SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended October 2, 1998
Commission File Number 2-60487
UNITED GROCERS, INC.
OREGON 93-0301970
6433 S.E. Lake Road (Milwaukie, Oregon)
Post Office Box 22187, Portland, Oregon 97222
Registrant's telephone number, including area code: (503) 833-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes . No X .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. --X--
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
$29,046,121 (computed on basis of 1998 adjusted book value and number of shares
outstanding at January 15, 1999).
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
523,165 shares of common stock, $5 par value, as of January 15, 1999.
Documents incorporated by reference: None
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PART 1
Item 1. Business
The registrant, United Grocers, Inc. ("United" or "the Company"), is an
Oregon business corporation primarily engaged in the wholesale grocery and food
service distribution business. The Company was organized in 1915 and operates
and is taxed as a cooperative.
The Company supplies groceries and related products to independent
retail grocers located in Oregon, Western Washington and Northern California. In
addition, the Company and certain of its wholly owned subsidiaries provide many
services needed for the operation of a grocery business. These services include
marketing assistance, engineering, accounting, and financing.
During fiscal 1998, the Company sold its Cash & Carry division and
insurance subsidiaries. Further information on these transactions is found in
Item 7 of this report.
Membership
Independent retail grocers within United's market area are eligible to
apply for membership. All applicants for membership are subject to approval by
United's board of directors on the basis of financial responsibility and
operational ability. On approval, and subject to compliance with applicable
securities laws, applicants are required to purchase shares of United's common
stock ("Membership Stock"). United had 250 members operating a total of
approximately 353 retail grocery stores at October 2, 1998. At October 3, 1997,
United had 254 members operating 359 retail grocery stores.
By pooling the buying power of its members, United is able to purchase
goods in large quantities at prices lower than the prices generally available to
independent retail grocers. The savings from the bulk purchases are passed along
to members in the form of rebates, allowances and patronage dividends.
United may also pay its members annual patronage dividends based on the
overage, or excess of net sales over cost of goods sold, on sales to members for
the year. Each year United's board of directors determines the portion of the
overage which may be distributed as patronage dividends. Decisions concerning
the portion of the overage to be retained are based upon various factors
including United's future capital needs and the amount of earnings available
from operations not qualifying for distribution as patronage dividends. The
patronage dividends, if any, are allocated among the members in proportion to
the contribution to United's gross profit (before rebates and allowances)
attributable to their purchases from United. Any patronage dividends have
historically been paid partly in cash and partly in Membership Stock.
No member or other customer of United accounts for as much as 10 percent
of its sales. Management believes that the loss of any one or a few of its
members or other customers would not have a material effect on its business or
financial condition.
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Member Services
United provides a number of retail services to its members. Services
which do not carry a specific fee or charge include marketing information,
merchandising assistance, competitive retail price reporting and developmental
services such as store site selection, design and engineering.
United also offers its members, at a fee, complete bookkeeping,
accounting and tax services for their retail operations. A computerized payroll
service is also available. Other miscellaneous retail services which generally
carry a scheduled fee assessment include customized retail pricing, retail shelf
"unit pricing," and retail information service products.
Members can receive finance services from United's subsidiary, United
Resources, Inc.("United Resources"). United Resources makes loans and provides
other financial services to members. Loans to members are generally made at one
and three quarters to two and one quarter percentage points over the prime
interest rate. Such loans generally are for terms of one to ten years. Loan
funds are obtained under a note purchase agreement with National Consumer
Cooperative Bank at rates varying with market interest rates. At October 2,
1998, the aggregate principal amount of member loans outstanding due the
subsidiary was $15,744,218. The subsidiary's interest income for the year then
ended was approximately $1,261,000. In the normal course of its activities,
United Resources acquires retail stores through foreclosure or purchase and
operates them on a temporary basis. United Resources owned four such stores at
October 2, 1998. During 1998, United Resources acquired three stores through
foreclosure, and disposed of three stores through sale or closure. During 1997,
United Resources acquired two stores through foreclosure, and disposed of two
stores through sale or closure.
United, where appropriate, leases retail space and subleases the space
to qualified members to enable them to obtain prime commercial space. At October
2, 1998, United was obligated on 47 such leases, compared to 49 such leases at
October 3, 1997. During 1996, the Company changed its policy of requiring lease
insurance on subleases whereby United is the main lessee, and replaced the lease
insurance with a program whereby United recognizes profits on its subleases to
compensate the Company for its sublease risk. See Notes to Consolidated
Financial Statements for more information on these subleases.
Technology
During 1998, United Grocers strategically focused its Information
Services group on building systems platforms to allow for future growth, and
doing maintenance on existing systems for peak performance and to minimize any
difficulty with the "Year 2000" problem. Further discussion of "Year 2000"
preparations is found in Item 7 of this report.
In the Retail Systems area, United Grocers has continued to build
strategic computer system platforms that will assist independent retail grocers
in competing in today's marketplace against the large chains. To take advantage
of the economies of scale enjoyed by retail chains with the development,
purchase, implementation, and support of computer systems, United has taken a
strong leadership role in providing a high-quality, standard computing package
for its retail customers. This standard platform has been marketed under the
name Project Enterprise.
Project Enterprise bundles software, hardware, network connections, and
maintenance together into a single product offering. The Project Enterprise
platform includes an integrated store processor (I.S.P.), United's U-Link family
of services, a laser printer, and United's Ready Pay electronic payment system.
This entire system is placed in the retail location and store personnel are
trained by United staff. The retailer's only financial responsibility is to pay
a weekly fee for the use of the system. Project Enterprise has allowed United to
make a strong computing system affordable to its retailers while providing
volume discounts for hardware and maintenance. United believes it can now
leverage and build upon these systems in a similar fashion as in a standardized
chain environment. The United Retail Systems group has implemented 10 Project
Enterprise systems this year, resulting in a total of 153 systems implemented at
October 2, 1998.
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Food Service Distribution
The Company's food service distribution operations were sold in May of
1998 to a national operator of "Cash & Carry" type grocery outlets. Also sold
during 1998 was a subsidiary, Rich and Rhine, Inc., which targeted sales to
convenience stores. The Company continues to supply products to the Cash & Carry
stores through an agreement with the new owner. Further discussion of these
transactions is found in Item 7 of this report.
Insurance
The Company's insurance operations were sold in July of 1998. Results
of insurance operations for the 1997 and 1998 years are included under the
heading "Discontinued Operations," in the Consolidated Financial Statements
included in this report. Further discussion of this transaction is found in Item
7 of this report.
Competition
The grocery industry is characterized by intense competition. United's
wholesale grocery marketing area includes Oregon, Northern California and
Western Washington. United's principal competitors are two national grocery
wholesalers (which because of their operations in other areas are larger than
United) and four regional grocery wholesalers.
Other competitors include a number of local grocery wholesalers, many
of whom are limited to special product lines, such as candy, meat or produce, or
sell only to limited market segments, such as restaurants or institutions.
United also competes with a significant number of producers which market their
products directly to retailers and with several chain store organizations which
control both their wholesale and retail operations.
Based on information available to it, United estimates that its
members, many of whom are in competition with one another, account for
approximately 14% of the retail grocery market within United's marketing area.
Although members are free to purchase from sources other than United, members
generally purchase goods (except goods which United does not supply, such as
beer and wine) principally from United. United does not account for a
significant percentage of the national wholesale grocery market.
Recent trends in the results of the Company's member stores have
continued. In general, members outside major metropolitan areas, and those
operating newer stores, price oriented or super store formats registered various
gains in unit volume. Members operating average-sized conventional stores
generally registered smaller unit volume increases. As a result of these trends,
the Company's member unit volume in the distribution segment increased
approximately 3% in 1998 and 2% in 1997.
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Employees
United employed approximately 1,200 persons at October 2, 1998.
Approximately 810 of its employees are members of Teamster or other unions.
United's collective bargaining agreements expire in April, 2001. The
Company considers its employee relations to be satisfactory.
Supplies
United purchases goods from a wide variety of sources ranging from
local farmers to large multinational corporations. United attempts to obtain the
lowest possible price by pooling the buying power of its members. United is not
dependent on any single supplier and the loss of any single supplier would not
have a material effect on its business.
United is one of the six stockholders of Western Family Holding
Company, a corporation which pools the buying power of its stockholders in order
to obtain lower cost merchandise. Purchases from Western Family Holding Company,
which accounted for about 11% of United's total purchases in fiscal 1998 and
fiscal 1997, are distributed under labels such as "Western Family."
United's operations are not of a type which ordinarily result in the
discharge of significant quantities of pollutants. United believes that its
operations substantially meet or exceed all applicable environmental
regulations.
Income Taxes
United operates and is taxed as a cooperative. Accordingly, patronage
dividends are not included in United's taxable income but are instead taxed to
the individual members receiving the patronage dividends. The Internal Revenue
Code of 1986, as amended ("Code") requires that not less than 20 percent of each
member's patronage dividend be paid in cash. United's patronage dividend policy
meets that requirement, providing for cash payments of up to 100% of dividends
based on ratios of the value of stock holdings by member stores to their average
weekly purchases, and total number of shares of stock owned. Patronage dividends
not paid in cash are paid in additional Membership Stock, subject to compliance
with applicable securities laws. Members are required to agree to abide by all
United's bylaw provisions, including those applicable to Federal income taxation
of patronage dividends. Accordingly, members must report as taxable income the
total amount of patronage dividends, whether paid in cash or Membership Stock,
in the year such patronage dividends are received, and such amounts are not
taxable to United.
United is taxed on income which does not qualify for distribution as
patronage dividends and on the portion of income which is not distributed to
members. United's subsidiaries retain all profits (or losses) from their
operations and are part of the consolidated Federal income tax return.
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Government Contract Business
The Company does not generate significant business based upon contracts
with local, state or federal government entities.
Forward-Looking Statements
Statements above regarding future events or performance are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. As with all forward-looking statements, the
forward-looking statements made by the Company herein 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.
Item 2. Properties
United operates four distribution centers. Two of the centers are
owned; the other two are leased. Its main distribution center (owned), located
in Milwaukie, Oregon, contains over 815,000 square feet of warehouse space
situated on a 62-acre site owned by United. Also at this location are 84,900
square feet of office space, a 20,000-square-foot truck repair shop, and a
114,000-square-foot frozen food distribution center.
United's Southern Oregon division distribution center (owned), located
in Medford, Oregon, contains approximately 200,000 square feet of warehouse
space, plus related office and maintenance areas. In December 1998, the Company
sold the Medford warehouse and will lease back approximately 30% of the
facility.
Its California grocery distribution center (leased), located in
Modesto, California, contains over 275,000 square feet of warehouse space
situated on a 30-acre site. Also at this location are 12,900 square feet of
office space, and a 10,000-square-foot truck repair shop.
United's California refrigerated distribution center (leased), located
in Tracy, California, contains approximately 160,000 square feet of refrigerated
warehouse space, with areas for fresh meats and deli products and frozen foods.
Also at the site are related office and maintenance areas.
United's distribution center warehouses are modern, one floor,
sprinklered, concrete construction buildings. Two of the warehouses are subject
to various mortgages, the terms of which are summarized in the Notes to the
Consolidated Financial Statements.
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United and its subsidiaries operate a truck fleet consisting of 140
tractor cabs and 300 dry freight and refrigerated semitrailers, including both
owned and leased units.
United leases a mainframe computer, together with related peripheral
equipment, under various leases expiring in December 1999.
United, as described under "Services," is also the prime lessee of
certain retail stores, which are subleased to members, totaling approximately
1.2 million square feet. Further, United and its subsidiaries are the lessees
and operators of three retail stores acquired through foreclosure and purchase
totaling an additional 99,000 square feet. United owns an additional retail
store occupying approximately 70,000 square feet.
United leases several warehouses with lease terms and rents as follows:
Area in Lease Monthly
Facility Type Location Square Feet Expiration Rent
- ------------- -------- ----------- ----------- ----
Warehouse Santa Rosa, CA 244,000 7/27/05 $80,250
Modesto, CA 275,000 7/27/05 $74,250
Tracy, CA 160,166 7/27/05 $84,888
Portland, OR 16,000 6/30/02 $ 7,236
Milwaukie, OR 9,600 9/30/00 $ 2,836
Milwaukie, OR 14,097 12/31/02 $15,272
Woodland, CA 68,400 10/01/05 $24,640
Item 3. Legal Proceedings
The Company is a party to routine legal proceedings not expected to
have a material effect on its business.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of the shareholders of the Company held on
February 25, 1998, Floyd West, Peter J. O'Neal, and Mary J. McDonald were
elected to replace those directors whose terms had expired. The number of votes
received by each of the six nominees was as follows:
Floyd West 117
Peter J. O'Neal 116
Mary McDonald 106
Arthur Maybrun 51
Richard Harges 35
Richard Morgan, Jr. 33
In addition, Ron Mancasola, Robert A. Lamb, Richard L. Wright, James F. Glassel,
Kenneth W. Findley, and Gaylon G. Baese continued their terms as directors
following the annual meeting. In June 1998, Mr. Mancasola resigned and was
replaced by Kenneth Tucker in July 1998.
At the annual meeting of the shareholders of the Company held on
January 15, 1999, Kenneth Tucker, Gordon E. Smith, and Richard L. Wright were
elected to replace those directors whose terms had expired. The number of votes
received by each of the six nominees was as follows:
Kenneth Tucker 116
Gordon E. Smith 86
Richard L. Wright 86
Gordon Atterbury 77
Ron Ridgway 72
William Danielson 47
In addition, Floyd West, Peter J. O'Neal, Mary J. McDonald, James F. Glassel,
Kenneth W. Findley, and Gaylon G. Baese continued their terms as directors
following the annual meeting.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no market for United's Common Stock, which is
non-transferable. The approximate number of holders of United's Membership Stock
as of October 2, 1998, was 250.
United's earnings are distributed only in the form of patronage
dividends. Accordingly, no earnings are available for the purpose of paying
dividends on Membership Stock.
Item 6. Selected Financial Data
Consolidated revenues by principal product lines and services appear in
the following table:
For Fiscal Year Ended
October 2, 1998 October 3, 1997
=============== ===============
(dollars in thousands)
Percentage Percentage
of Total of Total
Product or Revenue Revenue Revenue Revenue
Service
Grocery (1) 562,121 47.83 715,340 54.75
Dairy & Deli 137,933 11.74 114,045 8.73
Meat 73,040 6.21 59,990 4.59
Produce 50,970 4.34 45,772 3.50
Frozen Foods 80,708 6.87 63,136 4.83
Gen. Merchandise 47,190 4.02 47,044 3.60
Institutional (2) 212,045 18.04 247,509 18.94
Retail Services 10,010 0.84 11,124 0.85
Store Finance 1,262 0.11 2,642 0.21
Total 1,175,279 100.00 1,306,602 100.00
(1) Grocery revenues include sales from retail stores operated on a temporary
basis.
(2) Institutional revenues include sales of all product lines.
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The following balance sheet data at October 2, 1998 and October 3,
1997, and the statement of operations data for the years ended October 2, 1998
and October 3, 1997, have been derived from audited consolidated financial
statements and notes thereto appearing elsewhere in this Annual Report on Form
10-K. The data should be read in conjunction with the consolidated financial
statements and related notes included elsewhere herein.
Fiscal Years Ended
Oct 2, Oct 3,
1998 1997
------- -------
(dollars in thousands, except per share amounts)
Statement of Operations:
Net sales and operations $1,175,279 $1,306,602
Income (loss) from
continuing operations
before members'
patronage dividends,
income taxes
and accounting change 21,194 (21,627)
Patronage dividends -0- -0-
Net income (loss) 19,760 ( 8,660)
Balance Sheet:
Working capital 31,152 107,213
Total assets 233,642 365,427
Long-term liabilities 85,444 199,079
Members' equity 31,343 14,651
Adjusted book value per
share 55.52 20.54
Notes to Selected Financial Data
A. Data concerning net income (loss) per common share and cash
dividends per common share is omitted because United is a cooperative.
B. Adjusted book value per share is computed by adding total members'
equity at year end and pending stock issuances, less unrealized gain on
investments and undistributed equity from investments accounted for on the
equity method and dividing the resulting number by shares outstanding at year
end (including pending issuances).
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Fiscal 1998 was a year of major changes for the Company. These changes
were a result of the Company's decision to increase the emphasis on the "core"
business activity, grocery product distribution. The result of these changes on
the consolidated financial statements is to make some of the results of
operations and balance sheet balances less comparable when reviewing years side
by side. The effect of these changes on the consolidated financial statements
will be described as part of this discussion in the appropriate sections.
During fiscal 1997, the Company experienced significant losses from
one-time adjustments in the areas of reserving for uncollectible receivables and
reserving for losses on retail leases and retail developments.
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 have been
presented as "discontinued operations" in the accompanying statements of
operations.
The sale was completed on July 8, 1998 to Orion Capital Corporation.
Net proceeds from the sale of the stock of the Company's insurance subsidiary
totaled approximately $35 million, resulting in a pre-tax gain of approximately
$5.4 million, which was recorded in the fourth quarter of fiscal 1998, and is
shown on the Consolidated Statement of Operations following the heading "Gain on
disposal of insurance segment." Proceeds from the sale were used to reduce the
Company's long-term debt. The sale contract requires that the Company apply for
a change to the zoning of the office building used in the insurance operations.
If the zoning change is not approved, the company has agreed to repurchase the
building for approximately $5.1 million.
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 27,762,408
Accounts payable and other current liabilities 16,393,079
------------
Net investment in insurance segment $ 31,217,340
============
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The sale of the insurance segment is estimated to have a positive effect on the
income of the Company during fiscal 1999 and beyond. The overall decline in
sales and operating income will be more than offset by a reduction of interest
expense related to the reduction in debt levels.
SALE OF RETAIL OPERATIONS
On May 1, 1998, the Company completed the sale of its Rich and Rhine, Inc.
subsidiary to Kero Corporation. 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
Smart & Final Inc. The net sales proceeds consisted of $38.0 million in cash,
plus a $17.5 million, 5-year unsecured note. The gain is shown on the "Gain from
sale of Cash & Carry division" line of the Consolidated Statement of Operations.
The sale of the retail operations is projected to have a positive effect on the
income of the Company during fiscal 1999 and beyond, in part due to a supply
agreement with the purchaser of the Cash and Carry operations and a reduction in
interest expense related to the reduction in debt levels.
YEAR 2000 PREPARATIONS
This section captioned "Year 2000 Preparations" and other statements about Year
2000 issues are "Year 2000 Readiness Disclosures" pursuant to the Year 2000
Information and Readiness Disclosure Act.
The Company is addressing possible Year 2000 (Y2K) problems with a systematic
approach. To make a smooth transition into the next century, the Company has
entered into a "Year 2000 Project," comprised of four major areas of concern -
(1) Infrastructure (Hardware & Operating System Software), (2) Applications
Software, (3) Third Party Suppliers (Trading Partners, Banks, Utilities), and
(4) Process Control and Instrumentation (Embedded Systems).
Area -1- The Infrastructure area consists of hardware and operating system
software. Updating in this area is on schedule and the Company estimates that
approximately 90 percent of the items identified in this area had been completed
as of November 21, 1998. The testing phase is ongoing as the remaining items are
corrected or replaced.
All infrastructure item tasks are expected to be completed by March 31, 1999.
Area -2- The Application Software area consists of conversion of software that
is not Year 2000 compliant, and where available the replacement of such software
from the vendor. The Company has engaged Applied Decisions USA, Inc. to assist
in project management, and in conversion and testing of certain non-compliant
application software code.
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The Company estimates that the conversion phase was 95 percent complete as of
November 21, 1998 and full conversion will be completed by March 31, 1999. The
testing phase is progressing in an organized fashion as the software is repaired
or replaced. The testing is ongoing.
The Company uses software from The Armature Company for warehousing and
purchasing functions. "Year 2000" compliant software installation was completed
on November 21, 1998.
Area -3- The Third Party Suppliers area includes the identification and
prioritizing of critical suppliers, financial institutions, and utilities, and
communicating with them about their plans and progress in addressing the Year
2000 issue. The Company has identified and contacted 4,324 suppliers requesting
information on their plans and progress on the Year 2000 issue. As of December
4, 1998, the Company had received a response from 69 percent of the identified
suppliers. Responses from the identified suppliers indicate progress in
addressing the Year 2000 issue, with a majority of the responses expecting full
compliance by September 30, 1999. The Company has a follow-up plan in place
scheduled through the remainder of 1999. Contingency planning in this area is
scheduled to begin in January 1999, with the completed plan in place by June 30,
1999.
Area -4- The Process Control and Instrumentation area consists of identification
and prioritization of hardware and software associated with embedded chips used
in operation of all facilities of the Company. The Company has identified and
corrected 80 percent of the identified items. The remaining 20 percent will be
completed by September 30, 1999. Contingency planning in this area is scheduled
to begin in January 1999 and completed by September 30, 1999.
The major phases associated with the Year 2000 Project are: (A) Inventory of
potential Year 2000 items; (B) Assigning priorities to the items identified as
material to the Company; (C) Assessing the Year 2000 compliance of the
inventoried items; (D) Repairing or replacing material items that are determined
not to be year 2000 compliant; (E) Testing material items; and (F) Developing
contingency and business continuation plans for each functional area and Company
location.
On November 21, 1998, the Inventory, Prioritization, and Assessment phases
(phases A, B and C) of the Project were declared completed.
Phase D - Material items are those identified by the Company that affect the
ability of the Company to perform its core business functions, that support the
Company's customer base, or that affect revenues. All material items had been
repaired or replaced as of December 31, 1998.
Phase E - Full systems testing is scheduled to commence in January 1999, and
completion is expected by June 30, 1999. Vendor software upgrades continue on
schedule.
Phase F - Contingency planning for all areas is ongoing and is to be completed
by June 30, 1999.
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Cost - The estimated cost of the Year 2000 Project is approximately
$5.6 million. The total amount expended on the project through December 31, 1998
was $2.7 million, of which approximately $2.5 million related to the cost of
conversion or replacement of application software, $150,000 related to the
replacement of hardware, and $50,000 related to the cost of identifying and
communicating with Third Party Suppliers. The estimated future cost of
completing the Year 2000 Project is estimated to be $2.9 million - $ 2.8 million
for replacement of software and related hardware, and $ 100,000 to identify and
communicate with third party suppliers, and to repair or replace embedded
systems.
Risks - The failure to correct material Year 2000 issues could result
in interruption in, or failure of, key core business processes. The most likely
worst case scenario is business being partially or totally disrupted for a
period of a few hours to one week.
Safety Net Preparation - The Y2K team has, as part of their project,
been identifying manual or modified processes that would need to be employed in
the unlikely event that some of the upgrades fail.
Net Sales and Operations
During fiscal year 1998, net sales and operations decreased 10.1 % to
$1,175.3 million. This compares to net sales and operations in 1997 of $1,306.6
million. Income from continuing operations before members' allowances and income
taxes increased $46.6 million to $35.3 million (3.00% of net sales). This
compares to a loss of $11.3 million (0.86% of net sales) in 1997.
During 1998, the decrease in net sales and operations was primarily
attributable to the distribution segment which experienced a decline in sales,
primarily due to the elimination of certain unprofitable accounts. The Company
has a supply agreement with the purchaser of the Cash & Carry operations and
does not expect any reduction of sales during fiscal 1999 related to the sale of
the Cash & Carry division.
In 1998, the Company had increased profits within its distribution
segment from one-time gains on sales of its Cash & Carry division and other
businesses and properties, and lower operating losses at Company-owned retail
stores. These profit gains were offset by increased operating expenses in the
distribution segment due to cost inflation and system integration activities.
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Gross Operating Income
Gross operating income (net sales less cost of sales and member
allowances) decreased to $145.9 million (12.4% of sales) in 1998 from $162.6
million (12.4% of sales) in 1997. The decline in gross operating income is
consistent with the decline in net sales discussed above. During 1999, the
Company expects gross operating income to decline slightly as the sales from the
former Cash & Carry division are reported at a wholesale level, which is lower
than the retail sale level, which was used through the time of sale of the
division.
Operating, Selling, and Administrative Expenses
In 1998, operating, selling, and administrative expenses decreased
$17.7 million to $134.2 million (11.4% of sales). In 1997, these expenses were
$151.9 million (11.6% of sales). The dispositions of the insurance segment and
the food service division are expected to have a negligible effect on these
expenses in fiscal 1999.
The components of these expenses are summarized below:
Percent of Total Net Sales
1998 1997
---- ----
Salaries and Wages 6.3 6.0
Rents, Maintenance, and Repairs 2.0 2.0
Taxes, Other Than Income 0.8 0.8
Utilities, Supplies, and Services 1.0 1.1
Other Expenses 1.1 0.9
Provision for Doubtful Accounts 0.2 0.8
--- ----
Total 11.4 11.6
==== ====
During 1998, total operating, selling, and administrative expenses
decreased primarily due to lower unit volume in the distribution segments.
The provision for doubtful accounts was $2.4 million (0.2% of sales) in
1998. This compares to $9.9 million (0.8% of sales) in 1997. The decrease in the
provision relates to certain one-time adjustments recorded in fiscal 1997 to
reserve for uncollectible accounts. In 1998, the reserve decreased by $11.0
million primarily due to write-offs of amounts previously reserved.
Interest expense decreased $2.7 million to $13.6 million (1.2% of
sales) in 1998. This decrease was primarily due to lower debt levels associated
with sales of assets and the insurance segment.
Net Income and Income Taxes
In 1998, income from continuing operations before income taxes was
$21.2 million compared to a loss of $21.6 million in 1997.
Discontinued operations include net income from the operations of the
insurance segment, which decreased from $2.5 million in 1997 to $1.4 million in
1998, primarily due to the sale of the insurance operations in July, 1998. In
addition, a $3.4 million net gain was realized in 1998 as a result of the sale.
14
<PAGE>
In 1998, the Company recognized $1.7 million, net of income taxes of
$1.2 million, as the cumulative effect on prior years of changing the method of
amortizing the unrecognized net gain in the Company's defined benefit pension
plan. This change was recorded in the fourth quarter of fiscal 1998 in
connection with the Company's decision to utilize a 3-year amortization of the
unrecognized gain, versus the minimum method allowed under generally accepted
accounting principles. The Company believes the change more currently recognizes
the effects of changes in the actuarial assumptions and differences between the
assumptions used and the actual experience. The effect of this change on 1998
results if operations was to increase income from continuing operations by
$996,000, net of income taxes of $664,000.
Net income was $19.8 million (1.7% of sales) in 1998, an increase of
$28.4 million from a loss of $8.7 million (0.7% of sales) in 1997.
The effective income tax rate changed from 50.4% in 1997 to 37.8% in
1998. The higher effective rate in 1997, was due to the reversal of a valuation
allowance.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow From Operating Activities
In 1998, the Company used $13.5 million in cash in its operating
activities. A decrease in accounts payable partially offset by a decrease in
inventory were the major factors involved. In 1997, operating activities
provided $12.9 million of cash.
Cash Flow From Investing Activities
In 1998, the Company generated $88.2 million from its investing
activities, with the sale of business units, investments and other assets being
the biggest factors. In 1997, the Company used $1.9 million in investing, with
the proceeds of asset sales being offset with purchases of property, plant and
equipment.
Cash Flow From Financing Activities
In 1998, the Company used $83.7 million in its financing activities.
Repayments of debt in 1998 were primarily made using proceeds from sales of the
insurance segment and Cash & Carry division. In 1997, the Company used $17.3
million in similar efforts.
Capital Resources
Working capital decreased $76.1 million from $107.2 million at October
3, 1997 to $31.1 million at October 2, 1998. The primary reasons for the
decrease are the sale of the insurance segment and the Cash & Carry division,
the proceeds from which were used to reduce debt.
As of October 2, 1998, the Company had $36.1 million in unused credit
lines available. Amounts available under the Company's credit facilities are
subject to reduction by the lender being permitted to establish availability
reserves based upon certain events, conditions, contingencies or risks which it
may in good faith determine.
At October 2, 1998, the Company was in compliance with all financial
covenants with its lenders.
15
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted Financial
Accounting Standards Board (FASB) SFAS No. 130, Reporting Comprehensive Income,
which establishes requirements for disclosure of comprehensive income. The
objective of SFAS No. 130 is to report a measure of all changes in equity that
result from transactions 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. 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.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. 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.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 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 No. 133 is effective for fiscal years
beginning after June 15, 1999.
The Company's management has studied the implications of SFAS Nos. 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 No. 133 and based on
the initial evaluation, expects the adoption to have no impact on the Company's
financial condition or results of operations.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements above and elsewhere in this Form 10-K regarding future events
or performance are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. As with all forward-looking
statements, the forward-looking statements made by the Company herein 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.
Item 7A Quantitative and Qualitative Disclosures about Market Risk
The Company does not currently use derivative financial instruments for
speculative purposes which expose the Company to market risk. The Company is
exposed to cash flow and fair value risk due to changes in interest rates with
respect to its long-term debt. Information required by this item is set forth in
Notes 7 and 20 of the Notes to Consolidated Financial Statements, and is
incorporated herein by reference.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
UNITED GROCERS, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 2, 1998 AND OCTOBER 3, 1997
--------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Page
----
Report of independent accountants on financial statements F-1
- ---------------------------------------------------------
Consolidated financial statements
- ---------------------------------
Consolidated balance sheets F-2
Consolidated statements of operations F-3
Consolidated statements of members' equity F-4
Consolidated statements of cash flows F-5
Notes to financial statements F-6-32
Report of independent accountants on
financial statement schedule F-33
Supplemental information
- ------------------------
Financial statement schedules
- -----------------------------
Schedule II - Valuation and qualifying accounts F-34
18
<PAGE>
[Graphic - PricewaterhouseCoopers logo]
PRICEWATERHOUSECOOPERS LLP
1300 Southwest Fifth Avenue Suite 3100
Portland OR 97201-5638
Telephone (503) 417 2400
Report of Independent Accountants
---------------------------------
January 8, 1999
To the Board of Directors
United Grocers, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, members' equity and cash flows present
fairly, in all material respects, the financial position of United Grocers, Inc.
and Subsidiaries (the Company) as of October 2, 1998 and October 3, 1997 and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the consolidated financial statements, during the year
ended October 2, 1998, the Company changed its method of amortizing the
unrecognized gains and losses in connection with its defined benefit plan.
PricewaterhouseCoopers LLP
F-1
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 2, 1998 and October 3, 1997
(in thousands, except share data)
<TABLE>
ASSETS 1998 1997
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,294 $ 10,223
Investments restricted or maintained for insurance reserves 51,513
Accounts and notes receivable, net 67,269 78,537
Inventories 68,898 102,333
Other current assets 5,115 7,037
Deferred income taxes 1,526 8,147
--------- ---------
Total current assets 144,102 257,790
Notes receivable, net 29,201 16,498
Investments in affiliated companies 3,360 6,971
Other receivables 3,033 4,837
Deferred income taxes 553
Other assets, net 16,032 17,335
Property, plant and equipment, net 37,914 61,443
--------- ---------
$ 233,642 $ 365,427
========= =========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Notes payable, current portion $ 41,159 $ 10,191
Accounts payable 59,676 97,587
Insurance reserves 26,356
Compensation and taxes payable 6,335 8,328
Other current liabilities 5,780 8,115
--------- ---------
Total current liabilities 112,950 150,577
Notes payable, net of current portion 74,434 187,995
Deferred gains on sale-leasebacks 1,257 3,650
Deferred income taxes 2,233
Other liabilities 7,520 7,434
--------- ---------
Total liabilities 198,394 349,656
--------- ---------
Commitments and contingencies
Redeemable members' equity 3,905 1,120
--------- ---------
Members' equity:
Common stock -- authorized, 10,000,000 shares at $5.00 par value;
issued and outstanding,
523,955 and 586,834 shares, respectively 2,620 2,934
Additional paid-in capital 20,394 22,886
Retained earnings (accumulated deficit) 8,329 (11,431)
Unrealized gain on investments 262
--------- ---------
Total members' equity 31,343 14,651
--------- ---------
$ 233,642 $ 365,427
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended October 2, 1998 and October 3, 1997
(in thousands)
<TABLE>
1998 1997
<S> <C> <C>
Net sales and operations $ 1,175,279 $ 1,306,602
----------- -----------
Costs and expenses:
Cost of sales 1,015,268 1,133,690
Operating expenses 114,595 129,494
Selling and administrative expenses 19,565 22,425
Depreciation and amortization 10,416 11,483
----------- -----------
1,159,844 1,297,092
----------- -----------
Other income (expense):
Interest expense (13,585) (16,307)
Interest income 2,206 733
Gain on sale of Cash & Carry division 29,033
Gain (loss) on write-down or disposition of assets, net 2,213 (5,214)
----------- -----------
19,867 (20,788)
----------- -----------
Income (loss) from continuing operations before members'
allowances and income taxes 35,302 (11,278)
Members' allowances (14,108) (10,349)
----------- -----------
Income (loss) from continuing operations before income taxes 21,194 (21,627)
Income tax benefit (provision) (7,939) 10,466
----------- -----------
Income (loss) from continuing operations, before cumulative
effect of a change in accounting principle 13,255 (11,161)
Discontinued operations:
Income from operations of insurance segment (less income taxes of
$903 and $1,666, respectively) 1,355 2,501
Gain on disposal of insurance segment (less income taxes of
$2,000 for 1998) 3,403
----------- -----------
Income (loss) before cumulative effect of a change in
accounting method 18,013 (8,660)
Cumulative effect on prior years (to October 3, 1997) of changing
methods of amortizing the unrecognized net gain in the Company's
defined benefit pension plan (less income taxes of
$1,165 for 1998) 1,747
----------- -----------
Net income (loss) $ 19,760 $ (8,660)
=========== ===========
Pro forma net income (loss), assuming the new amortization
method is applied retroactively $ 18,013 $ (8,342)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
for the years ended October 2, 1998 and October 3, 1997
(in thousands, except share data)
<TABLE>
Retained
Common Stock Additional Earnings Unrealized
------------------ Paid-in (Accumulated Gain on
Shares Amount Capital Deficit) Investments Total
------ ------ ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, September 27,
1996 (as restated -
see Note 2) 638,451 $ 3,192 $ 24,224 $ (1,883) $ 200 $ 25,733
Common stock issued 13,775 69 780 849
Repurchase of common
stock (34,609) (173) (1,152) (888) (2,213)
Redemptions pending (30,783) (154) (966) (1,120)
Net loss (8,660) (8,660)
Change in unrealized
gain on investments 62 62
------- ------- -------- ---------- ------ --------
Balance, October 3, 1997 586,834 2,934 22,886 (11,431) 262 14,651
Repurchase of common
stock (577) (3) (18) (21)
Redemptions pending (62,302) (311) (2,474) (2,785)
Net income 19,760 19,760
Change in unrealized
gain on investments (262) (262)
------- ------- -------- ---------- ------ --------
Balance, October 2, 1998 523,955 $ 2,620 $ 20,394 $ 8,329 $ - $ 31,343
======= ======= ======== ========== ====== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended October 2, 1998 and October 3, 1997
(in thousands)
<TABLE>
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 19,760 $ (8,660)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 10,522 11,842
(Gain) loss on write-down or disposition of assets (2,213) 5,214
Gain on disposal of discontinued operations (5,403)
Gain on sale of Cash & Carry division (29,033)
Equity in earnings of affiliated companies (41) (107)
Deferred income taxes 9,407 (8,700)
Changes in assets and liabilities:
Accounts receivable (6,932) (2,962)
Inventories 7,900 2,312
Other assets (1,731) (96)
Accounts payable (11,465) 14,864
Insurance reserves 1,406 (3,206)
Compensation and taxes payable (1,850) 3,306
Other liabilities (1,418) (1,117)
Members' patronage payable (2,427)
Deferred gains on sale-leasebacks (2,393) 2,650
---------- ----------
Net cash flows provided by (used in) operating activities (13,484) 12,913
---------- ----------
Cash flows from investing activities:
Loans to members (2,416) (10,396)
Collections on member loans 3,798 4,988
Proceeds from sale of member loans 2,918 13,205
Sale of investment in affiliated company 6,023
Purchase of investments restricted or maintained for insurance
reserves (3,167) (10,226)
Sale of investments restricted or maintained for insurance
reserves 8,685 5,604
Investment in affiliated companies (48)
Proceeds from disposition of assets 18,313 11,036
Purchase of property, plant and equipment (3,677) (15,607)
Purchase of other assets (1,011) (6,446)
Proceeds from sale of discontinued operations, net 26,813
Proceeds from sale of Cash & Carry division 37,986
---------- ----------
Net cash flows provided by (used in) investing activities 88,242 (1,867)
---------- ----------
Cash flows from financing activities:
Sale of common stock 76
Repurchase of common stock (21) (2,213)
Proceeds from notes payable 1,171,161 932,370
Repayments of notes payable (1,253,754) (947,566)
Payment of debt issuance costs Redeemable notes and certificates (1,073)
---------- ----------
Net cash flows used in financing activities (83,687) (17,333)
---------- ----------
Net decrease in cash and cash equivalents (8,929) (6,287)
Cash and cash equivalents, beginning of years 10,223 16,510
---------- ----------
Cash and cash equivalents, end of years $ 1,294 $ 10,223
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND NATURE OF OPERATIONS
United Grocers, Inc. (the Parent) and subsidiaries (the Company) operates
a distribution business primarily in Oregon, Southern Washington and
Northern California. The distribution business includes all operations
relating to wholesale grocery and related product sales, service
department revenues and financing income and fees. Through July 1998, the
Company had an additional operating segment which included all operations
relating to insurance underwriting, commissions and reinsurance, primarily
to provide workers' compensation and property-casualty coverage. As
discussed in Note 9, the insurance operations were sold in July 1998 and
those operations discontinued by the Company.
The Parent's stock is owned by its member customers. Sales to these
members accounted for approximately 57% and 56% of sales from continuing
operations for the years ended October 2, 1998 and October 3, 1997,
respectively.
FISCAL YEAR
The Company reports on a fiscal years of 52 or 53 weeks which is the
fiscal years of the distribution segment. The Parent's fiscal closing date
is the Friday nearest September 30. The fiscal years of the subsidiaries
included in the insurance segment ended on September 30.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of United
Grocers, Inc. and its wholly-owned subsidiaries as follows: Western
Passage Express, Inc.; Northwest Process, Inc.; UG Resources, Inc.; United
Resources, Inc.; Western Security Services, Ltd.; R&R Liquidating
Corporation; and Bergrens Market, Inc. The consolidated financial
statements also include: Grocers Insurance Group, Inc., Grocers Insurance
Agency, Inc., UGIC, Ltd., Grocers Insurance Company and United Workplace
Consultants, Inc. (collectively, the insurance segment), through July 1998
(see Notes 9 and 13); and Rich and Rhine, Inc. through May 1998. All
intercompany balances and transactions have been eliminated upon
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
F-6
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INVESTMENTS
Investments, which were held by subsidiaries within the insurance segment,
were classified and accounted for as follows:
o Held-to-maturity securities were reported at amortized cost.
o Available-for-sale securities were reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a
separate component of members' equity.
The cost of investments used in computing realized gains or losses was
determined using the specific identification method.
REINSURANCE
The Company accounted for reinsurance transactions in accordance with
Statement of Financial Accounting Standards No. 113 (SFAS No. 113),
Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts. SFAS No. 113 requires that transactions relating
to reinsurance transactions be reported at gross amounts rather than net
amounts. Net premiums earned are reported as net sales and operations
while net losses and loss adjustment expenses are reported as cost of
sales.
In the normal course of business, the Company sought to reduce the losses
that may have resulted from catastrophes or other events that would cause
unfavorable underwriting results by reinsuring certain levels of risk in
various areas of exposure with other insurance enterprises or reinsurers.
Amounts recoverable from reinsurers were estimated in a manner consistent
with the claim liability associated with the reinsured policy. Amounts
paid for prospective reinsurance were reported as prepaid reinsurance
premiums and amortized over the remaining contract period in proportion to
the amount of insurance protection provided.
INVENTORIES AND COST OF SALES
Inventories are stated at the lower of cost or market. The cost of these
inventories is determined under the first-in, first-out (FIFO) method or
other methods which approximate FIFO.
Cost of sales includes primarily the costs of distribution, which includes
the purchases of product, net of allowances paid and received and the net
advertising department margins, plus the handling allowances made to
members based upon the cost of servicing their accounts.
F-7
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RESTRICTED ASSETS AND NET ASSETS
Restricted assets and net assets that could not be transferred to the
Parent in the form of loans, advances, or cash dividends by the insurance
subsidiary without the consent of state insurance agencies as of October
3, 1997 were as follows:
Restricted cash $ 401,000
Investments 18,486,000
------------
Total $ 18,887,000
============
In addition, the balance of the investments of $32,626,000 represented
assets that had been accumulated for the possible payment of claims
against the insurance reserves.
INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies represent the Company's ownership in
entities in which it does not have a controlling interest. The investments
are accounted for using the equity method, in which carrying value
represents cost plus the Company's share of earnings since acquisition,
less distributions received.
OTHER ASSETS
Software costs, non-competition agreements and other intangibles, included
in other assets in the accompanying balance sheet, are stated at cost and
are being amortized and charged to operating expenses on a straight-line
basis over the estimated or contractual lives of three to five years.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and include expenditures
for new facilities and those which substantially increase the useful lives
of the existing plant and equipment. The Company capitalizes interest when
applicable as a component of the cost of significant construction
projects. No interest was capitalized for the years ended October 2, 1998
and October 3, 1997.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets. Estimated useful lives are
generally as follows:
Buildings and improvements 4 - 75 years
Warehouse equipment 5 - 20 years
Truck equipment 3 - 8 years
Office equipment 3 - 10 years
F-8
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROPERTY, PLANT AND EQUIPMENT, CONTINUED
Maintenance and repairs are charged to expense as incurred. Upon the sale
or retirement of property, plant and equipment, any gain or loss on
disposition is reflected in the consolidated statement of operations and
the related asset cost and accumulated depreciation are removed from the
respective accounts.
RECOVERABILITY OF LONG-TERM ASSETS
Management of the Company reviews the carrying value of long-lived assets
and certain identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable.
DEBT CLASSIFICATION
The Company classifies as current liabilities any line of credit
arrangements which contain a subjective acceleration clause and a lock-box
arrangement.
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return. The Company operates and is taxed as a cooperative. Accordingly,
amounts distributed as qualified patronage dividends are not included in
its taxable income but are instead taxed to the patrons receiving the
patronage dividends. Deferred income taxes are recorded to reflect the tax
consequences on future years of the non-patronage portion of temporary
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each years-end based on enacted tax laws
and statutory tax rates applicable to the years in which the differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred income tax assets to the
amount expected to be realized. Income tax expense is the combination of
the tax payable for the year and the change during the year in net
deferred tax assets and liabilities.
EARNINGS PER COMMON SHARE
The Company's policy is to distribute earnings only in the form of
patronage dividends. No dividends have ever been declared on the common
stock of the Company and all earnings not distributed as patronage
dividends have been retained. Earnings per common share are not shown
because no earnings are available for the purpose of paying dividends on
the common stock.
COMMON STOCK
The Company's Board of Directors' policy, subject to change without
notice, requires the Company to repurchase on request the number of shares
a member owns in excess of 4,000 shares. The excess shares are redeemed in
exchange for cash or capital stock residual notes, payable over a
five-year period. Beginning in fiscal 1998, the Company's Board of
Directors temporarily suspended redemptions of members' capital stock.
Future redemptions will be at the discretion of the Board of Directors.
F-9
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
COMMON STOCK, CONTINUED
At October 2, 1998 and October 3, 1997, there were 93,085 and 30,783
shares, in the amount of $3,905,070 and $1,120,000, respectively, which
have been presented by members for redemption, but which had not yet been
redeemed. These shares are included in redeemable members' equity in the
accompanying consolidated balance sheet.
The Company holds $111,000 to be used for issuance of 5,400 shares to new
members.
ADVERTISING COSTS
The Company expenses the production costs of advertising the first time
the advertising takes place. Advertising expense for 1998 and 1997 was
$443,817 and $1,734,000, respectively, exclusive of costs incurred on
behalf of members for which the Company is reimbursed.
MEMBERS' ALLOWANCES
The Company makes rebates to members based on the respective members'
volume of purchases over defined periods of time.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CHANGE IN METHOD OF ACCOUNTING FOR NET PERIODIC PENSION COSTS
For the year ended October 2, 1998, the Company began amortizing its
unrecognized net gains and losses in connection with its defined benefit
pension plan (see Note 14) over a three-year period. In previous years the
Company used the minimum amortization allowed by SFAS No. 87, Employer's
Accounting for Pensions. The new method was adopted to more currently
recognize the effects of changes in actuarial assumptions and differences
between the assumptions used and the actual experience. The pro forma
amounts in the statement of operations have been adjusted for the effect
of the retroactive application of the change on operating expenses and
related income taxes. The effect of the change on the statement of
operations for the year ended October 2, 1998 was to increase net income
before the cumulative effect of the change in accounting method by
approximately $996,000.
F-10
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted Financial Accounting
Standards Board (FASB) SFAS No. 130, Reporting Comprehensive Income, which
establishes requirements for disclosure of comprehensive income. The
objective of SFAS No. 130 is to report a measure of all changes in equity
that result from transactions 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. 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.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. 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.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 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 No. 133 is
effective for fiscal years beginning after June 15, 1999.
The Company's management has studied the implications of SFAS Nos. 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
No. 133 and based on the initial evaluation, expects the adoption to have
no impact on the Company's financial condition or results of operations.
F-11
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. RESTATEMENT:
The Company previously reported retained earnings as of September 27, 1996
of $13,843,000. This amount has been restated to an accumulated deficit of
$1,883,000 in the accompanying consolidated statement of members' equity.
The adjustments which necessitated the restatement, and their effect on
the Company's net income for the year ended September 27, 1996 and
members' equity as of September 27, 1996 are summarized as follows:
<TABLE>
DECREASE (INCREASE) IN:
-----------------------------------------
FISCAL 1996
NET INCOME MEMBERS'EQUITY -
(unaudited) SEPTEMBER 27,1996
------------- -----------------
<S> <C> <C>
Accruals for losses on lease/sublease arrangements $ (2,258,000) $ 9,614,000
Write-off of advertising and other receivables 3,561,000 3,561,000
Accrual of vendor trust account liabilities 1,581,000 1,581,000
Adjustment of carrying value of used store equipment
to net realizable value 1,309,000 1,309,000
Income taxes (74,000) (2,200,000)
Other 1,602,000 1,861,000
------------- ------------
Net restatement $ 5,721,000 $ 15,726,000
============ ============
</TABLE>
3. INVESTMENTS RESTRICTED OR MAINTAINED FOR INSURANCE RESERVES:
The amortized costs and estimated fair values of investments in debt
securities and other investments at October 3, 1997 are as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ------------ ------------ ------------
Available-for-sale securities
-----------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 3,512,000 $ 103,000 $ 3,615,000
Obligations of states,
political subdivisions, and
government agencies 4,410,000 134,000 4,544,000
Corporate securities 1,026,000 25,000 1,051,000
------------ ------------ ------------
Subtotal 8,948,000 262,000 9,210,000
Common stocks 225,000 225,000
------------ ------------ ------------ ------------
Total $ 9,173,000 $ 262,000 $ - $ 9,435,000
============ ============ ============ ============
<PAGE>
Held-to-maturity securities
---------------------------
U.S. Treasury securities $ 16,547,000 $ 848,000 $ (42,000) $ 17,353,000
Obligations of states,
political subdivisions,
and government agencies 19,154,000 255,000 (66,000) 19,343,000
Corporate securities 5,976,000 141,000 (19,000) 6,098,000
------------ ------------- ------------ ------------
Total $ 41,677,000 $ 1,244,000 $ (127,000) $ 42,794,000
============ ============ ============ ============
Restricted assets
-----------------
Cash and cash equivalents $ 401,000 $ - $ - $ 401,000
=========== ============ ============ ============
Reconciliation to balance sheet:
Available-for-sale securities, at fair
value $ 9,435,000
Held-to-maturity securities, at
amortized cost 41,677,000
Restricted assets, at fair value 401,000
------------
Total investments $ 51,513,000
============
</TABLE>
F-12
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENTS RESTRICTED OR MAINTAINED FOR INSURANCE RESERVES, CONTINUED:
Gross realized gains of $3,000 were realized in 1997 from the maturity and
redemption of held-to-maturity securities due to those securities being
called by the issuers. The amortized cost of these securities at the time
of call was $4,470,000. There were no realized losses. Proceeds from the
sale of available-for-sale securities were $1,131,000. The gross realized
losses on these sales were $9,000 in 1997.
4. ACCOUNTS AND NOTES RECEIVABLE:
These consist of amounts due principally from members at the balance sheet
date as follows:
<TABLE>
1998 1997
<S> <C> <C>
Accounts receivable $ 60,503,000 $ 69,778,000
Insurance premiums receivable and related balances 14,521,000
Less allowance for doubtful accounts (1,236,000) (7,598,000)
------------ ------------
Net accounts receivable 59,267,000 76,701,000
------------ ------------
Notes receivable, current portion 8,002,000 1,977,000
Less allowance for doubtful notes (141,000)
------------ ------------
Net current notes receivable 8,002,000 1,836,000
------------ ------------
Net current accounts and notes receivable $ 67,269,000 $ 78,537,000
============ ============
Notes receivable, non-current portion $ 29,515,000 $ 18,886,000
Less allowance for doubtful notes (314,000) (2,388,000)
------------ ------------
Net non-current notes receivable $ 29,201,000 $ 16,498,000
============ ============
</TABLE>
During the years ended October 2, 1998 and October 3, 1997, the Company recorded
a provision for doubtful accounts and notes receivable of approximately
$2,440,000 and $9,943,000, respectively. During the year ended October 2, 1998,
the Company wrote off approximately $11 million of accounts and notes
receivable, and adjusted the related allowance for doubtful accounts, for
amounts determined to be uncollectible.
F-13
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. ACCOUNTS AND NOTES RECEIVABLE, CONTINUED:
The notes receivable from members are generally for periods of two to ten
years at annual interest rates of 3% to 11%. The notes receivable as of
October 2, 1998 include $17.5 million in connection with the sale of the
Cash & Carry division (see Note 10). This note carries an annual interest
rate of 6.5%. The annual maturities of notes receivable for each of the
next five fiscal years following October 2, 1998 are as follows:
YEAR Amount
---- ------
1999 $ 8,002,000
2000 4,349,000
2001 6,859,000
2002 6,632,000
2003 6,562,000
Thereafter 5,113,000
------------
$ 37,517,000
============
5. OTHER ASSETS:
Other assets consist of the following: 1998 1997
Software $ 19,999,000 $ 18,356,000
Prepaid loan fees 1,073,000
Other 1,941,000 2,570,000
------------ ------------
Subtotal 23,013,000 20,926,000
Less accumulated amortization (6,981,000) (3,591,000)
------------ ------------
Total other assets, net $ 16,032,000 $ 17,335,000
============ ============
Amortization expense for the years ended October 2, 1998 and October 3,
1997 was $4,143,000 and $4,152,000, respectively.
F-14
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
1998 1997
<S> <C> <C>
Land $ 2,163,000 $ 3,865,000
Buildings and improvements 42,996,000 55,999,000
Warehouse and truck equipment 24,022,000 31,316,000
Office equipment 14,432,000 14,185,000
Construction in progress 466,000 5,069,000
------------ --------------
Total property, plant and equipment 84,079,000 110,434,000
Less accumulated depreciation (46,165,000) (48,991,000)
------------ --------------
Property, plant and equipment, net $ 37,914,000 $ 61,443,000
============ ==============
</TABLE>
Depreciation expense for the years ended October 2, 1998 and October 3, 1997 was
$6,379,000 and $7,690,000, respectively, including $106,000 and $359,000,
respectively, related to discontinued operations. During the year ended October
3, 1997, the Company recorded a loss of approximately $1.8 million for the
estimated impairment in the carrying value of a retail store.
F-15
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
1998 1997
<S> <C> <C>
Line of credit with financial institution $ 34,315,000 $ 69,000,000
Notes payable with financial institution:
Term loan, interest at 7.344%, payable in four equal annual payments
beginning May 1999 10,000,000
Real estate term loan, interest at 7.344%, payable in one-hundred
twenty equal monthly principal and interest payments beginning
February 1999 25,000,000
Notes payable, other:
Capital stock residual notes, payable in twenty quarterly
installments plus interest at a variable interest rate based on the
current capital investment note rate 2,327,000 4,071,000
Capitalized equipment leases, payable in monthly installments of $
43,853, including interest at 12% to 20% through 2005
(collateralized by equipment) 1,563,000 2,276,000
Other notes payable 281,000 1,495,000
Redeemable notes and certificates:
Capital investment notes (subordinated), interest at 7.5%,
maturity dates through 2005 39,277,000 41,745,000
Registered redeemable building notes (subordinated), interest at 8%,
no fixed maturity date 2,830,000 3,088,000
Credit agreement notes, interest from 7.0875% to 7.1875% 42,915,000
Senior notes payable to insurance companies, interest at 8.42% and 9.15% 29,999,000
Mortgage notes payable, interest at 7.25% 3,597,000
------------ ------------
Total 115,593,000 198,186,000
Less current portion (41,159,000) (10,191,000)
------------ ------------
Total notes payable, net of current portion $ 74,434,000 $187,995,000
============ ============
Maturities of notes payable are as follows:
Fiscal Year Amount
----------- ------------
1999 $ 41,159,000
2000 7,942,000
2001 9,984,000
2002 9,206,000
2003 6,200,000
Thereafter 41,102,000
------------
$115,593,000
============
</TABLE>
F-16
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. NOTES PAYABLE, CONTINUED:
The Company has a credit agreement with a financial institution providing
for a line of credit of $100 million for revolving loans and $35.0 million
for term loan facilities. The agreement was entered into in August 1998
and matures in February 2002. The agreement provides for letter of credit
accommodations up to $11 million.
The amount of borrowings available under the revolving line of credit
based upon a lending formula applied to accounts and notes receivable and
inventory was $70.4 million as of October 2, 1998. The revolving line of
credit bears interest at LIBOR plus 1.75% or at prime rate (7.125% and
8.50% respectively at October 2, 1998). The Company had $34.3 million
outstanding under the revolving loans, $20 million at LIBOR and $14.3
million at prime. The term loans bear interest at LIBOR plus 1.75% as of
October 2, 1998. The revolving line of credit and term loans are
collateralized by accounts receivable, inventory and other assets.
The Company, as of October 2, 1998, had letters of credit totaling $11
million, $1.0 million required by certain real property leases and $10
million required under its cash management agreement with a bank. The
revolving and term loans and letters of credit are cross collateralized by
essentially all assets of the borrowers (United Grocers, Inc. and United
Resources, Inc.) and are guaranteed by all subsidiaries.
The Company's most restrictive covenants maintain certain minimum adjusted
net worth, minimum accounts receivable turnover and fill rates (as
defined). The Company is in compliance with covenants related to its
credit agreement as of October 2, 1998.
Amounts available under the credit agreement and letter of credit
accommodations are subject to reduction by the lender being permitted to
establish availability reserves based upon certain events, conditions,
contingencies or risks which it may in good faith determine.
F-17
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES:
The income tax (provision) benefit, including amounts associated with
discontinued operations and the cumulative effect of a change in
accounting method, for the years ended October 2, 1998 and October 3,
1997, respectively, consists of the following:
<TABLE>
1998 1997
Current:
<S> <C> <C>
Federal $ (2,6OO,000) $ 100,000
------------ -----------
Deferred:
Federal (8,135,000) 7,493,000
State (1,272,000) 1,207,000
------------ -----------
(9,407,000) 8,700,000
------------ -----------
Total $(12,007,000) $ 8,800,000
============ ===========
The current provision for the year ended October 2, 1998 primarily relates
to the gain on disposal of the insurance segment.
The reconciliation of the statutory Federal tax rate to the effective
income tax rate for the years ended October 2, 1998 and October 3, 1997,
is as follows:
1998 1997
Statutory income tax rate (34%) $(10,801,000) $ 5,937,000
State income taxes, net of Federal income tax benefit (1,272,000) 797,000
Reversal of valuation allowance due to tax planning strategy 3,568,000
Patronage-related book/tax differences (1,502,000)
Other 66,000
------------ -----------
Total $(12,007,000) $ 8,800,000
============ ===========
</TABLE>
F-18
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES, CONTINUED:
The significant components of deferred income taxes as of October 2, 1998
and October 3, 1997 are as follows:
<TABLE>
1998 1997
Deferred income taxes, current asset:
<S> <C> <C>
Insurance reserves $ 1,359,000
Inventories $ 309,000 362,000
Allowance for doubtful accountS 253,000 1,650,000
Accrued employee benefits 168,000 192,000
Capitalized lease insurance 244,000 244,D00
Nonpatronage net operating loss carryforward 4,128,000
Alternative minimum tax credit 178,000 150,000
Other 374,000 62,000
--------------- -------------
Net current deferred tax asset 1,526,000 8,147,000
--------------- -------------
Deferred income taxes, non-current asset (liability):
Accumulated depreciation (3,088,000) (2,561,000)
Impairment reserve 689,000
Lease accrual 1,302,000 1,474,000
Prepaid pension cost (738,000)
Deferred income on sale-leaseback transactions 845,000
Deferred compensation 291,000 106,000
--------------- -------------
Net non-current deferred tax asset (liability) (2,233,000) 553,000
--------------- -------------
Total $ (707,000) $ 8,700,000
=============== =============
9. 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. The sale of the insurance operations was completed in
July 1998. Accordingly, the results of operations of the insurance segment
for the years ended October 2, 1998 and October 3, 1997 have been
presented as "discontinued operations" in the accompanying statement of
operations.
F-19
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. DISCONTINUED OPERATIONS, CONTINUED:
The following is a summary of the assets and liabilities of the insurance
segment as of October 3, 1997:
Assets:
<S> <C> <C>
Investments $ 51,513,000
Receivables and other current assets 22,070,000
Long-term assets 1,328,000
------------
74,911,000
Liabilities:
Insurance reserves supported by investments 26,356,000
Accounts payable and other current liabilities 19,544,000
------------
Net investment in insurance segment $ 29,011,000
============
10. SALE OF CASH & CARRY DIVISION:
On May 15, 1998, the Company sold to an unrelated party the assets and
liabilities of its Cash & Carry division, consisting of 40 wholesale
grocery stores. The net sales proceeds included a $17,500,000 note from
the buyer. The Company realized a gain on the sale, as follows:
Net sales proceeds $ 55,486,000
------------
Net investment in Cash & Carry division:
Current assets 26,589,000
Non-current assets 5,864,000
Current liabilities (6,000,000)
------------
26,453,000
------------
$ 29,033,000
============
The accompanying consolidated statements of operations for the years ended
October 2, 1998 (through May 15, 1998) and October 3, 1997 include the
following amounts with respect to the Cash & Carry division:
1998 1997
Net sales and operations $ 22,797,000 $ 37,530,000
Costs and expenses (22,380,000) (34,551,000)
Other income 1,519,000 1,179,000
------------- ------------
Income before income taxes $ 1,936,000 $ 4,158,000
============= ============
</TABLE>
F-20
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. MEMBERS' PATRONAGE DIVIDENDS:
The Company's income from sales to members, before income taxes and
patronage dividends, is available, at the discretion of the Board of
Directors, to be returned to the members in the form of patronage
dividends. No patronage earnings were available to pay patronage dividends
for the years ended October 2, 1998 and October 3, 1997.
12. REINSURANCE:
Reinsurance contracts do not relieve the Company from its obligation to
policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company. The Company evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic
characteristics of the reinsurers to minimize its exposure to significant
losses from reinsurer insolvencies.
The Company limits the maximum net loss that can arise from large risks or
risks in concentrated areas of exposure by reinsuring (ceding) certain
levels of risk with other insurers or reinsurers, either on an automatic
basis under general reinsurance contracts known as "treaties" or by
negotiation on substantial individual risks. Ceded reinsurance is treated
as the risk and liability of the assuming companies.
Reinsurance amounts reflected in the financial statements as of and for
the year ended October 3, 1997 are as follows:
For the balance sheet:
<TABLE>
<S> <C>
Reinsurance recoverable $ 9,440,000
Prepaid reinsurance premiums 3,746,000
----------------
Total $ 13,186,000
================
For the statement of operations:
Premiums written:
Gross $ 31,198,000
Assumed 742,000
Ceded (10,331,000)
----------------
Net premiums written $ 21,609,000
================
Premiums earned:
Gross $ 29,596,000
Assumed 682,000
Ceded (9,698,000)
----------------
Net premiums earned $ 20,580,000
================
Expenses:
Losses and loss adjustment expenses $ 16,610,000
Reinsurance recoveries (3,142,000)
----------------
Net losses and loss adjustment expenses $ 13,468.000
================
</TABLE>
F-21
<PAGE>
United Grocers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
13. SEGMENT REPORTING:
A summary of information about the Company's operations by the
distribution and insurance segments for the year ended October 3, 1997 is
as follows:
Net sales and operations:
Distribution $ 1,306,602,000
Insurance (1) 22,231,000
---------------
Total $ 1,328,833,000
===============
Income (loss) before income taxes:
Distribution $ (21,627,000)
Insurance (1) 4,167,000
---------------
Total $ (17,460,000)
===============
Depreciation and amortization expense:
Distribution $ 11,483,000
Insurance (1) 359,000
---------------
Total $ 11,842,000
===============
Capital expenditures, including software:
Distribution $ 21,974,000
Insurance 79,000
---------------
Total $ 22,053,000
===============
Total assets at October 3, 1997:
Distribution $ 290,516,000
Insurance 74,911,000
---------------
Total $ 365,427,000
===============
(1) Reported as discontinued operations.
F-22
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. RETIREMENT PLANS:
The Company has a Company-sponsored pension plan that covers substantially
all of its salaried employees. The Company has made annual contributions
to the plan equal to the amount annually accrued for pension expense. The
Company's funding policy is to satisfy the funding requirements of the
Employees' Retirement Income Security Act.
In determining the actuarial present value of the projected benefit
obligation, a discount rate of 6.75% and 7.75% was used for the years
ended October 2, 1998 and October 3, 1997, respectively, and a future
maximum compensation increase rate of 2.75% and 3.75% was used for the
years ended October 2, 1998 and October 3, 1997, respectively. The
expected long-term rate of return on assets was 8%.
Pension costs for the plan consist of the following:
<TABLE>
1998 1997
Company-sponsored:
<S> <C> <C>
Service costs of benefits earned $ 1,184,000 $ 1,155,000
Interest cost on the projected benefit obligation 1,856,000 1,788,000
Expected return on plan assets (2,616,000) (2,197,000)
Amortization of:
Unrecognized net asset (168,000) (168,000)
Unrecognized net gain (4,962,000) (100,000)
Unrecognized prior service cost 61,000 61,000
----------- ----------
Net periodic pension cost (benefit) $(4,645,000) $ 539,000
=========== ==========
</TABLE>
Amortization of the unrecognized net gain for the year ended October 2,
1998, includes the cumulative effect of a change in accounting method (see
Note 1) of $2,912,000.
F-23
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. RETIREMENT PLANS, CONTINUED:
The following table sets forth the plan's funded status as of years end:
<TABLE>
OCTOBER 2, OCTOBER 3,
1998 1997
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested $ 27,082,000 $ 17,200,000
Non-vested 841,000 1,137,000
----------- ------------
Accumulated benefit obligation 27,923,000 18,337,000
Effect of projected future compensation levels 2,125,000 5,268,000
----------- ------------
Projected benefit obligation 30,048,000 23,605,000
Plan assets at fair value, primarily listed stocks, fixed income and
bond and equity funds 33,919,000 33,541,000
----------- ------------
Excess of plan assets over projected benefit obligation 3,871,000 9,936,000
Unrecognized net asset (1,225,000) (1,393,000)
Unrecognized net gain (976,000) (9,064,000)
Unrecognized prior service cost 271,000 594,000
----------- ------------
Prepaid pension cost $ 1,941,000 $ 73,000
=========== ============
</TABLE>
The Company also participates in several multi-employer pension plans for
the benefit of its employees who are union members. The data available
from administrators of the multi-employer plans is not sufficient to
determine the accumulated benefits obligation, nor the net assets
attributable to the multi-employer plans in which the Company's union
employees participate. The Company's costs for these multi-employer plans
for the years ended October 2, 1998 and October 3, 1997 were $3,965,000
and $3,874,000, respectively.
In addition to providing pension benefits, the Company provides certain
medical benefits for certain salaried retirees, spouse and eligible
dependents. Employees who were hired prior to January 1, 1989, the last
eligibility date, and have met the Company's minimum service requirements,
become eligible for these benefits. The post-retirement medical benefits
available are non-contributory in nature and it is the Company's practice
to fund these benefits as incurred.
F-24
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. RETIREMENT PLANS, CONTINUED:
The following table presents the status of the plan and amounts recognized
for post-retirement benefits in the Company's financial statements as of
and for the years ended October 2, 1998 and October 3, 1997:
<TABLE>
1998 1997
Accumulated post-retirement benefit obligation:
<S> <C> <C>
Retirees $ 2,515,000 $ 1,810,000
Fully eligible active plan participants 1,111,000 1,578,000
Other active plan participants 370,000 927,000
------------ ------------
Total accumulated post-retirement benefit obligation 3,996,000 4,315,000
Unrecognized net transition obligation (3,075,000) (3,331,000)
------------ ------------
Accrued post-retirement benefit obligation $ 921,000 $ 984,000
============ ============
Net periodic post-retirement benefit cost includes the following
components for the years ended October 2, 1998 and
October 3, 1997:
Service cost $ 24,000 $ 52,000
Interest cost 246,000 271,000
Amortization of transition obligation 178,000 169,000
------------ ------------
Net periodic post-retirement benefit cost $ 448,000 $ 492,000
============ ============
</TABLE>
The assumed health care cost trend rate used to measure the expected cost
of benefits was 11% in year one, decreasing 1% per year to a minimum rate
of 4%. The effect of a 1% increase in the assumed health care cost trend
rate on the aggregate of the service and interest cost components of the
net periodic post-retirement benefit cost and the accumulated
post-retirement benefit obligation would be to increase these amounts by
approximately $12,000 and $170,000, respectively. The discount rate used
in determining the accumulated post-retirement benefit obligation was, 8%
at the beginning and 7% at the end of the year ended October 3, 1998.
The Company also has two separate Company-sponsored 401(k) plans. In one
plan, all salaried non-union employees are eligible to participate.
Contributions by the Company are at the discretion of the Board of
Directors. In the other plan, union employees are eligible to participate,
but the Company makes no matching contributions. For the years ended
October 2, 1998 and October 3, 1997, the Company made matching
contributions to the 401(k) plans totaling $262,000 and $305,000,
respectively.
F-25
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. LEASES:
The Company has various operating leases for buildings and equipment,
certain of which are subleased to affiliated companies and members. The
leases expire at various dates through 2022. Rental expense consists of
the following:
<TABLE>
1998 1997
<S> <C> <C>
Minimum rentals $ 25,768,000 $ 24,551,000
Less sublease income (8,844,000) (10,506,000)
------------ ------------
Net rental expense $ 16,924,000 $ 14,045,000
============ ============
</TABLE>
The following is a schedule by years showing future minimum rentals under
operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of October 2, 1998 and October 3, 1997:
<TABLE>
(a) (b)
Minimum Minimum Net
Payments Receipts Minimum
------------- ------------ ------------
Fiscal Year
---------------
<S> <C> <C> <C> <C>
1999 $ 21,486,000 $ 8,890,000 $ 12,596,000
2000 19,408,000 8,143,000 11,265,000
2001 17,016,000 7,689,000 9,327,000
2002 15,616,000 7,247,000 8,369,000
2003 13,786,000 6,567,000 7,219,000
Thereafter 82,695,000 57,044,000 25,651,000
------------- ------------ ------------
Total $ 170,007,000 $ 95,580,000 $ 74,427,000
============= ============ ============
Summary:
Building leases $ 141,073,000 $ 89,266,000 $ 51,807,000
Equipment leases 28,934,000 6,314,000 22,620,000
------------- ------------ ------------
Total $ 170,007,000 $ 95,580,000 $ 74,427,000
============= ============ ============
</TABLE>
(a) Minimum payments are those required by the Company over the terms
of significant leases.
(b) Minimum receipts are those to be received by the Company from
sublease agreements.
F-26
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. LEASES, CONTINUED:
The Company has accrued $7,751,000 and $7,310,000 as of October 2, 1998
and October 3, 1997, respectively, for the estimated losses on subleasing
arrangements, $5,896,000 and $5,505,000, respectively, of which is
included in other liabilities and $1,855,000 and $1,805,000, respectively,
of which is included in other current liabilities in the accompanying
consolidated balance sheet.
The Company has entered into sale-leaseback transactions for various
supermarket properties, which resulted in deferred gains of approximately
$1,257,000 and $3,650,000 as of October 2, 1998 and October 3, 1997,
respectively. The deferred gains are being amortized over the leaseback
periods of twenty years. The total remaining lease commitments are
approximately $7,877,000 over nineteen years with an annual rental of
approximately $336,000.
16. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
1998 1997
Supplemental disclosures:
Cash paid during the years for:
<S> <C> <C>
Interest $ 12,738,000 $ 16,342,000
Income taxes, net of refunds of $1,200,000 in 1998 4,800,000 151,000
Supplemental schedule of noncash investing and financing activities:
Sale of insurance segment in exchange for note receivable 4,000,000
Sale of Cash & Carry division and other assets in exchange for
notes receivable 18,846,346
Members' allowances paid in common stock 773,000
Exchange of member account receivable for equity interest
in affiliate 362,000
Exchange of investment in affiliate for note
receivable 4,550,000
</TABLE>
17. AFFILIATED COMPANIES:
The Company owns interests in affiliates which are accounted for on the
equity method. One affiliate is a vendor that provides private label brand
merchandise. The other affiliates operate retail grocery stores and are
also members of the Company. R.A.F. Limited Liability Company is
controlled by a member of the Company's Board of Directors.
F-27
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. AFFILIATED COMPANIES, CONTINUED:
An approximate summary of aggregate balances and transactions with
affiliates in which the Company had an interest as of year-end is as
follows:
<TABLE>
1998 1997
Balance sheet:
<S> <C> <C>
Equity interest $ 3,360,000 $ 6,971,000
Accounts receivable 2,651,000 2,898,000
Notes receivable 428,000
Accounts payable 4,079,000 7,046,000
Statement of operations:
Sales 2,933,000 137,029,000
Purchases 119,495,000 118,268,000
Volume incentive rebate for purchases from affiliated
company 4,361,000 3,909,000
Refunds, rebates and member allowances to affiliated
companies 34,000 1,985,000
Equity in earnings of affiliated companies 169,000 107,000
</TABLE>
These affiliates and the Company's net investments as of October 2, 1998
and October 3, 1997 and percentages of ownership during the years ended
October 2, 1998 and October 3, 1997 are as follows:
<TABLE>
NET PERCENTAGE
1998 INVESTMENT OWNERSHIP
---- ---------- ---------
<S> <C> <C>
Western Family Holding Company $ 2,143,000 22%
R.A.F. Limited Liability Company 1,081,000 94%
Other 136,000
-----------
$ 3,360,000
===========
1997
----
Western Family Holding Company $ 1,974,000 22%
C & K Market, Inc. (sold July 1997) 22%
R.A.F. Limited Liability Company 1,081,000 94%
North State Grocery, Inc. 3,623,000 26%
Other 293,000
-----------
$ 6,971,000
===========
</TABLE>
F-28
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. AFFILIATED COMPANIES, CONTINUED:
Combined unaudited financial information of the affiliated entities,
including third-party interests, is as follows:
<TABLE>
OCTOBER 2, OCTOBER 3,
1998 1997
------------- -------------
<S> <C> <C>
Current assets $ 41,903,000 $ 55,359,000
Non-current assets 4,185,000 13,559,000
Current liabilities 35,905,000 49,193,000
Non-current liabilities 3,872,000
Owners' equity 10,184,000 15,853,000
YEAR ENDED YEAR ENDED
OCTOBER 2, OCTOBER 3,
1998 1997
------------- -------------
Revenues $ 525,514,000 $ 633,124,000
Gross profit 19,550,000 46,506,000
Net income (loss) (77,000) 220,000
</TABLE>
All of these affiliates are privately held companies for which no ready
market values are available. In management's opinion, the equity interests
as stated are equal to or less than the fair market value of the Company's
interests in these affiliates.
18. RELATED PARTY TRANSACTIONS:
The Company is owned by its primary customers, and its board of directors
consists entirely of members who are also customers; accordingly, the
nature of the Company's business involves a significant number of related
party transactions. Such transactions with members, some of whom are
directors, include leasing and sub-leasing arrangements, sales of
merchandise and related extensions of trade credit, extensions of
long-term credit for members' purchases of fixed assets, notes payable to
members for capital stock and capital investment notes and payment of
purchase incentives (see "members' allowances" in the accompanying
consolidated statement of operations) in the form of cash and shares of
the Company's stock.
F-29
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially subject the company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, investments, store financing loans and trade accounts
receivable.
The Company holds its cash and cash equivalents in several banks located
in the Pacific Northwest and a zero balance bank account located in the
Midwest. Each bank is covered by Federal Depositors Insurance Corporation
insurance; balances in excess of coverage are not insured.
As a cooperative, the majority of the Company's accounts receivable
represent sales to its members who are located throughout the Pacific
Northwest and Northern California. These accounts are not generally
collateralized but each member has stock holdings in the Company as well
as patronage rebates which the Company could apply against account
balances.
The Company makes store financing loans to members from time to time,
mainly to finance the acquisition of grocery store properties and
equipment. These loans are represented by notes receivable which are
collateralized with personal property, securities and guarantees.
The Company performs ongoing credit evaluations of its members' financial
condition and maintains allowances for potential credit losses.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and long-term notes receivables - the carrying
amounts reported in the balance sheet for cash and cash equivalents and
long-term receivables approximate their fair value.
Investments restricted or maintained for insurance reserves - see Note 4.
Investment in and accounts with affiliated companies - it is not
practicable to estimate the fair value of an investment representing the
common stock of a privately-held company because the stock is not traded;
thus, the investments are carried at original cost plus equity in earnings
to date in the consolidated balance sheet. Such investments are subject to
review for possible impairment.
F-30
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
20. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:
Notes payable - the carrying amounts of variable-rate debt instruments
approximate their fair value. The fair values of fixed-rate long-term debt
are estimated using discounted cash flow analyses based on the Company's
incremental borrowing rates for similar types of borrowing arrangements.
The assumed incremental borrowing rates used to determine the fair value
of fixed-rate long-term debt were 8% to 11% for 1998 and 1997.
The carrying amounts and approximate fair values of the Company's
financial instruments at the balance sheet date are as follows:
<TABLE>
CARRYING FAIR
1998 AMOUNTS VALUES
---------- --------------- -----------
<S> <C> <C>
Cash and cash equivalents $ 1,294,000 $ 1,294,000
Long-term notes receivable, including the current portion, net
of allowance for doubtful notes 32,686,000 32,686,000
Investment in and accounts with affiliated companies 3,360,000 3,360,000
Notes payable 115,593,000 112,688,000
1997
----------
Cash and cash equivalents $ 10,223,000 $ 10,223,000
Long-term notes receivable, including the current portion, net
of allowance for doubtful notes 18,334,000 18,334,000
Investment in and accounts with affiliated companies 6,971,000 6,971,000
Notes payable 198,186,000 193,886,000
</TABLE>
21. COMMITMENTS AND CONTINGENCIES:
The Company has entered into various agreements under which it sells
certain of its notes receivable from members subject to limited recourse
provisions. These notes are collateralized by personal property,
securities and guarantees. The Company in turn receives a monthly service
fee. The Company recognizes the net present value of the excess of the
future service fees over the estimated service cost as a service asset and
related gain upon the sale of a loan. The service asset is amortized over
the life of the related note agreement. In the years ended October 2, 1998
and October 3, 1997, the Company sold notes totaling approximately
$1,518,000 and $13,205,000, respectively, and recognized $20,000 and
$1,734,000, respectively, of gains on the sales. The balances of
transferred notes that were outstanding and subject to recourse provisions
were approximately $24,426,000 and $39,313,000 at October 2, 1998 and
October 3, 1997, respectively. The unamortized service asset as of October
2, 1998 and October 3, 1997 was $1,281,000 and $1,969,000, respectively.
In the event the Company is in default of other credit agreements, the
buyer of these notes has the right to demand collection of the outstanding
notes balances from the Company.
F-31
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
21. COMMITMENTS AND CONTINGENCIES, CONTINUED:
The Company is guarantor of a covenant not to compete and loans by members
as of October 2, 1998 totaling approximately $6,740,000 with annual
payments of approximately $837,000.
The Company is a party to various litigation and claims arising in the
ordinary course of business. While the ultimate effect of such actions
cannot be predicted with certainty, the Company expects that the outcome
of these matters will not result in a material adverse effect on the
Company's consolidated financial position, results of operations or cash
flows.
The Company is guarantor of a letter of credit a customer has with a bank.
The letter of credit is $1,500,000, of which no amount has been drawn at
October 2, 1998.
F-32
<PAGE>
[Graphic - PricewaterhouseCoopers logo]
PRICEWATERHOUSECOOPERS LLP
1300 Southwest Fifth Avenue Suite 3100
Portland OR 97201-5638
Telephone (503) 417 2400
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
January 8, 1999
To the Board of Directors
United Grocers, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 8, 1999 appearing in this Form 10-K of United Grocers, Inc. also
included an audit of the financial statement schedule listed in Item 14(a)(2) of
this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
F-33
<PAGE>
UNITED GROCERS, INC. AND SUBSIDIARIES SCHEDULE II
-------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 2, 1998 AND OCTOBER 3, 1997
-------------------------------------------------------
<TABLE>
Column A Column B Column C Column D Column E
- ----------- ------------ -------------------------------------------------------
Balance at Charged to Deductions Balance at
beginning costs and end of
Description of period expenses period
<S> <C> <C> <C> <C>
1998:
Reserves deducted in
balance sheet from asset
to which it applies -
Allowance for doubtful
accounts for:
Accounts receivable $ 7,598,000 $ 1,440,000 $(7,802,000) $ 1,236,000
Notes receivable 2,529,000 1,000,000 (3,215,000) 314,000
----------- ----------- ------------ -----------
Total $10,127,000 $ 2,440,000 $(11,017,000) $ 1,550,000
=========== =========== ============ ===========
1997:
Reserves deducted in
balance sheet from asset
to which it applies -
Allowance for doubtful
accounts for:
Accounts receivable $ 1,140,000 $ 7,000,000 $( 542,000) $ 7,598,000
Notes receivable 1,110,000 2,943,000 ( 1,524,000) 2,529,000
----------- ----------- ------------ -----------
Total $ 2,250,000 $ 9,943,000 $( 2,066,000) $10,127,000
=========== =========== ============ ===========
</TABLE>
The report of independent accountants on the financial statement schedule should
be read with this supplemental schedule.
F-34
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On June 17, 1997, the Board of Directors of the Company engaged the firm of
PricewaterhouseCoopers LLP (formerly Coopers & Lybrand LLP) to audit the
financial information for the year ended October 3, 1997. The firm of DeLap,
White and Raish was dismissed on the same day. This change in Registrant's
certifying accountant was reported by submission of a current report on Form 8-K
on June 24, 1997. The Company has had no disagreements with its independent
accountants on accounting and financial disclosure matters.
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Identification of Directors
Name Age Principal Occupation
---- --- --------------------
Directors whose terms expired in 1999:
Kenneth Tucker 51 President, Evergreen Markets, Inc.
Robert A. Lamb 58 Partner, Lamb Lasko Partnership
Richard L. Wright 61 President, Wright's Foodliner, Inc.
Directors whose terms began in 1997 and expire in 2000:
James F. Glassel 58 President, Fatewell, Inc.
Kenneth W. Findley 59 President, Bales for Food, Inc.
Gaylon G. Baese 61 President, Howards on Scholls, Inc.
Directors whose terms began in 1998 and expire in 2001:
Peter J. O'Neal 54 President, Estacada Foods, Inc.
Mary McDonald 64 President, M & S Grocers, Inc.
Floyd West 58 President, Pioneer Super Save, Inc.
Directors elected in 1999 for terms expiring in 2002:
Gordon Smith 53 President, Marlea Foods, Inc.
Kenneth Tucker 51 President, Evergreen Markets, Inc.
Richard L. Wright 59 President, Wright's Foodliner, Inc.
B. Identification of Executive Officers at October 2, 1998
Name Age Offices Held Officer Since
---- --- ------------ -------------
Charles E. Carlbom 64 President, Secretary, Treas. 1997
Chief Executive Officer
Terrence W. Olsen 58 Executive Vice President/Chief
Operating Officer
Asst. Secretary 1997
Paula Anctil 42 Senior Vice President 1996
Mark Tweedie 40 Chief Financial Officer,
Vice President 1998
Robin Thomas 49 Vice President 1998
C. Identification of Certain Significant Employees
None.
D. Family Relationships
None.
19
<PAGE>
E. Business Experience
All executive officers have been employed in the grocery industry in
various management and executive capacities for more than the past five years.
Prior to employment with the Company, the officers were employed as indicated in
the following table:
Officer Former Employer Position(s)
Charles E. Carlbom Western Family Foods, Inc. President
Terrence W. Olsen United A.G Coop, Inc. President
Paula Anctil Brown & Cole, Inc. Vice President
Fleming Companies Asst Vice President
Mark Tweedie Foodland Distributors Director of Finance
Robin Thomas SUPERVALU Marketing Director
The former employers of the officers named above were of a
similar size (with the exception of Brown & Cole, Inc., which is a regional
operator of supermarkets) to the Company. The duties and responsiblities of the
named officers were of similar scope to those they are performing for the
Company. The Company has an equity interest in the parent company of the former
employer of Mr. Carlbom, Western Family Foods, Inc., and purchases product from
Western Family Foods, Inc. in the normal course of business.
All directors have been principally engaged in the retail grocery
business for more than the past five years with the firms shown opposite their
names. Except as described in Item 13 below, none of such firms is a parent,
subsidiary or other affiliate of United.
No director is a director in another company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 or
subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940.
F. Involvement in Certain Legal Proceedings
None.
Item 11. Executive Compensation
A. Summary Compensation Table
The following table shows the compensation, during each of the fiscal
years in the three year period ended October 2, 1998, earned by each of the
Company's executive officers in fiscal 1997 or fiscal 1998 whose total annual
salary and bonus for fiscal 1997 or fiscal 1998 exceeded $100,000. The table
excludes individuals who were not officers at fiscal year end, but includes
individuals who served as chief executive officer at any time during fiscal 1997
or fiscal 1998. The Company does not provide long term compensation to its
executive officers other than retirement benefits, as discussed below.
Name of
Individual Annual Compensation All
and Other
Principal Compen-
Position Year Salary Bonus sation (2)
- ---------- ---- ------ ----- -----------
Charles E. Carlbom 1998 $180,000 $200,000 $ 2,908
President, Secretary, 1997 55,385 -0- -0-
Treasurer (Chief
Executive Officer)
Terrence W. Olsen 1998 150,000 25,000 3,462
Executive Vice- 1997 11,077 -0- -0-
President and Chief
Operating Officer
Mark Tweedie 1998 120,000 10,000 -0-
Chief Financial 1997 79,644 -0- -0-
Officer
20
<PAGE>
Paula Anctil 1998 114,385 -0- 1,917
Senior Vice President 1997 92,111 -0- -0-
Alan Jones(1) 1998 -0- -0- 325,877
Former Secretary, 1997 229,200 -0- 119,457
Treasurer, Chief 1996 268,676 60,000 37,228
Executive Officer
(1) Mr. Jones' employment terminated in July 1997. He received payments in the
amount of $275,000 in 1998 and $45,800 in 1997 pursuant to the severence
provisions of an employment contract in place at the time his employment ceased,
which amounts are included under "All Other Compensation" above. Beginning
October 3, 1998, the Company is obligated to pay Mr. Jones approximately
$137,500 per year through February 2003, plus certain insurance benefits.
(2) Includes amounts paid pursuant to the employment contract with Mr. Jones and
other programs generally available to employees of the Company as follows: Mr.
Carlbom, $2,908; Mr. Olsen, $3,462; Ms. Anctil, $1,917; and Mr. Jones $29,957 in
1997. Also includes $43,700 paid in 1998, $43,700 paid in 1997, and $30,000 paid
in 1996 for the benefit of Mr. Jones as insurance benefits. The Company provides
Mr. Jones with a Company car and provided him with a social membership at a
local golf club through 1997. See note (1) above.
C. Retirement Plan
The Company's retirement plan is an actuarially funded defined benefit
plan. The following table shows the estimated annual benefits payable upon
retirement (assuming normal retirement at age 65) for employees at specified
annual salary levels (based upon the highest average of five consecutive years)
with various years of service.
Annual Pension Plan Table
Remuneration Years of Service *
- ------------ -------------------
10 15 20 25 30 35
$50,000 $ 7,432 $11,148 $14,863 $18,579 $22,295 $26,011
$75,000 $12,057 $18,085 $24,113 $30,142 $36,170 $42,198
100,000 $16,682 $25,022 $33,363 $41,704 $50,045 $58,386
125,000 $21,306 $31,960 $42,613 $53,267 $63,920 $74,573
150,000 $25,932 $38,898 $51,863 $64,829 $77,795 $90,791
* Under the present terms of the Company's retirement plan, the maximum salary
level and number of years of service considered for the purposes of determining
benefits are $150,000 and 35 years, respectively.
The number of years of service under the plan for the officers listed under Item
10 is as follows:
Years of
Person Service
------ --------
Charles E. Carlbom 1
Terrence W. Olsen 1
Paula Anctil 2
Mark Tweedie 1
Robin Thomas 0
The amount of compensation used in calculation of pension benefits for
all officers is the dollar amount shown under "salary" and "bonus," subject to
plan limitations, in the table for Item 11, Section A. above.
Amounts payable under the plan are not subject to deduction for social
security or other offset amounts.
D. Remuneration of directors
Directors, except the Chairman of the Board, received $10, plus expenses, for
each board meeting attended. The Chairman received $25, plus expenses, for each
board meeting attended and for each additional day spent on the conduct of
United's business.
21
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
A. Security Ownership of Certain Beneficial Owners
The following table sets forth information as of December 28, 1998,
regarding each person known to United to be the beneficial owner of more than 5
percent of United's Common Stock.
Title of Class Name and address Amount and nature of Percent of
of beneficial owner beneficial ownership class
- -------------- ------------------- -------------------- ----------
United Grocers, Raymond L. Nidiffer 57,650 shares * 11.0% of class
Inc., Common P. O. Box 730
Stock Brookings, OR 97415
* Mr. Nidiffer has sole voting and investment power with respect to the
shares indicated in the table.
B. Security Ownership of Management.
As of December 28, 1998, the directors of United owned the indicated
amounts of United's Common Stock, United's only class of voting security.
Amount of
Beneficial Percent
Beneficial Owner Ownership (1)(2) of class
---------------- ------------------ --------
Directors:
Kenneth Tucker 526 shares .1%(3)
Floyd West 3,273 shares .6 (3)
Peter J. O'Neal 683 shares .1 (3)
Mary McDonald 4,212 shares .8 (3)
Gaylon G. Baese 4,216 shares .8 (3)
Kenneth W. Findley 11,499 shares 2.2 (5)
Robert A. Lamb 13,749 shares 2.6 (4)
James Glassel 1,155 shares .2 (3)
Richard L. Wright 25,033 shares 4.8 (3)
Directors and
officers as
a group 64,346 shares 12.3
The following directors, elected January 15, 1999, owned the indicated
amounts of United's Common Stock.
* Richard Wright
* Kenneth Tucker
Gordon Smith 4,698 shares .9 (6)
* Incumbent director, share data included under director table
(1) According to the bylaws, each stockholder of record is entitled to one
vote and one vote only, irrespective of number of shares owned. All of
the above-named individuals have only one vote, except for Messrs.
O'Neal, Wright, Lamb and Findley, who may be deemed to have more than
one vote because they have interests in various entities that own
shares.
22
<PAGE>
(2) Except as indicated below, all of the above-named individuals have
sole voting and investment power with respect to the shares indicated
in the table.
(3) These shares are owned jointly by the person named and his spouse or
by a corporation whose stock is owned jointly by the person named and
his spouse.
(4) These shares are owned by a corporation and a partnership in which
Mr. Lamb has an equity or voting interest.
(5) These shares are owned by two corporations in which Mr. Findley has a
voting interest.
(6) These shares are owned by two corporations in which Mr. Smith
has an equity interest.
C. Changes in Control.
None.
Item 13. Certain Relationships and Related Transactions.
A. Transactions with Management and Others
All directors (or their firms), as members of United, purchase groceries
and related products from United in the ordinary course of business at prices
available to members generally.
In the ordinary course of business, United enters into prime leases and
subleases property to qualified members. United presently is a party to
subleases with entities affiliated with Richard L. Wright, Gaylon Baese, and
Robert Lamb, directors of United. At October 2, 1998, monthly payments due
pursuant to the subleases were as follows:
Wright $62,903
Baese $20,625
Lamb $95,452
Pursuant to a stock purchase agreement dated September 17, 1997, United
sold 145,256 shares of stock of C & K Market, Inc. ("C&K") to C&K for
$6,023,000. The purchase price was determined by negotiation between United and
C&K. United had acquired the shares from C&K in 1994 for $5,750,000. Raymond L.
Nidiffer, a holder of more than five percent of United's common stock, is a
controlling shareholder of C&K.
United sold a retail store and real property in Cloverdale, California to
C&K pursuant to an agreement dated September 17, 1997, for a net purchase price
of approximately $4.7 million. The purchase price was determined by negotiation
between United and C&K. United had acquired the real property in 1994 and had
constructed the store and related improvements. United recognized a loss of
approximately $500,000 in connection with the transaction in fiscal year 1997.
B. Certain Business Relationships
During fiscal year 1998, RAF, LLC., a corporation controlled by Wright's
Foodliner, Inc. and the Registrant, purchased groceries and other products in
the ordinary course of business from United in the amount of $2,933,180. The
terms of sale for these products were identical to terms offered to all members
of United. United owns a 94% equity interest in RAF, LLC. Wright's Foodliner,
Inc. is controlled by Richard L. Wright, a director of the Registrant.
23
<PAGE>
C. Indebtedness of Management
The following directors, officers, or related persons or entities were
indebted to United during the fiscal year ended October 2, 1998, or thereafter
and prior to the date of this report:
Largest
aggregate
amount of debt
outstanding # of
during Balance at Notes
year ended November 30, & Rate of
Name of Debtor October 2, 1998 Interest
1998
- -------------- --------------- ------------ ---------
Lambko, LLC One Note;
Robert Lamb, Director $184,000 $156,328 Variable
The above loan was for purchase of equipment and is collateralized by
real estate. The variable rate loan bears interest at prime plus 2 percent.
In addition to the direct loan above, the Company has entered into
various agreements under which it sells certain of its notes receivable from
members, including directors, subject to limited recourse provisions. These
notes are collateralized by personal property, securities, and guaranties.
24
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of the report
1. The following financial statements are filed as part of this report:
Independent Accountant's Report on Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Members' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Accountant's Report on Financial Statement Schedule
2. The following financial statement schedule is filed as part of this
report:
Schedule II - Valuation and qualifying accounts
3. Exhibits. The exhibits listed on the accompanying index to exhibits are
filed as part of this report.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED GROCERS, INC.
(Registrant)
Dated: January 15, 1999 By: /s/ Charles E. Carlbom
Charles E. Carlbom
President and C.E.O.
25
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Charles E Carlbom President, Secretary and 1-14-99
Charles E. Carlbom Treasurer (Principal
executive officer)
/s/ Terrance W. Olsen Executive Vice President, 1-14-99
Terrence W. Olsen Asst. Secretary(Principal
operating officer)
/s/ Mark Tweedie Vice President 1-14-99
Mark Tweedie (Principal financial officer
and principal accounting officer)
/s/ Robert A. Lamb Director 1-14-99
Robert A. Lamb
/s/ Peter J. O'Neal Director 1-14-99
Peter J. O'Neal
/s/ Kenneth W. Findley Director 1-14-99
Kenneth W. Findley
/s/ James F. Glassel Director 1-14-99
James F. Glassel
/s/ Richard L. Wright Director 1-14-99
Richard L. Wright
/s/ Gaylon G. Baese Director 1-14-99
Gaylon G. Baese
/s/ Mary Mc Donald Director 1-14-99
Mary McDonald
/s/ Floyd West Director 1-14-99
Floyd West
/s/ Kenneth Tucker Director 1-14-99
Kenneth Tucker
26
<PAGE>
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
Four copies of the annual report covering the company's last fiscal year will
be provided as supplemental information to the Commission.
Enclosed with this report is a copy of proxy soliciting material, including
the form of proxy, sent to United's shareholders for the January 15, 1999 annual
meeting.
The enclosed proxy soliciting material and, when provided, the annual report
for the last fiscal year are, or will be, furnished to the Commission for its
information and shall not be deemed filed with the Commission or otherwise
subject to the liabilities of Section 18 of the Securities Exchange Act of 1934,
except to the extent that the Company specifically incorporates them in its
annual report on this form by reference.
27
<PAGE>
EXHIBIT INDEX
2.A Copy of agreement for sale and purchase of business assets
dated July 8, 1998, between the registrant and Orion Capital
Corporation, relating to the sale of the registrant's
insurance subsidiaries.
2.B Copy of asset purchase agreement dated May 15, 1998, between
the registrant and Smart & Final Inc., relating to the sale of
the registrant's Cash & Carry operation (incorporated by
reference to Exhibit 10.A to the registrant's quarterly report
on Form 10-Q for the period ended July 3, 1998).
2.C Copy of asset purchase agreement dated as of May 1, 1998,
among the registrant, Kero Investments, Inc, Rich & Rhine
Acquisition Corp., and Rich and Rhine, Inc., relating to the
sale of the business of Rich and Rhine, Inc. (incorporated by
reference to Exhibit 10.B to the registrant's quarterly report
on Form 10-Q for the period ended July 3, 1998).
3.A Copy of the registrant's restated articles of incorporation,
as amended (incorporated by reference to Exhibit 4-E to the
registrant's registration statement on Form S-2, No.
33-26631).
3.B Copy of the registrant's bylaws, as amended (incorporated by
reference to Exhibit 3 to the registrant's quarterly report on
Form 10-Q for the period ended March 29, 1996).
4.A Copy of indenture dated as of February 1, 1978, between the
registrant and United States National Bank of Oregon, as
trustee, relating to the registrant's Capital Investment Notes
(incorporated by reference to Exhibit 4-I to the registrant's
registration statement on Form S-1, No. 2-60488).
4.B1 Copy of supplemental indenture dated as of December 15, 1984,
between the registrant and United States National Bank of
Oregon, as trustee, relating to the registrant's Series D 5%
Subordinated Redeemable Capital Investment Notes (incorporated
by reference to Exhibit 4-F to the registrant's registration
statement on Form S-2, No. 33-95213).
4.B2 Copy of supplemental indenture dated as of December 15, 1986,
between the registrant and United States National Bank of
Oregon, as trustee, relating to the registrant's Series E 5%
Subordinated Redeemable Capital Investment Notes (incorporated
by reference to Exhibit 4-G to the registrant's registration
statement on Form S-2, No. 33-11212).
4.B3 Copy of supplemental indenture dated as of January 27, 1989,
between the registrant and United States National Bank of
Oregon, as trustee, relating to the registrant's Series F 5%
Subordinated Redeemable Capital Investment Notes (incorporated
by reference to Exhibit 4-G to the registrant's Form 10-K for
the fiscal year ended September 30, 1989).
4.B4 Copy of supplemental indenture dated as of January 22, 1991,
between the registrant and United States National Bank of
Oregon, as trustee, relating to the registrant's Series G 5%
Subordinated Redeemable Capital Investment Notes (incorporated
by reference to Exhibit 4-D to the registrant's registration
statement on Form S-2, No. 33-38617).
4.B5 Copy of supplemental indenture dated as of July 6, 1992,
between the registrant and United States National Bank of
Oregon, as trustee, relating to the registrant's Series H 5%
Subordinated Redeemable Capital Investment Notes (incorporated
by reference to Exhibit 4-C to the registrant's registration
statement on Form S-2, No. 33-49450).
4.B6 Copy of supplemental indenture dated as of January 9, 1995,
between the registrant and First Bank National Association, as
trustee, relating to the registrant's Series J 5% Subordinated
Redeemable Capital Investment Notes (incorporated by reference
to Exhibit 4-C to the registrant's registration statement on
Form S-2, No. 33-57199).
28
<PAGE>
4.B7 Copy of supplemental indenture dated as of January 21, 1997,
between the registrant and First Bank National Association, as
trustee, relating to the registrant's Series K 5% Subordinated
Redeemable Capital Investment Notes (incorporated by reference
to Exhibit 4-C to the registrant's registration statement on
Form S-2, No. 333-26285).
4.C Copy of credit agreement of August 25, 1998 between Congress
Financial Corporation and the registrant.
4.D1 Copy of Loan Purchase and Servicing Agreement dated as of May
13, 1994, among United Resources, Inc., as Seller and
Servicer, the registrant, as Guarantor, and National Consumer
Cooperative Bank, as Buyer, relating to the selling of loans
originated by the registrant's subsidiary, United Resources,
Inc. (incorporated by reference to Exhibit 4.F1 to the
registrant's Form 10-K for the fiscal year ended September 30,
1994).
4.D2 Copy of First Amendment to Loan Purchase and Servicing
Agreement of May 13, 1994, dated as of July 15, 1994, among
United Resources, Inc., the registrant, and National Consumer
Cooperative Bank (incorporated by reference to Exhibit 4.F2 to
the registrant's Form 10-K for the fiscal year ended September
30, 1994).
4.D3 Copy of Second Amendment to Loan Purchase and Servicing
Agreement of May 13, 1994, dated as of September 28, 1995,
among United Resources, Inc., the registrant, and National
Consumer Cooperative Bank (incorporated by reference to
Exhibit 4.F3 to the registrant's Form 10-K for the fiscal year
ended September 29, 1995).
4.D4 Copy of Loan Purchase and Servicing Agreement (Holdback
Program) dated as of September 28, 1995, between United
Resources, Inc., as Seller and Servicer, and National Consumer
Cooperative Bank, as Buyer, and related guaranty agreement
between the registrant and National Consumer Cooperative
Bank (incorporated by reference to Exhibit 4.F4 to the
registrant's Form 10-K for the fiscal year ended September 29,
1995).
Pursuant to Item 601 (b)(4)(iii) of Regulation S-K, the registrant is not filing
certain instruments with respect to its long-term debt because the amount
authorized under any such instrument does not exceed 10 percent of the total
consolidated assets of the registrant at October 2, 1998. The registrant agrees
to furnish a copy of any such instrument to the Securities and Exchange
Commission upon request.
10.A* Copy of United Grocers, Inc., pension plan and trust agreement
dated as of October 1, 1985 (incorporated by reference to
Exhibit 10-A to the registrant's registration statement on
Form S-2, No. 33-11212).
10.B* Copy of first amendment to United Grocers, Inc., pension plan
and trust agreement dated as of October 1, 1987 (incorporated
by reference to Exhibit 10-B to post-effective amendment No. 1
to the registrant's registration statement on Form S-2, No.
33-11212).
10.C* Copy of binder of insurance notifications with respect to the
indemnification of officers and directors.
10.D1 Typical forms executed in connection with loans to members,
including directors:
10.D1a Installment note (Stevens-Ness form 217).
10.D1b Promissory note (Stevens-Ness form 216).
10.D1c Installment note.
29
<PAGE>
10.D1d Renewal note for fixed rate loan (incorporated by reference to
Exhibit 10-D1d to the registrant's Form 10-K for the fiscal
year ended September 29, 1995).
10.D1e Loan agreement for subsequent notes
10.D1f Loan agreement
10.D1g Amendment to installment note and security agreements
(incorporated by reference to Exhibit 10-D1i to the
registrant's Form 10-K for the fiscal year ended September 29,
1995).
10.D1h Security agreement (Stevens-Ness form 1201).
10.D1i Purchase money security agreement (Stevens-Ness form 1202).
10.D1j Security agreement for equipment (Stevens-Ness form 1203).
10.D1k Inventory loan and security agreement (Stevens-Ness form
1206).
10.D1l Security agreement (Equipment and Inventory).
10.D1m Security agreement for subsequent notes (Equipment and
Inventory).
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the registrant has
filed the forms listed above in lieu of filing each copy executed in connection
with loans to directors. A schedule showing the principal amount and interest
rate of each director loan at October 2, 1998, appears in Item 13.C of this Form
10-K. The registrant agrees to furnish a copy of any omitted loan document to
the Securities and Exchange Commission upon request.
10.D2 Typical form of residual stock redemption note executed in
connection with redemption of common stock from members.
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the registrant has
filed the form listed above in lieu of filing each copy executed in transactions
with directors. The registrant agrees to furnish a copy of any omitted document
to the Securities and Exchange Commission upon request.
10.E* Employment Agreement between the registrant and Terry Olsen
dated October 1, 1998.
10.F1 Copy of sublease agreement for Troutdale store dated December
15, 1993, between the registrant and a partnership in which
Robert A. Lamb, a director of the registrant, is a partner
(incorporated by reference to Exhibit 10-F1 to the
registrant's Form 10-K for the fiscal year ended September 29,
1995).
10.F2 Copy of sublease agreement for Wilsonville store dated June
25, 1991, between the registrant and a partnership in which
Robert A. Lamb, a director of the registrant, is a partner
(incorporated by reference to Exhibit 10-F2 to the
registrant's Form 10-K for the fiscal year ended September 29,
1995).
10.F3 Copy of sublease agreement for Portland store dated July 30,
1997, between the registrant and a corporation in which Robert
A. Lamb, a director of the registrant, has an interest.
30
<PAGE>
10.F4 Copy of sublease agreement for equipment located at
Wilsonville store dated June 25, 1991, between the registrant
and a partnership in which Robert A. Lamb, a director of the
registrant, is a partner.
10.G Copy of sublease agreement for Tigard store dated August 28,
1991, between the registrant and a corporation in which Gaylon
G. Baese, a director of the registrant, has an interest.
10.H1 Copy of sublease agreement for Eugene store dated October 27,
1991, between the registrant and a corporation in which
Richard L. Wright, a director of the registrant, has an
interest.
10.H2 Copy of sublease agreement for Cottage Grove store dated
October 27, 1990, between the registrant and a corporation in
which Richard L. Wright, a director of the registrant, has an
interest.
10.H3 Copy of sublease agreement for Albany store dated February 1,
1994, between the registrant and a corporation in which
Richard L. Wright, a director of the registrant, has an
interest.
10.I1 Copy of sublease agreement for Gold Beach store dated July 6,
1979, between the registrant and Raymond L. Nidiffer, a holder
of more than five percent of the registrant's stock
("Nidiffer") (incorporated by reference to Exhibit 10-Q3 of
the registrant's registration statement on Form S-2, No.
33-26631).
10.I2 Copy of assignment of lease and related documents for Mt.
Shasta store between the registrant and C & K Market, Inc., an
affiliate of Nidiffer (incorporated by reference to Exhibit
10-Q4 of the registrant's registration statement on Form S-2,
No. 33-26631).
10.I3 Copy of loan guaranties dated June 12, 1980 and September 30,
1988, given by registrant for the benefit of C & K Market,
Inc., an affiliate of Nidiffer (incorporated by reference to
Exhibit 10-I12 to the registrant's Form 10-K for the fiscal
year ended September 30, 1989).
10.I4 Copy of stock purchase agreement dated as of June 20, 1994,
between the registrant and C & K Market, Inc., an affiliate of
Nidiffer (incorporated by reference to Exhibit 10.F8 to the
registrant's Form 10-K for the fiscal year ended September 30,
1994).
10.I5 Copy of Agreement for Purchase and Sale and Escrow
Instructions dated September 17, 1997, between the registrant
and C & K Market, Inc., an affiliate of Nidiffer.
10.I6 Stock Purchase Agreement dated November 17, 1997, by and among
the registrant and C & K Market, an affiliate of Nidiffer.
12 Statement of Computation of Ratio of Adjusted Income to Fixed
Charges.
18 Letter from PricewaterhouseCoopers LLP re changes in
accounting principles.
21 Subsidiaries of the registrant.
27 Financial Data Schedule.
* Denotes management contract or compensatory plan or arrangement.
31
STOCK PURCHASE AGREEMENT
UNITED GROCERS, INC.
and
ORION CAPITAL CORPORATION
May 13, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
UNITED GROCERS, INC.
and
ORION CAPITAL CORPORATION
May 13, 1998
Index
Page
----
SECTION 1. DEFINITIONS 1
SECTION 2. SALE AND TRANSFER OF SHARES; CLOSING 6
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER 8
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER 20
SECTION 5. COVENANTS OF SELLER 21
SECTION 6. COVENANTS OF BUYER 23
SECTION 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION
TO CLOSE 24
SECTION 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION
TO CLOSE 24
SECTION 9. TERMINATION 25
SECTION 10. INDEMNIFICATION; REMEDIES 26
SECTION 11. TAX MATTERS 28
SECTION 12. GENERAL PROVISIONS 33
<PAGE>
STOCK PURCHASE AGREEMENT
PARTIES: UNITED GROCERS, INC., ("Seller")
an Oregon corporation
ORION CAPITAL CORPORATION, ("Buyer")
a Delaware corporation
DATE: May 13, 1998
RECITAL:
Seller desires to sell, and Buyer desires to purchase, 1,000 shares
(the "Shares") of common stock of Grocers Insurance Group, Inc., an Oregon
corporation (the "Company"), for the consideration and on the terms set forth in
this Agreement. The Shares represent all of the issued and outstanding shares of
capital stock of the Company.
AGREEMENT:
The parties agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACCOUNTANTS"--as defined in Section 11.1.2.
"ACQUIRED COMPANIES"--the Company and its Subsidiaries, collectively.
"ACQUIRED COMPANIES SUBGROUP"--as defined in Section 11.3.3.
"AG"--as defined in Section 2.5.1.
"APPLICABLE CONTRACT"--any Contract of any Acquired Company providing
for (a) a current or future obligation to pay $25,000 or more, (b) a current or
future right to receive payments totalling $25,000 or more or (c) a joint
venture or other agreement regarding cooperation among the Acquired Companies or
between the Acquired Companies and any Person.
"APPOINTMENTS"--as defined in Section 3.23.
"BALANCE SHEET"--as defined in Section 3.4.1.
"BEST EFFORTS"--the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to cause such result to be achieved
as expeditiously as possible.
- 1 -
<PAGE>
"BUYER"--as defined in the first paragraph of this Agreement.
"CFIT"--as defined in Section 11.3.2.
"CLOSING"--as defined in Section 2.3.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"CLOSING TAXABLE YEAR"--as defined in Section 11.3.2.
"COMPANY"--as defined in the Recitals to this Agreement.
"CONFIDENTIALITY AGREEMENT"--the Confidentiality Agreement between the
Company and Buyer dated November 20, 1997.
"CONSENT"--any approval, consent, ratification, waiver or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Seller to Buyer;
(b) the performance by Buyer and Seller of their respective
covenants and obligations under this Agreement; and
(c) Buyer's acquisition and ownership of the Shares and exercise
of control over the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation or undertaking that is
legally binding, excluding any policy of insurance issued by or through an
Acquired Company.
"DCBS"--the Oregon Department of Consumer and Business Services.
"DAMAGES"--as defined in Section 10.2.
"DISCLOSURE LETTER"--the disclosure letter delivered by Seller to Buyer
prior to the execution and delivery of this Agreement.
"EMPLOYEE LICENSES"--as defined in Section 3.22.
"ENCUMBRANCE"--any charge, claim, condition, equitable interest, lien,
option, pledge, security interest, right of first refusal or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income or
exercise of any other attribute of ownership.
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to
cleaning up pollutants that have been released, preventing the threat of release
or paying the costs of such clean up or prevention.
- 2 -
<PAGE>
"ENVIRONMENTAL LIABILITIES"--any cost, damage, expense, liability,
obligation or other responsibility arising from or under Environmental Law and
consisting of or relating to:
(a) any environmental matter or condition;
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands
and response, investigative, remedial or inspection costs and
expenses arising under Environmental Law;
(c) financial responsibility under Environmental Law for cleanup
costs or corrective action, including any investigation,
cleanup, removal, containment or other remediation or response
actions required by applicable Environmental Law ; or
(d) any other compliance, corrective, investigative or remedial
measures required under Environmental Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., as amended
("CERCLA"). Environmental Liabilities do not include any obligation of any
Acquired Company arising from or under any policy of insurance issued by or
through an Acquired Company, all of which policies exclude claims for
environmental matters in accordance with customary industry practice for the
types of policies involved or except as set forth in Paragraph 1 of the
Disclosure Letter.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law and regulations and rules issued pursuant to that act or any
successor law.
"ERISA AFFILIATE"--as defined in Section 3.10.
"FACILITIES"--any real property or leaseholds owned or operated by any
Acquired Company.
"GAAP"--generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4.1 were prepared.
"GIA"--Grocers Insurance Agency, Inc., an Oregon corporation.
"GIC"--Grocers Insurance Company, an Oregon stock insurance
corporation.
"GIG OFFICE BUILDING"--as defined in Section 5.7.
"GRS"--Grocers Risk Services, Inc., an Oregon corporation.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver or other authorization issued, granted, given or otherwise made available
by or under the authority of any Governmental Body or pursuant to any Legal
Requirement.
- 3 -
<PAGE>
"GOVERNMENTAL BODY"--any:
(a) federal, state, local, municipal, foreign or other government;
(b) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department,
official or entity and any court or other tribunal); or
(c) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing
authority.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated or classified as, or otherwise determined to be, hazardous,
radioactive or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law.
"HOLDBACK"--as defined in Section 2.5.
"HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INTERIM BALANCE SHEET"--as defined in Section 3.4.1.
"IRC"--the Internal Revenue Code of 1986 or any successor law and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service.
"JOINT VENTURE"--means any joint venture, business combination,
reorganization or change of control or similar transaction.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter. A Person (other than an individual) will be deemed to
have "Knowledge" of a particular fact or other matter if any individual who is
serving as a director or officer of such Person has Knowledge of such fact or
other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal or other
administrative order, law, ordinance, regulation or statute.
"LICENSES"--as defined in Section 3.21.
"LIQUIDATED AMOUNTS"--as defined in Section 2.5.1.
"MARKS"--business names, trade names, registered trademarks and service
marks.
"ORDER"--any award, decision, judgment, order, ruling or verdict
entered, issued, made, or rendered by any court, administrative agency or other
Governmental Body.
- 4 -
<PAGE>
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal
day-to-day operations of such Person; and
(b) such action is similar in nature, frequency and magnitude to
actions customarily taken in the ordinary course of the normal
day-to-day operations of other Persons that are in the same
line of business as such Person.
"ORGANIZATIONAL DOCUMENTS"--the articles of incorporation and the
bylaws of a corporation and any amendment to such documents.
"PERMANENT DIFFERENCE"--as defined in Section 11.4.2.1.
"PERSON"--any individual, corporation, partnership, limited liability
company, joint venture, estate, trust, association, organization or other
entity.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative or
informal), excluding any proceeding arising from or under any policy of
insurance issued by or through an Acquired Company.
"PURCHASE PRICE"--as defined in Section 2.2.
"REGULATORY FILINGS"--any filing required to be made with a State
Insurance Department, other than DCBS, to provide notice or obtain approval of a
Contemplated Transaction.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor or other representative of such
Person, including legal counsel, accountants and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLER"--as defined in the first paragraph of this Agreement.
"SELLER'S SUBGROUP"--as defined in Section 11.3.3.
"SERVICE AGREEMENT"--the Service Agreement dated March 11, 1998, by and
between Seller and the Company.
"SHARES"--as defined in the Recital to this Agreement.
"STATE INSURANCE DEPARTMENT"--as defined in Section 3.21.
"STATUTORY STATEMENTS"--as defined in Section 3.4.2.
"STRADDLE PERIOD"--as defined in Section 11.2.3.
- 5 -
<PAGE>
"SUBMISSION"--as defined in Section 3.20.
"SUBSIDIARIES"--GIA, GIC and GRS.
"TAX" OR "TAXES"--any tax (including any income tax, capital gains tax,
premium tax, payroll tax, value-added tax, sales tax, property tax, gift tax or
estate tax), levy, assessment, tariff, duty, deficiency or other fee, and any
related charge, credit or benefit, or amount imposed, assessed or collected by
or under the authority of any Governmental Body or payable or receivable
pursuant to any tax-sharing agreement or any other Contract relating to the
sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency
or fee. For this purpose, the Tax benefit of a net operating loss carry forward
from the October 3, 1997 Tax year or from the Closing Taxable Year shall be
measured at the rate of 34 percent.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"THIRD PARTY CLAIMS"--as defined in Section 2.5.1.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"TIMING DIFFERENCE"--as defined in Section 11.4.2.2.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing,
Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the
Shares from Seller.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be
$36,250,000.
2.3 CLOSING
Subject to the fulfillment or waiver of the conditions set forth in
Sections 7 and 8, the purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Kennedy & Kennedy LLP, Suite 1170,
888 SW Fifth Avenue, Portland, Oregon, at 10:00 a.m. (local time) on the date
that is five business days following the receipt of the approval of the
- 6 -
<PAGE>
Contemplated Transactions by the Director of DCBS and the Connecticut Insurance
Department and all such other required prior approvals, or at such other time
and place as the parties may agree. Subject to the provisions of Section 9,
failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.3 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
2.4.1 Seller will deliver to Buyer:
(a) certificates representing the Shares duly endorsed
(or accompanied by duly executed stock powers in form
satisfactory to Buyer) for transfer to Buyer;
(b) a certificate executed by the President of Seller
dated on the Closing Date certifying that each of
Seller's representations and warranties in this
Agreement was accurate in all respects as of the date
of this Agreement and is accurate in all respects as
of the Closing Date as if made on the Closing Date
(recognizing any supplements to the Disclosure Letter
that were delivered by Seller to Buyer prior to the
Closing Date);
(c) an opinion of Seller's counsel in form and substance
reasonably acceptable to Buyer and its counsel;
(d) title policies on all real estate owned by any of
the Acquired Companies; and
(e) such other certificates and documents as Buyer or
its counsel may reasonably request.
2.4.2 Buyer will deliver to Seller:
(a) the sum of $32,250,000 (the Purchase Price minus the
Holdback) by wire transfer to an account specified by
Seller;
(b) a certificate executed by the President or any Vice
President of Buyer certifying that each of Buyer's
representations and warranties in this Agreement was
accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date; and
(c) such other certificates and documents as Seller or
its counsel may reasonably request.
- 7 -
<PAGE>
2.5 HOLDBACK
2.5.1 Buyer shall retain $4,000,000 of the Purchase Price
(the "Holdback") to secure the obligations of Seller and the Company under this
Agreement. On the later of (i) three years from the Closing Date, (ii) the date
when the Company's Federal income Tax obligations for periods prior to October
4, 1997 are either a liquidated amount or finally resolved, or (iii) the date
when claims by third parties against the Company or Buyer that would result in a
claim by Buyer for Damages under Section 10.2 ("Third Party Claims") commenced
within three years from the Closing Date are either a liquidated amount or
finally resolved, Buyer shall remit to Seller the then remaining balance of the
Holdback less an amount equal to the sum (the "Liquidated Amounts") of the
liquidated Federal income Tax obligation under (i), if any, plus the liquidated
claims under (ii), if any; provided, however, that the Liquidated Amounts shall
be remitted by Buyer to Seller as such obligations or claims are resolved and,
if payment is necessary, paid by Seller without resulting in a claim by Buyer
for Damages under Section 10.2; provided, further, that (a) if Seller enters
into a Joint Venture with Associated Grocers ("AG") or otherwise and the Joint
Venture agrees to honor the terms and conditions of the Service Agreement or (b)
it is determined that no Joint Venture will occur between Seller and AG and no
other Joint Venture is agreed upon between Seller and a third party during
calendar year 1998, then (i) the sum of $2,000,000 of the Holdback will be paid
promptly to Seller after the closing of the AG or any other Joint Venture agreed
upon by Seller and the representation contained in Section 3.24 shall be deemed
to be satisfied, or (ii) the sum of $2,000,000 of the Holdback will be paid to
Seller on or before January 5, 1999 if no Joint Venture is agreed upon by
December 31, 1998. If the Joint Venture does not take place and $2,000,000 of
the Holdback is released to Seller, then if, during the remainder of the
three-year survival period for the representations and warranties, the Service
Agreement is not honored or is violated by Seller or by a new Joint Venture,
such violation shall constitute a breach of the representation contained in
Section 3.24. Buyer shall pay interest on any payment to Seller from the
Holdback at the rate of 6 1/2% per year compounded monthly from the Closing Date
through the date of any such payment.
2.5.2 With respect to any Third Party Claims, Seller shall
have the right to assume the defense of the Proceedings relating to a Third
Party Claim in accordance with the provisions of Section 10.7.2.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 ORGANIZATION
3.1.1 Paragraph 3.1 of the Disclosure Letter contains a
complete and accurate list for each Acquired Company of its name and the
jurisdictions in which it is authorized to do business or transact insurance.
GIC is a stock insurance corporation and each other Acquired Company is a
corporation duly organized and validly existing under the laws of Oregon, with
full corporate power and authority to conduct its business as it is now being
conducted. Each Acquired Company is duly qualified or licensed and in good
standing or validly existing, as the case may be, under the laws of each state
or other jurisdiction in which the nature of the activities conducted by it
requires such qualification, except in such jurisdictions where the
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failure to be so qualified or licensed will not have a material adverse effect
on the business, operations or financial condition of the Acquired Company.
3.1.2 Seller has delivered to Buyer copies of the
Organizational Documents of each Acquired Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
3.2.1 This Agreement constitutes the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms. Seller has the right, power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
3.2.2 Except as set forth in Paragraph 3.2 of the
Disclosure Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of
any provision of the Organizational Documents of
Seller or any of the Acquired Companies;
(b) contravene, conflict with or result in a violation of
any Legal Requirement or any Order to which Seller or
any Acquired Company, or any of the assets owned or
used by any Acquired Company, may be subject, or
result in the imposition of any lien, claim or charge
against any Acquired Company or its property;
(c) contravene, conflict with or result in a violation of
any of the terms or requirements of any Governmental
Authorization that is held by any Acquired Company or
that otherwise relates to the business of, or any of
the assets owned or used by, any Acquired Company; or
(d) contravene, conflict with or result in a violation or
breach of any provision of, or give any Person the
right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance
of, or to cancel, terminate or modify, any Applicable
Contract.
Except as contemplated by Section 5.4 or as set forth in Paragraph 3.2
of the Disclosure Letter, neither Seller nor any Acquired Company is or will be
required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions; provided that Seller and
GIC will use all commercially reasonable efforts to obtain, prior to Closing,
waivers of any provisions in agency contracts permitting their cancellation in
the event of a change of control of any Acquired Company.
3.3 CAPITALIZATION
The authorized capital stock of the Company consists of 1,000 shares of
common stock, no par value, all of which shares are issued and outstanding and
constitute the Shares. There are
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no other equity securities of the Company. Except as set forth in Paragraph 3.3
of the Disclosure Letter, (a) Seller will be on the Closing Date the record and
beneficial owner and holder of the Shares, free and clear of all Encumbrances
and (b) on the Closing Date all of the outstanding capital stock and other
securities of GIA, GIC and GRS will be owned of record and beneficially by one
of the other Acquired Companies, free and clear of all Encumbrances. All of the
outstanding capital stock or equity securities of each Acquired Company have
been duly authorized and validly issued and are fully paid and nonassessable.
There are no Contracts relating to the issuance, redemption, sale or transfer of
any capital stock or other equity securities of any Acquired Company. Except as
set forth in Paragraph 3.3 of the Disclosure Letter, no Acquired Company owns,
or has any Contract to acquire, any capital stock or other equity securities of
any Person (other than Acquired Companies) or any direct or indirect equity or
ownership interest in any other business.
3.4 FINANCIAL STATEMENTS
3.4.1 GAAP Financial Statements. Seller has previously
delivered to Buyer: (a) audited balance sheets of GIC as at approximately
September 30 in each of the years 1992 through 1996, and the related statements
of income, changes in stockholders' equity and cash flows for each of the fiscal
years then ended, together with the report thereon of DeLap, White & Raish,
independent certified public accountants, (b) unaudited balance sheets of the
Company, GIA and GRS as at approximately September 30 in each of the years 1992
through 1996 and the related unaudited statements of income, changes in
stockholders equity and cash flows for each of the fiscal years then ended, (c)
audited balance sheet of GIC as at September 30, 1997 (including notes, the
"Balance Sheet"), and the related statements of income, changes in stockholders'
equity and cash flows for the fiscal year then ended, together with the report
thereon of Coopers & Lybrand, independent certified public accountants, (d)
unaudited consolidating statements of the Company as at September 30, 1997 and
(e) unaudited balance sheets of the Acquired Companies as at December 31, 1997
("Interim Balance Sheet") and the related unaudited statement of income for the
three months then ended. Seller shall also deliver to Buyer by the 30th day of
each month beginning April 30, 1998, (i) unaudited balance sheets of GIG, GIA
and GRS and the related unaudited statement of income for the previous month,
and (ii) unaudited premium and loss information and estimates of general
expenses, reinsurance costs, investment income and IBNR of GIC. Except as set
forth in Paragraph 3.4.1 of the Disclosure Letter, such financial statements and
notes are, or will be when delivered, true and correct in all material respects
and fairly present the financial condition and the results of operations,
changes in stockholders' equity and cash flows of the Acquired Companies as at
the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject, in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not be, individually or in the aggregate, materially adverse) and the
absence of notes (that, if presented, would not differ materially from those
included in the Balance Sheet).
3.4.2 Statutory Financial Statements. Seller has previously
delivered to Buyer the audited statutory annual statements of GIC for the years
1992 through 1997 (collectively, the "Statutory Statements"). The Statutory
Statements fairly present the statutory financial condition of GIC at December
31 of each of the years 1992 through 1997, and the statutory results of its
operations for each of the six years then ended and have been prepared in
accordance with
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required or permitted Oregon statutory insurance accounting requirements and
practices. Except as set forth in Paragraph 3.4.2 of the Disclosure Letter, GIC
has not received any notification or indication from DCBS that it regards any of
such Statutory Statements as deficient or inadequate.
3.5 BOOKS AND RECORDS
The minute books, stock record books and other records of the Acquired
Companies have been made available to Buyer. The minute books of the Acquired
Companies contain accurate and complete records of corporate action taken by the
stockholders, the Boards of Directors and committees of the Boards of Directors
of the Acquired Companies. The stock record books of the Acquired Companies are
true and complete. At the Closing, all of those books and records will be in the
possession of the Acquired Companies.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Paragraph 3.6 of the Disclosure Letter contains a complete and accurate
list of all real property ever owned by, leaseholds owned by, lease agreements
with tenants of buildings owned by, and fixed assets owned or leased by, any
Acquired Company. No real property other than that set forth in Paragraph 3.6 of
the Disclosure Letter has ever been owned by an Acquired Company. The Acquired
Companies own (with good and marketable title in the case of real property,
subject only to the matters permitted by the following sentence) all the
properties and assets (whether real, personal or mixed and whether tangible or
intangible) that they purport to own, including all of the properties and assets
reflected in the Balance Sheet and the Interim Balance Sheet (except for assets
held under capitalized leases disclosed in Paragraph 3.6 of the Disclosure
Letter and personal property acquired or sold since the date of the Balance
Sheet and the Interim Balance Sheet, as the case may be, in the Ordinary Course
of Business). All material properties and assets reflected in the Balance Sheet
and the Interim Balance Sheet are free and clear of all Encumbrances except,
with respect to all such properties and assets, (a) mortgages or security
interests shown on the Balance Sheet or the Interim Balance Sheet as securing
specified liabilities or obligations, with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists
and (b) liens for current Taxes not yet due.
3.7 NO UNDISCLOSED LIABILITIES
Except as set forth in Paragraph 3.7 of the Disclosure Letter, the
Acquired Companies have no material liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent or
otherwise) except for liabilities or obligations identified or reserved against
in the Balance Sheet or the Interim Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates of the
Balance Sheet or Interim Balance Sheet.
3.8 TAXES
Except as set forth in Paragraph 3.8 of the Disclosure Letter, Seller
has prepared and filed or caused to be filed true, correct and complete
consolidated Federal income Tax Returns with respect to Seller and the Acquired
Companies that are due as of the Closing Date, taking into account extensions of
time to file as permitted by law. The Acquired Companies have filed or caused to
be filed, taking into account extensions of time to file as permitted by law,
all other
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Tax Returns that are or were required to be filed by or with respect to any of
them. Seller has delivered to Buyer the Federal and state income Tax Returns
filed for Tax Years 1994-1996. Seller and the Acquired Companies have paid, or
made provision for the payment of, all Taxes that have or may have become due
with respect to the Acquired Companies, except such Taxes, if any, as are listed
in Paragraph 3.8 of the Disclosure Letter and are being contested in good faith
and as to which adequate reserves have been provided in the Balance Sheet and
the Interim Balance Sheet. The consolidated Federal income Tax Returns of Seller
have been audited by the IRS for the 1991 Tax year, and Seller has received
notice from the IRS that the 1994-1996 Tax years will be audited. Except as set
forth in the Disclosure Letter, Seller and GIC are not parties to any Tax
allocation or sharing agreement, or agreements extending any applicable statutes
of limitations.
3.9 NO MATERIAL ADVERSE CHANGE
Except as set forth in Paragraph 3.9 of the Disclosure Letter, since
the date of the Balance Sheet, there has not been any material adverse change in
the business, operations, properties, assets, condition or prospects of the
Acquired Companies individually or as a whole.
3.10 EMPLOYEE COMPENSATION AND BENEFIT PLANS
Paragraph 3.10 of the Disclosure Letter sets forth a list of all
pension, retirement, profit sharing, severance pay, stock option, stock
purchase, bonus, deferred compensation, and fringe benefit plans and all
employee benefit plans (as defined in Section 3(3) of ERISA), including all
welfare plans and pension plans (as defined in Section 3(1) and 3(2),
respectively, of ERISA) sponsored, maintained or contributed to by any of the
Acquired Companies or by any trade or business, whether or not incorporated,
that together with the Acquired Companies would be deemed a single employer
within the meaning of Section 4001 of ERISA ("ERISA Affiliate"). Each employee
benefit plan and any related trust agreements, annuity contracts, insurance
contracts or other funding instruments are in compliance with the requirements
of ERISA and the IRC and all other applicable laws, rules and regulations, as to
the form, operation and administration of such plans. All related Tax Returns,
reports, notices and applications required by any Governmental Body have been
timely filed. All contributions required to be made on or before the date of
this Agreement to each employee benefit plan under the terms of such plan,
ERISA, the IRC or other applicable law have been timely made, no pension plan
has incurred an "accumulated funding deficiency," as such term is defined in
Section 302 of ERISA or Section 412 of the IRC (whether or not waived), nor have
there been any "reportable events," as such term is defined in Section 4043 of
ERISA with respect to any pension plans subject to Title IV of ERISA which
required notice to the Pension Benefit Guaranty Corporation. No fiduciary of any
such employee benefit plan has engaged in any transaction in violation of ERISA
or any "prohibited transaction." No Acquired Company or ERISA Affiliate is or
has been within the past five years a party to, or obligated to contribute to, a
multiemployer plan within the meaning of Section (3)(37)(A) of ERISA. As of the
Closing Date, the fair market value of assets held by each employee benefit
pension plan, defined contribution plan and defined benefit plan or for which an
Acquired Company or any ERISA Affiliate could have liability under Title IV of
ERISA equals or exceeds the present value of accrued benefits (whether vested or
unvested) under each such plan. No employee benefit plan is under audit by the
IRS or the Department of Labor. With respect to the employees providing services
to the Acquired Companies, the
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Acquired Companies have complied in all material respects with all the
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
Sections 601 through 608 of ERISA and Sections 162 and 4980B of the IRC.
With respect to each defined benefit plan (both qualified and
non-qualified) and 401(k) plan, Seller: (i) acknowledges that Buyer assumes no
assets or liabilities of such plan for active, terminated employees with a
vested interest or retirees; and (ii) Seller shall fully vest active employees
in their accrued benefits to the extent required by law. With respect to health
and welfare plans, Seller acknowledges that Buyer assumes no liability for (i)
incurred or incurred but not reported claims by current or former employees,
plan participants or vendors for payment or benefits arising under any such
plan, or (ii) actions resulting from claims of denial of payments or benefits
under any such plan.
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS
Except as set forth in Paragraph 3.11 of the Disclosure Letter, the
Acquired Companies have complied at all times with all Legal Requirements
relating to the conduct of their respective businesses, except for any instances
of noncompliance that would not have a material adverse effect on the business,
financial condition or results of operations or prospects of the Acquired
Companies individually or as a whole.
3.12 LEGAL PROCEEDINGS
Except as set forth in Paragraph 3.12 of the Disclosure Letter and
except for Proceedings relating to claims under any policy of insurance issued
by or through an Acquired Company, there is no pending Proceeding that has been
commenced by or against any Acquired Company or that otherwise relates to or may
affect the business of, or any of the assets owned or used by, any Acquired
Company. Except as set forth in Paragraph 3.12 of the Disclosure Letter, no such
Proceeding has been Threatened and, to the Knowledge of Seller and the Acquired
Companies, no circumstance exists that may give rise to or serve as a basis for
the commencement of any such Proceeding. Seller has delivered to Buyer copies of
all pleadings, correspondence and other documents relating to each Proceeding
listed in Paragraph 3.12 of the Disclosure Letter.
3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Paragraph 3.13 of the Disclosure Letter and
except for the increase in reserves for losses and loss expense adjustment in
the amount of $2,500,000 to be effected before the Closing Date, since the date
of the Balance Sheet, the Acquired Companies have conducted their businesses
only in the Ordinary Course of Business and there has not been any:
(a) purchase, redemption, retirement, or other acquisition by any
Acquired Company of any shares of its capital stock; or
declaration or payment of any dividend or other distribution
or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired
Company;
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(c) except in the Ordinary Course of Business, payment or
increase by any Acquired Company of any bonuses, salaries or
other compensation to any director, officer or employee or
entry into any employment, severance or similar Contract with
any director, officer or employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement or other employee
benefit plan for or with any employees of any Acquired
Company;
(e) damage to or destruction or loss of any tangible property of
any Acquired Company, whether or not covered by insurance,
materially and adversely affecting the properties, business,
financial condition or prospects of the Acquired Companies
individually or as a whole;
(f) sale, lease or other disposition of any material asset or
property of any Acquired Company or mortgage, pledge or
imposition of any lien or other encumbrance on any material
asset or property of any Acquired Company;
(g) change in the accounting methods or practices used by any
Acquired Company; or
(h) transaction by any of the Acquired Companies except in the
Ordinary Course of Business as conducted during 1997;
(i) capital expenditure by any of the Acquired Companies, either
individually or in the aggregate, exceeding $50,000;
(j) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action involving any of the
Acquired Companies;
(k) revaluation by any of the Acquired Companies of any of its
assets other than normal depreciation;
(l) amendment or termination by any of the Acquired Companies, or
receipt of notice of termination, of any Contract, except any
such amendment or termination that would not have a material
adverse effect;
(m) loan by any of the Acquired Companies to any person or
entity, or guaranty by any of the Acquired Companies of any
such loan except in the Ordinary Course of Business;
(n) waiver or release of any material right or claim of any of
the Acquired Companies, including any write-off or other
compromise of any account receivable of such Acquired Company
except for the settlement, waiver or release of rights or
claims under any of the insurance policies issued by an
Acquired Company or reinsurance agreements in the ordinary
course of business, consistent with past practices, and not
in excess of policy limits;
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(o) the commencement or notice or, to the Knowledge of Seller,
threat of commencement of any governmental proceeding against
or investigation of Seller or any of the Acquired Companies
or its affairs;
(p) issuance or sale by any of the Acquired Companies of any of
its shares or of any other of its securities;
(q) policy form or rate filings by any of the Acquired Companies
except in the Ordinary Course of Business;
(r) cancellation, appointment or termination by any of the
Acquired Companies of (i) any agent except in the Ordinary
Course of Business or (ii) any line of business;
(s) borrowing, assumption, guarantee, or other liability of any
of the Acquired Companies for debt; or
(t) agreement, whether oral or written, by any Acquired Company
to do any of the foregoing.
3.14 CONTRACTS; NO DEFAULTS
3.14.1 Paragraph 3.14.1 of the Disclosure Letter contains a
complete and accurate list as of the date of this Agreement, and Seller has
delivered or made available to Buyer true and complete copies, of:
(a) each Applicable Contract that involves performance
of services by one or more Acquired Companies;
(b) each Applicable Contract that involves performance
of services or delivery of goods or materials to one
or more Acquired Companies;
(c) each Applicable Contract affecting the ownership of,
leasing of, title to, use of or any leasehold or
other interest in, any real or personal property;
and
(d) each licensing agreement or other Applicable
Contract with respect to trademarks, copyrights,
software or other intellectual property.
3.14.2 Except as set forth in Paragraph 3.14.2 of the
Disclosure Letter, neither any Acquired Company nor any officer, director or
employee of any Acquired Company is bound by any Contract that purports to limit
the ability of any such Acquired Company or officer, director or employee, to
engage in or continue any conduct, activity or practice relating to the business
of any Acquired Company.
3.14.3 Except as set forth in Paragraph 3.14.3 of the
Disclosure Letter:
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(a) each Applicable Contract is in full force and effect,
and is valid, binding and enforceable in accordance
with its terms in all material respects, subject to
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of
creditors generally and subject to general equity
principles and to limitations on availability of
equitable relief, including specific performance;
(b) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may
contravene, conflict with, or result in a material
violation or breach of, or give any Acquired Company
or other Person the right to declare a default or
exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate
or modify, any Applicable Contract; and
(c) no Acquired Company has given to or received from any
other Person, any notice or other communication
regarding any actual or alleged violation or breach
of, or default under, any Applicable Contract.
3.15 INSURANCE
3.15.1 Seller has delivered to Buyer true and complete
copies of all policies of insurance currently maintained by any Acquired Company
for the benefit of any Acquired Company (other than policies of insurance issued
by or through an Acquired Company) or any director or officer of any Acquired
Company, and all premiums due on such policies have been timely paid.
3.15.2 Except as set forth in Paragraph 3.15.2 of the
Disclosure Letter, neither Seller nor any Acquired Company has received with
respect to the policies described in Section 3.15.1, (i) any refusal of coverage
or any notice that a defense will be afforded with reservation of rights, or
(ii) any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that the
issuer of any policy is not willing or able to perform its obligations
thereunder.
3.16 ENVIRONMENTAL MATTERS
Except as set forth in Paragraph 3.16 of the Disclosure Letter:
(a) Each Acquired Company is in material compliance with, and is
not in material violation of or liable under, any
Environmental Law with respect to the Facilities.
(b) There are no pending or Threatened claims resulting from any
Environmental Liabilities or arising under or pursuant to any
Environmental Law with respect to the Facilities or any other
real property ever owned by any of the Acquired Companies.
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(c) Seller has no Knowledge of any conditions that would give rise
to any Environmental Liability for any of the Acquired
Companies with respect to the Facilities. There are no
Hazardous Materials (other than incidental office supplies)
present on or at the Facilities, including any Hazardous
Materials contained in underground storage tanks. There are no
underground storage tanks on or under the Facilities.
(d) Seller has delivered to Buyer true and complete copies and
results of any reports with respect to Seller or any Acquired
Company pertaining to Hazardous Materials in, on or under the
Facilities.
3.17 EMPLOYEES
3.17.1 Seller has previously provided Buyer with a complete
and accurate list of the following information for each employee providing
services to an Acquired Company: employer; name; job title; current compensation
paid or payable; date of hire; date of birth; and social security number.
3.17.2 No employee of any Acquired Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition or proprietary rights agreement, between such
employee and any other Person that in any way adversely affects or will
adversely affect the performance of duties as an employee of the Acquired
Companies. Except as set forth in the Disclosure Letter, the consummation of the
Contemplated Transactions will not result in any payment (whether of severance
pay or otherwise) becoming due from any Acquired Company to any officer,
employee, former employee or director, or any benefit becoming payable or
vested.
3.18 LABOR RELATIONS; OSHA
Since October 4, 1986, no Acquired Company has been or is a party to
any collective bargaining or other labor Contract. Except as set forth in
Paragraph 3.18 of the Disclosure Letter, each of the Acquired Companies is in
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment and wages and hours and occupational safety and health
and employment practices, and is not engaged in any unfair labor practice.
3.19 MARKS; PROPRIETARY RIGHTS
3.19.1 Paragraph 3.19.1 of the Disclosure Letter contains a
complete and accurate list and summary description of all Marks and any other
copyrighted, patented or proprietary intellectual property in which any of the
Acquired Companies has an interest. One or more of the Acquired Companies is the
owner of all right, title and interest in and to each of the Marks and such
other intellectual property, free and clear of all liens, security interests,
charges, encumbrances, equities and other adverse claims.
3.19.2 All Marks that have been registered with the United
States Patent and Trademark Office are currently in compliance with all formal
Legal Requirements (including the
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timely post-registration filing of affidavits of use and incontestability and
renewal applications) and are valid and enforceable.
3.19.3 No Mark has been or is now involved in any
opposition, invalidation or cancellation and no such action is Threatened with
respect to any of the Marks.
3.20 REGULATORY SUBMISSIONS
Seller previously has furnished or made available to Buyer true and
complete copies for the following filings and submissions (excluding the
Statutory Statements, the "Submissions") of GIC to each State Insurance
Department made during the time period from 1992-1997: triennial examinations,
market conduct examinations, in force and pending rate filings and holding
company registration statement Forms B and C (with the exception of Amendment
No. 16 to Form B dated on or about April, 1992). All of the Submissions were
accurate and complete and were in material compliance with applicable laws and
regulations when filed, and no deficiencies have been asserted by any State
Insurance Department with respect to any Submission except as provided therein.
No holding company registration statement Form D was filed during the time
period from 1992-1997.
3.21 LICENSES
Paragraph 3.21 of the Disclosure Letter sets forth all licenses,
permits or authority (collectively, the "Licenses") issued to any of the
Acquired Companies by any state insurance department or other insurance
regulatory body or agency (collectively, a "State Insurance Department"). The
Licenses set forth in Paragraph 3.21 of the Disclosure Letter constitute each
license, permit or authority that it is necessary or appropriate for each of the
Acquired Companies to obtain from a State Insurance Department with respect to
the transaction of its business. All of the Licenses are currently in effect.
None of the Licenses has at any time been suspended, revoked, terminated,
limited or expired. No notice of any violation has been received at any time by
any of the Acquired Companies with respect to any License, and there is no
Proceeding, whether pending or Threatened, that could result in the suspension,
revocation, termination or limitation of any License.
3.22 EMPLOYEE LICENSES
Paragraph 3.22 of the Disclosure Letter sets forth all licenses,
permits or authority (the "Employee Licenses") issued to any employee of an
Acquired Company by a State Insurance Department. All of the Employee Licenses
are currently in effect and constitute each license, permit or authority that it
is necessary or appropriate for the employees of an Acquired Company to obtain
from a State Insurance Department with respect to the performance of their
respective job responsibilities.
3.23 APPOINTMENTS
The insurance companies that have appointed GIA and its employees as
agents are set forth in Paragraph 3.23 of the Disclosure Letter. All of the
appointments (the "Appointments") set forth in Paragraph 3.23 of the Disclosure
Letter are currently in effect, and GIA has not received any notice that an
Appointment has been terminated or limited in any manner.
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3.24 SERVICE AGREEMENT
The Service Agreement is in full force and effect and will continue in
full force and effect during the three years after the Closing Date, including
following any Joint Venture to which Seller is a party.
3.25 CONDITION AND SUFFICIENCY OF ASSETS
The Facilities, building operating systems and equipment of the
Acquired Companies are structurally sound, are in good operating condition and
repair, and are adequate for the uses to which they are being put, and none of
such Facilities, building operating systems or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs that
are not material in nature or cost. The Facilities, building operating systems
and equipment of the Acquired Companies are sufficient for the continued conduct
of the Acquired Companies' businesses after the Closing in substantially the
same manner as conducted prior to the Closing.
3.26 EMPLOYMENT AND AGENCY CONTRACTS
Seller previously has provided Buyer with lists of all employees of the
Acquired Companies who are: (i) actively employed but absent due to illness,
injury, maternity leave, military service, family or medical leave, short-term
disability or long-term disability (in each case specifying the reason for such
absence); (ii) former employees who are receiving long-term disability benefits
under any Disability Plan, (iii) former employees who are subject to COBRA; and
(iv) former employees who have previously satisfied the requirements for
retiree, medical, life insurance and/or other benefit coverage under any
Employee Plan (in each case specifying the nature of coverage provided to each
such former employee).
3.27 RESERVES
All statutory reserves reflected in the Statutory Statements for the
year ended December 31, 1997, were determined in accordance with SAP and
generally accepted actuarial assumptions and meet the requirements of the
insurance laws of each applicable jurisdiction, except where the failure to meet
such requirements would not have a material adverse effect on the business,
operations or prospects of any of the Acquired Companies. Buyer acknowledges
that the adjustment to reserves referred to in Section 3.13 shall not result in
any additional Tax cost or liability to Seller or any breach of any
representation or warranty by Seller under Sections 3, 10 or 11 or otherwise.
3.28 PORTFOLIO INVESTMENTS
Seller has previously delivered to Buyer true and complete lists as of
December 31, 1997, of all assets held in the investment portfolios of GIC. None
of the other Acquired Companies has an investment portfolio.
3.29 OFFICERS AND DIRECTORS
Paragraph 3.29 of the Disclosure Letter contains a complete and
accurate list of all officers and directors of each of the Acquired Companies.
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3.30 BROKERS
All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by Seller directly with Buyer without
the intervention of any person on behalf of Seller in such manner as to give
rise to any claim by any person against Buyer, Seller or any of the Acquired
Companies for a finder's fee, brokerage commission or similar payment; provided,
however, Blanch Capital Markets, Inc. has been retained by Seller with respect
to specific services for which a fee for service was paid.
3.31 REPRESENTATIONS COMPLETE
None of the representations or warranties made by Seller, nor any
statement made in any Schedule, Exhibit or certificate furnished by Seller or
any of the Acquired Companies pursuant to this Agreement, contains or will
contain any untrue statement of a material fact at the Closing Date, or omits or
will omit at the Closing Date to state any material fact necessary in order to
make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized and validly existing under the
laws of the State of Delaware, with full corporate power and authority to
conduct its business as it is now being conducted.
4.2 AUTHORITY; NO CONFLICT
4.2.1 This Agreement constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms. Buyer has the right, power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
4.2.2 Except as set forth in Schedule 4.2, neither the
execution and delivery of this Agreement by Buyer nor the consummation or
performance of any of the Contemplated Transactions by Buyer will give any
Person the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:
(a) any provision of Buyer's Organizational Documents;
(b) any resolution adopted by the board of directors of
Buyer;
(c) any Legal Requirement or Order to which Buyer may be
subject; or
(d) any Contract to which Buyer is a party or by which
Buyer may be bound.
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The consent of the shareholders of Buyer is not required in connection
with the execution and delivery of this Agreement or the consummation of
performance of any of the Contemplated Transactions. Except as contemplated by
Section 6.1 or as set forth in Schedule 4.2, Buyer is not and will not be
required to obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view
to their distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer
and that challenges, or may have the effect of preventing, delaying, making
illegal or otherwise interfering with, any of the Contemplated Transactions, and
no such Proceeding has been Threatened.
4.5 REPRESENTATIONS COMPLETE
None of the representations or warranties made by Buyer, nor any
statement made in any Exhibit or certificate furnished by Buyer pursuant to this
Agreement, contains or will contain any untrue statement of a material fact at
the Closing Date, or omits or will omit at the Closing Date to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
5. COVENANTS OF SELLER
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date and subject to
the Confidentiality Agreement, Seller will, and will cause each Acquired Company
and its Representatives to, (a) afford Buyer and its representatives full and
free access to each Acquired Company's personnel, properties, contracts, books
and records and other documents and data and (b) furnish Buyer and its
representatives with such additional financial, operating and other data and
information as Buyer may reasonably request. Buyer agrees that neither Seller,
the Acquired Companies nor any of their Representatives shall have any liability
to Buyer or to any of its Representatives relating to or resulting from the use
of the materials reviewed by Buyer pursuant to this section, except pursuant to
the express terms of this Agreement.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
5.2.1 Between the date of this Agreement and the Closing
Date, Seller will, and will cause each Acquired Company to:
(a) conduct the business of such Acquired Company only
in the Ordinary Course of Business; and
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(b) use their Best Efforts to preserve intact the current
business organization of such Acquired Company, to
keep available the services of the current officers,
employees and agents of such Acquired Company and to
maintain the relations and goodwill with suppliers,
policyholders, customers, employees, agents and
others having business relationships with such
Acquired Company.
5.2.2 On or before the Closing Date, Seller will take such
steps as necessary to cause the intercompany account balances between Seller and
the Acquired Companies to be brought current such that all amounts with respect
to periods more than 30 days before the Closing Date will be paid in full.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing Date, Seller will not, and will cause
each Acquired Company not to, without the prior written consent of Buyer, take
any affirmative action, or fail to take any reasonable action within its
control, as a result of which any of the changes or events listed in Section
3.13 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Seller
will, and will cause each Acquired Company to, make all filings required by
Legal Requirements to be made by them in order to consummate the Contemplated
Transactions (including all Regulatory Filings and, at the expense of Buyer, all
filings under the HSR Act). Between the date of this Agreement and the Closing
Date, Seller will, and will cause each Acquired Company to, (a) cooperate with
Buyer with respect to all filings that Buyer elects to make or is required by
Legal Requirements to make in connection with the Contemplated Transactions
(including all filings under the Oregon Insurance Code and other Regulatory
Filings), and (b) cooperate with Buyer in obtaining all consents identified in
Schedule 4.2 (including taking all actions requested by Buyer to cause early
termination of any applicable waiting period under the HSR Act).
5.5 DISCLOSURE LETTER SUPPLEMENTS
From time to time prior to the Closing, and in any event immediately
prior to the Closing, Seller will promptly supplement the Disclosure Letter with
respect to any matter arising which, if existing, occurring or known at the date
of this Agreement, would have been required to be set forth or described in the
Disclosure Letter or which is necessary to correct any information which has
become inaccurate, provided that delivery of such supplement will not be deemed
an amendment of this Agreement unless prior to or on the Closing Date, Buyer
acknowledges in writing Buyer's acceptance of any supplement to the Disclosure
Letter. No supplement to the Disclosure Letter shall have any effect for the
purpose of determining satisfaction of any of the conditions set forth in
Sections 7 and 8 unless Buyer accepts any such supplement to the Disclosure
Letter in writing prior to or on the Closing Date.
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5.6 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Seller will
use its Best Efforts to cause the conditions in Sections 7 and 8 to be
satisfied.
5.7 ZONING CHANGE
Seller will use its Best Efforts to cause the zoning designation of the
Facility located at 6605 SE Lake Road, Milwaukie, Oregon (the "GIG Office
Building") to be redesignated as "office-commercial" from its current
designation of "I-3 (General Industrial)". In the event such zoning
redesignation is not achieved on or before the first anniversary of the date of
this Agreement, or within 10 business days following any earlier date upon which
a final determination denying a zoning redesignation is made, Seller shall
purchase the GIG Office Building from the Company for a purchase price of
$5,100,000 and pursuant to a form of purchase agreement to be mutually agreed
upon by Seller and Buyer prior to the Closing Date.
5.8 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Section 9, Seller will not, and will cause each Acquired Company and each of
their Representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of any Acquired Company, or any of the capital
stock of any Acquired Company, or any merger, consolidation, business
combination, or similar transaction involving any Acquired Company.
6. COVENANTS OF BUYER
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will
make all filings required by Legal Requirements to be made by Buyer to
consummate the Contemplated Transactions (including all filings under the Oregon
Insurance Code and the HSR Act and all other Regulatory Filings). Between the
date of this Agreement and the Closing Date, Buyer will cooperate with Seller
with respect to all filings that Seller is required by Legal Requirements to
make in connection with the Contemplated Transactions (including all Regulatory
Filings) and (ii) cooperate with Seller in obtaining all consents identified in
Paragraph 3.2 of the Disclosure Letter.
6.2 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
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6.3 EMPLOYEE SERVICE CREDIT
On the Closing Date, the employees of the Acquired Companies will be
credited with all years of service with the applicable Acquired Company for
purposes of crediting years of service with respect to the employee benefit
plans of Buyer applicable or available to such employees.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
Each of Seller's representations and warranties in this Agreement (a)
must have been accurate in all respects as of the date of this Agreement and
must be accurate in all respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure Letter
that is not approved by Buyer in accordance with this Agreement or (b) if not
accurate in all respects as provided in Section 7.1(a), must be capable of being
corrected and shall be corrected within 60 days after the Closing without
unreasonable effort or expense to Seller.
7.2 SELLER'S PERFORMANCE
All of the covenants and obligations that Seller is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing must
have been duly performed and complied with in all material respects.
7.3 CONSENTS
Each of the Consents identified in subparts 1 - 6 of Paragraph 3.2 of
the Disclosure Letter and in Schedule 4.2 must have been obtained and must be in
full force and effect.
7.4 ADDITIONAL DOCUMENTS
(a) an opinion of Miller Nash Wiener Hager & Carlsen LLP, dated
the Closing Date, in the form of Exhibit 7.4(a); and
(b) such other documents as Buyer may reasonable request.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller in whole or in part):
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8.1 ACCURACY OF REPRESENTATIONS
Each of Buyer's representations and warranties in this Agreement must
have been accurate in all respects as of the date of this Agreement and must be
accurate in all respects as of the Closing Date as if made on the Closing Date.
8.2 BUYER'S PERFORMANCE
All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing must
have been performed and complied with in all material respects.
8.3 CONSENTS
Each of the Consents identified in subparts 1 - 6 of Paragraph 3.2 of
the Disclosure Letter and in Schedule 4.2 must have been obtained and must be in
full force and effect.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may be terminated (by notice given prior to the Closing
Date):
(a) by either Buyer or Seller if a material breach of any
provision of this Agreement has been committed by the other
party and such breach has not been waived;
(b) (i) by Buyer if any of the conditions in Section 7 has not
been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through
the failure of Buyer to comply with its obligations under this
Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Seller, if any of the
conditions in Section 8 has not been satisfied as of the
Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Seller
to comply with its obligations under this Agreement) and
Seller has not waived such condition on or before the Closing
Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not occurred
(other than through the failure of any party seeking to
terminate this Agreement to comply fully with its obligations
under this Agreement) on or before November 16, 1998, or such
later date as the parties may agree upon.
9.2 ELECTION
If prior to the Closing, Buyer or Seller discovers that a
representation or warranty made by the other party in this Agreement is untrue
or incorrect in any material respect, the party for whose benefit the
representation or warranty has been given must elect (a) to waive the breach of
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representation or warranty and proceed with the Closing, (b) to terminate this
Agreement, or (c) if such breach is capable of being cured within 60 days
without unreasonable effort or expense to Seller, to require such breach to be
cured.
9.3 EFFECT OF TERMINATION
If this Agreement is terminated, all further obligations and
liabilities of the parties under this Agreement will terminate and this
Agreement will have no further force or effect, except that the obligations in
Sections 12.1 and 12.2 will survive.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants and obligations in this
Agreement, the Disclosure Letter, the supplements to the Disclosure Letter, the
certificate delivered pursuant to Section 2.4.1(c) and any other certificate or
document delivered pursuant to this
Agreement will survive the Closing. The right to indemnification,
payment of Damages or other remedy based on such representations, warranties,
covenants and obligations will not be affected by any investigation conducted at
any time, whether before or after the execution and delivery of this Agreement
or the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant or obligation.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
Seller will indemnify and hold harmless Buyer and the Acquired
Companies and their officers, directors, employees, agents and affiliates for
any loss, liability, claim, cause of action, damage (excluding consequential
damages), obligation or reasonable expense (including reasonable costs of
investigation and defense and reasonable attorneys' fees) (collectively,
"Damages"), arising, directly or indirectly, from or in connection with any
breach, falsity or inaccuracy (a) of any representation or warranty made by
Seller in this Agreement (giving effect to any supplement to the Disclosure
Letter accepted by Buyer pursuant to Section 5.5), the Disclosure Letter, the
supplements to the Disclosure Letter accepted by Buyer pursuant to Section 5.5
or any certificate delivered by Seller pursuant to this Agreement or (b) of any
covenant of Seller in this Agreement.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Seller and its officers,
directors, employees, agents and affiliates and will pay to Seller the amount of
any Damages (defined in Section 10.2) arising, directly or indirectly, from or
in connection with any breach, falsity or inaccuracy (a) of any representation
or warranty made by Buyer in this Agreement or in any certificate delivered by
Buyer pursuant to this Agreement or (b) of any covenant of Buyer in this
Agreement.
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10.4 TIME LIMITATIONS
If the Closing occurs, Seller will have no liability (for
indemnification or otherwise) with respect to any representation or warranty,
other than those in Section 3.3, or any covenant to be performed and complied
with prior to the Closing Date unless, within three years after the Closing
Date, or prior to the expiration date of the applicable statute of limitation
with respect to claims based on Section 3.8, Buyer notifies Seller of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Buyer. If the Closing occurs, Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or warranty or
any covenant to be performed and complied with prior to the Closing Date,
unless, within three years after the Closing Date, Seller notifies Buyer of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Seller.
10.5 LIMITATIONS ON AMOUNT--SELLER
Seller will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or, to the extent relating to any
failure to perform or comply prior to the Closing Date, clause (b) of Section
10.2 until the total of all Damages with respect to such matters exceeds $75,000
and then only for the amount by which such Damages exceed $75,000; provided that
the limitations in this section shall not apply to claims based on a breach of
Section 3.8.
10.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or, to the extent relating to any
failure to perform or comply prior to the Closing Date, clause (b) of Section
10.3 until the total of all Damages with respect to such matters exceeds $75,000
but then only for the amount by which such Damages exceeds $75,000.
10.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
10.7.1 Promptly after receipt by an indemnified party of
notice of the commencement of any Proceeding or of any Threatened Proceeding or
claim, or other notification thereof against it, such indemnified party will, if
a claim is to be made against an indemnifying party, give notice to the
indemnifying party of the commencement of such claim, but the failure to notify
the indemnifying party will not relieve the indemnifying party of any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is prejudiced by
the indemnified party's failure to give such notice.
10.7.2 The indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes to assume the
defense of such Proceeding with counsel reasonably satisfactory to the
indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If
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the indemnifying party assumes the defense of a Proceeding, the indemnified
party will have no liability with respect to any compromise or settlement of
such claims effected without its consent. If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying party does not,
within 20 business days after the indemnified party's notice is given, give
notice to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination made in
such Proceeding or any compromise or settlement effected by the indemnified
party.
10.7.3 Regardless of the other provisions of Section 10.7,
if an indemnified party determines in good faith that there is a reasonable
probability that a Proceeding may adversely affect it or its affiliates other
than as a result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party, by notice to the
indemnifying party, may assume the exclusive right to defend, compromise or
settle such Proceeding, but the indemnifying party will not be bound by any
determination of a Proceeding so defended or any compromise or settlement
effected without its consent (which may not be unreasonably withheld).
10.8 DUTY TO MITIGATE
Each party shall at all times use its Best Efforts to minimize the
Damages for which the other party may be liable pursuant to this Agreement (or
would be liable but for the provisions of Sections 10.5 or 10.6 above). With
respect to any matter for which any party may be liable pursuant to the
provisions of this Agreement, the other party shall diligently pursue
(including, without limitation, the commencement and pursuit of litigation) any
and all rights and remedies under agreements and contracts (including, without
limitation, insurance policies) with third parties pursuant to which the other
party has rights of recourse or is indemnified or the beneficiary of a guaranty.
10.9 EXCLUSIVE REMEDY
The parties acknowledge and agree that the remedies and procedures
provided in this Agreement for breach of any representations, warranties, or
covenants are exclusive of all other remedies which would otherwise be
available, at law or equity except for any claim arising from fraud or willful
misconduct.
10.10 LIMITATION ON INDEMNIFICATION OF SELLER
Regardless of the other provisions of this Section 10, the aggregate
liability of Seller for Damages relating to all breaches of the representations
and warranties and all breaches of covenants or agreements of Seller in this
Agreement shall be limited to Thirty-Six Million Two Hundred Fifty Thousand and
no/100 ($36,250,000).
11. TAX MATTERS
11.1 SECTION 338(H)(10) ELECTION
11.1.1 If requested by Buyer, Seller and Buyer shall join in
an election pursuant to Section 338(h)(10) of the Code and the regulations
promulgated thereunder, and to take all
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necessary and appropriate actions to effectuate the foregoing and to accurately
report to applicable Governmental Entities consistent therewith. In particular,
and not by way of limitation, in order to effect such election, Seller and Buyer
shall jointly execute necessary copies of Internal Revenue Service Form 8023 and
all attachments reasonably determined by the parties to be required to be filed
therewith pursuant to the Code within the required time period.
11.1.2 Buyer and Seller will cooperate with each other and
jointly allocate the Purchase Price and any post-closing adjustments thereto
among the assets of the Acquired Companies. Such allocation shall be made in
good faith and in accordance with Section 338(h)(10) of the Code. Seller and
Buyer shall be bound by the allocation determined in accordance with this
Section and shall prepare and file all Returns in accordance with Section 11.2
below. In the event Seller and Buyer cannot, despite good faith efforts, agree
on such allocation within one hundred twenty (120) calendar days after Closing,
the matter shall be referred to KPMG-Peat Marwick (the "Accountants"), certified
public accountants, within five (5) business days after the end of such one
hundred twenty day period. The fees and expenses of the Accountants shall be
paid one-half by Buyer and one-half by Seller. The Accountants shall determine
an appropriate allocation of the Purchase Price and any post-closing adjustment
thereto among the assets of the Acquired Companies pursuant to Section
338(h)(10) of the Code. Such determination shall be made prior to the due date
for filing Form 8023 with the IRS. Buyer and Seller shall use their best efforts
to cause the Accountants to render its determination as soon as practicable, and
each shall cooperate with such firm and provide such firm with reasonable access
to its books and records and such other information as such firm may require in
order to render its determination. Such determination shall be made by the
Accountants within thirty (30) calendar days, shall be set forth in a written
statement delivered to Buyer and Seller, and shall be final, binding and
conclusive.
11.1.3 Seller and Buyer covenant and agree to report this
transaction for all domestic Tax purposes, where permitted by the law of the
applicable taxing jurisdiction, in each and every respect in a fashion
consistent with the allocation determined pursuant to Sections 11.1.1 and
11.1.2. If the allocation is disputed by any taxing authority, the party
receiving notice of such dispute shall promptly notify and consult with the
other party. Seller and Buyer shall cooperate with each other in resolving such
dispute and shall not settle such dispute or make filings or other submissions
with such taxing authority without obtaining the other party's consent to the
terms of such filings, submissions or settlement, which consent shall not be
unreasonably withheld.
11.2 TAX RETURNS
11.2.1 Seller and Buyer shall (i) each provide the other,
and Buyer shall cause each of the Acquired Companies to provide Seller, with
such assistance as may reasonably be requested by any of them in connection with
the preparation of any Tax Return, or the conduct of any audit or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes; (ii) each retain and provide the other, and
Buyer shall cause each of the Acquired Companies to retain and provide Seller
with, any records or other information that may be relevant to such Tax Return,
audit or examination, proceeding or determination; and (iii) each provide the
other with any final determination of any such audit or examination, proceeding
or determination that affects any amount required to be shown on any Tax Return
of
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the other for any period. Without limiting the generality of the foregoing,
Buyer shall retain, and shall cause each of the Acquired Companies to retain,
and Seller shall retain, until the applicable statute of limitations (including
any extensions) have expired, copies of all Tax Returns, supporting work
schedules, and other records or information that may be relevant to such Tax
Returns for all Tax periods or portions thereof ending before or including the
Closing Date and shall not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable opportunity to review
and copy the same at the cost of such other party.
11.2.2 Seller is responsible for all Taxes for all periods
ending on or before October 3, 1997, and Buyer is responsible for all Taxes for
all periods commencing on or after October 4, 1997. Seller shall prepare all Tax
Returns with respect to the Acquired Companies for all periods ending on or
before October 3, 1997. Buyer shall prepare all Tax Returns with respect to the
Acquired Companies for all periods commencing after October 3, 1997. Any
refunds, credits or overpayments of Taxes in respect of Tax Returns with respect
to the Acquired Companies filed for all periods ending on or before October 3,
1997, shall be for the account of Seller and if received by Buyer will be
forwarded to Seller within ten (10) days of Buyer's receipt. Any refunds,
credits or overpayments of Taxes in respect of such Tax Returns filed for all
periods commencing after October 3, 1997 shall be for the account of the
Acquired Companies.
11.2.3 Buyer is responsible for preparing and filing all Tax
Returns with respect to the Acquired Companies for any Tax period that begins on
or before and ends after October 3, 1997 (a "Straddle Period") the due date of
which, with regard to extensions of time to file, is on or after the Closing
Date. Seller is responsible for preparing and filing all Tax Returns with
respect to the Acquired Companies for any Straddle Period Tax Return the due
date of which, with regard to extensions of time to file, is before the Closing
Date. Taxes of a Straddle Period that are based upon income or gross receipts
shall, if practicable, be allocated between Seller and the Acquired Companies on
the basis of income or gross receipts derived before and after October 3, 1997.
If such calculation is not practicable, any such Tax shall be allocated in
accordance with the following provision. Taxes not based upon income or gross
receipts shall be allocated between Seller and the Acquired Companies by
multiplying the Tax by a fraction, the numerator of which is the number of days
preceding or following October 3, 1997, as the case may be, and the denominator
of which is the number of days in the Tax period reflected in the Tax Return
which is the subject of this provision.
11.2.4 Each of Buyer and Seller shall deliver to the other,
no later than thirty (30) days (or, in the case of premium Tax Returns, five (5)
days) prior to the date on which the applicable Tax Return is required to be
filed (except for any Tax Return for which an extension has been granted as
permitted hereunder), such Tax Return for its review and filing. Each of Buyer
and Seller shall provide notice to the other within ten (10) business days (or
in the case of premium Tax Returns, two business days) after receipt thereof of
any dispute regarding such Tax Return and the parties shall cooperate in good
faith to resolve any such dispute. In the event of any dispute regarding any
item shown on any such Tax Return, neither Buyer nor Seller shall without the
other's consent (which shall not be unreasonably withheld) prepare such Tax
Return in a manner which is not reasonably satisfactory to the other.
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11.2.5 Seller shall take any necessary action to correct the
net operating loss carryovers reflected in its Tax Return for the year ended
October 3, 1997 as they may relate to the Acquired Companies and to make any
required correlative adjustments to Tax reserves of the Acquired Companies as of
October 3, 1997.
11.3 TAX SHARING AGREEMENTS; CODE SECTION 338(H)(10) ELECTIONS
11.3.1 All tax-sharing, tax-allocation, and tax-expense
allocation agreements or similar agreements (other than the Service Agreement)
with respect to or by and between Seller and any of the Acquired Companies shall
be terminated effective as of October 3, 1997, subject to Buyer's consent to the
terms of such termination, which consent shall not be unreasonably withheld. No
new elections with respect to Taxes or any changes in current elections with
respect to Taxes affecting any of the Acquired Companies shall be made after the
date of this Agreement without prior written consent of Buyer, which consent
shall not be unreasonably withheld. Seller shall not take any action, or cause
or permit any of the Acquired Companies to take any action, which could prohibit
the making of a valid Section 338(h)(10) election with respect to the
transaction contemplated herein.
11.3.2 Seller and Buyer intend that, for the period
beginning October 4, 1997 and ending on the Closing Date (the "Closing Taxable
Year"), the consolidated Federal income Tax ("CFIT") allocated to the Acquired
Companies shall be equal to the CFIT the Acquired Companies would have paid had
the Acquired Companies filed a separate consolidated Federal income Tax Return
for the Closing Taxable Year.
11.3.3 For purposes of this special allocation, the
affiliated group is divided into two subgroups and each subgroup is treated as a
separate affiliated group filing a separate consolidated Federal income Tax
Return. The "Acquired Companies Subgroup" consists of the Acquired Companies.
The "Seller's Subgroup" consists of all the members of the affiliated group
other than the Acquired Companies.
11.3.4 The CFIT is allocated between the Seller's Subgroup
and the Acquired Companies Subgroup in accordance with Treasury Regulation
sections 1.1552-1(a)(1) and 1.1502-33(d)(3).
11.3.5 In the event the Acquired Companies generate a net
operating loss that is not fully utilized in the consolidated Federal income Tax
Return that includes the Closing Taxable Year, to the extent that the net
operating loss may be carried forward by Seller's Subgroup to future taxable
years, an additional Tax benefit equal to 34 percent of the net operating loss
carryforward shall be allocated to the Acquired Companies Subgroup.
11.3.6 This method of Tax allocation does not replace or
modify the existing method of Tax allocation elected by Seller's affiliated
group for Federal income Tax purposes pursuant to Treasury Regulation section
1.1552-1(c).
11.3.7 Buyer shall provide to Seller within 60 days of
filing the consolidated Tax Return an Allocation Schedule calculating the
allocation of Tax liability or Tax benefit in accordance with the method
described above. Seller shall provide to Buyer within 60 days of filing the
consolidated Tax Return a calculation of any amounts due pursuant to Section
3.27. If,
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within 90 days following the filing of the consolidated Tax Return, neither
party has given notice of objection to such calculations (any such notice must
contain a statement of the basis of the objection), then the Tax liability or
Tax benefit for the Closing Taxable Year will be allocated to the Acquired
Companies Subgroup in accordance with the Allocation Schedule and the
calculation of any amounts due pursuant to Section 3.27 shall be regarded as the
final determination. If either party gives notice of objection to the
calculations and the parties cannot agree to a satisfactory resolution, then the
issues in dispute will be submitted to the Accountants for resolution. If the
issues in dispute are submitted to the Accountants for resolution, (a) each
party will furnish to the Accountants such work papers and other documents and
information relating to the disputed issues as the Accountants may request and
are available to that party or its Subsidiaries (or its independent public
accountants), and will be afforded the opportunity to present to the
Accountants; (b) the determination by the Accountants, as set forth in a written
notice delivered to both parties by the Accountants, will be binding and
conclusive on the parties; and (c) Buyer and Seller will each bear 50 percent of
the fees of the Accountants for such determination. On the tenth business day
following the final determination, the Tax liability shall be paid. All payments
will be made together with interest at 6-1/2 percent compounded monthly
beginning on the date of the filing of the fiscal year ending approximately
September 30, 1998 consolidated Federal income Tax Return of Seller and ending
on the date of payment. Payments must be made in immediately available funds, by
wire transfer to such bank account as the party entitled to receive payment will
specify.
11.4 PARTICIPATION IN TAX EXAMINATIONS
11.4.1 Seller and Buyer shall provide to each other notice
within ten (10) business days of receipt of any notice of any audit or similar
investigation or proceeding in which the IRS or any other Governmental Entity
makes or proposes to make a Tax adjustment to any Tax period ending on or before
the Closing Date. At least ten days prior to filing any response or other
correspondence with the IRS, Seller shall provide copies of such documents to
Buyer for its review. Seller shall control any such proceeding; provided that
Buyer or its representative shall have the right, at its expense, to participate
in any such audit or similar investigation. Seller agrees that it will not
settle, compromise or agree to any Tax adjustment that will result in either a
Tax liability to Buyer or the indemnification of Seller by Buyer (as set forth
below in this Section 11.4) without the prior written consent of Buyer, which
consent shall not be unreasonably withheld.
11.4.2 Definitions.
11.4.2.1 Permanent Difference. A Permanent Difference
is any adjustment, whether by amended return or examination by a taxing
authority, to any Tax Return that will not affect taxable income of any
prior or subsequent Tax Return.
11.4.2.2 Timing Difference. A Timing Difference is
any adjustment, whether by amended return or examination by a taxing
authority, to any Tax Return that will reverse in a prior or subsequent
Tax Return.
11.4.3 Seller shall be responsible for Taxes for Tax periods
ending on or before October 3, 1997. Buyer shall be responsible for Taxes for
Tax periods beginning on or after
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October 4, 1997. However, Seller shall have no liability for Tax attributable to
Timing Differences where the reversal results in a Tax benefit to Buyer, and
Buyer shall be entitled to any Tax benefit attributable to Timing Differences
where the reversal results in a Tax liability to Buyer. However, Buyer shall
have no responsibility for Tax liabilities and no right to Tax benefits for Tax
attributable to Timing Differences where the reversal affects any Tax to Seller
resulting from the deemed sale of assets pursuant to an election under
ss.338(h)(10). Taxes for Tax periods beginning prior to October 3, 1997 and
ending after that date shall be prorated between Buyer and Seller, as set forth
in Section 11.2.3. Notwithstanding the foregoing, Buyer shall have no
responsibility for any Tax that may result from the deemed sale of assets
pursuant to an election under ss.338(h)(10) of the Internal Revenue Code.
11.4.4 If any adjustment, as defined in Section 11.4.2.1 or
Section 11.4.2.2, is made to any Tax Return, amounts due pursuant to Section
3.27 shall be recomputed as necessary. In the event that Seller or Buyer, as the
case may be, is required to hold harmless the other party pursuant to Section
11.4 or to a recalculation pursuant to Section 3.27, any payment that is
required to be made to the other party shall be made not later than ten days
after the Tax adjustment giving rise to such payment is finally agreed to with
the taxing authority.
12. GENERAL PROVISIONS
12.1 EXPENSES
Each party to this Agreement will bear its respective expenses incurred
in connection with the preparation, negotiation, execution and performance of
this Agreement and the Contemplated Transactions, including all fees and
expenses of the respective Representatives of the parties. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by the other party.
12.2 CONFIDENTIALITY
In addition to the obligations set forth in the Confidentiality
Agreement, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer, Seller and the
Acquired Companies to maintain in confidence, any written, oral, or other
information obtained in confidence from the other party or an Acquired Company
in connection with this Agreement or the Contemplated Transactions, unless (a)
such information is already known to such party or to others not bound by a duty
of confidentiality or such information becomes publicly available through no
fault of such party, (b) the use of such information is necessary and
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the Contemplated Transactions, or (c) the furnishing or
use of such information is required by legal proceedings. If the Contemplated
Transactions are not consummated, each party will return or destroy such written
information.
12.3 NOTICES
All notices, consents, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided
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that a copy is mailed by certified mail, return receipt requested or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):
If to Seller, to: United Grocers, Inc.
6433 SE Lake Road
Portland, OR 97222-2198
Attention: Chief Executive Officer
Facsimile No.: 503-833-1008
with a copy to: Grocers Insurance Group, Inc.
6605 SE Lake Road
Portland, OR 97269
Attention: Ross Dwinell
Facsimile No.: 503-833-1753
and with a copy to: Kennedy & Kennedy LLP
888 SW Fifth Avenue
Suite 1170
Portland, OR 97204
Attention: Rhonda W. Kennedy
Facsimile No.: 503-226-6466
and with a copy to: Miller Nash Wiener Hager & Carlsen LLP
Suite 3500
111 SW Fifth Avenue
Portland, OR 97204
Attention: John A. Lusky
Facsimile No.: 503-224-0155
If to Buyer, to: Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032
Attention: General Counsel
Facsimile No.: 860-674-6890
with a copy to: Ireland,Stapleton, Pryor & Pascoe, P.C.
1675 Broadway, 26th Floor
Denver, CO 80202
Attention: Hardin Holmes, Esq.
Facsimile No.: 303-623-2062
12.4 MEDIATION; ARBITRATION
If a dispute arises from or relates to this Agreement or the breach
thereof, whether of law or fact, of any nature whatsoever, and such dispute
cannot be settled through direct discussions between the parties, the parties
agree to endeavor, within a reasonable time after it appears the
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<PAGE>
dispute cannot be settled through discussions, to settle the dispute in an
amicable manner by mediation administered in accordance with the American
Arbitration Association Commercial Mediation Rules, but not submitted to the
American Arbitration Association, before resorting to arbitration. The parties
agree that the mediator shall be a person who is an attorney with at least 15
years of business law experience. Mediation shall take place in the Portland,
Oregon metropolitan area. Thereafter, any unresolved dispute shall be settled by
binding arbitration. Notice of demand for arbitration shall be provided in
writing to the other parties. The arbitration shall be conducted before a single
arbitrator and procedurally in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association, but shall not be
submitted to the American Arbitration Association. The arbitration shall be held
in Portland, Oregon, if it is initiated by Buyer, or Denver, Colorado, if it is
initiated by Seller. The arbitrator shall be a person who is an attorney with at
least 15 years of business law experience. If the parties cannot agree on an
arbitrator within 30 days of the giving of the notice of demand for arbitration,
the selection of the arbitrator shall be made by the presiding judge of the
Multnomah County Circuit Court if the arbitration is to be in Portland, or the
Denver District Court, if it is to be held in Denver. The parties agree that the
arbitrator shall not render an award for punitive damages (or any other amount
awarded for the purpose of imposing a penalty). The parties specifically waive
any claim for punitive damages (or any other amount awarded for the purpose of
imposing a penalty) that arises out of or relates to this Agreement or the
conduct of the parties in connection with this Agreement. The parties agree that
all facts and other information relating to any arbitration arising under this
Agreement shall be kept confidential to the fullest extent permitted by law. The
decision of the arbitrator shall be binding on all parties, and a judgment may
be entered in any court having jurisdiction.
12.5 PUBLIC NOTICE
Prior to the Closing Date, neither Buyer nor Seller shall directly or
indirectly make, or cause to be made, any press release for general circulation,
public announcement, or disclosure with respect to any of the Contemplated
Transactions without the prior written consent of the other party, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, each party
may make such disclosure as may be required by law or necessary to make any
filings under the HSR Act or to obtain any Governmental Authorizations or
consents, and Seller and the Acquired Companies, after consultation with Buyer,
may make such communications with the employees of the Acquired Companies as
they deem appropriate.
12.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
12.7 WAIVER
A provision of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. No waiver of any provision
of this Agreement shall constitute a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a
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<PAGE>
continuing waiver. A failure to enforce any provision of this Agreement shall
not operate as a waiver of such provision or any other provision.
12.8 ENTIRE AGREEMENT AND MODIFICATION
Except as provided below, this Agreement supersedes all prior
agreements between the parties with respect to its subject matter (including the
Letter of Intent between Buyer and Seller dated March 23, 1998) and constitutes
(along with the documents referred to in this Agreement) a complete and
exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. Regardless of the provisions of this Section
12.8, the Confidentiality Agreement will remain in full force and effect and is
not superseded by this Agreement. This Agreement may not be amended except by a
written agreement executed by each party.
12.9 ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior written consent of the other parties, which consent may be
unreasonably withheld in the party's sole discretion; provided that Buyer may
assign its rights and obligations hereunder to any of its wholly owned
subsidiaries. Subject to the preceding sentence, this Agreement will apply to,
be binding in all respects upon and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy or claim under or with respect to
this Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
12.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part will remain in full force and effect to the extent
not held invalid or unenforceable.
12.11 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
12.12 GOVERNING LAW
This Agreement will be governed by the laws of the State of Oregon
without regard to conflicts of laws principles.
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<PAGE>
12.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
SELLER: BUYER:
UNITED GROCERS, INC. ORION CAPITAL CORPORATION
By: /s/ Charles E. Carlbom By: /s/ Michael L. Paulter
Print Name: Charles E. Carlbom Print Name: Michael L. Paulter
Title: Pres. & CEO Title: Vice President
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<PAGE>
May 13, 1998
Mr. Michael P. Maloney
Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032
Re: Stock Purchase Agreement Disclosure Letter
Dear Mr. Maloney:
Pursuant to the Stock Purchase Agreement (the "Agreement") of even date
between United Grocers, Inc. ("Seller") and Orion Capital Corporation ("Buyer"),
the representations and warranties of Seller in the Agreement are subject to the
disclosures set forth in this letter (the "Disclosure Letter"). The capitalized
terms not specifically defined in this Disclosure Letter have the same meaning
as defined in the Agreement. In addition, the section numbers referenced below
are the section numbers set forth in the Agreement.
The following matters are disclosed:
SECTION 1. DEFINITIONS. Prior to 1988, in accordance with industry
standards, certain environmental matters were covered by the policies issued by
or through GIC. One claim arose and is outstanding under one such policy.
Information with respect to the claim, including a list of reinsurers, is
attached as Schedule 1. The retained liability of GIC has been paid, the
reinsurance liability of UGIC, Ltd., a prior affiliate of GIC, was paid to GIC
on or about October 15, 1996 (commuting the liability of UGIC, Ltd. in
preparation of the liquidation of UGIC, Ltd.) and any remaining liability is
reinsured.
SECTION 3.1 ORGANIZATION. With respect to each Acquired Company:
COMPANY NAME AUTHORIZED JURISDICTIONS
Grocers Insurance Group, Inc. Oregon
Grocers Insurance Agency, Inc. Oregon, Washington, California,
Arkansas, Idaho, Nevada
Grocers Risk Services, Inc. Oregon, Washington, California
Grocers Insurance Company See Schedule 3.1
SECTION 3.2 AUTHORITY; NO CONFLICT. Seller or an Acquired Company is
required to give notice or obtain consent from the following persons in
connection with the execution and
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<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 2
delivery of the Agreement or the consummation or performance of the Contemplated
Transactions:
1. The Director of the Department of Consumer and Business Services
with respect to the acquisition of control of GIC by Buyer.
2. The bank lenders and insurance company creditors ("Seller's
Creditors") with respect to the Intercreditor Collateral Agreement
("Intercreditor Collateral Agreement") dated September 19, 1997, as amended,
entered into by Seller, the Company, GIA, GRS and Seller's Creditors.
3. Seller's Creditors with respect to the Pledge Agreement ("Pledge
Agreement") dated September 19, 1997, as amended, entered into by the Company,
GIA and the collateral agent for Seller's Creditors.
4. Seller's Creditors with respect to the Pledge Agreement (the
"Additional Pledge Agreement") dated September 19, 1997, as amended, entered
into by the Seller and the collateral agent for Seller's Creditors.
5 . Seller's Creditors with respect to the Guaranty Agreement
("Guaranty Agreement") dated September 15, 1997, as amended, entered into by the
Company, GIA, GRS and for the benefit of Seller's Creditors.
6. The Federal Trade Commission with respect to HSR Act compliance.
7. Certain Agency Agreements between GIC, as insurer, and a named
agency, as agent (see Schedule 3.14.1(A)) provide that the agent may terminate
the Agreement without notice if GIC's business is sold or transferred without
the agent's prior written consent to the assignment of the agreement to the
successor business.
8. Certain of the agreements appointing GIA as agent for a named
insurer (see Schedule 3.23) contain provisions for the termination of the
Agreement by the insurer upon the sale of GIA.
9. An equipment lease agreement for certain fax machines between the
Company, as lessee, and General Electric Capital Corporation, as lessor,
provides that the lease will be in default if there is a transfer of
substantially all of the stock of the Company.
10. The leases for commercial office space (see Section 3.6(4)) with
respect to GIC and GRS, as tenants, require the consent of landlord with respect
to the transfer of control of the tenant.
<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 3
SECTION 3.3 CAPITALIZATION.
1. The shares of GIA, GIC and GRS have been pledged pursuant
to the Pledge Agreement.
2. The shares of GIG have been pledged pursuant to the
Additional Pledge Agreement.
3. GIC is the owner of 447 shares in Fremont General
Corporation. As of March 31, 1998, the fair market value of such shares was
$26,373.
4. GIC has entered into a Stock Purchase Agreement dated
July 1, 1997 with Grocers Insurance Services, Inc. and Guy Fogel, the sole
shareholder of Grocers Insurance Services, Inc., which agreement provides for
the purchase by GIC of Fogel's shares of common stock of Grocers Insurance
Services, Inc. on the death or disability of Fogel.
SECTION 3.4 FINANCIAL STATEMENTS.
3.4.1. To the extent that the monthly financial information for GIC is
based on estimates, such estimates are believed to be substantially correct but,
to the extent they are inaccurate, the monthly financial information may not be
true and correct in all material respects. The monthly financial information for
GIC and unaudited financial statements for the Company, GIA and GRS, the
unaudited consolidating statements for the Company and the Interim Balance Sheet
are substantially, but not completely, prepared in accordance with GAAP (e.g.,
deferred tax accruals, deferred acquisition costs, bad debt write-offs and FASB
115 market value adjustment to investments are not reported according to GAAP).
3.4.2. The triennial exams previously provided to Buyer include
analyses by DCBS of deficiencies with the Statutory Statements.
SECTION 3.6 TITLE TO PROPERTY; ENCUMBRANCES.
1. On or before the Closing Date, GIC will acquire a
commercial office building located at 6605 SE Lake Road, Milwaukie, Oregon (the
"GIG Office Building") and legally described as set forth on the attached
Schedule 3.6.1.
2. GIC previously owned a commercial office building located
at 6566 S.E. Lake Road, Milwaukie, Oregon (the "GIA Property") and legally
described as set forth on the attached Schedule 3.6.2.
3. The list of fixed assets owned or leased by the Company
has been previously provided by Seller.
<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 4
4. The following leases have been entered into with
The Company as Tenant:
--------------------
(a) Landlord: United Grocers
Location: 6605 SE Lake Road, Milwaukie, OR
Term: Will terminate on consummation of the
acquisition of the GIG Office Building
by the Company
(b) Landlord: Fig Garden Village
Location: 790 W Shaw Avenue, Fresno, CA
Term: In process of being renewed
Rent: $5,520 annual
The Company as Subtenant:
------------------------
Tenant: Western Passage Express, Inc.(an affiliate of
Seller)
Location: 1600 Tide Court, Woodland, CA
Term: Needs to be established
Rent: $11,244 annual
The Company as Landlord:
-----------------------
On consummation of the acquisition of the GIG Office
Building, the Company, as Landlord, will enter into
a lease with Seller, as tenant, with respect to one
floor of the GIG Office Building.
GIC as Tenant:
-------------
(a) Landlord: Highwoods/Tennessee Holdings, LP
Location: Two Maryland Farms Building,
Brentwood, TN
Term: Expires November 30, 2002
Rent: $16,672 -- $18,235 annual
(b) Landlord: Pat G. Smaldino
Location: 999 Mission de Oro Drive, Redding, CA
Term: Expires February 28, 1999
Rent: $2,640 annual
GRS as Tenant:
-------------
Landlord: 1201 Associates
Location: 1500 NE Irving, Portland, OR
Term: Expires on May 31, 2002
Rent: $6,742.44 -- $7,177.56 annual
<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 5
SECTION 3.7 NO UNDISCLOSED LIABILITIES. The post retirement benefit
liability required by the Oregon Insurance Code to be reflected on the statutory
statements of GIC is $297,205 as of December 31, 1997.
SECTION 3.8 TAXES.
1. The consolidated federal income tax returns filed by
Seller for the fiscal year ended October 3, 1997 are not true, correct and
complete in that approximately $1,400,000 of audit adjustments were made that
increased the taxable income of GIC and changes to the depreciation schedule may
be required. Adjustments to such returns are anticipated as part of the IRS tax
audit of the 1994-1996 tax years that is about to be commenced.
2. No taxes are being contested.
3. Seller and GIC are parties to a Tax Allocation Agreement
dated November 22, 1994, which agreement was previously provided to Buyer.
SECTION 3.9 NO MATERIAL ADVERSE CHANGE.
1. The prospects of the Acquired Companies may be affected
by the Joint Venture.
2. The steps that may be taken to improve the profitability
of the Western Grocers Employee Benefits Trust may result in a decrease in
earnings for GIC.
3. The Holiday Markets account with GIC was not renewed.
SECTION 3.10 EMPLOYEE BENEFIT PLANS. The employee benefit plans related
to the employees providing services to the Acquired Companies are set forth on
Schedule 3.10.
SECTION 3.12 LEGAL PROCEEDINGS.
1. GIA has filed a bankruptcy claim with the U.S. Bankruptcy
Court for the Northern District of Texas with respect to the Chapter 7 filing of
Affiliated Food Services, Inc.
2. A suit, Case No. 98-02-00858, was filed against Seller
and GIC alleging discrimination by Seller in terminating an employee who had
filed several workers' compensation claims. Seller has assumed the defense of
GIC and will hold GIC harmless with respect to this litigation.
SECTION 3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since the date of
the Balance Sheet:
<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 6
(a) The following dividends were paid on December 30 or 31,
1997:
-- $850,000 by GIC to GIA
-- $225,000 by GRS to GIA
-- $1,486,250 by GIA to the Company
(c) Retention Agreements effective January 30, 1998 were
entered into with certain directors, officers and employees of GIC. Further,
Severance Agreements dated January 30, 1998 were entered into with certain
employees of GIC. Such Retention Agreements and Severance Agreements are, in all
material respects except for the amount of payments, in the same form as the
Retention Agreement and Severance Agreement previously provided to Buyer.
(d) GIC instituted a bonus plan to enable certain employees
of GIC who satisfy specified requirements to earn bonus compensation.
(f) GIC transferred the GIA Property (the "old" office
building) to Seller.
(h) GIC may close its Redding, California office. If GIC
decides to close the Redding office, the closure will occur prior to the Closing
Date.
(i) GIC is in the process of updating its rating system
software. The capital expenditure for this update is anticipated to be
approximately $140,000.
(o) Seller received notice from the IRS that the 1994-1996
tax years would be audited. The triennial exam of GIC has commenced.
(p) Shares of GIA were issued to the Company in replacement
of certain share certificates with respect to outstanding shares that either
were not previously issued or were lost. Shares of GRS were issued to GIA in
replacement of certain share certificates with respect to outstanding shares
that either were not previously issued or were lost.
(s) The Company entered into a contract to acquire the GIG
Office Building and to assume the existing note and deed of trust with United of
Omaha, as beneficiary.
SECTION 3.14 CONTRACTS; NO DEFAULTS.
3.14.1 The Applicable Contracts described in Section 3.14.1 of the
Agreement are set forth on Schedule 3.14.1.
3.14.2 No Contract limits the ability of an Acquired Company or
officer, director or employee of an Acquired Company to act relating to the
business of an Acquired Company except for the following agency agreements,
which agreements contain a covenant by GIC to sell insurance in certain states
only through the named agent:
1. Agency Agreement with Co-Op Agency, Inc. dated June 25,
1997 with respect to Pennsylvania.
<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 7
2. Agency Agreement with Retailers Insurance Group dated
February 28, 1998 with respect to Nebraska.
3.14.3 (a) Non-compete agreements between GIC and certain employees
or agents may not be enforceable in whole or in part because of public policy.
(b) Events have occurred that may result in a material breach
of the following Applicable Contracts:
Intercreditor Collateral Agreement
Pledge Agreement
Additional Pledge Agreement
Guaranty Agreement
SECTION 3.15 INSURANCE.
3.15.2 Neither Seller nor any Acquired Company has received a refusal
of coverage, notice of a defense with reservation of rights or notice of
cancellation or nonrenewal with respect to the insurance policies referred to in
Section 3.15.1 of the Agreement.
SECTION 3.17 EMPLOYEES.
3.17.2 The consummation of the Contemplated Transaction will result
in payments becoming due to certain officers and employees under the Retention
Agreements and benefits to employees will be vested under the pension plan and
401(k) plan of Seller.
SECTION 3.19 MARKS.
3.19.1 The following is a list and summary description of all Marks
and any other copyrighted, patented or proprietary intellectual property of any
Acquired Company:
1. The Company has registered as a service mark with the
United States Patent & Trademark Office its logo, a copy of which is attached as
Schedule 3.19. This registration occurred September 13, 1994 and will remain in
force for ten years thereafter unless sooner canceled or terminated. The
registration will be automatically canceled unless an affidavit of continuing
use is filed between September 13, 1999 and September 13, 2000. The registration
may be renewed in ten-year increments so long as the mark remains in continuous
use. An application for renewal must be filed within six months prior to the
date of expiration of the registration (i.e., between March 13, 2004 and
September 13, 2004).
2. GRS has registered the name "Pacific Northwest
Rehabilitation" as an assumed business name in the state of Oregon and a trade
name in the state of Washington. Some of the operations of GRS in those states
are conducted under that name. The Oregon
<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 8
registration will expire October 31, 1998, unless renewed; the Washington
registration will expire unless renewed in connection with the annual report
filed by GRS as a foreign corporation doing business in the state of Washington,
which report will be due November 30, 1998.
3. The following materials have been copyrighted:
Handouts
--------
- Preventing Slips, Trips and Falls
- Preventing Cuts and Lacerations
- Back Injury Prevention
- Preventing Workplace Violence
- Retail Crime Prevention
Order Form
----------
- Safety Committee Kit
Newsletter
----------
- Today's Coverage
Videos
------
- The introduction and tag with respect to the following
videos:
Preventing Back Injuries
Preventing Cuts and Lacerations
Preventing Slips, Trips and Falls
SECTION 3.21 LICENSES. The following licenses, permits or authority
have been issued to the Acquired Companies by a state insurance department:
GIA:
AGENCY LICENSES HAVE BEEN ISSUED BY: Oregon, Washington, California,
Arkansas, Idaho and Nevada.
GIC:
CERTIFICATES OF AUTHORITY HAVE BEEN ISSUED BY: See Schedule 3.1.
<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 9
SECTION 3.22 EMPLOYEE LICENSES. The licenses, permits or authority that
have been issued to an employee of an Acquired Company by state insurance
department are set forth on Schedule 3.22.
SECTION 3.23 APPOINTMENTS. The insurance companies that have appointed
GIA and its employees as agents are set forth on Schedule 3.23.
SECTION 3.29 OFFICERS AND DIRECTORS. The officers and directors of each
Acquired Company are set forth on Schedule 3.29.
Very truly yours,
UNITED GROCERS, INC.
Charles E. Carlbom
<PAGE>
DISCLOSURE LETTER
SCHEDULE 3.1
GIC has certificates of authority to transact insurance in the following states:
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maryland
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Mexico
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
Wyoming
<PAGE>
SCHEDULE 3.14.1
APPLICABLE CONTRACTS
A. AGENCY AGREEMENTS BETWEEN GIC, AS INSURER, AND NAMED AGENCY, AS AGENT
(AND RELATED TYPES OF AGREEMENTS).
1. Agency Agreement dated February 27, 1998 with Retailers Insurance
Group.
2. Agency Agreement dated January 24, 1996 with Risk Planners, Inc.
3. Agency Agreement dated May 6, 1996 with Fairway Insurance Agency,
Inc.
4. Agency Agreement dated October 10, 1996 and restated October 10,
1997 with Gateway Insurance Agency, Inc. and Fleming Companies,
Inc.; related Service Agreement dated October 10, 1996 between
Fleming Companies, Inc., the Company, GIC and GIA.
5. Agency Agreement dated October 11, 1996 with Insurance Planners,
Inc.
6. Agency Agreement dated January 15, 1998 with North American
Insurance Agency.
7. Agency Agreement with URM Insurance Agency, Inc. (formerly known
as Merchants Insurance Agency, Inc.) dated November 1, 1987, as
amended by addendum effective July 15, 1997.
8. Agency Agreement dated June 25, 1997 with Co-Op Agency, Inc.
9. Billing Services Agreement dated December 30, 1996 with C.B.
Ragland Company.
10. Agency agreement dated April 14, 1995 with Laurel Insurance
Agency, Inc., as amended December 6, 1997.
11. Agency Agreement dated December 20, 1990, with U G Insurance, Inc.
(now known as GIA).
12. Agency Agreement dated May 16, 1988 with Grocers Insurance
Services, Inc.
13. Agency Agreement dated June 1, 1988 with Associated Grocers
Insurance Company.
14. Agreement dated April, 1998 with M & I General Agency, as amended
by agreement dated July 1, 1989 with M & I General Agency and its
successors AFS Insurance Services, Inc. and AFS Insurance
Services, Inc. of Idaho.
15. Agency Agreement with Embry & Company (in course of
negotiation-execution expected prior to May 1, 1998).
- 1 -
<PAGE>
16. Agency Agreement dated May 20, 1992 with Hardware and Implement
Agency (not active).
B. SERVICE AGREEMENTS.
1. Administrative Service Agreement dated January 1, 1994 between GIC
and Western Grocers Employees Benefit Trust ("WGEBT").
2. Statement of Assurances and Conditions dated June 3, 1997 between
GRS and State of Oregon, Vocational Rehabilitation Division.
C. AGENCY AGREEMENTS APPOINTING GIA, AS AGENT. See Schedule 3.23 for
list of agreements.
D. REINSURANCE AGREEMENTS.
1. Property, Casualty and Workers Compensation Reinsurance Program
effective October 1, 1997 between GIC and the participating
reinsurers listed on the attached Schedule 3.14.1-Exhibit A.
2. Reinsurance Treaties for prior years may provide GIC with more
than $25,000 through tail payments.
E. CORPORATE OPERATIONS AND EQUIPMENT AGREEMENTS.
1. Service Agreement dated August 30, 1996 between the Company and
HomeTech Incorporated (for transcription services).
2. Master Lease Agreement dated May 12, 1997 between GIC and GE
Capital Fleet Services and related Maintenance Management Addendum
dated July 11, 1997 and Electronic Full Card Addendum dated July
11, 1997 (with respect to leases of vehicles).
3. Agreement effective November 27, 1995 between the Company and
Cargni Cleaning (respect to janitorial services).
4. Software License Agreement dated August 27, 1992 between GIA and
JP Sedlak Associates and related Technical Services and Support
Agreement dated November 24, 1997 (with respect to Insurance
Solutions software).
5. Master Software License Agreement dated effective September 15,
1997 between GIC and Insurance Information Technologies, Inc.
(with respect to computer software).
6. Affiliation Agreement to be effective January 1, 1998 between GIC
and National Council on Compensation Insurance, Inc. (documents
are in process of being executed by NCCI).
- 2 -
<PAGE>
F. CONSULTING AGREEMENTS.
1. Consulting Agreement dated June 1, 1992 between Maurice Lefore and
the Company, United Employers Insurance Company (now known as
GIC), U G Insurance, Inc. (now known as GIA) and UGIC.
2. Consulting Agreement dated March 18, 1993, as amended March 14,
1996, between GIC and Earl C. True.
Seller will use its Best Efforts to have the Consulting Agreements
set forth above revised to delete all references to Seller.
G. OTHER AGREEMENTS.
1. Stock Purchase Agreement dated July 1, 1997 between GIC and Guy
Fogel and Grocers Insurance Service, Inc. (see Section 3.3(3)).
<PAGE>
SCHEDULE 3.29
OFFICERS AND DIRECTORS
THE COMPANY
Directors: Charles E. Carlbom
Ross E. Dwinell
Bernard F. Croucher
Thomas C. Newton
William L. Dahl
David G. Edison
Myron J. Fleck
Officers: Ross E. Dwinell, President
Thomas C. Newton, Vice President Marketing
William L. Dahl, Vice President Finance, Treasurer, Secretary
David G. Edison, Vice President Claims & Operations
Rick A. McEwen, Vice President Underwriting
Esther A. Camden, Vice President Administration
GIA
Directors: Charles E. Carlbom
Ross E. Dwinell
Bernard F. Croucher
Thomas C. Newton
David G. Edison
Myron J. Fleck
Officers: Ross E. Dwinell, President
Thomas C. Newton, Vice President Marketing
David G. Edison, Vice President Claims & Operations,
Treasurer, Secretary
GIC
Directors: Charles E. Carlbom
Ross E. Dwinell
Bernard F. Croucher
Thomas C. Newton
Myron J. Fleck
- 1 -
<PAGE>
Officers: Ross E. Dwinell, President
Thomas C. Newton, Vice President Marketing
William L. Dahl, Vice President Finance
David G. Edison, Vice President Claims & Operations,
Treasurer, Secretary
Rick A. McEwen, Vice President Underwriting
GRS
Directors: Charles E. Carlbom
Ross E. Dwinell
Myron J. Fleck
Esther A. Camden
David G. Edison
Thomas C. Newton
Officers: Ross E. Dwinell, President
Esther A. Camden, Vice President
David G. Edison, Vice President, Treasurer, Secretary
Thomas C. Newton, Vice President
<PAGE>
January 6, 1999
Mr. Thomas F.X. Hodson
Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032
Re: Supplement to Stock Purchase Agreement Disclosure Letter
Dear Mr. Hodson:
Pursuant to the Stock Purchase Agreement (the "Agreement") dated May
13, 1998 between United Grocers, Inc. ("Seller") and Orion Capital Corporation
("Buyer"), the representations and warranties of Seller in the Agreement are
subject to the disclosures set forth in the letter dated May 13, 1998 (the
"Disclosure Letter"). Section 5.5 provides that the Seller may supplement the
Disclosure Letter from time to time. Pursuant to this letter (the "Supplement to
Disclosure Letter"), Seller supplements the Disclosure Letter as set forth
below.
The capitalized terms not specifically defined in this Supplement to
Disclosure Letter have the same meaning as defined in the Agreement or the
Disclosure Letter, as applicable. In addition, the section numbers referenced
below are the section numbers set forth in the Agreement.
The following matters are disclosed:
SECTION 3.1 ORGANIZATION. GIA is authorized to transact business in
Arizona, not Arkansas (which was set forth in the Disclosure Letter). GRS was
involuntarily dissolved by the State of Oregon on April 30, 1998 for failure to
file an annual report with the Corporation Division; GRS will be reinstated
prior to the Closing Date.
SECTION 3.4.2 STATUTORY FINANCIAL STATEMENTS. The 1997 Annual Statement
contained erroneous data with respect to the State Pages, Schedule T, the
Insurance Expense Exhibit and the Special Deposits Schedule. The cover letter
notifying DCBS of the error and submitting corrected information is attached.
SECTION 3.12 LEGAL PROCEEDINGS. The triennial exam of GIC by the DCBS
commenced on or about May 11, 1998.
- 1 -
<PAGE>
SECTION 3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since the date of
the Balance Sheet:
(a) As a result of the transfer of the Old Building from GIC to
Seller, a dividend in the amount of $308,500 was deemed to
have been made.
Very truly yours,
UNITED GROCERS, INC.
Charles E. Carlbom
Attachment
The information provided above
is accepted by Buyer as a supplement
to the Disclosure Letter.
ORION CAPITAL CORPORATION
- --------------------------
Thomas F.X. Hodson, Assistant Vice President
LOAN AND SECURITY AGREEMENT
BY AND AMONG
CONGRESS FINANCIAL CORPORATION (NORTHWEST)
AS LENDER
AND
UNITED GROCERS, INC. AND UNITED RESOURCES, INC.
AS BORROWERS
DATED: AUGUST 25, 1998
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS.................................................................1
2. CREDIT FACILITIES..........................................................15
2.1Revolving Loans.........................................................15
2.2Letter of Credit Accommodations.........................................17
2.3Term Loan...............................................................19
2.4Availability Reserves...................................................20
3. INTEREST AND FEES..........................................................20
3.1Interest................................................................20
3.2Closing Fee.............................................................22
3.3 [deleted]..............................................................22
3.4Servicing Fee...........................................................22
3.5 [deleted]..............................................................22
3.6Changes in Laws and Increased Costs of Loans............................22
4. CONDITIONS PRECEDENT.......................................................23
4.1Conditions Precedent to Initial Loans and
Letter of Credit Accommodations.........................................23
4.2Conditions Precedent to All Loans and Letter of Credit Accommodations...25
5. GRANT OF SECURITY INTEREST.................................................26
6. COLLECTION AND ADMINISTRATION..............................................27
6.1Borrowers' Loan Account(s).............................................27
6.2Statements..............................................................27
6.3Collection of Accounts..................................................28
6.4Payments................................................................29
6.5Authorization to Make Loans.............................................29
6.6Use of Proceeds.........................................................30
7. COLLATERAL REPORTING AND COVENANTS.........................................30
7.1Collateral Reporting....................................................30
7.2Accounts Covenants......................................................30
7.3Inventory Covenants.....................................................32
7.4Equipment Covenants.....................................................33
7.5Note Covenants..........................................................33
7.6Power of Attorney.......................................................33
7.7Right to Cure...........................................................34
7.8Access to Premises......................................................34
8. REPRESENTATIONS AND WARRANTIES.............................................35
8.1Corporate Existence, Power and Authority; Subsidiaries..................35
8.2Financial Statements; No Material Adverse Change........................35
8.3Chief Executive Office; Collateral Locations............................35
8.4Priority of Liens; Title to Properties..................................36
8.5Tax Returns.............................................................36
8.6Litigation..............................................................36
8.7Compliance with Other Agreements and Applicable Laws....................36
8.8Environmental Compliance................................................36
8.9Employee Benefits.......................................................37
8.10Bank Accounts..........................................................38
8.11Accuracy and Completeness of Information...............................38
8.12Eligible Notes.........................................................38
<PAGE>
8.13Survival of Warranties; Cumulative.....................................39
9. AFFIRMATIVE AND NEGATIVE COVENANTS.........................................39
9.1Maintenance of Existence................................................39
9.2New Collateral Locations................................................39
9.3Compliance with Laws, Regulations, Etc..................................39
9.4Payment of Taxes and Claims.............................................41
9.5Insurance...............................................................42
9.6Financial Statements and Other Information..............................43
9.7Sale of Assets, Consolidation, Merger, Dissolution, Etc.................44
9.8Encumbrances............................................................45
9.9Indebtedness............................................................45
9.10Loans, Investments, Guarantees, Etc....................................46
9.11Dividends and Redemptions..............................................47
9.12Transactions with Affiliates...........................................47
9.13Additional Bank Accounts...............................................47
9.14Compliance with ERISA..................................................48
9.15 [deleted].............................................................48
9.16Adjusted Net Worth.....................................................48
9.17Costs and Expenses.....................................................48
9.18Further Assurances.....................................................49
9.19Year 2000 Compliance...................................................49
9.20Amendment of Bylaws....................................................50
9.21Accounts Receivable Turnover...........................................50
9.22Fill Rate Covenants....................................................50
9.23Management.............................................................52
9.24Agricultural Products..................................................52
10. EVENTS OF DEFAULT AND REMEDIES............................................52
10.1Events of Default......................................................52
10.2Remedies...............................................................54
11. JURY TRIAL WAIVER; OTHER WAIVERS..........................................56
11.1Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver..56
11.2Waiver of Notices......................................................57
11.3Amendments and Waivers.................................................57
11.4Waiver of Counterclaims................................................58
11.5Indemnification........................................................58
12. TERM OF AGREEMENT; MISCELLANEOUS..........................................58
12.1Term...................................................................58
12.2Notices................................................................60
12.3Partial Invalidity.....................................................60
12.4Successors.............................................................60
12.5Participant's Security Interest........................................60
12.6Joint and Several Liability............................................60
12.7Entire Agreement.......................................................61
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificates
Exhibit 1.11 Notice of Assignment
Schedule 8.2 Exceptions to Section 8.2
Schedule 8.4 Existing Liens
Schedule 8.7 Exceptions to Section 8.7
Schedule 8.8 Environmental Disclosures
Schedule 8.10 Bank Accounts
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement, dated August 25, 1998, is entered
into by and among Congress Financial Corporation (Northwest), an Oregon
corporation ("Lender"), United Grocers, Inc. ("UGI"), an Oregon corporation and
United Resources, Inc. ("URI"), an Oregon corporation and wholly-owned
subsidiary of UGI. UGI and URI are referred to herein collectively as
"Borrowers," and each individually as "Borrower".
W I T N E S S E T H:
--------------------
WHEREAS, Borrowers have requested that Lender enter into certain
financing arrangements with Borrowers pursuant to which Lender may make loans
and provide other financial accommodations to Borrowers; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless the
context otherwise requires. All references to Borrowers and Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meaning customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of each
Borrower to payment for goods sold or leased or for services rendered, which are
not evidenced by instruments or chattel paper, and whether or not earned by
performance.
1
<PAGE>
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to deposits
of United States dollars in a non-United States or an international banking
office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar
Rate Loan made with the proceeds of such deposit, whether or not the Reference
Bank actually holds or has made any such deposits or loans. The Adjusted
Eurodollar Rate shall be adjusted on and as of the effective day of any change
in the Reserve Percentage.
1.3 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: (a) the difference between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after deducting from
such book value all appropriate reserves in accordance with GAAP (including all
reserves for doubtful receivables, obsolescence, depreciation and amortization)
and (ii) the aggregate amount of the indebtedness and other liabilities of such
Person and its subsidiaries (including tax and other proper accruals) plus (b)
indebtedness of such Person and its subsidiaries which is subordinated in right
of payment to the full and final payment of all of the Obligations on terms and
conditions acceptable to Lender.
1.4 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Revolving Loans and Letter of Credit
Accommodations which would otherwise be available to Borrowers under the lending
formula(s) provided for herein: (a) to reflect events, conditions, contingencies
or risks which, as determined by Lender in good faith, do or may affect either
(i) the Collateral or any other property which is security for the Obligations
or its value, (ii) the assets, business or prospects of Borrowers, or either of
them, or any Obligor or (iii) the security interests and other rights of Lender
in the Collateral (including the enforceability, perfection and priority
thereof) or (b) to reflect Lender's good faith belief that any collateral report
or financial information furnished by or on behalf of Borrowers, or either of
them, or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) to reflect outstanding Letter of
Credit Accommodations as provided in Section 2.2 hereof or (d) to reflect
dilution in excess of three percent (3%) as provided in Section 2.4 hereof or
(e) to reflect any liquidated damages payable or alleged to be payable by any
Person under Section 18 of the Supply Agreement or under any other supply
agreement with any other customer or (f) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default. Without
limiting the generality of the foregoing, Lender shall be entitled at all times
to establish Availability Reserves reducing the amount of the Revolving Loans
and Letter of Credit Accommodations which would otherwise be available to
Borrowers, and to increase and decrease such Availability Reserves from time to
time, in respect of any or all amounts owed or which may under any contingency
be owed by Borrowers to any Farm Products Sellers or other third party, which
amounts are or may be secured by any of the Collateral, or if Lender believes in
good faith such Availability Reserves are or may be necessary to protect it
against statutory or common law liens or trust fund
2
<PAGE>
claims or other liens in favor of any Farm Products Sellers or any lender to any
Farm Products Seller or any other person with a security interest in the assets
of such supplier or seller or any category of indebtedness or other obligation
or liability owed to a third party, the payment of which is or may be secured by
a statutory or common law lien or entitled to the benefit of a trust or other
lien upon any of the assets and properties of Borrowers, or either of them.
1.5 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.6 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of Oregon or the State of New York, and a day on which the
Reference Bank and Lender are open for the transaction of business, except that
if a determination of a Business Day shall relate to any Eurodollar Rate Loans,
the term Business Day shall also exclude any day on which banks are closed for
dealings in dollar deposits in the London interbank market or other applicable
Eurodollar Rate market.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.8 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.9 "Eligible Accounts" shall mean Accounts created by UGI which are
and continue to be acceptable to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by UGI or rendition of services by UGI in the ordinary course
of its business, which transactions are completed in accordance with the terms
and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than twenty-nine (29) days
after the original due date for them or thirty-nine (39) days after the date of
the original invoice for them, whichever first occurs;
(c) such Accounts comply with the terms and conditions contained
in Section 7.2 (c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to such
Accounts is located in the United States of America, or, at Lender's option, if
either: (i) the account debtor has delivered to UGI an irrevocable letter of
credit issued or confirmed by a bank satisfactory to Lender and payable only in
the United States of America and in U.S. dollars, sufficient to cover such
Accounts, in form and substance satisfactory to Lender and, if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent
3
<PAGE>
and the issuer thereof notified of the assignment of the proceeds of such letter
of credit to Lender, or (ii) such Accounts are subject to credit insurance
payable to Lender issued by an insurer and on terms and in an amount acceptable
to Lender, or (iii) such Accounts are otherwise acceptable in all respects to
Lender (subject to such lending formula with respect thereto as Lender may
determine);
(f) such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts, except a setoff by UGI if authorized by Lender as provided in Section
7.2(c) hereof (but the portion of the Accounts of such account debtor in excess
of the amount at any time and from time to time owed by UGI to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) [deleted];
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended, or any
similar State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which are
likely to result in any material adverse change in any such account debtor's
financial condition;
(m) [deleted];
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than twenty-nine (29) days after the original due date for
them or thirty-nine (39) days after the date of the original invoice for them,
whichever first occurs, which constitute more than fifty percent (50%) of the
total Accounts of such account debtor;
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(o) such Accounts are owed by account debtors whose total
indebtedness to Borrowers does not exceed the credit limits with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may be deemed Eligible
Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy
at all times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.10 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of UGI which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) work-in-process; (b) components which are not
part of finished goods; (c) spare parts for equipment; (d) packaging and
shipping materials; (e) supplies used or consumed in UGI's business; (f)
Inventory at premises other than those owned and controlled by UGI, except if
Lender shall have received an agreement in writing from the person in possession
of such Inventory and/or the owner or operator of such premises in form and
substance satisfactory to Lender acknowledging Lender's first priority security
interest in the Inventory, waiving security interests and claims by such person
against the Inventory and permitting Lender access to, and the right to remain
on, the premises so as to exercise Lender's rights and remedies and otherwise
deal with the Collateral; (g) Inventory subject to a security interest or lien
in favor of any person other than Lender except those permitted in this
Agreement; (h) bill and hold goods; (i) unserviceable, obsolete or slow moving
Inventory; (j) Inventory which is not subject to the first priority, valid and
perfected security interest of Lender; (k) returned, damaged and/or defective
Inventory; (l) Inventory purchased or sold on consignment; (m) dairy products;
and (n) fresh produce and meat. General criteria for Eligible Inventory may be
established and revised from time to time by Lender in good faith. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the Collateral.
1.11 "Eligible Notes Receivable" means promissory notes held by and
payable to URI which are and continue to be acceptable to Lender based on the
criteria set forth below. In general, promissory notes shall be Eligible Notes
Receivable if:
(a) at least one of the obligors on each such note is and
continues to be a Member or is another person acceptable to Lender in its sole
discretion;
(b) the notes are acceptable to Lender in form and substance;
(c) no payment due under such notes or any other note payable to
Borrowers, or either of them, or any note payable to National Consumer
Cooperative Bank that was assigned or in any way originated by Borrowers, or
either of them (after giving effect to any applicable grace periods) remains
unpaid, in whole or in part, more than thirty (30) days past the scheduled due
date;
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(d) the chief executive offices of the obligors on such notes are
located in the United States of America, and the note originated in the United
States;
(e) the obligors with respect to such notes have not asserted a
counterclaim, defense or dispute and do not have, and do not engage in
transactions which may give rise to, any right of setoff against such notes
except a set-off by UGI if authorized by Lender as provided in Section 7.2
hereof (but the portion of the notes in excess of the amount at any time and
from time to time owed by URI to such note obligors or claimed owed by such note
obligors may be deemed Eligible Notes Receivable);
(f) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such notes or reduce the
amount payable or delay payment thereunder, and each note, at the time it was
made complied and as of the date delivered to Lender, continued to comply, in
all material respects with applicable state and federal laws and regulations,
including usury, equal credit opportunity, disclosure and recording laws;
(g) such notes are subject to the first priority, valid and
perfected security interest of Lender and have been assigned, endorsed and
delivered to Lender;
(h) the are no proceedings or actions which are threatened or
pending against the note obligors which might result in any material adverse
change in such obligors' financial condition;
(i) such notes are not owed by obligors who have Accounts unpaid
more than twenty-nine (29) days after the original due date for them or
thirty-nine (39) days after the original due date for them, whichever first
occurs, which constitute more than fifty percent (50%) of the total Accounts of
such obligors to UGI;
(j) each Related Document that is a security or similar agreement
requires the maker and guarantor (if any) thereunder, at its own cost and
expense, to maintain the tangible collateral pledged to secure the note, in good
repair, condition and working order, and to the best of Borrowers' knowledge,
each maker and guarantor of that note is currently in compliance with this
requirement;
(k) such notes comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(l) such notes have not been amended, modified or supplemented
except as has been disclosed to and accepted by Lender;
(m) such notes are owed by obligors whose total indebtedness to
Borrowers does not exceed the credit limits with respect to such obligors as
determined by Lender from time to time (but the portion of the notes not in
excess of such credit limit may be deemed Eligible Notes Receivable);
(n) the executed original of each such note has been endorsed by
an authorized officer of the assigning Borrower as follows: "Holder hereby
endorses and assigns, with full recourse, all of its right, title and interest
in and to this Promissory Note to Congress Financial
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Corporation (Northwest), or its order, for security purposes," and such
endorsement, together with all prior and intervening endorsements, evidence a
complete chain of endorsement from the original payee to Lender;
(o) the executed original counterpart of the Related Documents,
together with executed originals of all modifications or amendments thereof have
been delivered to Lender;
(p) documents evidencing or related to any insurance policies have
been delivered to Lender;
(q) with respect to notes secured by mortgages or deeds of trust
on real property, Lender shall have received (A) either: (i) the original
mortgage or deed of trust, with evidence of recording thereon, (ii) a copy of
the mortgage certified as a true copy by an officer of the beneficiary where the
original has been transmitted for recording until such time as the original is
returned by the public recording officer or duly licensed title or escrow
officer or (iii) a copy of the mortgage or deed of trust certified by the public
recording office in those instances where the original recorded mortgage or deed
of trust has been lost; (B) either (i) an original assignment of mortgage or
deed of trust from the assigning Borrower to Lender in form an substance
satisfactory to Lender; or (ii) a copy of such assignment, certified as a true
copy by an officer of the assigning Borrower where the original has been
transmitted for recording; and (C) either (i) originals of all intervening
assignments, if any, showing a complete chain of title from the original
beneficiary to Lender, including warehousing assignments, with evidence of
recording thereon if such assignments were recorded; (ii) copies of any
assignments certified as true copies by an officer of the assigning Borrower
where the originals have been submitted for recording until such time as the
originals are returned by the public recording officer, or (iii) copies of any
assignments certified by the public recording office in any instances where the
original recorded assignments have been lost;
(r) Lender shall have received any UCC-1 financing statements,
UCC-3 assignments or other instruments that Lender determines is necessary to
perfect Lender's security interest in the notes and the other property
transferred to Lender in connection with the notes, and to deliver a
file-stamped copy of such financing statements or other evidence of such filing
to Lender;
(s) Lender shall have received a duly executed Notice of
Assignment in the form annexed hereto as Exhibit 1.11, addressed to the maker
and any other obligor of each note and no maker or guarantor of that note shall
have objected to the assignment of the note to Lender or to any provision of the
Notice of Assignment;
(t) the notes of a single Member, together with its affiliates, do
not constitute more than twenty-five percent (25%) of all notes held by
Borrowers (but the portion of the note not in excess of such percentage may be
deemed an Eligible Note);
(u) Lender shall have determined that each representation and
warranty of Borrowers set forth in Section 8.12 shall be true and correct in all
material respects, and a duly authorized officer of Borrowers shall have so
certified in writing;
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(v) the note and the Related Documents are dated prior to the date
of this Agreement;
(w) Lender shall have received a Note Schedule for each such note;
(x) there is no material default, breach, violation or event of
acceleration existing under any such note or Related Document and no event
which, with the passage of time or with notice and the expiration of any grace
or cure period, or both, would constitute a material default, breach, violation
or event of acceleration, and Borrowers, or either of them, have not waived any
such default, breach, violation or event of acceleration, and Borrowers have no
reason to believe that the makers and guarantors of the note will not perform
their respective obligations thereunder;
(y) the note and Related Documents to which any maker or guarantor
is a party bears the original signature of such maker and guarantor (and not a
copy), and the maker and/or any guarantor of each such note is personally liable
(i.e. the note is with full recourse) for the payment and performance of its
obligations under that note, and pursuant to the terms of the note and Related
Documents, each maker and guarantor thereof is absolutely required to make all
payments and perform all obligations due under the note and Related Documents,
without abatement, deferment or defense of any kind or for any reason (except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application relating to or affecting creditors rights and by general
principles of equity);
(z) Uniform Commercial Code Financing Statements have been duly
filed in all places where filing is necessary, and all other additional acts
have been taken as are necessary to perfect Borrowers' security interests
arising pursuant to the Related Documents, and, except as provided in the Note
Schedule, such security interests constitute a first priority, valid and
perfected lien in and to all of the collateral identified in the Note Schedule,
and except as noted in the Note Schedule, will be enforceable against all third
parties in all jurisdictions as security for the obligations of the makers of
the note and the Related Documents; and
(aa) the maker of each note is generally paying its obligations as
they become due and to Borrowers' knowledge, has no present intent to seek
relief under the federal bankruptcy laws; and
(bb) such notes are owed by obligors otherwise deemed creditworthy
at all times by Lender, as determined by Lender.
1.12 "Environmental Laws" shall mean all applicable foreign, Federal,
State and local laws (including common law), legislation, rules, codes,
licenses, permits (including any conditions imposed therein), authorizations,
judicial or administrative decisions, injunctions or agreements between Borrower
and any governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety (including under the Occupational Health and Safety
Act), (b) relating to the exposure to, or the use, storage, recycling,
treatment, generation, manufacture, processing, distribution, transportation,
handling, labeling, production, release or disposal, or threatened release, of
Hazardous Materials, or
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(c) relating to all laws with regard to record keeping, notification, disclosure
and reporting requirements respecting Hazardous Materials. The term
"Environmental Laws" includes (i) the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Federal Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal Act and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii)
applicable state counterparts to such laws, and (iii) any common law or
equitable doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to any
Hazardous Materials.
1.13 "Equipment" shall mean all equipment, machinery, computers and
computer hardware and software (whether owned or licensed), vehicles, tools,
furniture and fixtures now owned or hereafter acquired by Borrowers, or either
of them, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and substitutions and replacements
thereof, wherever located.
1.14 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.15 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrowers, or either of them, or any of their Subsidiaries under Sections
414(b), 414(c), 414(m) or 414(o) of the Code.
1.16 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrowers and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrowers.
1.17 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.18 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.19 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of: (i) the amount of
the Revolving Loans available to Borrowers as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts
and Eligible Notes Receivable and the Value of Eligible Inventory, as determined
by Lender, and subject to the sublimits and Availability Reserves from
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time to time established by Lender hereunder, and (ii) the Maximum Credit (less
the then outstanding principal amount of the Term Loans), minus the sum of: (i)
the amount of all then outstanding and unpaid Obligations (but not including for
this purpose the then outstanding principal amount of the Term Loans), plus (ii)
the aggregate amount of all then outstanding and unpaid trade payables of
Borrowers which are more than thirty (30) days past due as of such time, plus
(iii) the amount of checks issued by Borrowers to pay trade payables, but not
yet sent and the book overdrafts of Borrowers.
1.20 "Farm Products Sellers" shall mean, individually and collectively,
sellers or suppliers to Borrowers, or either of them, of any farm product (as
such term is defined in both the Food Security Act and the UCC) and including
any perishable agricultural commodity (as defined in PACA) or livestock (as
defined in the PSA), meat, meat food products or livestock products derived
therefrom.
1.21 "Fill Rate" means, for any period, (a) the aggregate dollar amount
(based upon UGI's landed net cost as of the date of the corresponding orders) of
all goods shipped or made available for pick-up by UGI's customers pursuant to
orders submitted during the period, divided by (b) the aggregate dollar amount
(based upon UGI's landed net cost as of the date of the various orders) of all
goods included in orders submitted to UGI by its customers during the period,
expressed as a percentage. For purposes of calculating the Fill Rate, the
aggregate dollar amount attributable to goods that have been discontinued, that
were unauthorized or that were unavailable or out-of-stock (including vendor's
scratches, vendor out-of-stock and vendor out-of-pack) shall be deducted from
the aggregate dollar amount of goods included in orders submitted to UGI
described in part (b) above. For purposes of calculating the Fill Rate, UGI's
"landed net cost" shall mean the actual invoiced cost to UGI for such item of
merchandise, including cross-docking costs, the out-of-pocket cost of
transportation, handling and insurance in connection with the shipment and
warehousing of such item of merchandise to the UGI warehouse, less all
applicable discounts, rebates and allowances actually allowed (including those
allowed by or with respect to purchases of All Kitchen, Western Family and
tobacco products) to UGI in connection therewith, but excluding all applicable
state and federal excise taxes on cigarettes and tobacco products. In addition,
and notwithstanding the preceding, discounts and allowances granted by UGI's
vendors for a specific duration shall be reallowed to UGI's customers with
respect to orders submitted during that duration only, and in no event shall
UGI's landed net cost be reduced by, nor shall UGI be required to reallow or
pass through to any of its customers, any dividend or other distribution, or any
allocation (or similar benefit arising out of that customer's ownership interest
in Western Family) declared, paid, awarded or given to UGI from or by Western
Family. In calculating the landed net cost of any item, any fractional cent
shall be rounded up or down to the nearest cent.
1.22 "Food Security Act" shall mean the Food Security Act of 1984, 7
U.S.C. Section 1631, et seq., as the same now exists or may hereafter from time
to time be amended, modified, recodified or supplemented, together with all
rules and regulations thereunder.
1.23 "Food Security Act Notices" shall mean any notice received by a
Borrower from any person (i) that farm products purchased or to be purchased by
Borrower are or may be subject to a security interest created by a Farm Products
Seller or (ii) that purports to be given under the Food Security Act, including
in each case, any such notice received from any Farm Products Seller, any lender
or any central filing system established under the Food Security Act.
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1.24 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrowers, or either or them, or by any Obligor in connection with this
Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.25 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.16 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.26 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become subject to regulation under
any Environmental Law (including any that are or become classified as hazardous
or toxic under any Environmental Law).
1.27 "Information Certificate" shall mean the Information Certificate
of each Borrower included in Exhibit A hereto containing material information
with respect to each Borrower, its business and assets, provided by or on behalf
of Borrowers to Lender in connection with the preparation of this Agreement and
the other Financing Agreements and the financing arrangements provided for
herein.
1.28 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrowers may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrowers may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.29 "Interest Rate" shall mean, as to Prime Rate Loans, the Prime Rate
and, as to Eurodollar Rate Loans, a rate of one and three-quarters (1.75%)
percent per annum in excess of the Adjusted Eurodollar Rate (based on the
Eurodollar Rate applicable for the Interest Period selected by Borrowers as in
effect three (3) Business Days after the date of receipt by Lender of the
request of Borrowers for such Eurodollar Rate Loans in accordance with the terms
hereof, whether such rate is higher or lower than any rate previously quoted to
Borrowers); provided, that, the Interest Rate shall mean the rate of two percent
(2.0%) per annum in excess of the Prime Rate as to Prime Rate Loans and the rate
of three and three-quarters percent (3.75%) per annum in excess of the Adjusted
Eurodollar Rate as to Eurodollar Rate Loans, at Lender's option, without notice,
(a) for the period (i) from and after the date of termination or non-renewal
hereof
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until Lender has received full and final payment of all Obligations
(notwithstanding entry of a judgment against Borrowers, or either of them) and
(ii) from and after the date of the occurrence of an Event of Default for so
long as such Event of Default is continuing as determined by Lender, and (b) on
the Revolving Loans at any time outstanding in excess of the amounts available
to Borrowers under Section 2 (whether or not such excess(es), arise or are made
with or without Lender's knowledge or consent and whether made before or after
an Event of Default); provided, further, that Borrowers shall be eligible for a
reduction of the Interest Rate as to Eurodollar Rate Loans to a rate of one and
one-half percent (1.50%) per annum in excess of the Adjusted Eurodollar Rate
after the second anniversary of the date of this Agreement but only (x) if
Borrower submits to Lender profit projections that are satisfactory to Lender
and if, for fiscal years ending September, 1999 and September, 2000, Borrowers'
profits (before taxes, dividends and extraordinary gains) are no less than
eighty percent (80%) of those projections (before taxes, dividends and excluding
extraordinary gains), as evidenced by Borrower's audited financial statements
prepared by PricewaterhouseCoopers or other independent certified accountants
selected by Borrowers and reasonably acceptable to Lender, and (y) if Lender has
not declared an Event of Default between the date of this Agreement and
Borrowers' fiscal year ending September, 2000.
1.30 "Inventory" shall mean all raw materials, work in process,
finished goods and all other inventory of whatsoever kind or nature now owned or
hereafter existing or acquired by Borrowers, or either of them, wherever
located.
1.31 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of UGI or any Obligor or
(b) with respect to which Lender has agreed to indemnify the issuer or
guaranteed to the issuer the performance by UGI of its obligations to such
issuer.
1.32 "Loans" shall mean the Revolving Loans and the Term Loans.
1.33 "Maximum Credit" shall mean the amount of $135,000,000.
1.34 "Member" shall mean a Person who has applied for and has been
accepted as a member of UGI, has satisfied all requirements for such membership
including the purchase of UGI capital stock, remains a member of and shareholder
in UGI, and has not given notice of withdrawal or been given notice of expulsion
from membership in UGI.
1.35 "Mortgages" shall mean, individually and collectively, each of the
following (as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced): (a) the Trust Deed,
Assignment of Rents, Security Agreement and Fixture Filing, dated of even date
herewith, by UGI in favor of Lender with respect to the real property and
related assets of UGI located in Clackamas County, Oregon, and (b) the Trust
Deed, Assignment of Rents, Security Agreement and Fixture Filing, dated of even
date herewith, by UGI in favor of Lender with respect to the real property and
related assets of Borrower located in Jackson County, Oregon.
1.36 "NCCB" shall mean National Consumer Cooperative Bank.
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1.37 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, rebates, discounts, claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding, available or claimed
with respect thereto.
1.38 "Note Schedule" shall mean the schedule for each Eligible Notes
delivered by Borrowers to Lender from time to time. The Eligible Note Schedule
will identify each Eligible Note by the name and address of the maker of the
note (and if different from that address, the location of the grocery store to
which such Eligible Note relates) and setting forth as to each Eligible Note:
(i) the date the note was made and the original principal balance of the note;
(ii) the unpaid principal balance of the note as of the date the note is
delivered to Lender; (iii) the aggregate principal and interest payments
received by Borrowers with respect to the note through the date of the Note
Schedule; (iv) the original number of months to maturity and the original
amortization period, in months, of the note, together with the actual number of
months remaining to maturity as of the date the note is delivered to Lender; (v)
the date the first monthly payment under the note was due; (vi) the interest
rate payable by the maker under the note, including the minimum and maximum
rates payable, if applicable; (vii) the amortization method and period; and
(viii) the type and priority of the collateral securing the note.
1.39 "Obligations" shall mean any and all Revolving Loans, Term Loans,
Letter of Credit Accommodations and all other obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrowers, or either
of them, to Lender and/or its affiliates, including principal, interest,
charges, fees, costs and expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, whether arising under this Agreement
or otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to Borrowers, or either of them, under the
United States Bankruptcy Code or any similar statute (including the payment of
interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.
1.40 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than a Borrower.
1.41 "PACA" shall mean the Perishable Agricultural Commodities Act,
1930, as amended, 7 U.S.C, Section 499a, et seq., as the same now exists or may
from time to time hereafter be amended, modified, recodified or supplemented,
together with all rules, regulations and interpretations thereunder or related
thereto.
1.42 "Participant" shall mean any person which at any time participates
with Lender in respect of the Loans, the Letter of Credit Accommodations or
other Obligations or any portion thereof.
1.43 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
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1.44 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.
1.45 "Prime Rate" shall mean the rate announced by the Reference Bank,
or its successors, from time to time as its prime rate, whether or not such
announced rate is the best rate available at such bank.
1.46 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
hereof.
1.47 "PSA" shall mean the Packers and Stockyard Act of 1921, 7 U.S.C.
Section 181, et seq., as the same now exists or may from time to time hereafter
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.48 "Real Property" shall mean the real property and related assets of
UGI which is located in Clackamas County, Oregon, and Jackson County, Oregon and
which is to be subject to the Mortgages.
1.49 "Records" shall mean all of each Borrower's present and future
books of account of every kind or nature, purchase and sale agreements,
invoices, ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrowers, or
either of them, with respect to the foregoing maintained with or by any other
person).
1.50 "Reference Bank" shall mean First Union National Bank, or such
other bank as Lender may from time to time designate.
1.51 "Related Documents" shall mean with respect to each note that is
or may become an Eligible Note, a loan agreement, security agreement, mortgage
or deed of trust, assignment of lease, UCC financing statements and all other
documents, instruments or assignments (including amendments or modifications
thereof) executed by the maker of the Eligible Note or other person on that
maker's behalf, including any guaranties.
1.52 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrowers, or either of them, on a revolving
basis (involving advances, repayments and readvances) as set forth in Section
2.1 hereof.
1.53 "Supply Agreement" shall mean the Supply Agreement dated as of May
15, 1998 between UGI and Smart & Final, Inc.
1.54 "Term Loans" shall mean the term loans made by Lender to UGI as
provided for in Section 2.3 hereof, and "Term Loan" shall mean any such loan.
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1.55 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.56 [deleted].
2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to UGI from time to time in amounts
requested by UGI up to the amount equal to the sum of:
(i) ninety percent (90%) of the Net Amount of Eligible Accounts,
plus
(ii) the lesser of: (A) seventy-five percent (75%) of the Value of
Eligible Inventory or (B) $70,000,000, less
(iii) any Availability Reserves.
(b) In addition to the amount described in subsection 2.1(a),
subject to and upon the terms and conditions contained herein, Lender agrees to
make Revolving Loans to UGI from time to time during the periods described below
in amounts requested by UGI up to the amount equal to the sum of:
(i) (x) during not more than two (2) separate periods of sixty
(60) consecutive days each year (a "year" for purposes of this subsection
(i) being the period from August 31 of each year through August 30 of the
following year) the lesser of (A) ninety percent (90%) of the Value of
Eligible Inventory designated by UGI and acceptable to Lender in its
discretion as "Special Purchase Inventory" or (B) $10,000,000, and (y)
during one additional and separate period of ninety (90) consecutive days
each year, the lesser of (A) ninety percent (90%) of the Value of Eligible
Inventory designated by UGI and acceptable to Lender in its discretion as
"Special Purchase Inventory," or (B) $15,000,000; less
(ii) (without duplication) any Availability Reserves.
(c) Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to URI from time to time in amounts
requested by URI up to the amount equal to the sum of:
(i) the lesser of (A) sixty percent (60%) of the then outstanding
principal balance of Eligible Notes Receivable, or (B) $5,000,000, less
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(ii) (without duplication) any Availability Reserves.
(d) The aggregate amount of Revolving Loans under subsections
2.1(a), (b) and (c) outstanding at any time shall not exceed $100,000,000.
(e) Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrowers, (i) reduce the lending
formula with respect to Eligible Accounts to the extent that Lender determines
in good faith that: (A) the dilution with respect to Accounts for any period
(based on the ratio of (1) the aggregate amount of reductions in Accounts other
than as a result of payments in cash to (2) the aggregate amount of total sales)
has increased in any material respect or may be reasonably anticipated to
increase in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined or (ii) reduce the lending
formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (B) the liquidation value of the
Eligible Inventory, or any category thereof, has decreased, or (C) the nature
and quality of the Inventory has deteriorated or (iii) reduce the lending
formula with respect to Eligible Notes Receivable to the extent that Lender
determines in good faith that the general creditworthiness of note obligors has
declined. In determining whether to reduce the lending formula(s), Lender may
consider events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory, Eligible Notes Receivable or
in establishing Availability Reserves.
(f) Except in Lender's discretion, the aggregate amount of the
Loans and the Letter of Credit Accommodations outstanding at any time shall not
exceed the Maximum Credit. In the event that the outstanding amount of any
component of the Loans, or the aggregate amount of the outstanding Loans and
Letter of Credit Accommodations, exceed the amounts available under the lending
formulas, the sublimits for Letter of Credit Accommodations set forth in Section
2.2(d) or the Maximum Credit, as applicable, such event shall not limit, waive
or otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrowers shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
(g) [deleted].
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained herein,
at the request of UGI, Lender agrees to provide or arrange for Letter of Credit
Accommodations for the account of UGI containing terms and conditions acceptable
to Lender and the issuer thereof. Any payments made by Lender to any issuer
thereof and/or related parties in connection with the Letter of Credit
Accommodations shall constitute additional Revolving Loans to UGI pursuant to
this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, UGI shall
pay to Lender a letter of credit fee at a rate equal to one percent (1.0%) per
annum on the daily outstanding balance of the Letter of Credit Accommodations
for the immediately preceding month (or part thereof), payable
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in arrears as of the first day of each succeeding month, except that UGI shall
pay to Lender such letter of credit fee, at Lender's option, without notice, at
a rate equal to two percent (2.0%) percent per annum on such daily outstanding
balance for: (i) the period from and after the date of termination or
non-renewal hereof until Lender has received full and final payment of all
Obligations (notwithstanding entry of a judgment against Borrowers, or either of
them) and (ii) the period from and after the date of the occurrence of an Event
of Default for so long as such Event of Default is continuing as determined by
Lender. Such letter of credit fee shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed, and the obligation of UGI
to pay such fee shall survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless
on the date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to UGI (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than an amount equal to one
hundred (100%) percent of the face amount thereof and all other commitments and
obligations made or incurred by Lender with respect thereto. Effective on the
issuance of each Letter of Credit Accommodation, an Availability Reserve shall
be established in the amount described above in this Section 2.2(c).
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith shall not at any time prior to
February 26, 1999 exceed the sum of $11,000,000 and will not at any time on or
after February 26, 1999 exceed the sum of $5,000,000. At any time an Event of
Default exists or has occurred and is continuing, upon Lender's request, UGI
will either furnish cash collateral to secure the reimbursement obligations to
the issuer in connection with any Letter of Credit Accommodations or furnish
cash collateral to Lender for the Letter of Credit Accommodations, and in either
case, the Revolving Loans otherwise available to UGI shall not be reduced as
provided in Section 2.2(c) to the extent of such cash collateral.
(e) UGI shall indemnify and hold Lender harmless from and against
any and all losses, claims, damages, liabilities, costs and expenses which
Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto (except
to the extent such losses are caused by Lender's gross negligence or willful
misconduct), including any losses, claims, damages, liabilities, costs and
expenses due to any action taken by any issuer or correspondent with respect to
any Letter of Credit Accommodation. UGI assumes all risks with respect to the
acts or omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
UGI's agent. UGI assumes all risks for, and agrees to pay, all foreign, Federal,
State and local taxes, duties and levies relating to any goods subject to any
Letter of Credit Accommodations or any documents, drafts or acceptances
thereunder. UGI hereby releases and holds Lender harmless from and against any
acts, waivers, errors, delays or omissions, whether caused by UGI, by any issuer
or correspondent or otherwise with respect to or relating to any Letter of
Credit Accommodation. The provisions of this Section 2.2(e) shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrowers, or either of them, any right or authority to pledge the credit of
Lender in any manner. Lender
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shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
UGI shall be bound by any interpretation made in good faith by Lender, or any
other issuer or correspondent under or in connection with any Letter of Credit
Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of UGI. Lender shall have the sole and exclusive right and
authority to, and UGI shall not: (i) at any time an Event of Default exists or
has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in UGI's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by UGI to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by UGI to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by UGI to Lender and to apply in all respects to
UGI.
2.3 Term Loan. Subject to and upon the terms and conditions contained
herein, Lender will make two Term Loans to UGI as follows:
(a) One Term Loan (the "Real Estate Term Loan") will be in an
amount equal to the lesser of (A) $25,000,000 or (B) sixty-five percent (65%) of
the fair market value of the Real Property, determined by appraisals which are
satisfactory to Lender. Such appraisals are to be conducted, at Borrower's
expense, by Moscato, Ofner & Henningsen, Inc. If Lender funds the Real Estate
Term Loan prior to receipt and approval of final appraisals on both the
Clackamas County and Jackson County Real Property, Lender will be authorized to
reserve $5,000,000 of the Real Estate Term Loan until such time, if any, as
Lender has received the appraisals and has determined that they are satisfactory
in all respects. If Lender is not fully satisfied with the appraisal, Lender may
decline to advance all or any part of the $5,000,000 reserved portion of the
Real Estate Term Loan. If Lender funds the Real Estate Term Loan prior to
receipt and approval of Phase II environmental assessment reports with respect
to the Real Property, Lender will be authorized to reserve an additional
$1,000,000 of the Real Estate Term Loan until Lender has received the Phase II
environmental assessment reports (including estimates of any remediation costs)
and has determined that they are satisfactory in all respects. Lender may have
such reports reviewed by an independent environmental consulting firm selected
by Lender, and Borrower shall reimburse Lender for the cost of said review. If
Lender is not fully satisfied with the Phase II environmental assessments,
Lender may decline to advance all or any part of the $1,000,000 reserved
portions of the Real Estate Term Loan. Borrowers acknowledge that they will
perform
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all remediation required or recommended in the Phase II environmental report,
even if the cost of such remediation exceeds the amount reserved by Lender under
this subsection; provided that with respect to remediation that is recommended
(rather than required), Borrower shall be obligated to perform that remediation
only if Lender determines in its sole discretion, that failure to do so would
not (A) affect the marketability of that parcel of Real Property or (B) have a
material adverse effect on the value of that parcel of Real Property. If they
fail or refuse to do so, Lender is authorized, but not required, to perform such
remediation, at the expense of Borrowers. The Real Estate Term Loan will (i) be
evidenced by one or more Term Promissory Notes duly executed and delivered by
UGI; (ii) bear interest at the Interest Rate, with such interest payable
monthly; (iii) be repayable in equal monthly principal payments each in an
amount equal to one-one hundred twentieth (1/120th) of the initial principal
balance, the first principal payment to be due on the first day of February
1999; (iv) subject to Section 3.1(b)(vi), be repayable in full on the fifth
anniversary of the date of this Agreement or upon the earlier termination or
expiration of this Agreement; (v) be secured by all the Collateral; and (vi)
subject to Section 3.1(b)(vi), be repayable in advance at any time without
premium provided that no Event of Default has occurred and is then continuing.
Provided that no Event of Default has occurred and is then continuing, Lender
agrees to release or reconvey the Mortgages upon payment in full of the Real
Estate Term Loan, including interest thereon, notwithstanding the fact that
other Obligations may then be outstanding.
(b) The second term loan (the "Smart & Final Term Loan") will be
in an amount equal to the lesser of (A) $10,000,000 or (B) sixty percent (60%)
of the principal outstanding balance of the Promissory Note dated May 15, 1998
in the original principal sum of $17,500,000 made by Smart & Final, Inc. and
payable to UGI (the "Smart & Final Note") as of the date of initial funding of
the Smart & Final Term Loan. The Smart & Final Term Loan will: (i) be evidenced
by a Term Promissory Note duly executed and delivered by UGI; (ii) bear interest
at the Interest Rate, with such interest payable monthly; (iii) be repayable in
four equal annual principal payments of $2,500,000 each on May 15, 1999, May 15,
2000, May 15, 2001 and May 15, 2002; (iv) be repayable in full upon the
termination or expiration of this Agreement; (v) be secured by all the
Collateral; and (vi) be repayable in advance at any time without premium,
provided that no Event of Default has occurred and is then continuing. The Smart
& Final Note shall be assigned, endorsed and delivered to Lender to be held as
part of the Collateral. UGI shall not amend, compromise or make any settlement
or waiver with respect to, the Smart & Final Note without the prior written
consent of Lender. Provided that no Event of Default has occurred and is then
continuing, Lender agrees to assign, endorse (without recourse) and deliver the
Smart & Final Note to UGI upon payment in full of the Smart & Final Term Loan,
including all interest thereon, notwithstanding the fact that other Obligations
may then be outstanding.
2.4 Availability Reserves. All Revolving Loans otherwise available to
Borrowers pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves. In the event dilution with
respect to Accounts for any period (based on the ratio of (1) the aggregate
amounts of reductions in Accounts other than payments in cash to (2) the
aggregate amount of total sales) exceeds three percent (3%), an Availability
Reserve satisfactory to Lender shall be established with respect thereto.
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3. INTEREST AND FEES
3.1 Interest.
(a) Borrowers shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of any Event of Default or
termination or non-renewal hereof shall be payable on demand.
(b) Borrowers may from time to time request that Prime Rate Loans
be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrowers shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Lender of such a
request from Borrowers, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, (i) no Event of Default, or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing, (ii) no party hereto shall have sent any notice of termination or
non-renewal of this Agreement, (iii) Borrowers shall have complied with such
customary procedures as are established by Lender and specified by Lender to
Borrowers from time to time for requests by Borrowers for Eurodollar Rate Loans,
(iv) no more than four (4) Interest Periods may be in effect at any one time,
(v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not
less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof,
(vi) the maximum amount of the Eurodollar Rate Loans at any time requested by
Borrowers shall not exceed the amount equal to (A) the principal amount of the
Term Loans which it is anticipated will be outstanding as of the last day of the
applicable Interest Period plus (B) ninety (90%) percent of the lowest principal
amount of the Revolving Loans which it is anticipated will be outstanding during
the applicable Interest Period, in each case as determined by Lender (but with
no obligation of Lender to make such Revolving Loans) and (vii) Lender shall
have determined that the Interest Period or Adjusted Eurodollar Rate is
available to Lender through the Reference Bank and can be readily determined as
of the date of the request for such Eurodollar Rate Loan by Borrowers. Any
request by Borrowers to convert Prime Rate Loans to Eurodollar Rate Loans or to
continue any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Lender and Reference
Bank shall not be required to purchase United States Dollar deposits in the
London interbank market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if
Lender and Reference Bank had purchased such deposits to fund the Eurodollar
Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless Lender
has received and approved a request to continue such Eurodollar Rate Loans at
least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrowers, convert to Prime Rate Loans in the event that (i) an
Event of Default or event which, with notice or passage of time, or both, would
constitute an Event of Default, shall exist, (ii) this Agreement shall terminate
or not be renewed,
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or (iii) the aggregate principal amount of the Prime Rate Loans which have
previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate
Loans continued, as the case may be, at the beginning of an Interest Period
shall at any time during such Interest Period exceed either (A) the aggregate
principal amount of the Loans then outstanding, or (B) the sum of the then
outstanding principal amount of the Term Loans plus the Revolving Loans then
available to Borrowers under Section 2 hereof. Borrowers shall pay to Lender,
upon demand by Lender (or Lender may, at its option, charge any loan account(s)
of Borrowers) any amounts required to compensate Lender, the Reference Bank or
any participant with Lender for any loss (including loss of anticipated
profits), cost or expense incurred by such person, as a result of the conversion
of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrowers to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting interest payable by Borrowers to Lender exceed the maximum amount
or the rate permitted under any applicable law or regulation, and if any such
part or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the
amount of $675,000, which shall be fully earned as of and payable on the date
hereof.
3.3 [deleted].
3.4 Servicing Fee. Borrowers shall pay to Lender monthly a servicing
fee in an amount equal to $4,000 in respect of Lender's services for each month
(or part thereof) while this Agreement remains in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
3.5 [deleted].
3.6 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender, Reference
Bank or any participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. Borrowers shall
pay to Lender, upon
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demand by Lender (or Lender may, at its option, charge any loan account(s) of
Borrowers) any amounts required to compensate Lender, the Reference Bank or any
participant with Lender for any loss (including loss of anticipated profits),
cost or expense incurred by such person as a result of the foregoing, including,
without limitation, any such loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such person
to make or maintain the Eurodollar Rate Loans or any portion thereof. A
certificate of Lender setting forth the basis for the determination of such
amount necessary to compensate Lender as aforesaid shall be delivered to
Borrowers and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrowers shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account(s) of Borrowers) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of such prepayment or payment, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance satisfactory
to Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the existing lender or
lenders to Borrowers of their respective financing arrangements with Borrowers
and the termination and release by it or them, as the case may be, of any
interest in and to any assets and properties of Borrowers and each Obligor, duly
authorized, executed and delivered by it or each of them, including, but not
limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrowers or any Obligor, as debtor and (ii) satisfactions and discharges of
any mortgages, deeds of trust or deeds to secure debt by Borrowers or any
Obligor in favor of such existing lender or lenders, in form acceptable for
recording in the appropriate government office;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
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(c) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(d) no material adverse change shall have occurred in the assets,
business or prospects of Borrowers, or either of them, since the date of
Lender's latest field examination and no change or event shall have occurred
which would impair the ability of Borrowers, or either of them, or any Obligor
to perform its obligations hereunder or under any of the other Financing
Agreements to which it is a party or of Lender to enforce the Obligations or
realize upon the Collateral;
(e) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require, and
Lender shall have received current agings of receivables, current perpetual
inventory records and/or rollforwards of accounts and inventory through the date
of closing, and documentation with respect to inventory in transit, goods in
bonded warehouses or at other third-party locations, to determine the amount of
Revolving Loans available to Borrowers, the results of which shall be
satisfactory to Lender, not more than three (3) business days prior to the date
hereof;
(f) Lender shall have received, in form and substance satisfactory
to Lender, all consents, waivers, acknowledgments and other agreements from
third persons which Lender may deem necessary or desirable in order to permit,
protect and perfect its security interests in and liens upon the Collateral or
to effectuate the provisions or purposes of this Agreement and the other
Financing Agreements, including acknowledgments by lessors, mortgagees and
warehousemen of Lender's security interests in the Collateral, waivers by such
persons of any security interests, liens or other claims by such persons to the
Collateral and agreements permitting Lender access to, and the right to remain
on, the premises to exercise its rights and remedies and otherwise deal with the
Collateral;
(g) Lender shall have received environmental assessments with
respect to the Real Property conducted by an independent environmental
consulting firm acceptable to Lender, and in form, scope and methodology
satisfactory to Lender, confirming (i) that such property and the owner and all
occupants thereof are in material compliance with all applicable Environmental
Laws and (ii) the absence of any material environmental problems; provided,
however, that if such assessments have not been delivered to Lender as of the
date of this Agreement and Lender nevertheless elects to fund the Loans, such
assessments shall be delivered to Lender no later than October 31, 1998;
(h) Lender shall have received, in form and substance satisfactory
to Lender, valid and effective title insurance policies (or commitments
therefor) issued by a company and agent acceptable to Lender (i) insuring the
priority, amount and sufficiency of the Mortgages, and (ii) containing any
legally available endorsements, assurances or affirmative coverages requested by
Lender for protection of its interests;
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(i) Lender shall have received appraisals or opinions of value, in
form, scope and substance satisfactory to Lender, with respect to the Real
Property; provided, however, that if such appraisals have not been delivered to
Lender as of the date of this Agreement and Lender nevertheless elects to fund
the Loans, such appraisals shall be delivered to Lender no later than August 15,
1998 for the Real Property in Clackamas County and September 15, 1998 for the
Real Property in Jackson County;
(j) The Smart & Final Note shall have been assigned, endorsed,
negotiated, and delivered to Lender, Lender shall have received an
acknowledgment of such assignment from Smart & Final, Inc. in form and substance
satisfactory to Lender, and Lender shall have confirmed the creditworthiness of
Smart & Final, Inc. to its satisfaction;
(k) The Eligible Notes shall have been assigned, endorsed,
negotiated, and delivered to Lender, and Lender shall have received
acknowledgments of assignment from such of the makers of the Eligible Notes, in
form and substance satisfactory to Lender, as Lender shall have determined in
its sole discretion;
(l) Lender shall have entered into all such subordination and
intercreditor agreements with third parties as Lender requires in its
discretion, all in form and substance satisfactory to Lender;
(m) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(n) the Excess Availability as determined by Lender, as of the
date hereof, shall be satisfactory to Lender in its discretion after giving
effect to the initial Loans made or to be made and Letter of Credit
Accommodations issued or to be issued in connection with the initial
transactions hereunder;
(o) Lender shall have received, in form and substance satisfactory
to Lender, such opinion letters of counsel to Borrowers with respect to the
Financing Agreements and such other matters as Lender may request; and
(p) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrowers, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of
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each such Loan or providing each such Letter of Credit Accommodation and after
giving effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrowers, and
each of them, hereby grant to Lender a continuing security interest in, a lien
upon, and a right of setoff against, and hereby assign to Lender as security,
the following property and interests in property of Borrowers, and each of them,
whether now owned or hereafter acquired or existing, and wherever located
(collectively, the "Collateral"). All Obligations are fully
cross-collateralized; the Collateral owned by each Borrower shall secure not
only its own Obligations, but also the Obligations of the other Borrower:
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment, real estate and
fixtures), chattel paper, documents, instruments, securities and other
investment property, letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrowers, and each of them,
now or hereafter held or received by or in transit to Lender or its affiliates
or at any other depository or other institution from or for the account of
Borrowers, and each of them, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Accounts and other Collateral, including (a) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (b) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Accounts or other Collateral, including returned, repossessed and
reclaimed goods, and (d) deposits by and property of account debtors or other
persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
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5.6 Records;
5.7 Real Property; and
5.8 all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Account(s). Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrowers, or either of them, and (c) all other
appropriate debits and credits as provided in this Agreement, including fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Lender's customary practices as in effect from time
to time.
6.2 Statements. Lender shall render to Borrowers each month a
statement setting forth the balance in Borrowers' loan account(s) maintained by
Lender for Borrowers pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrowers and
conclusively binding upon Borrowers as an account stated except to the extent
that Lender receives a written notice from Borrowers of any specific exceptions
of Borrowers thereto within thirty (30) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to
Borrowers a written statement as provided above, the balance in Borrowers' loan
account(s) shall be presumptive evidence of the amounts due and owing to Lender
by Borrowers.
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6.3 Collection of Accounts.
(a) Borrowers shall establish and maintain, at their expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrowers shall promptly deposit and direct their account
debtors and note obligors to directly remit all payments on Accounts and on
notes and all payments constituting proceeds of Inventory or other Collateral in
the identical form in which such payments are made, whether by cash, check or
other manner. The banks at which the Blocked Accounts are established shall
enter into an agreement, in form and substance satisfactory to Lender, providing
that all items received or deposited in the Blocked Accounts are the property of
Lender, that the depository bank has no lien upon, or right to setoff against,
the Blocked Accounts, the items received for deposit therein, or the funds from
time to time on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily basis, all funds
received or deposited into the Blocked Accounts to such bank account of Lender
as Lender may from time to time designate for such purpose ("Payment Account").
Borrowers agree that all payments made to such Blocked Accounts or other funds
received and collected by Lender, whether on the Accounts or notes or as
proceeds of Inventory or other Collateral, or otherwise, shall be the property
of Lender.
(b) For purposes of calculating the amount of the Loans available
to Borrowers, such payments will be applied (conditional upon final collection)
to the Obligations on the business day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrowers' loan
account(s) on such day, and if not, then on the next business day. For the
purposes of calculating interest on the Obligations, such payments or other
funds received will be applied (conditional upon final collection) to the
Obligations one (1) business day following the date of receipt of immediately
available funds by Lender in the Payment Account provided such payments or other
funds and notice thereof are received in accordance with Lender's usual and
customary practices as in effect from time to time and within sufficient time to
credit Borrowers' loan account(s) on such day, and if not, then on the next
business day.
(c) Borrowers and all of their respective affiliates,
subsidiaries, shareholders, directors, employees or agents shall, acting as
trustee for Lender, receive, as the property of Lender, any monies, checks,
notes, drafts or any other payment relating to and/or proceeds of Accounts or
other Collateral which come into their possession or under their control and
immediately upon receipt thereof, shall deposit or cause the same to be
deposited in the Blocked Accounts, or remit the same or cause the same to be
remitted, in kind, to Lender. In no event shall the same be commingled with a
Borrower's own funds. Borrowers agree to reimburse Lender on demand for any
amounts owed or paid to any bank at which a Blocked Account is established or
any other bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Lender's payments to or indemnification of such
bank or person. The obligation of Borrowers to reimburse Lender for such amounts
pursuant to this Section 6.3 shall survive the termination or non-renewal of
this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Prior to the occurrence of an Event of Default, Lender shall not apply
payments received or collected from
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Borrowers under Section 6.3 to prepay the Term Loans, unless Borrowers direct
Lender to do so. Except as provided in the preceding sentence, Lender may apply
payments received or collected from Borrowers or for the account of Borrowers
(including the monetary proceeds of collections or of realization upon any
Collateral) to such of the Obligations, whether or not then due, in such order
and manner as Lender determines. At Lender's option, all principal, interest,
fees, costs, expenses and other charges provided for in this Agreement or the
other Financing Agreements may be charged directly to the loan account(s) of
Borrowers. Borrowers shall make all payments to Lender on the Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, or any duties, taxes, levies, imposts, fees,
deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrowers shall be liable to pay to Lender, and
Borrowers, and each of them, do hereby indemnify and hold Lender harmless for,
the amount of any payments or proceeds surrendered or returned. This Section 6.4
shall remain effective notwithstanding any contrary action which may be taken by
Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of either Borrower
or other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. URI hereby appoints UGI and each officer
of UGI as its agent and attorney- in-fact for purposes of requesting Loans;
giving other instructions and directions of every nature to Lender in connection
with the financing arrangements provided for in this Agreement; executing and
delivering certificates, instruments and other documents; furnishing
information; and taking any and all actions of every nature in connection with
this Agreement, the other Financing Agreements and matters relating thereto.
Lender shall be authorized to rely upon such requests, instructions and
directions without confirmation by URI. All requests for Loans or Letter of
Credit Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established (which day
shall be a business day) and the amount of the requested Loan. Requests received
after 11:00 a.m. Portland, Oregon time on any day shall be deemed to have been
made as of the opening of business on the immediately following business day.
All Loans and Letter of Credit Accommodations under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, a Borrower when deposited to the credit of such Borrower or
otherwise disbursed or established in accordance with the instructions of such
Borrower or its agent or in accordance with the terms and conditions of this
Agreement.
6.6 Use of Proceeds. Borrowers shall use the initial proceeds of the
Loans provided by Lender to Borrowers hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by
Borrowers to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrowers pursuant to the provisions
hereof
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shall be used by Borrowers only for general operating, working capital and other
proper corporate purposes of Borrowers not otherwise prohibited by the terms
hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.
7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrowers shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts, sales made, credits issued and cash
received; (b) on a monthly basis or more frequently as Lender may request, (i)
perpetual inventory reports, (ii) inventory reports by category and (iii) agings
of accounts payable, (c) upon Lender's request, (i) copies of customer
statements and credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (ii) copies of shipping and delivery
documents, and (iii) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrowers; (d) agings of accounts
receivable on a monthly basis or more frequently as Lender may request; and (e)
such other reports as to the Collateral as Lender shall request from time to
time. If any of Borrowers' records or reports of the Collateral are prepared or
maintained by an accounting service, contractor, shipper or other agent, each
Borrower hereby irrevocably authorizes such service, contractor, shipper or
agent to deliver such records, reports, and related documents to Lender and to
follow Lender's instructions with respect to further services at any time that
an Event of Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Each Borrower shall notify Lender promptly of: (i) any
material delay in such Borrower's performance of any of its obligations to any
account debtor or the assertion of any claims, offsets, defenses or
counterclaims by any account debtor or note obligor, or any disputes with
account debtors or note obligors, or any settlement, adjustment or compromise
thereof, (ii) all material adverse information relating to the financial
condition of any account debtor or note obligor and (iii) any event or
circumstance which, to Borrower's knowledge, would cause Lender to consider any
then existing Accounts as no longer constituting Eligible Accounts or any then
existing notes as no longer constituting Eligible Notes Receivable. No credit,
discount, allowance, rebate or extension or agreement for any of the foregoing
shall be granted to any account debtor or note obligor without Lender's consent,
except in the ordinary course of a Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. So long as no
Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor or note obligor other than an obligor under an Eligible Note. In
no event shall Borrowers settle, adjust or compromise any claim, offset,
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counterclaim or dispute with respect to any Eligible Note without Lender's prior
written consent which it may give or withhold in its sole discretion. At any
time that an Event of Default exists or has occurred and is continuing, Lender
shall, at its option, have the exclusive right to settle, adjust or compromise
any claim, offset, counterclaim or dispute with account debtors or note obligors
or grant any credits, discounts, allowances or rebates.
(b) Without limiting the obligation of Borrowers to deliver any
other information to Lender, Borrowers shall promptly report to Lender any
return of Inventory by any one account debtor if the inventory so returned in
such case has a value in excess of $25,000. At any time that Inventory is
returned, reclaimed or repossessed, the Account (or portion thereof) which arose
from the sale of such returned, reclaimed or repossessed Inventory shall not be
deemed an Eligible Account. In the event any account debtor returns Inventory
when an Event of Default exists or has occurred and is continuing, Borrowers
shall, upon Lender's request, (i) hold the returned Inventory in trust for
Lender, (ii) segregate all returned Inventory from all of its other property,
(iii) dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account and each note receivable: (i) the
amounts shown on any invoice delivered to Lender or schedule thereof delivered
to Lender shall be true and complete, (ii) no payments shall be made thereon
except payments immediately delivered to Lender pursuant to the terms of this
Agreement, (iii) no credit, discount, allowance, rebate or extension or
agreement for any of the foregoing shall be granted except as reported to Lender
in accordance with this Agreement and except for credits, discounts, allowances,
rebates or extensions made or given in the ordinary course of Borrower's
business in accordance with practices and policies previously disclosed to
Lender, (iv) there shall be no setoffs, deductions, contras, defenses,
counterclaims or disputes existing or asserted with respect thereto except as
reported to Lender in accordance with the terms of this Agreement, (v) none of
the transactions giving rise thereto will violate any applicable State or
Federal laws or regulations, all documentation relating thereto will be legally
sufficient under such laws and regulations and all such documentation will be
legally enforceable in accordance with its terms. Neither Borrower shall make or
allow any offset or deduct from or against any Account or note receivable on
account of any obligation owing to such Borrower by the account debtor or note
obligor without the prior written approval of Lender. Lender agrees that
Borrower may discount Accounts to adjust for overstatements, damaged goods or
other overcharges, but only in the ordinary course of Borrowers' business
consistent with past practice and only in amounts of $10,000 or less with
respect to any invoice.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account, note receivable or other Collateral,
by mail, telephone, facsimile transmission or otherwise.
(e) Borrowers, and each of them, shall deliver or cause to be
delivered to Lender, with appropriate endorsement and assignment, with full
recourse to the assigning Borrower, all chattel paper, notes and other
instruments which either Borrower now owns or may at any time acquire
immediately upon such Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
or note obligors that the
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Accounts and notes have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all account debtors and note
obligors to make payment of Accounts and notes directly to Lender, (ii) extend
the time of payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all
Accounts, notes or other obligations included in the Collateral and thereby
discharge or release the account debtor, note obligor or any other party or
parties in any way liable for payment thereof without affecting any of the
Obligations, (iii) demand, collect or enforce payment of any Accounts, notes or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the protection
of its interests. At any time that an Event of Default exists or has occurred
and is continuing, at Lender's request, all invoices and statements sent to any
account debtor or note obligor shall state that the Accounts and such other
obligations have been assigned to Lender and are payable directly and only to
Lender, and Borrowers shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrowers
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, the Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrowers shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrowers shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of a Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, each
Borrower shall, at its expense, no more than once in any twelve (12) month
period, but at any time or times as Lender may request on or after an Event of
Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender, addressed to Lender or upon
which Lender is expressly permitted to rely; (e) Borrowers shall produce, use,
store and maintain the Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(f) each Borrower assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of its Inventory; (g)
Borrowers shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate either Borrower to
repurchase such Inventory; (h) Borrowers shall keep the Inventory in good and
marketable condition; and (i) Borrowers shall not, without prior written notice
to Lender, acquire or accept any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon
Lender's request, Borrowers shall, at their expense, at any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Equipment in form,
scope and methodology acceptable
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to Lender and by an appraiser acceptable to Lender; (b) Borrowers shall keep the
Equipment in good order, repair, running and marketable condition (ordinary wear
and tear excepted); (c) Borrowers shall use the Equipment with all reasonable
care and caution and in accordance with applicable standards of any insurance
and in conformity with all applicable laws; (d) the Equipment is and shall be
used in a Borrower's business and not for personal, family, household or farming
use; (e) Borrowers shall not remove any Equipment from the locations set forth
or permitted herein, except to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of the business of a Borrower or
to move Equipment directly from one location set forth or permitted herein to
another such location and except for the movement of motor vehicles used by or
for the benefit of a Borrower in the ordinary course of business; (f) the
Equipment is now and shall remain personal property and Borrowers shall not
permit any of the Equipment to be or become a part of or affixed to real
property; and (g) each Borrower assumes all responsibility and liability arising
from the use of its Equipment.
7.5 Note Covenants. Borrowers shall (a) cause the representations and
warranties contained in Section 8.12 to continue to be true and correct at all
times; (b) use its best effort to collect and service all notes including the
Eligible Notes; (c) use its best efforts to preserve the holder's rights under
all notes, including all Eligible Notes, and under all Related Documents; (d)
use its best efforts to preserve all collateral securing the Eligible Notes and
all other notes, including the filing of all continuation statements for any
financing statements that relate to those notes; (e) immediately notify Lender
in the event any Eligible Note remains unpaid more than 30 days past any
scheduled payment date; and (f) promptly notify Lender in the event any other
criteria set forth in Section 1.11 fails at any time to remain true and correct
with respect to an Eligible Note.
7.6 Power of Attorney. Borrowers, and each of them, hereby irrevocably
designate and appoint Lender (and all persons designated by Lender) as each
Borrower's true and lawful attorney-in-fact, and authorize Lender, in Lender's
name or in the names of Borrowers, or either of them, to: (a) at any time an
Event of Default or event which with notice or passage of time or both would
constitute an Event of Default exists or has occurred and is continuing (i)
demand payment on Accounts, notes or other proceeds of Inventory or other
Collateral, (ii) enforce payment of Accounts or notes by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account, note or other Collateral, (iv) sell or assign any Account upon such
terms, for such amount and at such time or times as the Lender deems advisable,
(v) settle, adjust, compromise, extend or renew an Account or note, (vi)
discharge and release any Account or note, (vii) prepare, file and sign
Borrower's name on any proof of claim in bankruptcy or other similar document
against an account debtor or note obligor, (viii) notify the post office
authorities to change the address for delivery of each Borrower's mail to an
address designated by Lender, and open and dispose of all mail addressed to
either Borrower, and (ix) do all acts and things which are necessary, in
Lender's determination, to fulfill Borrowers' obligations under this Agreement
and the other Financing Agreements and (b) at any time to (i) take control in
any manner of any item of payment or proceeds thereof, (ii) have access to any
lockbox or postal box into which either Borrower's mail is deposited, (iii)
endorse Borrowers' names upon any items of payment or proceeds thereof and
deposit the same in the Lender's account for application to the Obligations,
(iv) endorse Borrowers' names upon any chattel paper, document, instrument,
invoice, or similar document or agreement relating to any Account, note or any
goods pertaining thereto or any other Collateral, (v) sign Borrowers' names on
any verification of Accounts or notes receivable and notices thereof to account
debtors and note
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obligors; (vi) execute in Borrowers' names and file any UCC financing statements
or amendments thereto; and (vii) execute, deliver, file, record or otherwise
deal with the collateral and Related Documents for each Eligible Note.
Borrowers, and each of them, hereby release Lender and its officers, employees
and designees from any liabilities arising from any act or acts under this power
of attorney and in furtherance thereof, whether of omission or commission,
except as a result of Lender's own gross negligence or willful misconduct as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction.
7.7 Right to Cure. Lender may, at its option, (a) cure any default by
Borrowers, or either of them, under any agreement with a third party or pay or
bond on appeal any judgment entered against Borrowers, or either of them, (b)
discharge taxes, liens, security interests or other encumbrances at any time
levied on or existing with respect to the Collateral and (c) pay any amount,
incur any expense or perform any act which, in Lender's judgment, is necessary
or appropriate to preserve, protect, insure or maintain the Collateral and the
rights of Lender with respect thereto. Lender may add any amounts so expended to
the Obligations and charge Borrowers' account(s) therefor, such amounts to be
repayable by Borrowers on demand. Lender shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of either Borrower. Any payment made or
other action taken by Lender under this Section shall be without prejudice to
any right to assert an Event of Default hereunder and to proceed accordingly.
7.8 Access to Premises. From time to time as requested by Lender, at
the cost and expense of Borrowers, (a) Lender or its designee shall have
complete access to all of Borrowers' respective premises during normal business
hours upon at least twenty-four (24) hours' prior notice to the affected
Borrower, or at any time and without notice if an Event of Default exists or has
occurred and is continuing, for the purposes of inspecting, verifying and
auditing the Collateral and all of Borrowers' books and records, including the
Records, and (b) Borrowers shall promptly furnish to Lender such copies of such
books and records or extracts therefrom as Lender may request, and (c) use
during normal business hours such of Borrowers' personnel, equipment, supplies
and premises as may be reasonably necessary for the foregoing and if an Event of
Default exists or has occurred and is continuing for the collection of Accounts
and notes and realization of other Collateral.
8. REPRESENTATIONS AND WARRANTIES
Borrowers, and each of them, hereby represent and warrant to Lender the
following (which shall survive the execution and delivery of this Agreement),
the truth and accuracy of which are a continuing condition of the making of
Loans and providing Letter of Credit Accommodations by Lender to Borrowers:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each
Borrower is a corporation duly organized and validly existing under the laws of
its state of incorporation and is duly qualified as a foreign corporation and in
good standing in all states or other jurisdictions where the nature and extent
of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the Borrower's financial
condition, results of
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operation or business or the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this Agreement, the other Financing
Agreements and the transactions contemplated hereunder and thereunder are all
within each Borrower's corporate powers, have been duly authorized and are not
in contravention of law or the terms of each Borrower's respective articles of
incorporation, bylaws, or other organizational documentation, or any indenture,
agreement or undertaking to which either Borrower is a party or by which either
Borrower or its property are bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of Borrowers, and
each of them, enforceable in accordance with their respective terms. Neither
Borrower has any subsidiaries except as set forth on its Information
Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrowers, or either of them, which have been or may
hereafter be delivered by Borrowers, or either of them, to Lender have been
prepared in accordance with GAAP and fairly present the financial condition and
the results of operation of Borrowers as at the dates and for the periods set
forth therein. Except as disclosed in any interim financial statements furnished
by Borrowers, or either of them, or except as otherwise set forth in Schedule
8.2, to Lender prior to the date of this Agreement, there has been no material
adverse change in the assets, liabilities, properties and condition, financial
or otherwise, of Borrowers, or either of them, since the date of the most recent
audited financial statements furnished by Borrowers to Lender prior to the date
of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of each Borrower and each Borrower's Records concerning Accounts are
located only at the address set forth below and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificates, subject to the right of each Borrower
to establish new locations in accordance with Section 9.2 below. The Information
Certificates correctly identify any of such locations which are not owned by a
Borrower and set forth the owners and/or operators thereof and to the best of
each Borrower's knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Each Borrower has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Each Borrower
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, except taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower and with respect to which adequate reserves have been
set aside on its books. Adequate provision has been made for
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the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificates,
there is no present investigation by any governmental agency pending, or to the
best of either Borrower's knowledge threatened, against or affecting either
Borrower, its assets or business and there is no action, suit, proceeding or
claim by any Person pending, or to the best of either Borrower's knowledge
threatened, against either Borrower or its assets or goodwill, or against or
affecting any transactions contemplated by this Agreement, which if adversely
determined against such Borrower would result in any material adverse change in
the assets, business or prospects of such Borrower or would impair the ability
of such Borrower to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to enforce any
Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Except as
set forth in Schedule 8.7, neither Borrower is in default in any material
respect under, or in violation in any material respect of any of the terms of,
any agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound and each Borrower is in
compliance in all material respects with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders of any foreign,
Federal, State or local governmental authority.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, neither Borrower
has generated, used, stored, treated, transported, manufactured, handled,
produced or disposed of any Hazardous Materials, on or off its premises (whether
or not owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operations of Borrowers comply in all material
respects with all Environmental Laws and all licenses, permits, certificates,
approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of each Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
a Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects either Borrower or
its business, operations or assets or any properties at which a Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) Neither Borrower has any material liability (contingent or
otherwise) in connection with a release, spill or discharge, threatened or
actual, of any Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials.
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(d) Each Borrower has all licenses, permits, certificates,
approvals or similar authorizations required to be obtained or filed in
connection with the operations of such Borrower under any Environmental Law and
all of such licenses, permits, certificates, approvals or similar authorizations
are valid and in full force and effect.
8.9 Employee Benefits.
(a) To Borrowers' knowledge after due investigation, neither
Borrower has engaged in any material transaction in connection with which such
Borrower or any of its ERISA Affiliates could be subject to either a material
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code, including any material accumulated funding deficiency
described in Section 8.9(c) hereof and any material deficiency with respect to
vested accrued benefits described in Section 8.9(d) hereof.
(b) To Borrowers' knowledge after due investigation, no material
liability to the Pension Benefit Guaranty Corporation has been or is expected by
either Borrower to be incurred with respect to any employee benefit plan of
either Borrower or any of its ERISA Affiliates. There has been no reportable
event (within the meaning of Section 4043(b) of ERISA) or any other event or
condition with respect to any employee pension benefit plan of either Borrower
or any of its ERISA Affiliates which presents a risk of termination of any such
plan by the Pension Benefit Guaranty Corporation.
(c) To Borrowers' knowledge after due investigation, full payment
has been made of all amounts which each Borrower or any of its ERISA Affiliates
is required under Section 302 of ERISA and Section 412 of the Code to have paid
under the terms of each employee benefit plan as contributions to such plan as
of the last day of the most recent fiscal year of such plan ended prior to the
date hereof, and no material accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any employee benefit plan, including any penalty or tax
described in Section 8.9(a) hereof and any material deficiency with respect to
vested accrued benefits described in Section 8.9(d) hereof.
(d) To Borrowers' knowledge after due investigation, the current
value of all vested accrued benefits under all employee benefit plans maintained
by either Borrower that are subject to Title IV of ERISA does not exceed the
current value of the assets of such plans allocable to such vested accrued
benefits, including any penalty or tax described in Section 8.9(a) hereof and
any material accumulated funding deficiency described in Section 8.9(c) hereof.
The terms "current value" and "accrued benefit" have the meanings specified in
ERISA.
(e) With respect to any multiemployer plan (as such term is
defined in Section 400(a)(3) of ERISA) in which either Borrower or any ERISA
Affiliate participates or has participated, (i) neither Borrower nor any ERISA
Affiliate has withdrawn, partially withdrawn, or received any notice of any
claim or demand for withdrawal liability or partial withdrawal liability, (ii)
neither Borrower nor any ERISA Affiliate has received any notice that any such
plan is in reorganization, that increased contributions may be required to avoid
a reduction in plan benefits or the imposition of any excise tax, or that any
such plan is or may become insolvent, (iii) neither Borrower nor any ERISA
Affiliate has failed to make any required
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contributions, (iv) no such plan is a party to any pending merger or asset or
liability transfer, and (v) there are no PBGC proceedings against or affecting
any such plan.
8.10 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrowers, or either of them,
maintained at any bank or other financial institution are set forth on Schedule
8.10 hereto, subject to the right of Borrowers to establish new accounts in
accordance with Section 9.13 below.
8.11 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrowers, or either of them, in writing to Lender
in connection with this Agreement or any of the other Financing Agreements or
any transaction contemplated hereby or thereby, including all information on the
Information Certificates, is true and correct in all material respects on the
date as of which such information is dated or certified and does not omit any
material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrowers, or either of them, which has not been fully and accurately disclosed
to Lender in writing.
8.12 Eligible Notes. With respect to each note that Borrower proposes
become an Eligible Note and with respect to each Related Document:
(a) The information in each Note Schedule, together with any
documentation supporting such information, is true and correct.
(b) There exists only one original of such note, and the original
and all of the other original or certified documents described in Section 1.11
have been delivered or will be delivered to Lender before Lender makes any
advances with respect to that note.
(c) Immediately prior to delivery of the note and the related
endorsement(s) to Lender, the assigning Borrower held good and indefeasible
title to, and was the sole owner of each such note, subject to no liens,
charges, mortgages, encumbrances or rights of others and immediately upon
delivery of the note to Lender, Lender will have a first priority security
interest in such note, subject to no other liens, charges, mortgages,
encumbrances or rights of others.
(d) The note and Related Documents delivered to Lender are true,
correct, and complete original counterparts of all instruments and documents
evidencing or in any way relating to that note and the related indebtedness
referred to therein.
(e) Borrowers have caused all copies of any note retained by
Borrowers to be identified with an appropriate legend clearly disclosing the
fact that Lender has possession of and a security interest in such note and
Related Documents.
8.13 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation
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made or information possessed by Lender. The representations and warranties set
forth herein shall be cumulative and in addition to any other representations or
warranties which Borrowers shall now or hereafter give, or cause to be given, to
Lender.
9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Each Borrower shall at all times
preserve, renew and keep in full force and effect its corporate existence and
rights and franchises with respect thereto and maintain in full force and effect
all permits, licenses, trademarks, trade names, approvals, authorizations,
leases and contracts necessary to carry on its business as presently or proposed
to be conducted. Each Borrower shall give Lender thirty (30) days prior written
notice of any proposed change in its corporate name, which notice shall set
forth the new name, and Borrower shall deliver to Lender a copy of the amendment
to the Articles of Incorporation of Borrower providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation of
Borrower as soon as it is available.
9.2 New Collateral Locations. Either Borrower may open any new
location within the continental United States provided such Borrower (a) gives
Lender thirty (30) days prior written notice of the intended opening of any such
new location and (b) executes and delivers, or causes to be executed and
delivered, to Lender such agreements, documents, and instruments as Lender may
deem reasonably necessary or desirable to protect its interests in the
Collateral at such location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrowers shall, at all times, comply in all material respects
with all laws, rules, regulations, licenses, permits, approvals and orders
applicable to them and duly observe all requirements of any Federal, State or
local governmental authority, including the Employee Retirement Security Act of
1974, as amended, the Occupational Safety and Health Act of 1970, as amended,
PACA, the PSA, the Fair Labor Standards Act of 1938, as amended, and all
statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including all of the
Environmental Laws; except that Borrowers' failure to file the reports described
on Schedule 8.7 shall not constitute a breach of this provision so long as (i)
the failure to file such reports does not violate any governmental order; and
(ii) all such reports have been filed, or the circumstances have changed such
that filing is no longer necessary, in either case by no later than January 31,
1999.
(b) Borrowers shall establish and maintain, at their expense, a
system to assure and monitor their continued compliance with all Environmental
Laws in all of their operations, which system shall include annual reviews of
such compliance by employees or agents of Borrowers who are familiar with the
requirements of the Environmental Laws. Copies of all environmental surveys,
audits, assessments, feasibility studies and results of remedial investigations
shall be promptly furnished, or caused to be furnished, by Borrowers to Lender.
Borrowers shall take prompt and appropriate action to respond to any
non-compliance with any of the Environmental Laws and shall regularly report to
Lender on such response.
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(c) Borrowers shall give both oral and written notice to Lender
immediately upon a Borrower's receipt of any notice of, or a Borrower's
otherwise obtaining knowledge of, (i) the occurrence of any event involving the
release, spill or discharge, threatened or actual, of any Hazardous Material or
(ii) any investigation, proceeding, complaint, order, directive, claim, citation
or notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by a Borrower or (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material except in compliance with
applicable Environmental Laws; or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials except in compliance with applicable Environmental Laws; or (D) any
other environmental, health or safety matter, which affects a Borrower or its
business, operations or assets or any properties at which either Borrower
transported, stored or disposed of any Hazardous Materials.
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is non-compliance with any Environmental
Law, or any condition which requires any action by or on behalf of Borrowers, or
either of them, in order to avoid any material non-compliance, with any
Environmental Law, Borrowers shall, at Lender's request and Borrowers' expense:
(i) cause an independent environmental consultant acceptable to Lender to
conduct such tests of the site where a Borrower's non-compliance or alleged
non-compliance with such Environmental Laws has occurred as to such
non-compliance and prepare and deliver to Lender a report as to such
non-compliance setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof and (ii) provide to Lender a supplemental report of such
consultant whenever the scope of such non-compliance, or Borrowers' response
thereto or the estimated costs thereof, shall change in any material respect.
(e) Borrowers shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property of
Borrowers, or either of them, and the preparation and implementation of any
closure, remedial or other required plans. All representations, warranties,
covenants and indemnifications in this Section 9.3 shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims.
(a) Each Borrower shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to such Borrower and
with respect to which adequate reserves have been set aside on its books.
(b) Borrowers shall be liable for any taxes or penalties imposed on
Lender as a result of the financing arrangements provided for herein, and
Borrowers agree to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the
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amount thereof, and until paid by Borrowers such amount shall be added and
deemed part of the Revolving Loans, provided, that, nothing contained herein
shall be construed to require Borrowers to pay any income, franchise or other
similar taxes attributable to the net income of Lender from any amounts charged
or paid hereunder to Lender. The foregoing indemnity shall survive the payment
of the Obligations and the termination or non-renewal of this Agreement.
(c) In the event Lender shall assign all or any interest in the
Obligations to an assignee that is organized under the laws of a jurisdiction
outside the United States, such assignee shall provide Borrowers with an IRS
Form 4224 or Form 1001 or other applicable form, certificate or document
prescribed by the Internal Revenue Service certifying as to such assignee's
entitlement to full exemption from United States withholding tax with respect to
all payments to be made to such assignee under this Agreement and under any of
the other Financing Agreements (unless such assignee of Lender is unable to do
so by reason of a change in law (including, without limitation, any statute,
treaty, ruling, determination or regulation) occurring subsequent to the
effective date of such assignment). Unless Borrowers have received forms or
other documents reasonably satisfactory to them indicating that payments
hereunder or under any of the other Financing Agreements are not subject to
United States of America withholding tax, Borrowers shall, in the case of
payments to or for any assignee of Lender organized under the laws of a
jurisdiction outside the United States (i) withhold taxes from such payments at
the applicable statutory rate, or at a rate reduced by an applicable tax treaty
(provided that Borrowers have received forms or other documents satisfactory to
them indicating that such reduced rate applies) and (ii) pay such assignee such
payment net of any taxes withheld. Such assignee will be required to use
reasonable efforts (including reasonable efforts to change its lending office)
to avoid or to minimize any amounts which might otherwise be payable by Borrower
pursuant to this Section 9.4; provided, that, such efforts shall not cause the
imposition on such assignee of any additional costs or legal or regulatory
burdens deemed by such assignee in good faith to be material.
9.5 Insurance. Borrowers shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount and insurer. Borrowers shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrowers fail to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrowers. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrowers, and
each of them, in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Borrowers shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrowers shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrowers or any of their affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
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whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations.
WARNING
UNLESS BORROWERS PROVIDE LENDER WITH EVIDENCE OF
THE INSURANCE COVERAGE AS REQUIRED BY THIS
AGREEMENT, LENDER MAY PURCHASE INSURANCE AT
BORROWERS' EXPENSE TO PROTECT LENDER'S INTEREST.
THIS INSURANCE MAY, BUT NEED NOT, ALSO PROTECT
BORROWERS' INTEREST. IF THE COLLATERAL BECOMES
DAMAGED, THE COVERAGE LENDER PURCHASES MAY NOT PAY
ANY CLAIM BORROWERS MAKE OR ANY CLAIM MADE AGAINST
BORROWERS. BORROWERS MAY LATER CANCEL THIS COVERAGE
BY PROVIDING EVIDENCE THAT BORROWERS HAVE OBTAINED
THE REQUIRED COVERAGE ELSEWHERE.
BORROWERS ARE RESPONSIBLE FOR THE COST OF ANY
INSURANCE PURCHASED BY LENDER. THE COST OF THIS
INSURANCE MAY BE ADDED TO BORROWERS' LIABILITIES.
IF THE COST IS ADDED TO BORROWERS' LIABILITIES, THE
INTEREST RATE APPLICABLE TO THE REVOLVING LOANS
WILL APPLY TO THIS ADDED AMOUNT. THE EFFECTIVE DATE
OF COVERAGE MAY BE THE DATE BORROWERS' PRIOR
COVERAGE LAPSED OR THE DATE BORROWERS FAILED TO
PROVIDE PROOF OF COVERAGE.
THE COVERAGE LENDER PURCHASES MAY BE CONSIDERABLY
MORE EXPENSIVE THAN INSURANCE BORROWERS CAN OBTAIN
ON THEIR OWN AND MAY NOT SATISFY ANY NEED FOR
PROPERTY DAMAGE COVERAGE OR ANY MANDATORY LIABILITY
INSURANCE REQUIREMENTS IMPOSED BY APPLICABLE LAW.
9.6 Financial Statements and Other Information.
(a) Borrowers shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrowers and their subsidiaries
(if any) in accordance with GAAP, and Borrowers shall furnish or cause to be
furnished to Lender: (i) within thirty-five (35) days after the end of each
fiscal month, monthly unaudited consolidated financial statements (including in
each case balance sheets, statements of income and loss, and statements of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of
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Borrowers and their subsidiaries as of the end of and through such fiscal month;
(ii) within forty-five (45) days after the end of each of the first three fiscal
quarters, internally prepared quarterly unaudited consolidated financial
statements and unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, statements of cash flow, and
statements of shareholders' equity), all in reasonable detail and certified by
Borrowers' chief financial officer as fairly presenting the financial position
and the results of the operations of Borrowers and their subsidiaries as of the
end of and through such fiscal quarter and; (iii) within one hundred twenty
(120) days after the end of each fiscal year, audited consolidated financial
statements and audited consolidating financial statements of Borrowers and their
subsidiaries (including in each case balance sheets, statements of income and
loss, statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrowers and their
subsidiaries as of the end of and for such fiscal year, together with the
unqualified opinion of independent certified public accountants, which
accountants shall be an independent accounting firm selected by Borrowers and
reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrowers and their subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrowers shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in either
Borrower's business, properties, assets, goodwill or condition, financial or
otherwise and (ii) the occurrence of any Event of Default or event which, with
the passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrowers shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrowers
send to their stockholders generally and copies of all reports and registration
statements which either Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrowers shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrowers, and each of them, as Lender may, from
time to time, reasonably request. Lender is hereby authorized to deliver a copy
of any financial statement or any other information relating to the business of
Borrowers, and each of them, to any court or other government agency or to any
Participant or assignee or prospective Participant or assignee. Borrowers, and
each of them, hereby irrevocably authorize and direct all accountants or
auditors to deliver to Lender, at Borrowers' expense, copies of the financial
statements of Borrowers, and each of them, and any reports or management letters
prepared by such accountants or auditors on behalf of Borrowers, or each of
them, and to disclose to Lender such information as they may have regarding the
business of Borrowers. Any documents, schedules, invoices or other papers
delivered to Lender may be destroyed or otherwise disposed of by Lender one (1)
year after the same are delivered to Lender, except as otherwise designated by
Borrowers to Lender in writing.
(e) Borrowers shall furnish to Lender upon receipt a copy of
PricewaterhouseCoopers' Management Letter for the fiscal year ending September
1998 and all
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other management letters prepared by Borrowers' independent certified
accountants for each fiscal year thereafter.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Neither
Borrower shall, directly or indirectly, (a) merge into or with or consolidate
with any other Person or permit any other Person to merge into or with or
consolidate with it, except as expressly provided in Section 9.10 below, or (b)
sell, assign, lease, transfer, abandon or otherwise dispose of any stock or
indebtedness to any other Person or any of its assets to any other Person
(except for (i) sales of Inventory in the ordinary course of business; (ii) the
disposition of worn-out or obsolete Equipment or Equipment no longer used in the
business of Borrower so long as, if an Event of Default exists or has occurred
and is continuing, any proceeds are paid to Lender), (iii) sales of notes to
NCCB on the terms set forth in various agreements with NCCB as in effect on the
date of this Agreement, consistent with past practice; and (iv) sale of UGI's
Real Property located in Jackson County, Oregon so long as the net proceeds are
paid to Lender), or (c) form or acquire any subsidiaries, or (d) wind up,
liquidate or dissolve or (e) agree to do any of the foregoing.
9.8 Encumbrances. Neither Borrower shall create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including the Collateral, except: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings diligently
pursued and available to such Borrower and with respect to which adequate
reserves have been set aside on its books; (c) non-consensual statutory liens
(other than liens securing the payment of taxes) arising in the ordinary course
of such Borrower's business to the extent: (i) such liens secure indebtedness
which is not overdue or (ii) such liens secure indebtedness relating to claims
or liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to such Borrower, in
each case prior to the commencement of foreclosure or other similar proceedings
and with respect to which adequate reserves have been set aside on its books;
(d) zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business
of either Borrower as presently conducted thereon or materially impair the value
of the real property which may be subject thereto; (e) purchase money security
interests in Equipment (including capital leases) and purchase money mortgages
on real estate so long as such security interests and mortgages do not apply to
any property of a Borrower other than the Equipment or real estate so acquired,
and the indebtedness secured thereby does not exceed the cost of the Equipment
or real estate so acquired, as the case may be; (f) the security interests and
liens set forth on Schedule 8.4 hereto; and (g) security interests granted to
NCCB in connection with the sales of notes to NCCB on the terms set forth in
various agreements with NCCB as in effect on the date of this Agreement,
consistent with past practice;.
9.9 Indebtedness. Neither Borrower shall incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any obligations
or indebtedness, except: (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which a Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to such
Borrower, and with respect to which adequate reserves have been set aside on its
books; (c) purchase money indebtedness (including capital leases) to the extent
not incurred or secured by liens (including
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capital leases) in violation of any other provision of this Agreement; (d)
indebtedness incurred in connection with the sales of notes to NCCB on the terms
set forth in various agreements with NCCB as in effect on the date of this
Agreement, consistent with past practice; and (e) the indebtedness set forth on
Schedule 9.9 hereto; provided, that, (i) Borrower may only make regularly
scheduled payments of principal and interest in respect of such indebtedness in
accordance with the terms of the agreement or instrument evidencing or giving
rise to such indebtedness as in effect on the date hereof, (ii) Borrower shall
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such indebtedness or any agreement, document or instrument related thereto as in
effect on the date hereof, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and (iii) Borrower shall furnish to Lender all notices or
demands in connection with such indebtedness either received by Borrower or on
its behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
Notwithstanding the foregoing provisions of this Section 9.9, UGI may redeem,
retire or prepay all or any portion of its outstanding Subordinated Redeemable
Capital Investment Notes from time to time, provided that no Event of Default
has occurred and is then continuing, provided further that after giving effect
to such redemption, retirement or prepayment, Borrowers have no less than
$10,000,000 of Excess Availability.
9.10 Loans, Investments, Guarantees, Etc. Except as expressly set forth
below, neither Borrower shall, directly or indirectly, make any loans or advance
money or property to any person, or invest in (by capital contribution, dividend
or otherwise) or purchase or repurchase the stock or indebtedness or all or a
substantial part of the assets or property of any person, or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly) the
indebtedness, performance, obligations or dividends of any Person or agree to do
any of the foregoing, except: (a) the endorsement of instruments for collection
or deposit in the ordinary course of business; (b) investments in: (i)
short-term direct obligations of the United States Government, (ii) negotiable
certificates of deposit issued by any bank satisfactory to Lender, payable to
the order of a Borrower or to bearer and delivered to Lender, and (iii)
commercial paper rated A1 or P1; provided that, as to any of the foregoing,
unless waived in writing by Lender, Borrowers shall take such actions as are
deemed necessary by Lender to perfect the security interest of Lender in such
investments; (c) a one-time investment of up to $10,000,000 in a joint venture
to be formed between UGI and Associated Grocers, provided that at the time of
such investment no Event of Default has occurred and is then continuing;
provided further that UGI's interest in such venture shall be assigned as
collateral to Lender by documents satisfactory in form and substance to Lender;
provided further that after giving effect to such investment, Borrowers have no
less than $10,000,000 of Excess Availability; (d) loans, advances and guaranties
issued to or on behalf of Members; provided that the aggregate amount of (i)all
sums advanced under those loans and advances, (ii) any increase in the amount of
any existing loans, advances or guaranties as a part of restructuring such
obligations, and (iii) the maximum amount being guarantied under any such
guaranty, shall not exceed the sum of $2,000,000 in any fiscal year (excluding
for purposes of this calculation, any guaranties made by UGI for the benefit of
NCCB); and (e) the loans, advances, investment and guarantees set forth on
Schedule 9.10 hereto; provided, that, as to loans, advances, investment and
guarantees related in any way to Eligible Notes, Borrowers shall not, directly
or indirectly, (A) amend, modify, alter or change the terms of such loans,
advances, investment or guarantees or any agreement, document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise acquire the obligations arising pursuant to such guarantees, or set
aside or otherwise
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deposit or invest any sums for such purpose, and provided further, that with
respect to any loans, advances, investments and guaranties, whether or not
related to the Eligible Notes or to the notes purchased by NCCB, Borrowers shall
furnish to Lender all notices or demands in connection with such loans,
advances, investment or guarantees or other indebtedness subject to such
guarantees either received by Borrowers, or either of them, or on their behalf,
promptly after the receipt thereof, or sent by Borrowers, or either of them, or
on their behalf, concurrently with the sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrowers shall not, directly or
indirectly, declare or pay any dividends on account of any shares of any class
of capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, except that URI may declare and pay
dividends to UGI and UGI (a) may redeem shares of its capital stock from persons
who withdraw or are expelled as Members, (b) may redeem a pro rata share of its
capital stock from persons who remain Members but who close less than all of
their stores as set forth below; and (c) may redeem the number of shares in
excess of 4,000 held by any Member, provided in each case that no Event of
Default has occurred and is then continuing, such shares are redeemed at Book
Value as provided in UGI's current bylaws, and the redemption price is paid over
the maximum period allowed by such bylaws. The pro rata share of capital stock
that UGI may redeem under subsection (b) above shall be equal to the product of
the total number of shares of UGI stock held by the relevant Member multiplied
by a fraction, the numerator of which is the gross sales from the store(s) being
closed by that Member and the denominator of which is the gross sales from all
of that Member's stores, including the stores to be closed, in each case during
the full twelve (12) calendar months preceding the redemption. Notwithstanding
the foregoing provisions of this Section 9.11, UGI may pay patronage dividends
to its Members based upon the respective amounts of net income generated by
sales to such Members, provided that no Event of Default has occurred and is
then continuing, provided further that after giving effect to all such patronage
dividend payments, Borrowers have no less than $10,000,000 of Excess
Availability; and provided further that no patronage dividends will be paid in
or for the fiscal year ending September 1998.
9.12 Transactions with Affiliates. Neither Borrower shall, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with such Borrower, except in the ordinary course of and pursuant to
the reasonable requirements of such Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than the Borrower would
obtain in a comparable arm's length transaction with an unaffiliated person or
(b) make any payments of management, consulting or other fees for management or
similar services, or of any indebtedness owing to any officer, employee,
shareholder, director or other person affiliated with a Borrower except
reasonable compensation to officers, employees and directors for services
rendered to a Borrower in the ordinary course of business and regularly
scheduled payments to Members or former Members under notes currently
outstanding or hereafter made in accordance with the terms of this Agreement. No
payments shall be made on any such note if an Event of Default has occurred and
is then continuing.
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9.13 Additional Bank Accounts. Neither Borrower shall, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.10 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as Lender
may establish and (b) as to any accounts used by Borrowers to make payments of
payroll, taxes or other obligations to third parties, after prior written notice
to Lender.
9.14 Compliance with ERISA.
(a) Borrowers shall not with respect to any "employee benefit
plans" maintained by Borrowers, or either of them, or any of its ERISA
Affiliates: (i) terminate any of such employee benefit plans so as to incur any
liability to the Pension Benefit Guaranty Corporation established pursuant to
ERISA, (ii) allow or suffer to exist any prohibited transaction involving any of
such employee benefit plans or any trust created thereunder which would subject
either Borrower or any such ERISA Affiliate to a tax or penalty or other
liability on prohibited transactions imposed under Section 4975 of the Code or
ERISA, (iii) fail to pay to any such employee benefit plan any contribution
which it is obligated to pay under Section 302 of ERISA, Section 412 of the Code
or the terms of such plan, (iv) allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such employee benefit
plan, (v) allow or suffer to exist any occurrence of a reportable event or any
other event or condition which presents a material risk of termination by the
Pension Benefit Guaranty Corporation of any such employee benefit plan that is a
single employer plan, which termination could result in any liability to the
Pension Benefit Guaranty Corporation or (vi) incur any withdrawal liability with
respect to any multiemployer pension plan.
(b) As used in this Section 9.14, the terms "employee benefit
plans", "accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
9.15 [deleted].
9.16 Adjusted Net Worth. Borrowers shall, at all times, maintain
Adjusted Net Worth of not less than $65,000,000 minus (a) amounts actually paid
by Borrowers to redeem subordinated debt during the forty-two (42) months
following the date of this Agreement, in an amount not exceeding $8,000,000;
minus (b) amounts actually paid by Borrowers in connection with scheduled
redemptions of UGI's capital investment notes during the forty-two (42) months
following the date of this Agreement, in an amount not exceeding $7,000,000;
minus (c) all amounts actually paid by Borrowers in connection with mandatory
redemptions of UGI's capital investment notes resulting from the death of a
holder of one or more of those notes; and minus (d) the amount actually written
off by Borrowers in connection with tax planning for fiscal year ending
September, 1998, in an amount not exceeding $5,000,000.
9.17 Costs and Expenses. Borrowers shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense
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of the Obligations, Lender's rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect hereof and
thereof, including: (a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees, if applicable);
(b) costs and expenses and fees for insurance premiums, environmental audits,
surveys, assessments, engineering reports and inspections, appraisal fees and
search fees; (c) costs and expenses of remitting loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the Blocked
Accounts, together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender arising out of the transactions contemplated hereby and thereby
(including preparations for and consultations concerning any such matters); (g)
all out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Lender during the course of periodic field examinations of the
Collateral and Borrowers' operations, plus a per diem charge at the rate of $650
per person per day for Lender's examiners in the field and office; and (h) the
fees and disbursements of counsel (including legal assistants) to Lender in
connection with any of the foregoing.
9.18 Further Assurances. At the request of Lender at any time and from
time to time, Borrowers, and each of them, shall, at their expense, duly execute
and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may be necessary or proper to evidence, perfect, maintain and enforce
the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements. Lender may at any time and from time to time request
a certificate from an officer of each Borrower representing that all conditions
precedent to the making of Loans and providing Letter of Credit Accommodations
contained herein are satisfied. In the event of such request by Lender, Lender
may, at its option, cease to make any further Loans or provide any further
Letter of Credit Accommodations until Lender has received such certificate and,
in addition, Lender has determined that such conditions are satisfied. Where
permitted by law, Borrowers, and each of them, hereby authorize Lender to
execute and file one or more UCC financing statements signed only by Lender.
9.19 Year 2000 Compliance. Borrowers shall make inquiry of Borrowers'
key suppliers and customers with respect to the ability of their computer based
systems to effectively process data including dates on and after January 1,
2000. Borrowers shall take all actions necessary to assure that their computer
based systems are able to effectively process data including dates on and after
January 1, 2000, and shall take all such actions as are reasonably within
Borrowers' control to prevent any inadequacies in the systems of any key
suppliers or customers from having a material adverse effect upon Borrowers, or
either of them. At the request of Lender, Borrowers shall provide Lender with
assurance reasonably acceptable
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to Lender of Borrowers' Year 2000 capability and of Borrowers' review with
respect to key suppliers and customers.
9.20 Amendment of Bylaws. On or before January 31, 1999, UGI shall
submit to its Members for approval amendments to its bylaws in form and
substance approved by Lender. The amendments shall include, among other things,
a prohibition of offset or deduction by any Member against any account, note or
other obligation payable by the Member to UGI or any of its subsidiaries or
affiliates and shall not impair Lender's rights or the Collateral. UGI shall not
otherwise amend its bylaws or articles of incorporation without the prior
written consent of Lender.
9.21 Accounts Receivable Turnover. The average time between the date of
Borrowers' invoices and the date those invoices are fully and finally paid,
(weighted on the basis of dollars) shall not exceed twenty-five (25) days. The
preceding shall be calculated by multiplying Borrowers' trade accounts
receivable at the beginning of each month, by 30, and dividing the product
thereof by Borrowers' gross cash derived from collection of their trade accounts
receivable during that month. Compliance with this Section 9.21 shall be
calculated monthly. Lender agrees to eliminate by written amendment to this
Agreement, this Section 9.21 when UGI shall have amended its bylaws in a manner
satisfactory to Lender and such amendment(s) have been approved by UGI's Members
as provided in Section 9.20.
9.22 Fill Rate Covenants.
(a) UGI shall provide to Lender a report on Tuesday of each week
for the preceding week (the "Weekly Reports") for all customers (including Smart
& Final under the Supply Agreement), which Weekly Reports shall conform in all
respects to the fill ratio reports that UGI customarily produces, copies of
which have been previously furnished to Lender. The parties acknowledge that the
Weekly Report shall be calculated on a "per unit" basis and shall show the
relationship, expressed as a percentage, between the goods actually shipped or
made available for pick-up by UGI's customers for that week, to the goods
ordered for shipment or availability during the same week. The parties
acknowledge that the resulting percentage will differ from the Fill Rate as
defined and applied herein. In addition, no later than five (5) Business Days
following the end of each month, UGI shall furnish to Lender a Fill Rate report
for the previously month (the "Monthly Report"), which Monthly Report shall
separately show the Fill Rate (as defined in Section 1.21, and subject to the
adjustments called for in Section 9.22(b) below) (a) for all customers of UGI
(including Smart & Final), and (b) for Smart & Final under the Supply Agreement.
In addition, UGI shall also provide to Lender copies of (A) any and all reports
or communications that UGI regularly provides to Smart & Final Inc., or that
Smart & Final Inc. provides to UGI, including, but not limited to, Service Level
Reconciliation Reports and notices of Service Level Breaches (as such terms are
defined in the Supply Agreement)communication, or (B) similar reports and
communications that UGI provides to or receives from any other customer under
any supply agreement, in each case within one Business Day of receipt.
Compliance with the covenants in subsections (b) and (c) below shall be
determined monthly, notwithstanding any different period of determination under
the Supply Agreement or any other agreement.
(b) UGI shall at all times maintain an aggregate Fill Rate of no
less than ninety-five percent (95%) with respect to all of its customers,
including with respect to Smart &
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Final, Inc. under the Supply Agreement. UGI's failure to comply with the Fill
Rate covenant in this subsection (b) for any month will constitute an Event of
Default unless either (i) Borrowers' Excess Availability as of the end of such
month, or determined by lender, is at least $15,000,000, or (ii) within sixty
(60) days thereafter, either (A) Borrower's Excess Availability is at least
$15,000,000 or (B) UGI's Fill Rate is no less than ninety-five percent (95%).
Lender agrees to eliminate by written amendment to this Agreement, the Fill Rate
covenant in this subsection (b) with respect to all UGI customers other than
Smart & Final, Inc. when UGI shall have amended its bylaws in a manner
satisfactory to Lender and such amendment(s) have been approved by UGI's Members
as provided in Section 9.20. Notwithstanding that this Agreement is amended to
eliminate the application of this Section 9.22(b) with respect to those other
customers, this Section 9.22(b) shall at all times remain in full force and
effect with respect to Smart & Final, Inc. and the Supply Agreement.
(c) UGI shall at all times maintain an aggregate Fill Rate of no
less than ninety percent (90%) with respect to all of its customers, including
with respect to Smart & Final, Inc. under the Supply Agreement. UGI's failure to
comply with the covenant in this subsection (c) for any month shall be an Event
of Default without respect to Borrowers' Excess Availability. The provisions of
this Section 9.22(c) shall continue to apply to all of UGI's customers,
notwithstanding the amendment of UGI's bylaws as described under Subsection
9.22(b) above.
(d) The calculation of Fill Rate will not be adversely affected by
any error by a UGI customer in booking advertising and feature items, including
sales levels of feature items in excess of projections made by that customer. In
addition, the calculation of Fill Rate will not be adversely affected if UGI
fails to maintain the required Fill Rate as the result of (A) a material default
by a UGI customer under any supply agreement it has with UGI; (B) picketing or
other labor disputes at any UGI facility or any customer facility; (C) a force
majeure event such as a strike or other labor disturbance, riot or other civil
disturbance, fire, accident, flood, interference by civil or military
authorities, shortages of labor, raw material, power fuel, water, means of
containers or transportation facilities or common lack of other necessities,
plant or traffic disturbances, delays in transportation, failure of suppliers,
compliance with any law, rule, regulation or governmental order that (x) becomes
effective after the date of this Agreement and (y) is binding on the party whose
performance is affected thereby, and compliance therewith by such party is not
voluntary or optional, (D) the establishment by producers or manufacturers of
goods of allocation or restriction on quantities of goods available to a party
(in which case performance will be excused only to the extent of amounts in
excess of the other party's fair allocable share); and/or any other
circumstances beyond its reasonable control; or (E) failure by a customer to
provide UGI on a timely basis, any ad/display requirements or new product
projections as required by any written contract between them.
(e) The covenants in this Agreement are independent of the
covenants in the Supply Agreement, and UGI's failure to comply with the
covenants in this Section 9.22 will be an Event of Default hereunder even though
UGI may not have committed a Service Level Breach or Major Service Level Breach
under the Supply Agreement and notwithstanding any cure periods provided in the
Supply Agreement.
9.23 Management. Borrowers will not make any changes in or additions to
their executive management team (including chief executive officer, chief
operating officer, and chief
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financial officer) without the prior approval of Lender. All new members of the
executive management team will be required to have significant experience in
wholesale grocery distribution.
9.24 Agricultural Products.
(a) Borrowers have complied with and shall, in all material
respects, continue to comply with, all existing and future Food Security Act
Notices during their periods of effectiveness under the Food Security Act,
including, without limitation, directions to make payments to the Farm Products
Seller by issuing payment instruments directly to the secured party with respect
to any assets of the Farm Products Seller or jointly payable to the Farm
Products Seller and any secured party with respect to the assets of such Farm
Products Seller, as specified in the Food Security Act Notice, so as to
terminate or release the security interest in any farm products maintained by
such Farm Products Seller or any secured party with respect to the assets of
such Farm Products Seller under the Food Security Act.
(b) Borrowers shall take all other actions as may be reasonably
required, if any, to ensure that any perishable agricultural commodity, poultry,
livestock (in whatever form) or other farm products are purchased free and clear
of any security interest, lien or other claim by any Farm Products Seller or any
secured party with respect to the assets of any Farm Products Seller. In
connection therewith, Borrowers shall register, and shall maintain their
registration, as purchasers of farm products in each state that has a central
filing system if a Farm Products Seller is located in that state.
(c) Borrowers shall notify Lender in writing within twenty-four
(24) hours after receipt by a Borrower of any Food Security Act Notice or
amendment to a previous Food Security Act Notice and including any notice from
any Farm Products Seller of the intention of such Farm Products Seller to
preserve the benefits of any trust applicable to any assets of Borrowers, or
either of them, established in favor of such Farm Products Seller or other
person under the provisions of PACA, the PSA or any local law and within such
twenty-four (24) hours Borrowers shall provide Lender with a true, correct and
complete copy of such Food Security Act Notice or amendment or other notice, as
the case may be, and including any master lists of effective financing
statements delivered to Borrowers, or either of them, pursuant to the Food
Security Act. Borrowers shall, upon Lender's reasonable request, at any time and
from time to time, furnish Lender with a true, correct and complete list of
persons from whom Borrowers purchase any livestock or livestock products or
by-products, perishable agricultural commodities or other farm products and the
outstanding amounts owed by Borrowers to such persons.
10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default." All Obligations are subject
to cross-default; an Event of Default with respect to either Borrower shall
constitute an Event of Default with respect to both Borrowers.
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(a) Borrowers, or either or them, fail to pay when due any of the
Obligations or fail to perform any of the terms, covenants, conditions or
provisions contained in this Agreement or any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by
Borrowers, or either or them, to Lender in this Agreement, the other Financing
Agreements or any other agreement, schedule, confirmatory assignment or
otherwise shall when made or deemed made be false or misleading in any material
respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrowers, or either of them, or any Obligor in excess of $250,000 in any one
case or in excess of $250,000 in the aggregate and shall remain undischarged or
unvacated for a period in excess of thirty (30) days or execution shall at any
time not be effectively bonded against and stayed, or any judgment other than
for the payment of money, or injunction, attachment, garnishment or execution is
rendered against Borrowers, or either of them, or any Obligor or any of their
assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or either Borrower or any Obligor which is
a partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Borrowers, or either of them, or any Obligor becomes insolvent
(however defined or evidenced), makes an assignment for the benefit of
creditors, makes or sends notice of a bulk transfer or calls a meeting of its
creditors or principal creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrowers, or either of them, or any Obligor or all
or any part of its properties and such petition or application is not dismissed
within thirty (30) days after the date of its filing or Borrowers, or either of
them, or any Obligor shall file any answer admitting or not contesting such
petition or application or indicates its consent to, acquiescence in or approval
of, any such action or proceeding or the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrowers, or either of them, or any Obligor or for all
or any part of its property; or
(i) any default by Borrowers, or either of them, or any Obligor
under any agreement, document or instrument relating to any indebtedness for
borrowed money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in
51
<PAGE>
connection with any guarantee, letter of credit, indemnity or similar type of
instrument in favor of any person other than Lender, in any case in an amount in
excess of $250,000, which default continues for more than the applicable cure
period, if any, with respect thereto, or any default by Borrowers, or either of
them, or any Obligor, is declared by any other party to any material contract,
lease, license or other obligation or as a result of any default by Borrowers,
or either of them, or any Obligor, the other party to any material contract,
lease, license or other obligation to any person other than Lender, terminates
or ceases to perform its obligations thereunder;
(j) any change in the controlling ownership of Borrower;
(k) the indictment or threatened indictment of Borrowers, or
either of them, or any Obligor under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against Borrowers, or
either of them, or any Obligor, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any of the
property of Borrowers, or either of them, or such Obligor;
(l) More than $1,000,000 of any notes purchased by National
Consumer Cooperative Bank from Borrowers, or either of them, shall constitute
"Defaulted Loans" (as that term is defined under the relevant agreement with
National Consumer Cooperative Bank) within any calendar month. The amount
attributable to the notes for each Defaulted Loan under this subsection 10.1(l),
shall equal the sum of the unpaid principal balance of such notes, together with
all accrued and unpaid interest and other costs under the notes.
(m) Borrowers, or either of them shall have received notice of a
default under the Vehicle Lease Services Agreement between Bay Area Foods, Inc.
(which interest has been assigned to UGI) and Penske Truck Leasing Co., L.P.
dated April 14, 1995, as it may be modified, amended, supplemented, restated or
replaced.
(n) An event of default shall have occurred under the Supply
Agreement.
(o) there shall be a material adverse change in the business,
assets or prospects of Borrowers, or either of them, or any Obligor after the
date hereof; or
(p) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrowers or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrowers of this
Agreement
52
<PAGE>
or any of the other Financing Agreements. Lender may, at any time or times,
proceed directly against Borrowers, or either of them, or any Obligor to collect
the Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrowers, at Borrowers' expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrowers, which right or equity of redemption is hereby expressly waived and
released by Borrowers, and each of them, and/or (vii) terminate this Agreement.
If any of the Collateral is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment therefor is finally collected by Lender. If notice of disposition of
Collateral is required by law, five (5) days prior notice by Lender to Borrowers
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of Collateral is to be made, shall be
deemed to be reasonable notice thereof and Borrowers waive any other notice. In
the event Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy, Borrowers waive the
posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrowers shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrowers and/or (ii) terminate any provision of
this Agreement providing for any future Loans or Letter of Credit Accommodations
to be made by Lender to Borrowers.
53
<PAGE>
11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Oregon
(without giving effect to principles of conflicts of law).
(b) Borrowers, and each of them, and Lender irrevocably consent
and submit to the non-exclusive jurisdiction of the Circuit Court of the State
of Oregon for Multnomah County and the United States District Court for the
District of Oregon and waive any objection based on venue or forum non
conveniens with respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way connected with
or related or incidental to the dealings of the parties hereto in respect of
this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring any action or
proceeding against Borrowers, or either of them, or their property in the courts
of any other jurisdiction which Lender deems necessary or appropriate in order
to realize on the Collateral or to otherwise enforce its rights against
Borrowers, or either of them, or their property).
(c) Borrowers, and each of them, hereby waive personal service of
any and all process and consent that all such service of process may be made by
certified mail (return receipt requested) directed to Borrowers' address(es) set
forth on the signature pages hereof, and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon Borrowers in any other manner
provided under the rules of any such courts. Within thirty (30) days after such
service, Borrowers shall appear in answer to such process, failing which
Borrowers shall be deemed in default and judgment may be entered by Lender
against Borrowers for the amount of the claim and other relief requested.
(d) BORROWERS, AND EACH OF THEM, AND LENDER EACH HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
BORROWERS, AND EACH OF THEM, AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT BORROWERS OR LENDER MAY FILE AN ORIGINAL
54
<PAGE>
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrowers, or either of
them (whether in tort, contract, equity or otherwise), for losses suffered by
Borrower, or either of them, in connection with, arising out of, or in any way
related to the transactions or relationships contemplated by this Agreement, or
any act, omission or event occurring in connection herewith, unless it is
determined by a final and non-appealable judgment or court order binding on
Lender, that the losses were the result of acts or omissions constituting gross
negligence or willful misconduct. In any such litigation, Lender shall be
entitled to the benefit of the rebuttable presumption that it acted in good
faith and with the exercise of ordinary care in the performance by it of the
terms of this Agreement.
11.2 Waiver of Notices. Borrowers, and each of them, hereby expressly
waive demand, presentment, protest and notice of protest and notice of dishonor
with respect to any and all instruments and commercial paper included in or
evidencing any of the Obligations or the Collateral, and any and all other
demands and notices of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on Borrowers, or either of them,
which Lender may elect to give shall entitle Borrowers, or either of them, to
any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of each
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrowers, and each of them, waive all
rights to interpose any claims, deductions, setoffs or counterclaims of any
nature (other then compulsory counterclaims) in any action or proceeding with
respect to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.
11.5 Indemnification. Borrowers, and each of them, shall indemnify and
hold Lender, and its directors, agents, employees and counsel, harmless from and
against any and all losses, claims, damages, liabilities, costs or expenses
imposed on, incurred by or asserted against any of them (except to the extent
caused by Lender's gross negligence or willful misconduct) in connection with
any litigation, investigation, claim or proceeding commenced or threatened
related to the negotiation, preparation, execution, delivery, enforcement,
performance or administration of this Agreement, any other Financing Agreements,
or any undertaking or proceeding related to any of the transactions contemplated
hereby or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs,
55
<PAGE>
and the fees and expenses of counsel. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrowers shall pay the maximum
portion which they are permitted to pay under applicable law to Lender in
satisfaction of indemnified matters under this Section. The foregoing indemnity
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date forty-two (42) months
after the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof. Lender or Borrowers may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrowers shall pay to Lender, in full, all outstanding
and unpaid Obligations and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary to secure Lender from
loss, cost, damage or expense, including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally
credited to the Obligations and/or as to which Lender has not yet received final
and indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender as Lender may, in its discretion, designate in writing to
Borrowers for such purpose. Interest shall be due until and including the next
business day, if the amounts so paid by Borrowers to the bank account designated
by Lender are received in such bank account later than 12:00 noon, Portland,
Oregon time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrowers of their respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrowers agree to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
56
<PAGE>
Amount Period
- --------- --------------------- ------------------------------------------------
(i) 2% of Maximum Credit From the date hereof to and including the first
anniversary of such date
(ii) 1% of Maximum Credit After the first anniversary of the date hereof
to and including the second anniversary of such
date
(iii) .5% of Maximum Credit Any time after the second anniversary of the
date hereof
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrowers agree
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrowers, or either of them, or permit the
use of cash collateral under the United States Bankruptcy Code. The early
termination fee provided for in this Section 12.1 shall be deemed included in
the Obligations. Notwithstanding the foregoing provisions of this Section 12.1,
no early termination fee shall be payable to Lender: (a) with respect to any
prepayment of the Term Loans, except upon occurrence of an Event of Default; (b)
with respect to or reduction in the limit on Revolving Loans provided in Section
2.1 as a consequence of the formation of a joint venture between UGI and
Associated Grocers; or (c) on termination of this Agreement in connection with a
sale or merger transaction, provided that Lender is given the opportunity to
submit a proposal to provide financing to the successor entity; or (d) upon
termination of this Agreement in connection with full payment of the Obligations
by Borrowers within the last sixty (60) days of the initial term or any renewal
term of this Agreement.
(d) At such time as this Agreement shall have terminated and
Borrowers shall have paid and discharged all the Obligations, Borrowers, and
each of them, shall execute and deliver to Lender a release in form and
substance satisfactory to Lender, of all obligations and liabilities of Lender
and its officers, directors, employees, agents, parents, subsidiaries and
affiliates to Borrowers, and each of them, and Lender shall, upon Borrowers'
request, execute and deliver to Borrowers a release in form and substance
satisfactory to them, of all obligations and liabilities of Borrower to Lender.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrowers
at their chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver the
next business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
57
<PAGE>
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that neither Borrower may assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrowers, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 Participant's Security Interest. If a Participant shall at any
time participate with Lender in the Loans, Letter of Credit Accommodations or
other Obligations, Borrower hereby grants to such Participant and such
Participant shall have and is hereby given, a continuing lien on and security
interest in any money, securities and other property of Borrower in the custody
or possession of the Participant, including the right of setoff, to the extent
of the Participant's participation in the Obligations, and such Participant
shall be deemed to have the same right of setoff to the extent of its
participation in the Obligations, as it would have if it were a direct lender.
12.6 Joint and Several Liability. Except as otherwise provided in this
Agreement, all Obligations of Borrowers shall be joint and several.
12.7 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represent the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
58
<PAGE>
IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER:
- ------ --------
CONGRESS FINANCIAL CORPORATION UNITED GROCERS, INC.
(NORTHWEST)
By: /s/ [illegible] By: /s/ Charles E. Carlbom
Title: S.V.P Title: Pres. & C.E.O.
Address: Chief Executive Office:
101 S.W. Main Street, Suite 725 6433 S.E. Lake Road
Portland, OR 97204 Portland, OR 97222
UNITED RESOURCES, INC.
By: /s/ Charles E. Carlbom
Title: Vice President
Chief Executive Office:
6433 S.E. Lake Road
Portland, OR 97222
59
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificates
Exhibit 1.11 Notice of Assignment
Schedule 8.2 Exceptions to Section 8.2
Schedule 8.4 Existing Liens
Schedule 8.7 Exceptions to Section 8.7
Schedule 8.8 Environmental Disclosures
Schedule 8.10 Bank Accounts
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
[graphic - Sedgwick logo]
SEDGWICK
EXECUTIVE PROTECTION POLICY
DIRECTORS & OFFICERS (CLAIMS-MADE POLICY)
<TABLE>
COMPANY POLICY NUMBER POLICY TERM
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Northwestern Pacific Indemnity Co. 81416125A 10/01/98-99
INSUREDS: Any person who has been, now is, or shall become a duly
elected director or a duly elected or appointed officer of the
Insured Organization.
United Grocers, Inc. and its subsidiaries for Securities
Claims only
LIMIT (INCLUSIVE OF
DEFENSE COST): $ 25,000,000 Each Loss
25,000,000 Each Policy Year
DEDUCTIBLE: Nil Each Director & Officer
$ 100,000 Corporate Reimbursement, except
$ 150,000 Securities Claims
COVERAGE: Losses arising from claims against a Director or Officer for
any "Wrongful Act" while acting in their capacity as
Officers or Directors of the Corporation. Coverage also
included for Wrongful Acts by covered entities for
Securities Transaction only.
Definition of Wrongful Act: Any breach of duty, neglect,
error, misleading statement, misstatement, act or omission
committed, attempted, or allegedly committed or attempted
wrongfully attempted by the directors or officers
individually or otherwise in their Insured capacity, or any
matter claimed against him soley by reason of serving in
such Insured capacity.
Definition of Security Transaction: The purchase of sale
of, or offer to purchase or sell, any securities issued by any
Insured Organization.
12/98 United Grocers, Inc.
THIS POLICY SUMMARY IS ONLY AN OUTLINE OF COVERAGE THAT HAS BEEN PREPARED FOR YOUR CONVENIENCE. ACTUAL POLICY
LANGUAGE MUST BE CONSULTED FOR ANY DEFINITIVE EVALUATION OF COVERAGE, TERMS AND CONDITIONS.
<PAGE>
[graphic - Sedgwick logo]
SEDGWICK
EXCESS DIRECTORS & OFFICERS
(CLAIMS-MADE POLICY)
COMPANY POLICY NUMBER POLICY TERM
- --------------------------------------------------------------------------------------------------------------
Executive Risk Indemnity Inc. 752-094011-98 2/17/98 -10/01/99
INSURED: United Grocers, Inc.
LIMIT: $ 25,000 Policy aggregate in excess of aggregate amount of
underlying coverage ("following form") including
Securities Coverage
DEFENSE COSTS: Included in policy aggregate limit
DEDUCTIBLE: None
UNDERLYING INSURANCE: Following form of Underlying Insurance:
Northwestern Pacific Indemnity Company
Policy # 8141-61-25A
Limit: $25,000,000
Retention: $0/$100,000/$150,000
PRIOR & PENDING DATE: February 17, 1998
SUBJECT TO
ENDORSEMENTS: Prior Notice Exclusion
Oregon Amendatory Endorsement
Specific Underlying Endorsement
12/98 United Grocers, Inc.
THIS POLICY SUMMARY IS ONLY AN OUTLINE OF COVERAGE THAT HAS BEEN PREPARED FOR YOUR CONVENIENCE. ACTUAL POLICY
LANGUAGE MUST BE CONSULTED FOR ANY DEFINITIVE EVALUATION OF COVERAGE, TERMS AND CONDITIONS.
</TABLE>
Installment Note
$------------------ -----------------------,------------------, 19----
I (or if more than one maker) we, jointly and severally, promise to pay
to the order of -------------------------------------------------------
- ------------------------------------ at ----------------------------------------
- ------------------------------------------------------------------------ DOLLARS
with interest thereon at the rate of percent per annum from until paid, payable
in installments of not less than $---- in any one payment; interest shall be
paid and *in addition to/*is included in the minimum payments above required;
the first payment to be made on the day of -------, 19--, and a like payment on
the day of thereafter, until the whole sum, principal and interest has been
paid; if any of said installments is not so paid, all principal and interest to
become immediately due and collectible at the option of the holder of this note.
If this note is placed in the hands of an attorney for collection, I/we promise
and agree to pay holder's reasonable attorney's fees and collection costs, even
though no suit or action is filed hereon; however, if a suit or an action is
filed, the amount of such reasonable attorney's fees shall be fixed by the
court, or courts in which the suit or action, including any appeal therein, is
tried, heard or decided. *STRIKE WORDS NOT APPLICABLE.
-------------------------------
-------------------------------
-------------------------------
FORM NO. 217--INSTALLMENT NOTE. SN
(C) 1988 Stevens-Ness Law Publishing Co., Portland, OR 97204
================================================================================
Promissory Note
$ , , 19
--------- ---------------- --------------------- ---
after date, I (or if more than one maker) we jointly and
- ----------------------
severally promise to pay to the order of at
--------------- ---------------------
DOLLARS,
- -----------------------------------------------------------------------
with interest thereon at the rate of % per annum from
--- -----------------------
until paid; interest to be paid
------------------------------------------------
and if not so paid, all principal and interest, at the option of the holder of
this note, to become immediately due and collectible. Any part hereof may be
paid at any time. If this note is placed in the hands of an attorney for
collection, I/we promise and agree to pay holder's reasonable attorney's fees
and collection costs, even though no suit or action is filed hereon; if a suit
or an action is filed, the amount of such reasonable attorney's fees shall be
fixed by the court or courts in which the suit or action, including any appeal
therein, is tried, heard or decided.
-------------------------------
-------------------------------
-------------------------------
================================================================================
FORM NO. 216--PROMISSORY NOTE. TB STEVENS-NESS LAW PUB. CO., PORTLAND, ORE.
INSTALLMENT NOTE
----------------
$0,000.00 Date: , 199
------- --
THE UNDERSIGNED ("Borrowers"), jointly and severally, promise to pay to the
order of United Resources, Inc., an Oregon corporation ("Payee") at Post Office
Box 22187, Portland, Oregon 97269-2187, or, to its assigns (the "Bank"), or at
such other address as the Bank may specify to the Borrowers in writing, the sum
of /100 DOLLARS ($0,000.00), payable in ( ) consecutive monthly
----------
installments of /100 DOLLARS ($0,000.00), the first payment to be
----------
made on 1, 199 , with subsequent payments to be made on the same day
-------- --
of each month thereafter until the final payment becomes due on 1,200 .
----- --
The outstanding principal balance will bear interest at an initial fixed rate of
0.00 percent APR. The interest rate will be assessed at Prime Rate plus 0.00
percentage points and will be adjusted every six months using the Prime Rate
published by U. S. National Bank plus 0.00 percentage points. Any such change in
the interest rate will cause a change in the monthly payment to ensure payment
in full of the existing balance over the remaining amortization period. Interest
shall be payable monthly on the same day as the principal, until the whole sum,
principal and interest, has been paid.
This Note may be prepaid in whole or in part at any time. All such prepayments
will be applied first to the payment of other charges, fees and expenses under
this Note and any other Related Document, as defined below, second to the
payment of accrued interest, and third to principal installments due hereunder
in inverse order of maturity.
This Note is issued in connection with and is subject to the terms of a security
agreement between the Borrowers and United Resources, Inc./United Grocers, Inc.
and to additional documents guaranteeing the obligations hereunder or granting
liens to secure same. Reference is made to such loan agreement and additional
documents for other terms under which amounts payable hereunder may become
immediately due and owing. Although United Resources, Inc. may sell, assign, or
otherwise transfer this Note to a third party, this Note will continue to be
subject to the loan agreement and such other documents.
The Borrowers agree that until this Note is paid in full that Borrowers shall
(1) do all things necessary to maintain its status as a member in good standing
of United Grocers, Inc. and (2) purchase product through United Grocers, Inc. to
the extent that a certain percentage may be required in the Related Documents or
other agreements that may exist between Borrower, Payee, or United Grocers, Inc.
The occurrence of any of the following events shall constitute an Event of
Default under this Note: (i) any default in the payment of this Note; (ii) any
breach or default under other Related Documents or other agreements that may
exist between Borrower, Payee, or United Grocers, Inc.; (iii) Borrowers fail to
purchase the required percentage of product from United Grocers, Inc. that may
be required in the Related Documents or other agreements that exist between
Borrower, Payee, or United Grocers, Inc.; (iv) Borrowers shall no longer be a
<PAGE>
member in good standing of United Grocers, Inc. (v) either the Payee or Bank in
good faith shall believe the prospect of payment of this note is substantially
impaired due to a materially adverse change in Borrowers' financial condition.
Upon the occurrence of an Event of Default and at any time thereafter, the
holder of this Note may, at its option, declare this Note to be immediately due
and payable and thereupon this Note shall become due and payable for the entire
unpaid principal balance of this Note plus accrued interest and other charges on
this Note without any presentment, demand, protest or other notice of any kind.
If this Note is placed in the hands of an attorney for collection, Borrowers
promise and agree to pay the reasonable attorneys' fees and collection costs of
the holder of this Note even though no suit or action is filed hereon; if a suit
or an action is filed, the Borrowers must pay such reasonable attorneys' fees as
shall be fixed by the court or courts in which the suit or action, including any
appeal therein, is tried, heard, and decided. The Borrowers agree that their
obligations hereunder are absolute and unconditional and shall continue for so
long as any amounts payable hereunder remain unpaid, without any defense or set
off.
DBA
--------------------------------------
--------------------------------------
INDIVIDUALLY:
By
----------------------------------------
LOAN AGREEMENT FOR SUBSEQUENT NOTES
THIS AGREEMENT, made and entered into this day of , 1996,
----- ----
by and between UNITED RESOURCES, INC., an Oregon corporation, hereinafter
called "Lender"; and , , and , INC., doing
---------- ---------- ----------
business as , jointly and severally hereinafter called "Borrower."
----------
W I T N E S S E T H :
WHEREAS, the Borrower has made application to the Lender for a loan in
the sum of AND NO/100 DOLLARS ($ .00) for the purpose of financing
---------- ---
the purchase of merchandise inventory, fixtures, trade fixtures, and
equipment located at , , County, Oregon.
---------- ---------- ----------
NOW, THEREFORE, it is mutually agreed as follows:
1. Loan. Subject to the terms and conditions stated, the Lender shall
----
loan to the Borrower the total sum of AND NO/100 DOLLARS ($ .00) as
---------- ---
evidenced by an Installment Note in the form of Exhibit A attached hereto.
---------
2. Repayment. The Loan shall bear interest and is repayable in
---------
accordance with the terms and conditions of the Note as the same may be revised
or modified from time to time by Lender in its sole discretion.
The Lender is expressly granted the right to call said Note, in whole
or in part, upon 180 days' written notice to the Borrower.
The monthly installment payments shall first be applied to the interest
accrued on the full amount of the indebtedness and secondly upon the principal
balance owing.
3. Security. Payment of the Note shall be secured as follows:
--------
(a) A Security Agreement in substantially the form of Exhibit B
---------
attached hereto, from the Borrower to the Lender, covering all of the present
and hereafter acquired merchandise inventory, fixtures, trade fixtures,
equipment, and proceeds therefrom of Borrower, located without limitation at
, , County, Oregon or used in connection with the
- ---------- ------- --------
business there located. Said indebtedness is further secured by the existing
Security Agreements dated , .
---------- -------
(b) The Borrower shall obtain and maintain in full force and
effect for the length of the loan an irrevocable collateral assignment to United
Grocers, Inc. and/or its subsidiaries and/or its assignees on a life policy on
the life of for the total amount of the loan, $ .00.
---------- --------
LOAN AGREEMENT FOR SUBSEQUENT NOTE - 1
<PAGE>
(c) Inventory at , , County, Oregon,
---------- -------- --------
shall be maintained at all times at a level of not less than $ .00 cost
----------
to Borrower.
(d) Guaranty, guaranteed by:
------------------------
------------------------
------------------------
------------------------
which is attached hereto, marked as Exhibit D, and by this reference
----------
incorporated herein.
(e) Mortgage Agreement, Exhibit E, from and
--------- ----------------
to United Resources, Inc. covering the real property located at
- ----------
County, Oregon. Said Exhibit E is attached hereto and by this
- ----------
reference incorporated herein.
4. Use of Proceeds. The net proceeds of all sums loaned hereunder shall
---------------
be used by the Borrower to finance the purchase of merchandise inventory,
trade fixtures, fixtures and equipment for that certain supermarket business
operated by the Borrower located at County,
----------, --------, -------
Oregon.
5. Conditions Precedent. The Lender shall not be obligated to lend any
--------------------
monies hereunder until it shall have received the following:
(a) The Borrower shall have tendered delivery to Lender of the
Note described in Paragraph 1, duly executed by
. ----------, -----------
- --------------------
(b) The Borrower shall have given to the Lender a Security
Agreement, as described in Paragraph 3(a), covering all present and hereafter
acquired merchandise inventory, trade fixtures, fixtures, equipment, and
proceeds therefrom, located without limitation at
----------, --------, --------
County, Oregon or used in connection with the business there located.
(c) The Borrower shall have tendered delivery to the Lender
within 30 days of the date of this Agreement a certificate of life insurance to
equal the amount of the loan, as described in Paragraph 3(b).
(d) The Borrower shall have duly executed and given to the
Lender an Oregon Uniform Commercial Code standard form Financing Statement (UCC
1) in the form of Exhibit C attached hereto.
---------
(e) Guaranty in the form of Exhibit D, which is attached
----------
hereto and by this reference incorporated herein.
LOAN AGREEMENT FOR SUBSEQUENT NOTE - 2
<PAGE>
(f) The Borrower shall have duly executed and given to
the Lender Mortgage Agreement in the form of Exhibit E as described in paragraph
---------
3(f) above.
6. Warranties. The Borrower represents and warrants as follows:
----------
(a) All statements contained in the loan application and
exhibits attached thereto heretofore submitted to the Lender are true, fairly
and accurately represent the financial condition of the Borrower.
(b) There are no actions, suits, or proceedings pending or, as
far as the Borrower is advised, threatened against or affecting the Borrower, or
either of them, before any court or administrative officer or agency which might
result in any material adverse change in the business or property of Borrower or
in the properties herein described as being owned by the Borrower.
7. Covenants. So long as any part of the Note remains unpaid, the
---------
Borrower covenants as follows:
(a) The Borrower will not assign, mortgage, or pledge any part
of the assets of Borrower or incur any further indebtedness except for
short-term credit for the purchase of goods and services on open account.
(b) The Borrower shall furnish to Lender quarterly financial
statements consisting of a balance sheet and an operating statement in a form
and by an accountant satisfactory to the Lender on (corp name).
-------------
(c) The Lender, acting through its officers, agents, attorneys,
and accountants, including an independent certified public accountant hired by
it, shall have the right to examine the books of the Borrower at all reasonable
times.
8. Insurance. The Borrower shall maintain standard form fire, extended
---------
coverage, vandalism and malicious mischief insurance, insuring the merchandise
inventory, fixtures, trade fixtures and equipment at (name/dba ) to
----------
at least the actual cash value, with loss payable clauses in favor of the
Lender and its assignees.
9. Loan Costs. The Borrower agrees to pay a loan application fee of
----------
$ .00, together with any and all costs incident to filing Uniform
----------
Commercial Code Financing Statements.
10. Events of Default. Upon occurrence of any of the following
-------------------
specified events of default:
(a) Any material representation or warranty made by the Borrower
herein, or pursuant to, or in writing in connection with the making of this
Agreement, or the loan hereunder, shall prove to have been untrue in any
material respect when made; or
LOAN AGREEMENT FOR SUBSEQUENT NOTE - 3
<PAGE>
(b) The Borrower shall default in the due and punctual payment
of either principal or interest on the Note; or
(c) The Borrower shall default in due performance or observance
of any term, covenant, or agreement contained in Paragraphs 7, 8, and 9 of this
Agreement; or
(d) The Borrower shall default in due performance or observance
of any other agreement contained herein, and such default shall continue uncured
for a period of ten (10) days after written notice to the Borrower from the
holder of the Note; or
(e) Any obligation of the Borrower for the payment of borrowed
money is not paid when due, whether at any expressed due date or at any
accelerated maturity; or
(f) The Borrower shall make any assignment for the benefit of
creditors, or shall be adjudged bankrupt, or any proceedings shall be commenced
by the Borrower under any bankruptcy reorganization, arrangement, insolvency,
readjustment of debt or liquidation law or statute of the federal or any state
government, whether now or hereafter in effect, or any such proceeding shall be
instituted against the Borrower and an order approving the petition is entered,
or such proceedings shall remain undismissed for a period of ten (10) days, or
the Borrower by any action shall indicate its approval or consent to or
acquiescence in any such proceedings or in the appointment of a trustee or
receiver of the Borrower, or of all or substantially all of the assets of the
Borrower, or any such trustee or receiver shall not be discharged within the
period of ninety (90) days after the appointment thereof;
THEN, and in any such event, if any such default shall then continue,
the Lender may by written notice to the Borrower, addressed to it at its
principal place of business or at such other address as the Borrower may
hereafter designate to the Lender in writing, declare the principal and interest
accrued on the Note to be due and payable, which principal and interest shall
thereupon forthwith be due and payable, without presentment, demand, protest, or
other notice of any kind, all of which are hereby expressly waived. The Borrower
agrees to pay reasonable attorneys' fees incurred in enforcing the Lender's
rights and remedies after default under this Agreement, including any fees
incurred on appeal.
11. Waiver. Neither the failure nor any delay on the part of the
------
Lender to exercise any right, power, or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power, or privilege preclude any other or further exercise thereof, or the
exercise of any right, power or privilege.
12. Benefit. This Agreement shall be binding upon and inure to
-------
the benefit of the Lender and its successors and assigns.
13. Construction. This agreement shall be governed by and
------------
construed in accordance with the laws of the State of Oregon.
LOAN AGREEMENT FOR SUBSEQUENT NOTE - 4
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement the day and
year first above written.
LENDER: UNITED RESOURCES, INC.
By
-----------------------------------
BORROWERS: , INC.:
---------------------------
DBA
-------------------
By
-----------------------------------
By
-----------------------------------
INDIVIDUALLY:
--------------------------------------
--------------------------------------
LOAN AGREEMENT FOR SUBSEQUENT NOTE - 5
<PAGE>
EXHIBITS TO THE LOAN AGREEMENT
Exhibit A: Installment Note
Exhibit B: Security Agreement
Exhibit C: Financing Statement
Exhibit D: Guaranty
--------
Exhibit E: Mortgage Agreement
LOAN AGREEMENT
THIS AGREEMENT, made and entered into this day of ,
----- --------------
1996, by and between UNITED RESOURCES, INC., an Oregon corporation, hereinafter
called "Lender"; and , doing business as Thriftway
-----------------------
Division, jointly and severally, hereinafter called "Borrower."
W I T N E S S E T H :
WHEREAS, the Borrower has made application to the Lender for a loan in the
sum of for the purpose of financing the purchase
------------------------------
of merchandise inventory, fixtures, trade fixtures, and equipment located at
, Portland, Multnomah County, Oregon.
- -------------------
NOW, THEREFORE, it is mutually agreed as follows:
1. Loan. Subject to the terms and conditions stated, the Lender shall loan
----
to the Borrower the total sum of as evidenced by
-------------------------------
Promissory Notes in the form of Exhibits A and B attached hereto.
----------------
Further, Borrower shall execute a furniture, fixture, and equipment lease
in the amount of , with Lender, simultaneously with these
-----------------------
documents.
2. Repayment. Said loans are repayable in accordance with the terms and
---------
conditions of the Notes as the same may be revised or modified from time to time
by Lender in its sole discretion.
The Lender is expressly granted the right to call said Note, in whole or in
part, upon 180 days' written notice to the Borrower.
The monthly installment payments shall first be applied to the interest
accrued on the full amount of the indebtedness and secondly upon the principal
balance owing.
3. Security. Payment of the Note shall be secured as follows:
--------
(a) A Security Agreement in substantially the form of Exhibit C
----------
attached hereto, from the Borrower to the Lender, covering all of the present
and hereafter acquired merchandise inventory, fixtures, trade fixtures,
equipment, and proceeds therefrom of Borrower, located without limitation at
, Portland, Multnomah County, Oregon, or used in
- -------------------------
connection with the business there located.
(b) The Borrower shall obtain and maintain in full force and effect
for the length of the loan an irrevocable collateral assignment to United
Grocers, Inc. and/or its subsidiaries and/or its assignees on life policy(s) on
the lives of for the total amount of the
-----------------------------------
loan and equipment lease, .
-----------------------
<PAGE>
(c) Inventory at , Portland, Multnomah
---------------------------
County, Oregon, shall be maintained at all times at a level of not less than
$625,000.00 cost to Borrower.
(d) Guaranty, guaranteed by
-----------------------------------------
and , which is attached hereto, marked as Exhibit E, and by this
--------------
reference incorporated herein.
4. Use of Proceeds. The net proceeds of all sums loaned hereunder shall be
---------------
used by the Borrower to finance the purchase of merchandise inventory, trade
fixtures, fixtures and equipment for that certain supermarket business operated
by the Borrower located at , Portland, Multnomah County,
Oregon. --------------------
5. Conditions Precedent. The Lender shall not be obligated to lend any
---------------------
monies hereunder until it shall have received the following:
(a) The Borrower shall have tendered delivery to Lender of the Notes
and equipment lease described in Paragraph 1, duly executed by
.
- ---------------------
(b) The Borrower shall have given to the Lender a Security Agreement,
as described in Paragraph 3(a), covering all present and hereafter acquired
merchandise inventory, trade fixtures, fixtures, equipment, and proceeds
therefrom, located without limitation at , Portland, Multnomah
-----------------
County, Oregon, or used in connection with the business there located.
(c) The Borrower shall have tendered delivery to the Lender within 30
days of the date of this Agreement a certificate(s) of life insurance to equal
the amount of the loan, as described in Paragraph 3(b).
(d) The Borrower shall have duly executed and given to the Lender an
Oregon Uniform Commercial Code standard form Financing Statement (UCC 1) in the
form of Exhibit D attached hereto.
---------
(e) Guaranty in the form of Exhibit E, which is attached hereto and by
---------
this reference incorporated herein.
6. Warranties. The Borrower represents and warrants as follows:
----------
(a) All statements contained in the loan application and exhibits
attached thereto heretofore submitted to the Lender are true, fairly and
accurately represent the financial condition of the Borrower.
(b) There are no actions, suits, or proceedings pending or, as far as
the Borrower is advised, threatened against or affecting the Borrower, or either
of them, before any court or administrative officer or agency which might result
in any material adverse change in the business or property of Borrower or in the
properties herein described as being owned by the Borrower.
LOAN AGREEMENT - 2
<PAGE>
7. Covenants. So long as any part of the Note remains unpaid, the Borrower
---------
covenants as follows:
(a) The Borrower will not assign, mortgage, or pledge any part of the
assets of Borrower or incur any further indebtedness except for short-term
credit for the purchase of goods and services on open account.
(b) The Borrower shall furnish to Lender quarterly financial
statements consisting of a balance sheet and an operating statement in a form
and by an accountant satisfactory to the Lender on . See
----------------------
default provision in paragraph 10(g).
(c) The Lender, acting through its officers, agents, attorneys, and
accountants, including an independent certified public accountant hired by it,
shall have the right to examine the books of the Borrower at all reasonable
times.
8. Insurance. The Borrower shall maintain standard form fire, extended
---------
coverage, vandalism and malicious mischief insurance, insuring the merchandise
inventory, fixtures, trade fixtures and equipment at
, Portland, Multnomah County, Oregon, to at
- -------------------------------------
least the actual cash value, with loss payable clauses in favor of the Lender
and its assignees.
9. Loan Costs. The Borrower agrees to pay a loan application fee of
-----------
$11,200.00, together with any and all costs incident to filing Uniform
Commercial Code Financing Statements.
10. Events of Default. Upon occurrence of any of the following specified
-----------------
events of default:
(a) Any material representation or warranty made by the Borrower
herein, or pursuant to, or in writing in connection with the making of this
Agreement, or the loan hereunder, shall prove to have been untrue in any
material respect when made; or
(b) The Borrower shall default in the due and punctual payment of
either principal or interest on the Note; or
(c) The Borrower shall default in due performance or observance of any
term, covenant, or agreement contained in Paragraphs 7, 8, and 9 of this
Agreement; or
(d) The Borrower shall default in due performance or observance of any
other agreement contained herein, and such default shall continue uncured for a
period of ten (10) days after written notice to the Borrower from the holder of
the Note; or
(e) Any obligation of the Borrower for the payment of borrowed money
is not paid when due, whether at any expressed due date or at any accelerated
maturity; or
LOAN AGREEMENT - 3
<PAGE>
(f) The Borrower shall make any assignment for the benefit of
creditors, or shall be adjudged bankrupt, or any proceedings shall be commenced
by the Borrower under any bankruptcy reorganization, arrangement, insolvency,
readjustment of debt or liquidation law or statute of the federal or any state
government, whether now or hereafter in effect, or any such proceeding shall be
instituted against the Borrower and an order approving the petition is entered,
or such proceedings shall remain undismissed for a period of ten (10) days, or
the Borrower by any action shall indicate its approval or consent to or
acquiescence in any such proceedings or in the appointment of a trustee or
receiver of the Borrower, or of all or substantially all of the assets of the
Borrower, or any such trustee or receiver shall not be discharged within the
period of ninety (90) days after the appointment thereof;
(g) In the event the financial statement as hereinafter defined is not
received, a penalty will be assessed by increasing the interest rate being
charged under this note by an additional 4.0 percent APR. Such penalty will
continue to be assessed until the financial statements are received as required.
THEN, and in any such event, if any such default shall then continue, the
Lender may by written notice to the Borrower, addressed to it at its principal
place of business or at such other address as the Borrower may hereafter
designate to the Lender in writing, declare the principal and interest accrued
on the Note to be due and payable, which principal and interest shall thereupon
forthwith be due and payable, without presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived. The Borrower
agrees to pay reasonable attorneys' fees incurred in enforcing the Lender's
rights and remedies after default under this Agreement, including any fees
incurred on appeal.
11. Waiver. Neither the failure nor any delay on the part of the Lender to
------
exercise any right, power, or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power, or
privilege preclude any other or further exercise thereof, or the exercise of any
right, power or privilege.
12. Benefit. This Agreement shall be binding upon and inure to the benefit
-------
of the Lender and its successors and assigns.
13. Construction. This agreement shall be governed by and construed in
------------
accordance with the laws of the State of Oregon.
LOAN AGREEMENT - 4
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement the day and
year first above written.
BORROWERS:
--------------
---------------------------
By
--------------------------------------
By
--------------------------------------
LENDER: UNITED RESOURCES, INC.
By
--------------------------------------
LOAN AGREEMENT - 5
<PAGE>
EXHIBITS TO THE LOAN AGREEMENT
Exhibit A: Promissory Note - $250,000.00
Exhibit B: Promissory Note - $400,000.00
Exhibit C: Security Agreement
Exhibit D: UCC Financing Statement
Exhibit E: Guaranty
LOAN AGREEMENT - 6
SECURITY AGREEMENT 1201
(GENERAL)
Section 1. ---------------------------------------------------------------------
(Name)
- -----------------------------------------------------------------------, Oregon
(No. and Street) (City, Zip) (County)
(hereinafter called the debtor), for a valuable consideration, receipt whereof
hereby is acknowledged, hereby grants to ---------------------------------
- --------------------------------------------------------------------------------
(hereinafter called the secured party), whose address is
- -------------------------------- a security interest in the following described
property together with all accessories, substitutions, additions, replacements,
parts and accessions affixed to or used in connection therewith, as well as the
products and proceeds thereof (all hereinafter called "the Collateral"):
to secure payment of the debtor's debt to the secured party as evidenced hereby
and by debtor's note of even date herewith payable to the secured party in the
amount of $----------- payable on the terms, at the times as set forth in said
note; (delete remainder of this sentence if not applicable) also to secure any
and all other liabilities, direct and indirect, absolute or contingent, now
existing or hereafter arising from the debtor to the secured party. (Said note
and said liabilities hereinafter collectively are called "the obligations.")
Debtor agrees to pay said note and obligations and if any portion thereof,
principal or interest, is not paid when due and such default continues for more
than 10 days, debtor agrees to pay, in addition to the foregoing, the reasonable
collection costs of the secured party plus reasonable attorney's fees incurred
in any suit or action, including any appeal taken therefrom.
Section 2. The debtor hereby warrants and convenants that:
2.1 The Collateral is primarily for debtor's --- personal, family or
household purposes, --- business or commercial purposes (indicate which); and if
any part of the Collateral is being acquired, in whole or in part, with the
proceeds of the said note, the secured party may disburse directly to the seller
of the Collateral.
2.2 At all times the Collateral will be kept at ---------------------------
(No. and Street)
- --------------------------------------------------------------------------------
(City, Zip)
- --------------------------------------------------------------------------------
(County), Oregon and shall not be removed from said location, in whole or in
part, until such time as written consent to a change of location is obtained by
debtor from the secured party.
2.3 If the Collateral is bought or used primarily for business or
commercial purposes, the debtor's principal place of business in Oregon is
located at the place shown at the beginning of this agreement; debtor also has
places of business in the following other Oregon counties: -------------
- -------------------------------------------------------------------------------;
if debtor has no place of business in Oregon but resides therein, the county in
which debtor resides is ------------------------------ County in said state.
2.4 If debtor is a corporation, it is organized and existing under the laws
of the State of ---------------------, its principal office and place of
business is located at ------------- ------------------------------- and its
principal office and place of business in Oregon is located at the place shown
at the beginning of this agreement.
2.5 If the Collateral is or is to become attached to real estate, a
description of the real estate is:
In --------------------------County, Oregon, and if the Collateral is attached
to real estate prior to the perfection of the security interest granted hereby,
the debtor will, on the demand of the secured party, furnish the latter with
disclaimers or subordination agreements in form suitable to the secured party,
signed by all persons having an interest in said real estate or any interest in
the Collateral which is prior to the secured party's interest.
2.6 If the Collateral is crops, a description of the land on which the
crops are growing or are to be grown in:
in ----------------------------------------- County, Oregon.
2.7 If any motor vehicles are included in the above described Collateral,
the secured party's security interest is to be noted on each certificate of
title and each of said certificates shall be deposited with and kept by the
secured party.
-------------------------------
Section 3. SPECIAL TERMS AND CONDITIONS:
This agreement is subject to the additional provisions set forth on the reverse
hereof, the same being incorporated herein by reference. The debtor acknowledges
receipt of a complete executed copy of this agreement.
Executed and delivered in duplicate on --------------, 19--
- ----------------------------------- -----------------------------------
(Secured Party)
By--------------------------------- -----------------------------------
--------------------------- -----------------------------------
(Phone Number) (Signature of Debtor)
- ------------------
NOTE: IF THE ABOVE CONTRACT IS A CONSUMER CREDIT TRANSACTION AND THEREFORE
WITHIN THE PURVIEW OF THE TRUTH-IN-LENDING ACT AND REGULATION Z, THE
SECURED PARTY MUST COMPLY WITH THE ACT AND THE REGULATION BY MAKING THE
REQUIRED DISCLOSURES TO THE DEBTOR; FOR THIS PURPOSE USE STEVENS-NESS
FORM NO. 1318, OR EQUIVALENT. THIS FORM NOT SUITABLE IN CONNECTION WITH
SALES OF MOTOR VEHICLES OR OTHER GOODS IN RETAIL INSTALLMENT
TRANSACTIONS. SEE COMPLETE LIST OF SECURITY AGREEMENTS AND RETAIL
INSTALLMENT CONTRACTS.
FORM NO. 1201--SECURITY AGREEMENT--GENERAL.
Stevens-Ness Law Publishing Co. (C) 1989
Portland, Oregon 97204 ON
<PAGE>
ADDITIONAL PROVISIONS
Section 4. The debtor hereby further warrants and covenants that:
4.1 No financing statement covering any of the Collateral described on the
reverse hereof, or the products or proceeds thereof, is on file in any public
office. The debtor is the owner of said Collateral and each and every part
thereof free from any prior lien, security interest or encumbrance and will
defend the Collateral against the claims and demands of all persons whomsoever.
4.2 The debtor will not sell, exchange, lease or otherwise dispose of the
Collateral, or any part thereof, or suffer or permit any lien, levy or
attachment thereon or security interest therein or financing statement to be
filed with reference thereto, other than that of the secured party.
4.3 Debtor will maintain the Collateral in good condition and repair and
preserve the same against waste, loss, damage or depreciation in value other
than by reasonable wear. The debtor will not use any of the Collateral in
violation of any law or public regulation. Secured party may examine and inspect
the Collateral at any reasonable times, wherever located, and for that purpose
hereby is authorized by debtor to enter any place or places where any part of
the Collateral may be.
4.4 Debtor will keep the Collateral fully insured against loss or damage by
fire, theft, (and collision if applicable) and such other hazards as secured
party from time to time require, with such deductible provisions, upon such
terms, including loss payable and other endorsements, and in such company or
companies as the secured party may approve; debtor immediately will deliver all
policies to the secured party, to be retained by the latter in pledge to secure
debtor's obligations hereunder, with irrevocable authority to adjust any loss,
receive and receipt for any sum payable, surrender any policy, discharge and
release any insurer, endorse in debtor's name any loss or refund check or draft
and, in general, exercise in the name of the debtor or otherwise, any and all
rights of the debtor in respect thereto or in respect to the proceeds thereof.
4.5 Debtor will pay, when due, all taxes, license fees and assessments
relative to the Collateral and its use and relative to the note and obligations
secured hereby. Should debtor fail in the performance of any of the foregoing,
the secured party may pay any security interest having priority hereto, may
order and pay for the repair, maintenance and preservation of the Collateral, or
any part thereof, may place and pay for any such insurance and may pay any such
taxes; the debtor agrees to pay to the secured party on demand all of the
latter's disbursements for any of said purposes with interest at ten percent per
annum on all sums so paid from the date of payment until repaid. Repayment of
all said sums shall be secured by this Security Agreement.
4.6 The debtor agrees to notify the secured party promptly in writing of
any change in debtor's business or residence address and in the location where
the Collateral is kept.
4.7 In the event of any assignment by the secured party of this agreement
or secured party's rights hereunder, debtor will not assert as a defense,
counterclaim, set-off or otherwise against secured party's assignee any claim,
known or unknown, which debtor now has or claims to have or hereafter acquires
against the secured party. However, notwithstanding any such assignment, secured
party shall be liable to the debtor as if such assignment had not been made.
4.8 The debtor will join with the secured party in executing, filing and
doing whatever may be necessary under applicable law to perfect and continue the
secured party's security interest in the Collateral, all at debtor's expense.
4.9 Debtor hereby consents to any extension of time of payment and to any
substitution, exchange or release of Collateral and to the addition to or
release of any party or person primarily or secondarily liable for the
obligations, or part thereof.
Section 5. General Provisions:
5.1 The note which this agreement secures is a separate instrument and may
be negotiated, extended or renewed by the secured party without releasing the
debtor, the Collateral or any guarantor or co-maker.
5.2 All of the terms herein and the rights, duties and remedies of the
parties shall be governed by the laws of Oregon. Any part of this agreement
contrary to the law of any state having jurisdiction shall not invalidate other
parts of this agreement in that state.
5.3 All of the benefits of this agreement shall inure to the secured party,
secured party's successors in interest and assigns and the obligations hereunder
shall be binding upon the debtor, debtor's legal representatives, successors and
assigns.
5.4 If there be more than one debtor or a guarantor or co-maker of the note
or this agreement, the obligation of each and all shall be primary and joint and
several.
5.5 The secured party shall not be deemed to have waived any rights under
this or any other agreement executed by the debtor unless the waiver is in
writing signed by the secured party. No delay in exercising secured party's
rights shall be a waiver nor shall a waiver on one occasion operate as a waiver
of such right on a future occasion.
5.6 Each notice from one to the other party to this agreement shall be
sufficient if served personally or given by U.S. registered or certified mail,
or by telegraph, addressed to the other party at the address set forth on the
reverse hereof, or as said address may be changed by written notice, when notice
is required, shall be deemed to be five days from the date of mailing.
5.7 In construing this Security Agreement, the singular shall include the
plural, all grammatical changes shall be made and implied so that this agreement
shall apply equally to individuals, corporations and partnerships, all as the
circumstances may require. Further, the debtor is the customer and the secured
party is the creditor within the meaning of Regulation Z and the
Truth-in-Lending Act. For any party hereto which is a corporation, this
instrument has been executed by one of its officers or other person authorized
to do so.
5.8 A carbon impression of any signatures on any copy of this agreement
shall be deemed, for all purposes, an original signature.
Section 6. Default:
6.1 Time is of the essence hereof. The debtor shall be in default under
this agreement upon the occurrence of any of the following events or conditions:
(a) Debtor's failure to pay, when due, the principal of or interest on said
note or obligations, or any installment thereof;
(b) Debtor's failure to keep, observe or perform any provision of this
agreement or any other agreement between debtor and the secured party;
(c) The discovery of any misrepresentation, or material falsity of any
warranty, representation or statement made or furnished by debtor to
the secured party whether or not in connection with this agreement;
(d) Loss, theft, or destruction of or substantial damage to any of the
Collateral;
(e) The secured party deems or has reasonable cause to deem secured party's
position insecure;
(f) Failure or termination of the business of, or commencement of any
insolvency or receivership proceedings by or against the debtor, or if
the debtor, or any guarantor or co-maker of said note dies or becomes
insolvent, and if debtor or any guarantor or co-maker of said note is a
partnership, the death of any partner.
Section 7. Remedies of Secured Party:
7.1 Upon debtor's default, secured party shall have each and all of the
rights and remedies granted to secured party by the Uniform Commercial Code of
Oregon, by the said note and by this agreement and may declare the note and
obligations immediately due and payable and may require debtor to assemble the
Collateral and make it available to the secured party at a place to be
designated by the secured party which is reasonably convenient to both parties.
The debtor agrees to pay the secured party's reasonable attorney's fees and
other expenses incurred by the latter in retaking, holding, preparing for sale,
selling and realizing on said Collateral. Should suit or action be instituted on
this agreement, on the said note or to replevy said Collateral, or any part
thereof, the losing party shall pay (1), the prevailing party's reasonable
attorney's fees to be fixed by the trial court and (2) on appeal, if any,
similar fees in the appellate court to be fixed by the appellate court.
FORM NO. 1202--PURCHASE MONEY SECURITY AGREEMENT.
Stevens-Ness Law Publishing Co. (C) 1989
Portland, Oregon 97204 ON
PURCHASE MONEY SECURITY AGREEMENT
Dated ___________________, 19___
Customer(s) Creditor(s)
------------------------- -----------------------------
(Hereinafter called buyer) (Hereinafter called seller)
- ------------------------------------ ----------------------------------------
- ------------------------------------ ----------------------------------------
(Buyer's residence or other (Seller's place of business)
address specified by him)
Section 1. The above named buyer (and if more than one, then all buyers
jointly and severally), hereinafter sometimes called the debtor, hereby
purchases from the above named seller, and seller sells to the buyer the
following described goods:
together with all accessories, additions, replacements, parts and accessions now
or hereafter affixed to or used in connection therewith as well as the proceeds
thereof (all herein collectively called "collateral"), for the sum of
$ which buyer promises to pay to seller's order at the following
----------------
times: $ on the signing hereof (receipt of which hereby is
------------------
acknowledged by seller) and the balance, including interest, in monthly
installments of not less than $ each, payable on the
-------------------
day of each month hereafter beginning with the month of
- -----------------
, 19 , and continuing until said sum together with the
- --------------------- ----
interest next mentioned is fully paid; all unpaid principal shall bear interest
at the rate of % per annum from date hereof until paid; interest payable
------
monthly, the same being included in the minimum monthly payments above required.
All or any part of said price may be paid in advance at any time. If any payment
is not paid when due and such default continues for a period of 10 days or
longer, seller shall be entitled to collect, and buyer agrees to pay, in
addition to the foregoing, seller's collection costs, including reasonable
attorney's fees. To secure buyer's performance hereof buyer grants to seller a
security interest in said collateral and in all thereof.
Section 2. The buyer hereby warrants and covenants that:
2.1 The collateral is primarily for buyer's personal, family or
----
household purposes, business or commercial purposes (indicate which; see
----
important notice below).
2.2 At all times the collateral will be kept at
- --------------------------------------------------------------------------------
(No. and Street) (City or Town) (County)
Oregon, and shall not be removed from said location, in whole or in part, until
such time as seller's written consent thereto shall have been obtained.
2.3 If the collateral is bought or used primarily for business or
commercial purposes, the buyer's principal place of business in Oregon is that
shown at the beginning of this agreement; buyer also has places of business in
the following other Oregon counties: ;
--------------------------------------------
if buyer has no place of business in Oregon but resides therein, the county in
which buyer resides is County in said state.
-------------------
2.4 If buyer is a corporation, it was organized under the laws of the
State of , its principal office and place of business is
--------------------
located at and its principal
--------------------------------------------------
office and place of business in Oregon is located at the place shown at the
beginning of this agreement.
2.5 If the collateral is or is to become attached to real estate, a
description of the real estate is:
in County, Oregon, and buyer will on demand furnish the
-----------------------
seller with disclaimers or subordination agreements in form acceptable to the
seller, signed by all persons whose interests are or may be prior to the
seller's interest.
Section 3. SPECIAL TERMS AND CONDITIONS:
WITH REFERENCE TO THE ABOVE DESCRIBED GOODS, THERE ARE NO WARRANTIES OF
MERCHANTABILITY, EXPRESS OR IMPLIED, AND NONE AS TO THEIR FITNESS FOR ANY
PURPOSE EXCEPT AS MAY BE AGREED UPON BETWEEN THE PARTIES IN A WRITING OF EVEN
DATE. THIS AGREEMENT IS SUBJECT TO THE ADDITIONAL PROVISIONS SET FORTH ON THE
REVERSE HEREOF, THE SAME BEING INCORPORATED HEREIN BY REFERENCE. THE BUYER
ACKNOWLEDGES RECEIPT OF A COPY OF THIS AGREEMENT.
IN WITNESS WHEREOF, the buyer and the seller have executed this agreement
in duplicate on the date first above mentioned.
- ------------------------------------ ---------------------------------------
(Seller)
By
---------------------------------- ---------------------------------------
Address
----------------------------- ---------------------------------------
(Signature of Buyer)
IMPORTANT NOTICE: IF THE ABOVE GOODS ARE PRIMARILY FOR BUYER'S PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES, AND THE SELLER IS A CREDITOR AS DEFINED IN THE
TRUTH-IN-LENDING ACT AND REGULATION Z, SELLER MUST COMPLY WITH THE ACT AND
REGULATION BY MAKING REQUIRED DISCLOSURES; FOR THIS PURPOSE, USE STEVENS-NESS
FORM 1318 OR EQUIVALENT. IF COMPLIANCE IS NOT REQUIRED, DISREGARD THIS NOTICE.
NOTE: This form not suitable for use in retail installment sales. The following
Stevens-Ness forms of such contracts are available: No. 1204 Motor Vehicles; No.
1205 Consumer Goods; No. 1227 Consumer Goods (short form); No. 1210 Goods and
Services Purchased for Home Improvements; No. 1211 Services Purchased for
Personal, Family or Household Purposes.
<PAGE>
ADDITIONAL PROVISIONS S-N FORM NO. 1202
Section 4. The parties hereto agree:
4.1 Title to the collateral is retained by seller and shall not pass to
buyer until all sums herein agreed to be paid shall have been paid in cash; any
equipment, repairs or accessories placed upon or attached to said collateral
shall become a component part thereof as soon as installed or attached and title
thereto shall be vested in seller forthwith and included under the terms of this
contract.
4.2 Buyer acknowledges receipt and delivery of said collateral in good
condition and accepts the same AS is; buyer agrees to permit seller to examine
said collateral at any time, to maintain the same in good condition and repair;
to house and protect the same against the elements; not to permit the same to
become subject to attachment, execution or other process; not to create or
permit to be created any lien, security interest or adverse claim of any
character against the same and not to sell, transfer or assign buyer's right,
title or interest in said collateral or this contract without the written
consent of seller; to pay all taxes and assessments of every character levied or
assessed against said collateral, this contract and the indebtedness represented
hereby.
4.3 If any motor vehicles are included in the above described collateral,
the seller's security interest is to be noted on each certificate of title and
each of said certificates shall then be deposited with and kept by the seller.
4.4 Any sums payable by buyer under the terms hereof which are not paid by
buyer but are paid by seller shall bear interest at the highest lawful rate
until repaid and said sums with interest shall be added to the unpaid balance of
said price and be secured by this contract.
4.5 At all times said collateral is at buyer's risk; should said
collateral suffer any loss, damage or injury, buyer agrees notwithstanding to
purchase and pay for the same in full, according to the terms hereof.
4.6 Buyer agrees at all times to keep said collateral insured against loss
by fire, theft and other hazards as required by the seller, with loss payable to
the parties hereto as their respective interest may appear; all insurance
policies shall be deposited with and held by the seller; buyer hereby authorizes
seller on buyer's behalf to accept payment of any return or unearned premium and
for any loss sustained, to endorse in buyer's name, deposit and receive the
proceeds of any check or draft made payable to buyer in connection with any such
insurance; if any insurance collected by seller exceeds the then unpaid balance
of this contract, the excess shall be paid forthwith to the buyer.
4.7 Buyer agrees that seller's acceptance of part or late payments shall
not constitute or be construed as a waiver of time as the essence of this
contract or of any subsequent defaults of buyer hereunder.
4.8 Notices to buyer relative to this contract shall be deemed delivered
if mailed to buyer's address first appearing on the reverse hereof; five days
from date of mailing shall be deemed a reasonable notice.
4.9 Time is of the essence of this contract and if buyer shall default in
the performance of any of the terms or conditions hereof, or in the payment,
when due, of any sum herein required to be paid, or if seller with reasonable
cause deems the collateral in danger of loss, misuse or confiscation or deems
seller's position insecure, seller, as the secured party in this transaction,
shall have and may exercise each and all of the remedies granted to seller by
the Uniform Commercial Code of Oregon and, at seller's option, may declare all
sums then remaining unpaid immediately due and payable and may require the
buyer, as the debtor herein, to assemble the collateral and make some available
to the secured party at a place to be designated by the secured party which is
reasonably convenient to both parties. Should the holder hereof repossess any of
said collateral and should buyer claim that any property not included in this
contract was contained in or attached to said collateral, buyer shall so notify
the holder hereof by registered mail within 24 hours after repossession is
taken; buyer's failure so to do shall be a waiver of and bar to any subsequent
claim therefor. In the event suit or action is instituted to collect any sum or
sums of money due hereunder or to replevy said collateral, buyer agrees to pay,
in addition to the statutory costs and disbursement, (1) plaintiff's reasonable
attorney's fees to be fixed by the trial court and (2) on appeal, if any,
similar fees in the appellate court to be fixed by the appellate court.
4.10 The buyer, who is the debtor herein, agrees to join with the seller,
who is the secured party herein, in executing, filing and doing whatever may be
necessary under applicable law to perfect and continue the seller's interest in
said collateral, all at buyer's expense.
4.11 In construing this contract, the singular includes the plural; the
buyer is the debtor and the seller is the secured party within the meaning of
Oregon's Uniform Commercial Code, and the buyer is the customer and the seller
is the creditor within the meaning of the Truth-in Lending Act and Regulation Z.
IT IS FURTHER UNDERSTOOD AND AGREED that seller may transfer seller's
interest in this contract, in said collateral and the unpaid balance hereof at
any time, in which event all of the terms herein set forth for seller's benefit
shall inure to the benefit of seller's assignee and that generally each right
herein given to the seller shall accrue to and may be exercised by seller's
assignee hereof. If seller assigns the contract, seller shall not act as the
agent of seller's assignee for the collection of any of the installments of said
purchase price or for any other purpose. In the event of any such assignment,
the buyer will not assert as a defense, counter-claim, set-off or otherwise, any
claim, known or unknown, which the buyer now has or claims against the seller.
A carbon impression of any signature on any copy of this contract shall be
deemed, for all purposes, an original signature.
All the terms and conditions herein contained shall apply and inure to and
bind the heirs, executors, administrators, successors and assigns of the
respective parties hereto, subject, however, to the above restriction against
assignment hereof by the buyer.
-------------
SELLER'S ASSIGNMENT Date , 19
------------------ ---
FOR VALUE RECEIVED, the undersigned seller does hereby sell, assign and transfer
to and assigns (hereinafter called
-----------------------------------------
assignee), the foregoing sales contract, the property covered thereby and all of
seller's right, title and interest therein and authorizes said assignee to
endorse and collect any check or draft payable to the undersigned in connection
with said contract.
WITHOUT RECOURSE
This assignment is made WITHOUT RECOURSE, except as to the following warranties
to-wit: That the said contract is a bona fide one; that said buyer was of legal
age and entirely competent when said buyer executed the same; that the property
sold is accurately described therein; that said property has been delivered into
buyer's possession; that the amount stated in said contract to have been
received on the purchase price of said property was actually paid in cash and/or
by merchandise received in trade at not more than its then cash value; that
seller has the full and complete title to said property subject only to buyer's
rights hereunder; that the amount owing upon said contract at the time of its
execution is correctly stated therein; that buyer has no counterclaims or
set-offs against the same; that there were no representations or warranties made
to said buyer not contained in said contract. Should any of the foregoing
warranties be false, then seller agrees to purchase on demand from said assignee
said contract for the amount of the then unpaid balance on said contract. Should
suit or action be instituted on any of the above warranties, the losing party
shall pay (1) the prevailing party's reasonable attorney's fees and other costs
fixed by said court and (2) on appeal, if any, similar fees in the appellate
court to be fixed by said court.
-----------------------------
Seller
By
-----------------------------
WITH RECOURSE
The undersigned seller unconditionally GUARANTEES the prompt payment, when due,
of all amounts to become due by the terms of said contract and the prompt
payment of all costs (including reasonable attorney's fees both in the trial and
appellate courts as fixed by said courts respectively), incurred in collecting
or attempting to collect the moneys to become due thereon and in enforcing any
right under said contract or under this guaranty and hereby consents that
extensions of he time of payment may be granted to the buyer, either before or
after maturity and that the said contract may be changed in any other particular
without notice and without in any manner releasing the undersigned from
liability. The seller agrees that seller's obligation hereunder shall be
enforcible even though the assignee's right to enforce the contract, or any
provision thereof, be suspended or impaired by any statute or otherwise.
-----------------------------
Seller
By
-----------------------------
(SIGN UNDER APPLICABLE PROVISION AND CROSS OUT THE OTHER ONE.)
SECURITY AGREEMENT 1203
EQUIPMENT
Section 1.---------------------------------------------------------------------
(Name)
- -----------------------------------------------------------------------, Oregon
(No. and Street) (City or Town) (County)
(hereinafter called the debtor), for a valuable consideration, receipt whereof
hereby is acknowledged, hereby grants to ---------------------------------------
- -------------------------------------------------------------------- hereinafter
called the secured party, whose address is ------------------------------------,
a security interest in the following described property together with all
accessories, substitutions, additions, replacements, parts and accessions
affixed to or used in connection therewith as well as the proceeds thereof (all
hereinafter called "the Collateral"):
to secure payment of the debtor's debt to the secured party as evidenced hereby
and by debtor's note of even date herewith payable to the secured party in the
amount of $------------------ payable on the terms, at the times and with
interest as set forth in said note; (if inapplicable, delete the remainder of
this sentence) also to secure any and all other liabilities, direct and
indirect, absolute or contingent, now existing or hereafter arising from the
debtor to the secured party (said note and said liabilities hereinafter
collectively are called "the obligations"). Debtor agrees to pay said note and
obligations and if any portion thereof, principal or interest, is not paid when
due and such default continues for more than 10 days, debtor agrees to pay, in
addition to the foregoing, secured party's reasonable costs of collection
including reasonable attorney's fees.
Section 2. The debtor hereby warrants and covenants that:
2.1. The Collateral is bought primarily for --- debtor's personal, family,
household or agricultural purposes, --- debtor's business or commercial, other
than agricultural, purposes (indicate which) and if any part of the Collateral
is being acquired, in whole or in part, with the proceeds of said note, the
secured party may disburse directly to the seller of the Collateral.
2.2 At all times the Collateral will be kept at
- ----------------------------------------------------------------------------- in
- ----------------------- County, Oregon, and shall not be removed from said
location, in whole or in part, until such time as written consent to a change of
location is obtained by debtor from the secured party.
2.3 If the Collateral is for debtor's business or commercial, other than
agricultural purposes, the debtor's principal place of business in Oregon is
that shown at the beginning of this agreement; debtor also has places of
business in the following other Oregon counties:
- ----------------------------------------; if debtor has no place of business in
Oregon but resides therein, the county in which debtor resides is
- ------------------------ County in said state.
2.4 If debtor is a corporation, it is organized and existing under the laws
of the State of ------------------------ and its principal office and place of
business is located at -------------------------------------- and its principal
office and place of business in Oregon is located at the place shown at the
beginning of this agreement.
2.5 If the Collateral is or is to become attached to real estate, a
description of the real estate is:
in ---------------- County, Oregon, and if the Collateral is attached to real
estate prior to the perfection of the security interest granted hereby, the
debtor will on the demand of the secured party furnish the latter with
disclaimers or subordination agreements in form suitable to the secured party,
signed by all persons having an interest in said real estate or any interest in
the Collateral which is prior to the secured party's interest.
2.6 If motor vehicles are included in the above described Collateral, the
secured party's security interest is to be noted on each certificate of title
and each of said certificates shall then be deposited with and kept by the
secured party.
--------------
Section. 3. SPECIAL TERMS AND CONDITIONS:
THIS AGREEMENT IS SUBJECT TO THE ADDITIONAL PROVISIONS SET FORTH ON THE
REVERSE HEREOF, THE SAME BEING INCORPORATED HEREIN BY REFERENCE. THE DEBTOR
ACKNOWLEDGES RECEIPT OF A COMPLETE EXECUTED COPY OF THIS AGREEMENT.
Executed and delivered in duplicate on this --- day of -------, 19---
- ------------------------------------- ---------------------------------------
(Secured Party)
By----------------------------------- ---------------------------------------
---------------------------------------
(Signature of Debtor)
- ----------
NOTE: IF THE ABOVE CONTRACT IS A CONSUMER CREDIT TRANSACTION AND THEREFORE
WITHIN THE PURVIEW OF THE TRUTH-IN-LENDING ACT AND REGULATION Z, THE SECURED
PARTY MUST COMPLY WITH THE ACT AND THE REGULATION BY MAKING THE REQUIRED
DISCLOSURES TO THE DEBTOR; FOR THIS PURPOSE USE STEVENS-NESS FORM NO. 1310 OR
EQUIVALENT. THIS FORM NOT SUITABLE IN CONNECTION WITH SALES OF MOTOR VEHICLES OR
OTHER GOODS IN RETAIL INSTALLMENT TRANSACTIONS. SEE COMPLETE LIST OF SECURITY
AGREEMENTS AND RETAIL INSTALLMENT CONTRACTS.
FORM NO. 1203--SECURITY AGREEMENT--EQUIPMENT
Stevens-Ness Law Publishing Co.
Portland, Oregon 97204
(SN)
<PAGE>
S-N FORM 1203--UCC SERIES
ADDITIONAL PROVISIONS
Section 4. The debtor hereby further warrants and covenants that:
4.1 No financing statement covering any of the Collateral described on the
reverse hereof, or the products or proceeds thereof, is on file in any public
office. The debtor is the owner of said Collateral and each and every part
thereof free from any prior lien, security interest or encumbrance and will
defend the Collateral against the claims and demands of all persons whomsoever.
4.2 The debtor will not sell, exchange, lease or otherwise dispose of the
Collateral, or any part thereof, or suffer or permit any lien, levy or
attachment thereon or security interest therein or financing statement to be
filed with reference thereto, other than that of the secured party.
4.3 Debtor will maintain the Collateral in good condition and repair and
preserve the same against waste, loss, damage or depreciation in value other
than by reasonable wear. The debtor will not use any of the Collateral in
violation of any law or public regulation. Secured party may examine and inspect
the Collateral at any reasonable times, wherever located, and for that purpose
hereby is authorized by debtor to enter any place or places where any part of
the Collateral may be.
4.4 Debtor will keep the Collateral fully insured against loss or damage by
fire, theft, (and collision if applicable) and such other hazards as secured
party from time to time require, with such deductible provisions, upon such
terms, including loss payable and other endorsements, and in such company or
companies as the secured party may approve; debtor immediately will deliver all
policies to the secured party, to be retained by the latter in pledge to secure
debtor's obligations hereunder, with irrevocable authority to adjust any loss,
receive and receipt for any sum payable, surrender any policy, discharge and
release any insurer, endorse in debtor's name any loss or refund check or draft
and, in general, exercise in the name of debtor or otherwise, any and all rights
of the debtor in respect thereto or in respect to the proceeds thereof.
4.5 Debtor will pay, when due, all taxes, license fees and assessments
relative to the Collateral and its use and relative to the note and obligations
secured hereby. Should debtor fail in the performance of any of the foregoing,
the secured party may pay any security interest having priority hereto, may
order and pay for the repair, maintenance and preservation of the Collateral, or
any part thereof, may place and pay for any such insurance and may pay any such
taxes; the debtor agrees to pay to the secured party on demand all of the
latter's disbursements for any of said purposes with interest at ten percent per
annum on all sums so paid from the date of payment until repaid. Repayment of
all said sums shall be secured by this Security Agreement.
4.6 The debtor agrees to notify the secured party promptly in writing of
any change in his business or residence address and in the location where the
collateral is kept.
4.7 In the event of any assignment by the secured party of this agreement
or his rights hereunder, debtor will not assert as a defense, counter-claim,
set-off or otherwise against secured party's assignee any claim, known or
unknown, which debtor now has or claims to have or hereafter acquires against
the secured party. However, notwithstanding any such assignment, secured party
shall be liable to the debtor as if such assignment had not been made.
4.8 The debtor will join with the secured party in executing, filing and
doing whatever may be necessary under applicable law to perfect and continue the
secured party's security interest in the Collateral, all at debtor's expense.
4.9 Debtor hereby consents to any extension of time of payment and to any
substitution, exchange or release of Collateral and to the addition to or
release of any party or person primarily or secondarily liable for the
obligations, or part thereof.
Section 5. General Provisions:
5.1 The note which this agreement secures is a separate instrument and may
be negotiated, extended or renewed by the secured party without releasing the
debtor, the Collateral or any guarantor or co-maker.
5.2 All of the terms herein and the rights, duties and remedies of the
parties shall be governed by the laws of Oregon. Any part of this agreement
contrary to the law of any state having jurisdiction shall not invalidate other
parts of this agreement in that state.
5.3 All of the benefits of this agreement shall inure to the secured party,
his successors in interest and assigns and the obligations hereunder shall be
binding upon the debtor, his legal representatives, successors and assigns.
5.4 If there be more than one debtor or a guarantor or co-maker of the note
or this agreement, the obligation of each and all shall be primary and joint and
several.
5.5 The secured party shall not be deemed to have waived any other rights
under this or any other agreement executed by the debtor unless the waiver is in
writing signed by the secured party. No delay in exercising secured party's
rights shall be a waiver nor shall a waiver on one occasion operate as a waiver
of such right on a future occasion.
5.6 Each notice from one to the other party to this agreement shall be
sufficient if served personally or given by U.S. registered or certified mail,
or by telegraph, addressed to the other party at his address as set forth on the
reverse hereof, or as said address may be changed by written notice, to the
other given pursuant to this paragraph. Reasonable notice, when notice is
required, shall be deemed to be five days from the date of mailing.
5.7 In construing this security agreement, the masculine pronoun shall
include the feminine and the neuter and the singular shall include the plural,
as the circumstances may require. Further, the debtor is the customer and the
secured party is the creditor within the meaning of Regulation Z and the
Truth-in-Lending Act.
5.8 A carbon impression of any signatures on any copy of this agreement
shall be deemed, for all purposes, an original signature.
Section 6. Default:
6.1 Time is of the essence hereof.. The debtor shall be in default under
this agreement upon the happening of any of the following events or conditions:
(a) Debtor's failure to pay, when due, the principal of or
interest on said note or obligations, or any installment thereof;
(b) Debtor's failure to keep, observe or perform any provision of
this agreement or any other agreement between him and the secured party;
(c) The discovery of any misrepresentation, or material falsity
of any warranty, representation or statement made or furnished by debtor to the
secured party whether or not in connection with this agreement;
(d) Loss, theft or destruction of or substantial damage to any of
the Collateral;
(e) The secured party deems or has reasonable cause to deem
himself insecure;
(f) Failure or termination of the business of, or commencement of
any insolvency or receivership proceedings by or against the debtor, or if the
debtor, or any guarantor or co-maker of said note dies or becomes insolvent, and
if debtor or any guarantor or co-maker of said note is a partnership, the death
of any partner.
Section 7. Remedies of Secured Party:
7.1 Upon debtor's default, secured party shall have each and all of the
rights and remedies granted to him by the Uniform Commercial Code of Oregon, by
the said note and by this agreement and may declare the note and obligations
immediately due and payable and may require debtor to assemble the Collateral
and make it available to the secured party at a place to be designated by the
secured party which is reasonably convenient to both parties. The debtor agrees
to pay the secured party's reasonable attorney's fees and other expenses
incurred by the latter in retaking, holding, preparing for sale and realizing on
said Collateral. Should suit or action be instituted on this contract, on the
said note or to replevy said collateral, or any part thereof, debtor agrees to
pay (1) plaintiff's reasonable attorney's fees to be fixed by the trial court
and (2) on appeal if any, similar fees in the appellate court to be fixed by the
appellate court, and all said sums shall be included in the obligations secured
hereby.
INVENTORY
LOAN AND SECURITY AGREEMENT
Date -------------, 19----.
Agreement between--------------------------------------------(hereinafter called
the debtor), whose address is --------------------------------------------------
and -----------------------------------------------------(hereinafter called the
secured party), whose address is ----------------------------------------------;
Section 1. Debtor's Place of Business. The chief place of business of debtor is
- --------------------------------------- and, if other than at the above address,
the place where debtor keeps his records concerning accounts receivable is
- ------------------------ -----------------------------------. Neither the said
place nor the collateral shall be removed from Oregon without written consent of
the secured party.
Section 2. Loan Agreement.
2.1 Amount of Loan. The secured party from time to time will lend the
debtor at debtor's request, such sums as the secured party in his discretion
believes are adequately secured by this agreement.
2.2 Borrowing Percentage. The aggregate amount of the loans shall not
exceed -------% of the net value of the qualified inventory as hereinafter
defined, plus 100% of the collected balance in debtor's cash collateral account.
Should the aggregate amount of said loans at any time exceed said percentage,
the entire loan, including the excess, is secured hereby.
2.3 Debtor's Notes. All loans shall be evidenced by debtor's promissory
note or notes payable either on demand or on such maturity as the secured party
may fix; all notes shall bear interest at such rates and interest shall be
payable at such intervals as the parties hereto shall agree upon at the time
each loan is made.
2.4 Other Charges. In addition to the principal and interest of the notes
the debtor shall pay to the secured party upon his demand, all expenses incurred
by the secured party to audit and service debtor's account and to preserve,
collect, protect his interest in or realize on the collateral, including counsel
fees and legal expenses, taxes and insurance premiums. All such expenses shall
be part of the obligation secured by the collateral and shall bear interest at
- ---- % per annum from the date advanced by the secured party until paid.
2.5 Terms of Payment.
(a) Deposit of Proceeds in Cash Collateral Account. Debtor, forthwith
upon receipt of all checks, drafts, cash and other remittances (herein
called proceeds) in part or full payment for any of the collateral, will
deposit the proceeds in a cash collateral account maintained with
the-------------------------- Branch of ------------------------------------
The-------------------------------------------------------------------------
-----------------------Bank, over which the secured party alone shall have
power of withdrawal. Pending such deposit the debtor shall not commingle any
proceeds with any other funds or property of the debtor, but shall hold the
proceeds separate and apart therefrom and upon an express trust for the
secured party until deposited in the cash collateral account. Credit for
proceeds deposited in the cash collateral account shall be conditional upon
final payment of the deposited item. Once each week the secured party will
apply the whole or any part of the collected funds on deposit in the cash
collateral account against the principal or interest of the notes and the
other charges specified in Section 2.4, the order and method of such
application to be in the discretion of the secured party. Any part of the
cash collateral account which the secured party elects not to so apply may
be paid over by the secured party to the debtor.
(b) Alternative Method of Payment. The secured party, by written notice
to the debtor (subject to revocation at any time), in lieu of requiring
deposit of proceeds in the cash collateral account, may permit debtor to
make payments weekly or at other intervals, of an amount equal to ------% of
the proceeds of the collateral received by debtor during the interval.
(c) Goods Represented by Documents. If the collateral is represented or
covered by documents of title, whether or not negotiable, in the possession
of the secured party, the secured party, upon payment of the amount secured
thereby, may release all or part of the documents or goods to the debtor.
<PAGE>
2.6 Statement of Account and Additional Collateral. Once each month the
secured party may render a statement of account to the debtor showing the
current status of the loans, service charges and the cash collateral account. If
the statement or any interim statement indicates the loans outstanding exceed
the borrowing percentage, the debtor either shall furnish additional collateral
or pay the difference in cash.
Section 3. Collateral.
To secure the payment and performance of all obligations of the debtor set forth
on this agreement, the note or notes and any other obligations of the debtor to
the secured, party, the debtor grants to the secured party a security interest
in the following collateral:
3.1 Inventory.* All inventory now owned or hereafter acquired by the
debtor.
3.2 Accounts Receivable. All accounts of the debtor now existing or
hereafter arising which are proceeds of the inventory.
3.3 Contract Rights. All contract rights of the debtor now existing or
hereafter arising, relating to the inventory.
3.4 Proceeds and Products. Proceeds and products of all the above.
Section 4. Qualified Inventory.
4.1 Definition. Qualified inventory must be readily marketable and meet all
of the following specifications on the date of the loan and while any note or
notes are outstanding:
(a) No Encumbrances. All the goods are owned by the debtor free from any
lien, security interest or other encumbrance of any person.
(b) Other Financing. No financing statement covering any of the inventory
or its proceeds or the debtor's accounts is on file in any public
office and the secured party has not received any notice of any
proposed acquisition of an inventory security interest from any person.
(c) Documents. If any of the goods is represented or covered by documents
of title, instruments or chattel paper, the debtor is the owner of the
documents, instruments and paper and none of it has been sold or
transferred nor has any security interest in any of it been granted to
any person.
4.2 Net Value. The net value of the qualified inventory shall be determined
at cost or market, whichever is lower, exclusive of any transportation,
processing or handling charges. The determination of "net value" shall be made
by the secured party. The debtor shall notify the secured party immediately of
any event causing a loss to or depreciation in value of the inventory and the
amount of such loss or depreciation.
Section 5. Authority to Sell or Process Collateral.
So long as debtor is not in default on the note or notes or in breach of
any of the terms of this agreement, the debtor shall have the right to sell or
process the inventory in the regular course of debtor's business.
<PAGE>
Section 6. Other Agreements of Debtor.
6.1 Certificates and Statements of Inventory Position. At the time of each
loan and at such intervals and in such form as the secured party may request,
but at least monthly, the debtor shall submit to the secured party a certified
statement of debtor's inventory position showing inventory on hand, inventory
represented or covered by warehouse receipts or bills of lading, qualified
inventory on hand, inventory in possession of bailees, including the names and
addresses of such bailees, and a statement of debtor's current accounts.
6.2 Endorsements. If any proceeds to debtor shall include or any of the
accounts shall be evidenced by, notes, trade acceptances or instruments or
documents, or if any inventory is covered by documents of title or chattel
paper, whether or not negotiable, debtor, if requested by the secured party,
immediately shall deliver them to the secured party, appropriately endorsed.
Regardless of the form of the endorsement, the debtor waives protest. If debtor
fails to endorse any instrument or document, the secured party is authorized to
endorse it on debtor's behalf.
* ORS 79.1090(4) "GOODS ARE . . . 'INVENTORY' IF THEY ARE HELD BY A PERSON WHO
HOLDS THEM FOR SALE OR LEASE OR TO BE FURNISHED UNDER CONTRACTS OF SERVICE OR IF
HE HAS SO FURNISHED THEM, OR IF THEY ARE RAW MATERIALS, WORK IN PROCESS OR
MATERIALS USED OR CONSUMED IN A BUSINESS. INVENTORY OF A PERSON IS NOT TO BE
CLASSIFIED AS HIS EQUIPMENT."
S-N FORM NO. 1206-UCC SERIES (SN)
SECURITY AGREEMENT--INVENTORY
Stevens-Ness Law Publishing Co.
Portland, Oregon 97204
- -------
If any loan above mentioned is a consumer loan as defined by the
Truth-in-Lending Act and Regulation Z, disclosures are required to be made by
the secured party to the debtor prior to consummation of that loan; for this
purpose use Stevens-Ness Form No. 1320, or equivalent. If compliance with Act
not required,disregard this notice.
<PAGE>
S-N FORM NO. 1206 - PAGE 2
Section 6. (continued)
6.3 Maintenance of Records. The debtor at all times shall keep accurate and
complete records of the collateral and its status.
6.4 Right of Secured Party to Inspect. The secured party and any of his
agents shall have the right to call at the debtor's place or places of business
or any other place where the collateral may be located, at intervals to be
determined by the secured party, to inspect the collateral and inspect, audit
and copy any books and records of the debtor relating to the collateral or other
transactions with the secured party.
6.5 Reports. The debtor, if requested by the secured party, shall submit to
the secured party
(a) Periodical Certified Statement. Within forty-five days after the
end of each calendar quarter of each fiscal year of the debtor, his
financial statement as of the close of such quarter, certified by an
authorized person; within ninety days after the end of each fiscal year, his
financial statements as of the close of the year, certified by independent
accountants and from time to time, such additional information and reports
regarding his financial status as the secured party may require.
(b) Reconciliation Report. At least once in each thirty-day period, a
report in form satisfactory to the secured party showing the sales from,
additions to, changes in value of, payment for and adjustments to inventory
made since the preceding reconciliation report, together with such other
information as the secured party may require.
6.6 Financing Statements. At the request of the secured party, debtor shall
join with the secured party in executing one or more financing statements
pursuant to the Uniform Commercial Code in form satisfactory to the secured
party, and will pay for filing the statement in the proper public office or
offices.
6.7 Other Borrowing. Without the written consent of the secured party, the
debtor will not engage in any other inventory or accounts receivable financing
or create any indebtedness for money borrowed except loans made hereunder.
6.8 Further Documentation. Debtor, at any time upon request of the secured
party, will do, make, execute and deliver all such additional and further acts,
instruments or papers as the secured party may require to assure the secured
party of the latter's right hereunder and to the collateral and its proceeds. If
debtor is a corporation, it will promptly furnish the secured party with
certified copies of resolutions of its board of directors authorizing the
execution and delivery of this contract.
6.9 Insurance. Debtor will keep the inventory fully insured against loss or
damage by fire, theft (and collision, if applicable) and such other hazards as
secured party from time to time requires, with such deductible provisions, upon
such terms, including loss payable and other endorsements, and in such company
or companies as the secured party may approve; debtor immediately will deliver
all policies to the secured party, to be retained by the latter in pledge to
secure debtor's obligations hereunder, with irrevocable authority to submit any
proofs, to adjust any loss, receive and receipt for any sum payable, surrender
any policy, discharge and release any insurer, endorse in debtor's name any loss
or refund check or draft and, in general, exercise in the name of the debtor or
otherwise, any and all rights of the debtor in respect thereto or in respect to
the proceeds thereof. All proceeds of insurance shall be deposited in debtor's
cash collateral account.
<PAGE>
6.10 Taxes. Debtor shall pay, when due, all taxes and assessments on or
relating to the collateral or its use or on the proceeds.
6.11 Notification of Account Debtor or Bailee. With respect to proceeds in
the form of accounts, at any time prior to or after default by the debtor, the
secured party may notify the account debtor on any of the collateral to make
payment directly to the secured party. The debtor, if the secured party so
requires, shall notify the account debtors of the secured party's security
interest in their accounts. Until such time as the secured party by written
notice to the debtor elects to exercise said right of notification, the debtor
is authorized as agent of the secured party, to collect and enforce the
accounts. At any time in the discretion of the secured party, the latter may
notify the bailee of any inventory of secured party's security interest therein.
6.12 Truth-in-Lending Act. When making consumer sales of inventory, debtor
agrees to comply with Regulation Z by making the required disclosures and, upon
request, will furnish secured party with satisfactory evidence of such
compliance.
Section 7. Default.
The debtor shall be in default under this agreement upon the occurence of
any of the following events:
7.1 Nonpayment of Principal and Interest. Failure to pay when due the
principal of or interest on any note.
7.2 Breach of Debtor's Agreement. Failure by debtor to keep, observe or
perform any provision of this agreement or any other agreement between debtor
and the secured party.
7.3 Misrepresentation. The discovery of any misrepresentation, breach of
warranty or material falsity of any certificate, schedule or statement made or
furnished by debtor to the secured party, whether or not in connection with this
agreement.
7.4 Impairment. Change in the condition or affairs, financial or otherwise,
of the debtor or of any endorser, guarantor or surety for the liability of
debtor to the secured party which in the opinion of the secured party impairs or
decreases secured party's security. 7.5 Loss or destruction of or substantial
damage to any of the collateral. 7.6 Insolvency. Termination of business or
commencement of any insolvency proceedings by or against debtor or if debtor
becomes insolvent, or if debtor dies, or, if debtor is a partnership, the death
of any partner. 7.7 The secured party deems or has reasonable cause to deem
himself insecure.
Section 8. Remedies of Secured Party on Default.
Upon the occurrence of any event of default, the secured party may at his
option and without prior notice declare all notes and other obligations of the
debtor secured by this agreement immediately due and payable and shall have and
may exercise each and all of the rights and remedies granted to him by the said
notes, this agreement and the Uniform Commercial Code of Oregon. All remedies of
the secured party shall be cumulative. The secured party may require the debtor
to assemble the collateral and make it available to the secured party at a place
to be designated by the latter which is reasonably convenient to both parties.
<PAGE>
Section 9. General.
9.1 Waivers. The debtor waives demand, presentment, notice of dishonor and
protest of any instrument either of debtor or others which may be included in
the collateral or in the obligations secured hereby.
9.2 Consents. The debtor consents and agrees
(a) To any extension, postponement of time of payment, indulgence and to
any substitution, exchange or release of collateral;
(b) To the addition or release of any party or person primarily or
secondarily liable, or acceptance of partial payments on any accounts
or instruments and the settlement, compromising or adjustment thereof;
(c) If there be more than one debtor or a guarantor or co-maker of any note
secured by this agreement, the obligation of each and all shall be
primary and joint and several;
(d) Each note which this agreement secures is a separate instrument and may
be negotiated, extended or renewed by the secured party without
releasing the debtor, the collateral or any guarantor or co-maker.
(e) Should the secured party transfer his interest in said collateral,
debtor will not assert as a defense, counter-claim, set-off or
otherwise against secured party's assignee any claim, known or unknown,
which debtor now has or claims to have or hereafter acquires against
the secured party and further, in such event, each right herein given
to the secured party shall accrue to and may be exercised by said
assignee.
9.3 Duties with Respect to Collateral. The secured party shall have no duty
(a) To collect the collateral or any proceeds;
(b) To preserve rights of debtor or others against prior parties;
(c) To realize on the collateral in any particular manner or seek
reimbursement from any particular source;
(d) To preserve, protect, insure or care for the inventory.
9.4 Non-waiver By Secured Party. Secured party shall not be deemed to have
waived any of his rights under this or any other agreement or instrument signed
by the debtor unless the waiver is in writing signed by the secured party. No
delay in exercising secured party's rights shall be a waiver nor shall a waiver
on one occasion operate as a waiver of such right on a future occasion.
9.5 Notices. Each demand, notice or other communication shall be served or
given by mail addressed to the party at his address set forth herein or as
changed by written notice to the other party, or by personal service upon the
party or proper officer. Reasonable notice, when notice is required, shall be
deemed to be five days from date of mailing.
9.6 Law Governing. All the terms herein and the rights, duties and remedies
of the parties shall be governed by the laws of Oregon.
<PAGE>
9.7 In construing this agreement, the singular includes the plural and the
masculine pronoun includes the femine and the neuter.
9.8 This contract shall bind and inure to the benefit of, as the
circumstances may require, not only the immediate parties hereto but their
respective heirs, executors, administrators, successors in interest and assigns.
Section 10. Special Terms and Conditions.
EXECUTED in duplicate.
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
(Individual Debtor) (Individual Secured Party)
- ---------------------------------- -----------------------------------
(Partnership or Corporate Debtor) (Partnership or Corporate Secured Party)
By-------------------------------- By---------------------------------
SECURITY AGREEMENT
(Equipment and Inventory)
DATE: , 1996
---------- ----
1. Grant and Related Data
1.1 -----------------------------, ("Debtor"), hereby grants to
UNITED GROCERS, INC., an Oregon corporation, ("Secured Party"), a security
interest in the following described personal property:
All present and hereafter acquired inventory, furniture, trade
fixtures, equipment and all proceeds therefrom, including
insurance proceeds, accounts receivable, United Grocers, Inc.
capital stock and patronage rebates earned, contract rights,
leasehold improvements, and leasehold interest, now or
hereafter used in connection with the operation of that
certain retail grocery business presently known as -----------,
located at ---------, --------, -------- County, Oregon.
together with all accessories , substitutions, additions, replacements, parts,
equipment and accessories now or hereafter affixed to or used in connection
therewith ("Collateral"), to secure any and all present and hereinafter incurred
indebtedness, and any renewals and to cover any and all extensions of credit and
also to secure any and all other liabilities, absolute or contingent, primary or
secondary, direct or acquired, due or to become due, now or at any time
hereafter owing by Debtor to Secured Party or its wholly owned subsidiaries.
1.2 The Collateral is bought or used primarily for Debtor's
business purposes, and it will be permanently kept at -------------, ---------,
- -------- County, Oregon, which is the address of Debtor's place of business.
1.3 The Collateral is not and will not be attached to real estate
so as to become incorporated in and made a part of said real property.
1.4 As often as Secured Party shall require, Debtor shall deliver
to Secured Party such lists, descriptions and designations of inventory as
Secured Party may require to identify the nature, extent and location thereof.
2. Warranties, Covenants and Agreements. In order to induce Secured
Party to enter into this Security Agreement and make each loan, Debtor warrants
and covenants to Secured Party that:
2.1 Organization. Debtor is a corporation duly organized, validly
existing and in good standing under the las of the State of Oregon, has the
necessary authority and power to own and sell the Collateral and its other
assets and to transact the business in which it is engaged, and is duly
qualified to do business in the jurisdiction where the Collateral is located and
in each other jurisdiction in which the conduct of its business or the ownership
of its assets requires such qualification.
<PAGE>
2.2 Power and Authority. Debtor has full power, authority and
legal right to execute and deliver this Security Agreement, the notes, and the
contracts to perform its obligations hereunder and thereunder, to borrow
hereunder and to grant the security interest created by this Security Agreement.
2.3 Consents and Permits. No consent of any other party (including
any stockholders, trustees or holders of indebtedness), and no consent, license,
approval or authorization of, exemption by, or registration or declaration with,
any governmental body, authority, bureau or agency is required in connection
with the execution, delivery or performance by Debtor of this Security
Agreement, the notes or the contracts, or the validity or enforceability of this
Security Agreement, the notes or the contracts.
2.4 No Legal Bar. The execution, delivery and performance by
Debtor of this Security Agreement, the notes and the contracts do not and will
not violate any provision of any applicable law or regulation or of any
judgment, award, order, writ or decree of any court or governmental
instrumentality, will not violate any provision of the charter of Bylaws of
Debtor and will not violate any provision of or cause a default under any
mortgage, indenture, contract, agreement or other undertaking to which Debtor is
a party or which purports to be binding upon Debtor or upon any of its assets,
and will not result in the creation or imposition of any lien on any of the
assets of Debtor other than the security interest intended to be created hereby.
2.5 No Defaults. Debtor is not in default, and no event or
condition exists which after the giving of notice or lapse of time or both would
constitute an event of default, under any mortgage, lease indenture, contract,
agreement, judgment or other undertaking to which Debtor is a party or which
purports to be binding upon Debtor or upon any of its assets, except for any
such default, event or condition which, individually or in the aggregate, would
not affect Debtor's ability to perform its obligations under this Security
Agreement or any such mortgage, indenture, contract, agreement, judgment or
other undertaking.
2.6 Enforceability. This Security Agreement has been duly
authorized, executed and delivered by Debtor and constitutes a legal, valid and
binding obligation of Debtor, enforceable in accordance with its terms. When
executed and delivered, each contract and note shall have been duly authorized,
executed and delivered by Debtor and shall constitute a legal, valid and binding
obligation of Debtor, enforceable in accordance with its terms.
2.7 Laws; Obligations: Operations. Debtor will:
(a) duly observe and conform to all requirements of any
governmental authorities relating to the conduct of its business or to its
properties or assets insofar as such requirements may have a material impact
respecting Debtor's obligations under this Security Agreement;
Page 2 --SECURITY AGREEMENT
<PAGE>
(b) maintain its existence as a legal entity and obtain and keep
in full force and effect all rights, licenses and permits which are necessary to
the proper conduct of its business;
(c) obtain or cause to be obtained as promptly as possible any
governmental, administrative or agency approval and make any filing or
registration therewith which at the time shall be required with respect to the
performance of its obligations under this Security Agreement or the operation of
its business; and
(d) pay all fees, taxes, assessments and governmental charges or
levies imposed upon any of the Collateral.
2.8 Except for the security interest granted hereby, and a grant
of a security interest in inventory and fixtures to United Resources, Inc.,
Debtor is the sole owner of the Collateral free from any lien, security interest
or encumbrance, and will defend the Collateral against the claims and demands of
all persons whomsoever.
2.9 Financial Condition of Debtor. The consolidated financial
statements of Debtor heretofore delivered to Secured Party are complete and
correct, have been prepared in accordance with generally accepted accounting
principles consistently applied, and present fairly the financial position of
Debtor as at said date and the results of its operations for the period ended on
said date, and there has been no material adverse change in the financial
condition, business or operations of Debtor since said date.
2.10 Except as provided below with respect to inventory, Debtor
will not sell or offer to sell or otherwise transfer or dispose of the
Collateral or any part thereof by any interest herein, or create or cause or
permit to be created any lien, encumbrance or security interest in or upon any
part thereof.
2.11 While Debtor is not in default hereunder, Debtor may sell the
inventory, but only in the ordinary course of business and only to buyers who
qualify as a buyer in the ordinary course of business.
2.12 Insurance. Debtor will keep the Collateral fully insured
against loss or damage by fire, and such other hazards as Secured Party may from
time to time require, with such deductible provisions, upon such terms,
including loss payable and other endorsements, and in such company or companies
as Secured Party may approve; and Debtor will immediately deliver all such
insurance policies to Secured Party, to be retained while any indebtedness
hereby secured remains owing. Secured Party shall hold all such policies in
pledge to secure payment of the indebtedness hereby secured, with irrevocable
authority to adjust any loss, receive and receipt for any sum payable, surrender
any policy, discharge and release any insurer, endorse any loss or refund check
or draft and, in general, exercise in the name of Debtor or otherwise, any and
all rights of Debtor in respect thereto or in respect to the proceeds thereof.
Page 3--SECURITY AGREEMENT
<PAGE>
2.13 Maintenance of Collateral. Debtor will, at its own expense,
keep and maintain the Collateral or cause the Collateral to be kept and
maintained in good repair, condition and working order and furnish or cause to
be furnished all parts, replacements, mechanisms, devices and servicing required
therefore so that the value, condition and operating efficiency thereof will at
all times be maintained and preserved, fair wear and tear excepted. All such
repairs, parts, mechanisms, devices and replacements shall immediately, without
further act, become part of the Collateral and subject to the security interest
created by this Security Agreement. Debtor will not make or authorize any
improvement, change, addition or alteration to the Collateral if such
improvement, change, addition or alteration will impair the originally intended
function or use of the Collateral or impair the value of the Collateral as it
existed immediately prior to such improvement, change, addition or alteration.
Any part added to the Collateral in connection with any improvement, change,
addition or alteration shall immediately, without further act, become part of
the Collateral and subject to the security interest created by this Security
Agreement.
2.14 Inspection/Use of Collateral. Secured Party may enter any
premises in which any of the Collateral may be kept at any reasonable time for
the purpose of inspecting the same. Debtor will not permit any use of any of the
Collateral in violation of any law or ordinance. Debtor will not, without the
prior written consent of Secured Party cause or permit the Collateral or any
part thereof to be moved from its present location or to be used for hire or
under lease.
2.15 Taxes. Debtor will promptly pay when due all taxes, license
fees and governmental rates and charges upon or relating to any of the
Collateral or its use and relative to the indebtedness hereby secured.
2.16 Financial Reporting. Debtor shall provide to Secured Party at
least quarterly, and to Secured Party's officers, agents, attorneys or
accountants, reasonably complete financial data reflecting the inventory level,
debts and obligations of Debtor (not limited to those to Secured Party), the
current accounts receivable of Debtor, and all other information reasonably
calculated to provide Secured Party with information with respect to the
solvency of the Debtor, and to assure the Secured Party as of its rights
hereunder to the Collateral. All such financial information shall be accurate
and correct in all material respects and complete insofar as completeness may be
necessary to give the Secured Party true and accurate knowledge of the financial
condition of the Debtor.
2.17 As further consideration for the execution of this Security
Agreement, Debtor agrees to assign unto Secured Party, as collateral, Debtor's
interest in the lease, satisfactory to Secured Party, covering the premises
wherein the business and chattels are located. Any breach of said lease, shall
be deemed a breach of this Security Agreement and so also shall a breach of this
Security Agreement be deemed a breach of the lease. In the event of a breach of
this Security Agreement or of the lease, and in the event Secured
Page 4--SECURITY AGREEMENT
<PAGE>
Party finds it necessary to exercise the right of possession, Debtor agrees to
relinquish possession of the premises, peaceably, to Secured Party, and in such
event, this indenture shall serve as an assignment of all the right, title and
interest of Debtor of Debtor's leasehold rights.
2.18 Optional Advances. At its option, Secured Party may discharge
taxes, liens, security interests or other encumbrances upon any of the
Collateral, may place and pay premiums upon insurance on any of the Collateral
and may incur expenses for maintenance and preservation of any of the
Collateral. Debtor agrees to pay to Secured Party upon demand all sums incurred
or paid for any of said purposes with interest from the date on which the same
were incurred to the date of payment at the rate of 18 percent per annum.
Payment thereof is secured by the Collateral.
2.19 Proceeds Account. Upon default as hereinafter defined,
Debtor, forthwith, upon receipt of all checks, drafts, cash and other
remittances (hereinafter called proceeds) in part or full payment for any of the
Collateral, will deposit the proceeds in a cash collateral account as specified
by Secured Party, over which the Secured Party alone shall have power of
withdrawal. Pending such deposit, the Debtor shall not commingle any proceeds
with any other funds or property of the Debtor, but shall hold the proceeds
separate and apart therefrom and upon an express trust for the Secured Party
until deposited in the cash collateral account. Credit for proceeds deposited in
the cash collateral account shall be conditional upon final payment of the
deposited item. Once a month, the Secured Party will apply the whole or any part
of the collected funds on deposit in the cash collateral account against the
principal or interest of the notes and the other charges specified, the order
and method of such application to be in the discretion of the Secured Party. Any
part of the cash collateral account which the Secured Party elects not to so
apply may be paid over by the Secured Party to the Debtor.
3. General Provisions.
3.1 The obligations which this Security Agreement secures may be
evidenced by separate instruments which may be negotiated, extended or renewed
by Secured Party without releasing Debtor, the Collateral or any guarantor or
comaker.
3.2 All of the terms of this Security Agreement and the rights,
remedies and duties of the parties hereto shall be governed by the laws of the
State of Oregon or other applicable laws. If any provision of this Security
Agreement is in conflict with the law of any state having jurisdiction, the
remaining parts hereof shall be effective as if such provision had not been
made.
3.3 If any interest of Debtor in any of the Collateral shall be
transferred or if any indebtedness hereby secured shall be assigned, the terms,
covenants and conditions hereof shall be binding upon and inure to the benefit
of the successors in interest of the parties hereto.
Page 5--SECURITY AGREEMENT
<PAGE>
3.4 If there be more than one Debtor or a guarantor or comaker or
more than one guarantor or comaker, the liability of all such parties shall be
primary and joint and several.
3.5 If Secured Party shall, once or often, extend the time for
paying any indebtedness hereby secured or fail promptly to exercise any right or
remedy it may have for any default hereunder or breach or violation hereof, such
indulgence or forebearance shall not be deemed a waiver of strict and prompt
performance by Debtor of all the terms and conditions hereof and shall not
preclude Secured Party from thereafter, without notice, exercising any right or
remedy for any subsequent breach or default in performance of the same or any
other provision hereof or for any other breach or violation of this Security
Agreement.
3.6 If any notice is given to Secured Party, it shall be given by
registered or certified mail directed to Secured Party at the place where
indebtedness hereby secured is payable. If any notice is to be given to Debtor,
mailing by registered or certified mail to the address stated above shall be
sufficient unless Secured Party shall have received from Debtor notice in
writing of a change of address. Reasonable notice, when such notice is required,
shall be deemed to be five (5) days notice.
3.7 Debtor will promptly notify Secured Party in writing of any
change in Debtor's business or residence address and agrees to execute any
additional financing statements as Secured Party shall require.
4. Negative Covenants. Without Secured Party's prior written consent,
until all obligations are fully paid, performed and satisfied and this Security
Agreement is terminated, Debtor covenants that Debtor shall not:
4.1 merge or consolidate with or acquire any other party,
partnership, joint venture or corporation, hereinafter designated "Person"
4.2 other than in the ordinary course of Debtor's business, make
any investment in the securities of any Person;
4.3 declare or pay cash or stock dividends upon any of Debtor's
stock or make any distributions of Debtor's property or assets or make any
loans, advances and/or extensions of credit to, or investments in, any
Person(s), including, without limitation, any of Debtor's affiliates, officers
or employees;
4.4 redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Debtor's capital stock, or make any material change in
Debtor's capital structure or in any of Debtor's business objectives, purposes
and operations which might in any way adversely affect the repayment of the
obligations; and
Page 6--SECURITY AGREEMENT
<PAGE>
4.5 enter into any transaction which materially and adversely
affects the Collateral or Debtor's ability to repay and satisfy its obligations
hereunder.
5. Default. Debtor shall be in default under this Security Agreement
upon the happening of any of the following events or conditions:
5.1 If Debtor shall fail to pay, when due, any obligation within
five (5) days after the same becomes due (whether at the stated maturity, by
acceleration or otherwise) of any indebtedness owing by Debtor to Secured Party.
5.2 If Debtor shall fail to perform promptly at the time and
strictly in the manner provided by any covenant, representation or warranty of
Debtor contained in this or any other agreement between Debtor and Secured
Party.
5.3 If any warranty, representation, covenant or statement made
by Debtor to Secured Party in this or any other agreement is false in any
material respect.
5.4 If there shall be any loss, theft, substantial damage,
destruction, sale or encumbrance to or of any of the Collateral, or the making
of any levy, seizure or attachment thereof or thereon.
5.5 If there shall be any death, dissolution, termination of
existence, insolvency, business failure, appointment of a receiver of any part
of the property of, assignment for the benefit of creditors by, or commencement
of any proceeding under any bankruptcy or insolvency law, as now or hereafter
constituted, by or against Debtor or any guarantor or surety of Debtor.
5.6 If Debtor fails to maintain a marketable inventory at cost of
- ------.--, during the term of Debtor's indebtedness to the Secured Party,
at ----------, --------, --------- County, Oregon.
5.7 If Secured Party deems or has reasonable cause to deem itself
insecure.
6. Remedies.
6.1 Upon an event of default, as specified in subparagraphs 5.1
through 5.7, and at any time thereafter, Secured Party may, without notice,
declare any and all promissory notes immediately due and payable, together with
all other amounts owing under this or any other agreement by and between Debtor
and Secured Party without demand, protest or other nature, all of which are
expressly waived.
6.2 If an event of default shall occur and be continuing, Secured
Party may exercise, in addition to all other rights and remedies granted to it
in this Security Agreement and in any other instrument or agreement securing,
Page 7--SECURITY AGREEMENT
<PAGE>
evidencing or relating to the obligations, all rights and remedies of secured
parties under the Uniform Commercial Code of Oregon. Debtor agrees that in any
such event, Secured Party without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Debtor or any other person (all
and each of which demands, advertisements and/or notices are hereby expressly
waived), may forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase or otherwise dispose of and deliver the Collateral
(or contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any of Secured Party's offices or else where at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. Secured Party shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in Debtor, which right or equity is hereby
expressly released. Debtor further agrees, at Secured Party's request, to
assemble the Collateral, make it available to Secured Party at places which
Secured Party shall reasonably select, whether at Debtor's premises or
elsewhere. Secured Party shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale (after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care, safekeeping or otherwise of any or all of the Collateral or in any way
relating to the rights of Secured Party hereunder, including attorneys fees and
legal expenses) to the payment in whole or in part of the obligations, in such
order as Secured Party may elect and only after so applying such net proceeds
and after the payment by Secured Party of any other amount required by any
provision of law, need Secured Party account for the surplus, if any, to Debtor.
To the extent permitted by applicable law, Debtor waives all claims, damages,
and demands against Secured Party arising out of the repossession, retention or
sale of the Collateral. Debtor agrees that no more than ten (10) days' notice
(which notification shall be deemed given when mailed, postage prepaid,
addressed to Debtor at its address set forth in subparagraph 7.2 hereof) of the
time and place of any public sale or of the time after which a private sale may
take place and that such notice is reasonable notification of such matters.
Debtor shall be liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay all amounts to which
Secured Party is entitled.
6.3 Debtor agrees to pay all expenses, including reasonable
attorneys fees, incurred by Secured Party in taking, holding, preparing for sale
and selling any of the Collateral, as well as attorneys fees and court costs in
such amount as shall be adjudged reasonable for services in the trial court and
for services in any appellate court in any suit or action to require performance
or for the breach of this Security Agreement or upon any promissory note hereby
secured.
6.4 In any suit or action to require performance or for the breach
of this Security Agreement the court may, upon application of plaintiff and
without regard to the condition of the property or the adequacy of the security
Page 8--SECURITY AGREEMENT
<PAGE>
for the indebtedness hereby secured and without notice to Debtor or to any other
party, appoint a receiver to take possession and care of all of the Collateral
and to collect and receive any and all proceeds and receivables arising out of
or generated by the collection which had heretofore arisen or accrued or which
may arise or accrue during the pendency of such suit or action, and that any
amounts so received shall be applied toward payment of the indebtedness hereby
secured, after first paying therefrom the charges and expenses of such
receivership.
7. Miscellaneous.
7.1 No Waiver; Cumulative Remedies. No failure or delay on the
part of the Secured Party in exercising any right, remedy, power or privilege
hereunder or under the note shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. No right or remedy in this Security
Agreement is intended to be exclusive but each shall be cumulative and in
addition to any other remedy referred to herein or otherwise available to
Secured Party at law or in equity; and the exercise by Secured Party of any one
or more of such remedies shall not preclude the simultaneous or later exercise
by Secured Party of any or all such other remedies. To the extent permitted by
law, Debtor waives any rights now or hereafter conferred by statue or otherwise
which limit or modify any of Secured Party's rights or remedies under this
Security Agreement.
7.2 Notices. All notices, requests and demands to or upon any
part hereto shall be deemed to have been duly given or made when delivered or
when deposited in the United States mail, first class postage prepaid, addressed
to such party as follows, or to such other address as may be hereafter
designated in writing by such party to the other party hereto:
Debtor:
-----------------------------------
DBA
-------------------------------
-----------------------------------
-----------------------------------
Secured Party: UNITED GROCERS, INC.
P. O. Box 22187
Portland, OR 97269
7.3 Survival of Representations and Warranties. All
representations and warranties made in this Security Agreement shall survive the
execution and delivery of this Security Agreement and the making of the loan
hereunder.
7.4 Amendments; Waivers. No provision of this Security Agreement,
the note or any related agreements, may be amended or modified in any way, nor
may noncompliance therewith be waived, except pursuant to a written instrument
executed by Secured Party and Debtor.
Page 9--SECURITY AGREEMENT
<PAGE>
7.5 Counterparts. This Security Agreement may be executed by the
parties hereto on any number of separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
7.6 Headings. The headings of the paragraphs and subparagraphs
are for convenience only, are not part of this Security Agreement and shall not
be deemed to affect the meaning or construction of any of the provisions hereof.
7.7 Successors or Assigns. This Security Agreement shall be
binding upon and inure to the benefit of Debtor and Secured Party and their
respective successors and assigns, except that Debtor may not assign or transfer
its rights hereunder or any interest herein without the prior written consent of
Secured Party.
7.8 Merger Clause. This Security Agreement contains the full,
final and exclusive statement of the agreement relating to the transactions
hereby contemplated.
7.9 Construction. Any provision of this Security Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition of
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by law, Debtor hereby waives any provision of law which renders any provision
hereby prohibited or unenforceable in any respect. This Security Agreement and
the note shall be governed by, and construed and interpreted in accordance with,
the laws of the State of Oregon.
7.10 Jurisdiction. Debtor hereby irrevocably consents and agrees
that any legal action, suit, or proceeding arising out of or in any way in
connection with this Security Agreement, may be instituted or brought in the
courts of the State of Oregon, in the County of Multnomah.
7.11 Purchase Requirements. Debtor agrees to maintain or cause to
be maintained the membership of the store in good standing with United Grocers
in accordance with the Bylaws of United Grocers, Inc., as long as this Agreement
remains in effect.
7.12 Debtor acknowledges and agrees that as a material
consideration and condition precedent to UG's extension of credit hereunder,
Debtor covenants and agrees to purchase goods and merchandise from UG for a
period of five (5) years. Debtor agrees that the weekly purchases from UG shall
be in accordance with UG credit terms and that the weekly purchase of goods and
merchandise shall not be less than 55 percent of Debtor's retail weekly sales
volume of all goods and merchandise sold on or from the store(s)' premises and
UG will supply all of Debtor's requirements at such prices and on
Page 10--SECURITY AGREEMENT
<PAGE>
such terms asare reasonably comparable to those offered by UG to other
purchasers of like kind and like quantities carrying on businesses similar to
that of the Debtor. If, at any time, the Debtor contends that UG is not able to
supply particular goods or merchandise customarily stocked by retail
supermarkets, or that terms offered by UG are not reasonably comparable to those
offered by UG to other purchasers described above, the Debtor shall so advise UG
in writing, specifying such contention with particularity. If, within 20 days
after receipt of such notice, UG does not offer to supply goods or merchandise
so specified or does not advise Debtor that the terms and conditions offered are
reasonably comparable to those offered to such other purchasers, Debtor shall be
free to secure such specified goods and merchandise from any source which it
desires. If UG asserts that it is offering reasonably comparable terms and
Debtor nonetheless purchases from another source, such purchase, if above
percentage requirements are not complied with, shall be a default. In the event
of a breach of this purchase covenant, Debtor agrees to pay UG, as liquidated
damages, and not as a penalty or forfeiture, a sum computed as follows:
(a) The average weekly purchases from the date of the agreement to
the date of the breach shall be determined;
(b) The average weekly purchases so determined shall then be
multiplied by the number of weeks from the date of the breach to the end of the
term of the purchase agreement; and
(c) The computed sum shall be multiplied by one and one-quarter
percent (1 1/4%) to determine the liquidated damages due and owing UG by reason
of Debtor's default. Said sum shall become immediately due and owing within 15
days from date of written notice of the liquidated damage. Debtor's default
hereunder shall also be a default under the Security Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
DEBTOR:
------------------------------------
DBA
--------------------------------
By
---------------------------------
, President
By
---------------------------------
, Secretary
INDIVIDUALLY:
------------------------------------
------------------------------------
SECURED PARTY: UNITED GROCERS, INC.
By
----------------------------------
G. P. Fleming
Assistant Secretary
Page 11--SECURITY AGREEMENT
SECURITY AGREEMENT FOR SUBSEQUENT NOTES
(Equipment and Inventory)
Section 1. Grant and Related Data.
----------------------
(a)
("Debtor"), hereby grants to UNITED RESOURCES, INC., an Oregon
corporation ("Secured Party"), or its successors and assigns, a security
interest in the following described personal property:
All of Debtor's present and hereafter acquired inventory,
furniture, trade fixtures, and equipment, and all proceeds
therefrom, including insurance proceeds, accounts receivable,
contract rights, leasehold improvements, and leasehold
interest, and all substitutions, additions, replacements,
parts, equipment, and accessories, ABC liquor license, now
owned or hereafter affixed to or used in connection therewith
("Collateral"),
to secure (i) the payment of Debtor's Installment Note of even date herewith in
the amount of $ payable to the order of Secured Party at the times and
--------
in the amounts therein provided; and (ii) any renewals, modifications or
amendments thereof; and (iii) to secure all other present and hereafter incurred
indebtedness of Debtor to Secured Party.
(b) The Collateral is bought or used primarily for Debtor's business
purposes, and it will be permanently kept at , , in
------------------ ---------
the County of , State of , which is the address of
----------- --------------
Debtor's place of business.
(c) The Collateral is not and will not be attached to real estate so as
to become a fixture.
(d) The Collateral consisting of inventory is maintained and at all
times will be maintained at a level of not less than $ cost to
-----------
Debtor.
(e) As often as Secured Party shall require, Debtor shall deliver to
Secured Party such lists, descriptions, and designations of inventory as Secured
Party may require to identify the nature, extent, and location thereof.
Section 2. Warranties, Covenants and Agreements.
------------------------------------
Debtor warrants and covenants and it is understood by the parties that:
(a) Except for the security interest granted hereby, Debtor is the owner
of the Collateral free from any lien, security interest, or encumbrance, and
will defend the Collateral against the claims and demands of all persons
whomsoever.
(b) Except as provided below in Paragraph (c) and in Paragraph (d) with
respect to inventory, Debtor will not sell, offer to sell, or otherwise transfer
or dispose of the Collateral or any part thereof or any interest therein, or
create or cause or permit to be created any lien, encumbrance or security
interest in or upon any part thereof.
(c) In the event that United Resources, Inc. advances additional sums or
Debtor incurs subsequent indebtedness to United Resources, Inc., Debtor hereby
SECURITY AGREEMENT FOR SUBSEQUENT NOTES - 1
<PAGE>
grants United Resources, Inc. a security interest in the Collateral subordinate,
in all respects, to the security interest granted hereby in order to secure
payment of such subsequent lending.
(d) While Debtor is not in default hereunder, Debtor may sell inventory,
but only in the ordinary course of business and only to buyers who qualify as a
buyer in the ordinary course of business. A sale in the ordinary course of
Debtor's business does not include a transfer in partial or total satisfaction
of a debt or any bulk sale.
(e) Debtor will keep the Collateral fully insured against loss or damage
by fire, and such other hazards as Secured Party may from time to time require,
with such deductible provisions, upon such terms, including loss payable and
other endorsements, and in such company or companies as Secured Party may
approve; and Debtor will immediately deliver all such insurance policies to
Secured Party to be retained while any indebtedness hereby secured remains
owing. Secured Party shall hold all such policies in pledge to secure payment of
the indebtedness hereby secured, with control to adjust any loss, receive any
receipt for any sum payable, surrender any policy, discharge and release any
insurer, endorse any loss or refund check or draft and, in general, exercise in
the name of Debtor or otherwise, any and all rights of Debtor in respect thereto
or in respect to the proceeds thereof.
(f) Debtor will maintain the Collateral in good condition and repair and
preserve the same against waste, loss, damage or depreciation in value other
than by reasonable wear. Secured Party may enter any premise in which any of the
Collateral may be kept at any reasonable time for the purpose of inspecting the
same. Debtor will not permit any use of any of the Collateral in violation of
any law or ordinance. Debtor will not, without the prior written consent of
Secured Party, cause or permit the Collateral or any part thereof to be taken
outside the state where permanently located as agreed in Section 1(b) or to be
used for hire or under lease.
(g) Debtor will pay promptly when due all taxes, license fees and
governmental rates and charges upon or relating to any of the Collateral or its
use and relative to the indebtedness hereby secured.
(h) At its option, Secured Party may discharge taxes, liens, security
interests or other encumbrances upon any of the Collateral, may place and pay
premiums upon insurance on any of the Collateral and may incur expense for
maintenance and preservation of any of the Collateral. Debtor agrees to pay to
Secured Party upon demand all sums incurred or paid for any said purposes, with
interest from the date on which the same were incurred to the date of payment at
the rate of 18 percent per annum. Payment thereof is secured by the Collateral.
Section 3. General Provisions.
------------------
(a) The obligations which this Agreement secures are evidenced by
separate instruments which may be assigned, renewed, negotiated or extended by
Secured Party without releasing Debtor, the Collateral, or any guarantor or
co-maker.
(b) All of the terms of this Agreement and the rights, remedies, and
duties of the parties hereto shall be governed by the laws of Oregon. If any
provision of this Agreement is in conflict with the law of any state having
jurisdiction, the remaining parts hereof shall be effective as if such provision
had not been made.
SECURITY AGREEMENT FOR SUBSEQUENT NOTES - 2
<PAGE>
(c) If any interest of Debtor in any of the Collateral shall be
transferred or if any indebtedness hereby secured shall be assigned, the terms,
covenants, and conditions hereof shall be binding upon and inure to the benefit
of the successors in interest of the parties hereto.
(d) If there be more than one Debtor or a guarantor or co-maker, the
liability of all such parties shall be primary and joint and several.
(e) If Secured Party shall, once or often, extend the time for paying
any indebtedness hereby secured or fail promptly to exercise any right or remedy
it may have for any default hereunder or breach or violation hereof, such
indulgence or forebearance shall not be deemed a waiver of strict and prompt
performance by Debtor of all the terms and conditions hereof and shall not
preclude Secured Party from thereafter, without notice, exercising any right or
remedy for any subsequent breach or default in performance of the same or any
other provision hereof or for any other breach or violation of this Agreement.
(f) If any notice is given to Secured Party, it shall be given by
registered or certified mail directed to Secured Party at the place where
indebtedness hereby secured is payable. If any notice is to be given to Debtor,
mailing by registered or certified mail to the address stated above shall be
sufficient unless Secured Party shall have received from Debtor notice in
writing of a change of address. Reasonable notice, when such notice is required,
shall be deemed to be five days' notice.
(g) Debtor will promptly notify Secured Party in writing of any change
in Debtor's business or residence address.
Section 4. Default.
-------
Debtor shall be in default under this Agreement upon the happening of
any of the following events or conditions:
(a) If Debtor's inventory level falls below the stated value of
$ cost to Debtor.
----------
(b
If Debtor shall fail to pay, when due, any installment of principal
or interest of any indebtedness owing by Debtor to Secured Party.
(c) If Debtor shall fail to perform promptly at the time and strictly in
the manner provided by any covenant of Debtor contained in this or any other
agreement between Debtor and Secured Party.
(d) If any warranty, representation, or statement made by Debtor to
Secured Party is false in any material respect.
(e) If there shall be any uninsured loss, theft, substantial damage,
destruction, sale or encumbrance to or of any of the Collateral, or the making
of any levy, seizure or attachment thereof or thereon.
(f) If there shall be any dissolution, termination of existence,
insolvency, business failure, appointment of a receiver of any part of the
property of, assignment for the benefit of creditors by, or commencement of any
proceeding under any bankruptcy or insolvency law by or against Debtor or
guarantor or surety for Debtor.
(g) If Secured Party has reasonable cause to deem itself insecure.
SECURITY AGREEMENT FOR SUBSEQUENT NOTES - 3
<PAGE>
Section 5. Remedies.
--------
Upon such default and at any time thereafter, Secured Party shall have
each and all of the rights and remedies granted to Secured Party by the Uniform
Commercial Code of Oregon or other applicable laws, by this Agreement and by the
Installment Note or Notes hereby secured, and Secured Party may without notice
declare any or all such Installment Notes immediately due and payable and
Secured Party may require Debtor to assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties. Debtor agrees to pay all expenses,
including reasonable attorneys' fees incurred by Secured Party in taking,
holding, preparing for sale, and selling any of the Collateral, as well as
attorneys' fees and court costs in such amount as shall be adjudged reasonable
for services in the trial court and for services in any appellate court in any
suit or action to require performance or for the breach of this Agreement or
upon any Installment Note hereby secured.
In the construction of this Agreement, the singular shall include the
plural as the circumstances may require.
Signed in duplicate this day of , 1997.
---- -----
SECURED PARTY: UNITED RESOURCES, INC.
By
-------------------------------
G. P. Fleming, President
BORROWERS:
---------------------------------
---------------------------------
SECURITY AGREEMENT FOR SUBSEQUENT NOTES - 4
RESIDUAL STOCK REDEMPTION NOTE #
$(DOLLARS) PORTLAND, OREGON (DATE)
---------
United Grocers, Inc., an Oregon corporation, pursuant to Article V,
Section 6, of its Bylaws, promises to pay to
(STORE), the sum of $(DOLLARS) in lawful money of the United States, in
20 equal quarterly principal installments, together with interest from the date
hereof to the date of payment at a present rate of (PERCENT)% per annum. It is
agreed that at any time the interest rate being paid by United Grocers, Inc., on
its latest series of Capital Investment Notes shall increase or decrease from
the interest rate specified herein, a corresponding adjustment shall be made in
this interest rate. If such interest rate shall be increased above the original
rate set forth in this Note, the quarterly payment payable hereunder shall be
correspondingly increased so that the indebtedness evidenced hereby will be paid
in full in regular quarterly installments by the end of the amortization period
hereinabove set forth. If such interest rate shall be reduced, the quarterly
payment shall likewise be reduced, the quarterly payment shall likewise be
reduced to effectuate payment in full with accordance with the amortization
period.
The payments hereunder shall be due and payable quarterly on the
fifteenth day of February, May, August and November of each year until the whole
sum of principal and interest has been paid in full. The first payment will be
on the regular payment date first following board approval of the transaction.
All sums paid on this Note shall be applied in the following order: to
interest as accrued and then to principal.
This note is transferable only upon the books of the corporation upon
surrender and properly endorsed by the registered owner hereof, subject to the
rules and regulations as now or may hereinafter be adopted by the Board of
Directors of United Grocers, Inc.
IN WITNESS WHEREOF, the corporation has caused this Note to be executed
by its duly authorized officers.
United Grocers, Inc., an Oregon corporation
By -------------------------------------
Terry Olsen, President
By -------------------------------------
Mark Tweedie, Vice-President
EMPLOYMENT CONTRACT
DATED: October 1, 1998
BETWEEN: UNITED GROCERS, INC.,
an Oregon corporation, hereinafter referred to as "Company"
AND: TERRY OLSEN,
hereinafter referred to as "Employee"
RECITALS:
A. The parties desire to provide for employment of Employee by Company,
which for purposes of this Agreement, includes any subsidiary or affiliated
corporation or entity that is at least fifty-one percent (51%) owned directly or
indirectly by Company.
B. Employee desires to be assured of a minimum compensation from Company
for Employee's services over a defined term (unless terminated for cause).
C. Company desires to employ Employee in order to assure continuing
management expertise for Company and to provide reasonable protection of
Company's confidential business information which has and will be developed by
Company.
1. EMPLOYMENT.
1.1 Employment. Company hereby employs Employee as Executive Vice
President and Chief Operating Officer upon the terms and conditions set forth in
this Agreement. Employee accepts such employment upon the terms and conditions
set forth in this Agreement.
1.2 Term. The term of this Agreement shall commence upon October 1, 1998,
and shall continue for a period of three (3) years from said date, subject to
the termination provisions of paragraph 3.
1.3 Extension. This Agreement shall be automatically extended for an
additional year on each successive October 1, commencing with October 1, 2001,
unless terminated by written notice by either party. The notice of termination
shall be given no sooner than 240 days prior to the expiration of the original
term or any subsequent extension and not less than 180 days prior to the
expiration of the original term or any subsequent extension.
1.4 Duties. Employee accepts employment with the Company on the terms and
conditions set forth in this Agreement, and agrees to devote his full time and
attention to the performance of his duties under this Agreement. Employee shall
be the Executive Vice President and Chief Operating Officer of the Company and
agrees to act in such capacity and perform services normally associated with
such positions. Employee shall perform such specific duties and shall exercise
such specific authority as may be assigned to Employee from time to time by the
President and Chief Executive Officer. In performing such duties, Employee shall
be subject to the direction and control of the President and Chief Executive
Officer. Employee further agrees that in all aspects of such employment,
Employee shall comply with the policies, standards and regulations of the
Company from time to time established, and shall perform his duties faithfully,
intelligently, to the best of his ability, and in the best interest of the
Company. The Employee may serve as a member of the boards of directors for
businesses or associations other than United Grocers, Inc. or any of its
subsidiaries, provided such activity does not materially interfere with the
services required to be rendered to or on behalf of the Company.
-1-
<PAGE>
2. COMPENSATION.
2.1 Base Compensation. In consideration of all services to be rendered by
Employee to the Company, the Company shall pay to Employee base compensation of
Two Hundred Thousand Dollars ($200,000) per year, payable at the same frequency
as all employees are compensated (the "Base Compensation"). Adjustments may be
mutually agreed upon from time to time, and such adjustments will be in writing
and signed by both parties hereto and added as an amendment to this Agreement.
If Employee's Base compensation is increased during the term of this Agreement,
the increased amount shall be the Base Compensation for the remainder of the
term and any extension. Base compensation shall not include any bonuses or
incentive compensation payments, if any, which Company, in its sole discretion,
may elect to pay to Employee at some future date.
2.2 Withholding; Other Base Benefits. The Base Compensation and any other
payment or benefit shall be subject to the customary withholding of income taxes
and shall be subject to other employment taxes required with respect to
compensation paid by a corporation to an employee. Base Compensation paid to
Employee shall be in addition to any other contribution made by the Company for
the benefit of Employee to any qualified or non-qualified pension or profit
sharing plan, including, but not limited to, the Pension Plan of United Grocers,
Inc., any supplemental pension or bonus plan for key employees, and the
Company's portion, if any, of the 401(k) plan maintained by the Company for the
benefit of its employees. Employee shall be entitled to participate in Company's
medical and dental insurance plans and any other fringe benefits that are
provided to Company's key employees on a regular basis.
2.3 Expenses. Company shall pay or reimburse all of the reasonable and
necessary expenses incurred by Employee in carrying out his duties under this
Agreement, provided that Employee accounts promptly for such expenses to Company
in the manner prescribed from time to time by Company.
2.4 Disability. If Employee shall become unable to perform his duties
under this Agreement because of accident, injury or illness, he shall be
considered permanently disabled, but his salary, less any disability benefits
Employee should receive from an insurer, shall continue for the duration of such
disability for the remaining term of this Agreement, or at the minimum of at
least one full year of salary. Such disability period shall commence with the
month following the month in which the disability occurs. For purposes of this
Agreement, "permanently disabled" shall be defined as Employee's inability due
to physical or mental illness, or other cause, to perform the majority of
Employee's usual duties for a period of one (1) month. For purposes of the
various employee plans referred to in subparagraph 2.2 above, all payments made
to Employee by an insurer or company pursuant to this subparagraph 2.4, shall be
deemed to be compensation paid by Company for actual services rendered to the
Company. The parties acknowledge that the company's disability program for its
key executives is currently being reviewed and agree that once such a plan is
established the benefits provided under this paragraph will be modified to
conform with such plan.
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2.5 Benefit Inclusions.
2.5.1 Auto or auto allowance.
2.5.2 Annual medical physical.
2.5.3 Country club privileges (initiation fee).
2.6 Vacation. Employee shall be entitled to five weeks of paid vacation
per year plus those holidays which are normally recognized by Company during the
year.
2.7 Life Insurance. During the term hereof, Company shall acquire a
$200,000 life insurance policy on the life of Employee which insurance shall be
payable to whatever beneficiaries Employee designates or in the absence of such
a designation to Employee's estate.
3. TERMINATION.
3.1 Termination by Company (Without Cause). Employee's employment under
this Agreement may be terminated without cause by the President and Chief
Executive Officer by giving one hundred eighty (180) days' written notice to
Employee. Upon the giving of such notice or at any time thereafter, the Company
may elect to (i) continue to employ Employee for the balance of said 180-day
notice period subject to the provisions of this Agreement or (ii) immediately
terminate Employee provided that the Company pay to the Employee for the balance
of said 180-day period his Base Compensation that he normally would have
received for such 180-day period, as if Employee had remained as an employee of
the Company. For purposes of this Agreement, the expiration of the term of this
Agreement or any extension of such term, without renewal, shall be treated as a
termination without cause and the foregoing 180-day period shall commence upon
written notice of termination under Subparagraph 1.3. If the Employee should be
terminated without cause ("cause" hereafter defined), the Company shall pay or
provide to the Employee after such termination, the following:
3.1.1 The Employee's Base Compensation, as described in subparagraph
2.1 above, which compensation shall be payable at the same frequency as all
other employees are compensated over the longer of (i) the remaining term of
this Agreement, (ii) the remaining term of any extension of this Agreement if
this Agreement has been extended as provided in subparagraph 1.3, or (iii) the
foregoing 180-day period after notice of termination.
3.1.2 For the period specified in Subparagraph 3.1.1, full employee
benefits as more particularly described in subparagraphs 2.2, 2.3, 2.4 and 2.7
to the extent such benefits are not discretionary on the part of Company. The
coverages provided in subparagraphs 2.2, 2.3, 2.4 and 2.7 may be procured
directly by the Company apart from and outside of the terms of the plans
themselves, provided that the Employee and the Employee's dependents comply with
all of the conditions of the various plans.
3.2 Termination by Company (For Cause). Employee's employment under this
Agreement may be immediately terminated by the President and Chief Executive
Officer for cause. Termination "for cause" means that Employee shall be guilty
of fraud, dishonesty, conduct involving moral turpitude connected with the
employment of Employee, or a breach of the provisions of this Agreement,
including specifically a failure to perform the duties described in subparagraph
1.4. If Employee is terminated for cause, Employee shall be entitled to those
vested retirement benefits as of the date of termination that he qualified for
under the terms of the Company's various retirement plans, both qualified and
non-qualified; however, Employee shall only be entitled to Base Compensation or
any other benefits described in this Agreement up to the date of termination.
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3.3 Termination by Employee. The Employee may terminate his employment for
any reason and without cause by giving 60 days prior written notice to the
Company. Upon receipt of such notice, the Company may elect to (i) continue to
employ Employee for all or a portion of said 60-day period, subject to the
provisions of this Agreement or (ii) immediately terminate Employee, provided
that the Company pay to the Employee for said 60-day period his Base
Compensation that he normally would have received for such 60-day period as if
Employee had remained as an employee of the Company. If Employee terminates his
employment, he shall be entitled to those vested retirement benefits as of the
date of termination that he qualified for under the terms of the Company's
various retirement plans, both qualified and non-qualified, and Employee shall
be entitled to the full benefits provided in subparagraphs 2.2, 2.3 and 2.4
through the date of termination to the extent such benefits are not
discretionary on the part of Company.
3.4 Termination Due to Death or Disability. In the event of termination of
employment due to death or disability of Employee, Base Compensation shall be
prorated and paid through the date of such death or disability. Employee or
Employee's beneficiaries shall be entitled to those vested retirement benefits
as of the date of such termination that employee qualified for under the
Company's various retirement plans, both qualified and non-qualified. All other
benefits provided under this Agreement shall terminate as of the date of such
death or disability except as may be specifically provided otherwise in this
Agreement or the agreements relating to such benefit plans.
4. CONFIDENTIAL INFORMATION.
4.1 Definition. For purposes of this paragraph 4, the term "Confidential
Information: means information, including but limited to financial, operational,
customer, pricing, and marketing information, which is not generally known and
which is proprietary to Company, including but not limited to (i) financial and
trade secret information about Company or its subsidiaries or affiliates, and
(ii) information relating to the business of Company, its subsidiaries or
affiliates including, without limitation, information about Company's and its
subsidiaries' or affiliates' customers, trading skills, contacts and know-how
and information about the trading, manufacturing and marketing activities of
Company, its subsidiaries, or affiliates. All information which Employee has a
reasonable basis to consider Confidential Information or which is treated by
Company, its subsidiaries or affiliates as being Confidential Information shall
be presumed to be Confidential Information, whether originated by Employee or by
others, and without regard to the manner in which Employee obtains access to
such information, except that it shall not include:
4.1.1 information in the public domain;
4.1.2 information that becomes part of the public domain through no
fault of Employee;
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4.1.3 information in Employee's possession prior to his employment by
Company; and
4.1.4 information otherwise acquired lawfully from parties other than
Company.
4.2 Nondisclosure. Employee will not, either during the term of this
Agreement including any extensions or for a period of two (2) years following
expiration or termination of this Agreement, use or disclose any Confidential
Information to any person not then employed by Company without the prior written
authorization of Company's Board of Directors and will use reasonably prudent
care to safeguard and protect and to prevent the unauthorized disclosure of all
such Confidential Information.
5. NON-COMPETITION. If Employee's employment is terminated pursuant to
subparagraphs 3.2 or 3.3, then Employee agrees that for a period of two (2)
years following termination of this Agreement, he will not directly or
indirectly, alone or as a partner, officer, director or employee, perform
services for any firm or organization engaged in activities in competition with
or similar to those activities which have been or are being conducted by
Company, its subsidiaries, or affiliates in the states of Washington, Oregon,
Idaho or California or in such other geographic areas in which Company is
conducting its business as of the date of termination. If Employee's employment
is terminated pursuant to subparagraphs 3.1 or 3.4, then this non-competition
provision shall not apply to Employee after termination. In all events, the
provisions of subparagraph 4.2 shall apply to Employee after his termination. 6.
CORPORATE RESTRUCTURING. If Company is acquired by another company, sells
substantially all of its assets, mergers, or consolidates with another company
or operates its business through a joint venture or partnership with another
company and if Employee's employment under this Agreement or a similar agreement
is not continued by Company, the acquiring company, the successor company or the
joint venture or partnership as the case may be, then Company agrees that
Employee shall be entitled to receive the benefits under subparagraph 3.1 as if
Employee's employment had been terminated without cause. Employee acknowledges
that in such a sale or acquisition, Employee's title may be changed and such a
change in title will not be viewed as a termination of Employee's employment so
long as his duties and responsibilities are commensurate with his current duties
and responsibilities.
7. APPLICABLE LAW. This Agreement is entered into, under, and shall be
governed for all purposes by the laws of the state of Oregon.
8. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit
of the Company, its successors and assigns (including, without limitation, any
company into or with which the Company may merge, form a joint venture or
consolidate).
9. AMENDMENTS. No amendment or variation of the terms and conditions of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the parties hereto.
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10. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. Employee represents and
warrants to the Company that there is no employment contract or any other
contractual obligation to which Employee is subject which prevents Employee from
entering into this Agreement or from performing fully Employee's duties under
this Agreement.
11. NO ASSIGNMENT. The Employee's right to receive payments or benefits under
this Agreement shall not be assignable or transferable, whether by pledge,
creation of a security interest or otherwise, other than a transfer by Will or
by the laws of descent or distribution. In the event of any attempted assignment
or transfer contrary to this paragraph, the Company shall have no liability to
pay any amount so attempted to be assigned or transferred. This Agreement shall
inure to the benefit of and be enforceable by the Employee's personal or legal
representatives, heirs, distributees, devisees, and legatees.
12. NO ADEQUATE REMEDY. The parties declare that it is impossible to measure
in money the damages which will accrue to either party by reason of a failure to
perform any of the obligations under this Agreement. Therefore, if either party
shall institute any action or proceeding to enforce the provisions hereof, such
person against who such action or proceeding is brought hereby waives the claim
or defense that such party has an adequate remedy at law, and such person shall
not urge in any such action or proceeding the claim or defense that such party
has an adequate remedy at law.
13. NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at an address to be designated by each of
such parties. Any notice, if mailed properly addressed, postage prepaid,
registered or certified mail, shall be deemed dispatched on the registered date
or that stamped on the certified mail receipt, and shall be deemed received
within the second business day thereafter or when it is actually received,
whichever is sooner.
14. CONSTRUCTION. Where possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
15. WAIVERS. No failure on the part of either party to exercise, and no delay
in exercising, any right or remedy hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right or remedy granted hereby or by any related document or by law.
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16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties herein in reference to all matters herein
agreed upon and supersedes any and all prior agreements.
EMPLOYEE: COMPANY:
UNITED GROCERS, INC.
/s/ Terry Olson By /s/ Charles E. Carlbom
Terry Olsen Its President and CEO
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SUBLEASE AGREEMENT
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THIS SUBLEASE AGREEMENT entered into this 30 day of July, 1997, by and
between UNITED GROCERS, INC., an Oregon corporation, hereinafter designated as
Sublessor, and LAMKO, LLC , ROBERT A. LAMB and GALE LASKO shall be Guarantors of
this Sublease, hereinafter jointly and severally designated as Sublessee;
W I T N E S S E T H
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WHEREAS, the Sublessor has entered into a Lease dated July 30, 1997,
with FLAGSHIP PROPERTIES, LLC , for a supermarket located in Portland, Oregon
(more particularly described in exhibit "A" attached to said lease), commencing
on the date set forth in the attached Exhibit "A," a copy of which is hereby
incorporated by reference, as fully as if its terms and conditions were herein
set forth.
WHEREAS, Sublessees desire to sublet said premises for a period not to
exceed 20 years, commencing on date set forth in paragraphs ----- and ----- of
Exhibit "A." and Sublessor is willing to so sublet in accordance with the terms
and conditions hereinafter set forth; now. therefore,
IT IS HEREBY AGREED as follows:
(1) Sublessor hereby sublets unto Sublessees those premises described
in said Exhibit "A," for the term of 20 years.
1. 1 The Sublessees, so long as they are not in default hereunder
and further provided that no event or condition exists that, with the passage of
time or giving of notice would constitute default, shall be granted the right to
exercise the renewal options contained in Exhibit "A," for the first five years
only, as set forth in paragraph 1.3 of said Exhibit.
(2) Sublessees covenant and agree to pay for the whole of said term the
rental hereinafter provided, together with all affirmative covenants including,
without limitation, those pertaining to minimum rent, Common Area Charges (CAM),
percentage of gross sales, taxes, assessments, insurance and all of the
covenants and obligations to be performed by Lessee, as set forth in said
<PAGE>
Exhibit "A," and to make such payments and provide such performance when due
by the terms of the lease and amendments thereto.
(3) Sublessees shall, upon execution hereof, pay any and all rental or
security deposits and all other sums except minimum rent, as required pursuant
to the terms and conditions of said Exhibits "A", and shall pay rent to
Sublessor, in accordance with the "Sublease Rent Schedule" attached hereto. All
such rental payments to Sublessor shall be made without offset, adjustment or
deduction of any kind.
(4) Sublessees shall be bound by the same responsibilities, rights,
privileges and duties as Sublessor, as enumerated in Exhibit "A" and covenants
and agrees to fully indemnify and hold Sublessor harmless from any and all
responsibility and/or liability which Sublessor may incur by virtue of said
Exhibit "A," and/or Sublessees' occupancy of the premises. Furthermore,
Sublessees shall be bound by any subsequent amendment, revision, supplement or
addition to the prime lease between Sublessor and the prime Lessor, and to keep
the Sublessor indemnified against all actions, claims and demands whatsoever in
respect to said exhibit "A." and Sublessees use of the demised premises.
4.1 Assignment and Subletting. Sublessees acknowledge that provisions
for extension options and assignment and subletting in the Lease are applicable
to the prime Lessor and Sublessor only. Sublessees will not assign this Sublease
or sublet the premises without the prior written consent of Sublessor which may
be granted or withheld in its absolute discretion. A direct or indirect transfer
of ownership and control of a majority of the voting stock of a corporate
Sublessees, by whatever demands, shall be deemed an assignment of this Sublease
for the purposes of this paragraph.
(a) In the event of an assignment, Tenant shall thereafter pay to
Landlord in connection with such assignment, fifty percent (50%) of all sums and
other consideration paid (or payable) to and for the benefit of Tenant by the
Transferee on account of the assignment as and when such sums and other
consideration are paid (or are payable) by the Transferee.
(b) In the event the transfer is by virtue of a sublease, fifty
percent (50%) of any rent or other consideration received by Tenant, either
initially or over the term of the sublease, in excess of such rent called for
hereunder, or in the case of a sublease of a portion of the Leased Premises, in
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excess of such rent fairly allocable to such portion, after appropriate
adjustments to ensure that all other payments called for hereunder are taken
into account, shall be paid by tenant to Landlord, promptly after its receipt by
Tenant.
4.2 Covenants. Representations and Warranties.
(a) Membership in United Grocers, Inc. Upon execution and during
the term hereof, Sublessees agree to maintain or cause to be maintained the
membership of the store in good standing in United Grocers, in accordance with
the Bylaws of United Grocers, as long as this Sublease remains in effect.
(b) Purchases from Sublessor. Sublessees agree that throughout the
term of the Sublease and any extensions or renewals thereof, except as
hereinafter provided, Sublessees will purchase from Sublessor not less than
forty-five percent (45%) of its retail sales of all goods and merchandise
required by it for resale on the premises to the extent that Sublessor shall now
or hereafter be able to supply such goods and merchandise to the Sublessees, and
Sublessor will supply all of Sublessees' requirements at such prices and on such
terms as are reasonably comparable to those offered by Sublessor to other
purchasers from Sublessor carrying on businesses similar to that of the
Sublessees in the Portland area. If, at any time, the Sublessees contend that
Sublessor is not able to supply particular goods or merchandise customarily
stocked by retail supermarkets in the Portland area, or that terms offered by
Sublessor are not reasonably comparable to those offered by Sublessor to other
purchasers described above, the Sublessees shall so advise Sublessor in writing,
specifying such contention with particularity. If, within 30 days after receipt
of such notice, Sublessor does not offer to supply goods or merchandise so
specified or does not advise Sublessees that the terms and conditions offered
are reasonably comparable to those offered to such other purchasers, Sublessees
shall be free to secure such specified goods and merchandise from any source
which it desires. If Sublessor demonstrates that it is offering reasonably
comparable terms, and Sublessees nonetheless purchase from another source, such
purchase or purchases shall not be an exception from the 45% requirement
specified above. If the above percentage requirements are not complied with, it
shall constitute a default hereunder. In the event of a breach of this purchase
covenant, Sublessor may terminate this sublease and, in addition
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to the remedies hereinafter offered Sublessor, Sublessee agrees to pay
Sublessor, as liquidated damages, and not as a penalty or forfeiture. a sum
computed as follows:
1. The average weekly purchases from the date of the
agreement to the date of the breach shall be determined;
2. the average weekly purchases so determined shall then be
multiplied by the number of weeks from the date of the breach to the end of
the term of the purchase agreement; and
3. The computed sum shall be multiplied by two and
one-quarter percent (2-1/4 %) to determine the liquidated damages due and
owing Sublessor by reason of Sublessee's default. Said sum shall become
immediately due and owing within 15 days from date of written notice of the
liquidated damages.
(c) Sublessees covenant that as long as this Sublease remains in
effect, and for an additional period of six (6) months thereafter, Sublessees
shall not directly or indirectly sell or permit the sale of the store and the
owners of Sublessees shall not directly or indirectly sell controlling interests
in Sublessees (whether in one or a series of related transactions) without first
offering to sell said store or controlling interest, as the case may be, to
Sublessor upon the same terms and conditions as the Sublessees or their owners,
as the case may be, are prepared to accept from a third party. Prior to such
sale by the Sublessees or their owners, the Sublessees shall first notify
Sublessor of the desire to sell the store or controlling interest in the
Sublessees and of all the terms and conditions of such sale and shall provide to
Sublessor all documents, instruments, agreements, offers, acceptances,
appraisals, inventories, equipment lists, leases, financial statements and such
other material and information as Sublessor may reasonably request to aid in its
decision to exercise or decline its right to purchase as hereinafter provided.
Within 30 days following receipt of such notice of desire to sell and all
materials and information reasonably requested by Sublessor, Sublessor shall
advise Sublessees whether Sublessor elects to purchase or declines to purchase
the store or such controlling interest upon the offered terms and conditions. If
Sublessor shall elect to purchase, Sublessor shall purchase and the Sublessees
or their owners shall sell, such retail grocery business or such controlling
interest, as the case may be, all on the terms set forth in the offer. If
Sublessor declines the purchase, the Sublessees or their owners shall be free to
sell the store or controlling
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interest, as the case may be, upon (and only upon) the terms and conditions
offered as aforesaid to Sublessor; provided that such sale is consummated within
120 days following the date Sublessor declined the purchase, and if such sale is
not consummated in accordance with the offered terms and conditions within said
120-day period, the provisions of this paragraph shall apply again and no
subsequent sale of any portion of the offered store or controlling interest may
be effected without again offering the same to Sublessor as provided herein.
Sublessor may waive its rights under this section provided such waiver is in
writing. The foregoing provisions shall not apply to transfers of assets or
interests by sale, gift or as a result of death to the lawful issue of
Sublessees, or transfers of assets to a corporation or partnership or transfers
of a controlling interest to a trust as long as such corporation, partnership or
trust is controlled by the transferor; provided such transferee agrees that it
holds such assets or controlling interest subject to the restrictions contained
in this paragraph.
(d) Sublessees represent and warrant that there are no brokers,
finders or other persons entitled to any fee, commission or other compensation
in connection with this Sublease, and agree to hold Sublessor harmless from any
claims for such fees, commissions and/or compensation.
(e) Sublessees hereby represent and warrant to Sublessor that the
financial statements, appraisals and other documents submitted to Sublessor in
connection herewith or pursuant hereto are and shall be true, correct, complete
and accurate in every respect and said financial statements fairly and
accurately present the assets, liabilities, financial condition and results of
operations reflected herein.
(5) Security Agreement.
5.1 Grant. Collateral and Obligations. Sublessees and Sublessor
agree that this Sublease shall constitute a security agreement within the
meaning of the Oregon Uniform Commercial Code (hereinafter referred to as the
"Code") with respect to:
(a) required cash deposits (as defined in the Bylaws of
Sublessor) presently or hereafter held by or deposited with Sublessor by
Sublessees;
(b) any and all patronage rebates and rebate notes
representing patronage rebates (as defined in the Bylaws of Sublessor) earned or
hereafter earned by reason of patronage of Sublessor by Sublessees;
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(c) all replacements of substitutions for, and additions to
the foregoing, and the proceeds thereof (all of said personal property and the
replacements, substitutions and additions thereto and the proceeds thereof being
sometimes hereinafter collectively referred to as the "Collateral"), and that a
security interest in and to the Collateral is hereby granted to the Sublessor,
and the Collateral and all of the Sublessees' right, title and interest therein
are hereby assigned to the Sublessor, all to secure all presently existing or
hereafter incurred direct, indirect, absolute or contingent indebtedness,
liabilities and other obligations of Sublessees to Sublessor (referred to as
"the Obligations" herein) including, but not limited to, the payment of all rent
and other sums and the performance of all other obligations of Sublessees under
this Sublease, all renewals and extensions thereof, the price of goods, services
and merchandise purchased by Sublessees from Sublessor from time to time, and
all costs of collection, legal expenses and attorneys' fees paid or incurred by
Sublessor in enforcing any rights in respect to the Obligations or in connection
with assembling, collecting, selling or otherwise dealing with or realizing upon
the Collateral. Not withstanding the foregoing; it is understood by Sublessor
that Key Bank/Key Corp has a first priority security interest in the store's
inventory, furniture, trade fixtures and equipment, and will retain that
position until the loans or leases for that store are fully satisfied.
5.2 Security Agreement Warranties. In addition to and without
limiting the force or effect of any other covenants, representations and
warranties of Sublessees contained in this Sublease, Sublessees hereby covenant,
represent and warrant to and with Sublessor as follows:
(a) Sublessees are the owners of the Collateral free and
clear of liens, security interests and encumbrances of every kind and
description, except Key Bank/Key Corp who has a first priority security interest
in the store's inventory, furniture, trade fixtures and equipment, and will
retain that position until the loans or leases for that store are fully
satisfied.
(b) Sublessees will not sell, dispose of, encumber or permit
any other security interest, lien or encumbrance to attach to the Collateral
except the security interest of Sublessor and the Permitted Liens.
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(c) All tangible Collateral shall be kept at Sublessees'
place(s) of business located on the premises, and Sublessees shall not permit
the same to be removed therefrom without the prior written consent of Sublessor.
(d) Sublessees shall keep the tangible Collateral at all
times insured against risks of loss or damage by fire (including so-called
extended coverage), theft and such other casualties as Sublessor may reasonably
require, all in such amounts, under such forms of policies, upon such terms, for
such periods and written by such companies or underwriters as Sublessor may
approve. All such policies of insurance shall name Sublessor as loss payee
thereon as its interest may appear and shall provide for at least 30 days' prior
written notice of modification or cancellation to Sublessor. Sublessees shall
furnish Sublessor with certificates of such insurance or other evidence
satisfactory to Sublessor as to compliance with the provisions of this
paragraph. Sublessor may act as attorney-in-fact for Sublessees in making,
adjusting and settling claims under and canceling such insurance and endorsing
Sublessees' name on any drafts drawn by insurers of the Collateral.
(e) Sublessees will keep the Collateral in good order and
repair, shall not waste or destroy the Collateral or any part thereof, and shall
not use the Collateral in violation of any statute, ordinance or policy of
insurance thereon. Sublessor may examine and inspect the Collateral at any
reasonable time or times, wherever located.
(f) Sublessees will pay promptly when due all taxes and
assessments upon the Collateral or for its use or operation or upon this
Sublease or upon any instruments evidencing the Obligations.
(g) Sublessees will pay promptly when due all indebtedness
secured by any lien or other security interest in the Collateral, whether
superior or junior to the security interest established hereby.
5.3 Additional Remedies. Upon any default hereunder and at any
time thereafter (such default not having previously been cured), Sublessor at
its option may declare all Obligations immediately due and payable and shall
have the remedies of a secured party under the Uniform Commercial Code of Oregon
(the "Code"), including without limitation the right to take immediate and
exclusive possession of the Collateral.
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5.4 Financing Statements. Sublessees will at their own cost and
expense, upon demand, furnish to Sublessor such financing statements and other
documents in form satisfactory to Sublessor and will do all such acts and things
as Sublessor may at any time or from time to time request or as may be necessary
or appropriate to establish and maintain a perfected security interest in the
Collateral.
5.5 Attorneys' Fees. In the event of the institution of any suit or
action to terminate this Sublease, or to enforce the terms or provisions hereto,
Sublessees shall and do hereby agree to pay, in addition to the costs and
disbursements provided by statute, reasonable attorneys' fees in such
proceedings or on any appeal from any judgment or decree entered therein.
(6) Default. The following shall constitute a default under this
Sublease:
6.1 Any failure by Sublessees to pay, when due, rent or any other
amount due under the Lease or to perform any other obligation of Sublessor
under the Lease or any other default under the Lease which continues for up to
one-half of the cure period as defined in the lease, provided with respect
thereto in the Lease;
6.2 Any failure by Sublessees to pay when due rent or any other
amount due under this Sublease or to perform when due any other obligation of
Sublessees hereunder;
6.3 If any warranty, representation or statement made or
furnished to Sublessor by or on behalf of the Sublessees is false in any
material respect when made or furnished;
6.4 Any failure by Sublessees to pay when due and/or satisfy any
other present or hereinafter incurred indebtedness or obligation of Sublessees
to Sublessor, including but not limited to those arising from Sublessees'
purchases of goods and services from Sublessor any other loans or leases
Sublessees may have or enter into with Sublessor, and Sublessees' obligations
under the Bylaws of Sublessor and its application for membership in Sublessor;
6.5 If Sublessees vacate or abandon the premises or allow the
premises to remain vacant or unoccupied;
6.6 If Sublessees make an assignment for the benefit of creditors,
or if, with or without Sublessees' acquiescence, a petition in bankruptcy is
filed against Sublessees, or Sublessees are adjudicated a bankrupt or insolvent,
or a trustee, receiver or liquidator is appointed for all or part of
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Sublessees' assets, or a petition or answer is filed by or against Sublessees
seeking or acquiescing in any reorganization, liquidation or similar relief
under any federal, state or local law relating to bankruptcy, insolvency or
other relief for debtors; and
6.7 If Sublessees sell or otherwise dispose of all or any
substantial portion of the assets of Sublessees located at or associated with
the store, other than inventory sold at retail in the ordinary course of
business.
(7) Remedies. In the event of any default under this Sublease:
7.1 Sublessor shall have the right, at its election then or at any
time thereafter, upon notice to Sublessees, to terminate this Sublease or to
terminate Sublessees' rights of possession in the premises without terminating
this Sublease;
7.2 Sublessor shall have the immediate right, whether or not the
Sublease shall have been terminated pursuant to paragraph 7. 1, to re-enter and
repossess the premises or any part thereof by force, summary proceedings,
ejectment or any other legal or equitable process, all without any liability on
Sublessor's part for such entry, repossession or removal;
7.3 Sublessor may (but shall be under no obligation to), whether
or not this Sublease shall have been terminated pursuant to paragraph 7. 1,
resublet the premises, or any part thereof, in the name of Sublessees, Sublessor
or otherwise, without notice to Sublessees, for such term or terms and for such
uses as Sublessor, in its absolute discretion, may determine and may collect and
receive rents payable by reason of such resubletting (without any liability for
any failure to collect such rents);
7.4 Sublessor may (but shall be under no obligation to) procure
any insurance, pay any rentals, taxes or liens, make any repairs, pay any sums
required to be paid, and to do and perform such other acts as may be required of
Sublessees hereunder, and any payments so made shall bear interest at the rate
of 12 percent per annum from the time of such payment until repaid; and
7.5 Sublessor may exercise any and all other rights and remedies
afforded to the prime Lessor upon default under the Lease and any and all other
rights and remedies Sublessor may have as provided herein, pursuant to the laws
of the State of Oregon. In addition to the other remedies provided above,
Sublessor shall be entitled to current damages and final damages as provided in
9
<PAGE>
paragraph (8) below, and, to the extent permitted by applicable law, to
injunctive relief in case of the violation, or attempted or threatened
violation, of any of the provisions of this Sublease, or to a decree compelling
performance of this Sublease.
7.6 No expiration or termination of this Sublease, repossession of
the premises or any part thereof, or resubletting of the premises or any part
thereof, whether pursuant to the above paragraph or by operation of law or
otherwise, shall relieve Sublessees of their liabilities and obligations under
this Sublease, all of which shall survive such expiration, termination,
repossession or resubletting.
(8) Damages.
8.1 Current Damages. In the event of any expiration or termination
of this Sublease or repossession of the premises or any part thereof by reason
of the occurrence of an event of default, Sublessees will pay to Sublessor the
rent and other sums required to be paid by Sublessees for the period to and
including the date of such expiration, termination or repossession; and,
thereafter, until the end of what would have been the term in the absence of
such expiration, termination or repossession, and whether or not the premises or
any part thereof shall have been resublet, Sublessees shall be liable to
Sublessor for, and shall pay to Sublessor, as liquidated and agreed current
damages the rent and other sums which would be payable under this Sublease by
Sublessees in the absence of such expiration, termination or repossession, less
the net proceeds, if any, of any resubletting effected for the account of
Sublessees, after deducting from such proceeds all of Sublessor's expenses
reasonably incurred in connection with such resubletting (including, without
limitation, all repossession costs, brokerage commissions, legal expenses,
attorney's fees, employee expenses, alteration costs and expenses of preparation
for such resubletting). Sublessees will pay such current damages on the days on
which rent would have been payable under this Sublease in the absence of such
expiration, termination or repossession, and Sublessor shall be entitled to
recover the same from Sublessees on each such day.
8.2 Final Damages. At any time after any such expiration or
termination of this Sublease or repossession of the premises or any part thereof
by reason of the occurrence of an event of default, whether or not Sublessor
shall have collected any current damages pursuant to paragraph 8.1,
10
<PAGE>
Sublessor shall be entitled to recover from Sublessees, and Sublessees will pay
to Sublessor on demand, as and for liquidated and agreed final damages for
Sublessees' default and in lieu of all current damages beyond the date of such
demand (it being agreed that it would be impracticable or extremely difficult to
fix the actual damages), an amount equal to the excess, if any, of (a) the rent
and other sums which would be payable under this Sublease from the date of such
demand (or, if it be earlier, the date to which Sublessees shall have satisfied
in full their obligations under paragraph 8.1 to pay current damages) for what
would be the then unexpired term in the absence of such expiration, termination
or repossession, discounted to present value at an assumed interest rate of
seven percent (7%) per annum, over (b) the then net rental value of the
premises discounted to present value at an assumed interest rate of seven
percent (7%) per annum for the same period. Rental value shall be established by
reference to the terms and conditions upon which Sublessor resublets the
premises if such resubletting is accomplished within a reasonable period of time
after such expiration, termination or repossession, and otherwise established on
the basis of Sublessor's estimates and assumptions of fact regarding market and
other relevant circumstances, which shall govern unless shown to be erroneous.
If any statute or rule of law shall validly limit the amount of such liquidated
final damages to less than the amount above agreed upon, Sublessor shall be
entitled to the maximum amount allowable under such statute or rule of law.
(9) Rights Cumulative, Nonwaiver. No right or remedy herein conferred
upon or reserved to Sublessor is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be cumulative and in addition
to any other right or remedy given hereunder or now or hereafter existing at law
or in equity or by statute. The failure of Sublessor to insist at any time upon
the strict performance of any covenant or agreement or to exercise any option,
right, power or remedy contained in this Sublease shall not be construed as a
waiver or relinquishment thereof for the future. No waiver by Sublessor of any
provision of this Sublease shall be deemed to have been made whether due in the
receipt of rent or otherwise, unless expressed in writing and signed by
Sublessor.
(10) Notices. Any notice or demand required or permitted to be given
under this Sublease shall be deemed to have been properly given when, and only
when, the same is in writing and has
11
<PAGE>
been deposited in the United States Mail, with postage prepaid, to be forwarded
by registered or certified mail and addressed to the party to be notified at the
address appearing below its signature. Such addresses may be changed from time
to time by serving of notice as above provided.
(11) Right of Refusal: If, during the term of this Sublease, or any
extension hereof, Sublessee or any successor to Sublessee shall receive a bona
fide offer to purchase the business being operated under this sublease, i. e.,
goodwill, fixtures and/or equipment and inventory or the property of which the
premises are a part, which offer is acceptable to Sublessee, Sublessor shall
have the right to purchase the business (or the property) upon the same terms
and conditions. Sublessee agrees to immediately, upon receipt of such offer, to
give Sublessor written notice of the terms and conditions thereof, and the
Sublessor shall have the right, for thirty (30) days after receipt of such
notice, to exercise its option to purchase under the identical terms and
conditions of such offer. Sublessor's exercise of its option shall be given in
writing, within said thirty-day period.
(12) Additional Provisions.
12.1
12.2
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed the foregoing Sublease
Agreement the day and year first above written.
SUBLESSOR:
UNITED GROCERS, INC., an Oregon Corporation
an Oregon Corporation
6433 SE Lake Road
Portland, Oregon 97222
By: /s/ John W. White
Vice President
By:
---------------------
SUBLESSEES:
LAMKO, LLC
By: /s/ Robert A. Lamb Member
Robert A. Lamb, Member
By: /s/ Gale Lasko Member
Gake Lasko, Member
INDIVIDUALLY:
/s/ Robert A. Lamb
Robert A. Lamb
/s/ Gale Lasko
Gale Lasko
13
<PAGE>
SCHEDULE FOR SUB-LEASE PAYMENTS
Months 1 through 60 $28,000.00
Months 61 through 120 $32,648.00
Months 121 through 180 $35,912.00
Months 181 through 240 $39,504.00
This rent schedule contains the standard 6 percent fee required by United
Grocers, Inc. to sign as Master Lessee.
EXHIBIT "Y"
-----------
All present and hereinafter acquired inventory, equipment, fixtures and
capital stock of United Grocers, Inc.
14
FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT entered into this 25th day of June, 1991, by and
between United Resources, Inc., an Oregon corporation, hereinafter designated as
Sublessor, and Robert A. Lamb, Patsy Lamb, Gale L. Lasko and Sandra L. Lasko, an
Oregon partnership, DBA Wilsonville Thriftway, hereinafter designated as
Sublessee:
W I T N E S S E T H :
---------------------
WHEREAS, Sublessor intends to enter into an Equipment Lease (as amended
from time to time, the "Prime Lease"), with Metlife Capital Corporation (the
"Prime Lessor") for equipment and "fixtures" installed at a supermarket located
in Wilsonville, Oregon, commencing on the date set forth in the equipment lease,
in substantially the form which is attached hereto as Exhibit A and is hereby
incorporated by reference.
WHEREAS, Sublessee desires to sublet said equipment and fixtures,
Sublessor is willing to so sublet, in accordance with the terms and conditions
hereinafter set forth; now, therefore,
IT IS HEREBY AGREED as follows:
1. Term. Sublessor hereby sublets unto Sublessee the fixtures and
equipment described in the Prime Lease for a term of thirty-six months
commencing July 1, 1991 and ending June 1, 1994. Sublessee may, for so long as
Sublessee is not in default under the terms of this Sublease, cause Sublessor to
renew or extend the Prime Lease, or Sublessee may exercise the right of
Sublessor to purchase equipment under the Prime Lease, by giving
Page 1 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
<PAGE>
Sublessor 15 days' notice prior to the date that such renewal, extension or
purchase must be exercised.
2. Performance of Prime Lease Obligations. Sublessee shall make monthly
payments to Sublessor pursuant to the formula set forth on Exhibit A-1, which is
attached hereto and by this reference incorporated herein, as indicated therein.
Sublessee covenants and agrees to pay for the whole of said term the same
rental, except as modified pursuant to Exhibit A-1, together with all
affirmative covenants pertaining to taxes, assessments, insurance and all of the
covenants and obligations to be performed by Sublessor and to make such payments
and provide such performance when due by the terms of the Prime Lease and any
amendments thereto. Sublessor covenants and agrees to render all payments to the
Prime Lessor under the Prime Lease in a timely manner and to take no action to
cause a default under the Prime Lease. In the event that Sublessor fails to
render any such payment when due, or if Sublessor causes any default under the
Prime Lease, Sublessee shall have the right, but not the obligation, to cure
such default and to set off any amounts paid to cure such default against any
future obligation owed by Sublessee to Sublessor.
3. Security Deposits. Sublessee shall, upon execution hereof, pay any and
all security deposits, as required pursuant to the terms and conditions of the
Prime Lease.
4. Defau1t. The following shall constitute a default under this Sublease:
Page 2 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
<PAGE>
a. Any failure by Sublessee to pay when due rent or any other amount
due under the Prize Lease or to perform when due any other obligation of
Sublessor under the Prime Lease or any other default under the Prime Lease which
continues for up to 75 percent of the cure period provided with respect thereto
in the Prime Lease; Sublessor covenants and agrees that upon receipt from the
Prime Lessor of any notice of default or alleged defaults to promptly supply
Sublessee with a copy of such notice;
b. Any failure by Sublessee to pay when due rent or any other amount
due under this Sublease or, within 30 days of notice of a default in any other
obligation hereunder, to perform when due any other obligation of Sublessee
hereunder;
c. If any warranty, representation or statement made or furnished to
Sublessor by or on behalf of the Sublessee is false in any material respect when
made or furnished;
d. Any default under any document securing or guarantying the
obligations of Sublessee under this Sublease;
e. Any failure by Sublessee to pay when due and/or satisfy any other
present or hereinafter incurred indebtedness or obligation of Sublessee to
Sublessor, including but not limited to those arising from Sublessee's purchases
of goods and services from Sublessor, any other loans or leases Sublessee may
have or enter into with Sublessor, and Sublessee's obligations under the Bylaws
of Sublessor and its application for membership in Sublessor;
Page 3 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
<PAGE>
f. If Sublessee makes an assignment for the benefit of creditors, or
if, with or without Sublessee's acquiescence, a petition in bankruptcy is filed
against Sublessee, or Sublesee is adjudicated a bankrupt or insolvent, or a
trustee, receiver or liquidator is appointed for all or part of Sublessee's
assets, or a petition or answer is filed by or against Sublensee seeking or
acquiescing in any reorganization, liquidation or similar relief under any
federal, state or local law relating to bankruptcy, insolvency or other relief
for debtors; and
g. If Sublessee sells or otherwise disposes of all or any substantial
portion of the assets of Sublessee located at or associated with the store,
other than inventory sold at retail in the ordinary course of business (i.e., at
the full retail price customarily charged therefor or at a reduced price
pursuant to a retail sale in which the price reduction and sale duration are
typical of sales of other retail grocery businesses similarly situated).
5. Remedies. In the event of any default under this Sublease:
a. Sublessor shall have the right, at its election then or at any time
thereafter, upon notice to Sublessee, to terminate this Sublease or to terminate
Sublessee's rights of possession of the equipment without terminating this
Sublease;
b. Sublessor shall have the immediate right, whether or not the
Sublease shall have been terminated pursuant to Section 5.a to re-enter and
repossess the equipment or any part
Page 4 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
<PAGE>
thereof by force, summary proceedings or any other legal or equitable process,
all without any liability on Sublessor's part for such entry, repossession or
removal;
c. Sublessor may, whether or not this Sublease shall have been
terminated pursuant to Section 5.a resublet the equipment, or any part thereof,
in the name of Sublessee, Sublessor or otherwise, without notice to Sublessee,
for such term or terms and for such uses as Sublessor, in its absolute
discretion, may determine and may collect and receive rents payable by reason of
such resubletting (without any liability for any failure to collect such rents);
notwithstanding the foregoing, Sublessor shall be subject to such common law
duties of mitigation of damages, if any, as are imposed by law on the Prime
Lessor;
d. Sublessor may (but shall be under no obligation to) procure any
insurance, pay any rentals, taxes or liens, make any repairs, pay any sums
required to be paid, and to do and perform such other acts as may be required of
Sublessee hereunder, and any payments so made shall bear interest at the rate of
12 percent per annum, but not in excess of maximum legal rate, from the time of
such payment until repaid; and
e. Sublessor may exercise any and all other rights and remedies
afforded to the Lessor upon default under the Prime Lease and any and all other
rights and remedies Sublessor may have pursuant to the laws of the state of
Oregon. In addition to the other remedies provided above, Sublessor shall be, to
the
Page 5 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
<PAGE>
extent permitted by applicable law, to injunctive relief in case of the
violation, or attempted or threatened violation, of any of the provisions of
this Sublease, or to a decree compelling performance of this Sublease.
f. No expiration or termination of this Sublease, repossession of the
equipment or any part thereof, or resubletting of the equipment or any part
thereof, whether pursuant to the above paragraph or by operation of law or
otherwise, shall relieve Sublessee of their liabilities and obligations under
this Sublease, all of which shall survive such expiration, termination,
repossession or resubletting.
6. Rights Cumulative, Nonwaiver. No right or remedy herein conferred upon
or reserved to Sublessor is intended to be exclusive of any other right or
remedy, including without limitation the rights and remedies provided in the
Prime Lease, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity or by statute. The failure of Sublessor to insist
at any time upon the strict performance of any covenant or agreement or to
exercise any option, right, power or remedy contained in this Sublease shall not
be construed as a waiver or relinquishment thereof for the future. No waiver by
Sublessor of any provision of this Sublease shall be deemed to have been made
whether due to the receipt of rent or otherwise, unless expressed in writing and
signed by Sublessor.
Page 6 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
<PAGE>
7. Assignment and Subletting. Sublessee acknowledges that provisions for
extension options and assignment and subletting in the Prime Lease are
applicable to the Prime Lessor and Sublessor only. Sublessee will not assign
this Sublease or sublet the premises without the prior written consent of
Sublessor which consent shall not be unreasonably withheld, provided that
Sublessee is not in default of this Sublease or a material provisions of any
agreement with Sublessor.
8. Covenants, Representations and Warranties.
a. Sublessee agree to maintain or cause to be maintained the
membership of the store in good standing in Sublessor, in accordance with the
Bylaws of Sublessor, as long as this Sublease remains in effect.
b. Sublessee represents and warrants that there are no brokers,
finders or other persons entitled to any fee, commission or other compensation
in connection with this Sublease, and agrees to hold Sublessor harmless from any
claims for such fees, commissions and/or compensation.
c. Sublessee hereby represents and warrants to Sublessor that the
financial statements, appraisals and other documents submitted to Sublessor in
connection herewith or pursuant hereto are and shall be true, correct, complete
and accurate in every respect and said financial statements fairly and
accurately present the assets, liabilities, financial condition and results of
operations reflected herein.
Page 7 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
<PAGE>
9. Attorneys' Fees. In the event of the institution of any suit or
action to terminate this Sublease, or to interpret or enforce the terms or
provisions hereto, the nonprevailing party shall and does hereby agree to pay to
the prevailing party, in addition to the costs and disbursements provided by
statute, reasonable attorneys, fees in such proceedings or on any appeal from
any judgment or decree entered therein.
10. Notices. Any notice or demand required or permitted to be given
under this Sublease shall be deemed to have been properly given when, and only
when, the same is in writing and has been deposited in the United States Mail,
with postage prepaid, to be forwarded by registered or certified mail and
addressed to the party to be notified at the address appearing below its
signature. Such addresses may be changed from time to time by serving of notice
as above provided.
11. Substitution of Exhibit. The parties agree that at such time as
Sublessor and the Prime Lessor have executed an Equipment Lease in substantially
the form as is attached hereto as Exhibit A, such executed Equipment Lease shall
supersede Exhibit A and shall become a part of this Sublease as Exhibit A,
provided that such executed Equipment Lease is in substantially the form as the
form attached as Exhibit A upon execution of this Sublease and does not in any
way materially vary from such form.
Page 8 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed the foregoing Sublease
Agreement the day and year first above written.
SUBLESSOR UNITED RESOURCES INC., an Oregon
Corporation
By /s/ [illegible], Pres.
Title
6433 SE Lake Road
P. 0. Box 22187
Portland, Oregon 97222
SUBLESSEE an Oregon Partnership
By /s/ [illegible]
/s/ [illegible]
/s/ [illegible]
/s/ [illegible]
Individually
/s/ [illegible]
/s/ [illegible]
/s/ [illegible]
/s/ [illegible]
page 9 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE AGREEMENT entered into this 28 day of August, 1991, by
and between UNITED GROCERS, INC., an Oregon corporation, hereinafter designated
as Sublessor, and HOWARDS ON SCHOLLS, INC. and GAYLON BAESE, hereinafter jointly
and severally designated as Sublessee;
W I T N E S S E T H
-------------------
WHEREAS, the Sublessor has entered into a Lease dated Aug 28, 1991,
with Landlord for a supermarket located at 12220 S. W. Scholls Ferry Road,
Tigard, Washington County, Oregon, commencing on the date set forth in the
attached Exhibit "A," a copy of which is hereby incorporated by reference, as
fully as if its terms and conditions were herein set forth.
WHEREAS, Sublessee's desire to sublet said premises for a period of 13
years 5 months, commencing on date set forth in Exhibit "A," "B," (Modification
of Lease) and "C" (Rental Amounts) and Sublessor is willing to so sublet in
accordance with the terms and conditions hereinafter set forth; now, therefore,
IT IS HEREBY AGREED as follows:
(1) Sublessor hereby sublets unto Sublessees those premises described
in said Exhibit "A," "B," and "C".
1.1 The Sublessees, so long as they are not in default hereunder,
shall be granted the right to exercise the renewal options contained in Exhibit
"A," "B" and "C," as set forth in of said Exhibits, upon the condition that
Sublessees are not in default and provide Sublessor with lease guaranty
insurance for the renewal term as outlined in the Lease Modification Agreement,
Exhibit "B" and further provide that the Sublessees are not in default in any
other agreements with United Grocers, Inc. or any of its subsidiary companies.
(2) Sublessees covenant and agree to pay for the whole of said term the
same rental, together with all affirmative covenants including, without
limitation, those pertaining to basic rent, percentage of gross sales, taxes,
assessments, insurance and all of the covenants and obligations to be performed
by Sublessees, as set forth in said Exhibit "A," "B," and "C" and to make such
payments and provide such performance when due by the terms of the lease and
amendments thereto. Notwithstanding the foregoing, Sublessee shall be obligated
to pay the real property taxes due November 15, 1991 and thereafter commencing
December 1, 1991 and each month thereafter, pay to Sublessor an amount which is
equal to 1/12 of the estimated real property taxes as provided in page 4 of 8 of
the "Lease Assignment and Modification Agreement." The provision contained in
the first paragraph of page 5 of 8 of said "Lease Assignment and Modification
Agreement" is for the sole and exclusive benefit of Sublessor.
(3) Sublessees shall, upon execution hereof, pay any and all rental, or
security deposits, as required pursuant to the terms and conditions of said
Exhibits "A," "B," and "C".
<PAGE>
(4) Sublessees shall be bound by the same responsibilities, rights,
privileges and duties as Sublessor, as enumerated in Exhibit "A," "B," and "C",
which rights are retained by Sublessor, and covenants and agrees to fully
indemnify and hold Sublessor harmless from any and all responsibility and/or
liability which Sublessor may incur by virtue of said Exhibit "A," and/or
Sublessees' occupancy of the premises. Furthermore, Sublessees shall be bound by
any subsequent amendment, revision, supplement or addition to the prime lease
between Sublessor and the prime Lessor with prior written notice to Lessee, and
to keep the Sublessor indemnified against all actions, claims and demands
whatsoever in respect to said Exhibit "A," and Sublessees use of the demised
premises.
4.1 Assignment and Subletting. Sublessees acknowledge that provisions
for extension options and assignment and subletting in the Lease are applicable
to the prime Lessor and Sublessor only. Sublessees will not assign this Sublease
or sublet the premises without the prior written consent of Sublessor which may
be granted or withheld in its absolute discretion. A direct or indirect transfer
of ownership and control of a majority of the voting stock of a corporate
Sublessees, by whatever demands, shall be deemed an assignment of this Sublease
for the purposes of this paragraph.
Notwithstanding the foregoing, if Sublessee's desire to transfer by
sale, gift, or as a result of death, its interest herein to its lawful issue,
the Sublessor shall not unreasonably withhold consent to such a transfer,
provided, such transferee agrees that it holds such interest subject to the
restrictions and conditions contained in this sublease agreement.
4.2 Covenants, Representations and Warranties.
(a) Membership in United Grocers, Inc. Upon execution and
during the term hereof, Sublessees agree to maintain or cause to be maintained
the membership of the store in good standing in United Grocers, in accordance
with the Bylaws of United Grocers, as long as this Sublease remains in effect.
(b) Purchases from Sublessor. Sublessees agree that throughout
the term of the Sublease and any extensions or renewals thereof, except as
hereinafter provided, Sublessees will purchase from Sublessor not less than
fifty-three percent (53%) of its retail sales of all goods and merchandise
required by it for resale on the premises to the extent that Sublessor shall now
or hereafter be able to supply such goods and merchandise to the Sublessees, and
Sublessor will supply all of Sublessees' requirements at such prices and on such
terms as are reasonably comparable to those offered by Sublessor to other
purchasers from Sublessor carrying on businesses similar to that of the
Sublessees in Portland, Oregon. If, at any time, the Sublessees contend that
Sublessor is not able to supply particular goods or merchandise customarily
stocked by retail supermarkets in Portland, Oregon, or that terms offered by
Sublessor are not reasonably comparable to those offered by Sublessor to other
purchasers described above, the Sublessees shall so advise Sublessor in writing,
specifying such contention with particularity. If, within 30 days after receipt
of such notice, Sublessor does not offer to supply goods or merchandise so
specified or does not advise Sublessees that the terms and conditions offered
are reasonably comparable to those offered to such other purchasers, Sublessees;
shall be free to secure such specified goods
2
<PAGE>
and merchandise from any source which it desires. If Sublessor demonstrates that
it is offering reasonably comparable terms, and Sublessees nonetheless purchase
from another source, such purchase or purchases shall not be an exception from
the 53% requirement specified above. If the above percentage requirements are
not complied with, it shall constitute a default hereunder. In the event of a
breach of this purchase covenant, Sublessor may terminate this sublease and, in
addition to the remedies hereinafter offered Sublessor, Sublessee agrees to pay
Sublessor, as liquidated damages, and not as a penalty or forfeiture, a sum
computed as follows:
1. The average weekly purchases from the date of the
agreement to the date of the breach shall be determined;
2. the average weekly purchases so determined shall then be
multiplied by the number of weeks from the date of the breach to the end of
the term of the purchase agreement; and
3. The computed sum shall be multiplied by one and
three-quarters percent (1-3/4%) to determine the liquidated damages due and
owing Sublessor by reason of Sublessee's default. Said sum shall become
immediately due and owing within 15 days from date of written notice of the
liquidated damages.
(c) Sublessees covenant that as long as this Sublease remains in
effect, and for an additional period of six (6) months thereafter, Sublessees
shall not directly or indirectly sell or permit the sale of the store and the
owners of Sublessees shall not directly or indirectly sell controlling interests
in Sublessees (whether in one or a series of related transactions) without first
offering to sell said store or controlling interest, as the case may be, to
Sublessor upon the same terms and conditions as the Sublessees or their owners,
as the case may be, are prepared to accept from a third party. Prior to such
sale by the Sublessees or their owners, the Sublessees shall first notify
Sublessor of the desire to sell the store or controlling interest in the
Sublessees and of all the terms and conditions of such sale and shall provide to
Sublessor all documents, instruments, agreements, offers, acceptances,
appraisals, inventories, equipment lists, leases, financial statements and such
other material and information as Sublessor may reasonably request to aid in its
decision to exercise or decline its right to purchase as hereinafter provided.
Within 30 days following receipt of such notice of desire to sell and all
materials and information reasonably requested by Sublessor, Sublessor shall
advise Sublessees whether Sublessor elects to purchase or declines to purchase
the store or such controlling interest upon the offered terms and conditions. If
Sublessor shall elect to purchase, Sublessor shall purchase and the Sublessees
or their owners shall sell, such retail grocery business or such controlling
interest, as the case may be, all on the terms set forth in the offer. If
Sublessor declines the purchase, the Sublessees or their owners shall be free to
sell the store or controlling interest, as the case may be, upon (and only upon)
the terms and conditions offered as aforesaid to Sublessor; provided that such
sale is consummated within 120 days following the date Sublessor declined the
purchase, and if such sale is not consummated in accordance with the offered
terms and conditions within said 120-day period, the provisions of this
paragraph shall apply again and no subsequent sale of any portion of the offered
store or controlling interest may be effected without again offering the same to
Sublessor as provided herein. Sublessor
3
<PAGE>
may waive its rights under this section provided such waiver is in writing. The
foregoing provisions shall not apply to transfers of assets or interests by
sale, gift or as a result of death to the lawful issue of Sublessees, or
transfers of assets to a corporation or partnership or transfers of a
controlling interest to a trust as long as such corporation, partnership or
trust is controlled by the transferor; provided such transferee agrees that it
holds such assets or controlling interest subject to the restrictions contained
in this paragraph.
(d) Sublessees represent and warrant that there are no brokers,
finders or other persons entitled to any fee, commission or other compensation
in connection with this Sublease, and agree to hold Sublessor harmless from any
claims for such fees, commissions and/or compensation.
(e) Sublessees hereby represent and warrant to Sublessor that the
financial statements, appraisals and other documents submitted to Sublessor in
connection herewith or pursuant hereto are and shall be true, correct, complete
and accurate in every respect and said financial statements fairly and
accurately present the assets, liabilities, financial condition and results of
operations reflected herein.
(5) Security Agreement.
5.1 Grant, Collateral and Obligations. Sublessees and Sublessor
agree that this Sublease shall constitute a security agreement within the
meaning of the Oregon Uniform Commercial Code (hereinafter referred to as the
"Code") with respect to:
(a) required cash deposits (as defined in the Bylaws of
Sublessor) presently or hereafter held by or deposited with Sublessor by
Sublessees;
(b) any and all patronage rebates and rebate notes
representing patronage rebates (as defined in the Bylaws of Sublessor) earned or
hereafter earned by reason of patronage of Sublessor by Sublessees;
(c) subject to liens securing purchase money financing and
personal property leases therefor as described in Exhibit "X," all trade, store
and other fixtures and all leasehold improvements and all equipment and other
personal property of Sublessees used or useful in the operation of the store in
or on the premises, whether now owned or hereafter acquired including, without
limitation, the property described in Exhibit "Y", attached hereto, if any; and
(d) all replacements of substitutions for, and additions to
the foregoing, and the proceeds thereof (all of said personal property and the
replacements, substitutions and additions thereto and the proceeds thereof being
sometimes hereinafter collectively referred to as the "Collateral"), and that a
security interest in and to the Collateral is hereby granted to the Sublessor,
and the Collateral and all of the Sublessees' right, title and interest therein
are hereby assigned to the Sublessor, all to secure all presently existing or
hereafter incurred direct, indirect, absolute or contingent indebtedness,
liabilities and other obligations of Sublessees to Sublessor (referred to as
"the Obligations" herein) including, but not limited to, the payment of all rent
and other sums and the performance of all other obligations of Sublessees under
this Sublease, all renewals and extensions thereof, the price of goods, services
and merchandise purchased by Sublessees from Sublessor from time to time,
4
<PAGE>
and all costs of collection, legal expenses and attorneys' fees paid or incurred
by Sublessor in enforcing any rights in respect to the Obligations or in
connection with assembling, collecting, selling or otherwise dealing with or
realizing upon the Collateral. Notwithstanding the foregoing, the reference to
Sublessors, shall also refer to Sublessor's lending subsidiary, United
Resources, Inc., as secured party.
5.2 Security Agreement Warranties. In addition to and without
limiting the force or effect of any other covenants, representations and
warranties of Sublessees contained in this Sublease, Sublessees hereby covenant,
represent and warrant to and with Sublessor as follows:
(a) Sublessees are the owners of the Collateral free and
clear of liens, security interests and encumbrances of every kind and
description, except liens, security interests and encumbrances securing
indebtedness to Sublessor and those described in Exhibit X.
(b) Sublessees will not sell, dispose of, encumber or permit
any other security interest, lien or encumbrance to attach to the Collateral
without the prior written consent of United Grocers, Inc., which consent shall
not be unreasonably withheld except the security interest of Sublessor and the
Permitted Liens.
(c) All tangible Collateral shall be kept at Sublessees'
place(s) of business located on the premises, and Sublessees shall not permit
the same to be removed therefrom without the prior written consent of Sublessor.
(d) Sublessees shall keep the tangible Collateral at all
times insured against risks of loss or damage by fire (including so-called
extended coverage), theft and such other casualties as Sublessor may reasonably
require, all in such amounts, under such forms of policies, upon such terms, for
such periods and written by such companies or underwriters as Sublessor may
approve. All such policies of insurance shall name Sublessor and/or its
subsidiary as loss payee thereon as its interest may appear and shall provide
for at least 30 days' prior written notice of modification or cancellation to
Sublessor. Sublessees shall furnish Sublessor with certificates of such
insurance or other evidence satisfactory to Sublessor as to compliance with the
provisions of this paragraph. Sublessor may act as attorney-in-fact for
Sublessees in making, adjusting and settling claims under and canceling such
insurance and endorsing Sublessees' name on any drafts drawn by insurers of the
Collateral.
(e) Sublessees will keep the Collateral in good order and
repair, shall not waste or destroy the Collateral or any part thereof, and shall
not use the Collateral in violation of any statute, ordinance or policy of
insurance thereon. Sublessor may examine and inspect the Collateral at any
reasonable time or times, wherever located.
(f) Sublessees will pay promptly when due all taxes and
assessments upon the Collateral or for its use or operation or upon this
Sublease or upon any instruments evidencing the Obligations.
(g) Sublessees will pay promptly when due all indebtedness
secured by any lien or other security interest in the Collateral, whether
superior or junior to the security interest established hereby.
5.3 Additional Remedies. Upon any default hereunder and at any
time thereafter (such default
5
<PAGE>
not having previously been cured), Sublessor at its option may declare all
Obligations immediately due and payable and shall have the remedies of a secured
party under the Uniform Commercial Code of Oregon (the "Code"), including
without limitation the right to take immediate and exclusive possession of the
Collateral.
5.4 Financing Statements. Sublessees will at their own cost and
expense, upon demand, furnish to Sublessor such financing statements and other
documents in form satisfactory to Sublessor and will do all such acts and things
as Sublessor may at any time or from time to time request or as may be necessary
or appropriate to establish and maintain a perfected security interest in the
Collateral.
5.5 Attorneys' Fees. In the event of the institution of any suit
or action to terminate this Sublease, or to enforce the terms or provisions
hereto, the nonprevailing party shall and does hereby agree to pay, in addition
to the costs and disbursements provided by statute, reasonable attorneys' fees
in such proceedings or on any appeal from any judgment or decree entered
therein.
(6) Default. The following shall constitute a default under this
Sublease:
6.1 Any failure by Sublessees to pay, when due, rent or any other
amount due under the Lease or to perform any other obligation of Sublessor under
the Lease or any other default under the Lease which continues for up to
one-half of the cure period as defined in the lease, provided with respect
thereto in the Lease;
6.2 Any failure by Sublessees to pay when due rent or any other
amount due under this Sublease or to perform when due any other obligation of
Sublessees hereunder;
6.3 If any warranty, representation or statement made or furnished
to Sublessor by or on behalf of the Sublessees is false in any material respect
when made or furnished;
6.4 Any failure by Sublessees to pay when due and/or satisfy any
other present or hereinafter incurred indebtedness or obligation of Sublessees
to Sublessor within five (5) days after written notice, including but not
limited to those arising from Sublessees' purchases of goods and services from
Sublessor any other loans or leases Sublessees may have or enter into with
Sublessor, and Sublessees' obligations under the Bylaws of Sublessor and its
application for membership in Sublessor;
6.5 If Sublessees vacate or abandon the premises or allow the
premises to remain vacant or unoccupied;
6.6 If Sublessees make an assignment for the benefit of creditors,
or if, with or without Sublessees' acquiescence, a petition in bankruptcy is
filed against Sublessees, or Sublessees are adjudicated a bankrupt or insolvent,
or a trustee, receiver or liquidator is appointed for all or part of Sublessees'
assets, or a petition or answer is filed by or against Sublessees seeking or
acquiescing in any reorganization, liquidation or similar relief under any
federal, state or local law relating to bankruptcy, insolvency or other relief
for debtors; and
6.7 If Sublessees sell or otherwise dispose of all or any material
(in excess of $5,000.00) portion of the assets of Sublessees located at or
associated with the store, other than inventory sold at retail in the
6
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ordinary course of business.
(7) Remedies. In the event of any default under this Sublease:
7.1 Sublessor shall have the right, at its election then or at any
time thereafter, upon notice to Sublessees, to terminate this Sublease or to
terminate Sublessees' rights of possession in the premises without terminating
this Sublease;
7.2 Sublessor shall have the immediate right, whether or not the
Sublease shall have been terminated pursuant to paragraph 7.1, to re-enter and
repossess the premises or any part thereof by force, summary proceedings,
ejectment or any other legal or equitable process, all without any liability on
Sublessor's part for such entry, repossession or removal;
7.3 Sublessor may (but shall be under no obligation to), whether
or not this Sublease shall have been terminated pursuant to paragraph 7.1,
resublet the premises, or any part thereof, in the name of Sublessees, Sublessor
or otherwise, without notice to Sublessees, for such term or terms and for such
uses as Sublessor, in its absolute discretion, may determine and may collect and
receive rents payable by reason of such resubletting (without any liability for
any failure to collect such rents);
7.4 Sublessor may (but shall be under no obligation to) procure
any insurance, pay any rentals, taxes or liens, make any repairs, pay any sums
required to be paid, and to do and perform such other acts as may be required of
Sublessees hereunder, and any payments so made shall bear interest at the rate
of 3 percentage points over the then existing prime rate per annum from the time
of such payment until repaid; and
7.5 Sublessor may exercise any and all other rights and remedies
afforded to the prime Lessor upon default under the Lease and any and all other
rights and remedies Sublessor may have as provided herein, pursuant to the laws
of the state of Oregon. In addition to the other remedies provided above,
Sublessor shall be entitled to current damages and final damages as provided in
paragraph (8) below, and, to the extent permitted by applicable law, to
injunctive relief in case of the violation, or attempted or threatened
violation, of any of the provisions of this Sublease, or to a decree compelling
performance of this Sublease.
7.6 No expiration or termination of this Sublease, repossession of
the premises or any part thereof, or resubletting of the premises or any part
thereof, whether pursuant to the above paragraph or by operation of law or
otherwise, shall relieve Sublessees of their liabilities and obligations under
this Sublease, all of which shall survive such expiration, termination,
repossession or resubletting.
(8) Damages.
8.1 Current Damages. In the event of any expiration or termination
of this Sublease or repossession of the premises or any part thereof by reason
of the occurrence of an event of default, Sublessees will pay to Sublessor the
rent and other sums required to be paid by Sublessees for the period to and
including the date of such expiration, termination or repossession; and,
thereafter, until the end of what would have been the term in the absence of
such expiration, termination or repossession, and whether or not the premises or
any part thereof shall have been resublet, Sublessees shall be liable to
Sublessor for, and shall pay to Sublessor, as
7
<PAGE>
liquidated and agreed current damages the rent and other sums which would be
payable under this Sublease by Sublessees in the absence of such expiration,
termination or repossession, less the net proceeds, if any, of any resubletting
effected for the account of Sublessees, after deducting from such proceeds all
of Sublessor's expenses reasonably incurred in connection with such resubletting
(including, without limitation, all repossession costs, brokerage commissions,
legal expenses, attorney's fees, employee expenses, alteration costs and
expenses of preparation for such resubletting). Sublessees will pay such current
damages on the days on which rent would have been payable under this Sublease in
the absence of such expiration, termination or repossession, and Sublessor shall
be entitled to recover the same from Sublessees on each such day.
8.2 Final Damages. At any time after any such expiration or
termination of this Sublease or repossession of the premises or any part thereof
by reason of the occurrence of an event of default, whether or not Sublessor
shall have collected any current damages pursuant to paragraph 8.1, Sublessor
shall be entitled to recover from Sublessees, and Sublessees will pay to
Sublessor on demand, as and for liquidated and agreed final damages for
Sublessees' default and in lieu of all current damages beyond the date of such
demand (it being agreed that it would be impracticable or extremely difficult to
fix the actual damages), an amount equal to the excess, if any, of (a) the rent
and other sums which would be payable under this Sublease from the date of such
demand (or, if it be earlier, the date to which Sublessees shall have satisfied
in full their obligations under paragraph 8.1 to pay current damages) for what
would be the then unexpired term in the absence of such expiration, termination
or repossession, discounted to present value at an assumed interest rate of
seven percent (7%) per annum, over (b) the then net rental value of the premises
discounted to present value at an assumed interest rate of seven percent (7%)
per annum for the same period. Rental value shall be established by reference to
the terms and conditions upon which Sublessor resublets the premises if such
resubletting is accomplished within a reasonable period of time after such
expiration, termination or repossession, and otherwise established on the basis
of Sublessor's estimates and assumptions of fact regarding market and other
relevant circumstances, which shall govern unless shown to be erroneous. If any
statute or rule of law shall validly limit the amount of such liquidated final
damages to less than the amount above agreed upon, Sublessor shall be entitled
to the maximum amount allowable under such statute or rule of law.
(9) Rights Cumulative, Nonwaiver. No right or remedy herein conferred
upon or reserved to Sublessor is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be cumulative and in addition
to any other right or remedy given hereunder or now or hereafter existing at law
or in equity or by statute. The failure of Sublessor to insist at any time upon
the strict performance of any covenant or agreement or to exercise any option,
right, power or remedy contained in this Sublease shall not be construed as a
waiver or relinquishment thereof for the future. No waiver by Sublessor of any
provision of this Sublease shall be deemed to have been made whether due in the
receipt of rent or otherwise, unless expressed in writing and signed by
Sublessor.
(10) Notices. Any notice or demand required or permitted to be given
under this Sublease shall be
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<PAGE>
deemed to have been properly given when, and only when, the same is in writing
and has been deposited in the United States Mail, with postage prepaid, to be
forwarded by registered or certified mail and addressed to the party to be
notified at the address appearing below its signature. Such addresses may be
changed from time to time by serving of notice as above provided.
IN WITNESS WHEREOF, the parties have executed the foregoing Sublease
Agreement the day and year first above written.
SUBLESSOR United Grocers Inc., an Oregon Corporation
By /s/ G.P. Fleming Asst Secty
G.P. Fleming, Assistant Secretary
6433 SE Lake Road
P. 0. Box 22187
Portland, Oregon 97222
SUBLESSEES HOWARDS ON SCHOLLS, INC, an Oregon corporation
By /s/ Gaylon G. Baese
, President
By /s/ Gaylon G. Baese
, Secretary
INDIVIDUALLY:
/s/ Gaylon Baese
Gaylon Baese
12220 S. W. Scholls Ferry Road
Tigard, OR 97223
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<PAGE>
EXHIBIT I
FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT entered into this 25TH day of JUNE 1991, by and
between United Resources, Inc., an Oregon corporation, hereinafter designated as
Sublessor, and Robert A. Lamb, Patsy B. Lamb, Gale L. Lasko and Sandra L. Lasko,
an Oregon partnership, DBA Wilsonville Thriftway, hereinafter designated as
Sublessee;
W I T N E S S E T H:
--------------------
WHEREAS, Sublessor intends to enter into an Equipment Lease (as amended
from time to time, the "Prime Lease"), with Metlife Capital Corporation (the
"Prime Lessor") for equipment and "fixtures" installed at a supermarket located
in Wilsonville, Oregon, commencing on the date set forth in the equipment lease,
in substantially the form which is attached hereto as Exhibit A and is hereby
incorporated by reference
WHEREAS, Sublessee desires to sublet said equipment and fixtures,
Sublessor is willing to so sublet, in accordance with the terms and conditions
hereinafter set forth; now, therefore,
IT IS HEREBY AGREED as follows:
1. Term. Sublessor hereby sublets unto Sublessee the fixtures and
equipment described in the Prime Lease for a term of thirty-six months
commencing July 1 1991 and ending June 1, 1994. Sublessee may, for so long as
Sublessee is not in default under the terms of this Sublease, cause Sublessor to
renew or extend the Prime Lease, or Sublessee may exercise the right of
Sublessor to purchase equipment under the Prime Lease, by giving
Page 1 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT 3/1/91
<PAGE>
Sublessor 15 days' notice prior to the date that such renewal, extension or
purchase must be exercised.
2. Performance of Prime Lease Obligations. Sublessee shall make monthly
payments to Sublessor pursuant to the formula set forth on Exhibit A-1, which is
attached hereto and by this reference incorporated herein, as indicated therein.
Sublessee covenants and agrees to pay for the whole of said term the same
rental, except as modified pursuant to Exhibit A-1, together with all
affirmative covenants pertaining to taxes, assessments, insurance and all of the
covenants and obligations to be performed by Sublessor and to make such payments
and provide such performance when due by the terms of the Prime Lease and any
amendments thereto. Sublessor covenants and agrees to render all payments to the
Prime Lessor under the Prime Lease in a timely manner and to take no action to
cause a default under the Prime Lease. In the event that Sublessor fails to
render any such payment when due, or if Sublessor causes any default under the
Prime Lease, Sublessee shall have the right, but not the obligation, to cure
such default and to set off any amounts paid to cure such default against any
future obligation owed by Sublessee to Sublessor.
3. Security Deposits. Sublessee shall, upon execution hereof, pay any
and all security deposits, as required pursuant to the terms and conditions of
the Prime Lease.
4. Default. The following shall constitute a default under this
Sublease:
Page 2 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT 3/1/91
<PAGE>
a. Any failure by Sublessee to pay when due rent or any other
amount due under the Prime Lease or to perform when due any other obligation of
Sublessor under the Prime Lease or any other default under the Prime Lease which
continues for up to 75 percent of the cure period provided with respect thereto
in the Prime Lease; Sublessor covenants and agrees that upon receipt from the
Prime Lessor of any notice of default or alleged defaults to promptly supply
Sublessee with a copy of such notice;
b. Any failure by Sublessee to pay when due rent or any other
amount due under this Sublease or, within 30 days of notice of a default in any
other obligation hereunder, to perform when due any other obligation of
Sublessee hereunder;
c. If any warranty, representation or statement made or furnished
to Sublessor by or on behalf of the Sublessee is false in any material respect
when made or furnished;
d. Any default under any document securing or guarantying the
obligations of Sublessee under this Sublease;
e. Any failure by Sublessee to pay when due and/or satisfy any
other present or hereinafter incurred indebtedness or obligation of Sublessee to
Sublessor, including but not limited to those arising from Sublessee's purchases
of goods and services from Sublessor, any other loans or leases Sublessee may
have or enter into with Sublessor, and Sublessee's obligations under the Bylaws
of Sublessor and its application for membership in Sublessor;
Page 3 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT 3/1/91
<PAGE>
f. If Sublessee makes an assignment for the benefit of creditors,
or if, with or without Sublessee's acquiescence, a petition in bankruptcy is
filed against Sublessee, or Sublessee is adjudicated a bankrupt or insolvent, or
a trustee, receiver or liquidator is appointed for all or part of Sublessee's
assets, or a petition or answer is filed by or against Sublessee seeking or
acquiescing in any reorganization, liquidation or similar relief under any
federal, state or local law relating to bankruptcy, insolvency or other relief
for debtors; and
g. If Sublessee sells or otherwise disposes of all or any
substantial portion of the assets of Sublessee located at or associated with the
store, other than inventory sold at retail in the ordinary course of business
(i.e., at the full retail price customarily charged therefor or at a reduced
price pursuant to a retail sale in which the price reduction and sale duration
are typical of sales of other retail grocery businesses similarly situated).
5. Remedies. In the event of any default under this Sublease:
a. Sublessor shall have the right, at its election then or at any
time thereafter, upon notice to Sublessee, to terminate this Sublease or to
terminate Sublessee's rights of possession of the equipment without terminating
this Sublease;
b. Sublessor shall have the immediate right, whether or not the
Sublease shall have been terminated pursuant to Section 5.a to re-enter and
repossess the equipment or any part
Page 4 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT 3/1/91
<PAGE>
thereof by force, summary proceedings or any other legal or equitable process,
all without any liability on Sublessor's part for such entry, repossession or
removal;
c. Sublessor may, whether or not this Sublease shall have been
terminated pursuant to Section 5.a resublet the equipment, or any part thereof,
in the name of Sublessee, Sublessor or otherwise, without notice to Sublessee,
for such term or terms and for such uses as Sublessor, in its absolute
discretion, may determine and may collect and receive rents payable by reason of
such resubletting (without any liability for any failure to collect such rents);
notwithstanding the foregoing, Sublessor shall be subject to such common law
duties of mitigation of damages, if any, as are imposed by law on the Prime
Lessor;
d. Sublessor may (but shall be under no obligation to) procure any
insurance, pay any rentals, taxes or liens, make any repairs, pay any sums
required to be paid, and to do and perform such other acts as may be required of
Sublessee hereunder, and any payments so made shall bear interest at the rate of
12 percent per annum, but not in excess of maximum legal rate, from the time of
such payment until repaid; and
e. Sublessor may exercise any and all other rights and remedies
afforded to the Lessor upon default under the Prime Lease and any and all other
rights and remedies Sublessor may have pursuant to the laws of the state of
Oregon. In addition to the other remedies provided above, Sublessor shall be, to
the
Page 5 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT 3/1/91
<PAGE>
extent permitted by applicable law, to injunctive relief in case of the
violation, or attempted or threatened violation, of any of the provisions of
this Sublease, or to a decree compelling performance of this Sublease.
f. No expiration or termination of this Sublease, repossession of
the equipment or any part thereof, or resubletting of the equipment or any part
thereof, whether pursuant to the above paragraph or by operation of law or
otherwise, shall relieve Sublessee of their liabilities and obligations under
this Sublease, all of which shall survive such expiration, termination,
repossession or resubletting.
6. Rights Cumulative, Nonwaiver. No right or remedy herein conferred
upon or reserved to Sublessor is intended to be exclusive of any other right or
remedy, including without limitation the rights and remedies provided in the
Prime Lease, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity or by statute. The failure of Sublessor to insist
at any time upon the strict performance of any covenant or agreement or to
exercise any option, right, power or remedy contained in this Sublease shall not
be construed as a waiver or relinquishment thereof for the future. No waiver by
Sublessor of any provision of this Sublease shall be deemed to have been made
whether due to the receipt of rent or otherwise, unless expressed in writing and
signed by Sublessor.
Page 6 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT 3/1/91
<PAGE>
7. Assignment and Subletting. Sublessee acknowledges that provisions
for extension options and assignment and subletting in the Prime Lease are
applicable to the Prime Lessor and Sublessor only. Sublessee will not assign
this Sublease or sublet the premises without the prior written consent of
Sublessor which consent shall not be unreasonably withheld, provided that
Sublessee is not in default of this Sublease or a material provisions of any
agreement with Sublessor.
8. Covenants, Representations and Warranties.
a. Sublessee agree to maintain or cause to be maintained the
membership of the store in good standing in Sublessor, in accordance with the
Bylaws of Sublessor, as long as this Sublease remains in effect.
b. Sublessee represents and warrants that there are no brokers,
finders or other persons entitled to any fee, commission or other compensation
in connection with this Sublease, and agrees to hold Sublessor harmless from any
claims for such fees, commissions and/or compensation.
c. Sublessee hereby represents and warrants to Sublessor that the
financial statements, appraisals and other documents submitted to Sublessor in
connection herewith or pursuant hereto are and shall be true, correct, complete
and accurate in every respect and said financial statements fairly and
accurately present the assets, liabilities, financial condition and results of
operations reflected herein.
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<PAGE>
9. Attorneys' Fees. In the event of the institution of any suit or
action to terminate this Sublease, or to interpret or enforce the terms or
provisions hereto, the nonprevailing party shall and does hereby agree to pay to
the prevailing party, in addition to the costs and disbursements provided by
statute, reasonable attorneys, fees in such proceedings or on any appeal from
any judgment or decree entered therein.
10. Notices. Any notice or demand required or permitted to be given
under this Sublease shall be deemed to have been properly given when, and only
when, the same is in writing and has been deposited in the United States Mail,
with postage prepaid, to be forwarded by registered or certified mail and
addressed to the party to be notified at the address appearing below its
signature. Such addresses may be changed from time to time by serving of notice
as above provided.
11. Substitution of Exhibit. The parties agree that at such time as
Sublessor and the Prime Lessor have executed an Equipment Lease in substantially
the form as is attached hereto as Exhibit A, such executed Equipment Lease shall
supersede Exhibit A and shall become a part of this Sublease as Exhibit A,
provided that such executed Equipment Lease is in substantially the form as the
form attached as Exhibit A upon execution of this Sublease and does not in any
way materially vary from such form.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed the foregoing Sublease
Agreement the day and year first above written.
SUBLESSOR UNITED RESOURCES, INC., an Oregon Corporation
By /s/ G.P. Fleming President
Title
6433 SE Lake Road
P. 0. Box 22187
Portland, Oregon 97222
SUBLESSEE an Oregon Partnership
by /s/ Robert A. Lamb
/s/ Patsy R. Lamb
/s/ Gale L. Lasko
/s/ Sandra L. Lasko
Individually
/s/ Robert A. Lamb
/s/ Patsy R. Lamb
/s/ Gale L. Lasko
/s/ Sandra L. Lasko
Page 9 - FIXTURE AND EQUIPMENT SUBLEASE AGREEMENT
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE AGREEMENT entered into this 27 th day of October, 1997, by
and between UNITED GROCERS, INC., an Oregon corporation, hereinafter designated
as Sublessor, and Wright's Foodliner, Inc. , hereinafter jointly and severally
designated as Sublessee;
W I T N E S S E T H
-------------------
WHEREAS, the Sublessor has entered into a Lease dated July 15 , 1987----,
with D.M. Stevenson Ranch , for a supermarket located in Eugene , Oregon (more
particularly described in exhibit "A" attached to said lease), commencing on the
date set forth in the attached Exhibit "A," a copy of which is hereby
incorporated by reference, as fully as if its terms and conditions were herein
set forth.
WHEREAS, Sublessees desire to sublet said premises for a period not to
exceed 20 years, commencing on date set forth in paragraphs 8 and 10 of Exhibit
"A," and Sublessor is willing to so sublet in accordance with the terms and
conditions hereinafter set forth; now, therefore,
IT IS HEREBY AGREED as follows:
(1) Sublessor hereby sublets unto Sublessees those premises described in
said Exhibit "A," for the term of 20 years.
1.1 The Sublessees, so long as they are not in default hereunder and
further provided that no event or condition exists that, with the passage of
time or giving of notice would constitute default, shall be granted the right to
exercise the renewal options contained in Exhibit "A," as set forth in paragraph
5 of said Exhibit.
(2) Sublessees covenant and agree to pay for the whole of said term the
rental hereinafter provided, together with all affirmative covenants including,
without limitation, those pertaining to minimum rent, Common Area Charges (CAM),
percentage of gross sales, taxes, assessments, insurance and all of the
covenants and obligations to be performed by Lessee, as set forth in said
Exhibit "A," and to make such payments and provide such performance when due by
the terms of the lease and amendments thereto.
(3) Sublessees shall, upon execution hereof, pay any and all rental or
security deposits and all other sums except minimum rent, as required pursuant
to the terms and conditions of said Exhibits "A", and shall pay rent to
Sublessor, in accordance with the "Sublease Rent Schedule" attached hereto. All
such rental payments to Sublessor shall be made without offset, adjustment or
deduction of any kind.
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<PAGE>
(4) Sublessees shall be bound by the same responsibilities, rights,
privileges and duties as Sublessor, as enumerated in Exhibit "A" and covenants
and agrees to fully indemnify and hold Sublessor harmless from any and all
responsibility and/or liability which Sublessor may incur by virtue of said
Exhibit "A," and/or Sublessees' occupancy of the premises. Furthermore,
Sublessees shall be bound by any subsequent amendment, revision, supplement or
addition to the prime lease between Sublessor and the prime Lessor, and to keep
the Sublessor indemnified against all actions, claims and demands whatsoever in
respect to said exhibit "A," and Sublessees use of the demised premises.
4.1 Assignment and Subletting. Sublessees acknowledge that provisions
for extension options and assignment and subletting in the Lease are applicable
to the prime Lessor and Sublessor only. Sublessees will not assign this Sublease
or sublet the premises without the prior written consent of Sublessor which may
be granted or withheld in its absolute discretion. A direct or indirect transfer
of ownership and control of a majority of the voting stock of a corporate
Sublessees, by whatever demands, shall be deemed an assignment of this Sublease
for the purposes of this paragraph.
(a) In the event of an assignment, Tenant shall thereafter pay to
Landlord in connection with such assignment, fifty percent (50%) of all sums and
other consideration paid (or payable) to and for the benefit of Tenant by the
Transferee on account of the assignment as and when such sums and other
consideration are paid (or are payable) by the Transferee.
(b) In the event the transfer is by virtue of a sublease, fifty
percent (50%) of any rent or other consideration received by Tenant, either
initially or over the term of the sublease, in excess of such rent called for
hereunder, or in the case of a sublease of a portion of the Leased Premises, in
excess of such rent fairly allocable to such portion, after appropriate
adjustments to ensure that all other payments called for hereunder are taken
into account, shall be paid by tenant to Landlord, promptly after its receipt by
Tenant.
4.2 Covenants, Representations and Warranties.
(a) Membership in United Grocers, Inc. Upon execution and during
the term hereof, Sublessees agree to maintain or cause to be maintained the
membership of the store in good standing in United Grocers, in accordance with
the Bylaws of United Grocers, as long as this Sublease remains in effect.
(b) Purchases from Sublessor. Sublessees agree that throughout
the term of the Sublease and any extensions or renewals thereof, except as
hereinafter provided, Sublessees will purchase
2
<PAGE>
from Sublessor not less than fifty-eight percent (58%) of its retail sales of
all goods and merchandise required by it for resale on the premises to the
extent that Sublessor shall now or hereafter be able to supply such goods and
merchandise to the Sublessees, and Sublessor will supply all of Sublessees'
requirements at such prices and on such terms as are reasonably comparable to
those offered by Sublessor to other purchasers from Sublessor carrying on
businesses similar to that of the Sublessees in the Eugene, Oregon area. If, at
any time, the Sublessees contend that Sublessor is not able to supply particular
goods or merchandise customarily stocked by retail supermarkets in the Eugene,
Oregon area, or that terms offered by Sublessor are not reasonably comparable to
those offered by Sublessor to other purchasers described above, the Sublessees
shall so advise Sublessor in writing, specifying such contention with
particularity. If, within 30 days after receipt of such notice, Sublessor does
not offer to supply goods or merchandise so specified or does not advise
Sublessees that the terms and conditions offered are reasonably comparable to
those offered to such other purchasers, Sublessees shall be free to secure such
specified goods and merchandise from any source which it desires. If Sublessor
demonstrates that it is offering reasonably comparable terms, and Sublessees
nonetheless purchase from another source, such purchase or purchases shall not
be an exception from the 58% requirement specified above. If the above
percentage requirements are not complied with, it shall constitute a default
hereunder. In the event of a breach of this purchase covenant, Sublessor may
terminate this sublease and, in addition to the remedies hereinafter offered
Sublessor, Sublessee agrees to pay Sublessor, as liquidated damages, and not as
a penalty or forfeiture, a sum computed as follows:
1. The average weekly purchases from the date of the agreement to the
date of the breach shall be determined;
2. the average weekly purchases so determined shall then be multiplied
by the number of weeks from the date of the breach to the end of the term
of the purchase agreement; and
3. The computed sum shall be multiplied by two and one-quarter percent
(2-1/4 %) to determine the liquidated damages due and owing Sublessor by
reason of Sublessee's default. Said sum shall become immediately due and
owing within 15 days from date of written notice of the liquidated damages.
(c) Sublessees covenant that as long as this Sublease remains in
effect, and for an additional period of six (6) months thereafter, Sublessees
shall not directly or indirectly sell or permit the sale of the store and the
owners of Sublessees shall not directly or indirectly sell controlling interests
in Sublessees (whether in one or a series of related transactions) without first
offering to sell said store or controlling interest, as the case may be, to
Sublessor upon the same terms and conditions as the Sublessees or their owners,
as the case may be, are prepared to
3
<PAGE>
accept from a third party. Prior to such sale by the Sublessees or their owners,
the Sublessees shall first notify Sublessor of the desire to sell the store or
controlling interest in the Sublessees and of all the terms and conditions of
such sale and shall provide to Sublessor all documents, instruments, agreements,
offers, acceptances, appraisals, inventories, equipment lists, leases, financial
statements and such other material and information as Sublessor may reasonably
request to aid in its decision to exercise or decline its right to purchase as
hereinafter provided. Within 30 days following receipt of such notice of desire
to sell and all materials and information reasonably requested by Sublessor,
Sublessor shall advise Sublessees whether Sublessor elects to purchase or
declines to purchase the store or such controlling interest upon the offered
terms and conditions. If Sublessor shall elect to purchase, Sublessor shall
purchase and the Sublessees or their owners shall sell, such retail grocery
business or such controlling interest, as the case may be, all on the terms set
forth in the offer. If Sublessor declines the purchase, the Sublessees or their
owners shall be free to sell the store or controlling interest, as the case may
be, upon (and only upon) the terms and conditions offered as aforesaid to
Sublessor; provided that such sale is consummated within 120 days following the
date Sublessor declined the purchase, and if such sale is not consummated in
accordance with the offered terms and conditions within said 120-day period, the
provisions of this paragraph shall apply again and no subsequent sale of any
portion of the offered store or controlling interest may be effected without
again offering the same to Sublessor as provided herein. Sublessor may waive its
rights under this section provided such waiver is in writing. The foregoing
provisions shall not apply to transfers of assets or interests by sale, gift or
as a result of death to the lawful issue of Sublessees, or transfers of assets
to a corporation or partnership or transfers of a controlling interest to a
trust as long as such corporation, partnership or trust is controlled by the
transferor; provided such transferee agrees that it holds such assets or
controlling interest subject to the restrictions contained in this paragraph.
(d) Sublessees represent and warrant that there are no brokers,
finders or other persons entitled to any fee, commission or other compensation
in connection with this Sublease, and agree to hold Sublessor harmless from any
claims for such fees, commissions and/or compensation.
(e) Sublessees hereby represent and warrant to Sublessor that the
financial statements, appraisals and other documents submitted to Sublessor in
connection herewith or pursuant hereto are and shall be true, correct, complete
and accurate in every respect and said financial statements fairly and
accurately present the assets, liabilities, financial condition and results of
operations reflected herein.
(5) Security Agreement.
5.1 Grant, Collateral and Obligations. Sublessees and Sublessor agree
that this Sublease shall constitute a security agreement within the meaning of
the Oregon Uniform Commercial Code (hereinafter referred to as the "Code") with
respect to:
(a) required cash deposits (as defined in the Bylaws of
Sublessor) presently or hereafter held by or deposited with Sublessor by
Sublessees;
(b) any and all patronage rebates and rebate notes representing
patronage rebates (as defined in the Bylaws of Sublessor) earned or hereafter
earned by reason of patronage of Sublessor by Sublessees;
(c) subject to liens securing purchase money financing therefor
as described in Exhibit "X," all trade, store and other fixtures and all
leasehold improvements and all equipment and other personal property of
Sublessees used or useful in the operation of the store in or on the premises,
whether now owned or hereafter acquired including, without limitation, the
property described in Exhibit "Y", attached hereto, if any; and
(d) all replacements of substitutions for, and additions to the
foregoing, and the proceeds thereof (all of said personal property and the
replacements, substitutions and additions thereto and the proceeds thereof being
sometimes hereinafter collectively referred to as the "Collateral"), and that a
security interest in and to the Collateral is hereby granted to the Sublessor,
and the Collateral and all of the Sublessees' right, title and interest therein
are hereby assigned to the Sublessor, all to secure all presently existing or
hereafter incurred direct, indirect, absolute or contingent indebtedness,
liabilities and other obligations of Sublessees to Sublessor (referred to as
"the Obligations" herein) including, but not limited to, the payment of all rent
and other sums and the performance of all other obligations of Sublessees under
this Sublease, all renewals and extensions thereof, the price of goods, services
and merchandise purchased by Sublessees from Sublessor from time to time, and
all costs of collection, legal expenses and attorneys' fees paid or incurred by
Sublessor in enforcing any rights in respect to the Obligations or in connection
with assembling, collecting, selling or otherwise dealing with or realizing upon
the Collateral.
5.2 Security Agreement Warranties. In addition to and without limiting
the force or effect of any other covenants, representations and warranties of
Sublessees contained in this Sublease, Sublessees hereby covenant, represent and
warrant to and with Sublessor as follows:
(a) Sublessees are the owners of the Collateral free and clear of
liens, security interests and encumbrances of every kind and description, except
liens, security interests and encumbrances securing indebtedness to Sublessor
and liens described on Exhibit "X," hereto to which Secured Party has consented
("Permitted Liens").
(b) Sublessees will not sell, dispose of, encumber or permit any
other security interest, lien or encumbrance to attach to the Collateral except
the security interest of Sublessor and the Permitted Liens.
(c) All tangible Collateral shall be kept at Sublessees' place(s)
of business located on the premises, and Sublessees shall not permit the same to
be removed therefrom without the prior written consent of Sublessor.
(d) Sublessees shall keep the tangible Collateral at all times
insured against risks of loss or damage by fire (including so-called extended
coverage), theft and such other casualties as Sublessor may reasonably require,
all in such amounts, under such forms of policies, upon such terms, for such
periods and written by such companies or underwriters as Sublessor may approve.
All such policies of insurance shall name Sublessor as loss payee thereon as its
interest may appear and shall provide for at least 30 days' prior written notice
of modification or cancellation to Sublessor. Sublessees shall furnish Sublessor
with certificates of such insurance or other evidence satisfactory to Sublessor
as to compliance with the provisions of this paragraph. Sublessor may act as
attorney-in-fact for Sublessees in making, adjusting and settling claims under
and canceling such insurance and endorsing Sublessees' name on any drafts drawn
by insurers of the Collateral.
(e) Sublessees will keep the Collateral in good order and repair,
shall not waste or destroy the Collateral or any part thereof, and shall not use
the Collateral in violation of any statute, ordinance or policy of insurance
thereon. Sublessor may examine and inspect the Collateral at any reasonable time
or times, wherever located.
(f) Sublessees will pay promptly when due all taxes and
assessments upon the Collateral or for its use or operation or upon this
Sublease or upon any instruments evidencing the Obligations.
(g) Sublessees will pay promptly when due all indebtedness
secured by any lien or other security interest in the Collateral, whether
superior or junior to the security interest established hereby.
5.3 Additional Remedies. Upon any default hereunder and at any time
thereafter (such default not having previously been cured), Sublessor at its
option may declare all Obligations immediately due and payable and shall have
the remedies of a secured party under the Uniform Commercial Code of Oregon (the
"Code"), including without limitation the right to take immediate and exclusive
possession of the Collateral.
5.4 Financing Statements. Sublessees will at their own cost and
expense, upon demand, furnish to Sublessor such financing statements and other
documents in form satisfactory to Sublessor and will do all such acts and things
as Sublessor may at any time or from time to time request or as may be necessary
or appropriate to establish and maintain a perfected security interest in the
Collateral.
5.5 Attorneys' Fees. In the event of the institution of any suit or
action to terminate this Sublease, or to enforce the terms or provisions hereto,
Sublessees shall and do hereby agree to pay, in addition to the costs and
disbursements provided by statute, reasonable attorneys' fees in such
proceedings or on any appeal from any judgment or decree entered therein.
(6) Default. The following shall constitute a default under this Sublease:
6.1 Any failure by Sublessees to pay, when due, rent or any other
amount due under the Lease or to perform any other obligation of Sublessor under
the Lease or any other default under the Lease which continues for up to
one-half of the cure period as defined in the lease, provided with respect
thereto in the Lease;
6.2 Any failure by Sublessees to pay when due rent or any other amount
due under this Sublease or to perform when due any other obligation of
Sublessees hereunder;
6.3 If any warranty, representation or statement made or furnished to
Sublessor by or on behalf of the Sublessees is false in any material respect
when made or furnished;
6.4 Any failure by Sublessees to pay when due and/or satisfy any other
present or hereinafter incurred indebtedness or obligation of Sublessees to
Sublessor, including but not limited to those arising from Sublessees' purchases
of goods and services from Sublessor any other loans or leases Sublessees may
have or enter into with Sublessor, and Sublessees' obligations under the Bylaws
of Sublessor and its application for membership in Sublessor;
6.5 If Sublessees vacate or abandon the premises or allow the premises
to remain vacant or unoccupied;
6.6 If Sublessees make an assignment for the benefit of creditors, or
if, with or without Sublessees' acquiescence, a petition in bankruptcy is filed
against Sublessees, or Sublessees are adjudicated a bankrupt or insolvent, or a
trustee, receiver or liquidator is appointed for all or part of Sublessees'
assets, or a petition or answer is filed by or against Sublessees seeking or
acquiescing in any reorganization, liquidation or similar relief under any
federal, state or local law relating to bankruptcy, insolvency or other relief
for debtors; and
6.7 If Sublessees sell or otherwise dispose of all or any substantial
portion of the assets of Sublessees located at or associated with the store,
other than inventory sold at retail in the ordinary course of business.
(7) Remedies. In the event of any default under this Sublease:
7.1 Sublessor shall have the right, at its election then or at any
time thereafter, upon notice to Sublessees, to terminate this Sublease or to
terminate Sublessees' rights of possession in the premises without terminating
this Sublease;
7.2 Sublessor shall have the immediate right, whether or not the
Sublease shall have been terminated pursuant to paragraph 7.1, to re-enter and
repossess the premises or any part thereof by force, summary proceedings,
ejectment or any other legal or equitable process, all without any liability on
Sublessor's part for such entry, repossession or removal;
7.3 Sublessor may (but shall be under no obligation to), whether or
not this Sublease shall have been terminated pursuant to paragraph 7.1, resublet
the premises, or any part thereof, in the name of Sublessees, Sublessor or
otherwise, without notice to Sublessees, for such term or terms and for such
uses as Sublessor, in its absolute discretion, may determine and may collect and
receive rents payable by reason of such resubletting (without any liability for
any failure to collect such rents);
7.4 Sublessor may (but shall be under no obligation to) procure any
insurance, pay any rentals, taxes or liens, make any repairs, pay any sums
required to be paid, and to do and perform such other acts as may be required of
Sublessees hereunder, and any payments so made shall bear interest at the rate
of 12 percent per annum from the time of such payment until repaid; and
7.5 Sublessor may exercise any and all other rights and remedies
afforded to the prime Lessor upon default under the Lease and any and all other
rights and remedies Sublessor may have as provided herein, pursuant to the laws
of the State of Oregon-------. In addition to the other remedies provided above,
Sublessor shall be entitled to current damages and final damages as provided in
paragraph (8) below, and, to the extent permitted by applicable law, to
injunctive relief in case of the violation, or attempted or threatened
violation, of any of the provisions of this Sublease, or to a decree compelling
performance of this Sublease.
7.6 No expiration or termination of this Sublease, repossession of the
premises or any part thereof, or resubletting of the premises or any part
thereof, whether pursuant to the above paragraph or by operation of law or
otherwise, shall relieve Sublessees of their liabilities and obligations under
this Sublease, all of which shall survive such expiration, termination,
repossession or resubletting.
(8) Damages.
8.1 Current Damages. In the event of any expiration or termination of
this Sublease or repossession of the premises or any part thereof by reason of
the occurrence of an event of default, Sublessees will pay to Sublessor the rent
and other sums required to be paid by Sublessees for the period to and including
the date of such expiration, termination or repossession; and, thereafter, until
the end of what would have been the term in the absence of such expiration,
termination or repossession, and whether or not the premises or any part thereof
shall have been resublet, Sublessees shall be liable to Sublessor for, and shall
pay to Sublessor, as liquidated and agreed current damages the rent and other
sums which would be payable under this Sublease by Sublessees in the absence of
such expiration, termination or repossession, less the net proceeds, if any, of
any resubletting effected for the account of Sublessees, after deducting from
such proceeds all of Sublessor's expenses reasonably incurred in connection with
such resubletting (including, without limitation, all repossession costs,
brokerage commissions, legal expenses, attorney's fees, employee expenses,
alteration costs and expenses of preparation for such resubletting). Sublessees
will pay such current damages on the days on which rent would have been payable
under this Sublease in the absence of such expiration, termination or
repossession, and Sublessor shall be entitled to recover the same from
Sublessees on each such day.
8.2 Final Damages. At any time after any such expiration or
termination of this Sublease or repossession of the premises or any part thereof
by reason of the occurrence of an event of default, whether or not Sublessor
shall have collected any current damages pursuant to paragraph 8.1, Sublessor
shall be entitled to recover from Sublessees, and Sublessees will pay to
Sublessor on demand, as and for liquidated and agreed final damages for
Sublessees' default and in lieu of all current damages beyond the date of such
demand (it being agreed that it would be impracticable or extremely difficult to
fix the actual damages), an amount equal to the excess, if any, of (a) the rent
and other sums which would be payable under this Sublease from the date of such
demand (or, if it be earlier, the date to which Sublessees shall have satisfied
in full their obligations under paragraph 8.1 to pay current damages) for what
would be the then unexpired term in the absence of such expiration, termination
or repossession, discounted to present value at an assumed interest rate of
seven percent (7%) per annum, over (b) the then net rental value of the premises
discounted to present value at an assumed interest rate of seven percent (7%)
per annum for the same period. Rental value shall be established by reference to
the terms and conditions upon which Sublessor resublets the premises if such
resubletting is accomplished within a reasonable period of time after such
expiration, termination or repossession, and otherwise established on the basis
of Sublessor's estimates and assumptions of fact regarding market and other
relevant circumstances, which shall govern unless shown to be erroneous. If any
statute or rule of law shall validly limit the amount of such liquidated final
damages to less than the amount above agreed upon, Sublessor shall be entitled
to the maximum amount allowable under such statute or rule of law.
(9) Rights Cumulative, Nonwaiver. No right or remedy herein conferred
upon or reserved to Sublessor is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be cumulative and in addition
to any other right or remedy given hereunder or now or hereafter existing at law
or in equity or by statute. The failure of Sublessor to insist at any time upon
the strict performance of any covenant or agreement or to exercise any option,
right, power or remedy contained in this Sublease shall not be construed as a
waiver or relinquishment thereof for the future. No waiver by Sublessor of any
provision of this Sublease shall be deemed to have been made whether due in the
receipt of rent or otherwise, unless expressed in writing and signed by
Sublessor.
(10) Notices. Any notice or demand required or permitted to be given
under this Sublease shall be deemed to have been properly given when, and only
when, the same is in writing and has been deposited in the United States Mail,
with postage prepaid, to be forwarded by registered or certified mail and
addressed to the party to be notified at the address appearing below its
signature. Such addresses may be changed from time to time by serving of notice
as above provided.
(11)Right of Refusal: If, during the term of this sublease, or any
extension hereof, Sublessee or any successor to Sublessee shall receive a bona
fide offer to purchase the business being operated under this sublease, i. e.,
goodwill, fixtures and/or equipment and inventory or the property of which the
premises are a part, which offer is acceptable to Sublessee, Sublessor shall
have the right to purchase the business (or the property) upon the same terms
and conditions. Sublessee agrees to immediately, upon receipt of such offer, to
give Sublessor written notice of the terms and conditions thereof, and the
Sublessor shall have the right, for thirty (30) days after receipt of such
notice, to exercise its option to purchase under the identical terms and
conditions of such offer. Sublessor's exercise of its option shall be given in
writing, within said thirty-day period.
(12)Additional Provisions.
12.1
12.2
IN WITNESS WHEREOF, the parties have executed the foregoing Sublease
Agreement the day and year first above written.
SUBLESSOR:
United Grocers, Inc., an Oregon Corporation SUBLESSEES
an Oregon Corporation
6433 SE Lake Road -------------------------
Portland, Oregon 97222
By: ------------------------ ---------------------------
SUBLESSEE:
Wright's Foodliner, Inc.
an Oregon Corporation
1156 Hwy 99 North ------------------------
Eugene, Oregon 97402
By: ------------------------ ---------------------------
11
EX-10.H2
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE AGREEMENT entered into this ------ day of October, 1990,
by and between UNITED GROCERS, INC., an Oregon corporation, hereinafter
designated as Sublessor, and WRIGHT'S FOODLINER, INC., an Oregon corporation,
hereinafter designated as Sublessee;
RECITALS:
- --------
A. Sublessor has entered into a Lease for a 10-year term commencing
February 1, 1988, with Commercial Development Co., an Oregon corporation, for a
supermarket located at 1405 Pacific Highway, Cottage Grove, Oregon, a copy of
which is marked Exhibit "A" attached hereto and by this reference incorporated
herein, as fully as if its terms and conditions were herein set forth.
B. Sublessee has been and desires to continue to sublet the premises
for a period of 10 years, which commenced on the date set forth in paragraph 2
of Exhibit "A", and Sublessor has been and is willing to continue to so sublet
in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, IT IS HEREBY AGREED as follows:
1. Sublease Terms and Options. Sublessor hereby sublets unto Sublessee
those premises described in Exhibit "A", for the 10 year term described therein.
1.1 So long as it is not in default hereunder, the Sublessee may
exercise the renewal options contained in Exhibit "A"
1 - SUBLEASE AGREEMENT (COTTAGE GROVE)
<PAGE>
as set forth in paragraphs 3 and 7 of said Exhibit.
2. Rental. Sublessee covenants and agrees to pay for the whole of said
term the same rental, together with all affirmative covenants including, without
limitation, those pertaining to basic rent, percentage of gross sales, taxes,
assessments, insurance and all of the covenants and obligations to be performed
by Sublessee, as set forth in said Exhibit "A", and to make such payments and
provide such performance when due by the terms of the lease and amendments
thereto.
3. Deposits. Sublessee shall, upon execution hereof, pay any and all
rentals, or security deposits, as required pursuant to the terms and conditions
of said Exhibit "A".
4. Indemnity and Hold Harmless. Sublessee shall be bound by the same
responsibilities, rights, privileges and duties as Sublessor, as enumerated in
Exhibit "A", and covenants and agrees to fully indemnify and hold Sublessor
harmless from any and all responsibility and/or liability which Sublessor may
incur by virtue of said Exhibit "A", and/or Sublessee's occupancy of the
premises. Furthermore, Sublessee shall be bound by any subsequent amendment,
revision, supplement or addition to the prime lease between Sublessor and the
prime Lessor, and to keep the Sublessor indemnified against all actions, claims
and demands whatsoever in respect to said Exhibit "A", and Sublessee's use of
the demised premises.
5. Default. The following shall constitute a default under this
Sublease.
2 - SUBLEASE AGREEMENT (COTTAGE GROVE)
<PAGE>
5.1 Any failure by Sublessee to pay the rent when due or to pay
any other amount due under the Lease or to perform any other obligation of
Sublessor under the Lease when due which would constitute a default under the
Lease and which continues for the cure period provided with respect thereto in
the Lease;
5.2 If any warranty, representation or statement made or furnished
to Sublessor by or on behalf of the Sublessee is false in any material respect
when made or furnished;
5.3 If Sublessee makes an assignment for the benefit of its
creditors, or Sublessee is adjudicated a bankrupt or insolvent, or a trustee,
receiver or liquidator is appointed for all or part of Sublessee's assets, or a
petition or answer is filed by or against Sublessee seeking or acquiescing in
any reorganization, liquidation or similar relief under any federal, state or
local law relating to bankruptcy, insolvency or other relief for debtors.
6. Remedies. In the event of any default under this Sublease:
6.1 Sublessor may exercise any and all rights and remedies
afforded to the prime lessor upon default under the lease, and any and all other
rights and remedies Sublessor may have pursuant to the laws of the State of
Oregon.
6.2 If a default occurs, this Sublease may be terminated at the
option of the Sublessor by written notice to the Sublessee. The notice may be
given before, after, or within the grace period for a default.
3 - SUBLEASE AGREEMENT (COTTAGE GROVE)
<PAGE>
6.3 If the Sublease is terminated for any reason, Sublessee's
liability to Sublessor for damages shall survive such termination, and Sublessor
may re-enter, take possession of the premises, and remove any persons or
property by legal action or by self-help with the use of reasonable force.
6.4 Following re-entry or abandonment, Sublessor may:
(a) make any suitable alterations or refurbish the premises,
or both, or change the character or use of the premises, but Sublessor shall not
be required to relet for any use or purpose (other than that specified in the
prime Lease) which the Sublessor may reasonably consider injurious to the
premises, or to any tenant which Sublessor may reasonably consider
objectionable;
(b) relet all or part of the premises, alone or in
conjunction with other properties, or a term longer or shorter than the term of
this Sublease, upon any reasonable terms and conditions, including the granting
of some rent-free occupancy or other rent concession.
6.5 Sublessor may (but shall be under no obligation to) procure
any insurance, pay any rentals, taxes or liens, make any repairs, pay any sums
required to be paid, and to do and perform such other acts as may be required of
Sublessee hereunder, and any payments so made shall bear interest at the rate of
12 percent per annum from the time of such payment until repaid.
6.6 No expiration or termination of this Sublease, repossession of
the premises or any part thereof, or resubletting
4 - SUBLEASE AGREEMENT (COTTAGE GROVE)
<PAGE>
of the premises or any part thereof, whether pursuant to the terms of this
Sublease or any operation of law or otherwise, shall relieve Sublessee of its
liabilities and obligations under this Sublease, all of which shall survive such
expiration, termination, repossession or resubletting.
7. Damages. Whether or not an election is made to terminate the
Sublease, Sublessor shall be entitled to recover immediately without waiting
until the due date of any future rent, or until the date is fixed for expiration
of the Sublease term, the same amount of damages as set forth in the prime Lease
as though the Sublessor were the prime lessor and the Sublessee were the prime
lessee.
8. Rights Cumulative, Nonwaiver. No right or remedy herein conferred
upon or reserved to Sublessor is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be cumulative and in addition
to any other right or remedy given hereunder or now or hereafter existing at law
or in equity or by statute. The failure of Sublessor to insist at any time upon
the strict performance of any covenant or agreement or to exercise any option,
right, power or remedy contained in this Sublease shall not be construed as a
waiver or relinquishment thereof for the future. No waiver by Sublessor of any
provision of this Sublease shall be deemed to have been made whether due to the
receipt of rent or otherwise, unless expressed in writing and signed by
Sublessor.
5 - SUBLEASE AGREEMENT (COTTAGE GROVE)
<PAGE>
9. Assignment and Subletting. Sublessee acknowledges that except as
provided herein, the provisions for extension, options and assignment and
subletting in the prime Lease are applicable to the prime Lessor and Sublessor
only. Sublessee will not assign this Sublease or sublet the premises without the
prior written consent of Sublessor.which will not be unreasonable withheld. A
direct or indirect transfer of ownership and control of a majority of the voting
stock of Sublessee, by whatever means, shall be deemed an assignment of this
Sublease for the purpose of this paragraph.
10. Covenants, Representations and Warranties.
10.1 Sublessee agrees that as long as this Sublease remains in
effect, should Sublessee ever desire to sell the store operated on the premises,
it shall give Sublessor the first opportunity to purchase the same at its fair
market value; provided, however, if Sublessor does not elect to purchase the
store for its fair market value as agreeable to Sublessee within sixty (60) days
after receipt of written notice of Sublessee's intent to sell, Sublessee may
thereafter sell the store to anyone upon such terms and conditions as are
acceptable to Sublessee. The foregoing provisions do not apply to transfers of
assets or interests by sale, gift or as a result of death to the lawful issue of
the owners of Sublessee or transfers of assets to a corporation or partnership
or transfers of a controlling interest to a trust, as long as such corporation,
partnership or trust is controlled by the transferor and such transferee agrees
that it
6 - SUBLEASE AGREEMENT (COTTAGE GROVE)
<PAGE>
holds such assets or controlling interest subject to the restrictions named in
this section.
10.2 Sublessee agrees that throughout the term of this Sublease
and any extensions or renewals thereof, except as hereinafter provided, to
purchase from Sublessor not less than 25% of its retail sales of all goods and
merchandise required by it for resale on the premises to the extent that
Sublessor shall now or hereafter be able to supply such goods and merchandise to
Sublessee, and Sublessor will supply all of Sublessee's requirements at such
prices and on such terms as are reasonably comparable to those offered by
Sublessor to other purchasers from Sublessor, carrying on businesses similar to
that of the Sublessee in Lane County, Oregon. If, at any time, Sublessee
contends that Sublessor is not able to supply particular goods or merchandise
customarily stocked by retail supermarkets in Lane County, Oregon, or that terms
offered by Sublessor are not reasonably comparable to those offered by Sublessor
to other such purchasers, the Sublessee shall so advise Sublessor in writing,
specifying such contention with particularity. If, within 30 days after the
receipt of such notice, Sublessor does not offer to supply goods or merchandise
so specified or does not advise Sublessee that the terms and conditions offered
are reasonably comparable to those offered to such other purchasers, Sublessee
shall be free to secure such specified goods and merchandise from any other
source which it desires. If Sublessor asserts that it is offering reasonably
7 - SUBLEASE AGREEMENT (COTTAGE GROVE)
<PAGE>
comparable terms and prices and Sublessee nonetheless purchases from another
source, such purchase shall be a default under this Section.
10.3 Sublessee represents and warrants that there are no brokers,
finders or other persons entitled to any fee, commission or other compensation
in connection with this Sublease, and agrees to hold Sublessor harmless from any
claims for such fees, commissions and/or compensation.
10.4 Sublessee hereby represents and warrants to Sublessor that
the financial statements, appraisals and other documents submitted to Sublessor
in connection herewith or pursuant hereto are and shall be true, correct,
complete and accurate in every respect and said financial statements fairly and
accurately present the assets, liabilities, financial condition and results of
operations reflected herein.
11. Attorney's Fees. In the event of the institution of any suit or
----------------
action to terminate this Sublease, or to enforce the terms or provisions hereto,
the prevailing party shall recover and the losing party hereby agrees to pay, in
addition to the costs and disbursements provided by statute, reasonable
attorney's fees in such proceedings or on any appeal from any judgment or decree
entered herein.
12. Notices. Any notice or demand required or permitted to be given
-------
under this Sublease shall be deemed to have been properly given when, and only
when, the same is in writing and either personally delivered or by mail if it
has been deposited
8 - SUBLEASE AGREEMENT (COTTAGE GROVE)
<PAGE>
in the United States Mail, with postage prepaid, to be forwarded by registered
or certified mail and addressed to the party to be notified at the address
appearing below its signature. Such addresses may be changed from time to time
by notice as above provided.
IN WITNESS WHEREOF, the parties have executed the foregoing Sublease
Agreement the day and year first above written, but retroactively effective as
of February 1, 1989.
SUBLESSOR: United Grocers, Inc.
an Oregon corporation
By [illegible]
----------------------------------
6433 S.E. Lake Road
P. 0. Box 22187
Portland OR 97222
SUBLESSEE: Wright's Foodliner, Inc.
an Oregon corporation
By /s/ Richard L. Wright, President
--------------------------------
Richard L. Wright, President
4223 Main Street
Springfield, OR 97477
The undersigned, who together own all of the issued and outstanding common stock
of the Sublessee, guarantee performance of all provisions of this Sublease by
the Sublessee.
- ------------------------------------ ------------------------------------
/s/ Richard L. Wright, /s/ Marsha A. Wright, individually
individually, Grantor Grantor
9 - SUBLEASE AGREEMENT (COTTAGE GROVE)
EX-10.H3
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE AGREEMENT is entered into this 1st day of February, 1994,
by and between UNITED RESOURCES, INC., an Oregon corporation ("Sublessor") and
R.A.F. LIMITED LIABILITY COMPANY, an Oregon limited liability company
("Sublessee").
RECITALS:
A. Sublessor has entered into a Sublease for a term commencing October
15, 1991, and expiring August 1, 2011, with United Grocers, Inc. ("Lessor"), for
a supermarket located in the Heritage Plaza, Albany, Oregon, a copy of which is
attached hereto, marked as Exhibit "A," and by this reference incorporated
herein, as fully as if its terms and conditions were herein set forth.
B. Sublessee desires to sublet the premises commencing on February 2,
1994, and expiring August 1, 2011, and Sublessor is willing to sublease the
premises in accordance with the terms and conditions contained herein.
NOW, THEREFORE, IT IS HEREBY AGREED as follows:
1. SUBLEASE TERMS AND OPTIONS. Sublessor hereby sublets unto Sublessee
those premises described in Exhibit "A," for the whole term remaining as
described therein.
1.1 Provided the Sublessee has performed all of its obligations to
be performed under this Sublease and is not in default thereunder and further
provided the Sublessee (R.A.F.)
Page 1--SUBLEASE AGREEMENT 01/31/94
<PAGE>
has extended its duration by amending its operating agreement to extend its
duration beyond August 1, 2011, to a date through the renewal term, and provided
the Sublessor has exercised its option to extend its Sublease, then in that
event, the Sublessee may exercise the renewal option contained in Exhibit A. The
rental rate during such renewal term shall be in an amount equal to that
determined under the master lease.
In the event Sublessor exercises it option to renew, it shall give
Sublessee written notice of said exercise, within five days from the date of
exercise.
2. RENTAL. Sublessee covenants and agrees to pay the rental for the
whole of the term, and to perform all affirmative covenants including, without
limitation, those pertaining to taxes, assessments, insurance, and all of the
covenants and obligations to be performed by Sublessor as Lessee, as set forth
in Exhibit "A," and to make such payments and provide such performance when due
by the terms of the Lease and any amendments thereto. Basic rental will be paid
in accordance with the Schedule attached hereto, marked as Schedule "A-1," and
by this reference incorporated herein. To the extent the basic rent in Schedule
"A-1" is less than the basic rental in the prime Lease, Sublessor agrees to
indemnify and hold Sublessee harmless from the obligation to pay the same.
3. DEPOSITS. Sublessee shall, upon execution hereof, pay any and all
rentals, or security deposits, as required pursuant to the terms and conditions
of Exhibit "A," prorated as of
Page 2--SUBLEASE AGREEMENT 01/31/94
<PAGE>
February 2, 1994.
4. INDEMNITY AND HOLD HARMLESS. Sublessee shall be bound by the same
responsibilities, rights, privileges and duties as Sublessor, as enumerated in
Exhibit "A" except as otherwise provided herein, and covenants and agrees to
fully indemnify and hold Sublessor harmless from any and all responsibility
and/or liability which Sublessor may incur by virtue of Exhibit "A," and/or
Sublessee's occupancy of the premises. Furthermore, Sublessee shall be bound by
any subsequent amendment, revision, supplement, or addition to the prime Lease
between Sublessor and the prime Lessor with Sublessee's prior written consent,
and to keep the Sublessor indemnified against all actions, claims and demands
whatsoever in respect to said Exhibit "A," and Sublessee's use of the demised
premises.
5. DEFAULT. The following shall constitute a default under this
Sublease:
5.1 Any failure by Sublessee to pay the rent when due, or any
failure by Sublessee to perform any other obligation contained in this Sublease,
or to pay any other amount due under the Lease or to perform any other
obligation of Sublessor under the Lease when due which would constitute a
default under the Lease and which continues for the cure period provided with
respect thereto in the Lease;
5.2 If any warranty, representation or statement made or furnished
to Sublessor by or on behalf of the Sublessee is false in any material respect
when made or furnished;
Page 3--SUBLEASE AGREEMENT 01/31/94
<PAGE>
5.3 If Sublessee makes an assignment for the benefit of its
creditors, or Sublessee is adjudicated a bankrupt or insolvent, or a trustee,
receiver or liquidator is appointed for all or part of Sublessee's assets, or a
petition or answer is filed by or against Sublessee seeking or acquiescing in
any reorganization, liquidation or similar relief under any federal, state or
local law relating to bankruptcy, insolvency or other relief for debtors.
6. REMEDIES. In the event of any default under this Sublease:
6.1 Sublessor may exercise any and all rights and remedies afforded
to the prime Lessor upon default under the Lease, and any and all other rights
and remedies Sublessor may have pursuant to this Sublease and the laws of the
state of Oregon.
6.2 If a default occurs, this Sublease may be terminated at the
option of the Sublessor by written notice to the Sublessee. The notice may be
given before, after or within the grace period for a default.
6.3 If the Sublease is terminated for any reason, Sublessee's
liability to Sublessor for damages shall survive such termination and Sublessor
may re-enter, take possession of the premises, and remove any persons or
property by legal action or by self-help with the use of reasonable force.
6.4 Following re-entry or abandonment, Sublessor may:
(a) make any suitable alterations or refurbish
Page 4--SUBLEASE AGREEMENT 01/31/94
<PAGE>
the premises, or both, or change the character or use of the premises, but
Sublessor shall not be required to relet for any use or purpose (other than that
specified in the prime Lease) which the Sublessor may reasonably consider
injurious to the premises, or to any tenant which Sublessor may reasonably
consider objectionable;
(b) relet all or part of the premises, alone or in conjunction
with other properties, for a term longer or shorter than the term of this
Sublease, upon any reasonable terms and conditions, including the granting of
some rent-free occupancy or other rent concession.
6.5 Sublessor may (but shall be under no obligation to) procure any
insurance, pay any rentals, taxes or liens, make any repairs, pay any sums
required to be paid, and to do and perform such other acts as may be required of
Sublessee hereunder, and any payments so made shall bear interest at the rate of
ten percent (10%) per annum from the time of such payment until repaid.
6.6 No expiration or termination of this Sublease, repossession of
the premises or any part thereof, or resubletting of the premises or any part
thereof, whether pursuant to the terms of this Sublease or any operation of law
or otherwise, shall relieve Sublessee of its liabilities and obligations under
this Sublease, all of which shall survive such expiration, termination,
repossession or subletting.
7. DAMAGES. Whether or not an election is made to termin-
Page 5--SUBLEASE AGREEMENT 01/31/94
<PAGE>
ate the Sublease, Sublessor shall be entitled to recover immediately without
waiting until the due date of any future rent, or until the date is fixed for
expiration of the Sublease term, the same amount of damages as set forth in the
prime Lease as though the Sublessor were the prime Lessor and the Sublessee were
the prime Lessee.
8. RIGHTS CUMULATIVE; NONWAIVER. No right or remedy herein conferred
upon or reserved to Sublessor is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be cumulative and in addition
to any other right or remedy given hereunder or now or hereafter existing at law
or in equity or by statute. The failure of Sublessor to insist at any time upon
the strict performance of any covenant or agreement or to exercise any option,
right, power or remedy contained in this Sublease shall not be construed as a
waiver or relinquishment thereof for the future. No waiver by Sublessor of any
provision of this Sublease shall be deemed to have been made whether due to the
receipt of rent or otherwise, unless expressed in writing and signed by
Sublessor.
9. ASSIGNMENT AND SUBLETTING. Sublessee acknowledges that except as
provided herein, the provisions for extension, options and assignment and
subletting in the prime Lease are applicable to the prime Lessor and Sublessor
only. Sublessee will not assign this Sublease or sublet the premises without the
prior written consent of Sublessor which will not be unreasonably withheld. A
direct or indirect transfer of ownership and control of
Page 6--SUBLEASE AGREEMENT 01/31/94
<PAGE>
a majority of the voting stock of Sublessee, by whatever means, shall be deemed
an assignment of this Sublease for the purpose of this paragraph.
10. COVENANTS, REPRESENTATIONS AND WARRANTIES.
10.1 Sublessee agrees that as long as this Sublease remains in
effect, should Sublessee ever desire to sell the store operated on the premises,
except for a sale unto Wright's Foodliner, Inc., it shall give Sublessor the
first opportunity to purchase the same at its fair market value; provided,
however, if Sublessor does not elect to purchase the store for its fair market
value as agreeable to Sublessee within 60 days after receipt of written notice
of Sublessee's intent to sell, Sublessee may thereafter sell the store to anyone
upon such terms and conditions as are acceptable to Sublessee. The foregoing
provisions do not apply to transfers of assets or interests by sale, gift or as
a result of death to the lawful issue of the owners of Sublessee, or transfers
of assets to a corporation or partnership, or transfers of a controlling
interest to a trust, as long as such corporation, partnership or trust is
controlled by the transferor and such transferee agrees that it holds such
assets or controlling interest subject to the restrictions named in this
section.
10.2 Sublessee agrees that throughout the term of this Sublease and
any extensions or renewals thereof, except as hereinafter provided, to purchase
from United Grocers, Inc., not less than 45 percent of its retail sales of all
goods and merchandise
Page 7--SUBLEASE AGREEMENT 01/31/94
<PAGE>
required by it for resale on the premises to the extent that United Grocers,
Inc., shall now or hereafter be able to supply such goods and merchandise to
Sublessee, and United Grocers, Inc., will supply all of Sublessee's requirements
at such prices and on such terms as are reasonably comparable to those offered
by United Grocers, Inc., to other purchasers from United Grocers, Inc., carrying
on businesses similar to that of the Sublessee in Linn County, Oregon. If, at
any time, Sublessee contends that United Grocers, Inc., is not able to supply
particular goods or merchandise customarily stocked by retail supermarkets in
Linn County, Oregon, or that terms offered by United Grocers, Inc., are not
reasonably comparable to those offered by United Grocers, Inc., to other such
purchasers, the Sublessee shall so advise United Grocers, Inc., in writing,
specifying such contention with particularity. If, within 30 days after the
receipt of such notice, United Grocers, Inc., does not offer to supply goods or
merchandise so specified or does not advise Sublessee that the terms and
conditions offered are reasonably comparable to those offered to such other
purchasers, Sublessee shall be free to secure such specified goods and
merchandise from any other source it desires. If United Grocers, Inc., asserts
that it is offering reasonably comparable terms and prices and Sublessee
nonetheless purchases from another source, such purchase shall be a default
under this section.
10.3 Sublessee represents and warrants that there are no brokers,
finders or other persons entitled to any fee, commis-
Page 8--SUBLEASE AGREEMENT 01/31/94
<PAGE>
sion or other compensation in connection with this Sublease, and agrees to hold
Sublessor harmless from any claims for such fees, commissions and/or
compensation.
10.4 Sublessee hereby represents and warrants to Sublessor that the
financial statements, appraisals and other documents submitted to Sublessor in
connection herewith or pursuant hereto are and shall be true, correct, complete
and accurate in every respect and said financial statements fairly and
accurately present the assets, liabilities, financial condition and results of
operations reflected herein.
10.5 Sublessor represents and warrants that it has performed all of
the obligations which the Lessee is required to perform under the terms of the
Lease to which this Sublease pertains, as of the date of this Sublease, and that
the Lease is in full force and effect and not in default in any respect.
Further, Sublessor represents that there is nothing as a result of which the
passage of time or the giving of notice would constitute a default for actions
which have already occurred prior to the date of this Sublease.
11. ATTORNEY'S FEES. In the event of the institution of any suit or
action to terminate this Sublease, or to enforce the terms or provisions hereto,
the prevailing party shall recover and the losing party hereby agrees to pay, in
addition to the costs and disbursements provided by statute, reasonable
attorney's fees in such proceedings or on any appeal from any judgment or decree
entered herein.
Page 9--SUBLEASE AGREEMENT 01/31/94
<PAGE>
12. NOTICES. Any notice or demand required or permitted to be given
under this Sublease shall be deemed to have been properly given when, and only
when, the same is in writing and either personally delivered or by mail if it
has been deposited in the United States mail, with postage prepaid, to be
forwarded by registered or certified mail and addressed to the party to be
notified at the address appearing below its signature. Such addresses may be
changed from time to time by notice as above provided.
IN WITNESS WHEREOF, the parties have executed the foregoing Sublease
the day and year first herein written.
Sublessor: United Resources, Inc.
By [illegible]
Title: President
Sublessee: R.A.F. Limited Liability Company
By [illegible]
Title: Controller
UNITED GROCERS, INC. (LESSEE)
CONSENTS TO THE ASSIGNMENT AND
CONSENT TO MODIFICATION IN THE
PERCENTAGE OF PURCHASE REQUIRE--
MENTS FROM 58% TO 45%.
United Grocers, Inc.
By [illegible]
Title: President
Page 10--SUBLEASE AGREEMENT 01/31/94
<PAGE>
SCHEDULE "A-l"
Sublessee, notwithstanding the terms and conditions of the prime Lease
(paragraph ), shall, for the balance of the initial term be:
----
At such time as Sublessee's average weekly gross sales are below
$200,000, the basic rent shall be zero. Once the average weekly gross sales
reach $200,000, the annual basic rent will be $12,000, subject to annual
adjustment each year of the term. The rent will increase or decrease by $1,000
per month whenever the average weekly gross sales increase or decrease by
$10,000, as shown on the following schedule:
Average Weekly Gross
Sales Basic Annual Rent
-------------------- -----------------
up to $200,000 - 0 -
$200,000 $ 12,000
$210,000 $ 24,000
$220,000 $ 36,000
$230,000 $ 48,000
$240,000 $ 60,000
$250,000 $ 72,000
$260,000 $ 84,000
$270,000 $ 96,000
$280,000 $108,000
$290,000 $120,000
$300,000 $132,000
etc. etc.
Average weekly gross sales shall be determined on a 12-month basis, commencing
on the date the market opens, calculated retroactively within 60 days after the
end of each 12-month period. Basic rent for the following 12-month period will
be based on the amount finally determined for the prior 12-month period, subject
to adjustment at year end. Real property taxes, maintenance and repair of
premises, insurance, and common area maintenance expenses will be paid by
Sublessee.
SCHEDULE "A-1"
AGREEMENT FOR PURCHASE AND SALE
AND ESCROW INSTRUCTIONS
This Agreement of Purchase and Sale ("Agreement") is made this 17th day of
September, 1997, by and between United Grocers, an Oregon corporation
("Seller"), and C&K Market, Inc., an Oregon Corporation ("Buyer"), with
reference to the following facts:
A. Seller is the fee owner of that certain parcel of real property which is
improved with a building and other facilities, fixtures, paving and surfacing
thereon or associated therewith (collectively, the "Real Property"). The Real
Property is located at 1139 S. Cloverdale Blvd., in the town of Cloverdale in
the County of Sonoma in the State of California and is more particularly
described in Exhibit A attached hereto and forming a part hereof.
B. Seller desires to sell and Purchaser desires to purchase the Real
Property, and all appurtenant easements and rights, and the Personal Property
(hereinafter defined), on the terms, covenants and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the purchase price set forth herein,
and the other terms, covenants and conditions set forth herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is mutually covenanted and agreed by Seller and Purchaser as
follows:
1. Purchase and Sale. On the Closing Date set forth in Paragraph 3(b),
Seller shall convey, or cause to be conveyed, to Purchaser or to Purchaser's
nominee or assignee, and Purchaser or its assignee shall purchase from Seller,
all of the following:
(i) The Real Property, together with all appurtenant easements and
rights, subject to such easements, reservations and agreements as may have
been approved by Purchaser in accordance with Paragraph 4(a);
(ii) The "Personal Property" consisting of (i) all personal property
attached or appurtenant to the Real Property, including without limitation
appliances and HVAC equipment, all as set forth in Exhibit B attached
hereto and
PAGE 1 - AGREEMENT FOR PURCHASE AND SALE AND ESCROW INSTRUCTIONS
<PAGE>
provided in this Agreement and the same shall be returned to Purchaser.
(b) Subject to the provisions of Paragraph 12 below, Purchaser shall pay to
Seller through Escrow Agent at Closing in immediately available funds (i) the
amount due under the Earnest Money Note, and (ii) the balance of the Purchase
Price, i.e., the sum of Five Million Three Hundred Seventy-Five Thousand Dollars
($5,375,000), plus (or minus) the net amount of all costs, expenses, adjustments
and prorations to be debited (or credited) to Purchaser pursuant to this
Agreement.
(c) All payments required to be made under this Agreement shall be made in
U.S. funds.
(d) Allocation of the Purchase Price between the Real Property, the
Personal Property and the Intangibles shall be as set forth in Exhibit C
attached hereto and forming a part hereof.
3. Escrow.
(a) Seller and Purchaser have opened an escrow (the "Escrow") with First
American Title Insurance Company of Oregon, 200 S.W. Market Street, Suite 1776,
Portland, Oregon 97201-5786 ("Escrow Agent") through which the purchase and sale
of the Property shall be consummated. A fully executed copy of this Agreement
shall be deposited with Escrow Agent, duly executed by Seller, Purchaser and
Escrow Agent, and Escrow Agent shall be hereby authorized and instructed to
deliver pursuant to the terms of this Agreement the documents and monies to be
deposited into the Escrow. Escrow Agent may attach to this Agreement as Exhibit
D Escrow Agent's standard form escrow agreement which shall, to the extent that
the same is consistent with the terms hereof, inure to the benefit of Escrow
Agent.
(b) Escrow shall close as soon as practicable after the date hereof but in
no event later than October 1, 1997. If Closing fails to occur for any reason,
including but not limited to Purchaser's disapproval of any of the information
referred to in Paragraphs 4 or 5, the costs relating to the issuance of the
Title Report and Escrow Agent's cancellation fees, if any, shall be paid by
Purchaser. Notwithstanding the foregoing, if Closing fails to occur because of
the failure of Seller to comply with its
PAGE 3 - AGREEMENT FOR PURCHASE AND SALE AND ESCROW INSTRUCTIONS
<PAGE>
obligations hereunder, in addition to other remedies available to Purchaser at
law or equity, said costs shall be borne by Seller. In any event, each party
shall bear its own incidental costs and expenses, including but not limited to
legal and accounting fees and travel expenses. The term "Closing Date" or
"Closing" as used herein shall be deemed to be the date upon which the
respective Conditions Precedent to Purchaser's Obligation to Close Escrow (set
forth in Paragraph 8 below) and the Conditions Precedent to Seller's Obligation
to Close Escrow (set forth in Paragraph 9 below) have been satisfied, the Grant
Deed (defined herein) is recorded in the office of the County Recorder of Sonoma
County, Oregon, and the net proceeds of sale are held by Escrow Agent for
disbursal to Seller.
4. Title Matters.
As soon practicable after the date hereof, but in no event later than five
(5) days after the date hereof, Escrow Agent shall have delivered or shall cause
to be delivered to Purchaser an ALTA Preliminary Title Report, issued by First
American Title Insurance Company of Oregon ("Title Company"), covering the Real
Property, which may state that it is subject to any matter which would be
disclosed by a survey (the "Title Report"). Purchaser shall have the right to
request copies of all documents evidencing matters of record shown in the Title
Report as exceptions to title to the Property, and may object to any exceptions
contained in the Title Report by giving notice to Seller within the Approval
Period. If Purchaser disapproves of any such exceptions, Seller shall have the
option until 5:00 p.m. on the day which is three (3) days after the expiration
of the Approval Period to elect, in its sole and absolute discretion, to (i)
cure or remove any one or more such exceptions or (ii) terminate this Agreement,
which election must made in writing delivered to Purchaser. If Seller elects to
cure or remove any exception, it shall have until one (1) day prior to Closing
to cure or remove such exception(s). For two (2) business days following
Seller's election to terminate this Agreement, Purchaser shall have the right to
waive its disapproval of any one or more of the exceptions that Seller has not
elected to cure or remove and thereby rescind Seller's election to terminate and
agree to take title to the Property subject to such exceptions. Notwithstanding
any of the foregoing, Seller shall remove or cause to be removed all monetary
liens of record (except only for the liens of the taxes and assessments to be
prorated under
PAGE 4 - AGREEMENT FOR PURCHASE AND SALE AND ESCROW INSTRUCTIONS
<PAGE>
Paragraph 11(a)(i)), at its sole cost and expense and, if necessary, Seller
shall deliver to Escrow Agent prior to Closing additional funds necessary to
clear title to the Property of such liens. Any exceptions to title not
disapproved by Purchaser, or for which disapproval has been waived by Purchaser,
shall be referred to as "Permitted Exceptions" hereinafter.
5. Approval Period.
(a) Purchaser shall have twenty (20) days from the date hereof to inspect
and approve the condition of the Property (the "Approval Period").
(b) Purchaser shall have until the expiration of the Approval Period in
which to approve or disapprove of the condition of the Property, or to any
exceptions to title to the Property shown on the Title Report. Purchaser's
disapproval must be in writing delivered to Seller prior to the expiration of
the Approval Period. Failure to deliver such written disapproval shall be deemed
Purchaser's approval of the said matters. If Purchaser disapproves any of said
matters with the Approval Period, it shall have the right to terminate this
Agreement by written notice to Seller, in which case the Escrow Payment shall be
returned to Purchaser.
6. Inspections and Approval by Purchaser.
(a) From and after the date hereof, Purchaser and its agents, employees and
contractors shall be afforded full access to the Property during normal business
hours for the purpose of making such investigations as Purchaser deems prudent
with respect to the physical condition of the Property. Seller shall cooperate
fully to assist Purchaser in completing such inspection. However, Purchaser
agrees to hold Seller harmless from and against any loss, cost, damage, claim or
expense suffered by Seller caused by Purchaser's investigations. Purchaser shall
restore the Property to its condition immediately prior to such investigations
if Closing fails to occur for any reason other than Seller's default.
(b) From and after the date hereof until Closing, Purchaser shall be
afforded full opportunity by Seller during normal business hours to examine all
books and records which relate to the Property, including any specifications and
any permits, reports and studies and similar information relating to the
Property or its
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<PAGE>
management, operation, maintenance or use (to the extent that they are in
Seller's possession). Purchaser shall have the reasonable right to make copies
of such books and records, and to conduct such review as Purchaser deems
prudent. Purchaser may in addition investigate all matters relating to the
zoning, and compliance with other applicable laws related to the use and
occupancy of the Property,
7. Operation of Property Pending Closing.
(a) Seller shall keep all insurance policies covering the Property in force
and in effect between the date of this Agreement and Closing.
(b) Seller shall have the right to renew or replace Service Contracts which
expire prior to Closing for any term provided that such Service Contracts are
terminable by Seller or its successors in interest upon not more than thirty
(30) days notice to the service provider.
(c) Seller shall manage the Property from the date hereof until Closing in
a first-class manner and shall perform all maintenance work and ordinary repairs
and pay all costs and expenses related thereto in the ordinary course of
business. From and after the date hereof, Seller shall not enter into any new
contracts or agreements for such work which will cost in excess of Five Thousand
Dollars ($5,000.00) without the prior written consent of Purchaser, which
consent shall not be unreasonably withheld. Seller shall comply with all of its
obligations imposed by law or by any other contract or agreement relating to the
operation and maintenance of the Property.
(d) Except for removing any disapproved exceptions to title, Seller shall
do nothing to affect title to the Property.
8. Conditions Precedent to Purchaser's Obligation to Close Escrow.
Purchaser's obligation to close this transaction shall be subject to, and
contingent upon satisfaction or waiver by Purchaser, in writing, of each of the
following conditions:
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(i) Purchaser shall have either affirmatively approved or shall have
been conclusively deemed to have approved those matters set forth in
paragraphs 4, 5 and 6 in respect to which Purchaser has, under the
provisions of this Agreement, a right of inspection and/or approval; or, in
the event Purchaser has delivered written objections to Seller in respect
to any such matters, if in the manner and within the time periods provided
in this Agreement therefor, Seller has agreed to remedy, and has remedied,
such objections prior to Closing or Purchaser has waived same in writing;
(ii) Seller shall have performed all of Seller's obligations under
this Agreement; and
(iv) The Title Company shall be ready, willing and able to issue the
Title Policy;
9. Conditions Precedent to Seller's Obligation to Close Escrow.
The obligation of Seller to consummate the transactions contemplated hereby
is subject to the following conditions, inserted for 8eller's sole benefit and
which may be waived solely by Seller only in writing at its sole option. Said
conditions are as follows:
(i) The representations and warranties of Purchaser contained in this
Agreement, or in any certificate or document signed by Purchaser pursuant
to the provisions hereof, shall be true on, and as of, Closing in all
material respects as though such representations and warranties were made
on, and as of, such date.
(ii) Purchaser shall have performed all of Purchaser's obligations
under this Agreement; and
(iii) The Title Company shall be ready, willing and able to issue the
Title Policy.
10. Closing Procedure.
(a) At least three (3) business days prior to the date of Closing,
Purchaser shall have delivered to Escrow Agent counterpart
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<PAGE>
executed originals of the following documents and the following sums of money
required to be delivered by Purchaser hereunder:
(i) If Purchaser assigns its rights as permitted hereunder, similar
evidence as appropriate of any such assignee or nominee, evidencing
authorization and approval of execution by Purchaser and of such assignee
of this Agreement and each of the acts of Purchaser and of such assignee
performed pursuant to the provisions hereof;
(ii) The Purchase Price in the manner set forth in Paragraph 2;
(iii) Such funds as may be necessary to comply with Purchaser's
obligations hereunder regarding prorations, costs and expenses.
(b) At least three (3) business days prior to the date of Closing, Seller
shall have delivered to Escrow Agent counterpart executed originals of the
following documents and the following sums of money required to be delivered by
Seller hereunder:
(i) A deed (the "Grant Deed"), duly executed and acknowledged by
Seller, and a separate declaration of documentary transfer tax in form
satisfactory to Escrow Agent,
(ii) A Bill of Sale executed by Seller in favor of Purchaser or its
nominee or assignee (the "Bill of Sale") covering the Personal Property;
(iii) A certified copy of resolutions of Seller authorizing the within
transaction;
(iv) Any information reasonably required to enable Purchaser to take
possession of the Property upon Closing. Seller agrees to deliver all keys
to the Property to Purchaser promptly upon Closing;
(c) Provided that Escrow Agent confirms to Purchaser on the day prior to
the Closing Date that, but for the delivery to it of the cash portion of the
Purchase Price, Escrow Agent is ready, willing and able to proceed to closing,
Purchaser shall deliver or cause to be delivered to Escrow Agent by noon,
Portland Oregon
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<PAGE>
time, on the Closing Date, the balance of the Purchase Price in the manner set
forth in Paragraph 2 and such funds as may be necessary to comply with
Purchaser's obligations hereunder regarding prorations, costs and expenses. Upon
delivery of said sums of money, Escrow Agent shall cause Title Company to cause
the Grant Deed to be recorded in the Official Records of Sonoma County,
California, and immediately to issue the Title Policy.
11. Prorations.
(a) All revenues, income, receivables, costs, property taxes, expenses and
payables of the Property shall be apportioned equitably between the parties as
of the Closing Date on the basis of a thirty (30) day month, and with respect to
the items enumerated below where a particular manner of apportionment is
provided, then apportionment of such item shall be made in a such manner. The
obligation to make apportionments shall survive the closing. Without limitation
the following items shall be so apportioned:
(i) Real Estate and personal property taxes and any special
assessments, taking into consideration discounts for the earliest permitted
payment, based upon the latest previous tax levies. Such items shall be
reapportioned between Seller and Purchaser if current tax rates differ from
the latest previous tax rates as soon as the same are known. Seller agrees
that, to the extent any additional taxes, assessments or levies are
imposed, assessed or levied against the Property, or any portion thereof,
the Seller or the Purchaser at any time subsequent to losing but with
reference to any period prior thereto, Seller shall promptly pay to
Purchaser an amount equal to such additional assessments or levies; and
(ii) Subject to the provisions of Paragraph 11(c) below, utility
charges levied against Seller or the Property, and Purchaser shall transfer
all such utility services to its name and account as of the Closing Date.
No insurance policies shall be assigned hereunder and accordingly there
shall be no proration of insurance premiums:
(b) The expenses of Closing shall be paid in the following manner:
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(i) Seller shall pay:
(A) The cost of the Title Policy;
(B) One-half (1/2) of any transfer tax imposed on the conveyance
of title to the Property to Purchaser; and
(C) One-half (1/2) of Escrow Agent's Escrow fee.
(ii) Purchaser shall pay:
(A) The recording fee for the Grant Deed;
(B) One-half (1/2) of any transfer tax imposed on the conveyance
of title to the Property to Purchaser; and
(C) Any sales taxes; and
(D) One-half (1/2) of Escrow Agent's Escrow fee.
All other Closing fees and expenses, including but not limited to the
parties' legal expenses, accounting and consulting fees, and other incidental
expenses in connection with this transaction shall be borne by the party
incurring same.
(c) Seller shall make reasonable efforts to cause all utilities furnished
to the Property, including but not limited to electricity, gas, water and sewer,
to be read the day prior to the Closing Date, and Seller shall be responsible to
pay all costs and charges therefor for the period prior to the Closing Date, and
Purchaser shall be responsible to pay all such costs and charges from and after
the Closing Date.
12. Representations, Warranties and Covenants of Seller.
(a) Seller hereby makes the following representations, warranties and
covenants, each of which is stated by Seller as being true and correct on the
date hereof;
(i) Seller has full legal power and authority to enter into and
perform this Agreement in accordance with its terms, and this Agreement
constitutes the valid and binding obligation of Seller, enforceable in
accordance with its
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<PAGE>
terms, except as such enforcement may be affected by bankruptcy, insolvency
and other laws affecting the rights of creditors generally. The execution,
delivery and performance of this Agreement and all documents in connection
therewith are not in contravention of or in conflict with any deed of
trust, agreement or undertaking to which Seller is a party or by which
Seller or any of its property, including the Property, may be bound or
affected. The execution and delivery of this Agreement and the performance
by Seller of its obligations hereunder require no further action or
approval in order to constitute this Agreement as a binding and enforceable
obligation of Seller, and all such actions have been duly taken by Seller;
(ii) Seller will deliver good an marketable title to the Property at
Closing free and clear of all liens, claims and encumbrances except the
Permitted Encumbrances;
(iii) Seller is the fee owner of the Property and has good and
marketable title thereto, free and clear of all liens, claims and
encumbrances, except the Permitted Encumbrances;
(iv) To Seller's knowledge, the Property is being operated by Seller
in full compliance with all subdivision, building, and zoning laws, and
Seller has not received any notice of violation of law or municipal
ordinance, order or requirement having jurisdiction or affecting the
Property at the date hereof;
(v) There is presently no claim, action, litigation, arbitration or
other proceeding pending against Seller relating to the Property or the
transactions contemplated hereby and, to Seller's knowledge, there is
presently no claim, governmental investigation or threatened litigation or
arbitration proceedings to which Seller is a party relating to the
Property;
(vi) There are no pending condemnation or annexation proceedings
affecting the Property or any part thereof, or to Seller's knowledge any
intended public improvements which will result in any charge being levied
or assessed against the Property or in the creation of any lien upon the
Property;
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(vii) Seller does not have any liability for any taxes, or any
interest or penalty in respect thereof, of any nature that may be assessed
against Purchaser or become a lien against the Property;
(viii) To Seller's knowledge, there are no facts or conditions which
will result in the termination of the present access from the Property to
any utility services or to existing highways and roads;
(x) The representations and warranties contained in sub-paragraphs
a(i)-a(viii) of this Paragraph 12 are true and correct on the date hereof
in all material respects, and no representation or warranty made by Seller
or in any statement or exhibit required to be furnished hereunder omits or
will omit a material fact necessary to make the statement thereon not
misleading.
(b) If Seller becomes aware of any fact or circumstance which would change
a representation or warranty, then Seller will immediately give notice of such
changed fact or circumstance to Purchaser. Seller shall issue a certificate at
the closing stating that all of the representations and warranties contained in
this Paragraph 12 are true and correct as of said date, except as otherwise set
forth herein.
(c) Upon notification of any fact which would change any of the
representations or warranties contained herein, other than a fact or
circumstance occurring after the date of this Agreement, Purchaser shall have
the option of (i) waiving the breach that would be caused by such change, (ii)
agreeing with Seller to adjust the terms hereof to compensate Purchaser for such
change (although Seller may make such agreement in its sole and absolute
discretion), or (iii) to terminate this Agreement.
13. Representations and Warranties of Purchaser.
Purchaser hereby makes the following representations and warranties, each
of which is stated by Purchaser as being true and correct on the date hereof:
(a) Purchaser is a corporation duly incorporated and validly existing under
the laws of the state of Oregon, and has all
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<PAGE>
requisite corporate power and authority to enter into this Agreement and perform
its obligations hereunder. Purchaser has all requisite corporate power and
authority and all material licenses, permits, and authorizations necessary to
own and operate its properties, to carry on its business as now conducted.
(b) The execution, delivery, and performance of this Agreement and all
other agreements contemplated hereby to which Purchaser is a party have been
duly authorized by Purchaser. This Agreement and each other agreement
contemplated hereby, when executed and delivered by the parties thereto, will
constitute the legal, valid, and binding obligation of Purchaser, enforceable
against Purchaser in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, and similar statutes affecting
creditors' rights generally and judicial limits on equitable remedies.
(c) The execution and delivery by Purchaser of this Agreement and all other
agreements contemplated hereby to which Purchaser is a party and the fulfillment
of and compliance with the respective terms hereof by Purchaser, do not and will
not (i) conflict with or result in a breach of the terms, conditions or
provisions of; (ii) constitute a default under; (iii) give any third party the
right to accelerate any obligation under; (iv) result in a violation of; or (v)
require any authorization, consent, approval, exemption, or other action by or
notice to any court or administrative or governmental body pursuant to, the
Articles of Incorporation or Bylaws of Purchaser or any law, statute, rule, or
regulation to which Purchaser is subject, or any agreement, instrument, order,
judgment, or decree to which Purchaser is subject;
(d) Purchaser is not required to submit any notice, report, or other filing
with any governmental or regulatory authority in connection with the execution
and delivery by Purchaser of this Agreement and the consummation of the
transactions contemplated hereby; and (ii) no consent, approval, or
authorization of any governmental or regulatory authority is required to be
obtained by Purchaser or any affiliate in connection with Purchaser's execution,
delivery, and performance of this Agreement and the consummation of the
transactions contemplated hereby.
(e) There are no actions, suits, proceedings, or governmental
investigations or inquiries pending or, to the knowledge of
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<PAGE>
Purchaser, threatened against Purchaser or its properties, assets, operations,
or businesses that might delay, prevent, or hinder the consummation of the
transactions contemplated by this Agreement.
14. General Covenants and Agreements of Purchaser and Seller.
14.1 Delivery of Possession. Possession of the Property shall be
delivered to Purchaser upon Closing.
14.2 Damage to or Destruction of Property Prior to Closing; Risk of
Loss. In the event the Property shall sustain damage caused by fire or other
casualty prior to Closing, the Closing shall take place as provided herein
without abatement of the Purchase Price, and there shall be assigned to
Purchaser at Closing all of Seller's interest in and to the insurance proceeds
which may be payable to Seller on account of such occurrence, and Seller shall
have no obligation of repair or replacement. If an uninsured loss or casualty
occurs, Purchaser shall receive a credit at Closing against the Purchase Price
in an amount equal to the cost of repairing or restoring the loss or casualty in
question.
14.3 Condemnation of Property Prior to Closing. In the event that the
Property or any part thereof becomes the subject of a condemnation proceeding
prior to Closing, Seller agrees to immediately advise Purchaser thereof. In the
event of such condemnation, Purchaser shall have the option of (i) taking title
in accordance with the terms and conditions of this Agreement and negotiate with
the condemning authority for the condemnation award and receive the benefits
thereof without affecting the Purchase Price; or (ii) terminating this Agreement
and declaring its obligations hereunder null and void and of no further effect,
in which event all sums theretofore paid to Seller or to Escrow Agent hereunder
shall be returned to Purchaser as set forth herein. Notice of the exercise of
such option hereunder shall be in writing, delivered to Se1ler at the address
set forth in Paragraph 15.6. (or such other address as Seller may have
theretofore designated in writing) at least two (2) days prior to Closing.
14.4 Broker's Commissions. Seller and Purchaser each warrant that
neither Seller nor Purchaser, respectively, negotiated with respect to the
purchase of the Property through any broker, agent, finder, affiliate or other
third party, or incurred any
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<PAGE>
liability, contingent or otherwise, for brokerage or finder's fees or agent's
commissions or other like payments in connection with this Agreement, or the
transactions contemplated hereby, and each hereby agrees to hold harmless and
indemnify the other from any and all claims, demands, causes of action or
damages resulting therefrom.
14.5 Further Assurances Prior to Closing. Seller and Purchaser shall,
prior to Closing, execute any and all documents and perform any and all acts
reasonably necessary, incidental or appropriate to effectuate the purchase and
sale and the transactions contemplated in this Agreement.
14.6 Failure to Close. Except as otherwise provided in this Agreement,
in the event Closing does not occur for any reason whatsoever, and after the
parties shall have conformed to the requirements set forth in this Agreement,
the parties shall execute and deliver mutual general releases with respect to
any claims in connection with the transactions contemplated by this Agreement
and evidencing the termination of this Agreement.
14.7 Time of Essence. Time shall be of the essence with respect to the
obligations of the parties hereunder.
[ 14.8 Assignability. Purchaser may assign all of its rights and duties
hereunder to any entity in which Purchaser is, directly or indirectly, a general
partner, without Seller's consent, or nominate any entity to take title to the
Property, upon the giving of written notice to Seller, which notice may not be
given less than three (3) days prior to Closing. Any other assignment may not be
made without Seller's prior written consent, which shall not be unreasonably
withheld. Any such assignment is conditional upon such assignee agreeing to be
bound by all consents and approvals theretofore given or deemed to have been
given by Purchaser, and such assignment or nomination shall not relieve
Purchaser of its obligations hereunder.]
15. Miscellaneous Provisions.
15.1 Successors and Assigns. Subject to the provisions hereof, the
terms and provisions hereof shall be binding upon and inure to the benefit of
the successors and assigns of the parties hereto.
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15.2 Entire Agreement. This Agreement is the entire agreement between
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements between the parties hereto with respect thereto. No claim of
waiver, modification, consent or acquiescence with respect to any of the
provisions of this Agreement shall be made against either party, except on the
basis of a written instrument executed by or on behalf of such party.
15.3 Governing Law. This Agreement is to be governed by and construed
in accordance with the laws of the State of California.
15.4 Paragraph Headinqs; References. The headings of the several
paragraphs of this Agreement are inserted solely for convenience of reference
and are not a part of and are not intended to govern, limit or aid in the
construction of any term or provision hereof. References in this Agreement to a
numbered paragraph are to the paragraphs of this Agreement, and the terms
"herein," "hereof" and like terms are references to the Agreement as a whole.
15.5 Attorneys' Fees. If either Seller or Purchaser obtain legal
counsel or bring an action against the other by reason of the breach of any
covenant, provision or condition hereof, or otherwise arising out of this
Agreement, the unsuccessful party shall pay to the prevailing party reasonable
attorneys' fees, which shall be payable whether or not any action is prosecuted
to judgment. The term "prevailing party" shall include, without limitation, a
party who obtains legal counsel or brings an action against the other by reason
of the other's breach or default and obtains substantially the relief sought,
whether by compromise, settlement or judgment.
15.6 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered, or deposited in the U.S.
Mail, first class postage prepaid and addressed, to the following addresses:
Seller: United Grocers, Inc.
Post Office Box 22187
Portland, OR 97269-2187
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first hereinabove written.
Seller: United Grocers, Inc.,
an Oregon corporation
By: /s/ George P. Fleming
Name:
Title: Asst. Secty
Purchaser: C&K Market, Inc.,
an Oregon Corporation
By: /s/ Douglas A. Nidiffer
Name: Douglas A. Nidiffer
Title: President
AGREED AND ACCEPTED:
Escrow Agent: First American Title Insurance
Company of Oregon
By: ------------------------------
Name: ----------------------------
Title: ---------------------------
PAGE 18 - AGREEMENT FOR PURCHASE AND SALE AND ESCROW INSTRUCTIONS
<PAGE>
EXHIBIT INDEX
Exhibit A
Real Property Description
Exhibit B
Personal Property Inventory
Exhibit C
Allocation of Purchase Price
Exhibit D
Escrow Agent's Standard Escrow Agreement
PAGE 19 - AGREEMENT FOR PURCHASE AND SALE AND ESCROW INSTRUCTIONS
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") dated September 17, 1997,
is by and among UNITED GROCERS, INC., an Oregon corporation ("Seller"), and C &
K MARKET, INC., an Oregon corporation ("Buyer").
Seller owns beneficially and of record 145,256 shares of common stock of
Buyer (the "Shares"). Buyer desires to purchase from Seller, and Seller desires
to sell to Buyer, the Shares, on the terms and subject to the conditions set
forth herein. The transactions contemplated in this Agreement are herein
referred to as the "Purchase."
SECTION 1. PURCHASE OF SHARES AND RELATED MATTERS
1.1 Purchase of Shares. Subject to the terms and conditions set forth
herein, at the Closing (as defined below) Seller will sell the Shares to Buyer
and Buyer will purchase the Shares from Seller.
1.2 Purchase Price. Buyer will pay to Seller for the Shares the sum of
Six Million Twenty-Three Thousand and 00/100's Dollars ($6,023,000.00) (the
"Purchase Price").
1.3 Payment of Purchase Price. The Purchase Price will be paid to
Seller in cash on or before 10/1, 1997.
1.4 Delivery of Shares. Upon payment of the Purchase Price, Seller
shall deliver to Buyer a stock certificate or certificates evidencing the
Shares, properly endorsed to Buyer.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER
As a material inducement to Buyer to enter into this Agreement and
purchase the Shares, Seller represents and warrants that:
2.1 Organization and Corporate Power. Seller is a corporation duly
incorporated and validly existing under the laws of the state of Oregon.
PAGE 1 - STOCK PURCHASE AGREEMENT
<PAGE>
3.2 Authorization. The execution, delivery, and performance of this
Agreement and all other agreements contemplated hereby to which Buyer is a party
have been duly authorized by Buyer. This Agreement and each other agreement
contemplated hereby, when executed and delivered by the parties thereto, will
constitute the legal, valid, and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, and similar statutes affecting
creditors' rights generally and judicial limits on equitable remedies.
3.3 No Conflict with Other Instruments or Agreements. The execution
and delivery by Buyer of this Agreement and all other agreements contemplated
hereby to which Buyer is a party, the Purchase, and the fulfillment of and
compliance with the respective terms hereof by Buyer, do not and will not (i)
conflict with or result in a breach of the terms, conditions or provisions of;
(ii) constitute a default under; (iii) give any third party the right to
accelerate any obligation under; (iv) result in a violation of; or (v) require
any authorization, consent, approval, exemption, or other action by or notice to
any court or administrative or governmental body pursuant to, the Articles of
Incorporation or Bylaws of Buyer or any law, statute, rule, or regulation to
which Buyer is subject, or any agreement, instrument, order, judgment, or decree
to which Buyer is subject.
3.4 GovernmentAl Authorities. Except as set forth in Schedule "3.4,"
(i) Buyer is not required to submit any notice, report, or other filing with any
governmental or regulatory authority in connection with the execution and
delivery by Buyer of this Agreement and the consummation of the purchase; and
(ii) no consent, approval, or authorization of any governmental or regulatory
authority is required to be obtained by Buyer or any affiliate in connection
with Buyer's execution, delivery, and performance of this Agreement and the
consummation of the Purchase.
3.5 Litigation. There are no actions, suits, proceedings, or
governmental investigations or inquiries pending or, to the knowledge of Buyer,
threatened against Buyer or its properties, assets, operations, or businesses
that might delay, prevent, or hinder the consummation of the Purchase.
PAGE 3 - STOCK PURCHASE AGREEMENT
<PAGE>
(a) The Articles of Incorporation and all amendments thereto and
restatements thereof of Seller certified by the official having custody over
corporate records in the jurisdiction of incorporation of the corporation in
question;
(b) The current Bylaws and minutes of all meetings and consents
of shareholders and directors of Seller relating to the Purchase;
(c) A certificate of the Secretary or Assistant Secretary of
Seller as to the accuracy, currency, and completeness of each of the above
documents, the incumbency and signatures of officers of Seller, the absence of
any amendment to the Articles of Incorporation of Seller.
SECTION 5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
Each and every obligation of Seller under this Agreement is subject to the
satisfaction, at or before the Closing, of each of the following conditions:
5.1 Representations and Warranties; Performance. Each of the
representations and warranties made by Buyer herein will be true and correct in
all material respects as of the Closing with the same effect as though made at
that time except for changes contemplated, permitted, or required by this
Agreement; Buyer will have performed and complied with all agreements,
covenants, and conditions required by this Agreement to be performed and
complied with by them prior to the Closing; and Seller will have received, at
the Closing, a certificate of Buyer, signed by the President and the Chief
Financial officer of Buyer, stating that each of the representations and
warranties made by Buyer herein is true and correct in all material respects as
of the Closing, except for changes contemplated, permitted, or required by this
Agreement and that Buyer has performed and complied with all agreements,
covenants, and conditions required by this Agreement to be performed and
complied with by it prior to the Closing.
5.2 No Proceeding or Litigation. No action, suit, or proceeding before
any court or any governmental or regulatory authority will have been commenced
and be continuing, and no investigation by any governmental or regulatory
authority will have been commenced and be continuing, and no action,
investigation,
PAGE 5 - STOCK PURCHASE AGREEMENT
<PAGE>
suit, or proceeding will be threatened at the time of Closing, against Buyer, or
Seller, or any of their affiliates, associates, officers, or directors, seeking
to restrain, prevent, or change the Purchase, questioning the validity or
legality of the Purchase, or seeking damages in connection with the Purchase.
5.3 Corporate Action. Buyer will have furnished to Seller on Seller's
request:
(a) The Articles of Incorporation and all amendments thereto and
restatements thereof of Buyer certified by the official having custody over
corporate records in the jurisdiction of incorporation of the corporation in
question;
(b) The current Bylaws and minutes of all meetings and consents
of shareholders and directors of Buyer relating to the Purchase;
(c) A certificate of the Secretary or Assistant Secretary of
Buyer as to the accuracy, currency, and completeness of each of the above
documents, the incumbency and signatures of officers of the Buyer, the absence
of any amendment to the Articles of Incorporation of Buyer.
SECTION 6. TERMINATION
6.1 Termination Without Cause. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and abandoned at any
time without further obligation or liability on the part of any party in favor
of any other by mutual consent of Buyer and Seller.
6.2 Termination Procedure. Any party having the right to terminate
this Agreement may terminate this Agreement by delivering to the other party
written notice of termination, and thereupon, this Agreement will be terminated
without obligation or liability of any party in favor of any other party.
SECTION 7. RIGHT OF FIRST REFUSAL
7.1 Grant of Right. Buyer agrees not to sell, transfer, exchange,
grant an option to purchase, lease, or otherwise dispose of Buyer's business
operations (the "Business"), or any part of, or
PAGE 6 - STOCK PURCHASE AGREEMENT
<PAGE>
interest in, the Business, or any stock of Buyer (the "Shares"), without first
offering the Business or the Shares to Seller on the terms and conditions set
forth in this Agreement. As used in this Agreement, the term sell includes a
lease of the Business or substantially all of its assets with primary and
renewal terms of more than 15 years in the aggregate.
7.2 Notice of Offer. When Seller receives the Notice and a copy an
offer from a third party for the Business or the Shares (the "Offer"), Seller
shall have the prior and preferential right to purchase the Business or the
Shares (or the part of or interest in the Business or the Shares covered by the
Offer, as the case may be) at the same price and on the same terms and
conditions as are contained in the Offer, except that if Seller exercises the
right of first refusal granted by this Section 7 by electing to purchase the
Business or the Shares, as the case may be, then (1) the closing of the
transaction contemplated by the Offer shall take place no earlier than 90 days
after the date that Seller elects to exercise the right of first refusal, and
(2) Seller shall receive a credit against the sale price of the Business or the
Shares in an amount equal to any brokerage commission that Buyer may save by
selling the Property to Seller rather than the third party offeror.
7.3 Exercise of Right of First Refusal. Seller shall have 45 days from
the date Seller receives the Notice and a copy of the Offer to notify Buyer
whether Seller elects to purchase the Business or the Shares pursuant to the
terms of the Offer. If Seller elects to exercise its right to purchase the
Business or the Shares, then, in addition to giving Buyer written notice of its
election within the 15-day period, Seller also shall tender an amount equal to
the earnest money deposit, if any, specified in the Offer, which will be held
and used in accordance with the terms of the Offer.
7.4 Failure to Exercise. If Seller fails to timely exercise its right
to purchase the Business or the Shares pursuant to the terms of this section,
then owner shall be entitled to sell the Business or the Shares according to the
terms of the Offer to the third party offeror, subject to the terms of Section
7.5.
7.5 Failure to Consummate Sale. It Seller fails to timely exercise its
right to purchase the Property pursuant to the
PAGE 7 - STOCK PURCHASE AGREEMENT
<PAGE>
terms of this Agreement, and for any reason Buyer shall not sell or convey the
Business or the Shares third party offeror on the terms contained in the Offer
within six months of Seller's election not to purchase, then Buyer must resubmit
the offer as well as any other offer to Seller before selling the Business or
the Shares, and such offers shall be subject to Grantee's right of first refusal
under this Agreement.
7.6 Term. The term of the right of first refusal granted by this
section shall commence as of the date of this Agreement and shall be perpetual
thereafter.
7.7 Excluded Transfers. The right of first refusal created by this
Agreement shall not apply to (A) any sale or conveyance of the Property by Buyer
to any partnership, limited partnership, joint venture, corporation, or other
entity in which Buyer, or its current management team, owns a controlling
ownership interest, or (B) any transfer of an interest in the Business (i) as
part of an employee incentive, stock option or other benefit plan or (ii) as
security for a debt financing.
SECTION 8. MISCELLANEOUS PROVISIONS
8.1 Public Announcements. No press release or other announcement to
the employees, customers, or suppliers of the Company related to this Agreement
or the Purchase will be issued without the joint approval of Buyer and Seller,
unless required by law, in which case Buyer and Seller will consult with each
other regarding the announcement.
8.2. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by a written agreement
signed by Buyer and Seller.
8.3 Waiver of Compliance; Consents.
(a) Any failure of any party to comply with any obligation,
covenant, agreement, or condition herein may be waived by the party entitled to
the performance of such obligation, covenant, or agreement or who has the
benefit of such condition, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement, or condition will not
operate
PAGE 8 - STOCK PURCHASE AGREEMENT
<PAGE>
as a waiver of, or estoppel with respect to, any subsequent or other failure.
(b) Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent will be given in a manner consistent
with the requirements for a waiver of compliance as set forth above.
8.4 Notices. All notices, requests, demands, and other communications
required or permitted hereunder will be in writing and will be deemed to have
been duly given when delivered by hand or two days after being mailed by
certified or registered mail, return receipt requested, with postage prepaid:
If to Seller:
United Grocers, Inc.
Post Office Box 22187
Portland, OR 97269-2187
or to such other person or address as Seller furnishes to Buyer pursuant to the
above.
It to Buyer:
C & K Market, Inc.
Post Office Box 730
Brookings, OR 97415
or to such other address as Buyer furnishes to Seller pursuant to the above.
8.5 Assignment. This Agreement will not be assigned by a party hereto
without the prior written consent of the other parties hereto. No permitted
assignment will release the assignor from its obligations hereunder. Subject to
the foregoing, this Agreement and all of the provisions hereof will be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
devisees, personal representatives, successors and assigns. Nothing in the
Agreement, express or implied, is intended to confer on any person other than
the parties hereto, or their respective successors, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement.
PAGE 9 - STOCK PURCHASE AGREEMENT
<PAGE>
8.6 Governing Law. All matters with respect to this Agreement,
including, but not limited to, matters of validity, construction, effect, and
performance, will be governed by the laws of the State of Oregon applicable to
contracts made and to be performed therein between residents thereof, without
regard to principles of conflicts or choice of law.
8.7 Counteparts. This Agreement may be executed in two or more fully
or partially executed counterparts, each of which will be deemed an original
binding the signer thereof against the other signing parties, but all
counterparts together will constitute one and the same instrument.
8.8 Certain Rules of Construction. The provisions of this Agreement
have been examined, negotiated, and revised by counsel for each party, and no
implication will be drawn against any party hereto by virtue of the drafting of
this Agreement.
8.9 Entire Agreement - This Agreement and any other document to be
furnished pursuant to the provisions hereof embody the entire agreement and
understanding of the parties hereto as to the subject matter contained herein.
There are no restrictions, promises, representations, warranties, covenants, or
undertakings other than those expressly set forth or referred to in such
documents. This Agreement and such documents supersede all prior agreements and
understandings among the parties with respect to the subject matter hereof.
8.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any Jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement, or affecting the validity or enforceability of any of the terms or
provisions of this Agreement.
8.11 Attorney Fees. if any action is brought by any party to this
Agreement to enforce or interpret its terms or provisions, the prevailing party
will be entitled to reasonable attorney fees and costs incurred in connection
with such action prior to and at trial and on any appeal therefrom.
PAGE 10 - STOCK PURCHASE AGREEMENT
<PAGE>
8.12 Payment of Fees and Expenses. Each party to this Agreement will
be responsible for, and will pay, all of its own fees and expenses, including
those of its counsel and accountants, incurred in the negotiation, preparation,
and consummation of the Agreement and the Purchase.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
Buyer: C & K Market, Inc.
/s/ Douglas A. Nidiffer
By: Douglas A. Nidiffer
Its: President
Seller: United Grocers, Inc.
By: George P. Fleming
Its: Asst. Secty.
PAGE 11 - STOCK PURCHASE AGREEMENT
EXHIBIT 12
UNITED GROCERS, INC. AND SUBSIDIARIES
Schedule of Computation of Ratio of Earnings to Fixed Charges
For the Years Ended
Oct.2 Oct. 3
1998 1997
Computation of
Earnings:
Pretax Income $12,781,000 $(11,278,000)
Plus Patronage
Dividend -0- -0-
Less
capitalized
interest -0- -0-
Total Earnings 12,781,000 (11,278,000)
Computation of
Fixed Charges:
Total
Interest
Expense 13,585,000 16,307,000
Interest factor
in rental
Expense 9,873,925 12,949,000
Total
Fixed
Charges (1) 23,458,925 29,256,000
Total Earnings
and Fixed
Charges (2) 36,239,925 17,978,000
Ratio of
Earnings
to Fixed
Charges
(2)/(1) 1.54 0.61
Notes:
A. Adjusted income used to compute the ratio of adjusted income to fixed
charges represents net income to which has been added income taxes, patronage
dividends and fixed charges. Fixed charges consist of interest on all
indebtedness and that portion of rentals considered to be the interest factor.
B. Interest portion of buildings and equipment rental expense was calculated
at 60% for each year.
United Grocers, Inc.
6433 SE Lake Road
Milwaukie, Oregon 97269
Attention: Mark Tweedie, Chief Financial Officer
January 8, 1999
We are providing this letter to you for inclusion as an exhibit to your Form
10-K filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in the method of
amortizing the unrecognized gains and losses in connection with the Company's
defined benefit pension plan, as described in the Company's Form 10-K for the
year ended October 2, 1998. Based on our reading of the data and discussions
with Company officials of the business judgment and business planning factors
relating to the change, we believe management's justification to be reasonable.
Accordingly, we concur that the newly adopted accounting principle described
above is preferable in the Company's circumstances to the method previously
applied.
/s/ PricewaterhouseCoopers LLP
EXHIBIT 22
SUBSIDIARIES
OF
UNITED GROCERS, INC.
October 2, 1998
Bergrens Market, Inc.
Northwest Process, Inc.
R&R Liquidating Corporation
U.G. Resources, Inc.
United Resources, Inc.
Western Security Services, Ltd.
Western Passage Express, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of United Grocers, Inc., for the fiscal
years ended October 2, 1998 and October 3, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> OCT-02-1998 OCT-03-1997
<PERIOD-START> OCT-04-1997 SEP-28-1996
<PERIOD-END> OCT-02-1998 OCT-03-1997
<CASH> 1,294 10,223
<SECURITIES> 0 51,513
<RECEIVABLES> 68,505 86,276
<ALLOWANCES> (1,236) 7,739
<INVENTORY> 68,898 102,333
<CURRENT-ASSETS> 144,102 257,790
<PP&E> 84,079 110,434
<DEPRECIATION> (46,165) (48,991)
<TOTAL-ASSETS> 233,642 365,427
<CURRENT-LIABILITIES> 112,950 150,577
<BONDS> 0 0
0 0
0 0
<COMMON> 23,014 25,820
<OTHER-SE> 8,329 (11,169)
<TOTAL-LIABILITY-AND-EQUITY> 233,642 365,427
<SALES> 1,175,279 1,306,602
<TOTAL-REVENUES> 1,175,279 1,306,602
<CGS> 1,015,268 1,133,690
<TOTAL-COSTS> 144,576 163,402
<OTHER-EXPENSES> 19,867 (21,627)
<LOSS-PROVISION> 2,440 9,943
<INTEREST-EXPENSE> 13,585 16,307
<INCOME-PRETAX> 21,194 (21,627)
<INCOME-TAX> 7,939 (10,466)
<INCOME-CONTINUING> 13,255 (11,161)
<DISCONTINUED> 4,758 2,501
<EXTRAORDINARY> 0 0
<CHANGES> 1,747 0
<NET-INCOME> 19,760 (8,660)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
