931) (1,778) (2,156) 75
Total incurred claims and
claim adjustment expense 10,412 13,498 16,648 14,777 14,363
c Payments
i Provision for current 2,136 3,704 5,903 5,634 4,319
accident year claims
ii Attributable to prior
year claims 6,894 6,301 8,212 6,122 5,297
Total Payments 9,030 10,005 14,115 11,756 9,616
d Other None None None None None
e Net liabilities, end of year 27,639 28,412 27,784 25,252 22,357
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNITED GROCERS, INC. AND SUBSIDIARIES SCHEDULE II
Amounts receivable from related parties and underwriters, promoters, and employees
other than related parties
For the three years ended September 30, 1994 Balance at end
Balance at Deductions of period
beginning amounts Not
Name of debtor Year of period Additions collected Current current
<S> <C> <C> <C> <C> <C> <C>
Gordon Smith 1992 176,267 -0- 77,669 98,598 -0-(Note A)
1993 98,598 -0- 70,876 27,722 -0-
1994 27,722 -0- 27,722 -0- -0-
Dave Neal 1992 327,178 -0- 47,810 279,368 -0-(Note B)
1993 279,368 -0- 61,989 217,379 -0-
1994 217,379 -0- 61,293 156,086 -0-
Carol DeJardin 1992 14,360 130,726 31,471 113,615 -0-(Note C)
1993 113,615 -0- 35,931 77,684 -0-
1994 77,684 -0- 30,396 47,288 -0-
Tom Miller 1992 173,422 -0- 37,016 136,406 -0-(Note D)
1993 136,406 -0- 43,709 92,697 -0-
1994 92,697 -0- 40,671 52,026 -0-
Dick Leonard 1992 110,937 -0- 59,511 51,426 -0-(Note E)
1993 51,426 -0- 34,496 16,930 -0-
1994 16,930 -0- 16,930 -0- -0-
Peter O'Neal 1992 68,253 -0- 68,253 -0- -0-(Note F)
1993 -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0-
Craig Danielson 1992 355,311 -0- 355,311 -0- -0-(Note G)
1993 -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0-
Dennis
Blasingame 1992 168,032 -0- 54,951 113,081 -0-(Note H)
1993 113,081 130,000 38,452 204,629 -0-
1994 204,629 -0- 29,623 175,006 -0-
Marlin A.
Smythe 1992 220,172 -0- 27,621 192,551 -0-(Note I)
1993 192,551 -0- 33,588 158,963 -0-
1994 158,963 48,239 31,201 176,001 -0-
Larry
Montgomery 1992 250,317 206,000 133,946 322,371 -0-(Note J)
1993 322,371 -0- 112,000 210,371 -0-
1994 210,371 -0- 56,670 153,701 -0-
Gilbert A.
Foster 1992 580,292 268,000 110,016 738,276 -0-(Note K)
1993 738,276 360,508 356,450 742,331 -0-
1994 742,331 1,468,018 161,714 2,048,635 -0-
Dave Badger 1992 109,226 -0- 40,632 68,594 -0-(Note L)
1993 68,594 -0- 23,544 45,050 -0-
1994 45,050 -0- 21,582 23,468 -0-
Raymond 1992 4,095,226 2,927,344 1,110,066 5,912,504 -0-(Note O)
Nidiffer 1993 5,912,504 2,488,179 6,292,683 2,108,000 -0-
1994 2,108,000 7,300,000 4,060,748 5,347,251 -0-
James C. 1992 75,946 315,000 74,123 316,823 -0-(Note M)
Vickers 1993 316,823 -0- 80,219 236,604 -0-
1994 236,604 -0- 68,704 167,900 -0-
</TABLE>
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES SCHEDULE II
Notes to Schedule II
Note A Smith: Two notes bearing interest at a fixed rate of
7.99% and paid in full on March 1, 1994.
Note B Neal: One note bearing interest at a fixed rate of 9.50%
per annum payable in equal monthly installments, plus
interest, maturing March 1, 1998, and secured by
inventory and fixtures. (Loan #497)
Note C DeJardin: One note bearing interest at a fixed rate
of 7.99% payable in equal monthly installments, plus interest,
maturing January 1, 1996,(Loan # 137) secured by inventory.
Note D Miller: One note bearing interest at a fixed rate of
7.99% per annum, payable in equal monthly installments,
maturing December 1, 1995. (Loans #123)
Note E Leonard: One note bearing interest at a variable rate
and paid in full on July 1, 1994.
Note F O'Neal: Two notes paid in full on January 1, 1992 (Loan
#545) and April 10, 1992 (Loan #514)
Note G Danielson: Two notes paid in full on July 24, 1992 (Loan
#125) and May 14, 1992 (Loan #124).
Note H Blasingame: One note bearing interest at a variable rate
(9.00 % at October 1, 1993) payable in equal monthly
installments plus interest, maturing February 1, 2000,
and secured by inventory, fixtures and a mortgage. (Loan #604)
Note I Smythe: One note bearing interest at a fixed rate of
8.50 % per annum, payable in equal monthly installments,
maturing June 1, 2000 and secured by inventory,
fixtures, and two mortgages. (Loan #536)
Note J Montgomery: Two notes bearing interest at a variable
rate (9.50% at September 30, 1994), one note bearing
interest at a fixed rate of 8.50% per annum, payable in
equal monthly installments plus interest maturing 8/1/97,
1/1/96, and 12/1/98;, and secured by inventory and
fixtures at two locations. (Loans # 754, 793 and 802)
Note K Foster: Three notes bearing interest at fixed rates of
9.00%, 9.75% and 9.75% per annum, and one note at a variable
interest rate, (9.50% @ September 30, 1994) payable in equal
monthly installments maturing 2/1/00, 11/1/01, 9/1/01 and
8/1/95. All loans secured by inventory and fixtures at
five locations. (Loans #596, 839, 818 and 855)
Note L Badger: Two notes bearing interest at a variable rates
(9.75% at September 30, 1994) payable in equal monthly
installments maturing September 1, 1995. (Loans #417, 417a).
Note M Vickers: One note bearing interest at fixed rates of
7.99% per annum and one note bearing interest at a variable
rate (9.50% at September 30, 1994), payable in equal monthly
installments maturing March 1, 1997; (Loans #126 and 779), and
secured by inventory and fixtures at two locations.
Note N Babb: One note bearing interest at a fixed rate of 7.75%
per annum, payable in equal monthly installments,
maturing February 1, 1994 and secured by inventory and
fixtures. (Loan #823)
Note O Nidiffer: Four notes bearing interest at a fixed rate of
9.25% per annum, and one note bearing interest at a fixed
rate of 6.0% per annum, payable in equal monthly install-
ments plus interest, maturing 1/99, 9/99, 1/00, 12/00 and
1/02 and secured by inventory and fixtures at three
locations and inventories at two locations. (Loans
836/845/846/869/773)
<TABLE>
<CAPTION>
SCHEDULE V
UNITED GROCERS, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
Column A Column B Column C Column D Column F
Balance at Balance at
beginningAdditions end of
Classification of period at costRetirements period
- -------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
1994:
Land $ 3,032,145$ 389,132$ --$ 3,421,277
Buildings and
improvements 50,265,721 4,076,109 137,239 54,204,591
Warehouse and truck
equipment 32,212,528 3,354,402 1,275,855 34,291,075
Office equipment 7,515,498 1,160,942 111,781 8,564,659
Construction in progress 4,366,038 (3,726,003) -- 640,035
------------ ----------- ----------- ------------
Total $ 97,391,930$ 5,254,582$ 1,524,875$101,121,637
============ =========== =========== ============
1993:
Land $ 3,222,969$ 336,790$ 527,614$ 3,032,145
Buildings and
improvements 42,321,030 7,949,913 5,222 50,265,721
Warehouse and truck
equipment 32,939,197 3,336,366 4,063,035 32,212,528
Office equipment 6,517,247 1,615,984 617,733 7,515,498
Construction in progress 5,614,110 (1,248,072) -- 4,366,038
----------- ----------- ----------- -----------
Total $90,614,553$11,990,981$ 5,213,604 $97,391,930
=========== =========== =========== ===========
1992:
Land $ 3,032,963$ 467,922$ 277,916 $ 3,222,969
Buildings and
improvements 32,800,722 10,629,716 1,109,408 42,321,030
Warehouse and truck
equipment 30,217,020 5,348,697 2,626,520 32,939,197
Office equipment 5,717,639 902,737 103,129 6,517,247
Construction in progress 2,483,241 3,130,869 -- 5,614,110
----------- ----------- ----------- -----------
Total $74,251,585$20,479,941$ 4,116,973 $90,614,553
=========== =========== =========== ===========
As to columns omitted, the answer is "none".
See Note 1.f. of the notes to financial statements for methods and rates used in computing depreciation and amortization.
The independent auditor's report should be read with this supplemental schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VI
UNITED GROCERS, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
Column A Column B Column C Column D Column F
- -------------- ------------ ------------- ------------ -----------
Balance at Balance at
beginning end of
Classification of periodDepreciationRetirements period
- -------------- ----------- ------------- ------------ -----------
1994:
<S> <C> <C> <C> <C>
Buildings and
improvements $16,523,583$ 1,853,210$ 40,890$18,335,903
Warehouse and truck
equipment 16,691,594 3,004,917 803,721 18,892,790
Office equipment 4,675,397 751,652 51,225 5,375,824
----------- ------------ ------------ -----------
Total $37,890,574$ 5,609,779$ 895,836$42,604,517
=========== ============ ============ ===========
1993:
Buildings and
improvements $14,986,734$ 1,542,071$ 5,222$16,523,583
Warehouse and truck
equipment 16,596,322 2,719,766 2,624,494 16,691,594
Office equipment 4,273,703 475,564 73,870 4,675,397
----------- ------------ ------------ -----------
Total $35,856,759$ 4,737,401$ 2,703,586$37,890,574
=========== ============ ============ ===========
1992:
Buildings and
improvements $14,096,264$ 1,240,041$ 349,571$14,986,734
Warehouse and truck
equipment 14,689,452 2,528,805 621,935 16,596,322
Office equipment 3,825,203 521,697 73,197 4,273,703
----------- ------------ ------------ -----------
Total $32,610,919$ 4,290,543$ 1,044,703$35,856,759
=========== ============ ============ ===========
As to columns omitted, the answer is "none".
The independent auditor's report should be read with this supplemental schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
UNITED GROCERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
Column A Column B Column C Column D Column E
- ----------- ---------- ----------- ----------- -----------
Additions
Balance at charged to DeductionsBalance at
beginning costs and from end of
Description of period expenses reserve period
- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994:
Reserves deducted in
balance sheet from asset
to which it applies -
Allowance for doubtful
accounts for:
Accounts receivable $ 1,283,681$ 1,092,589$ 1,105,283$ 1,270,987
Notes receivable 376,108 900,000 941,334 334,774
----------- ----------- ----------- -----------
Total $ 1,659,789$ 1,992,589$ 2,046,617$ 1,605,761
=========== =========== =========== ===========
Reserves which support
the balance sheet caption:
Insurance reserves for
losses and expenses:
Workers' compensation $15,230,686$ 6,355,601$ 6,380,288$15,205,999
Property and casualty 17,284,711 5,635,565 6,087,867 16,832,409
----------- ----------- ----------- -----------
Total $32,515,397$11,991,166$12,468,155$32,038,408
=========== =========== =========== ===========
1993:
Reserves deducted in
balance sheet from asset
to which it applies -
Allowance for doubtful
accounts for:
Accounts receivable$ 1,434,097$ 1,393,049$ 1,543,465$ 1,283,681
Notes receivable 420,169 789,502 833,563 376,108
----------- ----------- ----------- -----------
Total $ 1,854,266$ 2,182,551$ 2,377,028$ 1,659,789
=========== =========== =========== ===========
Reserves which support
the balance sheet caption:
Insurance reserves for
losses and expenses:
Workers' compensation $13,514,617$ 8,610,206$ 6,894,137$15,230,686
Property and casualty 15,084,358 7,360,333 5,159,980 17,284,711
----------- ----------- ----------- -----------
Total $28,598,975$15,970,539$12,054,117$32,515,397
=========== =========== =========== ===========
The independent auditor's report should be read with this supplemental schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
UNITED GROCERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS (CONTINUED)
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
Column A Column B Column C Column D Column E
- ----------- ---------- ----------- ----------- -----------
Additions
Balance at charged to DeductionsBalance at
beginning costs and from end of
Description of period expenses reserve period
- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1992:
Reserves deducted in
balance sheet from asset
to which it applies -
Allowance for doubtful
accounts for:
Accounts receivable $ 1,147,545$ 1,250,735$ 964,183$ 1,434,097
Notes receivable 652,455 857,611 1,089,897 420,169
----------- ----------- ----------- -----------
Total $ 1,800,000$ 2,108,346$ 2,054,080$ 1,854,266
=========== =========== =========== ===========
Reserves which support
the balance sheet caption:
Insurance reserves for
losses and expenses:
Workers' compensation $13,455,923$ 4,625,465$ 4,566,771$13,514,617
Property and casualty 11,721,800 9,280,390 5,917,832 15,084,358
----------- ----------- ----------- -----------
Total $25,177,723$13,905,855$10,484,603$28,598,975
=========== =========== =========== ===========
As to columns omitted, the answer is "none".
The independent auditor's report should be read with this supplemental schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IX
UNITED GROCERS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
Column A Column B Column C Column D Column E Column F
- ----------- ---------- -------- ----------- ----------- -------------
Maximum Average Weighted
Category of Interest amount Amount average
aggregate Balance at rate at outstanding outstanding interest rate
short-term end of end of during the during the during the
borrowings period period period periodperiod
- ----------- ---------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1994:
Bank notes $31,020,667 5.72 % $41,050,000 $34,775,000 4.77 %
1993:
Bank notes 24,730,400 3.95 24,750,000 17,000,000 4.12
1992:
Bank notes 14,548,920 3.94 26,750,000 23,230,675 4.88
Note AIn 1994 the borrowings are under an open line of credit which matures April 30, 1995.
Note BThe maximum amount outstanding, the average amount outstanding and the weighted average interest rate are computed using
end-of-month balances and interest rates.
As to columns omitted, the answer is "none".
The independent auditor's report should be read with this supplemental schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE X
UNITED GROCERS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Compensation:
Salaries and wages $ 47,552,800 $45,881,320 $44,428,169
Employee benefits 9,495,301 8,950,947 8,576,496
------------ ----------- -----------
Total 57,048,101 54,832,267 53,004,665
------------ ----------- -----------
Rents, maintenance and repairs:
Rents:
Building 3,908,164 3,875,770 3,000,122
Equipment 4,712,898 4,231,211 3,283,078
------------ ----------- -----------
Total rents 8,621,062 8,106,981 6,283,200
Maintenance and repairs 7,489,479 6,376,253 7,724,487
------------ ----------- -----------
Total 16,110,541 14,483,234 14,007,687
------------ ----------- -----------
Taxes other than taxes on income:
Payroll 4,207,237 4,179,893 3,585,435
Property taxes 1,475,732 1,598,621 1,581,530
State and city business taxes 1,301,094 1,148,386 1,153,849
Highway use taxes 1,363,543 1,157,336 1,242,994
------------ ----------- -----------
Total 8,347,606 8,084,236 7,563,808
------------ ----------- -----------
Other:
Utilities, supplies and
services 11,189,721 9,695,290 9,328,572
Insurance 1,323,890 1,287,840 1,311,090
Professional services 2,842,102 2,193,827 2,655,674
Other expenses 4,670,720 4,728,964 3,543,533
Provision for doubtful
accounts and notes 1,992,589 2,182,551 2,108,346
------------ ----------- -----------
Total 22,019,022 20,088,472 18,947,215
------------ ----------- -----------
Combined total $103,525,270 $97,488,209 $93,523,375
============ =========== ===========
Charged to following costs
and expenses:
Operating expenses $ 93,991,529 $88,046,293 $83,656,610
Selling and administrative
expenses 9,533,741 9,441,916 9,866,765
------------ ----------- -----------
Combined total $103,525,270 $97,488,209 $93,523,375
============ =========== ===========
As to columns omitted, the answer is "none".
The independent auditor's report should be read with this supplemental schedule.
</TABLE>
35<PAGE>
<TABLE>
<CAPTION>
SCHEDULE XIV
UNITED GROCERS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
Column A Column B Column C Column D Column F
- ----------- ----------- ------------ ----------- -----------
Future policy
Deferred benefits,
policy losses, claims Net
acquisition and loss Unearned premiums
Segment cost expenses premiums revenue
- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Insurance segment:
1994 $ 432,192$32,038,408 $ 8,518,168 $18,060,412
1993 823,236 32,515,397 7,956,051 18,442,436
1992 782,692 28,598,975 7,851,841 18,200,768
<CAPTION>
Column G Column H Column I Column J Column K
---------- ---------- ------------ ---------- ---------
Benefits, Amortization
claims, of deferred
Net losses and policy Other Net
investment settlement acquisition operating premiums
income expenses costs expenses written
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C>
Insurance segment:
1994 $ 2,666,023 $11,991,166 $ 1,479,422 $ 4,136,101 $18,201,182
1993 2,576,212 15,970,539 1,656,419 1,042,727 18,549,464
1992 2,352,924 13,905,855 1,578,043 2,065,755 19,978,067
As to columns omitted, the answer is "none".
The independent auditor's report should be read with this supplemental schedule.
</TABLE>
<PAGE>
EXHIBIT INDEX
1 This number not used.
2 This number not used.
3.A Copy of the registrant's restated articles of incorporation,
as amended (incorporated by reference to Exhibit 4-E to the
registrant's registration statement on Form S-2, No.
33-26631).
3.B Copy of the registrant's bylaws, as amended (incorporated by
reference to Exhibit 4-F to the registrant's registration
statement on Form S-2, No. 33-26631).
4.A Copy of indenture dated as of February 1, 1978, between the
registrant and United States National Bank of Oregon, as
trustee, relating to the registrant's Capital Investment Notes
(incorporated by reference to Exhibit 4-I to the registrant's
registration statement on Form S-1, No. 2-60488).
4.B Copy of supplemental indenture dated as of July 6, 1992,
between the registrant and United States National Bank of
Oregon, as trustee, relating to the registrant's Series H
Capital Investment Notes (incorporated by reference to Exhibit
4-C to the registrant's registration statement on Form S-2,
No. 33-49450).
4.C1 Copy of credit agreement of July 31, 1991 among the
registrant, United States National Bank of Oregon,
Seattle-First National Bank, and Security Pacific Bank Oregon
(incorporated by reference to Exhibit 4-H to the registrant's
Form 10-K for the fiscal year ended September 27, 1991).
4.C2 Copy of Amendments 1, 2 and 3 to credit agreement of July 31,
1991 among the registrant, United States National Bank of
Oregon, Seattle-First National Bank, and Security Pacific Bank
Oregon, dated as of August 19, 1991, December 20, 1991 and
March 13, 1992 (incorporated by reference to Exhibit 4-C2 to
the registrant's Form 10-K for the fiscal year ended
October 2, 1992).
4.C3 Copy of Amendment 4 to credit agreement of July 31, 1991
among the registrant, United States National Bank of
Oregon, Seattle-First National Bank, and Bank of America
Oregon (successor organization to Security Pacific Bank
Oregon), dated as of April 20, 1993 (incorporated by reference
to Exhibit 4.C3 to the registrant's Form 10-K for the fiscal
year October 1, 1993).
4.C4 Copy of Amendment 5 to credit agreement and amendment to
notes of July 31, 1991 among the registrant, United States
National Bank of Oregon, Seattle-First National Bank, and
Bank of America Oregon (successor organization to Security
Pacific Bank Oregon), dated as of May 28, 1993 (incorporated
by reference to Exhibit 4.C4 to the registrant's Form 10-K for
the fiscal year ended October 1, 1993).
4.C5 Copy of Promissory Notes to United States National Bank of
Oregon, Seattle-First National Bank, and Bank of America
Oregon (successor organization to Security Pacific Bank
Oregon), dated as of April 20, 1993 (incorporated by reference
to Exhibit 4.C5 to the registrant's Form 10-K for the fiscal
year ended October 1, 1993).
4.C6 Copy of Amendments 6 and 7 to credit agreement and amendments
to notes of July 31, 1991 among the registrant, United States
National Bank and Seattle First National Bank, dated as of
October 29, 1993 and January 28, 1994 (incorporated by reference
to Exhibits 10.A. and 10.B. to the registrant's Form 10-Q for
the quarterly period ending April 1, 1994).
4.C7 Copy of Amendment 8 to credit agreement and amendment to
revolving line notes and operating line notes of July 31,
1991 among the registrant, United States National Bank of
Oregon and Seattle-First National Bank, dated as of February
22, 1994.
4.C8 Copy of Amendment 9 to credit agreement and amendment to
revolving line notes and operating line notes of July 31,
1991 among the registrant, United States National Bank of
Oregon and Seattle-First National Bank, dated as of April
30, 1994.
4.D Copy of Note Agreement dated as of September 20, 1991, and
Senior Notes dated September 24, 1991 among the registrant and
various purchasers (incorporated by reference to Exhibit 4-I to
the registrant's Form 10-K for the fiscal year ended September 27,
1991).
4.E Copy of Promissory Note, Assignment of Rents and Leases, Deed of
Trust, Financing Agreement and Security Agreement, and
Environmental Indemnity Agreement dated as of September 30,
1993, between the registrant and United of Omaha Life Insurance
Company, relating to the registrant's construction of a new office
building (incorporated by reference to Exhibit 4.E to the
registrant's
Form 10-K for the fiscal year ended October 1, 1993).
4.F1 Copy of Loan Purchase and Servicing Agreement dated as of
May 13, 1994, between United Resources, Inc., as
Seller and Servicer, the registrant, as Guarantor, and
National Consumer Cooperative Bank, as Buyer, relating
to the selling of loans originated by the registrant's subsidiary,
United Resources, Inc.
4.F2 Copy of First Amendment to Loan Purchase and Servicing Agreement
dated as of May 13, 1994, between United Resources, Inc., the
registrant, and National
Consumer Cooperative Bank.
4.G Copy of Note Agreement dated October 10, 1994, between the
registrant and Phoenix Home Life Mutual Insurance Company).
Pursuant to Item 601 (b)(4)(iii) of Regulation S-K, the registrant
is not filing certain instruments with respect to its long-term debt
because the amount authorized under any such instrument does not
exceed 10 percent of the total consolidated assets of the registrant
at September 30, 1994. The registrant agrees to furnish a copy of any
such instrument to the Securities and Exchange Commission upon
request.
5-9 These numbers not used.
10.A Copy of United Grocers, Inc. pension plan and trust
agreement dated as of October 1, 1985 (incorporated by
reference to Exhibit 10-A to the registrant's registration
statement on Form S-2, No. 33-11212).
10.B Copy of first amendment to United Grocers, Inc. pension
plan and trust agreement dated as of October 1, 1987
(incorporated by reference to Exhibit 10-B to post
effective amendment No. 1 to the registrant's registration
statement on Form S-2, No. 33-11212).
10.C Copy of binder of insurance with respect to indemnification
of officers and directors (incorporated by reference to Exhibit
10.C to the registrant's Form 10-K for the fiscal year ended
October 1, 1993).
10.D1 Typical forms executed in connection with loans to members,
including directors:
10.D1a Installment note (Stevens-Ness form 217), with optional interest
rate riders (incorporated by reference to Exhibit 10-D1a to the
registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1b Promissory note (Stevens-Ness form 216), with optional interest
rate riders (incorporated by reference to Exhibit 10-D1b to the
registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1c Subsequent note (three forms) (incorporated by reference to Exhibit
10-D1c to the registrant's Form 10-K for the fiscal year ended
October 2, 1992).
10.D1d Loan agreement (two forms) (incorporated by reference to Exhibit
10-D1d to the registrant's Form 10-K for the fiscal year ended
October 2, 1992).
10.D1e Loan agreement for subsequent notes (incorporated by reference to
Exhibit 10-D1e to the registrant's Form 10-K for the fiscal year
ended October 2, 1992).
10.D1f Amendment to loan and security agreements, including optional
clauses (incorporated by reference to Exhibit 10-D1f to the
registrant's Form 10-K for the fiscal year ended October 2, 1992).
10.D1g Security agreement (Stevens Ness form 1201) (incorporated by
reference to Exhibit 10-D1g to the registrant's Form 10-K for the
fiscal year ended October 2, 1992).
10.D1h Purchase money security agreement (Stevens-Ness form 1202)
(incorporated by reference to Exhibit 10-D1h to the registrant's
Form 10-K for the fiscal year ended October 2, 1992).
10.D1i Security agreement for equipment (Stevens Ness form 1203)
(incorporated by reference to Exhibit 10-D1i to the registrant's
Form 10-K for the fiscal year ended October 2, 1992).
10.D1j Inventory loan and security agreement (Stevens-Ness form 1206)
(incorporated by reference to Exhibit 10-D1j to the registrant's
Form 10-K for the fiscal year ended October 2, 1992).
10.D1k Security agreement (equipment and inventory) (incorporated by
reference to Exhibit 10-D1k to the registrant's Form 10-K for the
fiscal year ended October 2, 1992).
10.D1l Security agreement for subsequent notes (incorporated by reference
to Exhibit 10-D1l to the registrant's Form 10-K for the fiscal year
ended October 2, 1992).
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the
registrant has filed the forms listed above in lieu of filing each
copy executed in connection with loans to directors. A schedule
showing the principal amount and interest rate of each director loan
at November 26, 1994, appears in Item 13.C of this Form 10-K. The
registrant agrees to furnish a copy of any omitted loan document to
the Securities and Exchange Commission upon request.
10.D2 Typical form of residual stock redemption note executed in
connection with redemption of common stock from members
(incorporated by reference to Exhibit 10-D2 to the
registrant's Form 10-K for the fiscal year ended October
2, 1992).
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the
registrant has filed the form listed above in lieu of filing each
copy executed in transactions with directors. The registrant agrees
to furnish a copy of any omitted document to the Securities and
Exchange Commission upon request.
10.E Copy of policy summary and related documents pertaining to
a life insurance policy for Alan C. Jones, President of
the registrant (incorporated by reference to Exhibit 10-E
to the registrant's Form 10-K for the fiscal year ended
September 28, 1990).
10.F1 Copy of sublease agreement for Coos Bay store dated February 28,
1991, between the registrant and Raymond Nidiffer, a director of
the registrant (incorporated by reference to Exhibit 10-I19 to
the registrant's Form 10-K for the fiscal year ended September 27,
1991).
10.F2. Copy of sublease agreement for Arcata store dated August
11, 1977, between the registrant and Raymond L. Nidiffer, a
director of the registrant (incorporated by reference to
Exhibit 10-Q2 of the registrant's registration statement on
Form S-2, No. 33-26631).
10.F3. Copy of sublease agreement for Gold Beach store dated
July 6, 1979, between the registrant and Raymond L.
Nidiffer, a director of the registrant (incorporated by
reference to Exhibit 10-Q3 of the registrant's registration
statement on Form S-2, No. 33-26631).
10.F4. Copy of assignment of lease and related documents for Mt.
Shasta store between the registrant and C & K Market, Inc.,
an affiliate of Raymond L. Nidiffer, a director of the
registrant (incorporated by reference to Exhibit 10-Q4 of
the registrant's registration statement on Form S-2, No.
33-26631).
10.F5. Copy of sublease agreement for Rogue River store dated June
25, 1976, between the registrant and Raymond L. Nidiffer, a
director of the registrant (incorporated by reference to
Exhibit 10-Q5 of the registrant's registration statement on
Form S-2, No. 33-26631).
10.F6. Copy of lease agreement for Coos Bay store dated February
28, 1991, between the registrant and Raymond L. Nidiffer, a
director of the registrant (incorporated by reference to
Exhibit 10-I20 to the registrant's Form 10-K for the fiscal
year ended September 27, 1991).
10.F7. Copy of loan guaranties dated June 12, 1980 and September
30, 1988 given by registrant for the benefit of C & K
Market, Inc. an affiliate of Raymond L. Nidiffer, a
director of the registrant (incorporated by reference to
Exhibit 10-I12 to the registrant's Form 10-K for the fiscal
year ended September 30, 1989).
10.F8. Copy of stock purchase agreement dated as of June 20, 1994,
between the registrant and C&K Market, Inc., an affiliate of
Raymond L. Nidiffer, a director of registrant.
10.G1 Copy of sublease agreement for Aloha store dated January 3, 1994
between the registrant and CTD, L.L.C., a limited liability company
controlled by Craig Danielson, a director of the registrant
(incorporated by reference to Exhibit 10.E to the registrant's
Form 10-Q for the quarterly period ended April 1, 1994).
10.G2. Copy of sublease agreement for Tigard store dated January 3, 1994
between the registrant and CTD, L.L.C., a limited liability company
controlled by Craig Danielson, a director of the registrant
(incorporated by reference to Exhibit 10.D to the registrant's
Form 10-Q for the quarterly period ended April 1, 1994).
10.G3. Copy of sublease agreement for Sandy store dated May 4, 1994
between the registrant and Dan Inc Oregon, a corporation
controlled by Craig Danielson, a director of the registrant.
10.G4 Copy of Asset Purchase and Sale Agreement dated May 4, 1994 for
Sandy store between the registrant and Dan Inc Oregon, a
corporation controlled by Craig Danielson, a director of the
registrant.
10.G5 Copy of Asset Purchase and Sale Agreement dated January 3, 1994
for Aloha and Tigard stores between the registrant and CTD, L.L.C.,
a limited liability company controlled by Craig Danielson, a
director of the registrant (incorporated by reference to Exhibit
10.C to the registrant's Form 10-Q for the quarterly period ended
April 1, 1994).
10.H. Copy of sublease agreement for Orland store dated August 19, 1994
between the registrant and Gil's Supermarkets, Inc., a corporation
controlled by Gil Foster, a director of the registrant.
10.I Copy of executive compensation agreement dated March 1,
1991 (incorporated by reference to Exhibit 10-T to the
registrant's Form 10-K for the fiscal year ended September
27, 1991).
10.J Copy of registrant's executive deferred compensation plan
(incorporated by reference to Exhibit 10-U to the
registrant's Form 10-K for the fiscal year ended September
27, 1991).
11. This number not used.
12. Statement of Computation of Ratio of Adjusted Income to Fixed
Charges.
13-20. These numbers not used.
21. Subsidiaries of the registrant.
22-26. These numbers not used.
27. Financial Data Schedules.
28. Copy of schedule P of the annual statement for Grocers
Insurance Company, a subsidiary of the registrant, as filed with the
State Insurance Departments where the company operates, for the year
ended December 31, 1993.(P)
<PAGE>
<PAGE>
EXHIBIT 4.C7
AMENDMENT NUMBER EIGHT TO CREDIT AGREEMENT
AND AMENDMENT TO REVOLVING LINE NOTES AND OPERATING LINE NOTES
Background
This Amendment Number Eight to Credit Agreement and Amendment to
Revolving Line Notes and Operating Line Notes ("Amendment") amends (a) the
Credit Agreement dated July 31, 1991, originally among United Grocers, Inc.
as Borrower, Seattle-First National Bank, United States National Bank of
Oregon, and Security Pacific Bank Oregon as Banks, and Seattle-First National
Bank as Agent, as previously amended by seven amendments, the most recent of
which was dated January 28, 1994 (the original Credit Agreement as so amended
is hereafter referred to as the "Agreement"), and (b) those certain
"Revolving Line Notes" and "Operating Line Notes", as such terms are defined
in the Agreement and have been previously amended.
Capitalized terms used, but not defined, in this Amendment will
have the meaning given in the Agreement.
Agreements
For good consideration, receipt of which is hereby acknowledged by
each of the undersigned parties, the parties agree as follows:
1. Amendments to Agreement.
a. To reflect the redistribution of the Banks' credit
commitments, the chart in Section 4.01 of the Agreement, as such section
has been previously amended, is hereby amended to appear as follows:
Lender Aggregate Borrowings Permitted
Seafirst $19,500,000.00
U.S. Bank $19,500,000.00
Total $39,000,000.00
2. Amendment of Revolving Line Notes. The Amended and Restated
Revolving Line Notes dated April 20, 1993, for Seafirst and for U.S. Bank are
hereby amended to change their respective maximum dollar amounts to the
following amounts:
Lender Maximum Note Amount
Seafirst $19,500,000.00
U. S. Bank $19,500,000.00
Total $39,000,000.00
3. Counterparts; Effect. This Amendment may be executed in
multiple counterparts, which when taken together shall be considered a single
original. Except as specifically amended by this Amendment or prior
amendments, all other terms, conditions, and definitions of the Agreement and
the Notes shall remain in full force and effect.
DATED as of the 22nd day of February, 1994.
Borrower: Banks:
UNITED GROCERS, INC. SEATTLE-FIRST NATIONAL BANK,
as Bank and as Agent
By ___________________________
By __________________________ By ___________________________
Title _______________________ Title ________________________
UNITED STATES NATIONAL BANK
OF OREGON
By __________________________
Title _______________________
By ___________________________
Title ________________________
<PAGE>
EXHIBIT 4.C8
AMENDMENT NUMBER NINE TO CREDIT AGREEMENT
AND AMENDMENT TO REVOLVING LINE NOTES AND OPERATING LINE NOTES
Background
This Amendment Number Nine to Credit Agreement and Amendment to
Revolving Line Notes and Operating Line Notes ("Amendment") amends (a) the
Credit Agreement dated July 31, 1991, originally among United Grocers, Inc.
as Borrower, Seattle-First National Bank, United States National Bank of
Oregon, and Security Pacific Bank Oregon as Banks, and Seattle-First National
Bank as Agent, as previously amended by eight amendments, the most recent of
which was dated February 22, 1994 (the original Credit Agreement as so
amended is hereafter referred to as the "Agreement"), and (b) those certain
"Revolving Line Notes" and "Operating Line Notes", as such terms are defined
in the Agreement and have been previously amended.
Capitalized terms used, but not defined, in this Amendment will
have the meaning given in the Agreement.
Agreements
For good consideration, receipt of which is hereby acknowledged by
each of the undersigned parties, the parties agree as follows:
1. Amendments to Agreement.
a. Section 1.01 is amended to change the definition of
"Maturity Date" to read as follows:
Maturity Date means the following:
(i)with respect to the Overnight Loans, April 30, 1995;
(ii) with respect to the Operating Loans, April 30, 1995; and
(iii) with respect to the Revolving Loans, April 30, 1996.
b. Section 1.01 is amended to change (i) the definition of
"Total Commitments" to $75,000,000, (ii) the definition of "Total Operating
Line Commitment" to $37,500,000, and (iii) the definition of "Total
Revolving Line Commitment" to $37,500,000.
c. Section 4.01 is amended to read as follows:
4.01 The Revolving Line Commitments. The Revolving Line Banks
each severally agree on the terms and conditions of this Agreement to
make Advances (the "Revolving Advances") in the principal amount equal
to 50% of the Total Revolving Line Commitment (such Bank's "Revolving
Line Commitment") available to Borrower from time to time on any
Banking Day during the period beginning on the Effective Date and
ending on the earlier of the Maturity Date, or the termination of the
Commitment pursuant to Section 9.01 (the "Revolving Line Commitment
Period").
As this Commitment is for a revolving line of credit, Borrower may
receive Advances, repay them, and receive additional Advances at all
times until the applicable Maturity Date as long as the aggregate of
the Revolving Advances outstanding at any one time from the Revolving
Line Banks does not exceed the Total Revolving Line Commitment, and no
Default or Incipient Default shall have occurred. All Revolving
Advances shall be made by the Revolving Line Banks through Seafirst, as
agent, pro rata in the same proportion that the Revolving Line Banks'
respective Revolving Line Commitments bear to the Total Revolving Line
Commitment, and all repayments shall be made through Seafirst, as
agent, in accordance with Section 6.11. In no event shall any Bank be
required to have aggregate Revolving Advances outstanding at any one
time in excess of its Revolving Line Commitment.
d. Section 4.02 is amended to read as follows:
4.02 The Operating Line Commitments. The Operating Line Banks
severally agree, on the terms and conditions of this Agreement, to make
Advances (the "Operating Advances") in the principal amount equal to
50% of the Total Operating Line Commitment (such Bank's "Operating Line
Commitment") available to Borrower from time to time on any Banking Day
during the period beginning on the Effective Date and ending on the
earlier of the Maturity Date, or the termination of the Commitment
pursuant to Section 9.01 (the "Operating Line Commitment Period").
As this Commitment is for a revolving line of credit, Borrower may
receive Advances, repay them, and receive additional Advances at all
times until the applicable Maturity Date as long as the aggregate of
the Operating Advances outstanding at any one time from the Operating
line Banks does not exceed the Total Operating Line Commitment, and no
Default or Incipient Default shall have occurred. All Operating
Advances shall be made by the Operating line Banks through Seafirst, as
agent, pro rata in the same proportion that the Operating line Banks'
respective Operating Line Commitments bear to the Total Operating Line
Commitment, and all repayments shall be made through Seafirst, as
agent, in accordance with Section 6.11. In no event shall any Bank be
required to have aggregate Operating Advances outstanding at any one
time in excess of its Operating Line Commitment.
e. Fixed Charge Coverage. Section 7.10 of the Agreement is
amended to change the required minimum "Fixed Charge Coverage" ratio to 1.4
to 1.0.
f. Minimum Capital and Subordinated Debt. Section 7.12 of the
Agreement is amended to change the required minimum "Subordinated Debt and
Members' Equity" to $70,000,000.
2. Amendment of Revolving Line Notes. The Amended and Restated
Revolving Line Notes dated April 20, 1993, for Seafirst and for U.S. Bank are
hereby amended to change their respective maximum dollar amounts to the
following amounts:
Lender Maximum Note Amount
Seafirst $18,750,000.00
U.S. Bank $18,750,000.00
Total $37,500,000.00
3. Amendment of Operating Line Notes. The Amended and Restated
Operating Line Notes dated April 20, 1993, for Seafirst and for U.S. Bank are
hereby amended to change their respective maximum dollar amounts to the
following amounts:
Lender Maximum Note Amount
Seafirst $18,750,000.00
U.S. Bank $18,750,000.00
Total $37,500,000.00
4. Counterparts; Effect. This Amendment may be executed in multiple
counterparts, which when taken together shall be considered a single
original. Except as specifically amended by this Amendment or prior
amendments, all other terms, conditions, and definitions of the Agreement and
the Notes shall remain in full force and effect.
DATED as of the 30th day of April, 1994.
Borrower: Banks:
UNITED GROCERS, INC. SEATTLE-FIRST NATIONAL BANK
By Alan C. Jones By ___________________________
Title President Title ________________________
UNITED STATES NATIONAL BANK
OF OREGON
By John W. White
Title Vice President
By ___________________________
Title ________________________
Agent:
SEATTLE-FIRST NATIONAL BANK
By ___________________________
Title ________________________
<PAGE>
EXHIBIT 4.F1
EXECUTION COPY
LOAN PURCHASE AND SERVICING AGREEMENT
dated as of
May 13, 1994
between
UNITED RESOURCES, INC.
as Seller and Servicer
UNITED GROCERS, INC.
as Guarantor
and
NATIONAL CONSUMER COOPERATIVE BANK
as Buyer
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 General Principles Applicable to Definitions. . . . . . . . 15
SECTION 1.03 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE II
THE COMMITMENT
SECTION 2.01 Agreement to Purchase and Sell Loans. . . . . . . . . . . . 16
SECTION 2.01A Incremental Purchase. . . . . . . . . . . . . . . . . . . . 19
SECTION 2.02 Agreement to Accept Renewal Notes . . . . . . . . . . . . . 20
ARTICLE III
CLOSING PROCEDURE; CONDITIONS TO PURCHASE
SECTION 3.01 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.02 Acceptance - Renewal Loans. . . . . . . . . . . . . . . . . 21
SECTION 3.03 Effective Date. . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.04 Buyer's Conditions Precedent to Acceptance. . . . . . . . . 21
SECTION 3.05 Additional Delivery Requirements for Initial Closing Date . 25
SECTION 3.06 Seller's Conditions Precedent to Sale . . . . . . . . . . . 26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Seller's Corporate Representations and Warranties . . . . . 27
SECTION 4.02 Seller's Closing Date Representations and Warranties with
respect to Loans. . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.03 Seller's Renewal Date Representations and Warranties. . . . 36
SECTION 4.04 Buyer's Representations and Warranties. . . . . . . . . . . 37
SECTION 4.05 Repurchase Upon Breach of Certain Representations and
Warranties. . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE V
SERVICING AND COLLECTION
SECTION 5.01 Servicing and Collection Agent. . . . . . . . . . . . . . . 39
SECTION 5.02 Maintenance of System; Collection and Maintenance of
Information . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.03 Maintenance of Lien Priority. . . . . . . . . . . . . . . . 40
SECTION 5.04 Collection Policies . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.05 Obligor Defaults. . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.06 Servicer Reports; Annual Compliance Report. . . . . . . . . 42
SECTION 5.07 Loan Payments . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 5.07A Advances by Servicer. . . . . . . . . . . . . . . . . . . . 44
SECTION 5.08 Computation and Payment of Servicing Fees; Servicer's
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.09 Applicable Rate . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.10 Concerning Renewal Notes. . . . . . . . . . . . . . . . . . 46
SECTION 5.11 Concerning Insurance on Collateral. . . . . . . . . . . . . 46
SECTION 5.12 Servicer Representations and Warranties . . . . . . . . . . 47
SECTION 5.13 Subservicing Agreements Between Servicer and Subservicers;
Enforcement of Subservicer's Obligations. . . . . . . . . . 48
SECTION 5.14 Assumption or Termination of Sub-Servicing Agreement by . . 50
SECTION 5.15 Access to Certain Documentation and Certain Information
Regarding the Loans . . . . . . . . . . . . . . . . . . . . 51
SECTION 5.16 Servicer Not to Resign. . . . . . . . . . . . . . . . . . . 51
ARTICLE VI
SELLER'S AND SERVICER'S COVENANTS
SECTION 6.01 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 6.02 Special Covenant of Seller. . . . . . . . . . . . . . . . . 57
ARTICLE VII
GUARANTOR AND GUARANTY
SECTION 7.01 Guarantor's Guaranty, Repurchase Guaranty and Advance
Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.02 Guarantor Representations and Warranties. . . . . . . . . . 58
SECTION 7.03 Covenants of Guarantor. . . . . . . . . . . . . . . . . . . 59
ARTICLE VIII
SELLER OBLIGATIONS AND REPURCHASE OPTIONS
SECTION 8.01 Purchase of Interest Rate Protection. . . . . . . . . . . . 66
SECTION 8.02 Optional Repurchase of Defaulted Loans and after Obligor
Default . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 8.03 Minimal Balances. . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE IX
SERVICER DEFAULT
SECTION 9.01 Servicer Defaults . . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.02 Buyer to Act; Appointment of Successor. . . . . . . . . . . 69
SECTION 9.03 Effects of Servicing Transfer . . . . . . . . . . . . . . . 70
ARTICLE X
TERMINATION EVENTS
SECTION 10.01 Termination Events. . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.02 Consequences of Termination Event . . . . . . . . . . . . . 72
SECTION 10.03 Remedies of a Secured Party . . . . . . . . . . . . . . . . 73
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 Further Assurances. . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.02 Indemnities . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 11.03 No Waiver: Remedies Cumulative . . . . . . . . . . . . . . 75
SECTION 11.04 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11.05 Consent to Jurisdiction: Waiver of Immunities. . . . . . . 75
SECTION 11.06 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11.07 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.08 Capital Markets Funding . . . . . . . . . . . . . . . . . . 76
SECTION 11.09 Severability. . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.10 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.11 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 11.12 Limitation on Third Party Beneficiaries . . . . . . . . . . 77
SECTION 11.13 Entire Agreement; Amendment . . . . . . . . . . . . . . . . 77
SECTION 11.14 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . 77
Exhibit A - Information re: Corporate Names of Seller and
Guarantor
Exhibit B - Form of Notice of Assignment
Exhibit C - Form of Renewal Note
Exhibit D - Form of Legal Opinion of Seller's Counsel
Exhibit E - Form of Legal Opinion of Servicer's Counsel
Exhibit F - Form of Legal Opinion of Guarantor's Counsel
Exhibit G - Form of Monthly Report
Exhibit H - Credit and Collection Policies
Exhibit I - Information Regarding Litigation, etc.
Exhibit J - Form of Officers' Certificate of Seller and
Servicer
Exhibit K - Form of Officer's Certificate of Guarantor
Exhibit L - Form of Purchase Notice for Incremental Purchase
Exhibit M - Form of Officer's Certificate of Seller
(Incremental Purchase)
Exhibit N - Form of Officer's Certificate of Guarantor
(Incremental Purchase)
Exhibit O - Form of Officer's Certificate of Servicer
(Incremental Purchase)
Exhibit P - Forms of Note and Related Documents
Exhibit Q - Recent Dates for Lien Searches
Schedule I - Loan Schedule
Schedule II - Exception Loans
Schedule III - Loans Secured by Real Property
<PAGE>
LOAN PURCHASE AND SERVICING AGREEMENT
This LOAN PURCHASE AND SERVICING AGREEMENT is executed as of May 13,
1994 between UNITED RESOURCES, INC., an Oregon corporation, as Seller (in
such capacity, "Seller") and as servicer (in such capacity, "Servicer"),
UNITED GROCERS, INC., an Oregon corporation, as guarantor ("Guarantor") and
NATIONAL CONSUMER COOPERATIVE BANK, a financial institution organized under
the laws of the United States ("Buyer").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Defined Terms. The following terms, as used herein, have
the following meanings:
"Advance" shall mean any advance made by the Servicer under Section
5.07A of this Agreement.
"Advance Guaranty" shall mean the guaranty of Advances provided by the
Guarantor pursuant to Section 7.01(c) hereof.
"Affiliate" shall mean, with respect to a Person, any other Person (or
group of related Persons) which (i) directly or indirectly controls, is
controlled by or is under common control with, such Person, or (ii) directly
or indirectly owns more than 5% of such Person's voting stock, or (iii) is a
director or officer of such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Aggregate Exposure" shall mean, for any Obligor Group, an amount,
without duplication, equal to the aggregate Principal Balance of all Loans
with respect to which any member of such Obligor Group is an Obligor or Loan
Guarantor.
"Anticipated Payment" shall have the meaning given in Section 5.08.
"Applicable Rate" shall mean during each Interest Accrual Period, a per
annum rate of 1% in excess of LIBOR determined on the related LIBOR
Determination Date, each calculated on the basis of actual days elapsed and a
360-day year.
"Available Funds" shall mean Collections, Principal Prepayments,
Payaheads, Net Liquidation Proceeds, Insurance Proceeds, Guaranty Payments,
Repurchase Proceeds and Advances.
"Bank Act" shall mean the National Consumer Cooperative Bank Act, 12
U.S.C. Sections 3001-3051, and any regulations and policies adopted
thereunder.
"Business Day" shall mean any day other than Saturday, Sunday and a day
on which banks in Portland, Oregon or Washington, D.C. are authorized to
close.
"Buyer" or "NCB" shall mean National Consumer Cooperative Bank, a
financial institution organized under the laws of the United States, and its
Successors and assigns.
"Carry-Forward Amount" shall mean, with respect to any Payment Date, the
excess, if any, of the Anticipated Payment for the preceding Payment Date
over the amount of Available Funds actually paid to the Buyer on the
preceding Payment Date, plus interest on such excess, to the extent permitted
by law, at the Applicable Rate.
"Cash Flow Ratio" shall mean, with respect to any Obligor Group, at any
date and for the period reflected in the related Obligor Group Financial
Statements, the consolidated ratio (expressed as a percentage) of (a) EBITDA
to (b) Cash Interest Expense plus CPLTD; provided that if the Obligor Group
has taken on new debt which is not reflected on the Obligor Group Financial
Statements, or if a new loan has been approved but not yet funded, the
denominator of the ratio will be adjusted to account for the CPLTD of the new
debt or loan and related interest expense.
"Cash Interest Expense" shall mean, for any period, gross interest
expense for such period determined in accordance with U.S. GAAP (other than
interest on tax assessments to the extent included in deferred taxes) minus
gross interest income for such period minus the amount of amortized debt
discount and fees for such period (to the extent included above).
"Closing Date" shall mean the date of each Incremental Purchase.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" shall mean all or any portion of the collateral, whether
real or personal, tangible or intangible, or otherwise, pledged by any
Obligor or Loan Guarantor to secure repayment of its Loan and the related
Note (other than Seller's capital stock and patronage dividends).
"Collateral Coverage Ratio" shall mean, with respect to any Obligor
Group, as of any date, as evidenced by Obligor Group Financial Statements,
the consolidated ratio (expressed as a percentage) of (a) the value of all
Collateral, to (b) the aggregate Principal Balance of all Loans for such
Obligor Group. For purposes of determining value, furniture, fixtures and
equipment of a retail grocery store will be valued at 3.5 times the
respective store's average weekly sales net of any prior liens, as evidenced
on the related Obligor Group Financial Statements. For purposes of
determining value, inventory located in Oregon or Washington will be net of
any inventory against which there are prior liens and will be valued at book
value as reflected on the related Obligor Group Financial Statements or a
more recent physical inventory valuation by Seller. For purposes of
determining value, inventory located in California will be net of any
inventory against which there are prior liens and be valued at ninety percent
of book value as reflected on the related Obligor Group Financial Statements
or a more recent physical inventory valuation by Seller. For purposes of
determining value, real estate will be net of any real estate against which
there are prior liens and will be valued at either (i) the assessed value, as
shown on the local assessor's lists, established no earlier than 9 months
before the date of the Incremental Purchase by the Buyer hereunder or
(ii) the value established by an MAI appraisal dated no earlier than 9 months
before the date of the Incremental Purchase by the Buyer hereunder, provided
that real estate Collateral will be valued at $0.00 if neither full Minimum
Documentation nor Standard Documentation is delivered with respect to such
Collateral for the purpose of making the representation in Section 4.02(oo)
hereof, the calculation of Collateral Coverage Ratio shall be modified as
provided in Section 4.02(oo).
"Collections" shall mean any and all amounts received from or on behalf
of the Obligors in respect of Loans and related Notes or Related Documents
during any applicable Due Period regardless of how received and including,
without limitation, receipt of Monthly Payments and payments from guarantors.
"Consolidated Net Tangible Assets" shall have the meaning given in
Section 7.03(j).
"Consolidated Net Worth" shall mean, with respect to any Person, as of
any date of determination, the consolidated balance sheet "net worth" of such
Person determined in accordance with U.S. GAAP.
"Consolidated Tangible Net Worth" means, with respect to any Person, at
any date, Consolidated Net Worth less (i) all assets which should be
classified as intangible assets (such as good will, patents, trademarks,
copyrights, franchises and covenants not to compete) and (ii) to the extent
not already deducted from total assets, all reserves including those for
deferred income taxes, depreciation, obsolescence or amortization of
properties and (iii) all capital stock or other investments in any direct or
indirect subsidiary other than in (x) any offshore investment subsidiary, or
(y) a subsidiary having all or substantially all of its operations in the
United States; provided, however, that, if and to the extent Buyer consents
thereto, for the purpose of determining the recourse classification of Loans,
an Obligor Group's Consolidated Tangible Net Worth shall be determined
without deducting from its Consolidated Net Worth that portion of the value
assigned to covenants not to compete relating to the purchase of any
facilities located in the States of Washington and California, as shown on
such Obligor Group Financial Statements.
"Controlled Group" means, with respect to any Person, all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which (1) together with such Person are
treated as a single employer under Section 414(b) or 414(c) of the Code or
(2) solely for purposes of potential liability under Section 302(c)(11) of
ERISA and Section 412(c)(11) of the Code and the lien created under Section
302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m)
or (n) of the Code, includes such Person as a member.
"CPLTD" shall mean, with respect to any Person, for any period, that
portion of such Person's long-term Debt (that is, Debt with a term of greater
than one year) which matures and is due and payable within such period.
"Credit and Collection Policy" means, with respect to Seller and
Servicer, the credit, collection, enforcement and other policies and
practices of the Seller or Servicer, as the case may be, relating to Loans,
related Notes and Related Documents existing on the Initial Closing Date and
as set forth in Exhibit H hereto, as the same may be modified from time to
time with the consent of the Buyer, which consent will not be unreasonably
withheld.
"Cut-Off Date" shall mean the first (1st) day of the month in which each
Incremental Purchase occurs.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments or
agreements (including obligations of the parties under this Agreement),
(iii) all obligations of such Person to pay the deferred purchase price of
property or services other than trade receivables and open accounts arising
in the ordinary course, (iv) all obligations of such Person as lessee which
are capitalized in accordance with generally accepted accounting principles,
(v) all Debt secured by a lien on any asset owned of such Person, whether or
not such Debt is otherwise an obligation of such Person which Debt, if Non-
Recourse to such Person, shall be deemed to be in an amount equal to the
lesser of the principal amount of such obligations or the aggregate fair
market value of such assets, and (vi) all Guaranteed Debt (including, in the
case of the Guarantor, the Guarantor's obligations under this Agreement).
"Defaulted Loan" shall mean, as of any date, a Loan with respect to
which any of the following has occurred: (a) the Servicer has determined, in
accordance with its Credit and Collection Policy, that there has occurred an
Obligor Default with respect to such Loan and such Obligor Default has been
continuing for a period of 10 days, (b) the Servicer has determined that an
Advance with respect to such Loan would constitute a Nonrecoverable Advance
if made pursuant to Section 5.07A, or (c) the Obligor under such Loan has
sought protection under the United States Bankruptcy Code or is the subject
of an involuntary bankruptcy.
"Due Date" shall mean the day of the month on which the Monthly Payment
is due from the Obligor on a Loan.
"Due Period" shall mean, with respect to any Payment Date, the calendar
month preceding the month in which such Payment Date occurs.
"EBITDA" means, for any Person, for any period, the consolidated net
income (or net loss) of such Person for such period as determined in
accordance with U.S. GAAP, plus (a) the sum of (i) depreciation expense,
(ii) amortization expense, (iii) Cash Interest Expense plus the amount of
amortized debt discount deducted in determining Cash Interest Expense and
fees, (iv) total income tax expense, and (v) extraordinary or unusual losses
(and other after-tax losses on sales of assets outside of the ordinary course
of business and not otherwise included in U.S. GAAP extraordinary or unusual
losses), less (b) the sum of (i) extraordinary or unusual gains (and other
after tax gains on sales of assets outside of the ordinary course of business
and not otherwise included in U.S. GAAP extraordinary or unusual gains) of
the Person for such period and (ii) the net income (or loss) of any Person
that is accounted for by the equity method of accounting, except to the
extent of the amount of dividends or distributions paid to such Person.
"Eligible Loan" shall mean a Loan as to which each applicable
representation and warranty in Section 4.02 is true and accurate on the
applicable Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Fixed Charge Coverage" shall have the meaning provided in Section
7.03(i).
"Full Recourse Loan" shall mean any Loan that is an Eligible Loan as to
which the Seller has received at least 12 Monthly Payments of principal.
"Funded Debt" means Debt which matures by its terms more than one year
from the date it was originally incurred, or is unconditionally renewable or
extendible at the option of the debtor to a date more than one year from such
date, or which arises under a revolving credit or similar agreement which
obligates the lender or lenders to extend credit over a period of more than
one year from such date.
"Government Approval" means an approval, permit, license, authorization,
certificate or consent of any Governmental Authority.
"Governmental Authority" means the government of the United States or
any State or any foreign country or any political subdivision of any thereof
or any branch, department, agency, instrumentality, court, tribunal or
regulatory authority which constitutes a part or exercises any sovereign
power of any of the foregoing.
"Guaranteed Debt" shall mean, as applied to any debt, for any Person
(i) a guarantee by such Person (other than by endorsement for collection in
the ordinary course of business), direct or indirect, in any manner, of any
part or all of such debt or (ii) a similar agreement, direct or indirect,
contingent or otherwise, providing for the payment or performance (or payment
of damages in the event of non-performance) of such Person of any part or all
of such debt. The amount of any Guaranteed Debt of such Person shall be
deemed to be the maximum amount of the debt guaranteed for which the
guarantor could be held liable under such Guaranteed Debt.
"Guaranty" shall mean the first loss guaranty of Liquidation Losses
provided by Guarantor in accordance with Section 7.01(a) of this Agreement.
"Guaranty Amount" shall mean, at any time, an amount equal to (a) the
sum of (i) fifteen percent (15%) of the Purchase Price of each Preferred
Loan, (ii) fifty percent (50%) of the Purchase Price of each Standard Loan,
and (iii) one hundred percent (100%) of the Purchase Price of each Full
Recourse Loan, minus (b) all amounts previously remitted or paid by Guarantor
to Buyer pursuant to the Guaranty; provided, however, that at no time shall
the Guaranty Amount be less than the sum of the Purchase Price of the sum of
the three largest Loans or the sum of the three largest Aggregate Exposures,
whichever is greater at such time.
"Guaranty Payments" shall mean the amounts paid by Guarantor to the
Buyer pursuant to the Guaranty, the Repurchase Guaranty or the Advance
Guaranty, as applicable.
"Guarantor" shall mean United Grocers, Inc., an Oregon corporation, and
its Successors and assigns.
"Incremental Purchase" shall have the meaning ascribed to such term in
Section 2.01A hereof.
"Initial Closing Date" shall mean May 13, 1994.
"Insurance Proceeds" shall mean proceeds paid by any insurer pursuant to
any insurance policy covering a Loan or Collateral, including but not limited
to title, hazard, life, health and/or accident insurance policies.
"Interest Accrual Period" shall mean, with respect to each Payment Date,
the period commencing on the 15th day of the month preceding such Payment
Date and ending on the 14th day of the month of such Payment Date, except
that, with respect to the first Payment Date, the initial Interest Accrual
Period shall commence on the Initial Closing Date.
"LIBOR" shall mean, for any Interest Accrual Period, the reserve-
adjusted London interbank rate for one-month Euro-Dollar deposits determined
by the Buyer for each Interest Accrual Period in accordance with the
provisions of Section 5.09.
"LIBOR Determination Date" shall mean the second Business Day prior to
the commencement of each Interest Accrual Period.
"Liquidated Loan" shall mean any Defaulted Loan as to which the Servicer
has determined that all amounts which it reasonably and in good faith expects
to recover have been recovered from or on account of such Loan.
"Liquidation Losses" shall mean, with respect to any Liquidated Loan, on
any date of determination, the amount by which (A) the sum of (i) the
Principal Balance of such Loan, (ii) accrued and unpaid interest thereon at
the Applicable Rates and (iii) unreimbursed reasonable fees and expenses
incurred by NCB or the Servicer in servicing the liquidation of Defaulted
Loan, exceeds (B) the Net Liquidation Proceeds and Insurance Proceeds
thereon.
"Liquidation Proceeds" shall mean, cash, other than Insurance Proceeds,
and any other amounts received in connection with the liquidation of
Defaulted Loans and related Collateral, whether through trustee's sale,
foreclosure sale or otherwise.
"Loan" shall mean each loan originated by Seller in the ordinary course
of its business and transferred to the Buyer pursuant to this Agreement,
together with the rights and obligations of a holder thereof, payments
thereon and proceeds therefrom, the Loans originally subject to this
Agreement being identified on the Loan Schedule. "Loan" shall also include
any Renewal Loan accepted by the Buyer under this Agreement.
"Loan File" means the documents pertaining to a Loan, including the
related Note and Related Documents delivered to the Buyer or its agent in
accordance with Section 2.01 of this Agreement in connection with the sale of
the Loan by Seller and the Renewal Note and Related Documents delivered to
the Buyer pursuant to Section 2.02 of this Agreement.
"Loan Guarantor" shall mean any Person who (i) guarantees an Obligor's
payment and/or other obligations under any Loan, (ii) co-signs, or is a co-
maker on, the related Note, or (iii) otherwise supports, either in a primary
or secondary position, an Obligor's obligations with respect to a Loan, the
related Note or other Related Documents.
"Loan Interest Rate" shall mean, with respect to any date of
determination, the then applicable annual rate of interest borne by a Loan,
pursuant to its terms, which, as of the applicable Closing Date, is shown on
the Loan Schedule.
"Loan Schedule" shall mean, the schedule of Loans attached hereto as
Schedule I, such schedule identifying each Loan by the name and address of
the Obligor and setting forth as to each Loan the following information: (i)
the Principal Balance as of the close of business on the applicable Closing
Date, (ii) the account number on Seller's records, (iii) the original
principal amount of the Loan, (iv) the date the Loan was made and original
number of months to maturity and original amortization period, in months, (v)
the Loan Interest Rate as of the applicable Cut-Off Date and whether fixed or
variable, (vi) when the first Monthly Payment was due, (vii) the Monthly
Payment as of the applicable Cut-Off Date, (viii) the remaining number of
months in the amortization period as of the applicable Cut-Off Date, (ix) if
the Loan has a variable Loan Interest Rate, the margin which is added to the
Prime Rate to determine the Loan Interest Rate, and the maximum and minimum
Loan Interest Rates, if applicable, (x) whether such Loan is a Preferred
Loan, Standard Loan or Full Recourse Loan, (xi) the Aggregate Exposure which
relates to such Loan, (xii) with respect to the related Obligor Group, the
Cash Flow Ratio and the Collateral Coverage Ratio as of the applicable Cut-
Off Date. The Loan Schedule shall be supplemented on the date of each
Incremental Purchase to include the Loans purchased on such date and shall be
amended to reflect in the pool of Loans sold hereunder including Renewal
Loans and Purchased Loans.
"Lockbox Account" shall mean the account, if any, established by the
Servicer pursuant to Section 5.07(a), for the receipt of payments related to
the Loans.
"MAI" shall mean Member of the American Institute of Real Estate
Appraisers.
"Minimum Documentation" means, with respect to a Loan secured by real
estate Collateral, (i) a certification of Seller as to the assessed value of
the related mortgaged property (which certification shall be based on a tax
assessment dated no later than 9 months before the Closing Date on which such
Loan first purchased by the Buyer), (ii) a completed environmental
questionnaire in the form prescribed by Seller and acceptable to Buyer, and
(iii) copies of any title search or report prepared by an attorney or title
company relating to the mortgaged property.
"Maximum Purchase Amount" shall mean $27,000,000, unless otherwise
increased or reduced by the parties hereto.
"Monthly Interest Amount" shall have the meaning given in Section 5.08.
"Monthly Payment" shall mean the monthly payment of principal and/or
interest required to be made by an Obligor on the related Loan pursuant to
the terms of the related Note.
"Multiemployer Plan" shall mean, for any Person, a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA which is or was at any time during
the current year or the immediately preceding five years contributed to by
such Person or any member of a Controlled Group on behalf of its employees
and which is covered by Title V of ERISA.
"Net Liquidation Proceeds" shall mean Liquidation Proceeds net of (i)
any reimbursements to the Servicer made therefrom pursuant to Section 5.07
and (ii) amounts required to be released to the related Obligor pursuant to
applicable law.
"Non-Recourse Debt" means Debt or that portion of Debt of any Person or
a Subsidiary of such Person as to which (a) the holders of such Debt agree
that they will look solely to the property securing such Debt for payment on
or in respect of such Debt and (b) no default with respect to such Debt would
permit (after notice or passage of time or both) according to the terms
thereof, any holder of any Debt for money borrowed by such Person or a
Subsidiary of such Person to declare a default on such Debt or cause the
payment thereof to be accelerated or payable prior to stated maturity.
"Nonrecoverable Advance" shall mean any Advance made by the Servicer
pursuant to Section 5.07A which, in the good faith judgment of the Servicer,
will not be ultimately recoverable by the Servicer from Insurance Proceeds or
Liquidation Proceeds or otherwise.
"Note" shall mean any promissory note evidencing the indebtedness of an
Obligor under a Loan, and shall include a Renewal Note accepted by the Buyer
under this Agreement.
"Notice of Assignment" shall mean a Notice of Assignment executed by
Seller in substantially the form of the annexed Exhibit B.
"Obligor" shall mean the Person or Persons primarily obligated to repay
the Loan and the indebtedness evidenced by the related Note including,
without limitation, all Persons executing such Note (regardless of whether
they have also executed all subsequent extension agreements relating to such
Note).
"Obligor Default" shall mean (a) the failure by a Obligor to pay when
due (whether a Monthly Payment, at maturity, upon required prepayment,
acceleration, demand or otherwise) the Loan and the indebtedness evidenced by
related Note or any Related Document, or any interest or premium thereon
which failure continues after the applicable grace period, if any, specified
in such Note or Related Document relating to such Loan; or (b) the failure by
an Obligor to perform any term or covenant on its part to be performed under
any Loan, related Note or Related Document which failure continues after the
applicable grace period, if any, specified in the Note or Related Document,
if the effect of such failure to perform is to accelerate or to permit the
acceleration of the maturity of the indebtedness evidenced by such Note or
Related Document; or (c) the occurrence of an event or condition whereby the
indebtedness related to the Loan of any Obligor shall be declared to be due
and payable or required to be prepaid (other than by regularly scheduled
required prepayment) prior to the stated maturity thereof.
"Obligor Group Financial Statements" shall mean the balance sheets and
related statements of income and retained earnings prepared in accordance
with U.S. GAAP which shall be prepared by an accounting service and signed by
appropriate officers of the Obligor Group. For purposes of ratio
determination, the financial statements reflecting the most recent fiscal
year's results will be used, provided that if such financial statements
reflect a period ended more than nine months earlier, an interim statement
covering at least two quarters' results shall be used.
"Obligor Group" shall include an Obligor and any of its Affiliates and
Subsidiaries.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Payaheads" shall mean, with respect to a Due Period, any amounts
received on a Loan in excess of the Monthly Payment due on the Due Date
relating to such Due Period which does not constitute either a Principal
Prepayment or payment with respect to an overdue amount. Payaheads are
payments of principal for purposes of this Agreement.
"Payment Date" shall mean the fifteenth (15th) day of each calendar
month unless such day is not a Business Day, in which event, "Payment Date"
shall mean the next succeeding Business Day. The initial Payment Date shall
occur on the fifteenth (15th) day of the month following the Initial Closing
Date.
"Pension Plan" means an "employee pension benefit plan" (as such term is
defined in ERISA) from time to time maintained by the Seller or a member of
the Controlled Group.
"Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government
or political subdivision or any agency or instrumentality thereof.
"Plan" shall mean, for any Person, at any time, an employee pension
benefit plan, other than a Multiemployer Plan, which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code and is either (i) maintained by such Person or any member of a
Controlled Group for employees of such Person or any member of such
Controlled Group or (ii) maintained pursuant to collective bargaining
agreement or other arrangement under which more than one employer makes
contributions and to which such Person or any member of a Controlled Group is
then making or accruing an obligation to make contributions or has within the
preceding five (5) plan years made contributions.
"Preferred Loan" shall mean any Loan which is an Eligible Loan and which
falls into either of the following categories: (i) the Obligor Group related
thereto has a Collateral Coverage Ratio of at least 110% and a Cash Flow
Ratio of at least 100%; or (ii)(a) the Obligor Group related thereto has a
Collateral Coverage Ratio and Cash Flow Ratio of at least 85% each and a
combined Collateral Coverage Ratio and Cash Flow Ratio of at least 240%, and
(b) the Obligor Group related thereto has a Consolidated Tangible Net Worth
greater than $0.00.
"Primary Collateral" shall mean that portion of the Collateral in which
Seller had, prior to the sale and assignment hereunder, first priority
perfected security interests.
"Prime Rate" shall mean the "Prime Rate" from time to time published in
the "Money Rates" section of the Wall Street Journal; provided, however, that
if such rate is not published in the Wall Street Journal, the Prime Rate
shall be a substantially comparable index selected by the Seller and approved
by the Buyer.
"Principal Balance" shall mean, with respect to any Loan, at any date of
determination, (i) the principal balance of the Loan outstanding as of the
applicable Cut-Off Date, after application of the principal payments received
on or before such date, minus (ii) the sum of (a) the principal portion of
the Monthly Payments received during each Due Period ending prior to the most
recent Payment Date, which were distributed pursuant to Section 5.07 on any
previous Payment Date, and (b) all Principal Prepayments, Payaheads,
Insurance Proceeds, Net Liquidation Proceeds, Guaranty Payments and
Repurchase Proceeds to the extent applied by the Servicer as recoveries of
principal in accordance with the provisions hereof, which were distributed
pursuant to Section 5.07 on any previous Payment Date.
"Principal Prepayment" shall mean any payment or other recovery of
principal on a Loan equal to the Principal Balance thereof, received in
advance of the final scheduled Due Date which is intended to satisfy a Loan
in full. Principal Prepayment shall also include, with respect to a Loan
that has provisions for renewal, all or any portion of the Principal Balance
of the related Note that is greater than the Renewal Balance, if any.
"Prior Note" shall have the meaning given in the definition of "Renewal
Note".
"Property" shall mean the Loans, the related Notes, Related Documents,
Collateral pledged to secure the Loans, and other rights, title and interest
of the Seller conveyed and sold pursuant to Section 2.01(a) or conveyed and
accepted by Buyer pursuant to Section 3.02 hereof.
"Purchase Amount" shall mean the amount set forth as such in Section
2.01(e).
"Purchase Price" shall have the meaning given in Section 3.01.
"Purchased Loans" shall mean all Loans purchased by or on behalf of the
Seller, whether through a payment of Repurchase Proceeds by the Seller
pursuant to Sections 2.01(e), 2.02(c), 3.02, 4.05, 8.03 and 10.02, or through
a payment by the Guarantor on its Repurchase Guaranty pursuant to Section
7.01(b).
"Rating Agency" shall mean Standard & Poor's Corporation, Moody's
Investors Service, Inc., or any Successor of either, or any other nationally-
recognized rating agency.
"Related Documents" shall mean with respect to each Loan and related
Note, a loan agreement, a security agreement, a mortgage, an assignment of
lease and all other documents, instruments or assignments (including
amendments or modifications thereof) executed by the Obligor or other Person
on Obligor's behalf in respect of such Loan and related Note, including,
without limitation, general or limited guaranties.
"Renewal Balance" shall mean for each Renewal Note, the Principal
Balance evidenced thereby on its Renewal Date.
"Renewal Date" shall have the meaning given in the definition of
"Renewal Note."
"Renewal Loan" shall mean a loan evidenced by a Renewal Note.
"Renewal Note" shall mean a Note accepted by Buyer (i) which is
substantially in the form of the annexed Exhibit C (ii) which is executed by
all of the Obligors and Loan Guarantors of a note related to a Loan
previously sold to Buyer ("Prior Note") which Prior Note was to be paid in
full on the date the Renewal Note first becomes effective ("Renewal Date");
(iii) which evidences an obligation to repay a principal amount equal to or
less than the principal amount required to be paid by the Obligor under the
Prior Note on the Renewal Date; (iv) which provides for monthly principal
payments in amounts not less than the monthly principal payments required
pursuant to the terms of the Prior Note; (v) which provides that on and after
the first Renewal Date after the purchase by the Buyer hereunder, the related
Loan will fully amortize over the remaining term to maturity; and (vi) which
remains subject to and secured by all of the Related Documents applicable to
the Prior Note (as the same may be amended and restated by the terms of the
Renewal Note).
"Repurchase Guaranty" shall mean the guaranty of Seller's repurchase
obligation provided by the Guarantor pursuant to Section 7.01(b) hereof.
"Repurchase Proceeds" shall mean the amounts received from Seller with
respect to a Purchased Loan.
"Responsible Officer" shall mean when used with respect to the Buyer,
Servicer, any Subservicer, Guarantor or Seller, the chairman of the Board of
Directors, any vice chairman of the Board of Directors, the chairman of the
executive committee, any vice chairman of the executive committee, the
president, any vice president (whether or not designated by numbers or words
added before or after the title "vice president"), the secretary, the
treasurer, any assistant treasurer, or any other officer or assistant officer
of the Buyer, the Servicer, any Subservicer, Guarantor or Seller customarily
performing functions similar to those performed by the Persons who at the
time shall be such officers, respectively.
"Seller" shall mean United Resources, Inc., an Oregon corporation, and
its Successors and assigns.
"Servicer" means United Resources, Inc., an Oregon Corporation, or its
Successors or assigns.
"Servicer Default" shall mean any act or occurrence described as a
Servicer Default under Section 9.01 hereof.
"Servicer Payment Date" shall mean the Business Day preceding each
Payment Date.
"Servicing Account" means the servicing account, if any, established by
Section 5.07 hereof.
"Servicing Fee" shall have the meaning given in Section 5.08.
"Servicing Officer" shall mean any officer of the Servicer, Subservicer
or any agent of the Servicer or Subservicer involved in, or responsible for,
the administration or servicing of the Loans whose name appears on a list of
servicing officers furnished to the Buyer by the Servicer or Subservicer in
the certificate pursuant to Section 5.01(b) or Section 5.13(f), as such list
may from time to time be amended.
"Standard Loan" shall mean any Loan (i) that is an Eligible Loan and
(ii) with respect to which the product of the related Obligor Group's Cash
Flow Ratio and Collateral Coverage Ratio is at least equal to 100%.
"Standard Documentation" means, with respect to a Loan secured by real
estate Collateral, (i) an MAI appraisal dated no later than 9 months before
the Closing Date on which such Loan first purchased by the Buyer, (ii) a
Phase I environmental survey (except that for real estate Collateral which is
residential property, an environmental questionnaire in the form prescribed
by Seller acceptable to Buyer is acceptable) and (iii) originals of all title
insurance policies relating to the mortgaged property.
"Subordinated Debt" means, with respect to any Person, Debt of such
Person which by its terms provides that no payments or distributions may be
made thereon or in respect thereto at any time when a default has occurred
and is continuing under any document providing for repayment of Debt of such
Person for borrowed money (other than such Subordinated Debt) or for the
payment by such Person of the purchase price of tangible property.
"Subservicing Agreement" shall mean any written contract between the
Servicer and any Subservicer relating to the servicing or administration of
all or any portion of the Loans, related Notes and Related Documents.
"Subservicer" shall mean any Person to which the Servicer from time to
time may delegate all or any part of its servicing obligations hereunder
pursuant to Section 5.13.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"Successor" means, for any corporation or banking association, any
successor by merger or consolidation, or by acquisition of substantially all
of the assets of the predecessor.
"Termination Date" shall mean the first date on which (i) all Loans
shall have been paid in full or, (ii) all Loans shall have been repurchased
by or on behalf of Seller pursuant to Section 2.01(e), 2.02(c), 3.02, 4.05,
7.01(b), 8.02, 8.03 or 10.02.
"Termination Event" shall have the meaning given in Section 10.01.
"Unfunded Vested Liability" shall mean, with respect to any Person and
any Plan, at any time, the amount (if any) by which (a) the present value of
all vested nonforfeitable benefits under such Plan exceeds (b) the fair
market value of all Plan assets allocable to such benefits, all determined as
of the then most recent evaluation date for such Plan, but only to the extent
that such excess represents a potential liability of such Person or any
member of the Controlled Group to the PBGC of the Plan under Title IV of
ERISA.
"U.S. GAAP" has the meaning specified in Section 1.03.
SECTION 1.02 General Principles Applicable to Definitions.
Definitions given in Section 1.01 shall be equally applicable to both
singular and plural forms of the terms therein defined and references herein
to "he" or "it" shall be applicable to Persons whether masculine, feminine or
neuter. References herein to any document including, without limitation,
this Agreement, a Loan, a Note, an Assignment and a Related Document shall be
deemed a reference to such document as it now exists, and as, from time to
time hereafter, the same may be amended.
SECTION 1.03 Accounting Terms. Except as otherwise provided herein,
accounting terms not specifically defined shall be construed, and all
accounting procedures shall be performed, in accordance with generally
accepted United States accounting principles ("U.S. GAAP") consistently
applied.
[End of Article I]
<PAGE>
ARTICLE II
THE COMMITMENT
SECTION 2.01 Agreement to Purchase and Sell Loans. (a) At the time
of each Incremental Purchase pursuant to Section 2.01A hereof, Seller does
hereby assign, sell, set-over, transfer and otherwise convey to the Buyer,
without recourse (but subject to Seller's covenants, representations,
warranties and indemnities specifically provided herein), all of Seller's
right, title and interest in, to and under (i) each Loan purchased on the
date of such Incremental Purchase and any and all moneys of whatsoever nature
(payable upon the occurrence of any event) payable pursuant to each such Loan
after the applicable Cut-Off Date, including payments on the related Note,
all Insurance Proceeds, any Net Liquidation Proceeds, other Collections, and
any other amounts payable in connection with the termination of such Loan,
(ii) all rights, powers, and remedies of Seller under or in connection with
each such Loan, whether arising under the terms of such Loan, by statute, at
law or in equity, or otherwise arising out of any default by the Obligor
under such Loan, including all rights to exercise any election or option or
to make any decision or determination or to give or receive any notice,
consent, approval or waiver thereunder, (iii) all security interests and lien
rights of Seller in each item of Collateral pledged to secure any such Loan,
all additions, alterations, accessions or modifications thereto or
replacement of any part thereof, and all intangibles and other rights
associated with the Collateral, (iv) all rights of Seller under each Related
Document, in each case as the same may be modified, amended, supplemented or
restated from time to time, (v) all documents of title, books and records
concerning the foregoing property (including all computer programs, tapes,
disks and related items containing any such information), and (vi) all
proceeds, products, rents or profits of the foregoing of any nature
whatsoever, including all Insurance Proceeds and Net Liquidation Proceeds
(with each Renewal Loan, related Renewal Note and Related Documents conveyed
by Seller and accepted by Buyer pursuant to Section 3.02 hereof,
collectively, the "Property"). The foregoing transfer, sale, assignment and
conveyance does not constitute and is not intended to result in the creation,
or an assumption by the Buyer, of any obligation of Seller or any other
Person in connection with any Loan, the related Note, Related Documents or
Collateral or under any agreement or instrument relating thereto, including
any obligation to any Obligor.
(b) In connection with each transfer, sale and assignment of
Loans, the Buyer hereby directs Seller to deliver to the Buyer as of the date
of each Incremental Purchase the Loan Files with respect to the Loans
transferred and sold on the date of each such Incremental Purchase, which
shall include, but not be limited to, the following:
(i) the original Notes, endorsed by Seller as follows: "Pay
to the order of National Consumer Cooperative Bank, without recourse"
and signed by a Responsible Officer of Seller, with all prior and
intervening endorsements showing a complete chain of endorsement from
the originator to Seller, if Seller was not the originator, together
with all originals or copies of Renewal Notes in Seller's possession;
(ii) executed original counterparts of the Related Documents,
together with executed originals of all modifications or amendments
thereof;
(iii) [RESERVED]
(iv) irrevocable power of attorney of Seller to the Buyer to
execute, deliver, file, record or otherwise deal with the Collateral for
the Loans in accordance with this Agreement. The power of attorney will
be delegated by the Buyer to the Servicer and will permit the Buyer (or
Servicer on its behalf) to prepare, execute and file of record UCC
financing statements and other notices;
(v) documents evidencing or related to any insurance policies;
(vi) With respect to Loans secured by mortgages on real
property, Buyer shall have received (A) either: (i) the original
mortgage, with evidence of recording thereon, (ii) a copy of the
mortgage certified as a true copy by a Responsible Officer of Seller
where the original has been transmitted for recording until such time as
the original is returned by the public recording officer or duly
licensed title or escrow officer or (iii) a copy of the mortgage
certified by the public recording office in those instances where the
original recorded mortgage has been lost; (B) either: (i) the original
assignment of mortgage from Seller endorsed as follows: "National
Consumer Cooperative Bank," with evidence of recording thereon
(provided, however, that where permitted under the laws of the
jurisdiction wherein the mortgaged property is located, the assignment
of mortgage may be effected by one or more blanket assignments for Loans
secured by mortgaged properties located in the same county), or (ii) a
copy of such assignment of mortgage certified as a true copy by a
Responsible Officer of Seller where the original has been transmitted
for recording (provided, however, that where the original assignment or
mortgage is not being delivered to the Buyer, each such Responsible
Officer may complete one or more blanket certificates attaching copies
of one or more assignments of mortgage relating to the mortgages
originated by Seller); and (C) either: (i) originals of all intervening
assignments, if any, showing a complete chain of title from the
originator to Seller, including warehousing assignments, with evidence
of recording thereon if such assignments were recorded, (ii) copies of
any assignments certified as true copies by a Responsible Officer of
Seller where the originals have been submitted for recording until such
time as the originals are returned by the public recording officer, or
(iii) copies of any assignments certified by the public recording office
in any instances where the original recorded assignments have been lost;
and (D) either: (i) with respect to all Loans which are secured by real
estate Collateral, available Minimum Documentation or Standard
Documentation;
(vii) copies of all UCC-1 financing statements identifying
each Loan, related Collateral and Related Documents and naming the Buyer
as secured party and Seller as debtor, to be filed in Oregon, Washington
and California.
(c) In addition, concurrently with or prior to each Incremental
Purchase, Seller agrees to cause any UCC-1 financing statements, UCC-3
assignments or other instruments necessary to perfect the ownership or
security interests granted and assigned by Seller to the Buyer in the Loans
and other Property transferred and sold on the date of each such Incremental
Purchase (other than UCC-1 financing statements naming the Obligors under the
Loans as debtors) to be filed or recorded in all such appropriate places as
are required to protect the Buyer's interest in such Loans and such other
Property, and to deliver a file-stamped copy of such financing statements or
other evidence of such filings to the Buyer. Seller and Buyer agree that
with respect to each Loan, Related Document and item of Primary Collateral,
Seller will make all filings and take all such other actions necessary to
perfect Buyer's first priority security interest therein, and, with respect
to each item of Collateral which is not Primary Collateral, Seller will make
all filings and take all such other actions necessary to perfect Buyer's
security interest therein to the same level of priority enjoyed by the Seller
at the time of the Incremental Purchase of the related Loan.
(d) It is the intention of the parties to this Agreement that each
conveyance of Seller's right, title and interest in and to the Property
pursuant to this Agreement shall constitute a purchase and sale and not a
loan. If, notwithstanding the foregoing, the conveyance of the Property to
the Buyer hereunder is characterized by any third party as a pledge, the
parties intend that Seller shall be deemed hereunder to have granted to the
Buyer a first priority perfected security interest in all of Seller's right,
title and interest in, to and under the Loans, the Notes, the related
Collateral and Related Documents, and all monies due or to become due with
respect thereto after the applicable Cut-Off Date, and that this Agreement
shall constitute a security agreement under applicable law.
(e) If the Buyer determines that any documents or documents
constituting a part of a Loan File are missing or defective (that is,
mutilated, damaged, defaced, incomplete, improperly dated, clearly forged or
otherwise physically altered) with respect to any Loan in any respect which
materially and adversely affects the interests of the Buyer, then the Buyer
shall promptly notify Seller, whereupon Seller shall have a period of 30
days, within which to correct or cure any such defect. If any such material
defect has not been corrected or cured in all material respects as described
below, notwithstanding any other provision of this Agreement, Seller will, as
of the end of such 30th day (or earlier if Seller elects), repurchase the
related Loan from the Buyer at a price equal to the sum (without duplication)
of (i) the Principal Balance of such Loan as of the first day of the Due
Period following the Due Period during which such repurchase occurs, (ii) the
aggregate amount of all Monthly Payments on such Loan due on or prior to the
last day of the Due Period during which such repurchase occurs not previously
made by the Obligor or advanced by or on behalf of the Servicer (including by
the Guarantor pursuant to the Advance Guaranty) and (iii) the amount of any
outstanding Advances and Guaranty Payments pursuant to the Advance Guaranty
made in respect of such Loan (the "Purchase Amount"). The Purchase Amount
shall be paid by Seller to the Servicer in immediately available funds by the
last day of the Due Period during which such repurchase obligation arises
and, upon receipt by the Servicer of such deposit, the Servicer shall release
or cause to be released to Seller the related Loan Files and shall execute
and deliver or cause to be executed and delivered such instruments of
transfer or assignment of such Loan, the security interest in the related
Property, in each case without recourse, representation or warranty, as
Seller shall reasonably request (as shall be prepared by and at the expense
of Seller). It is understood and agreed that the obligation of Seller to
repurchase any Loan as to which a material defect in a constituent document
exists and to make the related payments as described in this Section 2.01(e)
shall, together with the indemnification rights contained in Article 11.02
and the right of Buyer to be reimbursed for reasonable fees and expenses
incurred in effecting this repurchase, constitute the sole remedies against
Seller with respect to such defective Loan available to the Buyer.
SECTION 2.01A Incremental Purchase. (a) Subject to the terms and
conditions hereof, the Seller may at any time prior to June 30, 1994 (or such
later date as is approved by Buyer) sell to the Buyer and the Buyer shall
purchase from the Seller certain identified Loans and Property related
thereto (each, an "Incremental Purchase"); provided, however, that no
Incremental Purchase shall be for a principal amount of less than $3,000,000
(other than the final Incremental Purchase which may be in such lesser amount
as agreed to by Buyer) and provided further, that the Buyer shall not be
obligated to make an Incremental Purchase (or any portion thereof) to the
extent such Purchase (or any portion thereof), together with all previous
Incremental Purchases, would exceed the Maximum Purchase Amount.
(b) The Seller shall provide the Buyer with written notice of its
intention to request an Incremental Purchase in the form of Exhibit L hereto
no later than ten (10) Business Days before each Incremental Purchase and
shall provide the Buyer with at least five (5) Business Days to review the
Loan Files relating to each Incremental Purchase. Upon satisfaction of all
terms and conditions contained herein, Buyer shall pay to the Seller the
Purchase Price of each Incremental Purchase on the applicable Closing Date.
SECTION 2.02 Agreement to Accept Renewal Notes. (a) Subject to the
terms and conditions of this Agreement, including delivery of the Renewal
Notes and satisfaction of the other delivery and filing requirements set
forth in Section 2.01 hereof no later than five (5) Business Days before the
applicable Renewal Date, and upon at least 30 days' written notice from
Seller, the Buyer agrees to accept on any Renewal Date such Renewal Loans as
Seller shall have caused Obligors of the related Prior Notes to execute and
deliver.
(b) The parties to this Agreement intend that the conveyance of
each Renewal Loan and related Property by Seller and acceptance thereof by
Buyer shall constitute a purchase and sale and not a loan.
(c) If any document or documents constituting part of a Loan File
relating to a Renewal Loan are missing or defective as described in section
2.01(e) hereof, the Buyer shall have the same rights against Seller as
provided in such Section 2.01(e).
[End of Article II]
<PAGE>
ARTICLE III
CLOSING PROCEDURE; CONDITIONS TO PURCHASE
SECTION 3.01 Payment. Subject to Section 3.04, the Buyer shall pay in
immediately available funds to Seller, on or before 12:00 noon Washington,
D.C. time, on each Closing Date, the sum of (i) 100% of the Principal Balance
of each Preferred Loan sold by the Seller to Buyer on such Closing Date,
(ii) 100% of the Principal Balance of each Standard Loan sold by the Seller
to the Buyer on such Closing Date, and (iii) 100% of the Principal Balance of
each Full Recourse Loan sold by Seller to Buyer on such Closing Date (each
such sum, collectively, the "Purchase Price").
SECTION 3.02 Acceptance - Renewal Loans. For each Loan with
provisions for renewal on a Renewal Date, no later than thirty (30) days
before the Renewal Date for such Loan, Seller shall provide Buyer with a
notice that (i) identifies the Loan and related Note by original dated date,
face amount, Loan Interest Rate, and name of Obligor, (ii) identifies the
Renewal Date of such Loan, and (iii) states whether all or any part of the
Principal Balance of such Loan will be renewed on the Renewal Date, and if
the Loan is to be renewed, the anticipated Renewal Balance. No later than
five (5) Business Days before the Renewal Date for any Loan to be renewed,
the Seller shall deliver to the Buyer the Renewal Note and other documents
required by Section 2.01 hereof. On the applicable Renewal Date for any Loan
which is to be renewed, Buyer shall, subject to satisfaction of the delivery
requirements of Section 2.02 and the conditions set out in Section 3.04,
accept a Renewal Note from Seller (in lieu of receiving the Renewal Balance)
as payment in full of a portion of the Outstanding Balance of the Prior Note
equal to the Renewal Balance. In the event that Seller has caused a Renewal
Note to be executed but the conditions precedent to acceptance thereof set
out in Section 3.04 have not been satisfied or waived by the Renewal Date,
Seller shall on such Renewal Date repurchase such Renewal Loan on the same
terms as stated in Section 2.01(e).
SECTION 3.03 Effective Date. Each sale made pursuant to Sections 2.01
and 2.01A shall be effective, and all right, title and interest in the Loans
and the related Property so sold shall pass to the Buyer at such time as
Buyer shall pay the Purchase Price in respect thereof.
SECTION 3.04 Buyer's Conditions Precedent to Acceptance. The
obligation of Buyer to pay the Purchase Price on each Closing Date and to
accept the Renewal Loans and Notes on any applicable Renewal Date is subject
to the fulfillment on such Closing Date or Renewal Date, as the case may be,
of each of the following conditions (relating only to the Loans purchased or
renewed on each such Date):
(a) Buyer shall have received the original Notes or Renewal Notes,
as the case may be, and such Notes shall have been duly endorsed by Seller
without recourse or warranty except as provided herein, and of the Related
Documents;
(b) Buyer shall have received the original executed counterpart of
the loan agreement, security agreement and other Related Documents with
respect to each Loan (or, to the extent more than one original counterpart
exists, all original executed counterparts of such agreements and Related
Documents that are in the possession of the Seller or any of its Affiliates),
and each such Document shall be in a form reasonably satisfactory to Buyer;
(c) The Buyer shall have received a duly executed Notice of
Assignment in the form annexed hereto as Exhibit B addressed to each Obligor
of a Note related to a Loan;
(d) With respect to Loans secured by mortgages on real property,
Buyer shall have received (A) either: (i) the original mortgage, with
evidence of recording thereon, (ii) a copy of the mortgage certified as a
true copy by a Responsible Officer of Seller where the original has been
transmitted for recording until such time as the original is returned by the
public recording officer or duly licensed title or escrow officer or (iii) a
copy of the mortgage certified by the public recording office in those
instances where the original recorded mortgage has been lost; (B) either:
(i) the original assignment of mortgage from Seller endorsed as follows:
"National Consumer Cooperative Bank," with evidence of recording thereon
(provided, however, that where permitted under the laws of the jurisdiction
wherein the mortgaged property is located, the assignment of mortgage may be
effected by one or more blanket assignments for Loans secured by mortgaged
properties located in the same county), or (ii) a copy of such assignment of
mortgage certified as a true copy by a Responsible Officer of Seller where
the original has been transmitted for recording (provided, however, that
where the original assignment or mortgage is not being delivered to the
Buyer, each such Responsible Officer may complete one or more blanket
certificates attaching copies of one or more assignments of mortgage relating
to the mortgages originated by Seller); and (C) either: (i) originals of all
intervening assignments, if any, showing a complete chain of title from the
originator to Seller, including warehousing assignments, with evidence of
recording thereon if such assignments were recorded, (ii) copies of any
assignments certified as true copies by a Responsible Officer of Seller where
the originals have been submitted for recording until such time as the
originals are returned by the public recording officer, or (iii) copies of
any assignments certified by the public recording office in any instances
where the original recorded assignments have been lost; and (D) with respect
to all Loans which are secured by real estate Collateral, all available
Standard Documentation or Minimum Documentation;
(e) Seller has, or on the applicable Closing Date will have, (1) a
first priority perfected security interest in each item of Primary
Collateral, free from any lien, security interest, encumbrance or other
right, title or interest of any Person, and (2) a perfected security interest
in each other item of Collateral, subject to the prior liens, security
interests and encumbrances existing on, and identified to and approved by the
Buyer on the applicable Closing Date. Seller shall, on the applicable
Closing Date, transfer its security interest in the Collateral subject to the
rights of the holder of title in and to the Collateral and of the Obligors in
the Collateral under the Loans, related Notes and Related Documents (and in
the case of Collateral which is not Primary collateral, holders of prior
liens), and the Seller, as agent for the Buyer, shall defend Buyer's security
interest in and to the Collateral related to any Loan against all claims and
demands of all Persons at any time claiming the same or any interest therein
adverse to that of obligors or Buyer;
(f) On each applicable Closing Date, at least 90% of the
Collateral securing each Loan must consist of Primary Collateral;
(g) The Buyer shall have received a Uniform Commercial Code
financing statement on Form UCC-l naming Buyer as "Secured Party" and
executed by Seller as "Debtor" covering the Loans, related Notes, related
Collateral, the Related Documents and the proceeds thereof, in form and
content sufficient for filing in the appropriate offices in the States of
Oregon, Washington and California;
(h) The Buyer shall have received Uniform Commercial Code
financing statements on Form UCC-3 executed by Seller as "Assignor"
evidencing the assignment to the Buyer by Seller of all security interests in
personal property, arising in favor of Seller under the Related Documents, on
the Collateral relating to the Loans (other than security interests in
Seller's capital stock and patronage dividends) in form and content
sufficient for filing with the applicable location for central filing in the
state where the related form UCC-l is filed;
(i) The Buyer shall have received Assignments of Deeds of Trust
executed by Seller as "Assignor" evidencing the assignment to Buyer by Seller
of all security interests in real property arising in favor of Seller under
the Related Documents in form and content sufficient for filing in the real
property recording districts in which such real property is located;
(j) The Buyer shall have received evidence reasonably satisfactory
to Buyer that the security interests arising in favor of Seller under the
Related Documents and the Collateral therein described (other than Seller's
capital stock and patronage dividends) have been duly perfected by the filing
of all such Uniform Commercial Code financing statements and the taking of
all such other or additional acts as may be necessary to create a valid and
perfected lien enforceable against all third parties in all jurisdictions to
secure each Obligor's respective obligations to the Seller under the Loans,
related Notes and Related Documents and evidence reasonably satisfactory to
Buyer, which shall consist of the filing of amendments to financing
statements in appropriate jurisdictions necessary to evidence United Grocers,
Inc.'s and any other person's subordinate security interests in the Loans,
related Collateral and Related Documents, lien searches of "recent" date and
"sufficient" detail (as "recent" and "sufficient" are defined for each
purchased Loan in Exhibit Q hereof) in appropriate jurisdictions and, in the
case of real estate Collateral, title policies and lien and title searches by
attorneys of title companies, that such lien is a perfected lien of first
priority in respect of the Primary Collateral and enforceable, in the case of
all other Collateral, against third parties whose interests are subordinate
to the interest of the Seller sold and assigned to Buyer hereunder;
(k) The Buyer shall have received evidence reasonably satisfactory
to Buyer that the security interests arising in its favor under this
Agreement in the Loans, related Notes, related Collateral, the Related
Documents and the proceeds thereof has been duly perfected by the filing of
all such Uniform Commercial Code financing statements and the taking of all
such other or additional acts as may be necessary to create a valid and
perfected lien of first priority enforceable against all third parties (other
than prior lien holders in the case of Collateral which is not Primary
Collateral) in all jurisdictions to secure all of Seller's obligations to
Buyer;
(l) No Termination Event, and no event which with the giving of
notice or passage of time or both would constitute a Termination Event shall
have occurred and be continuing, and a Responsible Officer of Seller shall
have so certified to Buyer in writing;
(m) Each representation and warranty of the Seller set forth in
Section 4.01, 4.02 or 4.03 shall be true and correct in all material
respects, and a duly Responsible Officer of Seller shall have so certified to
Buyer in writing in substantially the form of Exhibit M hereto;
(n) Each representation and warranty of Guarantor set forth in
Section 7.02 hereof shall be true and correct in all material respects, and a
duly Responsible Officer of Guarantor shall have so certified to Buyer in
writing in substantially the form of Exhibit N hereto;
(o) Each representation and warranty of Servicer set forth in
Section 5.12 shall be true and correct in all material respects, and a duly
Responsible Officer of Servicer shall have so certified to Buyer in writing
in substantially the form of Exhibit O hereto;
(p) Buyer shall have received all of the Schedules (or in the case
of a Closing Date subsequent to the Initial Closing Date or a Renewal Date,
supplements or modifications of such Schedules, if necessary) (including the
Loan Schedule) required by this Agreement and they shall be in a form
reasonably acceptable to Buyer;
(q) Buyer shall have received from Seller financial and other
documentation supporting the Seller's calculation of Cash Flow Ratio and
Collateral Coverage Ratio with respect to each Obligor Group having an
Aggregate Exposure as of such Closing Date of $250,000 and greater;
(r) Seller shall have paid or provided for the payment of all fees
and expenses, including the Buyer's out-of-pocket expenses and the fees of
Buyer's counsel, incurred in selling the Loans pursuant to this Agreement;
(s) Buyer shall have received an opinion of counsel for Seller
dated the applicable Closing Date substantially in the form of paragraph 8 in
Exhibit D hereto.
SECTION 3.05 Additional Delivery Requirements for Initial Closing
Date. The obligation of the Buyer to perform any of its obligations under
this Agreement shall be further subject to satisfaction of each of the
following delivery requirements on the Initial Closing Date (or on the date
specified below) to the reasonable satisfaction of Buyer:
(a) Buyer shall have received an opinion of counsel for Seller
dated such date and substantially in the form of Exhibit D hereto, and within
30 days of the Initial Closing Date, Buyer shall have received an opinion of
counsel to the effect that this Agreement is a legal, valid and binding
obligation of the Seller, Servicer and Guarantor enforceable against such
parties under the laws of the State of New York;
(b) Buyer shall have received an opinion of counsel for Servicer
dated such date and substantially in the form of Exhibit E hereto;
(c) Buyer shall have received an opinion of Counsel for Guarantor
dated such date and substantially in the form of Exhibit F hereto;
(d) Buyer shall have received in form and substance reasonably
satisfactory to it a certified copy of a resolution adopted by the Board of
Directors of Seller, authorizing the execution, delivery and performance of
this Agreement and the Assignments and the endorsement and sale of the Notes
hereunder, together with evidence of the authority and specimen signatures of
the persons who have signed this Agreement and who will sign the Assignments
and endorse the Notes on behalf of the Seller and such other evidence of
corporate authority as Buyer may reasonably require;
(e) Buyer shall have received in form and substance reasonably
satisfactory to it, a certified copy of a resolution adopted by the Board of
Directors of Guarantor, authorizing the execution, delivery and performance
of this Agreement;
(f) Buyer shall have received in form and substance satisfactory
to it, a certified copy of a resolution adopted by the Board of Directors of
Servicer, authorizing the execution, delivery and performance of this
Agreement;
(g) Buyer shall have received a commitment fee from Seller of
$256,500; and
(h) Buyer shall have received certificates from Seller, Servicer
and Guarantor substantially in the form of Exhibits J and K, respectively.
(i) Buyer shall have received an executed counterpart of a certain
Subordination Agreement in which United Grocers, Inc. agrees to subordinate
its interest in the Collateral (other than patronage and stock) securing the
Loans to the interest of the Seller therein.
(j) Buyer shall have received Exhibit A containing information
relating to the corporate and "doing business" names of the Seller and
Guarantor in the States of Oregon, Washington and California.
(i) Buyer shall have received, within 30 days of the Initial
Closing Date, an errors and omissions policy satisfying the requirements of
Section 5.01(c) hereof.
SECTION 3.06 Seller's Conditions Precedent to Sale. The obligation of
Seller to sell Loans on each Closing Date shall be subject to the fulfillment
of each of the following conditions on such Closing Date to the reasonable
satisfaction of Seller:
(a) Seller shall have received the Purchase Price as provided in
Section 3.01;
(b) Each representation and warranty of the Buyer set forth in
Section 4.04 shall be true and correct in all material respects, and a duly
authorized officer of Buyer shall have so certified to Seller in writing; and
(c) On the Initial Closing Date, Seller shall have received an
opinion of counsel for Buyer to the effect that Buyer has full power and
authority to purchase Loans and execute and perform this Agreement.
[End of Article III]
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Seller's Corporate Representations and Warranties.
Seller represents and warrants to Buyer as of each Closing Date and as of any
Renewal Date as follows:
(a) Seller is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Oregon, is doing business
only under the corporate and "doing business as" names listed in Exhibit A
hereto, and is qualified to do business in each other jurisdiction where the
conduct of its business or the ownership of its properties requires such
qualification, and has full corporate power, authority and legal right to
carry on its business as presently conducted, to own and operate its
properties and assets, to execute, deliver and perform this Agreement and to
sell the Loans and related Property.
(b) The execution, delivery and performance by the Seller of this
Agreement and any assignment, the endorsement the Notes and the sale of any
Loans, related Notes and Related Documents and the security interest in the
related Collateral hereunder have been duly authorized by all necessary
corporate action of Seller, do not require any shareholder approval or the
approval or consent of any trustee or the holders of any Debt of Seller,
except such as have been obtained (certified copies thereof having been
delivered to Buyer), do not contravene any law, regulation, rule or order
binding on it or its Articles of Incorporation or Bylaws and do not
contravene the provisions of or constitute a default under any indenture,
mortgage, contract or other agreement or instrument to which Seller is a
party or by which Seller or any of the Loans, related Notes or Related
Documents may be bound or affected.
(c) No Government Approval or filing or registration with any
Governmental Authority is required for the making and performance by Seller
of this Agreement or any assignment or the endorsement of the Notes or in
connection with the sale of the Loans and related Property contemplated
hereby, except such as have been heretofore obtained and are in full force
and effect (certified copies thereof having been delivered to Buyer).
(d) This Agreement has been duly executed and delivered by Seller
and constitutes, and any assignment and any endorsement of a Note when duly
executed and delivered will constitute, the legal, valid and binding
obligation of the Seller enforceable against Seller in accordance with its
terms.
(e) Except as described in Exhibit I hereto, there are no actions,
proceedings, investigations, or claims against or affecting Seller now
pending before any court, arbitrator or other Governmental Authority (nor to
the knowledge of Seller has any thereof been threatened nor does any basis
exist therefor) which if determined adversely to the Seller would be likely
to have a material adverse effect on the financial condition or operations of
Seller or on Seller's ability to perform its obligations under this
Agreement, or under any Assignment or under an endorsement of any Note. With
respect to the litigation described in Exhibit I hereto, a determination in
such litigation that is materially adverse to the Seller or Guarantor would
not have a material adverse effect on the financial condition or operations
of Seller or on Seller's ability to perform its obligations under this
Agreement, or under any assignment or endorsement of any Note.
(f) The consolidated balance sheet of the Seller and its
Affiliates and Subsidiaries at October 1, 1993, and the related statements of
income and retained earnings of Seller and its Affiliates and Subsidiaries
for the fiscal year then ended, copies of which have been furnished to Buyer,
fairly present the financial condition of Seller and its Affiliates and
Subsidiaries as at such date and the results of operations of Seller and its
Affiliates and Subsidiaries for the period then ended, all in accordance with
U.S. GAAP consistently applied. Since that date, there has been no material
adverse change in the financial condition or operations of Seller or any of
its Subsidiaries or Affiliates.
(g) Seller has good and marketable title to each of the properties
and assets reflected in its balance sheet referred to in Section 4.01(f)
except such as have been since sold or otherwise disposed of in the ordinary
course of business.
(h) Neither Seller nor any of its Subsidiaries or Affiliates is in
material breach of or default under any agreement or agreements to which it
is a party or which are binding on it or any of its assets and which provide
for the payment of monies, the delivery of goods or the provision of services
in amounts or with values in the aggregate in excess of Two Hundred Fifty
Thousand Dollars ($250,000).
(i) The present value of all benefits vested under all Pension
Plans did not, as of the most recent valuation date of such Pension Plans,
exceed the value of the assets of the Pension Plans allocable to such vested
benefits by an amount which would represent a potential material liability of
Seller and its consolidated subsidiaries or affect materially the ability of
the Seller to perform this Agreement; no Plan or trust created thereunder, or
any trustee or administrator thereof, has engaged in a "prohibited
transaction" (as such term is defined in Section 406 or Section 2003(a) of
ERISA) which could subject such Plan or any other Plan, any trust created
thereunder, or any trustee or administrator thereof, or any party dealing
with any Plan or any such trust to the tax or penalty on prohibited
transactions imposed by Section 502 or Section 2003(a) of ERISA; no Pension
Plan or trust created thereunder has been terminated, and there have been no
"reportable events" (as that term is defined in Section 4043 of ERISA) since
the effective date of ERISA; no Pension Plan or trust created thereunder has
incurred any "accumulated funding deficiency" (as such term is defined in
Section 302 of ERISA) whether or not waived, since the effective date of
ERISA; and the required allocations and contributions to Pension Plans will
not violate Section 415 of the Code.
(j) Uniform Commercial Code financing statements have been duly
filed in all places where filing is necessary and all other or additional
acts have been taken as are necessary to perfect the Buyer's interests
arising hereunder and under the assignments in and to the Loans and related
Property and the lien created hereby constitutes a valid and perfected lien
of first priority in and to all of the Loans and related Property (other than
in Collateral which is not Primary Collateral, in which case the Buyer has
only such interest as the Seller had and disclosed to the Buyer on the
applicable Closing Date and other than Seller's security interest in its
capital stock and patronage dividends) and is enforceable against all third
parties (other than third parties whose interests in Collateral which is not
Primary Collateral are prior to Seller's interests therein on the applicable
Closing Date) in all jurisdictions as security for all obligations of the
Seller to the Buyer under this Agreement.
(k) Seller has good and marketable title to the Loans and related
Notes designated for sale to the Buyer hereunder, the Related Documents and
the proceeds thereof, free and clear of all liens and encumbrances and Seller
has not transferred in any manner whatever to any Person (other than Buyer)
and has not created or permitted any lien, pledge, charge, security interest,
ownership interest, participation interest or any other interest of any
nature whatever (other than in favor of the Buyer) in respect of the Loans,
the related Notes, the Related Documents or the proceeds thereof.
(l) Seller's chief executive offices and the offices where such
Seller keeps records concerning the Loans and related Property are located at
6433 S.E. Lake Road, Portland, Oregon or such other location to which such
offices are moved pursuant to Section 6.01(m) hereof.
(m) This Agreement, the financial statements referred to in
Section 4.01(f) and all other instruments, documents, certificates and
statements furnished to the Buyer by the Seller, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained herein or therein
not misleading.
(n) Seller is "eligible" to borrow from NCB under the provisions
of the Bank Act.
SECTION 4.02 Seller's Closing Date Representations and Warranties with
respect to Loans. Seller represents and warrants to Buyer as of each Closing
Date with respect to Loans transferred and sold on such Closing Date as
follows:
(a) The information with respect to each Loan set forth in the
Loan Schedule, together with any documentation supporting such information,
is true and correct;
(b) With respect to each Loan, there exists only one original
Note. Such original Note and all of the other original or certified
documentation set forth in Sections 2.01 and 3.03 (including all material
documents related thereto) has been or will be delivered to the Buyer on the
applicable Closing Date;
(c) Each Loan was originated in the United States and Monthly
Payments on such Loan are payable in U.S. Dollars by an Obligor domiciled in
the United States;
(d) Each Note will have a Loan Interest Rate that is either (i) a
fixed rate of at least 7.5% per annum (except for those Loans listed on
Schedule II hereto (as the same may be supplemented upon subsequent
Incremental Purchases) which shall have fixed Loan Interest Rates of at least
5.99%) or (ii) a variable rate based on the Prime Rate, adjusted either
monthly or semi-annually, plus at least 100 basis points;
(e) Immediately prior to the transfer and assignment herein
contemplated, the applicable Seller held good and indefeasible title to, and
was the sole owner of, each Loan conveyed by Seller, subject to no liens,
charges, mortgages, encumbrances or rights of others or other liens which
will be released simultaneously with such transfer and assignment; and
immediately upon the transfer and assignment herein contemplated, the Buyer
will hold good and indefeasible title, to, and be the sole owner of, each
Loan subject to no liens, charges, mortgages, encumbrances or rights of
others;
(f) Seller shall have received at least three (3) (or in the case
of a Full Recourse Loan, twelve (12)) scheduled principal payments before the
applicable Cut-Off Date;
(g) As of the applicable Cut-Off Date, no Loan is delinquent
(after giving effect to any applicable grace period) in payment and, as of
the applicable Closing Date, no Loan shall have had an individual payment
delinquent (after giving effect to any applicable grace period) for periods
in excess of 31 days on 2 or more separate occasions;
(h) The Loan is not subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, nor will the
operation of any of the terms of the related Note, Related Document or any
related Collateral, or the exercise of any right thereunder, render either
the related Note, Related Document or any related Collateral unenforceable in
whole or in part, or subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, and so such right of
rescission, set-off, counterclaim or defense has been asserted with respect
thereto;
(i) Each Loan at the time it was made complied and, as of the
applicable Closing Date, complied in all material respects with applicable
state and federal laws and regulations, including, without limitation, usury,
equal credit opportunity, disclosure and recording laws;
(j) The Loans were originated by such Seller in accordance with
the underwriting criteria set forth in the applicable Credit and Collection
Policy;
(k) Except as noted on Schedule II, the Notes executed by any one
Obligor (or other Person directly or indirectly controlling, controlled by or
under common control with, such Obligor), together with any other promissory
notes or evidences of indebtedness executed by such Obligors for the benefit
of the Seller, shall have an aggregate outstanding balance of less than
$1,500,000;
(l) At least one of the Obligors with respect to each Loan (i) is
a member in good standing of United Grocers, Inc. and (ii) to the best of
Seller's knowledge, shall have provided to Seller complete and accurate
information relating to Obligor's financial condition and shall have suffered
no material adverse changes in its financial condition or otherwise since the
date the Loan was originated;
(m) Except for any Loan identified on Schedule II (as the same may
be supplemented upon subsequent Incremental Purchases) hereof, each Loan has
a remaining amortization period of no less than 24 months and no greater than
84 months;
(n) The Note related to each Loan provides that the principal be
amortized monthly over the term of such Note, with either (i) level monthly
payments of principal or (ii) level monthly payments of principal and
interest, provided that, in the case of a Loan with renewal provisions, a
balloon payment on such Renewal Date is permissible;
(o) Each Loan, related Note, related Collateral and Related
Documents pursuant to which Collateral is pledged to a Seller is the legal,
valid and binding obligation of the Obligor thereof and is enforceable in
accordance with its terms, except only as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in equity
or at law), none of which will prevent the ultimate realization of the
security provided by the Collateral or Related Document, and all parties to
each Loan had full legal capacity to execute all Related Documents and convey
the property therein purported to be conveyed;
(p) The terms of the Loan, related Note and each Related Document
pursuant to which Collateral was pledged have not been impaired, altered or
modified in any respect, except by written instrument which has been
recorded, if necessary, to protect the interest of the Buyer and which has
been delivered to the Buyer;
(q) The proceeds of the Loan have been fully disbursed, and there
is no obligation on the part of the Seller to make future advances
thereunder. Any and all requirements as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred in
making or closing or recording the Loans were paid;
(r) Except for any Obligor identified on Schedule II (as the same
may be supplemented upon subsequent Incremental Purchases), the Obligor with
respect to each Loan and each other member of its Obligor Group has a
positive net worth as accounted for under U.S. GAAP, consistently applied,
and has no present intention to seek relief under the federal bankruptcy
laws;
(s) There is no default, breach, violation or event of
acceleration existing under the Loan, related Note or Related Document and no
event which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a default, breach, violation or
event of acceleration, and the Seller has not waived any such default,
breach, violation or event of acceleration;
(t) The Loan was not selected for inclusion under this Agreement
from the Seller's portfolio of comparable loans on any basis which would have
a material adverse effect on the Buyer;
(u) The Obligor and/or the Loan Guarantor with respect to each
Loan and related Property is personally liable for the payment and
performance of its obligations under such Loan. Pursuant to the terms of
each Loan, each of the Obligor and the Loan Guarantor thereunder is
absolutely required to make all payments and perform all obligations due
pursuant to such Loan without abatement, deferment or defense of any kind or
for any reason (except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application relating to
or affecting creditors rights and by general principles of equity);
(v) As of the applicable Closing Date, insofar as facts are within
the Seller's actual knowledge, the Collateral covered by or securing the
obligations under each Loan is insured against loss by fire and such other
hazards as are customary for personal property of the same or similar type,
such insurance being in an amount not less than the full replacement value of
such personal property subject to customary deductibles and Buyer is
designated as loss payee under such policies;
(w) Each Loan requires each of the Obligor and Loan Guarantor
thereunder at its own costs and expense to maintain the Collateral pledged to
secure the related Loan in good repair, condition and working order, and to
the best knowledge of the Seller, each Obligor and Loan Guarantor under a
Loan is currently in compliance with this requirement;
(x) As of the applicable Closing Date, at least 90% of the value
of the Collateral securing each Loan consists of Primary Collateral, and at
least a portion of the Primary Collateral consists of the inventory,
furniture, fixtures and equipment in the stores owned or leased by the
related Obligor. All Collateral securing any Loan is located in the United
States;
(y) Seller has, or on the applicable Closing Date will have, (1) a
first priority perfected security interest in each item of Primary
Collateral, free from any lien, security interest, encumbrance or other
right, title or interest of any Person, and (2) a perfected security interest
in each other item of Collateral, subject to the prior liens, security
interests and encumbrances existing on, and identified to and approved by the
Buyer on the applicable Closing Date. Seller shall, on the applicable
Closing Date, transfer its security interest in the Collateral subject
however to the rights of the holder of title in and to the Collateral and of
the Obligors in the Collateral pledged under the Related Documents (and, in
the case of Collateral which is not Primary Collateral, holders of prior
liens), and Seller, as agent for the Buyer, shall defend the Buyer's security
interest in and to Collateral against all claims and demands of all Persons
at any time claiming the same or any interest therein adverse to that of the
Obligors or the Buyer.
(z) Either (i) the Obligor and Loan Guarantor has, under the terms
of each Loan, consented to a sale and assignment of the Loan, the related
Note and Related Documents and the sale or grant of a security interest in
and to the Loan and the Collateral relating thereto, or (ii) none of the
Loan, the related Note or any Related Documents requires the consent of
approval of notice to the Obligor or Loan Guarantor with respect to the
assignment and transfer by Seller of Seller's right, title and interest in
and to the Loan, the related Note, any Related Document and Collateral;
(aa) The Notes and Related Documents delivered to Buyer on the
applicable Closing Date are true, correct, and complete original counterparts
of all instruments and documents evidencing or in any way relating to the
Loan and related indebtedness referred to therein; except as approved by the
Buyer, such Notes and Related Documents are in substantially the form of the
documents attached hereto as Exhibit P; except as included with the
instruments and documents so delivered, such Notes and such Related Documents
have not been amended; and each such Note and Related Document to which
Obligor or Loan Guarantor is a party bears the original signature of such
Obligor and Loan Guarantor;
(bb) Uniform Commercial Code financing statements have been duly
filed in all places where filing is necessary, and all other or additional
acts have been taken as are necessary to perfect Seller's security interests
arising pursuant to the Related Documents in the Collateral and such security
interests constitute a valid and perfected lien in and to all of the
Collateral of first priority (subject to no prior or equal liens or
interests) in the case of all Primary Collateral and of the same level of
priority as that enjoyed by the Seller on the applicable Closing Date in the
case of all other Collateral, and will be enforceable against all third
parties in all jurisdictions as security for the respective obligations of
Obligors to Seller under their respective Notes and Related Documents;
(cc) Seller has heretofore caused all copies of the Loans, related
Notes and Related Documents in its possession to be separately identified and
distinguished from Seller's other loans, and on the applicable Closing Date,
the Seller will cause each copy of each Note, related Collateral and Related
Document in its possession to be identified with an appropriate legend
clearly disclosing the fact that such Loan, the related Notes, Related
Documents and the Seller's security interest in the related Collateral have
been sold and assigned to the Buyer and the Buyer is the owner thereof, and
any original copies of any Note, related Collateral or Related Document
coming into the possession of the Seller will be delivered to the Buyer;
(dd) All Loans specified on Schedule III (as the same may be
supplemented upon subsequent Incremental Purchases) are secured by mortgages
on each property;
(ee) With respect to any Loan secured by a mortgage on real
property, each mortgage is a valid and subsisting lien of record on the
mortgaged property subject only to a first mortgage lien on such mortgaged
property previously disclosed to Buyer and subject in all cases to such
exceptions that are generally acceptable to prudent and experienced lenders
in connection with their regular commercial lending activities, and such
other exceptions to which similar properties are commonly subject and which
do not individually, or in the aggregate, materially and adversely affect the
benefits of the security intended to be provided by such mortgage;
(ff) With respect to each Loan secured by a mortgage on real
property, each original mortgage was recorded, and all subsequent assignments
of the original mortgage have been recorded in the appropriate jurisdictions
wherein such recordation is necessary to perfect the lien thereof as against
creditors of Seller;
(gg) With respect to each Loan secured by a mortgage on real
property, any related mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for the
realization against the mortgaged property of the benefits of the security,
including (i) in the case of a mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial foreclosure;
(hh) With respect to each Loan secured by a mortgage on real
property, (i) there are no material defaults in complying with the terms of
any applicable mortgage, and all taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or ground
rents which previously became due and owing have been paid, or an escrow of
funds has been established in an amount sufficient to pay for every such item
which remains unpaid and which has been assessed but is not yet due and
payable; (ii) there is no proceeding pending or threatened for the total or
partial condemnation of any related mortgaged property, nor is such a
proceeding currently occurring, and such property is undamaged by waste,
fire, earthquake or earth movement, windstorm, flood, tornado or other
casualty, so as to affect adversely the value of such mortgaged property as
security for the Loan or the use for which the premises were intended; and
(iii) at the time of origination of Loan, and to the best of the Seller's
knowledge, and based primarily on the related Phase I environmental survey or
environmental questionnaire, as the case may be, is, as of the applicable
Cut-Off Date, free of contamination from toxic substances or hazardous
wastes;
(ii) Except for any Loan identified on Schedule II (as the same may
be supplemented upon subsequent Incremental Purchases) hereof, (i) neither
the Obligor nor any member of its Obligor Group shall have defaulted on any
obligation (including an open account) to Seller or any Affiliate or
Subsidiary of Seller and (ii) the place of business of Obligor or any member
of its Obligor Group cannot have been the location of a failed grocery store
(whether or not owned or managed by Obligor or any member of its Obligor
Group);
(jj) The classification of Loans as either Preferred Loans or
Standard Loans or Full Recourse Loans (as specified in the Loan Schedule) is
true and correct and complies with the criteria stated in the definitions of
such terms herein;
(kk) As of the applicable Closing Date, the aggregate Principal
Balance of all Loans (including Loans purchased on previous Closing Dates, if
any) classified as Preferred Loans is at least equal to 51 % of the Principal
Balance of all Loans as of the related Closing Date and the aggregate
Principal Balance of all Loans classified as Full Recourse Loans is less than
or equal to 25% of the Principal Balance of all Loans as of the related
Closing Date.
(ll) The Aggregate Exposure listed with respect to each Loan in the
Loan Schedule is true and correct;
(mm) Except for those Loans specified on Schedule II (as the same
may be supplemented upon subsequent Incremental Purchases) hereto, the
purpose for which the Loans were made was not to provide term financing for
open account balances that were (or would otherwise have been) delinquent,
and no Obligor or other member of its Obligor Group has ever been provided
term financing for open account balances that were (or would otherwise have
been) delinquent;
(nn) Except for those Loans specified on Schedule II (as the same
may be supplemented upon subsequent Incremental Purchases) hereto, the Loans
are cross-collateralized with other Loans and Collateral made, pledged or
guaranteed by any member of the related Obligor Group; and
(oo) With respect to each Loan secured by real estate Collateral
having a value of 10%, or more than 10%, of the Principal Balance of such
Loan on the applicable Closing Date, either (1) the Collateral Coverage Ratio
for the related Obligor Group, calculated for the purpose of making the
representation in this Section 4.02(oo) by excluding the value of the real
estate Collateral having Minimum Documentation, is at least equal to 100% or
(2) the Loan remains classified as a Preferred Loan even if the Collateral
Coverage Ratio for the related Obligor Group is calculated by excluding the
value of real estate Collateral having Minimum Documentation.
SECTION 4.03 Seller's Renewal Date Representations and Warranties.
Seller represents and warrants to Buyer as of each Renewal Date on which the
Seller has designated any Renewal Note for acceptance as follows:
(a) As of the applicable Renewal Date, all applicable
representations and warranties in Section 4.02 hereof are confirmed as to
such Renewal Loan.
(b) As of the applicable Renewal Date, each Obligor of the
applicable Renewal Loan is not in default of its payment obligations under
the Prior Note or under the Related Documents, and is not in default of its
nonmonetary obligations under such Note or Related Documents.
(c) As of the applicable Renewal Date, no event has occurred and
is continuing which would permit the Seller to accelerate the maturity of any
Obligor's obligations under the applicable Renewal Loan or under the Prior
Note or the Related Documents.
(d) The Notes and Related Documents delivered to Buyer on or prior
to the applicable Renewal Date are true, correct, and complete original
counterparts of all instruments and documents evidencing or in any way
relating to the Loan and the related Indebtedness referred to therein; except
as included with the instruments and documents so delivered, such Notes and
Related Documents have not been amended; and each such Note and each such
Related Document to which an Obligor or Loan Guarantor is a party bears the
original signature of the Obligor or Loan Guarantor.
(e) The Loans and Notes designated by Seller as Renewal Loans and
Notes together with the Related Documents to which Obligors or Loan
Guarantors are parties have been duly executed by their respective Obligors
or Loan Guarantors and constitute the legal, valid and binding obligations of
their respective Obligors and Loan Guarantors enforceable against such
Obligors and Loan Guarantors in accordance with their respective terms.
(f) Each amount identified in a notice provided pursuant to the
terms of Section 3.02 as the "anticipated Renewal Balance" correctly
identifies the amount of the outstanding Principal Balance evidenced by the
Note to be accepted as of such Renewal Date and there are no offsets or
defenses to the payment of such amount that may be asserted against the
Seller either by way of defense or counterclaim.
(g) Uniform Commercial Code financing statements have been duly
filed in all places where filing is necessary, and all other or additional
acts have been taken as are necessary to perfect the Seller's security
interests arising pursuant to the Related Documents in the Collateral and
such security interests constitute a valid and perfected lien in and to all
of the Collateral of first priority (subject to no prior or equal liens or
interests) in the case of all Primary Collateral and of the same level of
priority as that enjoyed by the Seller on the Closing Date on which the Loan
was first sold and assigned hereunder in the case of all other Collateral,
and will be enforceable against all third parties in all jurisdictions as
security for the respective obligations of Obligors to the Seller under their
respective Notes and Related Documents.
(h) No Renewal Loan, related Renewal Note or any Related Document,
alone or in connection with Seller's prior course of conduct, expressly or
impliedly requires Seller or any other Person to make additional advances
thereunder.
(i) The Note related to the Renewal Note provides for full
amortization over its remaining term to maturity.
SECTION 4.04 Buyer's Representations and Warranties. Buyer represents
and warrants to Seller as follows:
(a) Buyer is a financial institution duly organized, validly
existing and in good standing under the laws of the United States of America,
and has full corporate power, authority and legal right to execute, deliver
and perform this Agreement and to purchase the Loans and related Property.
(b) Execution, delivery and performance by Buyer of this Agreement
and the purchase of the Loans and related Property hereunder have been duly
authorized by all necessary corporate action of Buyer, do not require any
shareholder approval or the approval or consent of any trustee or the holders
of any Indebtedness of Buyer, do not contravene any law, regulation, rule or
order binding on it or its Articles of Association or Bylaws and do not
contravene the provisions of or constitute a default under any indenture,
mortgage, contract or other agreement or instrument to which Buyer is a party
or by which Buyer or any of its properties may be bound or affected.
(c) No Government Approval or filing or registration with any
Governmental Authority is required for the making and performance by Buyer of
this Agreement or in connection with any of the transactions contemplated
hereby.
(d) This Agreement has been duly executed and delivered by Buyer
and constitutes the legal, valid and binding obligation of Buyer enforceable
against Buyer in accordance with its terms.
SECTION 4.05 Repurchase Upon Breach of Certain Representations and
Warranties. (a) The representations and warranties and agreements of the
Seller set forth in Sections 4.01, 4.02 and 4.03 with respect to the Seller
and each Loan and related Property shall continue so long as such Loan
remains outstanding. Upon discovery by either Seller or Buyer that any of
such representations or warranties was incorrect as of the time made, the
party making such discovery shall give prompt notice to the other party. In
the event any defect, misrepresentation or omission materially and adversely
affects the interest of the Buyer, the Seller shall eliminate or cure the
circumstance or condition causing the defect within 10 days of the discovery
thereof or, repurchase such Loan and the related Property.
(b) Any such repurchase of a Loan and the related Property by
Seller shall be accomplished in the manner set forth in Section 2.01(e) and
at a price equal to the Purchase Amount. It is understood and agreed that
the obligation of Seller to repurchase any Loan as to which a breach by
Seller under this Section 4.05(b) occurred and is continuing and to make the
payments which may be required by this Section 4.05(b) shall, together with
the indemnification rights contained in Section 11.02 and the right of Buyer
to be reimbursed for reasonable fees and expenses incurred in effecting such
repurchase, constitute the sole remedies against Seller respecting such
breach available to the Buyer.
[End of Article IV]
<PAGE>
ARTICLE V
SERVICING AND COLLECTION
At all times prior to the later of (a) the Termination Date or (b) the
date on which all obligations of the Seller under this Agreement have been
performed in full, the following terms and provisions of this Article V shall
apply.
SECTION 5.01 Servicing and Collection Agent. (a) Except as provided
in Section 8.03, the Buyer appoints the Servicer to act as the Buyer's
exclusive agent for servicing and collecting the Loans, the related Notes,
the Related Documents, the related Collateral and the Indebtedness of the
Obligors evidenced thereby. The Servicer accepts such appointment. The
Servicer shall use the same diligence and practices in servicing and
collecting the Indebtedness evidenced by the Notes, the related Collateral
and the Related Documents as it uses in servicing and collecting indebtedness
evidenced by notes and related documents held for its own account and, in any
event, shall endeavor to collect or cause to be collected from each Obligor
the amounts as and when due and owing under such Obligor's Note and Related
Documents. In performing its duties hereunder, and subject to the specific
limitations set forth herein, Servicer shall act in accordance with its
Credit and Collection Policy and shall take such actions with respect to the
Loans, Notes and Related Documents as, in its reasonable business judgment,
it may deem advisable to maintain or enhance receipt of timely Collections
thereunder. Promptly upon the request of Servicer, Buyer agrees to execute
and deliver such documents and take such further acts (at Servicer's expense)
as Servicer may reasonably request to confirm and evidence the agency granted
to Servicer pursuant to this Section 5.01.
(b) Promptly after the execution and delivery of this Agreement,
the Servicer shall deliver to the Buyer a list certified by its secretary or
one of its assistant secretaries of the Servicing Officers and employees of
the Servicer involved in or responsible for, the administration and servicing
of the Loans, which list shall from time to time be updated by the Servicer
and which may be relied upon until so updated.
(c) The Servicer shall maintain in effect a fidelity bond (or a
direct surety bond) and an errors and omissions policy with respect to
Servicing Officers and employees of the Subservicer designated from time to
time pursuant to Sections 5.01(b) and 5.13(f) hereof, each issued by a surety
company acceptable to Buyer. Such bond and policy shall name the Buyer as
loss payee or additional insured, as appropriate, shall provide for 30 days
prior notice of cancellation to the Buyer and shall otherwise be in form and
substance reasonably satisfactory to the Buyer. The Servicer shall deliver
to the Buyer evidence of the coverage provided to the Buyer under such bond
promptly upon the execution and delivery of this Agreement and evidence of
the coverage provided to the Buyer under such policy within 30 days of the
execution of this Agreement, and shall deliver to the Buyer, within 30 days
prior to the expiration of any such bond or policy, a renewal or replacement
thereof, or a certificate evidencing such renewal or replacement, as
appropriate.
SECTION 5.02 Maintenance of System; Collection and Maintenance of
Information. (a) Servicer shall arrange and maintain with respect to the
Loans, related Notes and Related Documents, data processing, accounting and
related services adequate for the effective and timely servicing and
collecting of the Indebtedness evidenced thereby in accordance with good
business practices and in compliance with all applicable federal, state and
local laws and regulations.
(b) With respect to each Loan and related Obligor, Obligor Group
and Loan Guarantor, Servicer shall collect the following information:
(i) within 100 days of the end of each fiscal year of such Obligor, Obligor
Group or Loan Guarantor, as applicable, annual financial statements, together
with a certificate of an authorized officer of such Obligor, Obligor Group or
Loan Guarantor, as applicable, to the effect that the accompanying financial
statements are true and correct in all material respects and demonstrating
compliance with the financial covenants required by the Agreement, including
the Cash Flow Ratio, Collateral Coverage Ratio and Consolidated Tangible Net
Worth; (ii) within 50 days of the end of the fiscal year of such Obligor,
Obligor Group or Loan Guarantor, as applicable, interim financial statements,
together with a certificate of an authorized officer of such Obligor, Obligor
Group or Loan Guarantor, as applicable, to the effect that the accompanying
interim financial statements are true and correct in all material respects
and demonstrating compliance with the financial covenants required by this
Agreement, including Cash Flow Ratio, Collateral Coverage Ratio and
Consolidated Tangible Net Worth; (iii) evidence of adequate insurance with
respect to related Collateral; (iv) annual evaluation of related Collateral;
(v) evidence of continued perfection of Buyer's security interest in the
related Collateral. Servicer shall maintain the foregoing information and
shall make the same available to the Buyer or its nominees or agents upon
reasonable request.
SECTION 5.03 Maintenance of Lien Priority. So long as Servicer is
required to act as Buyer's exclusive agent for servicing and collecting the
Loans, related Notes, the Related Documents and the Indebtedness of the
Obligors evidenced thereby, Servicer agrees to take all actions, including
lien searches and continuation statement filings, necessary or desirable to
ensure that the liens arising pursuant to the Related Documents and securing
repayment of any Obligor's Indebtedness evidenced by a Note will be
maintained as continuously perfected first priority (except in the case of
Collateral which is not Primary Collateral, in which event the Servicer shall
take all actions to maintain the priority sold and assigned hereunder)
security interests (except as otherwise approved by Buyer) in all applicable
jurisdictions.
SECTION 5.04 Collection Policies. Servicer agrees to follow, maintain
and apply the credit extension and collection policies identified in the
Credit and Collection Policy in all material respects unless any order of any
court, arbitrator or other Governmental Authority or any determination of or
change in any applicable federal, state or local law or regulation should
require otherwise or unless Buyer shall otherwise consent in writing, which
consent will not be unreasonably withheld. Notwithstanding anything herein
to the contrary, Servicer is not authorized to and agrees that it will not
without the Buyer's prior written consent, (a) amend, extend, release,
modify, or waive the terms or conditions of any Loan, related Note or of any
Related Document; (b) release any Collateral pledged in support of any
Obligor's obligations under a Note or Related Document (other than Seller's
capital stock and patronage dividends); (c) grant or permit to be granted any
rebate, refund, credit or other adjustment in respect of a Obligor's
obligation under any Note or any Related Document; or (d) accept as payment
in full any amount less than the total amount required to be paid pursuant to
the terms of such Note and Related Documents.
SECTION 5.05 Obligor Defaults. Servicer agrees to promptly give any
notice to Obligor required to commence the running of any applicable cure
period following a default in the performance by Obligor of its obligations
under the Loan, the related Note and Related Documents. If an Obligor
Default shall occur and be continuing or if a Loan shall otherwise become a
Defaulted Loan, Servicer shall promptly undertake the collection of such
Obligor's Indebtedness in accordance with the Credit and Collection Policy.
Without limiting the foregoing the Servicer shall commence liquidation of the
Collateral pledged to secure such Obligor's obligations under its Loan within
thirty (30) days after the occurrence of such Obligor's Default or upon a
Loan becoming a Defaulted Loan, unless Servicer receives notice from the
Seller of its election to repurchase such Loan pursuant to Section 8.02
hereof. Servicer shall promptly notify Buyer and Seller of the occurrence of
an Obligor Default or of a Loan becoming a Defaulted Loan. In its efforts to
collect the Indebtedness evidenced by any Note, Servicer shall in all events
proceed in good faith and in a commercially reasonable manner and when
seeking to realize on Collateral pledged by any Obligor, shall proceed in
such a fashion as to preserve to Buyer its rights to seek collection of a
deficiency against such Obligor if the sale of the Collateral is insufficient
to pay such Obligor's obligations in full.
Notwithstanding any other provision in this Agreement to the contrary,
Buyer shall have the right, at its sole discretion, to assume the servicing
obligations (other than Advances) of the Servicer hereunder in connection
with the liquidation of a Defaulted Loan and related Property and Servicer
shall cooperate with Buyer in effecting such transfer of obligations and
liquidation of Collateral. If Buyer assumes the servicing obligations with
respect to the liquidation of a Defaulted Loan, Buyer shall proceed as a
prudent and experienced servicer would under the circumstances and shall be
entitled to reimbursement for its reasonable fees and expenses in performing
such obligations in accordance with Section 5.08 hereof.
SECTION 5.06 Servicer Reports; Annual Compliance Report. (a) On each
Servicer Payment Date, Servicer shall deliver to Buyer and Seller a report
relating to the Loans covering the matters referred to in the attached
Exhibit G. The report shall also identify any event occurring during the
preceding Due Period of which Servicer has actual knowledge which materially
impairs or might reasonably be expected materially to impair any Obligor's
ability to repay the Debt relating to any Loan and evidenced by a Note or to
perform its obligations under any Related Document or which has or might
reasonably be expected to substantially reduce the value of the Collateral or
to impair the Buyer's lien thereon. In addition to the foregoing, from time
to time upon request of Buyer, the Servicer will deliver to Buyer such other
statements, lists, reports and other information as the Buyer may reasonably
request, and, to the extent any such information must be obtained by Seller
from a third party, as the Seller may reasonably be expected to obtain.
(b) The Servicer shall also deliver to the Buyer a certificate of
a Responsible Officer on each Servicer Payment Date to the effect that a
review of the activities of the Servicer and of any Subservicer during the
preceding monthly period, and of its performance under this Agreement during
such period has been made under the supervision of the officers executing
such certificate with a view to determining whether during such period the
Servicer and any Subservicer had performed and observed all of their
respective obligations under this Agreement and any Subservicing Agreement,
and either (i) stating that based on such review no Servicer Default under
this Agreement has occurred, or (ii) if a Servicer Default has occurred,
specifying such Servicer Default and the nature and status thereof.
(c) Within 120 days after the end of each fiscal year of Servicer,
Servicer shall deliver to Buyer a report of a firm of independent public
accountants selected by the Servicer, which firm is either of nationally
recognized standing or acceptable to Buyer, to the effect that such firm has
examined certain documents and records relating to the servicing of the Loans
and related Property under this Agreement and that, on the basis of such
examination conducted substantially in compliance with generally accepted
audit standards, nothing came to their attention which caused them to believe
that the Servicer or such Subservicer, as the case may be, has not serviced
the Loans and related Property in accordance with its Credit and Collection
Policy or otherwise in accordance with this Agreement, or has not accounted
for matters regarding the Loans and related Property, including Collections
with respect to the Loans and remittances to Buyer in accordance with this
Agreement, except for such insignificant exceptions or errors on records
that, in the opinion of such firm, it is not required to report. The
Servicer shall provide a copy of such accountant's reports to Buyer.
SECTION 5.07 Loan Payments. (a) Unless otherwise notified by Buyer,
Servicer shall receive directly all payments with respect to the Loans. Such
payments, which shall be held by Servicer, as agent for the Buyer, will
include:
(i) all Monthly Payments and Payaheads received from the
Obligors in the Lockbox Account or otherwise;
(ii) all Principal Prepayments;
(iii) all Insurance Proceeds and all Liquidation Proceeds; and
(iv) all payments made by the Seller or the Servicer or the
Guarantor under this Agreement to be paid to Servicer, including
Guaranty Payments and Repurchase Proceeds.
(b) On a daily basis, the Servicer will, unless otherwise
instructed by Seller, remit or cause to be remitted to Seller from payments
with respect to the Loans, all amounts so received attributable to (i) any
payments received from any source other than payments made in respect of the
Loans, the related Notes, Related Documents and related Collateral,
(ii) payments with respect to the Loans, related Notes, Related Documents and
related Collateral due before the applicable Cut-Off Date, and (iii) payments
received in respect of the Loans following the repurchase thereof by Seller
pursuant to this Agreement.
(c) No later than 12:00 noon, Washington, D.C., time, on each
Servicer Payment Date and subject to Section 5.08, Servicer will remit to the
Buyer an amount equal to the total amount of Collections received during the
related Due Period, together with any other Available Funds; provided,
however, that on each Servicer Payment Date, Servicer shall be permitted to
reimburse itself for expenses, fees and other amounts advanced by the
Servicer as provided in Section 5.08 and to reimburse itself or the
Guarantor, as applicable, for all amounts Advanced pursuant to Section 5.07A
or Section 7.01(c), as applicable, and not previously reimbursed. Payment
shall be made to Buyer at the payment address set out beneath its signature
hereto in immediately available funds not later than 12:00 noon Washington,
D.C. time on the date such amounts are due.
(d) Buyer may require, at any time and in its sole discretion,
that Servicer establish a Lockbox Account and direct all Obligors to send
Loan payments to such Lockbox Account. In addition, Buyer may also require
that Servicer establish and maintain a Servicing Account, as a separate and
segregated account in the name of the Buyer, into which Account all moneys
from the Lockbox Account will be transferred and from which Account moneys
shall be remitted to Buyer on each Servicer Payment Date. If so required by
Buyer, Servicer and Seller agree to cooperate with Buyer in establishing a
Lockbox Account and Servicing Account and in amending this Agreement to
contain provisions relating to the establishment, maintenance and application
of such Accounts.
SECTION 5.07A Advances by Servicer. On each Servicer Payment Date, the
Servicer is obligated to advance the total of all Monthly Payments with
respect to Loans, which were due during the preceding Due Period and were
delinquent as of the close of business on the related Servicer Payment Date;
provided, that the Servicer shall have no obligation to make any Advance that
it determines would constitute a Nonrecoverable Advance if made. Any such
Advance is required to be remitted to the Buyer on such Servicer Payment
Date. The determination by the Servicer that it has made a Nonrecoverable
Advance or that any Advance, if made, would constitute a Nonrecoverable
Advance, shall be evidenced by a certificate of a Responsible Officer of the
Servicer delivered to the Buyer on the Servicer Payment Date and detailing
the reasons for such determination.
SECTION 5.08 Computation and Payment of Servicing Fees; Servicer's
Expenses. (a) On the third Business Day after each Payment Date, the Buyer
shall remit to Servicer as a servicing fee, the amount, if any, by which the
amount remitted to the Buyer on the Servicer Payment Date (consisting of
(i) total Collections received by Servicer during the related Due Period
(minus any Advances or other amounts paid to Servicer or Guarantor pursuant
to Section 5.07 before remittance to Buyer) and (ii) other Available Funds)
exceeds the Anticipated Payment. As used herein "Anticipated Payment" means
for any Payment Date the sum of (a) the principal portion of the Monthly
Payment for the related Due Period, other than the portion of the Principal
Balance of a Prior Note which, at the time it became due, constituted the
Renewal Balance under a Renewal Note; (b) any Principal Prepayments,
Payaheads, Insurance Proceeds and Net Liquidation Proceeds actually received
during the related Due Period to the extent such payments exceed the amount
of the principal portion of Monthly Payments coming due during such Due
Period (calculated as if such obligation had not been accelerated); (c) the
principal portion of any Guaranty Payment or Repurchase Proceeds with respect
to the related Due Period; (d) the Carry-Forward Amount; and (e) the Monthly
Interest Amount for the related Interest Accrual Period. As used herein
"Monthly Interest Amount" on any Payment Date shall mean an amount equal to
the sum of (A) the product of (i) the Principal Balance of all Loans on the
immediately preceding Payment Date (and in the case of the initial Payment
Date, on the Initial Closing Date), times (ii) the Applicable Rate times
(iii) a fraction, the denominator of which is three hundred sixty (360), and
the numerator of which is the actual number of days in the related Interest
Accrual Period and (B) if an Incremental Purchase has occurred since the
preceding Payment Date, the product of (i) the Principal Balance as of the
applicable Closing Date of the Loans relating to such Incremental Purchase,
times (ii) the Applicable Rate, times (iii) a fraction, the denominator of
which is three hundred sixty (360), and the numerator of which is the actual
number of days during the period from and including the date of such
Incremental Purchase to the day preceding such Payment Date. The periodic
payments from the Buyer required by this Section 5.08 are herein referred to
as the "Servicing Fees." Servicing Fees shall be paid to Servicer in
immediately available funds not later than 12:00 noon, Portland, Oregon time
on the third Business Day after each Payment Date.
(b) In addition, as additional compensation for performing its
obligations hereunder, the Servicer will be entitled to be paid all late
payment charges, to the extent collected from Obligors, together with any
investment income earned on amounts in the Servicing Account. The Servicer
shall pay all expenses incurred by it in connection with its servicing
activities as herein provided, including expenses of any repossession or
remarketing of Collateral, payment of the premiums for any insurance policy,
real property, personal property and sales taxes on the Collateral, payment
of fees and disbursements of independent certified public accountants and
payment of expenses incurred in connection with distributions and reports to
Buyer and shall be entitled to reimbursement for such expenses out of
available Collections.
SECTION 5.09 Applicable Rate. As used in this Agreement, "Applicable
Rate" shall be determined as follows. The Applicable Rate shall be
established as of each LIBOR Determination Date and shall be applicable for
the next succeeding Interest Accrual Period without regard to changes
thereafter occurring during such Interest Accrual Period in the principal
amounts outstanding under the Notes, in the Principal Balance of Loans
purchased, or in LIBOR. Buyer shall, after the determination of the
Applicable Rate on each LIBOR Determination Date, notify Seller, Servicer and
Guarantor of such Applicable Rate; provided, however, that any failure of
Buyer to give such notice shall not affect Seller's, Servicer's or
Guarantor's obligations hereunder.
The Applicable Rate shall be computed and applied on the basis of a year
of three hundred sixty (360) days for the actual number of days occurring in
the applicable Interest Accrual Period. For each Interest Accrual Period,
the Applicable Rate shall mean an interest rate per annum equal to the sum of
(a) one percent (1%) and (b) LIBOR in effect on the applicable LIBOR
Determination Date. For purposes hereof, the Buyer will determine LIBOR by
12:00 noon, Eastern Standard Time, on each LIBOR Determination Date on the
basis of quotations provided by four Reference Banks as of 11:00 A.M. (London
time) on such LIBOR Determination Date as such quotations appear on the
display designated as page "LIBO" on the appropriate display on the Bloomberg
Financial Markets System (or such other page as may replace the LIBO page on
that service for the purpose of displaying London interbank offered rates of
major banks). LIBOR as determined by Buyer is the arithmetic mean of such
quotations (rounded, if necessary, to the nearest whole multiple of 0.0625%
per annum). If on any LIBOR Determination Date at least two but fewer than
all of the Reference Banks provide quotations, LIBOR will be determined in
accordance with the provisions set forth above on the basis of the offered
quotations of those Reference Banks providing such quotations. If on the
LIBOR Determination Date only one or none of the Reference Banks provides
such offered quotations, LIBOR will be: (i) the rate per annum (rounded, as
aforesaid) that the Buyer determines to be either (x) the arithmetic mean of
the offered quotations that leading banks in the City of New York selected by
Buyer are quoting at or about 11:00 A.M. London time on the relevant LIBOR
Determination Date for one month Dollar deposits to the principal London
office of each of the Reference Banks or those of them (being at least two in
number) to which such offered quotations are, in the opinion of Buyer, being
so quoted or (y) in the event that Buyer can determine no such arithmetic
mean, the arithmetic mean of the offered quotations that leading banks in the
City of New York selected by Buyer are quoting at or about 11:00 A.M. London
time on such LIBOR Determination Date to leading European banks for one month
Dollar deposits; or (ii) if the banks selected as aforesaid by Buyer are not
quoting as described in clause (i) above, LIBOR for such Interest Accrual
Period will be LIBOR as determined on the previous LIBOR Determination Date.
"Reference Banks" shall mean four major banks in the London interbank market
selected by Buyer.
SECTION 5.10 Concerning Renewal Notes. Servicer may, on behalf of
Buyer, and except as otherwise restricted by this Section 5.10, permit
Obligors to execute and deliver Renewal Notes in renewal of all or a portion
of the Principal Balance under a Prior Note. Servicer may not permit any
Renewal Note to be executed and delivered more than ten (10) days prior to
the Renewal Date and, further, shall not permit any Renewal Note to be
executed and delivered at any time when Servicer knows that the conditions
set out in Sections 2.02, 3.02 and 3.04 to Buyer's acceptance of such Renewal
Note on the Renewal Date will not be satisfied.
SECTION 5.11 Concerning Insurance on Collateral. (a) The Servicer
shall cause to be maintained, with respect to the Collateral, one or more
insurance policies (which may be, collectively, the individual policies of
insurance required to be maintained by each Obligor, together with one or
more blanket fire and extended coverage insurance policies covering the
Collateral and other equipment of the Servicer or any Subservicer similar to
the Collateral) which provide at least the same coverage as a fire and
extended coverage insurance policy and naming Seller or its affiliates or
assigns as the loss payee. The Servicer shall take whatever actions are
necessary to cause each insurer to recognize the Buyer as assignee under the
related insurance policy. Such insurance policies shall be maintained in an
amount which is not less than the full replacement value of such personal
property subject to customary deductions. Any amounts received under any
such insurance policies with respect to the Collateral shall be held by the
Servicer, as agent for the Buyer.
(b) If an insurer under an insurance policy shall deny coverage
(in any such case prior to termination thereof as a result of the payment by
such insurer of an aggregate amount equal to its maximum liability under such
insurance policy), or shall refuse to honor a claim under any such insurance
policy with respect to a Loan or the Collateral related thereto for which the
Servicer does not receive Monthly Payments because such Loan becomes a
Defaulted Loan for reasons relating to such claim, and if such denial or
refusal resulted from the Servicer's failure to comply with the requirements
of such insurance policy or the requirements of such insurer, then the
Servicer shall deem the amount of any resulting unpaid claim to be collected,
as a recovery on the Loan with respect to which such denial or refusal arose,
on or before the last day of the Due Period during which such denial or
refusal occurs, and Servicer shall be obligated to pay such "deemed
Collection" to Buyer as a portion of the Anticipated Payment made to Buyer on
the next succeeding Servicer Payment Date.
(c) If the Buyer or the Servicer shall determine that the
financial condition of any insurer might jeopardize recoveries under such an
insurance policy; or if any such insurance policy is cancelled or terminated
for any reason other than the exhaustion of total coverage; then, in each
such case, the Servicer shall use its best efforts to obtain from another
insurer a replacement policy for each such insurance policy, which
replacement policy shall be substantially similar to the insurance policy
being replaced with coverage equal to the then existing coverage of such
insurance policy.
(d) The Servicer shall promptly notify the Buyer of the occurrence
of any event described in subsection 5.11(b) or (c).
(e) In the monthly report delivered pursuant to Section 5.06,
Servicer shall certify that except as to Loans identified therein (together
with a status report on effort to obtain insurance thereon), the Collateral
related to each Loan is covered under an insurance policy or policies
satisfying the requirements set forth in subsection 5.11(a).
SECTION 5.12 Servicer Representations and Warranties. The Servicer
hereby represents and warrants to, and agrees as follows:
(a) The Servicer is duly organized and is validly existing and in
good standing as an Oregon corporation, with corporate power and authority to
own its properties and to transact the business in which it is now engaged,
and the Servicer is duly qualified to do business and is in good standing in
each State of the United States where the nature of its business requires it
to be so qualified.
(b) The performance of the Servicer's obligations under this
Agreement, and the consummation of the transactions herein contemplated will
not conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the property or assets of the
Servicer or any of its Subsidiaries pursuant to the terms of, any indenture,
mortgage, deed of trust, loan agreement or other agreement (other than this
Agreement) or instrument to which it or any of its Subsidiaries is a party or
by which it or any of its Subsidiaries is bound or to which any of its
property or assets is subject, nor will such action result in any violation
of the provisions of its Certificate of Incorporation or By-Laws or any
statute or any order, rule or regulation of any court or governmental agency
or body having jurisdiction over it or any of its properties; and no consent,
approval, authorization, order, registration or qualification of or with any
court or any such regulatory authority or other governmental agency or body
is required for the consummation of the other transactions contemplated by
this Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by the Servicer and this Agreement is the valid and legally binding
obligation of the Servicer, enforceable against the Servicer in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization and other similar laws of general applicability relating to or
affecting creditors' rights and to general principles of equity.
(d) No event with respect to the Servicer has occurred and is
continuing which would constitute a Servicer Default under Section 9.01 or an
event that with notice or lapse of time or both would become a Servicer
Default under this Agreement.
(e) The Servicer is "eligible" to borrow from NCB pursuant to the
provisions of the Bank Act.
SECTION 5.13 Subservicing Agreements Between Servicer and
Subservicers; Enforcement of Subservicer's Obligations. (a) The Servicer
may enter into Subservicing Agreements with Subservicers for the servicing
and administration of all or part of the Loans, with the prior written
consent of the Buyer and Guarantor. References in this Agreement to actions
taken or to be taken by the Servicer in servicing the Loans include actions
taken or to be taken by a Subservicer on behalf of the Servicer. References
in this Agreement to the servicing standards of the Servicer in servicing the
Loans shall be deemed to refer to the servicing standards of such Servicer as
set forth in this Agreement. Each Subservicing Agreement will be upon such
terms and conditions as are not inconsistent with this Agreement and as the
Servicer and the Subservicer have agreed. The Servicer shall notify Buyer in
writing promptly upon the appointment of any Subservicer. For purposes of
this Agreement, the receipt by the Subservicer of any amount with respect to
a Loan (other than amounts representing servicing compensation or
reimbursement for an advance) shall be treated as the receipt by the Servicer
of such amount.
The Servicer may, pursuant to any Subservicing Agreement, delegate to
the Subservicer thereunder any and all of its rights, duties, powers and
obligations existing under this Agreement, including the servicing and
administration of the Loans and related Property, acting as agent and bailee
of the Buyer in holding moneys, documents or other items, the obligation to
deliver reports, certificates and documents, to engage independent public
accountants to provide reports under this Agreement, and to make payments and
advances thereunder or otherwise pursuant to this Agreement, to make and
receive distributions in respect of Advances, to receive the Servicer
compensation pursuant to Section 5.08 and with respect to such delegated
rights, duties, powers and obligations, the Subservicer may take or do such
acts in its own name, as Subservicer; provided, however, that notwithstanding
the Servicer's delegation to the Subservicer provided in this Section
5.13(a), the Servicer shall not be excused from performance of its
obligations under this Agreement as provided in Section 5.13(d).
(b) As part of its servicing activities hereunder, the Servicer,
for the benefit of the Buyer, shall enforce the obligations of each
Subservicer under the related Subservicing Agreement, including the
obligation to make advances in respect of delinquent payments as required by
a Subservicing Agreement. Such enforcement, including, without limitation,
the legal prosecution of claims, termination of Subservicing Agreements, and
the pursuit of other remedies, shall be in such form and carried out to such
an extent and at such time as the Servicer, in its good faith business
judgment, would require were it the owner of the related Loan. The Servicer
shall pay the costs of such enforcement at its own expense, but shall be
reimbursed therefor only (i) from a general recovery resulting from such
enforcement only to the extent, if any, that such recovery exceeds all
amounts due in respect of the related Loan or (ii) from a specific recovery
of costs, expenses or attorneys fees against the party whom such enforcement
is directed.
(c) The Servicer shall be entitled to terminate any Subservicing
Agreement that may exist in accordance with the terms and conditions of such
Subservicing Agreement and without any limitation by virtue of this
Agreement; provided, however, that in the event of termination of any
Subservicing Agreement by the Servicer or the Subservicer, the Servicer shall
either act as servicer of the related Loans or enter into a Subservicing
Agreement with a successor Subservicer which will be bound by the terms of
the related Subservicing Agreement.
(d) Notwithstanding any Subservicing Agreement, any of the
provisions of this Agreement relating to agreements or arrangements between
the Servicer or a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Servicer shall remain obligated and liable to
the Buyer for the servicing and administering of the Loans in accordance with
the provisions of this Article V without diminution of such obligation or
liability by virtue of such Subservicing Agreements or arrangements or by
virtue of indemnification from the Subservicer or the Sellers and to the same
extent and under the same terms and conditions as if the Servicer alone were
servicing and administering the Loans. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the
Servicer and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
(e) Any Subservicing Agreement that may be entered into and any
other transactions or services relating to the Loans involving a Subservicer
in its capacity as such and not as an originator shall be deemed to be
between the Subservicer and the Servicer alone and the Buyer shall not be
deemed a party thereto and shall have no claims, rights, obligations, duties
or liabilities with respect to the Subservicer except as set forth in Section
5.14.
(f) Upon Buyer's request, at the time of or at any time after the
execution of a Subservicing Agreement, the Servicer shall cause the
Subservicer to furnish to the Buyer a list certified by the Subservicer's
secretary or other authorized officer of the Servicing Officers and employees
of the Subservicer involved in or responsible for, subservicing the Loans,
which list the Servicer shall cause to be updated from time to time by the
Subservicer.
SECTION 5.14 Assumption or Termination of Sub-Servicing Agreement by
Buyer. If the Servicer shall be replaced for any reason (including by reason
of any Servicer Default), the Buyer or any other successor succeeding to the
duties of the Servicer in accordance with Sections 8.01 or 8.02 shall
thereupon assume all of the rights and obligations of the Servicer under each
Subservicing Agreement that may then be in effect. The Buyer, its designee
or the Successor Servicer for the Buyer shall be deemed to have assumed all
of the Servicer's interest therein and to have replaced the Servicer's
interest therein and to have replaced the Servicer as a party to the
Subservicing Agreement to the same extent as if the Subservicing Agreement
had been assigned to the assuming party except that the Servicer shall not
thereby be relieved of any liability or obligations under the Subservicing
Agreement unless otherwise so provided in such Subservicing Agreement. If
the Buyer shall have assumed the rights and obligations of the Servicer under
the Subservicing Agreement as described in this Section 5.14, the Buyer may
terminate the Subservicer's rights and obligations under the Subservicing
Agreement only in accordance with the terms of the Subservicing Agreement.
The Servicer shall, upon request of the Buyer but at the expense of the
Servicer, deliver to the assuming party all documents and records relating to
the Subservicing Agreement and an accounting of amounts collected and held by
it and otherwise use its best efforts to effect the orderly and efficient
transfer of the Subservicing Agreement to the assuming party.
SECTION 5.15 Access to Certain Documentation and Certain Information
Regarding the Loans. The Servicer will provide to the Buyer access to the
documentation in its possession regarding the Loans, such access being
afforded without charge but only during normal business hours at the offices
of the Servicer or its designee or agent, including at the offices of any
Subservicer, as designated by the Servicer.
SECTION 5.16 Servicer Not to Resign. (a) The Servicer shall not
resign from the duties and obligations hereby imposed on it except upon a
determination by its Board of Directors that by reason of change in
applicable legal requirements the continued performance by the Servicer of
its duties under this Agreement would cause it to be in violation of such
legal requirements, said determination to be evidenced by a resolution of its
Board of Directors to such effect accompanied by an opinion of counsel,
reasonably satisfactory to the Buyer, to such effect.
(b) The Servicer may not assign this Agreement or any of its
rights, powers, duties or obligations hereunder, provided that the Servicer
may assign this Agreement in connection with a consolidation, merger,
conveyance, transfer or lease made in compliance with Section 6.01(i).
(c) Except as provided in Sections 5.16(a), 9.01 and 11.02(b), the
duties and obligations of the Servicer under this Agreement shall continue
until the Termination Date, and shall survive the exercise of any right or
remedy under this Agreement by the Sellers or Buyer of any provision of this
Agreement, and notwithstanding the provisions of Sections 5.16(a), 9.01 and
11.02(b), prior to the Termination Date, the Servicer shall continue to serve
as Servicer hereunder until such Successor Servicer shall be appointed and
assume the duties of Servicer hereunder.
[End of Article V]
<PAGE>
ARTICLE VI
SELLER'S AND SERVICER'S COVENANTS
SECTION 6.01 Covenants. At all times prior to the later of (i) the
Termination Date or (ii) the date on which all obligations of the Seller and
Guarantor under this Agreement have been performed in full, Seller and
Servicer agree to do all of the following unless the Buyer shall otherwise
consent in writing.
(a) Preservation of Corporate Existence, Etc. To preserve and
maintain its corporate existence, rights, and privileges in the jurisdiction
of its incorporation and will qualify and remain qualified as a foreign
corporation in each jurisdiction where such qualification is necessary or
advisable in view of the business and operations of Seller or Servicer, as
the case may be, or the ownership of its properties.
(b) Compliance with Laws. To comply in all material respects with
all laws, regulations, rules and orders of Governmental Authorities
applicable to Seller or Servicer, as the case may be, or to its operations or
property, except any thereof whose validity is being contested in good faith
by appropriate proceedings upon stay of execution of the enforcement thereof.
(c) Other Obligations. To pay and discharge before the same shall
become delinquent (after giving effect to all applicable grace periods) all
Debt, taxes and other obligations for which Seller or Servicer, as the case
may be, is liable or to which its income or property is subject and all
claims for labor and materials or supplies which, if unpaid, might become by
law a lien upon the assets of Seller or Servicer, as the case may be, except
any thereof whose validity or amount is being contested in good faith by the
Seller or Servicer, as the case may be, in appropriate proceedings, and
except other Debt, taxes and other obligations which, in the aggregate do not
exceed Two Hundred Fifty Thousand Dollars ($250,000) (or $1,000,000 in the
event United Grocers, Inc. succeeds to the servicing obligations of United
Resources, Inc. hereunder pursuant to the merger or consolidation provisions
of Section 6.01(i) hereof); provided, however, the covenant included in this
Section 6.01(c) shall not extend to any obligation of Seller or Servicer, as
the case may be, identified in Section 6.01(k), 9.01(f) or 10.01(f).
(d) Visitation: Records. At any reasonable time and from time to
time, to permit Buyer to examine and make copies of and abstracts from
Seller's or Servicer's records, as the case may be, and books of accounts
relating to the Loans, the related Notes and Related Documents and to visit
the properties of the Seller or Servicer, as the case may be, and to discuss
the affairs, finances and accounts of the Seller or Servicer, as the case may
be, as they relate to the transactions contemplated by this Agreement with
any of its officers. The Seller or Servicer, as the case may be, will keep
adequate records and books of accounts in which complete entries will be
made, in accordance with U.S. GAAP, reflecting all financial transactions of
the Seller or Servicer, as the case may be, as they relate to the
transactions contemplated by this Agreement. Without limiting the foregoing,
the Seller or Servicer, as the case may be, shall establish and maintain
manual or computer records reflecting all receipts or disbursements made or
received in respect of the Loans, the related Notes which records will be
maintained separate from Seller's or Servicer's records, as the case may be,
relating to Loans, the related Notes which are not Loans and will be clearly
marked with a legend to the effect that such records pertain to Loans sold to
Buyer.
(e) Financial Information. To deliver to Buyer (i) as soon as
available and in any event within one hundred twenty (120) days after the end
of each fiscal year of the Seller or Servicer, as the case may be, the
balance sheet of the Seller or Servicer, as the case may be, as of the end of
such fiscal year and the related statements of income and retained earnings
and statement of changes in the financial position of the Seller or Servicer,
as the case may be, for such year, accompanied by the audit report thereon by
independent certified public accountants (which report shall be prepared in
accordance with U.S. GAAP and shall not be qualified by reason of restricted
or limited examination of any material portion of the Seller's or Servicer's
records, as the case may be, and shall contain no disclaimer of opinion or
adverse opinion); provided, however, for so long as United Resources, Inc. is
Seller and Servicer, Servicer shall be deemed to satisfy the covenant in this
subsection 6.01(e)(i) if Seller and Servicer deliver to Buyer within one
hundred twenty days of the end of their fiscal year, the consolidating
financial statements of United Grocers, Inc., together with the balance sheet
and income statements of United Resources, Inc. on a consolidating basis,
accompanied by the audit report thereon by independent certified public
accountants and a certificate of the chief financial officer of United
Resources, Inc. to the effect that the consolidating information is correct
and accurately reflects the financial condition of United Resources, Inc.;
(ii) as soon as available and in any event within sixty (60) days after the
end of each fiscal quarter of the Seller or Servicer, as the case may be, the
unaudited balance sheet and statement of income and retained earnings of the
Seller or Servicer, as the case may be, as of the end of such fiscal quarter
(including the fiscal year to the end of such fiscal quarter), accompanied by
a certificate of the chief financial officer of the Seller or Servicer, as
the case may be, that such unaudited balance sheet and statement of income
and retained earnings have been prepared in accordance with U.S. GAAP and
present fairly the financial position and the results of operations of the
Seller or Servicer, as the case may be, as of the end of and for such fiscal
quarter and setting forth calculations demonstrating that at the end of such
quarter the Seller or Servicer, as the case may be, was in compliance with
Section 6.01(j); (iii) in the case of Servicer, but only if the Servicer is
not United Resources, Inc., within one hundred twenty (120) days after the
end of its fiscal year, the Annual Report on Form 10-K for such year filed by
the Servicer with the Securities and Exchange Commission; (iv) within one
hundred twenty (120) days after the close of each fiscal year of the Seller
or Servicer, as the case may be, a certificate signed by the chief financial
officer of the Seller or Servicer, as the case may be, stating that as of the
close of such fiscal year no Termination Event or Servicer Default or other
event which, with notice or lapse of time or both would have become a
Termination Event or Servicer Default had occurred and was continuing;
(v) within one hundred twenty (120) days after the end of each fiscal year of
Seller or Servicer, as the case may be, a report setting forth information
relating to Seller's or Servicer's, as the case may be, portfolio of loans
originated or acquired in the ordinary course of its business and owned by
Seller or Servicer, as the case may be, during the related fiscal year,
including loan balances by types of loans, numbers of loans by types of
loans, interest rates of loans by type and loss and delinquency experience;
and (vi) such other statements, reports and other information as Buyer may
reasonably request concerning the financial condition and the servicing and
collection operations of the Seller or Servicer, as the case may be.
(f) Notification. Promptly after learning thereof, to notify
Buyer of (i) the details of any action, proceeding, investigation or claim
against or affecting the Seller or Servicer, as the case may be, instituted
before any court, arbitrator or Governmental Authority or, to the Seller's or
Servicer's knowledge, as the case may be, threatened to be instituted, which,
after taking into account the likelihood of success, might reasonably result
in a judgment or order against the Seller or Servicer, as the case may be (in
excess of insurance coverage and when combined with all other pending or
threatened claims), of more than Two Hundred Fifty Thousand Dollars
($250,000) (or $1,000,000 in the event United Grocers, Inc., succeeds to the
servicing obligations of United Resources, Inc. hereunder pursuant to the
merger or consolidation provisions of Section 6.01(i) hereof); (ii) if the
Seller or Servicer, as the case may be, or any member of the Controlled Group
gives or is required to give notice to the PBGC of any "reportable event" (as
defined in subsections (b)(1)(2)(5)(6) of Section 403 of ERISA) with respect
to any Plan (or the Internal Revenue Service gives notice to the PBGC of any
"Reportable Event" as defined in subsection (c)(2) of Section 4043 of ERISA
and the Seller or Servicer, as the case may be, attains knowledge thereof)
which might constitute grounds for termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the notice of
such reportable event given or required to be given to the PBGC; (iii) any
representation or warranty set forth in Section 4.02 or 4.03 (with respect to
Seller and Loans) and Section 5.12 (with respect to Servicer) which proves to
have been incorrect in any material respect when made; (iv) Seller's or
Servicer's material breach of its obligations under this Agreement; (v) any
Obligor Default; (vi) any Loan that has become a Defaulted Loan; (vii) any
circumstance or event of which Seller has actual knowledge which materially
impairs or might reasonably be expected to impair an Obligor's ability to
repay or perform its obligations under, the related Loan; or (viii) the
occurrence of any Servicer Default or Termination Event or other event which,
with notice or lapse of time or both, would constitute a Servicer Default or
Termination Event.
(g) Additional Payments; Additional Acts. From time to time, to
(i) pay or reimburse the Buyer on request for all taxes imposed on this
Agreement or the sale of any Loans hereunder (other than taxes based on
Buyer's net income, items of tax preference, or gross receipts) and for all
expenses, including reasonable legal fees, actually incurred by Buyer in
connection with the preparation or modification of this Agreement, the
Assignments or the sale of any Loans, related Notes and Related Documents or
the security interest in the related Collateral hereunder or the enforcement
by judicial proceedings or otherwise of any rights of the Buyer hereunder or
under the Assignments; and (ii) obtain and promptly furnish to Buyer evidence
of all such Government Approvals as may be required to enable the Seller or
Servicer, as the case may be, to comply with its obligations under this
Agreement and under any Assignment.
(h) Liens. Not to create, assume or suffer to exist any lien,
security interest or other encumbrance except (i) liens on the Seller's or
Servicer's properties securing mortgage indebtedness relating to such
properties, as the case may be, and any extensions, refinancing or renewals
thereof in an amount not exceeding the amount of such indebtedness prior to
such extension, refinancing or renewal; (ii) capital lease obligations;
(iii) liens to secure indebtedness for the deferred price of property
acquired after the date hereof, but only if such liens are limited to such
property and its proceeds; (iv) liens imposed by law (such as mechanic's
liens) incurred in good faith in the ordinary course of business which are
not delinquent or which remain payable without penalty or the validity or
amount of which are being contested in good faith by appropriate proceeding
upon stay of execution of the enforcement thereof; or (v) deposits or pledges
under workmen's compensation, unemployment insurance, social security or
similar laws or made to secure the performance of bids, tenders, contracts
(except for the repayment of borrowed money) or leases, or to secure
statutory obligations or surety or appeal bonds or to secure indemnity,
performance or other similar bonds given in the ordinary course of business.
(i) Liquidation, Merger, Sale of Assets, Etc. To not liquidate,
dissolve or enter into any merger, consolidation, joint venture, partnership
or other combination nor sell, lease, dispose of such portion of its business
or assets (excepting sales of goods in the ordinary course of business and
excepting sales of the Loans to the Buyer) as constitutes a substantial
portion thereof provided, however, so long as no Servicer Default or
Termination Event or event which with the passage of time or the giving of
notice or both would constitute a Servicer Default or Termination Event shall
have occurred and be continuing or will occur as a result of such merger or
consolidation, Seller or Servicer, as the case may be, may merge or
consolidate with any Person or sell all or substantially all of its business
or assets to any other Person so long as (A)(i) the Seller or Servicer, as
the case may be, shall be the surviving or continuing corporation or (a), if
the Seller or Servicer, as the case may be, shall not be the surviving or
continuing corporation or shall sell all or substantially all of its assets
to a Person such surviving, continuing or purchasing Person shall be
incorporated under the laws of the United States or any jurisdiction thereof,
shall assume in writing all obligations of the Seller or Servicer, as the
case may be, under this Agreement, shall be eligible to borrow from NCB
pursuant to the provisions of the Bank Act and shall have a Consolidated Net
Tangible Assets not less than the Seller or Servicer, as the case may be,
prior to the merger or consolidation, and (B) at the time of such
consolidation, merger or sale and after giving effect thereto no Servicer
Default or Termination Event shall have occurred and be continuing.
(j) Transactions with Affiliates. To not directly or indirectly
enter into or permit to exist any transaction (including, without limitation,
the purchase, sale, lease or exchange of any property) with any of Seller's
or Servicer's Affiliates, as the case may be, on terms that are less
favorable to Seller or Servicer, as the case may be, than those which might
be obtained at the time from Persons who are not Affiliates.
(k) ERISA Compliance. To not and not allow any member of its
Controlled Groups or any Plan of any of them to: (i) engage in any
"prohibited transaction" as such term is defined in Section 4.06 or Section
2003(a) of ERISA; (ii) incur any "accumulated funding deficiencies" (as such
term is defined in Section 3.02 of ERISA) whether or not waived; (iii)
terminate any Pension Plan in a manner which could result in the imposition
of a lien on any property of the Seller or Servicer, as the case may be, or
any member of their respective Controlled Groups pursuant to Section 4068 of
ERISA; or (iv) violate state or federal securities laws applicable to any
Plan.
(l) No Name Change, Etc. To not change its name, identity or
corporate structure in any manner which could make any financing or
continuation statement filed hereunder seriously misleading within the
meaning of Section 9-402(7) of any applicable enactment of the Uniform
Commercial Code without giving Buyer at last sixty (60) days prior written
notice thereof.
(m) Relocation of Offices. To give Buyer at least sixty (60) days
prior written notice of any relocation of its chief executive offices or the
offices where records concerning the Loans and related Property are kept.
(n) Limitation on Transfers, Etc. To not transfer or attempt to
transfer in any manner whatsoever to any Person other than the Buyer pursuant
to the terms of this Agreement, and except in favor of the Buyer hereunder
shall not create, cause to be created or permit any lien, pledge, charge,
security interest, ownership interest, participation interest or any other
interest of any nature whatever in respect of the Loans and related Property.
(o) Bank Act Eligibility. To remain "eligible" to borrow from NCB
pursuant to the provisions of the Bank Act.
(p) No Changes. To make no change in the Credit and Collection
Policy, which change would impair the collectibility of any material amount
of the Loans; make no material change in the Credit and Collection Policy or
in its current payment terms with respect to Loans without prior written
consent of the Buyer, or change its name, identity or corporate structure in
any manner which would make any financing statement or continuation statement
filed in connection with this Agreement or the transactions contemplated
hereby seriously misleading within the meaning of Section 9-402(7) of the UCC
of any applicable jurisdiction or other applicable Laws unless it shall have
given the Buyer at least 45 days' prior written notice thereof and unless
prior thereto it shall have caused such financing statement or continuation
statement to be amended or a new financing statement to be filed such that
such financing statement or continuation statement would not be seriously
misleading; to make no material change in the terms of the Notes and Related
Documents relating to the Loans without the prior written notice to and
consent of the Buyer.
SECTION 6.02 Special Covenant of Seller. At all times prior to the
later of (i) the Termination Date or (ii) the date on which all obligations
of the Seller and Guarantor under this Agreement have been performed in full,
Seller agrees not to (a) make or own (including a participation in) any loan
to any Obligor or member of its Obligor Group unless such Obligor's or
member's obligation, as the case may be, to repay such loan is subordinate to
such Obligor's or member's obligation, as the case may be, to repay the Loan
or Loans made to such Obligor and sold to the Buyer under this Agreement and
(b) own a corporation or other business entity that makes loans to an Obligor
or member of its Obligor Group if such Obligor's or member's repayment
obligation on such loan is senior to its obligation to repay the Loan or
Loans made to Obligor or its member and sold to the Buyer hereunder.
[End of Article VI]
<PAGE>
ARTICLE VII
GUARANTOR AND GUARANTY
SECTION 7.01 Guarantor's Guaranty, Repurchase Guaranty and Advance
Guaranty. (a) Guarantor hereby agrees to provide to the Buyer a Guaranty of
Liquidation Losses, equal at any time to the then current Guaranty Amount.
Following the collection of all Liquidation Proceeds, Insurance Proceeds and
other amounts with respect to a Defaulted Loan, and determination of
Liquidation Loss thereon, the Buyer shall notify Guarantor of the amount of
Liquidation Loss and, within five (5) Business Days of receipt of such
notice, Guarantor shall make a Guaranty Payment to the Buyer in the amount of
such Liquidation Loss; provided, however, that Guarantor's obligation to make
a Guaranty Payment shall be limited to the then available Guaranty Amount.
(b) Guarantor hereby agrees to provide to the Buyer a Repurchase
Guaranty of Seller's repurchase obligation pursuant to Section 2.01(e),
2.02(c), 3.02, 4.05 and 10.02. If the Servicer shall not have received the
Purchase Amount on the day on which due, Servicer shall promptly so notify
the Guarantor, the Seller and the Buyer, and within two Business Days of
receipt of such notice, Guarantor shall make a Guaranty Payment to the Buyer
in the amount of such Purchase Amount and shall notify the Servicer that such
Guaranty Payment has been made.
(c) Guarantor hereby agrees to provide to the Buyer an Advance
Guaranty of Servicer's obligation to make Advances pursuant to section 5.07A
hereof. If the Buyer shall not have received any Advance when due from the
Servicer on any Servicer Payment Date, the Buyer shall notify the Guarantor
of the Servicer's failure to Advance and the amount of the Advance, and on
the next Business Day (which is the Payment Date), the Guarantor shall make a
Guaranty Payment to the Buyer in the total amount of the Advance.
SECTION 7.02 Guarantor Representations and Warranties. The Guarantor
hereby represents and warrants to, and agrees as follows as of each Closing
Date:
(a) The Guarantor is duly organized and is validly existing and in
good standing as an Oregon corporation, with corporate power and authority to
own its properties and to transact the business in which it is now engaged;
the Guarantor is duly qualified to do business and is in good standing in
each State of the United States where the nature of its business requires it
to be so qualified; and the Guarantor is doing business only under the
corporate and "doing business as" names listed on Exhibit A hereto.
(b) The performance of Guarantor's obligations under this
Agreement, and the consummation of the transactions herein contemplated will
not conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the property or assets of Guarantor
or any of its Subsidiaries pursuant to the terms of, any indenture, mortgage,
deed of trust, loan agreement or other agreement (other than this Agreement)
or instrument to which it or any of its Subsidiaries is a party or by which
it or any of its subsidiaries is bound or to which any of its property or
assets is subject, nor will such action result in any violation of the
provisions of its Certificate of Incorporation or By-Laws or any statute or
any order, rule or regulation of any court or governmental agency or body
having jurisdiction over it or any of its properties; and no consent,
approval, authorization, order, registration or qualification of or with any
court or any such regulatory authority or other governmental agency or body
is required for the consummation of the other transactions contemplated by
this Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by Guarantor and this Agreement is the valid and legally binding
obligation of Guarantor, enforceable against Guarantor in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization
and other similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity.
(d) The Guarantor is "eligible" in Section 3015 to borrow from NCB
pursuant to the provisions of the Bank Act.
(e) As of the Initial Closing Date, the Guarantor does not
originate or service loans of the type sold and assigned by Seller pursuant
to this Agreement.
(f) Except as described in Exhibit I hereto, there are no actions,
proceedings, investigations, or claims against or affecting Guarantor now
pending before any court, arbitrator or other Governmental Authority (nor to
the knowledge of Guarantor has any thereof been threatened nor does any basis
exist therefor) which if determined adversely to the Guarantor would be
likely to have a material adverse effect on the financial condition or
operations of Guarantor or on Guarantor's ability to perform its obligations
under this Agreement, or under any Assignment or under an endorsement of any
Note. With respect to the litigation described in Exhibit I hereto, a
determination in such litigation that is materially adverse to the Seller or
Guarantor would not have a material adverse effect on the financial condition
or operations of Guarantor or on Guarantor's ability to perform its
obligations under this Agreement.
SECTION 7.03 Covenants of Guarantor. At all times prior to the later
of (i) the Termination Date or (ii) the date on which all obligations of the
Seller and Guarantor under this Agreement have been performed in full,
Guarantor agrees to do all of the following unless the Buyer shall otherwise
consent in writing.
(a) Preservation of Corporate Existence, Etc. To preserve and
maintain its corporate existence, rights, and privileges in the jurisdiction
of its incorporation and will qualify and remain qualified as a foreign
corporation in each jurisdiction where such qualification is necessary or
advisable in view of the business and operations of Guarantor or the
ownership of its properties.
(b) Compliance with Laws. To comply in all material respects with
all laws, regulations, rules and orders of Governmental Authorities
applicable to Guarantor or to its operations or property, except any thereof
whose validity is being contested in good faith by appropriate proceedings
upon stay of execution of the enforcement thereof.
(c) Other Obligations. To pay and discharge before the same shall
become delinquent (after giving effect to all applicable grace periods) all
Debt, taxes and other obligations for which Guarantor is liable or to which
its income or property is subject and all claims for labor and materials or
supplies which, if unpaid, might become by law a lien upon the assets of
Guarantor, except any thereof whose validity or amount is being contested in
good faith by the Guarantor in appropriate proceedings, and except other
Debt, taxes and other obligations which, in the aggregate do not exceed One
Million Dollars ($1,000,000); provided, however, that this covenant shall not
extend to any obligation of Guarantor identified in Section 7.03(n).
(d) Financial Information. To deliver to Buyer (i) as soon as
available and in any event within one hundred twenty (120) days after the end
of each fiscal year of the Guarantor, the consolidated balance sheet of the
Guarantor as of the end of such fiscal year and the related statements of
income and retained earnings and statement of changes in the financial
position of the Guarantor for such year, accompanied by the audit report
thereon by independent, certified public accountants (which report shall be
prepared in accordance with U.S. GAAP and shall not be qualified by reason of
restricted or limited examination of any material portion of the Guarantor's
records and shall contain no disclaimer of opinion or adverse opinion) and an
Annual Report on Form 10-K for such year filed by the Guarantor with the
Securities and Exchange Commission; (ii) as soon as available and in any
event within sixty (60) days after the end of each fiscal quarter of the
Guarantor, the unaudited balance sheet and statement of income and retained
earnings of the Guarantor as of the end of such fiscal quarter (including the
fiscal year to the end of such fiscal quarter), accompanied by a certificate
of the chief financial officer of the Guarantor, that such unaudited balance
sheet and statement of income and retained earnings have been prepared in
accordance with U.S. GAAP and present fairly the financial position and the
results of operations of the Guarantor, as of the end of and for such fiscal
quarter and setting forth calculations demonstrating that at the end of such
quarter the Guarantor was in compliance with Sections 7.03(h) through 7.03(l)
and 7.03(n), inclusive; (iii) within one hundred twenty (120) days after the
close of each fiscal year of the Guarantor, a certificate signed by the chief
financial officer of the Guarantor stating that as of the close of such
fiscal year no Termination Event or Servicer Default or other event which,
with notice or lapse of time or both would have become a Termination Event or
Servicer Default had occurred and was continuing; (iv) within one hundred
twenty (120) days after the end of each fiscal year of Guarantor, a report
setting forth information relating to the portfolio of loans originated or
acquired by Guarantor and each of its Subsidiaries and Affiliates (other than
United Resources, Inc.) in the ordinary course of their respective businesses
and owned by Guarantor and each of its Subsidiaries and Affiliates (other
than United Resources, Inc.) during the related fiscal year, including loan
balances by types of loans, numbers of loans by types of loans, interest
rates of loans by type and loss and delinquency experience; and (v) such
other statements, reports and other information as Buyer may reasonably
request concerning the financial condition and the servicing and collection
operations of the Guarantor; provided, however, that if either the Guarantor
or any of its Subsidiaries or Affiliates (as specified) does not originate
and/or service loans of the kind sold and assigned by Seller pursuant to this
Agreement, the covenants in subsections (iv) and (v) of this subsection (d)
shall be satisfied by a certification of a Responsible Officer to the effect
that during the preceding fiscal year, Guarantor or the specified Subsidiary
or Affiliate did not originate or service loans.
(e) Notification. Promptly after learning thereof, to notify
Buyer of (i) the details of any action, proceeding, investigation or claim
against or affecting the Guarantor instituted before any court, arbitrator or
Governmental Authority or, to the Guarantor's knowledge threatened to be
instituted, which, after taking into account the likelihood of success, might
reasonably result in a judgment or order against Guarantor (in excess of
insurance coverage and when combined with all other pending or threatened
claims) of more than One Million Dollars ($1,000,000); (ii) if the Guarantor
or any member of the Controlled Group gives or is required to give notice to
the PBGC of any "reportable event" (as defined in subsections (b)(1)(2)(5)(6)
of Section 403 of ERISA) with respect to any Plan (or the Internal Revenue
Service gives notice to the PBGC of any "Reportable Event" as defined in
subsection (c)(2) of Section 4043 of ERISA and the Guarantor attains
knowledge thereof) which might constitute grounds for termination of such
Plan under Title IV of ERISA, or knows that the plan administrator of any
Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to
the PBGC; (iii) any representation or warranty set forth in Section 7.02
which proves to have been incorrect in any material respect when made; (iv)
Seller's, Servicer's or Guarantor's material breach of its obligations under
this Agreement; or (v) the occurrence of any Servicer Default or Termination
Event or other event which, with notice or lapse of time or both, would
constitute a Servicer Default or Termination Event.
(f) Additional Acts. From time to time, to obtain and promptly
furnish to Buyer evidence of all such Government Approvals as may be required
to enable the Guarantor to comply with its obligations under this Agreement.
(g) Working Capital. To maintain, on a consolidated basis, a
ratio of current assets to current liabilities of at least 1.3 to 1.0. For
purposes of this subsection current assets shall not include (i) any deferred
assets other than prepaid items such as insurance, taxes or other similar
items; (ii) any amounts due from corporations which are subsidiaries of or
otherwise affiliated with the Guarantor; and (iii) an amount equal to the
appropriate deduction for depreciation, depletions, obsolescence,
amortization, valuation, contingency or other reserves determined in
accordance with generally accepted accounting principles. For purposes of
this subsection, current liabilities shall not include Funded Debt maturing
within one year from the date of determination whether or not extendable at
the option of the Guarantor.
(h) Member Notes Receivable Ratio. To maintain on a consolidated
basis at all times, the Guarantor Member Portfolio at less than 150% of
Consolidated Tangible Net Worth. "Guarantor Member Portfolio" means the sum
of (i) all Debt of members to Guarantor or any of its Subsidiaries, including
Seller, which have not been sold; plus (ii) all investments by Guarantor or
any of its Subsidiaries, including Seller, in Guarantor's members; plus
(iii) all indebtedness of members to Guarantor or any of its Subsidiaries,
including Seller, which have been sold with recourse to Guarantor or any of
its Subsidiaries, including Seller, at 50% or greater.
(i) Fixed Charge Coverage. To maintain on a consolidated basis a
ratio of Fixed Charge Coverage (for the four most recent fiscal quarters) of
at least 1.4 to 1.0. "Fixed Charge Coverage" means for any period the ratio
derived from dividing (a) the sum of net income for such period (before
income taxes, patronage dividends, and extraordinary items) plus Fixed
Charges by (b) Fixed Charges. "Fixed Charges" means the sum of (a) interest
expense on Funded Debt, (b) the amortization of any discount applied in
advancing Funded Debt to Guarantor and (c) gross rental expense net of any
lease or sublease entered into by Guarantor if Guarantor has in turn
subleased the related leased or subleased property to any of Guarantor's
Subsidiaries, Affiliates or members for a payment obligation at least equal
to Guarantor's on the first lease or sublease and the Subsidiary, Affiliate
or member is current on its payment obligations on the sublease.
(j) Liens and Sales. Not to create, assume or suffer to exist any
lien, security interest or other encumbrance except (i) liens on the
Guarantor's properties securing mortgage indebtedness relating to such
properties, as the case may be, and any extensions, refinancing or renewals
thereof in an amount not exceeding the amount of such indebtedness prior to
such extension, refinancing or renewal; (ii) capital lease obligations;
(iii) liens to secure indebtedness for the deferred price of property
acquired after the date hereof, but only if such liens are limited to such
property and its proceeds; (iv) liens imposed by law (such as mechanic's
liens) incurred in good faith in the ordinary course of business which are
not delinquent or which remain payable without penalty or the validity or
amount of which are being contested in good faith by appropriate proceeding
upon stay of execution of the enforcement thereof; or (v) deposits or pledges
under workmen's compensation, unemployment insurance, social security or
similar laws or made to secure the performance of bids, tenders, contracts
(except for the repayment of borrowed money) or leases, or to secure
statutory obligations or surety or appeal bonds or to secure indemnity,
performance or other similar bonds given in the ordinary course of business.
Notwithstanding the foregoing, the total amount secured by all such liens,
security interests or other encumbrances shall not at any time exceed 15% of
Guarantor's Consolidated Net Tangible Assets as of such time. "Consolidated
Net Tangible Assets" shall be, on a consolidated basis, the difference
between total assets and current liabilities, excluding, however, from the
determination of total assets (i) all assets which should be classified as
intangible assets (such as good will, patents, trademarks, copyrights and
franchises) and (ii) to the extent not already deducted from total assets,
all reserves including those for deferred income taxes, depreciation,
obsolescence or amortization of properties and (iii) all capital stock or
other investments by the Guarantor in any direct or indirect subsidiary of
Guarantor other than in (x) any offshore investment subsidiary, or (y) a
subsidiary having all or substantially all of its operations in the United
States.
(k) Minimum Capital and Subordinated Debt. To maintain the sum of
Subordinated Debt and Consolidated Tangible Net Worth at a total of not less
than $70,000,000.
(l) Liquidation, Merger, Sale of Assets, Etc. To not liquidate,
dissolve or enter into any merger, consolidation, joint venture, partnership
or other combination nor sell, lease, dispose of such portion of its business
or assets (excepting sales of goods in the ordinary course of business and
sales of Loans under this Agreement) as constitutes a substantial portion
thereof provided, however, so long as no Termination Event or event which
with the passage of time or the giving of notice or both would constitute a
Termination Event shall have occurred and be continuing or will occur as a
result of such merger or consolidation, Guarantor may merge or consolidate
with any Person or sell all or substantially all of its business or assets to
any other Person so long as (A)(1) the Guarantor shall be the surviving or
continuing corporation, or (2) if the Guarantor shall not be the surviving or
continuing corporation or shall sell substantially all of its assets to a
Person, such surviving, continuing or purchasing Person shall be incorporated
under the laws of the United States or any jurisdiction thereof and shall
assume in writing all obligations of the Guarantor under this Agreement,
shall be eligible to borrow form NCB under the provisions of the Bank Act and
shall satisfy the financial covenants set forth in subsections 7.03(g), (h),
(i) and (k) hereof, and (B) at the time of such consolidation, merger or sale
and after giving effect thereto, no Termination Event shall have occurred and
be continuing. Without limitation on the foregoing, the Guarantor, and its
consolidated subsidiaries, will not during any four consecutive calendar
quarters sell in excess of 10% of their Consolidated Net Tangible Assets
unless the proceeds of such sale or sales are reinvested within 12 months in
assets to be owned and utilized by the Guarantor in the ordinary course of
its business; provided, however, in determining compliance with the foregoing
requirement, sales of the following assets will be disregarded: (a)
individual assets having a book value of less than $25,000 and (b)
indebtedness of Guarantor's members to Guarantor sold under this Agreement.
(m) Transactions with Affiliates. To not directly or indirectly
enter into or permit to exist any transaction (including, without limitation,
the purchase, sale, lease or exchange of any property) with any of
Guarantor's Affiliates, on terms that are less favorable to Guarantor than
those which might be obtained at the time from Persons who are not
Affiliates.
(n) ERISA Compliance. To not and not allow any member of its
Controlled Groups or any Plan of any of them to: (i) engage in any
"prohibited transaction" as such term is defined in Section 4.06 or Section
2003(a) of ERISA; (ii) incur any "accumulated funding deficiencies" (as such
term is defined in Section 3.02 of ERISA) whether or not waived; (iii)
terminate any Pension Plan in a manner which could result in the imposition
of a lien on any property of the Guarantor, or any member of its Controlled
Group pursuant to Section 4068 of ERISA; or (iv) violate state or federal
securities laws applicable to any Plan.
(o) Subordinate Position. To (i) make or own (including a
participation) no loan to any Obligor or member of its Obligor Group unless
such Obligor's or member's obligations, as the case may be, to repay such
loan is subordinate to such Obligor's or member's obligation, as the case may
be, to repay the Loan or Loans made to such Obligor and sold by the Seller to
the Buyer under this Agreement and (ii) own no corporation or other business
entity that makes loans to any Obligor or member of its Obligor Group if such
Obligor's or members repayment obligation on such loan is senior to its
payment obligation to the Loan or Loans made to Obligor or its member and
sold to Buyer hereunder.
(p) NCB Borrower Eligibility. To maintain its status as an
"eligible" borrower under the provisions of the Bank Act.
[End of Article VII]
<PAGE>
ARTICLE VIII
SELLER OBLIGATIONS AND REPURCHASE OPTIONS
SECTION 8.01 Purchase of Interest Rate Protection. Seller hereby
agrees to provide interest rate protection for Buyer, in the form of a swap
agreement, hedge, cap, guaranteed rate contract or other similar device or
agreement (each, an "Interest Rate Agreement"), or any combination of the
foregoing, or any other plan acceptable to Buyer (an "Interest Rate
Protection Plan"), if, for any three (3) consecutive months during the term
of this Agreement, the Prime Rate in effect on the LIBOR Determination Date
for each such month is equal to or less than the sum of the LIBOR on such
Date and 150 basis points. An Interest Rate Agreement, if any, must satisfy
the following requirements: (i) have a term of 36 months (or such fewer
number of months as remain in the term of this Agreement); (ii) be provided
by a party or parties who is or are either rated "A" or higher by a Rating
Agency or acceptable to Buyer; (iii) be accompanied by an opinion of counsel
to provider to the effect that the Interest Rate Agreement is a legal, valid
and binding Agreement of provider, enforceable in accordance with its terms;
(iv) provide for an interest payment during each Interest Accrual Period at
least equal to the related LIBOR plus 150 basis points; and (v) be delivered
by the Servicer Payment Date in the month immediately following the month in
which the requirement of this Section 8.01 takes effect. An Interest Rate
Protection Plan must be coterminous with this Agreement.
SECTION 8.02 Optional Repurchase of Defaulted Loans and after Obligor
Default. In addition to the other repurchase obligations contained herein,
Seller will have the option to repurchase any Loan sold by Seller to Buyer if
(i) such Loan is a Defaulted Loan or (ii) an Obligor Default has occurred and
has then been continuing for at least thirty (30) days or (iii) Buyer has
received notice of any adverse event as described in Section 5.06 or Section
6.01(f) hereof. Such Loan shall be repurchased by Seller from Buyer by the
last day of the Due Period during which Seller receives notice of any such
Defaulted Loan or the occurrence and continuation of an Obligor Default or
notice of adverse event, as the case may be. Such repurchase shall be
accomplished on the same terms as set forth in Section 2.01(e) and at the
Purchase Amount.
SECTION 8.03 Minimal Balances. On any Servicer Payment Date, Seller
may elect to repurchase all Loans for their aggregate Principal Balance, if
as of such Servicer Payment Date, the aggregate Principal Balance is less
than five percent (5%) of the Maximum Purchase Amount. If Seller elects to
repurchase the Loans pursuant to this Section 8.03, Seller shall provide
Buyer with thirty (30) days prior written notice. The Purchase Amount shall
be paid by Seller to Servicer in immediately available funds prior to 12:00
noon, Washington, D.C. time. Immediately upon the payment of the required
Purchase Amount, all right, title and interest in the Loans being repurchased
shall pass to Seller and such Loans shall cease to be "Loans" for all
purposes of this Agreement. Any resale of a Loan and related Property
pursuant to the terms of this Section 8.03 shall constitute the simultaneous
resale by Buyer and repurchase by Seller of all Loans and related Property.
Any resale of a Loan and related Property pursuant to this Section 8.03 shall
be without recourse or warranty of any kind except that Buyer shall be deemed
to have warranted that such Loans and related Property are free and clear of
all liens or claims resulting from or arising out of its acts or omissions
(other than acts of Buyer resulting from Seller's or Servicer's failure to
perform as required by this Agreement) or claims of Buyer's creditors.
[End of Article VIII]
<PAGE>
ARTICLE IX
SERVICER DEFAULT
SECTION 9.01 Servicer Defaults. Any of the following acts or
occurrences shall constitute "Servicer Defaults" under this Agreement.
(a) Payment Default. Any failure by the Servicer to make any
required payment, transfer, withdrawal or deposit or to give instructions or
notice to the Buyer or Seller to make any required payment, transfer,
withdrawal or deposit on or before the date occurring five Business Days
after the date such payment, transfer, deposit or withdrawal or such notice
or instruction is required to be made or given, as the case may be, under the
terms of this Agreement;
(b) Performance Default. Failure on the part of the Servicer duly
to observe or perform in any material respect any of the other covenants or
agreements, including the providing of accurate and timely reports as
required in Article V hereof, to be performed under this Agreement which
failure continues unremedied for a period of 30 days after the date on which
written notice of such failure requiring the same to be remedied, shall have
been given to the Servicer by the Buyer.
(c) Involuntary Bankruptcy, Etc. The entry of a decree or order
for relief by a court having jurisdiction in respect of the Servicer or any
Affiliate or Subsidiary thereof in an involuntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or
future federal or state bankruptcy, insolvency or similar law, or appointing
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or any Affiliate or Subsidiary thereof or of
any substantial part of the property of the Servicer or any Affiliate or
Subsidiary thereof, or ordering the winding up or liquidation of the affairs
of the Servicer or any Affiliate or Subsidiary thereof and the continuance of
any such decree or order unstayed and in effect for a period of 60
consecutive days; or
(d) Voluntary Bankruptcy, Etc. The commencement by the Servicer
or any Affiliate or Subsidiary thereof of a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or
future federal or state bankruptcy, insolvency or similar law, or the consent
by the Servicer or any Affiliate or Subsidiary thereof, as the case may be,
to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Servicer or any Affiliate or Subsidiary thereof or of any substantial part of
the property of the Servicer or any Affiliate or Subsidiary thereof or the
making by the Servicer or any Affiliate or Subsidiary thereof of an
assignment for the benefit of creditors or the failure by the Servicer or any
Affiliate or Subsidiary thereof, as the case may be, generally to pay its
debts as such debts become due or the taking of corporate action by the
Servicer or any Affiliate or Subsidiary thereof, as the case may be, in
furtherance of any of the foregoing; or
(e) Insolvency, Etc. Servicer or any Affiliate or Subsidiary
thereof shall (i) make a general assignment for the benefit of its creditors
or (ii) consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, or custodian of all or a substantial part of
the property of Servicer or any Affiliate or Subsidiary thereof, or (iii)
admit its insolvency or liability to pay its debts generally as they become
due, or (iv) fail generally to pay its debts as they become due, or (v) take
any action (or suffer any action to be taken by its directors or
shareholders) looking to the dissolution or liquidation of Servicer or any
Affiliate or Subsidiary thereof; or
(f) ERISA. Servicer or any member of the Controlled Group shall
fail to pay when due an amount or amounts aggregating in excess of One
Million Dollars ($1,000,000) which it shall have become liable to pay to the
PBGC or to a Plan under Section 515 of ERISA or Title IV of ERISA; or notice
of intent to terminate a Plan or Plans (other than a multi-employer plan, as
defined in Section 4001(3) or ERISA), having aggregate Unfunded Vested
Liabilities in excess of Five Million Dollars ($5,000,000) shall be filed
under Title IV of ERISA by the Servicer, any member of the Controlled Group,
any plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate any such Plan or
Plans;
then, in the event of any Servicer Default, so long as the Servicer Default
shall not have been remedied, the Buyer may, by notice given to the Servicer,
terminate all of the rights and powers of the Servicer under this Agreement,
including without limitation all rights of the Servicer to receive the
Servicing Fee. Upon the giving of such notice, all rights and powers of the
Servicer under this Agreement shall vest in the Buyer, and the Buyer is
hereby authorized and empowered to execute and deliver on behalf of the
Servicer, as attorney-in-fact or otherwise, all documents and other
instruments (including any notices to obligors deemed necessary or advisable
by the Buyer), and to do or accomplish all other acts or things necessary or
appropriate to effect such vesting, and the Servicer agrees to cooperate with
the Buyer in effecting the termination of the Servicer's rights and
responsibilities hereunder and shall promptly provide to the successor
servicer appointed under Section 9.02 (the "Successor Servicer") all
documents and records (electronic and otherwise) reasonably requested to
enable it to assume the servicing functions hereunder.
SECTION 9.02 Buyer to Act; Appointment of Successor. On and after the
time the Servicer receives a notice of termination pursuant to Section 9.01
or in the event of a resignation of the Servicer pursuant to Section 5.16,
the Buyer shall be the successor in all respects to the Servicer in its
capacity as Servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Servicer by the terms and
provisions hereof, however, that the Buyer shall have no obligation
whatsoever in respect of any liability incurred by the Servicer at or prior
to the time of receipt by the Servicer of said notice. As compensation
therefor the Buyer shall be entitled to receive any and all funds which the
Servicer would have been entitled to receive if the Servicer had continued to
act hereunder. However, if the Buyer is unable or unwilling to act as
Successor Servicer hereunder, the Buyer may appoint any Person with a net
worth of at least $25,000,000 and whose regular business includes the
servicing of loans similar to the Loans as the Successor Servicer hereunder
in the assumption of all or part of the servicing functions hereunder. In
connection with such appointment and assumption, the Buyer may make such
arrangements for the compensation of such Successor Servicer from payments on
the Loans and related Property as the Buyer and such Successor Servicer shall
agree; provided, that no such compensation shall be in excess of that
permitted the Servicer hereunder or such amount as is commercially reasonable
at the time in question. The Buyer and such Successor Servicer shall take
such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
SECTION 9.03 Effects of Servicing Transfer. Upon any termination of
the rights and powers of the Servicer pursuant to either Section 5.16 or
Section 9.01 and the vesting in either the Buyer or a Successor Servicer of
the property and accounts described in Section 9.01, the Servicer shall have
no additional obligations or liabilities for acts or omissions of the
Successor Servicer or otherwise relating to its performance of its
obligations under this Agreement after the date of such termination.
[End of Article IX]
<PAGE>
ARTICLE X
TERMINATION EVENTS
SECTION 10.01 Termination Events. The occurrence of any of the
following events shall constitute a "Termination Event" hereunder.
(a) Breach of Covenant. Seller shall fail to perform or observe
any covenant, obligation or term of Articles VI or XI or of Section 2.01(e),
2.02, 3.02, 4.05 or 8.01 of this Agreement and, except in the case of a
breach of Section 6.01(c) or Section 6.01(f)(iii), (iv) or (v), such failure
shall remain unremedied for thirty (30) days after written notice thereof
shall have been given to Seller by the Buyer; or
(b) Guarantor Defaults. Guarantor shall fail to perform or
observe any obligation, covenant or term of Article VII of this Agreement and
such failure shall remain unremedied for thirty (30) days after written
notice thereof shall have been given to Guarantor by Buyer; or
(c) Voluntary Bankruptcy, Etc. Either Seller, Guarantor or any
Subsidiary or Affiliate of Seller or Guarantor shall: (1) file a petition
seeking relief for itself under Title 11 of the United States Code, as now
constituted or hereafter amended, or file an answer consenting to, admitting
the material allegations of or otherwise not controverting, or fail timely to
controvert a petition filed against it seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended; or (2) file such
petition or answer with respect to relief under the provisions of any other
now existing or future applicable bankruptcy, insolvency, or other similar
law of the United States of America or any State thereof or of any other
country or jurisdiction providing for the reorganization, winding-up or
liquidation of corporations or an arrangement, composition, extension or
adjustment with creditors; or
(d) Involuntary Bankruptcy, Etc. An order for relief shall be
entered against either Seller, Guarantor or any Subsidiary or Affiliate of
Seller or Guarantor under Title 11 of the United States Code, as now
constituted or hereafter amended, which order is not stayed; or upon the
entry of an order, judgment or decree by operation of law or by a court
having jurisdiction in the premises which is not stayed adjudging it a
bankrupt or insolvent under, or ordering relief against it under, or
approving as properly filed a petition seeking relief against it under the
provisions of any other now existing or future applicable bankruptcy,
insolvency or other similar law of the United States of America or any State
thereof or of any other country or jurisdiction providing for the
reorganization, winding-up or liquidation of corporations or any arrangement,
composition, extension or adjustment with creditors, or appointing a
receiver, liquidator, assignee, sequestrator, trustee or custodian of the
Seller, Guarantor or any Affiliate or Subsidiary of Seller or Guarantor, or
of any substantial part of the property of Seller, Guarantor, or any
Affiliate or Subsidiary, as the case may be, or ordering the reorganization,
winding-up or liquidation of its affairs, or upon the expiration of one
hundred twenty (120) days after the filing of any involuntary petition
against it seeking any of the relief specified in Section 10.01(b) or this
Section 10.01(c) without the petition being dismissed prior to that time; or
(e) Insolvency, Etc. Either Seller, Guarantor or any Affiliate or
Subsidiary of the Seller or Guarantor shall (i) make a general assignment for
the benefit of its creditors or (ii) consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, or custodian of all
or a substantial part of the property of Seller, Guarantor, or any Affiliate
or Subsidiary, as the case may be, or (iii) admit its insolvency or liability
to pay its debts generally as they become due, or (iv) fail generally to pay
its debts as they become due, or (v) take any action (or suffer any action to
be taken by its directors or shareholders) looking to the dissolution or
liquidation of Seller, Guarantor, or any Affiliate or Subsidiary, as the case
may be; or
(f) ERISA. Either Seller or Guarantor or any member of the
Controlled Group shall fail to pay when due an amount amounts aggregating in
excess of One Million Dollars ($1,000,000) which it shall have become liable
to pay to the PBGC or to a Plan under Section 515 of ERISA or Title IV of
ERISA; or notice of intent to terminate a Plan or Plans (other than a
multi-employer plan, as defined in Section 4001(3) or ERISA), having
aggregate Unfunded Vested Liabilities in excess of Five Million Dollars
($5,000,000) shall be filed under Title IV of ERISA by Seller or Guarantor,
as the case may be, any member of the Controlled Group, any plan
administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate any such Plan or
Plans.
(g) Servicer Default. A Servicer Default shall occur and such
Servicer Default would materially and adversely affect the interest of the
Buyer.
SECTION 10.02 Consequences of Termination Event. If any Termination
Event shall occur and be continuing, then in any such case and at any time
thereafter so long as any such Termination Event shall be continuing, the
Buyer may, at its option, immediately terminate the Buyer's commitment to
accept Renewal Notes hereunder.
Thereafter, and before exercising any other remedies provided herein or
by applicable law, Buyer may, at its option, require that Seller repurchase
all Loans and related Property Notes for the Purchase Amount within two 2
Business Days of receipt of notice from the Buyer of its election to cause
the repurchase of all Loans. In addition, Buyer may pursue all other rights
and remedies available herein and by applicable law including, without
limitation, its rights to pursue collection from the Sellers in an amount
equal to the applicable Purchase Amount.
SECTION 10.03 Remedies of a Secured Party. Following the occurrence of
a Termination Event, the Buyer shall have all remedies provided by law and
without limiting the generality of the foregoing shall have the following
remedies: (a) the remedies of a secured party under the Uniform Commercial
Code; (b) the right to make notification and pursue collection or, at Buyer's
option, to sell or cause Servicer to sell all or any part of the Loans and
related Property; (c) the right to exercise all of owner's or secured party's
rights under the Loans and related Property; and (d) to the extent that
notice shall be required by law to be given, Seller agrees that a period of
twenty (20) days from the time the notice is sent shall be a reasonable
period of notification of a sale or other, disposition of the Loans and
related Property.
[End of Article X]
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 Further Assurances. Each party hereto agrees to execute
and deliver to the other party and to perform all such other acts as the
other party may reasonably request to carry out the transactions contemplated
by this Agreement. Without limiting the foregoing, Buyer agrees to endorse
without recourse the Note related to any Loan being resold to Seller pursuant
to Articles II, IV or VIII, and to execute assignments and related Uniform
Commercial Code financing statements to evidence the assignment of the
Related Documents to Seller.
SECTION 11.02 Indemnities. (a) Seller and Guarantor will defend and
hereby indemnify Buyer and its successors, assigns, servants and agents
(hereinafter "Indemnitees") against and agree to protect, save and keep
harmless and make whole each thereof, from any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, costs
(including any net increase in the tax liability of an Indemnitee resulting
from its receipt of indemnity payments made under this Section 11.02),
expenses and disbursements, including reasonable attorneys' fees, of
whatsoever kind and nature imposed on, incurred by or asserted against any
Indemnitee in any way relating to or arising out of (i) this Agreement or any
of the documents entered into in connection herewith; (ii) the Buyer's
interest in the Loans or related Property purchased or accepted hereunder or
the enforcement of any claims thereunder; (iii) any claim made by any
Obligor, or any other party, related to the Loans or related Property
purchased or accepted hereunder, or the administration of the transactions
evidenced by such Loans and related Property or related to any other
transactions between the Obligors or their affiliates and the Seller or its
affiliates; or (iv) any environmental claim or liability relating to any real
property securing any Loans.
(b) The Servicer and, for any claims arising against United
Resources, Inc. in its capacity as the Servicer hereunder, the Guarantor will
defend and hereby indemnify the Buyer, its directors, officers, employees and
agents, against any and all costs, expenses, losses, damages, claims and
liabilities in respect of any grossly negligent action taken by, or grossly
negligent omission of, the Servicer with respect to its servicing obligations
regarding any Loan on related Property.
(c) The foregoing indemnities with regard to any particular
Indemnitee shall not extend to any liability, obligation, loss, damage,
penalty, claim, action, suit, cost, expense or disbursement (i) that results
from the willful misconduct or gross negligence of such Indemnitee or from
any breach of any representation or warranty made by such Indemnitee herein;
(ii) that constitutes any tax based on any Indemnitee's net income, items of
tax preference or gross receipts (except with respect to indemnity payments
hereunder); or (iii) that consists of the failure of any Obligor to pay its
obligations under the Notes as they become due unless such failure results
from a claim of such Obligor against Seller, Guarantor, Servicer or any
Subsidiary or Affiliate of any of them, or Buyer otherwise indemnified
against hereunder. Any indemnity payments required under this Section 11.02
shall be paid within thirty (30) days following notice thereof from the
Indemnitee to Seller, Guarantor or Servicer, as applicable, (which notice
shall describe in reasonable detail the matter with respect to which
indemnification is required and shall set forth the computation used in
determining the amount of the indemnity payment). All of the rights and
privileges of each Indemnitee under this Section 11.02, and the rights,
privileges and obligations of Seller, Guarantor or Servicer, as applicable
hereunder, shall survive the expiration or other termination of this
Agreement.
SECTION 11.03 No Waiver: Remedies Cumulative. No failure by the
Seller, Servicer, Guarantor or Buyer to exercise, and no delay in exercising,
any right, power or remedy under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
remedy under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power, or remedy. The rights and remedies
provided herein are cumulative and not exclusive of any right or remedy
provided by law.
SECTION 11.04 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 11.05 Consent to Jurisdiction: Waiver of Immunities. The
Buyer, Servicer, Guarantor and Seller hereby irrevocably submit to the
jurisdiction of any state or federal court sitting in the District of
Columbia or the State of Oregon in any action or proceeding brought to
enforce or otherwise arising out of or relating to this Agreement or any
Assignment and irrevocably waive to the fullest extent permitted by law any
objection which they may now or hereafter have to the laying of venue in any
such action or proceeding in any such forum, and hereby further irrevocably
waive any claim that any such forum is an inconvenient forum. The parties
agree that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdiction by suit on the
judgment or in any other manner provided by law.
SECTION 11.06 Notices. All notices and other communications provided
for in this Agreement shall be in writing or (unless otherwise specified) by
telex, telegram or cable and shall be sent for next Business Day delivery to
each party at the address set forth under its name on the signature page
hereof, or at such other address as shall be designated by such party in a
written notice to each other party. Except as otherwise specified, all such
notices and communications if duly given or made shall be effective upon
receipt.
SECTION 11.07 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective Successors and
assigns. Notwithstanding the foregoing, no party may assign or otherwise
transfer all or any part of its rights or obligations hereunder without the
prior written consent of the other parties, and any such assignment or
transfer purported to be made without such consent shall be ineffective
except that Buyer may sell participations in the Loans and related Property
and may also sell the Loans and related Property purchased hereunder to a
special purpose corporation established by Buyer or another party or a trust
formed by Buyer or another party for the purpose of selling securities
representing undivided beneficial interests in the pool of Loans and related
Property purchased hereunder.
SECTION 11.08 Capital Markets Funding. Seller, Servicer and Guarantor
hereby acknowledge that Buyer may sell the Loans and related Property for the
purpose of selling securities representing undivided beneficial interests in
the same or for the purpose of achieving capital markets funding of the Loans
and related Property in an alternative form. In the event of such sale or
transfer, Seller, Servicer and Guarantor hereby agree to cooperate with Buyer
in making such modifications to this Agreement, in executing such other
documents and certificates, in causing to be prepared and delivered such
opinions, certificates, financial reports and letters, and in taking such
other actions, including changing accounting firms, as are reasonably
necessary to allow the issuance of securities with ratings from one or more
Rating Agency, and/or to obtain a rating or shadow rating of any other form
of capital markets funding from one or more Rating Agency.
SECTION 11.09 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall as to such jurisdiction
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
SECTION 11.10 Attorney's Fees. In the event it is necessary for any
party hereto or its Successors or assigns to institute suit in connection
with this Agreement or the breach thereof, the prevailing party in such suit
shall be entitled to reimbursement for its reasonable costs, expenses and
attorney's fees incurred including fees incurred on any appeal.
SECTION 11.11 Setoff. In addition to any rights now or hereafter
granted under applicable law, upon the occurrence of any Termination Event or
Servicer Default, Buyer is hereby authorized by Seller, Servicer and
Guarantor at any time, without notice to Seller, Servicer and Guarantor, as
the case may be, to set off and to appropriate and to apply to the amounts
then owed by Seller, Servicer or Guarantor, as the case may be, hereunder to
Buyer any and all deposits (general or special, including, but not limited
to, Indebtedness evidenced by certificates of deposit, whether matured or
unmatured, but not including trust accounts) and any other Indebtedness at
any time held or owing by Buyer to Seller, Servicer or Guarantor, as the case
may be.
SECTION 11.12 Limitation on Third Party Beneficiaries. No provision,
warranty, representation, or agreement herein, whether express or implied, is
intended to or shall be construed as conferring upon any Person not a party
hereto (including, without limitation, any Obligor) any rights or remedies
whatsoever; provided, however, that in the event of a sale of Loans by Buyer
pursuant to Section 11.07 or a securitization pursuant to Section 11.08, the
purchaser or purchasers of the Loans (or beneficial interests therein) are
acknowledged by the Seller, Servicer and Guarantor to be third party
beneficiaries of this Agreement.
SECTION 11.13 Entire Agreement; Amendment. This Agreement comprises
the entire agreement of the parties and may not be amended or modified except
by written agreement of the Servicer, the Buyer, the Guarantor and the
Seller. No provision of this Agreement may be waived except in writing and
then only in the specific instance and for the specific purpose for which
given.
SECTION 11.14 Headings. The headings of the various provisions of this
Agreement are for convenience of reference only, do not constitute a part
hereof, and shall not affect the meaning or construction of any provision
hereof.
[End of Article XI]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Purchase
and Servicing Agreement to be executed by their respective officers or agents
thereunto duly authorized as of the date first above written.
UNITED RESOURCES, INC., as Seller and as Servicer
By George P. Flemming
Its President
By Alan C. Jones
Its Vice President
Notice Address:
6433 S.E. Lake Road
Portland, Oregon 97222
Attention: President
UNITED GROCERS, INC., as Guarantor
By Alan C. Jones
Its President
By John W. White
Its Vice President
Notice Address:
6433 S.E. Lake Road
Portland, Oregon 97222
Attention: President
<PAGE>
NATIONAL CONSUMER COOPERATIVE BANK,
as Buyer
By Judith E. Sandberg
Its Vice President
By Caroline Blakely
Its Senior Vice President
Notice Address:
1401 Eye Street, N.W.
Suite 700
Washington, D.C. 20005
<PAGE>
<PAGE>
EXHIBIT 4.F2
FIRST AMENDMENT TO
LOAN PURCHASE AND SERVICING AGREEMENT
DATED AS OF MAY 13, 1994
This FIRST AMENDMENT TO LOAN PURCHASE AND SERVICING AGREEMENT DATED
AS OF MAY 13, 1994 (the "First Amendment") is entered into as of this 15th
day of July, 1994 by and between United Resources, Inc., as Seller and
Servicer ("United Resources"), United Grocers, Inc., as Guarantor (the
"Guarantor") and National Consumer Cooperative Bank, as Buyer (the "Buyer").
WHEREAS, United Resources, the Guarantor and the Buyer entered into
a certain Loan Purchase and Servicing Agreement dated as of May 13, 1994 (the
"Agreement") which provides for United Resources to sell and Buyer to
purchase Loans satisfying the terms and conditions of the Agreement; and
WHEREAS, the parties to the Agreement desire to amend the Agreement
to also allow the purchase of participation interests in Loans;
NOW, THEREFORE, for full and fair consideration, the parties hereto
agree as follows:
1. Amendments. The following definitions in Section 1.01 of
Article I are hereby amended to read as follows:
A. "Loan" shall mean each loan originated by Seller in the
ordinary course of its business and transferred (in its entirety or
through a participation interest therein) to the Buyer pursuant to this
Agreement, together with the rights and obligations of a holder thereof,
payments thereon and proceeds therefrom, the Loans subject to this
Agreement being identified on the Loan Schedule. "Loan" shall also
include any Renewal Loan accepted by the Buyer under this Agreement.
B. "Loan Schedule" shall mean, the schedule of Loans attached
hereto as Schedule I, such schedule identifying each Loan by the name
and address of the Obligor and setting forth as to each Loan the
following information: (i) the Principal Balance as of the close of
business on the applicable Closing Date, (ii) if a participation
interest in such Loan is being purchased hereunder, the percentage
participation interest being purchased, (iii) the account number on
Seller's records, (iv) the original principal amount of the Loan, (v)
the date the Loan was made and original number of months to maturity and
original amortization period, in months, (vi) the Loan Interest Rate as
of the applicable Cut-Off Date and whether fixed or variable, (vii) when
the first Monthly Payment was due, (viii) the Monthly Payment as of the
applicable Cut-Off Date, (ix) the remaining number of months in the
amortization period as of the applicable Cut-Off Date, (x) if the Loan
has a variable Loan Interest Rate, the margin which is added to the
Prime Rate to determine the Loan Interest Rate, and the maximum and
minimum Loan Interest Rates, if applicable, (xi) whether such Loan is a
Preferred Loan, Standard Loan or Full Recourse Loan, (xii) the Aggregate
Exposure which relates to such Loan, (xiii) with respect to the related
Obligor Group, the Cash Flow Ratio and the Collateral Coverage Ratio as
of the applicable Cut-Off Date. The Loan Schedule shall be supplemented
on the date of each Incremental Purchase to include the Loans purchased
on such date and shall be amended to reflect in the pool of Loans sold
hereunder including Renewal Loans and Purchased Loans.
C. "Principal Balance" shall mean, with respect to any Loan, at
any date of determination, (i) the principal balance of the Loan (or if
a participation interest in such Loan is being purchased hereunder, the
product of (a) the percentage participation interest specified with
respect to such Loan in the Loan Schedule times (b) the principal
balance of the Loan) outstanding as of the applicable Cut-Off Date,
after application of the principal payments received on or before such
date, minus (ii) the sum of (a) the principal portion of the Monthly
Payments received during each Due Period ending prior to the most recent
Payment Date, which were distributed pursuant to Section 5.07 on any
previous Payment Date, and (b) all Principal Prepayments, Payaheads,
Insurance Proceeds, Net Liquidation Proceeds, Guaranty Payments and
Repurchase Proceeds to the extent applied by the Servicer as recoveries
of principal in accordance with the provisions hereof, which were
distributed pursuant to Section 5.07 on any previous Payment Date.
2. Capitalized Terms. Capitalized Terms used in this First
Amendment and not otherwise defined shall have the meanings given them in the
Agreement.
3. Ratification. Except as specifically amended hereby, all of
the terms and conditions of the Agreement shall remain in full force and
effect. All references to the Agreement in any other document or instrument
shall be deemed to mean such Agreement as amended by this First Amendment.
This First Amendment shall not constitute a novation of the Agreement, but
shall constitute an amendment thereof. The parties hereto agree to be bound
by the terms and obligations of the Agreement, as amended by this First
Amendment, as though the terms and obligations of the Agreement were set
forth herein.
4. Effectiveness. The amendments provided for by this First
Amendment shall become effective when duly executed by each of the parties
hereto.
5. Counterparts. This First Amendment may be executed in any
number of counterparts and by separate parties hereto on separate
counterparts, each of which when executed shall be deemed an original, but
all such counterparts taken together shall constitute one and the same
instrument.
6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed by their respective officers or agents thereunto
duly authorized as of the date first above written.
UNITED RESOURCES, INC., as Seller and as Servicer
By George P. Flemming
Its President
By Alan C. Jones
Its Vice President
UNITED GROCERS, INC., as Guarantor
By Alan C. Jones
Its President
By John W. White
Its Vice President
NATIONAL CONSUMER COOPERATIVE BANK,
as Buyer
By Judith E. Sandberg
Its Vice President
By Caroline Blakely
Its Senior Vice President
<PAGE>
<PAGE>
EXHIBIT 4.G
United Grocers, Inc.
Note Agreement
Dated as of October 10, 1994
$20,000,000 8.42% Senior Notes
Due November 1, 2005
<PAGE>
TABLE OF CONTENTS
Page
1.Description of Notes and Commitment. . . . . . . . . . . . . . . . . . . 1
1.1 Description of Notes . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Commitment, Closing Date . . . . . . . . . . . . . . . . . . . . . . 1
2.Prepayment of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Required Prepayments . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Optional Prepayment with Premium . . . . . . . . . . . . . . . . . . 2
2.3 Notice of Optional Prepayments . . . . . . . . . . . . . . . . . . . 3
3.Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Representations of the Company . . . . . . . . . . . . . . . . . . . 3
(a) Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Corporate Organization and Authority. . . . . . . . . . . . . . 3
(c) Business and Property . . . . . . . . . . . . . . . . . . . . . 4
(d) Financial Statements. . . . . . . . . . . . . . . . . . . . . . 4
(e) Debt and Liens. . . . . . . . . . . . . . . . . . . . . . . . . 5
(f) Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 5
(g) Pending Litigation. . . . . . . . . . . . . . . . . . . . . . . 5
(h) Title to Properties . . . . . . . . . . . . . . . . . . . . . . 5
(i) Patents and Trademarks. . . . . . . . . . . . . . . . . . . . . 5
(j) Sale Is Legal and Authorized. . . . . . . . . . . . . . . . . . 6
(k) No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(l) Governmental Consent. . . . . . . . . . . . . . . . . . . . . . 6
(m) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(n) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 7
(o) Private Offering. . . . . . . . . . . . . . . . . . . . . . . . 7
(p) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(q) Compliance with Law . . . . . . . . . . . . . . . . . . . . . . 8
(r) Investment Company Act. . . . . . . . . . . . . . . . . . . . . 9
(s) Foreign Assets Control Regulations, etc . . . . . . . . . . . . 9
(t) Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Representations of the Purchaser . . . . . . . . . . . . . . . . . . 9
4.Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Closing Certificate. . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Satisfactory Proceedings . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Special Counsel Fees . . . . . . . . . . . . . . . . . . . . . . . . 11
4.6 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . 12
4.7 Reliance on Audited Financial Statements . . . . . . . . . . . . . . 12
5.Company Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 Corporate Existence, Etc . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Taxes, Claims for Labor and Materials, Compliance with Laws. . . . . 12
5.4 Maintenance, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.6 Fixed Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.7 Minimum Net Worth and Subordinated Funded Debt . . . . . . . . . . . 13
5.8 Limitations on Funded Debt . . . . . . . . . . . . . . . . . . . . . 13
5.9 Limitations on Funded Debt of Restricted Subsidiaries. . . . . . . . 14
5.10 Limitations on Debt of the Company . . . . . . . . . . . . . . . . . 15
5.11 Limitations on Liens . . . . . . . . . . . . . . . . . . . . . . . . 15
5.12 Restricted Payments and Restricted Investments . . . . . . . . . . . 17
5.13 Mergers, Consolidations and Sales of Assets. . . . . . . . . . . . . 18
5.14 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.15 Repurchase of Notes. . . . . . . . . . . . . . . . . . . . . . . . . 21
5.16 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . 22
5.17 Withdrawal from Multiemployer Plans and Termination of Pension Plans 22
5.18 Reports and Rights of Inspection . . . . . . . . . . . . . . . . . . 22
(a) Quarterly Statements. . . . . . . . . . . . . . . . . . . . . . 22
(b) Annual Statements . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . 23
(d) SEC and Other Reports . . . . . . . . . . . . . . . . . . . . . 24
(e) ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . 24
(f) Officer's Certificates. . . . . . . . . . . . . . . . . . . . . 25
(g) Accountant's Certificates . . . . . . . . . . . . . . . . . . . 25
(h) Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . . . 25
(i) Requested Information . . . . . . . . . . . . . . . . . . . . . 25
5.19 Change in Federal Income Tax Status. . . . . . . . . . . . . . . . . 26
6.Events of Default and Remedies Therefor. . . . . . . . . . . . . . . . . 26
6.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.2 Notice to Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Acceleration of Maturities . . . . . . . . . . . . . . . . . . . . . 29
6.4 Rescission of Acceleration . . . . . . . . . . . . . . . . . . . . . 29
7.Amendments, Waivers and Consents . . . . . . . . . . . . . . . . . . . . 30
7.1 Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.2 Solicitation of Holders. . . . . . . . . . . . . . . . . . . . . . . 30
7.3 Effect of Amendment or Waiver. . . . . . . . . . . . . . . . . . . . 31
8.Interpretation of Agreement; Definitions'. . . . . . . . . . . . . . . . 31
8.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . 42
8.3 Directly or Indirectly . . . . . . . . . . . . . . . . . . . . . . . 42
9.Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.1 Registration and Transfer of Notes . . . . . . . . . . . . . . . . . 43
9.2 Exchange of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.3 Loss, Theft, etc. of Notes . . . . . . . . . . . . . . . . . . . . . 43
9.4 Direct Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.5 Pro Rata Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.6 Expenses, Stamp Tax Indemnity. . . . . . . . . . . . . . . . . . . . 44
9.7 Powers and Rights Not Waived; Remedies Cumulative. . . . . . . . . . 45
9.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 45
9.10 Survival of Covenants and Representations. . . . . . . . . . . . . . 46
9.11 Reproduction of Documents. . . . . . . . . . . . . . . . . . . . . . 46
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.13 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.14 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
<PAGE>
Attachments to Note Agreements:
Schedule I - Name and Address of Purchaser
Exhibit A -- Form of Note
Exhibit B -- Subsidiaries
Exhibit C -- Debt and Liens
Exhibit D -- Opinion of Counsel to the Company
Exhibit E -- Opinion of Special Counsel to the Purchaser
Exhibit F -- Form of Letter From the Company to Auditor and
Acknowledgment and Consent of Auditor to Reliance on
Audited Financial Statements
Exhibit G -- Form of Subordination Provisions
Exhibit H -- Other Permitted Investments
<PAGE>
United Grocers, Inc.
6433 SE Lake Road
P.O. Box 22187
Portland, Oregon 97222-0187
Note Agreement
Re: $20,000,000 8.42% Senior Notes
Due November 1, 2005
Dated as of October 10, 1994
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
Attention: Private Placements Division
United Grocers, Inc., an Oregon corporation (the "Company"), hereby
confirms its agreement with you as set forth below. You are hereinafter
sometimes referred to as the "Purchaser". This Agreement is herein referred
to as this or the "Agreement". Reference is made to Section 8 hereof for
definitions of capitalized terms used herein and not otherwise defined.
1. Description of Notes and Commitment.
1.1 Description of Notes. The Company has authorized the issue and
sale of its Senior Notes (hereinafter collectively referred to as the "Notes"
and individually as a "Note") in the aggregate principal amount of
$20,000,000. The Notes shall be dated the Closing Date, mature November 1,
2005, and bear interest at the rate of 8.42% per annum, payable semiannually
in arrears on the first day of each May and November in each year (commencing
May 1, 1995), and at maturity, provided that overdue principal (including any
overdue required or optional prepayment of principal) and premium, if any,
and (to the extent legally enforceable) any overdue installment of interest
shall bear interest from and after the due date thereof at the rate of 10.42%
per annum. Interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months. The Notes shall be substantially in the form
attached hereto as Exhibit A. The Notes are not subject to prepayment or
redemption at the option of the Company prior to their expressed maturity
date except on the terms and conditions and in the amounts and with the
premium, if any, set forth in Section 2 of this Agreement. The term "Notes"
as used herein shall include each Note delivered pursuant to this Agreement
and all promissory notes delivered in substitution or exchange therefor or in
lieu thereof, and where applicable, shall include the singular number as well
as the plural.
1.2 Commitment, Closing Date. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to you, and you agree to purchase
from the Company, on the Closing Date, at the purchase price of 100% of the
principal amount thereof, the entire $20,000,000 principal amount of Notes.
Delivery of the Notes will be made at the offices of Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against payment
therefor in Federal Reserve or other funds current and immediately available
at the principal office of United States National Bank of Oregon, Main
Branch, Portland, Oregon, A.B.A. Number 123-000-220 for the General Account
of the Company, Account No. 010-0661-545 (marked to request telephone
notification of John W. White, Vice President of the Company at 503-833-1100)
in the amount of the purchase price at 11:00 a.m., Chicago time, on
November 15, 1994 or such other date as shall mutually be agreed upon by the
Company and the Purchaser (the "Closing Date"). The Notes delivered to you
on the Closing Date will be delivered to you in the form of a single
registered Note in the form attached hereto as Exhibit A for the full amount
of your purchase (unless different denominations are specified by you),
registered in your name or in the name of such nominee, as may be specified
in Schedule I attached hereto.
2. Prepayment of Notes.
2.1 Required Prepayments. The Company agrees that on November 1 in
each year, commencing November 1, 2001, and continuing to and including
November 1, 2004, it will prepay the principal indebtedness evidenced by the
Notes in an aggregate amount equal to the lesser of (a) $4,000,000, or (b)
the principal amount of the Notes then outstanding. The entire remaining
principal amount of the Notes shall become due and payable on November 1,
2005. No premium shall be payable in connection with any required prepayment
made pursuant to this Section 2.1.
In the event that the Company shall prepay less than all of the Notes
pursuant to Section 2.2 hereof, the amounts of the prepayments required by
this Section 2.1 shall be reduced by an amount which is the same percentage
of such required prepayment as the percentage that the principal amount of
Notes prepaid pursuant to Section 2.2 is of the aggregate principal amount of
outstanding Notes immediately prior to such prepayment.
2.2 Optional Prepayment with Premium. In addition to the prepayments
required by Section 2.1, upon compliance with Section 2.3, the Company shall
have the right, at any time and from time to time, to prepay the principal
indebtedness evidenced by the Notes, either in whole or in part (but if in
part then in a minimum aggregate principal amount of $1,000,000) by payment
of the principal amount of the Notes, or portion thereof to be prepaid, and
accrued interest thereon to the date of such prepayment together with a
premium equal to the Make-Whole Amount, determined as of the date of such
prepayment but using the Reinvestment Rate determined as of five Business
Days prior to the date of such prepayment.
2.3 Notice of Optional Prepayments. The Company will give notice of
any prepayment of the Notes pursuant to Section 2.2 to each Holder thereof
not less than 30 days nor more than 60 days prior to the date fixed for such
optional prepayment specifying (a) such date, (b) the principal amount of the
Notes of such Holder to be prepaid on such date, (c) that a premium may be
payable, (d) the date when such premium will be calculated, (e) the estimated
premium, and (f) the accrued interest applicable to the prepayment. Notice
of prepayment having been so given, the aggregate principal amount of the
Notes specified in such notice, together with accrued interest thereon and
the premium, if any, payable with respect thereto shall become due and
payable on the prepayment date specified in such notice. At least two
Business Days prior to the prepayment date specified in such notice, the
Company shall provide each Holder written notice stating whether any premium
is payable in connection with such prepayment, and containing a reasonably
detailed computation of any such premium or the basis for determining that no
such premium is payable.
<PAGE>
3. Representations.
3.1 Representations of the Company. The Company represents and
warrants that:
(a) Subsidiaries. Exhibit B attached hereto states the name of
each Subsidiary, its jurisdiction of incorporation, the percentage of its
Voting Stock owned by the Company and/or other Subsidiaries, and whether such
Subsidiary is a Restricted Subsidiary or an Unrestricted Subsidiary. Each of
the Company and its Subsidiaries has good and marketable title to all of the
shares of stock of each Subsidiary it purports to own, free and clear in each
case of any Lien. All such shares have been duly issued and are fully paid
and non-assessable.
(b) Corporate Organization and Authority. The Company and each
Subsidiary:
(i) is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation;
(ii) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted and as presently proposed to be conducted; and
(iii) is duly licensed or qualified and is in good
standing as a foreign corporation in each jurisdiction wherein the nature
of the business transacted by it or the nature of the property owned or
leased by it makes such licensing or qualification necessary.
(c) Business and Property. You have heretofore been furnished
with a copy of the Private Placement Memorandum dated August, 1994 (the
"Memorandum"), from BA Securities, Inc. which generally sets forth the
business conducted and proposed to be conducted by the Company and its
Subsidiaries and the principal properties of the Company and its
Subsidiaries.
(d) Financial Statements.
(i) The consolidated balance sheets of the Company and its
Subsidiaries as of the last day of its fiscal year ended in each of the
years 1989 through 1993 and the consolidated statements of income,
consolidated statements of Members' equity and consolidated statements of
cash flows for the fiscal years ended on said dates, each accompanied by a
report thereon containing an opinion unqualified as to scope limitations
imposed by the Company and otherwise without qualification except as
therein noted, by Delap, White & Raish, have been prepared in accordance
with GAAP consistently applied except as therein noted, are correct and
complete and present fairly the financial position of the Company and its
Subsidiaries as of such dates and the results of their operations and
changes in their cash flows for such periods. The unaudited consolidated
balance sheet of the Company and its Subsidiaries as of July 1, 1994, and
the unaudited statements of income, Members' equity and cash flows for the
nine-month period ended on such date prepared by the Company have been
prepared in accordance with GAAP consistently applied, are correct and
complete and present fairly the financial position of the Company and its
Subsidiaries as of such date and the results of their operations and
changes in their cash flows for such period.
(ii) Since October 1, 1993, there has been no change in the
condition, financial or otherwise, of the Company and its Subsidiaries as
shown on the consolidated balance sheet as of such date except changes in
the ordinary course of business, none of which individually or in the
aggregate involve the possibility of materially adversely affecting the
properties, business, prospects, profits or condition (financial or
otherwise) of the Company or any of its Subsidiaries.
(e) Debt and Liens. Exhibit C attached hereto correctly
describes all Debt and Liens, if any, relating thereto, of the Company and
its Subsidiaries outstanding as of September 30, 1994.
(f) Full Disclosure. Neither the financial statements referred
to in Section 3.1(d) hereof, this Agreement, the Memorandum or any other
written statement furnished by the Company to you in connection with the
negotiation of the sale of the Notes, contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact peculiar to the
Company or its Subsidiaries which the Company has not disclosed to you in
writing which materially adversely affects nor, so far as the Company can now
foresee, will materially adversely affect the properties, business,
prospects, profits or condition (financial or otherwise) of the Company or
any of its Subsidiaries.
(g) Pending Litigation. There are no proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company or
any Subsidiary in any court or before any governmental or regulatory
authority or arbitration board or tribunal which involve the possibility of
materially adversely affecting the properties, business, prospects, profits
or condition (financial or otherwise) of the Company or any of its
Subsidiaries.
(h) Title to Properties. The Company and each of its
Subsidiaries has good and marketable title in fee simple (or its equivalent
under applicable law) to all parcels of real property material to its
business, prospects, profits or condition (financial or otherwise) and has
good title to all the other material items of personal property it purports
to own, including that reflected in the most recent balance sheet referred to
in Section 3.1(d) hereof, except as sold or otherwise disposed of in the
ordinary course of business and except for Liens permitted by this Agreement.
(i) Patents and Trademarks. The Company and each of its
Subsidiaries owns or possesses all the patents, trademarks, trade names,
service marks, copyrights, licenses, permits and rights with respect to the
foregoing necessary for the conduct of its business, without any known
conflict with the rights of others. To the best of the Company's knowledge
after due inquiry, neither the Company nor any of its Subsidiaries is in
default under any such license or permit and no event has occurred and is
continuing under the provisions of any such license or permit which with the
lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.
(j) Sale Is Legal and Authorized. The sale of the Notes and
compliance by the Company with all of the provisions of this Agreement and
the Notes:
(i) are within the corporate powers of the Company;
(ii) will not violate any provisions of any law or any order
of any court or governmental authority and will not conflict with or result
in any breach of any of the terms, conditions or provisions of, or
constitute a default under the Articles of Incorporation or Bylaws of the
Company or any indenture or other agreement or instrument to which the
Company is a party or by which it may be bound or result in the imposition
of any Liens on any property of the Company; and
(iii) have been duly authorized by proper corporate
action on the part of the Company (no action by the Members of the Company
being required by law, by the Articles of Incorporation or By-laws of the
Company or otherwise), executed and delivered by the Company and this
Agreement and the Notes, when executed and delivered by the Company, will
constitute the legal, valid and binding obligations, contracts and
agreements of the Company enforceable in accordance with their respective
terms.
(k) No Defaults. No Default or Event of Default has occurred and
is continuing. The Company is not in default in the payment of principal or
interest on any Debt and is not in default under any instrument or
instruments or agreements under and subject to which any Debt has been issued
and no event has occurred and is continuing under the provisions of any such
instrument or agreement which with the lapse of time or the giving of notice,
or both, would constitute an event of default thereunder.
(l) Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, federal or local, is
necessary in connection with the execution and delivery by the Company of
this Agreement or the Notes or compliance by the Company with any of the
provisions of this Agreement or the Notes.
(m) Taxes. The Company is taxed as a cooperative under
Subchapter T of the Code. All tax returns required to be filed by the
Company or any Subsidiary in any jurisdiction have, in fact, been filed, and
all taxes, assessments, fees and other governmental charges upon the Company
or any Subsidiary or upon any of their respective properties, income or
franchises, which are shown to be due and payable in such returns have been
paid. For all taxable years ending on or before September 30, 1986, the
federal income tax liability of the Company and its Subsidiaries has been
satisfied and either the period of limitations on assessment of additional
federal income tax has expired or the Company and its Subsidiaries have
entered into an agreement with the Internal Revenue Service closing
conclusively the total tax liability for the taxable year. The Company does
not know of any material proposed additional tax assessment against it for
which adequate provision has not been made on its accounts, and no material
controversy in respect of additional federal or state income taxes due since
said date is pending or to the knowledge of the Company threatened. The
provisions for taxes on the books of the Company and each Subsidiary are
adequate for all open years, and for its current fiscal period.
(n) Use of Proceeds. The net proceeds from the sale of the Notes
will be used to refinance existing Debt of the Company and for general
corporate purposes. None of the transactions contemplated by this Agreement
(including, without limitation, the use of proceeds from the issuance of the
Notes) will violate or result in a violation of Section 7 of the Securities
Exchange Act of 1934, as amended, or any regulation issued pursuant thereto,
including, without limitation, Regulations G, T and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Neither the
Company nor any Subsidiary owns or intends to carry or purchase any "margin
stock" within the meaning of said Regulation G. None of the proceeds from
the sale of the Notes will be used to purchase, or refinance any borrowing
the proceeds of which were used to purchase, any "security" within the
meaning of the Securities Exchange Act of 1934, as amended.
(o) Private Offering. Neither the Company, directly or
indirectly, nor any agent on its behalf has offered or will offer the Notes
or any similar Security or has solicited or will solicit an offer to acquire
the Notes or any similar Security from or has otherwise approached or
negotiated or will approach or negotiate in respect of the Notes or any
similar Security with any person other than the Purchaser and not more than
75 other institutional investors, each of whom was offered a portion of the
Notes at private sale for investment. Neither the Company, directly or
indirectly, nor any agent on its behalf has offered or will offer the Notes
or any similar Security or has solicited or will solicit an offer to acquire
the Notes or any similar Security from any person so as to bring the issuance
and sale of the Notes within the provisions of Section 5 of the Securities
Act of 1933, as amended.
(p) ERISA. The consummation of the transactions provided for in
this Agreement and compliance by the Company with the provisions thereof and
the Notes issued thereunder will not involve any prohibited transaction
within the meaning of ERISA or Section 4975 of the Code. Each Plan complies
in all material respects with all applicable statutes and governmental rules
and regulations, and (a) no Reportable Event has occurred and is continuing
with respect to any Plan, (b) neither the Company nor any member of the ERISA
Group has withdrawn from any Plan or Multiemployer Plan or instituted steps
to do so, and (c) no steps have been instituted to terminate any Plan. No
condition exists or event or transaction has occurred in connection with any
Plan which could result in the incurrence by the Company or any member of the
ERISA Group of any material liability, fine or penalty. No Plan maintained
by the Company or any member of the ERISA Group, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" as defined in
Section 302 of ERISA nor does the present value of all benefits vested under
all Plans exceed, as of the last annual valuation date, the value of the
assets of the Plans allocable to such vested benefits. Neither the Company
nor any member of the ERISA Group is a member of or contributes to any
multiple employer plan as described in ERISA. Neither the Company nor any
member of the ERISA Group has any contingent liability with respect to any
post-retirement "welfare benefit plan" (as such term is defined in ERISA)
except for the obligation of the Company to provide post-retirement medical
insurance to certain existing employees and existing retirees, the aggregate
number of which employees and retirees is less than 150.
(q) Compliance with Law.
(i) Neither the Company nor any of its Subsidiaries (A) is
in violation of any law, ordinance, franchise, governmental rule or
regulation to which it is subject; or (B) has failed to obtain any license,
permit, franchise or other governmental authorization necessary to the
ownership of its property or to the conduct of its business, which
violation or failure to obtain would materially adversely affect the
business, prospects, profits, properties or condition (financial or
otherwise) of the Company or any of its Subsidiaries, or impair the ability
of the Company to perform its obligations contained in this Agreement or
the Notes. Neither the Company nor any of its Subsidiaries is in default
with respect to any order of any court or governmental authority or
arbitration board or tribunal.
(ii) Without limiting the provisions of clause (i) of this
paragraph (q), the Company is in compliance with all applicable
Environmental Laws, the failure to comply with which would materially
affect adversely the properties, business, prospects, profits or condition
(financial or otherwise) of the Company or any of its Subsidiaries or the
ability of the Company to perform its obligations under the Agreement or
the Notes.
(r) Investment Company Act. The Company is not, and is not
directly or indirectly controlled by or acting on behalf of any Person which
is, required to register as an "investment company" under the Investment
Company Act of 1940, as amended.
(s) Foreign Assets Control Regulations, etc. Neither the Company
nor any Affiliate of the Company is, by reason of being a "national" of a
"designated foreign country" or a "specially designated national" within the
meaning of the Regulations of the Office of Foreign Assets Control, United
States Treasury Department (31 C.F.R., Subtitle B, Chapter V), or for any
other reason, subject to any restriction or prohibition under, or is in
violation of, any Federal statue or Presidential Executive Order, or any
rules or regulations of any department, agency or administrative body
promulgated under any such statute or order, concerning trade or other
relations with any foreign country or any citizen or national thereof or the
ownership or operation of any property.
(t) Solvency. Both immediately prior and immediately after
giving effect to the issuance of the Notes, the Company will not be
"insolvent" (as such term is defined in the United States Bankruptcy Code).
3.2 Representations of the Purchaser.
(a) You represent and in entering into this Agreement the Company
understands, that:
(i) you are acquiring the Notes for the purpose of
investment and not with a view to the distribution thereof, and that you
have no present intention of selling, negotiating or otherwise disposing of
the Notes; it being understood, however, that the disposition of your
property shall at all times be and remain within your control; and
(ii) you have been advised that the Notes have not been
registered under the Securities Act of 1933, as amended and, therefore,
cannot be resold unless they are registered under said Act or an exemption
from registration is available.
(b) You further represent that at least one of the following
statements is an accurate representation as to the source of funds to be used
by you to make your investment hereunder:
(i) No part of such funds constitutes assets allocated to
any separate account maintained by you in which any "employee benefit plan"
(as such term is defined in Section 3(3) of ERISA) or any trust created to
fund the benefits thereunder has any interest; or
(ii) Such funds constitute assets of a specific employee
benefit plan, complete and correct information as to the identity of which
you have disclosed in writing to the Company; or
(iii) The source of funds is an "investment fund"
managed by a "qualified professional asset manager" or "QPAM" (as defined
in Part V of PTE 84-14, issued March 13, 1984), provided that no other
party to the transactions described in this Agreement and no "affiliate" of
such other party (as defined in Section V(c) of PTE 84-14) has at this
time, and during the immediately preceding one year has exercised, the
authority to appoint or terminate said QPAM as manager of the assets of any
plan identified in writing pursuant to this clause 3.2(b)(iii) or to
negotiate the terms of said QPAM's management agreement on behalf of any
such identified plans.
If any plan is identified pursuant to subclause 3.2(b)(ii), then the
Company shall deliver a certificate on the Closing Date, which certificate
shall state that such party is neither a "party in interest" (as defined in
Title I, Section 3(14) of ERISA) nor a "disqualified person" (as defined in
Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended), with
respect to any plan identified pursuant to subclause 3.2(b)(ii) above. If
any plan is identified pursuant to clause 3.2(b)(iii) above, then the Company
shall deliver a certificate on the Closing Date, which certificate shall
state that neither it nor any "affiliate" (as defined in Section V(c) of PTE
84-14) is described in the proviso to said subclause 3.2(b)(iii).
4. Closing Conditions. The obligation of the Purchaser to purchase a
Note on the Closing Date shall be subject to the performance by the Company
of its agreements hereunder which by the terms hereof are to be performed at
or prior to the time of delivery of the Notes and to the following further
conditions precedent:
4.1 Legal Opinions. Concurrently with the delivery of the Notes to
you on the Closing Date, you shall have received from Brownstein, Rask,
Arenz, Sweeney, Kerr & Grim, counsel for the Company and from Chapman and
Cutler, who are acting as your special counsel in this transaction, their
respective opinions dated the Closing Date, in form and substance
satisfactory to you and your special counsel, and covering the matters set
forth in Exhibits D and E, respectively, hereto.
4.2 Legality. The Notes being purchased by you on the Closing Date
shall qualify on the Closing Date as a legal investment for you under the
laws of each jurisdiction to which you may be subject (without resort to any
so-called "basket provisions" to such laws), and such purchase shall not
subject you to any penalty or other onerous condition under or pursuant to
any applicable law or governmental regulation and you shall have received
such certificates or other evidence as you may reasonably request to
establish compliance with this condition.
4.3 Closing Certificate. Concurrently with the delivery of Notes to
you on the Closing Date, you shall have received a certificate dated the
Closing Date, signed by the Chief Executive Officer or the President or any
Vice President or the Treasurer of the Company the truth and accuracy of
which shall be a condition to your obligation to purchase the Notes proposed
to be sold to you and to the effect that
(a) the representations and warranties of the Company set forth
in Section 3 hereto are true and correct on and with respect to the Closing
Date,
(b) the Company has performed all of its obligations hereunder
which are to be performed on or prior to the Closing Date, and
(c) no Default or Event of Default has occurred and is
continuing.
4.4 Satisfactory Proceedings. All proceedings taken in connection
with the transactions contemplated by this Agreement, and all documents
incident thereto, shall be satisfactory in form and substance to you and your
special counsel, and you shall have received a copy (executed or certified as
may be appropriate) of all documents and other evidence which you may
reasonably request in connection with such transactions and of all
proceedings taken in connection therewith in form and substance satisfactory
to you and your special counsel.
4.5 Special Counsel Fees. Concurrently with the delivery of the Notes
to you on the Closing Date, the Company shall have paid the fees and
disbursements of your special counsel which are referred to Section 9.6 and
reflected in the statement of your special counsel delivered on such date.
Promptly upon receipt of supplemental statements, the Company will pay
additional fees and disbursements of your special counsel which were not paid
at the time of closing.
4.6 Waiver of Conditions. If on the Closing Date the Company fails to
tender to you the Notes to be issued to you on such date, or if the
conditions specified in this Section 4 have not been fulfilled, you may
thereupon elect to be relieved of all further obligations under this
Agreement. Without limiting the foregoing, if the conditions specified in
this Section 4 have not been fulfilled, you may waive compliance by the
Company with any such condition to such extent you may in your sole
discretion determine. Nothing in this Section 4.6 shall operate to relieve
the Company of any of its obligations hereunder or to waive any of your
rights against the Company.
4.7 Reliance on Audited Financial Statements. You shall have received
an original counterpart of a letter, substantially in the form set forth in
Exhibit F attached hereto, from the Company to its independent certified
accountants confirming that you are relying upon the financial statements of
the Company audited by such accountants, together with an acknowledgment and
consent from such accountants in form and substance reasonably satisfactory
to the Purchasers.
5. Company Covenants. From and after the Closing Date and continuing
so long as any amount remains unpaid on any Note:
5.1 Corporate Existence, Etc. The Company will preserve and keep in
full force and effect, and will cause each Subsidiary to preserve and keep in
full force and effect, its corporate existence and all licenses and permits
necessary to the proper conduct of its business, provided that the foregoing
shall not prevent any transaction permitted by Section 5.13.
5.2 Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers and in such forms and amounts and against such risks as are
customary for corporations engaged in the same or a similar business and
owning and operating similar properties.
5.3 Taxes, Claims for Labor and Materials, Compliance with Laws. The
Company will promptly pay and discharge, and will cause each Subsidiary
promptly to pay and discharge, all lawful taxes, assessments and governmental
charges or levies imposed upon the Company or such Subsidiary, respectively,
or upon or in respect of all or any part of the property or business of the
Company or such Subsidiary, all trade accounts payable in accordance with
usual and customary business terms, and all claims for work, labor or
materials, which if unpaid might become a Lien upon any property of the
Company or such Subsidiary; provided the Company or such Subsidiary shall not
be required to pay any such tax, assessment, charge, levy, account payable or
claim if
(a) the validity, applicability or amount thereof is being
contested in good faith by appropriate actions or proceedings which will
prevent the forfeiture or sale of any property of the Company or such
Subsidiary or any material interference with the use thereof by the Company
or such Subsidiary, and
(b) the Company or such Subsidiary shall set aside on its books,
reserves deemed by it to be adequate with respect thereto.
The Company will promptly comply and will cause each Subsidiary to comply
with all laws, ordinances or governmental rules and regulations to which it
is subject including, without limitation, the Occupational Safety and Health
Act of 1970, as amended, ERISA and all Environmental Laws, the violation of
which could materially adversely affect the properties, business, prospects,
profits or conditions of the Company or any Subsidiary or could result in the
creation of any Lien not permitted under Section 5.11.
5.4 Maintenance, Etc. The Company will maintain, preserve and keep,
and will cause each Subsidiary to maintain, preserve and keep, its properties
which are used or useful in the conduct of its business (whether owned in fee
or a leasehold interest) in good repair and working order and from time to
time will make all necessary repairs, replacements, renewals and additions so
that at all times the efficiency thereof shall be maintained.
5.5 Nature of Business. Neither the Company nor any Subsidiary will
engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Company
and its Subsidiaries would be substantially changed from the general nature
of the business engaged in by the Company and its Subsidiaries on the date of
this Agreement.
5.6 Fixed Charges. The Company will keep and maintain the ratio of
Consolidated Net Income Available for Fixed Charges for the immediately
preceding 12-month period to Fixed Charges for such 12-month period at not
less than 1.4 to 1.0.
5.7 Minimum Net Worth and Subordinated Funded Debt. The Company will
at all times, maintain the sum of (a) Consolidated Tangible Net Worth, plus
(b) Consolidated Subordinated Funded Debt, at an amount not less than
$70,000,000.
5.8 Limitations on Funded Debt.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, create, assume or incur or in any manner become liable in
respect of any Funded Debt, unless after giving effect thereto and to the
application of the proceeds thereof (including the application of any such
proceeds to the retirement of Funded Debt) Consolidated Funded Debt would not
exceed 82.5% of Tangible Capitalization.
(b) The Company will not, and will not permit any Restricted
Subsidiary to create, assume or incur any Senior Funded Debt unless after
giving effect thereto and to the application of the proceeds thereof
(including the application of any such proceeds to the retirement of any
Senior Funded Debt) Consolidated Senior Funded Debt (excluding Contingent
Obligations) would not exceed 55% of Consolidated Tangible Net Worth, plus
Consolidated Funded Debt (excluding Contingent Obligations).
(c) Any corporation which becomes a Restricted Subsidiary after
the date hereof shall for all purposes of this Section 5.8 be deemed to have
created, assumed or incurred at the time it becomes a Restricted Subsidiary
all Funded Debt of such corporation existing immediately after it becomes a
Restricted Subsidiary.
(d) In the event any Restricted Subsidiary ceases to be a
Restricted Subsidiary after the date hereof, all Funded Debt of the Company
or any other Restricted Subsidiary payable to such Restricted Subsidiary
shall, for all purposes of this Section 5.8, be deemed to have been created,
assigned or incurred at the time such Restricted Subsidiary ceases to be a
Restricted Subsidiary.
5.9 Limitations on Funded Debt of Restricted Subsidiaries. The
Company will not permit any Restricted Subsidiary to create, assume, incur or
in any manner be or become liable in respect of any Funded Debt, except:
(a) Funded Debt owing to the Company or a Wholly-owned Restricted
Subsidiary;
(b) Funded Debt outstanding as of the date of this Agreement and
reflected on Exhibit C hereto;
(c) Funded Debt of any corporation which becomes a Restricted
Subsidiary after the date of this Agreement, which Funded Debt exists at the
time the corporation becomes a Restricted Subsidiary and was incurred
pursuant to contractual commitments entered into prior to and not in
contemplation of such corporation becoming a Restricted Subsidiary;
(d) Funded Debt secured by Liens permitted by Section 5.11(h);
(e) Renewals, extensions or refunding of any Funded Debt which
was previously permitted pursuant to clause (b) or (d) of this Section 5.9,
provided that (i) no such renewal, extension or refunding shall increase the
principal amount thereof and (ii) at the time of such renewal, extension or
refunding, and after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing; and
(f) Funded Debt, in addition to that permitted by the foregoing
clauses (a) through (e), if at the time of incurrence thereof and after
giving effect thereto and to the application of the proceeds thereof
(including the application of any such proceeds to the retirement of Funded
Debt), the aggregate amount of Funded Debt outstanding pursuant to this
Section 5.9(f) plus the aggregate amount of Debt secured by Liens permitted
by Section 5.11(j) would not exceed 15% of Tangible Capitalization.
5.10 Limitations on Debt of the Company. The Company will not create,
assume, incur or in any manner be or become liable in respect of any Debt to
any Restricted Subsidiary, unless such Debt is subordinated in right of
payment to the Notes pursuant to subordination provisions as set forth in
Exhibit G hereto.
5.11 Limitations on Liens. The Company will not, and will not permit
any Restricted Subsidiary to, create or incur, or suffer to be incurred or to
exist, any Lien on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom except Liens
described in clauses (a) through (k) below:
(a) Liens for property taxes and assessments or governmental
charges or levies and Liens securing claims or demands of mechanics and
materialmen, provided that payment thereof is not at the time required by
Section 5.3 hereof;
(b) Liens of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which shall not have expired, or
in respect of which the Company or a Restricted Subsidiary shall at any time
in good faith be prosecuting an appeal or proceeding for a review and in
respect of which a stay of execution pending such appeal or proceeding for
review shall have been secured;
(c) Liens incidental to the conduct of business or the ownership
of properties and assets (including warehousemen's and attorneys' liens and
statutory landlords' liens) and Liens to secure the performance of bids,
tenders or trade contracts, or to secure statutory obligations, surety or
appeal bonds or other Liens of like general nature incurred in the ordinary
course of business and not in connection with the borrowing of money,
provided in each case, the obligation secured is not overdue or, if overdue,
is being contested in good faith by appropriate actions or proceedings;
(d) Liens constituting minor survey exceptions or minor
encumbrances, easements or reservations, or rights of others for
rights-of-way, utilities and other similar purposes, or zoning or other
restrictions as to the use of real properties, which are necessary for the
conduct of the activities of the Company and its Restricted Subsidiaries or
which customarily exist on properties of corporations engaged in similar
activities and similarly situated and which do not in any event materially
impair their use in the operation of the business of the Company and its
Restricted Subsidiaries;
(e) Liens securing Debt of a Restricted Subsidiary to the
Company;
(f) Liens existing as of as of the date of this Agreement and
reflected in Exhibit C hereto;
(g) Liens on property or capital stock of any corporation which
becomes a Restricted Subsidiary after the date of this Agreement, which Liens
exist at the time such corporation becomes a Restricted Subsidiary and were
incurred pursuant to contractual commitments entered into prior to and not in
contemplation of such corporation becoming a Restricted Subsidiary;
(h) Liens, including Liens arising under Capitalized Leases,
incurred after the Closing Date given to secure the payment of the purchase
price, cost of improvement or cost of construction of fixed assets useful and
intended to be used in carrying on the business of the Company or a
Restricted Subsidiary incurred contemporaneously with, or within 270 days
after, such acquisition, improvement or construction, including Liens
existing on such fixed assets at the time of acquisition thereof or at the
time of acquisition by the Company or a Restricted Subsidiary of any business
entity then owning such fixed assets, whether or not such existing Liens were
given to secure the payment of the purchase price of the fixed assets to
which they attach so long as they were not incurred, extended or renewed in
contemplation of such acquisition, provided that (A) the Lien shall attach
solely to the fixed assets acquired, purchased, improved or constructed, (B)
at the time of acquisition, improvement or construction of such fixed assets,
the aggregate amount remaining unpaid on all Debt secured by Liens on such
fixed assets whether or not assumed by the Company or a Restricted Subsidiary
shall not exceed an amount equal to the lesser of the total purchase price or
fair market value at the time of acquisition of such fixed assets (as
determined in good faith by the Board of Directors of the Company), and (C)
all such Debt shall have been incurred within the applicable limitations
provided in Section 5.8;
(i) Extensions, renewals or replacements, in whole or in part, of
any Lien referred to in the foregoing clauses (a) to (h), inclusive, provided
that, upon giving effect thereto,
(i) there shall exist no Default or Event of Default,
(ii) the principal amount of Debt secured thereby shall not
exceed the principal amount of Debt so secured at the time of such
extension, renewal or replacement, and
(iii) such extension, renewal or replacement shall be
limited to all or any part of the same property that secured the Lien
extended, renewed or replaced (plus improvements on such property); and
(j) Liens, in addition to those permitted by the foregoing
clauses (a) through (i), securing Funded Debt of the Company or any
Restricted Subsidiary, provided, that at the time of the incurrence of any
such Funded Debt and after giving effect thereto and to the application of
the proceeds thereof (including the application of any such proceeds to the
retirement of Funded Debt) the sum of (i) the aggregate principal amount of
all such Funded Debt secured by Liens permitted by this Section 5.11(j), plus
(ii) the aggregate amount of Funded Debt then outstanding and incurred within
the limitations of Section 5.9(f), shall not exceed 15% of Tangible
Capitalization.
5.12 Restricted Payments and Restricted Investments.
(a) The Company will not, and will not permit its Restricted
Subsidiaries to declare or make, or incur any liability to make any
Restricted Payments or Restricted Investments, except:
(i) a Restricted Subsidiary may pay dividends to the
Company; and
(ii) the Company and its Restricted Subsidiaries may make
Restricted Payments and Restricted Investments, provided that immediately
after giving effect to any such Restricted Payment or Restricted
Investment, (A) no Default or Event of Default would exist, (B) the Company
would be able to incur at least $1.00 of additional Senior Funded Debt
under Section 5.8, and (C) the aggregate amount of all Restricted Payments
made during the period from and after October 1, 1990 to and including the
date of such Restricted Payment or Restricted Investment, together with the
amount of Outstanding Restricted Investments, would not exceed the sum of
(1) $6,000,000, plus (2) the net cash proceeds to the Company from the
issue or sale, during such period, of capital stock of the Company, or
warrants, rights or options to purchase or acquire any shares of its
capital stock, plus (3) the principal amount of any Indebtedness of the
Company converted into common stock of the Company during such period, plus
(4) 50% of Consolidated Net Income for such period, computed on a
cumulative basis for said entire period (or if such Consolidated Net Income
is a deficit figure, then minus 100% of such deficit), plus (5) patronage
dividends paid from and after the date of this Agreement by issuance of
equity securities of the Company.
The Company or any Restricted Subsidiary will not declare a dividend
which constitutes a Restricted Payment payable more than 60 days after the
date of declaration thereof.
For the purposes of this Section 5.12(a) the amount of any Restricted
Payment or Restricted Investment declared, made, paid or distributed in
property of the Company or any Restricted Subsidiary shall be deemed to be
the greater of the book value or fair market value (as determined in good
faith by the Board of Directors of the corporation making the payment) of
such property at the time of making such Restricted Payment or Restricted
Investment.
Any Person which became or becomes a Restricted Subsidiary after
October 1, 1990 shall be deemed to have made, at the time it became or
becomes a Subsidiary, all Restricted Investments of such Person existing
immediately after it became or becomes a Restricted Subsidiary. In the event
any Restricted Subsidiary ceased or ceases to be a Restricted Subsidiary
subsequent to October 1, 1990, all investments of the Company and its
Restricted Subsidiaries in such Person shall be deemed to have been made at
the time such Person ceased or ceases to be a Restricted Subsidiary.
(b) The Company will not, and will not permit its Restricted
Subsidiaries to make any payment of principal or interest on Subordinated
Debt, or pay or declare any patronage dividends, if a Default or Event of
Default under Section 6.1(a) or 6.1(b) hereof has occurred and is continuing.
5.13 Mergers, Consolidations and Sales of Assets.
(a) The Company will not, and will not permit any Restricted
Subsidiary to consolidate with or be a party to a merger with any other
corporation or sell, lease or otherwise dispose of all or substantially all
of the assets of the Company and its Restricted Subsidiaries, provided,
however, that:
(i) the Company may consolidate or merge with or into any
other corporation, or sell all or substantially all of its assets to any
other corporation, if (A) the Company shall be the surviving or continuing
corporation or, if the Company shall not be the surviving or continuing
corporation or shall sell all or substantially all of its assets to a
corporation, such surviving, continuing or purchasing corporation shall be
incorporated under the laws of the United States or any jurisdiction
thereof and shall assume in writing all obligations of the Company under
this Agreement and under the Notes, (B) at the time of such consolidation,
merger or sale and after giving effect thereto no Default or Event of
Default shall have occurred and be continuing, and (C) after giving effect
to such consolidation, merger or sale the Company or such surviving,
continuing or purchasing corporation would be permitted to incur at least
$1.00 of additional Senior Funded Debt under the provisions of Section 5.8;
(ii) any Restricted Subsidiary may merge or consolidate
with or into the Company or any other Person so long as (A) in any merger
or consolidation involving the Company, the requirements of
Section 5.13(a)(i) shall be satisfied; or (B) in any other merger or
consolidation, at the time of such consolidation or merger and after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing and after giving effect to such merger or consolidation, the
Company would be permitted to incur at least $1.00 of additional Senior
Funded Debt under the provisions of Section 5.8; and
(iii) any Restricted Subsidiary may sell, lease or otherwise
dispose of all or substantially all of its assets either (A) to the Company
or any Wholly-owned Restricted Subsidiary or (B) to any other Person,
provided, that such transfer is permitted by Section 5.13(b)(vii).
(b) The Company will not, and will not permit any Restricted
Subsidiary to sell, lease, transfer or otherwise dispose of (each referred to
as a "Transfer") any assets, except:
(i) Transfers of all or substantially all of the assets of
the Company or a Restricted Subsidiary permitted by Section 5.13(a);
(ii) Transfers in the ordinary course of business;
(iii) Transfers of individual assets having a book value
less than $250,000 (for which purpose the book value of assets sold in a
single transaction or any integrated series of transactions shall be
aggregated);
(iv) Transfers of Debt owed to the Company by a Member and
incurred in connection with financing of Member stores or equipment;
(v) Transfers from the Company to any Wholly-owned
Restricted Subsidiary or from any Restricted Subsidiary to the Company or a
Wholly-owned Restricted Subsidiary;
(vi) Transfers of worn-out or obsolete assets; and
(vii) Any other Transfers, including without limitation
Transfers to Restricted Subsidiaries which are not Wholly-owned, provided
that (A) after giving effect to such Transfer, the aggregate net book value
of assets transferred subject to this provision during the then current
Fiscal Quarter and the immediately preceding three Fiscal Quarters would
not exceed 10% of Consolidated Total Assets computed as of the end of the
most recent Fiscal Quarter preceding such Transfer, unless the net proceeds
from such Transfers in excess of 10% (1) are reinvested in assets in
related businesses, as determined by the Board of Directors, within twelve
months from the date of such Transfers or (2) are applied to repay an
equivalent amount of Consolidated Senior Funded Debt including premium, if
any; (B) in the opinion of the Company, the sale is for fair value and is
in the best interests of the Company; and (C) immediately after the
consummation of the transaction, and after giving effect thereto, no
Default or Event of Default would exist.
(c) The Company will not permit any Restricted Subsidiary to
issue or sell any shares of stock of any class (including as "stock" for the
purposes of this Section 5.13(c), any warrants, rights or options to purchase
or otherwise acquire stock or other Securities exchangeable for or
convertible into stock) of such Restricted Subsidiary to any Person other
than the Company or a Wholly-owned Restricted Subsidiary, except for the
purpose of qualifying directors, or except in satisfaction of the validly
pre-existing preemptive rights of minority shareholders in connection with
the simultaneous issuance of stock to the Company and/or a Restricted
Subsidiary whereby the Company and/or such Restricted Subsidiary maintain
their same proportionate interest in such Restricted Subsidiary.
(d) The Company will not sell, transfer or otherwise dispose of
any shares of stock in any Restricted Subsidiary (except to qualify
directors) or any Debt of any Restricted Subsidiary, and will not permit any
Restricted Subsidiary to sell, transfer or otherwise dispose of (except to
the Company or a Wholly-owned Restricted Subsidiary) any shares of stock or
any Debt of any other Restricted Subsidiary, unless:
(i) simultaneously with such sale, transfer or disposition,
all shares of stock and all Debt of such Restricted Subsidiary at the time
owned by the Company and by every other Restricted Subsidiary shall be
sold, transferred or disposed of as an entirety;
(ii) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the retention of
such stock and Debt is no longer in the best interests of the Company;
(iii) such stock and Debt is sold, transferred or otherwise
disposed of to a Person, for a cash consideration and on terms reasonably
deemed by the Board of Directors to be adequate and satisfactory;
(iv) the Restricted Subsidiary being disposed of shall not
have any continuing investment in the Company or any other Restricted
Subsidiary not being simultaneously disposed of; and
(v) such sale or other disposition is permitted by
Section 5.13(b)(vii) hereof.
5.14 Guaranties. The Company will not and will not permit any
Restricted Subsidiary to become or be liable in respect of any Guaranty
except (a) Guaranties of the Company or any Restricted Subsidiary incurred in
the ordinary course of business which are not Guaranties of Debt, or (b)
Guaranties of the Company or any Restricted Subsidiary which constitute Debt,
are limited in amount to a stated maximum dollar exposure and are permitted
by the applicable provisions of Section 5.8.
5.15 Repurchase of Notes. Neither the Company nor any Restricted
Subsidiary or Affiliate, directly or indirectly, may repurchase or make any
offer to repurchase any Notes unless an offer has been made to repurchase
Notes, pro rata, from all Holders at the same time and upon the same terms.
In case the Company repurchases or otherwise acquires any Notes, such Notes
shall immediately thereafter be cancelled and no Notes shall be issued in
substitution therefor. Without limiting the foregoing, upon the purchase or
other acquisition of any Notes by the Company, any Restricted Subsidiary or
any Affiliate, such Notes shall no longer be outstanding for purposes of any
section of this Agreement relating to the taking by the Holders of any
actions with respect hereto, including, without limitation, Sections 6.3, 6.4
and 7.1.
5.16 Transactions with Affiliates. The Company will not, and will not
permit any Restricted Subsidiary to, enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of
any service by or for, any Affiliate), except in the ordinary course of and
pursuant to the reasonable requirements of the business of the Company or
such Restricted Subsidiary and upon fair and reasonable terms no less
favorable to the Company or such Restricted Subsidiary than would obtain in a
comparable arm's-length transaction with a Person other than an Affiliate.
5.17 Withdrawal from Multiemployer Plans and Termination of Pension
Plans. The Company will not, and will not permit any Subsidiary to, withdraw
from any Multiemployer Plan or permit any employee benefit plan maintained by
it to be terminated if such withdrawal or termination could result in
withdrawal liability (as described in Part 1 of Subtitle E of Title IV of
ERISA) or the imposition of a Lien on any property of the Company or any
Subsidiary pursuant to Section 4068 of ERISA.
5.18 Reports and Rights of Inspection. The Company will keep, and will
cause each Restricted Subsidiary to keep, proper books of record and account
in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of the Company
or such Restricted Subsidiary, in accordance with GAAP consistently applied
(except for changes disclosed in the financial statements furnished to you
pursuant to this Section 5.18 and concurred in by the independent public
accountants referred to in Section 5.18(b) hereof), and will furnish to you
so long as you are the Holder of any Note and to each other Institutional
Holder of the then outstanding Notes (in duplicate if so specified below or
otherwise requested):
(a) Quarterly Statements. As soon as available and in any event
within 60 days after the end of each of the first three Fiscal Quarters of
each Fiscal Year, copies of:
(i) consolidated balance sheets of the Company and its
Restricted Subsidiaries as of the close of such Fiscal Quarter, setting
forth in comparative form the consolidated figures for the Fiscal Year then
most recently ended; and
(ii) consolidated statements of income, Members' equity and
cash flows of the Company and its Restricted Subsidiaries for such Fiscal
Quarter and for the portion of the Fiscal Year ending with such Fiscal
Quarter, in each case setting forth in comparative form the consolidated
figures for the corresponding periods of the preceding Fiscal Year;
all in reasonable detail and certified as complete and correct by an
authorized financial officer of the Company;
(b) Annual Statements. As soon as available and in any event
within 120 days after the close of each Fiscal Year of the Company, copies
of:
(i) consolidated and consolidating balance sheets of the
Company and its Restricted Subsidiaries as of the close of such Fiscal
Year, and
(ii) consolidated and consolidating statements of income,
Members' equity and cash flows of the Company and its Restricted
Subsidiaries for such Fiscal Year, in each case setting forth in
comparative form the figures for the preceding Fiscal Year, all in
reasonable detail. Such consolidated financial statements shall be
accompanied by an audit report thereon of Delap, White & Raish or other
firm of independent public accountants of recognized national standing
selected by the Company to the effect that the consolidated financial
statements present fairly, in all material respects, the consolidated
financial position of the Company and its Restricted Subsidiaries as of the
end of the Fiscal Year being reported on and the consolidated results of
the operations and cash flows for said year in conformity with GAAP and
that the examination of such accountants in connection with such financial
statements has been conducted in accordance with generally accepted
auditing standards and included such tests of the accounting records and
such other auditing procedures as said accountants deemed necessary in the
circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the books of
the Company or any Restricted Subsidiary;
(d) SEC and Other Reports. Promptly upon their becoming
available, one copy of each
(i) financial statement, report, notice or proxy statement
sent by the Company to Members generally;
(ii) regular or periodic report and any registration
statement or prospectus filed by the Company or any Subsidiary with any
securities exchange or the Securities and Exchange Commission or any
successor agency;
(iii) annual report of each Subsidiary constituting an
insurance company required by applicable law to be prepared and filed with
any governmental agency or regulatory body; and
(iv) material order in any proceedings to which the Company
or any of its Subsidiaries is a party, issued by any governmental agency,
federal or state, having jurisdiction over the Company or any of its
Subsidiaries;
(e) ERISA Reports. Promptly upon the occurrence thereof, written
notice of
(i) a Reportable Event with respect to any Plan;
(ii) the institution of any steps by the Company, any member
of the ERISA Group, the PBGC or any other person to terminate any Plan;
(iii) the institution of any steps by the Company or any
member of the ERISA Group to withdraw from any Plan;
(iv) a non-exempt "prohibited transaction" within the
meaning of Section 406 of ERISA in connection with any Plan;
(v) any material increase in the contingent liability of
the Company or any Restricted Subsidiary with respect to any
post-retirement welfare liability; or
(vi) the taking of any action by, or the threatening of the
taking of any action by, the Internal Revenue Service, the Department of
Labor or the PBGC with respect to any of the foregoing;
(f) Officer's Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized financial
officer of the Company stating that such officer has reviewed the provisions
of this Agreement and setting forth:
(i) the information and computations (in sufficient detail)
required in order to establish whether the Company was in compliance with
the requirements of Section 5.6 through Section 5.13 at the end of the
period covered by the financial statements then being furnished, and
(ii) whether there existed as of the date of such financial
statements and whether, to the best of such officer's knowledge, there
exists on the date of the certificate or existed at any time during the
period covered by such financial statements any Default or Event of Default
and, if any such condition or event exists on the date of the certificate,
specifying the nature and period of existence thereof and the action the
Company is taking and proposes to take with respect thereto;
(g) Accountant's Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an opinion
with respect to such financial statements, which certificate shall be
addressed to the Holders, stating that such accountants have reviewed this
Agreement; stating whether, in making their audit, such accountants have
become aware of any Default or Event or Default under any of the terms or
provisions of this Agreement insofar as any such terms or provisions pertain
to or involve accounting matters or determinations, and if any such condition
or event then exists, specifying the nature and period of existence thereof;
(h) Unrestricted Subsidiaries. Within the respective periods
provided in paragraphs 5.18(a) and 5.18(b) above, financial statements of the
character and for the dates and periods as in said paragraphs 5.18(a) and
5.18(b) provided covering each Unrestricted Subsidiary (or groups of
Unrestricted Subsidiaries on a consolidated basis), provided that no separate
audit report shall be required for Unrestricted Subsidiaries; and
(i) Requested Information. With reasonable promptness, such
other data and information as any of you or any other Institutional Holder
may reasonably request. Without limiting the foregoing, the Company will
permit you, so long as you are the Holder of any Note, and each Institutional
Holder of the then outstanding Notes (or such Persons as either you or such
Institutional Holder may designate), to visit and inspect, under the
Company's guidance, any of the properties of the Company or any Subsidiary,
to examine all of their books of account, records, reports and other papers,
to make copies and extracts therefrom and to discuss their respective
affairs, finances and accounts with their respective officers, employees, and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss with you the finances and affairs of the Company
and its Subsidiaries) all at such reasonable times and as often as may be
reasonably requested; provided that no such inspection or examination shall
unreasonably interfere with the business of the Company. Any visitation
shall be at the sole expense of you or such Institutional Holder unless a
Default or Event of Default shall have occurred and be continuing, in which
case, any such visitation or inspection shall be at the sole expense of the
Company.
5.19 Change in Federal Income Tax Status. The Company shall give
written notice to the Holders within 30 days after the Company (a) shall have
determined to cease to be taxed as a cooperative under Subchapter T of the
Code or (b) has been notified by the Internal Revenue Service or has
otherwise determined that the Company no longer qualifies for taxation as a
cooperative under Subchapter T. Such notice shall specify the date from and
after which the Company shall cease to be taxed as a cooperative under
Subchapter T of the Code and the status of the Company for federal income tax
purposes from and after such date. The Purchaser and the Company recognize
that certain of the business and financial covenants contained in this
Agreement have been structured based upon the assumption that the Company
will continue to be taxed as a cooperative under Subchapter T. Accordingly,
in the event of a change in the federal income tax status of the Company, the
Company and the Holders will negotiate in good faith amendments to the
business and financial covenants contained in this Agreement to reflect the
economic consequences of such change.
6. Events of Default and Remedies Therefor.
6.1 Events of Default. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default in the payment of any interest, fees or other sums
(other than principal or premium on any of the Notes) pursuant to this
Agreement or the Notes as and when the same shall become due and payable, and
continuance of such default for a period of five Business Days; or
(b) Default in the payment of all or any part of the principal or
premium on any of the Notes as and when the same shall become due and payable
either at maturity, upon optional or mandatory prepayment, by declaration or
otherwise; or
(c) Default in the performance or observance of any covenant or
agreement contained in Section 5.6 through Section 5.13; or
(d) Default in the performance or observance, or breach, of any
other provision of this Agreement or the Notes (other than a provision a
default in whose performance or observance or whose breach is elsewhere in
this Section 6.1 specifically addressed), and continuance of such default or
breach for a period of 30 days after the first to occur of
(i) written notice thereof by a Holder to an officer of the
Company or
(ii) an officer of the Company has actual knowledge of such
default or breach; or
(e) A default or the happening or any event under any indenture,
agreement or other instrument evidencing or under which any Material Debt is
then outstanding, shall happen and be continuing after the applicable grace
period and the effect of such default or happening is to cause, or permit the
holder or holders of any Material Debt (or a trustee on behalf of such holder
or holders) to cause the same to be or become due and payable prior to the
date on which the same would otherwise be due and payable; or
(f) A final judgment or judgments or order for the payment of
money aggregating in excess of $5,000,000 (or the equivalent at the time in
question in any other currency) (net of insurance proceeds to the extent the
insurer has acknowledged liability) is entered against the Company or a
Restricted Subsidiary and such judgment or judgments or order is not
satisfied, or vacated or stayed by reason of impending appeal or otherwise,
within 60 days after the date of its entry; or
(g) Any member of the ERISA Group fails to pay when due or within
15 days thereafter an amount or amounts aggregating in excess of $5,000,000
which it shall have become liable to pay under Title IV of ERISA; or notice
of intent to terminate a Plan or Plans which, individually or in the
aggregate with other such Plans, has or have aggregate Insufficiencies in
excess of $5,000,000, is filed under Title IV of ERISA by any member of the
ERISA Group, any plan administrator or any combination of the foregoing; or
the PBGC institutes proceedings under Title IV of ERISA in respect of any
Prior Plan or Prior Plans which, individually or in the aggregate with other
such Prior Plans, has or have aggregate Insufficiencies in excess of
$5,000,000; or the PBGC institutes proceedings for premiums under
Section 4007 of ERISA in respect of, or to cause a trustee to be appointed to
administer, any Plan or Plans which, individually or in the aggregate with
other such Plans, has or have aggregate Insufficiencies in excess of
$5,000,000; or a condition specified in Section 4042(a)(4) of ERISA shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Plan or Plans which, individually or in the aggregate
with other such Plans, has or have aggregate Insufficiencies in excess of
$5,000,000, must be terminated; or there occurs a complete or partial
withdrawal from, or a default, within the meaning of Section 4219(c)(5) of
ERISA, with respect to, one or more Multiemployer Plans which would cause one
or more members of the ERISA Group to incur an obligation in excess of
$5,000,000 which is payable within 12 months of the incurrence thereof; or
(h) Any representation or warranty made by the Company herein, or
made by the Company in any statement or certificate furnished by the Company
in connection with the consummation of the issuance and delivery of the Notes
or furnished by the Company pursuant hereto, is untrue in any material
respect as of the date of the issuance or making thereof; or
(i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company or any Restricted
Subsidiary in an involuntary case under any applicable bankruptcy,
reorganization, insolvency or other similar law now or hereafter in effect,
or appointing a receiver, liquidator, assignee, custodian, trustee, receiver
or sequestrator (or similar official) of the Company or any Restricted
Subsidiary or for any substantial part of the property of the Company or any
Restricted Subsidiary or ordering the winding up or liquidation of the
affairs; of the Company or any Restricted Subsidiary, and such decree or
order shall remain unstayed and in effect for a period of 30 consecutive
days; or
(j) The Company or any Restricted Subsidiary shall commence a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consent to the entry of an order for
relief in an involuntary case under any such law, or consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee or sequestrator (or similar official) of the Company or
any Restricted Subsidiary or of any substantial part of the property of the
Company or any Restricted Subsidiary, or make any general assignment for the
benefit of creditors.
6.2 Notice to Holders. When any Event of Default described in the
foregoing Section 6.1 has occurred, or if any Holder or the holder of any
other evidence of Debt of the Company gives any notice or takes any other
action with respect to a claimed default, the Company agrees to give notice
within five Business Days of such event to all Holders.
6.3 Acceleration of Maturities. When any Event of Default described
in paragraph (a) or (b) of Section 6.1 has occurred and is continuing, any
Holder may, by notice to the Company, declare the entire principal and all
interest accrued on such Holder's Notes to be, and such Holder's Notes shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly
waived. In addition to and not in limitation of the foregoing, when any
Event of Default described in paragraphs (a) through (h), inclusive, of said
Section 6.1 has occurred and is continuing, the Holder or Holders of 66-2/3%
or more of the principal amount of Notes at the time outstanding may, by
notice to the Company, declare the entire principal and all interest accrued
on all Notes to be, and all Notes shall thereupon become, forthwith due and
payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived. When any Event of Default
described in paragraph (i) or (j) of Section 6.1 has occurred, then all
outstanding Notes shall immediately become due and payable without
presentment, demand or notice of any kind. Upon any Notes becoming due and
payable as a result of any Event of Default as aforesaid, the Company will
forthwith pay to the Holders of the Notes then due and payable the entire
principal and interest accrued on the Notes and, to the extent not prohibited
by applicable law, an amount as liquidated damages for the loss of the
bargain evidenced hereby (and not as a penalty) equal to the Make-Whole
Amount, if any, specified in Section 2.2, determined as of the date on which
the Notes shall so become due and payable. No course of dealing on the part
of the Holder or Holders nor any delay or failure on the part of any Holder
to exercise any right shall operate as a waiver of such right or otherwise
prejudice such Holder's rights, powers and remedies. The Company further
agrees, to the extent permitted by law, to pay to the Holder or Holders all
costs and expenses incurred by them in the collection of any Notes upon any
default hereunder or thereon, including reasonable compensation to such
Holder's or Holders' attorneys for all services rendered and disbursements
made in connection therewith.
6.4 Rescission of Acceleration. The provisions of Section 6.3 are
subject to the condition that if the principal of and accrued interest on all
or any outstanding Notes have been declared immediately due and payable by
reason of the occurrence of any Event of Default described in paragraphs (a)
through (h), inclusive, of Section 6.1, the Holders of 66-2/3% in aggregate
principal amount of the Notes then outstanding may, by written instrument
filed with the Company, rescind and annul such declaration and the
consequences thereof, provided that at the time such declaration is annulled
and rescinded:
(a) no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all other sums
payable under the Notes and under this Agreement (except any principal,
interest or premium on the Notes which has become due and payable solely by
reason of such declaration under Section 6.3) shall have been duly paid; and
(c) each and every other Default and Event of Default shall have
been made good, cured or waived pursuant to Section 7.1; and, provided,
further, that no such recission and annulment shall extend to or affect any
subsequent Default or Event of Default or impair any right consequent
thereto.
7. Amendments, Waivers and Consents.
7.1 Required. Any term, covenant, agreement or condition of this
Agreement may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular instance and
either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the Holders of at least 66-2/3% in aggregate
principal amount of outstanding Notes; provided that without the written
consent of the Holders of all of the Notes then outstanding, no such
amendment or waiver shall be effective
(a) which will change the time of payment (including any
prepayment required by Section 2.1) of the principal of or the interest on
any Note or change the principal amount thereof or change the rate of
interest thereon or the calculation of the Make-Whole Amount,
(b) which will change any of the provisions with respect to
optional prepayments, or
(c) which will change the percentage of Holders of the Notes
required to consent to any such amendment or waiver, or
(d) which will change any of the provisions of this Section 7,
Section 5.15, Section 6, Section 9.4 or Section 9.5, or the definition of any
term used therein.
7.2 Solicitation of Holders. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement or the Notes unless each Holder (irrespective of the amount of
Notes then owned by it) shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an informed decision
with respect thereto. The Company will not, directly or indirectly, pay or
cause to be paid any remuneration, whether by way of supplemental or
additional interest, fees or otherwise, to any Holder as consideration for or
as an inducement to entering into by any Holder of any waiver or amendment of
any of the terms and provisions of this Agreement or the Notes unless such
remuneration is concurrently paid, on the same terms, ratably to all the
Holders. Promptly and in any event within 30 days of the date of execution
and delivery of any such waiver or amendment, the Company shall provide a
true, correct and complete copy thereof to each of the Holders of the Notes.
7.3 Effect of Amendment or Waiver. Any such amendment or waiver shall
apply equally to all of the Holders and shall be binding upon them, upon each
future Holder of any Note and upon the Company, whether or not such Note
shall have been marked to indicate such amendment or waiver. No such
amendment or waiver shall extend to or affect any obligation not expressly
amended or waived or impair any right consequent thereon.
8. Interpretation of Agreement; Definitions'.
8.1 Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and
the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined:
"Affiliate" shall mean any Person (other than a Restricted Subsidiary)
(a) which directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, the Company, (b) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company or (c) 5% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary. The term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of Voting Stock, by contract or otherwise.
"Agreement" shall have the meaning set forth in the introductory
paragraph preceding Section 1.1.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banks in the States of Oregon or New York are required by
law to close or are customarily closed.
"Capitalized Lease" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a consolidated balance
sheet of the lessee and its subsidiaries in accordance with GAAP.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"Closing Date" shall have the meaning set forth in Section 1.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations from time to time promulgated thereunder.
"Company" shall mean United Grocers, Inc., an Oregon corporation, and
any Person who succeeds to all, or substantially all, of the assets and
business of United Grocers, Inc.
"Consolidated Funded Debt" shall mean all Funded Debt of the Company
and its Restricted Subsidiaries, determined on a consolidated basis
eliminating intercompany items.
"Consolidated Net Income" for any period shall mean the consolidated
net income of the Company and its Restricted Subsidiaries for such period,
determined after provision for income taxes, but excluding therefrom
extraordinary items and unusual or non-recurring gains net of the income tax
effect thereof.
"Consolidated Net Income Available for Fixed Charges" shall mean, for
any period, Consolidated Net Income for such period, plus (a) all deductions
for taxes levied in respect of income deducted in computing Consolidated Net
Income for such period, (b) all patronage payments deducted in computing
Consolidated Net Income for such period, and (c) Fixed Charges for such
period.
"Consolidated Tangible Net Worth" shall mean, as of the date of any
determination thereof, consolidated Members' equity of the Company and its
Restricted Subsidiaries less all intangible assets.
"Consolidated Senior Funded Debt" shall mean all Senior Funded Debt of
the Company and its Restricted Subsidiaries, determined on a consolidated
basis eliminating intercompany items.
"Consolidated Subordinated Funded Debt" shall mean all Subordinated
Funded Debt of the Company and its Restricted Subsidiaries, determined on a
consolidated basis eliminating intercompany items.
"Consolidated Total Assets" shall mean the total assets of the Company
and its Restricted Subsidiaries, determined on a consolidated basis according
to GAAP.
"Contingent Obligations" shall mean the aggregate recourse obligations
of the Company for Debt originally owed by Members to the Company in respect
of store or equipment financing, which Debt has been sold by the Company on a
recourse basis.
"Debt" shall mean, as of the date of any determination thereof;
(i) Indebtedness for borrowed money; (ii) Indebtedness representing the
deferred purchase price of property or services, but excluding accounts
payable and accrued liabilities arising in, and on terms customary in, the
ordinary course of the business of the Company and its Restricted
Subsidiaries; (iii) Indebtedness which is evidenced by acceptances, notes or
other instruments; (iv) Capitalized Rentals; (v) Reimbursement obligations
under letters of credit; (vi) Contingent Obligations; and (vii) Guaranties.
"Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"Environmental Law" shall mean any international, federal, state or
local statute, law, regulation, order, consent decree, judgment, permit,
license, code, covenant, deed restriction, common law, treaty, convention,
ordinance or other requirement relating to public health, safety or the
environment, including, without limitation, those relating to releases,
discharges or emissions to air, water, land or groundwater, to the withdrawal
or use of groundwater, to the use and handling of polychlorinated biphenyls
or asbestos, to the disposal, treatment, storage or management of hazardous
or solid waste, or Hazardous Substances or crude oil, or any fraction
thereof, or to exposure to toxic or hazardous materials, to the handling,
transportation, discharge or release of gaseous or liquid Hazardous
Substances and any regulation, order, notice or demand issued pursuant to
such law, statute or ordinance, in each case applicable to the property of
the Company and its Subsidiaries or the operation, construction or
modification of any thereof, including without limitation, the following:
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986,
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984,
the Hazardous Materials Transportation Act, as amended, the Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1976, the Safe
Drinking Water Control Act, the Clean Air Act of 1966, as amended, the Toxic
Substances Control Act of 1976, the Occupational Safety and Health Act of
1977, as amended, the Emergency Planning and Community Right-to-Know Act of
1986, the National Environmental Policy Act of 1975, the Oil Pollution Act of
1990 and any similar or implementing state law, and any state statute and any
further amendments to these laws providing for financial responsibility for
cleanup or other actions with respect to the release or threatened release of
Hazardous Substances or crude oil, or any fraction thereof, and all rules,
regulations, guidance documents and publications promulgated thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as emended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
"ERISA Group" shall mean any corporation, trade or business that is,
along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Fiscal Quarter" shall mean any quarter of a Fiscal Year.
"Fiscal Year" shall mean (a) with respect to the fiscal reporting of
the Company and its Subsidiaries for all periods ending on or prior to
September 30, 1989, any period of twelve consecutive calendar months ending
on September 30, and (b) with respect to the fiscal reporting of the Company
and its Subsidiaries for all periods ending after September 30, 1989, any
period of 52 or 53 weeks ending on the Friday nearest September 30.
"Fixed Charges" shall mean, for any period, all Rentals on leases and
all interest on Debt deducted in computing Consolidated Net Income for such
period.
"Funded Debt" of any Person shall mean all Debt of such Person having a
final maturity of one or more than one year from the date of origin thereof
(or which is renewable or extendible at the option of the obligor for a
period or periods more than one year from the date of origin), including all
payments in respect thereof that are required to be made within one year from
the date of any determination of Funded Debt.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time.
"Guaranties" by any Person shall mean all obligations (other than (i)
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection and (ii) guaranties of any lease on which the lessee
has obtained lease insurance in favor of the Company in an amount sufficient
to pay all amounts due under such lease) of such Person guaranteeing, or in
effect guaranteeing, any Indebtedness, dividend or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly including, without limitation, all obligations incurred through an
agreement, contingent or otherwise, by such Person: (a) to purchase such Debt
or obligation or any property or assets constituting security therefor, (b)
to advance or supply funds (x) for the purchase or payment of such
indebtedness or obligation, (y) to maintain working capital or other balance
sheet condition or to maintain fixed charge coverage or otherwise to advance
or make available funds for the purchase or payment of such Debt or
obligation, (c) to lease property or to purchase Securities or other property
or services primarily for the purpose of assuring the owner of such Debt or
obligation of the ability of the primary obligor to make payment of the
Indebtedness or obligation, or (d) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to
be Indebtedness equal to the principal amount of such Indebtedness for
borrowed money which has been guaranteed, and a Guaranty in respect of any
other obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such obligation,
liability or dividend.
"Hazardous Substance" shall mean any hazardous or toxic material,
substance or waste, pollutant or contaminant which is regulated under any
statute, law, ordinance, rule or regulation of any local, state, regional or
federal authority having jurisdiction over the property of the Company and
its Subsidiaries or its use, including but not limited to any material,
substance or waste which is: (a) defined as a hazardous substance under
Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section
1317), as amended; (b) regulated as a hazardous waste under Section 1004 or
Section 3001 of the Federal Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), as
amended; (c) defined as a hazardous substance under Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. Section 9601 et seq.), as amended; or (d) defined or regulated as
a hazardous substance or hazardous waste under any rules or regulations
promulgated under any of the foregoing statutes.
"Holder" shall mean a Person in whose name a Note is registered.
"Indebtedness" of any Person shall mean and include all obligations of
such Person which in accordance with GAAP shall be classified upon a balance
sheet of such Person as liabilities of such Person, and in any event shall
include all Debt.
"Institutional Holder" shall mean any insurance company, bank, savings
and loan association, trust company, investment company, charitable
foundation, employee benefit plan (as defined in ERISA) or other
institutional investor or financial institution.
"Insufficiency" shall mean, with respect to any Plan or Prior Plan at
any time, the amount, if any, by which the present value at such time of the
accrued benefits under such Plan or Prior Plan exceeds the fair market value
at such time of the assets of such Plan or Prior Plan allocable to such
benefits.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and including
but not limited to the security interest or lien arising from a mortgage,
encumbrance, pledge, conditional sale, title retention device or trust
receipt or a lease, consignment, bailment or other transfer for security
purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect
to stock, stockholder agreements, voting trust agreements, buyback agreements
and all similar arrangements) affecting property. For the purposes of this
Agreement, the Company or a Restricted Subsidiary shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale agreement, Capitalized Lease or other arrangement pursuant to which
title to the property has been retained by or vested in some other Person for
security purposes and such retention or vesting shall constitute a Lien.
"Make-Whole Amount" shall mean in connection with any prepayment or
acceleration of the Notes the excess, if any, of (a) the aggregate present
value as of the date of such prepayment or payment of each dollar of
principal being prepaid or paid (taking into account the application of such
prepayment or payment required by Section 2.1) and the amount of interest
(exclusive of interest accrued to the date of prepayment or payment) that
would have been payable in respect of such dollar if such prepayment or
payment had not been made, determined by discounting such amounts at the
Reinvestment Rate from the respective dates on which they would have been
payable, over (b) 100% of the principal amount of the outstanding Notes being
prepaid or paid. If the Reinvestment Rate is equal to or higher than 8.42%,
the Make-Whole Amount shall be zero. For purposes of any determination of
the Make-Whole Amount:
"Reinvestment Rate" shall mean (1) the sum of .50 %, plus the yield
reported on page "USD" of the Bloomberg Financial Markets Services Screen
(or, if not available, any other nationally recognized trading screen
reporting on-line intraday trading in the United States Government
Securities) at 11:00 a.m. (New York, New York time) for the United States
Government Securities having a maturity (rounded to the nearest month)
corresponding to the remaining Weighted Average Life to Maturity of the
principal being prepaid or paid (taking into account the application of such
prepayment or payment required by Section 2.1) or (2) in the event that no
nationally recognized trading screen reporting on-line intraday trading in
the United States Government Securities is available, Reinvestment Rate shall
mean the sum of .50%, plus the arithmetic mean of the yields for the two
columns under the heading "Week Ending" published in the Statistical Release
under the caption "Treasury Constant Maturities" for the maturity (rounded to
the nearest month) corresponding to the Weighted Average Life to Maturity of
the principal being prepaid or paid (taking into account the application of
such prepayment or payment required by Section 2.1). If no maturity exactly
corresponds to such Weighted Average Life to Maturity, yields for the two
published maturities most closely corresponding to such Weighted Average Life
to Maturity shall be calculated pursuant to the immediately preceding
sentence and the Reinvestment Rate shall be interpolated or extrapolated from
such yields on a straight-line basis, rounding in each of such relevant
periods to the nearest month. For the purposes of calculating the
"Reinvestment Rate", the most recent Statistical Release published prior to
the date of determination of the Make-Whole Amount shall be used.
"Statistical Release" shall mean the then most recently published
statistical release designated "H.15(519)" or any successor publication which
is published weekly by the Federal Reserve System and which establishes
yields on actively traded U.S. Government Securities adjusted to constant
maturities or, if such statistical release is not published at the time of
any determination hereunder, then such other reasonably comparable index
which shall be designated by the holders of 66-2/3% in aggregate principal
amount of the outstanding Notes.
"Weighted Average Life to Maturity" of the principal amount of the
Notes being prepaid or paid shall mean, as of the time of any determination
thereof, the number of years obtained by dividing the then Remaining
Dollar-Years of such principal by the aggregate amount of such principal.
The term "Remaining Dollar-Years" of such principal shall mean the amount
obtained by (1) multiplying (i) the remainder of (A) the amount of principal
that would have become due on each scheduled payment date if such prepayment
or payment had not been made, less (B) the amount of principal on the Notes
scheduled to become due on such date after giving effect to such prepayment
or payment and the application thereof in accordance with the provisions of
Section 2.1, by (ii) the number of years (calculated to the nearest
one-twelfth) which will elapse between the date of determination and such
scheduled payment date, and (2) totalling the products obtained in (1).
"Material Debt" shall mean, as of the date of any determination
thereof, one or more obligations of the Company or any Restricted Subsidiary
constituting Debt which, individually or in the aggregate, exceeds
$3,000,000.
"Member" shall have the meaning assigned thereto in Article V of the
By-laws of the Company as in effect on the Closing Date.
"Memorandum" shall have the meaning set forth in Section 3.1(c).
"Multiemployer Plan" means, at any time, an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes, any Person which ceased to be a member of the
ERISA Group during such five-year period.
"Note" or "Notes" shall have the meaning set forth in Section 1.1.
"Outstanding Restricted Investments" shall mean, as of any date, the
aggregate amount of all investments in and advances to any Person (other than
Permitted Investments) made by the Company and its Restricted Subsidiaries
after the date of this Agreement, but only to the extent, if any, that the
aggregate amount of all such investments and advances (valued at cost)
exceeds the sum of (a) any cash payments to the Company or a Restricted
Subsidiary constituting a return of capital in respect of such investments or
advances and (b) the amount of any such investments and advances (valued at
cost) made after the date of this Agreement to an entity that did not
constitute a Restricted Subsidiary on the date of such investment or advance
which remain outstanding on the date such entity becomes a Restricted
Subsidiary pursuant to the terms of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investments" shall mean (a) investments in obligations of,
or guaranteed by, the full faith and credit of the United States government
or its agencies (which are guaranteed by the full faith and credit of the
United States government) with maturities not to exceed one year from the
date of acquisition, (b) investments in and loans and advances to Restricted
Subsidiaries, or companies which simultaneously become Restricted
Subsidiaries, (c) investments in commercial paper maturing within one year
from the date of issue thereof issued by a corporation rated in one of the
top two rating classifications by at least one nationally recognized rating
agency, (d) investments received in settlement of debts (created in the
ordinary course of business) not exceeding $1,000,000 in the aggregate at any
time outstanding, (e) travel advances, employee relocation loans and other
employee loans and advances in the ordinary course of business, not exceeding
$1,000,000 in the aggregate at any time outstanding, (f) local deposit
accounts maintained for operating funds, (g) investments in certificates of
deposit, eurodollar deposits, repurchase agreements or banker's acceptances
issued by commercial banks organized under the laws of the United States
having combined capital and surplus aggregating at least $100,000,000, or not
exceeding the FDIC insured amount, and such banks long-term certificates of
deposit are, at the time of such investment, rated A or better by Standard &
Poor's Corporation or A or better by Moody's Investors Service, Inc., (h)
investments in money market programs which are classified as a current asset
in accordance with GAAP and which money market programs have total assets in
excess of $1 billion, (i) investments in money market preferred stock with a
credit rating of "A" or better by at least one nationally recognized rating
agency, (j) loans to Members, provided that the aggregate outstanding
principal amount of such loans (including, without limitation, the aggregate
recourse obligations of the Company for loans to Members which have been sold
by the Company on a recourse basis) does not exceed 27-1/2% of the sum of (i)
Consolidated Total Assets and (ii) the aggregate recourse obligations of the
Company for loans to Members which have been sold by the Company on a
recourse basis; (k) investments in and loans and advances to joint ventures
with the Company and/or Restricted Subsidiaries, other business ventures
engaged in activities related to the Company's ordinary course of operations
and, to the extent not permitted by the foregoing clause (j), Members,
provided that the aggregate outstanding amount of all such investments, loans
and advances does not exceed 7% of Consolidated Total Assets at such time,
(1) investments by Grocers Insurance Group, Inc. or its successors as
permitted by and in accordance with the restrictions of the Insurance
Commissioner of the State of Oregon, and any or all other applicable
governing jurisdictions, and (m) other investments, loans and advances
existing on the date of this Agreement which do not otherwise constitute
"Permitted Investments" and which are listed on Exhibit H hereto.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.
"Plan" means, at any time, an employee pension benefit plan (other than
an Multiemployer Plan) which is covered under Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Code and is at such
time maintained or contributed to, by any member of the ERISA Group for
employees of any members of the ERISA Group.
"Prior Plan" shall mean at any time a Plan that has at any time within
the preceding five years been maintained, or contributed to, for employees of
any Person which was at such time a member of the ERISA Group by (A) any
Person which was at such time a member of the ERISA Group or (B) more than
one employer other than a member of the ERISA Group and any person which was
at such time a member of the ERISA Group.
"Purchaser" shall have the meaning set forth in the introductory
paragraph preceding Section 1.1.
"Rentals" shall mean, with respect to any lease, (a) the sum of the
rental and other payments required to be paid by the lessee thereunder
(including, all payments which the lessee is obligated to make on termination
of the lease or surrender of the property, if any), excluding, however, any
amounts required to be paid by the lessee (whether or not therein designated
as rental or additional rental) on account of sales, maintenance and repairs,
insurance, taxes, assessments, or similar charges required to be paid by such
lessee thereunder, less (b) all such amounts actually received under any
subleases of the property subject to such lease.
"Reportable Event" shall have the same meaning as in ERISA.
"Restricted Investments" shall mean any investments in or advances to
any Person (other than Permitted Investments) made by the Company or any of
its Restricted Subsidiaries after the date of this Agreement.
"Restricted Payments" shall mean with respect to any corporation (a)
dividends, whether in cash or property, on any shares of its capital stock of
any class (except dividends or other distributions payable solely in shares
of capital stock of the corporation making the distribution or, in the case
of the Company, patronage dividends), (b) any purchase, redemption or
retirement, directly or indirectly or through any subsidiary, of any shares
of its capital stock, or any warrants, rights or options to purchase or
assign any shares of its capital stock (except any redemption or repurchase
by the Company of its stock to the extent such stock is redeemed or
repurchased in exchange for Subordinated Stock Redemption Notes), and (c) any
payment of principal or interest on Subordinated Stock Redemption Notes.
"Restricted Subsidiary" shall mean (a) each Subsidiary existing on the
date hereof unless and until designated as an Unrestricted Subsidiary by the
Board of Directors of the Company; (b) each Subsidiary formed or acquired
after the date hereof unless and until designated as an Unrestricted
Subsidiary by the Board of Directors of the Company; and (c) each Subsidiary
designated as a "Restricted Subsidiary" by the Board of Directors of the
Company and constituting an Unrestricted Subsidiary immediately prior to such
designation, provided that no such designation of an Unrestricted Subsidiary
as a "Restricted Subsidiary" shall be effective unless immediately after such
designation there shall exist no condition or event which would constitute a
Default or Event of Default and the Company could incur at least $1.00 of
additional Senior Funded Debt; provided, however, that in no event shall a
Subsidiary constitute a "Restricted Subsidiary" unless more than 80% (by
number of votes) of the Voting Stock shall be owned by the Company or another
Restricted Subsidiary.
"Security" shall have the same meaning as in Section 2(l) of the
Securities Act of 1933, as amended.
"Senior Funded Debt" shall mean all Funded Debt other than Subordinated
Funded Debt.
"Subordinated Funded Debt" shall mean all Funded Debt that (a) is
subordinated in right of payment to all other Funded Debt pursuant to
subordination provisions as set forth in Exhibit G hereto, (b) is evidenced
by Subordinated Stock Redemption Notes, (c) is subordinated in right of
payment to all other Funded Debt pursuant to subordination provisions
acceptable to the Holders or (d) is set forth in Exhibit C hereto as
Subordinated Funded Debt outstanding on September 30, 1994.
"Subordinated Stock Redemption Notes" shall mean notes evidencing
Subordinated Funded Debt of the Company issued to Members in connection with
the redemption of the common stock of the Company, which notes are
subordinated to the Notes pursuant to subordination provisions as set forth
in Exhibit G hereto.
"Subsidiary" shall mean a subsidiary of the Company. The term
"subsidiary" shall mean as to any particular parent corporation any
corporation of which more than 80% (by number of votes) of the Voting Stock
shall be beneficially owned, directly or indirectly, by such parent
corporation.
"Tangible Capitalization" shall mean the sum of (a) Consolidated Funded
Debt plus (b) Consolidated Tangible Net Worth.
"Unrestricted Subsidiary" shall mean any Subsidiary other than a
Restricted Subsidiary.
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all Indebtedness for
borrowed money shall be owned by the Company and/or one or more of its
Wholly-owned Subsidiaries.
8.2 Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with GAAP,
to the extent applicable, except
(a) where such principles are inconsistent with the requirements
of this Agreement and
(b) that quarterly financial data for insurance company
Subsidiaries included in the consolidated financial statements of the Company
required to be delivered to the Holders by Section 5.18(a) or used to compute
any financial ratio for any of the first three fiscal quarters in any fiscal
year of the Company, may be computed in accordance with applicable statutory
requirements.
8.3 Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person.
9. Miscellaneous.
9.1 Registration and Transfer of Notes. The Company shall cause to be
kept at its principal office a register for the registration and transfer of
the Notes (hereinafter called the "Note Register") and the Company will
register or transfer or cause to be registered or transferred, as hereinafter
provided and under such reasonable regulations as it may prescribe, any Note
issued pursuant to this Note Agreement.
A Holder may transfer a Note, upon surrender thereof at the principal
office of the Company duly endorsed or accompanied by a written instrument of
transfer duly executed by the Holder or its attorney duly authorized in
writing.
The Note Register shall reflect for each Purchaser the address of such
Purchaser appearing on Schedule I hereto. Each Purchaser and each subsequent
Holder may cause its address to be changed on the Note Register by a written
instruction to the Company.
9.2 Exchange of Notes. At any time and from time to time, upon not
less than ten days' notice by a Holder pursuant to this Section 9.2, and upon
surrender of the Note at its office, the Company will deliver in exchange
therefor, without expense to the Holder, except as set forth below, Notes
duly registered as provided in Section 9.1 hereof, for the same aggregate
principal amount as the then unpaid principal amount of the Note so
surrendered, in the denomination of $100,000 or any amount in excess thereof
as such Holder shall specify, dated as of the date to which interest has been
paid on the Note so surrendered or, if such surrender is prior to the payment
of any interest thereon, then dated as of the date of issue, payable to such
person or persons, or registered assigns, as may be designated by such
Holder, and otherwise of the same form and tenor as the Notes so surrendered
for exchange. The Company may require the payment of a sum sufficient to
cover any stamp tax or governmental charge imposed upon such exchange or
transfer.
9.3 Loss, Theft, etc. of Notes. Upon receipt of evidence satisfactory
to the Company of the loss, theft or destruction of any Note, and upon
delivery of a bond of indemnity in such form and amount as shall be
reasonably satisfactory to the Company, or upon surrender and cancellation of
any mutilated Note, the Company will make and deliver without expense to the
Holder thereof, a new Note, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Note. If the Purchaser or any subsequent
Institutional Holder is the owner of any such lost, stolen or destroyed Note,
then the affidavit of an authorized officer of such owner, setting forth the
fact of loss, theft or destruction and of its ownership of the Note at the
time of such loss, theft or destruction shall be accepted as satisfactory
evidence thereof and no further indemnity shall be required as a condition to
the execution and delivery of a new Note other than the written agreement of
such owner to indemnify the Company.
9.4 Direct Payment. Notwithstanding anything to the contrary in this
Agreement or the Notes, in the case of any Note owned by the Purchaser or its
nominee or owned by any other Institutional Holder who has given written
notice to the Company requesting that the provisions of this Section 9.4
shall apply, the Company will promptly and punctually pay when due (whether
as the result of required or optional prepayment, upon acceleration, at
maturity or otherwise) the principal thereof, interest thereon, and premium,
if any, without any presentment thereof, directly to the Purchaser or
Institutional Holder at the address of the Purchaser set forth in Schedule I
hereto or at such other address as the Purchaser or such Institutional Holder
may from time to time designate in writing to the Company or, if a bank
account is designated for the Purchaser on Schedule I hereto or in any
written notice to the Company from the Purchaser or Institutional Holder, the
Company will make such payments by bank wire transfer in immediately
available funds to such bank account before 10:00 a.m., Portland, Oregon
time, marked for attention as indicated, or in such other manner or to such
other account of the Purchaser or Institutional Holder in any bank in the
United States as the Purchaser or Institutional Holder may from time to time
direct in writing. Any Holder to which this Section 9.4 applies agrees that
in the event it shall sell or transfer any Note it will, prior to the
delivery of the Note, make (unless it has already done so) a notation thereon
of the date to which interest has been paid on such Note. The Company may
from time to time close its Note Register for a period not to exceed five
days prior to the date of any payment on the Notes and the Company may
postpone any transfer of Notes until opening of said Note Register.
9.5 Pro Rata Payments. All payments of interest or premium, if any,
and payments or prepayments of principal shall be made and applied pro rata
on all Notes outstanding in accordance with the respective unpaid principal
amounts thereof.
9.6 Expenses, Stamp Tax Indemnity. Whether or not the transactions
herein contemplated shall be consummated, the Company agrees to pay directly,
all of the out-of-pocket expenses of the Purchaser in connection with the
preparation, execution and delivery of this Note Agreement and the
transactions contemplated hereby, including but not limited to the charges
and disbursements of Chapman and Cutler, special counsel to the Purchaser,
the cost of obtaining private placement numbers for the Notes, duplicating
and printing costs and charges for shipping the Notes, adequately insured to
the Purchaser at its home or office or at such other place as it may
designate. The Company also agrees that it will pay and save the Purchaser
harmless against any and all liability with respect to stamp and other taxes,
if any, which may be payable or which may be determined to be payable in
connection with the execution and delivery of this Note Agreement or the
Notes, whether or not any Notes are then outstanding. The Company agrees to
protect and indemnify the Purchaser against any liability for any and all
brokerage fees and commissions payable or claimed to be payable to any Person
retained by the Company or any of its Affiliates in connection with the
transactions contemplated by this Note Agreement. In addition, the Company
agrees to pay all out-of-pocket expenses of the Holders in connection with
any amendments, waivers or consents pursuant to the provisions hereof,
including, without limitation, all legal fees and disbursements of any
counsel to the Holders. The obligations of the Company under this
Section 9.6 shall survive payment of the Notes and the termination of this
Note Agreement.
9.7 Powers and Rights Not Waived; Remedies Cumulative. No delay or
failure on the part of a Holder in the exercise of any power or right shall
operate as a waiver thereof; nor shall any single or partial exercise of the
same preclude any other or further exercise thereof, or the exercise of any
other power or right. No waiver or consent, given or extended pursuant to
Section 7 hereof, shall extend to or affect any other obligation or right.
The rights and remedies of a Holder are cumulative and are not exclusive of
any rights or remedies any Holder would otherwise have.
9.8 Notices. All communications provided for hereunder shall be in
writing and, if to you, delivered or mailed prepaid by registered or
certified mail or overnight air courier, or by facsimile communication, in
each case addressed to you at your address appearing on Schedule I to this
Agreement or such other address as you or the subsequent Holder of any Note
initially issued to you may designate to the Company in writing, and if to
the Company, delivered or mailed by registered or certified mail or overnight
air courier, or by facsimile communication, to the Company at 6433 S.E. Lake
Road, P.O. Box 22187, Portland, Oregon 97222-0187, Attention: Chief
Financial Officer, (facsimile number: 503-833-1962) or to such other address
as the Company may in writing designate to you or to a subsequent Holder of
the Note initially issued to you; provided, however, that a notice to you by
overnight air courier shall only be effective if delivered to you at a street
address designated for such purpose in Schedule I, and a notice to you by
facsimile communication shall only be effective if confirmed by transmission
of a copy thereof by prepaid overnight air courier, or, in either case, as
you or a subsequent holder of any Note initially issued to you may designate
to the Company in writing.
9.9 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to your benefit and to
the benefit of your successors and assigns, including each successive Holder
or Holders.
9.10 Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement
and the Notes.
9.11 Reproduction of Documents. This Agreement and all documents
relating thereto, including without limitation,
(a) consents, waivers and modifications which may hereafter be
executed,
(b) documents received by you on the Closing Date of your
purchase of the Notes (except the Notes themselves), and
(c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm or other similar process and you may
destroy any original document so reproduced. The Company agrees and
stipulates that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (unless the
original is in existence and reasonably available at the time), whether or
not such reproduction was made by you in the regular course of business and
that any enlargement, facsimile or further reproduction of such reproduction
shall likewise be admissible in evidence.
9.12 Severability. Should any part of this Agreement for any reason be
declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any remaining portion, which remaining portion
shall remain in full force and effect as if this Agreement had been executed
with the invalid or unenforceable portion thereof eliminated and it is hereby
declared the intention of the parties hereto that they would have executed
the remaining portion of this Agreement without including therein any such
part, parts or portion which may, for any reason, be hereafter declared
invalid or unenforceable.
9.13 Governing Law. This Agreement and the Notes issued and sold
hereunder shall be governed by and construed in accordance with New York law.
9.14 Captions. The descriptive headings of the various Sections or
parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
<PAGE>
The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Agreement may be
executed in any number of counterparts, each executed counterpart
constituting an original but all together only one agreement.
UNITED GROCERS, INC.
By John W. White
Its Vice President
Accepted as of November 15, 1994.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By Rosemary T. Strekel
Its Vice President
<PAGE>
Schedule I
Phoenix Home Life Mutual Insurance Company
One American Row
P.O. Box 5056
Hartford, Connecticut 06102-5056
Attention: Private Placements Division
Telecopier Number: (203) 275-5451
Denominations
Two Notes, each in the principal amount of $10,000,000.
Payments.
All payments on or in respect of the Notes to be by bank wire transfer
of Federal or other immediately available funds (identifying each payment as
"United Grocers, Inc., 8.42% Senior Notes due 2005, PPN 91352@ AB 7,
principal or interest") to:
Chase Manhattan Bank (ABA #021 0000 21)
BNF-SSG Private Income Processing/AC-9009000200
for credit to:
Phoenix Home Life Mutual Insurance Company
Account Number G-05143 (in the case of the Note numbered R-1)
and
Phoenix Home Life Mutual Insurance Company
Account Number G-05689 (in the case of the Note numbered R-2)
Notices
All notices and communications, including notices with respect to
payments and written confirmation of each such payment, to be addressed as
first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 06-0493340
<PAGE>
United Grocers, Inc.
8.42% Senior Note
Due November 1, 2005
PPN: 91352@ AB 7
R-
$________________ November ___, 1994
United Grocers, Inc., an Oregon corporation (the "Company"), for value
received, hereby promises to pay to or registered assigns, on the first day
of November, 2005 the principal amount of _______________________ Dollars
($_____________) and to pay interest (computed on the basis of a 360-day year
of twelve 30-day months) from and after the date hereof on the principal
amount hereof from time to time remaining unpaid at the rate of 8.42% per
annum, payable on the first day of each May and November (commencing on
May 1, 1995) and continuing until payment in full of the principal amount at
maturity. The Company agrees to pay interest on overdue principal (including
any overdue required or optional prepayment of principal) and premium, if
any, and (to the extent legally enforceable) on any overdue installment of
interest, from and after the due date thereof, at the rate of 10.42% per
annum, whether by acceleration or otherwise, until paid.
Principal, premium, if any, and interest are payable at the principal
office of the Company in Portland, Oregon in coin or currency of the United
States of America which at the time of payment shall be legal tender for the
payment of public and private debts. If any amount of principal, premium, if
any, or interest on or in respect of this Note becomes due and payable on any
date which is not a Business Day, such amount shall be payable on the
immediately preceding Business Day. "Business Day" means any day other than
a Saturday, Sunday or other day on which banks in the States of Oregon or New
York are required by law to close or are customarily closed.
This Note is one of the 8.42% Senior Notes of the Company in the
aggregate principal amount of $20,000,000 issued under and pursuant to the
terms and provisions of the Note Agreement dated as of October 10, 1994 (the
"Note Agreement"), entered into by the Company and the Purchaser therein
referred to and this Note and the holder hereof are entitled equally and
ratably with the holders of all other Notes outstanding under the Note
Agreement to all the benefits provided for thereby or referred to therein, to
which Note Agreement reference is hereby made for the statement thereof.
This Note and the other Notes outstanding under the Note Agreement may
be declared due prior to their expressed maturity dates, voluntary
prepayments may be made thereon by the Company, and certain prepayments are
required to be made thereon, all in the events, on the terms and in the
manner and amounts as provided in the Note Agreement.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly
endorsed or accompanied by a written instrument of transfer duly executed by
the registered holder of this Note or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any, and
interest on this Note shall be made only to or upon the order in writing of
the registered holder.
This Note shall be governed by and construed in accordance with New
York law.
UNITED GROCERS, INC.
By ________________________
Its________________________
<PAGE>
Subsidiaries
Percentage
Jurisdiction Restricted/ Voting Stock
Name of Unrestricted Owned
Incorporation
Grocers Insurance Group, Inc. Oregon Restricted 100%
Grocers Insurance Agency, Oregon Restricted 100%
Inc.
Grocers Insurance Company Oregon Restricted 100%
United Workplace Consultants Oregon Restricted 100%
Services, Inc.
UGIC, Ltd. Bermuda Restricted 100%
Western Passage Express, Inc. Oregon Restricted 100%
Northwest Process, Inc. Oregon Restricted 100%
United Resources, Inc. Oregon Restricted 100%
UG Resources, Inc. California Restricted 100%
Western Security Services, Oregon Restricted 100%
Ltd.
BAT Enterprises, Inc. Oregon Restricted 100%
Premier Consulting, Inc. Oregon Restricted 100%
<PAGE>
Debt and Liens
Unpaid
Description Name of Principal Security
of Debt Obligor Amount (if any)
[omitted]
<PAGE>
Description of Closing Opinion of Counsel to the Company
The closing opinion of Brownstein, Rask, Arenz, Sweeney, Kerr & Grim,
counsel for the Company, which is called for by Section 4.1 of the Note
Agreement, shall be dated the Closing Date and addressed to the Purchaser,
shall be satisfactory in scope, form and substance to the Purchaser and shall
be to the effect that:
(1) The Company is a corporation, duly organized, validly existing and
in good standing under the laws of the State of Oregon. The Company has the
corporate power and authority and is duly authorized to execute and perform
the Note Agreement and to issue the Notes and incur the indebtedness to be
evidenced thereby. The Company has full corporate power and corporate
authority and is duly authorized to conduct the activities in which it is now
engaged and is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction in which the character of the
properties owned or leased by it or the nature of the business transacted by
it makes such licensing or qualification necessary.
(2) Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation.
Each Subsidiary has full corporate power and corporate authority and is duly
authorized to conduct the activities in which it is now engaged and is duly
licensed or qualified and is in good standing as a foreign corporation in
each jurisdiction in which the character of the properties owned or leased by
it or the nature of the business transacted by it makes such licensing or
qualification necessary. All of the issued and outstanding shares of capital
stock of each Subsidiary have been duly issued, are fully paid and
non-assessable and are owned by the Company, by one or more Subsidiaries, or
by the Company and one or more Subsidiaries.
(3) The Note Agreement has been duly authorized by all necessary
corporate action on the part of the Company, has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
contract of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
(4) The Notes have been duly authorized by all necessary corporate
action on the part of the Company, have been duly executed and delivered by
the Company and constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity or at
law).
(5) No approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any governmental body,
federal, state or local, is necessary in connection with the execution and
delivery of the Note Agreement or the Notes.
(6) The issuance and sale of the Notes and the execution, delivery and
performance by the Company of the Note Agreement do not conflict with or
result in any breach of any of the provisions of or constitute a default
under or result in the creation or imposition of any lien or encumbrance upon
any of the property of the Company pursuant to the provisions of the
Certificate of Incorporation or By-Laws of the Company, any law or
governmental regulation, or any agreement or other instrument known to such
counsel to which the Company is a party or by which the Company may be bound.
(7) The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Agreement do not, under existing law
require the registration of the Notes under the Securities Act of 1933, as
amended, or applicable state "blue-sky" laws, or the qualification of an
indenture in respect thereof under the Trust Indenture Act of 1939.
The opinion of Brownstein, Rask, Arenz, Sweeney, Kerr & Grim shall
cover such other matters relating to the sale of the Notes as the Purchasers
may reasonably request. With respect to matters of fact on which such
opinion is based, such counsel shall be entitled to rely on appropriate
certificates of public officials and officers of the Company.
<PAGE>
Opinion of Special Counsel to the Purchaser
The closing opinion of Chapman and Cutler, special counsel to the
Purchaser, called for by Section 4.1 of the Note Agreement, shall be dated
the Closing Date and addressed to the Purchaser, shall be satisfactory in
form and substance to the Purchaser and shall be to the effect that:
(1) The Company is a corporation, validly existing and in good
standing under the laws of the State of Oregon and has corporate power and
the corporate authority to execute and deliver the Note Agreement and to
issue the Notes.
(2) The Note Agreement has been duly authorized by all necessary
corporate action on the part of the Company, has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
contract of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
(3) The Notes have been duly authorized by all necessary corporate
action on the part of the Company, and the Notes being delivered on the date
hereof have been duly executed and delivered by the Company and constitute
the legal, valid and binding obligations of the Company enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting the enforcement of creditors' rights
generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity or at
law).
(4) The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Agreement do not, under existing law,
require the registration of the Notes under the Securities Act of 1933, as
amended, or the qualification of an indenture under the Trust Indenture Act
of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Brownstein, Rask, Arenz, Sweeney, Kerr & Grim is satisfactory in scope and
form to Chapman and Cutler and that, in their opinion, the Purchaser is
justified in relying thereon. In rendering the opinion set forth in
paragraph 1 above, Chapman and Cutler may rely, as to matters referred to in
paragraph 1, solely upon an examination of the Certificate of Incorporation
certified by, and a certificate of good standing of the Company from, the
Secretary of State of the State of Oregon, the By-laws of the Company and the
general business corporation law of the State of Oregon. The opinion of
Chapman and Cutler is limited to the laws of the State of Illinois, the
general business corporation law of the State of Oregon and the Federal laws
of the United States.
With respect to matters of fact upon which such opinion is based,
Chapman and Cutler may rely on appropriate certificates of public officials
and officers of the Company and upon representations of the Company and the
Purchaser delivered in connection with the issuance and sale of the Notes.
<PAGE>
Company Letter to Auditor
[omitted]
<PAGE>
Subordination Provisions
1.1 Agreement of Subordination. The Company agrees, and each holder
of a Note, by his purchase or acceptance thereof, likewise agrees, that the
payment of the principal of and interest on the Notes is hereby expressly
subordinated, to the extent and in the manner hereinafter set forth, in right
of payment to the prior payment in full of all Senior Indebtedness (which
shall include, without limitation, the 8.42% Senior Notes issued or to be
issued under and pursuant to the Note Agreement dated as of October 10, 1994
between the Company and Phoenix Home Life Mutual Insurance Company and all
Senior Funded Indebtedness of the Company as defined in said Note Agreement,
together with all other obligations and fees due in connection therewith).
1.2 Distribution on Dissolution and Reorganization; Subrogation of
Notes. Upon any distribution of assets of the Company upon any liquidation,
dissolution, winding up or reorganization of the Company (whether in
bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or any other liquidation, dissolution, winding up or
reorganization of the Company):
(1) The holders of all Senior Indebtedness shall first be entitled to
receive payment in full, or have provision made for payment in full, of the
principal thereof, and the premium, if any, and interest thereon, and all
other obligations and fees due in connection therewith before the holders of
the Notes are entitled to receive any payment on account of the principal of
or interest on the Notes;
(2) Any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the holders
of the Notes or the Trustee would be entitled except for the provisions of
this Article shall be paid by the liquidating trustee or agent or other
person making such payment or distribution, whether a trustee in bankruptcy,
a receiver or liquidating trustee or other trustee or agent, directly to the
holders of Senior Indebtedness or their representative or representatives or
to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, ratably
(subject to any subordination of any class of Senior Indebtedness, by the
provisions thereof, to any other class or classes of Senior Indebtedness)
according to the aggregate amounts remaining unpaid on account of the
principal of, and the premium, if any, and interest on, and all other
obligations and fees due in connection therewith, the Senior Indebtedness
held or represented by each, to the extent necessary to make payment in full
of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to the holders of
such Senior Indebtedness; and
(3) In the event that, notwithstanding the foregoing, any such payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, shall be received by the Trustee or the holders
of the Notes before all Senior Indebtedness including all other obligations
and fees due in connection therewith is paid in full, or provision made for
its payment, such payment or distribution shall be paid over to the holders
of Senior Indebtedness remaining unpaid or unprovided for or their
representative or representatives or to the trustee or trustees under any
indenture under which any instrument evidencing any of such Senior
Indebtedness may have been issued, as provided in the foregoing subparagraph
(2), for application to the payment of such Senior Indebtedness until all
such Senior Indebtedness, including all such other obligations and fees due
in connection therewith, shall have been paid in full, after giving effect to
any concurrent payment or distribution, or provision therefor, to the holders
of such Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, including all
other obligations and fees due in connection therewith, the holders of the
Notes shall be subrogated pro rata (based on the respective amounts paid over
for the benefit of the holders of Senior Indebtedness) with the holders of
any other subordinated indebtedness of the Company that by its terms ranks
pari passu with the Notes (such subordinated indebtedness being hereafter in
this Section referred to as "pari passu indebtedness") to the rights of the
holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company applicable to the Senior Indebtedness
until the principal of and interest on the Notes shall be paid in full; and,
for purposes of such subrogation, no such payments or distributions to the
holders of Senior Indebtedness, which, but for the provisions of this
Article, would have been payable or distributable to holders of the Notes or
the pari passu indebtedness, shall, as between the Company, its creditors
other than the holders of Senior Indebtedness and the holders of the Notes
and the pari passu indebtedness be deemed to be a payment by the Company to
or on account of the Senior Indebtedness. It is understood that the
provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the holders of the Notes and the holders of
the pari passu indebtedness and the holders of the Senior Indebtedness.
Nothing contained in this Article, in the Indenture or in the Notes is
intended to or shall impair, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of and interest on the Notes as and when
the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the holders of the Notes
and creditors of the Company other than the holders of the Senior
Indebtedness. Upon any distribution of assets of the Company referred to in
this Article, the Trustee and the holders of the Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such liquidation, dissolution, winding up or reorganization proceedings
are pending or a certificate of the liquidating trustee or agent or other
person making any distribution to the Trustee or to the holders of the Notes
for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article.
In the event that the Trustee determines, in good faith, that further
evidence is required with respect to the right of any person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Section, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such person, as to the extent to which such person is
entitled to participate in such payment or distribution, and as to other
facts pertinent to the rights of such person under this Section, and, if such
evidence is not furnished, the Trustee may defer any payment to such person
pending judicial determination as to the right of such person to receive such
payment.
The Trustee, however, shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and shall not be liable to any such
holders unless it shall negligently pay over or distribute to the holders of
the Notes or the Company or any other person, moneys or assets to which any
holder of Senior Indebtedness shall be entitled by virtue of this Article or
otherwise.
The terms "paid in full" and "payment in full" as used in this
Section with respect to Senior Indebtedness mean the receipt, in cash, of the
principal amount of the Senior Indebtedness (and any premium due thereon) and
full interest thereon and all other obligations, fees and expenses due in
connection therewith to the date of such payment of principal.
1.3 Payments on Notes. In the event and during the continuation of
any default under any instrument constituting Senior Indebtedness or pursuant
to which any Senior Indebtedness is issued continuing beyond the period of
grace, if any, specified in such instrument, the Company shall not make any
payment of principal of or interest on the Notes or purchase or redeem or set
aside funds for the redemption of the Notes or otherwise acquire any Notes,
and neither the Trustee nor any holder of the Notes shall be entitled to
receive any such payment.
Nothing contained in this Article, in the Indenture or in any of the
Notes shall, however, (a) affect the obligation of the Company to make or
prevent the Company from making, at any time, except during the pendency of
any such liquidation, dissolution, winding up, or reorganization proceedings
or during the continuation of any such default, payments of principal of or
interest on the Notes or (b) prevent the application by the Trustee or any
Paying Agent of any moneys deposited with it hereunder by the Company to the
payment of or on account of the principal of or interest on the Notes if, not
less than two business days prior to such application, the Trustee or such
Paying Agent, as the case may be, did not have written notice from the
Company or a holder of Senior Indebtedness of any event prohibiting the
making of such deposit by the Company or such application by the Trustee.
Prior to the receipt of any such written notice, the Trustee shall be
entitled to assume that no such event exists and shall not be charged with
knowledge of the existence of any such event.
1.4 Acceleration of Notes. If and so long as any Senior Indebtedness
is outstanding, neither the Trustee nor any holder of a Note shall have any
right to accelerate the maturity of any Note.
1.5 Actions against the Company. If and so long as any Senior
Indebtedness is outstanding and payment on account of principal of or
interest on the Notes is barred by this Article, neither the Trustee nor any
holder of a Note shall commence or prosecute any legal action against the
Company to obtain a judgment for principal of or interest on the Notes, or
attach, execute, levy, garnish or otherwise realize upon any assets of the
Company, or join with any creditor (unless the holder or holders of at least
two-thirds of the outstanding principal amount of Senior Indebtedness so
join) in filing an involuntary petition against the Company under the Federal
Bankruptcy Code, as the same has been or may hereafter be amended, modified
or replaced.
1.6 Trustee Authorized to Effectuate Subordination. Such holder of a
Note, by his purchase or acceptance thereof, authorizes and directs the
Trustee in his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided for in this Article and appoints the
Trustee his attorney in fact for such purpose.
1.7 Rights of Trustee as a Holder of Senior Indebtedness. The Trustee
shall be entitled to all rights set forth in this Article with respect to any
Senior Indebtedness which may at any time be held by it, to the same extent
as any other holder of Senior Indebtedness; and nothing in Section ____ of
the Indentures or elsewhere in the Indenture, shall deprive the Trustee of
any of its rights as such holder.
1.8 Reliance by Holders of Senior Indebtedness. Each holder of any
Note, by his purchase or acceptance hereof, agrees that the subordination
provisions of this Article are, and are intended to be, an inducement and a
consideration to each holder of any Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the issuance of the
Notes, to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness, and such holder of Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Indebtedness.
1.9 Subordination Note to Be Prejudiced by Certain Acts. No right of
any present or future holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
act or failure to act, in good faith, by any such holder or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
1.10 Senior Indebtedness. Senior Indebtedness means all indebtedness
of the Company of every kind and character, whether outstanding on the date
of this Indenture or thereafter created (other than indebtedness evidenced by
____________________________), (i) for money borrowed by the Company, (ii)
for money borrowed by others and guaranteed by the Company, and (iii)
constituting purchase money indebtedness incurred for the purchase of
tangible property and for the payment of which the Company is directly or
contingently liable; unless in each case by the terms of the instrument
creating or evidencing the indebtedness or obligation it is provided that
such indebtedness or obligation is not superior in right of payment to the
Notes.
<PAGE>
Other Permitted Investments
Balance as of _______________________, 1994
Description of Investment
[omitted]
<PAGE>
<PAGE>
EXHIBIT 10.F8
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated June 20, 1994, is
by and among UNITED GROCERS, INC., an Oregon corporation ("Buyer"), and C & K
MARKET, INC., an Oregon corporation ("Seller").
Seller owns beneficially and of record, as treasury stock, 485,000
shares of common stock of the Company (the "Shares"). Buyer desires to
purchase from Seller and Seller desires to sell to Buyer 145,256 Shares,
which sum will represent 22 percent of all of the issued and outstanding
capital stock of Seller, on the terms and subject to the conditions set forth
herein. The transactions contemplated in this Agreement are herein referred
to as the "Purchase."
SECTION 1. PURCHASE OF SHARES AND RELATED MATTERS
1.1 Purchase of Shares. Subject to the terms and conditions set
forth herein, at the Closing (as defined below) Seller will sell 145,256
Shares to Buyer and Buyer will purchase 145,256 Shares from Seller.
1.2 Purchase Price. Buyer will pay to Seller for the Shares
$5,750,000 (the "Purchase Price").
1.3 Payment of Purchase Price. The Purchase Price will be paid to
Seller as follows:
(a) A cash amount of $5,750,000 shall be paid by Buyer to
Seller on or before June 30, 1994.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF COMPANY AND SELLER
As a material inducement to Buyer to enter into this Agreement and
purchase the Shares, Seller represents and warrants that:
2.1 Organization and Corporate Power. Seller is a corporation
duly incorporated, validly existing, and in good standing under the laws of
the state of Oregon and is qualified to do business in every jurisdiction in
which its ownership of property or conduct of business requires it to
qualify. Seller has all requisite corporate power and authority and all
material licenses, permits, and authorizations necessary to own and operate
its properties, to carry on its business as now conducted. The copies of
Seller's charter documents and Bylaws that have been furnished to Buyer's
counsel reflect all amendments made thereto at any time prior to the date of
this Agreement and are correct and complete.
2.2 Capital Stock and Related Matters. The authorized capital
stock of the Seller consists of 1,000,000 shares of common stock, 515,000 of
which are issued and outstanding and 485,000 of which are owned, beneficially
and of record as treasury stock, by Seller and no other capital stock of the
Seller is issued and outstanding. Seller does not have outstanding and has
not agreed, orally or in writing, to issue any stock or securities
convertible or exchangeable for any shares of its capital stock, nor does it
have outstanding nor has it agreed, orally or in writing, to issue any
options or rights to purchase or otherwise acquire its capital stock. Seller
is not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock, except as
required by the employee stock purchase plan dated September 30, 1989. All
of the outstanding shares of the Seller's capital stock are validly issued,
fully paid, and nonassessable, except as required by the employee stock
purchase plan. Seller has, and upon purchase thereof by Buyer pursuant to
the terms of this Agreement Buyer will have, good and marketable title to the
Shares, free and clear of all security interests, liens, encumbrances, or
other restrictions or claims, subject only to restrictions as to
marketability. Assuming that the representations in Section 3.6 are true and
correct, Seller has not violated or will not violate any applicable
securities laws in connection with the offer or sale of the Shares to Buyer
hereunder.
2.3 Purchase Agreement. As further and as a material
consideration for Buyer's purchase of Shares heretofore identified, Seller
covenants and agrees with Buyer:
(a) To cause each of its present and hereinafter acquired
retail grocery stores to become members in good standing of United Grocers,
Inc., in accordance with the Bylaws of United Grocers, Inc., for a period not
less than seven (7) years from date of Closing.
(b) To use Buyer as its principal supplier and to purchase
from Buyer during the term of this Agreement, grocery, produce, meat, HABA,
and general merchandise in the aggregate weekly purchase price of not less
than 50 percent of Seller's weekly gross sales, exclusive of video, gasoline,
service center, lottery, hardware store sales, and liquor sales, to the
extent that Buyer shall now or hereinafter be able to supply such goods and
merchandise to Seller. Said calculation of weekly purchases to be computed
on a calendar quarterly basis. Buyer will supply Seller's requirements at
such prices and on such terms as are reasonably comparable to those offered
by Buyer to other purchasers from Buyer carrying on a business similar to
that of Seller in the geographical areas in which Seller operates its stores.
If, with respect to said 50 percent purchase requirement, at any time Seller
contends that Buyer is not able to supply particular goods or merchandise
customarily stocked by retail supermarkets, or that the terms offered by
Buyer are not reasonably comparable to those offered by Buyer to other pur-
chasers described above, then Seller shall so advise Buyer in writing
specifying such contention with particularity if, within 30 days after
receipt of such notice, Buyer does not offer to supply goods or merchandise
so specified or does not advise Seller that the terms and conditions offered
are reasonably comparable to those offered to such other purchasers, Seller
shall be free to secure such specified goods and merchandise from any source
it desires. If Buyer demonstrates that it is offering reasonably comparable
terms and Seller, nonetheless, purchases from another source, and if such
purchase violates the said 50 percent purchase requirement, then such
purchase or purchases shall constitute a default under this Agreement. In
the event of a breach of this covenant, Seller agrees to pay Buyer as
liquidated damages and not as a penalty or forfeiture a sum computed as
follows:
(i) the average weekly purchases from date of the
agreement to the date of the breach shall be determined;
(ii) the average weekly purchases so determined shall
then be multiplied by the number of weeks from the date of the breach to the
end of the term of the purchase agreement; and
(iii) the computed sum shall be multiplied by two and one-
quarter percent (2 1/4%) to determine the liquidated damages due and owing
Buyer by reason of Seller's default. Such sum shall become immediately due
and owing within 15 days from date of written notice of the liquidated
damages.
In addition to the foregoing liquidate damages, Buyer may, at
its option, require Seller to repurchase the stock acquired by Buyer
hereunder. The Purchase Price to be $5,750,000, plus 22 percent of the
accumulated net earnings after date of this Agreement or the original
Purchase Price plus 12 percent per annum compounded annually, whichever sum
is higher. Said sum shall be paid in cash 30 days following written notifi-
cation of default. If the breach occurs other than at a year-end, an interim
closing of the books will occur as of the date of the breach to establish the
accumulated net earnings as of said date.
Notwithstanding the foregoing, if, after the expiration of
said seven (7) year period, Seller should elect not to continue to purchase
from Buyer goods and merchandise in weekly amounts as provided above, then,
in that event, Seller shall be required and hereby agrees to purchase from
Buyer the stock which is the subject of this Agreement. The Purchase Price,
computed pursuant to the foregoing formula, will be due and owing within 30
days from date of written notice from Buyer to Seller. All unpaid balances
shall bear interest at the rate of 12 percent per annum.
2.4 Authorization; No Breach. The execution, delivery, and
performance of this Agreement and all other agreements contemplated hereby to
which Seller is a party have been duly authorized by Seller. This Agreement
and each other agreement contemplated hereby, when executed and delivered by
the parties thereto, will constitute the legal, valid, and binding obligation
of the Seller, enforceable against Seller in accordance with its terms. The
execution and delivery by Seller of this Agreement and all other agreements
contemplated hereby to which Seller is a party, the offering and sale of the
Shares hereunder and the fulfillment of and compliance with the respective
terms hereof and thereof by the Seller, do not and will not (i) conflict with
or result in a breach of the terms, conditions or provisions of; (ii)
constitute a default under; (iii) result in the creation of any lien,
security interest, charge, or encumbrance upon the capital stock or assets of
Seller, (iv) give any third party the right to accelerate any obligation
under; (v) result in a violation of; or (vi) require any authorization,
consent, approval, exemption, or other action by or notice to any court or
administrative or governmental body pursuant to the charter or Bylaws of
Seller or any law, statute, rule, or regulation to which Seller is subject,
or any agreement, instrument, order, judgment, or decree to which Seller is
subject.
2.5 Conduct of Business; Liabilities. Seller is not in default
under, and no condition exists that, with notice or lapse of time, or both,
would constitute a default of the Seller under (i) any mortgage, loan
agreement, indenture, evidence of indebtedness, or other instrument
evidencing borrowed money to which the Seller is a party or by which the
Seller or the properties of the Seller are bound; or (ii) any judgment,
order, or injunction of any court, arbitrator, or governmental agency that
would reasonably be expected to affect materially and adversely the business,
financial condition, or results of operations of the Seller taken as a whole.
2.6 Financial Statements. The audited balance sheet of the Seller
as of December 31, 1992, in the form attached to this Agreement as Schedule
"2.6(a)" (the "December 31, 1992 Balance Sheet"), fairly presents the
financial position of the Seller as of December 31, 1992, and the audited
income statements of the Seller for the years ended December 31, 1991, and
1992, in the form attached to this Agreement as Schedule "2.6(a)" (the
"December 31, 1992 Income Statement"), fairly presents the results of
operations of the Seller for the years ended December 31, 1991, and 1992, and
both have been prepared in accordance with generally accepted accounting
principles, consistently applied, and in a manner substantially consistent
with prior financial statements of the Seller. The December 31, 1992 Balance
Sheet and the December 31, 1992 Income Statement are referred to collectively
in this Agreement as the "December 31, 1992 Statements." The unaudited
balance sheet and income statement of the Seller as of December 31, 1993, and
for the 12 months then ended, in the form attached hereto as Schedule
"2.6(b)" (the "Unaudited Financial Statements"), fairly present the financial
position of the Seller as of December 31, 1993, and the results of operations
for the 12 months then ended and have been prepared in accordance with
generally accepted accounting principles consistently applied and in a manner
substantially consistent with the December 31, 1992 Statements, except for
differences resulting from normally occurring audit adjustments, including,
but not limited to, income tax and tax accrual adjustments, or as noted in
the Unaudited Statements or the notes thereto. There are no adjustments that
would be required on audit of the Unaudited Statements that would,
individually or in the aggregate, have a material negative effect upon the
Seller's reported financial condition.
2.7 No Undisclosed Liabilities. Except for liabilities and
obligations incurred in the ordinary course of business since December 31,
1992 (the "Statement Date"), the Seller is not subject to any material
liability or obligation that was required to be included or adequately
reserved against in the Unaudited Statements or described in the notes
thereto and was not so included, reserved against, or described.
2.8 Absence of Certain Changes. Except as contemplated or
permitted by this Agreement, since the Statement Date there has not been:
(a) Any material adverse change in the business, financial
condition, operations, or assets of the Seller or any Subsidiary;
(b) Any damage, destruction, or loss, whether covered by
insurance or not materially adversely affecting the properties or business of
the Seller;
(c) Any sale or transfer by the Seller of any tangible or
intangible asset other than in the ordinary course of business, any mortgage
or pledge or the creation of any security interest, lien, or encumbrance on
any such asset, or any lease of property, including equipment, other than in
the ordinary course of business;
(d) Any declaration, setting aside, or payment of a dividend
or other distribution in respect of, or the redemption or other repurchase by
the Seller of any capital stock of the Seller;
(e) Any transaction not in the ordinary course of business of
the Seller;
(f) The lapse of any material trademark, assumed name, trade
name, service mark, copyright, or license or any application with respect to
the foregoing;
(g) The grant of any general increase in the compensation of
officers or employees (including any such increase pursuant to any bonus,
pension, profit-sharing, or other plan or commitment) other than customary
increases on a periodic basis or required by agreement or understanding in
the ordinary course of business and in accordance with past practice;
(h) The discharge or satisfaction of any material lien or
encumbrance or the payment of any material liability other than current
liabilities in the ordinary course of business;
(i) The making of any loan, advance, or guaranty to or for
the benefit of any person other than a wholly-owned Subsidiary except the
creation of accounts receivable in the ordinary course of business; or
(j) An agreement to do any of the foregoing.
2.9 Title and Related Matters. Seller has good and marketable
title to all of its property and assets included in the Unaudited Statements,
free and clear of all security interests, mortgages, liens, pledges, charges,
claims, or encumbrances of any kind or character, except (i) statutory liens
for property taxes not yet delinquent or payable subsequent to the date of
this Agreement and statutory or common-law liens securing the payment or per-
formance of any obligation of the Seller, the payment or performance of which
is not delinquent, or that is payable without interest or penalty subsequent
to the date on which this representation is given, or the validity of which
is being contested in good faith by the Seller; (ii) claims, easements,
liens, and other encumbrances of record pursuant to filings under real
property recording statutes; and (iii) as described in the Unaudited
Statements or the notes thereto.
2.10 Litigation. Except for the matter "Coos-Curry Electric
Cooperative, Inc. v. Wilson's Distribution Service, Inc., C & K Market, Inc.,
et al, there are no actions, suits, proceedings, orders, investigations, or
claims pending, or, to the best of the Seller's knowledge, overtly threatened
against the Seller or any property of either, at law or in equity, or before
or by any governmental department, commission, board, bureau, agency, or
instrumentality; Seller is not subject to any arbitration proceedings under
collective bargaining agreements, or otherwise or, to the best of the
Seller's knowledge, any governmental investigations or inquiries; and, to the
best knowledge of the directors and responsible officers of Seller, there is
no basis for any of the foregoing.
2.11 Tax Matters. Seller has filed all United States, state,
local, and foreign tax returns and reports heretofore required to be filed by
it and has paid all taxes shown as due thereon; and no taxing authority has
asserted any deficiency in the payment of any tax or informed the Seller that
it intends to assert any such deficiency or to make any audit or other
investigation of the Seller for the purpose of determining whether such a
deficiency should be asserted against the Seller.
2.12 Compliance with Laws. Seller is, in the conduct of its
business, in compliance with all laws, statutes, ordinances, regulations,
orders, judgments, or decrees applicable to it, the enforcement of which, if
the Seller was not in compliance therewith, would have a materially adverse
effect on the business of the Seller, taken as a whole. Seller has not
received any notice of any asserted present or past failure by the Seller to
comply with such laws, statutes, ordinances, regulations, orders, judgments,
or decrees.
2.13 Insurance. Seller is not in material default with respect to
its obligations under any insurance policy maintained by it.
2.14 Employees and Labor Relations Matters.
(a) Seller is not aware that any executive or key employee of
the Seller or any group of employees of the Seller has any plans to terminate
employment with Seller;
(b) Seller has complied in all material respects with all
labor and employment laws, including provisions thereof relating to wages,
hours, equal opportunity, collective bargaining, and the payment of social
security and other taxes;
(c) There is no unfair labor practice charge, complaint, or
other action against the Seller pending or, to the Seller's best knowledge,
threatened before the National Labor Relations Board and the Seller is not
subject to any order to bargain by the National Labor Relations Board;
(d) There is no labor strike, dispute, request for
representation, slowdown, or stoppage pending or, to the Seller's best
knowledge, threatened against the Seller, except for Central Point, Oregon,
bakery deli department;
(e) No questions concerning representation have been raised
or, to Seller's best knowledge, are threatened with respect to employees of
the Seller, except for Central Point, Oregon, bakery deli department;
(f) No grievance that might have a material adverse effect on
the Seller and no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and, to the best knowledge of the
directors and responsible officers of the Seller, no basis exists for any
such grievance or arbitration proceeding; and
(g) To the best knowledge of the directors and responsible
officers of the Seller, no employee of the Seller is subject to any
noncompetition, nondisclosure, confidentiality, employment, consulting, or
similar agreements with persons other than the Seller relating to the present
business activities of the Seller.
2.15 Disclosure. Neither this Agreement nor any of the schedules,
attachments, written statements, documents, certificates, or other items
prepared or supplied to Buyer by or on behalf of the Seller with respect to
the Purchase contain any untrue statement of a material fact or omit a
material fact necessary to make each statement contained herein or therein
not misleading. No responsible officer or director of the Seller has
intentionally concealed any fact known by such person to have a material
adverse effect upon the existing or expected financial condition, operating
results, assets, customer relations, employee relations, or business
prospects of the Seller, taken as a whole.
2.16 Power of Attorney. No material power of attorney or similar
authorization given by the Seller is presently in effect or outstanding.
2.17 Accounts Receivable. All accounts receivable of the Seller
reflected in the Unaudited Statements represent bona fide sales and vendor
allowances arising in the ordinary course of business.
2.18 Contracts and Commitments.
(a) The Seller has no collective bargaining or union
contracts agreement in effect or being negotiated;
(b) The Seller is not in material default under any
Contracts, nor, to the Seller's best knowledge, does there exist any event
that, with notice or the passage of time or both, would constitute a material
default or event of default by the Seller under any Contracts.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to Seller to enter into this Agreement and sell
the Shares, Buyer hereby represents and warrants to Seller as follows:
3.1 Organization; Power. Buyer is a corporation duly incorporated
and validly existing under the laws of the state of Oregon, and has all
requisite corporate power and authority to enter into this Agreement and
perform its obligations hereunder.
3.2 Authorization. The execution, delivery, and performance by
Buyer of this Agreement and all other agreements contemplated hereby to which
Buyer is a party have been duly and validly authorized by all necessary
corporate action of Buyer, and this Agreement and each such other agreement,
when executed and delivered by the parties thereto, will constitute the
legal, valid, and binding obligation of Buyer enforceable against it in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, and similar statutes affecting creditors'
rights generally and judicial limits on equitable remedies.
3.3 No Conflict with Other Instruments or Agreements. The
execution, delivery, and performance by Buyer of this Agreement and all other
agreements contemplated hereby to which Buyer is a party will not result in a
breach or violation of, or constitute a default under, its Articles of
Incorporation or Bylaws or any material agreement to which Buyer is a party
or by which Buyer is bound.
3.4 Governmental Authorities. Except as set forth in Schedule
"3.4," (i) Buyer is not required to submit any notice, report, or other
filing with any governmental or regulatory authority in connection with the
execution and delivery by Buyer of this Agreement and the consummation of the
purchase; and (ii) no consent, approval, or authorization of any governmental
or regulatory authority is required to be obtained by Buyer or any affiliate
in connection with Buyer's execution, delivery, and performance of this
Agreement and the consummation of the Purchase.
3.5 Litigation. There are no actions, suits, proceedings, or
governmental investigations or inquiries pending or, to the knowledge of
Buyer, threatened against Buyer or its properties, assets, operations, or
businesses that might delay, prevent, or hinder the consummation of the
Purchase.
3.6 Investment Representations.
(a) Buyer is acquiring the Shares for its own account with
the intention of holding such securities for purposes of investment, and
Buyer has no intention of selling such securities in a public distribution in
violation of the United States securities laws or any applicable state
securities laws. During the course of the negotiation of this Agreement,
Buyer has reviewed all information provided to it by the Seller and has had
the opportunity to ask questions of and receive answers from representatives
of the Seller concerning the Seller, the securities offered and sold hereby,
and the Purchase, and to obtain certain additional information requested by
Buyer.
(b) Buyer understands that the Shares to be purchased have
not been registered under the Securities Act of 1933 as amended (the
"Securities Act"), by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein.
(c) Buyer understands that the Shares cannot be resold in a
transaction to which the Securities Act applies unless subsequently
registered under the Securities Act or an exemption from such registration is
available. Buyer is aware of the provisions of Rule 144 promulgated under
the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions.
(d) Buyer understands that no public market now exists for
any of the securities issued by the Seller and that it is uncertain that a
public market will ever exist for the Shares.
(e) Buyer understands that the certificates for the Shares
will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISPOSITION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(f) Buyer acknowledges that the Shares acquired herein will
be further subject to a Buy Sell Agreement between Seller and Seller's
shareholders, a copy of which is attached hereto, marked as Schedule
"3.6(f)," and by this reference incorporated herein.
3.7 Brokerage. There are no claims for brokerage commissions,
finders' fees, or similar compensation in connection with the Purchase based
on any arrangement or agreement entered into by Buyer and binding upon
Seller.
3.8 Option to Seller to Repurchase Shares. In the event Seller
has performed all of its obligations under this Agreement and is not in
breach thereof and no condition exists that, with the giving of notice or
lapse of time or both, would constitute a breach or default under this
Agreement or any other agreement between the parties hereto, including, but
not limited to, those arising from Seller's purchase of goods from Buyer and
provided Seller has performed all of its obligations to United Resources,
Inc., then Seller is granted an option to repurchase the 145,256 Shares of
stock. This option granted to Seller to repurchase may not be exercised
prior to June 30, 2001. Notification of Seller's exercise of said option
shall be in writing, addressed to Buyer in care of its President. The
purchase price will be Buyer's original cost, plus 22 percent of the accumu-
lated net earnings after date of this Agreement or Seller's original cost,
plus 12 percent per annum, compounded annually, whichever amount is greater.
Payment shall be in cash payable to Buyer within 30 days of exercise of the
option. If, however, notwithstanding the foregoing, Seller shall become a
party to an initial public offering ("IPO") within 12 months following its
repurchase of the Shares in accordance with its option, and the consideration
received by Seller for its Shares pursuant to said IPO is greater than the
consideration paid Buyer for its Shares under the option, then, in that
event, Buyer shall be paid the higher price for the Shares repurchased by
Seller. Payment of such greater price shall be paid to Buyer within 60 days
following receipt by Seller of such greater sum.
3.9 Option to Buyer to Purchase Additional Shares. So long as
Buyer shall be a shareholder of Seller, in the event Seller desires to issue
any additional shares of stock, or in the event any of Seller's shareholders
desire to sell, assign or transfer any of their stock in Seller, then, in
that event, Seller or Seller's shareholders shall first offer unto Buyer the
right of first refusal to purchase said shares upon such terms and conditions
as the selling or transferring party is prepared to sell to a third party or
parties, net of any fees or commissions which would otherwise be charged.
Seller or its shareholders shall provide Buyer with written notice of the
intended transfer. Said notice shall specify the number of shares offered,
the Purchase Price and terms for payment. Seller or its shareholders shall
also provide to Buyer all documents, instruments, agreements, offers,
appraisals, inventories, equipment lists, financial statements, and such
other material and information as Buyer may reasonably request to aid in its
decision to exercise or decline to purchase as herein provided. Buyer shall
have a period of 45 days from date of receipt of such written notice to
accept or reject such offer. Acceptance or rejection of the offer by Buyer
shall be evidenced by written notice from Buyer to the intended transferor
within the above specified 45 day period. If Buyer elects to purchase such
shares, Buyer shall be irrevocably obligated to purchase upon the specified
terms contained in Seller's or Seller's shareholder's notice. Closing of the
transaction shall be within 60 days from date of Buyer's acceptance. Seller
or its shareholders shall provide documentation for the transfer in form
acceptable to Buyer representing and warranting that title to the transferred
stock is free and clear of all liens and encumbrances and that the selling
party has requisite authority to make the transfer. If Buyer elects not to
purchase, then Seller or its shareholders will be free to transfer the
offered shares to a third party on the identical terms offered to Buyer.
(a) Notwithstanding the foregoing, it is acknowledged by and
between the parties hereto that a transfer, by gift or as a result of death,
of ownership of the stock owned by Raymond Nidiffer and/or June Nidiffer to
his or her lawful issue is permitted; provided such issue transferee holds
such stock subject to the terms of this Agreement and the heretofore
referenced Buy Sell Agreement marked as Schedule "3.6(f)."
SECTION 4. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer under this Agreement is subject to
the satisfaction, at or before the Closing, of each of the following
conditions:
4.1 Representations and Warranties; Performance. Each of the
representations and warranties made by the Company herein will be true and
correct in all material respects as of the Closing with the same effect as
though made at that time except for changes contemplated, permitted, or
required by this Agreement; Seller and the Company will have performed and
complied with all agreements, covenants, and conditions required by this
Agreement to be performed and complied with by them prior to the Closing; and
Buyer will have received, at the Closing, a certificate of the Company and
Seller, signed by the President and the Chief Financial Officer of the
Company and Seller, stating that each of the representations and warranties
made by the Company herein is true and correct in all material respects as of
the Closing, except for changes contemplated, permitted, or required by this
Agreement and that Seller and the Company have performed and complied with
all agreements, covenants, and conditions required by this Agreement to be
performed and complied with by them prior to the Closing.
4.2 No Proceeding or Litigation. No action, suit, or proceeding
before any court or any governmental or regulatory authority will have been
commenced and be continuing, and no investigation by any governmental or
regulatory authority will have been commenced and be continuing, and no
action, investigation, suit, or proceeding will be threatened at the time of
Closing, against Seller, the Company, or Buyer or any of their affiliates,
associates, officers, or directors, seeking to restrain, prevent, or change
the Purchase, questioning the validity or legality of the Purchase, or
seeking damages in connection with the Purchase.
4.3 Material Change. From the date of this Agreement to the
Closing, the Company shall not have suffered any material adverse change
(whether or not such change is referred to or described in any supplement to
any Schedule to this Agreement) in its business prospects, financial
condition, working capital, assets, liabilities (absolute, accrued,
contingent, or otherwise), or operations.
4.4 Corporate Action. Seller will have furnished to Buyer on
Buyer's request:
(a) The corporate charter and all amendments thereto and
restatements thereof of the Seller certified by the official having custody
over corporate records in the jurisdiction of incorporation of the
corporation in question;
(b) The current Bylaws and minutes of all meetings and
consents of shareholders and directors of the Seller;
(c) Each certificate of qualification to do business as a
foreign corporation of the Seller;
(d) All stock transaction records of the Seller; and
(e) A certificate of the Secretary or Assistant Secretary of
the Seller as to the accuracy, currency, and completeness of each of the
above documents, the incumbency and signatures of officers of the Seller, the
absence of any amendment to the charter documents of the Seller, and the
absence of any proceeding for dissolution or liquidation of the Seller.
SECTION 5. TERMINATION
5.1 Termination Without Cause. Anything herein or elsewhere to
the contrary notwithstanding, this Agreement may be terminated and abandoned
at any time without further obligation or liability on the part of any party
in favor of any other by mutual consent of Buyer and Seller.
5.2 Termination Procedure. Any party having the right to
terminate this Agreement may terminate this Agreement by delivering to the
other party written notice of termination, and thereupon, this Agreement will
be terminated without obligation or liability of any party in favor of any
other party.
SECTION 6. RIGHT OF FIRST REFUSAL
If and whenever, so long as Buyer is a shareholder of Seller, the Seller
proposes to sell or dispose of all or any part of its authorized, but
unissued stock, Seller will first offer to sell such shares to the Buyer upon
such terms, conditions and price as it will propose to any third party. The
offer shall be in writing and shall remain open for acceptance by Buyer for a
period of not less than 45 days from date of the written notice of the offer.
If the offer is not accepted by Buyer upon the expiration of the 45 day
period, Seller shall then be free to dispose of the shares not purchased by
Buyer.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 Public Announcements. No press release or other announcement
to the employees, customers, or suppliers of the Company related to this
Agreement or the Purchase will be issued without the joint approval of Buyer
and Seller, unless required by law, in which case Buyer and Seller will
consult with each other regarding the announcement.
7.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by a written
agreement signed by Buyer and Seller.
7.3 Waiver of Compliance; Consents.
(a) Any failure of any party to comply with any obligation,
covenant, agreement, or condition herein may be waived by the party entitled
to the performance of such obligation, covenant, or agreement or who has the
benefit of such condition, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement, or condition will not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
(b) Whenever this Agreement requires or permits consent by or
on behalf of any party hereto, such consent will be given in a manner
consistent with the requirements for a waiver of compliance as set forth
above.
7.4 Notices. All notices, requests, demands, and other
communications required or permitted hereunder will be in writing and will be
deemed to have been duly given when delivered by hand or two days after being
mailed by certified or registered mail, return receipt requested, with
postage prepaid:
If to Buyer:
United Grocers, Inc.
PO Box 22187
Portland OR 97269-2187
or to such other person or address as Buyer furnishes to Seller pursuant to
the above.
If to Seller:
C & K Market, Inc.
PO Box 730
Brookings OR 97415
or to such other address as Seller furnishes to Buyer pursuant to the above.
7.5 Assignment. This Agreement will not be assigned by a party
hereto without the prior written consent of the other parties hereto. No
permitted assignment will release the assignor from its obligations
hereunder. Subject to the foregoing, this Agreement and all of the
provisions hereof will be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs, executors,
and personal representatives. Nothing in the Agreement, express or implied,
is intended to confer on any person other than the parties hereto, or their
respective successors, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement.
7.6 Governing Law. All matters with respect to this Agreement,
including, but not limited to, matters of validity, construction, effect, and
performance, will be governed by the laws of the State of Oregon applicable
to contracts made and to be performed therein between residents thereof,
regardless of the laws that might be applicable under principles of conflicts
of law.
7.7 Counterparts. This Agreement may be executed in two or more
fully or partially executed counterparts, each of which will be deemed an
original binding the signer thereof against the other signing parties, but
all counterparts together will constitute one and the same instrument.
7.8 Certain Rules of Construction. The provisions of this
Agreement have been examined, negotiated, and revised by counsel for each
party, and no implication will be drawn against any party hereto by virtue of
the drafting of this Agreement.
7.9 Entire Agreement. This Agreement and any other document to be
furnished pursuant to the provisions hereof embody the entire agreement and
understanding of the parties hereto as to the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants, or undertakings other than those expressly set forth or referred
to in such documents. This Agreement and such documents supersede all prior
agreements and understandings among the parties with respect to the subject
matter hereof.
7.10 Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement, or affecting the validity or
enforceability of any of the terms or provisions of this Agreement.
7.11 Attorney Fees. If any action is brought by any party to this
Agreement to enforce or interpret its terms or provisions, the prevailing
party will be entitled to reasonable attorney fees and costs incurred in
connection with such action prior to and at trial and on any appeal
therefrom.
7.12 Payment of Fees and Expenses. Each party to this Agreement
will be responsible for, and will pay, all of its own fees and expenses,
including those of its counsel and accountants, incurred in the negotiation,
preparation, and consummation of the Agreement and the Purchase.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
Seller: C & K Market, Inc.
By Raymond L. Nidiffer
Title: President
Buyer: United Grocers, Inc.
By Alan C. Jones
Title: President
<PAGE>
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT is entered into this 4th day of May, 1994 by and
between UNITED GROCERS, INC., an Oregon corporation, hereinafter designated
as Sublessor, and DAN INC OREGON, an Oregon corporation, hereinafter
designated as Sublessee.
W I T N E S S E T H:
WHEREAS, PORTLAND FIXTURE CO., an Oregon corporation, leased certain
premises containing approximately 30,000 square feet located in a shopping
center at Highway 26, Sandy, Oregon to J.L.B. INVESTMENTS, BRUCE EDWARD
BOWMAN and certain others by Lease Agreement dated December 1, 1983. The
tenant's interest in the lease was assigned to Sublessor by document dated
December 17, 1987. SANDY DEVELOPMENT CO., an Oregon corporation ("Prime
Lessor") is now the holder of the lessor's interest in the lease. The lease
together with the Lease Amendment are hereinafter designated as "the Prime
Lease" or "Exhibit A" and by this reference are incorporated herein as if
their terms and conditions were set forth herein.
WHEREAS, Sublessee desires to sublet said premises for a period of
approximately eleven (11) years with certain renewal rights as provided in
the Prime Lease and Sublessor is willing to so sublet in accordance with the
terms and conditions hereinafter set forth; now, therefore,
IT IS HEREBY AGREED as follows:
1. Term.
1.1 Sublessor hereby sublets unto Sublessee those premises
described in said Exhibit A, for the remainder of the term of the Prime
Lease, which is approximately eleven (11) years, commencing on May 4, 1994.
1.2 The Sublessee, so long as it is not in default hereunder,
shall be granted the right to exercise any and all renewal options contained
in Exhibit A, upon the condition that Sublessee is not in default of this
Sublease, and upon the further condition that Sublessee exercise its
option(s) no later than 30 days prior to the deadline for exercise under the
Prime Lease.
2. Rent.
2.1 Sublessee covenants and agrees to pay for the whole of said
term: (1) the rents set forth on the attached Exhibit B including basic rent
and percentage rent, which rents shall be paid to Sublessor, plus (2) all
affirmative covenants of the tenant contained in the Prime Lease including,
without limitation, those pertaining to taxes, assessments, insurance and all
of the covenants and obligations to be performed by the tenant, as set forth
in said Exhibit A, which shall be paid and performed directly to the Prime
Lessor, EXCEPT those covenants in the Prime Lease pertaining to basic rent
and additional rent based on percentage of gross sales ("Percentage Rent"),
which Sublessee shall have no obligation to pay.
2.2 Sublessor shall pay to the Prime Lessor promptly when due, all
payments of basic rent and of Percentage Rent which become due under the
Prime Lease during the lease term and any renewal terms. Sublessee shall
deliver to Sublessor a written statement of its gross receipts in the
premises (as defined on the attached Exhibit B) annually or more often if
required by the terms of the Prime Lease.
3. Deposits and Prorates.
3.1 Sublessee shall, upon execution hereof, pay any and all rental
or security deposits, as required pursuant to the terms and conditions of
said Exhibit A.
3.2 Real property taxes and assessments, common areaa maintenance
charges and any other nonrent payments required to be made under the Prime
Lease shall be prorated between the parties on a daily basis as of May 4,
1994.
4. Prime Lease. Sublessee shall be bound by and have the benefit of
the same responsibilities, rights, privileges and duties of Sublessor, as
enumerated in Exhibit A, except for the duty to pay basic rent and Percentage
Rent pursuant to Exhibit A, and covenants and agrees to fully indemnify and
hold Sublessor harmless from any and all responsibility and/or liability
which Sublessor may incur by virtue of said Exhibit A, and/or Sublessee's
occupancy of the premises during the term and any renewals of this Sublease
except with respect to payment of basic rent and Percentage Rent due pursuant
to Exhibit A. Furthermore, Sublessee shall be bound by any subsequent
amendment, revision, supplement or addition to the Prime Lease but Sublessor
shall not enter into any subsequent amendment, revision, supplement or
addition to the Prime Lease without the prior written consent of Sublessee,
which consent shall not be unreasonably withheld so long as the proposed
amendment does not adversely impact Sublessee.
5. Default. The following shall constitute a default under this
Sublease:
5.1 Any failure by Sublessee to pay rent pursuant to Exhibit B
when due; or any failure of Sublessee to pay any amount due under the Prime
Lease (other than basic rent and Percentage Rent), or to perform when due any
other nonrent obligation of Sublessor under the Prime Lease, or any other
nonrent default under the Prime Lease, any of which continues for up to 70
percent of the cure period provided with respect thereto in the Prime Lease;
Sublessor covenants and agrees that upon receipt from the Prime Lessor of any
notice of default or alleged default to promptly supply Sublessee with a copy
of said notice;
5.2 Any failure by Sublessee to perform when due any other
obligations of Sublessee hereunder within thirty (30) days after written
notice of said default except that if the failure cannot reasonably be
corrected within 30 days the Sublessee shall not be in default if Sublessee
promptly begins to correct the failure and continues to pursue such
correction to completion;
5.3 If any warranty, representation or statement made or furnished
to Sublessor by or on behalf of the Sublessee in connection with this
Sublease is false in any material respect when made or furnished;
5.4 Sublessee vacates, abandons or fails continuously to occupy
and to conduct its business on the leased premises, except as caused by a
strike, remodeling first approved by Sublessor, Act of God, or other cause
beyond the reasonable control of Sublessee or termination of this Sublease by
mutual agreement or pursuant to other agreements between the parties;
Sublessor shall respond within fifteen (15) working days to any notice from
Sublessee requesting consent to remodeling, which shall not be unreasonably
withheld, or Sublessor shall be deemed to have consented;
5.5 Sublessee makes a general assignment for the benefit of
creditors; admits in writing its inability to pay its debts as they become
due; files a petition in bankruptcy; is adjudicated a bankrupt or insolvent;
files a petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present
or future statute, law or regulation; fails timely to contest the material
allegations of a petition filed against it in any bankruptcy proceeding, or
seeks, consents to or acquiesces in the appointment of any trustee, receiver
or liquidator of Sublessee or any material part of its properties.
5.6 Any failure by Sublessee to pay and/or satisfy within 20 days
after written notice to Sublessee specifying the failure with reasonable
particularity, any present or hereafter incurred indebtedness or obligation
of Sublessee to Sublessor with respect to the retail operation upon the
premises which exceeds $75,000 and arises from Sublessor's or United
Resources Inc.'s extensions of credit to Sublessee.
6. Remedies. In the event of any default under this Sublease:
6.1 Sublessor shall have the right, at its election, upon notice
to Sublessee, to terminate this Sublease or to terminate Sublessee's right of
possession in the premises without terminating this Sublease;
6.2 Sublessor shall have the immediate right, whether or not the
Sublease shall have been terminated pursuant to Paragraph 6.1, to re-enter
and repossess the premises or any part thereof by force, summary proceedings,
ejectment or any other legal or equitable process, all without any liability
on Sublessor's part for such entry, repossession or removal;
6.3 Sublessor may, whether or not this Sublease shall have been
terminated pursuant to Paragraph 6.1, resublet the premises, or any part
thereof, in the name of Sublessee, Sublessor or otherwise, without notice to
Sublessee, for such term or terms and for such uses as Sublessor, in its
reasonable discretion, may determine and may collect and receive rents
payable by reason of such resubletting (without any liability for any failure
to collect such rents). Notwithstanding the foregoing, the Sublessor shall
be subject to such common law duties of mitigation of damages, if any, as are
imposed upon the Prime Lessor;
6.4 Sublessor may (but shall be under no obligation to) procure
any insurance, pay any rentals, taxes or liens, make any repairs, pay any
sums required to be paid, and to do and perform such other acts as may be
required of Sublessee hereunder, and any payments so made shall bear interest
at the rate of 12 percent per annum from the time of such payment until
repaid;
6.5 Sublessor may exercise any and all other rights and remedies
afforded to the Prime Lessor upon default under the Prime Lease and any and
all other rights and remedies Sublessor may have pursuant to the laws of the
State of Oregon. In addition to the other remedies provided above, Sublessor
shall be entitled to current damages and final damages as provided in
Paragraph 7 below, and, to the extent permitted by applicable law, to
injunctive relief in case of the violation, or attempted or threatened
violation, of any of the provisions of this Sublease, or to a decree
compelling performance of this Sublease. Notwithstanding the above,
Sublessor shall not be entitled to double damages; and 6.6 No
expiration or termination of this Sublease, repossession of the premises or
any part thereof, or resubletting to the above paragraph or by operation of
law or otherwise, shall relieve Sublessee of its liabilities and obligations
under this Sublease, all of which shall survive such expiration, termination,
repossession or resubletting.
7. Damages.
7.1 Current Damages. In the event of any expiration or
termination of this Sublease or repossession of the premises or any part
thereof by reason of the occurrence of any event of default, Sublessee will
pay to Sublessor the rent and other sums required to be paid by Sublessee for
the period to and including the date of such expiration, termination or
repossession; and thereafter, until the end of what would have been the term
in the absence of such expiration, termination or repossession, and whether
or not the premises or any part thereof shall have been resublet, Sublessee
shall be liable to Sublessor for, and shall pay to Sublessor, as liquidated
and agreed current damages the rent and other sums which would be payable
under this Sublease by Sublessee in the absence of such expiration,
termination or repossession, less the net proceeds, if any of any
resubletting effected for the account of the Sublessee, after deducting from
such proceeds all of Sublessor's expenses reasonably incurred in connection
with such resubletting (including, without limitation, all repossession
costs, brokerage commissions, legal expenses, attorney's fees, alteration
costs and expenses of preparation for such resubletting). Sublessee will pay
such current damages on the days on which rent would have been payable under
this Sublease in the absence of such expiration, termination or repossession,
and Sublessor shall be entitled to recover the same from Sublessee on each
such day.
7.2 Final Damages. At any time after any such expiration or
termination of this Sublease or repossession of the premises or any part
thereof by reason of the occurrence of any event of default, whether or not
Sublessor shall have collected any current damages pursuant to Paragraph 7.1,
Sublessor shall be entitled to recover from Sublessee, and Sublessee will pay
to Sublessor on demand, as and for liquidated and agreed final damages for
Sublessee's default and in lieu of all current damages beyond the date of
such demand (it being agreed that it would be impracticable or extremely
difficult to fix the actual damages), an amount equal to the excess, if any
of (a) the rent and other sums which would be payable under this Sublease
from the date of such demand (or, if it be earlier, the date to which
Sublessee shall have satisfied in full its obligations under Paragraph 7.1 to
pay current damages) for what would be the then unexpired term in the absence
of such expiration, termination or repossession, discounted to present value
at an assumed interest rate of ten percent (10%) per annum, over (b) the then
net rental value of the premises discounted to present value at an assumed
interest rate of ten percent (10%) per annum for the same period. Rental
value shall be established by reference to the terms and conditions upon
which Sublessor resublets the premises if such resubletting is accomplished
within a reasonable period of time after such expiration, termination or
repossession, and otherwise established on the basis of Sublessor's estimates
and assumptions of fact regarding market and other relevant circumstances,
which shall govern unless shown to be erroneous. If any statute or rule of
law shall validly limit the amount of such liquidated final damages to less
than the amount above agreed upon, Sublessor shall be entitled to the maximum
amount allowable under such statute or rule of law. 8. Rights
Cumulative, Nonwaiver. No right or remedy herein conferred upon or reserved
to Sublessor is intended to be exclusive of any other right or remedy, and
each and every right and remedy shall be cumulative and in addition to any
other right or remedy given hereunder or now or hereafter existing at law or
in equity or by statute. The failure of Sublessor to insist at any time upon
the strict performance of any covenant or agreement or to exercise any
option, right, power or remedy contained in this Sublease shall not be
construed as a waiver or relinquishment thereof for the future. No waiver by
Sublessor of any provision of this Sublease shall be deemed to have been made
whether due to receipt of rent or otherwise, unless expressed in writing and
signed by Sublessor.
9. Assignment and Subletting. Sublessee acknowledges that provisions
for assignment and subletting in the Prime Lease are applicable to the Prime
Lessor and Sublessor only. Except as provided below Sublessee will not
assign this Sublease or sublet in excess of 6,000 square feet of the premises
without the prior written consent of Sublessor, which consent shall not be
unreasonably withheld. A transfer of ownership of a majority of the issued
and outstanding stock in Sublessee, by whatever procedure, shall be deemed an
assignment of this Sublease for the purposes of this paragraph except that
transfers by sale, gift, exchange or as a result of the death of a
shareholder to the spouses and/or children of a shareholder or transfers to a
corporation, partnership, estate, trust or other entity which is controlled
by one or more shareholders of Sublessee and/or their spouses or children or
transfers between existing shareholders shall not be deemed to be an
assignment of this Sublease. For purposes of this paragraph existing
shareholders of Sublessee are G. T. Danielson, Craig T Danielson and Carol D.
Suzuki.
10. Covenants, Representations and Warranties.
10.1 Membership in Sublessor. Sublessee agrees to maintain or
cause to be maintained the membership of the store in good standing with
Sublessor during the Sublease term and any renewal terms.
10.2 Payment of Rent by Sublessor; Indemnity. Sublessor shall pay
all basic rent and Percentage Rent payments to the Prime Lessor promptly when
due under the Prime Lease. Sublessor shall indemnify and defend Sublessee
and hold it harmless from any claim, loss, liability or expense arising out
of or caused by Sublessor's failure to make all such payments promptly when
due, including without limitation all costs, attorney's fees, lost profits,
expenses and damages incurred by Sublessee.
10.3 Payment by Sublessee. If Sublessor fails to make any payment
of basic rent or Percentage Rent to the Prime Lessor promptly when due,
Sublessee may elect but shall not be obligated to make the payment. All
amounts so paid by Sublessee shall be credited against any sums then or later
owed by Sublessee to Sublessor including without limitation rents owed
pursuant to this Sublease and payments for merchandise purchased from
Sublessor for this or other stores.
10.4 No Commissions. Each of the parties hereto represent and
warrant that there are no brokers, finders or other persons entitled to any
fee, commission or other compensation in connection with this Sublease, and
agree to hold the other party harmless from any claims for such fees,
commissions and/or compensation.
10.5 Accuracy. Sublessor hereby represents and warrants to
Sublessee that any financial statements, appraisals and other documents
submitted to Sublessee in connection with Sublessee's investigation of the
business on the premises and decision to enter into this Sublease are true,
correct, complete and accurate in every respect and that said financial
statements fairly and accurately present the assets, liabilities, financial
condition and results of operations reflected therein.
10.6 Quiet Enjoyment. Sublessor represents and warrants to
Sublessee that Sublessor has the right to sublease the premises to Sublessee
and that so long as Sublessee is not in default of this Sublease it shall
have quiet possession of the premises free of any claim or interference by
others.
11. Security Agreement.
11.1 Grant, Collateral and Obligations. Sublessee and Sublessor
agree that this Sublease shall constitute a security agreement within the
meaning of the Oregon Uniform Commercial Code (hereinafter referred to as the
"Code") with respect to:
11.1.1 Required cash deposits (as defined in the bylaws of
Sublessor) presently or hereafter held by or deposited with Sublessor by
Sublessee with respect to the store on the premises;
11.1.2 Any and all capital stock holdings or proceeds
therefrom, patronage rebates and rebate notes representing patronage rebates
(as defined in bylaws of Sublessor) earned or hereafter earned by reason of
patronage of Sublessor by Sublessee with respect to the store on the
premises;
11.1.3 All replacements or substitutions for, and additions
to the foregoing, and the proceeds thereof (all of said personal property and
the replacements, substitutions and additions thereto and the proceeds
thereof being sometimes hereinafter collectively referred to as the
"Collateral"), and that a security interest in and to the Collateral is
hereby granted to the Sublessor, and all of the Sublessee's right, title and
interest therein are hereby assigned to the Sublessor, all to secure all
presently existing or hereafter incurred direct, indirect, absolute and
contingent indebtedness, liabilities and other obligations of Sublessee to
Sublessor which arise out of and are incident to this Sublease Agreement
(referred to as "the Obligations" herein) including, but not limited to, the
payment of all rent and other sums and the performance of all other
obligations of Sublessee under this Sublease, all renewals and extensions
thereof, and all costs of collection, legal expenses and attorney's fees paid
or incurred by Sublessor in enforcing any rights in respect to the
Obligations or in connection with assembling, collecting, selling or
otherwise dealing with or realizing upon the Collateral. Notwithstanding the
foregoing, so long as Sublessee is not in default hereunder, the cash portion
of all patronage rebates and rebate notes shall be paid to Sublessee.
11.2 Security Agreement Warranties. In addition to and without
limiting the force or effect of any other covenants, representations and
warranties of Sublessee contained in this Sublease, Sublessee hereby
covenants, represents and warrants to and with Sublessor as follows:
11.2.1 Sublessee is the owner of the Collateral free and
clear of all liens, security interests and encumbrances of every kind and
description, except liens, security interests and encumbrances securing
indebtedness to Sublessor.
11.2.2 Sublessee will not sell, dispose of, encumber or
permit any other security interest, lien or encumbrance to attach to the
Collateral.
11.3 Additional Remedies. Upon any default hereunder by Sublessee
and at any time thereafter if such default has not previously been cured,
Sublessor at its option may declare all Obligations of Sublessee which are
directly related to the store on the premises immediately due and payable to
the extent they would be due under the document or instrument evidencing each
obligation and shall have the remedies of a secured party under the Code,
including without limitation the right to take immediate and exclusive
possession of the Collateral.
11.4 Financing Statements. Sublessee will at its own costs and
expense, upon demand, furnish to Sublessor such financing statements and
other documents in form satisfactory to Sublessor and will do all other such
acts and things as Sublessor may at any time or from time to time request or
as may be necessary or appropriate to establish and maintain a perfected
security interest in the Collateral.
12. Attorneys' Fees. In the event of the institution of any suit or
action to terminate this Sublease, or to interpret or enforce the terms or
provisions hereto, the nonprevailing party shall and does hereby agree to pay
to the prevailing party, in addition to the costs and disbursements provided
by statute, reasonable attorneys' fees in such proceedings or on any appeal
from any judgment or decree entered therein.
13. Notices. Any notice or demand required or permitted to be given
under this Sublease shall be deemed to have been properly given when, and
only when, the same is in writing and has been deposited in the United States
mail, with postage prepaid, to be forwarded by registered or certified mail
and addressed to the party to be notified at the address appearing below.
Such addresses may be changed from time to time by serving of notice as above
provided.
SUBLESSOR With a Copy to:
United Grocers, Inc. John H. Arenz, Esq.
6433 S.E. Lake Road Benson, Arenz, Lucas & Hay
P. O. Box 22187 1140 One Pacific Square
Portland, OR 97222 220 N.W. Second Avenue
Portland, OR 97209
SUBLESSEE With a Copy to:
Dan Inc Oregon Joy D. Abele, Esq.
P. O. Box 5490 P. O. Box 708
Oregon City, OR 97045 Oregon City, OR 97045
14. Purchase Requirement and Membership in Sublessor. See the attached
Exhibit C which is hereby incorporated.
IN WITNESS WHEREOF, the parties have executed the foregoing Sublease
Agreement the date and year first above written.
SUBLESSOR: UNITED GROCERS, INC.
By Alan C. Jones
Its President
SUBLESSEE: DAN INC OREGON
By Craig T. Danielson
Its President
<PAGE>
EXHIBIT B
RENT
1. Rent for the start of the Sublease term through December 31, 1995
shall be $6,000 per month.
2. Rent from January 1, 1996 through December 31, 1997 shall be a
basic rent of $7,000 per month plus one and one-half (1 1/2) percent of
Sublessee's annual gross receipts in the premises in excess of $6,240,000.
3. Rent from January 1, 1998 through the end of the lease term shall
be a basic rent of $8,000 per month plus one and one-half (1 1/2) percent of
Sublessee's annual gross receipts in the premises in excess of $7,280,000.
4. Basic rent shall be payable monthly in advance on the first day of
each month. Sublessee shall submit to Sublessor a statement of Sublessee's
annual gross receipts in the premises and shall pay the Percentage Rent due,
if any, annually within 60 days after the last Saturday of each calendar
year. Basic rent for the first and last months of the Sublease term shall be
prorated on a daily basis, and Percentage Rent shall be prorated on a daily
basis for the first and last years of the Sublease term.
5. Sublessee's gross receipts means all amounts received for all goods
and merchandise sold and all services furnished in, upon or from any part of
the premises by Sublessee or by any other person, firm or corporation but
shall exclude:
(a) All credits, returns and refunds made to customers for
merchandise refunded or exchanged, transfers to Sublessee's other locations,
and discounts to customers by trading stamps, coupons or otherwise;
(b) All settlements and claims received in settlements for loss of
merchandise;
(c) The amount of any sales tax or other excise tax imposed upon
the purchase and collected by Sublessee as an agent for the taxing authority
imposing the tax;
(d) Lottery and other chance game sales managed or established by
a governmental unit, stamp sales, money orders and deposits on returnable
containers; and
(e) All amounts paid to or retained by third parties as fees or
charges for the use by customers of credit cards.
6. Rent during the renewal term(s) shall be as agreed between the
parties.
<PAGE>
EXHIBIT C
14. Purchase Requirement and Membership in Sublessor.
14.1 Membership in Sublessor. Sublessee agrees to maintain or
cause to be maintained the membership of the store in good standing with
Sublessor except in the following circumstances:
(a) Upon payment to United of $100,000 at any time prior to
the fifth annual anniversary of the commencement date specified in
Paragraph 1.1 above, or
(b) At any time after a change from the identity of the
President or Chief Executive Officer of Sublessor from the holder of those
offices on the date of this sublease, or
(c) At any time after Sublessor consummates a reorganization.
The term "reorganization" shall mean a merger or consolidation with another
entity; dissolution; transfer of any significant portion of the assets of
Sublessor to another entity whether newly formed or not; sale or exchange or
other transfer of more than 49 percent of the outstanding shares of
membership in Sublessor to another person or entity; or the acquisition by
Sublessor of more than 49 percent of the outstanding shares or other
evidences of ownership or membership in any other entity; or
(d) At any time which is after the fifth annual anniversary
of the commencement dated specified in Paragraph 1.1 above.
14.2 Purchases From Sublessor. Sublessee agrees that throughout the
term of the sublease and any extensions or renewals thereof (except as
hereinafter provided), and subject to the provisions of Paragraphs (b) and
(c) below, Sublessee will purchase from Sublessor not less than sixty-four
percent (64%) of its total wholesale purchases on a monthly basis, of all
goods and merchandise purchased for resale on the premises to the extent that
Sublessor shall now or thereafter be able to supply such goods and
merchandise to the Sublessee, and Sublessor will supply all of Sublessee's
requirements at such prices and on such terms at least equal to the most
favorable prices and terms offered by Sublessor to other purchasers from
Sublessor.
(b) The following items purchased by Sublessee shall be
excluded form total wholesale purchases for purposes of calculating the
64 percent requirement:
(1) Items for which Sublessor is out of stock or which
are not stocked by Sublessor.
(2) Items purchased elsewhere by Sublessee for
90 percent or less of Sublessor's book price on the date of order by
Sublessee.
(3) Items purchased in order to meet a minimum required
order amount if the order is placed due to circumstances described in
the other sections of this Subparagraph (b).
(4) Items purchased directly from a pharmacy or hardware
wholesaler such as McKesson or Cotter & Co.
(5) Drop shipments, relays and specialized meat items.
(c) If, at any time, Sublessee contends that Sublessor is not
able to supply particular goods or merchandise customarily stocked by retail
supermarkets in Portland, Oregon, or that terms offered by Sublessor to
Sublessee are not at least equal to those offered by Sublessor to other
purchasers as described above, Sublessee shall so advise Sublessor in
writing, specifying such contention with particularity. If, within thirty
(30) days after receipt of such notice, Sublessor does not offer by written
notice to supply goods or merchandise so specified or does not demonstrate to
Sublessee that the terms and conditions offered are at least equal to those
offered to such other purchasers, Sublessee shall be free to secure such
specified goods and merchandise from any source which it desires. If
Sublessor demonstrates that it is offering equal terms and in fact is
offering equal terms, and Sublessee nonetheless purchases from another
source, such purchase shall be a breach of this paragraph.
<PAGE>
<PAGE>
EXHIBIT 10.G4
ASSET PURCHASE AND SALE AGREEMENT
May 4, 1994
THIS ASSET PURCHASE AND SALE AGREEMENT ("Agreement") is between UNITED
RESOURCES, INC., an Oregon corporation, ("Seller") DAN INC OREGON, an Oregon
corporation, ("Purchaser") and UNITED GROCERS, INC., an Oregon corporation,
("U.G.").
Seller has acquired the assets of a grocery store known as Sandy
Thriftway located at 36859 Highway 26, Sandy, Clackamas County, Oregon ("the
Store") as a creditor from SANDY THRIFTWAY, INC., an Oregon corporation and
___________________ MARCOTT, collectively ("Marcott"). Seller has not
operated the Store. The assets are located on premises ("Store Premises")
leased from SANDY DEVELOPMENT CO. by lease dated December 1, 1983 and
subsequently amended (the "Prime Lease") which was originally from Portland
Fixture Co. as Landlord to J.L.B. INVESTMENTS, BRUCE EDWARD BOWMAN and others
as tenants. The tenants' interest was assigned to U.G. by document dated
September 27, 1987. The landlord's interest in the Prime Lease is now held
by Sandy Development Co., an Oregon corporation.
Seller wishes to sell the assets to Purchaser, U.G. wishes to sublease
the Store Premises to Purchaser and Purchaser wishes to purchase the assets
and sublease the Store Premises.
In consideration of the covenants contained in this Agreement the
parties therefore agree as follows:
1. Assets Purchased. Subject to the terms and conditions of this
Agreement Seller agrees to sell to Purchaser, and Purchaser agrees to
purchase, all assets owned by Seller and used in the operation of the Store
including without limitation the following: 1.1 Inventory. All
merchantable inventory and all currently useable supplies located in the
Store on the date of closing; but excluding all outdated or unsalable items,
all unusable supplies and all seasonal items except those Purchaser
specifically elects to purchase ("the Inventory").
1.2 Equipment. All fixtures, equipment, leasehold improvements
and other items shown on the plan delivered to Purchaser, including without
limitation the items listed on the attached Exhibit A, together with any
other items of fixtures or equipment owned by Seller and used in the
operation of the Store which are not listed on the attached exhibit or plan
and together with any prepaid service or maintenance contracts on those items
("the Equipment").
1.3 Other Property. All other property of Seller, tangible or
intangible, which is reasonably necessary for, and used in, the operation of
the Store.
2. Price; Payment.
2.1 Inventory Price. The purchase price of the Inventory shall be
95 percent of the amount determined as follows but shall not exceed a total
of $300,000:
2.1.1 For Inventory on the sales floor, in the back room and
overstock, an amount equal to retail value determined as provided in
paragraph 3 below, less the following percentages which shall include
margins, allowances and CE/PI rebates:
Grocery Items 24%
Fresh Meat 25%
Produce 33%
Service Deli 40%
Service Bakery 50%
Dairy 20%
General Merchandise/Health and Beauty 30%
Frozen Foods 25%
Grocery Deli and Deli meat 24%
Videos $10 each
2.1.2 For supplies Seller's actual cost.
2.1.3 For deposit items Face value
2.1.4 For consigned items Seller's actual cost.
Seller shall indemnify and defend Purchaser and hold it harmless
from liability for all amounts claimed by consignors for sales made
prior to the closing of this transaction.
2.1.5 For seasonal items which Purchaser agrees to purchase,
50% of the price calculated subject to paragraph 2.1.1 above.
2.2 Equipment Price. The purchase price of the Equipment and any
other items described in paragraph 1.2 above shall be $_________________.
2.3 Payment. The purchase price of the Inventory and of the
Equipment shall be paid as follows:
2.3.1 Purchaser shall pay the sum of $150,000 at closing.
2.3.2 Purchaser shall pay the remainder of the purchase
price, without interest, at the later of closing of this transaction or upon
the closing of the financing described in paragraph 12.6 below. Purchaser
shall diligently pursue obtaining the financing.
3. Inventory Taking. Immediately prior to closing a physical
inventory and retail price valuation of the Inventory shall be done by a
professional inventory service mutually agreeable to the parties. Consigned
items shall be separately inventoried. The cost of the inventory shall be
paid one-half by Seller and one-half by Purchaser and each party may be
present at the inventory taking. The resulting inventory and valuation shall
be final and binding on the parties, and the parties shall execute a
memorandum to be attached to this agreement specifying the exact amount of
Inventory for the Store.
4. Closing.
4.1 Date and Location. This purchase and sale shall be closed at
the offices of Seller on May 4, 1994.
4.2 Documents From Seller. Seller shall deliver to Purchaser at
closing the following documents, each in a form reasonably acceptable to
Purchaser and each duly executed, endorsed and acknowledged where
appropriate:
4.2.1 A warranty bill of sale transferring the Equipment and
the Inventory to Purchaser free and clear of all liens and encumbrances.
4.2.2 A true copy of the Prime Lease, including all addenda,
exhibits and amendments and any required consent by the landlord, all in
form acceptable to Purchaser.
4.2.3 Copies of all service and maintenance contracts in the
possession of Seller covering assets purchased by Purchaser.
4.2.4 Such other documents or instruments as Purchaser may
reasonably require in the form necessary to vest title to the purchased
assets in Purchaser.
4.2.5 Keys to all entrance doors and keys and combinations to
all interior doors, safes and other locked areas, all appropriately
labeled.
4.3 Sublease. U.G. and Purchaser shall execute a sublease of the
Store Premises in form satisfactory to both parties.
4.4 Prorates. Personal property taxes and any other items agreed
by Seller and Purchaser shall be prorated between the parties as of the date
Purchaser takes possession of the Store. Prepaid service contracts shall not
be prorated. Any vending machines shall be emptied immediately prior to
closing; all funds collected on or after the date of closing shall belong to
Purchaser. Seller shall have utility meters read as of the date of closing
and Purchaser shall establish its own accounts for utilities.
4.5 Lien Creditors of Seller. All creditors of Seller with liens
on the Equipment or the Inventory shall be paid in full at or before closing.
Seller shall obtain and file releases of all such liens at closing or
immediately thereafter.
5. Possession. Purchaser shall have possession of all assets sold
pursuant to this Agreement and of the subleased premises and shall assume the
risk of loss at 12:01 a.m. on May 4, 1994.
6. Liabilities.
6.1 Purchaser assumes no liabilities of Seller or of Marcott
except as specifically provided in this Agreement.
6.2 Purchaser may elect to assume any prepaid maintenance
contracts in effect at the Store.
7. Merchandise in Transit. Inventory items ordered by Seller or
Marcott in the usual course of business of the Store which have not been
received by the date of closing shall be the property of Purchaser.
Purchaser shall reimburse Seller for any deposit or payment by Seller for
such items upon receipt of evidence of payment, and shall pay the balance to
the supplier directly upon receipt of invoice.
8. Accounts Receivable. Seller shall send any necessary notices of a
change of address to payors of accounts receivable effective on the date of
closing. Purchaser shall have no obligation to collect Seller's or Marcott's
accounts receivable.
9. Employees. Seller has no employees at the Store.
10. Representations and Warranties of Seller and U.G. Seller and U.G.
jointly and severally make the following representations and warranties to
Purchaser, each of which shall be true at and survive the closing of this
transaction:
10.1 Organization. Seller and U.G. are each duly incorporated and
in good standing under the laws of the State of Oregon and they each have
full authority and legal capacity to enter into and perform this Agreement
and the documents and instruments contemplated by this Agreement.
10.2 Capacity. The execution, delivery and performance of this
Agreement, the Agreement described in paragraph 12.8 below and the sublease
have been duly authorized, no other authorization or approval is required
which has not been obtained, and this Agreement, the Agreement described in
paragraph 12.8 below and the sublease constitute valid and binding agreements
of Seller and U.G. in accordance with their terms.
10.3 Effect of Agreement. The execution and delivery of this
Agreement, of the Agreement described in paragraph 12.8 below and of the
sublease by Seller and U.G., and the consummation of the transactions
contemplated by those agreements, will not result in the creation or
imposition of any valid lien, charge or encumbrance on any of the assets sold
to Purchaser pursuant to this Agreement, and will not require the
authorization, consent or approval of any third party which has not given its
consent prior to the date of closing.
10.4 No Brokers. Neither Seller nor U.G. have employed any broker
or finder in connection with the transactions contemplated by this Agreement
and neither have taken any action which would give rise to a valid claim
against any party for a brokerage commission, finder's fee or other like
payment.
10.5 Title. Seller has good and marketable title to the Equipment
and the Inventory, free and clear of restrictions on or conditions to
transfer or sale and free and clear as of the date of closing of all liens,
pledges, charges or encumbrances.
10.6 Prime Lease. Purchaser has been provided with a true,
accurate and complete copy of the Prime Lease, which has been amended once by
"Lease Modification Agreement" dated December 17, 1987 and again by "Lease
Amendment" dated _______________, 1994 and has had no other amendments or
modifications. U.G. has paid or caused payment of rent and all other amounts
due and has performed or caused performance of all other obligations due
under the Prime Lease to the date of closing. The Prime Lease is currently
in effect and in good standing and neither Seller nor U.G. has any knowledge
of any claim of any default or breach under the Prime Lease.
10.7 Title to Equipment. None of the items included in the
Equipment or located in the Store are held under any lease, security
agreement, conditional sales contract or other title retention or security
arrangement, or are other than in the possession and under the control and
ownership of Seller.
10.8 No Litigation. Neither Seller nor U.G. has any knowledge of
any claim, litigation, proceeding or investigation pending or threatened
against Seller or U.G. or Marcott which might result in any material adverse
change in the business of the Store or affect the Prime Lease or the assets
sold to Purchaser pursuant to this Agreement.
10.9 Tax Returns. Seller and U.G. have filed all required local,
state and federal tax returns and have paid all local state and federal taxes
of any nature owing by Seller or U.G.; and no proceedings are threatened or
pending to levy or assess Seller or U.G. or any of their assets on account of
tax delinquencies or deficiencies. Neither Seller nor U.G. have any
knowledge of any proceedings threatened or pending against Marcott on account
of tax delinquincies or deficiencies.
10.10 Asset Locations. All of the items listed on Exhibit A will
be physically located in the Store on the date of closing.
10.11 Condition of Equipment. All items included in the Equipment
are in good working order and repair on the date of closing.
10.12 Other Information. None of the representations or
warranties of Seller or U.G., and none of the information or documents
provided or to be provided by Seller or U.G. to Purchaser contain or will
contain any untrue statement of a material fact or omit or will omit or
misstate a material fact necessary in order to make the statements contained
in this Agreement or the information or documents not misleading. Seller and
U.G. know of no fact which has resulted, or which, in the reasonable judgment
of the officers of Seller and U.G. signing this Agreement, will result in a
material change in the operations of the Store or in the assets sold to
Purchaser pursuant to this Agreement which has not been set forth in this
Agreement or otherwise disclosed to Purchaser in writing.
11. Covenants of Seller and U.G..
11.1 Prime Lease Amendments. U.G. shall not amend the Prime Lease
in any manner without the prior written consent of Purchaser which will not
be unreasonably withheld so long as the proposed amendment does not adversely
impact Purchaser.
11.2 Payment of Rentals Due Under Prime Lease. U.G. shall make
all payments of basic rent and percentage rent due under the Prime Lease
promptly in accordance with its terms. U.G. shall promptly notify Purchaser
of any claim of default or deficiency under the Prime Lease.
11.3 Indemnification. Seller and U.G. shall jointly and severally
indemnify and defend Purchaser and hold it harmless from any claim, loss,
liability or expense in connection with any of the following:
11.3.1 The breach of any covenant or representation and
warranty contained in this Agreement by Seller or U.G.
11.3.2 Any debt owed by Marcott to a creditor in connection
with the Store.
11.3.3 Any amount or obligation owed by Marcott to or for an
employee of Marcott, including without limitation wages, salaries,
accrued vacation pay, fringe benefits and liabilities pursuant to
employment agreements and collective bargaining agreements.
11.3.4 All other liabilities of Marcott or of Seller or U.G.
in connection with the Store.
12. Conditions Precedent. Purchaser's obligations under this Agreement
are subject to each of the following conditions precedent; if any one or more
of the following conditions are not either satisfied or expressly waived by
Purchaser in writing at the closing of the transaction contemplated by this
Agreement Purchaser shall have the right to rescind the closing and its
purchase and the Sublease by notice to Seller and U.G. given at any time
before all conditions are either satisfied or expressly waived in writing;
the notice shall specify an effective date for the rescission which shall be
not less than seven days after the date of the notice; on the effective date
Purchaser shall vacate the Store premises and be placed in the same position
it was in immediately before the closing by Seller and U.G.:
12.1 OLCC. Purchaser obtaining a package liquor license from the
Oregon Liquor Control Commission for the Store location. Purchaser shall
apply promptly and pursue the license approval diligently.
12.2 Sublease. Execution and delivery of a sublease of the Store
Premises to Purchaser on terms and conditions satisfactory to Purchaser and
receipt of any required consent of the lessor under the Prime Lease to such
sublease.
12.3 Food Stamps. Purchaser obtaining authorization from the U.S.
Department of Agriculture to accept food stamps at the Store location.
12.4 W.I.C. Purchaser obtaining authorization to accept W.I.C.
coupons at the Store location.
12.5 Membership. Purchaser obtaining membership in United
Grocers, Inc. and in the Thriftway group for the Store.
12.6 Financing. Purchaser obtaining financing for the purchases
contemplated by this Agreement on terms acceptable to Purchaser.
12.7 Thriftway Agreement. Purchaser obtaining an agreement with
the Thriftway group which shall provide that for a period of six (6) months
or twenty-six (26) weeks beginning with the first ad Purchaser participates
in for the Store, Purchaser's Thriftway membership for the Store shall be
free of the Thriftway assessments for the Store while earning all case,
product and other allowances, rebates, accruals, distributions and other
incentives including without limitation new product and new store allowances.
12.8 Sandy Store Agreement. Execution and delivery of an
agreement between Purchaser, Seller and U.G. on terms satisfactory to
Purchaser regarding remodeling of the Store, certain payments to U.G. based
on profits and a jump-out clause.
12.9 Union Agreement. Execution and delivery of an agreement
satisfactory to Purchaser between Purchaser and United Food and Commercial
Workers Local 555 regarding employment at the Store.
13. Other Liabilities. Seller shall pay or cause to be paid in full
within ten days after the date of closing all obligations in connection with
the Store which were incurred by Seller and shall obtain the release of
record of any lien on assets purchased by Purchaser, within ten days after
closing. Seller shall indemnify and defend Purchaser and hold Purchaser
harmless from any claim, cost, liability or expense, including costs and
attorney's fees, incurred by Purchaser in connection with obligations of
Seller which are not expressly assumed by Purchaser under the provisions of
this Agreement.
14. Remedies. Upon any breach or default of this Agreement by a party,
the other party(s) shall be entitled to, separately or in combination,
serially or cumulatively, all of the remedies available at law for such
breach or default, including without limitation specific performance and
damages, except as specifically limited by other terms of this Agreement.
15. Survival. All representations, warranties and covenants of this
Agreement shall survive the closing of the sale and purchase. The
obligations of each party under this Agreement which require performance or
impose restrictions after the closing will survive the closing and continue
to be binding on that party and insure to the benefit of the other party(s).
16. General Provisions.
16.1 Attorney's Fees. If any party institutes suit or action to
enforce or interpret the terms of this Agreement the prevailing party shall
be entitled to recover from the losing party(s) all costs and disbursements
incurred by it in that connection plus such sum as the court may adjudge
reasonable for attorney's fees in the trial court and in any appellate court.
16.2 Notices. Any notice given pursuant to this Agreement shall
be in writing and effective at the earlier of actual receipt or three days
after deposit in the U.S. mails as certified mail, postage prepaid, addressed
to a party at the address stated below or at such other address as the party
may specify by notice to the other party:
SELLER With a Copy to:
United Resources, Inc. John H. Arenz, Esq.
6433 S.E. Lake Road Benson, Arenz, Lucas & Hay
P. O. Box 22187 1140 One Pacific Square
Portland, OR 97222 220 N.W. Second Avenue
Portland, OR 97209
PURCHASER With a Copy to:
Dan Inc Oregon Joy D. Abele, Esq.
P. O. Box 5490 P. O. Box 708
Oregon City, OR 97045 Oregon City, OR 97045
U.G. With a Copy to:
United Grocers, Inc. John H. Arenz, Esq.
6433 S.E. Lake Road Benson, Arenz, Lucas & Hay
P. O. Box 22187 1140 One Pacific Square
Portland, OR 97222 220 N.W. Second Avenue
Portland, OR 97209
16.3 Legal Representation. Each party has been represented by
counsel in the negotiation and preparation of this Agreement.
16.4 Section Headings. The section headings in this Agreement are
for convenience only and shall not be construed to vary any of the terms of
this Agreement.
16.5 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns.
16.6 Severability. If any term of this Agreement is deemed to be
illegal or unenforceable at law it shall be deemed to be void and of no force
and effect to the extent necessary to bring such term within the provisions
of the applicable law, and such term as so modified together with all other
terms of this Agreement shall be and remain fully enforceable.
<PAGE>
16.7 Waiver. No waiver of any term or provision of this Agreement
shall be binding unless it is in writing and signed by the party making the
waiver. No waiver of one term or provision shall be deemed to be a waiver of
any other term or provision or to be a continuing waiver.
SELLER: UNITED RESOURCES, INC.
By George P. Flemming
Its President
PURCHASER: DAN INC OREGON
By Craig Danielson
Its President
U.G. UNITED GROCERS, INC.
By Alan C. Jones
Its President
<PAGE>
EXHIBIT 10.H1
SUBLEASE AGREEMENT
Orland
THIS SUBLEASE AGREEMENT entered into this 19th day of August, 1994, by
and between UNITED GROCERS, INC., an Oregon Corporation, hereinafter
designated as Sublessor, and Gil's Supermarkets, Inc., a California Corpora-
tion, hereinafter designated as Sublessee;
W I T N E S S E T H
WHEREAS, the Sublessor has entered into a Lease dated August 16, 1994,
attached hereto as Exhibit "A", with Sonoma Land Company, Inc., a California
Corporation, for a supermarket located in Orland, California, commencing on
the date set forth in the attached Exhibit "A," a copy of which is hereby
incorporated by reference, as fully as if its terms and conditions were
herein set forth.
WHEREAS, Sublessee desires to sublet said premises for a period of 15
years, commencing on August 19, 1994, and Sublessor is willing to so sublet
in accordance with the terms and conditions hereinafter set forth; now,
therefore,
IT IS HEREBY AGREED as follows:
(1) Sublessor hereby sublets unto Sublessee those premises described in
said Exhibit "A," for the term of 15 years, to and including August 18,
2009.
1.1 Sublessee, so long as it is not in default hereunder and
further provided that no event or condition exists that, with the passage of
time or giving of notice would constitute default, shall be granted the right
to exercise the renewal options contained in Exhibit "A," as set forth in
Section 4.3 of said Exhibit.
(2) Sublessee covenant and agree to pay for the whole of said term the
rental hereinafter provided, together with all affirmative covenants includ-
ing, without limitation, those pertaining to minimum rent, Common Area
Charges (CAM), percentage of gross sales, taxes, assessments, insurance and
all of the covenants and obligations to be performed by Lessee, as set forth
in said Exhibit "A," and to make such payments and provide such performance
when due by the terms of the lease and amendments thereto.
(3) Sublessee shall, upon execution hereof, pay any and all rental or
security deposits and all other sums, except minimum rent, as required
pursuant to the terms and conditions of said Exhibit "A", and shall pay rent
to Sublessor, in accordance with the "Sublease Rent Schedule" attached
hereto. All such rental payments to Sublessor shall be made without offset,
adjustment or deduction of any kind.
(4) Sublessee shall be bound by the same responsibilities, rights,
privileges and duties as Sublessor, as enumerated in Exhibit "A" and cove-
nants and agrees to fully indemnify and hold Sublessor harmless from any and
all responsibility and/or liability which Sublessor may incur by virtue of
said Exhibit "A," and/or Sublessee's occupancy of the premises. Furthermore,
Sublessee shall be bound by any subsequent amendment, revision, supplement or
addition to the prime lease between Sublessor and the prime Lessor, and to
keep the Sublessor indemnified against all actions, claims and demands
whatsoever in respect to said exhibit "A," and Sublessee's use of the demised
premises.
4.1 Assignment and Subletting. Sublessee acknowledges that provisions
for extension options and assignment and subletting in the Lease are applica-
ble to the prime Lessor and Sublessor only. Sublessee will not assign this
Sublease or sublet the premises without the prior written consent of Subles-
sor which may be granted or withheld in its absolute discretion. A direct or
indirect transfer of ownership and control of a majority of the voting stock
of a corporate Sublessee, by whatever demands, shall be deemed an assignment
of this Sublease for the purposes of this paragraph.
4.2 Covenants, Representations and Warranties.
(a) Membership in United Grocers, Inc. Upon execution and during
the term hereof, Sublessee agrees to maintain or cause to be maintained the
membership of the store in good standing in United Grocers, in accordance
with the Bylaws of United Grocers, as long as this Sublease remains in
effect.
(b) Purchases from Sublessor. Sublessee agrees that throughout
the term of the Sublease and any extensions or renewals thereof, except as
hereinafter provided, Sublessee will purchase from Sublessor not less than
fifty-eight percent (58%) of its retail sales of all goods and merchandise
required by it for resale on the premises to the extent that Sublessor shall
now or hereafter be able to supply such goods and merchandise to Sublessee,
and Sublessor will supply all of Sublessee's requirements at such prices and
on such terms as are reasonably comparable to those offered by Sublessor to
other purchasers from Sublessor carrying on businesses similar to that of the
Sublessee in the Sonoma County area of the State of California. If, at any
time, the Sublessee contends that Sublessor is not able to supply particular
goods or merchandise customarily stocked by retail supermarkets in the Sonoma
County area, or that terms offered by Sublessor are not reasonably comparable
to those offered by Sublessor to other purchasers described above, the
Sublessee shall so advise Sublessor in writing, specifying such contention
with particularity. If, within 30 days after receipt of such notice,
Sublessor does not offer to supply goods or merchandise so specified or does
not advise Sublessee that the terms and conditions offered are reasonably
comparable to those offered to such other purchasers, Sublessee shall be free
to secure such specified goods and merchandise from any source which it
desires. If Sublessor demonstrates that it is offering reasonably comparable
terms, and Sublessee nonetheless purchases from another source, such purchase
or purchases shall not be an exception from the 58% requirement specified
above. If the above percentage requirements are not complied with, it shall
constitute a default hereunder. In the event of a breach of this purchase
covenant, Sublessor may terminate this sublease and, in addition to the
remedies hereinafter offered Sublessor, Sublessee agrees to pay Sublessor, as
liquidated damages, and not as a penalty or forfeiture, a sum computed as
follows:
1. The average weekly purchases from the date of the agree-
ment to the date of the breach shall be determined;
2. the average weekly purchases so determined shall then be
multiplied by the number of weeks from the date of the breach to the end
of the term of the purchase agreement; and
3. The computed sum shall be multiplied by two and one-
quarter percent (2-1/4 %) to determine the liquidated damages due and
owing Sublessor by reason of Sublessee's default. Said sum shall become
immediately due and owing within 15 days from date of written notice of
the liquidated damages.
(c) Sublessee covenants that as long as this Sublease remains in
effect, and for an additional period of six (6) months thereafter, Sublessee
shall not directly or indirectly sell or permit the sale of the store and the
owners of Sublessee shall not directly or indirectly sell controlling
interests in Sublessee (whether in one or a series of related transactions)
without first offering to sell said store or controlling interest, as the
case may be, to Sublessor upon the same terms and conditions as the Sublessee
or its owners, as the case may be, are prepared to accept from a third party.
Prior to such sale by the Sublessee or its owners, the Sublessee shall first
notify Sublessor of the desire to sell the store or controlling interest in
the Sublessee and of all the terms and conditions of such sale and shall
provide to Sublessor all documents, instruments, agreements, offers, accep-
tances, appraisals, inventories, equipment lists, leases, financial state-
ments and such other material and information as Sublessor may reasonably
request to aid in its decision to exercise or decline its right to purchase
as hereinafter provided. Within 30 days following receipt of such notice of
desire to sell and all materials and information reasonably requested by
Sublessor, Sublessor shall advise Sublessee whether Sublessor elects to
purchase or declines to purchase the store or such controlling interest upon
the offered terms and conditions. If Sublessor shall elect to purchase,
Sublessor shall purchase and the Sublessee or its owners shall sell, such
retail grocery business or such controlling interest, as the case may be, all
on the terms set forth in the offer. If Sublessor declines the purchase, the
Sublessee or its owners shall be free to sell the store or controlling
interest, as the case may be, upon (and only upon) the terms and conditions
offered as aforesaid to Sublessor; provided that such sale is consummated
within 120 days following the date Sublessor declined the purchase, and if
such sale is not consummated in accordance with the offered terms and
conditions within said 120-day period, the provisions of this paragraph shall
apply again and no subsequent sale of any portion of the offered store or
controlling interest may be effected without again offering the same to
Sublessor as provided herein. Sublessor may waive its rights under this
section provided such waiver is in writing. The foregoing provisions shall
not apply to transfers of assets or interests by sale, gift or as a result of
death to the lawful issue of Sublessee, or transfers of assets to a corpora-
tion or partnership or transfers of a controlling interest to a trust as long
as such corporation, partnership or trust is controlled by the transferor;
provided such transferee agrees that it holds such assets or controlling
interest subject to the restrictions contained in this paragraph.
(d) Sublessee represents and warrants that there are no brokers,
finders or other persons entitled to any fee, commission or other compensa-
tion in connection with this Sublease, and agree to hold Sublessor harmless
from any claims for such fees, commissions and/or compensation.
(e) Sublessee hereby represents and warrants to Sublessor that the
financial statements, appraisals and other documents submitted to Sublessor
in connection herewith or pursuant hereto are and shall be true, correct,
complete and accurate in every respect and said financial statements fairly
and accurately present the assets, liabilities, financial condition and
results of operations reflected herein.
(5) Security Agreement.
5.1 Grant, Collateral and Obligations. Sublessee and Sublessor
agree that this Sublease shall constitute a security agreement within the
meaning of the Oregon Uniform Commercial Code (hereinafter referred to as the
"Code") with respect to:
(a) required cash deposits (as defined in the Bylaws of
Sublessor) presently or hereafter held by or deposited with Sublessor by
Sublessee;
(b) any and all patronage rebates and rebate notes represent-
ing patronage rebates (as defined in the Bylaws of Sublessor) earned or
hereafter earned by reason of patronage of Sublessor by Sublessee;
(c) subject to liens securing purchase money financing
therefor as described in Exhibit "X," all trade, store and other fixtures and
all leasehold improvements and all equipment and other personal property of
Sublessee used or useful in the operation of the store in or on the premises,
whether now owned or hereafter acquired including, without limitation, the
property described in Exhibit "Y", attached hereto, if any; and
(d) all replacements of substitutions for, and additions to
the foregoing, and the proceeds thereof (all of said personal property and
the replacements, substitutions and additions thereto and the proceeds
thereof being sometimes hereinafter collectively referred to as the "Collat-
eral"), and that a security interest in and to the Collateral is hereby
granted to the Sublessor, and the Collateral and all of the Sublessee's
right, title and interest therein are hereby assigned to the Sublessor, all
to secure all presently existing or hereafter incurred direct, indirect,
absolute or contingent indebtedness, liabilities and other obligations of
Sublessee to Sublessor (referred to as "the Obligations" herein) including,
but not limited to, the payment of all rent and other sums and the
performance of all other obligations of Sublessee under this Sublease, all
renewals and extensions thereof, the price of goods, services and merchandise
purchased by Sublessee from Sublessor from time to time, and all costs of
collection, legal expenses and attorneys' fees paid or incurred by Sublessor
in enforcing any rights in respect to the Obligations or in connection with
assembling, collecting, selling or otherwise dealing with or realizing upon
the Collateral.
5.2 Security Agreement Warranties. In addition to and without
limiting the force or effect of any other covenants, representations and
warranties of Sublessee contained in this Sublease, Sublessee hereby cove-
nants, represents and warrants to and with Sublessor as follows:
(a) Sublessee is the owner of the Collateral free and clear
of liens, security interests and encumbrances of every kind and description,
except liens, security interests and encumbrances securing indebtedness to
Sublessor and liens described on Exhibit "X," hereto to which Secured Party
has consented ("Permitted Liens").
(b) Sublessee will not sell, dispose of, encumber or permit
any other security interest, lien or encumbrance to attach to the Collateral
except the security interest of Sublessor and the Permitted Liens.
(c) All tangible Collateral shall be kept at Sublessee's
place(s) of business located on the premises, and Sublessee shall not permit
the same to be removed therefrom without the prior written consent of
Sublessor.
(d) Sublessee shall keep the tangible Collateral at all times
insured against risks of loss or damage by fire (including so-called extended
coverage), theft and such other casualties as Sublessor may reasonably
require, all in such amounts, under such forms of policies, upon such terms,
for such periods and written by such companies or underwriters as Sublessor
may approve. All such policies of insurance shall name Sublessor as loss
payee thereon as its interest may appear and shall provide for at least 30
days' prior written notice of modification or cancellation to Sublessor.
Sublessee shall furnish Sublessor with certificates of such insurance or
other evidence satisfactory to Sublessor as to compliance with the provisions
of this paragraph. Sublessor may act as attorney-in-fact for Sublessee in
making, adjusting and settling claims under and canceling such insurance and
endorsing Sublessee' name on any drafts drawn by insurers of the Collateral.
(e) Sublessee will keep the Collateral in good order and
repair, shall not waste or destroy the Collateral or any part thereof, and
shall not use the Collateral in violation of any statute, ordinance or policy
of insurance thereon. Sublessor may examine and inspect the Collateral at
any reasonable time or times, wherever located.
(f) Sublessee will pay promptly when due all taxes and
assessments upon the Collateral or for its use or operation or upon this
Sublease or upon any instruments evidencing the Obligations.
(g) Sublessee will pay promptly when due all indebtedness
secured by any lien or other security interest in the Collateral, whether
superior or junior to the security interest established hereby.
5.3 Additional Remedies. Upon any default hereunder and at any
time thereafter (such default not having previously been cured), Sublessor at
its option may declare all Obligations immediately due and payable and shall
have the remedies of a secured party under the Uniform Commercial Code of
California (the "Code"), including without limitation the right to take
immediate and exclusive possession of the Collateral.
5.4 Financing Statements. Sublessee will at their own cost and
expense, upon demand, furnish to Sublessor such financing statements and
other documents in form satisfactory to Sublessor and will do all such acts
and things as Sublessor may at any time or from time to time request or as
may be necessary or appropriate to establish and maintain a perfected
security interest in the Collateral.
5.5 Attorneys' Fees. In the event of the institution of any suit
or action to terminate this Sublease, or to enforce the terms or provisions
hereto, Sublessee shall and does hereby agree to pay, in addition to the
costs and disbursements provided by statute, reasonable attorneys' fees in
such proceedings or on any appeal from any judgment or decree entered
therein.
(6) Default. The following shall constitute a default under this
Sublease:
6.1 Any failure by Sublessee to pay, when due, rent or any other
amount due under the Lease or to perform any other obligation of Sublessor
under the Lease or any other default under the Lease which continues for up
to one-half of the cure period as defined in the lease, provided with respect
thereto in the Lease;
6.2 Any failure by Sublessee to pay when due rent or any other
amount due under this Sublease or to perform when due any other obligation of
Sublessee hereunder;
6.3 If any warranty, representation or statement made or furnished
to Sublessor by or on behalf of the Sublessee is false in any material
respect when made or furnished;
6.4 Any failure by Sublessee to pay when due and/or satisfy any
other present or hereinafter incurred indebtedness or obligation of Sublessee
to Sublessor, including but not limited to those arising from Sublessee's
purchases of goods and services from Sublessor any other loans or leases
Sublessee may have or enter into with Sublessor, and Sublessee's obligations
under the Bylaws of Sublessor and its application for membership in Subles-
sor;
6.5 If Sublessee vacates or abandon the premises or allows the
premises to remain vacant or unoccupied;
6.6 If Sublessee makes an assignment for the benefit of creditors,
or if, with or without Sublessee's acquiescence, a petition in bankruptcy is
filed against Sublessee, or Sublessee is adjudicated a bankrupt or insolvent,
or a trustee, receiver or liquidator is appointed for all or part of Subless-
ee's assets, or a petition or answer is filed by or against Sublessee seeking
or acquiescing in any reorganization, liquidation or similar relief under any
federal, state or local law relating to bankruptcy, insolvency or other
relief for debtors; and
6.7 If Sublessee sells or otherwise disposes of all or any
substantial portion of the assets of Sublessee located at or associated with
the store, other than inventory sold at retail in the ordinary course of
business.
(7) Remedies. In the event of any default under this Sublease:
7.1 Sublessor shall have the right, at its election then or at any
time thereafter, upon notice to Sublessee, to terminate this Sublease or to
terminate Sublessee's rights of possession in the premises without terminat-
ing this Sublease;
7.2 Sublessor shall have the immediate right, whether or not the
Sublease shall have been terminated pursuant to paragraph 7.1, to re-enter
and repossess the premises or any part thereof by force, summary proceedings,
ejectment or any other legal or equitable process, all without any liability
on Sublessor's part for such entry, repossession or removal;
7.3 Sublessor may (but shall be under no obligation to), whether
or not this Sublease shall have been terminated pursuant to paragraph 7.1,
resublet the premises, or any part thereof, in the name of Sublessee,
Sublessor or otherwise, without notice to Sublessee, for such term or terms
and for such uses as Sublessor, in its absolute discretion, may determine and
may collect and receive rents payable by reason of such resubletting (without
any liability for any failure to collect such rents);
7.4 Sublessor may (but shall be under no obligation to) procure
any insurance, pay any rentals, taxes or liens, make any repairs, pay any
sums required to be paid, and to do and perform such other acts as may be
required of Sublessee hereunder, and any payments so made shall bear interest
at the rate of 12 percent per annum from the time of such payment until
repaid; and
7.5 Sublessor may exercise any and all other rights and remedies
afforded to the prime Lessor upon default under the Lease and any and all
other rights and remedies Sublessor may have as provided herein, pursuant to
the laws of the State of California. In addition to the other remedies
provided above, Sublessor shall be entitled to current damages and final
damages as provided in paragraph (8) below, and, to the extent permitted by
applicable law, to injunctive relief in case of the violation, or attempted
or threatened violation, of any of the provisions of this Sublease, or to a
decree compelling performance of this Sublease.
7.6 No expiration or termination of this Sublease, repossession of
the premises or any part thereof, or resubletting of the premises or any part
thereof, whether pursuant to the above paragraph or by operation of law or
otherwise, shall relieve Sublessee of its liabilities and obligations under
this Sublease, all of which shall survive such expiration, termination,
repossession or resubletting.
(8) Damages.
8.1 Current Damages. In the event of any expiration or
termination of this Sublease or repossession of the premises or any part
thereof by reason of the occurrence of an event of default, Sublessee will
pay to Sublessor the rent and other sums required to be paid by Sublessee for
the period to and including the date of such expiration, termination or
repossession; and, thereafter, until the end of what would have been the term
in the absence of such expiration, termination or repossession, and whether
or not the premises or any part thereof shall have been resublet, Sublessee
shall be liable to Sublessor for, and shall pay to Sublessor, as liquidated
and agreed current damages the rent and other sums which would be payable
under this Sublease by Sublessee in the absence of such expiration,
termination or repossession, less the net proceeds, if any, of any resublett-
ing effected for the account of Sublessee, after deducting from such proceeds
all of Sublessor's expenses reasonably incurred in connection with such
resubletting (including, without limitation, all repossession costs, broker-
age commissions, legal expenses, attorney's fees, employee expenses, alter-
ation costs and expenses of preparation for such resubletting). Sublessee
will pay such current damages on the days on which rent would have been
payable under this Sublease in the absence of such expiration, termination or
repossession, and Sublessor shall be entitled to recover the same from
Sublessee on each such day.
8.2 Final Damages. At any time after any such expiration or
termination of this Sublease or repossession of the premises or any part
thereof by reason of the occurrence of an event of default, whether or not
Sublessor shall have collected any current damages pursuant to paragraph 8.1,
Sublessor shall be entitled to recover from Sublessee, and Sublessee will pay
to Sublessor on demand, as and for liquidated and agreed final damages for
Sublessee's default and in lieu of all current damages beyond the date of
such demand (it being agreed that it would be impracticable or extremely
difficult to fix the actual damages), an amount equal to the excess, if any,
of (a) the rent and other sums which would be payable under this Sublease
from the date of such demand (or, if it be earlier, the date to which
Sublessee shall have satisfied in full its obligations under paragraph 8.1 to
pay current damages) for what would be the then unexpired term in the absence
of such expiration, termination or repossession, discounted to present value
at an assumed interest rate of seven percent (7%) per annum, over (b) the
then net rental value of the premises discounted to present value at an
assumed interest rate of seven percent (7%) per annum for the same period.
Rental value shall be established by reference to the terms and conditions
upon which Sublessor resublets the premises if such resubletting is accom-
plished within a reasonable period of time after such expiration, termination
or repossession, and otherwise established on the basis of Sublessor's
estimates and assumptions of fact regarding market and other relevant
circumstances, which shall govern unless shown to be erroneous. If any
statute or rule of law shall validly limit the amount of such liquidated
final damages to less than the amount above agreed upon, Sublessor shall be
entitled to the maximum amount allowable under such statute or rule of law.
(9) Rights Cumulative, Nonwaiver. No right or remedy herein conferred
upon or reserved to Sublessor is intended to be exclusive of any other right
or remedy, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity or by statute. The failure of Sublessor to
insist at any time upon the strict performance of any covenant or agreement
or to exercise any option, right, power or remedy contained in this Sublease
shall not be construed as a waiver or relinquishment thereof for the future.
No waiver by Sublessor of any provision of this Sublease shall be deemed to
have been made whether due in the receipt of rent or otherwise, unless
expressed in writing and signed by Sublessor.
(10) Notices. Any notice or demand required or permitted to be given
under this Sublease shall be deemed to have been properly given when, and
only when, the same is in writing and has been deposited in the United States
Mail, with postage prepaid, to be forwarded by registered or certified mail
and addressed to the party to be notified at the address appearing below its
signature. Such addresses may be changed from time to time by serving of
notice as above provided.
(11) Right of Refusal: If, during the term of this sublease, or any
extension hereof, Sublessee or any successor to Sublessee shall receive a
bona fide offer to purchase the business being operated under this sublease,
i. e., goodwill, fixtures and/or equipment and inventory or the property of
which the premises are a part, which offer is acceptable to Sublessee,
Sublessor shall have the right to purchase the business (or the property)
upon the same terms and conditions. Sublessee agrees to immediately, upon
receipt of such offer, to give Sublessor written notice of the terms and
conditions thereof, and the Sublessor shall have the right, for thirty (30)
days after receipt of such notice, to exercise its option to purchase under
the identical terms and conditions of such offer. Sublessor's exercise of
its option shall be given in writing, within said thirty-day period.
(12) Additional Provisions.
12.1
12.2
IN WITNESS WHEREOF, the parties have executed the foregoing Sublease
Agreement the day and year first above written.
SUBLESSOR United Grocers, Inc., SUBLESSEE:Gil's Supermarkets, Inc,
an Oregon Corporation a California Corporation
6433 SE Lake Road 1303 S. Main Street
PO Box 22187 Yreka, California 96097
Portland, Oregon 97222
By: Alan C. Jones By: Gilbert Foster
President President/CEO
<PAGE>
EXHIBIT "X"
1. Met Life Capital
<PAGE>
EXHIBIT "Y"
All present and hereinafter acquired inventory, equipment, fixtures and
capital stock of United Grocers, Inc.
<PAGE>
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
Schedule of Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
For the Years Ended
Sept. 30 Oct. 1 Oct. 2 Sept. 27 Sept. 28
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Computation of Earnings:
Pretax Income $ 2,563,731 $ 2,290,818 $ 3,103,286 $ 2,699,466 $ 2,408,319
Plus Patronage
Dividend 8,730,168 9,000,000 10,211,000 10,427,000 10,000,000
Less
capitalized
interest -0- (64,929) (578,611) -0- -0-
Total Earnings 11,293,899 11,225,889 12,735,675 13,126,466 12,408,319
Computation of Fixed
Charges:
Total
Interest
Expense 9,156,822 8,281,946 9,303,377 9,051,471 8,970,559
Interest factor
in rental
Expense 5,172,638 4,864,189 3,769,920 3,254,212 2,818,960
Total
Fixed
Charges (1) 14,329,460 13,146,135 13,073,297 12,305,683 11,789,519
Total Earnings
and Fixed
Charges (2) 25,623,359 24,436,953 26,187,583 25,432,149 24,197,838
Ratio of
Earnings
to Fixed
Charges
(2)/(1) 1.79 1.85 1.97 2.07 2.05
Notes:
A. Adjusted income used to compute the ratio of adjusted income to
fixed charges represents net income to which has been added income
taxes, patronage dividends and fixed charges. Fixed charges consist of
interest on all indebtedness and that portion of rentals considered to
be the interest factor.
B. Interest portion of buildings and equipment rental expense was
calculated at 60% for each year.
C. The amounts prior to 1993 have been restated to reflect changes
in accounting for inventories, income taxes and investment as described
in the notes to financial statements.
</TABLE>
<PAGE>
SUBSIDIARIES
of
UNITED GROCERS, INC.
September 30, 1994
B.A.T. Enterprises, Inc.
Grocers Insurance Company
Grocers Insurance Group, Inc.
Grocers Insurance Agency, Inc.
Northwest Process, Inc.
Premier Consulting, Inc.
U.G. Resources, Inc.
UGIC, Ltd.
United Resources, Inc.
United Store Development, Ltd.
United Workplace Consultants, Inc.
Western Security Services, Ltd.
Western Passage Express, Inc.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from the consolidated financial statements of
United Grocers, Inc., for the fiscal year ended September 30,
1994 and is qualified in its entirety by reference to such
financial statements.
<MULTIPLIER> 1
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-02-1993
<PERIOD-END> SEP-30-1994
<PERIOD-TYPE> YEAR
<S> <C>
<CASH> 12,984,028
<SECURITIES> 36,487,841
<RECEIVABLES> 60,290,461
<ALLOWANCES> 1,605,761
<INVENTORY> 74,307,422
<CURRENT-ASSETS> 192,700,698
<PP&E> 101,121,637
<DEPRECIATION> 42,604,517
<TOTAL-ASSETS> 306,835,553
<CURRENT-LIABILITIES> 147,442,852
<BONDS> 114,669,266
0
0
<COMMON> 25,728,644
<OTHER-SE> 14,696,213
<TOTAL-LIABILITY-AND-EQUITY> 306,835,553
<SALES> 954,220,350
<TOTAL-REVENUES> 954,220,350
<CGS>816,721,077
<TOTAL-COSTS> 103,525,270
<OTHER-EXPENSES> 11,230,799
<LOSS-PROVISION> 1,992,589
<INTEREST-EXPENSE> 9,156,822
<INCOME-PRETAX> 2,563,731
<INCOME-TAX> 1,000,341
<INCOME-CONTINUING> 1,563,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,563,390
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
