<PAGE>
UNITED GROCERS, INC.
(Portland, Oregon)
200,495 Shares
Common Stock, $5 Par Value
$35,875,000 Series J 5% Subordinated
Redeemable Capital Investment Notes
Maturing Approximately 10 Years from Date of Issue
Common stock ("Membership Stock") is sold solely to members of
United Grocers, Inc. ("United"), at adjusted book value determined for each
calendar year as of the end of United's preceding fiscal year. In addition to
shares sold to newly admitted members as a prerequisite for membership,
Membership Stock may be issued to existing members for cash or in payment of
patronage dividends. See "The Company."
Notes are issued in registered form in denominations of $100 or
multiples of $100 at 100% of principal amount, with interest payable
quarterly. Notes are issued in noncertificated form. Notes are redeemable at
United's option during the 7 years prior to maturity at a price equal to
principal plus accrued interest. United does not expect any public market for
Notes to develop. Although it is not legally obligated to do so, United
intends to prepay any Note, at any time, upon request of the holder. See
"Introduction."
The board of directors of United has decided to pay interest at
the rate of 6.5% per annum during the period December 16, 1995, to March 15,
1996, on all Notes outstanding at any time during that period. On March 16,
1996, the interest rate on all Notes will revert to the stated rate of 5% per
annum unless the board of directors takes further action. The decision to pay
interest at 6.5% per annum is a voluntary action taken by the board of
directors in recognition of prevailing interest rates. There can be no
assurance that the interest rate on Notes after March 15, 1996, will exceed 5%
per annum. The only right evidenced by the Notes is to receive timely payment
of principal and interest at 5% per annum.
Price to Underwriting Proceeds
public discounts and to United
commissions
Per Share $62.14 None $62.14
Per Note 100% None 100%
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
This offering is not underwritten; all sales will be made by
United through its regular employees. United reserves the right to withdraw,
cancel or modify the offer without notice and to reject orders in whole or in
part.
-------------------
The date of this prospectus is February 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
Statement of Available Information 2
Incorporation of Certain Documents by Reference 2
Prospectus Summary 3
Introduction 6
The Company 8
Description of Membership Stock 11
Description of Notes 13
Legal Matters 16
Experts 16
Additional Information 16
No person is authorized to give any information or to make any
representations other than those contained herein, and, if given or made, such
information or representations must not be relied upon as having been
authorized. Neither the delivery hereof nor any sale hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of United since the date hereof. This prospectus does not constitute
an offer to sell or a solicitation of any such offer in any state to any
person to whom it is unlawful to make such an offer in such state.
STATEMENT OF AVAILABLE INFORMATION
United is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission ("Commission").
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C., and at the Commission's
regional offices at 7 World Trade Center, 13th Floor, New York, New York
10048, and The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies can be obtained at prescribed rates by writing to the
Securities and Exchange Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549.
United intends to provide its security holders annual reports
containing audited financial statements which have been examined and reported
on by independent certified public accountants.
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE
United incorporates herein by reference (i) its annual report on
Form 10-K for the fiscal year ended September 29, 1995, and (ii) the material
under the captions "1995 MANAGEMENT" and "BOARD OF DIRECTORS" and the
information on pages ii and 1 through 18 of the separate financial information
and financial statements included with United's annual report to its security
holders for the year ended September 29, 1995.
This prospectus is accompanied by a copy of United's 1995 annual
report to security holders. United will provide, without charge, to each
person to whom a copy of this prospectus is delivered, upon the written or
oral request of any such person, a copy of the above mentioned Form 10-K
(other than certain exhibits). Requests should be directed to John W. White,
Vice President, United Grocers, Inc., Post Office Box 22187, Portland, Oregon
97269-2187, telephone (503) 833-1000.
<PAGE>
PROSPECTUS SUMMARY
The following material summarizes certain matters described in the
prospectus. It is necessarily incomplete and is qualified in its entirety by
reference to the remainder of the prospectus.
<TABLE>
<CAPTION>
<S> <C>
United
The Company United Grocers, Inc., 6433 S. E. Lake Road (Milwaukie,
Oregon), Post Office Box 22187, Portland, Oregon 97269-2187;
telephone (503) 833-1000.
Principal Business A wholesale grocery distributor which operates as a
cooperative. United sells groceries and related products at wholesale to
approximately 368 independent retail grocery stores operated by its
members in Oregon, western Washington and California.
Use of Proceeds of Working capital and general corporate purposes.
Offering
See "Introduction--Use of Proceeds" and "The Company."
Membership Stock
Shares Offered to Retail grocers who have been accepted as members of United on the basis
of 200 shares per retail store. Membership Stock will also be issued to
members in payment of patronage dividends and to members who wish to
acquire additional shares for cash.
Price Adjusted book value computed as of the end of each fiscal year (the
Friday nearest September 30) to be effective for the following calendar
year ($62.14 per share, or $12,428 for 200 shares, during 1996).
Repurchase Under its present bylaws United is obligated to repurchase shares held
by terminated members at the price at which Membership Stock is then
being offered (book value as of the end of the fiscal year preceding the
year of termination, adjusted for certain items). A portion of the
repurchase price may, under certain circumstances, be paid in
installments on such terms as the board of directors determines.
Voting Rights One vote for each shareholder of record.
Transfer Membership Stock is not transferable.
Dividends and It is United's policy not to declare dividends other than
Federal Tax patronage dividends based upon members' purchases. The total
Consequences amount of patronage dividends (including Membership Stock) is
taxable to individual members when distributed.
See "Introduction," "The Company" and "Description of Membership Stock."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes
Notes Offered Series J Subordinated Redeemable Capital Investment Notes.
Interest 5% per annum, payable quarterly. The board of directors of United has
decided to pay interest at the rate of 6.5% per annum during the period
December 16, 1995, to March 15, 1996, on all Notes outstanding at any
time during that period. On March 16, 1996, the interest rate on all
Notes will revert to the stated rate of 5% per annum unless the board of
directors takes further action. The decision to pay interest at 6.5%
per annum is a voluntary action taken by the board of directors in
recognition of prevailing interest rates. There can be no assurance
that the interest rate on Notes after March 15, 1996, will exceed 5% per
annum. The only right evidenced by the Notes is to receive timely
payment of principal and interest at 5% per annum.
Denominations $100 and multiples thereof.
Price 100% of the principal amount.
Certificates Notes will be noncertificated. The rights of holders of Notes will be
evidenced by the Investment Note Register maintained by United. United
will provide holders of Notes with quarterly statements of their Note
holdings.
Maturity of Principal On the interest payment date coinciding with, or next following, the
expiration of 10 years from date of issue.
Prepayment In the event of death of a registered holder or joint registered holder
of a Note, United will be legally obligated to prepay the Note upon
request of the person entitled to the Note. Although United has no
other obligation to prepay Notes, its present intention is to prepay any
Note, at any time, upon request of the holder. Although United's
present intention is to continue this prepayment policy indefinitely, it
may discontinue such policy at any time. See "Introduction--Notes
Offered." The prepayment price is the principal amount plus accrued
interest.
Type Unsecured, subordinated to Senior Indebtedness. The amount of Senior
Indebtedness outstanding as of September 29, 1995, was approximately
$117,869,000. There is no limit upon the amount of Senior Indebtedness
that United may incur.
Redemption Redeemable at the option of United during the 7 years prior to maturity
at a price equal to principal plus accrued interest.
Transfer Notes are transferable but no market for Notes exists or is expected to
develop.
Indenture Trustee First Bank National Association.
See "Introduction" and "Description of Notes."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
Fiscal years ended
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Sep. 29 Sep. 30 Oct. 1 Oct. 2 Sep. 27
1995 1994 1993 1992 1991
(Dollars in thousands, except per share amounts)
Income Statement(1):
Net sales and operations $1,018,248 $954,220 $876,985 $896,587 $882,878
Income before members'
patronage dividends, income
taxes, and accounting
change 10,503 11,294 11,291 13,314 13,126
Patronage dividends 8,350 8,730 9,000 10,211 10,427
Net income(2)(3) 1,379 1,563 1,714 2,723 1,712
Balance Sheet:
Working capital(4)(8) 52,510 45,258 41,819 53,326 61,032
Total assets(7) 322,456 306,836 285,342 261,289 249,205
Liabilities
Current 159,937 147,443 136,809 113,759 112,256
Long-term 115,624 114,669 105,539 104,645 98,685
Members' equity(8) 42,357 40,425 39,112 39,141 36,431
Adjusted book value per share(5) 62.14 59.50 57.00 53.94 48.99
Ratio of adjusted income
to fixed charges(1)(6) 1.58 1.79 1.85 1.97 2.07
- --------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(1) In fiscal 1993, United changed its method of accounting for inventories to the first-in,
first-out method. Amounts for prior periods have been restated to reflect the change.
See Note 4 to the consolidated financial statements appearing in the accompanying annual
report to shareholders ("Consolidated Financial Statements").
(2) Earnings per share are not shown because earnings are distributed only in the form of
patronage dividends; under United's policy no earnings are available for the purpose of
paying dividends on the Membership Stock.
(3) In fiscal 1992, United changed its method of accounting for income taxes, resulting in a
one-time increase in net income of $526,314.
(4) In fiscal 1992, United changed its method of accounting for investments, resulting in an
increase in current assets at October 2, 1992, of $26,684,291 and a corresponding
decrease in non-current assets. Amounts for prior periods have been restated to reflect
the change.
(5) Adjusted book value per share, which is the offering price per share, is computed by
subtracting from total members' equity at fiscal year end, stock to be issued from
patronage and paid-in capital on such stock, unrealized gain on investments, and
undistributed equity from investments accounted for on the equity method and dividing
the resulting amount by shares outstanding at fiscal year end.
(6) 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,
less capitalized interest. Fixed charges consist of interest on all indebtedness and
that portion of rentals considered to be the interest factor.
(7) In fiscal 1994, United changed its method of accounting for reinsurance. Amounts for
fiscal 1993 have been restated to reflect the change. See Note 11 to the Consolidated
Financial Statements.
(8) In fiscal 1995, United changed its method of accounting for investments to comply with
SFAS No. 115. This change is not applied retroactively to prior years financial
statements. See Note 2 to the Consolidated Financial Statements.
</TABLE>
For additional information, reference is made to the Consolidated Financial
Statements and other information incorporated herein by reference as described
under "Incorporation of Certain Documents by Reference."
<PAGE>
INTRODUCTION
General. United is offering to sell 200,495 shares of its
Membership Stock and $35,875,000 in principal amount of Notes. All sales will
be made by United through its regular employees, who will not receive any
additional remuneration in connection with the sales. No sales will be made
through brokers and there are no underwriters. Membership Stock is not
transferable and there is, therefore, no public market for it. United does
not expect that any public market for Notes will develop. United anticipates
that the securities offered hereby will not all be sold in the immediate
future and that the offerings will, therefore, be made on a continuous basis
over a period of time. There is no assurance that any portion of the
offerings will be sold.
Use of Proceeds. United expects to use the proceeds from the sale
of the securities offered hereby for working capital and general corporate
purposes. To the extent that proceeds are insufficient to meet United's
requirements for working capital at any particular time, United intends to
rely upon increased borrowing from banks. Although United has not in the past
experienced any substantial difficulty in obtaining bank financing, there can
be no assurance that United will be able to obtain additional bank financing
or that it will be able to obtain such financing at interest rates which it
considers reasonable.
Membership Stock Offered. Membership Stock is sold only upon
approval by United's board of directors to retail grocers who have applied for
and been accepted for membership in United. Retail grocers accepted for
membership will thereby gain the right to purchase groceries and related
products from United on a cooperative basis. See "The Company." Membership
Stock is sold in units of 200 shares for each retail store accepted for
membership. Shares will be sold from time to time as United's board of
directors admits additional members and as existing members are accepted for
membership with respect to additional stores. Membership Stock will also be
issued to existing members in partial payment of patronage dividends (see "The
Company") and to members who wish to purchase additional shares for cash.
Membership Stock is offered at its adjusted book value, as
determined by United's annual audited balance sheet as of the end of each
fiscal year, effective the following January 1. Adjusted book value per share
is computed by subtracting from total members' equity at fiscal 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, net
of the tax effect, and dividing the resulting amount by shares outstanding at
fiscal year end. At September 29, 1995, the only adjustment for investments
accounted for on the equity method was United's investment in Western Family
Holding Company. The adjusted book value at September 29, 1995, was $62.14
per share. Thus, the offering price for 200 shares during calendar year 1996
is $12,428.
From time to time, United sells Membership Stock to new members on
an installment basis. If the board of directors determines that an
applicant's financial standing merits such treatment, Membership Stock may be
issued upon receipt of a cash down payment plus a promissory note or other
undertaking to pay the balance of the purchase price. The amount of the down
payment, interest rate and other terms of installment sales may vary depending
on the applicant's financial standing.
United's bylaws provide that, upon termination of membership,
Membership Stock will be repurchased by United at the price at which
Membership Stock is then being offered (adjusted book value). United's board
of directors may elect to pay the repurchase price in installments upon such
terms as the board of directors determines with respect to any shares held
over and above the number of shares a member was initially required to
purchase upon acceptance to membership. For additional information, see
"Description of Membership Stock." Although United has no other obligation to
repurchase Membership Stock, the board of directors has indicated that it will
consider requests for repurchase of Membership Stock from members which are
corporations upon a bona fide transfer of ownership of the corporate member.
It is United's policy not to declare dividends other than
patronage dividends based on a member's purchases from United. The total
amount of patronage dividends (including Membership Stock) is taxable to
individual members when distributed. See "The Company."
United's bylaws provide that the number of shares of Membership
Stock which a member is required to purchase shall be established by the board
of directors. The board of directors has decided that, at present, members
must purchase a unit of 200 shares for each retail store for which they are
admitted as members. This number is subject to change from time to time.
There will not be any refund on or redemption of any shares already purchased
as a result of any decrease in the number of shares required for new stores.
Existing members will not be required to purchase additional shares as a
result of any future increase in the number of shares required per store.
United's bylaws and articles of incorporation also provide that
each holder of record of Membership Stock is entitled to one vote regardless
of the number of shares owned. Thus, a newly admitted member purchasing 200
shares of Membership Stock will have the same voting rights as an existing
member directly holding a greater or lesser number of shares. Certain members
control family corporations or other separate entities that own shares. Those
members may control more than one vote because each controlled entity is a
separate holder of record. See "Description of Membership Stock."
Under United's present policies, members acquiring additional
Membership Stock may have (i) the possibility, under certain circumstances, of
receiving a greater portion of future patronage dividends in cash (see "The
Company--Deposit") and (ii) the possibility of realizing gain in the event of
future appreciation in the book value of Membership Stock (see "Description of
Membership Stock"). Members considering acquiring additional shares of
Membership Stock should be aware that there can be no assurance that United's
future operations will result in the payment of patronage dividends or in any
appreciation in book value. In the event of losses in future years, the book
value of Membership Stock could decline. Also, as described more fully under
"The Company" and "Description of Membership Stock," the proportion of
patronage dividends to be paid in cash and the method of payment for
repurchased shares of Membership Stock are all subject to the discretion of
United's board of directors, and the right to repurchase at book value upon
termination of membership is subject to change by a vote of United's members.
Acquisition of additional shares of Membership Stock will not give a member
any additional voting rights.
Any increase in the total number of shares outstanding will, of
course, proportionately reduce the effect of future changes in total members'
equity upon book value per share. In other words, future increases or
decreases in members' equity resulting from earnings or losses will have a
lesser effect per share if the total number of shares outstanding is
increased.
Notes Offered. United is offering Notes only in fully registered
form without coupons in denominations of $100 or multiples of $100 at 100% of
principal amount. Notes bear interest at 5% per annum, payable quarterly, and
mature on the interest payment date coinciding with, or next following, the
expiration of 10 years from the date of issue. The board of directors of
United has decided to pay interest at the rate of 6.5% per annum during the
period December 16, 1995, to March 15, 1996, on all Notes outstanding at any
time during that period. On March 16, 1996, the interest rate on all Notes
will revert to the stated rate of 5% per annum unless the board of directors
takes further action. The decision to pay interest at 6.5% per annum is a
voluntary action taken by the board of directors in recognition of prevailing
interest rates. The board expects to review the interest rate paid on Notes
from time to time in light of prevailing interest rates and other factors.
There can be no assurance that the interest rate on Notes after March 15,
1996, will exceed 5% per annum. The only right evidenced by the Notes offered
hereby is to receive timely payment of principal and interest at 5% per annum.
Notes are issued as noncertificated Notes. The rights of Note
holders are evidenced by the Investment Note Register. Note holders are
therefore dependent on the Investment Note Registrar to maintain accurate
records regarding their Note holdings. United presently serves as Investment
Note Registrar. Because there is no certificate, Notes may not be readily
saleable. However, no market for Notes exists or is expected to develop.
Notes are unsecured and are subordinated in right of payment to
Senior Indebtedness (as defined, see "Description of Notes--Subordination") in
the event of any liquidation or dissolution. The amount of Senior
Indebtedness at September 29, 1995, was approximately $117,869,000 (consisting
of approximately $61,780,000 in unsubordinated long-term debt and
approximately $56,089,000 in current liabilities). Notes may be redeemed at
United's option during the 7 years prior to maturity at a redemption price
equal to their principal amount plus accrued interest. For additional
information, see "Description of Notes."
Upon the death of a registered holder or joint registered holder,
United will be legally obligated to prepay the Note upon request of the person
entitled to the Note. United may require evidence of death before making
prepayment. Although United has no other legal obligation to prepay Notes,
its present intention is to prepay any Note, at any time, upon request of the
holder. The prepayment price upon death or under United's prepayment policy
is the principal amount of the Note plus accrued interest.
United's prepayment policy may provide holders of Notes with
liquidity which they might not otherwise have. Although United's present
intention is to continue its prepayment policy indefinitely, it may
discontinue such policy at any time. In the event that United discontinues
its prepayment policy, holders of Notes might, because of the absence of an
established market, be unable to sell their Notes prior to maturity or might
be unable to sell the Notes other than at a price below their principal
amount.
It is anticipated that most sales of Notes will be made to members
of United, friends and relatives of members, key employees and other persons
with existing relationships with United. United allows members to purchase
Notes on a regular basis by adding the purchase price to any such member's
weekly invoice for grocery purchases.
THE COMPANY
General. United, a wholesale grocery distributor, is an Oregon
business corporation organized in 1915 which operates and is taxed as a
cooperative.
It 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 35 cash-and-carry depots, principally to nonmember grocers,
restaurants, and institutional buyers.
United's board of directors consists of nine members serving
staggered three-year terms, and they may not be elected to consecutive terms.
Directors, all grocers, must either be proprietors or partners owning a
membership in United or the holder of a substantial interest in a corporation
owning a membership in United. United's directors are David Neal, Peter J.
O'Neal, Raymond L. Nidiffer, Deano Ryan, Gordon Smith, Dick Leonard, Robert A.
Lamb, Ron Mansacola, and H. Larry Montgomery.
The management of the corporation is under the direction of a
President and Chief Executive Officer who is employed and guided by the board
of directors.
Additional information is set forth in the documents incorporated
herein by reference.
Membership. United has approximately 253 members operating a
total of approximately 368 retail grocery stores. All applicants for
membership, who must be retail grocers, 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
Membership Stock.
Upon termination of membership, a member's shares of Membership
Stock are redeemed. Sales and redemptions of Membership Stock are made at
adjusted book value. Adjusted book value for this purpose is determined
according to United's most recent annual audited balance sheet, adjusted for
certain items, effective for the following calendar year. See "Description of
Membership Stock."
United's board of directors may elect to pay the repurchase price
in installments with respect to any shares held over and above the number of
shares a member was initially required to purchase upon acceptance to
membership. See "Description of Membership Stock."
The following table shows the adjusted book value per share of
Membership Stock for the past five years:
<TABLE>
<CAPTION>
Fiscal years ended
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Sep. 29 Sep. 30 Oct. 1 Oct. 2 Sep. 27
1995 1994 1993 1992 1991
Adjusted book value per share $62.14 $59.50 $57.00 $53.94 $48.99
</TABLE>
The issuance of the additional shares offered hereby may result in
substantial dilution of the rate of increase or decrease in adjusted book
value per share. See "Introduction."
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. While the complex pricing systems used in
the wholesale grocery industry make item-by-item price comparisons
impracticable, United believes that its pricing structure, including the
various cost savings available to members, compares favorably on an overall
basis with the pricing structures of its competitors. A cost equalization
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 for the
preceding four weeks, excluding drop shipment purchases. The cost
equalization percentages are designed to reflect the economies of scale
realized by United in servicing larger 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.
The amount of rebates and allowances paid to members with respect to
particular items may vary from the amount realized by United from its
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. For fiscal year
1995, the board decided to distribute 97% of the overage that was available
for distribution. Decisions concerning the portion of 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. See "Deposit."
As a result of cost equalization, rebates, allowances and
patronage dividends, the total cost savings each member realizes will vary
depending on the member's volume of purchases and merchandising of particular
products.
Patronage Dividends and Tax Matters. The following discussion
summarizes the operation of certain aspects of the federal income tax
treatment of cooperatives. The tax treatment of cooperatives is subject to
change from time to time as the Internal Revenue Code of 1986, as amended
("Code"), is amended and as new regulations and interpretations are
periodically adopted.
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 Code requires that not less than 20% of each member's
patronage dividend be paid in cash. It is United's policy to at least meet
that minimum requirement and to pay the balance of patronage dividends in
Membership Stock. See "Deposit" for information regarding the method used by
United to determine the patronage dividends to be paid in cash in excess of
the Code's minimum requirement.
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, including the adjusted book value of 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 generally retain all profits (or losses)
from their operations and are subject to all applicable income taxes.
Deposit. Members are encouraged to accumulate holdings of
Membership Stock. Such holdings are referred to in the cooperative grocery
trade as "Deposits," although the Membership Stock is not physically deposited
with United. The amount of a member's Deposit is defined to be the adjusted
book value of his or her Membership Stock. The Deposit does not include notes
representing United's obligation to pay the deferred balance of the price of
Membership Stock repurchased from members or Capital Investment Notes. The
Deposit is used to:
a. Provide a guarantee fund for the member's purchases on open
account.
b. Ensure the funding of United's operations.
c. Serve as a basis for calculating cash patronage dividends.
The method of calculation is intended to encourage members to maintain
Deposits of at least one and one half times their average weekly
purchases ("AWP") from United. AWP is the average of a member's weekly
purchases of all items from United during the fiscal year for which
patronage dividends are being calculated.
In recent years, the noncash portion of patronage dividends has
been paid in Membership Stock, and it is anticipated that future payments will
also be made in Membership Stock. The board's present policy is to pay
patronage dividends as follows:
1. If the Deposit is less than one and one half times AWP, the
member's patronage dividend is paid 20% in cash and 80% in Membership
Stock.
2. If the Deposit equals or exceeds one and one half times AWP
but is less than 4,000 shares, the member's patronage dividend is paid
80% in cash and 20% in Membership Stock.
3. If the Deposit equals or exceeds one and one half times AWP
and is at least 4,000 shares, the member's patronage dividend is paid
100% in cash.
4. In the case of multiple store operations, Deposit and AWP
requirements are applied on a per store basis.
5. If a member' Deposit exceeds 4,000 shares of Membership Stock
per store, excess shares may be submitted for redemption over a five-
year period. Twenty percent of the shares submitted for each store will
be redeemed each year at the current share price for that year.
The board's Deposit policy is subject to change from time to time.
Although the board expects to retain the general principle of paying
increasing portions of patronage dividends in cash as a member's Deposit
increases, the board may, in the future, decide to consider additional factors
in the payment of patronage dividends. Therefore, there can be no assurance
that the purchase of Membership Stock by a member will result in the member's
receiving any particular portion of future patronage dividends in cash.
DESCRIPTION OF MEMBERSHIP STOCK
United's authorized Membership Stock consists of 10,000,000 shares
of Membership Stock, $5 par value. Membership Stock is sold only to members
of United. All members must be actively engaged in the retail grocery
business and must be approved by the board of directors, primarily on grounds
of financial responsibility and operational ability, before being admitted to
membership.
Each member must purchase the number of shares of Membership Stock
as determined by the board of directors for each retail store the member
operates. Each shareholder of record is entitled to one vote, regardless of
the number of shares owned. Certain members control family corporations or
other separate entities that own shares. Those members may control more than
one vote because each controlled entity is a separate holder of record.
Voting for directors is noncumulative.
Membership Stock is not transferable and is not negotiable. Under
United's bylaws all shares are sold at adjusted book value and, upon a
member's death, retirement, voluntary withdrawal, expulsion or cessation of
purchases from United, will be repurchased by United at adjusted book value as
determined by United's annual audited balance sheet as of the end of each
fiscal year, effective the following January 1. Adjusted book value per share
is computed by subtracting from total members' equity, stock to be issued from
patronage and paid-in capital on such stock and undistributed equity from
investments accounted for on the equity method, net of the tax effect, and
dividing the resulting amount by shares outstanding at fiscal year end (as
restated for any stock splits, stock dividends or similar changes). United's
bylaws provide that the repurchase price for any shares over and above the
number of shares the member was required to purchase as a condition of
membership for a retail store or stores may, in the discretion of United's
board of directors, be paid in 20 quarterly installments with interest at the
same rate being paid from time to time (presently 6.5%) on United's Capital
Investment Notes then being offered or in such other manner as the board of
directors may from time to time determine.
United's board has adopted a policy, subject to change without
notice, requiring United to repurchase on request the number of shares a
member owns in excess of 4,000. The excess shares are repurchased over a
five-year period at the current adjusted book value each year, payable in
cash.
United's obligation to repurchase the shares of members is subject
to the general limitations imposed by the Oregon Business Corporation Act that
United may not purchase shares if, after giving the purchase effect, United
would not be able to pay its debts as they become due in the usual course of
business or United's total assets would be less than its total liabilities.
A member is subject to expulsion by the board of directors for the
following reasons: (l) disclosure to nonmembers of confidential information
relating to United's business, (2) abuse of office by officers, (3) purchase
of goods for the benefit of a nonmember, (4) commission of a felony, (5)
violation of the corporation's bylaws, or (6) action to the detriment of the
corporation. Since 1954, no members have been expelled. Patronage dividends
for the fiscal year in which a membership is terminated are paid in cash
following the end of the fiscal year, based on the member's purchases from
United during the fiscal year. All bylaw provisions, including those relating
to the repurchase of Membership Stock at adjusted book value, are subject to
amendment by a vote of a two-thirds majority of the quorum of shares voting on
such amendment.
Shares of Membership Stock are issued from time to time upon
payment of less than the full purchase price. Upon payment of the full
purchase price, shares of Membership Stock are fully paid and nonassessable.
A member's interest in the adjusted book value of shares of Membership Stock,
is, however, subject to being set off against any debts of the member to
United or its subsidiaries.
The shares of Membership Stock are entitled to share pro rata in
any liquidating distributions and dividends other than patronage dividends.
It is not the policy of the board of directors to declare any dividends other
than patronage dividends. In the event of any liquidation of United, the
rights of holders of Membership Stock with respect to any liquidating
distributions and the rights of former holders of Membership Stock with
respect to any deferred payments due them would be subordinated to all other
claims against United's assets.
Shares of Membership Stock are not subject to any sinking fund
provisions and have no conversion rights.
DESCRIPTION OF NOTES
The Notes offered hereby are issued as the ninth series of Capital
Investment Notes under an indenture dated as of February 1, 1978, between
United and United States National Bank of Oregon, as trustee ("U. S. Bank"),
as supplemented by supplemental indentures dated as of August 15, 1979,
November 11, 1981, December 15, 1984, December 15, 1986, January 27, 1989,
January 22, 1991, July 6, 1992, and January 9, 1995 (which indenture, as so
supplemented, is herein referred to as the "Indenture"). First Bank National
Association ("Trustee") has assumed U. S. Bank's rights and obligations as
trustee under the Indenture. A copy of the Indenture is on file with the
Securities and Exchange Commission as an exhibit to the registration statement
of which this prospectus forms a part. The following description summarizes
certain provisions of the Indenture and is subject to the detailed provisions
of the Indenture, to which reference is hereby made for a complete statement
of such provisions. Whenever particular Sections or terms defined in the
Indenture are referred to herein, such Sections or definitions are
incorporated by reference. References in parentheses are to Sections of the
indenture dated as of February 1, 1978, except that references marked with an
asterisk (*) are to Sections of the supplemental indenture dated as of January
9, 1995. See "Additional Information."
General. Notes bear interest from the date of issue at the stated
annual rate indicated on the cover page of this prospectus. United may, under
the Indenture, issue Notes at other interest rates, but no change in interest
rates may affect the stated interest rate on Notes then outstanding. Interest
is paid on the 15th day of March, June, September, and December for the
quarters ending on those dates to the persons in whose names the Notes are
registered as of the last business day of the calendar month preceding the
payment date. (Secs. 3.06 and 4.02*)
Notes mature on the interest payment date which is on, or next
following, the date ten years from the date of issue, are unsecured
obligations of United and are limited to $50,000,000 aggregate principal
amount, $38,875,000 of which is being offered pursuant to this prospectus.
Notes are issuable only in registered form, without coupons, in denominations
of $100 or any multiple of $100 approved by United. Notes are issued as
noncertificated Notes. (Secs. 1.15, 3.02, 2.01*, 4.01* and 4.02*)
Principal and interest on all Notes are payable at the principal
office of United in Clackamas County, Oregon, provided that, at the option of
United, interest and principal payments on Notes may be made by check mailed
to the address of the registered holders of the Notes. United intends to pay
interest and principal by check. (Secs. 3.01, 7.02 and 3.03*) United will
exchange Notes for other Notes of the same series and of a like principal
amount and having the same terms and conditions upon written request of the
holder. No service charge will be made to the holder for any exchange or
transfer, except for any tax or governmental charge incidental thereto.
(Secs. 3.04 and 3.04*) United is required to mail quarterly statements of Note
holdings to holders of Notes. (Sec. 4.03*)
United may from time to time without the consent of any holder of
an outstanding Note issue under the Indenture, by means of an indenture
supplemental thereto, additional Capital Investment Notes having different
terms and of a series other than the Notes. The amount of additional Capital
Investment Notes or other debt which may be issued by United is not limited by
the Indenture. (Sec. 4.01)
The Indenture does not contain any covenant or provision that
protects the holders of Notes against a reduction in the value of the Notes
resulting from a highly leveraged transaction, whether or not such transaction
involves a change in control of United. Similarly, no holder of Senior
Indebtedness of United at September 29, 1995, is protected against a reduction
in the value of Senior Indebtedness held by such holder resulting from a
highly leveraged transaction, except that certain agreements relating to
Senior Indebtedness require that United maintain specified financial ratios.
Prepayment. Although United is not obligated to prepay Notes
except in the event of the death of a registered holder, United's present
intention is to prepay the principal amount of any Note, together with accrued
interest to the date of payment, at any time upon the request of the holder.
In the event of the death of a registered holder or joint
registered holder of a Note, United is obligated, at the option of the person
legally entitled to become the holder of the Note, to prepay the principal
amount of the Note, together with accrued interest to the date of payment.
Any request for prepayment must be made to United in writing. United may, as
a condition precedent to the prepayment, require the submission of evidence
satisfactory to United of the death of the registered holder or joint
registered holder and such additional documents or other material as it may
consider necessary to establish the person entitled to become the holder of
the Note or such other facts as it considers relevant to the fulfillment of
its prepayment obligation. (Sec. 5.01*)
Redemption. The Notes may be redeemed at the election of United
during the seven years prior to maturity at their principal amount, plus
accrued interest, upon not less than 30 days' notice by mail to the registered
holder. United, in its sole discretion, may designate for redemption Notes
maturing on specified dates or bearing specified interest rates. If less than
all the Notes with a specified maturity date or interest rate are to be
redeemed, the Trustee shall select the particular Notes to be redeemed in
whole or in part. (Secs. 5.02* and 5.03*) No interest on Notes selected for
redemption will accrue after the date fixed for redemption. (Sec. 5.04*)
Subordination. Payment of the principal of, and interest on, the
Notes is subordinated in the manner and to the extent set forth in the
Indenture in right of payment to the prior payment in full of all Senior
Indebtedness. (Sec. 6.01*) Senior Indebtedness is defined as indebtedness of
United, whether outstanding on the date of the Indenture or thereafter
incurred, (a) for money borrowed by United (other than indebtedness evidenced
by Capital Investment Notes and Registered Redeemable Building Notes); (b) for
money borrowed by others and guaranteed by United; (c) constituting purchase
money indebtedness incurred for the purchase of tangible property and for the
payment of which United is directly or contingently liable; (d) arising under
any document creating an absolute or contingent obligation of United to
purchase promissory notes and related documents from third parties; or (e) for
fees, expenses, and other obligations of United due in connection with
indebtedness of United that constitutes Senior Indebtedness, unless by the
terms of the instrument creating or evidencing the indebtedness it is provided
that such indebtedness is not superior in right of payment to the Notes.
(Secs. 1.01* and 6.01*) The Indenture does not limit the amount of Senior
Indebtedness which United may incur.
The Indenture provides that, in the event of and during the
continuation of any default on any Senior Indebtedness, no payment may be made
on the Notes or for the redemption or purchase of Notes. (Sec. 6.03*) Upon
any distribution of assets of United, upon any liquidation, dissolution,
winding up or reorganization of United, whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors,
or other proceeding, all principal of (and premium, if any) and interest on
all Senior Indebtedness must be paid in full before the holders of the Notes
are entitled to receive or retain any payment. Subject to the payment in full
of all Senior Indebtedness, the holders of the Notes are subrogated to the
rights of the holders of the Senior Indebtedness to receive distributions of
assets of United applicable to Senior Indebtedness until the Notes are paid in
full. (Sec. 6.02*) By reason of such subordination, in the event of
insolvency, creditors of United who are holders of Senior Indebtedness may
recover more, ratably, than the holders of the Notes, and creditors of United
who are not holders of Senior Indebtedness or of the Notes may recover less,
ratably, than the holders of Senior Indebtedness, and may recover more,
ratably, than the holders of the Notes.
Modification of Indenture. Modifications and amendments of the
Indenture may be made by United and the Trustee with the consent of the
holders of 66 2/3% in principal amount of the Capital Investment Notes of all
series then outstanding, provided that no such modification or amendment may,
without the consent of the holder of each Note affected thereby, (a) change
the maturity date of the principal or the interest payment dates; (b) reduce
the principal amount of or the interest on any Note; (c) change the currency
of payment; (d) impair the right to institute suit for the enforcement of any
such payment on or after the maturity date or the Redemption Date, as the case
may be; or (e) reduce the above-stated percentage of holders of Capital
Investment Notes necessary to modify or amend the Indenture. (Sec. 13.02)
Events of Default; Notice and Waiver. The following constitute
Events of Default: (a) default in the payment of any interest continued for
30 days; (b) default in the payment of the principal of (or premium, if any,
on) any Capital Investment Note at its maturity; (c) default in the
performance of any other covenant or warranty of United, continued for 60 days
after written notice as provided in the Indenture; (d) acceleration of any
Senior Indebtedness of United as a result of a default with respect thereto if
such acceleration is not rescinded within 30 days after written notice as
provided in the Indenture; and (e) certain events in bankruptcy, insolvency or
reorganization. (Sec. 9.01) If an Event of Default shall happen and be
continuing, the Trustee or the holders of not less than 25% in principal
amount of outstanding Capital Investment Notes may declare the principal of
all the Capital Investment Notes to be due and payable immediately. (Sec.
9.02)
The Indenture provides that the Trustee will, within 90 days after
the occurrence of a default, give to the holders of Capital Investment Notes
notice of such default known to it, unless such default shall have been cured
or waived; but, except in the case of a default in the payment of the
principal of (or premium, if any) or interest on any of the Capital Investment
Notes, the Trustee shall be protected in withholding such notice if it in good
faith determines that the withholding of such notice is in the interest of
such holders. (Sec. 9.14)
The holders of a majority in principal amount of the outstanding
Capital Investment Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee, provided that such direction shall not be
in conflict with any rule of law or the Indenture. (Sec. 9.12) Before
proceeding to exercise any right or power under the Indenture at the direction
of such holders, the Trustee is entitled to receive from such holders
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with any such direction. (Sec.
10.02)
The holders of not less than a majority in principal amount of the
outstanding Capital Investment Notes may, on behalf of the holders of all the
Capital Investment Notes, waive any past default except (a) a default in the
payment of principal of (or premium, if any) or interest on any Capital
Investment Note, and (b) a default in respect of a covenant or provision of
the Indenture which cannot be amended without the consent of the holder of
each Capital Investment Note affected. (Sec. 9.13)
United is required to furnish to the Trustee annually a statement
as to the fulfillment by United of all its obligations under the Indenture.
(Sec. 7.06)
Other. The Notes have no sinking fund provisions. The Indenture
contains no restrictions on the dividends that may be paid by United and
imposes no obligations with respect to the maintenance of reserves, levels of
net worth, liabilities, working capital or the like.
Regarding the Trustee. United has no agreements or business
relationships with the Trustee other than those contained in or contemplated
by the Indenture. The Trustee is required to furnish annual reports to
holders of Notes as to certain matters relating to the Notes, the Trustee's
performance and the Trustee's eligibility to act as Trustee. (Sec. 8.03)
LEGAL MATTERS
The validity of the Membership Stock and Notes offered hereby have
been passed upon for United by Miller, Nash, Wiener, Hager & Carlsen,
Portland, Oregon, who have acted as special counsel to United in connection
with this offer.
EXPERTS
The consolidated financial statements of United incorporated in
this prospectus by reference have been audited by DeLap, White & Raisch,
independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in auditing and accounting in giving said report.
ADDITIONAL INFORMATION
This prospectus omits certain information contained in a
registration statement filed by United with the Securities and Exchange
Commission. For further information, reference is made to the registration
statement, including the financial schedules and exhibits filed as a part
thereof. See "Statement of Available Information."
<PAGE>
