UNITED GROCERS, INC., AND SUBSIDIARIES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
--------------------------------------------
Quarterly report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
--------------------------------------------
For the Quarterly period ended July 3, 1998
Commission File Number 2-60487
United Grocers, Inc.
(Exact name of registrant as specified in its charter)
Oregon 93-0301970
(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
6433 S.E. Lake Road
Post Office Box 22187, Milwaukie, Oregon 97269
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 833-1000
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 [ ] No [X].
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 19, 1998
Common shares, $5 par value 586,834 shares
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UNITED GROCERS, INC., AND SUBSIDIARIES
INDEX
PART I: Financial Information Pages
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the quarters and year-to-date periods
ended July 3, 1998 and June 27, 1997 3-4
Condensed Consolidated Balance Sheets as of
July 3, 1998 and October 3, 1997 5-6
Condensed Consolidated Statements of Cash Flows
for the year-to-date periods
ended July 3, 1998 and June 27, 1997 7
Notes to the Condensed Consolidated Financial
Statements 8-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-14
PART II: Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
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UNITED GROCERS, INC., AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter ended Quarter ended
July 3, 1998 June 27, 1997
(as restated,
see Note 4 )
------------- -------------
Net sales and operations $ 292,939,434 $ 315,934,272
------------- -------------
Costs and expenses:
Cost of sales 250,136,523 272,705,274
Operating expenses 26,138,718 37,137,787
Selling and administrative
expenses 4,876,842 6,431,492
Depreciation and amortization 2,585,031 1,716,707
------------- -------------
Total costs and expenses 283,737,114 317,991,260
------------- -------------
Other (income)/expense:
Interest expense 3,597,476 3,692,397
Interest income ( 632,230) ( 207,567)
Gain on sale of retail operations (26,213,972) -0-
------------- -------------
Total other (income)/expense (23,248,726) 3,484,830
------------- -------------
Income (loss) from continuing operations
before members' allowances
and income taxes 32,451,046 ( 5,541,818)
Members' allowances ( 4,460,984) ( 2,450,914)
------------- -------------
Income (loss) from continuing operations
before income tax (provision) benefit 27,990,062 ( 7,992,732)
(Provision) benefit for
income taxes ( 11,195,881) 3,877,015
------------- -------------
Income (loss) from continuing
operations 16,794,181 ( 4,115,717)
Discontinued operations (Note 3), less
applicable income taxes of $279,140
in 1998 and $423,754 in 1997 418,710 635,632
------------- -------------
Net income (loss) $17,212,891 $( 3,480,085)
=========== ============
The accompanying notes are an integral part of these financial statements.
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UNITED GROCERS, INC., AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Year-to-date Year-to-date
period ended period ended
July 3, 1998 June 27, 1997
(as restated,
see Note 4)
------------- -------------
Net sales and operations $ 893,813,267 $ 955,993,407
------------- -------------
Costs and expenses:
Cost of sales 771,652,586 827,648,977
Operating expenses 83,214,358 107,185,873
Selling and administrative
expenses 16,795,355 14,884,803
Depreciation and amortization 7,715,001 5,149,318
------------- -------------
Total costs and expenses 879,377,300 954,868,971
------------- -------------
Other (income)/expense:
Interest expense 11,229,345 12,115,194
Interest income ( 1,329,902) ( 639,515)
Gain on sale of retail operations ( 26,213,972) -0-
------------- -------------
Total other (income)/expense ( 16,314,529) 11,475,679
------------- -------------
Income (loss) from continuing operations
before members' allowances
and income taxes 30,750,496 ( 10,351,243)
Members' allowances ( 9,060,625) ( 7,652,172)
------------- -------------
Income (loss) from continuing operations
before income tax (provision) benefit 21,689,871 ( 18,003,415)
(Provision) benefit for
income taxes ( 8,675,805) 7,912,953
------------- -------------
Income (loss) from continuing
operations 13,014,066 ( 10,090,462)
Discontinued operations (Note 3), less
applicable income taxes of $903,476
in 1998 and $1,055,268 in 1997 1,355,185 1,582,901
------------- -------------
Net income (loss) $14,369,251 $( 8,507,561)
============= =============
The accompanying notes are an integral part of these financial statements.
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UNITED GROCERS, INC., AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
ASSETS July 3, 1998 October 3, 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 15,671,236 $ 10,223,434
Investments maintained for insurance
reserves 45,993,980 51,512,510
Accounts and notes receivable 81,707,823 78,537,140
Inventories 60,502,941 102,333,350
Other current assets 3,102,160 7,036,284
Deferred income taxes 8,368,945 8,147,000
------------ ------------
Total current assets 215,347,085 257,789,718
------------ ------------
Non-current assets:
Notes receivable 24,621,822 16,497,658
Investment in affiliated companies 7,045,377 6,971,378
Other receivables and investments 3,076,790 4,837,028
Deferred income taxes 553,000 553,000
Property, plant and equipment, net 42,046,986 61,443,261
Other non-current assets 13,061,308 17,334,943
------------ ------------
Total non-current assets 90,405,283 107,637,268
------------ ------------
TOTAL $305,752,368 $365,426,986
============ ============
The accompanying notes are an integral part of these financial statements.
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UNITED GROCERS, INC., AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(Unaudited) (Audited)
LIABILITIES AND MEMBERS' EQUITY July 3, 1998 October 3, 1997
------------ ---------------
Current liabilities:
Notes payable - bank $ 44,140,021 $ 10,191,059
Accounts payable 71,628,523 97,586,711
Insurance reserves supported by investments 27,762,408 26,356,436
Compensation and taxes payable 6,717,030 8,327,715
Other accrued expenses 15,326,511 6,310,410
Other current liabilities 1,793,632 1,804,946
------------ ------------
Total current liabilities 167,368,125 150,577,277
Notes payable, net of current portion 98,887,172 187,995,051
Other liabilities 9,409,316 11,083,678
------------ ------------
Total liabilities 275,664,613 349,656,006
------------ ------------
Redeemable members' equity 1,120,000 1,120,000
------------ ------------
Members' equity:
Common stock (authorized, 10,000,000
shares at $5.00 par value; issued
and outstanding, 586,834 shares at
July 3, 1998 and 586,834 shares
at October 3, 1997) 2,934,170 2,934,170
Additional paid-in capital 22,885,942 22,885,942
Retained earnings 2,937,996 ( 11,431,255)
Unrealized gain on investments 209,647 262,123
------------ ------------
Total members' equity 28,967,755 14,650,980
------------ ------------
TOTAL $305,752,368 $365,426,986
============ ============
The accompanying notes are an integral part of these financial statements.
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UNITED GROCERS, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Year-to-date Year-to-date
period ended period ended
July 3, 1998 June 27, 1997
(as restated,
see Note 4)
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 14,369,251 $ ( 8,507,561)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities ( 13,095,299) 18,369,473
------------- -------------
Net cash provided by
operating activities 1,273,952 9,861,912
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to members ( 1,647,219) ( 8,856,658)
Collections on loans to members 2,603,304 4,354,256
Proceeds from sale of member loans 1,550,163 12,530,273
Redemption of investments 8,685,147 7,116,425
Purchase of investments ( 3,166,617) ( 11,483,449)
Sale of property, plant and equipment 12,898,495 10,179,084
Purchase of property, plant and equipment ( 1,870,052) ( 16,100,650)
Proceeds from sale of retail operations, net 40,279,545 -0-
------------- -------------
Net cash provided by (used in)
investing activities 59,332,766 ( 2,260,719)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock -0- 93,368
Repurchase of common stock -0- ( 2,234,721)
Proceeds from (repayment of), net:
Revolving bank lines of credit ( 46,669,230) 5,266,134
Mortgages and notes ( 5,969,186) ( 4,930,961)
Redeemable notes and certificates ( 2,520,500) ( 12,428,343)
------------- -------------
Net cash used in
financing activities ( 55,158,916) ( 14,234,523)
------------- -------------
Net increase (decrease) in cash and
cash equivalents 5,447,802 ( 6,633,330)
Cash and cash equivalents, beginning of year 10,223,434 16,509,866
------------- -------------
Cash and cash equivalents, end of period $ 15,671,236 $ 9,876,536
============ ============
The accompanying notes are an integral part of these financial statements.
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UNITED GROCERS, INC., AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. MANAGEMENT'S STATEMENT
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position of
United Grocers, Inc. and subsidiaries (the Company) at July 3, 1998 and the
results of operations for the quarterly and the year-to-date periods ended July
3, 1998 and June 27, 1997 and cash flows for the year-to-date periods ended July
3, 1998 and June 27, 1997. The Notes to the Condensed Consolidated Financial
Statements which are contained in the 1997 Annual Report to Shareholders should
be read in conjunction with these Condensed Consolidated Financial Statements.
Operating results for the period ended July 3, 1998 are not necessarily
indicative of the results that may be expected for the entire fiscal year ending
October 2, 1998, or any other period.
Note 2. ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes requirements
for disclosure of comprehensive income. The objective of SFAS 130 is to report a
measure of all changes in equity that result from transactons and economic
events other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. Comprehensive income did
not differ significantly from reported net income in the periods presented.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and earns revenues and its major
customers. The statement is effective for fiscal years beginning after December
15, 1997, but is not required to be presented in interim financial information
in the year of adoption.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The statement
suggests combined formats for presentation of pension and other postretirement
benefit disclosures. The statement is effective for fiscal years beginning after
December 15, 1997, but is not required to be presented in interim financial
information in the year of adoption.
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<PAGE>
In June 1998, The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities"("SFAS 133"). SFAS 133 establishes accounting
and reporting standards requiring that every derivitive instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
SFAS 133 also requires that changes in the derivative instrument's fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS 133 is effective for fiscal years beginning after June
15, 1999.
The Company management has studied the implications of SFAS 131 and 132, and
based on the initial evaluation, expects the adoption to have no impact on the
Company's financial condition or results of operations, but will require revised
disclosures when the respective statements become effective. The Company's
management has studied the implications of SFAS 133 and based on the initial
evaluation, expects the adoption to have no impact on the Company's financial
condition or results of operations.
Note 3. DISCONTINUED OPERATIONS
In September 1997, the Company's management and Board of Directors approved a
plan whereby the insurance operations would be sold to an unrelated party.
Accordingly, the results of operations of the insurance segment for the quarter
and year-to-date periods have been presented as "discontinued operations" in the
accompanying condensed consolidated statements of operations.
The sale was completed on July 8, 1998. Net proceeds from the sale of the stock
of the Company's insurance subsidiary totaled appoximately $36 million,
resulting in a gain (before income taxes) of approximately $5 million, which
will be recorded in the fourth quarter of fiscal 1998.
The following is a summary of the assets and liabilities of the insurance
segment as of July 3, 1998:
Assets:
Investments $ 45,993,980
Receivables and other current assets 28,646,171
Long-term assets 732,676
------------
75,372,827
Liabilities:
Insurance reserves supported by investments 27,762,408
Accounts payable and other current liabilities 16,393,079
------------
Net investment in insurance segment $ 31,217,340
============
Note 4. RESTATEMENT
In its 1997 Annual Report to Shareholders for the year ended October 3, 1997,
the Company presented a restatement of its members' equity as of September 27,
1996, due to adjustments to the financial statements for the years prior to
fiscal 1997. In addition, the Company recorded adjustments to its fiscal 1997
financial statements in the fourth quarter of 1997, a portion of which should
have been recorded in previous quarter and year-to-date quarters. Accordingly,
the condensed consolidated financial statements for the quarter and year-to-date
periods ended June 27, 1997 presented here have been restated to reflect the
impact of the prior period adjustments and adjustments recorded in the fourth
quarter of fiscal 1997.
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Note 5. SALE OF RETAIL OPERATIONS
The gain on sale of retail operations recorded in the condensed consolidated
statements of operations reflects the following two transactions:
On May 1, 1998, the Company completed the sale of its Rich and Rhine, Inc.
subsidiary to an unrelated party. The purchase price consisted of $3.5 million
in cash, plus a promissory note of approximately $1.3 million. The promissory
note is collateralized by a pledge of the common stock of the buyer.
On May 15, 1998, the Company completed the sale of its Cash & Carry division to
an unrelated third party. The purchase price consisted of $42.5 million in cash,
plus a $17.5 million 5-year unsecured note.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Year-to-date period ended July 3, 1998 ("1998") compared to year-to-date period
ended June 27, 1997 ("1997").
RESULTS OF OPERATIONS
OVERVIEW
During 1998, the Company's financial condition and results of operations were
affected by several significant events, including the closure of the Medford,
Oregon distribution facility, the consolidation of certain California operations
with Oregon staff, the implementation of a new marketing plan and the sales of
the Cash & Carry and Rich and Rhine, Inc. retail operations.
The new marketing plan is designed to encourage concentration of customers'
purchases through the Company's warehouse and to promote distribution and
warehousing cost efficiencies.
NET SALES AND OPERATIONS
Net sales and operations declined 6.5% from 1997 to $893.8 million for 1998. The
decline in sales is primarily due to the sale of the Cash & Carry division in
May, 1998, and lower volume due to the elimination of certain unprofitable
accounts.
COSTS AND EXPENSES
Total costs and expenses decreased $75.5 million from 1997 to $879.4 million for
1998 (98.4% of sales). This compares to $954.9 million (99.9% of sales) in 1997.
The components of costs and expenses are outlined below:
Costs and Expenses as a Percent of Net Sales and Operations:
Year-to-date Year-to-date
period ended period ended
July 3, 1998 June 27, 1997
------------ -------------
Cost of Sales 86.3% 86.6%
Operating expenses 9.3 11.2
Selling and administrative
expenses 1.9 1.6
Depreciation and amortization 0.9 0.5
---- ----
Total 98.4% 99.9%
==== ====
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<PAGE>
Operating expenses as a percent of net sales and operations decreased from 11.2%
to 9.3% from 1997 to 1998. The decrease in operating expenses is primarily due
to internal cost efficiencies, including the consolidation of the procurement
and accounting staffs of the Company's California division with those of the
Oregon staff. These cost efficiencies were partially offset by costs incurred in
connection with the closure of the Company's Medford distribution facility
recorded in the first two quarters of 1998.
OTHER INCOME/EXPENSE
Interest expense decreased $.9 million from 1997 to 1998 due to a reduction of
debt. Interest income increased $.7 million from 1997 to 1998, primarily as a
result of an increase in the Company's notes receivable. Gain on sale of retail
operations of $26.2 million in 1998 is due to the sale of the Cash and Carry and
Rich and Rhine, Inc. retail operations, as described above.
MEMBER ALLOWANCES
In 1998, member allowances were $9.1 million (1.0% of sales). This compares to
$7.7 million (.8% of sales) in 1997. The increase is due to changes in the
Company's marketing plan.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
In 1998, the Company provided $1.3 million in cash from its operations, compared
to $9.9 million in 1997. The decrease of $8.6 million is due primarily to
reductions in accounts payable, partially offset by reductions in inventory.
CASH FLOWS FROM INVESTING ACTIVITIES
In 1998, the Company provided $59.3 million in cash from investing activities.
This compares to the $2.3 million in cash used by investing activities in 1997.
Cash flows from investing activities increased primarily due to the sale of
certain retail operations, a reduction in capital expenditures, and reductions
in purchases of investments, partially offset by a decrease in member financing
activities.
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CASH FLOWS FROM FINANCING ACTIVITIES
In 1998, the Company's financing activities used $55.2 million in cash compared
to a use of cash of $14.2 million in 1997. The increase in cash used for
financing is a result of debt reductions in 1998.
ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes requirements
for disclosure of comprehensive income. The objective of SFAS 130 is to report a
measure of all changes in equity that result from transactons and economic
events other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. Comprehensive income did
not differ significantly from reported net income in the periods presented.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and earns revenues and its major
customers. The statement is effective for fiscal years beginning after December
15, 1997, but is not required to be presented in interim financial information
in the year of adoption.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The statement
suggests combined formats for presentation of pension and other postretirement
benefit disclosures. The statement is effective for fiscal years beginning after
December 15, 1997, but is not required to be presented in interim financial
information in the year of adoption.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and earns revenues and its major
customers. The statement is effective for fiscal years beginning after December
15, 1997, but is not required to be presented in interim financial information
in the year of adoption.
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<PAGE>
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The statement
suggests combined formats for presentation of pension and other postretirement
benefit disclosures. The statement is effective for fiscal years beginning after
December 15, 1997, but is not required to be presented in interim financial
information in the year of adoption.
In June 1998, The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities"("SFAS 133"). SFAS 133 establishes accounting
and reporting standards requiring that every derivitive instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
SFAS 133 also requires that changes in the derivative instrument's fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS 133 is effective for fiscal years beginning after June
15, 1999.
The Company management has studied the implications of SFAS 131 and 132, and
based on the initial evaluation, expects the adoption to have no impact on the
Company's financial condition or results of operations, but will require revised
disclosures when the respective statements become effective. The Company's
management has studied the implications of SFAS 133 and based on the initial
evaluation, expects the adoption to have no impact on the Company's financial
condition or results of operations.
YEAR 2000
The Company is currently reviewing its internal systems and infrastructure in
order to identify and modify those systems that are not Year 2000 compliant. The
Company expects any required modification to be made on a timely basis and does
not believe that the cost of any such modification will have a material adverse
effect on the Company's operating results. There can be no assurance, however,
that there will not be a delay in, or increased costs associated with,
implementation of any such modifications, and the Company's inability to
implement such modifications could have an adverse effect on the Company's
future operating results.
FORWARD-LOOKING STATEMENTS
As with all forward-looking statements, the forward-looking statements made by
the Company herein (including, without limitation, forward-looking statements
relating to the effect of adoption of accounting pronouncements or the expected
gains from sales not yet recorded) are subject to uncertainties that could cause
actual results to differ materially from those projected, including without
limitation, uncertainties inherent in business plans and the changing of
business methods, uncertainties related to the response of customers and
suppliers to changing business strategies, and uncertainties concerning the
outcome of sales of subsidiaries or divisions.
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<PAGE>
Part II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.A - Asset Purchase Agreement dated May 15, 1998, by and among
the Company and Smart & Final Stores Corporation
Exhibit 10.B - Asset Purchase Agreement Relating to the Business of Rich
and Rhine, Inc., dated as of May 1, 1998, by and among Rich & Rhine
Acquisition Corp., Kero Investments, Inc., Rich and Rhine, Inc., and United
Grocers, Inc.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period ended July 3,
1998. The most recent report on Form 8-K was filed by the Company on
December 22, 1997, reporting the determination by management that the
previously issued financial statements for the fiscal year ended September
27, 1996, and subsequent interim periods should be restated.
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 21, 1998 UNITED GROCERS, INC.
(Registrant)
By /s/ Mark Tweedie
Mark Tweedie
Vice President
(Principal Accounting Officer)
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (the "Agreement") is made and entered into
as of the 15th day of May, 1998, by and between United Grocers, Inc., an Oregon
business corporation (the "Seller"), and Smart & Final Inc., a Delaware
corporation (the "Buyer").
RECITALS
--------
A. Seller through its United Grocers Cash and Carry operating division
("UGCC") is engaged in the ownership and operation of wholesale grocery
warehouse outlets, operated on a cash-and-carry basis, open only to
institutional customers for the sale of produce, dry grocery, fresh and smoked
meats, deli, frozen meats and foods and other related food products in
Washington, Oregon, Idaho and northern California (the "Business"), and is
interested in selling substantially all of the Business and assets of UGCC.
Seller also operates a separate division that is engaged in the wholesale
distribution and sale of various food products and dry goods to grocery stores.
The parties understand, acknowledge, and agree that the transaction contemplated
by this Agreement relates only to UGCC's Business assets and certain of its
liabilities as set forth below, and does not include any other assets or
liabilities of Seller.
B. Buyer desires to purchase and Seller desires to sell substantially
all of UGCC's Business and assets on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth below, the parties agree as follows:
AGREEMENT
---------
1. PURCHASE AND SALE OF ASSETS.
1.1 Transfer of Purchased Assets. In consideration of the payment
of the purchase price set forth in Section 1.6 below, Seller shall sell, assign
and deliver to Buyer on the Closing Date (as defined in Section 2.1 below), free
and clear of any and all liens, charges, claims, encumbrances, pledges, security
interests, community property rights, liabilities, debts, obligations,
restrictions on transfer or other defects in title of any kind or nature, fixed
or contingent, except as otherwise set forth or identified herein, and except
for the Assumed Liabilities (as defined in Section 1.3 below), and Buyer shall
purchase and accept, all assets, properties, rights, titles and interests of
every kind and nature owned or leased by Seller and used in connection with the
Business, as specified in this Agreement, as of the Financials Date (as defined
below), whether tangible or intangible, real or personal, and wherever located
and by whomever possessed (the "Purchased Assets"), including, without
limitation, the following assets used exclusively in connection with the
Business, but excluding the Excluded Assets (as defined in Section 1.2 below):
(a) all till cash of Seller which relates to UGCC, the
Business or the Purchased Assets;
(b) all accounts receivable of Seller, whether or not
evidenced by a note, which relate directly to UGCC, the Business or the
Purchased Assets, which accounts receivable, as of May 1, 1998, the aging
thereof, and the amount of the reserves carried on the books and records
1
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of UGCC for bad debts with respect thereto (the "Bad Debt Reserve"), are more
specifically set forth on attached Schedule 1.1(b);
(c) all prepayments, security deposits, prepaid taxes and
expenses, credits and deferred charges of Seller which relate directly to UGCC,
the Business or the Purchased Assets;
(d) all of Seller's interest in any leases (the "Leases")
for the real properties more particularly described on Schedule 1.1(d) to this
Agreement (the "Leased Properties"), other than the Yuba City lease;
(e) all of Seller's interest in the real properties more
particularly described on Schedule 1.1(e) to this Agreement (collectively, the
"Owned Properties"). The Leased Properties and the Owned Properties are
hereinafter collectively referred to as the "Properties;"
(f) all raw materials, packaging, spare parts,
work-in-process, finished goods, inventories and supplies owned by Seller which
directly relate to UGCC, the Business or the Purchased Assets and located at the
Properties;
(g) all machinery, equipment, computers, software,
telephone systems, furniture, automobiles, trucks, tractors, trailers, vehicles
and other tangible personal property owned by Seller which directly relate to
UGCC, the Business or the Purchased Assets and located at the Properties;
(h) the exclusive license to utilize those trade names
and trademarks identified on Schedule 1.1(h) and all goodwill incident thereto,
and the non-exclusive right to use the name "United Grocers" and any variant
thereof for a period of five (5) years from the Closing Date, all pursuant to
the terms of the License Agreement in the form of Exhibit A attached hereto;
(i) all rights of Seller under the contracts, agreements,
orders, leases, licenses and arrangements more particularly described on
Schedule 1.1(i) to this Agreement, to the extent assignable;
(j) all rights of Seller under all permits, licenses,
variances, approvals and other authorizations obtained from foreign, federal,
state or local governments or governmental agencies or other similar rights
necessary to the operation or ownership of UGCC, the Business or the Purchased
Assets, to the extent such exist and are assignable;
(k) all claims, insurance, warranties, guarantees,
refunds, causes of action, rights of recovery, rights of set-off and rights of
recoupment of every kind and nature directly relating to UGCC, the Business or
the Purchased Assets, to the extent such exist and are assignable;
(l) all insurance, warranty and condemnation proceeds
received after the Closing Date hereof with respect to damage, non-conformance
or loss to UGCC, the Business or the Purchased Assets;
(m) all books, ledgers, files, documents, correspondence,
brochures, lists, studies, reports, data, business records and other printed or
written materials (including, without limitation, records pertaining to past and
current customer accounts, suppliers, distributors, personnel and agents)
directly relating to UGCC, the Business or the Purchased Assets, as such items
existed on the Financials Date, up to and through the Closing Date;
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(n) subject to Section 5.3 below, all rights to receive
mail and other communications addressed to Seller or UGCC (including, without
limitation, the payments for accounts or notes receivable) that relate
exclusively to UGCC, the Business or the Purchased Assets;
(o) all rights, title and interests in and to all
confidential business and technical information, trade secrets and proprietary
rights directly relating to UGCC, the Business or the Purchased Assets; and
(p) the Business and all goodwill associated therewith.
1.2 Excluded Assets. Notwithstanding the foregoing, the following
assets are expressly excluded from the purchase and sale contemplated hereby
(the "Excluded Assets") and, as such, are not included in the Purchased Assets:
(a) any and all other assets or property of Seller,
whether tangible or intangible, real or personal;
(b) Seller's rights under or pursuant to this Agreement;
(c) all minute books, stock books, corporate seal and
other corporate records and property of any kind or character that relate
exclusively to Seller's organization, existence and capitalization;
(d) all contracts, agreements, orders, leases, licenses
and arrangements which are not expressly specified to be assumed by the Buyer or
which are not transferable to Buyer;
(e) all claims, insurance, warranties, guarantees,
refunds, causes of action, rights of recovery, rights of set-off and rights of
recoupment of every kind and nature other than those described in Section
1.1(k);
(f) the right to receive mail and other communications
addressed to Seller that relate exclusively to the Excluded Assets or the
Excluded Liabilities;
(g) shares of Seller held in its treasury;
(h) all personnel records of Seller, and all other
records which Seller is required by law to retain in its possession;
(i) all claims for refund of taxes and other governmental
charges of whatever nature for all periods prior to the Closing Date;
(j) all rights and funds in connection with retirement,
employee benefits and similar plans; and
(k) any assets expressly designated in Schedule 1.2(k) as
Excluded Assets.
1.3 Limited Assumption of Liabilities. Subject to the terms and
conditions of this Agreement, from and after the Closing Date, Buyer shall
assume and agree promptly to pay, defend, discharge and perform as and when due
only the following specific liabilities and obligations of Seller
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which relate exclusively to UGCC or the Business (the "Assumed Liabilities")
from the first day after the Closing Date and thereafter, subject to certain
limitations and rights as are set forth in Section 1.5 below:
(a) all liabilities and obligations under the contracts,
agreements, orders, leases (including tenant improvement construction contracts
for the Chico, San Francisco and San Jose stores, subject to Seller's obligation
to reimburse Buyer at the Closing in an amount equal to $1,200,000, less the
aggregate amount of the expenses paid by Seller for tenant improvements and
equipment for the Chico, San Francisco and San Jose stores), licenses and
arrangements expressly assumed by and transferred to Buyer on the Closing Date,
but excluding any liabilities or obligations relating to or arising out of (i)
any breach or default (other than any breach or default caused or contributed to
by any act or omission of Buyer to the extent so caused or contributed to)
occurring thereunder on or prior to the Closing Date, or (ii) any violation of
law, tort or infringement occurring with respect thereto on or prior to the
Closing Date (other than any such violation, tort or infringement caused or
contributed to by any act or omission of Buyer to the extent so caused or
contributed to);
(b) Seller will remain responsible for, and shall pay as
and when due, all accounts payable arising with respect to Seller's purchase of
merchandise relating to the Business. As consideration therefor, Buyer shall pay
to Seller the sum of Six Million Dollars ($6,000,000), payable without interest
in two (2) equal installments, the first of which shall be due and payable on or
before the thirtieth (30th) day following the Closing Date, and the second shall
be due and payable on or before the sixtieth (60th) day following the Closing;
(c) all transfer fees due as a result of the assignment
to Buyer of the MEI software systems;
(d) the cost of restoring Seller's Yuba City premises to
"vanilla shell" condition, with utilities capped, floor holes filled with
concrete, interior ceilings and walls patched, and the premises delivered in
broom-clean condition; and
(e) notwithstanding any other provision in this Agreement
to the contrary, any and all liabilities of the Business which arise after the
Closing Date.
1.4 Excluded Liabilities. Notwithstanding anything to the
contrary contained in this Agreement and regardless of whether such liability or
obligation is disclosed herein or on any Exhibit or Schedule hereto, Buyer shall
not assume or in any way be responsible or liable for any other liabilities or
obligations of Seller or any other liabilities or obligations whatsoever related
to UGCC, or the operation of the Business, or the condition of the Purchased
Assets at any time on or prior to the Closing Date (the "Excluded Liabilities"),
except for such liabilities and obligations of Seller as are to be expressly
assumed by Buyer pursuant to Section 1.3 above, and, further, except for
possible liability to Seller resulting from any failure by Buyer to resolve for
the benefit of Seller the Teamsters' claims pursuant to Article 3 of the Master
Labor Agreement (Successor Employer and Transfer of Rights). Without limiting
the generality of the foregoing, the Excluded Liabilities shall include, without
limitation:
(a) all obligations, commitments or liabilities of or
claims against Seller , arising out of or in connection with the transfer and
sale of the Purchased Assets hereunder;
(b) all liabilities and obligations for transfer or sales
taxes and documentary fees imposed by virtue of the transfer and sale of the
Purchased Assets hereunder;
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(c) all liabilities and obligations for any damage or
injury to person or property arising from the ownership, possession or use of
any products manufactured or sold by Seller on or prior to the Closing Date;
(d) all liabilities and obligations arising from the
operation of the Business on or prior to the Closing Date not otherwise assumed
by Buyer in connection with any law, statute, rule, regulation, order or decree
of any foreign, federal, state or local governmental or regulatory authority
(including, without limitation, those relating to business conduct, public
health and safety, occupational health and safety and the environment); and
(e) all liabilities and obligations of Seller whatsoever
not expressly assumed by Buyer in accordance with Section 1.3 above, at the
Closing Date.
Nothing in this Section 1.4 shall preclude Seller from contesting
any Excluded Liabilities, so long as such contest does not prejudice any of
Buyer's rights under this Agreement.
1.5 Uncollected Receivables. Buyer shall use good faith and
reasonable diligence in seeking to collect all accounts receivable. Any payments
received from any debtor shall be applied first to the oldest outstanding
principal balance for such debtor. Buyer shall make its relevant financial
records available to Seller at reasonable times and upon reasonable notice for
purposes of auditing the accounts receivable collected by Buyer. If, despite its
best efforts to collect the accounts receivable, Buyer is unable to collect and
realize upon such accounts receivable to such extent as results in a breach of
the warranty and representation set forth in Section 3.7, and, as a consequence
of such breach, Seller indemnifies Buyer pursuant to Section 9.2, then and to
the extent of such indemnification, and at Seller's request, Buyer shall assign
any and all such uncollectible accounts receivable back to Seller, and Seller
shall have all rights to collect such accounts receivable or otherwise to
realize thereon for Seller's own account and without obligation to account to
Buyer.
1.6 Purchase Price. The total purchase price (the "Purchase
Price") for the Purchased Assets to be acquired by Buyer on the Closing Date is
(i) the assumption of certain liabilities as described in Section 1.3 above, and
(ii) payment of the sum of Sixty Million Dollars ($60,000,000.00) in cash and a
promissory note (the "Promissory Note"), as follows:
(a) Forty Two Million Five Hundred Thousand Dollars
($42,500,000.00) payable by wire transfer of immediately available funds to
Seller's account at the Closing;
(b) Seventeen Million Five Hundred Thousand Dollars
($17,500,000), to be evidenced by a negotiable Promissory Note in the form of
Exhibit B attached hereto, which Promissory Note shall provide that the
outstanding principal balance thereof shall bear interest from the Closing Date
at a rate of six and one-half percent (6.50%) per annum payable quarterly in
arrears, and which principal balance shall be payable as follows:
(i) On the first anniversary of the Closing Date,
Buyer shall pay to Seller or its order a principal installment of Two Million
Five Hundred Thousand Dollars ($2,500,000);
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(ii) On the second anniversary of the Closing
Date, Buyer shall pay to Seller or its order a principal installment of Two
Million Five Hundred Thousand Dollars ($2,500,000);
(iii) On the third anniversary of the Closing
Date, Buyer shall pay to Seller or its order a principal installment of Two
Million Five Hundred Thousand Dollars ($2,500,000);
(iv) On the fourth anniversary of the Closing
Date, Buyer shall pay to Seller or its order a principal installment of Five
Million Dollars ($5,000,000);
(v) On the fifth anniversary of the Closing Date,
Buyer shall pay to Seller or its order a principal installment of Five Million
Dollars ($5,000,000).
1.7 Allocation of Purchase Price. The parties agree negotiate in
good faith to arrive at an agreement to allocate the Purchase Price among the
Purchased Assets for purposes of federal and state income and franchise taxes.
Buyer shall prepare a draft schedule for the allocation for Seller's review
within fifteen (15) days of the Closing Date.
1.8 Risk of Loss. Any and all risk of loss or damage to the
Purchased Assets shall pass from Seller to Buyer on the Closing Date.
2. The Closing.
2.1 The Closing. The purchase and sale of the Purchased Assets
shall take place at 10:00 a.m. (local time) on Friday, May 15, 1998, or three
(3) business days after receipt of an early termination letter with respect to
Buyer's Hart-Scott-Rodino filing, whichever last occurs, at the offices of
counsel for Seller or at such other time and place as may be mutually agreed
upon in writing by Buyer and Seller. The time and date of purchase and sale, as
the same may be postponed or accelerated from time to time, are referred to in
this Agreement as the "Closing" and the "Closing Date," respectively.
2.2 Deliveries to be Made at Closing.
(a) On the Closing Date, Seller shall deliver to Buyer
the following:
(i) Bill of Sale in the form of Exhibit C attached
hereto;
(ii) Assignment and Assumption of Leases in the
form of Exhibit D attached hereto with respect to each of the Leased Properties;
(iii) Bargain and Sale Deed in the form of Exhibit
E attached hereto with respect to each of the Owned Properties;
(iv) Assignment and Assumption of Rights,
Contracts, Warranties and Documents in the form of Exhibit F attached hereto
with respect to all rights, contracts, warranties and other documents to be
assumed by Buyer pursuant to the terms of this Agreement, other than the Leases;
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(v) Supply Agreement in form and content
acceptable to Seller and Buyer pursuant to which Seller shall agree to supply
various food products to the stores operating on the Properties located in the
states of Washington, Oregon and Idaho;
(vi) License Agreement in the form of Exhibit A
attached hereto;
(vii) Landlord's Consent and Estoppel Certificate
in the form of Exhibit G attached hereto executed by all parties who own or
sublease the Leased Properties;
(viii) Lender's Consent in the form of Exhibit H
attached hereto from all parties who hold mortgages or deeds of trust on the
Owned Properties;
(ix) Resolution from Seller's board of directors
authorizing execution of this Agreement and the transaction contemplated by the
terms of this Agreement, certified by Seller's corporate secretary;
(x) non-foreign certification executed by Seller
under penalty of perjury, certifying that Seller is not a "foreign person" under
section 1445 of the Internal Revenue Code of 1986, as amended, and any
regulation thereunder;
(xi) certificates of title to that of the
Purchased Assets consisting of titled vehicles, duly endorsed (or otherwise in
form sufficient) for transfer to Buyer;
(xii) Memoranda of Lease with respect to those
leases being assigned to Buyer;
(xiii) an opinion of Schwabe, Williamson & Wyatt,
P.C., given on behalf of Seller, in form and substance acceptable to Buyer and
its counsel;
(xiv) Assignment and Assumption of Equipment Lease
(the "MetLife Assignment") regarding the MetLife equipment lease in form and
content acceptable to Seller and Buyer;
(xv) Equipment Lessor's Consent and Estoppel
Certificate in form and content acceptable to Seller and Buyer regarding the
MetLife equipment lease;
(xvi) Assignment of Noncompetition Agreements (the
"Assignment of Noncompetition Agreements") in form and content acceptable to
Seller and Buyer regarding the noncompetition agreements executed by Seller and
Greg Hamper and Dennis Hamper; and
(xvii) any other documents which require Seller's
signature.
(b) On the Closing Date, Buyer shall deliver to Seller
the following:
(i) the cash portion of the Purchase Price
described in Section 1.6(a) and the Promissory Note described in Section 1.6(b);
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(ii) additional funds in the amount necessary to
pay Buyer's share of closing costs and prorations;
(iii) Assignment and Assumption of Leases in the
form of Exhibit D attached hereto with respect to each of the Leased Properties;
(iv) Assignment and Assumption of Rights,
Contracts, Warranties and Documents in the form of Exhibit F attached hereto;
(v) Supply Agreement in form and content
acceptable to Seller and Buyer;
(vi) License Agreement in the form of Exhibit A
attached hereto; (vii) Resolution from Buyer's board of directors authorizing
execution of this Agreement and the transaction contemplated by the terms of
this Agreement, certified by Buyer's corporate secretary;
(viii) an opinion of Crosby, Heafey, Roach & May,
Professional Corporation, given on behalf of Buyer, in form and substance
acceptable to Buyer and its counsel;
(ix) the MetLife Assignment in form and content
acceptable to Seller and Buyer;
(x) Assignment of Noncompetition Agreements in
form and content acceptable to Seller and Buyer; and
(xi) any other documents which require Buyer's
signature.
All deliveries shall be considered to have taken place
simultaneously as a single transaction, and no delivery shall be considered to
have been made until all deliveries are completed. With respect to any Purchased
Assets sold hereunder which cannot be physically delivered at the Closing
because they are in the possession of third parties, Seller shall give
irrevocable instructions to such third parties that all rights, title and
interests in such Purchased Assets have been vested in Buyer.
3. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and
warrants to Buyer as follows:
3.1 Ownership of the Purchased Assets. Seller owns or leases all
the Purchased Assets which at the Closing will be delivered to Buyer, free and
clear of any and all liens, charges, claims, encumbrances, pledges, security
interests, community property rights, equities, liabilities, debts, obligations,
restrictions on transfer or other defects in title of any kind or nature, fixed
or contingent, except for the Assumed Liabilities, and the matters approved by
Buyer pursuant to Section 5.6(b) below.
3.2 Authority to Enter Agreement; Enforceability. Except as may
be required to satisfy Article 3 of Seller's labor agreement with the Teamsters,
Seller has the right, power, legal capacity and authority to enter into and to
carry out the terms and provisions of this Agreement (including, without
limitation, the sale and delivery of the Purchased Assets being
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sold pursuant to this Agreement) and the other agreements to be entered into by
Seller in connection with the consummation of this Agreement without obtaining
the approval or consent of any other party or authority, except for such
approvals or consents the failure to so obtain will not have a material adverse
economic effect either alone or in the aggregate of $50,000 or more (a "Material
Adverse Effect") on UGCC, the Purchased Assets, the Business, its financial
condition or the results of its operations, and this Agreement and such other
agreements constitute the legal, valid and binding agreements of Seller,
enforceable against Seller in accordance with their respective terms.
3.3 Organization and Standing. Seller is a business corporation
duly organized and validly existing under the laws of the State of Oregon with
full corporate power and authority to own, lease and operate its assets and its
properties and carry on the Business as now conducted. Seller is currently doing
business in Washington, Oregon, Idaho and California, and is qualified to do
business in each such jurisdiction. To Seller's knowledge, Seller's books and
records which relate to the Business are complete and correct in all material
respects and in all material respects fairly reflect the conduct of the
Business.
3.4 No Violation. Except as may be required to satisfy Article 3
of Seller's labor agreement with the Teamsters, the execution and delivery of
the Agreement by Seller and the consummation of the transactions contemplated
hereby will not:
(a) result in the breach of any of the terms or
conditions of or constitute a default under, and is not prohibited by the
articles of incorporation or bylaws of Seller or any contract, agreement,
commitment, indenture mortgage, note, security agreement, bond, license, pledge,
encumbrance, lien, claim, charge, right, option or other instrument or
obligation, in any such case, to which Seller is now a party or by which Seller,
or any of its properties or assets, may be bound or affected and which is
material to UGCC or the Business; or
(b) to Seller's knowledge, violate any law, statute,
ordinance, rule or regulation of any administrative agency or governmental body
or any order, writ, injunction, judgment or decree or any court, administrative
agency or governmental body or any decision or finding of any arbitration panel,
except for any applicable "bulk sales" or other similar statute (compliance of
which is being waived by the parties hereto) and, further, except for any such
violation which will not have or result in a Material Adverse Effect.
3.5 Financial Statements. Schedule 3.5 to this Agreement contains
UGCC's unaudited trial balance sheet as of May 1, 1998. The foregoing financial
statements (i) are in accordance with the books and records of Seller and were
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods (except for the absence of notes and other
presentation items) and (ii) fairly present UGCC's financial condition as of the
dates and for the periods specified. UGCC has no liabilities or obligations,
whether contingent or absolute, direct or indirect, matured or unmatured, which
are not shown or provided for on Schedule 3.5, except those incurred in the
ordinary course of business since May 1, 1998, and Seller knows of no basis for
the assertion of any such liabilities or obligations. May 1, 1998, which is the
date of the most recent trial balance sheet, is sometimes referred to below as
the "Financials Date".
3.6 Absence of Certain Changes. Since the Financials Date, except
as disclosed on Schedule 3.6 to this Agreement, there has not been with respect
to UGCC:
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(a) any material or significant change in the condition
(financial or other), net worth, assets, liabilities, capitalization, business,
properties or results of operations of UGCC other than changes (i) described in
the Schedules to this Agreement or (ii) made or incurred in the ordinary course
of business;
(b) any material employment or other contracts or
commitments entered into by Seller (other than those made or incurred in the
ordinary course of business), except as described in the Schedules to this
Agreement (for which purposes, a contract or commitment shall be deemed material
if it calls for payments or performance in an amount or of a value in excess of
$10,000, and which is not otherwise cancelable without material liability to
Seller upon 30 days or less notice);
(c) any sale, assignment, transfer or other disposition
of any assets or properties, the latest cost of which on the accounting records
of Seller exceeds $10,000, excluding any inventory or supplies disposed of in
the ordinary course of business consistent with past practices;
(d) any capital expenditure, capital addition or capital
improvement (other than those made or incurred in the ordinary course of
business) involving an amount in excess of $10,000;
(e) any mortgage, lien, pledge, encumbrance, or security
interest created on any Purchased Asset, tangible or intangible, except purchase
money security interests created in the ordinary course of business consistent
with past practices;
(f) any material damage, destruction or loss (whether or
not covered by insurance) having or resulting in a Material Adverse Effect;
(g) any material increase in the compensation payable or
to become payable by Seller to any officer, director or other employee, agent,
independent contractor or consultant, in any such case who, by the terms hereof
or as expressly contemplated hereby, will be employed or engaged by Buyer at or
following the Closing, or any declaration, payment, commitment or obligation of
any kind for the payment by Seller of any bonus, additional salary or
compensation, any worker compensation claims or any retirement, termination or
severance benefits, to officers, directors, employees, agents, independent
contractors, or consultants, in any such case who, by the terms hereof or as
expressly contemplated hereby, will be employed or engaged by Buyer at or
following the Closing, other than pursuant to existing written commitments of
Seller otherwise disclosed in the Schedules to this Agreement, except in the
ordinary course of business;
(h) any material change in the amount of any notes or
other obligations payable by Seller to such officers, directors, employees,
agents, independent contractors, or consultants in any such case who, by the
terms hereof or as expressly contemplated hereby, will be employed or engaged by
Buyer at or following the Closing;
(i) any primary union picketing adversely affecting or,
to Seller's knowledge, threatening the Business;
(j) any revocation or termination, or any notice of any
threatened revocation or termination, of any permit or license issued to Seller
or, to Seller's knowledge, to any of its employees, independent contractors,
consultants or agents to the extent that such
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revocation or termination has, has resulted in, or would have or result in a
Material Adverse Effect;
(k) any guaranty by Seller with respect to the Business,
or any revocation or cancellation of any loan or guaranty in excess of $50,000
in value made to Seller for the benefit of the Business;
(l) any change or, to Seller's knowledge, anticipated
change in the relationship between Seller and any of its customers, vendors,
suppliers, employees, agents, independent contractors or consultants which has,
has resulted in, or would have or result in a Material Adverse Effect to the
Business;
(m) any other event or condition which has resulted in a
Material Adverse Effect to the Business; or
(n) any agreement or commitment obligating Seller to do
any of the things set forth in this Section 3.6.
3.7 Accounts Receivable. Those accounts receivable listed on
Schedule 1.1(b) set forth a complete and accurate list of UGCC's accounts
receivable as of the date therein indicated, together with an accurate aging
thereof as of said date. The Bad Debt Reserve is fairly based on actual
experience of the Business. Said accounts receivable and all accounts receivable
which have arisen since the Financials Date (i) are valid and enforceable claims
for the sales and services which give rise to such accounts, and (ii) are
subject to no defenses or offsets and are fully collectible in the ordinary
course of business without resort to legal proceedings, subject to the Bad Debt
Reserve.
3.8 Inventories. Buyer acknowledges receipt of a schedule of all
inventory of UGCC as of April 1, 1998. Seller and Buyer also shall conduct a
physical inventory of UGCC's inventory on or before the Closing Date, the cost
of which shall be paid equally by Seller and Buyer. If the inventory to be
conducted on or before the Closing Date reflects an inventory value of less than
$22,000,000, then Seller shall pay to Buyer an amount equal to the difference
between the actual inventory value and $22,000,000, and if the inventory to be
conducted on or before the Closing Date reflects an inventory value of more than
$25,000,000, then Buyer shall pay to Seller an amount equal to the difference
between the actual inventory value and $25,000,000. The amount, if any, to be
paid by Seller or Buyer for the inventory adjustment shall be added to or
subtracted from Buyer's initial (and if necessary, second) post-Closing payment
for accounts payable as set forth in Section 1.3(b) above. Seller represents and
warrants that (i) UGCC's inventory shall be transferred to Buyer at the Closing
free and clear of all claims, and (ii) the inventory is and will be in good and
salable condition and not obsolete, and (iii) Seller will maintain the inventory
at historic levels through the Closing Date.
3.9 Prepaid Items, Accounts Payable and Accrued Expenses.
Seller's audited balance sheet as of the Financials Date presents fairly the
prepaid items, accounts payable and accrued expenses of Seller with respect to
UGCC as at and for the Financials Date. Except as set forth on Schedule 3.9, all
prepaid items, accounts payable and accrued expenses incurred after the
Financials Date were incurred in the ordinary course of business and are usual
and normal in amount, both individually and in the aggregate.
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3.10 Tax Matters. With respect to UGCC, Seller has properly
prepared and filed returns for and paid in full all federal, state, local and
foreign taxes, assessments, additions to taxes, penalties and interest with
respect thereto, to the extent such filings and payments are required prior to
the Financials Date and, although Internal Revenue Service audits now are in
progress with respect to all open years, there is no known outstanding or
proposed deficiency or assessment known to Seller by any federal, state, local
or foreign government with respect to any tax period. Any amounts set up as
reserves for taxes on the financial statements contained in Schedule 3.5 with
respect to UGCC are sufficient for the payment of all accrued and unpaid federal
income, accumulated earnings or other federal taxes, and state, local or foreign
income, franchise, real property, personal property, sales, use, withholding and
all other taxes imposed on Seller or its property or payable by it, including
interest, additions to taxes and penalties, if any, with respect thereto,
whether known or unknown and whether disputed or not, as of the Closing Date,
the dates of the respective financial statements and for all periods prior
thereto.
3.11 Employees; Collective Bargaining Agreements. Schedule 3.11
to this Agreement contains a true and complete list of the employees of UGCC as
of the Closing Date. Seller has paid in full to all employees of UGCC all wages,
salaries, commissions, bonuses and other direct compensation for all services
performed by them, except for such accrued and unpaid amounts, including accrued
vacation pay as listed on Schedule 3.5 hereto (which shall be paid by Seller on
or before the Closing Date), and except for matters and disputes which are the
subject of pending grievances under the Teamster collective bargaining contract.
Seller shall be solely responsible for any liability or obligation arising out
of Seller's hiring or Seller's employment of its employees prior to the Closing
Date, including any such liability arising from any pending grievances (as they
relate to the period prior to the Closing Date) which, if they still exist after
the Closing, Seller may contest at its sole cost and expense. Buyer shall be
solely responsible for any liability or obligation arising out of Buyer's hiring
or Buyer's employment of its employees after Closing, and for any other
liability or obligation arising out of the operation of the Business after
Closing. Seller is a party to a labor agreement with various Teamster unions,
compliance with which creates conditions to Closing on this transaction. Buyer
or an affiliate of Buyer shall expressly assume, and shall promptly and
faithfully perform, all obligations on the part of Seller to be performed under
Seller's collective bargaining agreements identified on Schedule 3.15, or,
alternatively, Buyer, as a condition to Seller's obligation to close and
consummate the transactions contemplated hereby, shall have either obtained the
waiver and release contemplated by Section 7.8 below or shall indemnify, defend
and hold Seller harmless from any liability with respect thereto. Except as set
forth in Schedule 3.11, Seller is in compliance with all material laws and
regulations respecting employment and employment practices, terms and conditions
of employment, wages and hours, employee benefit plans and taxes (including
withholding taxes) relating to employment or to personal services provided to
UGCC. No employee of UGCC is in material violation of any employment agreement,
consulting agreement, proprietary information nondisclosure agreement or any
other contract or agreement with UGCC. Except as set forth in Schedules 3.11 and
3.15, to Seller's knowledge (a) there are no agreements, commitments or other
obligations of Seller, whether oral or written, which would prevent or obstruct
the dismissal of any of those employees who, by the terms hereof or as expressly
contemplated hereby, will be employed or engaged by Buyer at or following the
Closing Date, (b) Seller has no collective bargaining agreements nor any
obligations with respect to former collective bargaining agreements with respect
to UGCC, and (c) UGCC has no agents, independent contractors or consultants to
which the above-described obligations would apply.
3.12 The Properties
(a) To Seller's knowledge, the structural components of
the Properties are in good and physically sound condition;
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(b) At the Closing, Seller will own the Owned Properties
subject only to the matters in the Approved Title (as hereinafter defined);
(c) Seller is the lessee under each of the Leases. Each
of the Leases is in full force and effect and is enforceable in accordance with
its terms. Neither Seller nor, to the best of Seller's knowledge, the lessors
are in material breach or default under any of the Leases and no event has
occurred which with notice or lapse of time, or both, could constitute a
material breach or default under any such Lease or could accelerate any
obligation or create any lien or encumbrance under any such Lease. Except as
disclosed in Schedule 1.1(d), Seller has not assigned any of its interest in any
of the Leases. No claim has been asserted or, to the best of Seller's knowledge,
exists that is adverse to the rights of Seller under any of the Leases;
(d) A true, correct, and complete schedule of all service
and other contracts affecting the Properties is attached as Schedule 3.12(d),
identifying the contractor, his duties, the term of the contract, the rate of
compensation payable, the length of notice required to cancel such contract and
stating whether such contract would be binding on Buyer and survive the Closing;
(e) To Seller's knowledge, all utility connections
located on the Properties (including without limitation gas, electricity, water,
sanitary and storm sewage facilities) (i) are of sufficient size and capacity to
service the Properties, (ii) have been completed, installed, activated and fully
paid for and (iii) enter the Properties through adjoining public streets, or if
they pass through adjoining private land, do so in accordance with valid public
easements or private easements which will inure to the benefit of Buyer. Buyer
as owner of the Owned Properties and lessee of the Leased Properties, shall at
Closing have an unqualified right to use such facilities without paying any
liens, "tap-in" fees or similar charges with respect to the use thereof, except
for normal water and sewer rents and nominal charges for any additional
connection thereto which Buyer's intended use may require;
(f) To Seller's knowledge, there are presently in good
standing and effect all licenses, certificates of occupancy, environmental
impact reports and permits as may be required for the operation of the
Properties, the failure to obtain which will not have a Material Adverse Effect
on such Property or the business operations conducted thereon;
(g) Seller has received no notice of any default or
breach by Seller under any covenants, conditions, restrictions, rights-of-way,
or easements which may affect the Properties or any portion thereof, and no such
default or breach now exists;
(h) To Seller's knowledge, the heating, air conditioning,
mechanical, electrical and other systems and equipment used in connection with
the Properties are operative and in good working condition, ordinary wear and
tear excepted, and any repairs required prior to settlement shall be made by
Seller at its sole cost and expense, unless the obligation to repair the same is
that of the landlord, subtenant, or other party in priority of contract to
Seller; and
(i) To Seller's knowledge, the current uses at the
Properties conform to the applicable zoning restrictions;
3.13 Tangible Personal Property. Section 3.13A to this Agreement
contains a true and complete list describing and specifying the location of all
vehicles, equipment, furniture, fixtures, leasehold improvements and all other
tangible personal property or assets (other than those items of nominal value)
used, owned, possessed or leased by, or in the possession of, UGCC in connection
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with the Business. Except as set forth in Schedule 3.13B to this Agreement, all
personal property (except items of nominal value) owned, used, possessed or
leased by UGCC is owned, used, possessed or leased by UGCC or Seller free and
clear of all liens, claims, charges, pledges, security interests, encumbrances,
liabilities, debts, equities, restrictions on transfer or other defects in title
of any kind or nature. All items of personal property owned, used, possessed or
leased by Seller in connection with the operations of UGCC are, to Seller's
knowledge, in good operating condition and repair, normal wear and tear
excepted. All leases pursuant to which UGCC holds any items of personal property
are listed on Schedule 3.13B to this Agreement and are in full force and effect
and are enforceable in accordance with their terms. Except as set forth on
Schedule 3.13B, none of such leases have been amended or modified. Neither
Seller nor, to the best of Seller's knowledge, the other parties thereto are in
material breach or default under any of such leases; and no event has occurred
which with notice or lapse of time, or both, could constitute a material breach
or default by Company or, to the best of Seller's knowledge, the other parties
thereto under such leases or could accelerate any obligation or create any lien
or encumbrance under such leases. Seller has not assigned any of its interest in
such leases. No claim has been asserted or, to the best of Seller's knowledge,
exists that is adverse to the rights of Seller to the continued possession of
the leased property under such leases.
3.14 Intangible Property. Schedule 3.14 to this Agreement
contains a true and complete list of all patents, copyrights, trademarks,
service marks, trade names, logos and identifying marks and styles used by
Seller in connection with the Business (the "Intangible Property"). Except as
disclosed on Schedule 3.14 to this Agreement, Seller owns and has the full right
to use the name "Commissary Cash & Carry" and all the Intangible Property in
each jurisdiction in which it conducts business. On the Closing Date, Seller
will record an Abandonment of Fictitious Business Name Statement or similar
statement or declaration by which Seller withdraws its registration of the
fictitious or assumed business name of "Commissary Cash & Carry."
3.15 Contracts and Agreements. Schedule 3.15 contains a true and
complete list of the following material agreements, contracts, leases (other
than the Leases) or other obligations or commitments, whether written or oral
(collectively "Contracts") pertaining to UGCC, to which Seller is a party or by
which it or UGCC's property is bound, including (i) contracts with employees
(but excluding contracts with employees which can be canceled at will with
thirty (30) or fewer days' notice without cost or other liability by reason of
such termination); (ii) contracts with customers involving the purchase or sale
of goods or services in an aggregate amount in excess of $10,000; (iii)
contracts with suppliers or manufacturers of products sold by Seller in the
ordinary course of business; (iv) bonus, deferred or incentive compensation,
group insurance or other employee benefit plans involving employees who, by the
terms hereof or as expressly contemplated hereby, will be employed or engaged by
Buyer at or following the Closing; (v) collective bargaining contracts; (vi)
leases as lessor or lessee involving the payment or receipt of rent in the
aggregate in excess of $10,000; (vii) advertising or public relations contracts;
(viii) conditional sales contracts, security agreements, pledge agreements,
trust receipts or any other agreements or arrangements whereby any material
assets of Seller are subject to a lien, encumbrance, charge or other
restriction; (ix) mortgages, indentures, notes or other instruments for or
relating to any borrowing of money or the extension of credit or the deferred
purchase of property involving an amount in excess of $10,000; (x) guarantees of
any obligations for the borrowing of money or otherwise involving an amount in
excess of $10,000, or any other agreements of guarantee or indemnification
(other than endorsements made for collection in the ordinary course of
business); (xi) agreements or arrangements for the purchase or sale of any
material assets other than in the ordinary course of business; (xii) continuing
contracts for future purchase of materials, supplies or equipment involving an
amount in excess of $10,000; (xiii) agreements, contracts or commitments
relating to the acquisition of all or substantially all of the assets, capital
stock or ownership interests of any business enterprise; (xiv) contracts
restricting doing
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business in any areas or in any way limiting competition; and (xv) any other
contracts (other than contracts entered into in the ordinary course of business)
to be performed in whole or in part more than 30 days from the date hereof
calling for aggregate payments by UGCC or Seller in excess of $10,000 and which
are not terminable without cost or liability on 30-days' notice. Except as set
forth on Schedule 3.15, none of the Contracts have been amended or modified.
Each of the Contracts is in full force and effect and is enforceable in
accordance with its terms. Neither Seller nor, to the best of Seller's
knowledge, the other parties thereto are in material breach or default under any
such Contracts and no event has occurred which with notice or lapse of time, or
both, could constitute a material breach or default under any such Contract or
could accelerate any obligation or create any lien or encumbrance under any such
Contract. Seller has not assigned any of its interest in the Contracts. No claim
has been asserted or, to the best of Seller's knowledge, exists that is adverse
to the rights of Seller under any of the Contracts.
3.16 Insurance. Within thirty (30) days of the Closing Date,
Seller will deliver to Buyer a true and complete copy of all life, fire,
casualty, liability and all other insurance policies maintained by Seller
pertaining to the Business and the Properties, for the purpose of identification
of later claims which may be forwarded to Buyer but responsibility for which has
been retained by Seller.
3.17 Litigation. Except as set forth on Schedule 3.17 to this
Agreement, there is no suit, action or legal, administrative, arbitration or
other proceeding pending, filed or initiated by, against or affecting Seller or
UGCC which would affect Seller's ability to consummate the transactions
contemplated by this Agreement or, if determined adversely against Seller, would
have or result in a Material Adverse Effect on UGCC, and Seller has no knowledge
of any suit, action or legal, administrative, arbitration or other proceeding
threatened by, against or affecting Seller or UGCC, which would affect Seller's
ability to consummate the transactions contemplated by this Agreement or which,
if determined adversely against Seller, would have or result in a Material
Adverse Effect on UGCC.
3.18 Compliance with Law and Other Instruments. Seller has
received no notice that the business and operations of Seller with respect to
UGCC have not been or are not being conducted in accordance with all applicable
laws, statutes, ordinances, rules and regulations of all authorities (including,
without limitation, those relating to business conduct, public health and
safety, occupational health and safety and the environment), except where the
failure to so conduct the business and operation of Seller would not have or
result in a Material Adverse Effect. Seller is not in violation, nor will entry
into the transaction contemplated by this Agreement result in a violation or
breach of, or default under, any term or provision of its articles of
incorporation or its bylaws or of any order, judgment, writ, injunction, decree,
license or permit of any court or any governmental or regulatory authority or of
any indenture, mortgage, deed of trust, lease, contract, instrument, commitment
or other agreement or arrangement, or subject to any restriction of any kind or
character, in any such case, which would materially and adversely affect UGCC,
the Business or its prospects.
3.19 Licenses and Permits. Schedule 3.19 to this Agreement
contains a true and complete list of all material licenses, permits, orders,
approvals and other authorizations issued to UGCC or to Seller on behalf of UGCC
and its employees, which are in full force and effect and which in any way
relate to the Business. UGCC and its employees or agents have all licenses,
permits, orders, approvals and other authorizations required for the conduct of
the Business as presently conducted and, to the best of Seller's knowledge, no
suspension or cancellation of any of them is threatened.
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3.20 Benefit Plans.Except as described in Schedule 3.20, UGCC
does not have any employee benefit plans ("Plans") which are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") including,
but not limited to, pension, retirement, profit sharing and stock bonus plans or
any Employee Plan that is a multi-employer plan as defined in Section 3(37) of
ERISA. To the extent that it may affect employees or the Purchased Assets, each
Plan is now, and has always been, established, maintained and operated in all
material respects in accordance with all applicable laws (including but not
limited to ERISA and the Internal Revenue Code of 1986, as amended, and
regulations thereunder) and in accordance with the Plan documents. There is no
unfunded liability for vested or nonvested benefits, or any pending or, to the
best knowledge of Seller, threatened litigation or arbitration concerning or
involving any UGCC Plan which could subject the Purchased Assets of UGCC to any
claims.
3.21 Brokerage and Finders' Fees. Seller has not incurred any
liability to any broker, finder or agent for any brokerage fees, finders' fees
or commissions with respect to the transactions contemplated by this Agreement.
3.22 Suppliers and Customers. No single supplier (other than Iowa
Beef) who accounted for more than ten percent (10%) of UGCC's purchases, or
customer who accounted for more than ten percent (10%) of UGCC's sales, during
its most recent complete fiscal year, or the fiscal year to date, nor any
supplier who is a material source of supply of any goods essential to the
Business, has (i) canceled or otherwise terminated, or made any overt threat to
Seller to cancel or otherwise terminate, its relationship with Seller or (ii)
materially decreased its sale of services or supplies to Seller or its purchase
of products therefrom or made any overt threat to Seller with respect thereto.
3.23 Hazardous Materials. There are no underground storage tanks,
sumps, grease traps, clarifiers, wells and/or on-site sewage disposal systems
now in use on the Properties. To the best of Seller's knowledge, except as
disclosed in the Phase 1 Environmental Site Assessments previously delivered to
Buyer, the Properties are not, and as of the Close of Escrow shall not be, in
violation of any Environmental Law, as defined below, and do not contain
Hazardous Materials, as defined below, except in concentrations beneath
applicable state and federal action levels. During the time in which Seller
owned or leased the Properties, neither Seller nor, to the best of Seller's
knowledge, any third party, used, generated, stored, or disposed of, on, under
or about the Properties, or transported to or from them, any Hazardous
Materials, except in compliance with applicable law. Seller has received
no notice from any governmental agency of any investigation or proceeding by
such agency concerning the presence or alleged presence of Hazardous Materials
on the Properties. The term "Environmental Law" shall include any federal, state
or local law, ordinance or regulation pertaining to health, waste disposal or
the environment, including, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act of 1986, the Resource Conservation and
Recovery Act of 1976, the Federal Clean Air Act, the Federal Water Pollution
Control Act and Federal Clean Water Act of 1977, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Pesticide Act of 1978, the Federal
Toxic Substances Control Act, the Federal Safe Drinking Water Act, the Hazardous
Materials Transportation Act, similar state health & safety statutes, and
regulations adopted and publications promulgated pursuant to such laws. The term
"Hazardous Materials" shall include oil and petroleum products, asbestos,
polychlorinated biphenyls and urea formaldehyde, and any other materials
classified as hazardous or toxic under any Environmental Law, including, without
limitation, any materials defined as "Hazardous Substances", "Hazardous
Materials", "Toxic Substances", or "Hazardous Waste." Hazardous Materials does
not include any inventory included as part of the Purchased Assets.
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3.24 No Misrepresentation. The representations, warranties and
statements made by Seller in or pursuant to this Agreement are true, complete
and correct in all material respects. None of such representations, warranties
or statements contains any untrue statement of material facts or omits to state
any material fact necessary to make any such representation, warranty or
statement, under the circumstances in which it is made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller as follows:
4.1 Organization and Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to carry on its business and
to enter into and carry out the terms of this Agreement.
4.2 Authority to Enter Agreement; Enforceability. Except for the
requirement that the terms and conditions of this Agreement and the other
agreements to be entered into by Buyer in connection with the consummation of
this Agreement be approved by Buyer's board of directors, which approval has not
yet been obtained, (i) Buyer has the right, power and authority to enter into
and to carry out the terms of this Agreement and such other agreements to be
entered into by Buyer in connection with the consummation of this Agreement
without obtaining the approval or consent of any other party or authority, and
(ii) this Agreement and such other agreements, including, without limitation,
the Promissory Notes and the Supply Agreement constitute the legal, valid and
binding agreements of Buyer, enforceable against Buyer in accordance with their
respective terms.
4.3 Compliance with Law and Other Instruments. Except for the
requirement that the terms and conditions of this Agreement and the other
agreements to be entered into by Buyer in connection with the consummation of
this Agreement be approved by Buyer's board of directors, which approval has not
yet been obtained, neither the execution and delivery of this Agreement or such
other agreements, nor the consummation of the transactions contemplated by this
Agreement and such other agreements, will conflict with, or result in a
violation or breach of, or constitute a default under, any term or provision of
Buyer's articles of incorporation or bylaws, or any order, judgment, writ,
injunction, decree, license, permit, law, statute ordinance, rule or regulation
of any court or any governmental or regulatory authority (except for the bulk
sales provisions of the California Commercial Code) or any indenture, mortgage,
deed of trust, lease, contract, instrument, commitment or other agreement or
arrangement to which Buyer is a party or by which it or its properties are
bound. Buyer is duly licensed as a produce dealer with the California Department
of Food and Agriculture, Market Enforcement Division and has obtained all other
material permits, approvals and licenses necessary to operate the Business from
and after the Closing Date.
4.4 Brokerage and Finders' Fees. Buyer has not incurred any
liability to any broker, finder or agent for any brokerage fees, finders' fees
or commissions with respect to the transactions contemplated by this Agreement.
4.5 Litigation. Except as set forth on Schedule 4.5 to this
Agreement, there is no suit, action or legal, administrative, arbitration or
other proceeding pending, filed or initiated by, against or affecting Buyer
which would affect buyer's ability to consummate the transactions contemplated
by this Agreement, and Buyer has no knowledge of any suit, action or legal,
administrative, arbitration or other proceeding threatened by, against or
affecting Buyer which would affect buyer's ability to consummate the
transactions contemplated by this Agreement.
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4.6 No Misrepresentation. The representations, warranties and
statements made by Buyer in or pursuant to this Agreement are true, complete and
correct in all material respects. None of such representations, warranties or
statements contains any untrue statement of material facts or omits to state any
material fact necessary to make any such representation, warranty or statement,
under the circumstances in which it is made, not misleading.
5. COVENANTS OF THE PARTIES.
5.1 Operation of the Business of Seller. During the period from and
after the date of this Agreement and until the Closing Date, Seller covenants
and agrees that, unless it obtains Buyer's prior written consent to the
contrary, or except as specifically authorized in this Agreement, or except as
provided for on Seller's financial statements attached hereto as Schedule 3.5,
Seller shall, with respect to UGCC:
(a) make, amend and terminate contracts only in the
ordinary course of business;
(b) refrain from suffering or refrain from creating any
security interest, encumbrance or restriction on its properties or assets,
except in the ordinary course of business consistent with past practices;
(c) refrain from disposing of any of UGCC's properties or
assets, except in the ordinary course of business consistent with past
practices;
(d) refrain from entering into or becoming a party to any
employment, consulting or sales representation agreement, except in the ordinary
course of business consistent with past practices;
(e) refrain from increasing the rate of compensation paid
or payable by it to such of UGCC's officers, directors, employees, agents,
independent contractors or consultants as, pursuant to the terms hereof or as
expressly contemplated hereby, are to be employed or engaged by Buyer at or
following the Closing, except pursuant to existing contractual obligations, and
from making loans or advances to such officers, directors, agents, employees,
independent contractors, or consultants as, pursuant to the terms hereof or as
expressly contemplated hereby, are to be employed or engaged by Buyer at or
following the Closing, or any member of the families of any of them, except for
advances for reasonable business expenses in accordance with past practices, or
except with respect to those retention bonuses and severance payments disclosed
on Schedule 3.6;
(f) refrain from paying or agreeing to pay any bonus,
extra compensation, pension or severance pay under any pension plan or
otherwise, except pursuant to existing contractual obligations;
(g) maintain its books accounts and records in the usual,
regular and ordinary manner and in compliance with all applicable laws;
(h) except as may ultimately be determined upon
resolution of pending labor grievances, meet its obligations under all contracts
and not become in default thereunder;
(i) maintain all of its assets in good repair, order and
condition, ordinary wear and tear excepted;
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(j) refrain from borrowing or agreeing to borrow any
funds other than under existing banking or credit relationships, in the ordinary
course of business consistent with past practices;
(k) refrain from guaranteeing or agreeing to guarantee
the obligations of others;
(l) refrain from waiving or committing to waive any
rights of substantial value except for good and valuable consideration;
(m) refrain from canceling or materially amending any
insurance policy except in exchange for a new policy with at least the same
coverage;
(n) refrain from entering into any transaction which
would in any significant respect change the character of the Business; and
(o) use its best efforts to operate in such manner as to
assure that the representations and warranties of Seller set forth in this
Agreement will be true, correct and complete in all material respects on and as
of the Closing Date.
5.2 Access to Information and Records. Seller shall give Buyer
and its counsel, accountants and other representatives (collectively, "Buyer's
Representatives") full access, during normal business hours, throughout the
period prior to the Closing Date, to (i) all information concerning UGCC's
assets, properties, contracts, commitments, books and records, and to cause
Seller to furnish Buyer and Buyer's Representatives during such period with all
information concerning UGCC's affairs as they reasonably may request and (ii)
the Properties during reasonable business hours upon not less than twenty-four
(24) hours telephonic notice for any purpose including, without limitation,
inspection and conducting soil and other tests and examinations of all books,
records and files of Seller regarding the Properties, regardless of where same
are located. Buyer shall obtain insurance coverage for damages to persons and
property and liability coverage, naming Seller as an additional insured, in such
amounts and from such companies as reasonably approved by Seller. In addition,
Buyer shall repair any damage, and shall indemnify, defend and hold Seller and
its properties harmless from any cost, claim or expense arising from such entry
by Buyer or from the performance of any such test by Buyer, provided that such
indemnity shall not extend any cost, claim or expense incurred by Seller as a
result of Buyer's discovery or reporting of any hazardous materials on the
Properties. Buyer shall conduct such investigation in such manner as will least
disrupt the business operations of Seller and UGCC.
5.3 Assumption of Labor Contracts and Employment Agreements.
Buyer or an affiliate of Buyer shall expressly assume, and shall promptly and
faithfully perform, all obligations on the part of Seller to be performed under
Seller's collective bargaining agreements identified on Schedule 3.15, or,
alternatively, Buyer, as a condition to Seller's obligation to close and
consummate the transactions contemplated hereby, shall have either obtained the
waiver and release contemplated by Section 7.8 below or shall indemnify, defend
and hold Seller harmless from any liability with respect thereto. Buyer also
shall assume all of Seller's individual employment agreements listed on Schedule
3.15 which relate exclusively to UGCC and the Business.
5.4 Best Efforts; Further Assurances. Each party to this
Agreement shall use its best efforts to cause the satisfaction of all conditions
to the consummation of this Agreement which are in the control of such party and
to cooperate as necessary in the satisfaction of all other conditions
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to the consummation of this Agreement. Each party hereto will, from time to time
after the execution and consummation of this Agreement, execute and deliver such
instruments, documents and assurances and take such further actions as the other
parties may reasonably request to carry out the purpose and intent of this
Agreement. The parties agree to cooperate in determining whether mail received
by Seller or the Buyer after the Closing Date belongs to the other party, and
both parties agree to forward mail belonging to the other party as soon as is
reasonably practicable upon receipt.
5.5 Publicity. All notices to third parties and all other
publicity concerning this Agreement and the transactions contemplated by this
Agreement shall be jointly planned and coordinated between Buyer, on the one
hand, and Seller on the other hand. No party shall make a unilateral press
release or public announcement, or announcement to employees, creditors,
customers or others without the prior written approval of the other parties
except as may be required by law.
5.6 Trade Secrets, Non-Competition, Etc. As a material inducement
to Buyer to enter into and consummate this Agreement, Seller agrees that, after
the Closing Date:
(a) Trade Secrets. Seller shall not, without the prior
written consent of Buyer, except as may be required by law, governmental rules
and regulations or litigation between the parties, disclose or use, in any way,
any information currently belonging to Seller and used exclusively in the
Business, and which information derives independent economic value, actual or
potential, from not being generally known to the public or to other persons who
can obtain the economic value from its use or disclosure, and which has been the
subject of reasonable efforts on the part of Seller, in the operation of the
Business, to maintain as secret, whether or not such information was conceived
by Seller ("Trade Secrets"), including without limitation any such information
concerning any procedures, operations, investments, techniques, data,
compilations of information, records, financing, costs, employees, purchasing,
accounting, marketing, merchandising, sales, customers, salaries, pricing,
profits, plans for future development, and the identity, requirements,
preferences, practices and methods of doing business of specific parties with
whom UGCC transacts business, and all other information which is related to the
Business; all of which Trade Secrets will be the exclusive and valuable property
of Buyer.
(b) Tangible Items. All customer lists, files, records,
documents, drawings, plans, specifications, manuals, books, forms, receipts,
notes, reports, memoranda, studies, data, calculations, recordings, catalogues,
compilations of information, correspondence and all copies, abstracts and
summaries of the foregoing and all physical items related to and used
exclusively in the Business, other than a merely personal item, whether of a
public nature or not, and whether prepared by Seller or not, are and shall be
the exclusive property of Buyer and shall not be removed from the premises of
Buyer, without the prior written consent of Buyer. Buyer agrees to give Seller
prior written notice of any proposed destruction of any of the above tangible
items sufficient to allow Seller to make necessary copies of such items.
(c) Solicitation of Employees. During the period
commencing on the Closing Date and ending five (5) years from that date, Seller
shall not, directly or indirectly, call on, solicit, interfere with or attempt
to entice away any existing employee of Buyer, provided, however, that nothing
herein shall prohibit or restrict Seller's employment or engagement of any
person who is an existing employee of Buyer if such employment or engagement was
not the result of any activity on the part of Seller otherwise prohibited by
this Section 5.6(d), and whose employment by Seller was not the result of active
solicitation of such person, directly or indirectly by Seller, and provided
further that nothing herein shall prohibit or restrict Seller's right to
advertise or otherwise publicize employment opportunities or positions available
with Seller.
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(d) Noncompetition.
(i) As used herein, the term "Competitive
Activity" shall mean any participation in, assistance of business from,
engagement in business with, or assistance, promotion or organization of, any
person, partnership, corporation, firm, association or other business
organization, entity or enterprise by Seller which, directly or indirectly, is
engaged in, or hereinafter engages in the ownership or operation of wholesale
grocery warehouse sales outlets on a cash-and-carry format. Nothing herein shall
in any way prohibit Seller from continuing to engage in the grocery distribution
and sales business to its present and any future grocery store members and
customers. For purposes of this Section 5.6(e), and notwithstanding anything to
the contrary herein set forth, "Competitive Activities" shall not include (i)
any activity of or carried on by any member or customer of Seller, (ii) Seller's
selling of merchandise to any of its customers or members who may be engaged in
business activities competitive with those of Buyer, nor (iii) Seller's
rendering of services to its customers or members who may be engaged in business
activities competitive with those of Buyer, so long as those services are of
such quality and nature as are offered generally to all of Seller's members or
customers.
(ii) During the period commencing on the Closing
Date and ending five (5) years from that date, Seller shall not engage in any
Competitive Activity in the States of Washington, Oregon, Idaho or California.
(e) Injunctive Relief. Seller hereby acknowledges and
agrees that it would be difficult to fully compensate Buyer for damages
resulting from the breach or threatened breach of the foregoing provisions and,
accordingly, that Buyer, shall be entitled to temporary and injunctive relief,
including temporary restraining orders, preliminary injunctions and permanent
injunctions, to enforce such provisions. This provision with respect to
injunctive relief shall not, however, diminish the right of Buyer to claim and
recover damages.
5.7 Escrow; Title Insurance; Closing Costs and Prorations. Seller
and Buyer agree that an escrow or escrows (the "Escrow") will be opened with
Chicago Title Escrow Company ("Escrow Holder") for the purpose of obtaining
title insurance with respect to the Owned Properties and the Leased Properties
and for consummating the transfers of the Owned Properties and the Leased
Properties pursuant to the terms of this Agreement. Such Escrow will be subject
to the terms and conditions set forth below:
(a) Escrow. Within three (3) business days after the date
of execution of this Agreement, the parties shall open an Escrow with Escrow
Holder, at Escrow Holder's office. The Escrow shall be deemed opened when the
parties have given Escrow Holder an executed copy of this Agreement. This
Agreement shall serve as escrow instructions to Escrow Holder, and the parties
shall execute additional instructions if Escrow Holder so requires, provided
that such instructions do not change the terms of this Agreement but merely
offer protection for Escrow Holder. Any additional instructions shall provide
that this Agreement shall prevail in case of any inconsistency between it and
the additional instructions. Escrow shall close on the Closing Date concurrently
with the closing of the transaction contemplated by this Agreement, and the
parties acknowledge that the Bargain and Sale Deeds ("Deeds") and the Memoranda
of Lease shall be deposited with Escrow Holder for recordation at the Closing
Date consistent with the terms of this Agreement. When Title Company
(hereinafter defined) is in a position to issue the Title Policies (hereinafter
defined), and upon instructions from Seller and Buyer, Escrow Holder shall
immediately close Escrow by recording the Deeds and the Memoranda of Lease in
the appropriate counties. The failure of Seller or Buyer to be in a
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position to close Escrow by the Closing Date for any reason other than failure
of a condition shall constitute a default under this Agreement. If Escrow Holder
is not in a position to close Escrow on the Closing Date, it shall close as soon
thereafter as possible, unless prior to closing, it receives notice from either
party directing it not to close. Close of Escrow shall occur when Escrow Holder
performs all of the acts listed below:
(i) Record the Deeds with instructions for the
county recorders to send the Deeds to Buyer and attach tax information after
recording;
(ii) Record the Memoranda of Lease with
instructions for the county recorders to send the Memoranda of Lease to Buyer;
(iii) Instruct the Title Company to deliver the
Title Policies to Buyer; and
(iv) Forward to Seller and Buyer an accounting of
all funds received and disbursed for each party and copies of all executed and
recorded or filed documents, with recording or filing dates shown thereon.
(b) Title Insurance. Promptly after the opening of
Escrow, Escrow Holder shall order and deliver to Buyer a current preliminary
title report ("Title Reports") on each of the Owned Properties and the Leased
Properties, together with copies of all documents underlying any exceptions (the
"Exceptions") shown thereon, and a map of the encroachments, easements,
dedications and rights of way thereon. Buyer shall have ten (10) days after
receipt of the Title Reports and all underlying documents within which to give
notice to Seller of Buyer's approval of the Title Reports or disapproval of any
of the Exceptions. Buyer's failure to give any notice within the time limit
shall be deemed approval of the Title Reports. Seller then shall have the right,
but not the obligation, to elect to remove any disapproved Exceptions within ten
(10) days after Buyer's notice of disapproval (the "Title Cure Period"). If
Seller gives notice within the Title Cure Period that Seller will remove any
Exception before the Closing Date, such Exception shall be deemed removed for
purposes hereof, and Seller shall be obligated to remove such Exception before
the Closing Date. With respect to any Exception consisting of a financial
encumbrance such as a mortgage, deed of trust or other debt security, other than
the interests of the landlords with respect to the Leased Properties, such
matter shall automatically be deemed a disapproved Exception, and Seller hereby
covenants to remove such Exception before the Closing Date. If Seller does not
remove or agree to remove any disapproved Exception within the Title Cure
Period, Buyer shall have five (5) days to give Seller notice that Buyer waives
its objection to such Exception or elects to terminate this Agreement. If Buyer
does not give any notice, this contingency shall be deemed satisfied. The
condition of title as approved by Buyer is referred to herein as the "Approved
Title." A condition to Buyer's completing this transaction shall be the
willingness of Chicago Title Insurance Company ("Title Company") to issue, upon
payment of Title Company's regularly scheduled premium and recordation of the
Grant Deeds or Memoranda of Lease, as applicable, an ALTA standard coverage
owner's policy of title insurance for the Owned Properties, and a CLTA standard
coverage leasehold policy of title insurance with respect to the Leased
Properties (the title policies shall be referred to collectively as the "Title
Policies"). Each Title Policy shall have liability in the amount allocated to
such property by Buyer, showing title to the Owned Properties or the leasehold
interest in the Leased Properties vested of record in Buyer subject only to any
matters in the Approved Title, any other matters that Buyer has approved in
writing, and the standard printed exceptions of the Title Policies. The Title
Policies shall, at Buyer's cost, contain such special endorsements as Buyer may
reasonably require, with reinsurance or coinsurance as Buyer may designate.
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(c) Closing Costs and Prorations. Seller and Buyer each
shall pay their own attorneys' fees. Seller shall pay the title insurance
premiums for the Title Policies, the cost of any special endorsements which
Seller agrees to provide to remove disapproved Exceptions, documentary transfer
taxes on the Deeds, one-half (1/2) of all escrow fees, and one-half (1/2) of the
Hart-Scott-Rodino filing fee. Buyer shall pay for recording the Deeds and the
Memoranda of Lease, the cost of any special endorsements which Buyer elects to
obtain, one-half (1/2) of all escrow fees, and one-half (1/2) of the
Hart-Scott-Rodino filing fee. Rents shall be prorated as of the Closing Date.
Buyer shall obtain its own insurance for the Owned Properties and the Leased
Properties, and Seller's insurance premiums shall not be prorated. At least
three (3) days prior to the Closing Date, Escrow Holder shall submit to Seller
and Buyer an estimated closing statement. In the event that Escrow is canceled
without default by either party, the cost of cancellation shall be borne equally
by Seller and Buyer. In the event of default, the defaulting party shall pay all
escrow cancellation fees.
5.8 Restoration of Yuba City Premises. Promptly after the Closing
Date, Buyer shall restore Seller's Yuba City premises to "vanilla shell"
condition, with utilities capped, floor holes filled with concrete, interior
ceilings and walls patched, and the premises delivered in broom-clean condition,
all at Buyer's sole cost and expense as described in Section 1.3(d) above.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's
obligation to consummate this Agreement is expressly subject to the
satisfaction, on or prior to the Closing Date, of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part by Buyer in writing):
6.1 Representation and Warranties. All representations and
warranties of Seller contained in this Agreement, or any certificate, Schedule,
Exhibit, statement, report or other document delivered or furnished by Seller
pursuant this Agreement, shall be true, correct and complete in all material
respects as of the Closing Date as if made at and as of such date.
6.2 Covenants. Seller shall have performed and satisfied in all
material respects all covenants and conditions required by this Agreement to be
performed or satisfied by Seller on or prior to the Closing Date.
6.3 Closing Documents. All of the documents set forth in Section
2.2 shall have been duly executed and delivered to Buyer.
6.4 Material Errors. Buyer shall not have discovered any material
(i) error, misstatement or omission in any of the representations or warranties
made by Seller in this Agreement, or any certificate, schedule, exhibit
statement, report or other documents delivered or furnished by Seller pursuant
to this Agreement, or (ii) failure on the part of Seller to perform or satisfy
any covenants or conditions required to be performed or satisfied by Seller
under this Agreement.
6.5 Absence of Litigation. No action or proceeding shall have
been instituted or threatened prior to or at the Closing Date before any court
or other governmental body, or instituted or threatened by any public authority,
the result of which could prevent or make illegal the consummation of the
transactions contemplated hereunder or under the other agreements to be entered
into in connection with this Agreement or which could have a material adverse
effect on Seller or its properties, Business or prospects.
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6.6 Absence of Damage to Property. UGCC's tangible property,
including the Properties, shall not have suffered any substantial (meaning
greater than $10,000 in value) damage or destruction not covered by insurance,
whether by fire or otherwise, and whether or not covered by insurance, which
could have a material adverse effect on the Business or its prospects.
6.7 Consents. Seller shall have obtained the consent or approval
of each person whose consent to or approval of the transactions contemplated by
this Agreement or the other agreements to be entered into in connection with
this Agreement is required in order to consummate this Agreement and such other
agreements or to continue the operation of the Business as it is currently
conducted, except any consents the failure to obtain would not have or result in
a Material Adverse Effect. Such consents and approvals shall include, without
limitation, any consents and approvals required by applicable federal, state or
local governmental authorities.
6.8 Close of Escrow; Title Insurance. Escrow Holder shall be in a
condition to close Escrow, and Title Company shall be in a position to issue the
Title Policies, all in accordance with Section 5.6 above.
6.9 Due Diligence Review. Buyer and Buyer's Representatives shall
have completed their due diligence review of Seller to their complete
satisfaction.
6.10 Board Approval. Buyer's board of directors shall have
approved of the terms and conditions of this Agreement and the other agreements
to be entered into in connection with this Agreement.
6.11 Approval of Documentation. The form and substance of all
certificates, instruments of transfer and other documents to be furnished by
Seller and its counsel under this Agreement shall be satisfactory in all
reasonable respects to Buyer and its counsel.
7. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. Seller's
obligation to consummate this Agreement is expressly subject to the
satisfaction, on or prior to the Closing Date, of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part by Seller in writing):
7.1 Representations and Warranties. All representations and
warranties of Buyer contained in this Agreement shall be true, correct and
complete in all material respects as of the Closing Date as if made at and as of
such date.
7.2 Covenants. Buyer shall have performed and satisfied all
covenants and conditions required by this Agreement to be performed or satisfied
by it in all material respects on or prior to the Closing Date, including,
without limitation, approval by Buyer's Board of Directors of the terms and
conditions of this Agreement and the other agreements to be entered into in
connection with this Agreement.
7.3 Closing Documents. All of the documents set forth in Section
2.2 shall have been duly executed and delivered to Seller.
7.4 Material Errors, Etc. The Company shall not have discovered
any material (i) error, misstatement or omission in any of the representations
or warranties made by Buyer in this Agreement, or any certificate, schedule,
exhibit, statement, report or other
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document delivered or furnished by Buyer pursuant to this Agreement; or (ii)
failure on the part of Buyer to perform or satisfy any covenants or conditions
required to be performed or satisfied by Buyer under this Agreement.
7.5 Absence of Litigation. No action or proceeding shall have
been instituted prior to or at the Closing Date before any court or other
governmental body, or instituted or threatened by any public authority, the
result of which could prevent or make illegal the consummation of the
transactions contemplated hereunder or under the other agreements to be entered
into in connection with this Agreement, or which could have a Material Adverse
Effect on Seller or its properties, Business or prospects, or which seek to
enjoin the consummation of the transaction contemplated hereby, or which seek
damages from Seller or its officers or directors in a material amount if such
transaction is consummated.
7.6 Close of Escrow; Title Insurance. Escrow Holder shall be in a
condition to close Escrow, and Title Company shall be in a position to issue the
Title Policies, all in accordance with Section 5.6 above.
7.7 Approval of Documentation. The form and substance of all
certificates and other documents to be delivered by Buyer and its counsel under
this Agreement shall be satisfactory in all reasonable respects to Seller and
its counsel.
7.8 Assumption of Seller's Labor Agreement. As a condition to
Closing, Buyer or an affiliate of Buyer shall expressly assume or affirm, or
indemnify, defend and hold Seller harmless from, Seller's collective bargaining
agreements identified on Schedule 3.15 insofar as they apply to the Business or
UGCC. This condition will be excused if each of the Teamster unions which are
party to the Master Labor Agreement and Cash & Carry Supplement executes a
waiver and release of Seller containing all of the following terms:
(a) that any obligations of Seller to bargain with the
union over the decision or the effects of the transactions contemplated by this
Agreement have been fully satisfied;
(b) that the union releases Seller from further
bargaining and all contractual obligations regarding the Cash & Carry
Supplement;
(c) that all grievances, disputes or claims between
Seller and the Teamster unions arising under the Cash & Carry Supplement or
Master Labor Agreement (including, but not limited to, all grievances, disputes
or claims arising out of the transactions contemplated in this Agreement) have
been fully and finally resolved or waived; and
(d) that the collective bargaining agreement and the
bargaining relationship between the Teamster unions and Seller regarding the
UGCC stores terminate at Closing.
8. TERMINATION.
8.1 Termination. This Agreement may be terminated on or before
the Closing Date without liability on the part of any party exercising such
right of termination:
(a) by the mutual consent of Buyer and Seller ;
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(b) by any party hereto because a condition to that
party's obligation to consummate the transactions contemplated by this Agreement
has not been satisfied or waived and the other party is not in default;
(c) by any party hereto if there has been a material
misrepresentation or breach on the part of the other party of the warranties of
such other party as set forth in this Agreement or made pursuant hereto, or if
there has been any material failure on the part of the other party to perform
its obligations or comply with the covenants under this Agreement.
8.2 Procedure and Effect of Termination. In the event of
termination, written notice thereof shall be given to the other party and this
Agreement shall terminate without further action by any of the parties hereto.
If this Agreement is terminated as provided in Sections 8.1(a) or 8.1(b), no
party hereto shall have any liability or further obligations to any other party
to this Agreement.
8.3 Liquidated Damages. In the event a party terminates this
Agreement pursuant to Section 8.1(c), then that party, so long as such party is
not also in breach or default of any obligation, warranty or representation
hereunder, in addition to its right of termination, may seek liquidated damages
against the other party, as follows:
(a) IF THIS TRANSACTION DOES NOT CLOSE AS A CONSEQUENCE
OF DEFAULT BY BUYER, SELLER SHALL BE ENTITLED TO RECEIVE FROM BUYER THE SUM OF
FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) AS LIQUIDATED DAMAGES. THE PARTIES
AGREE THAT SELLER'S ACTUAL DAMAGES WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE
IF BUYER DEFAULTS, AND THAT SUCH SUM IS THE BEST ESTIMATE OF THE AMOUNT OF
DAMAGES SELLER WOULD SUFFER. THIS SUM SHALL BE THE AMOUNT THAT SELLER IS
ENTITLED TO RECEIVE AS LIQUIDATED DAMAGES AND SHALL BE SELLER'S SOLE REMEDY.
SELLER SHALL HAVE NO RIGHT, AND HEREBY WAIVES ALL RIGHT, TO AN ACTION FOR
SPECIFIC PERFORMANCE OF THIS AGREEMENT. THE PARTIES WITNESS THEIR AGREEMENT TO
THIS LIQUIDATED DAMAGES PROVISION AND THIS WAIVER OF SPECIFIC PERFORMANCE BY
SEPARATELY INITIALING THIS SECTION:
Seller: ----------- Buyer: ----------- /s/[initials]
(b) IF THIS TRANSACTION DOES NOT CLOSE AS A CONSEQUENCE
OF DEFAULT BY SELLER, BUYER SHALL BE ENTITLED TO RECEIVE FROM SELLER THE SUM OF
FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) AS LIQUIDATED DAMAGES. THE PARTIES
AGREE THAT BUYER'S ACTUAL DAMAGES WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE
IF SELLER DEFAULTS, AND THAT SUCH SUM IS THE BEST ESTIMATE OF THE AMOUNT OF
DAMAGES BUYER WOULD SUFFER. THIS SUM SHALL BE THE AMOUNT THAT BUYER IS ENTITLED
TO RECEIVE AS LIQUIDATED DAMAGES AND SHALL BE BUYER'S SOLE REMEDY. BUYER SHALL
HAVE NO RIGHT, AND HEREBY WAIVES ALL RIGHT, TO AN ACTION FOR SPECIFIC
PERFORMANCE OF THIS AGREEMENT. THE PARTIES WITNESS THEIR AGREEMENT TO THIS
LIQUIDATED DAMAGES PROVISION AND THIS WAIVER OF SPECIFIC PERFORMANCE BY
SEPARATELY INITIALING THIS SECTION:
Seller: ----------- Buyer: ----------- /s/[initials]
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9. SURVIVAL AND INDEMNIFICATION.
9.1 Survival of Representations, Warranties and Covenants. For a
period commencing on the Closing Date and ending on the third anniversary
thereof, all representations, warranties and agreements made by Buyer and Seller
in this Agreement (including statements contained in any schedule, certificate,
exhibit, statement, report or other document delivered by or on behalf of any
party hereto or in connection with the transactions contemplated hereby) shall
survive the execution, delivery and performance of this Agreement and any
investigations, inspections, examinations, or audits made by or on behalf of the
parties. Nothing in this Section 9.1 shall affect the obligations and
indemnities of the parties with respect to the covenants and agreements
contained in this Agreement that are permitted or required to be performed, in
whole or in part, after the Closing Date.
9.2 Indemnification.
(a) For a period commencing on the Closing Date and
ending on the third anniversary thereof, Seller agrees to indemnify Buyer and
hold Buyer harmless against and in respect of any and all damages, claims,
losses, expenses, costs, obligations and liabilities, including court costs and
reasonable attorneys' fees, which arise or result from or are incident or
related to (i) the inaccuracy of any representation or breach of any warranty of
Seller, (ii) any default or failure of Seller's commitments or obligations under
this Agreement, (iii) by reason of any act or omission of Seller which
constitutes a breach or default under this Agreement, (iv) any claim for a fee
or commission by any broker or finder in connection with this Agreement
resulting from Seller's actions, (v) the Excluded Liabilities, or (vi) failure
by the parties to comply with the "Bulk Sales" laws in effect in any states
applicable to this transaction; provided, however, that, notwithstanding the
foregoing, Seller's indemnity obligation with respect to the Excluded
Liabilities shall survive through that period commencing on the Closing Date and
ending on that date two years following the date that payment or performance of
the most remote obligation arising with respect to the Excluded Liabilities, by
its terms, becomes due, and provided further, that Seller shall have no
obligation to indemnify Buyer from or against any damages, claims, losses,
expenses, costs, obligations or liabilities unless and until Buyer has tendered
such claim to Buyer's insurance carrier(s), and then only to the extent that the
same is not recoverable under any policy of insurance maintained by Buyer.
Seller shall reimburse Buyer on demand for any payment made or loss suffered by
Buyer at any time after the execution of this Agreement, based upon the judgment
of any court of competent jurisdiction or pursuant to a bona fide compromise or
settlement of claims, demands or actions, in respect of any damages to which the
foregoing indemnity relates.
(b) For a period commencing on the Closing Date and
ending on the third anniversary thereof, Buyer agrees to indemnify Seller and
hold Seller harmless against and in respect of any and all damages, claims,
losses, expenses, costs, obligations and liabilities, including court costs and
reasonable attorneys' fees, which arise or result from or are incident or
related to (i) the inaccuracy of any representation or breach of any warranty of
Buyer, (ii) any default or failure of Buyer's commitments or obligations under
this Agreement, (iii) by reason of any act or omission of Buyer which
constitutes a breach or default under this Agreement, (iv) any claim for a fee
or commission by any broker or finder in connection with this Agreement
resulting from Buyer's actions, or (v) the Assumed Liabilities, provided,
however, that, notwithstanding the foregoing, Buyer's indemnity obligation with
respect to the Assumed Liabilities shall survive through that period commencing
on the Closing Date and ending on that date two years following the date that
payment or performance of the most remote obligation arising with respect to the
Assumed Liabilities, by its terms, becomes due, and provided further, that Buyer
shall have no obligation to indemnify Seller
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from or against any damages, claims, losses, expenses, costs, obligations or
liabilities unless and until Seller has tendered such claim to Seller's
insurance carrier(s), and then only to the extent that the same is not
recoverable under any policy of insurance maintained by Seller. Buyer shall
reimburse Seller on demand for any payment made or loss suffered by it at any
time after the execution of the Agreement, based upon the judgment of any court
of competent jurisdiction or pursuant to a bona fide compromise or settlement of
claims, demands or actions, in respect of any damages to which the foregoing
indemnity relates.
(c) The party indemnified hereunder (the "Indemnitee")
shall promptly notify the indemnifying party (the "Indemnitor") of the existence
of any claim, demand, or other matter involving liabilities to third parties to
which the Indemnitor's indemnification obligations would apply and shall give
the Indemnitor thirty (30) days (or such shorter period as required by the
contingencies of such claim, demand or other matter involving liabilities to
third parties) in which to elect to defend the same at its own expense and with
counsel of its own selection (who shall be approved by the Indemnitee, which
approval shall not be unreasonably withheld); provided that the Indemnitee shall
at all times also have the right to fully participate in the defense at its own
expense. If the Indemnitor shall, within such thirty (30) day period, fail to
defend, the Indemnitee shall have the right, but not the obligation, to
undertake the defense of, and to compromise or settle (exercising reasonable
business judgment) the claim or other matter on behalf, for the account, and at
the risk and expense of the Indemnitor. Notwithstanding the foregoing, if the
matter might have an effect on the ongoing Business or the Purchased Assets or
Buyer's relationship with customers or suppliers, Buyer shall have first right
to defend the same on the basis set forth in the preceding sentence. Except as
provided above, the Indemnitee shall not compromise or settle the claim or other
matter without the written consent of the Indemnitor, such consent not to be
unreasonably withheld. If the claim is one that cannot by its nature be defended
solely by the Indemnitor, the Indemnitee shall make available all information
and assistance that the Indemnitor may reasonably request; provided that any
associated expenses shall be paid by the Indemnitor.
9.3 Limitations Upon Indemnity Claims. Neither party (the "Liable
Party") shall have any liability to the other (for indemnification or otherwise)
for any matters arising under or otherwise with respect to this Agreement or the
transactions contemplated hereby until the aggregate of all losses, claims,
damages, expenses, costs, obligations and liabilities otherwise payable by the
liable party with respect to such matters exceeds $500,000, and then only for
the amount by which the aggregate of such losses, claims, damages, expenses,
costs, obligations and liabilities exceeds $500,000. This limitation will not
apply to (a) any breach of any of the liable party's warranties or
representations of which the liable party had actual knowledge at any time prior
to the date on which such warranty or representation is made, (b) any breach of
contract with or for the benefit of a third party, or (c) any intentional breach
by the liable party of any covenant or obligation on its part to be performed
hereunder. In no event shall either Buyer or Seller have any liability for
indemnification with respect to any representation or warranty, or any covenant
or obligation to be performed and complied with hereunder, unless the indemnitee
notifies the indemnitor, on or before the expiration of the survival periods
specified in Section 9.2(a) or 9.2(b), as the case may be, of the claim,
specifying the factual basis of that claim in reasonable detail to the extent
then known by the indemnitee.
9.4 Exclusive Remedy. Except (i) as provided in Section 8 with
respect to liquidated damages in certain circumstances therein described, and
(ii) for injunctive relief provided in Section 5.5, the rights of
indemnification set forth in this Section 9 shall be the exclusive remedy with
respect to any claim by any party against any other party with respect to any
matter that is otherwise subject to indemnification hereunder.
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10. MISCELLANEOUS.
10.1 Notices. Whenever the service or the giving of any document
or consent by or on behalf of any party hereto upon any other party is herein
provided for, or becomes necessary or convenient under the provisions of this
Agreement or any document related hereto, a valid and efficient service of such
document shall be effected by delivering the same in writing to such party in
person, by Federal Express or other reputable courier, by facsimile, or by
sending the same by registered or certified mail, return receipt requested, and
shall be deemed received upon personal delivery if delivered personally, by
Federal Express or other reputable courier or by facsimile, or four (4) business
days after deposit in the mail in the United States, postage prepaid, addressed
to the person to receive such notice or communication at the following address:
If to Seller: United Grocers, Inc.
6433 SE Lake Road
Portland, Oregon 97222
Attention: Mr. Charles Carlbom
Phone: (503) 833-1003
Fax: (503) 833-1008
With a copy to: Schwabe, Williamson & Wyatt, P.C.
1800 Pacwest Center - Suites 1600-1800
1211 S.W. Fifth Avenue
Portland, Oregon 97204
Attention: Mark Long, Esq.
Phone: (503) 222-9981
Fax: (503) 796-2900
If to Buyer: Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Attention: Donald G. Alvarado, Esq.
Phone: (213) 589-9726
Fax: (213) 589-0415
With a copy to: Crosby, Heafey, Roach & May
700 South Flower Street, Suite 2200
Los Angeles, California 90017-4209
Attention: Richard W. Lasater II, Esq.
Phone: (213) 896-8000
Fax: (213) 896-8080
Each of the parties shall be entitled to specify a different
address by giving notice as aforesaid.
10.2 Entire Agreement. This Agreement, and the Exhibits and
Schedules attached hereto, constitute the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations, and discussions, whether oral or
written.
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10.3 Amendment and Modification. No supplement, modification,
waiver or termination of this Agreement shall be binding unless executed in
writing by the party to be bound. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
10.4 Headings. The headings of this Agreement are included for
purposes of reference and convenience only, and shall not define, construe or
limit the meaning of any provision of this Agreement.
10.5 Successors and Assigns. All of the terms, provisions and
obligations of this Agreement shall be binding upon and enforceable by, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns. Notwithstanding the foregoing, neither this Agreement
nor any rights or obligations hereunder shall be assigned, pledged, hypothecated
or otherwise transferred by a party, in whole or in part, without the prior
written consent of the other party, except (i) by operation of law, or (ii) by
Buyer to any entity that Buyer controls (provided that such assignment shall not
relieve Buyer of its obligations hereunder, if such assignee does not perform
such obligations), or (iii) by Seller to any lender of Seller, provided that
such assignment only shall be an assignment of Seller's rights to receive
payments from Buyer (including the cash, Promissory Note and rights to indemnity
from Buyer) pursuant to this Agreement.
10.6 Governing Law; Venue. The validity, construction and
interpretation of this Agreement shall be governed by the internal laws of the
State of Oregon applicable to contracts made and to be performed wholly within
that state.
10.7 Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person other than the parties hereto any
rights or remedies under or by reason of this Agreement.
10.8 Expenses; Attorneys' Fees. Each party shall bear the
expenses (including, without limitation, attorneys' fees) incurred by it in
connection with the negotiation, execution and delivery of this Agreement and
the agreements contemplated by this Agreement. In the event any party takes
legal action (including arbitration or mediation) to enforce any of the terms of
this Agreement, the party who is determined to be the prevailing party shall be
entitled to recover its reasonable expenses, including attorneys' fees for
pretrial investigation, at trial, and on appeal, incurred in such action.
10.9 Arbitration; Mediation. Any dispute, claim or controversy
concerning, arising out of, or relating to this Agreement (including, without
limitation, any such dispute, claim or controversy concerning, arising out of,
or relating to the making, performance or interpretation hereof) shall first be
mediated by the parties. If the dispute, claim or controversy is not settled by
way of mediation, the parties shall submit the same to binding arbitration in
Portland, Oregon, in accordance with ORS 36.300-36.365, and judgment or decree
on the arbitration award or the decision of the arbitrator(s) may be entered in
any court of competent jurisdiction. THE PARTIES UNDERSTAND, ACKNOWLEDGE AND
AGREE THAT THEY ARE HEREBY WAIVING THEIR RESPECTIVE RIGHTS TO A JURY TRIAL BY
AGREEING TO SUBMIT ANY AND ALL DISPUTES TO FINAL AND BINDING ARBITRATION.
10.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
30
<PAGE>
10.11 Severable Provisions. If any of the provisions of this
Agreement are determined to be illegal or otherwise unenforceable, in whole or
in part, the remaining provisions, and any partially unenforceable provisions to
be the extent enforceable, shall nevertheless be binding and enforceable. For
the purpose of determining the scope of the covenants set forth in Section
5.5(e)(ii) above, each of the subsections thereof shall be considered a separate
covenant such that if the geographic scope of any such subsections shall be
determined by a court of competent jurisdiction to be excessive and invalid,
such subsections shall be severed and the remaining subsections shall be deemed
enforceable and remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
UNITED GROCERS, INC., an
Oregon business corporation
("Seller")
By: /s/ Charles E. Carlbom
Its President
By:--------------------------------------
Its Vice President
SMART & FINAL INC.,
a Delaware corporation
("Buyer")
By: /s/ [illegible]
Its President
By: /s/ [illegible]
Its Vice President
31
<PAGE>
EXHIBITS
--------
A - License Agreement
B - Promissory Note
C - Bill of Sale
D - Assignment and Assumption of Leases
E - Bargain and Sale Deed
F - Assignment and Assumption of Rights, Contracts,
Warranties and Documents
G - Landlord's Consent and Estoppel Certificate
H - Lender's Consent
32
<PAGE>
SCHEDULES
---------
Schedule No. Description
- ------------ -----------
1.1(b) Accounts Receivable; Bad Debt Reserves
1.1(d) Real Property Leases
1.1(e) Owned Properties
1.1(h) Trade Names and Trademarks
1.1(i) Contracts, Agreements, Orders, Leases, Licenses and
Arrangements
1.2(k) Excluded Assets
3.5 Trial Balance Sheet as of May 1, 1998
3.6 Material or Significant Changes in Financial Position
3.9 Prepaid Items, Accounts Payable and Accrued Expenses
3.11 Employees
3.12(d) Service Contracts
3.13A List of Tangible Personal Property
3.13B Personal Property Leases
3.14 Intangible Property
3.15 Other Agreements
3.17 Litigation Affecting Seller
3.19 Licenses and Permits
3.20 Employee Benefit Plans
4.5 Litigation Affecting Buyer
33
Asset Purchase Agreement
Relating to the Business of
Rich and Rhine, Inc.
<PAGE>
INDEX
<TABLE>
<S> <C>
1. Purchase and Sale of Assets...........................................................1
(a) Transfer of Assets............................................................1
(b) Purchased Assets..............................................................1
(c) Retained Assets...............................................................3
2. Assumption of Liabilities; Purchase Price; Allocations...............................3
2.1 (a) Assumed Liabilities....................................................3
(b) Liabilities Not Assumed................................................3
2.2 Purchase Price................................................................4
2.3 Closing Purchase Price Payments...............................................4
2.4 Purchase Price Audit and Adjustment...........................................4
2.5 Allocations...................................................................5
2.6 Collection of Accounts Receivable.............................................5
3. The Closing...........................................................................6
4. Representations and Warranties of the Seller..........................................6
(a) Ownership and Delivery of Transferred Assets and Execution and Effect of
Agreement.....................................................................6
(b) Organization, Good Standing, Authority........................................6
(c) Subsidiaries; Capitalization..................................................7
(d) Financial Statements..........................................................7
(e) Liabilities...................................................................7
(f) No Adverse Change.............................................................7
(g) Taxes.........................................................................7
(h) Title to Properties; Absence of Encumbrances..................................8
(i) Real Property.................................................................8
(j) Patents, Trademarks, and Copyrights...........................................8
(k) Contracts, Leases, and Commitments............................................9
(l) Inventory.....................................................................9
(m) Accounts Receivable..........................................................10
(n) Permits; Compliance with Laws................................................10
(o) Employees....................................................................10
(p) Employee Benefit Plans.......................................................11
(q) Insurance....................................................................11
(r) Litigation...................................................................11
(s) Environmental Matters........................................................11
(t) Restrictions.................................................................13
(u) Transactions with Affiliates.................................................13
(v) Books and Records............................................................13
(w) Improper Payments............................................................13
(x) Disclosure...................................................................14
i
<PAGE>
5. Representations and Warranties of Purchaser..........................................14
(a) Organization and Good Standing...............................................14
(b) Execution and Effect of Agreement............................................14
(c) Restrictions.................................................................14
(d) Authority for Agreement......................................................15
(e) Governmental Consents........................................................15
(f) Litigation...................................................................15
(g) Financial Statements.........................................................15
(h) Disclosure...................................................................15
6. Closing Deliveries...................................................................16
(a) Deliveries of the Seller.....................................................16
(b) Purchaser's Deliveries.......................................................16
7. Covenants............................................................................17
7.1 Seller's Restrictive Covenant................................................17
7.2 Seller's Employees...........................................................18
7.3 Proration of Expenses........................................................18
8. Brokers and Finders..................................................................18
9. Indemnification by the Seller and UGI................................................18
10. Indemnification By Purchaser.........................................................19
11. Further Provisions Regarding Indemnification.........................................19
(a) Survival.....................................................................19
(b) Limitations..................................................................20
(c) Defense......................................................................20
12. Kero Guaranty........................................................................20
13. Further Assurances...................................................................20
14. Notices..............................................................................21
15. Entire Agreement.....................................................................21
16. Waiver...............................................................................22
17. Successors...........................................................................22
18. Section Headings.....................................................................22
19. Fees and Expenses....................................................................22
20. Severability.........................................................................22
21. Governing Law........................................................................22
22. No Third Party Beneficiaries.........................................................22
23. Counterparts.........................................................................23
24. Definition of Knowledge..............................................................23
25. Attorney Fees........................................................................23
26. Retention of Records.................................................................23
</TABLE>
iii
<PAGE>
INDEX OF SCHEDULES AND EXHIBITS
SCHEDULES
1(b)(ii) Outstanding Checks
1(b)(iii) Real Property
1(b)(iv) Personal Property
1(c) Retained Assets
2.1(a) Assumed Liabilities
2.1(b) Retained Liabilities
2.4 Schedule of Accounting Principles
4 Disclosure Schedule
4(b) Qualification
4(d) Financial Statements of Seller
4(h) Purchased Assets
4(i) Real Property
4(k)-1 Contracts, Leases and Commitments
4(k)-2 10 Largest Customers and Suppliers of the Seller
4(l) Inventory
4(m) Accounts Receivable
4(n) Governmental Licenses and Authorizations
4(o) Employees and Employee Benefit Plans
4(q) Insurance
4(r) Litigation
4(s) Environmental
4(u) Transactions with Affiliates
5(g) Financial Statements of Kero
7.2 Affected Employees
7.3 Proration of Expenses
EXHIBITS
2.3(b)-1 Promissory Note
2.3(b)-2 Pledge Agreement
2.4 Statement of Purchased Assets and Accounts Payable
2.5 Allocations
6(a)(i) Bill of Sale
6(a)(ii) Opinion of Miller, Nash, Weiner, Hager & Carlsen LLP
6(a)(iii) Lease Assignment
6(a)(iv) Assignment of Agreements
6(a)(ix) Supply Agreement
6(b)(iii) Assumption Agreement
6(b)(v) Opinion of Proskauer Rose LLP
iv
<PAGE>
THIS ASSET PURCHASE AGREEMENT ("Agreement") is dated as of May 1,
1998 by and among Rich & Rhine Acquisition Corp., a Delaware corporation
("Purchaser"), Kero Investments, Inc., a Colorado corporation ("Kero"), Rich and
Rhine, Inc., an Oregon corporation ("Seller") and United Grocers, Inc., an
Oregon corporation ("UGI").
RECITALS
--------
A. Seller is in the business of the distribution of grocery, food and
other items principally to convenience stores (the "Business").
B. UGI is the owner of all of the outstanding shares of capital stock of
Seller.
C. Purchaser desires to purchase and Seller desires to sell all of the
assets currently used in connection with the Business upon the terms and subject
to the conditions set forth herein.
D. Purchaser desires to obtain an assignment of the interest of UGI
under a lease (the "Lease") with R&R Leasing LLC with respect to certain real
property and improvements located at 13720 N.E. Whitaker Way, Portland, Oregon
97230.
E. In order to induce the parties to enter into this Agreement, the
parties desire to make the covenants, conditions, representations, and
warranties provided for herein.
NOW, THEREFORE, in reliance on the representations, warranties,
and agreements and subject to the terms and conditions set forth in this
Agreement, the parties agree as follows:
1. Purchase and Sale of Assets.
(a) Transfer of Assets. At the Closing (as defined below)
simultaneously with the assumption of the liabilities contemplated by Section 2,
(i) Seller shall assign, transfer, and deliver to Purchaser, and Purchaser shall
receive from Seller, all of the Purchased Assets (as defined below), but not the
Retained Assets (as defined below), which shall be retained by the Seller and
not be transferred or conveyed pursuant to this Agreement; and (ii) Purchaser
shall deliver to Seller the Closing Cash Payment (as defined below) and Kero,
the indirect parent of Purchaser, shall deliver the Note (as defined below).
(b) Purchased Assets. The "Purchased Assets" means the Business
conducted by Seller and all assets and property of Seller as of the Closing Date
(as defined below), real or personal, tangible or intangible, used or useful in
connection therewith, including, without limitation, all of the Seller's right,
title, and interest in, to, and under the following (but excluding "Retained
Assets"):
1
<PAGE>
(i) all inventory (delivered, in transit and ordered),
including, without limitation, all of Seller's right, title, and interest in and
to all groceries, tobacco items, candy, juice, frozen/service delicatessen items
and related supplies, including, without limitation, all that property described
on Schedule 4(1), except for items disposed of in the ordinary course of
business between the date of such schedule and the Closing Date (the
"Inventory");
(ii) cash in the amount of $145,000 and an amount to
cover checks which have not cleared as of the Closing Date ("Outstanding Check
Allowance") as set forth on Schedule 1(b)(ii), and all accounts receivable of
Seller arising out of or in connection with the Business, including, without
limitation, all that property described on Schedule 4(m), except for items
disposed of in the ordinary course of business between the date of such schedule
and the Closing Date (the "Accounts Receivable");
(iii) all leasehold interests, improvements, and fixtures
thereon and interests therein, used or useful in connection with the Business,
including without limitation the lease legally described on Schedule 1(b)(iii)
("Real Property");
(iv) all equipment, machinery, computers, software,
furniture, trade fixtures, vehicles, and other personal property used or useful
in connection with the Business, whether owned, leased, or otherwise held by
Seller including, without limitation, that property described in Schedule
1(b)(iv) ("Personal Property") except for items disposed of in the ordinary
course of business between the date of such schedule and the Closing Date;
(v) all office and other supplies, tools, spare parts,
and maintenance, advertising, and promotional materials and other tangible
personal property used or useful in connection with the Business;
(vi) all inventions, processes, formulae, and all
discoveries, improvements, trade secrets, and confidential data, whether or not
patentable or copyrightable and other intangible personal property used or
useful in connection with the Business, if any;
(vii) all trademarks, service marks, trade names,
copyrights, patents, designs and similar rights (including any registrations
thereof and applications therefor and the name "Rich and Rhine, Inc." used or
useful in connection with the Business, if any (the "Intellectual Property");
(viii) to the extent transferable, all Seller's rights in
and under agreements, mortgages, instruments, leases for personal property,
customer contracts, insurance policies, and other agreements used or useful in
connection with the Business;
(ix) to the extent transferable, all Seller's licenses
and other governmental authorizations used or useful in connection with the
Business including, without limitation, those licenses and authorizations listed
on Schedule 4(n) ("Licenses and Authorizations");
2
<PAGE>
(x) to the extent transferable, all manufacturer's and
seller's warranties made to the Seller in connection with the Business, and all
rights of a successor employer for employment tax and unemployment insurance
purposes (should Purchaser choose to avail itself thereof);
(xi) all records which relate to the operations and
finances of Seller, including, without limitation, books, records, ledgers,
files, documents, correspondence, computer discs, diagrams, construction data,
blueprints, instruction manuals, maintenance manuals, reports and similar
documents used or useful in connection with the Business;
(xii) all causes of action, complaints and rights
currently in litigation or which could result in litigation which would or could
benefit the Business; and
(xiii) all goodwill of Seller arising out of or
associated with the Business.
(c) Retained Assets. The "Retained Assets" means (i) Seller's
rights under this Agreement, (ii) Seller's minute book and stock certificates,
(iii) cash in excess of $145,000 and the Outstanding Check Allowance, and (iv)
the assets as listed on Schedule 1(c).
2. Assumption of Liabilities; Purchase Price; Allocations.
2.1 (a) Assumed Liabilities. At the Closing, Purchaser shall assume
from the Seller the "Assumed Liabilities" which shall only consist of (i)
verifiable trade debts of the Seller which are listed on Schedule 2.1(a), other
similar debts and liabilities incurred in the ordinary course of business
between the date of such schedule and the Closing Date, and other similar
accounts or sums payable in the ordinary course of business (the "Accounts
Payable"); (ii) obligations of Seller under the contracts listed on Schedule
2.1(a); and (iii) UGI's obligations under the Lease which arise from and after
the Closing Date. The Assumed Liabilities shall at all times specifically
exclude, and Purchaser shall specifically not assume or in any way be
responsible or liable for and the Purchased Assets shall not be subject to
income taxes or indebtedness representing borrowed money, and all other debts,
liabilities, commitments, and obligations not specifically assumed hereunder.
(b) Liabilities Not Assumed. Except only for those debts,
liabilities, commitments, and obligations of the Seller which are expressly
assumed by Purchaser at the Closing pursuant to Section 2.1(a) hereof, Purchaser
shall not assume, nor shall Purchaser be liable or obligated in any way for any
debts, liabilities, commitments, and/or obligations of the Seller of any kind or
nature whatsoever, whether absolute or contingent, liquidated or unliquidated,
and whether or not accrued, matured, known, or suspected including, without
limitation, those liabilities listed on Schedule 2.1(b) (the "Retained
Liabilities"). The Seller shall remain fully and solely liable with respect to
all of the Retained Liabilities and agrees to pay and discharge all Retained
Liabilities.
3
<PAGE>
2.2 Purchase Price. In full consideration for the Purchased Assets and
all of the covenants, conditions, representations, and warranties of the Seller
and UGI, and in addition to assumption of the Assumed Liabilities by Purchaser
and the covenants, conditions, representations, and warranties of Purchaser,
Purchaser shall pay at the Closing an aggregate purchase price (the "Purchase
Price") equal to the following:
(a) The total book value of the Purchased Assets as of the
Closing Date (determined as set forth in Section 2.4 hereof);
(b) Less the total of the Accounts Payable; plus
(c) A premium in the amount of $638,595.
2.3 Closing Purchase Price Payments. At Closing, Purchaser shall make
Purchase Price payments (the "Closing Payments") as follows:
(a) An amount equal to Three Million Five Hundred Thousand
Dollars ($3,500,000) paid by Purchaser to UGI in cash by wire transfer to an
account designated by UGI (the "Closing Cash Payment"); plus
(b) A promissory note in the amount of $750,000, in the form
attached hereto as Exhibit 2.3(b)-1 to be issued by Kero to UGI (the "Note")
which will be secured by a pledge of the common stock of Purchaser pursuant to a
Pledge Agreement in the form attached hereto as Exhibit 2.3(b)-2 (the "Pledge
Agreement").
2.4 Purchase Price Audit and Adjustment. Attached hereto as Exhibit 2.4
is a statement setting forth the estimated Purchased Assets and Accounts Payable
("Statement of Purchased Assets and Accounts Payable"). An independent audit
(the cost of which shall be evenly divided between Seller and Purchaser) of the
Statement of Purchased Assets and Accounts Payable will be performed by Deloitte
& Touche LLP (the "Auditor"). The Auditor shall determine the amount by which
the book value of the Purchased Assets on the Closing Date exceeds the amount of
the Accounts Payable in accordance with generally accepted accounting principles
applied consistently except as otherwise provided in a Schedule of Accounting
Principles attached hereto as Schedule 2.4. All the parties hereto shall
cooperate with all reasonable requests of the Auditor, including, without
limitation, requests for specific documentation and access to the books and
records of the Seller, in making its determination of the Purchase Price. The
parties hereto shall use their best efforts to cause the Auditor to make and
deliver its draft and final Purchase Price Determination on or before the dates
specified below.
The parties hereto shall cause the Auditor to give the Seller and
Purchaser a draft report on or before the 60th day after the Closing Date and
representatives of the Seller, Purchaser and the Auditor shall promptly
thereafter meet to discuss the contents of the Auditor's draft report. On or
before the 90th day after the Closing Date based on the Auditor's draft report
and
4
<PAGE>
discussions with representatives of Purchaser and the Seller, the Auditor shall
deliver to Purchaser and the Seller the Auditor's final written report (the
"Purchase Price Determination") which shall specify the Purchase Price, and set
forth the variances, if any, from the Statement of Purchased Assets and Accounts
Payable.
If Seller objects to the Purchase Price Determination made the Auditor,
Seller shall have the right within 30 days after the Auditor's Purchase Price
Determination is delivered within which to request that the Purchase Price be
determined by an arbitrator (the "Arbitrator") who shall be chosen by the head
of the Portland, Oregon office of KPMG Peat Marwick LLC.
If the Purchase Price exceeds the Closing Payments, the Purchase Price
and the Note shall be increased by such difference.
If the Purchase Price is less than the Closing Payments, the Purchase
Price and the Note shall be decreased by such difference.
The cost of the arbitration shall be paid as determined by the
Arbitrator.
2.5 Allocations. All parties acknowledge and agree that the total of the
Assumed Liabilities plus the Purchase Price, shall be allocated among the
Purchased Assets in accordance with Exhibit 2.5. All parties agree to use the
allocations contained in this Section 2.5 and Exhibit 2.5 for all purposes,
including preparing and filing any applicable tax returns and forms.
2.6 Collection of Accounts Receivable. During the 120-day period
following the Closing Date (the "Collection Period") Purchaser shall collect the
Accounts Receivable in the ordinary course of business. All payment received
shall be applied to the invoice designated by the account debtor. If no invoice
is designated, payments from account debtors (including account debtors who are
then currently buying from Purchaser) shall be applied to the oldest Account
Receivable of such account debtor until all Accounts Receivable of such debtor
have been paid in full. During the Collection Period, (i) Purchase shall deliver
to Seller monthly reports of collections with respect to Accounts Receivable and
(ii) representatives of Seller shall have the right from time to time during
normal business hours to review the status of collections of Accounts
Receivable. At any time during the Collection Period, Seller shall have the
right to purchase for cash equal to its unpaid balance any Account Receivable.
At the end of the Collection Period, Purchaser shall have the right to assign
back to Seller any Accounts Receivable which have not been paid in full and to
offset the uncollected balance thereof against the Note.
3. The Closing. The Closing of the transactions contemplated by this
Agreement (the "Closing") shall be held on May 1, 1998 (the "Closing Date") at
the offices of Proskauer Rose LLP, 2049 Century Park East, Suite 3200, Los
Angeles, California.
4. Representations and Warranties of the Seller. Except as set forth in
a Disclosure Schedule attached hereto as Schedule 4, the Seller and UGI, jointly
and severally, represent,
5
<PAGE>
warrant, and agree as follows and warrant to Purchaser, Kero and Nations Credit
Commercial Corporation, through its NationsCredit Commercial Funding Division
("NationsCredit") that as of the date hereof and as of the Closing Date:
(a) Ownership and Delivery of Transferred Assets and Execution
and Effect of Agreement. The Seller and UGI each have the full right, power, and
authority to enter into and to perform this Agreement and all other agreements,
certificates, and documents executed or delivered, or to be executed or
delivered, by either of them in connection with this Agreement (collectively,
with this Agreement, "Seller's Documents"). This Agreement has been duly
authorized, executed, and delivered by the Seller and UGI, and Seller's
Documents are (or when executed and delivered will be) legal, valid, and binding
obligations of the Seller and UGI, as the case may be, enforceable in accordance
with their respective terms, subject to the effect of bankruptcy, insolvency,
and other laws generally affecting the rights of creditors and to general
principles of equity. The authorization, execution, delivery, and performance of
Seller's Documents and the consummation of the transactions contemplated by
Seller's Documents do not and will not (1) violate any of the provisions of
either the Seller's or UGI's Articles of Incorporation and By-Laws, or (2)
violate, conflict with, result in a breach of or constitute a default under,
require any notice or consent under, give rise to a right of termination of, or
accelerate the performance required by, any terms or provisions of any material
agreement, instrument or writing of any nature to which either Seller or UGI is
a party or is bound, or to which any of either Seller's or UGI's assets or
business is subject or (3) violate, or result in a breach of, conflict with, or
require any notice, filing or consent under, statute, rule, regulation or other
provision of law, or any other, judgment or other direction of a court or other
tribunal, or any other governmental requirement, permit, registration, license
or authorization applicable to the Seller or UGI or any of their assets or
Business (collectively, "Legal Requirements"), or (4) result in the creation of
any material lien, claim, encumbrance, or restriction on any of the assets or
properties of either Seller or UGI.
(b) Organization, Good Standing, Authority. Each of Seller and
UGI is duly organized, validly existing, and in good standing under the laws of
the State of Oregon and has full power and authority to own and lease its
respective assets and properties and to conduct its respective business as it is
now being conducted. Seller is duly qualified or licensed to do business and is
in good standing under the laws of those jurisdictions listed on Schedule 4(b),
constituting each jurisdiction in which the conduct of the Business or the
ownership or leasing of its assets require such qualification unless the failure
to be so licensed or qualified would not have a material adverse effect on
Seller or its Business, financial condition or prospects ("Material Adverse
Effect").
(c) Subsidiaries; Capitalization. Seller has no subsidiaries and
has no equity interest in any corporation, partnership, joint venture, or other
entity. All of the outstanding shares of stock of Seller are owned by UGI.
(d) Financial Statements. Schedule 4(d) contains true copies of
financial statements for the Seller as at the three most recent year ends
(collectively, the "Financial
6
<PAGE>
Statements"); the balance sheet of the Seller as at April 3, 1998 (the "Balance
Sheet") and the related statements of income and supplementary schedules, if
any, of the Seller for the period then ended. Except as provided on Schedule
4(d), each of the foregoing Financial Statements are complete and correct, are
in accordance with the Seller's books and records, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, and presents fairly the financial position, results of operations and
changes in financial position of the Seller as at the dates and for the fiscal
periods indicated.
(e) Liabilities. Seller has no liabilities (whether accrued,
unmatured, contingent, or otherwise, and whether due or to become due (i) which
are not reflected in the Balance Sheet, (ii) which have not been incurred since
the date of the Balance Sheet in the ordinary course of business as heretofore
conducted by Seller, or (iii) which are not described in the schedules attached
to this Agreement.
(f) No Adverse Change. Since the date of the Balance Sheet the
Seller has operated the Business diligently and only in the ordinary course of
business as theretofore conducted, and there has been no: (i) material adverse
change in the business, properties, assets, liabilities, commitments, earnings,
financial condition, or prospects of the Seller; or (ii) property damage or
destruction resulting in a loss or cost to the Seller of more than $10,000 in
the aggregate, whether or not covered by insurance.
(g) Taxes. Seller has properly filed all federal, foreign, state,
local, and other tax returns and reports which are required to be filed, all of
the foregoing are true, correct, and complete in all material respects, and all
taxes, interest, and penalties due and payable as shown on such returns or
claimed to be due by any taxing authority have been timely paid. All unpaid
federal, foreign, state, local, and other taxes, fees, assessments, duties, and
other similar governmental charges payable by the Seller or which will, with the
passage of time, become payable by the Seller (including interest and penalties)
whether or not disputed, are adequately reserved against in accordance with the
Seller's past practices. There are no outstanding waivers or extensions of time
with respect to the assessment or audit of any tax or tax return of the Seller,
or claims now pending or matters under discussion with any taxing authority in
respect of any tax of the Seller. The Seller has made available to Purchaser
true copies of the federal, foreign, state, and local tax returns of the Seller
for the years ended on December 31 for the years 1997, 1996, and 1995. Purchaser
will not incur nor be obligated for, nor will the Purchased Assets be subject
to, any sales, use, or other tax or excise in connection with the acquisition of
the Purchased Assets.
(h) Title to Properties; Absence of Encumbrances. The Seller has
lawful, valid and marketable title to or, in the case of leases and licenses,
valid and subsisting leasehold interests or licenses in, all of its properties
and assets of whatever kind (whether real or personal, tangible or intangible),
including, without limitation, the Purchased Assets and all properties and
assets shown on the Balance Sheet (except for assets sold in the ordinary course
of business since the date thereof) and to properties and assets that are shown
on any schedule to this Agreement as being owned or leased and in each case free
and clear of any and all liens, mortgages, pledges,
7
<PAGE>
security interests, restrictions, prior assignments, claims, agreements and
encumbrances of any kind whatsoever and except for liens for current taxes and
assessments not yet due and payable ("Permitted Liens"). On the date hereof the
Seller has the full right, power, and authority to sell, assign, transfer, and
deliver the Purchased Assets and on the date hereof, the execution, delivery and
performance of Seller's Documents by the Seller and UGI will convey to Purchaser
lawful, valid, and marketable title to the Purchased Assets, free and clear of
any and all liens, pledges, security interests, options, encumbrances, charges,
agreements, prior assignments or claims of any kind whatsoever by any person or
entity other than Permitted Liens and such conveyances will not breach or cause
a violation of any agreement, obligation or undertaking of either Seller or UGI.
All assets, properties, and rights relating to the Seller's Business are held
by, and all agreements, obligations and transactions relating to the Seller's
Business have been entered into, incurred, and conducted by, the Seller rather
than any of its affiliates.
All of the Purchased Assets (other than Inventory, Accounts
Receivable and assets listed on another disclosure schedule attached hereto)
with a replacement cost of more than $5,000.00 are listed on Schedule 4(h).
(i) Real Property. Seller does not own any real property.
Schedule 4(i) contains a complete and correct list of all real property
(including buildings and structures) leased by the Seller and UGI with respect
to Seller's Business, and all interests therein (including a brief description
of the property, the record title holder, the location and the material
improvements thereon). Except for matters which will not have a Material Adverse
Effect, all such real property, buildings, and structures, and the equipment
therein, and the operations and maintenance thereof, comply with any applicable
agreements and restrictive covenants and conform to all applicable Legal
Requirements (as defined in Section 4(a) hereof) including those relating to the
environment, health and safety, land use and zoning, and all work required to be
done by the Seller or UGI as tenant has been duly performed. No condemnation or
other proceeding is pending or, to the knowledge of Seller or UGI, threatened,
which would have a Material Adverse Effect on the use of any such property by
the Seller or, following the Closing, Purchaser. The buildings and other
structures, equipment and other material assets leased by Seller are, taken as a
whole, in good operating condition and repair, subject to ordinary wear and
tear.
(j) Patents, Trademarks, and Copyrights. There are no trademarks,
service marks, trade names, brands, copyrights, and patents which are presently
being used or are planned to or could be used (based on the Seller's current
plans and projections) in the Seller's Business, nor are there any applications
for registration and registrations thereof pending.
(k) Contracts, Leases, and Commitments. The Seller has furnished
to Purchaser true copies of the contracts, leases, and commitments listed in
Schedule 4(k)-1, including summaries of the terms of any unwritten contracts,
leases, or commitments. Except as set forth in Schedule 4(k)-1: (1) the Seller
(and to the knowledge of Seller, the other parties thereto) have complied in all
material respects with such contracts, leases, and commitments, all of which are
valid and enforceable and will not be adversely affected by this acquisition or
the
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transfer in connection therewith to Purchaser; (2) such contracts, leases, and
commitments are in full force and effect and there exists no event or condition
which with or without notice or lapse of time would be a default thereunder by
the Seller, give rise to a right to accelerate or terminate any provision
thereof by a third party, or give rise to any lien, claim, encumbrance, or
restriction on any of the assets or properties of the Seller; (3) all of such
contracts, leases, and commitments have been entered into on an arm's-length
basis, and the Seller believes that none is materially burdensome to the
Seller's Business; and (4) none of the Seller's purchase commitments is, to the
Seller's knowledge, in excess of the normal requirements of its Business or at
an excessive price in light of the current business. The Seller is not a party,
nor are any of its assets or the Business subject, to any contract, lease, or
commitment not listed in Schedule 4(k)-1 (including, without limitation,
purchase or sales commitments, financing or security agreements or guaranties,
repurchase agreements, agency agreements, manufacturers representative
agreements, commission agreements, employment, or collective bargaining
agreements, pension, bonus, or profit-sharing agreements, group insurance,
medical or other fringe benefit plans, and leases of real or personal property),
other than obligations or contracts listed on another schedule to this
Agreement, contracts terminable without penalty on not more than 30 days' notice
or commitments that do not involve, individually or in the aggregate, the
receipt or expenditure of more than $50,000 in any one year. If any of the
contracts listed in Schedule 4(k)-1 should provide for expiration or be subject
to termination before the Closing, the Seller shall proceed in accordance with
the Seller's past practice, after consultation with Purchaser. Schedule 4(k)-2
contains a list of the ten largest customers and suppliers of each of the Seller
(measured by dollar volume of purchases and sales, as applicable) and the
estimated dollar amount and percentage of the business which each such customer
or supplier represented during Seller's Fiscal Year ended October 3, 1997. The
Seller is not engaged in any material dispute with any material customers or
suppliers. To the knowledge of Seller, no customer or supplier of the Seller's
Business is considering termination, nonrenewal, or any adverse modification of
its arrangements with the Seller that will have a Material Adverse Effect, and,
to Seller's knowledge, the transactions contemplated by this Agreement will not
have a Material Adverse Effect on the Seller's relationship with any of its
suppliers or customers of its Business. Seller believes that the Seller has
adequate sources of supply for groceries and other supplies, assuming current
levels of business.
(l) Inventory. Schedule 4(l) contains a list of the Inventory of
the Seller as at April 24, 1998, setting forth a brief description of each item
by category and quantity, and by unit and aggregate values. Except for certain
obsolete, damaged or slow moving inventory which is specifically identified and
valued on Schedule 4(l), the Inventory is in good and marketable condition, does
not include any items which are obsolete, damaged or slow moving, and is
saleable in the normal course of business, in each case in light of the Business
as currently conducted. Each item of the Inventory is carried on the Balance
Sheet at the lower of cost or market, with cost determined on a first-in,
first-out basis. Notwithstanding the foregoing, the Seller shall incur no
liability under this Section 4(l) after the Purchase Price is determined
pursuant to Section 2.4 hereof by the Auditor or by the Arbitrator, as the case
may be.
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(m) Accounts Receivable. Schedule 4(m) is an aged list of the
Accounts Receivable of the Seller as at April 24, 1998.
(n) Permits; Compliance with Laws. Schedule 4(n) lists all of the
permits, licenses and authorizations held by the Seller that are material to the
Business ("Permits"). Except as set forth in Schedule 4(n), the Permits are
valid and unimpaired, will be unaffected by a transfer of all of the Purchased
Assets to Purchaser, and constitute all of the licenses, permits, and
authorizations required for the ownership or occupancy of the Seller's
properties and assets and the operation of its Business. The Seller's Business
has been operated in material compliance therewith and all laws and regulations
(federal, state, local, and foreign) applicable to it, and all required material
reports and filings with governmental authorities have been properly made.
Within the past five years, the Seller has not entered into any agreement with,
had any material dispute with, or, to the knowledge of Seller, been investigated
by, any governmental authority, community group, or other third party that could
materially restrict the operation of its Business. Seller and UGI agree to use
their best efforts not involving any payment to transfer to Purchaser Seller's
right to do business in the states of Oregon and Washington with respect to the
sale of tobacco and cigarettes.
(o) Employees. Schedule 4(o) contains a list of the names, office
locations, and compensation of all full- and part-time employees of the Seller's
Business as of the date of such schedule; a list of all pension, retirement,
profit-sharing, deferred compensation, option, bonus, medical, insurance and
other benefit or incentive plans covering such employees; a list of the bonuses
paid to such employees for the years ended December 31, 1997 and December 31,
1996; a description of all employee "perks" or other benefit practices not set
forth in such plans or in agreements listed in Schedule 4(o); and a description
of the Seller's severance pay policy with respect to such employees. No strike
or labor dispute involving the Seller has occurred during the last three years
or, to the knowledge of Seller, is threatened. No key employee of the Business
has indicated that he or she is considering terminating his or her employment
and the Seller has no reason to believe any key employee is considering such
termination. The Seller has complied with applicable wage and hour, equal
employment, safety, and other legal requirements relating to its employees and
have complied in all respects with the union contracts to which the Business is
subject. Except as set forth in Schedule 4(o), neither the Seller nor any member
of any affiliated group of which the Seller was at any time a member, has ever
maintained or currently maintains any "employee benefit plan" subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Neither
the Seller nor any of its predecessors has ever contributed to or otherwise
participated in or has been required to contribute to or otherwise participate
in any "multiemployer plan", as defined in Section 4001(a)(3) of ERISA. The
Seller has not withdrawn from any such employee benefit plan or multiemployer
plan prior to the date of this Agreement.
(p) Employee Benefit Plans. Schedule 4(o) contains a true and
complete list of each employee pension benefit and welfare plan maintained by
the Seller, or to which the Seller contributes, for any of its employees.
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(q) Insurance. A complete and correct list of all policies of
insurance of any kind or nature covering the Seller, including, without
limitation, policies of life, fire, theft, auto, casualty, product liability,
workmen's compensation, business interruption, employee fidelity, and other
casualty and liability insurance, indicating the type of coverage, name of
insured, the insurer, the premium, the expiration date of each policy and the
amount of coverage is contained in Schedule 4(q).
(r) Litigation. Schedule 4(r) contains a complete and correct
list of all actions, suits, proceedings, claims, or governmental investigations
pending or, to the knowledge of Seller, threatened against, the Seller or any of
its assets, or, in connection with the Seller's Business or, to Seller's
knowledge, any of the Seller's officers, directors, or employees in connection
with or with respect to their services on behalf of Seller. Except as set forth
on Schedule 4(r), neither the Seller, nor, to Seller's knowledge, any of the
Seller's officers, directors, or employees in connection with the Seller's
Businesses, is subject or party to any judgment, order, or other direction of or
stipulation with any court or other governmental authority or tribunal, or in
violation of any other legal requirements (as defined below), and Seller is not
aware of any reasonable basis for a claim that such a violation exists.
Immediately after Closing the assets of the Seller shall exceed the Seller's
liabilities and Seller will be able to pay its debts as they come due in the
ordinary course of the Seller's Business.
(s) Environmental Matters. (i) For the purpose of this Agreement,
the following terms shall have the meanings set forth hereafter:
"ENVIRONMENT" shall mean any surface or subsurface
physical medium or natural resource, including, air, land, soil, surface waters,
ground waters, stream and river sediments, biota and any indoor area, surface or
physical medium.
"ENVIRONMENTAL LAWS" shall mean any federal, state, local
or common law, rule, regulation, or ordinance relating to the protection of the
Environment.
"ENVIRONMENTAL LIABILITIES" shall mean any claims,
judgments, damages (including punitive damages), losses, penalties, fines,
liabilities, encumbrances, liens, violations, costs and expenses (including
attorneys' and consultants' fees) of investigation, remediation, monitoring by
any party, entity or authority, which (A) are incurred as a direct result of
Seller's violation of any Environmental Laws or (B) which arise under the
Environmental Laws as a direct result of Seller's activities on the Real
Property.
"HAZARDOUS SUBSTANCES" shall mean petroleum, petroleum
products, petroleum-derived substances, radioactive materials, hazardous wastes,
polychlorinated biphenyls, lead based paint, radon, urea formaldehyde, friable
asbestos and any other materials or substances regulated or defines as or
included in the definition of "hazardous substances," "hazardous constituents,"
"toxic substances," intended to classify or regulate substances by reason of
toxicity, carcinogenicity, ignitability, corrosivity or reactivity under any
Environmental Law.
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(ii) To Seller's knowledge, except as set forth on
Schedule 4(s), all of the current and past operations of the Purchased Assets,
the Business and the Real Property, (while occupied by Seller), have at all
times been in material compliance with applicable Environmental Laws. None of
the Seller, nor to the knowledge of Seller, any other person or entity, has
engaged in, authorized, or allowed any operations or activities upon any of the
Real Property for the purpose of or in any way involving the handling,
manufacture, treatment, processing, storage, use, generation, release,
discharge, spilling, emission, dumping or disposal of any Hazardous Substances
at, on, under or from the Real Property or in material violation applicable
Environmental Laws.
(iii) To the knowledge of Seller there are no Hazardous
Substances in, on, over, or under the Real Property in concentrations which
would presently violate any applicable Environmental Laws or would be reasonably
likely to result in the imposition of liability for the investigation,
corrective action, remediation or monitoring of such Hazardous Substances.
(iv) To the knowledge of Seller none of the Real Property
is listed or proposed for listing on the National Priorities List pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. ss. 9601 et seq., or any similar inventory of sites
requiring investigation or remediation maintained by any state or locality.
Seller has not received any notice, whether oral or written, from any
governmental entity or third party of any actual or threatened Environmental
Liabilities with respect to the Real Property, the Purchased Assets, or the
Business.
(v) To the knowledge of Seller there are no underground
storage tanks, Hazardous Substances (other than small quantities of Hazardous
Substances for use in the ordinary course of the Business) under the Real
Property.
(vi) To the knowledge of Seller there are no conditions
existing at the Real Property or with respect to the Purchased Assets or
Business, that require, or which with the giving of notice or the passage of
time or both will reasonably likely require remedial or corrective action,
removal, monitoring or closure pursuant to the Environmental Laws.
(vii) To the knowledge of Seller, Seller has all the
permits, licenses, authorizations and approvals necessary for the conduct of its
Business and for the operations on, in or at the Purchased Assets and the Real
Property which are required under applicable Environmental Laws ("Environmental
Permits"). Seller is in material compliance with the terms and conditions of all
such Environmental Permits, and, to the best knowledge of the Seller, no reason
exists why Purchaser would not be capable of continued operation of the Business
in full compliance with the Environmental Permits and the applicable
Environmental Laws.
(viii) The Seller has provided to Purchaser all
environmental reports, assessments, audits, studies, investigations, data
Environmental Permits and other written
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environmental information in its custody, possession or control concerning the
Purchased Assets, the Business, and the Aggregate Real Property.
(t) Restrictions. The Seller is not a party to any non-compete or
similar agreement which in any way restricts the operation of the Business of
the Seller in an adverse manner.
(u) Transactions with Affiliates. Except as set forth in Schedule
4(u) , since January 1, 1995, the Seller has not had direct or indirect dealings
with key employee of the Seller outside of the employment relationship or with
any such employee's affiliates, associates, or relatives. Except as set forth in
Schedule 4(u) and except for employment arrangements with its employees, the
Seller has no obligation to or claim against any key employee of the Seller, or
any of its affiliates, associates, or relatives, and no such person or entity
has any obligation to or claim against the Seller. Schedule 4(u) reasonably
describes the nature and extent of any products, services, or benefits provided
to the Seller by any such person or entity other than ordinary employment
services and indicates whether there was a corresponding charge equal to the
fair market value of such products, services or benefits. Except as set forth in
Schedule 4(u), no key employee of the Seller, nor any of its affiliates,
associates, or relatives has any direct or indirect interest of any kind in any
business or entity which is competitive with the Seller.
(v) Books and Records. The books and records of the Seller are
complete and correct in all material respects and have been maintained in
accordance with good business practices.
To Seller's knowledge, there are no minute books of Seller in
existence and there are no written records in existence of any meetings or other
corporate actions by the shareholders or the board of directors of the Seller.
(w) Improper Payments. The Seller, and its officers and agents
have not made any illegal or improper payments to, or provided any illegal or
improper benefit or inducement for, any governmental official, supplier,
customer, or other person, in an attempt to influence any such person to take or
to refrain from taking any action relating to the Seller. The employees of the
Seller may from time to time have made customary holiday gifts of nominal value
to suppliers or customers.
(x) Disclosure. No representation, warranty, or other statement
by the Seller or UGI in this Agreement or in any other of Seller's Documents or
made in writing in connection with Seller's Documents, contains or will contain
an untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make such statements not misleading. Neither Seller
nor UGI is aware of any matter specifically related to Seller's Business as
opposed to general economic circumstances or conditions generally affecting the
industry in which Seller participates that could reasonably be expected to have
a Material Adverse Effect on the Business as currently conducted that has not
been disclosed in writing to Purchaser. The representations
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and warranties in Seller's Documents are the sole and exclusive representations
and warranties of the Seller and UGI, as the case may be, in connection with the
transactions contemplated hereby.
5. Representations and Warranties of Purchaser. Purchaser represents,
warrants, and agrees that:
(a) Organization and Good Standing. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
(b) Execution and Effect of Agreement. Purchaser has the full
right, power, and authority to enter into and perform this Agreement and all
other agreements, certificates and documents executed or delivered or to be
executed or delivered by it in connection with this Agreement (collectively,
with this Agreement, "Purchaser's Documents"). The execution, delivery, and
performance by Purchaser of Purchaser's Documents has been duly authorized by
all necessary actions of Purchaser. This Agreement has been duly executed and
delivered by Purchaser and Purchaser's Documents are (or when executed and
delivered by Purchaser will be) legal, valid, and binding obligations of
Purchaser enforceable in accordance with their respective terms.
(c) Restrictions. The authorization, execution, delivery, and
performance of Purchaser's Documents and the consummation of the transactions
contemplated by Purchaser's Documents do not and will not (1) violate any of the
provisions of the organizational documents of Purchaser, (2) violate, conflict
with, result in a breach of or constitute a default under, require any notice or
consent under, give rise to a right of termination of, or accelerate the
performance required by, any terms or provisions of any agreement, instrument or
writing of any nature to which Purchaser is a party or is bound or any of its
assets or businesses is subject, or (3) violate, conflict with or result in a
breach of, or require any notice, filing or consent under, any statute, rule,
regulation or other provision of law, or any order, judgment or other direction
of a court or other tribunal, or any other governmental requirement, permit,
registration, license, or authorization applicable to Purchaser.
(d) Authority for Agreement. The execution, delivery and
performance by Purchaser of this Agreement and all other of Purchaser's
Documents, have been duly authorized by all necessary actions on behalf of
Purchaser and Purchaser's Documents have been duly executed and delivered by
Purchaser. All of Purchaser's Documents constitute valid and binding obligations
of Purchaser enforceable in accordance with their respective terms subject to
the effect of bankruptcy, insolvency, and other laws generally affecting the
rights of creditors.
(e) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of Purchaser in
connection with the execution and delivery of Purchaser's Documents, or the
other transactions to be consummated at the Closing, as contemplated by this
Agreement, except such filings as shall have been made prior to or concurrently
with the Closing
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and such filings required or permitted to be made after the Closing under
applicable Federal and state securities laws.
(f) Litigation. There is no action, suit, claim, proceeding or
investigation pending or threatened, against Purchaser, which questions the
validity of any of Purchaser's Documents or the right of Purchaser to enter into
them, or which would, if adversely determined, result, either individually or in
the aggregate, in any material adverse change in the assets, condition
(financial or otherwise), or businesses of Purchaser or its subsidiaries.
(g) Financial Statements. Schedule 5(g) contains copies of
unaudited statements of the net worth of Kero, which are not prepared in
accordance with generally accepted accounting principles, as at Kero's three
most recent fiscal year ends (the "Kero Net Worth Statement"). All of such
statements are complete and correct, and are in accordance with Kero's books and
records, and fairly present the net worth of Kero as of the dates and for the
fiscal periods indicated.
(h) Disclosure. No representation, warranty or other statement by
Purchaser in this Agreement or in any other of Purchaser's Documents or made in
writing in connection with Purchaser's Documents contains or will contain an
untrue statement of a material fact or omits or will omit to state a fact
necessary to make such statements not misleading. Purchaser is not aware of any
matter specifically related to the businesses of Purchaser or any subsidiary of
Purchaser as opposed to general economic circumstances or conditions generally
affecting the industries in which such parties participate that could be
reasonably be expected to have a Material Adverse Effect on the businesses of
Purchaser, or any subsidiary of Purchaser as currently conducted that has not
been disclosed in writing to Seller. The representations and warranties in
Purchaser's Documents are the sole and exclusive representations and warranties
of Purchaser in connection with the transaction contemplated hereby.
6. Closing Deliveries.
(a) Deliveries of the Seller. At the Closing, the Seller shall
deliver, or shall cause to be delivered, to Purchaser the following:
(i) The Bill of Sale in the form of Exhibit 6(a)(i) duly
executed by the Seller conveying to Purchaser the Purchased Assets free and
clear of all claims.
(ii) The executed opinion of Miller, Nash, Wiener, Hager
& Carlsen LLP in the form attached hereto as Exhibit 6(a)(ii).
(iii) Assignment and Assumption ("Lease Assignment") of
the Lease duly executed by UGI in the form attached hereto as Exhibit 6(a)(iii).
(iv) Assignment of Agreements duly executed by UGI in the
form attached hereto as Exhibit 6(a)(iv).
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(v) Consent to Lease Assignment duly executed by R&R
Leasing, L.L.C., the landlord under the Lease.
(vi) Evidence that Seller has changed its name to a name
dissimilar to its current name.
(vii) Certified resolutions of the board of directors and
shareholders of Seller authorizing the transactions contemplated by this
Agreement.
(viii) Evidence satisfactory to Purchaser that the rights
of Seller to do business in the States of Oregon and Washington with respect to
the sale of tobacco and cigarettes have been transferred to Purchaser (to the
extent transferable.)
(ix) An executed Supply Agreement in the form attached
hereto as Exhibit 6(a)(ix).
(x) Such other instruments and documents reasonably
deemed necessary or desirable by Purchaser and its counsel to transfer title to
the Purchased Assets to Purchaser.
(b) Purchaser's Deliveries. At the Closing, Purchaser shall
deliver or cause to be delivered to the Seller:
(i) The Closing Cash Payment by wire transfer.
(ii) The Note, duly executed by Kero.
(iii) An Assumption Agreement, respecting the Assumed
Liabilities in the form attached hereto as Exhibit 6(b)(iii), duly executed by
Purchaser.
(iv) The Lease Assignment duly executed by Purchaser.
(v) The executed opinion of Proskauer Rose LLP, counsel
to Purchaser, in the form attached hereto as Exhibit 6(b)(v).
(vi) Certified resolutions of the board of directors of
Purchaser authorizing the transactions contemplated by this Agreement.
(vii) The executed Pledge Agreement and the Certificate
for all the outstanding capital stock of Purchaser.
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7. Covenants.
7.1 Seller's Restrictive Covenant.
(a) The parties acknowledge that Seller carries on its Business
throughout the States (the "Territory"), that following the Closing Purchaser
will distribute and market or intend to distribute and market products
throughout the Territory, that Purchaser's customers and sales representatives
are or will be located throughout the Territory, that a substantial portion of
the value of the Purchased Assets and the Business being purchased is the
goodwill the Seller has built up in the Territory and the ability of Purchaser
to expand its operations within the Territory, and that Purchaser would not be
purchasing the Purchased Assets but for such goodwill and ability to expand.
Accordingly, for a period of five (5) years following the Closing Date (the
"Restriction Period"), Seller shall not: (i) directly or indirectly engage or be
interested in or carry on (whether as owner, partner, consultant, employee,
agent, or otherwise) any business, activity, or enterprise which in any part of
the Territory: (A) distributes, supplies, or markets (on a wholesale, retail or
other basis) any groceries, tobacco products, candy, juice or related items or
(B) provides goods or services which are similar to or compete with any aspect
of the Business or any businesses then being carried on by Purchaser, so long as
such business then carried on by Purchaser constitutes a natural or logical
expansion of the Business. In addition, the Seller, shall never use or divulge
any trade secrets, customer or supplier lists, pricing information, marketing
arrangements, strategies, business plans, internal performance statistics,
training manuals, or other information concerning Purchaser (as successor to the
Business) that is proprietary or confidential.
(b) Because the breach or attempted or threatened breach of this
restrictive covenant will result in immediate and irreparable injury to
Purchaser for which Purchaser will not have an adequate remedy at law, Purchaser
shall be entitled, in addition to all other remedies, to a decree of specific
performance of this covenant and to a temporary and permanent injunction
enjoining such breach, without posting bond or furnishing similar security. The
provisions of this Section 7.1 are in addition to and independent of any
agreements or covenants contained in any employment, consulting, or other
agreement between Purchaser or Purchaser's other subsidiaries and the Seller.
7.2 Seller's Employees. "Affected Employees" shall mean employees of
Seller who are employed by Seller immediately prior to the Closing other than
the individuals named on Schedule 7.2. As of the Closing, Seller shall discharge
all Affected Employees and pay to or for the benefit of such employees all
wages, commissions, salaries and benefits due such employees up to the Closing
provided, however, that amounts due to the Affected Employees representing
accrued vacation days will not be paid to such Affected Employees and shall be
included in the definition of Accounts Payable in Section 2.1(a) hereof.
Purchaser will grant to Affected Employees paid vacation time off equivalent to
the amount of such vacation pay accruals. Seller shall make a clean cut-off of
payroll and payroll tax reporting with respect to the Affected Employees and
shall pay over to the federal, state and city governments those amounts required
to be withheld for periods ending on or prior to the Closing. Purchaser agrees
to offer
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employment to all Affected Employees immediately after the Closing on terms and
conditions substantially similar to those on which such employees were employed
by Seller immediately prior to the Closing, provided that such undertaking shall
not confer upon any Affected Employees any rights or remedies of any nature or
kind whatsoever, including, without limitation, any rights of employment.
7.3 Proration of Expenses. The parties agree that tobacco company rebate
credits, property taxes, rents, utility and other expenses for which there is
not a clean cut-off as of the Closing Date shall be prorated between the parties
as of the Closing Date in the manner set forth in Schedule 7.3 attached hereto.
Within 90 days of the Closing Date the parties shall jointly compute the amount
of all expenses subject to such proration and the party owing the net amount
thereof shall promptly remit the sum due to the other party.
8. Brokers and Finders. Seller and UGI on the one hand and Purchaser on
the other represent to each other that they have had no dealings with any broker
or finder or similar person in connection with the transactions contemplated by
this Agreement. Should any claim be made for a broker's, finder's or similar
fee, on account of any actions or dealings by a party or its agents, such party
shall indemnify and hold the other harmless from and against any and all
liability and expenses, including reasonable attorneys' fees, incurred by reason
of any claim made by such broker, finder, or similar person.
9. Indemnification by the Seller and UGI. Subject to Section 11, the
Seller and UGI, jointly and severally, shall indemnify, defend, and hold
harmless Purchaser, Kero, NationsCredit and their respective affiliates,
directors, officers, shareholders, agents, employees, successors and assigns,
promptly upon demand at any time and from time to time, against any and all
losses, liabilities, claims, actions, damages, and expenses, including, without
limitation, reasonable attorneys' fees at trial and on appeal and disbursements
(collectively, "Losses"), arising out of or in connection with any of the
following (a) any misrepresentation or breach of any warranty made by the Seller
in any of Seller's Documents; (b) the Retained Liabilities; (c) any breach or
nonfulfillment of any covenant or agreement made by the Seller or UGI in
Seller's Documents; (d) any and all liabilities or obligations whether arising
before, on or after the Closing Date relating to or arising out of any "employee
benefit plan" within the meaning of Section 3(3) of ERISA, and, except to the
extent of the Assumed Liabilities, any other bonus, profit sharing,
compensation, pension, severance, deferred compensation, fringe benefit,
insurance, welfare, medical, post-retirement health or welfare benefit, medical
reimbursement, health, life, stock option, stock purchase, tuition refund,
service award, company car, scholarship, relocation, disability, accident,
termination, individual employment, executive compensation, incentive, bonus,
commission, payroll practices, retention or any other type of plan, agreement,
policy, trust fund or arrangement, maintained, sponsored or contributed to by
Seller, or any entity that is, or at any time was, deemed a "single employer"
with Seller under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of
ERISA; and (e) the claims of any broker, finder, or similar person engaged by
the Seller provided that notwithstanding the foregoing, the obligations of
Seller and UGI to indemnify Purchaser, Kero and NationsCredit and their
respective affiliates, directors, officers, shareholders, agents, employees,
successors and assigns shall be limited as follows:
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(a) Seller and UGI shall be obligated to indemnify Purchaser and
its affiliates against Losses only to the extent Losses, in the aggregate,
exceed the sum of $50,000; and
(b) the indemnity obligations of Seller and UGI in the aggregate
shall be limited to a total amount equal to the Purchase Price as adjusted
pursuant to Section 2.4 hereof.
10. Indemnification By Purchaser. Subject to Section 11, Purchaser shall
indemnify, defend, and hold harmless the Seller, UGI and their affiliates,
directors, officers, shareholders, agents, employees, successors and assigns
promptly upon demand at any time and from time to time, against any and all
Losses arising out of or in connection with any of the following: (a) any
misrepresentation or breach of any warranty made by Purchaser in any of
Purchaser's Documents; (b) any breach or nonfulfillment of any covenant or
agreement made by Purchaser in Purchaser's Documents; (c) the claims of any
broker, finder, or similar person engaged by Purchaser; and (d) any claims
constituting Assumed Liabilities, but not to the extent such Assumed
Liabilities, or the transactions pursuant to which they arose, constitute a
breach of any of the representations and warranties of Seller pursuant to
Section 4 hereof.
11. Further Provisions Regarding Indemnification.
(a) Survival. All representations, warranties, indemnities,
covenants, and agreements made by the Seller and Purchaser in Seller's Documents
or Purchaser's Documents shall survive the Closing subject to the limitation set
forth in Section 14(b) below.
(b) Limitations. Neither the Seller nor UGI, on the one hand, nor
Purchaser, Kero or NationsCredit on the other hand (the Seller and UGI, on the
one hand, and Purchaser on the other, being referred to in this Section 14 as a
"party") shall be entitled to indemnification for Losses arising out of matters
referred to in Sections 12 or 13 above, as applicable, unless it shall have
given written notice to the other party, setting forth its claim for
indemnification in reasonable detail (including copies of court papers, if any),
within eighteen (18) months after the Closing Date provided, however, that such
notice may be given within five (5) years of the Closing Date with respect to a
breach of the representations and warranties contained in Section 4(a), 4(b),
4(c), and 4(h) and with respect to breaches of the representations and
warranties contained in Section 4(g), such notice may be given at any time prior
to the expiration of the last federal or state statute of limitations relating
to any tax liability described therein.
(c) Defense. If an indemnified party shall receive notice of a
claim asserting Losses for which it is indemnified under this Agreement, it
shall promptly notify the indemnifying party. The failure to notify the
indemnifying party shall not relieve the indemnifying party from its indemnity,
unless such delay adversely, materially and incurably affects the rights of the
indemnifying party. Upon receipt of a notice of claim from an indemnified party,
the indemnifying party may, at its cost and expense, participate in the defense
of such action and may assume the defense with counsel satisfactory, in the
exercise of reasonable judgement, to the indemnified party. If the indemnifying
party assumes the defense of a claim, the indemnified party may participate in
the defense of the claim at its own expense.
19
<PAGE>
The indemnifying party may assume defenses of a claim while objecting to the
liability for the Loss. The indemnifying party may settle, compromise and pay
any claim of or to any third party. If the indemnified party shall reasonably
conclude that its interests in such action are materially different from those
of the indemnifying party or that it may have defenses that are different from
or in addition to those available to the indemnifying party, the indemnified
party, may use separate counsel (who must be reasonably acceptable to the
indemnifying party) to assert such defenses and otherwise participate in the
defense of such action, at the reasonable expense of the indemnifying party. If
the indemnifying party shall assume the defense with counsel satisfactory to the
indemnified party, the indemnifying party shall not be liable for any legal
expenses subsequently incurred by the indemnified party, unless the indemnified
party shall have employed separate counsel in accordance with the preceding
sentence. If the claim is one that cannot by its nature be defended solely by
the indemnifying party, the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably request.
All parties shall cooperate with each other in good faith in the resolution of
any third party claims.
12. Kero Guaranty. Kero hereby unconditionally guaranties all
obligations of Purchaser under this Agreement.
13. Further Assurances. The parties shall cooperate and take such
actions, and execute such other documents, at the Closing or subsequently, as
either may reasonably request in order to carry out the provisions or purpose of
this Agreement.
14. Notices. All notices or other communications in connection with this
Agreement shall be in writing and shall be considered given when personally
delivered or when sent via reputable overnight commercial courier or directed,
as follows:
If to the Seller or UGI:
Myron Fleck
United Grocers, Inc.
6433 S.E. Lake Road
Milwaukee, Oregon 97222
Personal & Confidential
With copies to:
Dennis P. Rawlinson
Miller, Nash, Wiener, Hager & Carlsen LLP
Suite 3500
111 S.W. Fifth Avenue
Portland, Oregon 97204
20
<PAGE>
If to Purchaser:
Michael R. Krupp
Kero Investments, Inc.
602 Park Point Drive, Suite 105
Golden, Colorado 80401
With copies to:
Kenneth Krug, Esq.
Proskauer Rose LLP
2049 Century Park East, Suite 3200
Los Angeles, California 90067-3206
15. Entire Agreement. This Agreement (which includes the schedules and
exhibits) sets forth the parties' final and entire agreement with respect to its
subject matter and supersedes any and all prior understandings and agreements.
This Agreement can be amended, supplemented, or changed, and any provision of
this Agreement can be waived, only by a written instrument making specific
reference to this Agreement signed by the party against whom enforcement of any
such amendment, supplement, change, or waiver is sought.
16. Waiver. Seller and UGI on the one hand or Purchaser on the other may
(a) extend the time for the performance of any of the obligations or other acts
of the other, (b) waive any inaccuracies in the representations and warranties
of the other contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements of the other or satisfaction of
any of the conditions to its obligations contained herein. Any extension or
waiver made pursuant to this Section 16 must be by an instrument in writing
signed on behalf of the party or parties granting the extension or waiver. A
waiver of any provision hereof or breach hereof shall not operate or be
construed as the waiver of any other provision or any subsequent breach.
17. Successors. This Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective successors, and assigns;
provided, however, that neither this Agreement nor any right or obligation under
this Agreement may be assigned or transferred, except that Purchaser (i) may
assign its rights and obligations to a subsidiary that is wholly owned by it
directly or indirectly and (ii) with Seller's prior written consent, which
consent shall not unreasonably be withheld, may assign this Agreement and its
rights under this Agreement and Seller's Documents to any purchaser of the
Purchased Assets or to any financial institutions providing acquisition
financing to Purchaser, provided no assignment shall have the effect of
releasing Purchaser from its obligations under such documents. Seller hereby
consents to the assignment of its rights hereunder to NationsCredit.
21
<PAGE>
18. Section Headings. The section headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. Fees and Expenses. Except as otherwise provided herein, whether or
not the transactions contemplated by this Agreement are consummated, the parties
shall pay their own respective expenses.
20. Severability. If any provision of this Agreement shall be held by
any court of competent jurisdiction to be illegal, invalid, or unenforceable,
such provision shall be construed and enforced as if it had been more narrowly
drawn so as not to be illegal, invalid, or unenforceable, and such illegality,
invalidity, or unenforceability shall have no effect upon and shall not impair
the enforceability of any other provision of this Agreement.
21. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the internal law of the State of Oregon (without
reference to its rules as to conflicts of law).
22. No Third Party Beneficiaries. Notwithstanding anything to the
contrary set forth herein, all of the agreements, covenants, representations and
warranties set forth herein and in any documents executed in connection herewith
are for the sole benefit of the parties hereto, including NationsCredit, and are
not intended to benefit any other person or entity.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
24. Definition of Knowledge. Whenever and wherever in this Agreement
something is stated to be to the "knowledge" or "best knowledge" of a party, the
same shall be deemed to mean the actual knowledge of such party's officers and
senior management employees.
25. Attorney Fees. In the event any party hereto commences legal action
(including trial, arbitration, and bankruptcy proceedings) to enforce or to
interpret the terms of this Agreement, or to collect damages as the result of an
alleged breach hereof, the party prevailing shall be entitled to recover from
the non-prevailing party reasonable attorney fees and costs incurred in such
action prior to and at trial and on any appeal. For purposes of this Agreement,
"prevailing party" shall mean the party that succeeds either affirmatively or
defensively on claims having the greatest overall value or importance as
determined by an arbitrator or court of competent jurisdiction.
26. Retention of Records. After the Closing, Purchaser will retain the
accounting and business records of Seller acquired hereunder and will permit
Seller or its assigns the opportunity on reasonable notice during normal
business hours to inspect and make copies of such retained records. Purchaser
shall give Seller 60 days' written notice of Purchaser's intention to destroy
22
<PAGE>
such records and during such period Seller or its assigns shall have the right
to take custody of the records at Seller's expense.
23
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Asset
Purchase Agreement as of the date first above written.
SELLER: PURCHASER:
RICH AND RHINE, INC., RICH & RHINE ACQUISITION CORP.,
an Oregon corporation a Delaware corporation
By: /s/ Charles E. Carlbom By: /s/ Charles Holcomb
Name: Charles E. Carlbom Charles Holcomb
Title: Vice-Pres Vice President
UGI: KERO:
UNITED GROCERS, INC., KERO INVESTMENTS, INC.,
an Oregon corporation a Colorado corporation
By: /s/ Charles E. Carlbom By: /s/ Charles Holcomb
Name: Charles E. Carlbom Charles Holcomb
Title: Pres & CEO Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements of United Grocers, Inc., for
the applicable periods ended July 3, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-02-1998
<PERIOD-START> OCT-04-1997
<PERIOD-END> JUL-03-1998
<CASH> 15,671,236
<SECURITIES> 45,993,980
<RECEIVABLES> 81,707,823
<ALLOWANCES> 8,430,863
<INVENTORY> 60,502,941
<CURRENT-ASSETS> 215,347,085
<PP&E> 89,503,864
<DEPRECIATION> 47,456,878
<TOTAL-ASSETS> 305,752,368
<CURRENT-LIABILITIES> 167,368,125
<BONDS> 98,887,172
0
0
<COMMON> 2,934,170
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 305,752,368
<SALES> 893,813,267
<TOTAL-REVENUES> 893,813,267
<CGS> 771,652,586
<TOTAL-COSTS> 854,866,944
<OTHER-EXPENSES> 16,795,355
<LOSS-PROVISION> 758,155
<INTEREST-EXPENSE> 11,229,345
<INCOME-PRETAX> 21,689,871
<INCOME-TAX> 8,675,805
<INCOME-CONTINUING> 13,014,066
<DISCONTINUED> 1,355,185
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,369,251
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
