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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) (Mark One)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) /X/
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) / /
FOR THE TRANSACTION PERIOD FROM TO
COMMISSION FILE NUMBER 0-10815
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CERTIFIED GROCERS OF CALIFORNIA, LTD.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-0615250
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 S. EASTERN AVENUE, LOS ANGELES 90040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 723-7476
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A SHARES
(Title of Class)
CLASS B SHARES
(Title of Class)
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__. No ____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. The aggregate market value shall be computed by reference to
the price at which the stock was sold, other average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of Filing.
(See definition of affiliate in Rule 405, 17 CFR 230.405).
The Company's shares are not publicly traded and therefore market value is
not readily ascertainable.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class A 49,100 shares as of November 1, 1996
Class B 383,815 shares as of November 1, 1996
Class C 15 shares as of November 1, 1996
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None.
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TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C> <C>
1. Business.......................................... 3
2. Properties........................................ 18
3. Legal Proceedings................................. 18
4. Submission of Matters to a Vote of Security
Holders.......................................... 18
PART II
5. Market for Registrant's Common Equity and Related
Shareholder Matters.............................. 18
6. Selected Financial Data........................... 19
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 19
8. Financial Statements and Supplementary Data....... 23
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 51
PART III
10. Directors and Executive Officers of the
Registrant....................................... 52
11. Executive Compensation............................ 54
12. Security Ownership of Certain Beneficial Owners
and Management................................... 58
13. Certain Relationships and Related Transactions.... 60
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.............................. 62
Signatures............................................... 67
</TABLE>
2
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PART I
Certified Grocers of California, Ltd. and its consolidated subsidiaries are
hereinafter referred to as "Certified" or the "Company."
ITEM 1. BUSINESS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS REPORT ON FORM 10-K ARE FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO ECONOMIC,
COMPETITIVE, GOVERNMENTAL AND TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S
OPERATIONS, MARKETS, PRODUCTS, SERVICES AND PRICES, AND OTHER FACTORS DISCUSSED
IN THE COMPANY'S FILINGS WITH SECURITIES AND EXCHANGE COMMISSION.
GENERAL
Certified, a California corporation organized in 1922 and incorporated in
1925, is a wholesale grocery distributor which does business primarily on a
cooperative basis with those patrons who qualify and have been accepted as
"member-patrons." Certified is owned by its member-patrons, which are primarily
independent grocers, and is operated and taxed on a cooperative basis. Certified
also does some business on a cooperative basis with some patrons who are not
member-patrons and who are referred to as "associate patrons." Pursuant to
Certified's Bylaws, the net earnings of Certified on business done on a
cooperative basis are distributed as patronage dividends to member-patrons and
associate patrons based on the volume of such business transacted with the
patron. For the fiscal year ended August 31, 1996, declared patronage dividends
totalled $13,200,000.
Certified also does business on a nonpatronage basis with other customers
and in some instances with member-patrons and associate patrons. Certified's
subsidiaries do business on a nonpatronage basis with member-patrons, associate
patrons and other customers.
Patrons engaged in the retail grocery business who purchase 350 or more dry
grocery cases weekly (approximately $5,000), or whose combined average weekly
purchases (excluding cigarettes) are $5,000 or more, are required to become
member-patrons. Associate patrons generally purchase 200 or more dry grocery
cases weekly and have combined average weekly purchases of less than $5,000. At
August 31, 1996, Certified had 491 member-patrons operating a total of 2,361
retail food stores and 265 associate patrons operating a total of 624 retail
food stores.
The following table shows the number of patrons and stores operated by such
patrons at the end of each of the respective fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1996 1995 1994
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<S> <C> <C> <C>
Number of patrons:
Member-patrons...................................................... 491 503 491
Associate patrons................................................... 265 304 285
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756 807 776
--------- --------- ---------
--------- --------- ---------
Stores operated:
Member-patrons...................................................... 2,361 2,320 2,372
Associate patrons................................................... 624 725 635
--------- --------- ---------
2,985 3,045 3,007
--------- --------- ---------
--------- --------- ---------
</TABLE>
3
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STRATEGY
During fiscal 1995, Certified developed a strategic initiative designed to
"re-invent" the Company and fundamentally change the way it conducted its
business. This initiative is called "C(3)" -- Certified's Commitment to
Customers. At the heart of the C(3) plan is a new corporate mission statement
that serves as a guide for Certified's progress well into the next century:
TO BE THE MOST COST EFFECTIVE, QUALITY-DRIVEN COMPANY THAT PROVIDES
WORLD-CLASS SERVICES AND COMPLETE PRODUCT SELECTION BY CREATING A
PARTNERSHIP WITH RETAILERS AND STRATEGIC ALLIANCES WITH SUPPLIERS.
During the past year, Certified has worked hard to develop and maintain
partnerships with the various business segments that are critical to the
continuing success of Certified and its members, such as member retailers,
vendors, consumers and employees. Certified, its vendors and its members are
working to form a "virtual chain," an organization that rivals chain operations
in terms of operating efficiencies, commitment to technology, transfer and
exchange of information and delivery of world-class services.
Certified is developing effective partnerships by establishing and
maintaining an effective working relationship with each business segment, a
relationship that provides mutual benefits for both parties over both the short
and long-term. The Company is trying new ideas, making new commitments and, in
many cases, doing things quite differently from the way they were done in the
past.
In fiscal 1996, Certified made significant progress in a number of key
functional areas of the Company, gains that were due largely to new partnerships
forged with customers, suppliers and employees. These partnerships, along with a
number of other programs and strategic initiatives now underway, have not only
improved the Company's financial position, they have restored its seven decade
reputation as an innovative, aggressively growing force within the wholesale
grocery industry.
While 12 months is too short a period to constitute a long-term business
trend, the Company is encouraged by the early success of its ongoing partnership
program and has committed additional resources toward expanding the overall
effort into the current fiscal year and beyond.
AN INNOVATIVE PARTNER
An effective way to establish and maintain a successful partnership with a
key business segment is to come up with an innovative idea and help facilitate
its implementation. During fiscal 1996, Certified developed a number of
innovative ideas and then worked closely with members and customers to launch
them successfully.
Early in the year, Certified subsidiary Grocers Equipment Company ("GEC")
unveiled a banner store program designed to introduce modern technologies and
merchandising strategies to older stores by converting them into
state-of-the-art retail operations with new layouts and interior decor. The
first two formats in the program -- conventional (Apple Market) and limited
assortment (Total Value) -- emerged from the design phase to full-fledged pilot
programs and are now in the process of being implemented Company-wide.
APPLE MARKETS
The Apple Market program was designed to increase store traffic by upgrading
the design and format of older retail stores from the inside-out. Although Apple
Markets are independently owned and operated, they have the look and feel of a
chain store because each one carries the same name and logo, offers the same
quality products, uses a consistent merchandising approach and employs the same
design and decor package throughout the store.
Certified also provides each store with a host of advertising tools,
marketing and promotional programs and plenty of in-store merchandising support,
such as produce and meat specialists who assist with operations, merchandising,
scheduling and training.
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In early tests of the Apple Market concept, shoppers reacted positively to
the format, giving the stores high marks for a clean, upscale look, a pleasant
shopping atmosphere and a consistent, well thought-out store design. This has
prompted an initial surge of interest from Certified members who desire to
convert their stores to the Apple Market format.
The first Apple Markets opened for business in Southern California in the
fall of 1996, while three Apple Markets are currently open in Northern
California. Certified anticipates a roll-out of approximately 20 such stores
during fiscal 1997.
TOTAL VALUE
In addition to the Apple Market program, Certified began testing a limited
assortment format, Total Value, during 1996. This particular format, which
consists primarily of private label items, has been extremely successful in
other areas of the country. Certified's efforts in 1996 focused on developing a
limited assortment store to meet the specific needs of Certified's diverse
customer base, and initial tests revealed positive results.
IMPACT PRICING
In 1996, Certified inaugurated its new partnership with retailers with the
introduction of a customer-centered impact-based pricing program. Impact-based
pricing is a new approach for Certified, and one that makes sense for a company
committed to forging partnerships with its customers. The new pricing program is
based on the premise that customers who order efficiently contribute to, and
should benefit from, Certified's cost efficiencies. Impact-based pricing is a
volume incentive pricing program that recognizes the benefits and efficiencies
of order size and calculates fees primarily at the category level. This allows
lower fees to be charged for price sensitive categories, as well as specific
high volume and high value items.
Certified is committed to the success of impact-based pricing as a mutually
beneficial way to satisfy the varying needs of both wholesaler and customer. For
that reason, in conjunction with the launch of impact-based pricing, Certified
representatives met with retailers on an individual basis to explain both how
the program works -- and how they could make the program work best for them.
Initial results showed the program is working effectively, as evidenced by
significant changes in many retailers' ordering patterns.
EMPLOYEES
Certified is also using innovative ideas to establish a progressive,
long-term partnership with its employees, a business segment that plays a key
role in the future success of the company.
For example, in February 1996, Certified President and Chief Executive
Officer, Alfred A. Plamann, invited the Company's 2,400 employees to join him in
creating a partnership to form a "new" Certified during a satellite
teleconference that was transmitted to the Company's Commerce, Stockton and
Fresno warehouses. During the meeting, Mr. Plamann made it clear that the "new"
Certified is a company that embraces change -- and that employees of the Company
are the drivers of that change.
Another innovative idea, launched a few months ago, brought together
employees from the Company's warehouses and the purchasing department to discuss
how their functions are interrelated and could be made more efficient with
better communication. The program, however, wasn't limited to meetings and
cursory discussions. Employees from purchasing and operations "switched jobs"
for a day to gain hands-on experience and a firsthand perspective of what it
takes to get the right products to customers on a daily basis. The net result?
Enhanced distribution efficiencies, better and smarter purchases, and better
served customers.
A PARTNER IN TECHNOLOGY
Because keeping abreast of technology is crucial in an increasingly
competitive marketplace, one of Certified's primary goals during fiscal 1996 was
to make technology more accessible to independent retailers -- and to upgrade
its own information systems. To accomplish this, the Company focused on
developing two technology-based partnerships -- an external partnership designed
to facilitate technology enhancement with member retailers and an internal
partnership designed to facilitate the implementation of new, state-of-the-art
information systems throughout the Company.
5
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On the external side, Certified made an all-new interactive ordering system
available to customers to help them maximize their efficiencies. Certified's
interactive ordering system enables retailers to access the warehouse inventory
electronically to determine what's available and what's out-of-stock, calculate
the efficiency of their order by cube size and then electronically transmit
their order by simply pressing a button. The system shows average weekly
purchases, as well as base cost, which helps customers maximize load building
and make the most of impact-based pricing.
Early results of the partnership program are showing a significant positive
impact. In some instances, retailers have consistently been able to reduce their
ordering time by half. Other retailers report that the system is saving them
money because it enables them to capitalize on discounts and construct more
efficient orders. The program also is benefiting Certified because more
efficient orders are resulting in consolidation of smaller orders and fewer
deliveries, all of which result in lower handling and transportation costs.
Internally, Certified worked hard to create a partnership with employees and
outside vendors that enabled the Company to make the first substantial changes
in the Company's information system in more than two decades. Among the results
achieved by the Company are a complete restructuring of the Information Services
department to create a focus on virtual chain technology, the installation of
new general ledger, payroll and human resources systems, and the conversion of
the Company's host-based database system to one that is infinitely more flexible
and capable of linking directly with Certified's retailers.
A PARTNER IN CUSTOMER SERVICE
Certified's mission statement clearly identifies "world-class services" as a
cornerstone of the "new" Certified. Consequently, the only realistic method for
achieving this superlative was to create and develop an all-new system devoted
exclusively to serving the informational needs of Certified's members and
customers.
One of the most exciting achievements for Certified in this area was the
implementation of the Single Point of Contact ("SPOC") customer service center
- -- a comprehensive and reliable communications system designed specifically to
answer customer questions. Priority number one was quick response time, and
throughout the year, a cross-functional team of Certified employees worked on
designing a system that would yield a wide range of information in a very short
period of time.
The result is that customers now have just one number to call for virtually
any information request. Trained SPOC representatives have information on-hand
to immediately answer inquiries on such topics as invoices, delivery status, how
to become a new customer, company capabilities and new product information. For
questions falling outside the range of expertise of the SPOC representative, a
"network" of trained personnel throughout the Company work to quickly and
efficiently obtain the requested information. To ensure quality control, a
computerized tracking system was installed to follow inquiries and their
responses.
In short, the system was designed to make it as easy as possible for
customers to receive information from Certified -- a critical first step for a
Company that is staking its future on its ability to provide world-class
services to its customers in a virtual chain environment.
Exceptional service, however, isn't just limited to activities involving the
SPOC center. To better serve retail customers when orders are delivered to their
stores, Certified recently initiated a new program whereby Company truck drivers
distribute Customer Feedback Forms to retailers when orders are delivered.
The forms ask retailers for input on the condition of the load, how it was
stacked on the pallet, if any damage occurred en route, and if the order was
accurately picked. Once collected, the information is immediately presented to
appropriate contacts at the warehouse so problems can be resolved as quickly as
possible.
Early results from the program show that retailers appreciate the Company's
efforts to improve the quality of its shipping operation and that Company
employees -- drivers and warehouse personnel -- are welcoming the chance to
participate in an effort to improve the Company's overall rates of efficiency.
6
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Along the same lines, Certified's bakery division recently launched a
full-service merchandising program to better serve retailers at the point of
delivery. Now, representatives from Certified's bakery not only deliver quality
bread products, they also stock shelves, rotate product and provide
merchandising support.
Customer input is important to Certified and essential to serving them
effectively. Last year, Certified recruited an advisory group of retailers to
help develop a new marketing guide for members and customers in Northern and
Southern California. By asking retailers what they would like to see in the
guide, Certified was able to best accommodate their needs. The result was a "new
and improved" marketing guide with news retailers can use, such as promotional
information, category analysis, and trends.
Providing an array of business growth opportunities to customers is yet
another way Certified is able to effectively serve the needs of its membership.
For example, Certified created a tremendous growth opportunity for members when
it purchased 9 Petrini's supermarkets from Bay Area Foods, Inc. By re-selling
these supermarkets to existing members, and other retailers who became new
Certified members, Certified helped achieve a major part of Certified's goal to
help retailers grow. Along with the Petrini's stores, these purchasing retailers
brought some 18 new stores to Certified.
AN EFFICIENT, GROWING PARTNER
A good partnership is one that is forward-moving and committed to maximizing
the capabilities of the parties involved for the benefit of all. In 1996,
Certified successfully stepped up its efforts to expand productivity and
efficiency in various areas.
In Certified's Manufacturing Division, the dairy was able to increase its
production to nearly 100 percent of capacity with the addition of a $45 million
customer, Ross Swiss Dairies. Producing approximately one million gallons of
milk a week, Certified's dairy is now one of the largest -- and most efficient
- -- in the state.
Certified's bakery has recently added a significant amount of business to
its day-to-day operations, as well. This fall, Certified's bakery announced a
partnership with St. Louis-based Earthgrains-TM- to produce and distribute the
company's line of premium bread products. This addition to the bakery's
production will significantly enhance its overall efficiency.
Yet another area involves the expansion of Certified's Meat Division into
Northern California. As fiscal 1997 commenced, the first deliveries of meat and
service deli products to customers in the North were made from the newly
established Meat Division, Certified's Southern California Meat Division
expanded its presence into Mexico, and currently supplies approximately 120,000
pounds of poultry per week to customers there.
In a continuing effort to reduce costs and inefficiencies from its
distribution system, Certified in fiscal 1996 restructured its warehouse
operations to emphasize speed, quality and simplicity. However, this is just one
piece of a much larger puzzle. Distributing high-quality grocery products to
consumers quickly and accurately requires a synergy between all links in the
virtual chain, beginning with Certified's vendors.
Forging new alliances with vendors was a main objective at Certified last
year, and as a team they worked together to create new and innovative programs.
With a common goal in mind -- moving grocery products through the warehouse as
quickly and efficiently as possible, Certified increased its focus on ECR
(Efficient Consumer Response) and other emerging industry practices that are
streamlining the distribution business and making it far more efficient.
SUMMARY
At the heart of Certified's mission is partnership -- working together to
achieve a common goal. In the past year, partnerships played a vital role at
Certified Grocers. Working with retailers, fostering employer/ employee
relationships within the Company and teaming with vendors all contributed to
Certified's significant achievements in fiscal 1996.
As a team dedicated to serving the needs of today's consumers, Certified and
independent retailers developed new programs and implemented new technologies.
Employees within Certified participated in
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cross-functional group training programs to gain a better understanding of how
the jobs they do affect the Company as a whole. Lastly, fiscal 1996 marked the
beginning of a new commitment by Certified and its vendors to work together to
build programs that provide consumers with the best products at the best price,
every day.
During fiscal 1997, Certified will continue to target growth as its number
one objective and will continue to use the partnership concept as a means toward
that end.
PRODUCT LINES
The following table summarizes the Company's sales by product line, for each
of the respective three fiscal years indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(THOUSANDS OMITTED)
<S> <C> <C> <C>
Dry Grocery (includes specialty products)............... $ 1,100,753 $ 1,030,024 $ 1,035,213
Delicatessen............................................ 207,931 178,582 180,159
Meat.................................................... 175,312 145,997 138,082
General Merchandise..................................... 159,714 209,943 222,574
Frozen Food............................................. 123,725 113,208 142,852
Dairy................................................... 90,066 66,399 71,024
Ice Cream............................................... 20,109 20,879 22,071
Bakery.................................................. 19,120 15,839 13,037
Drop Shipment........................................... 11,410 12,662 12,447
Beans and Rice.......................................... 5,759 4,527 6,305
Other................................................... 35,020 24,744 30,108
------------ ------------ ------------
Total............................................... $ 1,948,919 $ 1,822,804 $ 1,873,872
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company, with headquarters in Los Angeles, distributes product from
facilities in Southern and Northern California. Certified sells a full line of
branded grocery and nonfood items supplied by unrelated manufacturers and also
sells merchandise under its own private labels, including the Springfield,
Gingham, Special Value, La Corona, and Golden Creme labels. Certified also
operates its own bakery and dairy facilities. Grocers Specialty Company ("GSC"),
a subsidiary, carries a product line consisting of specialty-type items, such as
ethnic and gourmet foods, and also carries a general product line sold to
non-member retailers. General merchandise items including housewares, hardware
and health and beauty care products are primarily sold by another subsidiary,
Grocers General Merchandise Company ("GM").
WHOLESALE DISTRIBUTION
Certified's cooperative wholesale business represented approximately 82% of
fiscal 1996 sales. The wholesale business includes a broad range of branded and
private label products in dry grocery, frozen, delicatessen, boxed meat, service
deli, ice cream, bakery and dairy.
The Company also conducted certain food and related nonfood distribution
operations through GSC and GM, which collectively accounted for approximately
14% of fiscal 1996 sales. GSC operates out of a combination of mechanized and
conventional warehouses in Commerce, California. GM distributes its products
from a highly automated general merchandise facility located in Fresno,
California.
The Fresno facility is operated by a joint venture known as Golden Alliance
Distribution ("GAD"). GAD was formed in 1992 and is owned 50% by GM and 50% by
Food 4 Less GM, Inc. ("F4LGM"). Fixed costs of operating GAD are shared equally
by each partner, while variable costs are shared based on a formula that takes
into consideration each partner's volume. The basic term of the joint venture
expires in 2002, but may be terminated earlier pursuant to other provisions
outlined in the joint venture agreement.
During 1995, the parent of F4LGM merged with Ralphs Grocery Company
("Ralphs"). Since the completion of the merger in June 1995, Ralphs has reduced
its weekly purchases from the Fresno warehouse by approximately 80%. Certified
is currently in discussions with Ralphs regarding their long-term plans for
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utilizing the Fresno facility. The resolution of these discussions may impact
the Company's operations in the Fresno facility and may have an adverse effect
on the future profitability of GM if Certified is unable to replace this volume.
During the year, the Company sold its common stock ownership in Hawaiian
Grocery Stores, Ltd. ("HGS"). HGS is a distributor of a variety of dry grocery,
frozen and delicatessen products in the Hawaiian islands. Pursuant to the
transaction, the Company retained a preferred stock ownership interest in HGS,
as well as supply and joint purchasing arrangements.
The Company distributes its various product lines from four warehouse
complexes and two manufacturing plants (dairy and bakery) located in the Los
Angeles metropolitan area, a dry and refrigerated warehouse in Stockton,
California, and one mechanized warehouse in Fresno, California.
The Company is not dependent upon any single source of supply in any of its
businesses. Management believes that alternative suppliers are available for
substantially all of its products and that the loss of any one supplier would
not have a material adverse effect on the Company's business.
MARKETING AND DISTRIBUTION OF PRODUCTS
The Company currently markets and distributes in six principal geographical
areas: Southern California, Northern California, Arizona, Southern Nevada,
Hawaii and various foreign countries in the South Pacific and elsewhere. The
competitive climate in each of these regions is individually unique and as a
result, the Company offers a diversified selection of products and services to
better enable the customer to meet its consumers needs and maintain a
competitive edge.
As a cooperative organization, the Company principally markets its goods and
services to the membership through bi-weekly order books, weekly buying guides
and price bulletins. Buying guides list current promotional items and other
product related information. The price bulletins show promotional and
advertising allowances available from the various manufacturers and suppliers.
The Company, through its Sales and Service department, assists its
membership with many special service needs. A sales and service representative
presents to the customer the available services that the Company offers.
The Company offers multiple methods for customers to place their orders.
During fiscal 1996, the Company developed an interactive ordering system that
enables customers to identify errors, warehouse out-of-stocks and percentage of
trailer capacity prior to transmitting an order. This system is expected to be
available to all members during fiscal 1997. The Company also offers its
customers the option of submitting orders electronically with an order
transmitting device, or by telephoning the order to a customer service
representative.
The Company offers a service program in its ice cream, bakery, specialty
food and general merchandise businesses. Customers utilizing the service program
account for 52% of ice cream sales, 5% of bakery sales, 25% of specialty sales,
and 12% of its general merchandise sales for 1996. In aggregate, service
programs account for 3% of the Company's total 1996 sales. The service program
consists of a Company service representative visiting a participating store,
checking stock quantities, refacing shelf stock and ordering a replenishment
shipment. When necessary, service personnel will perform a reset and
remerchandising of a store's products to increase store-level sales. The above
services are provided at an additional charge depending on service level
agreements.
SERVICES AVAILABLE TO MEMBERS
The Company provides a variety of services to its members to help them
maintain a competitive position within the retail grocery industry. The
Company's services to members include:
PRICING SERVICES. Subscribing members provide the Company with either the
retail price or the percentage profit margin they wish to maintain on each item,
and such figures are shown on each invoice and on each case of goods delivered.
The patron may update this pricing structure weekly in accordance with changes
in wholesale costs and competitive activity in its particular market area.
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ORDERING ASSISTANCE. The Company provides various programs to increase the
speed and efficiency of the order transmittal process. It offers electronic
units which retailers can use to transmit orders electronically by telephone.
GEC offers a menu of retail technology options for selection by members. To
eliminate order errors and minimize freight and service charges the Company has
introduced "InterActive Ordering." The system utilizes a multifunctional FM
hand-held scanner that transmits to a Windows 95-TM- PC in the store that is
linked to the Company's mainframe computer and allows for electonic data
interchange of timely, valuable information.
POINT OF SALE COMPUTER SERVICES. The Company provides retailers with
assistance and computer services in connection with the use of scanners at the
checkout counter.
VELOCITY REPORTS. The Company provides detailed summaries of all items
ordered by the retailer from the Company, together with historical pricing and
profit margin data.
STORE DEVELOPMENT. The Company assists members in equipment procurement,
store engineering and site development activities. For a fee, the Company
provides plot plans, floor plans, and other drawings for new or remodeled
stores, construction cost estimates and design consultation. In addition, many
types of store fixtures and equipment can be obtained at a price reflecting
volume purchase discounts earned by the Company.
FINANCE PROGRAMS. The Company assists qualified members in remodeling and
expanding existing retail locations and developing new retail outlets, as well
as assisting in the financing of inventory and equipment needs.
RETAIL COUNSELING. The Company provides members with experienced retail
counselors, knowledgeable in all phases of retail grocery operations, to assist
patrons in planning their sales and profit growth. The counselors work closely
with owner/managers to solve problems and identify opportunities for improving
operations. They also advise patrons of current trends and developments in the
retail grocery industry.
RETAIL ADVERTISING. The Company assists in the formation of retail ad
groups consisting of several members within a given area. Each group is provided
with an ad group coordinator who assists in preparing advertising layouts,
assures that advertising dollars are identified and collected from vendors and
other sources, and serves as liaison between the ad group and suppliers.
INSURANCE SERVICES. The Company's insurance programs are serviced by
Grocers and Merchants Insurance Services, Inc. ("GMIS"). GMIS, which is licensed
as an insurance agency, acts as agent or broker for unrelated underwriters,
which are the issuers of the insurance policies. Certain of the insurance
companies reinsure portions of insured risks pursuant to reinsurance contracts
with Springfield Insurance Company, Limited ("Springfield-Bermuda"), which is
incorporated and licensed in Bermuda, or Springfield Insurance Company, Inc.
("Springfield-California"), which is incorporated and licensed in California.
Both insurance companies are wholly owned subsidiaries of the Company. GMIS
provides an insurance program for members, employees of members, and employees
of the Company. Under the commercial store package, coverage includes fire,
store liability, automobile, fidelity, theft, bonds, workers' compensation and
business interruption. Insurance offered by the life and health department
includes individual and group health plans, life insurance, mutual funds,
disability income and estate planning. The personal insurance department offers
homeowners, automobile, motorcycle, motorhome, boat and aircraft coverages.
SITE IDENTIFICATION AND ANALYSIS. The Company assists its retailers who are
growth oriented in identifying potential new store locations. Once the Company
or a retailer has identified a particular site as having potential for new store
development, the Company can commission an independent site feasibility analysis
of the location, which includes a study of the demographics of the general area,
the market competitors located in the primary and secondary trading areas, and
what volume a new store should expect in the location being considered.
DATA PROCESSING. The Company provides data processing services and
customized software programs for its customers using a direct computer link to
many of its customers' stores. The Company can provide a
10
<PAGE>
retailer with a product and price file for virtually every product, with pricing
by the appropriate zone in which a retailer is located. Retailers can also order
all inventory directly from the Company using their store-to-warehouse computer
link and an order entry system.
TRUCKING OPERATIONS
The Company's trucking fleet is used in the transportation of food and
related items from suppliers to the Company and in the delivery of such items to
its customers. These operations are conducted principally in California, Arizona
and Nevada. The Company's vehicle fleet consists of approximately 290 tractors,
745 trailers, and 13 pickup vans. Approximately 55% of the fleet is owned by the
Company; the balance is leased. Such leases generally have initial terms of 8 to
10 years and provide for renewal or purchase options at fair market value at
expiration of the lease.
SUPPORT BUSINESSES
The Company's subsidiary retail support businesses collectively accounted
for approximately 2% of the Company's total sales in fiscal 1996, 1995, and
1994. Principal retail support operations include Grocers Capital Company
("GCC"), which provides financing for inventory purchases, equipment purchases,
store remodeling and new store acquisitions, and GEC, which provides additional
support in store planning and development services, retail pricing comparisons,
scanning support and also sells and leases equipment to the Company's customers.
The Company also provides insurance brokerage services for retailers through
GMIS and underwrites selected insurance risks through two insurance
subsidiaries.
RETAIL BUSINESSES
During the year, the Company introduced a banner store program designed to
convert older stores into state-of-the-art retail operations. The first two
formats in the program -- conventional (Apple Market) and limited assortment
(Total Value) emerged from the design phase to a pilot program and are now in
the process of being introduced to the marketplace. Apple Markets are
independently owned and operated; however, they have the look of a chain store
because each store carries the same name, logo, and design layout throughout the
stores. The limited assortment format, Total Value, consists primarily of
private label items and some branded products sold at attractive prices with
limited service. This format has been extremely successful when employed by
wholesalers in other areas of the country. Other formats to meet the diverse
needs of independent retailers are also in the development stage.
COMPETITION
The food industry is characterized by intense competition and low profit
margins. In order to compete effectively, the Company must provide its patrons
with the capability to meet rapidly fluctuating competitive market prices,
provide a wide range of perishable and nonperishable products, make prompt and
efficient deliveries, and provide the services which are required by modern
market operations. The Company competes with local, regional and national
grocery wholesalers and with a number of major manufacturers which market their
products directly to retailers. The Company's success is dependent upon its
ability to supply food and nonfood products and services to its patrons in a
cost-effective manner and upon the ability of its independent retail customers
to compete with the large chain store operations.
CUSTOMERS
The Company's members consist primarily of independent retail grocery store
operators ranging in size from single store operators to multiple store and
chain store operators. The typical member in Southern California serves a
high-density urban population and the Company's typical Northern California
member serves a less densely populated area. A typical member-patron retail
grocery store consists of approximately 20,000 square feet.
The Company's ten largest customers accounted for approximately 34% of net
sales in fiscal 1996 and 33% of net sales in fiscal 1995 and fiscal 1994.
Management believes there is no single customer whose loss would have a material
adverse effect on the Company's business.
11
<PAGE>
STOCK OWNERSHIP
CLASS A SHARES
Class A Shares are issued to and may be held only by member-patrons of
Certified. In order to qualify for and retain membership as a member-patron, a
person or other entity (1) must patronize Certified in such amounts and manner,
and otherwise must comply with the Bylaws and with such rules, regulations and
policies, as may be established by Certified; (2) must have and maintain
acceptable financial standing; (3) must make application in such form as is
prescribed; and (4) must be accepted as a member after approval by the Board of
Directors.
Each member-patron of Certified is required to hold exactly one hundred
Class A Shares. The price for such shares will be the book value per share of
the outstanding shares at the close of the fiscal year ended prior to acceptance
as a member-patron.
CLASS B SHARES
The Board of Directors may approve the issuance of Class B Shares to any
person and for any purpose. However, the Board of Directors does not intend to
authorize the issuance of Class B Shares except to member-patrons.
With the exception of new members (see below), each member-patron is
required to hold Class B Shares having combined Issuance Values (as defined
below) in an amount equal to the lesser of the member-patron's required
subordinated cash deposit (see Item 1. BUSINESS -- "Patron Deposits") or twice
the member-patron's average weekly purchases ("Class B Share Requirement"). For
purposes of this requirement, each Class B Share held by a member-patron is
valued at the book value of Certified's outstanding shares as of the close of
the fiscal year ended prior to the issuance of such Class B Share ("Issuance
Value").
Class B Shares are generally issued to new member-patrons as part of the
patronage dividends (see Item 1. BUSINESS -- "Patronage Dividends") paid to such
member-patron over a period of five consecutive fiscal years, beginning with the
second fiscal year following admission as a member-patron. The Class B issuance
formula provides that the member-patron will hold Class B Shares having Issuance
Values equal to 20% of the member-patron's Class B Share Requirement after the
first patronage dividend, 40% of the Class B share Requirement after the second
patronage dividend, and so on until the member-patron reaches 100% of their
Class B Share Requirement after the fifth patronage dividend.
If following the issuance of Class B Shares as part of the patronage
dividend for any given fiscal year, the member-patron would not hold Class B
Shares having combined Issuance Values equal to the amount of Class B Shares
required to be held by the member-patron, then additional Class B Shares would
be issued to the member-patron in a quantity sufficient to achieve the required
amount. Issuance of these additional Class B Shares would be paid for by
charging the member-patron's cash deposit account in an amount equal to the
Issuance Values of such additional Class B Shares.
During the fiscal year ending August 30, 1997, the book value of Certified's
Class A and Class B Shares, and hence the price, per share is $167.94.
CLASS C SHARES
Class C Shares are held one share each by the members of the Board of
Directors. Each Board Member purchases one Class C Share for $10. Class C Shares
are non-voting shares and would share in liquidation only to the extent of $10
per share.
PATRONAGE DIVIDENDS
Certified distributes patronage dividends based upon its net earnings from
patronage business during the fiscal year. The divisional patronage amounts are
approved by the Board of Directors. Certified's net earnings from patronage
business are distributed to each patron in proportion to the dollar volume of
patronage purchases from each division of Certified by the patron. Patronage
dividends are distributed after the close of the fiscal year, except for
dividends on dairy products which are distributed after the close of each fiscal
quarter.
12
<PAGE>
The following table shows the patronage dividend experience of the Company
during the past three fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1996 1995 1994
--------- --------- ---------
(THOUSANDS OMITTED)
<S> <C> <C> <C>
Dairy......................................................... $ 8,100 $ 7,701 $ 8,088
Dry Grocery................................................... 2,940 2,610 1,554
Delicatessen.................................................. 940 480 500
Frozen Food................................................... 660 350 351
Beans and Rice................................................ 390 320 250
Ice Cream..................................................... 170 110 94
--------- --------- ---------
Total (1)............................................. $ 13,200 $ 11,571 $ 10,837
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
(1) Certified expects to continue to distribute patronage dividends in the
future, although there can be no assurance of the amounts of such
dividends.
</TABLE>
Certified's bylaws provide that patronage dividends may be distributed in
cash or in any other form which constitutes a written notice of allocation under
Section 1388 of the Internal Revenue Code. Section 1388 defines the term
"written notice of allocation" to mean any capital stock, revolving fund
certificate, retain certificate, certificate of indebtedness, letter of advice,
or other written notice, which discloses to the recipient the stated dollar
amount allocated to the recipient by Certified and the portion thereof, if any,
which constitutes a patronage dividend.
Patronage dividends are currently paid out in the following order and
manner: first, member-patrons receive 20% in cash; second, member-patrons
receive the required amount of Class B Shares (see Item 1. BUSINESS -- "Stock
Ownership"); third, the remainder is credited to the member-patron's deposit
account (see Item 1. BUSINESS -- "Patron Deposits").
In addition, Certified issued subordinated patronage dividend certificates
("Patronage Certificates") evidencing the retention of a portion of patronage
dividends for fiscal years 1993, 1994 and 1995. The amounts retained were
deducted from each member-patron's patronage dividend prior to the issuance of
Class B Shares to such member-patron.
Patronage Certificates are unsecured general obligations of Certified, are
subordinated to certain other indebtedness of Certified, and are nontransferable
without the consent of Certified. The Patronage Certificates are subject to
redemption, at any time in whole and from time to time in part, without premium,
at the option of Certified, and are subject to being set off, at the option of
Certified, against all or any portion of the amounts owing to the Company by the
holder.
The Board of Directors determined that in fiscal 1993, 1994 and 1995, the
portion of the patronage dividend retained and evidenced by the issuance of
Patronage Certificates was 20% of the fourth quarter fiscal 1993 dairy division
patronage dividend, 20% of the fiscal 1994 dairy division patronage dividends
and 20% of the first and second quarter fiscal 1995 patronage dividends for the
dairy division. The Patronage Certificates were 40% of the fiscal 1993, 1994 and
1995 patronage dividends for non-dairy products. The Patronage Certificates have
a seven year term, and bear interest payable annually on December 15 in each
year.
The following table represents a summary of the Patronage Certificates
issued and their respective terms in fiscal 1993, 1994 and 1995.
<TABLE>
<CAPTION>
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
- ------------------------------ ---------- --------- --------
<S> <C> <C> <C>
1993.......................... $2,018,000 7% 12/15/00
1994.......................... $2,426,000 8% 12/15/01
1995.......................... $2,117,000 7% 12/15/02
</TABLE>
13
<PAGE>
During fiscal 1996, the Company set off approximately $12,000 in Patronage
Certificates against a portion of amounts owed to the Company by the holders.
For the third and fourth quarters of fiscal 1995, the Company suspended the
retention of any of the dairy division patronage dividends due to competitive
market conditions. During fiscal 1996 the retention program was suspended for
all divisions, including the dairy. While the Company suspended the retention
program for fiscal 1996, the retention program has not been discontinued.
ALLOWANCES
The Company provides allowances to patrons based on the quantity and manner
in which goods are ordered. In addition, the Company makes available to patrons
advertising and promotional allowances of suppliers and manufacturers.
PROMOTIONS AND REBATES. The Company's weekly purchasing guide sets forth
advertising allowances and conditions of performance made available by various
suppliers and manufacturers. The allowances are either funded during the
promotional period as a reduction in price or after the promotion. The patron is
required to submit proof of performance based on the specific conditions of each
allowance program.
REFLECTED ALLOWANCES. Manufacturer and supplier allowances which do not
require specific performance are passed to patrons in the form of a reduction in
product price.
PRICE RESERVATION. The Company offers the ability for customers to reserve
price reductions on various products that a manufacturer or supplier has placed
on deal. The customer notifies the Company of the quantities to be reserved, and
the Company continues to ship to the customer at the lower price after the
temporary price reduction has been removed. For this, the customer must make
additional deposits to the Company and pays a storage cost for the cases
reserved.
ANNUAL VOLUME DISCOUNT. Annual volume discounts are given to accounts who
meet certain purchasing levels.
PALLET INCENTIVE. The Company has a pallet incentive program in the dry
grocery, frozen food and delicatessen divisions. This program is designed to
recognize distribution efficiencies for the Company in selecting full pallet
quantities of product.
TERMS OF SALE
The Company renders to its cooperative members weekly statements of account.
Statements include deliveries through and including the date of the statement.
Members have seven days from date of the statement to pay, and those not paid
within seven days are considered delinquent. Since members have seven days in
which to mail payment, and since additional deliveries occur during this time
which are billed on a subsequent statement, the Company may have receivables
outstanding at any given time which average approximately two weeks' sales.
ADDITIONAL CHARGES
The Company currently makes several charges in addition to the listed prices
for merchandise.
SERVICE FEES. Dry grocery, frozen food and delicatessen divisions have
moved to a new C(3) Impact-Based Pricing program. This program is a volume
incentive pricing program that recognizes the benefits and efficiencies of order
size. Impact-based pricing calculates fees primarily at the category level. This
allows lower fees to be charged for price sensitive categories, as well as
specific high volume and high value items. There are two C(3) Impact-Based
Pricing programs for which a store can qualify: They are 1) the Co-op Program
and 2) the Partnership Program. The Co-op Program includes pricing brackets for
purchases of grocery, frozen food, and delicatessen. Savings opportunities can
be realized as a store increases average order size and moves into a better
pricing bracket. The Partnership Program is available to retailers that meet
requirements relating to items such as member status, order size, and division
purchase requirements. In fiscal 1997, the Company plans to expand its C(3)
Impact-Based Pricing program to other areas of the Company as the next phase of
management's re-invention process.
14
<PAGE>
TRANSPORTATION CHARGES. The Company charges its customers for product
delivery based on published schedules. Such schedules charge delivery fees on a
variable basis depending primarily upon the distance from the Company's
supplying warehouse and the amount of capacity or cube used by the load.
PATRON DEPOSITS
The Company requires that its cooperative patrons maintain a subordinated
cash deposit equal to the greater of twice the amount of each patron's average
weekly purchases or twice the amount of the patron's average purchases, if such
purchases are not on a regular basis. Required deposits are determined twice a
year, at the end of the Company's second and fourth fiscal quarters, based upon
a review of the patron's purchases from certain of the cooperative divisions
during the preceding two quarters.
Member-patrons meeting certain qualifications established by the Board of
Directors may elect to maintain a reduced required deposit of $500,000 or one
and one-quarter weeks' average purchases, whichever is greater. Presently, two
of the Company's largest member-patrons have elected to maintain such reduced
deposits. With the consent of the Company, which may be granted or withheld in
the Company's sole discretion, a qualified member-patron who has elected to
maintain this reduced deposit may later have the deposit increased up to an
amount equal to twice the amount of its average weekly purchases. Following such
increase, the member-patron will not be permitted to reduce the deposit (even
though otherwise eligible to maintain a reduced deposit) for a period of two
years without the Company's consent. Further, in all cases, reduction of the
deposit will be governed by the subordination provisions to which it is subject.
The Company charges interest to those member-patrons who maintain a reduced
deposit. Interest is presently charged at the prime rate established by Bankers
Trust Company, subject to periodic review and change by the Board of Directors.
Interest is charged on the difference between the balance that would have been
maintained based on two weeks' purchases and the balance actually maintained.
Under the Company's Deposit Fund Loan Program, member-patrons whose credit
has been approved by the Company may finance all or a portion of their deposit
requirement. Payments under this program are billed to the member-patron on the
weekly statement from the Company. Subject to credit approval, member-patrons
may also deposit an amount equal to one and one-half of the patron's average
weekly purchases or one and one-half of the patron's average purchases,
whichever is greater, and pay the balance of the deposit over a period of 26
weeks, at no interest, by payments on the weekly statement from the Company.
Member-patrons holding Class B Shares are presently given credit against the
above described cash deposit requirement based upon the respective book values
of such shares as of the fiscal years last ended prior to their issuance. The
Company pays no interest on the required deposits. Interest is paid on cash
deposits which are in excess of patrons' required deposits.
In addition, patrons who participate in the Company's price reservation
program are required to maintain a noninterest-bearing deposit based upon the
value of their inventory included in this program. Under the Company's price
reservation program, patrons are permitted to submit price reservations in
advance for their dry grocery, frozen, delicatessen and general merchandise
purchases. For the patron to get the benefit of the price reservation, an actual
order must be placed. The price which the patron will be charged is the price in
effect at the time of the reservation.
The required deposits of patrons are contractually subordinated and subject
to the prior payment in full of certain senior indebtedness of the Company. As a
condition of becoming a patron, each patron is required to execute a
subordination agreement providing for the subordination of the patron's required
deposits. Generally, the subordination is such that no payment can be made by
the Company with respect to the required deposits in the event of an uncured
default by the Company with respect to senior indebtedness, or in the event of
dissolution, liquidation, insolvency or other similar proceedings, until all
senior indebtedness has been paid in full.
15
<PAGE>
Upon request, the Company will return to patrons the amount of cash deposits
which are in excess of the required deposits, provided the patron is not in
default of its obligations to the Company. On termination of membership, patrons
are entitled to a return of deposits, less all amounts that may be owing by the
patron to the Company. In all cases, however, return of that portion of the
patron's cash deposits which consists of required deposits will be governed by
the applicable subordination provisions.
TAX MATTERS
The Company is a corporation operating primarily on a cooperative basis. The
Company is subject to federal and state income and franchise taxes and must pay
other taxes applicable to corporations, such as sales, excise, real and personal
property taxes.
As a corporation operating on a cooperative basis, the Company is subject to
Subchapter T of the Internal Revenue Code ("Subchapter T"). Under Subchapter T,
the Company pays patronage dividends to patrons pertaining to its fiscal year
within 8 1/2 months of the close of such fiscal year. To qualify as patronage
dividends, payments are made on the basis of the value of the business done with
or for patrons, under a pre-existing obligation to make such payment, and with
reference to the net earnings from business done with or for the cooperative's
patrons. Patronage dividends are paid in cash or written notices of allocation.
A written notice of allocation is distributed to the patron and provides notice
of the amount allocated to the patron by the Company and the portion thereof
which constitutes a patronage dividend.
Under Subchapter T, the Company may deduct, in the fiscal year for which
they are paid, the amount of patronage dividends paid in cash and qualified
notices of allocation. A written notice of allocation will be qualified if the
Company pays at least 20% of the patronage dividend in cash, and the patron
consents to take the stated dollar amount of the written notice into income in
the year in which it is received. The Company deducts for tax purposes the
entire amount of its patronage dividends by paying at least 20% in cash and
issuing qualified notices of allocation for the remainder.
The Company intends to continue to make patronage distributions to
member-patrons comprised of cash and qualified notices of allocation (including
its Class B Shares). At least 20% of patronage dividends will be paid in cash.
The Company will notify patrons of the stated dollar amount allocated to them
and the portion thereof which is a patronage dividend. Patrons are required to
consent to include in their gross income, in the year received, all cash as well
as the stated dollar amount of all qualified notices of allocation including the
Patronage Certificates and the book value of the Class B Shares distributed to
them as patronage dividends.
Patronage Certificates and Class B Shares distributed as part of the
patronage dividend are also subject to state income and corporation franchise
taxes in California and may be subject to such taxes in other states.
The Company is subject to federal income tax and California franchise tax on
net earnings of business with or for patrons which is not distributed as
deductible patronage dividends and on net earnings derived from nonpatronage
business. The Company files consolidated returns with its subsidiaries, none of
which is a cooperative and each of which is therefore subject to tax.
To the extent that Class B Shares are received by the patron as patronage
dividends under Subchapter T, the Internal Revenue Service ("IRS") has held that
if such Class B Shares are redeemed in full or in part or are otherwise disposed
of, there will be included in the computation of the gross income of the patron,
as ordinary income, in the year of redemption or other disposition, the excess
of the amount realized on the redemption or other disposition over the amount
previously included in the computation of gross income. However, since Class B
Shares may be issued other than as a part of patronage dividends, it is possible
that the IRS could take the position that the proceeds from a partial redemption
of Class B Shares should be taxed as a dividend. PATRONS ARE STRONGLY URGED TO
CONSULT WITH THEIR TAX ADVISORS FOR FURTHER CLARIFICATION OF THIS ISSUE AND FOR
THE IMPACT THE POSITION OF THE IRS MAY HAVE ON THEIR OWN FEDERAL AND STATE TAX
RETURNS.
The Company's subsidiaries do not pay patronage dividends and are not taxed
in accordance with Subchapter T.
16
<PAGE>
EMPLOYEES
The Company employs approximately 2,400 employees, of whom approximately
1,220 are members of one of several unions, the largest being the International
Brotherhood of Teamsters ("IBT"). The IBT contracts cover approximately 1,140
employees and have various expiration dates. The Stockton and Southern
California warehouse workers' and truck drivers' IBT contract covers
approximately 960 employees and expires on September 13, 1998. The IBT contract
which covers approximately 145 Fresno warehouse workers and truck drivers
expires on February 3, 1999. The contract which covers approximately 40
mechanical maintenance workers expires on March 29, 1999. The Company believes
its labor relations to be good.
ENERGY MATTERS
The Company's operations are dependent upon the continued availability of
electric power, diesel fuel, and gasoline. The Company's trucking operations are
extensive. Diesel fuel storage capacity represents approximately two weeks
average usage. A shortage of diesel fuel and gasoline could materially affect
deliveries of merchandise and the activities of the Company's service
representatives and, thus, adversely affect the Company's sales.
17
<PAGE>
ITEM 2. PROPERTIES
FACILITIES
The Company's corporate offices, warehouses, retail stores, and
manufacturing facilities as of August 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FOOTAGE
---------------------
DESCRIPTION OWNED LEASED
- ------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
Corporate offices.................................................. 162,000 117,000
Dry grocery........................................................ 1,994,000 851,000
General merchandise................................................ 323,000
Frozen foods, delicatessen and meat................................ 473,000
Bakery............................................................. 91,000
Dairy and ice cream................................................ 119,000
Retail stores (pilot program)...................................... 59,100
</TABLE>
The majority of the Company's dry grocery, frozen foods and delicatessen
warehouse facilities are located in Southern California. The Company owns a
643,000 square foot dry grocery warehouse and a 149,000 square foot refrigerated
warehouse in Stockton, California and leases 323,000 square feet of warehouse
space in Fresno, California.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a number of cases currently in litigation or
potential claims encountered in the normal course of business which are being
vigorously defended. In the opinion of management, the resolutions of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
The United States Environmental Protection Agency ("EPA") notified the
Company in 1993 that, together with others, it was a potentially responsible
party ("PRP") for the disposal of hazardous substances at a landfill site
located in Monterey Park, California. Cleanup of this site consists of five
phases: site control and monitoring; management and leachate treatment; landfill
gas control and landfill cover; final remedy and ground water treatment; and,
thirty-year post cleanup site control and monitoring. As of August 1996, the
Company's share of cleanup costs for the first three phases was approximately
$379,000 as previously established in July 1994. This amount was paid in October
1996. While the Company's share of the cost for the last two phases of cleanup
has not yet been established, based upon overall estimates of the range of
potential cost, the Company believes that its share of the total cost for all
five phases of cleanup will not exceed the amounts which the Company has
reserved. As of August 31, 1996, the total reserve established with respect to
environmental liabilities is $1.6 million. The Company is pursuing recovery of a
portion of its reserve from its insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
There is no market for the Company's Class A Shares, Class B Shares, or
Class C Shares. As of November 1, 1996, the Company's Class A Shares were held
of record by 491 shareholders, Class B Shares were held of record by 528
shareholders, and the Company's Class C Shares were held of record, one share
each, by the 15 directors of the Company. In the past, the Company has not paid
cash dividends on its stock, and it has no intention to do so in the future.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(52 (52 (53 (52 (52
WEEKS) WEEKS) WEEKS) WEEKS) WEEKS)
(THOUSANDS OMITTED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $1,948,919 $1,822,804 $1,873,872 $2,007,288 $2,377,740
Declared patronage dividends....... 13,200 11,571 10,837 12,880 12,977
Net earnings (loss)................ 1,517 769 94 473 (3,648)
Total assets....................... 373,360 398,603 398,569 403,979 449,713
Long-term notes payable............ 75,617 129,686 149,673 158,585 178,702
Book value per share............... 167.94 165.86 163.03 163.52 162.42
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and notes
thereto included under Item 8 in this Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth selected financial data of the Company
expressed as a percentage of net sales for the periods indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
AUGUST 31, SEPTEMBER 2, SEPTEMBER 3,
1996 1995 1994
----------- ------------ -------------
<S> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0%
Cost of sales.......................................... 90.8 90.7 90.6
Distribution, selling and administrative............... 7.7 7.8 8.0
Operating income....................................... 1.5 1.5 1.4
Interest expense....................................... 0.7 0.8 0.8
Other income (expense), net............................ 0.0 0.0 (0.1)
Earnings before patronage dividends, provision for
income taxes and cumulative effect of accounting
change................................................ 0.8 0.7 0.5
Declared patronage dividends........................... 0.7 0.7 0.6
Cumulative effect of accounting change................. 0.1
Net earnings........................................... 0.1 0.0 0.0
</TABLE>
FISCAL YEAR ENDED AUGUST 31, 1996 ("FISCAL 1996") COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 2, 1995 ("FISCAL 1995")
NET SALES. Sales increased $126.1 million or 6.9% over fiscal 1995. This
increase is a result of $134.8 million of additional large customer volume added
during fiscal 1995 and 1996, and $47.6 million of increased sales to the
existing membership. These improvements in sales volume were achieved even
though the Company experienced lower volume in its general merchandise division
of approximately $56.3 million, resulting from the reduction in general
merchandise and health and beauty care purchases by F4LGM.
COST OF SALES. Cost of sales for fiscal 1996 totaled $1.8 billion, an
increase of $116.7 million or 7.1% over fiscal 1995. The increase is related to
the additional sales discussed above and as a percentage of sales is slightly
higher than the fiscal 1995 averages. This increase is reflective of pricing
efficiencies passed on to the Company's membership as a result of the additional
volume.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $149.1 million or 7.7% of net sales in fiscal 1996,
as compared to $141.9 million or 7.8% of net sales in fiscal 1995. The level of
expenses for fiscal 1996 is relatively consistent with fiscal 1995, reflecting
only the required marginal increase in costs associated with the additional
volume.
19
<PAGE>
OPERATING INCOME. As a result of the Company's continued cost control
measures and the benefits of additional volume, operating income increased over
fiscal 1995 by 8.5%. Operating income totaled $29.5 million for fiscal 1996
compared to $27.2 million for fiscal 1995.
INTEREST. Interest expense totaled $14.4 million for fiscal 1996, which is
approximately $0.9 million or 5.6% lower than fiscal 1995. The decrease is
primarily associated with lower borrowing requirements due to the Company's
improved cash flow management.
OTHER INCOME (EXPENSE), NET. In the third quarter of fiscal 1996, the
Company sold 100% of its common stock ownership in Hawaiian Grocery Stores, Ltd.
("HGS"), a wholly-owned subsidiary, for $2.4 million. The sale resulted in a
pretax gain of $366,000. Pursuant to this transaction, the Company retained an
ownership interest in HGS represented by 1,000 shares of preferred stock with a
total book value of $1 million. The Company and HGS intend to continue a
business relationship in the future through supply and joint purchasing
arrangements. Fiscal 1995 reflects a $511,000 gain on the sale of the Company's
investment in preferred and common stock of Major Market, Inc. ("MMI") as
discussed below.
NET EARNINGS. Net earnings for fiscal 1996 increased to $1,517,000. Fiscal
1996 earnings represent a 97% increase over fiscal 1995 earnings of $769,000 and
1,514% increase over fiscal 1994 earnings of $94,000. The earnings increase
reflects the benefits generated from the Company's subsidiaries, whose earnings
are retained by the Company.
FISCAL YEAR ENDED SEPTEMBER 2, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
3, 1994 ("FISCAL 1994")
NET SALES. Fiscal 1994 included 53 weeks of sales while fiscal 1995
included 52 weeks of sales. Taking this difference into consideration, net sales
during fiscal 1995 remained relatively consistent with net sales during fiscal
1994. During 1995, the Company added two significant customers which contributed
approximately $64 million in net sales, spread among most sales categories.
These sales gains were offset by the loss of a significant frozen food customer
during 1994 and a reduction in transportation service fees.
COST OF SALES. Cost of sales decreased $45 million (2.7%) to $1.7 billion
in fiscal 1995 as compared to fiscal 1994. Cost of sales, as a percentage of
sales, has remained consistent with fiscal 1994. The decrease in cost of sales
results primarily from the decreased sales discussed above.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $141.9 million or 7.8% of net sales in fiscal 1995,
as compared to $149.3 million or 8.0% of net sales in fiscal 1994. The decrease
in total expense was primarily due to the reduction of payroll costs and the
implementation of other programs in the Company's distribution and manufacturing
facilities to increase efficiency. Partially offsetting the benefits of these
cost reduction programs was a one time charge of $1.6 million resulting from the
adoption of Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits" ("SFAS No. 112").
OPERATING INCOME. Operating income increased 6.1% in fiscal 1995, totalling
$27.2 million. This compares to $25.6 million for fiscal 1994. This increase is
a direct result of the reduction in distribution and manufacturing costs
described above.
OTHER INCOME (EXPENSE), NET. In fiscal 1993, GCC acquired an 81% investment
in MMI for $1.6 million. The investment was previously consolidated in the
Company's financial statements. In fiscal 1995, GCC sold its preferred stock and
282,600 shares of common stock to MMI. GCC received proceeds of $120,000 and a
note receivable for approximately $2.6 million. GCC now holds approximately 20%
of MMI's outstanding common shares and accounts for the investment using the
cost method. GCC does not have significant influence or control of MMI. GCC
recorded a pretax gain of $511,000 on the sale of this investment.
INTEREST. Interest expense of $15.3 million in fiscal 1995 has remained
relatively consistent with fiscal 1994.
20
<PAGE>
NET EARNINGS. Net earnings increased to $769,000 in fiscal 1995,
representing a 718% increase from fiscal 1994 net earnings of $94,000. Excluding
the impact of adopting SFAS No. 109 in the 1994 period, and SFAS No. 112 in the
1995 period, the Company experienced an improvement in after-tax earnings of
approximately $4.8 million for fiscal 1995 as compared to fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon cash flow from operations, patron deposits,
Patronage Certificates, shareholdings and borrowings under the Company's credit
lines, to finance operations. Net cash provided from operating activities
totalled $38.3 million for fiscal 1996, $9.1 million for fiscal 1995, and $18.2
million for fiscal 1994. The Company's cost and expense reductions, revised
marketing programs, and the dividend retention program provide adequate
operating cash flow to conduct the Company's business operations. At August 31,
1996, working capital was $63.1 million, and the current ratio was 1.3 and 1.7
at fiscal year end 1996 and 1995, respectively. Working capital varies
throughout the year primarily as a result of seasonal inventory requirements.
Capital expenditures totalled $13.3 million in fiscal 1996 and $9.4 million
in fiscal 1995 and $5.9 million in fiscal 1994.
The Company has agreements with certain banks that provide for committed
lines of credit. These credit lines are available for general working capital,
acquisitions, and maturing long-term debt. At the end of fiscal 1996, the
Company had a $135 million committed line of credit, of which $107.3 million was
not utilized. The $135 million secured, committed line of credit matures March
17, 1999. The credit agreement is collateralized by accounts receivable,
inventory, and certain other assets of the Company and two of its principal
subsidiaries, excluding equipment, real property and the assets of GCC. The
agreement provides for Eurodollar basis or prime basis borrowings at the
Company's option. As of August 31, 1996, the Company's outstanding borrowings,
including obligations under capital leases of approximately $3.7 million,
amounted to $87.1 million, of which $75.6 million was classified as noncurrent.
On August 30 ,1996, a $25 million credit agreement was paid off in full and
terminated by the Company. Funds for the payoff were provided through a loan
purchase agreement with a bank. The loan purchase agreement maturity date is
August 29, 2001, but is subject to extension by mutual agreement of the Company
and the bank for an additional one year on each anniversary date of the initial
purchase date. Total loan purchases under the agreement are limited to a total
aggregate principal outstanding of $50 million.
On September 20, 1996, the Company entered into a credit agreement for $10
million. This line is available for funding loans. The credit agreement is
collateralized by GCC's member loan receivables. The maturity date is September
20, 2001, but is subject to an annual extension of one year by the mutual
consent of the Company and the bank. The agreement provides for prime basis or
Eurodollar basis borrowings at the Company's option.
In fiscal 1995, the Company completed a sale leaseback transaction involving
an office building used to house the Company's support personnel. Proceeds from
the transaction were $11.5 million. Concurrent with the sale of the real
property, the Company entered into a twenty year lease of the property, with two
ten year extension options.
Patronage dividends are currently paid out in the following order and
manner: first, member-patrons receive 20% in cash; second, member-patrons
receive the required amount of Class B Shares (see Item 1. BUSINESS -- "Stock
Ownership"); third, the remainder is credited to the member-patron's deposit
account (see Item 1. BUSINESS -- "Patron Deposits").
In addition, Certified issued subordinated patronage dividend certificates
("Patronage Certificates") evidencing the retention of a portion of patronage
dividends for fiscal years 1993, 1994 and 1995. The amounts retained were
deducted from each member-patron's patronage dividend prior to the issuance of
Class B Shares to such member-patron.
Patronage Certificates are unsecured general obligations of Certified, are
subordinated to certain other indebtedness of Certified, and are nontransferable
without the consent of the Company. The Patronage
21
<PAGE>
Certificates are subject to redemption, at any time in whole and from time to
time in part, without premium, at the option of Certified, and are subject to
being set off, at the option of Certified, against all or any portion of the
amounts owing to the Company by the holder.
The Board of Directors determined that in fiscal 1993, 1994 and 1995, the
portion of the patronage dividend retained and evidenced by the issuance of
Patronage Certificates was 20% of the fourth quarter fiscal 1993 dairy division
dividend, 20% of the fiscal 1994 dairy division dividends and 20% of the first
and second quarter fiscal 1995 dividends for the dairy division. The Patronage
Certificates were 40% of the fiscal 1993, 1994 and 1995 dividends for non-dairy
products. The Patronage Certificates have a seven year term, and bear interest
payable annually on December 15 in each year.
The following table represents a summary of the Patronage Certificates
issued and their respective terms in fiscal 1993, 1994 and 1995.
<TABLE>
<CAPTION>
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
- ------------------------------ ---------- --------- --------
<S> <C> <C> <C>
1993.......................... $2,018,000 7% 12/15/00
1994.......................... $2,426,000 8% 12/15/01
1995.......................... $2,117,000 7% 12/15/02
</TABLE>
During fiscal 1996, the Company set off approximately $12,000 in Patronage
Certificates against a portion of amounts owed to the Company by the holders.
For the third and fourth quarters of fiscal 1995, the Company suspended the
retention of any of the dairy division patronage dividends due to competitive
market conditions. During fiscal 1996 the retention program was suspended for
all divisions, including the dairy. While the Company suspended the retention
program for fiscal 1996, the retention program has not been discontinued. The
Company expects to continue to distribute patronage dividends in the future,
although there can be no assurance of the amounts of such dividends.
Patrons are generally required to maintain subordinated deposits with the
Company and member-patrons purchase shares of stock of the Company. Upon
termination of patron status, the withdrawing patron will be entitled to recover
deposits in excess of its obligations to the Company if permitted by the
applicable subordination provisions, and a member-patron also will be entitled
to have its shares redeemed, subject to applicable legal requirements, Company
policies and credit agreement limitations. The Company's current redemption
policy limits the Class B Shares that the Company is obligated to redeem in any
fiscal year to 5% of the number of Class B Shares deemed outstanding at the end
of the preceding fiscal year. In fiscal 1996, this limitation restricted the
Company's redemption of shares to 19,238 shares for $3,190,815. In fiscal 1997,
the 5% limitation will restrict the Company's redemption of shares to 19,191
shares for $3,222,937. The number of shares tendered for redemption at October
31, 1996 totalled 77,481 (or approximately $13.0 million, using fiscal 1996 year
end book value), which exceeds the amount that can be redeemed in fiscal 1997.
Consequently, the Company will be required to make redemptions in fiscal 1998,
1999 and 2000, with such redemptions approximating $9.8 million based on 1996
year end book value and estimated share issuances for those years. The
redemption price for shares is based upon their book value as of the end of the
year preceding redemption. Cash flow to fund redemption of shares is provided
from operations, patron deposits, Patronage Certificates, current shareholdings
and borrowings under the Company's credit lines.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Certified Grocers of California, Ltd.
We have audited the consolidated balance sheet of Certified Grocers of
California, Ltd. and subsidiaries as of August 31, 1996, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
the fiscal year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Certified Grocers of California, Ltd. and subsidiaries as of August 31, 1996 and
the results of their operations and their cash flows for the fiscal year then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 31, 1996
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Certified Grocers of California, Ltd.
We have audited the consolidated balance sheet of Certified Grocers of
California, Ltd. and subsidiaries as of September 2, 1995 and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the two fiscal years in the period ended September 2, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Certified Grocers of California, Ltd. and subsidiaries as of September 2, 1995
and the results of their operations and their cash flows for each of the two
fiscal years in the period ended September 2, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes and postretirement benefits
other than pensions in 1994 and postemployment benefits in 1995.
COOPERS AND LYBRAND L.L.P.
Los Angeles, California
November 27, 1995
24
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
AUGUST 31, 1996 AND SEPTEMBER 2, 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current:
Cash and cash equivalents............................................................ $ 6,451 $ 7,329
Accounts and notes receivable, net................................................... 98,424 104,249
Inventories.......................................................................... 136,303 149,432
Prepaid expenses..................................................................... 4,625 4,789
Deferred taxes....................................................................... 5,356 2,850
---------- ----------
Total current assets........................................................... 251,159 268,649
Properties, net........................................................................ 73,571 71,816
Investments............................................................................ 27,541 22,051
Notes receivable....................................................................... 8,309 25,622
Other assets........................................................................... 12,780 10,465
---------- ----------
TOTAL ASSETS................................................................. $ 373,360 $ 398,603
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable..................................................................... $ 98,468 $ 86,159
Accrued liabilities.................................................................. 62,986 51,018
Current portion of notes payable..................................................... 11,440 11,573
Patrons' excess deposits and declared patronage dividends............................ 15,157 12,214
---------- ----------
Total current liabilities...................................................... 188,051 160,964
Notes payable, due after one year...................................................... 75,617 129,686
Long-term liabilities.................................................................. 14,913 12,210
Commitments and contingencies -- See Notes 12 and 15
Patrons' deposits and certificates:
Patrons' required deposits........................................................... 15,524 17,022
Subordinated patronage dividend certificates......................................... 6,549 6,561
Shareholders' equity
Class A Shares....................................................................... 5,305 5,292
Class B Shares ...................................................................... 56,504 56,266
Retained earnings ................................................................... 11,436 10,488
Net unrealized gain (loss) on appreciation (depreciation) of investments............. (284) 114
Minimum pension liability adjustment................................................. (255)
---------- ----------
Total shareholders' equity..................................................... 72,706 72,160
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 373,360 $ 398,603
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
FOR FISCAL YEARS ENDED AUGUST 31, 1996, SEPTEMBER 2, 1995, AND SEPTEMBER 3, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales......................................................... $ 1,948,919 $ 1,822,804 $ 1,873,872
Costs and expenses:
Cost of sales................................................... 1,770,339 1,653,660 1,698,930
Distribution, selling and administrative........................ 149,078 141,947 149,303
------------ ------------ ------------
Operating income.................................................. 29,502 27,197 25,639
Interest expense.................................................. (14,406) (15,260) (15,405)
Other income (expense), net....................................... 366 509 (1,600)
------------ ------------ ------------
Earnings before patronage dividends, provision for income taxes
and cumulative effect of accounting change...................... 15,462 12,446 8,634
Declared patronage dividends...................................... (13,200) (11,571) (10,837)
------------ ------------ ------------
Earnings (loss) before income tax provision and cumulative effect
of accounting change............................................ 2,262 875 (2,203)
Provision for income taxes........................................ 745 106 203
------------ ------------ ------------
Earnings (loss) before cumulative effect of accounting change..... 1,517 769 (2,406)
Cumulative effect of accounting change............................ 2,500
------------ ------------ ------------
Net earnings...................................................... $ 1,517 $ 769 $ 94
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
FOR FISCAL YEARS ENDED AUGUST 31, 1996, SEPTEMBER 2, 1995, AND SEPTEMBER 3, 1994
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON MINIMUM
CLASS A CLASS B APPRECIATION PENSION
-------------------- -------------------- RETAINED (DEPRECIATION) LIABILITY
SHARES AMOUNT SHARES AMOUNT EARNINGS OF INVESTMENTS ADJUSTMENT
--------- --------- --------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 28, 1993..................... 49,700 $ 4,285 394,326 $ 57,238 $ 11,085
Class A Shares issued...................... 6,000 981
Class A Shares redeemed.................... (6,600) (562) (517)
Class B Shares issued...................... 13,676 2,230
Class B Shares redeemed.................... (19,716) (2,875) (349)
Net earnings............................... 94
Net unrealized loss on depreciation of
investments (net of deferred tax benefit
of $157).................................. $ (304)
--------- --------- --------- --------- --------- -----
Balance, September 3, 1994................... 49,100 4,704 388,286 56,593 10,313 (304)
Class A Shares issued...................... 7,800 1,271
Class A Shares redeemed.................... (6,600) (683) (393)
Class B Shares issued...................... 15,895 2,637
Class B Shares redeemed.................... (19,414) (2,964) (201)
Net earnings............................... 769
Net unrealized gain on appreciation of
investments (net of deferred tax of
$216)..................................... 418
--------- --------- --------- --------- --------- -----
Balance, September 2, 1995................... 50,300 5,292 384,767 56,266 10,488 114
--------- --------- --------- --------- --------- -----
Class A Shares issued...................... 4,800 796
Class A Shares redeemed.................... (6,000) (783) (212)
Class B Shares issued...................... 18,286 3,072
Class B Shares redeemed.................... (19,238) (2,834) (357)
Net earnings............................... 1,517
Net unrealized loss on depreciation of
investments (net of deferred tax benefit
of $205).................................. (398)
Minimum pension liability adjustment (net
of tax of $195)........................... $ (255)
--------- --------- --------- --------- --------- ----- -----
Balance, August 31, 1996..................... 49,100 $ 5,305 383,815 $ 56,504 $ 11,436 $ (284) $ (255)
--------- --------- --------- --------- --------- ----- -----
--------- --------- --------- --------- --------- ----- -----
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR FISCAL YEARS ENDED AUGUST 31, 1996, SEPTEMBER 2, 1995, AND SEPTEMBER 3, 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................................................... $ 1,517 $ 769 $ 94
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Gain on sale of investments in affiliates.................................. (366) (511)
Cumulative effect of accounting change..................................... (2,500)
Depreciation and amortization.............................................. 10,022 9,982 10,680
Deferred taxes............................................................. (3,819) (273)
(Gain) loss on disposal of properties...................................... (158) 366 (445)
Accrued benefit costs...................................................... 2,595 5,616 2,940
Accrued environmental liabilities.......................................... 110 1,100
Accrued sublease liability................................................. (167) (230) 1,228
Facility relocation........................................................ 520
Decrease (increase) in assets:
Accounts and notes receivable............................................ 1,892 (7,757) 3,428
Inventories.............................................................. 6,893 (3,976) 1,611
Prepaid expenses......................................................... 131 (1,041) 170
Notes receivable......................................................... (10,547) 293 2,720
Increase (decrease) in liabilities:
Accounts payable......................................................... 14,905 4,825 (2,741)
Accrued liabilities...................................................... 12,449 218 2,584
Patrons' excess deposits and declared patronage dividends................ 2,943 673 (3,205)
--------- --------- ---------
Net cash provided by operating activities...................................... 38,290 9,064 18,184
--------- --------- ---------
Cash flows from investing activities:
Purchase of properties....................................................... (13,350) (9,363) (5,921)
Proceeds from sales of properties............................................ 1,846 12,489 1,295
Decrease in other assets..................................................... (1,703) (1,793) (244)
Investment in securities, net................................................ (4,888) (1,316) (7,974)
Proceeds from sale of notes receivable....................................... 27,860
Sales of investments in affiliates, net of cash disposed*.................... 1,785 (479)
--------- --------- ---------
Net cash provided (utilized) by investing activities........................... 11,550 (462) (12,844)
--------- --------- ---------
Cash flows from financing activities:
Reduction of long-term notes payable......................................... (37,329) (7,534) (5,934)
Reduction of short-term notes payable........................................ (11,573) (2,658) (3,132)
Decrease in members' required deposits....................................... (1,498) (567) (1,312)
Issuance of subordinated patronage dividend certificates..................... 2,117 2,421
Repurchase of shares from members............................................ (4,186) (4,224) (4,303)
Issuance of shares to members................................................ 3,868 3,891 3,211
--------- --------- ---------
Net cash utilized by financing activities...................................... (50,718) (8,975) (9,049)
--------- --------- ---------
Net decrease in cash and cash equivalents...................................... (878) (373) (3,709)
Cash and cash equivalents at beginning of year ................................ 7,329 7,702 11,411
--------- --------- ---------
Cash and cash equivalents at end of year....................................... $ 6,451 $ 7,329 $ 7,702
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest..................................................................... $ 14,929 $ 15,006 $ 15,232
Income taxes ................................................................ 980 2,388 70
--------- --------- ---------
$ 15,909 $ 17,394 $ 15,302
--------- --------- ---------
--------- --------- ---------
*Sales of investments in affiliates, net of cash disposed:
Working capital, other than cash............................................. $ 7,188 $ (980)
Property, plant and equipment................................................ 460 1,596
Note receivable.............................................................. (2,580)
Investment in preferred stock................................................ (1,000)
Other assets................................................................. 71 1,857
Proceeds in excess of net assets of affiliates sold, net..................... 366 511
Long-term debt............................................................... (5,300) (883)
--------- ---------
Net cash effect from sales of investments in affiliates.................... $ 1,785 $ (479)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Certified
Grocers of California, Ltd. and its subsidiaries ("Certified" or the "Company").
Intercompany transactions and accounts with subsidiaries have been eliminated.
NATURE OF BUSINESS:
The Company is a cooperative organization engaged primarily in the
distribution of food products and related nonfood items primarily to retail
establishments owned by shareholders of the Company. All establishments with
which directors are affiliated, as members of the Company, purchase groceries,
related products and store equipment from the Company in the ordinary course of
business at prices and on terms available to members generally.
The Company's fiscal year ends on the Saturday nearest to August 31. Fiscal
years 1996 and 1995 included 52 weeks, while fiscal year 1994 included 53 weeks.
RECLASSIFICATIONS:
Certain reclassifications have been made to prior years' financial
statements to present them on a basis comparable with the current year's
presentation.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES:
Inventories are valued at the lower of cost (first-in, first-out) or market.
DEPRECIATION:
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 40 years for buildings and 10 years for
equipment. Leasehold improvements are amortized based on the estimated life of
the asset or the life of the lease, whichever is shorter. Expenditures for
replacements or major improvements are capitalized; expenditures for normal
maintenance and repairs are charged to operations as incurred. Upon sale or
retirement of properties, the cost and accumulated depreciation are removed from
the accounts, and any gain or loss is included in operations.
POSTRETIREMENT BENEFITS:
Effective August 29, 1993, the Company implemented Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106"). This statement requires that the cost of
these benefits, which are primarily for health care and life insurance, be
recognized in the financial statements throughout the employees' active working
careers. The Company's previous practice was to expense these costs on a cash
basis, principally after retirement. The transition obligation is being
amortized on a straight-line basis over twenty years as allowed under SFAS No.
106.
POSTEMPLOYMENT BENEFITS:
The Financial Accounting Standards Board ("FASB") issued Statement No. 112
"Employers Accounting for Postemployment Benefits", which is effective for
fiscal years beginning after December 15, 1993. Accordingly, the Company
conformed to the new requirements in fiscal 1995. The new accounting standard
requires an accrual rather than a pay-as-you-go basis of recognizing expenses
for postemployment benefits (provided by an employer to former or inactive
employees after termination of employment but before retirement).
29
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ENVIRONMENTAL COSTS:
The Company expenses, on a current basis, certain recurring costs incurred
in complying with environmental regulations and remediating environmental
pollution. The Company also reserves for certain non-recurring future costs
required to remediate environmental pollution for which the Company is liable
whenever, by diligent legal and technical investigation, the scope or extent of
pollution has been determined, the Company's contribution to the pollution has
been ascertained, remedial measures have been specifically identified as
practical and viable, and the cost of remediation and the Company's
proportionate share can be reasonably estimated.
INCOME TAXES:
Effective August 29, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative
effect of this change in accounting principle increased the Company's fiscal
1994 net earnings by $2.5 million. Accordingly, the Company provides for income
taxes using the asset and liability method under which deferred income taxes are
recognized for the estimated future tax effects attributable to temporary
differences and carryforwards that result from events that have been recognized
either in the financial statements or in the income tax returns but not both.
The measurement of current and deferred income tax liabilities and assets is
based on provisions of enacted tax laws. Valuation allowances are recognized if
based on the weight of available evidence, it is more likely than not that some
portion of the deferred tax assets will not be realized.
INVESTMENTS:
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"), on September 3, 1994. Investments in debt
securities and equity securities with readily determinable fair values are
classified into categories based on the Company's intent. Investments available
for sale are carried at estimated fair value. Unrealized holding gains and
losses are excluded from earnings and reported, net of income taxes, as a
separate component of shareholders' equity until realized. For all investment
securities, unrealized losses that are other than temporary are recognized in
net income. Realized gains and losses are determined on the specific
identification method and are reflected in net earnings.
In accordance with SFAS 115, prior period financial statements have not been
restated to reflect the change in accounting principle. The cumulative effect as
of September 3, 1994 of adopting SFAS 115 decreases shareholders' equity by
$304,000. There was no effect on net income.
The cost of securities sold is determined by the specific identification
method.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS:
The FASB issued Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", which is effective for fiscal years beginning after December
15, 1995. Accordingly, the Company will conform to the new requirements in
fiscal 1997. The Statement establishes guidelines to be used when evaluating
long-lived assets, identifiable intangibles, and related goodwill that an entity
plans to continue to use in operations for impairment and prescribes the
accounting when such assets are determined to be impaired. The Statement also
provides guidance on the accounting for similar assets that a company plans to
dispose of, except for those assets of a discontinued operation. Management
estimates that the adoption of this pronouncement will not have a material
effect on the Company's consolidated financial position and results of
operations.
30
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TRANSFERS AND SERVICING OF FINANCIAL ASSETS:
The FASB issued Statement of Financial Accounting Standards No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities", which is effective for transfers and servicing of assets and
liabilities occurring after December 31, 1996. The Statement provides for
standards that are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
This Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
Accordingly, the Company will conform to the new requirements for applicable
transactions occurring after December 31, 1996.
2. PROPERTIES:
Properties at August 31, 1996, and September 2, 1995 stated at cost, are
comprised of:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land......................................................................... $ 8,812 $ 8,856
Buildings and leasehold improvements......................................... 64,269 64,321
Equipment.................................................................... 74,839 65,849
Equipment under capital leases............................................... 7,779 9,259
---------- ----------
155,699 148,285
Less accumulated depreciation and
amortization............................................................... 82,128 76,469
---------- ----------
$ 73,571 $ 71,816
---------- ----------
---------- ----------
</TABLE>
3. INVESTMENTS:
The amortized cost and fair values of investments available-for-sale,
including equity securities, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AUGUST 31, 1996 COST GAINS LOSSES VALUE
- --------------------------------------------------------- ----------- ------------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................. $ 10,219 $ 21 $ 350 $ 9,890
Corporate securities................................... 3,008 32 110 2,930
Mortgage backed securities............................. 1,052 35 1,017
----------- --- ----- ---------
Sub-total............................................ 14,279 53 495 13,837
Redeemable preferred stock............................... 7,739 22 10 7,751
Equity securities........................................ 5,953 5,953
----------- --- ----- ---------
$ 27,971 $ 75 $ 505 $ 27,541
----------- --- ----- ---------
----------- --- ----- ---------
</TABLE>
31
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 2, 1995 COSTS GAINS LOSSES VALUE
- --------------------------------------------------------- ----------- ------------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.................. $ 9,941 $ 138 $ 83 $ 9,996
Corporate securities................................... 1,765 57 14 1,808
Mortgage backed securities............................. 933 19 1 951
----------- ----- --- ---------
Sub-total............................................ 12,639 214 98 12,755
Redeemable preferred stock............................... 6,696 58 1 6,753
Equity securities........................................ 2,543 2,543
----------- ----- --- ---------
$ 21,878 $ 272 $ 99 $ 22,051
----------- ----- --- ---------
----------- ----- --- ---------
</TABLE>
Fixed maturity investments are due as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
AUGUST 31, 1996 COST VALUE
- -------------------------------------------------------------------------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed Maturities Available for Sale:
Due in one year or less....................................................... $ -- $ --
Due after one year through five years......................................... 6,109 6,006
Due after five years through ten years........................................ 5,173 5,004
Due after ten years........................................................... 2,997 2,827
----------- -----------
$ 14,279 $ 13,837
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
SEPTEMBER 2, 1995 COST VALUE
- -------------------------------------------------------------------------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed Maturities Available for Sale:
Due in one year or less....................................................... $ 300 $ 304
Due after one year through five years......................................... 4,420 4,438
Due after five years through ten years........................................ 4,475 4,481
Due after ten years........................................................... 3,444 3,532
----------- -----------
$ 12,639 $ 12,755
----------- -----------
----------- -----------
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are shown as being due at
their average expected maturity dates.
32
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Investment income is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities................................................................ $ 1,834 $ 1,469 $ 1,094
Preferred stock................................................................. 350 563 461
Equity securities............................................................... 132
Cash and cash equivalents....................................................... 197 171 95
--------- --------- ---------
2,513 2,203 1,650
Less investment expenses........................................................ 95 85 110
--------- --------- ---------
Net investment income....................................................... $ 2,418 $ 2,118 $ 1,540
--------- --------- ---------
--------- --------- ---------
</TABLE>
Investments carried at fair values of $11,586,000 and $11,272,000 at August
31, 1996 and September 2, 1995 respectively, are on deposit with regulatory
authorities in compliance with insurance company regulations. Equity securities
which do not have readily determinable fair values are accounted for using the
cost method.
4. ACCRUED LIABILITIES:
Accrued liabilities at August 31, 1996 and September 2, 1995 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Accrued promotional & other liabilities........................................ $ 12,686 $ 6,777
Insurance loss reserves & other liabilities.................................... 15,492 11,261
Accrued income & other taxes payable........................................... 9,641 5,395
Accrued wages & related taxes.................................................. 9,021 8,985
Other accrued liabilities...................................................... 16,146 18,600
--------- ---------
$ 62,986 $ 51,018
--------- ---------
--------- ---------
</TABLE>
33
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE:
Notes payable at August 31, 1996 and September 2, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes payable to banks under revolving credit agreements, expiring March 17,
1999, interest rate at prime (8.25% and 8.75% at August 31, 1996 and
September 2, 1995, respectively) plus 1/2% or Eurodollar (5.88% at August
31, 1996 and September 2, 1995) plus 1 1/2%................................ $ 27,682 $ 53,439
Subordinated note payable to a life insurance company, due April 1, 1999,
interest rate of 10.8%, $8,750,000 due April 1 each year beginning in
1996....................................................................... 26,250 35,000
Senior note payable to a life insurance company, collateralized through an
inter-creditor agreement with banks under the revolving credit agreement of
$135 million, due January 15, 2005, interest rate of 9.55%, $62,500 due
monthly each year beginning in 1992 through 2000 and then $220,833 monthly
until maturity............................................................. 15,750 16,500
Notes payable, collateralized by land and warehouses, payable monthly,
approximately $60,000 plus interest at 9.88%, due February 1, 2006......... 13,636 14,462
Note payable to banks under revolving credit agreements, terminated August
30, 1996, interest rate at prime (8.75% at September 2, 1995) plus 1/2% or
Eurodollar (5.88% at September 2, 1995) plus 1 1/2%........................ -- 15,500
Obligations under capital leases............................................. 3,739 6,358
---------- ----------
87,057 141,259
Less portion due within one year............................................. (11,440) (11,573)
---------- ----------
$ 75,617 $ 129,686
---------- ----------
---------- ----------
</TABLE>
Maturities of long-term debt as of August 31, 1996 are:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
1997................................................................. $ 11,440
1998................................................................. 11,343
1999................................................................. 39,035
2000................................................................. 4,039
2001................................................................. 4,334
Beyond 2001.......................................................... 16,866
------------
$ 87,057
------------
------------
</TABLE>
During fiscal 1996, the Company maintained two credit agreements with
certain banks that provide for committed lines of credit for general working
capital, acquisitions, and maturing long-term debt. At the end of fiscal 1996,
the Company had a $135 million committed line of credit, of which $107.3 million
was not utilized. The unused portion of this credit line is subject to annual
commitment fees of 0.375%.
The credit agreement contains various financial covenants pertaining to
working capital, debt-to-equity ratios, tangible net worth, earnings, and
similar provisions. In addition, on the required portion of member
34
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
deposits and redemption of Class A and Class B Shares, no payment may be made if
there exists a default with respect to any senior indebtedness, as defined,
until such default has been cured or waived or until such senior indebtedness
has been paid in full.
The $135 million credit agreement is collateralized by accounts receivable,
inventory and certain other assets of the Company and two of its principal
subsidiaries, excluding equipment, real property and the assets of GCC. The
maturity date is March 17, 1999, but is subject to extension by the mutual
consent of the Company and the banks. The agreement provides for Eurodollar
basis or prime basis borrowings at the Company's option.
On August 30, 1996, a $25 million credit agreement was paid off in full and
terminated by Grocers Capital Company ("GCC"). Funds for the payoff were
provided through a loan purchase agreement with a bank. The loan purchase
agreement maturity date is August 29, 2001, but is subject to extension by
mutual agreement of the Company and the bank for an additional one year on each
anniversary date of the initial purchase date. Total loan purchases under the
agreement are limited to a total aggregate principal outstanding of $50 million.
On September 20, 1996, the Company entered into a credit agreement for $10
million. This credit line is available for funding loans. The credit agreement
is collateralized by GCC's member loan receivables. The maturity date is
September 20, 2001, but is subject to an annual extension of one year by the
mutual consent of the Company and the bank. The agreement provides for prime
basis or Eurodollar basis borrowings at the Company's option.
As a result of maturing long-term debt (a non-cash financing activity), the
Company reclassified from long to short-term debt $11,440,000, $11,570,000, and
$2,978,000 in fiscal 1996, 1995, and 1994, respectively.
6. LEASES:
The Company has entered into both operating and capital leases for certain
warehouse, transportation and data processing computer equipment. The Company
has also entered into operating leases for approximately 40 retail supermarkets.
The majority of these locations are subleased to various member-patrons of the
Company. The operating leases and subleases are noncancelable, renewable,
include purchase options in certain instances, and require payment of real
estate taxes, insurance and maintenance. In addition, the Company is
contingently liable with respect to lease guarantees for certain member-patrons.
The total commitment for such lease guarantees approximates $38.2 million to
$40.2 million. The Company's security respecting these lease guarantees is
discussed in Note 13 under "Concentration of Credit Risk."
Total rent expense was $20,539,000, $21,051,000, and $22,707,000 in 1996,
1995, and 1994, respectively. Sublease rental income was $6,214,000, $5,308,000,
and $4,713,000 in 1996, 1995, and 1994, respectively.
35
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum rentals (exclusive of real estate taxes, insurance, and other
expenses payable under the terms of the leases) as of August 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
--------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1997............................................................... $ 1,255 $ 20,743
1998............................................................... 999 18,045
1999............................................................... 852 14,391
2000............................................................... 852 12,791
2001............................................................... 340 10,979
Beyond 2001........................................................ -- 84,030
------ --------
Total minimum lease payments..................................... 4,298 $ 160,979
--------
--------
Less amount representing interest.................................. (559)
------
Present value of net minimum lease payments........................ 3,739
Less current portion............................................... (1,028)
------
Total long-term portion.......................................... $ 2,711
------
------
</TABLE>
Minimum sublease rentals (exclusive of real estate taxes, insurance and
other expenses payable under the terms of the leases) as of August 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
1997.............................................................................. $ 6,929
1998.............................................................................. 7,333
1999.............................................................................. 6,850
2000.............................................................................. 6,368
2001.............................................................................. 6,260
Beyond 2001....................................................................... 53,343
-------
$ 87,083
-------
-------
</TABLE>
In fiscal 1995, the Company completed a sale leaseback transaction with
Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated third party. The
total sales price for the property was $11,500,000. Concurrent with the sale of
the real property, the Company and Trinet entered into a twenty year lease of
the property, with two ten year extension options. The monthly rental is
approximately $108,000 and is subject to CPI adjustment commencing on the first
day of the sixth, eleventh and sixteenth years. However, such CPI adjustments
shall not exceed four percent per annum on a cumulative basis during each five
year period. The gain on this transaction was $1.2 million of which $55,000 and
$41,000 of the deferred gain was recognized during fiscal 1996 and 1995.
36
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES:
The significant components of income tax expense (benefit) are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current................................................... $ 3,641 $ 290 $ 2,049
Utilization of net operating loss carryforwards........... (800)
Deferred.................................................. (2,849) (72) (1,156)
--------- --------- ---------
792 218 93
--------- --------- ---------
State:
Current................................................... 923 114 377
Deferred.................................................. (970) (226) (267)
--------- --------- ---------
(47) (112) 110
--------- --------- ---------
$ 745 $ 106 $ 203
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's income taxes currently payable in 1995 and 1994 are in part
due to alternative minimum tax.
The effects of temporary differences and other items that give rise to
deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
AUGUST 31, SEPTEMBER 2,
1996 1995
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable....................................................... $ 5,058 $ 2,223
Accrued vacation/incentives............................................... 692 808
Closed store reserves..................................................... 886 562
Lease reserve............................................................. 382 483
Deferred income........................................................... 559 597
Insurance reserves........................................................ 1,794 1,736
Postretirement/postemployment benefits other than pensions................ 5,676 4,366
Alternative minimum tax credits........................................... 1,199 1,810
Tax credits............................................................... 110 110
Net operating loss carryforwards.......................................... 12 93
Other..................................................................... 1,418 1,362
----------- ------------
Total gross deferred tax assets......................................... 17,786 14,150
Less valuation allowance.................................................. (1,400) (1,400)
----------- ------------
Deferred tax assets..................................................... $ 16,386 $ 12,750
----------- ------------
----------- ------------
Deferred tax liabilities:
Property, plant and equipment............................................. $ 5,226 $ 4,561
Capitalized software...................................................... 1,587 1,380
Intangible assets......................................................... 676 1,878
Deferred state taxes...................................................... 679 349
Other..................................................................... 199 341
----------- ------------
Total gross deferred tax liabilities.................................... $ 8,367 $ 8,509
----------- ------------
----------- ------------
Net deferred tax asset.................................................. $ 8,019 $ 4,241
----------- ------------
----------- ------------
</TABLE>
37
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net deferred tax assets of $5,356 and $2,850 are included in deferred taxes,
current and $2,663 and $1,346 in other assets on the Company's Consolidated
Balance Sheets as of August 31, 1996 and September 2, 1995, respectively.
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The remaining balance of
the net deferred tax assets should be realized through future operating results,
the reversal of taxable temporary differences, and tax planning strategies.
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax expense (benefit) at the statutory
rate....................................................... $ 769 $ 297 $(749)
State income taxes, net of federal income tax benefit....... 139 (75) 73
Insurance subsidiary not recognized for state taxes......... (123)
Dividend received deduction................................. (64) (128) (105)
Alternative minimum tax..................................... 385
Increase in valuation allowance............................. 392
Other, net.................................................. 24 12 207
----- ------- -----
Provision for income taxes.................................. $ 745 $ 106 $ 203
----- ------- -----
----- ------- -----
</TABLE>
At August 31, 1996, the Company has alternative minimum tax credit
carryforwards of approximately $1.2 million available to offset future regular
income taxes payable to the extent such regular taxes exceed alternative minimum
taxes payable.
8. SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES:
In December 1992, the Company's Board of Directors authorized a patronage
dividend retention program to be effective commencing with the dividends payable
for fiscal 1993, whereby, subject to annual Board approval, Certified retains a
portion of the patronage dividends and issues Patronage Certificates (the
"Certificates") evidencing its indebtedness respecting the retained amounts. In
addition, the program provides for the issuance of the Certificates to patrons
on an annual basis in a portion and at an interest rate to be determined
annually by the Board of Directors. However, as to any particular patron, if the
amount of the retention is less than a specified minimum (presently $500), then
no retention occurs and a Certificate is not issued. Certificates for each year
are unsecured general obligations of Certified, are subordinated to certain
other Certified indebtedness, and are nontransferable without the consent of
Certified. The certificates are subject to redemption, at any time in whole and
from time to time in part, without premium, at the option of Certified.
The Board of Directors determined that in fiscal 1993, 1994 and 1995, the
portion of the patronage dividend retained and evidenced by the issuance of
Patronage Certificates was 20% of the fourth quarter fiscal 1993 dairy division
dividend, 20% of the fiscal 1994 dairy division dividends and 20% of the first
and second quarter fiscal 1995 dividends for the dairy division. The Patronage
Certificates were 40% of the fiscal 1993, 1994 and 1995 dividends for non-dairy
products. The Patronage Certificates have a seven year term, and bear interest
payable annually on December 15 in each year.
38
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table represents a summary of the Certificates issued and
their respective terms in fiscal 1993, 1994 and 1995.
<TABLE>
<CAPTION>
AGGREGATE ANNUAL
FISCAL PRINCIPAL INTEREST MATURITY
YEAR AMOUNT RATE DATE
- ------------------------------ ---------- --------- --------
<S> <C> <C> <C>
1993.......................... $2,018,000 7% 12/15/00
1994.......................... $2,426,000 8% 12/15/01
1995.......................... $2,117,000 7% 12/15/02
</TABLE>
During fiscal 1996, the Company set off approximately $12,000 in Patronage
Certificates against a portion of amounts owed to the Company by the holders.
The Company expects to continue to distribute patronage dividends in the future,
although there can be no assurance of the amounts of such dividends.
For the third and fourth quarters of fiscal 1995, the Company suspended the
retention of any of the dairy division partronage dividends due to competitive
market conditions. During fiscal 1996 the retention program was suspended for
all divisions, including the dairy. While the Company suspended the retention
program for fiscal 1996, the retention program has not been discontinued.
9. CAPITAL SHARES:
The Company requires that each member-patron hold 100 Class A shares. Each
member-patron must also hold Class B Shares having combined issuance values
equal to the lesser of the amount of the member-patron's required deposit or
twice the member-patron's average weekly purchases (the "Class B Share
requirement"). For this purpose, each Class B Share held by a member-patron has
an issuance value equal to the book value of Certified's outstanding shares as
of the close of the fiscal year last ended prior to the issuance of such Class B
Share.
After payment of at least 20% of the patronage dividend in cash and the
issuance of the Patronage Certificates, Class B Shares are issued as a portion
of each member-patron's patronage dividend and, to the extent necessary to
fulfill the member-patron's Class B Share requirement, by crediting the
member-patron's cash deposit account for the issuance values of such shares.
All shares of a terminated member will be redeemed by the Company (subject
to certain legal limitations, provisions of the Company's redemption policy, and
provisions of certain of the Company's committed lines of credit) at a price
equal to the book value of the shares as of the close of the fiscal year ended
prior to the redemption, less all amounts that may be owing by the member to the
Company. All shares are pledged to the Company to secure the Company's
redemption rights and as collateral for all obligations to the Company. The
Company is not obligated in any fiscal year to redeem more than 5% of the sum of
the number of Class B Shares outstanding as of the close of the preceding fiscal
year and the number of Class B Shares issued as a part of the patronage dividend
for the preceding year (the "5% limit"). Thus, shares tendered for redemption in
a given fiscal year may not necessarily be redeemed in that fiscal year. The 5%
limit for fiscal year 1997 will allow for redemption of 19,191 shares.
Additionally, through October 1996,
39
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
335 shares have been tendered for redemption. The following table summarizes the
Class B Shares tendered and presently approved for redemption, shares redeemed,
and the remaining number of shares pending redemption:
<TABLE>
<CAPTION>
FISCAL
YEAR TENDERED REDEEMED REMAINING
------ --------- ----------- ----------- BOOK
VALUE
-------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Years prior to 1994............................ 118,424 60,094 128,719 $ 21,146
1994........................................... 38,130 19,716 76,744 12,512
1995........................................... 23,959 19,414 81,289 13,483
1996........................................... 15,095 19,238 77,146 12,956
</TABLE>
Because the 5% limit for fiscal year 1997 has been met, the remaining 58,290
shares (or approximately $9.8 million, using fiscal 1996 year end book value)
not redeemed in fiscal year 1997 as well as the redemption of any additional
Class B Shares tendered during fiscal 1997 will require the prior approval of
the Company's Board of Directors. At present, such approvals are not expected to
be given. Accordingly, since the Company's fiscal 1997 5% share redemption
limitation has been met, future redemptions for the 1997 fiscal year will be
postponed. The total of Class B Shares tendered and awaiting redemption has
caused the 5% limit for fiscal 1997, and will cause the limits for fiscal 1998
through 2000 to be met, thereby delaying the redemption of Class B Shares in
excess of such limit. The redemptions required for fiscal years 1998 through
2000 approximate $9.8 million based on 1996 year end book value and estimated
share issuances for those years. Cash flow to fund redemption of shares is
provided from operations, patron deposits, Patronage Certificates, current
shareholdings and borrowings under the Company's credit lines. Any additional
large tenderings of Class B Shares could also potentially cause future year 5%
limitations to be exceeded. Therefore, the Company's ability to redeem
additional shares in excess of the 5% limit without prior approval of the Board
may also be limited.
There are 500,000 authorized Class A Shares, of which 49,100 and 50,300 were
outstanding at August 31, 1996 and September 2, 1995, respectively. There are
2,000,000 authorized Class B Shares, of which 383,815 and 384,767 including
18,286 and 15,895 respectively issued after year end, were outstanding at August
31, 1996 and September 2, 1995, respectively. Once redeemed, such shares are not
available for reissuance to member-patrons.
No member-patron may hold more than one hundred Class A Shares. However, it
is possible that a member may have an interest in another member, or that a
person may have an interest in more than one member, and thus have an interest
in more than one hundred Class A Shares. The Board of Directors is authorized to
accept member-patrons without the issuance of Class A Shares when the Board of
Directors determines that such action is justified by reason of the fact that
the ownership of the patron is the same, or sufficiently the same, as that of
another member-patron holding one hundred Class A Shares. The price for such
shares will be the book value per share of outstanding shares at the close of
the fiscal year last ended.
There are also 15 authorized Class C Shares of which 15 are outstanding.
These shares are valued at $10 per share, and ownership is limited to members of
the Board of Directors with no rights as to dividends or other distributions.
Holders of Class A Shares are entitled to vote such shares cumulatively for
the election of 12 of the directors on the Board of Directors. Holders of the
Class B Shares are entitled to vote such shares cumulatively for the election of
3 of the directors on the Board of Directors. Except as required by California
law, the Class C Shares have no voting rights.
40
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. BENEFIT PLANS:
The Company has a noncontributory, defined benefit pension plan covering
substantially all of its nonunion employees. The benefits under the plan
generally are based on the employee's years of service and average earnings for
the three highest consecutive calendar years of compensation during the ten
years immediately preceding retirement. The Company makes contributions to the
pension plan in amounts which are at least sufficient to meet the minimum
funding requirements of applicable laws and regulations but no more than amounts
deductible for federal income tax purposes. Benefits under the plan are included
in a trust providing benefits through annuity contracts, and part of the plan
assets are held by a trustee.
The funded status of the plan and the amounts recognized in the balance
sheet are:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits..................................................................... $ 23,259 $ 24,416
Effect of assumed future increase in compensation
levels....................................................................... 10,484 10,319
--------- ---------
Projected benefit obligation for services rendered to
date......................................................................... 33,743 34,735
Plan assets at fair value........................................................ 33,711 32,593
--------- ---------
Plan assets in deficiency of projected benefit obligations....................... 32 2,142
Unrecognized net gain............................................................ (3,570) (6,094)
Unrecognized transition asset.................................................... 1,530 1,839
Unrecognized prior service cost.................................................. 303 342
--------- ---------
Prepaid pension costs at June 1.................................................. (1,705) (1,771)
--------- ---------
Fourth quarter contribution...................................................... -- --
Fourth quarter net periodic pension cost......................................... 328 326
--------- ---------
Prepaid pension cost at fiscal year end.......................................... $ (1,377) $ (1,445)
--------- ---------
<CAPTION>
1996 1995 1994
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net pension cost for the fiscal years ending included the following components:
Service cost -- benefits earned during the period.............................. $ 1,448 $ 1,398 $ 1,385
Interest cost on projected benefit obligation.................................. 2,709 2,650 2,425
Actual return on plan assets................................................... (6,321) (2,845) (2,628)
Net amortization and deferral.................................................. 3,476 100 (266)
--------- --------- ---------
Net periodic pension cost...................................................... $ 1,312 $ 1,303 $ 916
--------- --------- ---------
Major assumptions:
Assumed discount rate.......................................................... 7.50% 7.50% 7.50%
Assumed rate of future compensation increases.................................. 5.50% 5.50% 5.50%
Expected rate of return on plan assets......................................... 8.50% 8.50% 8.50%
</TABLE>
The method used to compute the vested benefit obligation is the actuarial
present value of the vested benefits to which the employee is entitled if the
employee separates immediately. The vested benefit obligation was $22,927,000,
$24,007,000, and $24,029,000 in 1996, 1995 and 1994, respectively.
41
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company also made contributions of $5,713,000, $5,368,000, and
$4,820,000 in 1996, 1995, and 1994, respectively to collectively bargained,
multiemployer defined benefit pension plans in accordance with the provisions of
negotiated labor contracts. Information from the plans' administrators is not
available to permit the Company to determine its proportionate share of
termination liability, if any.
The Company has an Employees' Sheltered Savings Plan, which is a defined
contribution plan, adopted pursuant to Section 401(k) of the Internal Revenue
Code for its nonunion employees. The Company matches each dollar deferred up to
4% of compensation and, at its discretion, matches 40% of amounts deferred
between 4% and 8%. At the end of each fiscal year, the Company also contributes
an amount equal to 2% of the compensation of those participants employed at that
date. The Company contributed approximately $2,100,000, $2,100,000, and
$2,200,000, in 1996, 1995, and 1994, respectively.
Also, the Company has an Employee Savings Plan ("ESP"), which is a defined
contribution plan, for all union and nonunion employees hired prior to March 1,
1983. Subsequent to March 1, 1983, the Company's contribution to the ESP in any
fiscal year is based on net earnings as a percentage of total sales and is
applicable to union employees only. In the event net earnings are less than 1.5%
of total sales, no contribution is required. All corporate (nonunion) employees
who had a previous balance in the ESP Plan had their balances transferred to the
SSP Plan effective first quarter of fiscal 1992. No expense was incurred in
fiscal years 1996, 1995 and 1994.
In September 1994, the Board of Directors authorized a new supplemental
executive pension plan (effective January 4, 1995) which provides retirement
income to certain officers based on each participant's final salary and years of
service with the Company. The plan, called the Company's Executive Salary
Protection Plan ("ESPP II"), provides additional post-termination retirement
income based on each participant's final salary and years of service with the
Company. The funding of this benefit will be facilitated through the purchase of
life insurance policies, the premiums of which will be paid by the Company and
participant contributions.
The amounts recognized in the balance sheet are:
<TABLE>
<CAPTION>
1996 1995
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits..................... $ 3,807 $ 3,026
Effect of assumed future increase in compensation levels....................... 283 282
--------- -----------
Projected benefit obligation for services rendered to date..................... 4,090 3,308
--------- -----------
Plan assets in deficiency of projected benefit obligation........................ 4,090 3,308
Unrecognized net loss............................................................ (868) (217)
Unrecognized prior service cost.................................................. (1,571) (1,659)
--------- -----------
Accrued pension cost as of June 1................................................ 1,651 1,432
--------- -----------
Fourth quarter contributions..................................................... -- (20)
Fourth quarter net periodic pension cost......................................... 140 130
Additional minimum liability..................................................... 2,016 1,484
--------- -----------
Accrued pension cost at fiscal year end.......................................... $ 3,807 $ 3,026
--------- -----------
</TABLE>
The additional minimum liability represents the excess of the unfunded
Accumulated Benefit Obligation over previously accrued pension costs. A
corresponding intangible asset was recorded as an offset to this additional
liability as prescribed. Because the asset recognized may not exceed the amount
of unrecognized prior service cost, the balance, net of tax benefits, of
$255,000 is reported as a separate reduction of shareholders' equity at August
31, 1996.
42
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the net periodic pension cost for the fiscal years ending
include:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Service cost -- benefits attributed to service during the period..................... $ 194 $ 136
Interest cost on projected benefit obligation........................................ 257 168
Net amortization and deferral........................................................ 110 85
--------- ---------
Net periodic pension cost............................................................ $ 561 $ 389
--------- ---------
Major assumptions:
Assumed discount rate.............................................................. 7.50% 7.50%
Assumed rate of future compensation increases...................................... 4.00% 4.00%
Expected rate of return on plan assets............................................. 8.50% 8.50%
</TABLE>
The method used to compute the vested benefit obligation is the actuarial
present value of the vested benefits to which the employee is entitled if the
employee separates immediately. The vested benefit obligation was $3,807,000 and
$3,026,000 in 1996 and 1995, respectively.
11. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS:
The Company sponsors postretirement benefit plans that cover both nonunion
and union employees. Nonunion employees are eligible for a plan providing
medical benefits. A certain group of retired nonunion employees participate in a
plan providing life insurance benefits for which currently active nonunion
employees are no longer eligible. Most union and all nonunion employees have
separate plans providing a lump sum payout for unused days in the sick leave
bank. The postretirement health care plan is contributory for nonunion employees
retiring after January 1, 1990, with the retiree contributions adjusted
annually; the life insurance plan and the sick leave payout plans are
noncontributory.
The plans are unfunded. The amounts recognized in the balance sheet are:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................................... $ 12,159 $ 10,335 $ 11,496
Fully eligible active plan participants........................... 3,687 3,783 4,622
Other active plan participants.................................... 8,660 8,927 9,117
---------- ---------- ----------
Accumulated postretirement benefit obligation....................... 24,506 23,045 25,235
Unrecognized transition obligation.................................. (19,101) (20,224) (21,348)
Unrecognized net gain (loss)........................................ 1,736 1,912 (2,013)
---------- ---------- ----------
Accrued postretirement benefit cost at June 1....................... 7,141 4,733 1,874
Fourth quarter contributions........................................ (369) (303) (294)
Fourth quarter net periodic postretirement benefit cost............. 950 1,044 929
---------- ---------- ----------
Accrued postretirement benefit cost................................. $ 7,722 $ 5,474 $ 2,509
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
43
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C>
The components of the net periodic postretirement benefit cost for
the fiscal year ending include:
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits attributed to service during the period... $ 796 $ 867 $ 654
Interest cost on accumulated postretirement benefit obligation.... 1,855 2,052 1,915
Amortization of transition obligation over 20 years............... 1,124 1,124 1,124
Net amortization and deferral..................................... (2) 133 21
---------- ---------- ----------
Net periodic postretirement benefit cost.......................... $ 3,773 $ 4,176 $ 3,714
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
For measurement purposes, an 8.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for fiscal year 1997; the rate
was assumed to decrease gradually to 5.5% in fiscal 2001 and remain at the level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, increasing the assumed health care cost
trend rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of August 31, 1996 by $3,438,000 and the
aggregate benefit cost for the year then ended by $421,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8%.
The Company's union employees participate in a multiemployer plan that
provides health care benefits. Amounts charged to postretirement benefit cost
and contributed to the plan totaled $1.1 million in fiscal 1996 and $1.3 million
in fiscal years 1995 and 1994.
12. CONTINGENCIES:
LITIGATION. The Company is a defendant in a number of cases currently in
litigation or potential claims encountered in the normal course of business
which are being vigorously defended. In the opinion of management, the
resolutions of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or cash flow.
ENVIRONMENTAL MATTERS. The Company, together with others, was notified by
the Environmental Protection Agency ("EPA") that it was a potentially
responsible party ("PRP") for the disposal of hazardous substances during the
1970s and early 1980s at OPERATING INDUSTRIES, INC. SUPERFUND SITE in Monterey
Park, California ("OII Site"). The Company has not disposed of any materials at
the site since and believes its current disposal policies to be in accordance
with federal, state and local governmental laws and regulations. Clean up of
this site will occur in five phases and could entail estimated total cleanup
costs of $650 million to $800 million.
The Company appealed the initial findings of the EPA on August 16, 1993
concerning the quantity of disposed waste allocated to the Company. Management
recorded an initial liability of $400,000 for fiscal 1993 for the first three
phases of the five-phase cleanup. The initial liability was based on estimated
cleanup costs of $2 per gallon on approximately 200,000 gallons disposed at the
site. In August 1995, the EPA finalized the Company's allocated share of the
cleanup cost for the first three phases of the cleanup. The Company's allocated
share of $379,000 was paid in October 1996.
The EPA also informed the Company of phases 4 and 5, which include final
remedy and ground water treatment, and a 30 year post-cleanup site control and
monitoring. The estimated costs of these two phases, together with the first
three phases, are reserved in the financial statements. As of August 31, 1996,
the total reserve established in respect to environmental liabilities is $1.6
million. The Company is pursuing recovery of a portion of this amount from its
insurance carriers.
44
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Because of the uncertainties associated with environmental assessment and
remediation activities, future expenses to remediate the currently identified
site could be higher than the accrued liability. Although it is difficult to
estimate the liability of the Company related to these environmental matters,
management believes that these matters will not have a materially adverse effect
on the Company's financial position or results of operations.
SALE OF MEMBER NOTES RECEIVABLE. GCC entered into a loan purchase and
servicing agreement with a bank under which it sells certain of its notes
receivable from members subject to limited recourse provisions. These notes are
secured with collateral which usually consists of personal property, real
property and personal guarantees. GCC in return receives a monthly service fee
and guarantee fee. In 1996, the Company sold member notes to the bank totaling
approximately $27,900,000. At August 31, 1996, the balances of member notes sold
that were outstanding and subject to recourse provisions were $27,900,000.
13. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade receivables and lease guarantees for
certain member-patrons. These concentrations of credit risk may be affected by
changes in economic or other conditions affecting the Western United States,
particularly California. However, management believes that receivables are well
diversified and the allowances for doubtful accounts are sufficient to absorb
estimated losses. Obligations of member-patrons to the Company, including lease
guarantees, are generally supported by the Company's right of offset, upon
default, against the member-patrons' cash deposits, shareholdings and Patronage
Certificates, as well as personal guarantees and reimbursement and
indemnification agreements.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short
maturity of these instruments.
INVESTMENTS AND NOTES RECEIVABLE
The fair values for investments and notes receivable are based
primarily on quoted market prices for those or similar instruments.
Equity securities which do not have readily determinable fair values are
accounted for using the cost method.
NOTES PAYABLE, NOTES PAYABLE DUE AFTER ONE YEAR AND SUBORDINATED PATRONAGE
DIVIDEND CERTIFICATES
The fair values for notes payable, notes payable due after one year,
and subordinated patronage dividend certificates are based primarily on
rates currently available to the Company for debt with similar terms and
remaining maturities.
45
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the carrying values and the estimated fair
values as of August 31, 1996 and September 2, 1995, of the Company's financial
instruments reportable pursuant to Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
<S> <C> <C> <C> <C>
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Assets:
Cash and cash equivalents............................ $ 6,451 $ 6,451 $ 7,329 $ 7,329
Investments.......................................... 27,541 27,541 22,051 22,051
Notes receivable..................................... 8,309 8,309 25,622 25,622
Liabilities:
Notes payable and notes payable, due after one
year................................................ $ 87,057 $ 85,552 $ 141,259 $ 139,496
Subordinated patronage dividend certificates......... 6,549 6,549 6,561 6,561
</TABLE>
The methods and assumptions used to estimate the fair values of the
Company's financial instruments at August 31, 1996 and September 2, 1995 were
based on estimates of market conditions, estimates using present value and risks
existing at that time. These values represent an approximation of possible value
and may never actually be realized.
15. RELATED PARTY TRANSACTIONS:
A number of companies with which directors are associated have received
loans from the Company through its regular member loan program and/or obtained
lease guarantees or subleases for certain store locations. In consideration of
lease guarantees and subleases, the Company receives a monthly fee equal to 5%
of the monthly rent under the leases and subleases. Obligations of
member-patrons to the Company, including lease guarantees, are generally
supported by the Company's right of offset, upon default, against the
member-patrons' cash deposits, shareholdings and Patronage Certificates, as well
as personal guarantees and reimbursement and indemnification agreements.
GCC guarantees a portion of a loan made by National Consumer Cooperative
Bank ("NCCB") to K.V. Mart Co., of which director Darioush Khaledi is the
President and a shareholder, and KV Property Company, of which director Darioush
Khaledi is a general partner. The term of the loan is eight years, maturing
January 1, 2002, and the loan bears interest at a floating rate based on the
commercial loan base rate of NCCB. The loan is collateralized by certain real
and personal property. The guarantee by GCC is limited to 10% of the $2.1
million principal amount of the loan. In consideration of its guarantee, GCC
receives an annual fee from K.V. Mart Co. equal to 5% of the guarantee amount.
GCC guarantees a portion of a $5,000,000 revolving loan made by NCCB to K.V.
Mart Co. in November 1995. The loan has an initial maturity of two years, with
the outstanding balance then converting to a five year term loan. The loan bears
interest at a floating rate based on the commercial loan rate of NCCB. The loan
is collateralized by certain real and personal property of K.V. Mart Co. The
guaranty of GCC is limited to 10% of the outstanding principal amount of the
loan. Since its inception, the highest outstanding principal amount of the loan
has been and is presently $785,000. In consideration of its guaranty, GCC
receives an annual fee from K.V. Mart Co. equal to 5% of the guaranty amount.
In April 1996, the Company guaranteed rent and certain other obligations of
K.V. Mart Co. for a period of seven years under a lease of store premises under
construction in Lynwood, California. Annual rent under the lease is $408,000.
The lease term will commence upon the earlier of the opening of the store for
business
46
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
or 90 days after occupancy. The guarantee will become effective upon the
commencement date of the lease. In consideration of its guaranty, the Company
will receive an annual fee from K.V. Mart Co. equal to 5% of the annual rent.
In April 1996, the Company guaranteed rent and certain other obligations of
K.V. Mart Co. for a period of seven years under a lease of store premises under
construction in Canoga Park, California. The landlord under the lease is a
corporation in which a family trust established by Mr. Khaledi has an indirect
interest through certain partnerships which in turn have an interest in the
landlord corporation. Annual rent under the lease is $353,976. The lease term
will commence upon the earlier of the opening of the store for business or 180
days after occupancy. The guarantee will become effective upon the commencement
date of the lease. In consideration of its guaranty, the Company will receive an
annual fee from K.V. Mart equal to 5% of the annual rent.
The Company proposes to enter into a guaranty of rent and certain other
obligations of K.V. Mart Co. under a lease of store premises in Los Angeles,
California. The guaranty would be in place during the first fifteen years of the
lease term, which is thirty-four years and eight months. Annual rent under the
lease will be $212,664 during the first twenty months of the lease term;
$332,664 during the next thirty-eight months; $382,560, $439,944, and $505,4544
respectively, during the three succeeding sixty month periods; and thereafter
increasing by 15% every sixty months during the balance of the term. In
consideration of its guaranty, the Company will receive an annual fee from K.V.
Mart Co. equal to 5% of the annual rent.
In December 1995, GCC purchased 10% of the common stock of K.V. Mart Co. for
a purchase price, based upon appraised values, of approximately $3,000,000. In
connection with this purchase, K.V. Mart Co., GCC, Mr. Khaledi and the other
shareholders of K.V. Mart Co. agreed that GCC will have certain preemptive
rights to acquire additional common shares, rights to have its common shares
included proportionately in any transfer of common shares by the other
shareholders, and rights to have its common shares included in certain
registered public offerings of common stock which may be made by K.V. Mart Co.
In addition, GCC has the option to require the repurchase of its shares for any
reason after December 2000, and until that time has the option to require
repurchase upon the occurence of certain specified events, including a material
breach of the supply agreement referred to below, changes in management or
control and noncompliance with financial ratios. After December 1999, the
repurchase price is fair market value as determined by appraisal, and until that
time is the greater of a declining premium over fair market value or the
original purchase price of the shares plus an agreed annual compounded rate of
return. K.V. Mart Co. has the option to repurchase GCC's shares at any time and
also in the event of a change in control of GCC or the Company or a material
breach by the Company under the supply agreement referred to below. In the
absence of a change in control or a material breach under the supply agreement,
and until December 1999, the repurchase price is the greater of a declining
premium over fair market value or the original purchase price of the shares plus
an agreed annual compounded rate of return, and after December 1999 is fair
market value. In the event of a change in control or a material breach under the
supply agreement, and until December 1999, the repurchase price is the lesser of
a declining discount from fair market value or the original purchase price of
the shares, and after December 1999 is fair market value. In connection with
these transactions, K.V. Mart Co. entered into a seven year supply agreement
with the Company whereunder K.V. Mart Co. is required to purchase a substantial
portion of its merchandise requirements from the Company. Fiscal 1996 purchases
totalled approximately $75,300,000. The supply agreement is subject to earlier
termination in certain situations.
The Company guarantees annual rent and certain other obligations of Stump's
Market, Inc., of which director James R. Stump is the President and a
shareholder, as leasee under a lease of store premises located in San Diego,
California. Annual rent under the lease is $26,325, and the lease term expires
in May 1998. The Company also guarantees annual rent and certain other
obligations of Stump's Market, Inc. as lessee under a
47
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
lease of store premises at a second location in San Diego, California. Annual
rent under this lease is $36,075, and the lease term expires in November 1997.
In consideration of these guaranties, the Company receives a fee from Stump's
Market, Inc. equal to 5% of the base monthly rent under these leases.
In June 1989, the Company guaranteed the payment by Cala Foods, Inc. a
subsidiary of a member-patron, of certain promissory notes related to an
acquisition of Bell Markets, Inc. Board member Harley DeLano is an executive
officer of Cala Foods, Inc. The promissory notes matured in June 1996 and
totalled $8 million; however, the Company's guaranty obligation was limited to
$4 million and is now expired. In addition, and in connection with the
acquisition, the Company guaranteed certain lease obligations of Bell Markets,
Inc. during a 20-year period under a lease relating to two retail grocery
stores. Annual rent under the lease is $327,019.
In September 1992, the Company guaranteed a lease for Mar-Val Food Stores,
Inc. (whose President, Mark Kidd, is a director of the Company) on store
premises in Valley Springs, California. The guarantee is for a period of fifteen
years and is limited to the lessee's obligation to pay base rent of $10,080 per
month, common area costs, real estate taxes and insurance. The Company's total
obligation under the guarantee is limited to $736,800. In consideration of the
guarantee, the Company receives a monthly fee from Mar-Val Food Store, Inc.
equal to 5% of the base monthly rent under the lease.
The Company guarantees annual rent and certain other obligations of Willard
R. "Bill" MacAloney, the Chairman of the Company's Board of Directors, as lessee
under a lease of store premises located in La Puente, California. Annual rent
under the lease is $62,487, and the lease term expires in April 1997. The
Company also guarantees annual rent and certain other obligations of G & M
Company, Inc., of which Mr. MacAloney is a shareholder, under a lease of store
premises located in Santa Fe Springs, California. The initial term of the lease
expires in October 2007, but may be extended for one option term expiring in
October 2012. Annual rent under the lease is $100,000, increasing to $110,000 in
November 1997. Thereafter, annual rent increases by $15,000 every five years
during the balance of the term, including the extension term. However, the
Company's guaranty is such that the Company's obligation thereunder is limited
to a maximum of sixty monthly payments (which need not be consecutive) of the
obligations guaranteed. In consideration of its guarantees, the Company receives
a monthly fee from G & M Company, Inc. equal to 5% of the base monthly rent
under each lease.
The Company proposes to enter into a lease of store premises located in
Riverside, California, which it will in turn sublease to G & M Company on the
same terms and conditions. The sublease will be for an initial term of 15 years,
but may be extended for three periods of 5 years each and one period of 4 years
and 11 months. Monthly rent during the initial term is $22,234, increasing to
$24,457, $26,903, $29,596 and $32,561, respectively, during the extension terms.
Under the sublease, the Company will also receive a monthly fee from G & M
Company equal to 5% of the monthly rent.
The Company guarantees certain obligations under a sublease of market
premises located in Pasadena, California, and under which Berberian Enterprises,
Inc., of which Director John Berberian is the President and a shareholder, is
the sublessor. The guaranty is of the obligations of the sublessee to pay
minimum rent, common area costs, real estate taxes and insurance during the
first seven years of the term of the sublease, which commenced in September
1995. Minimum rent under the sublease is $10,000 per month. In consideration of
its guaranty, the Company receives a monthly fee from the sublessee equal to 5%
of the monthly amounts guaranteed.
The Company proposes to lease store locations in Arvin, Delano and Shafter,
California, which it will in turn sublease on the same rental terms to a
corporation to be formed by director Michael A. Provenzano. The Arvin and Delano
subleases will have twenty year terms, while the Shafter lease will have a term
of twenty-five years. Annual rent under the Arvin lease will be $165,088 during
the first ten years and $166,448 during the balance of the term. Annual rent
under the Delano lease will be $183,334 during the first ten years
48
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and $174,080 during the balance of the term. Annual rent under the Shafter lease
will be $104,997 during the first ten years, $100,890 during the next ten years
and $108,457 during the balance of the term. In addition, under each of these
subleases, the Company will receive an annual fee equal to 5% of the annual
rent.
In July 1993, the Company entered into an agreement to lease a warehouse to
Joe Notrica, Inc., of which director Morrie Notrica is the President and a
shareholder. The lease period is for five years at a monthly rent of $24,000.
The lease has one five year option and makes provision for inflation adjustments
to monthly rent during the option term.
Grocers General Merchandise Company, ("GM"), a subsidiary of the Company,
and Food 4 Less GM, Inc. ("F4LGM"), an indirect subsidiary of Ralphs Grocery
Company, are partners to a joint venture partnership agreement. Under the
agreement, GM and F4LGM are partners operating as Golden Alliance Distribution
("GAD"). The partnership was formed for the purpose of providing for the shared
use of the Company's general merchandise warehouse located in Fresno, California
and each of the partners has entered into a supply agreement with GAD providing
for the purchase of general merchandise products from GAD. The Company is
currently in discussions with Ralphs regarding the future of the GAD
partnership.
The Company leases certain market premises located in Sacramento and
Vallejo, California, and in turn subleases these premises to SavMax Foods, Inc.
("SavMax"). The Sacramento sublease provides for a term of 20 years and the
Vallejo sublease provides for a term of 10 years. Neither sublease contains
options to extend, although SavMax has the option under each sublease to acquire
the Company's interest under its lease on the condition that the Company is
released from all further liability thereunder. The term of the Sacramento
sublease commenced in September of 1994. The Sacramento premises consist of
approximately 50,000 square feet and annual base rent under the sublease is at
the following per square foot rates: $8.00 during years 1 and 2; $8.40 during
years 3 through 5; $8.82 during years 6 through 10; $9.26 during years 11
through 15; and, $9.72 during years 16 through 20. The term of the Vallejo
sublease commenced in September of 1995 and annual base rent under the sublease
is $279,000. In addition, under each of these subleases, the Company receives
monthly an additional amount equal to 5% of the base monthly rent.
The Company guarantees certain obligations of SavMax under three leases of
market premises located in Sacramento, San Jose and San Leandro, California.
Each of these guarantees relates to the obligation of SavMax to pay base rent,
common area maintenance charges, real estate taxes and insurance during the
initial 20 year terms of these leases. However, the guarantees are such that the
Company's obligation under each of them is limited to an amount equal to sixty
monthly payments (which need not be consecutive) of the obligations guaranteed.
Base rent is $40,482 per month under the Sacramento lease and $56,756 per month
under the San Jose lease, in each case subject to a 7 1/2% increase at the end
of each five years. Base rent is $42,454 per month under the San Leandro lease,
subject to a 10% increase at the end of each five years. In consideration of
these guarantees, the Company receives a monthly fee from SavMax equal to 5% of
the base monthly rent under these leases. If SavMax were to default under the
leases, the Company's remaining liability under its guarantees would range from
$10.2 million to $11.9 million, assuming other support provided to the Company
by way of offset rights and the reimbursement and indemnification agreements
proved to be of no value to the Company.
The Company guarantees certain obligations of SavMax under two leases of
market premises located in Ceres and Vacaville, California. The leases have
initial terms expiring in January 2005 and April 2007, respectively. Base
monthly rent under the Ceres lease is presently $32,175, increasing to $34,425
in January of 2000. Base monthly rent under the Vacaville lease is presently
$29,167, increasing by $25,000 per year in April of 1997 and 2002. In
consideration of these guarantees, the Company will receive a monthly fee from
SavMax equal to 5% of the base monthly rent under these leases. If SavMax were
to default under the leases,
49
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Company's contingent liability under its guarantees would approximate $9.5
million, assuming other support provided to the Company by way of offset rights
and the reimbursement and indemnification agreements proved to be of no value to
the Company.
The Company has guarantees remaining on various other member-patron leases
during the period of fiscal 1997 through fiscal 2013. In the event the support
provided to the Company by way of offset rights and the reimbursement and
indemnification agreements proved to be of no value, the Company would be
contingently liable under its guarantees for approximately $11.2 million.
In fiscal 1994, Grocers Capital Company ("GCC"), a subsidiary, acquired an
additional 25,000 shares of preferred stock of SavMax. The purchase price was
$100 per share. At the time, GCC owned 40,000 shares of preferred stock of
SavMax which it acquired in fiscal 1992. As part of the new purchase of
preferred stock, the annual cumulative dividend on the 65,000 shares of
preferred stock owned by GCC was increased from $8.25 per share to $8.50 per
share, payable quarterly. Mandatory partial redemption of this stock at a price
of $100 per share began in 1994 and will continue annually thereafter for eight
years, at which time the stock is to be completely retired. GCC also purchased
from Mr. Michael A. Webb, the President and a shareholder of SavMax, and another
member of his immediate family, 10% of the common stock of SavMax for a price of
$2.5 million. In connection with this purchase, Mr. Webb, SavMax and GCC agreed
that GCC will have certain preemptive rights to acquire additional common
shares, rights to have its common shares included proportionately in any
transfer of common shares by Mr. Webb, and rights to have its common shares
included in certain registered public offerings of common stock which may be
made by SavMax. In addition, GCC has certain rights, at its option, to require
that SavMax repurchase GCC's shares, and SavMax has certain rights, at its
option, to repurchase GCC's shares. In connection with these transactions,
SavMax entered into a seven year supply agreement with the Company (to replace
an existing supply agreement) whereunder SavMax is required to purchase a
substantial portion of its merchandise requirements from the Company. The supply
agreement is subject to earlier termination in certain situations.
Since the Company's retail and financial assistance programs are only
available to persons and entities which are patrons of the Company, it is not
possible to assess whether the foregoing transactions are less favorable to the
Company than similar transactions with unrelated third parties. However,
management believes that each such transaction is on terms no more favorable to
the patron than those which would be available to other similar patrons.
16. STORE PURCHASE TRANSACTION:
On July 17, 1996 Certified and its subsidiary Crown Grocers, Inc. ("Crown")
entered into an asset purchase agreement (the "Agreement") with Bay Area Foods,
Inc. ("BAF") whereby Certified and Crown agreed to purchase up to twelve
supermarkets operated by BAF under the tradename "Petrini's", provided certain
conditions were satisfied with respect to each location. The Agreement provided
that Certified and Crown had the right to assign their respective rights to
purchase any of the assets to operating retailers meeting selected criteria.
This transaction was completed on September 30, 1996.
Crown has acquired six properties which were sold or assigned directly to
retailers and assumed leases at three locations. The total purchase price for
the assets acquired by Crown, Certified and their assignees was $17.1 million
plus the cost value of inventory at each transferred location. For the three
stores where Crown assumed the leases each facility is operated under the
tradename "Apple Market". The Company intends to vigorously pursue a plan to
sell these locations to member patrons, and expects to operate the stores until
qualified buyers are identified. BAF was unable to satisfy certain conditions to
close as to assets relating to three of the sites subject to the Agreement
within the time frame set forth in the Agreement. Accordingly, the Company's
obligations with respect to such assets have terminated.
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective April 3, 1996, the Company dismissed Coopers & Lybrand L.L.P. as
its principal accountant to audit the financial statements of the Company.
The reports issued by Coopers & Lybrand L.L.P. on the financial statements
for the past two years did not contain an adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope, or
accounting principles.
The decision to change accountants was recommended by the audit committee of
the Company following the solicitation and review of bids from other independent
accountants, including Coopers & Lybrand L.L.P., and was approved by the Board
of Directors on April 3, 1996.
During the two most recent fiscal years and the current fiscal period, there
were no disagreements with Coopers & Lybrand L.L.P. on matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
Effective April 3, 1996, the Company engaged Deloitte & Touche LLP as its
principal accountant to audit the financial statements of the Company.
51
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
The Company's Board of Directors is elected annually at the Company's Annual
Meeting of Shareholders, presently held in April of each year. Each director
must be either an employee of the Company, a member-patron, or a member of a
partnership which is a shareholder, or an employee of a corporation which is a
shareholder. Currently, all directors represent member-patrons. There is no
arrangement or understanding between any one of the directors and any other
person or persons pursuant to which such director was selected as a director.
The Bylaws provide that the Board of Directors will appoint annually a
committee consisting of three or more of its members to nominate the directors
to act for the ensuing year. The Chairman of the Board and the Company's
President are ex-officio members of the nominating committee. The nominating
committee submits its nominations to the Board, and the nominees so selected are
submitted by the Board to the members to be voted upon at the Annual Meeting of
the Company.
The names of the present directors of the Company, their principal
occupations, their ages as of December 31, 1996 and the year such director was
first elected to the Board are set forth in the following table.
<TABLE>
<CAPTION>
YEAR
AGE AT FIRST
NAME OF DIRECTOR DECEMBER 31, 1996 ELECTED PRINCIPAL OCCUPATION
- -------------------------------- ----------------- --------- -------------------------------------------------
<S> <C> <C> <C>
Louis A. Amen 67 1974 President, Super A Foods, Inc.
John Berberian 45 1991 President, Berberian Enterprises, Inc.,
operating Jons Market
Michael Bonfante 55 1995 Chairman, President and CEO, Nob Hill General
Store, Inc.
Harley J. DeLano 59 1995 President of Cala Foods, Inc., Division of Ralphs
Grocery Co.
Lyle A. Hughes (1)(2) 59 1987 General Manager, Yucaipa Trading Co., Inc.
Roger K. Hughes (1) 62 1985 Chairman and Chief Executive Officer, Hughes
Markets, Inc.
Darioush Khaledi 50 1993 Chairman of the Board and Chief Executive
Officer, K.V. Mart Co., dba Top Valu Markets and
Valu Plus Food Warehouse
Mark Kidd 46 1992 President, Mar-Val Food Stores, Inc.
Willard R. "Bill" MacAloney 61 1981 President and Chief Executive Officer, Mac Ber,
(Chairman of the Board) Inc. operating Jax Market
Jay McCormack 46 1993 Owner-Operator, Alamo Market; Co-owner, Glen Avon
Market
Morrie Notrica 67 1988 President and Chief Operating Officer, Joe
Notrica, Inc., operating The Original 32nd
Street Market
Michael A. Provenzano 54 1986 President, Pro & Son's, Inc., operating Southland
Market since 1993; formerly President, Carlton's
Market, Inc.
Allan Scharn (3) 61 1988 President (retired), Gelson's Markets
James R. Stump 58 1982 President, Stump's Market, Inc.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
YEAR
AGE AT FIRST
NAME OF DIRECTOR DECEMBER 31, 1996 ELECTED PRINCIPAL OCCUPATION
- -------------------------------- ----------------- --------- -------------------------------------------------
<S> <C> <C> <C>
Kenneth Young 52 1994 Vice President, Jack Young's Supermarkets; Vice
President, Bakersfield Food City, Inc., dba
Young's Markets
</TABLE>
- ------------------------
(1) Messrs. Lyle A. Hughes and Roger K. Hughes are unrelated.
(2) Yucaipa Trading Co., Inc. is unrelated to The Yucaipa Companies, which is a
principal shareholder of Ralphs Grocery Co.
(3) Mr. Scharn retired as President of Gelson's Markets in May 1996 but will
serve out his term as a director of the Company.
OFFICERS
The Company has ten officers, each selected by and serving at the pleasure
of the Board of Directors, except Alfred A. Plamann (see "Item 11. EXECUTIVE
COMPENSATION -- Executive Employment and Termination Agreement"). No officer
owns either directly or indirectly any shares of the Company's Class A or Class
B Shares. There are no family relationships between directors or officers, nor
between any director and officer. There is no arrangement or understanding
between any one of the officers and any other person pursuant to which such
officer was selected as an officer.
The following table sets forth certain information about officers of the
Company.
<TABLE>
<CAPTION>
AGE AT DECEMBER 31, BUSINESS EXPERIENCE
OFFICER'S NAME 1996 DURING LAST FIVE YEARS
- ----------------------------- ----------------------- --------------------------------------------------------------
<S> <C> <C>
Alfred A. Plamann 54 Corporate President and Chief Executive Officer since February
1994; previously Senior Vice President-Finance and Chief
Financial Officer.
Daniel T. Bane 49 Senior Vice President-Finance & Administration and Chief
Financial Officer since February 1996; Senior Vice President
and Chief Financial Officer, July 1994 to February 1996;
Chief Operating Officer, Spensley Horn Jubas & Lubitz,
December 1993 to July 1994; previously Chief Financial
Officer, Standard Brands Paint Company.
Margaret A. Huebner 46 Vice President-Human Resources and Labor Relations since
February 1996; previously Vice President Human Resources
NavCom Defense Electronics, Inc.
George D. Gardner 43 Vice President since May 1996; General Manager of Grocers
Specialty Co., June 1995 to May 1996; Vice President &
General Manager Ingro Mexican Foods, Inc., May 1993 to June
1995; previously Vice President Sales & Marketing, Festin
Foods, Corp.
Don W. Hawks 45 Vice President-Marketing and Procurement since June 1995;
previously Vice President of Procurement and Marketing, Super
Store Industries.
Corwin J. Karaffa 42 Vice President-Distribution since January 1995; previously
Facilities Manager, Proctor and Gamble Distribution Co.
Robert M. Ling, Jr., Esq. 39 Vice President, General Counsel and Secretary since August
1996; Vice President and General Counsel, April 1996 to
August 1996; Vice President, General Counsel and Secretary,
Megafoods Stores, Inc., 1994 to April 1996; previously Vice
President, General Counsel and Secretary, Reliable Drug
Stores, Inc.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
AGE AT DECEMBER 31, BUSINESS EXPERIENCE
OFFICER'S NAME 1996 DURING LAST FIVE YEARS
- ----------------------------- ----------------------- --------------------------------------------------------------
<S> <C> <C>
Charles J. Pilliter 48 Senior Vice President and President-Northern California.
Jack E. Scott II 46 Vice President and Chief Information Officer since June 1996;
Chief Information Officer, World Vision United States,
November 1993 to May 1996; previously Vice President
Management Information Systems, Standard Brands Paint
Company.
David A. Woodward 54 Treasurer since August 1996; previously Corporate
Secretary/Treasurer.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Company's Executive Compensation Committee
consisted of director Darioush Khaledi, Committee Chairman, and directors Louis
A. Amen, Roger K. Hughes, Jay McCormack and James R. Stump, as well as
ex-officio member Willard R. "Bill" MacAloney, Chairman of the Board.
As Chairman of the Board, Mr. MacAloney is an officer under the Bylaws of
the Company, although he is not an employee and does not receive any
compensation or expense reimbursement beyond that to which other directors are
entitled. Mr. McCormack was employed by the Company as a senior sales
representative from November 1975 to May 1986, but has not been employed by the
Company since that time. The Company's President and Chief Executive Officer,
Alfred A. Plamann, is a member of the Board of Directors of K.V. Mart Co., of
which Committee member and director Darioush Khaledi is Chairman and Chief
Executive Officer.
The Company guarantees annual rent and certain other obligations of Mr.
MacAloney as lessee under a lease of store premises located in La Puente,
California. Annual rent under the lease is $62,487, and the lease term expires
in April 1997. The Company also guarantees annual rent and certain other
obligations of G & M Company, Inc., of which Mr. MacAloney is a shareholder,
under a lease of store premises located in Santa Fe Springs, California. The
initial term of the lease expires in October 2007, but may be extended for one
option term expiring in October 2012. Annual rent under the lease is $100,000,
increasing to $110,000 in November 1997. Thereafter, annual rent increases by
$15,000 every five years during the balance of the term, including the extension
term. However, the Company's guaranty is such that the Company's obligation
thereunder is limited to not exceed sixty monthly payments (which need not be
consecutive) of the obligations guaranteed. In consideration of its guarantees,
the Company receives a monthly fee from G & M Company, Inc. equal to 5% of the
base monthly rent under each lease.
The Company proposes to enter into a lease of store premises located in
Riverside, California, which it will in turn sublease to G & M Company on the
same terms and conditions. The sublease will be for an initial term of 15 years,
but may be extended for three periods of 5 years each and one period of 4 years
and 11 months. Monthly rent during the initial term is $22,234, increasing to
$24,457, $26,903, $29,596 and $32,561 during the extension terms. Under the
sublease, the Company will also receive a monthly fee from G & M Company equal
to 5% of the monthly rent.
GCC guarantees a portion of a loan made by National Consumer Cooperative
Bank ("NCCB") to K.V. Mart Co., of which director Darioush Khaledi is the
President and a shareholder, and KV Property Company, of which director Darioush
Khaledi is a general partner. The term of the loan is eight years, maturing
January 1, 2002, and the loan bears interest at a floating rate based on the
commercial loan base rate of NCCB. The loan is collateralized by certain real
and personal property. The guarantee by GCC is limited to 10% of the $2.1
million principal amount of the loan. In consideration of its guarantee, GCC
receives an annual fee from K.V. Mart Co. equal to approximately 5% of the
guarantee amount.
GCC guarantees a portion of a $5,000,000 revolving loan made by NCCB to K.V.
Mart Co. in November 1995. The loan has an initial maturity of two years, with
the outstanding balance then converting to a five year term loan. The loan bears
interest at a floating rate based on the commercial loan rate of NCCB. The
54
<PAGE>
loan is collateralized by certain real and personal property of K.V. Mart Co.
The guaranty of GCC is limited to 10% of the outstanding principal amount of the
loan. In consideration of its guaranty, GCC receives an annual fee from K.V.
Mart Co. equal to 5% of the guaranty amount.
In April 1996, the Company guaranteed rent and certain other obligations of
K.V. Mart Co. for a period of seven years under a lease of store premises under
construction in Lynwood, California. Annual rent under the lease is $408,000.
The lease term will commence upon the earlier of the opening of the store for
business or 90 days after occupancy. The guarantee will become effective upon
the commencement date of the lease. In consideration of its guaranty, the
Company will receive an annual fee from K.V. Mart Co. equal to 5% of the annual
rent.
In April 1996, the Company guaranteed rent and certain other obligations of
K.V. Mart Co. for a period of seven years under a lease of store premises under
construction in Canoga Park, California. The landlord under the lease is a
corporation in which a family trust established by Mr. Khaledi has an indirect
interest through certain partnerships which in turn have an interest in the
landlord corporation. Annual rent under the lease is $353,976. The lease term
will commence upon the earlier of the opening of the store for business or 180
days after occupancy. The guarantee will become effective upon the commencement
date of the lease. In consideration of its guaranty, the Company will receive an
annual fee from K.V. Mart equal to 5% of the annual rent.
The Company proposes to enter into a guaranty of rent and certain other
obligations of K.V. Mart Co. under a lease of store premises in Los Angeles,
California. The guaranty would be in place during the first fifteen years of the
lease term, which is thirty-four years and eight months. Annual rent under the
lease will be $212,664 during the first twenty months of the lease term;
$332,664 during the next thirty-eight months; $382,560, $439,944, and $505,944,
respectively, during the three succeeding sixty month periods; and thereafter
increasing by 15% every sixty months during the balance of the term. In
consideration of its guaranty, the Company will receive an annual fee from K.V.
Mart Co. equal to 5% of the annual rent.
In December 1995, GCC purchased 10% of the common stock of K.V. Mart Co. for
a purchase price, based upon appraised values, of approximately $3,000,000. In
connection with this purchase, K.V. Mart Co., GCC, Mr. Khaledi and the other
shareholders of K.V. Mart Co. agreed that GCC will have certain preemptive
rights to acquire additional common shares, rights to have its common shares
included proportionately in any transfer of common shares by the other
shareholders, and rights to have its common shares included in certain
registered public offerings of common stock which may be made by K.V. Mart Co.
In addition, GCC has the option to require the repurchase of its shares for any
reason after December 2000, and until that time has the option to require
repurchase upon the occurrence of certain specified events, including a material
breach of the supply agreement referred to below, changes in management or
control, and noncompliance with financial ratios. After December 1999, the
repurchase price is fair market value as determined by appraisal, and until that
time is the greater of a declining premium over fair market value or the
original purchase price of the shares plus an agreed annual compounded rate of
return. K.V. Mart Co. has the option to repurchase GCC's shares at any time and
also in the event of a change in control of GCC or the Company or a material
breach by the Company under the supply agreement referred to below. In the
absence of a change in control or a material breach under the supply agreement,
and until December 1999, the repurchase price is the greater of a declining
premium over fair market value or the original purchase price of the shares plus
an agreed annual compounded rate of return, and after December 1999 is fair
market value. In the event of a change in control or a material breach under the
supply agreement, and until December 1999, the repurchase price is the lesser of
a declining discount from fair market value or the original purchase price of
the shares, and after December 1999 is fair market value. In connection with
these transactions, K.V. Mart Co. entered into a seven year supply agreement
with the Company whereunder K.V. Mart Co. is required to purchase a substantial
portion of its merchandise requirements from the Company. Fiscal 1996 purchases
totalled approximately $75,300,000. The supply agreement is subject to earlier
termination in certain situations.
The Company guarantees annual rent and certain other obligations of Stump's
Market, Inc., of which director James R. Stump is the President and a
shareholder, as leasee under a lease of store premises located
55
<PAGE>
in San Diego, California. Annual rent under the lease is $26,325, and the lease
term expires in May 1998. The Company also guarantees annual rent and certain
other obligations of Stump's Market, Inc. as lessee under a lease of store
premises at a second location in San Diego, California. Annual rent under this
lease is $36,075, and the lease term expires in November 1997. In consideration
of these guaranties, the Company receives a fee from Stump's Market, Inc. equal
to 5% of the base monthly rent under these leases.
Since the Company's retail and financial assistance programs are only
available to persons and entities which are patrons of the Company, it is not
possible to assess whether the foregoing transactions are less favorable to the
Company than similar transactions with unrelated third parties. However,
management believes that each such transaction is on terms no more favorable to
the patron than those which would be available to other similar patrons.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information respecting the compensation paid
during the Company's last three fiscal years to the President and Chief
Executive Officer ("CEO") and to certain other executive officers of the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
OTHER
FISCAL ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) COMPENSATION($)
- ------------------------------ ------ ------------ -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Alfred A. Plamann 1996 352,500 50,000 840 27,895(2)
President & CEO 1995 322,150 24,290
1994 236,827 205 31,431
Daniel T. Bane 1996 215,000 20,000 605 14,446(3)
Senior Vice President & CFO 1995 200,000 195 1,231
1994 21,539
Charles J. Pilliter 1996 183,000 15,000 295 14,459(4)
Senior Vice President 1995 172,000 13,174
1994 167,577 127 20,591
Corwin J. Karaffa 1996 151,000 7,000 150 6,458(5)
Vice President - Distribution 1995 89,231
Don W. Hawks 1996 139,500 2,000 203 10,636(6)
Vice President - Marketing 1995 33,750 41,017
and Procurement
<FN>
- ------------------------
(1) It should be noted that while the table presents salary information on a
fiscal year basis, salary is determined by the Company on a calendar year
basis. Thus, salary information with respect to any given fiscal year
reflects salary attributable to portions of two calendar year salary
periods of the Company.
(2) Consists of a $9,135 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $17,500 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $1,260 representing the economic benefit associated with the Company
paid premium on the Executive Life Plan.
(3) Consists of a $9,600 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $4,303 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $543 representing the economic benefit associated with the Company paid
premium on the Executive Life Plan.
(4) Consists of a $9,300 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $4,717 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $442 representing the economic benefit associated with the Company paid
premium on the Executive Life Plan.
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
(5) Consists of a $6,203 Company contribution to the Company's Employees'
Sheltered Savings Plan, and $255 representing the economic benefit
associated with the Company paid premium on the Executive Life Plan.
(6) Consists of a $9,572 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $759 Company contribution to the Company's
Employee Excess Benefit and Supplemental Deferred Compensation Plan, and
$305 representing the economic benefit associated with the Company paid
premium on the Executive Life Plan.
</TABLE>
In September 1994, the Board of Directors authorized a new supplemental
executive pension plan (effective January 4, 1995) which provides retirement
income based on each participant's final salary and years of service with the
Company. The plan, called the Company's Executive Salary Protection Plan ("ESPP
II"), provides additional post-termination retirement income based on each
participant's final salary and years of service with the Company. The funding of
this benefit will be facilitated through the purchase of life insurance
policies, the premiums of which will be paid by the Company and participant
contributions. The Company also has a defined benefit pension plan covering its
non-union and executive employees. Benefits under the defined benefit plan are
equal to credited service times the sum of 95% of earnings up to the covered
compensation amount plus 1.45% of earnings in excess of the covered compensation
amount. The covered compensation is based on IRS Tables.
ESPP II supersedes and replaces the Executive Salary Protection Plan I
("ESPP I"). Under ESPP I, Certified purchased life insurance policies for
certain officers. Upon reaching age 65 (or upon termination, if earlier), the
employee was given the cash surrender value of the policy, plus any additional
income taxes incurred by the employee as a result of such distribution.
The following table sets forth the estimated annual benefits under the
defined benefit plan and the ESPP II plan which qualifying officers with
selected years of service would receive if they had retired on August 31, 1996
at the age of 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------------
REMUNERATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 33 YEARS
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$100,000.............................. $ 25,984 $ 51,968 $ 67,952 $ 68,936 $ 69,920 $ 71,495
125,000............................... 32,506 65,012 85,018 86,274 87,530 89,539
150,000............................... 39,028 78,056 102,084 103,611 105,139 107,584
175,000............................... 45,278 90,556 115,057 119,861 121,389 123,834
200,000............................... 51,528 103,056 115,057 125,242 135,428 140,084
225,000............................... 57,778 104,871 115,057 125,242 135,428 151,725
250,000............................... 64,028 104,871 115,057 125,242 135,428 151,725
300,000............................... 76,528 104,871 115,057 125,242 135,428 151,725
350,000............................... 89,028 104,871 115,057 125,242 135,428 151,725
400,000............................... 94,685 104,871 115,057 125,242 135,428 151,725
450,000............................... 94,685 104,871 115,057 125,242 135,428 151,725
</TABLE>
The Company's ESPP II is designed to provide a retirement benefit up to 65%
of a participant's final compensation, based on a formula which considers an
executive's final compensation and years of service. Remuneration under ESPP II
is based upon an executive's highest annual base wage during the previous three
completed years, which includes his or her annual salary as determined by the
Board of Directors plus an automobile allowance with a 4% annual increase. The
benefit is subject to an offset of the annual benefit which would be received
from the defined benefit plan, calculated as a single life annuity at age
sixty-two (62). To qualify for participation in the benefit, the executive must
complete three years of service as an officer elected by the Board of Directors
of the Company. Executives will vest at a rate of 5% per year with all years of
continuous service credited. The ESPP II annual benefit upon retirement for
calendar 1996 shall not exceed $84,800 and will be paid over a 15-year certain
benefit. The benefit will increase annually
57
<PAGE>
thereafter at the rate of 6%. Lesser amounts are payable if the executive
retires before age sixty-five (65). The maximum annual amount payable by years
of service is reflected within the table at the compensation level of $450,000.
As of August 31, 1996, credited years of service for named officers are: Mr.
Plamann, 7 years; Mr. Bane, 2 years; Mr. Pilliter, 20 years; Mr. Karaffa, 1
year; and Mr. Hawks, 12 years.
EXECUTIVE EMPLOYMENT AND TERMINATION AGREEMENT
The Company is a party to an employment contract with Alfred A. Plamann, the
Company's President and Chief Executive Officer. The contract has a three year
term, presently expiring in February 1999, but provides for annual extensions to
the contract if there is mutual agreement. Under the contract, Mr. Plamann
serves as the Company's President and Chief Executive Officer and receives a
base salary, currently $365,000, subject to annual review and upward adjustment
at the discretion of the Board of Directors. Mr. Plamann is also eligible for
annual bonuses at the discretion of the Board of Directors based upon a review
of his performance. The exact formula for future bonuses has not yet been
determined and will be added as an amendment to the contract at a later date.
Additionally, Mr. Plamann will receive employee benefits such as life insurance
and Company pension and retirement contributions.
The contract is terminable at any time by the Company, with or without
cause, and will also terminate upon Mr. Plamann's resignation, death or
disability. Except where termination is for cause or is due to Mr. Plamann's
resignation, death or disability, the contract provides that Mr. Plamann will be
entitled to receive his highest base salary during the previous three years,
plus an annual bonus equal to the average of the most recent three annual bonus
payments, throughout the balance of the term of the agreement. Mr. Plamann would
also continue to receive employee benefits such as life insurance and Company
pension and retirement contributions throughout the balance of the term of the
agreement.
DIRECTOR COMPENSATION
Each director receives a fee of $500 for each regular board meeting
attended, $200 for each committee meeting attended and $200 for attendance at
each board meeting of a subsidiary of the Company on which the director serves.
Prior to April 3, 1996, directors received $300 for each regular board meeting,
$100 for each committee meeting, and $100 for each board meeting of a subsidiary
of the Company. In addition, directors are reimbursed for Company related
expenses.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
As of November 1, 1996, the only shareholders known by the Company to own
beneficially more than 5% of the outstanding Class B Shares of the Company were
Cala Co., Bay Area Warehouse Stores, Inc. and Ralphs Grocery Co., 777 South
Harbor Boulevard, La Habra, California 90631 (28,620 Class B Shares or
approximately 7.45% of the outstanding Class B Shares; Cala Co. and Bay Area
Warehouse Stores Inc. are wholly-owned by Ralphs Grocery Co. which is in turn
wholly-owned by The Yucaipa Companies, 10000 Santa Monica Boulevard, Los
Angeles, California 90067) and Hughes Markets, Inc., 14005 Live Oak Avenue,
Irwindale, California 91706 (26,106 Class B Shares or approximately 6.80% of the
outstanding Class B Shares).
The following table sets forth, as of November 1, 1996, the name of each
director of the Company, his position with and name of the member-patron, and
the amount of Class A Shares and Class B Shares of the Company owned by the
member-patron.
<TABLE>
<CAPTION>
SHARES OWNED
--------------------------------------------------
CLASS A SHARES CLASS B SHARES
-------------------------- ----------------------
NAME OF DIRECTOR NO. % OF TOTAL NO. % OF TOTAL
AND MEMBER-PATRON SHARES OUTSTANDING SHARES OUTSTANDING
- --------------------------------------------------------------------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Louis A. Amen;
President, Super A Foods, Inc. .................................... 100 0.20% 9,718 2.53%
John Berberian;
President, Berberian Enterprises, Inc. ............................ 100 0.20% 7,615 1.98%
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
--------------------------------------------------
CLASS A SHARES CLASS B SHARES
-------------------------- ----------------------
NAME OF DIRECTOR NO. % OF TOTAL NO. % OF TOTAL
AND MEMBER-PATRON SHARES OUTSTANDING SHARES OUTSTANDING
- --------------------------------------------------------------------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Michael Bonfonte;
Chairman, President & CEO, Nob Hill General Store, Inc............. 100 0.20% 12,465 3.25%
Harley DeLano;
President of Cala Foods, Inc., Division of Ralphs Grocery
Company(1)......................................................... 100 0.20% 28,620 7.45%
Lyle A. Hughes;
General Manager, Yucaipa Trading Co., Inc.(2)(3)................... 100 0.20% 103 0.03%
Roger K. Hughes;
Chairman and Chief Executive Officer,
Hughes Markets, Inc.(2)............................................ 100 0.20% 26,106 6.80%
Darioush Khaledi;
Chairman of the Board and Chief Executive Officer,
K.V. Mart Co. ..................................................... 100 0.20% 15,967 4.16%
Mark Kidd;
President, Mar-Val Food Stores, Inc................................ 100 0.20% 1,950 0.51%
Willard R. "Bill" MacAloney;
President and Chief Executive Officer, Mac Ber, Inc. .............. 100 0.20% 2,523 0.66%
Jay McCormack;
Owner-Operator, Alamo Market(4).................................... 100 0.20% 732 0.19%
Morrie Notrica;
President and Chief Operating Officer, Joe Notrica, Inc............ 100 0.20% 8,945 2.33%
Michael A. Provenzano;
President, Pro & Sons, Inc. ....................................... 100 0.20% 697 0.18%
Allan Scharn;
President (retired), Gelson's Markets(5)........................... 100 0.20% 7,123 1.85%
James R. Stump;
President, Stump's Market, Inc..................................... 100 0.20% 1,982 0.52%
Kenneth Young;
Vice President, Jack Young's Supermarkets(6) ...................... 100 0.20% 3,015 0.79%
----- ------ --------- -----------
1,500 3.00% 127,561 33.22%
----- ------ --------- -----------
----- ------ --------- -----------
</TABLE>
- ------------------------
(1) These shares are owned by Ralphs Grocery Company and its affiliates, Cala
Foods, Inc., and Bay Area Warehouse Stores, Inc.
(2) Messrs. Lyle A. Hughes and Roger K. Hughes are unrelated.
(3) Mr. Hughes is also affiliated with Yucaipa Food Fair, Inc. which owns 546
Class B Shares (0.14% of the outstanding class of shares). Yucaipa Trading
Co., Inc. and Yucaipa Food Fair Inc. are not affiliated with The Yucaipa
Companies.
(4) Mr. McCormack also is affiliated with Glen Avon Food, Inc. which owns 100
Class A Shares (0.20% of the outstanding class of shares) and 361 Class B
Shares (0.09% of the outstanding class of shares) and Yucaipa Trading Co.,
Inc. which owns 100 Class A Shares (0.20% of the outstanding class of
shares) and 694 Class B Shares (0.18% of the outstanding class of shares).
(5) These shares are owned by Arden Mayfair, Inc., the parent company of
Gelson's Markets.
(6) Mr. Young also is affiliated with Bakersfield Food City Inc. dba Young's
Markets which owns 100 Class A Shares (0.20% of the outstanding class of
shares) and 355 Class B Shares (0.09% of the outstanding class of shares).
59
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All firms with which directors are affiliated, as members of the Company,
purchase groceries, related products and store equipment from the Company in the
ordinary course of business at prices and on terms available to members
generally. As members, firms with which directors are affiliated, may receive
benefits for which all members are eligible, including patronage dividends,
allowances and retail support services. See, "Item 1. BUSINESS" for a general
description of benefits and services available to patrons. One customer
accounted for in excess of 5% of the Company's consolidated sales during fiscal
1996. Ralphs Grocery Co. together with its affiliated companies, accounted for a
combined total of approximately 5.5%. No other director of the Company (nor the
firms with which such director is affiliated) accounted for in excess of 5% of
the Company's consolidated sales during fiscal 1996.
In September 1992, the Company guaranteed the obligations of Mar-Val Food
Stores, Inc., of which director Mark Kidd is the President and a shareholder,
under a lease of market premises located in Valley Springs, California. The
guarantee is of the obligations of Mar-Val Food Stores, Inc. to pay base rent,
common area costs, real estate taxes and insurance during the initial fifteen
year term of the lease. Base rent under the lease is $10,080 per month. The
Company's total obligation under the guarantee, however, is limited to the sum
of $736,800. In consideration of its guarantee, the Company receives a monthly
fee from Mar-Val Food Store, Inc. equal to 5% of the base monthly rent under the
lease.
The Company leases its produce warehouse to Joe Notrica, Inc., of which
director Morrie Notrica is the President and a shareholder. The lease is for a
term of five years expiring in November 1998 and contains an option to extend
for an additional five year period. Monthly rent during the initial term is
$24,000. If the option to extend is exercised, rent during the option period
will be the lesser of fair rental value or the monthly rent during the initial
term as adjusted to reflect the change in the Customer Price Index during the
initial term.
Cala Foods, Inc. (a patron affiliated with Ralphs Grocery Company) acquired
the stock of Bell Markets, Inc. in June 1989. In connection with the
acquisition, the Company guaranteed the lease obligations of Bell Markets, Inc.
during a 20-year period under a lease relating to two retail grocery stores
located in San Francisco, California. Annual rent under the lease is $327,019.
Grocers General Merchandise Company ("GM"), a subsidiary, and Food 4 Less
GM, Inc. ("F4LGM"), an indirect subsidiary of Food 4 Less Supermarkets, Inc.,
are parties to a joint venture agreement. Under the agreement, GM and F4LGM are
partners in a joint venture partnership known as Golden Alliance Distribution
("GAD"). The partnership was formed for the purpose of providing for the shared
use of the Company's general merchandise warehouse located in Fresno,
California, and each of the partners has entered into a supply agreement with
GAD providing for the purchase of general merchandise products from GAD. The
Company is currently in discussions with Ralphs regarding the future of the GAD
partnership.
The Company guarantees certain obligations under a sublease of market
premises located in Pasadena, California, and under which Berberian Enterprises,
Inc., of which Director John Berberian is the President and a shareholder, is
the sublessor. The guaranty is of the obligations of the sublessee to pay
minimum rent, common area costs, real estate taxes and insurance during the
first seven years of the term of the sublease, which commenced in September
1995. Minimum rent under the sublease is $10,000 per month. In consideration of
its guaranty, the Company receives a monthly fee from the sublessee equal to 5%
of the monthly amounts guaranteed.
The Company proposes to lease store locations in Arvin, Delano and Shafter,
California, which it will in turn sublease on the same rental terms to a
corporation to be formed by director Michael A. Provenzano. The Arvin and Delano
subleases will have twenty year terms, while the Shafter lease will have a term
of twenty-five years. Annual rent under the Arvin lease will be $165,088 during
the first ten years and $166,448 during the balance of the term. Annual rent
under the Delano lease will be $183,334 during the first ten years and $174,080
during the balance of the term. Annual rent under the Shafter lease will be
$104,997 during the first ten years, $100,890 during the next ten years and
$108,457 during the balance of the term. In addition, under each of these
subleases, the Company will receive an annual fee equal to 5% of the annual
rent.
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<PAGE>
Since the Company's retail and financial assistance programs are only
available to persons and entities which are patrons of the Company, it is not
possible to assess whether the foregoing transactions are less favorable to the
Company than similar transactions with unrelated third parties. However,
management believes that each such transaction is on terms no more favorable to
the patron than those which would be available to other similar patrons.
On February 1, 1995, GCC made a loan of $69,000 to Corwin J. Karaffa, the
Company's Vice President-Distribution. The loan was for the purpose of assisting
Mr. Karraffa in acquiring a home in connection with his becoming employed by the
Company. The loan bears interest at 8% per annum and is secured by a second deed
of trust on the home. The loan has a term of eight years, with interest only
payable during the first five years.
Certain other transactions involving other directors of the Company are
described in Item 11 under the caption "Compensation Committee Interlocks and
Insider Participation."
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements
Reports of Independent Accountants.
Consolidated Balance Sheets as of August 31, 1996 and September 2, 1995.
Consolidated Statements of Earnings for the Fiscal Years Ended August
31, 1996, September 2, 1995, and September 3, 1994.
Consolidated Statements of Shareholders' Equity for the Fiscal Years
Ended August 31, 1996, September 2, 1995, and September 3, 1994.
Consolidated Statements of Cash Flows for the Fiscal Years Ended August
31, 1996, September 2, 1995, and September 3, 1994.
(b) Reports on Form 8-K
Form 8-K filed June 11, 1996.
Form 8-K filed April 10, 1996.
(c) Exhibits
3.1 Articles of Incorporation of the Registrant (as amended through June
21, 1994) (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
3.2 Bylaws of the Registrant (as amended through June 21, 1994)
(incorporated by reference to Exhibit 4.2 to Post-Effective Amendment
No. 6 to Form S-2 Registration Statement of the Registrant filed on
December 15, 1994, File No. 33-38152).
4.1 Retail Grocer Application and Agreement for Continuing Service
Affiliation With Certified Grocers of California, LTD. And Pledge
Agreement (incorporated by reference to Exhibit 4.7 to Amendment No. 2
to Form S-1 Registration Statement of the Registrant filed on December
31, 1981, File No. 2-70069).
4.2 Retail Grocer Application And Agreement For Service Affiliation With
And The Purchase Of Shares Of Certified Grocers Of California, LTD.
And Pledge Agreement (incorporated by reference to Exhibit 4.2 to
Post-Effective Amendment No. 7 to Form S-2 Registration Statement of
the Registrant filed on December 13, 1989, File No. 33-19284).
4.3 Agreement respecting directors' shares (incorporated by reference to
Exhibit 4.9 to Amendment No. 2 to Form S-1 Registration Statement of
the Registrant filed on December 31, 1981, File No. 2-70069).
4.4 Subordination Agreement (Existing Member-Patron) (incorporated by
reference to Exhibit 4.4 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.5 Subordination Agreement (Existing Associate Patron) (incorporated by
reference to Exhibit 4.5 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.6 Subordination Agreement (New Member-Patron) (incorporated by reference
to Exhibit 4.6 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.7 Subordination Agreement (New Associate Patron) (incorporated by
reference to Exhibit 4.7 to Post-Effective Amendment No. 4 to Form S-2
Registration Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
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<PAGE>
<TABLE>
<C> <S>
4.8 Form of Class A Share Certificate (incorporated by reference to
Exhibit 4.5 to Post-Effective Amendment No. 6 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994, File No.
33-38152).
4.9 Form of Class B Share Certificate (incorporated by reference to
Exhibit 4.6 to Post-Effective Amendment No. 6 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994, File No.
33-38152).
4.10.1 Articles FIFTH and SIXTH of the Registrant's Articles of Incorporation
(See Exhibit 3.1).
4.10.2 Article I, Section 5, and Article VII of the Registrant's Bylaws (See
Exhibit 3.2).
4.11 Indenture between the Registrant and First Interstate Bank of
California, as Trustee, relating to $3,000,000 Subordinated Patronage
Dividend Certificates Due December 15, 2000 (incorporated by reference
to Exhibit 4.3 to Amendment No. 1 to Form S-2 Registration Statement
of the Registrant filed on September 27, 1993, File No. 33-68288).
4.12 Indenture between the Registrant and First Interstate Bank of
California, as Trustee, relating to $5,000,000 Subordinated Patronage
Dividend Certificates due December 15, 2001 (incorporated by reference
to Exhibit 4.3 to Form S-2 Registration Statement of the Registrant
filed on October 12, 1994, File No. 33-56005).
4.13 Indenture between the Registrant and First Interstate Bank of
California, as Trustee, relating to $3,000,000 Subordinated Patronage
Dividend Certificates due December 15, 2002 (incorporated by reference
to Exhibit 4.3 to Form S-2 Registration Statement of the Registrant
filed on October 13, 1995, File No. 33-63383).
4.14 $135,000,000 Amended and Restated Loan and Security Agreement dated as
of March 17, 1994 between Certified Grocers of California, Ltd.,
Grocers General Merchandise Company, Grocers Specialty Company, and BT
Commercial Corporation, as agent, Union Bank, as co-agent, and First
National Bank of Boston as co-agent; and Amendment Number One dated as
of November 1, 1994 (incorporated by reference to Exhibit 4.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
4.14.1 Amendment Number Two to Amended and Restated Loan and Security
Agreement date as of December 3, 1994, between Certified Grocers of
California, Ltd., Grocers General Merchandise Company, Grocers
Specialty Company, and BT Commercial Corporation, as agent, Union
Bank, as co-agent, and First National Bank of Boston, as co-agent
(incorporated by reference to Exhibit 4.14.1 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 2,
1995, File No. 0-10815).
4.14.2 Amendment Number Three to Amended and Restated Loan and Security
Agreement dated as of May 24, 1996, between Certified Grocers of
California, Ltd., Grocers General Merchandise Company, Grocers
Specialty Company, and BT Commercial Corporation, as agent, Union
Bank, as co-agent, and First National Bank of Boston, as co-agent.
4.14.3 Amendment Number Four to Amended and Restated Loan and Security
Agreement dated as of June 27, 1996, between Certified Grocers of
California, Ltd., Grocers General Merchandise Company, Grocers
Specialty Company, and BT Commercial Corporation, as agent, Union
Bank, as co-agent, and First National Bank of Boston, as co-agent.
4.14.4 Amendment Number Five to Amended and Restated Loan and Security
Agreement dated as of September 30, 1996, between Certified Grocers of
California, Ltd., Grocers General Merchandise Company, Grocers
Specialty Company, and BT Commercial Corporation, as agent, Union
Bank, as co-agent, and First National Bank of Boston, as co-agent.
4.15 Subordinated Note Agreement dated March 27, 1989 between Certified
Grocers of California, Ltd. and Aetna Life Insurance Company regarding
$35,000,000 10.80% subordinated notes due April 1, 1999; and letter
amendment dated January 30, 1992 (incorporated by reference to Exhibit
4.15 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended August 28, 1993 filed on November 26, 1993, File No.
0-10815).
</TABLE>
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<TABLE>
<C> <S>
4.15.1 Amendment to Subordinated Note Agreement dated as of March 17, 1994
between Certified Grocers of California, Ltd. and Aetna Life Insurance
Company (incorporated by reference to Exhibit 4.15.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 3, 1994, File No. 0-10815).
4.16 Note Purchase Agreement dated January 15, 1990 between Certified
Grocers of California, Ltd. and Massachusetts Mutual Life Insurance
Company regarding $20,000,000 9.55% Senior Notes due January 15, 2005;
and Amendment Dated January 30, 1991, First Amendment dated September
4, 1991, and Amendment No. 2 dated October 19, 1993 (incorporated by
reference to Exhibit 4.16 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 28, 1993 filed on November 26,
1993, File No. 0-10815).
4.16.1 Amendment No. 3 to Note Purchase Agreement dated as of March 17, 1994,
and Amendment No. 4 to Note Purchase Agreement dated as of September
29, 1994, each between Certified Grocers of California, Ltd. and
Massachusetts Mutual Life Insurance Company (incorporated by reference
to Exhibit 4.16.1 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 3, 1994, File No. 0-10815).
4.17 $18,700,000 Loan Agreement dated August 23, 1979 between Certified
Grocers of California, Ltd., First Interstate Bank of California, as
Trustee, and the other Lenders named therein; Secured Promissory Notes
dated August 23, 1979; Deed of Trust and Assignment of Rents dated
August 23, 1979; and, Assignment of Rents and Leases dated August 23,
1979 (incorporated by reference to Exhibit 4.17 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 28, 1993
filed on November 26, 1993, File No. 0-10815).
4.18 Loan Purchase and Service Agreement Dated as of August 29, 1996
between Grocers Capital Company and National Consumer Cooperative
Bank.
4.19 $10,000,000 Credit Agreement and Security Agreement each dated as of
September 20, 1996 between Grocers Capital Company and National
Cooperative Bank as agent.
10.1 Comprehensive Amendment to Retirement Plan for Employees of Certified
Grocers of California, Ltd. (incorporated by reference to Exhibit 10.1
to Form S-2 Registration Statement of the Registrant filed on October
12, 1994, File No. 33-56005).
10.2 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2
of the Form S-2 Registration Statement of the Registrant filed on
December 28, 1987, File No. 33-19284).
10.3 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employees' Sheltered Savings Plan (incorporated by reference to
Exhibit 10.3 to the Form S-2 Registration Statement of the Registrant
filed on September 2, 1993, File No. 33-68288).
10.4 Certified Grocers of California, Ltd., Executive Salary Protection
Plan II ("ESPP II"), Master Plan Document, effective January 4, 1995
(incorporated by reference to Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 2, 1995 filed
on December 1, 1995, File No. 0-10815).
10.5 Master Trust Agreement For Certified Grocers of California, Ltd.
Executive Salary Protection Plan II, dated as of April 28, 1995
(incorporated by reference to Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 2, 1995 filed
on December 1, 1995, File No. 0-10815).
10.6 Certified Grocers of California, Ltd. Executive Insurance Plan
Split-dollar Agreement and Schedule of Executive Officers party
thereto (incorporated by reference to Exhibit 10.6 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 2, 1995
filed on December 1, 1995, File No. 0-10815).
10.7 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employees' Excess Benefit Plan (incorporated by reference to Exhibit
10.6.1 to Form S-2 Registration Statement of the Registrant filed on
October 12, 1994, File No. 33-56005).
</TABLE>
64
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<TABLE>
<C> <S>
10.8 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employees' Supplemental Deferred Compensation Plan (incorporated by
reference to Exhibit 10.5.3 to Form S-2 Registration Statement of the
Registrant filed on December 10, 1990, File No. 33-38152).
10.9 Comprehensive Amendment to Certified Grocers of California, Ltd.
Employee Savings Plan (incorporated by reference to Exhibit 10.4 to
Form S-2 Registration Statement of the Registrant filed on September
2, 1993, File No. 33-68288).
10.9.1 First Amendment to Certified Grocers of California, Ltd. Employee
Savings Plan (incorporated by reference to Exhibit 10.4.1 to Form S-2
Registration Statement of the Registrant filed on October 12, 1994,
File No 33-56005).
10.10 Joint Venture Agreement of Golden Alliance Distribution, dated as of
April 8, 1992, between Food 4 Less GM, Inc. and Grocers General
Merchandise Company (incorporated by reference to Exhibit 10.7 to Form
S-2 Registration Statement of the Registrant filed on September 2,
1993. File No. 33-68288.
10.11 Lease, dated as of December 23, 1986, between Cercor Associates and
Grocers Specialty Company (incorporated by reference to Exhibit 10.8
to Form S-2 Registration Statement of the Registrant filed on
September 2, 1993. File No. 33-68288).
10.12 Expansion Agreement, dated as of May 1, 1991, and Industrial Lease,
dated as of May 1, 1991, between Dermody Properties and the Registrant
(incorporated by reference to Exhibit 10.9 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993. File No.
33-68288).
10.12.1 Lease Amendment, dated June 20, 1991, between Dermody Properties and
the Registrant (incorporated by reference to Exhibit 10.9.1 to Form
S-2 Registration Statement of the Registrant filed on September 2,
1993. File No. 33-68288).
10.12.2 Lease Amendment, dated October 18, 1991, between Dermody Properties
and the Registrant (incorporated by reference to Exhibit 10.9.2 to
Form S-2 Registration Statement of the Registrant filed on September
2, 1993. File No. 33-68288).
10.13 Preferred Stock Purchase Agreement by and between Food-4-Less of
Modesto, Inc. and Grocers Capital Company, dated as of July 1, 1992
(incorporated by reference to Exhibit 10.10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 28, 1993 filed on
November 26, 1993, File No. 0-10815).
10.14 Preferred Stock Purchase Agreement by and between SavMax Foods, Inc.
and Grocers Capital Company, dated as of December 17, 1993
(incorporated by reference to Exhibit 10.11 to Post-Effective
Amendment No. 6 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
10.15 Common Stock Purchase Agreement by and between Michael A. Webb and
Grocers Capital Company, dated as of December 17, 1993 (incorporated
by reference to Exhibit 10.12 to Post-Effective Amendment No. 6 to
Form S-2 Registration Statement of the Registrant filed on December
15, 1994, File No. 33-38152).
10.16 Agreement Regarding Common Stock by and between Michael A. Webb,
SavMax Foods, Inc. and Grocers Capital Company, dated as of December
17, 1993 (incorporated by reference to Exhibit 10.13 to Post-Effective
Amendment No. 6 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
10.17 Commercial Lease-Net dated December 6, 1994 between TriNet Essential
Facilities XII and the Registrant (incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 2, 1995 filed on December 1, 1995, file
No. 0-10815).
</TABLE>
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<TABLE>
<C> <S>
10.18 Purchase Agreement dated November 21, 1994 between the Registrant and
TriNet Corporate Realty Trust, Inc. (incorporated by reference to
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 2, 1995 filed on December 1, 1995, file
No. 0-10815).
10.19 Form of Employment Agreement between the Company and Alfred A.
Plamann.
22.1 Subsidiaries of the Registrant.
27. Financial Data Schedule.
</TABLE>
(d) Financial Statement Schedules
All required schedule information is presented in the financial
statements or notes thereto. Other schedule information is either not
applicable or not material.
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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.
CERTIFIED GROCERS OF CALIFORNIA, LTD.
By /s/ ALFRED A. PLAMANN
------------------------------------------
Alfred A. Plamann
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
By /s/ DANIEL T. BANE
------------------------------------------
Daniel T. Bane
SENIOR VICE PRESIDENT -- FINANCE &
ADMINISTRATION
AND CHIEF FINANCIAL OFFICER
By /s/ RANDALL G. SCOVILLE
------------------------------------------
Randall G. Scoville
CORPORATE CONTROLLER
Date: October 31, 1996
67
<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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------- -------------------
<S> <C> <C>
/S/ WILLARD R. MACALONEY
------------------------------------------- Director October 31, 1996
Willard R. MacAloney
(Chairman of the Board)
/S/ JAY MCCORMACK
------------------------------------------- Director October 31, 1996
Jay McCormack
(1st Vice Chairman)
/S/ DARIOUSH KHALEDI
------------------------------------------- Director October 31, 1996
Darioush Khaledi
(2nd Vice Chairman)
/S/ LOUIS A. AMEN
------------------------------------------- Director October 31, 1996
Louis A. Amen
/S/ JOHN BERBERIAN
------------------------------------------- Director October 31, 1996
John Berberian
/S/ MICHAEL BONFANTE
------------------------------------------- Director October 31, 1996
Michael Bonfante
/S/ HARLEY J. DELANO
------------------------------------------- Director October 31, 1996
Harley J. DeLano
/S/ LYLE A. HUGHES
------------------------------------------- Director October 31, 1996
Lyle A. Hughes
/S/ ROGER K. HUGHES
------------------------------------------- Director October 31, 1996
Roger K. Hughes
/S/ MARK KIDD
------------------------------------------- Director October 31, 1996
Mark Kidd
/S/ MORRIE NOTRICA
------------------------------------------- Director October 31, 1996
Morrie Notrica
/S/ MICHAEL A. PROVENZANO
------------------------------------------- Director October 31, 1996
Michael A. Provenzano
/S/ ALLAN SCHARN
------------------------------------------- Director October 31, 1996
Allan Scharn
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------- -------------------
<S> <C> <C>
/S/ JAMES R. STUMP
------------------------------------------- Director October 31, 1996
James R. Stump
/S/ KENNETH YOUNG
------------------------------------------- Director October 31, 1996
Kenneth Young
</TABLE>
69
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------- ----------
<C> <S> <C>
3.1 Articles of Incorporation of the Registrant (as amended
through June 21, 1994) (incorporated by reference to
Exhibit 3.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 3, 1994, File
No. 0-10815).
3.2 Bylaws of the Registrant (as amended through June 21,
1994) (incorporated by reference to Exhibit 4.2 to
Post-Effective Amendment No. 6 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994,
File No. 33-38152).
4.1 Retail Grocer Application and Agreement for Continuing
Service Affiliation With Certified Grocers of California,
LTD. And Pledge Agreement (incorporated by reference to
Exhibit 4.7 to Amendment No. 2 to Form S-1 Registration
Statement of the Registrant filed on December 31, 1981,
File No. 2-70069).
4.2 Retail Grocer Application And Agreement For Service
Affiliation With And The Purchase Of Shares Of Certified
Grocers Of California, LTD. And Pledge Agreement
(incorporated by reference to Exhibit 4.2 to
Post-Effective Amendment No. 7 to Form S-2 Registration
Statement of the Registrant filed on December 13, 1989,
File No. 33-19284).
4.3 Agreement respecting directors' shares (incorporated by
reference to Exhibit 4.9 to Amendment No. 2 to Form S-1
Registration Statement of the Registrant filed on
December 31, 1981, File No. 2-70069).
4.4 Subordination Agreement (Existing Member-Patron)
(incorporated by reference to Exhibit 4.4 to
Post-Effective Amendment No. 4 to Form S-2 Registration
Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.5 Subordination Agreement (Existing Associate Patron)
(incorporated by reference to Exhibit 4.5 to
Post-Effective Amendment No. 4 to Form S-2 Registration
Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.6 Subordination Agreement (New Member-Patron) (incorporated
by reference to Exhibit 4.6 to Post-Effective Amendment
No. 4 to Form S-2 Registration Statement of the
Registrant filed on July 15, 1988, File No. 33-19284).
4.7 Subordination Agreement (New Associate Patron)
(incorporated by reference to Exhibit 4.7 to
Post-Effective Amendment No. 4 to Form S-2 Registration
Statement of the Registrant filed on July 15, 1988, File
No. 33-19284).
4.8 Form of Class A Share Certificate (incorporated by
reference to Exhibit 4.5 to Post-Effective Amendment No.
6 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
4.9 Form of Class B Share Certificate (incorporated by
reference to Exhibit 4.6 to Post-Effective Amendment No.
6 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
4.10.1 Articles FIFTH and SIXTH of the Registrant's Articles of
Incorporation (See Exhibit 3.1).
4.10.2 Article I, Section 5, and Article VII of the Registrant's
Bylaws (See Exhibit 3.2).
4.11 Indenture between the Registrant and First Interstate
Bank of California, as Trustee, relating to $3,000,000
Subordinated Patronage Dividend Certificates Due December
15, 2000 (incorporated by reference to Exhibit 4.3 to
Amendment No. 1 to Form S-2 Registration Statement of the
Registrant filed on September 27, 1993, File No.
33-68288).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------- ----------
<C> <S> <C>
4.12 Indenture between the Registrant and First Interstate
Bank of California, as Trustee, relating to $5,000,000
Subordinated Patronage Dividend Certificates due December
15, 2001 (incorporated by reference to Exhibit 4.3 to
Form S-2 Registration Statement of the Registrant filed
on October 12, 1994, File No. 33-56005).
4.13 Indenture between the Registrant and First Interstate
Bank of California, as Trustee, relating to $3,000,000
Subordinated Patronage Dividend Certificates due December
15, 2002 (incorporated by reference to Exhibit 4.3 to
Form S-2 Registration Statement of the Registrant filed
on October 13, 1995, File No. 33-63383).
4.14 $135,000,000 Amended and Restated Loan and Security
Agreement dated as of March 17, 1994 between Certified
Grocers of California, Ltd., Grocers General Merchandise
Company, Grocers Specialty Company, and BT Commercial
Corporation, as agent, Union Bank, as co-agent, and First
National Bank of Boston as co-agent; and Amendment Number
One dated as of November 1, 1994 (incorporated by
reference to Exhibit 4.13 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
3, 1994, File No. 0-10815).
4.14.1 Amendment Number Two to Amended and Restated Loan and
Security Agreement date as of December 3, 1994, between
Certified Grocers of California, Ltd., Grocers General
Merchandise Company, Grocers Specialty Company, and BT
Commercial Corporation, as agent, Union Bank, as
co-agent, and First National Bank of Boston, as co-agent
(incorporated by reference to Exhibit 4.14.1 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended September 2, 1995, File No. 0-10815).
4.14.2 Amendment Number Three to Amended and Restated Loan and
Security Agreement dated as of May 24, 1996, between
Certified Grocers of California, Ltd., Grocers General
Merchandise Company, Grocers Specialty Company, and BT
Commercial Corporation, as agent, Union Bank, as
co-agent, and First National Bank of Boston, as co-agent.
4.14.3 Amendment Number Four to Amended and Restated Loan and
Security Agreement dated as of June 27, 1996, between
Certified Grocers of California, Ltd., Grocers General
Merchandise Company, Grocers Specialty Company, and BT
Commercial Corporation, as agent, Union Bank, as
co-agent, and First National Bank of Boston, as co-agent.
4.14.4 Amendment Number Five to Amended and Restated Loan and
Security Agreement dated as of September 30, 1996,
between Certified Grocers of California, Ltd., Grocers
General Merchandise Company, Grocers Specialty Company,
and BT Commercial Corporation, as agent, Union Bank, as
co-agent, and First National Bank of Boston, as co-agent.
4.15 Subordinated Note Agreement dated March 27, 1989 between
Certified Grocers of California, Ltd. and Aetna Life
Insurance Company regarding $35,000,000 10.80%
subordinated notes due April 1, 1999; and letter
amendment dated January 30, 1992 (incorporated by
reference to Exhibit 4.15 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 28,
1993 filed on November 26, 1993, File No. 0-10815).
4.15.1 Amendment to Subordinated Note Agreement dated as of
March 17, 1994 between Certified Grocers of California,
Ltd. and Aetna Life Insurance Company (incorporated by
reference to Exhibit 4.15.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
3, 1994, File No. 0-10815).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------- ----------
<C> <S> <C>
4.16 Note Purchase Agreement dated January 15, 1990 between
Certified Grocers of California, Ltd. and Massachusetts
Mutual Life Insurance Company regarding $20,000,000 9.55%
Senior Notes due January 15, 2005; and Amendment Dated
January 30, 1991, First Amendment dated September 4,
1991, and Amendment No. 2 dated October 19, 1993
(incorporated by reference to Exhibit 4.16 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended August 28, 1993 filed on November 26, 1993,
File No. 0-10815).
4.16.1 Amendment No. 3 to Note Purchase Agreement dated as of
March 17, 1994, and Amendment No. 4 to Note Purchase
Agreement dated as of September 29, 1994, each between
Certified Grocers of California, Ltd. and Massachusetts
Mutual Life Insurance Company (incorporated by reference
to Exhibit 4.16.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 3, 1994,
File No. 0-10815).
4.17 $18,700,000 Loan Agreement dated August 23, 1979 between
Certified Grocers of California, Ltd., First Interstate
Bank of California, as Trustee, and the other Lenders
named therein; Secured Promissory Notes dated August 23,
1979; Deed of Trust and Assignment of Rents dated August
23, 1979; and, Assignment of Rents and Leases dated
August 23, 1979 (incorporated by reference to Exhibit
4.17 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended August 28, 1993 filed on November
26, 1993, File No. 0-10815).
4.18 Loan Purchase and Service Agreement Dated as of August
29, 1996 between Grocers Capital Company and National
Consumer Cooperative Bank.
4.19 $10,000,000 Credit Agreement and Security Agreement each
dated as of September 20, 1996 between Grocers Capital
Company and National Cooperative Bank as agent.
10.1 Comprehensive Amendment to Retirement Plan for Employees
of Certified Grocers of California, Ltd. (incorporated by
reference to Exhibit 10.1 to Form S-2 Registration
Statement of the Registrant filed on October 12, 1994,
File No. 33-56005).
10.2 Incentive Compensation Plan (incorporated by reference to
Exhibit 10.2 of the Form S-2 Registration Statement of
the Registrant filed on December 28, 1987, File No.
33-19284).
10.3 Comprehensive Amendment to Certified Grocers of
California, Ltd. Employees' Sheltered Savings Plan
(incorporated by reference to Exhibit 10.3 to the Form
S-2 Registration Statement of the Registrant filed on
September 2, 1993, File No. 33-68288).
10.4 Certified Grocers of California, Ltd., Executive Salary
Protection Plan II ("ESPP II"), Master Plan Document,
effective January 4, 1995 (incorporated by reference to
Exhibit 10.4 to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 2, 1995 filed on
December 1, 1995, File No. 0-10815).
10.5 Master Trust Agreement For Certified Grocers of
California, Ltd. Executive Salary Protection Plan II,
dated as of April 28, 1995 (incorporated by reference to
Exhibit 10.5 to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 2, 1995 filed on
December 1, 1995, File No. 0-10815).
10.6 Certified Grocers of California, Ltd. Executive Insurance
Plan Split-dollar Agreement and Schedule of Executive
Officers party thereto (incorporated by reference to
Exhibit 10.6 to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 2, 1995 filed on
December 1, 1995, File No. 0-10815).
10.7 Comprehensive Amendment to Certified Grocers of
California, Ltd. Employees' Excess Benefit Plan
(incorporated by reference to Exhibit 10.6.1 to Form S-2
Registration Statement of the Registrant filed on October
12, 1994, File No. 33-56005).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------- ----------
<C> <S> <C>
10.8 Comprehensive Amendment to Certified Grocers of
California, Ltd. Employees' Supplemental Deferred
Compensation Plan (incorporated by reference to Exhibit
10.5.3 to Form S-2 Registration Statement of the
Registrant filed on December 10, 1990, File No.
33-38152).
10.9 Comprehensive Amendment to Certified Grocers of
California, Ltd. Employee Savings Plan (incorporated by
reference to Exhibit 10.4 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993,
File No. 33-68288).
10.9.1 First Amendment to Certified Grocers of California, Ltd.
Employee Savings Plan (incorporated by reference to
Exhibit 10.4.1 to Form S-2 Registration Statement of the
Registrant filed on October 12, 1994, File No 33-56005).
10.10 Joint Venture Agreement of Golden Alliance Distribution,
dated as of April 8, 1992, between Food 4 Less GM, Inc.
and Grocers General Merchandise Company (incorporated by
reference to Exhibit 10.7 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993.
File No. 33-68288.
10.11 Lease, dated as of December 23, 1986, between Cercor
Associates and Grocers Specialty Company (incorporated by
reference to Exhibit 10.8 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993.
File No. 33-68288).
10.12 Expansion Agreement, dated as of May 1, 1991, and
Industrial Lease, dated as of May 1, 1991, between
Dermody Properties and the Registrant (incorporated by
reference to Exhibit 10.9 to Form S-2 Registration
Statement of the Registrant filed on September 2, 1993.
File No. 33-68288).
10.12.1 Lease Amendment, dated June 20, 1991, between Dermody
Properties and the Registrant (incorporated by reference
to Exhibit 10.9.1 to Form S-2 Registration Statement of
the Registrant filed on September 2, 1993. File No.
33-68288).
10.12.2 Lease Amendment, dated October 18, 1991, between Dermody
Properties and the Registrant (incorporated by reference
to Exhibit 10.9.2 to Form S-2 Registration Statement of
the Registrant filed on September 2, 1993. File No.
33-68288).
10.13 Preferred Stock Purchase Agreement by and between
Food-4-Less of Modesto, Inc. and Grocers Capital Company,
dated as of July 1, 1992 (incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 28, 1993 filed on
November 26, 1993, File No. 0-10815).
10.14 Preferred Stock Purchase Agreement by and between SavMax
Foods, Inc. and Grocers Capital Company, dated as of
December 17, 1993 (incorporated by reference to Exhibit
10.11 to Post-Effective Amendment No. 6 to Form S-2
Registration Statement of the Registrant filed on
December 15, 1994, File No. 33-38152).
10.15 Common Stock Purchase Agreement by and between Michael A.
Webb and Grocers Capital Company, dated as of December
17, 1993 (incorporated by reference to Exhibit 10.12 to
Post-Effective Amendment No. 6 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994,
File No. 33-38152).
10.16 Agreement Regarding Common Stock by and between Michael
A. Webb, SavMax Foods, Inc. and Grocers Capital Company,
dated as of December 17, 1993 (incorporated by reference
to Exhibit 10.13 to Post-Effective Amendment No. 6 to
Form S-2 Registration Statement of the Registrant filed
on December 15, 1994, File No. 33-38152).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------- ----------
<C> <S> <C>
10.17 Commercial Lease-Net dated December 6, 1994 between
TriNet Essential Facilities XII and the Registrant
(incorporated by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended September 2, 1995 filed on December 1, 1995,
file No. 0-10815).
10.18 Purchase Agreement dated November 21, 1994 between the
Registrant and TriNet Corporate Realty Trust, Inc.
(incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended September 2, 1995 filed on December 1, 1995,
file No. 0-10815).
10.19 Form of Employment Agreement between the Company and
Alfred A. Plamann.
22.1 Subsidiaries of the Registrant.
27. Financial Data Schedule.
</TABLE>
<PAGE>
AMENDMENT NUMBER THREE
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER THREE TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment"), dated as of May 28, 1996, is entered into by and
among (1) CERTIFIED GROCERS OF CALIFORNIA, LTD., a California corporation
("Certified"), GROCERS GENERAL MERCHANDISE COMPANY, a California corporation
("GGMC"), and GROCERS SPECIALTY COMPANY, a California corporation ("GSC")
(Certified, GGMC, and GSC are jointly and severally referred to herein as
"Borrower"), (2) Hawaiian Grocery Stores, Limited, a Hawaii corporation ("HGS"),
and (3) the financial institutions which are signatories hereto (hereinafter
collectively referred to as the "Lenders" and individually as a "Lender"), BT
COMMERCIAL CORPORATION, a Delaware corporation, as agent (the "Agent"), UNION
BANK OF CALIFORNIA, a California banking corporation ("Union"), as co-agent, and
FIRST NATIONAL BANK OF BOSTON, National Association ("First National"), as co-
agent, in light of the following facts:
RECITALS
A. Borrower, Agent, and Lenders have previously entered into that
certain Amended and Restated Loan and Security Agreement, dated as of March 17,
1994, as amended by that certain Amendment Number One to Amended and Restated
Loan and Security Agreement, dated as of November 1, 1994, and as further
amended by that certain Amendment Number Two to Amended and Restated Loan and
Security Agreement, dated as of December 3, 1994 (collectively, the
"Agreement").
B. Borrower has requested that Lenders consent to the sale by GSC of
all of the common stock of HGS to RHL Management Group, Inc., a Delaware
corporation ("RHL"), and to modify certain obligations of HGS owed to Lenders.
Lenders have consented thereto, pursuant to the terms and conditions set forth
herein, and have agreed to otherwise amend the Agreement in accordance with the
terms of this Amendment.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINED TERMS. All capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Agreement. The Agreement
is hereby amended to include the following additional terms:
"New HGS Note" means that certain Subordinated Secured Promissory Note
dated as of May 28, 1996, which refinances the outstanding principal
balance of the HGS Note, in the original principal amount of Five
Million Three Hundred Thousand Dollars ($5,300,000) issued by HGS in
favor of GSC.
-1-
<PAGE>
"HGS Security Agreement" means that certain Security Agreement dated
as of May 28, 1996, pursuant to which HGS grants a security interest
in substantially all of its personal property to secure its
obligations to GSC under the New HGS Note.
2. AMENDMENTS. Subject to the full and satisfactory performance of
the conditions precedent set forth in Section 3 below, the parties hereto agree
as follows:
a. NEW HGS NOTE. HGS shall execute the New HGS Note and HGS
Security Agreement in favor of GSC, together with a UCC-1 Financing
Statement to secure HGS' obligations thereunder, which UCC-1 shall show
Agent, as assignee. The New HGS Note, together with all security therefor,
is hereby pledged to Lenders as Collateral pursuant to the terms of the
Agreement, and the original New HGS Note shall be delivered to Agent.
Lenders acknowledge that the obligations of HGS under the New HGS Note are
subordinate to the obligations of HGS to its primary lender, Congress
Financial Corporation (Western) ("Congress"), and that the security
interests granted pursuant to the HGS Security Agreement shall be junior to
the security interests of Congress. Lenders hereby consent to the
refinancing of the HGS Note and the subordination of all security therefor.
b. SALE OF HGS/SUBORDINATION OF GUARANTY. Lenders hereby consent to
(i) the sale of the common stock of HGS to RHL at anytime prior to July 31,
1996, for a price of $2,425,387 cash less closing adjustments, if any,
provided that the net price shall not be less than $2,000,000, and (ii)
effective concurrently with the consummation of such sale, the
subordination of the obligations of HGS pursuant to that certain Continuing
Guaranty dated as of January 30, 1992 and reaffirmed on March 17, 1994,
made by HGS in favor of Lenders to the obligations of HGS to Congress
Financial Corporation (Western).
c. WARRANT AND PREFERRED STOCK. In connection with the sale of HGS
to RHL, GSC will retain a warrant to purchase 20% of the common stock of
HGS and 1,000 shares of preferred stock of HGS. Lenders hereby consent to
the retention of these interests.
3. CONDITIONS PRECEDENT. The obligations of Agent and Lenders under
this Amendment are subject to and conditioned upon the fulfillment of each and
all of the following conditions precedent, which shall be deemed to have
occurred substantially concurrently with the sale by GSC to RHL of the common
stock of HGS:
(a) Agent shall have received this Amendment duly executed by
Borrower, HGS and Lenders;
(b) Agent shall have received a consent and reaffirmation duly
executed by each of Certified, GGMC and GSC under their respective Guaranties,
including the consent by each such guarantor to the execution and delivery by
Borrower of this Amendment;
(c) Agent shall have received the original of the New HGS Note;
-2-
<PAGE>
(d) UCC-1 Financing Statements showing HGS as Debtor, GSC as
Secured Party, and Agent as assignee, shall have been executed and filed as
deemed necessary by Agent to perfect the security interests granted pursuant to
the HGS Security Agreement and the assignment of such security interests to
Lenders; and
(e) Arrangements acceptable to Agent shall have been made with
respect to payment of all of Agent's Expenses incurred in connection with the
negotiation, preparation and execution of this Amendment.
4. DELIVERY BY AGENT. Agent agrees to deliver, prior to the closing
of the sale-of-stock transaction, (a) the original HGS Note to the law firm of
Sheppard, Mullin, Richter & Hampton LLP to be cancelled at such closing, and (b)
to such law firm an executed UCC Termination Statement with respect to Document
No. 92-016081 filed on February 3, 1992, at the Office of the Bureau of
Conveyances in Honolulu, Hawaii, in each case for delivery only following
consummation of the sale of HGS.
5. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which when so executed and delivered shall be deemed to be an original.
All such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon
-3-
<PAGE>
the fulfillment of all of the conditions set forth in Section 3 hereof.
6. REAFFIRMATION OF THE AGREEMENT. Except as specifically amended
by this Amendment, the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed at Los Angeles, California, as of the date first hereinabove
written.
CERTIFIED GROCERS OF CALIFORNIA, LTD.,
a California corporation
By
------------------------------------
Title:
------------------------------
GROCERS GENERAL MERCHANDISE COMPANY, a California
corporation
By
------------------------------------
Title:
------------------------------
GROCERS SPECIALTY COMPANY,
a California corporation
By
------------------------------------
Title:
------------------------------
HAWAIIAN GROCERY STORES, LIMITED, a Hawaii
corporation
By
-----------------------------------
Title:
------------------------------
-4-
<PAGE>
BT COMMERCIAL CORPORATION, a Delaware
corporation, individually and as Agent
By
------------------------------------
Title:
------------------------------
FIRST NATIONAL BANK OF BOSTON, a National
Association, individually and as Co-Agent
By
-----------------------------------
Title:
------------------------------
UNION BANK OF CALIFORNIA, N.A., individually
and as Co-Agent
By
------------------------------------
Title:
------------------------------
THE BANK OF CALIFORNIA, N.A.
By
------------------------------------
Title:
--------------------------------
-5-
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
a German bank acting through its New York
branch
By
------------------------------------
Title:
------------------------------
By
------------------------------------
Title:
------------------------------
DRESDNER BANK, AG, Los Angeles agency and
Grand Cayman Branch, as a bank
By
------------------------------------
Title:
------------------------------
By
------------------------------------
Title:
------------------------------
NATIONAL CANADA CORPORATION, a Delaware
corporation
By
------------------------------------
Title:
------------------------------
By
------------------------------------
Title:
------------------------------
-6-
<PAGE>
SANWA BANK CALIFORNIA, a California banking
corporation
By
-----------------------------------
Title:
------------------------------
SANWA BUSINESS CREDIT CORPORATION, a Delaware
corporation
By
------------------------------------
Title:
------------------------------
THE DAI-ICHI KANGYO BANK, LIMITED, a Japanese
bank acting through its Los Angeles agency
By
------------------------------------
Title:
------------------------------
By
------------------------------------
Title:
------------------------------
THE SAKURA BANK, LIMITED, a Japanese bank
acting through its Los Angeles agency
By
------------------------------------
Title:
------------------------------
By
------------------------------------
Title:
------------------------------
MANUFACTURERS BANK
By
------------------------------------
-7-
<PAGE>
Title:
------------------------------
CITY NATIONAL BANK, a national banking
association
By
------------------------------------
Title:
------------------------------
-8-
<PAGE>
CONSENT OF GUARANTORS
Each of the undersigned, as a guarantor of the obligations of
CERTIFIED GROCERS OF CALIFORNIA, LTD., a California corporation ("Certified"),
GROCERS GENERAL MERCHANDISE COMPANY, a California corporation ("GGMC"), and
GROCERS SPECIALTY COMPANY, a California corporation ("GSC") (Certified, GGMC,
and GSC are collectively referred to herein as "Borrower"), arising out of that
certain Amended and Restated Loan and Security Agreement, dated as of March 17,
1994, as amended by that certain Amendment Number One to Amended and Restated
Loan and Security Agreement, dated as of November 1, 1994, and as further
amended by that certain Amendment Number Two to Amended and Restated Loan and
Security Agreement, dated as of December 3, 1994 (collectively, the
"Agreement"), among BT Commercial Corporation, a Delaware corporation, Union
Bank of California, a California banking corporation, First National Bank of
Boston, National Association (collectively, "Agents"), and the other lenders
party thereto (collectively, "Lenders"), on the one hand, and Borrower, on the
other hand, hereby (a) acknowledges receipt of a copy of that certain Amendment
Number Three to Amended and Restated Loan and Security Agreement ("Amendment"),
dated as of May 28, 1996, among Agents, Lenders and Borrower, and Hawaii Grocery
Stores, Limited, a Hawaii corporation ("HGS"), (b) consents to the release of
the Continuing Guaranty dated March 17, 1994, given by HGS in favor of Lenders,
(c) consents to the other terms contained in the Amendment, and (d) agrees that
the Continuing Guaranty executed by each of the undersigned, dated as of
March 17, 1994 (collectively, the "Guaranties"), in connection with the
Agreement shall remain in full force and effect as a continuing guaranty of the
obligations of Borrower owing to Agents and Lenders under the Agreement as
amended by the Amendment.
Although Agents have informed us of the matters set forth above, and
we have acknowledged same, we understand and agree that Agents have no duty
under the Agreement, the Guaranties or any other agreement between us to so
notify us or to seek an acknowledgment, and nothing contained herein is intended
to or shall create such a duty as to any advances or transactions hereafter.
-1-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Consent of
Guarantors to be duly executed by their respective authorized officers as of
May 28, 1996.
CERTIFIED GROCERS OF CALIFORNIA, LTD., a
California corporation
By
------------------------------------
Title:
------------------------------
GROCERS GENERAL MERCHANDISE COMPANY,
a California corporation
By
------------------------------------
Title:
------------------------------
GROCERS SPECIALTY COMPANY, a California
corporation
By
------------------------------------
Title:
------------------------------
-2-
<PAGE>
<PAGE>
AMENDMENT NUMBER FOUR
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment"), dated as of June 27, 1996, is entered into by and
among CERTIFIED GROCERS OF CALIFORNIA, LTD., a California corporation
("Certified"), GROCERS GENERAL MERCHANDISE COMPANY, a California corporation
("GGMC"), and GROCERS SPECIALTY COMPANY, a California corporation ("GSC")
(Certified, GGMC, and GSC are jointly and severally referred to herein as
"Borrower"), on the one hand, and the financial institutions which are
signatories hereto (hereinafter collectively referred to as the "Lenders" and
individually as a "Lender"), BT COMMERCIAL CORPORATION, a Delaware corporation ,
as agent ("Agent"), UNION BANK OF CALIFORNIA, N.A., a national banking
association, as co-agent, and FIRST NATIONAL BANK OF BOSTON, National
Association, as co-agent, on the other hand, in light of the following facts:
R E C I T A L S
A. The parties hereto have previously entered into that certain Amended and
Restated Loan and Security Agreement, dated as of March 17, 1994, as amended by
that certain Amendment Number One to Amended and Restated Loan and Security
Agreement, dated as of November 1, 1994, as further amended by that certain
Amendment Number Two to Amended and Restated Loan and Security Agreement, dated
as of December 3, 1994, and as further amended by that certain Amendment Number
Three to Amended and Restated Loan and Security Agreement, dated as of May __,
1996 (collectively, the "Agreement").
B. Borrower has requested that Lenders consent to the acquisition
(the "Petrini's Acquisition"), for a cash purchase price (the "Petrini's
Purchase Price") of up to $31,000,000 (of which not more than $7,000,000 may be
for inventory) from Bay Area Foods, Inc. ("BAF"), of certain assets (the
"Petrini's Assets") consisting of inventory, fixtures, machinery, equipment, and
leasehold improvements, and the assumption of certain liabilities respecting
store real property leases (the "Petrini's Liabilities"), all associated with
twelve (12) Petrini's grocery stores.
C. Lenders are consenting hereby to the Petrini's Acquisition,
subject and pursuant to the terms of this Amendment.
1
<PAGE>
A G R E E M E N T
NOW THEREFORE, the parties hereto agree as follows:
1. DEFINED TERMS. All initially capitalized terms used but not
defined herein shall have the meanings assigned to such terms in the Agreement.
2. CONSENT TO PETRINI'S ACQUISITION. Subject to the terms of this
Amendment and notwithstanding any of the terms of the Agreement to the contrary,
Lenders hereby consent to the acquisition of the Petrini's Assets by Certified,
the payment of the Petrini's Purchase Price to BAF by Certified, and the
borrowing by Certified of Loans ("Petrini's Acquisition Loans") to fund payment
of some or all of the Petrini's Purchase Price.
3. CONSENT TO STRUCTURE OF PETRINI'S ACQUISITION. Upon the election
of Certified, the Petrini's Assets may be acquired by Certified's wholly-owned
subsidiary, Crown Grocers, Inc., a California corporation ("Crown") and
Certified may loan the proceeds of the Petrini's Acquisition Loans to Crown to
fund the payment by Crown to BAF of the Petrini's Purchase Price; PROVIDED, that
in such event: (a) the loan by Certified to Crown shall be evidenced by a
secured promissory note (the "Crown Note"); (b) the Crown Note shall be secured
pursuant to a security agreement and associated documents and instruments
(collectively, the "Crown Security Documents") granting a first priority lien
upon and security interest in all of the Petrini's Assets; (c) the Crown Note
and the Crown Security Documents shall be pledged to Lenders to secure the
Obligations pursuant to a pledge agreement (the "Crown Note Pledge Agreement");
(d) Crown shall execute and deliver a continuing guaranty (the "Crown Guaranty")
of the Obligations, secured by a second priority lien upon and security interest
in the Petrini's Assets; (e) counsel to Certified and Crown shall issue a legal
opinion in favor of Lenders (the "Crown Legal Opinion") confirming the valid,
binding and enforceable obligations arising under the Crown Note, the Crown
Security Documents, the Crown Note Pledge Agreement and the Crown Guaranty.
4. COVENANTS REGARDING DISPOSITION OF PETRINI'S ASSETS. Borrower
hereby covenants and agrees as follows:
(a)that on or before the date which is 45 days after the date of
the funding of the Petrini's Acquisition Loans, Borrower shall cause such of the
Petrini's Assets to have been sold by Certified or Crown, as applicable, to
third party owner-operators such that the proceeds arising from such
disposition(s) shall have been paid over to Agent for application against the
Obligations in an amount greater than or equal to $15,000,000; PROVIDED that any
failure to effect such disposition shall not constitute an Event of Default and
shall result solely in Borrower's obligation to make payment of the Disposition
Fee as hereinafter provided.
2
<PAGE>
(b) on or before the date which is the three-month anniversary
date of the funding of the Petrini's Acquisition Loans, Borrower shall have (X):
(i) caused such of the Petrini's Assets to have been sold by Certified or Crown,
as applicable, to third party owner-operators such that the proceeds arising
from such disposition(s) shall have been paid over to Agent for application
against the Obligations in an amount greater than or equal to $25,000,000
inclusive of the amounts paid over in compliance with subsection (a) above; or
(ii) Loan Availability net of all reserves for Letters of Credit and other items
of at least $35,000,000; and (Y) provided to Agent a written certification as to
the status of the disposition of the Petrini's Assets as of such date, including
a statement as to such of the Petrini's Assets as are then owned by Borrower or
any of its Subsidiaries.
5. AMENDMENT TO SECTION 6.26. Section 6.26 of the Agreement is
amended to add a new subsection (m) thereto as follows:
"(m) Borrower and its Subsidiaries may make and own an
Investment in a Subsidiary, consisting of a corporation the majority
of the voting stock of which shall be owned by Certified, which
Investment may consist of the Petrini's Assets (as defined in
Amendment Number Four to this Agreement) having a book value not to
exceed $5,000,000 which are owned by Borrower or any of its
Subsidiaries on the three-month anniversary date of the date of
funding of the Petrini's Acquisition Loans (as defined in Amendment
Number Four to this Agreement)."
6. AMENDMENT FEE. Concurrently with the funding of the Petrini's
Acquisition Loans, Borrower shall pay to Agent a fee (the "Amendment Fee") in an
amount equal to one-fourth of one percent (0.25%) of the aggregate amount of the
Petrini's Acquisition Loans (to the extent actually borrowed), for the account
of Lenders, pro-rata in accordance with each Lender's share of the Commitment;
PROVIDED, HOWEVER, that if any Lender fails to execute this Amendment on or
before June 27, 1996, such Lender shall forfeit its pro-rata share of the
Amendment Fee which would have been for the account of such Lender and Borrower
shall have no obligation to pay such pro-rata share of the Amendment Fee.
7. DISPOSITION FEE. In the event that Agent shall not have received
proceeds arising from the disposition of Petrini's Assets in compliance with
Section 4(a) of this Amendment, Borrower shall pay to Agent a fee (the
"Disposition Fee") in an amount equal to one-fourth of one percent (0.25%) of
the aggregate amount of the Petrini's Acquisition Loans (to the extent actually
borrowed), for the account of Lenders; PROVIDED, HOWEVER, that if any Lender
fails to execute this Amendment on or before June 27, 1996, such Lender shall
forfeit its pro-rata share of the Disposition Fee which would have been for the
account of such Lender and Borrower shall have no obligation to pay such pro-
rata share of the Disposition Fee.
3
<PAGE>
8. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
subject to and conditioned upon the fulfillment of each and all of the following
conditions precedent:
(a) Agent shall have received this Amendment duly executed by
Borrower and Required Lenders.
(b) Agent shall have received a consent and affirmation duly
executed by each of Certified, GGMC, and GSC indicating the consent by each such
guarantor to the execution and delivery by Borrower of this Amendment and the
affirmation of the continued effectiveness of each such guarantor's guaranty of
the Obligations.
(c) In the event Certified elects to effect the acquisition
through Crown, Agent shall have received the duly executed and issued Crown
Note, the Crown Security Documents, the Crown Note Pledge Agreement, the Crown
Guaranty and the Crown Legal Opinion, all in form and substance satisfactory to
Agent, in its sole discretion.
(d) Agent shall have received payment of the Amendment Fee.
(e) Agent shall have received payment of all Agents Expenses
incurred by Agent in connection with the negotiation, preparation and execution
of this Amendment.
(f) Agent shall have received certified copies or originals of
the executed purchase and sale documents between BAF and Certified respecting
the Petrini's Acquisition, which purchase and sale documents shall substantially
conform to the terms of the Petrini's Acquisition as represented by Certified to
Agent.
9. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which when so executed and delivered shall be deemed to be an original.
All such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon the fulfillment of all of
the conditions set forth in Section 8 hereof.
10. REAFFIRMATION OF THE AGREEMENT. Except as specifically amended
by this Amendment, the Agreement shall remain in full force and effect.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed at Los Angeles, California as of the date first hereinabove written.
CERTIFIED GROCERS OF CALIFORNIA, LTD., a
California corporation
By
------------------------------
Title:
-------------------------
GROCERS GENERAL MERCHANDISE COMPANY, a
California corporation
By
------------------------------
Title:
-------------------------
GROCERS SPECIALTY COMPANY,
a California corporation
By
------------------------------
Title:
-------------------------
BT COMMERCIAL CORPORATION, a Delaware
corporation, individually and as Agent
By
------------------------------
Title:
-------------------------
5
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON, a
National Association, individually and
as Co-Agent
By
------------------------------
Title:
-------------------------
UNION BANK OF CALIFORNIA, N.A.,
individually and as Co-Agent
By
------------------------------
Title:
-------------------------
DG BANK DEUTSCHE GENOSSENSCHATFTSBANK, a
German bank acting through its New York
branch
By
------------------------------
Title:
-------------------------
By------------------------------
Title:
-------------------------
6
<PAGE>
DRESDNER BANK, AG, Los Angeles agency
and Grand Cayman Branch, as a bank
By
------------------------------
Title:
-------------------------
By
------------------------------
Title:
-------------------------
NATIONAL CANADA CORPORATION, a Delaware
corporation
By
------------------------------
Title:
-------------------------
By
------------------------------
Title:
-------------------------
SANWA BANK CALIFORNIA, a California
banking corporation
By
------------------------------
Title:
-------------------------
7
<PAGE>
SANWA BUSINESS CREDIT CORPORATION,
a Delaware corporation
By
------------------------------
Title:
-------------------------
THE DAI-ICHI KANGYO BANK, LIMITED, a
Japanese bank acting through its
Los Angeles agency
By
------------------------------
Title:
-------------------------
By
------------------------------
Title:
-------------------------
THE SAKURA BANK, LIMITED, a Japanese
bank acting through its Los Angeles
agency
By
------------------------------
Title:
-------------------------
By
------------------------------
Title:
-------------------------
8
<PAGE>
MANUFACTURERS BANK
By
------------------------------
Title:
-------------------------
CITY NATIONAL BANK, a national banking
association
By
------------------------------
Title:
-------------------------
9
<PAGE>
CONSENT OF GUARANTORS
Each of the undersigned, as a guarantor of the obligations of
CERTIFIED GROCERS OF CALIFORNIA, LTD., a California corporation ("Certified"),
GROCERS GENERAL MERCHANDISE COMPANY, a California corporation ("GGMC"), and
GROCERS SPECIALTY COMPANY, a California corporation ("GSC") (Certified, GGMC and
GSC are collectively referred to herein as "Borrower"), arising out of that
certain Amended and Restated Loan and Security Agreement, dated as of March 17,
1994, as amended by that certain Amendment Number One to Amended and Restated
Loan and Security Agreement, dated as of November 1, 1994, as further amended by
that certain Amendment Number Two to Amended and Restated Loan and Security
Agreement, dated as of December 3, 1994, and as further amended by that certain
Amendment Number Three to Amended and Restated Loan and Security Agreement,
dated as of May __, 1996 (collectively, the "Agreement"), among BT Commercial
Corporation, a Delaware corporation, Union Bank of California, N.A., a national
banking association, First National Bank of Boston, National Association
(collectively, "Agents"), and the other lenders party thereto (collectively,
"Lenders"), on the one hand, and Borrower, on the other hand, hereby
acknowledges receipt of a copy of that certain Amendment Number Four to Amended
and Restated Loan and Security Agreement, dated as of June 27, 1996, among
Agents, Lenders and Borrower, consents to the terms contained therein, and
agrees that the Continuing Guaranty executed by each of the undersigned shall
remain in full force and effect as a continuing guaranty of the obligations of
Borrower owing to Agents and Lenders under the Agreement.
Although Agents have informed us of the matters set forth above, and
we have acknowledged same, we understand and agree that Agents have no duty
under the Agreement, the Guaranties or any other agreement between us to so
notify us or to seek an acknowledgment, and nothing contained herein is intended
to or shall create such a duty as to any advances or transactions hereafter.
10
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Consent of
Guarantors to be duly executed by their respective authorized officers as of
June 27, 1996.
CERTIFIED GROCERS OF CALIFORNIA, LTD., a
California corporation
By
------------------------------
Title:
-------------------------
GROCERS GENERAL MERCHANDISE COMPANY, a
California corporation
By
------------------------------
Title:
-------------------------
GROCERS SPECIALTY COMPANY, a California
corporation
By
------------------------------
Title:
-------------------------
11
<PAGE>
AMENDMENT NUMBER FIVE
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER FIVE TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment"), dated as of September 30, 1996, is entered into by
and among CERTIFIED GROCERS OF CALIFORNIA, LTD., a California corporation
("Certified"), GROCERS GENERAL MERCHANDISE COMPANY, a California corporation
("GGMC"), and GROCERS SPECIALTY COMPANY, a California corporation ("GSC")
(Certified, GGMC, and GSC are jointly and severally referred to herein as
"Borrower"), on the one hand, and the financial institutions which are
signatories hereto (hereinafter collectively referred to as the "Lenders" and
individually as a "Lender"), BT COMMERCIAL CORPORATION, a Delaware corporation ,
as agent ("Agent"), UNION BANK OF CALIFORNIA, N.A., a national banking
association, as co-agent, and THE FIRST NATIONAL BANK OF BOSTON, a national
banking association, as co-agent, on the other hand, in light of the following
facts:
R E C I T A L S
A. The parties hereto have previously entered into that certain
Amended and Restated Loan and Security Agreement, dated as of March 17, 1994, as
amended by that certain Amendment Number One to Amended and Restated Loan and
Security Agreement, dated as of November 1, 1994, as further amended by that
certain Amendment Number Two to Amended and Restated Loan and Security
Agreement, dated as of December 3, 1994, as further amended by that certain
Amendment Number Three to Amended and Restated Loan and Security Agreement,
dated as of May __, 1996, and as further amended by that certain Amendment
Number Four to Amended and Restated Loan and Security Agreement, dated as of
June 27, 1996 (collectively, the "Agreement").
B. Borrower has requested that Lenders agree to extend the maturity
date of the Agreement.
C. Lenders are agreeing hereby to extend the maturity date of the
Agreement, subject and pursuant to the terms of this Amendment.
NOW THEREFORE, the parties hereto agree as follows:
1
<PAGE>
D. A G R E E M E N T
1. DEFINED TERMS. All initially capitalized terms used but not
defined herein shall have the meanings assigned to such terms in the Agreement.
2. AMENDMENT TO RECITALS. Recital B to the Agreement is deleted in
its entirety and replaced with the following:
B. Borrower, Lenders and Agents desire to amend the Prior
Agreement subject to the terms hereof, to, among other things: (1)
extend the maturity date of the Prior Agreement, and (2) increase the
credit facility under the Agreement to One Hundred Thirty-Five Million
Dollars ($135,000,000); and
3. EXTENSION OF MATURITY DATE. The definition of the term "Maturity
Date" set forth in Section 1.1 of the Agreement is hereby deleted in its
entirety and replaced by the following:
"Maturity Date" means March 17, 1999, or such subsequent
date to which such date may be extended pursuant to Section 3.1.
4. DELETION OF THE DEFINITION OF "GCC NOTE". In light of the fact
that the GCC Note has been repaid in full and cancelled, the definition of the
term "GCC Note" set forth in Section 1.1 of the Agreement is hereby deleted in
its entirety.
5. DELETION OF THE DEFINITION OF "GCC SUBORDINATION AND SECURITY
AGREEMENT". In light of the fact that the GCC Note has been repaid in full and
cancelled, the definition of the term "GCC Subordination and Security Agreement"
set forth in Section 1.1 of the Agreement is hereby deleted in its entirety.
6. AMENDMENT TO SECTION 6.21. Section 6.21 of the Agreement is
deleted in its entirety and replaced with the following:
6.21 USE OF PROCEEDS. Borrower shall use the proceeds of
the Loans made hereunder solely: (a) to replace and refinance the
Prior Agreement, (b) to prepay the Existing Subordinated Debt in
accordance with Section 6.3(g), and (c) for general working capital
purposes.
7. AMENDMENT TO SECTION 6.26. Section 6.26 of the Agreement is
amended to delete subsection (a) in its entirety and to replace such subsection
with the following:
2
<PAGE>
8. (a) Intentionally omitted.
9. AMENDMENT FEE. Concurrently with the effectiveness of this
Amendment, Borrower shall pay to Agent a fee (the "Amendment Fee") in an amount
equal to one-tenth of one percent (0.1%) of the Commitment, for the account of
Lenders, pro-rata in accordance with each Lender's share of the Commitment.
10. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
subject to and conditioned upon the fulfillment of each and all of the following
conditions precedent:
(a) Agent shall have received this Amendment duly executed by
Borrower and the Lenders.
(b) Agent shall have received a consent and affirmation duly
executed by each of Certified, GGMC, and GSC indicating the consent by each such
guarantor to the execution and delivery by Borrower of this Amendment and the
affirmation of the continued effectiveness of each such guarantor's guaranty of
the Obligations.
(c) Agent shall have received payment of the Amendment Fee and
of all other fees due.
(d) Agent shall have received payment of all Agents Expenses
incurred by Agent in connection with the negotiation, preparation and execution
of this Amendment.
11. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which when so executed and delivered shall be deemed to be an original.
All such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon the fulfillment of all of
the conditions set forth in Section 5 hereof.
12. REAFFIRMATION OF THE AGREEMENT. Except as specifically amended
by this Amendment, the Agreement shall remain in full force and effect.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed at Los Angeles, California as of the date first hereinabove written.
CERTIFIED GROCERS OF CALIFORNIA,
LTD., a California corporation
By______________________________
Title:___________________________
GROCERS GENERAL MERCHANDISE
COMPANY, a California corporation
By______________________________
Title:___________________________
GROCERS SPECIALTY COMPANY,
a California corporation
By______________________________
Title:___________________________
BT COMMERCIAL CORPORATION, a Delaware
corporation, individually and as Agent
By______________________________
Title:___________________________
4
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON,
a national banking association, individually and
as Co-Agent
By______________________________
Title:___________________________
UNION BANK OF CALIFORNIA, N.A.,
individually and as Co-Agent
By______________________________
Title:___________________________
DG BANK DEUTSCHE
GENOSSENSCHATFTSBANK, a German bank
acting through its New York branch
By______________________________
Title:___________________________
By______________________________
Title:___________________________
5
<PAGE>
DRESDNER BANK, AG, Los Angeles agency and
Grand Cayman Branch, as a bank
By______________________________
Title:___________________________
By______________________________
Title:___________________________
NATIONAL BANK OF CANADA , a Canadian
Chartered Bank, New York Branch
By______________________________
Title:___________________________
By______________________________
Title:___________________________
SANWA BANK CALIFORNIA, a California
banking corporation
By______________________________
Title:___________________________
6
<PAGE>
SANWA BUSINESS CREDIT CORPORATION,
a Delaware corporation
By______________________________
Title:___________________________
THE SAKURA BANK, LIMITED, a Japanese
bank acting through its Los Angeles agency
By______________________________
Title:___________________________
By______________________________
Title:___________________________
MANUFACTURERS BANK
By______________________________
Title:___________________________
CITY NATIONAL BANK, a national banking
association
By______________________________
Title:___________________________
7
<PAGE>
CONSENT OF GUARANTORS
Each of the undersigned, as a guarantor of the obligations of
CERTIFIED GROCERS OF CALIFORNIA, LTD., a California corporation ("Certified"),
GROCERS GENERAL MERCHANDISE COMPANY, a California corporation ("GGMC"), and
GROCERS SPECIALTY COMPANY, a California corporation ("GSC") (Certified, GGMC and
GSC are collectively referred to herein as "Borrower"), arising out of that
certain Amended and Restated Loan and Security Agreement, dated as of March 17,
1994, as amended by that certain Amendment Number One to Amended and Restated
Loan and Security Agreement, dated as of November 1, 1994, as further amended by
that certain Amendment Number Two to Amended and Restated Loan and Security
Agreement, dated as of December 3, 1994, as further amended by that certain
Amendment Number Three to Amended and Restated Loan and Security Agreement,
dated as of May __, 1996, and as further amended by that certain Amendment
Number Four to Amended and Restated Loan and Security Agreement, dated as of
June 27, 1996 (collectively, the "Agreement"), among BT Commercial Corporation,
a Delaware corporation, Union Bank of California, N.A., a national banking
association, The First National Bank of Boston, a national banking association
(collectively, "Agents"), and the other lenders party thereto (collectively,
"Lenders"), on the one hand, and Borrower, on the other hand, hereby
acknowledges receipt of a copy of that certain Amendment Number Five to Amended
and Restated Loan and Security Agreement, dated as of September 30, 1996, among
Agents, Lenders and Borrower, consents to the terms contained therein, and
agrees that the Continuing Guaranty executed by each of the undersigned shall
remain in full force and effect as a continuing guaranty of the obligations of
Borrower owing to Agents and Lenders under the Agreement.
Although Agents have informed us of the matters set forth above, and
we have acknowledged same, we understand and agree that Agents have no duty
under the Agreement, the Guaranties or any other agreement between us to so
notify us or to seek an acknowledgment, and nothing contained herein is intended
to or shall create such a duty as to any advances or transactions hereafter.
8
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Consent of
Guarantors to be duly executed by their respective authorized officers as of
September 30, 1996.
CERTIFIED GROCERS OF CALIFORNIA,
LTD., a California corporation
By______________________________
Title:___________________________
GROCERS GENERAL MERCHANDISE
COMPANY, a California corporation
By______________________________
Title:___________________________
GROCERS SPECIALTY COMPANY, a California
corporation
By______________________________
Title:___________________________
9
<PAGE>
EXECUTION COPY
LOAN PURCHASE AND SERVICING AGREEMENT
dated as of
August 29, 1996
between
GROCERS CAPITAL COMPANY
as Seller and Servicer
and
NATIONAL CONSUMER COOPERATIVE BANK
as Buyer
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.01 Defined Terms . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 General Principles Applicable to Definitions. . . . . 15
SECTION 1.03 Accounting Terms. . . . . . . . . . . . . . . . . . . 15
ARTICLE II
THE COMMITMENT
SECTION 2.01 Portfolio Sales; Origination of Loans . . . . . . . . 16
SECTION 2.02 Agreement to Purchase and Sell Loans. . . . . . . . . 16
SECTION 2.03 Incremental Purchase. . . . . . . . . . . . . . . . . 19
SECTION 2.04 Commitment Termination Date . . . . . . . . . . . . . 19
ARTICLE III
CLOSING PROCEDURE; CONDITIONS TO PURCHASE
SECTION 3.01 Payment . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.02 Effective Date. . . . . . . . . . . . . . . . . . . . 21
SECTION 3.03 Buyer's Conditions Precedent to Acceptance. . . . . . 21
SECTION 3.04 Delivery Requirements for Initial Purchase Date . . . 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Seller's Corporate Representations and Warranties . . 26
SECTION 4.02 Seller's Incremental Purchase Date Representations
and Warranties with respect to Loans. . . . . . . . . 28
SECTION 4.03 Buyer's Representations and Warranties. . . . . . . . 33
SECTION 4.04 Repurchase Upon Breach of Certain Representations and
Warranties. . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.05 Survival of Representations . . . . . . . . . . . . . 35
<PAGE>
Page
----
ARTICLE V
SERVICING AND COLLECTION
SECTION 5.01 Servicing; Delegation of Authority
to Buyer and Servicer . . . . . . . . . . . . . . . . 36
SECTION 5.02 Maintenance of System; Collection and Maintenance
of Information. . . . . . . . . . . . . . . . . . . . 37
SECTION 5.03 Maintenance of Lien Priority. . . . . . . . . . . . . 37
SECTION 5.04 Obligor Inquiries; Credit and Collection Policies . . 37
SECTION 5.05 Obligor Defaults. . . . . . . . . . . . . . . . . . . 38
SECTION 5.06 Servicer Reports; Annual Audit. . . . . . . . . . . . 39
SECTION 5.07 Loan and Other Payments . . . . . . . . . . . . . . . 40
SECTION 5.08 Computation and Payment of Periodic Payments,
Servicing Fees and Guaranty Fees; Servicer's
Expenses. . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.09 Applicable Rate . . . . . . . . . . . . . . . . . . . 43
SECTION 5.10 Concerning Insurance on Collateral . . . . . . . . . 44
SECTION 5.11 Access to Certain Documentation and Certain
Information Regarding the Loans . . . . . . . . . . . 45
SECTION 5.12 Servicer Representations and Warranties. . . . . . . 45
SECTION 5.13 Servicer's Resignation . . . . . . . . . . . . . . . 46
ARTICLE VI
SELLER'S AND SERVICER'S COVENANTS
SECTION 6.01 Covenants . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VII
SELLER OBLIGATIONS AND REPURCHASE OPTIONS
SECTION 7.01 Repurchase of Loans. . . . . . . . . . . . . . . . . 53
SECTION 7.02 Minimal Balances. . . . . . . . . . . . . . . . . . 53
ARTICLE VIII
SERVICER DEFAULT
SECTION 8.01 Servicer Defaults. . . . . . . . . . . . . . . . . . 55
SECTION 8.02 Buyer to Act; Appointment of Successor . . . . . . . 57
SECTION 8.03 Effects of Servicing Transfer . . . . . . . . . . . 57
<PAGE>
Page
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ARTICLE IX
TERMINATION EVENTS
SECTION 9.01 Termination Events . . . . . . . . . . . . . . . . . 59
SECTION 9.02 Consequences of Termination Event. . . . . . . . . . 60
SECTION 9.03 Remedies of a Secured Party. . . . . . . . . . . . . 61
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Further Assurances . . . . . . . . . . . . . . . . . 62
SECTION 10.02 Indemnities. . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.03 No Waiver: Remedies Cumulative. . . . . . . . . . . 63
SECTION 10.04 Governing Law. . . . . . . . . . . . . . . . . . . . 63
SECTION 10.05 Consent to Jurisdiction; Waiver of Immunities. . . . 63
SECTION 10.06 Notices. . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.07 Assignment . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.08 Capital Markets Funding. . . . . . . . . . . . . . . 63
SECTION 10.09 Severability . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.10 Attorney's Fees. . . . . . . . . . . . . . . . . . . 64
SECTION 10.11 Setoff . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.12 Limitation on Third Party Beneficiaries. . . . . . . 64
SECTION 10.13 Term of Agreement. . . . . . . . . . . . . . . . . . 65
SECTION 10.14 Entire Agreement; Amendment. . . . . . . . . . . . . 65
SECTION 10.15 Headings . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.16 Counterparts . . . . . . . . . . . . . . . . . . . . 65
Exhibit A - Loan Schedule (Initial Loans)
Exhibit B - Credit and Collection Policy
Exhibit C - Form of Notice of Incremental Purchase
Exhibit D - Forms of Note and Related Documents
Exhibit E - Form of Officer's Certificate of Seller (Incremental Purchase)
Exhibit F - Form of Officer's Certificate of Guarantor (Incremental Purchase)
Exhibit G - Form of Officer's Certificate of Servicer (Incremental Purchase)
Exhibit H - Form of Monthly Report
<PAGE>
LOAN PURCHASE AND SERVICING AGREEMENT
This LOAN PURCHASE AND SERVICING AGREEMENT (this "Agreement") is
executed as of August 29, 1996, by and between GROCERS CAPITAL COMPANY, a
California corporation, as Seller (in such capacity, the "Seller")and as
Servicer (in such capacity, the "Servicer") and NATIONAL CONSUMER COOPERATIVE
BANK, a financial institution organized under the laws of the United States (the
"Buyer").
For full and fair consideration, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINED TERMS. The following terms, as used herein,
have the following meanings:
"AFFILIATE" shall mean, with respect to a Person, any other Person (or
group of related Persons) which (i) directly or indirectly controls, is
controlled by or is under common control with, such Person, or (ii) directly or
indirectly owns more than 10% of such Person's voting stock. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise; PROVIDED, HOWEVER,
that the mere fact that a representative of a Certified Patron serves and acts
as a director of Certified or Seller shall not cause such Certified Patron to be
an Affiliate of Certified or Seller.
"AGENT" means NCB, in its capacity as Agent under the Portfolio Credit
Facility.
"APPLICABLE RATE" shall mean, for each Loan, the rate determined
pursuant to Section 5.09.
"AVAILABLE FUNDS" shall mean Collections, Guaranty Payments and
Repurchase Proceeds.
"BANK ACT" shall mean the National Consumer Cooperative Bank Act, 12
U.S.C. Sections 3001-3051, and any regulations and policies adopted thereunder.
"BUSINESS DAY" shall mean any day other than Saturday, Sunday and a
day on which banks in Washington, D.C. are authorized to close.
"BUYER" shall mean NCB, as buyer hereunder.
<PAGE>
"CAPITAL MAINTENANCE AGREEMENT" shall mean the Second Amended and
Restated Operating Agreement dated April 22, 1994, by and among GCC, Certified
and Grocers Equipment Company.
"CASH FLOW RATIO" shall mean, with respect to an Obligor, at any date
and for the period reflected in the related Obligor Financial Statements, the
consolidated ratio (expressed as a number taken to 2 decimal places) of
(a) EBITDA to (b) Cash Interest Expense plus CPLTD; provided that if such
Obligor has taken on new debt which is not reflected on the Obligor Financial
Statements, or if a new loan has been approved but not yet funded, the
denominator of the ratio will be adjusted to account for the CPLTD of the new
debt or loan and related interest expense.
"CASH INTEREST EXPENSE" shall mean, for any period, gross interest
expense for such period determined in accordance with U.S. GAAP.
"CERTIFIED" shall mean Certified Grocers of California, Ltd., a
California corporation, and the direct and indirect owner of 100% of the
outstanding capital stock of Seller.
"CERTIFIED PATRON" shall mean a member-patron of Certified.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL" shall mean all or any portion of any collateral, whether
real or personal, tangible or intangible, or otherwise, pledged by any Obligor
or Loan Guarantor to secure repayment of its Loan and the related Note (other
than Cooperative Assets).
"COLLATERAL COVERAGE RATIO" shall mean, with respect to any Loan, as
of any date, the ratio (expressed as a number taken to 2 decimal places) of
(a) the value of all Primary Collateral which secures such Loan, to (b) the
aggregate Principal Balance of such Loan; PROVIDED that if such Loan (1) either
(A) is being purchased simultaneously with any other Obligor Group Loan or Loans
or (B) is the second or later Loan to be purchased with respect to the related
Obligor Group, and (2) shares Cross Collateral with such simultaneously- or
previously-purchased Obligor Group Loans, the Collateral Coverage Ratio with
respect to such Loan shall mean the consolidated ratio (expressed as a number
taken to 2 decimal places) of (a) the value of all Primary Collateral (which
includes Cross Collateral) (which secures such Loan) to (b) the aggregate
Principal Balance of such Loan and the other Obligor Group Loans which share
such Cross Collateral. The value of different types of Collateral shall be
determined as follows: (i) furniture, fixtures and equipment of a retail
<PAGE>
grocery store shall be valued at 3.5 times the respective store's average weekly
sales net of any prior liens, but in no event less than the net book value of
such furniture, fixtures and equipment or more than the gross book value of such
furniture, fixtures or equipment, in each case as evidenced on the related
Obligor Financial Statements; (ii) inventory shall be valued at net book value
as reflected on the related Obligor Financial Statements or a more recent
physical inventory valuation by Seller; (iii) accounts receivable aged less than
30 days shall be valued at 100% of such accounts; (iv) accounts receivable aged
30 days or more, but less than 60 days shall be valued at 50% of such accounts;
(v) accounts receivable aged 60 days or more, but less than 90 days shall be
valued at 25% of such accounts; and (vi) accounts receivable aged 90 days or
more shall be valued at 0% of such accounts.
"COLLECTIONS" shall mean any and all amounts received from or on
behalf of the Obligors in respect of Loans and related Notes or Related
Documents during any applicable Due Period regardless of how received and
including, without limitation, receipt of Scheduled Payments, payments from Loan
Guarantors, Liquidation Proceeds and Insurance Proceeds.
"COMMITMENT TERMINATION DATE" shall have the meaning set forth in
Section 2.04.
"CONSOLIDATED NET WORTH" shall mean, with respect to any Person, as of
any date, the aggregate shareholders' equity of such Person and its Subsidiaries
that would be shown on a consolidated balance sheet as of such date.
"CONSOLIDATED TANGIBLE NET WORTH" means, with respect to any Person,
at any date, Consolidated Net Worth less (i) all assets which should be
classified as intangible assets (such as goodwill, patents, trademarks,
copyrights, franchises and covenants not to compete) and (ii) to the extent not
already deducted from total assets, all reserves including those for deferred
income taxes, depreciation, obsolescence or amortization of properties and
(iii) all capital stock or other investments in any direct or indirect
subsidiary other than in (x) any offshore investment subsidiary, or (y) a
subsidiary having all or substantially all of its operations in the United
States.
"CONTROLLED GROUP" means, with respect to any Person, all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which (1) together with such Person are
treated as a single employer under Section 414(b) or 414(c) of the Code or
(2) solely for purposes of potential liability under Section 302(c)(11) of ERISA
and Section 412(c)(11) of the Code and the lien created under Section 302(f) of
ERISA and Section 412(n) of the Code,
<PAGE>
described in Section 414(m) or (n) of the Code, includes such Person as a
member.
"COOPERATIVE ASSETS" shall mean the assets (including cash) owned or
earned by an Obligor relating to its membership in Certified, including
Certified's capital stock and patronage dividends.
"CPLTD" shall mean, with respect to any Person, as of any date, that
portion of such Person's long-term Debt (that is, Debt with a term of greater
than one year) which matures and is due and payable within one year.
"CREDIT AND COLLECTION POLICY" means, with respect to GCC, the credit,
collection, enforcement and other policies and practices of GCC relating to
Loans, related Notes and Related Documents existing on the Initial Purchase Date
and as set forth in Exhibit B hereto, as the same may be modified from time to
time with the consent of the Buyer, which consent will not be unreasonably
withheld.
"CROSS COLLATERAL" shall mean, with respect to any Loan, all or any
portion of the Primary Collateral pledged to secure (i) on a parity basis, any
other Obligor Group Loan or Loans previously purchased by the Buyer, and/or
(ii) on a subordinated basis, any other notes or indebtedness of the Obligor or
any member of its Obligor Group, which Primary Collateral, in either case, also
secures such Loan.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments or
agreements (including obligations of the parties under this Agreement or the
Guaranty Agreement), (iii) all obligations of such Person to pay the deferred
purchase price of property or services other than trade receivables and open
accounts arising in the ordinary course, (iv) all obligations of such Person as
lessee which are capitalized in accordance with generally accepted accounting
principles, (v) all Debt secured by a lien on any asset owned of such Person,
whether or not such Debt is otherwise an obligation of such Person which Debt,
if Non-Recourse Debt to such Person, shall be deemed to be in an amount equal to
the lesser of the principal amount of such obligations or the aggregate fair
market value of such assets, and (vi) all Guaranteed Debt (including, in the
case of the Guarantor, the Guarantor's obligations under the Guaranty
Agreement).
"DEFAULTED LOAN" shall mean, as of any date, a Loan with respect to
which any of the following has occurred: (a) there has occurred an Obligor
Default with respect to such Loan and such Obligor Default has been continuing
for a period of
<PAGE>
45 days, or (b) the Obligor under such Loan has sought protection under the
United States Bankruptcy Code or is the subject of an involuntary bankruptcy.
"DETERMINATION DATE" shall mean the Business Day before each Payment
Date.
"DUE DATE" shall mean the day on which the Scheduled Payment is due
from the Obligor on a Loan.
"DUE PERIOD" shall mean, with respect to any Payment Date, the
calendar month preceding the month in which such Payment Date occurs.
"EBITDA" means, for any Person, for any period, the consolidated net
income (or net loss) of such Person for such period, PLUS (a) the sum of
(i) depreciation expense, (ii) amortization expense, (iii) Cash Interest
Expense, (iv) total income tax expense, and (v) extraordinary or unusual losses
(and other after-tax losses on sales of assets outside of the ordinary course of
business and not otherwise included in extraordinary or unusual losses), LESS
(b) the sum of (i) extraordinary or unusual gains (and other after tax gains on
sales of assets outside of the ordinary course of business and not otherwise
included in extraordinary or unusual gains) of the Person for such period and
(ii) the net income (or loss) of any Person that is accounted for by the equity
method of accounting, except to the extent of the amount of dividends or
distributions paid to such Person.
"ELIGIBLE LOAN" shall mean (i) an Initial Loan which satisfies the
Initial Loan Eligibility Criteria on the Initial Purchase Date, or (ii) a Loan
(other than an Initial Loan) as to which each applicable representation and
warranty in Section 4.02 is true and accurate.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"GCC" shall mean Grocers Capital Company, a California corporation,
and its Successors and assigns.
"GOVERNMENT APPROVAL" means an approval, permit, license,
authorization, certificate or consent of any Governmental Authority.
"GOVERNMENTAL AUTHORITY" means the government of the United States or
any State or any foreign country or any political subdivision of any thereof or
any branch, department, agency, instrumentality, court, tribunal or regulatory
authority which constitutes a part or exercises any sovereign power of any of
the foregoing.
<PAGE>
"GUARANTEED DEBT" shall mean, as applied to any debt, for any Person
(i) a guarantee by such Person (other than by endorsement for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such debt or (ii) a similar agreement, direct or indirect, contingent or
otherwise, providing for the payment or performance (or payment of damages in
the event of non-performance) of such Person of any part or all of such debt.
The amount of any Guaranteed Debt of such Person shall be deemed to be the
maximum amount of the debt guaranteed for which the guarantor could be held
liable under such Guaranteed Debt.
"GUARANTOR" shall mean GCC and its Successors and assigns.
"GUARANTOR DEFAULT" shall have the meaning given in Section 5.01 of
the Guaranty Agreement.
"GUARANTY" shall have the meaning given in the Guaranty Agreement.
"GUARANTY AGREEMENT" means the Guaranty Agreement, dated as of August
29, 1996, by and between Buyer and Guarantor, as the same may be amended and
supplemented from time to time.
"GUARANTY AMOUNT" shall have the meaning given in the Guaranty
Agreement.
"GUARANTY FEE" shall have the meaning given in Section 2.02 of the
Guaranty Agreement.
"GUARANTY PAYMENTS" shall mean the amounts paid by Guarantor to the
Servicer, for the benefit of the Buyer, pursuant to the Guaranty.
"INCREMENTAL PURCHASE" shall have the meaning ascribed to such term in
Section 2.03 hereof.
"INCREMENTAL PURCHASE DATE" shall mean the date (which shall be the
first Business Day of a month, or such other day as the Buyer shall agree) of
each Incremental Purchase.
"INITIAL PURCHASE DATE" shall mean the date on which the Buyer
purchases the Initial Loans.
"INITIAL LOAN" shall mean any Loan identified to and approved by the
Buyer as part of the group of Loans having an aggregate Principal Balance not to
exceed $35,000,000 sold hereunder on the Initial Purchase Date, as to which Loan
the Purchaser hereby represents and warrants that each of the Initial Loan
Eligibility Criteria is true and accurate on the Initial
<PAGE>
Purchase Date. The Initial Loans shall be shown on the Loan Schedule delivered
to the Buyer on the Initial Purchase Date.
"INITIAL LOAN ELIGIBILITY CRITERIA" shall mean the representations and
warranties set forth in Section 4.02 with the following modifications to each of
the following specified clauses of Section 4.02: (1) at the end of clause (e),
the following proviso shall be deemed added: "PROVIDED, HOWEVER, that in the
case of the Initial Loans, any lien on any Initial Loan has been released by not
later than 12:01 a.m. (Eastern Daylight Time) on September 17, 1996"; (2) in
clause (j), it is not required that Seller shall have obtained a personal credit
report of the Obligor for each Initial Loan; (3) in clause (k), the word
"original" therein shall read "remaining"; (4) clause (n) shall not apply; (5)
the portion of clause (p) that requires that Obligor have a positive net worth
shall not apply; (6) in clause (r), the insurance company is not required to
have a Best & Co. rating of at least "B-", but only to be a company acceptable
to Seller; (7) clause (t) shall not apply; (8) clause (u) shall not apply;
(9) with respect to clause (v), Buyer acknowledges that Seller's interest in
every item of Collateral is not necessarily first priority; (10) in clause (w),
the Notes must be originals, but the other Related Documents need only be true,
correct and complete counterparts and the forms of the foregoing must be
acceptable to NCB; and (11) clause (aa) shall not apply.
"INSURANCE PROCEEDS" shall mean proceeds paid by any insurer pursuant
to any insurance policy covering a Loan or Collateral, including but not limited
to, title, hazard, life, health and/or accident insurance policies.
"INTEREST ACCRUAL PERIOD" shall mean, with respect to each Payment
Date, the period commencing on the first day of the month preceding such Payment
Date and ending on the last day of the month preceding such Payment Date, except
that, with respect to the first Payment Date, the initial Interest Accrual
Period shall commence on the Initial Purchase Date.
"LIBOR" shall mean, for any LIBOR Period and Interest Accrual Period
during such LIBOR Period, the reserve-adjusted London interbank offered rates by
major banks for three-month Euro-Dollar deposits determined by the Buyer in
accordance with the provisions of Section 5.09.
"LIBOR BUSINESS DAY" shall mean any Business Day on which commercial
banks are open for dealings in Dollar deposits in London.
"LIBOR DETERMINATION DATE" shall mean the second LIBOR Business Day
prior to the commencement of each LIBOR Period.
<PAGE>
"LIBOR PERIOD" shall mean (i) for the initial LIBOR Period, the period
commencing on the Initial Purchase Date and ending on September 30, 1996 and
(ii) for each LIBOR Period thereafter, the period commencing on the first day of
the applicable calendar quarter (October 1, January 1, April 1 or July 1, as the
case may be) and ending on the last day of such calendar quarter (December 31,
March 30, June 30 or September 30, as the case may be).
"LIQUIDATED LOAN" shall mean (i) with respect to Loans purchased by
Buyer hereunder on or after January 1, 1997, any Defaulted Loan, or (ii) with
respect to Loans purchased by Buyer hereunder prior to January 1, 1997, any Loan
with respect to which an Obligor Event shall have occurred, in each case as to
which the Servicer has determined that all amounts which it reasonably and in
good faith expects to recover have been recovered from or on account of such
Loan; PROVIDED, HOWEVER, that a Loan which has not been determined to have
become a Liquidated Loan within three months after becoming a Defaulted Loan, or
after such Obligor Event shall have occurred, as the case may be, shall be
deemed a Liquidated Loan on the third month anniversary date of such Loan
becoming a Defaulted Loan or of the occurrence of such Obligor Event, as the
case may be. A Loan which is deemed a Liquidated Loan shall be due and payable
on the date so deemed.
"LIQUIDATION LOSSES" shall mean, with respect to any Liquidated Loan,
on any date, the amount by which (A) the sum of (i) the Principal Balance of
such Loan, and (ii) accrued and unpaid interest thereon at the Applicable Rates,
exceeds (B) the Net Liquidation Proceeds and Insurance Proceeds thereon, if any.
"LIQUIDATION PROCEEDS" shall mean cash (other than Insurance Proceeds)
and any other amounts received in connection with the liquidation of Defaulted
Loans and from Loans with respect to which an Obligor Event has occurred and, in
each case, related Collateral, whether through trustee's sale, foreclosure sale
or otherwise.
"LOAN" shall mean each loan, including each Non-Conforming Loan, in
each case whether existing on the date hereof or hereafter arising, originated
by Seller in the ordinary course of its business and sold and transferred from
time to time to the Buyer pursuant to this Agreement, together with the Property
related thereto, the Loans subject to this Agreement being identified on the
Loan Schedules.
"LOAN FILE" or "LOAN FILES" shall have the meaning set forth in
Section 2.02(b).
"LOAN GUARANTOR" shall mean any Person who (i) guarantees an Obligor's
payment and/or other obligations
<PAGE>
under any Loan, (ii) co-signs, or is a co-maker on, the related Note, or
(iii) otherwise supports, either in a primary or secondary position, an
Obligor's obligations with respect to a Loan, the related Note or other Related
Documents.
"LOAN INTEREST RATE" shall mean, with respect to any date, the
then-applicable annual rate of interest borne by a Loan, pursuant to its terms,
which, as of the applicable Incremental Purchase Date, is shown on the
applicable Loan Schedule.
"LOAN SCHEDULE" shall mean, with respect to the Initial loans, the
schedule attached hereto as Exhibit A, and, with respect to each of the Loans
that is not an Initial Loan, the schedule of Loans delivered to the Buyer on or
before each Incremental Purchase Date, such schedule identifying each Loan to be
purchased pursuant to such Incremental Purchase by the name and address of the
Obligor (and, if different from such address, the location of the grocery store
to which such Loan relates) and the following information with respect to each
such Loan: (i) the Principal Balance as of the close of business on the day
preceding the applicable Incremental Purchase Date, (ii) the account number on
Seller's records, (iii) the original principal amount of the Loan, (iv) the date
the Loan was made and original number of months to maturity and original
amortization period, in months, (v) the Loan Interest Rate as of the applicable
Incremental Purchase Date and whether such Loan Interest Rate is fixed or
variable, (vi) the dates on which Scheduled Payments are due and when the first
Scheduled Payment was due, (vii) the schedule of Scheduled Payments applicable
to such Loan, (viii) amortization method and period, (ix) the remaining number
of months in the amortization period as of the applicable Incremental Purchase
Date, (x) if the Loan has a variable Loan Interest Rate, the margin which is
added to the Prime Rate to determine the Loan Interest Rate, the maximum and
minimum Loan Interest Rates, if applicable, the Loan Interest Rate adjustment
frequency and the Loan payment adjustment frequency, (xi) whether such Loan is
an Initial Loan, (xii) the remaining term to maturity as of the applicable
Incremental Purchase Date, (xiii) the Cash Flow Ratio and the Collateral
Coverage Ratio as of such Incremental Purchase Date (including the work product
by which such ratios were determined and the Loans taken into account in
determining the Collateral Coverage Ratio), (xiv) the aggregate Principal
Balance of the related Obligor Group Loans (including such Loan) as of the close
of business on the Incremental Purchase Date for such Loan, (xv) whether such
Loan has Cross Collateral, and (xvi) whether such Loan is secured by real estate
Collateral.
"LOCKBOX ACCOUNT" shall mean the account, if any, established pursuant
to Section 5.07, for the receipt of payments related to the Loans.
<PAGE>
"MAI" shall mean Member of the American Institute of Real Estate
Appraisers.
"MARGIN" shall mean for each Loan, 150 basis points.
"MAXIMUM PURCHASE AMOUNT" shall mean $50,000,000.
"MINIMUM DOCUMENTATION" means, with respect to a Loan secured by any
real estate Collateral, (i) a statement or estimation by Seller as to the
assessed value of the related mortgaged property, and (ii) copies of any title
search or report which may have been prepared by an attorney or title company
relating to the mortgaged property.
"MODIFICATION LOSSES" shall mean, with respect to any Restructured
Loan, as to any date, the amount, on such date, by which (A) the present value
of all payments which would have been scheduled to be made on such Loan if such
Loan had not become a Restructured Loan, exceeds (B) the present value of all
payments scheduled to be made on such Restructured Loan.
"MONTHLY INTEREST AMOUNT" shall have the meaning given in Section
5.08.
"MONTHLY REPORT" shall mean the monthly report prepared by the
Servicer substantially in the form of Exhibit H hereto.
"MULTIEMPLOYER PLAN" shall mean, for any Person, a "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time
during the current year or the immediately preceding five years contributed to
by such Person or any member of a Controlled Group on behalf of its employees
and which is covered by Title V of ERISA.
"NCB" means National Consumer Cooperative Bank, a financial
institution organized under the laws of the United States, and its Successors
and assigns.
"NET LIQUIDATION PROCEEDS" shall mean Liquidation Proceeds net of the
sum of (i) amounts required to be released to the related Obligor pursuant to
applicable law, and (ii) unreimbursed reasonable fees and expenses incurred by
NCB or the Servicer in servicing the liquidation of a Defaulted Loan or Loan
with respect to which an Obligor Event has occurred, as the case may be.
"NON-CONFORMING LOAN" shall have the meaning given in Section 2.01
hereof.
"NON-RECOURSE DEBT" means debt or that portion of debt of any Person
or a Subsidiary of such Person as to which (a) the
<PAGE>
holders of such debt agree that they will look solely to the property securing
such debt for payment on or in respect of such debt and (b) no default with
respect to such debt would permit (after notice or passage of time or both)
according to the terms thereof, any holder of any debt for money borrowed by
such Person or a Subsidiary of such Person to declare a default on such debt or
cause the payment thereof to be accelerated or payable prior to stated maturity.
"NOTE" shall mean the promissory note in substantially the form
included in Exhibit D hereto evidencing the indebtedness of an Obligor under a
Loan.
"OBLIGOR" shall mean the Person or Persons primarily obligated to
repay a Loan and the indebtedness evidenced by the related Note including,
without limitation, all Persons executing such Note.
"OBLIGOR EVENT" shall mean, with respect to a Loan, (a) the failure by
an Obligor to pay when due (whether a Scheduled Payment, at maturity, upon
required prepayment, acceleration, demand or otherwise) the Loan and the
indebtedness evidenced by the related Note or any Related Document, or any
interest or premium thereon, which failure continues after the applicable grace
period, if any, specified in such Note or Related Document relating to such
Loan; or (b) any representation or warranty made or given hereunder with respect
to such Loan shall have been false or incorrect when made or given; or (c) the
making by an Obligor of a prepayment of the Loan (whether such prepayment is
optional or required, or pursuant to the acceleration thereof, or otherwise).
"OBLIGOR DEFAULT" shall mean (a) the failure by an Obligor to pay when
due (whether a Scheduled Payment, at maturity, upon required prepayment,
acceleration, demand or otherwise) the Loan and the indebtedness evidenced by
the related Note or any Related Document, or any interest or premium thereon,
which failure continues after the applicable grace period, if any, specified in
such Note or Related Document relating to such Loan; or (b) the failure by an
Obligor to perform any term or covenant on its part to be performed under any
Loan, related Note or Related Document which failure continues after the
applicable grace period, if any, specified in the Note or Related Document, if
the effect of such failure to perform is to accelerate or to permit the
acceleration of the maturity of the indebtedness evidenced by such Note or
Related Document; or (c) the occurrence of an event or condition whereby the
indebtedness related to the Loan of any Obligor shall be declared to be due and
payable or required to be prepaid (other than by regularly scheduled required
prepayment) prior to the stated maturity thereof.
<PAGE>
"OBLIGOR FINANCIAL STATEMENTS" shall mean the balance sheets and
related statements of income prepared in good faith by or for the Obligor and in
accordance with the requirements, if any, of the Related Documents. For
purposes of determining the Cash Flow Ratio and Collateral Coverage Ratio, the
financial statements reflecting the most recently-available fiscal year's
results will be used, PROVIDED that if such financial statements reflect a
period ended more than nine months earlier, an interim statement covering at
least two quarters' results shall be used.
"OBLIGOR GROUP" shall include an Obligor and any of its Affiliates and
Subsidiaries.
"OBLIGOR GROUP LOANS" shall mean all Loans purchased by the Buyer with
respect to any member of an Obligor Group.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PAYAHEADS" shall mean, with respect to a Due Period, any amounts
received on a Loan in excess of the Scheduled Payment due on the Due Date
relating to such Due Period which does not constitute either a Principal
Prepayment or payment with respect to an overdue amount. Payaheads are payments
of principal for purposes of this Agreement.
"PAYMENT DATE" shall mean the 5th Business Day of each calendar month,
commencing October 7, 1996.
"PERIODIC PAYMENT" shall have the meaning given in Section 5.08.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or any agency or instrumentality thereof.
"PLAN" shall mean, for any Person, at any time, an employee pension
benefit plan, other than a Multiemployer Plan, which is covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the Code
and is either (i) maintained by such Person or any member of a Controlled Group
for employees of such Person or any member of such Controlled Group or
(ii) maintained pursuant to collective bargaining agreement or other arrangement
under which more than one employer makes contributions and to which such Person
or any member of a Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five (5) plan years made
contributions.
<PAGE>
"PORTFOLIO CREDIT FACILITY" shall mean any loan agreement or other
credit facility by and between NCB and GCC.
"PRIMARY COLLATERAL" shall mean that portion of the Collateral in
which Seller had, prior to the sale and assignment hereunder, first priority
perfected security interests; PROVIDED that real estate Collateral shall not be
considered Primary Collateral.
"PRIME RATE" shall mean the "Prime Rate" from time to time announced
by Union Bank of California, San Francisco, California; PROVIDED, HOWEVER, that
if such rate is not announced, the Prime Rate shall be a substantially
comparable index selected by the Seller and approved by the Buyer.
"PRINCIPAL BALANCE" shall mean, with respect to any Loan, at any date,
(i) the principal balance of the Loan outstanding as of the Incremental Purchase
Date on which such Loan was purchased (without giving effect to any payment due
or received on such Date), minus (ii) the sum of (a) the principal portion of
the Scheduled Payments received during each Due Period ending prior to the most
recent Payment Date, which were distributed to the Buyer, and to the Servicer
and the Guarantor, as the case may be, pursuant to Section 5.08 on any previous
Payment Date, (b) all Principal Prepayments and Payaheads, and (c) all Insurance
Proceeds, Net Liquidation Proceeds, Guaranty Payments and Repurchase Proceeds to
the extent applied as recoveries of principal in accordance with the provisions
hereof, which were distributed to the Buyer, and to the Servicer and the
Guarantor, as the case may be, pursuant to Section 5.08 on any previous Payment
Date.
"PRINCIPAL PREPAYMENT" shall mean any payment or other recovery of
principal on a Loan equal to the Principal Balance thereof, received in advance
of the final scheduled Due Date which is intended to satisfy a Loan in full.
"PROPERTY" shall mean the Loans, the related Notes, Related Documents,
Collateral pledged to secure the Loans, and, as more fully set forth in Section
2.02(a), all of the other rights, title and interest of the Seller conveyed and
sold pursuant to Sections 2.01 and 2.02(a).
"PURCHASE PRICE" shall have the meaning given in Section 3.01.
"RATING AGENCY" shall mean Standard & Poor's, Moody's Investors
Service, Inc., or any Successor of either, or any other nationally-recognized
rating agency.
"RELATED DOCUMENTS" shall mean with respect to each Loan and related
Note, the security agreement, assignment and
<PAGE>
guarantees substantially in the forms included in Exhibit D hereto, and any
other loan agreement, mortgage, assignment of lease and other document,
instrument or assignment reasonably acceptable to the Buyer, including all
amendments or modifications of any of the foregoing (other than the Supply
Agreement between such Obligor and Certified) executed by the Obligor or other
Person on Obligor's behalf in respect of such Loan and related Note.
"REPURCHASE AMOUNT" shall mean the amount set forth as such in Section
2.02(d).
"REPURCHASED LOANS" shall mean all Loans purchased by the Seller
through a payment of Repurchase Proceeds pursuant to Sections 2.02(d), 4.04(a),
7.01, 7.02 and 9.02.
"REPURCHASE PROCEEDS" shall mean the amounts received from Seller with
respect to a Repurchased Loan.
"RESPONSIBLE OFFICER" shall mean, when used with respect to the Buyer,
Servicer, Guarantor or Seller, any vice chairman of the executive committee, the
president, any vice president (whether or not designated by numbers or words
added before or after the title "vice president"), the secretary or the
treasurer.
"RESTRUCTURED LOAN" shall mean any Defaulted Loan the terms of which
are modified in accordance with Section 5.05.
"SCHEDULED PAYMENT" shall mean the regularly scheduled payment of
principal and/or interest required to be made by an Obligor on a Loan pursuant
to the terms of the related Note.
"SELLER" shall mean GCC.
"SEPARATE ACCOUNT" shall have the meaning given in Section 5.07
hereof.
"SERVICER" means GCC or its successor (including a Successor Servicer)
under Section 5.05 or 5.13.
"SERVICER DEFAULT" shall mean any act or occurrence described as a
Servicer Default under Section 8.01 hereof.
"SERVICING ACCOUNT" shall mean the Servicing Account established
pursuant to Section 5.07 of this Agreement, which may be a Separate Account as
required pursuant to Section 5.07, 5.13 or 8.02.
"SERVICING FEE" shall have the meaning given in Section 5.08(c)
hereof.
<PAGE>
"SERVICING OFFICER" shall mean any officer of the Servicer, or any
agent of the Servicer involved in, or responsible for, the administration or
servicing of the Loans whose names appear on the list of servicing officers
furnished to the Buyer by the Servicer in the certificate pursuant to Section
5.01(d), as such list may from time to time be amended.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation
or other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"SUCCESSOR" means, for any corporation or banking association, any
successor by merger or consolidation, or by acquisition of substantially all of
the assets of the predecessor.
"SUCCESSOR SERVICER" shall mean any successor Servicer appointed
pursuant to Section 5.13 of this Agreement.
"SUPPLY AGREEMENT" shall mean, either individually or collectively,
all agreements between an Obligor and Certified, with respect to the supply of
goods and services by Certified to such Obligor.
"TERMINATION AND RELEASE AGREEMENT" means that certain Agreement,
dated as of August 28, 1996, between GCC and BT Commercial Corporation, a
Delaware corporation.
"TERMINATION DATE" shall mean the first date on which each Loan shall
have been (i) paid in full, or (ii) repurchased by Seller pursuant to Section
2.02(d), 4.04, 7.01, 7.02 or 9.02 hereof.
"TERMINATION EVENT" shall have the meaning given in Section 9.01.
"TRANSFER LETTER" shall mean the transfer letter 27
relating to the Servicing Account described in Section 3.04(i) hereof.
"UNFUNDED VESTED LIABILITY" shall mean, with respect to any Person and
any Plan, at any time, the amount (if any) by which (a) the present value of all
vested nonforfeitable benefits under such Plan exceeds (b) the fair market value
of all Plan assets allocable to such benefits, all determined as of the then
most recent evaluation date for such Plan, but only to the extent that such
excess represents a potential liability of such Person or any member of the
Controlled Group to the PBGC of the Plan under Title IV of ERISA.
<PAGE>
"U.S. GAAP" has the meaning specified in Section 1.03.
SECTION 1.02 GENERAL PRINCIPLES APPLICABLE TO DEFINITIONS.
Definitions given in Section 1.01 shall be equally applicable to both singular
and plural forms of the terms therein defined and references herein to "he" or
"it" shall be applicable to Persons whether masculine, feminine or neuter.
References herein to any document including, without limitation, this Agreement,
a Loan, a Note and a Related Document shall be deemed a reference to such
document as it now exists, and as, from time to time hereafter, the same may be
amended.
SECTION 1.03 ACCOUNTING TERMS. Except as otherwise provided herein,
accounting terms not specifically defined shall be construed, and all accounting
procedures shall be performed, in accordance with generally accepted United
States accounting principles ("U.S. GAAP") consistently applied.
[End of Article I]
<PAGE>
ARTICLE II
THE COMMITMENT
SECTION 2.01 PORTFOLIO SALES; ORIGINATION OF LOANS. On the Initial
Purchase Date, the Seller hereby irrevocably sells, transfers, conveys, sets
over and assigns to Buyer, and Buyer hereby purchases, accepts and receives from
Seller, all of the Seller's right, title and interest in, to and under the
Initial Loans and all Property related thereto. In addition, during the term of
this Agreement, GCC agrees to originate loans with the view to selling such
loans to the Buyer hereunder, PROVIDED that nothing herein is intended to
prevent Seller from making loans not expected to be sold and/or not sold to
Buyer pursuant to this Agreement. In determining whether to approve any
potential loan with a view to selling such loan to the Buyer pursuant to this
Agreement, the Seller shall apply the eligible loan, credit and underwriting
standards set forth in this Agreement, as well as information known to the
Seller from, among other things, its current and previous business dealings with
a potential Obligor. The Seller shall only originate and sell, and the Buyer
shall only be obligated to purchase, Loans and Property related thereto
satisfying the eligibility, credit, underwriting and other criteria set forth in
this Agreement, to the extent such Loans are offered for sale and purchased
hereunder; PROVIDED, that the Buyer may, but shall be under no obligation to,
purchase Loans not meeting such criteria (each Loan so purchased, a
"Non-Conforming Loan") so long as the criteria not met by each Non-Conforming
Loan are set forth in a certificate of a Responsible Officer of Seller delivered
to Buyer on or prior to the date of Buyer's purchase of each Non-Conforming
Loan.
(a) On each Incremental Purchase Date, Seller does hereby
irrevocably assign, sell, set-over, transfer and otherwise convey to the Buyer,
without recourse (but subject to Seller's covenants, representations, warranties
and indemnities specifically provided herein), the following (collectively the
"Property"): all of Seller's right, title and interest (whether now existing or
hereafter acquired) in, to and under (i) each Loan purchased on such date and
any and all moneys of whatsoever nature payable pursuant to each such Loan on
and after such date, including all payments thereon and in respect of the
related Note, all Insurance Proceeds, any Net Liquidation Proceeds, other
Collections, and any other amounts payable in connection with the termination of
such Loan, in each case, whether or not paid or received (ii) all rights,
powers, and remedies of Seller under or in connection with each such Loan,
whether arising under the terms of such Loan, by statute, at law or in equity,
or otherwise arising out of any default by the Obligor under such Loan,
including all rights to exercise any election or option or to make any decision
or determination or to give or receive any notice, consent, approval or waiver
thereunder, (iii) all
<PAGE>
security interests and lien rights of Seller in each item of Collateral pledged
to secure any such Loan, all additions, alterations, accessions or modifications
thereto or replacement of any part thereof, and all intangibles and other rights
associated with the Collateral, (iv) all rights of Seller under each Related
Document, in each case as the same may be modified, amended, supplemented or
restated from time to time, (v) all documents of title, books and records
concerning the foregoing property (including all computer programs, tapes, disks
and related items containing any such information), and (vi) all proceeds,
products, rents or profits of the foregoing of any nature whatsoever, including
all Insurance Proceeds and Net Liquidation Proceeds. The foregoing transfer,
sale, assignment and conveyance does not constitute and is not intended to
result in the creation, or an assumption by the Buyer, of any obligation of
Seller or any other Person in connection with any Loan, the related Note,
Related Documents or Collateral or under any agreement or instrument relating
thereto, including any obligation to any Obligor.
(b) In connection with each transfer, sale and assignment of Loans
hereunder, the Seller hereby agrees to deliver to the Buyer or its agent on or
before the applicable Incremental Purchase Date, all loan files, documents and
instruments with respect to each Loan transferred and sold on such Incremental
Purchase Date, which Loan Files shall include, but not be limited to, the
following (collectively, the "Loan Files"):
(i) the original Note related to such Loan, endorsed by Seller as
follows: "Pay to the order of National Consumer Cooperative Bank, without
recourse" and signed by a Responsible Officer of Seller, with all prior and
intervening endorsements showing a complete chain of endorsement from the
originator to Seller, if Seller was not the originator;
(ii) the executed original counterparts of the Related Documents,
together with executed originals of all modifications or amendments
thereof;
(iii) an irrevocable power of attorney of Seller to the Buyer to
execute, deliver, file, record or otherwise deal with the Collateral for
such Loan in accordance with this Agreement. Certain rights under the
power of attorney will be delegated by the Buyer to the Servicer to permit
the Servicer, on Buyer's behalf, to prepare, execute and file of record UCC
financing statements and other notices;
(iv) all documents evidencing or related to any insurance policies;
and
<PAGE>
(v) with respect to Loans secured by mortgages on real property,
(A) either: (i) the original mortgage, with evidence of recording thereon,
(ii) a copy of the mortgage certified as a true copy by a Responsible
Officer of Seller where the original has been transmitted for recording
until such time as the original is returned by the public recording officer
or duly licensed title or escrow officer or (iii) a copy of the mortgage in
those instances where the original recorded mortgage has been lost; and (B)
either: (i) originals of all intervening assignments, if any, showing a
complete chain of title from the originator to Seller, including
warehousing assignments, with evidence of recording thereon if such
assignments were recorded, (ii) copies of any assignments certified as true
copies by a Responsible Officer of Seller where the originals have been
submitted for recording until such time as the originals are returned by
the public recording officer, or (iii) copies of any assignments in any
instances where the original recorded assignments have been lost; and (C)
any available Minimum Documentation and any other documentation in Seller's
possession in respect of such real property.
(c) It is the intention of the parties to this Agreement that
each conveyance of Seller's right, title and interest in and to the Property
pursuant to this Agreement shall constitute a purchase and sale and not a loan.
If, notwithstanding the foregoing, the conveyance of the Property to the Buyer
hereunder is characterized by any third party as a pledge, the parties intend
that Seller shall be deemed hereunder to have granted to the Buyer a first
priority perfected security interest in all of Seller's right, title and
interest in, to and under the Loans, the Notes, the related Collateral and
Related Documents, and all monies due or to become due with respect thereto
after the applicable Incremental Purchase Date, and that this Agreement shall
constitute a security agreement under applicable law. The Seller shall take all
steps necessary and desirable, or as otherwise may be requested by Buyer, to
reflect the Buyer's security interest in and to and lien on the Loans and
Property.
<PAGE>
(d) If the Buyer determines that any documents or documents
constituting a part of a Loan File are missing (other than the Original Note or
original security agreement) or defective (that is, mutilated, damaged, defaced,
incomplete, improperly dated, clearly forged or otherwise physically altered)
with respect to any Loan in any respect which materially and adversely affects
the interests of the Buyer, then the Buyer shall within 10 Business Days notify
Seller, whereupon Seller shall have a period of 30 days within which to correct
or cure any such defect (except with respect to the Initial Loans, as to which
such cure shall be effected on or before September 9, 1996). If any such
material defect (other than a defect, with respect to a Non-Conforming Loan,
which has been disclosed to Buyer in accordance with Section 2.01 hereof) has
not been corrected or cured in all material respects, notwithstanding any other
provision of this Agreement, Seller shall repurchase the related Loan from the
Buyer at a price equal to the sum of (i) the Principal Balance of such Loan as
of the first day of the Due Period during which such repurchase occurs and
(ii) an amount equal to interest accrued at the applicable Loan Interest Rate on
such Repurchased Loan to, but not including, the day on which such repurchase
occurs (the "Repurchase Amount"). The Repurchase Amount shall be paid by Seller
to the Buyer in immediately available funds within ten (10) days of the day
after which such repurchase obligation arises and, upon receipt by the Buyer of
such amount, the Buyer shall release or cause to be released to the Seller the
related Loan Files and shall execute and deliver or cause to be executed and
delivered such instruments of transfer or assignment of such Loan, the security
interest in the related Property, in each case without recourse, representation
or warranty, as Seller shall reasonably request (as shall be prepared by and at
the expense of Seller). It is understood and agreed that the obligation of
Seller to repurchase any Loan (but only with respect to Loans purchased by Buyer
hereunder on or after January 1, 1997) as to which a material defect in a
constituent document exists and to make the related payments as described in
this Section 2.02(d), together with the indemnification rights contained in
Section 10.02 and the right of Buyer to be reimbursed for reasonable fees and
expenses incurred in effecting this repurchase, shall, constitute the sole
remedies against Seller available to the Buyer with respect to each such
defective Loan.
(f) Each of the parties hereby agrees that, subject to Section 2.01 and to the
other terms and conditions hereof, until the Commitment Termination Date, the
Seller may from time to time on the first Business Day of any month, elect to
offer to sell to the Buyer and Buyer shall purchase certain identified loans out
of GCC's portfolio and the Property related thereto, all on the terms and
conditions set forth in this Agreement (each, an "Incremental Purchase").
Notwithstanding the foregoing, the
<PAGE>
Buyer shall not be obligated to make an Incremental Purchase for a principal
amount of less than $2,500,000 (or such other lesser amount as is approved by
Buyer) other than the final Incremental Purchase which may be in such lesser
amount as remains of the Maximum Purchase Amount. In addition the Buyer shall
not be obligated to make an Incremental Purchase (or any portion thereof) to the
extent the aggregate Principal Balance of all Loans (after giving effect to the
Loans to be purchased on such Incremental Purchase Date) purchased hereunder
would exceed the Maximum Purchase Amount.
(g) The Seller shall provide the Buyer with written notice of its
intention to request an Incremental Purchase in the form of Exhibit C hereto no
later than five (5) Business Days (or such shorter period as may be acceptable
to Buyer) before each Incremental Purchase. Upon satisfaction of all terms and
conditions contained herein, including under Section 2.02, Buyer shall pay to
the Seller the Purchase Price of each Incremental Purchase on the applicable
Incremental Purchase Date.
SECTION 2.04 COMMITMENT TERMINATION DATE. Unless earlier terminated
in accordance with Section 10.13, the initial "Commitment Termination Date" is
August 29, 2001, and the Commitment Termination Date may be extended by mutual
agreement of the Parties for an additional one year on each anniversary date of
the Initial Purchase Date. The Seller and the Buyer may agree at any time to
set an earlier Commitment Termination Date.
[End of Article II]
<PAGE>
ARTICLE III
CLOSING PROCEDURE; CONDITIONS TO PURCHASE
SECTION 3.01 PAYMENT. Subject to Sections 3.03 and 3.04, the Buyer
shall pay in immediately available funds to Seller, on or before 12:00 noon
Washington, D.C. time, on the Initial Purchase Date and on each Incremental
Purchase Date, the sum of 100% of the Principal Balance of each Loan (calculated
as of such date, without giving effect to any payment due or received on such
date) sold by the Seller to Buyer on the Initial Purchase Date or on such
Incremental Purchase Date, as the case may be (each such sum, collectively, the
"Purchase Price").
SECTION 3.02 EFFECTIVE DATE. Each sale made pursuant to Sections
2.01 and 2.03 shall be effective, and all right, title and interest in the Loans
and the related Property so sold shall pass to the Buyer, at such time as Buyer
shall pay the Purchase Price in respect thereof.
SECTION 3.03 BUYER'S CONDITIONS PRECEDENT TO ACCEPTANCE. The
obligation of Buyer to pay the Purchase Price on each Incremental Purchase Date
is subject to the fulfillment on or before such Incremental Purchase Date of
each of the following conditions (each relating only to the Loans and related
Property purchased on such date):
(h) Buyer shall have received the original Notes and such Notes
shall have been duly endorsed by Seller without recourse or warranty except as
provided herein, and of the Related Documents;
(i) Buyer shall have received the original executed counterpart of
each Related Document and all other Property with respect to each Loan (or, to
the extent more than one original counterpart exists, all original executed
counterparts of such agreements and Related Documents that are in the possession
of the Seller or any of its Affiliates), and each such Document shall be in a
form reasonably satisfactory to Buyer;
(j) With respect to Loans secured by mortgages on real property,
Buyer shall have received (A) either: (i) the original mortgage, with evidence
of recording thereon, (ii) a copy of the mortgage certified as a true copy by a
Responsible Officer of Seller where the original has been transmitted for
recording until such time as the original is returned by the public recording
officer or duly licensed title or escrow officer or (iii) a copy of the mortgage
in those instances where the original recorded mortgage has been lost, as so
certified by the Seller; and (B) either: (i) originals of all intervening
assignments, if any, showing a complete chain of title from the originator to
Seller, including warehousing assignments, with
<PAGE>
evidence of recording thereon if such assignments were recorded, (ii) copies of
any assignments certified as true copies by a Responsible Officer of Seller
where the originals have been submitted for recording until such time as the
originals are returned by the public recording officer, or (iii) copies of any
assignments in any instances where the original recorded assignments have been
lost, as so certified by the Seller; and (C) all available Minimum Documentation
and all other documentation with respect to each Loan;
(k) The Buyer shall have received Uniform Commercial Code financing
statements on Form UCC-3 (or such other UCC form as required by applicable law)
duly executed by Seller: (i) as "Assignor" evidencing the assignment to the
Buyer by Seller of all security interests in personal property arising in favor
of Seller under the Related Documents, and on the Collateral relating to the
Loans (other than security interests in Cooperative Assets); and (ii) as
"Borrower/Debtor" and executed by all secured parties and assignees (if any)
evidencing the release of the lien of the Agent as "Lender/Secured Party" under
any loan or credit agreement among GCC, as borrower, lenders party thereto, and
NCB as agent and/or lender; and (iii) as "Borrower/Debtor" and executed by all
secured parties and assignees (if any) evidencing the release and discharge of
each and every lien, charge, mortgage, encumbrance and right of any other Person
or with respect to the Collateral; in each case, in form and content sufficient
for filing with the applicable location for central filing in each state where a
related form UCC-1 (or such other UCC form as required by applicable law) is
filed and in each state in which any secured party or other Person having any
such lien, charge, mortgage or right is located;
(l) The Buyer shall have received evidence satisfactory to Buyer in
its sole discretion that the security interests arising in its favor under this
Agreement in the Loans, related Notes, related Collateral (other than Collateral
which is not governed by the Uniform Commercial Code unless Buyer, in its sole
discretion, requires otherwise), the Related Documents and the proceeds thereof
has been duly perfected by the filing of all such Uniform Commercial Code
financing statements and the taking of all such other or additional acts as may
be necessary to create a valid and perfected lien of first priority enforceable
against all third parties (other than (i) prior lien holders in the case of
Collateral which is not Primary Collateral (but only to the extent such lien
holders' liens arise with respect to obligations of an Obligor) and (ii) in
Collateral which is not governed by the Uniform Commercial Code) in all
jurisdictions to secure all of Seller's obligations to Buyer;
(m) No Termination Event, and no event which with the giving of
notice or passage of time or both would constitute a
<PAGE>
Termination Event shall have occurred and be continuing, and a Responsible
Officer of Seller shall have so certified to Buyer in writing;
(n) Each applicable representation and warranty of the Seller set
forth in Section 4.01 or 4.02 shall be true and correct in all material
respects, and a duly Responsible Officer of Seller shall have so certified to
Buyer in writing in substantially the form of Exhibit E hereto;
(o) Each representation and warranty of Guarantor set forth in
Article 3.01 of the Guaranty Agreement hereof shall be true and correct in all
material respects, and a duly Responsible Officer of Guarantor shall have so
certified to Buyer in writing in substantially the form of Exhibit F hereto;
(p) Each representation and warranty of Servicer set forth in
Section 5.12 shall be true and correct in all material respects, and a duly
Responsible Officer of Servicer shall have so certified to Buyer in writing in
substantially the form of Exhibit G hereto;
(q) Buyer shall have received the Loan Schedule relating to the
Loans purchased on the applicable Incremental Purchase Date required by this
Agreement;
(r) Buyer shall have received personal credit reports relating to
each Obligor for each Loan purchased on the applicable Incremental Purchase
Date; and
(s) Buyer shall have received on such Incremental Purchase Date
from Seller financial and other documentation (including, if permitted by the
Buyer, projections) supporting the Seller's calculation of Cash Flow Ratio and
Collateral Coverage Ratio.
SECTION 3.04 DELIVERY REQUIREMENTS FOR INITIAL PURCHASE DATE. The
obligation of the Buyer to perform any of its obligations under this Agreement
shall be subject to satisfaction of each of the following delivery requirements
on or before the Initial Purchase Date (or on or before the other date specified
below) to the reasonable satisfaction of Buyer:
(t) Buyer shall have received the following agreements, each duly
executed by the parties (other than Buyer) thereto:
(i) the Guaranty Agreement;
(ii) the Termination and Release Agreement; and
(iii) such other agreements and instruments as the
<PAGE>
Buyer shall reasonably require.
(u) The Buyer shall have received a Uniform Commercial Code
financing statement on Form UCC-l naming Buyer as "Secured Party" and executed
by Seller as "Debtor" covering the Loans sold and to be sold hereunder, related
Notes, related Collateral, the Related Documents and the proceeds thereof, in
form and content sufficient for filing in the appropriate offices in the States
of California and other appropriate jurisdictions;
(v) Buyer shall have received an opinion of counsel for GCC dated
such date and in a form reasonably acceptable to Buyer, including an opinion to
the effect that this Agreement and the Guaranty Agreement are legal, valid and
binding obligations of GCC, enforceable against GCC under the laws of the State
of California (provided that such opinion need not express an opinion as to the
characterization of the transactions contemplated hereby);
(w) Buyer shall have received in form and substance reasonably
satisfactory to it a certified copy of a resolution adopted by the Board of
Directors of GCC, authorizing the execution, delivery and performance of this
Agreement and the Guaranty Agreement and the endorsement and sale of the Notes
hereunder, together with evidence of the authority and specimen signatures of
the persons who have signed this Agreement and the Guaranty Agreement and
endorse the Notes on behalf of GCC and such other evidence of corporate
authority as Buyer may reasonably require;
(x) Buyer shall have received an officers' certificate from GCC in
a form reasonably acceptable to Buyer.
(y) Buyer shall have received certified copies of request for
information or copies (Form UCC-11 or such other UCC form as required by
applicable law) (or a similar search report certified by parties acceptable to
the Buyer) dated a date reasonably near the date hereof listing all effective
financing statements which name GCC (under its present name or any previous or
"doing business" name) as transferor or debtor and which are filed in
jurisdictions in which the filings were made pursuant to item (b) above together
with copies of such financing statements.
(z) Evidence of the establishment of the Servicing Account;
(aa) A duly certified copy of the executed Capital Maintenance
Agreement;
(bb) A signed and undated transfer letter relating to the Servicing
Account, directing the bank which holds the Servicing Account to transfer all
rights in such Account to the
<PAGE>
Buyer upon receipt of notice of the occurrence of a Servicer Default (the
"Transfer Letter");
(cc) Seller shall have satisfied the conditions set forth in
Sections 3.03(a) through (f) and (j); and
(dd) Buyer shall have received a release on form UCC-3 (or such
other form as required by applicable law), naming Seller as "Borrower/Debtor"
and executed by BT Commercial Corporation ("BT") as "Lender/Secured Party", and
evidence of the taking of all other actions necessary to release the security
interest in and to the Loans, the Property and any Collateral, held by BT, as
Agent, under that certain Credit Agreement, dated as of April 25, 1994, among
GCC, as borrower, the lenders party thereto, BT, as agent and as a lender, and
NCB, as co-agent and as a lender.
[End of Article III]
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 SELLER'S CORPORATE REPRESENTATIONS AND WARRANTIES.
Seller represents and warrants to Buyer as of the Initial Purchase Date, as of
each Incremental Purchase Date and as of the date of execution of this Agreement
as follows:
(ee) Seller is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of California, is doing business
only under the name "Grocers Capital Company", and is qualified to do business
in each other jurisdiction where the conduct of its business or the ownership of
its properties requires such qualification, and has full corporate power,
authority and legal right to carry on its business as presently conducted, to
own and operate its properties and assets, to execute, deliver and perform this
Agreement and to sell the Loans and related Property.
(ff) The execution, delivery and performance by the Seller of this
Agreement and any assignment, the endorsement the Notes and the sale of any
Loans, related Notes and Related Documents and the security interest in the
related Collateral hereunder have been duly authorized by all necessary
corporate action of Seller, do not require any shareholder approval or the
approval or consent of any trustee or the holders of any Debt of Seller, except
such as have been obtained (certified copies thereof having been delivered to
Buyer), do not contravene any law, regulation, rule or order binding on it or
its Articles of Incorporation or Bylaws and do not contravene the provisions of
or constitute a default under any indenture, mortgage, contract or other
agreement or instrument to which Seller is a party or by which Seller or any of
the Loans, related Notes or Related Documents may be bound or affected.
(gg) No Government Approval or filing or registration with any
Governmental Authority is required for the making and performance by Seller of
this Agreement or any assignment or the endorsement of the Notes or in
connection with the sale of the Loans and related Property contemplated hereby,
except such as have been heretofore obtained and are in full force and effect
(certified copies thereof having been delivered to Buyer).
(hh) This Agreement has been duly executed and delivered by Seller
and constitutes, and any assignment and any endorsement of a Note when duly
executed and delivered will constitute, the legal, valid and binding obligation
of the Seller enforceable against Seller in accordance with its terms, except
only as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by
<PAGE>
general principles of equity (whether considered in a proceeding or action in
equity or at law).
(ii) There are no actions, proceedings, investigations, or claims
against or affecting Seller now pending before any court, arbitrator or other
Governmental Authority (nor to the knowledge of Seller has any thereof been
threatened nor does any basis exist therefor) which if determined adversely to
the Seller would be likely to have a material adverse effect on the financial
condition or operations of Seller or on Seller's ability to perform its
obligations under this Agreement.
(jj) The consolidated balance sheet of each of Certified and its
Subsidiaries and of the Seller and its Subsidiaries at June 1, 1996, and the
related statements of income and retained earnings of each of Certified and its
Subsidiaries and of Seller and its Subsidiaries for their respective fiscal
periods then ended, copies of which have been furnished to Buyer, fairly present
the financial condition of each of Certified and its Subsidiaries and of Seller
and its Subsidiaries as at such date and the results of operations of each of
Certified and its Subsidiaries and of Seller and its Subsidiaries for their
respective fiscal periods then ended, all in accordance with U.S. GAAP
consistently applied. Since that date, there has been no material adverse
change in the financial condition or operations of either of Certified or its
Subsidiaries or of Seller or any of its Subsidiaries.
(kk) Seller has good and marketable title to each of the properties
and assets reflected in its balance sheet referred to in Section 4.01(f) except
such as have been since sold or otherwise disposed of in the ordinary course of
business.
(ll) None of Seller, any of its Subsidiaries nor Certified is in
material breach of or default under any agreement or agreements to which it is a
party or which are binding on it or any of its assets and which provide for the
payment of monies, the delivery of goods or the provision of services in amounts
or with values in the aggregate in excess of Five Hundred Thousand Dollars
($500,000).
(mm) The present value of all benefits vested under all Plans did
not, as of the most recent valuation date of such Plans, exceed the value of the
assets of the Plans allocable to such vested benefits by an amount which would
represent a potential material liability of Seller and its Subsidiaries or
affect materially the ability of the Seller to perform this Agreement; no Plan
or trust created thereunder, or any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is defined in Section 406 or
Section 2003(a) of ERISA) which could subject such Plan or any other Plan, any
trust created thereunder, or any trustee or administrator thereof, or
<PAGE>
any party dealing with any Plan or any such trust to any material tax or penalty
on prohibited transactions imposed by Section 502 or Section 2003(a) of ERISA;
no Plan or trust created thereunder has been terminated, and there have been no
"reportable events" (as that term is defined in Section 4043 of ERISA) since the
effective date of ERISA; no Plan or trust created thereunder has incurred any
"accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA) whether or not waived, since the effective date of ERISA; and the
required allocations and contributions to Plans will not violate Section 415 of
the Code.
(nn) Uniform Commercial Code financing statements have been duly
filed in all places where filing is necessary and all other or additional acts
have been taken as are necessary to perfect the Buyer's interests arising
hereunder and under the assignments in and to the Loans and related Property and
the lien created hereby constitutes a valid and perfected lien of first priority
in and to all of the Loans and related Property (other than in Collateral which
is not Primary Collateral or is not governed by the Uniform Commercial Code, in
which case the Buyer has only such interest as the Seller had and disclosed to
the Buyer on the applicable Incremental Purchase Date and other than Seller's
security interest in Cooperative Assets) and is enforceable against all third
parties (other than third parties whose interests in Collateral which is not
Primary Collateral are prior to Seller's interests therein on the applicable
Incremental Purchase Date) in all jurisdictions as security for all obligations
of the Seller to the Buyer under this Agreement.
(oo) Seller's chief executive offices and the offices where such
Seller keeps records concerning the Loans and related Property are located at
2601 South Eastern Avenue, Los Angeles, California 90040 or such other location
to which such offices are moved pursuant to Section 6.01(m) hereof.
(pp) This Agreement, the financial statements referred to in Section
4.01(f) and all other instruments, documents, certificates and statements
furnished to the Buyer by the Seller, taken as a whole, do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements contained herein or therein not misleading.
(qq) The Capital Maintenance Agreement is in full force and effect.
SECTION 4.02 SELLER'S INCREMENTAL PURCHASE DATE REPRESENTATIONS AND
WARRANTIES WITH RESPECT TO LOANS. Seller represents and warrants to Buyer as of
each Incremental Purchase Date with respect to Loans transferred and sold on
such Incremental Purchase Date as follows:
<PAGE>
(ss) The information with respect to each Loan set forth in the
applicable Loan Schedule, together with any documentation supporting such
information, is true and correct in all material respects;
(tt) With respect to each Loan, there exists only one original Note.
Such original Note and all of the other original or certified documentation set
forth in Sections 2.02 and 3.03 (including the Loan Files and all material
documents related thereto) have been, or shall have been on the applicable
Incremental Purchase Date, delivered to the Buyer;
(uu) Each Loan was originated in the United States and Scheduled
Payments on such Loan are payable in U.S. Dollars by an Obligor domiciled in the
United States;
(vv) Each Note has a Loan Interest Rate that is (i) a variable rate
based on the Prime Rate adjusted at least annually, with a minimum Loan Interest
Rate equal to the Prime Rate minus 100 basis points or (ii) a fixed rate that,
as of the date on which such Loan was originated, was not less than the Prime
Rate minus 100 basis points.
(ww) Immediately prior to and as of each sale, transfer and
assignment to the Buyer herein contemplated, the Seller held good and
indefeasible title to, and was the sole owner of, each Loan conveyed by Seller,
subject to no liens, charges, mortgages, encumbrances or rights of others or
other liens (including any lien released simultaneously with such transfer and
assignment, in favor of the Agent) of any kind whatsoever and immediately upon
the transfer and assignment herein contemplated, the Buyer will hold good and
indefeasible title, to, and be the sole owner of, each Loan subject to no liens,
charges, mortgages, encumbrances or rights of others of any kind whatsoever;
(xx) No Loan is delinquent (after giving effect to any applicable
grace period) in payment, and no Loan shall have been delinquent during the
six-month period immediately preceding such Incremental Purchase Date (after
giving effect to any applicable grace period) for a period in excess of 45 days
or shall have ever demonstrated a pattern of repeated delinquencies;
(yy) There is no other default, breach, violation or event of
acceleration existing under the Loan, related Note or Related Document and no
event which, with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a default, breach, violation or event of
acceleration, and the Seller has not waived any such default, breach, violation
or event of acceleration that would otherwise exist;
<PAGE>
(zz) No Loan is subordinate by its terms to any Debt of the related
Obligor; and no Loan is subordinate to any Debt of the related Obligor except as
to such Debt that is secured by collateral with a value equal to or greater than
the amount of such Debt, which collateral is entirely separate and distinct from
the Collateral securing such Loan; and each Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of the related Note, Related Document
or any related Collateral, or the exercise of any right thereunder, render
either the related Note, Related Document or any related Collateral
unenforceable in whole or in part, or subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto;
(aaa) Each Loan at the time it was made complied and, as of the
applicable Incremental Purchase Date, complied in all material respects with the
Seller's Credit and Collection Policy and with applicable state and federal laws
and regulations, including, without limitation, usury, equal credit opportunity,
disclosure and recording laws;
(ccc) The Obligor with respect to each Loan (i) is not an
Affiliate of the Seller, (ii) is a Certified Patron in good standing and (iii)
to the best of Seller's knowledge, shall have provided to Seller complete and
accurate information, including a personal credit report, relating to Obligor's
financial condition, and (iv) shall have suffered no material adverse changes in
its financial condition or otherwise since the date the Loan was originated;
(ddd) Each Loan had an original term to maturity of no greater
than seven (7) years;
(eee) The Note related to each Loan provides that the principal
be amortized no less frequently than quarterly over the term of such Note with
an amortization period of no greater than 10 years. The Note related to each
Loan may require the payment of interest only for a period of up to 12 months
from the date of origination of the related Loan and may provide for a balloon
payment of up to three years of principal on the maturity date of the related
Loan;
(fff) Each Loan, related Note, related Collateral and Related
Documents pursuant to which Collateral is pledged to Seller is the legal, valid
and binding obligation of the Obligor thereof and is enforceable in accordance
with its terms, except only as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by
<PAGE>
general principles of equity (whether considered in a proceeding or action in
equity or at law), and all parties to each Loan had full legal capacity to
execute all Related Documents and convey the property therein purported to be
conveyed;
(ggg) The terms of the Loan, related Note and each Related
Document pursuant to which Collateral was pledged have not been impaired,
altered or modified, except by written instrument which has been recorded, if
necessary, to protect the interest of the Buyer and which has been delivered to
the Buyer;
(hhh) The proceeds of each Loan were fully disbursed before the
applicable Incremental Purchase Date, and there is no obligation on the part of
the Seller to make future advances thereunder. Any and all requirements as to
disbursements of any escrow funds therefor have been complied with. All costs,
fees and expenses incurred in making or closing or recording the Loans were
paid;
(jjj) The Obligor with respect to each Loan has provided
information to Seller (which has been delivered to Buyer on or before such
Incremental Purchase Date) evidencing that such Obligor has a positive net
worth. To the best of Seller's knowledge, each Obligor is not the subject of
any bankruptcy proceeding, and has no present intention to seek relief under the
federal bankruptcy laws;
(kkk) The Obligor and/or the Loan Guarantor with respect to each
Loan and related Property is personally liable for the payment and performance
of its obligations under such Loan, and such personal liability has been either
(i) in the case of a married Obligor or Loan Guarantor who is a married
individual, acknowledged or guaranteed by the spouse of such Obligor or Loan
Guarantor or (ii) in the case of a corporate Obligor or Loan Guarantor, approved
by a majority of the stockholders of such corporate Obligor or Loan Guarantor.
Pursuant to the terms of each Loan, each of the Obligor and the Loan Guarantor
thereunder is absolutely required to make all payments and perform all
obligations due pursuant to such Loan without abatement, deferment or defense of
any kind or for any reason (except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws of general application
relating to or affecting creditors rights and by general principles of equity);
(lll) The Collateral covered by or securing the obligations
under each Loan is insured by an insurance company rated at least "B-" by Best &
Co. against loss by fire and such other hazards as are customary for personal
property of the same or similar type, such insurance being in an amount not less
than the Principal Balance of such Loan as of the applicable
<PAGE>
Incremental Purchase Date subject to customary deductibles and the Seller and/or
the Buyer is designated as loss payee under such policies;
(mmm) Each Loan requires each of the Obligor and Loan Guarantor
thereunder at its own costs and expense to maintain the Collateral pledged to
secure the related Loan in good repair, condition and working order, and to the
knowledge of the Seller, each Obligor and Loan Guarantor under a Loan is
currently in compliance with this requirement;
(nnn) Each Loan has a Collateral Coverage Ratio of at least
1.1:1 and the related Obligor has a Cash Flow Ratio of at least 1:1 and a
leverage ratio (total liabilities to Consolidated Tangible Net Worth as shown on
the related Obligor Financial Statements) of not more than 4:1;
(ooo) All Collateral securing any Loan is located in the United
States. Collateral shall be valued in accordance with the provisions set forth
in the definition of "Collateral Coverage Ratio";
(ppp) Seller has, or on the applicable Incremental Purchase Date
will have, (i) a first priority perfected security interest in each item of
Primary Collateral, free from any lien, security interest, encumbrance or other
right, title or interest of any Person, and (ii) a perfected security interest
in each other item of Collateral, subject to the prior liens, security interests
and encumbrances existing on, and identified to and approved by the Buyer on the
applicable Incremental Purchase Date. Seller shall, on the applicable
Incremental Purchase Date, transfer its security interest in the Primary
Collateral and such other Collateral as is governed by the Uniform Commercial
Code or as is required by Buyer, subject however to the rights of the holder of
title in and to such Collateral and of the Obligors in such Collateral pledged
under the Related Documents (and, in the case of Collateral which is not Primary
Collateral, holders of prior liens), and Seller, as agent for the Buyer, shall
defend the Buyer's security interest in and to Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein
adverse to that of the Obligors or the Buyer;
(qqq) The Notes and Related Documents delivered to Buyer on the
applicable Incremental Purchase Date are true, correct, and complete original
counterparts of all instruments and documents evidencing or in any way relating
to the Loan and related indebtedness referred to therein; except as approved by
the Buyer, such Notes and Related Documents are in substantially the form of the
documents attached hereto as Exhibit D; except as included with the instruments
and documents so delivered, such Notes and such Related Documents have not been
amended; and each
<PAGE>
such Note and Related Document to which Obligor or Loan Guarantor is a party
bears the original signature of such Obligor and Loan Guarantor;
(rrr) Uniform Commercial Code financing statements have been
duly filed in all places where filing is necessary, and all other or additional
acts have been taken as are necessary to perfect Seller's security interests
arising pursuant to the Related Documents in the Primary Collateral and such
other Collateral as is governed by the Uniform Commercial Code;
(sss) Seller has heretofore caused all copies of the Loans,
related Notes and Related Documents in its possession to be separately
identified and distinguished from Seller's other loans, and on the applicable
Incremental Purchase Date, the Seller will cause each copy of each Note, related
Collateral and Related Document in its possession to be identified with an
appropriate legend clearly disclosing the fact that such Loan, the related
Notes, Related Documents and the Seller's security interest in the related
Collateral have been sold and assigned to the Buyer and the Buyer is the owner
thereof, and any original copies of any Note, related Collateral or Related
Document coming into the possession of the Seller will be delivered to the
Buyer;
(ttt) (i) The Obligor shall not have been delinquent on its
payment obligation on an open account for a period in excess of 45 days, and
(ii) neither the Obligor nor any member of its Obligor Group shall have
defaulted on any recourse obligation to Seller, any Subsidiary of Seller or
Certified;
(uuu) With respect to each Loan, either (i) the related Obligor
has owned grocery stores which have operated as such for at least 1 year or
(ii) the grocery store to which such Loan relates has operated as such for at
least 1 year;
(bb) The proceeds of the Loan are not being used to satisfy the
related Obligor's personal needs and the purpose for which the Loan was made was
to finance or refinance capital or leasehold improvements, equipment, inventory
and other term working capital, and acquisitions, expansions or renovations for
a new or existing store, including the cost of land, construction and real
estate;
(cc) With respect to each Loan which is secured by a mortgage on the
lease on the related grocery store, such lease (with any options) must be at
least coterminous with such Loan; and
(dd) Either (i) the Obligor and Loan Guarantor has, under the terms
of each Loan, consented to a sale and assignment of the Loan, the related Note
and Related Documents and the sale or grant of a security interest in and to the
Loan and the
<PAGE>
Collateral relating thereto, or (ii) none of the Loan, the related Note or any
Related Documents requires the consent of approval of notice to the Obligor or
Loan Guarantor with respect to the assignment and transfer by Seller of Seller's
right, title and interest in and to the Loan, the related Note, any Related
Document and Collateral.
SECTION 4.03 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer
represents and warrants to Seller as follows:
(vvv) Buyer is a financial institution duly organized, validly
existing and in good standing under the laws of the United States of America,
and has full corporate power, authority and legal right to execute, deliver and
perform this Agreement and to purchase the Loans and related Property.
(www) Execution, delivery and performance by Buyer of this
Agreement and the purchase of the Loans and related Property hereunder have been
duly authorized by all necessary corporate action of Buyer, do not require any
shareholder approval or the approval or consent of any trustee or the holders of
any Debt of Buyer, do not contravene the Bank Act or any other law, regulation,
rule or order binding on it or its Charter or Bylaws and do not contravene the
provisions of or constitute a default under any indenture, mortgage, contract or
other agreement or instrument to which Buyer is a party or by which Buyer or any
of its properties may be bound or affected.
(xxx) No Government Approval or filing or registration with any
Governmental Authority is required for the making and performance by Buyer of
this Agreement or in connection with any of the transactions contemplated
hereby.
(yyy) This Agreement has been duly executed and delivered by
Buyer and constitutes the legal, valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms.
<PAGE>
(aaaa) The applicable representations and warranties and agreements of the
Seller set forth in Sections 4.01 and 4.02 (as excepted from with respect to any
Non-Conforming Loan as set forth in Section 2.01) with respect to the Seller and
each Loan and related Property shall continue so long as such Loan remains
outstanding. Upon discovery by Seller, Servicer or Buyer that any of such
representations or warranties was incorrect as of the time made, the party
making such discovery shall give prompt notice to the other parties. In the
event any defect, misrepresentation or omission materially and adversely affects
the interest of the Buyer, the Seller shall eliminate or cure the circumstance
or condition causing the defect within 30 days of the discovery thereof (except
with respect to breaches of any of the representations or warranties in Sections
4.02(a), (b), (c), (l), (n), (s), (u), (v), (w) and (x), as to which the cure
period shall be 10 days, and with respect to breaches of any representations or
warranties in Sections 4.02(e) and (v) with respect to the Initial Loans, as to
which there shall be no cure period).
(bbbb) The Seller shall repurchase an affected Loan or group of
Loans and the related Property (i) if, with respect to Loans purchased by Buyer
hereunder prior to January 1, 1997, any of the representations or warranties in
Sections 4.01 and 4.02 was false or incorrect when made and, in the case of the
Initial Loans, as of September 17, 1996; and (ii) if, with respect to Loans
purchased by Buyer hereunder on or after January 1, 1997, the Seller cannot or
does not effect a cure of any defect, misrepresentation or omission in any
representation or warranty in Sections 4.01 and 4.02 within the time period
specified therefor in Section 4.04(a).
(cccc) Any such repurchase of a Loan and the related Property by
Seller pursuant to Section 4.04(b) shall be accomplished in the manner set forth
in Section 2.02(d) and at a price equal to the Repurchase Amount.
SECTION 4.05 SURVIVAL OF REPRESENTATIONS. Each of the
representations and warranties made by the Company and by each Seller, in
whatever capacity made or given, made or given in or under this Agreement shall
survive the execution and delivery hereof and of the document, instrument or
agreement executed and/or delivered hereunder in which so made or given.
<PAGE>
[End of Article IV]
<PAGE>
ARTICLE V
SERVICING AND COLLECTION
Subject to the provisions of Section 8.03, at all times prior to the
later of (a) the Termination Date or (b) the date on which all obligations of
the Seller under this Agreement have been performed in full, the following terms
and provisions of this Article V shall apply.
(eeee) The Buyer appoints the Servicer to act as the Buyer's exclusive agent
for performing all of the servicing and administrative functions with respect to
the Loans, the related Notes, the Related Documents and the related Collateral
not specifically reserved to the Buyer pursuant to subsection (b) of this
Section 5.01. The Servicer hereby accepts such appointment and agrees to
perform such Loan servicing and administrative duties as are specifically
enumerated herein as well as those not reserved to the Buyer pursuant to
subsection (b).
(ffff) The Buyer reserves the right to perform, and the Servicer
shall have no obligation to perform, the following servicing and administrative
functions with respect to the Loans and this Agreement: (i) determining the
amount to be claimed on the Guaranty from time to time and the Guaranty Amount
from time to time; (ii) calculating monthly, in connection with each Payment
Date, the Periodic Payment, the Monthly Interest Amount, the Applicable Rate,
the Servicing Fee and the Guaranty Fee, and (iii) maintaining the Lockbox
Account, if one is established.
(gggg) The Servicer shall use the same diligence and practices in
servicing the Loans, the related Collateral and the Related Documents as it uses
in servicing and collecting indebtedness evidenced by notes and related
documents held for its own account and, in any event, shall endeavor to collect
or cause to be collected from each Obligor the amounts as and when due and owing
under such Obligor's Note and Related Documents. In performing its duties
hereunder, and subject to the specific limitations set forth herein, Servicer
shall act in accordance with its Credit and Collection Policy and shall take
such actions with respect to the Loans, Notes and Related Documents as, in its
reasonable business judgment, it may deem advisable to maintain or enhance
receipt of timely Collections thereunder. Promptly upon the request of
Servicer, Buyer agrees to execute and deliver such documents and take such
further acts (at Servicer's expense) as Servicer may reasonably request to
confirm and evidence the agency granted to Servicer pursuant to this Section
5.01.
(hhhh) Promptly after the execution and delivery of this
Agreement, the Servicer shall deliver to the Buyer a list certified by its
secretary or one of its assistant secretaries of
<PAGE>
the Servicing Officers and employees of the Servicer involved in or responsible
for, the administration and servicing of the Loans, which list shall from time
to time be updated by the Servicer and which may be relied upon until so
updated; PROVIDED that if the Servicer has previously provided such a list to
the Buyer and such list does not require updating, the Servicer shall confirm
the accuracy of the previously-delivered list.
(jjjj) Servicer shall arrange and maintain with respect to the Loans, related
Notes and Related Documents, data processing, accounting and related services
adequate for the effective and timely performance of its servicing obligations
hereunder in accordance with good business practices and in compliance with all
applicable federal, state and local laws and regulations.
(kkkk) With respect to each Loan and related Obligor, Servicer
shall collect the following information: (i) within 120 days of the end of each
fiscal year of such Obligor, annual financial statements, together with a
certificate of an authorized officer of such Obligor, to the effect that the
accompanying financial statements are true and correct in all material respects;
(ii) within 50 days of the end of each fiscal quarter of such Obligor, interim
financial statements, together with a certificate of an authorized officer of
such Obligor, to the effect that the accompanying interim financial statements
are true and correct in all material respects; and (iii) evidence of adequate
insurance with respect to related Collateral. Servicer shall maintain the
foregoing information and shall make the same available to the Buyer or its
nominees or agents upon reasonable request.
SECTION 5.03 MAINTENANCE OF LIEN PRIORITY. So long as Servicer is
required to act as Buyer's exclusive agent for performing certain servicing
obligations with respect to the Loans, Servicer agrees to take all actions,
including lien searches and continuation statement filings, necessary or
desirable to ensure that the liens arising pursuant to the Related Documents and
securing repayment of any Obligor's indebtedness evidenced by a related Note
will be maintained as continuously perfected first priority (except in the case
of Collateral which is not Primary Collateral, in which event the Servicer shall
take all actions to maintain the priority sold and assigned hereunder) security
interests (except as otherwise approved by Buyer) in all applicable
jurisdictions.
(mmmm) Servicer agrees to accept primary responsibility for telephonic and
face-to-face communications with Obligors concerning the Loans, related Notes
and Related Collateral. In the event Obligor inquiries require consideration by
the Buyer, the Servicer agrees to coordinate with the Buyer and the Obligors
<PAGE>
so as to provide prompt and appropriate responses to Obligors' inquiries or
concerns.
(nnnn) Servicer agrees to follow, maintain and apply the credit,
extension and collection policies identified in the Credit and Collection Policy
in all material respects unless any order of any court, arbitrator or other
Governmental Authority or any determination of or change in any applicable
federal, state or local law or regulation should require otherwise or unless
Buyer shall otherwise consent in writing, which consent will not be unreasonably
withheld. Notwithstanding any other provision herein to the contrary, Servicer
is not authorized to and agrees that it shall not, without the Buyer's prior
written consent (which consent shall not be unreasonably withheld), (i) amend,
extend, release, modify, or waive the terms or conditions of any Loan, related
Note or of any Related Document; (ii) release any Collateral pledged in support
of any Obligor's obligations under a Note or Related Document (other than
Cooperative Assets); or (iii) grant or permit to be granted any rebate, refund,
credit or other adjustment in respect of a Obligor's obligation under any Note
or any Related Document.
<PAGE>
SECTION 5.05 OBLIGOR DEFAULTS. Servicer agrees to promptly give any
notice to Obligor required to commence the running of any applicable cure period
following a default in the performance by Obligor of its obligations under the
Loan, the related Note and Related Documents. If an Obligor Default shall occur
and be continuing or if a Loan shall otherwise become a Defaulted Loan, Servicer
shall promptly undertake the collection of such Obligor's indebtedness in
accordance with the Credit and Collection Policy and shall develop, if
necessary, after consultation with the Buyer, a strategy for liquidating the
Collateral with respect to such Loan; PROVIDED, HOWEVER, that the Servicer may
modify the terms of a Defaulted Loan with the prior written consent of the
Buyer, which consent shall not be unreasonably withheld. Servicer shall
commence liquidation of the Collateral pledged to secure such Obligor's
obligations under its Defaulted Loan within 90 days after the occurrence of such
Obligor's Default or upon a Loan becoming a Defaulted Loan, unless (a) Servicer,
with the consent of Buyer, has determined to modify the terms of a Defaulted
Loan or (b) Buyer directs the Servicer to do otherwise or (c) Servicer receives
notice from the Seller of its repurchase of such Loan pursuant to Section 7.01
of this Agreement. Buyer shall promptly notify Servicer of any payment default
by an Obligor under a Note of which it obtains knowledge and Servicer shall
promptly notify Buyer, Seller and Guarantor of the occurrence of any payment or
other Obligor Default or of a Loan becoming a Defaulted Loan. In its efforts to
collect the indebtedness evidenced by any Note, Servicer shall in all events
proceed in good faith and in a commercially reasonable manner, and, when seeking
to realize on Collateral pledged by any Obligor, shall proceed in such a fashion
as to preserve to Buyer its rights to seek collection of a deficiency against
such Obligor if the sale of the Collateral is insufficient to pay such Obligor's
obligations in full, unless (i) Buyer has consented to proceeding in a manner
that does not result in preserving the right to collect a deficiency or
(ii) such right is of minor practical value.
Notwithstanding any other provision in this Agreement to the contrary,
Buyer shall have the right, at its sole discretion, to assume the servicing
obligations of the Servicer hereunder in connection with the liquidation of a
Defaulted Loan and related Property and Servicer shall cooperate with Buyer in
effecting such transfer of obligations and liquidation of Collateral. If Buyer
assumes the servicing obligations with respect to the liquidation of a Defaulted
Loan, Buyer shall proceed as a prudent and experienced servicer would under the
circumstances and shall be entitled to reimbursement for its reasonable fees and
expenses in performing such obligations in accordance with Section 5.08 hereof,
and Servicer shall have no further responsibilities hereunder with respect to
the servicing of such Loan.
<PAGE>
(pppp) On the second Business Day preceding each Payment Date, Servicer shall
deliver to Buyer a Monthly Report relating to the Loans and the preceding Due
Period. The Servicer shall include in the Monthly Report (i) a statement as to
any event occurring during the preceding Due Period of which Servicer has actual
knowledge which materially impairs or might reasonably be expected materially to
impair any Obligor's ability to repay the Debt relating to any Loan and
evidenced by a Note or to perform its obligations under any Related Document or
which has or might reasonably be expected to substantially reduce the value of
the Collateral or to impair the Buyer's lien thereon and (ii) a certification to
the effect that a review of the activities of the Servicer during the monthly
period as that covered by the Monthly Report, and of its performance under this
Agreement during such period has been made under the supervision of the officers
executing such certificate with a view to determining whether during such period
the Servicer had performed and observed all of its obligations under this
Agreement, and either (A) stating that based on such review no Servicer Default
under this Agreement has occurred, or (B) if a Servicer Default has occurred,
specifying such Servicer Default and the nature and status thereof. In addition
to the foregoing, from time to time upon request of Buyer, the Servicer will
deliver to Buyer such other statements, lists, reports and other information as
the Buyer may reasonably request, and, to the extent any such information must
be obtained by Servicer from a third party, as the Servicer may reasonably be
expected to obtain.
(qqqq) The Servicer shall promptly notify the Buyer if any of the
following events occurs: (i) a Defaulted Loan becomes or is deemed to be a
Liquidated Loan and the amount of Liquidation Loss thereon, (ii) the Seller
fails to pay any Repurchase Amount when due, (iii) the Guarantor fails to pay on
the Guaranty when due.
(rrrr) Buyer shall have the right during Servicer's regular
business hours and upon reasonable prior notice to Servicer to conduct an audit
(not more frequently than once in any twelve-month period unless a Servicer
Default then exists) of the Loans, Related Documents and all other documents and
files relating thereto. Servicer agrees to reimburse Buyer for the cost of such
audit up to $5,000 per audit.
(tttt) Unless otherwise notified by Buyer, Servicer shall receive directly all
payments with respect to the Loans, and such payments, which shall be held by
Servicer, as agent for the Buyer, shall include:
(i) all Scheduled Payments and Payaheads received from the Obligors
in the Lockbox Account or otherwise;
<PAGE>
(ii) all Principal Prepayments;
(iii) all Insurance Proceeds and all Liquidation Proceeds; and
(iv) all payments made by the Seller or the Servicer under this
Agreement or the Guarantor under the Guaranty Agreement to be paid to
Servicer, including Guaranty Payments and Repurchase Amounts.
(uuuu) The Servicer shall establish and maintain an account in a
bank acceptable to the Buyer for the purpose of holding all payments received
with respect to the Loans and of remitting the amounts described in Section 5.08
(the "Servicing Account"). The Servicing Account shall be maintained in the
name of GCC, as Servicer, for the benefit of the Buyer and subject to a first
priority perfected security interest in favor of Buyer. Moneys received with
respect to the Loans shall be deposited into the Servicing Account on a daily
basis within 24 hours of receipt thereof. The parties hereby acknowledge that
the Servicer shall have no obligation to restrict amounts on deposit therein to
amounts constituting Property, but may deposit amounts and proceeds in respect
of loans and other property not constituting Loans; PROVIDED, HOWEVER, that such
right of the Servicer shall be subject to the continued existence and
maintenance of a first priority perfected security interest of Buyer in and to
such Servicing Account. If (i) Buyer at any time ceases to have a first
priority perfected security interest in and to the Servicing Account, or (ii)
upon the occurrence of a Servicer Default, the Buyer may deliver notice to the
Servicer to establish a Separate Account as the Servicing Account, and upon
receipt of such notice the Servicer shall establish such a Servicing Account,
for the purpose of holding all payments, as described in Section 5.07(a) or
otherwise received in respect of the Loans and related Property, segregated and
separate from all of the Servicer's other accounts and other funds (such
account, a "Separate Account"). The Servicer may also, at any time, establish a
Separate Account to serve as the Servicing Account. If the Servicing Account is
a Separate Account, in the event there shall have been deposited in such
Servicing Account any amount not required to be deposited therein and so
identified to the Buyer, including (i) any payments received from any source
other than payments made in respect of the Loans, the related Notes, Related
Documents and related Collateral, (ii) payments with respect to the Loans,
related Notes, Related Documents and related Collateral due before the
applicable Incremental Purchase Date, and (iii) payments received in respect of
the Loans following the repurchase thereof by Seller pursuant to this Agreement,
such amounts shall be withdrawn from the Servicing Account and paid to the
Seller. Moneys in the Servicing Account may be invested in any combination of
investment-grade
<PAGE>
securities, money market funds, bank deposits and certificates of deposits, in
each case that are scheduled to mature no later than the Business Day on which
such amounts are required to be paid to Buyer, and any net income from such
investments may be retained by the Servicer as an additional servicing fee.
(vvvv) Buyer may require, at any time and in its sole discretion,
that a Lockbox Account be established and that Servicer direct all Obligors to
send Loan payments to such Lockbox Account.
(wwww) Upon the occurrence of a Servicer Default, Buyer may
forward the Transfer Letter to the bank holding the Servicing Account and obtain
control of the Servicing Account. The Buyer, upon obtaining control of the
Servicing Account, may, in its sole discretion, either (i) maintain the
Servicing Account, or (ii) if such Servicing Account is not a Separate Account,
establish a Separate Account and transfer all amounts in the Servicing Account
received with respect, or otherwise related to, the Loans and related Property.
Notwithstanding any action it takes under this Section 5.07(d), the Buyer shall
have no liability to any Person, including, without limitation, GCC (in any
capacity), entitled to or having any ownership or security interest in or to any
Servicing Account or any amounts or funds on deposit therein, and the Buyer
shall have no responsibility with respect to such other amounts and funds in a
Servicing Account except, after its distribution on each Payment Date of the
amounts as set forth in Section 5.08, to remit to GCC any amounts or funds then
on deposit in such account that GCC can identify (to the Buyer's sole
satisfaction) as not constituting payments in respect of Loans or any Property,
and not otherwise constituting Property, or proceeds of Loans or Collateral.
The Servicer shall cooperate fully with the Buyer in respect of its control of
the Servicing Account, and in respect of its establishment and control of a
Separate Account as the Servicing Account.
SECTION 5.08 COMPUTATION AND PAYMENT OF PERIODIC PAYMENTS, SERVICING
FEES AND GUARANTY FEES; SERVICER'S EXPENSES.
(xxxx) On each Determination Date and with respect to the related
Payment Date, Buyer shall determine (i) the Periodic Payment (including the
Monthly Interest Amount) to be paid to Buyer, (ii) the Servicing Fee to be paid
to Servicer, and (iii) the Guaranty Fee to be paid to Guarantor, and shall
notify the Servicer in writing of such amounts.
(yyyy) No later than 12:00 noon, Washington, D.C. time on each
Payment Date, the Servicer shall remit to the Buyer the Periodic Payment by
payment in immediately available funds to SIGNET BANK VIRGINIA, in Richmond,
Virginia, ABA# 051006778,
<PAGE>
Account Number 6520293504, Account Name: NCB Mortgage Corp. Clearing.
(zzzz) Unless and until a Servicer Default or Guarantor Default
shall have occurred, on each Payment Date, the Servicer shall also remit as
directed by Buyer pursuant to (a) above, (i) to Servicer the Servicing Fee and
(ii) to Guarantor, the Guaranty Fee. The monthly "Servicing Fee" shall be an
amount equal to the sum of, for each Loan, the product of (i) .50%, times
(ii) the outstanding Principal Balance of such Loan as of the first day of the
related Due Period (or, in the case of a Loan purchased during such Due Period,
as of the Incremental Purchase Date of such Loan), times (iii) a fraction, the
denominator of which is 360 and the numerator of which is the actual number of
days in the related Due Period (the "Servicing Fee"). The Guaranty and
Servicing Fees shall be calculated in a manner consistent with the interest
accrual method applicable to each individual Loan. Notwithstanding the
foregoing, upon the occurrence of a Servicer Default, Servicer shall no longer
be entitled to the Servicing Fee and upon the occurrence of a Guarantor Default,
the Guarantor shall no longer be entitled to the Guaranty Fee, and in each such
event, Buyer shall be entitled to retain the Servicing Fee or Guaranty Fee, as
the case may be.
(aaaaa) Buyer shall determine the Periodic Payment for each Payment
Date using the following methodology.
(i) As used herein and in the Guaranty Agreement, "Periodic Payment"
means for any Payment Date the sum of, for each Loan, (a) the principal
portion (including any balloon payment) of the Scheduled Payment actually
received during the related Due Period; (b) any Principal Prepayment,
Payahead, and the principal portion of Insurance Proceeds and Net
Liquidation Proceeds, to the extent any of the foregoing are actually
received during the related Due Period; (c) the principal portion of any
Guaranty Payment or Repurchase Proceeds with respect to the related Due
Period and (d) the Monthly Interest Amount for the related Interest Accrual
Period.
(ii) As used herein and in the Guaranty Agreement, "Monthly Interest
Amount" on any Payment Date shall mean an amount equal to the sum of, for
each Loan, the product of (i) the outstanding Principal Balance of such
Loan as of the first day of the related Due Period (or, in the case of a
Loan purchased during such Due Period, as of the Incremental Purchase Date
of such Loan), times (ii) the Applicable Rate times (iii) a fraction, the
denominator of which is three hundred sixty (360), and the numerator of
which is the actual number of days in the related Interest Accrual Period.
<PAGE>
SECTION 5.09 APPLICABLE RATE. As used in this Agreement and in the
Guaranty Agreement, the "Applicable Rate" for each Loan shall be determined as
follows: For each Interest Accrual Period, the Applicable Rate for each Loan
shall mean an interest rate per annum equal to the sum of (a) the Margin and
(b) LIBOR in effect on the applicable LIBOR Determination Date. The Applicable
Rate for each Loan shall be established as of each LIBOR Determination Date and
shall be applicable for each of the Interest Accrual Periods within the next
succeeding LIBOR Period without regard to changes thereafter occurring during
such LIBOR Period in the principal amounts outstanding under the Notes, in the
Principal Balance of Loans purchased, or in LIBOR.
For purposes hereof, the Buyer will determine LIBOR by 12:00 noon,
Eastern Standard Time, on each LIBOR Determination Date on the basis of
quotations provided by four Reference Banks as of 11:00 A.M. (London time) on
such LIBOR Determination Date as such quotations appear on the display
designated as page "LIBOR" on the appropriate display on the Bloomberg Financial
Markets System (or such other page as may replace the LIBOR page on that service
for the purpose of displaying London interbank offered rates of major banks).
LIBOR as determined by Buyer is the arithmetic mean of such quotations (rounded,
if necessary, to the nearest whole multiple of 0.0625% per annum). If on any
LIBOR Determination Date at least two but fewer than all of the Reference Banks
provide quotations, LIBOR will be determined in accordance with the provisions
set forth above on the basis of the offered quotations of those Reference Banks
providing such quotations. If on the LIBOR Determination Date only one or none
of the Reference Banks provides such offered quotations, LIBOR will be: (i) the
rate per annum (rounded, as aforesaid) that the Buyer determines to be either
(x) the arithmetic mean of the offered quotations that leading banks in the City
of New York selected by Buyer are quoting at or about 11:00 A.M. London time on
the relevant LIBOR Determination Date for three-month Dollar deposits to the
principal London office of each of the Reference Banks or those of them (being
at least two in number) to which such offered quotations are, in the opinion of
Buyer, being so quoted or (y) in the event that Buyer can determine no such
arithmetic mean, the arithmetic mean of the offered quotations that leading
banks in the City of New York selected by Buyer are quoting at or about 11:00
A.M. London time on such LIBOR Determination Date to leading European banks for
one month Dollar deposits; or (ii) if the banks selected as aforesaid by Buyer
are not quoting as described in clause (i) above, LIBOR for such Interest
Accrual Period will be LIBOR as determined on the previous LIBOR Determination
Date. "Reference Banks" shall mean four major banks in the London interbank
market selected by Buyer. Buyer shall, after the determination of LIBOR on each
LIBOR Determination Date, notify Seller, Servicer and Guarantor of the
applicable LIBOR; PROVIDED, HOWEVER, that any failure of Buyer to give such
notice shall not affect Seller's, Servicer's
<PAGE>
or Guarantor's obligations hereunder or under the Guaranty Agreement.
(bbbbb) The Servicer shall cause to be maintained, with
respect to the Collateral, one or more insurance policies (which may be,
collectively, the individual policies of insurance required to be maintained by
each Obligor, together with one or more blanket fire and extended coverage
insurance policies covering the Collateral and other equipment of the Servicer
similar to the Collateral) which provide at least the same coverage as a fire
and extended coverage insurance policy and naming the Seller or the Buyer or
assigns as the loss payee. The Servicer shall take whatever actions are
necessary to cause each insurer to recognize the Buyer or such other Person to
whom an interest in the Loans has been sold or assigned as assignee under the
related insurance policy. Each such insurance policy shall be maintained in an
amount which is at least equal to the lesser of (i) the Principal Balance as of
the applicable Incremental Purchase Date of the related Loan and (ii) the
maximum insurable value, subject, in either case, to customary deductions. If
amounts are received by the Servicer under any such insurance policies with
respect to the Collateral, the Servicer shall promptly deposit such amounts into
the Servicing Account.
(ccccc) If an insurer under an insurance policy shall deny
coverage (in any such case prior to termination thereof as a result of the
payment by such insurer of an aggregate amount equal to its maximum liability
under such insurance policy), or shall refuse to honor a claim under any such
insurance policy with respect to the Collateral on a Loan which becomes a
Defaulted Loan for reasons relating to such claim, and, if adjudicated, if such
denial or refusal is determined by a court of competent jurisdiction to have
resulted from the Servicer's failure to comply with the requirements of such
insurance policy, then the amount of any resulting unpaid claim shall be deemed
to be collected as a recovery on the Loan with respect to which such denial or
refusal arose, on or before the last day of the Due Period during which such
denial or refusal occurs, and Servicer shall be obligated to deposit such
"deemed Collection" into the Servicing Account.
<PAGE>
(ddddd) On the Incremental Purchase Date with respect to each
Loan, the insurance policies with respect to the Collateral for such Loan are
required to be provided by insurance companies rated at least "B-" by Best & Co.
If (i) the Buyer or the Servicer shall determine that an insurer's rating has
dropped below "B-" or that the financial condition of any insurer might
jeopardize recoveries under such an insurance policy or (ii) any such insurance
policy is cancelled or terminated for any reason other than the exhaustion of
total coverage issued by an insurance company with the requisite rating and
financial soundness and shall be, then, in each such case, the Servicer shall
use its best efforts to obtain from another insurer a replacement policy for
each such insurance policy, which replacement policy shall be issued by an
insurance company with the requisite rating and financial soundness and shall be
substantially similar to the insurance policy being replaced with coverage equal
to the then existing coverage of such insurance policy.
(eeeee) The Servicer shall promptly notify the Buyer of the
occurrence of any event described in subsection 5.10(b) or (c).
(fffff) In the Monthly Report, Servicer shall certify that except
as to Loans identified therein (together with a status report on effort to
obtain insurance thereon), the Collateral related to each Loan is covered under
an insurance policy or policies satisfying the requirements set forth in
subsection 5.10(a).
SECTION 5.11 ACCESS TO CERTAIN DOCUMENTATION AND CERTAIN INFORMATION
REGARDING THE LOANS. The Servicer will provide to the Buyer and its nominees
and agents access to the documentation in its possession regarding the Loans,
such access being afforded without charge but only during normal business hours
at the offices of the Servicer or its designee or agent, as designated by the
Servicer.
SECTION 5.12 SERVICER REPRESENTATIONS AND WARRANTIES. The Servicer
hereby represents and warrants to, and agrees as of the date of execution of
this Agreement as follows:
(ggggg) The Servicer is duly organized and is validly existing and
in good standing as a California corporation, with corporate power and authority
to own its properties and to transact the business in which it is now engaged,
and the Servicer is duly qualified to do business and is in good standing in
each State of the United States where the nature of its business requires it to
be so qualified.
(hhhhh) The execution, delivery and performance of the Servicer's
obligations under this Agreement, and the consummation
<PAGE>
of the transactions herein contemplated will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of the Servicer or any of its Subsidiaries pursuant to
the terms of, any indenture, mortgage, deed of trust, loan agreement or other
agreement (other than this Agreement) or instrument to which it or any of its
Subsidiaries is a party or by which it or any of its Subsidiaries is bound or to
which any of its property or assets is subject, nor will such action result in
any violation of the provisions of its Certificate of Incorporation or By-Laws
or any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over it or any of its properties; and no
consent, approval, authorization, order, registration or qualification of or
with any court or any such regulatory authority or other governmental agency or
body is required for the consummation of the other transactions contemplated by
this Agreement.
(iiiii) This Agreement has been duly authorized, executed and
delivered by the Servicer and this Agreement is the valid and legally binding
obligation of the Servicer, enforceable against the Servicer in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, reorganization
and other similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity.
(jjjjj) No event with respect to the Servicer has occurred and is
continuing which would constitute a Servicer Default under Section 8.01 or an
event that with notice or lapse of time or both would become a Servicer Default
under this Agreement.
(lllll) The Servicer may resign from the duties and obligations hereby imposed
with the consent of the Buyer; PROVIDED, that if the then-existing Servicing
Account is not a Separate Account, the Servicer shall establish a Separate
Account as the Servicing Account and transfer all amounts constituting Property
to such Separate Account from then-existing Servicing Account.
(mmmmm) The Servicer may not assign this Agreement or any of its
rights, powers, duties or obligations hereunder, provided that the Servicer may,
subject to the proviso in Section 5.13(a), assign this Agreement in connection
with a consolidation, merger, conveyance, transfer or lease made in compliance
with Section 6.01(i).
<PAGE>
(nnnnn) Except as provided in Sections 5.13(a), 8.01 and 10.02, the
duties and obligations of the Servicer under this Agreement shall continue until
the Termination Date, and shall survive the exercise of any right or remedy
under this Agreement by the Seller or Buyer of any provision of this Agreement,
and notwithstanding the provisions of Sections 5.13(a), 8.01 and 10.02, prior to
the Termination Date, the Servicer shall continue to serve as Servicer hereunder
until the Buyer accepts the duties of Servicer or a Successor Servicer shall be
appointed and assume the duties of Servicer hereunder.
[End of Article V]
<PAGE>
ARTICLE VI
SELLER'S AND SERVICER'S COVENANTS
SECTION 6.01 COVENANTS. At all times prior to the later of (i) the
Termination Date or (ii) the date on which all obligations of the Seller under
this Agreement and of the Guarantor under the Guaranty Agreement have been
performed in full, Seller and Servicer agree to do all of the following unless
the Buyer shall otherwise consent in writing:
(ooooo) PRESERVATION OF CORPORATE EXISTENCE, ETC. To preserve and
maintain its corporate existence (whether in the form of a cooperative or
otherwise), rights, and privileges in the jurisdiction of its incorporation and
will qualify and remain qualified as a foreign corporation in each jurisdiction
where such qualification is necessary or advisable in view of the business and
operations of Seller or Servicer, as the case may be, or the ownership of its
properties.
(ppppp) COMPLIANCE WITH LAWS. To comply in all material respects
with all laws, regulations, rules and orders of Governmental Authorities
applicable to Seller or Servicer, as the case may be, or to its operations or
property, except any thereof whose validity is being contested in good faith by
appropriate proceedings upon stay of execution of the enforcement thereof.
(qqqqq) OTHER OBLIGATIONS. To pay and discharge before the same
shall become delinquent (after giving effect to all applicable grace periods)
all Debt, taxes and other obligations which, if unpaid, might become by law a
lien upon the assets of Seller or Servicer, as the case may be, except any
thereof whose validity or amount is being contested in good faith by the Seller
or Servicer, as the case may be, in appropriate proceedings, and except other
Debt, taxes and other obligations which, in the aggregate do not exceed Five
Hundred Thousand Dollars ($500,000); PROVIDED, HOWEVER, the covenant included in
this Section 6.01(c) shall not extend to any obligation of Seller or Servicer,
as the case may be, identified in Section 6.01(k), 8.01(f) or 9.01(f).
(rrrrr) VISITATION; RECORDS; FILES. At any reasonable time and
from time to time, to permit Buyer and its agents to (i) examine and make copies
of Seller's or Servicer's records, as the case may be, and books of accounts
relating to the Loans, the related Notes and Related Documents, (ii) visit the
properties of the Seller or Servicer, as the case may be, and (iii) discuss the
affairs, finances and accounts of the Seller or Servicer, as the case may be, as
they relate to the transactions contemplated by this Agreement with any of its
officers. The Seller or Servicer will keep adequate records and books of
accounts in which complete entries will be made, in accordance with U.S. GAAP,
<PAGE>
reflecting all financial transactions of the Seller or Servicer, as the case may
be, as they relate to the transactions contemplated by this Agreement. Without
limiting the foregoing, the Seller and Servicer shall establish and maintain
manual or computer records reflecting all receipts or disbursements made or
received in respect of the Loans, the related Notes which records will be
maintained separate from Seller's or Servicer's records, as the case may be,
relating to Loans, the related Notes which are not Loans and will be clearly
marked with a legend to the effect that such records pertain to Loans sold to
Buyer. All Loan files maintained by the Seller or Servicer will be clearly
marked to indicate that such Loans have been sold to Buyer.
(sssss) FINANCIAL INFORMATION. To deliver to Buyer (i) as soon as
available and in any event within 120 days of the end of the fiscal year of GCC,
the consolidated financial statements of GCC and its subsidiaries, including the
balance sheet and income statements of GCC on a consolidated basis, as of the
end of such fiscal year accompanied by the audit report thereon by independent
certified public accountants and a certificate of the chief financial officer of
GCC to the effect that the consolidated financial statements have been prepared
in accordance with U.S. GAAP and present fairly the consolidated principal
condition and the results of operation of GCC as of the end of and for such
fiscal year; (ii) within 120 days after the end of Certified's fiscal year, the
Annual Report on Form 10-K for such year filed by Certified and the Annual
Shareholders Report for Certified; (iii) within 120 days after the end of GCC's
fiscal year, a certificate signed by the chief financial officer of GCC, stating
that as of the close of such fiscal year, no Termination Event or Servicer
Default shall have occurred and be continuing; (iv) as soon as available and in
any event within 60 days after the end of each fiscal quarter of GCC, the
unaudited balance sheet and statement of income and retained earnings (including
a comparison to such quarter in the prior fiscal year) of GCC as of the end of
such fiscal quarter (including the fiscal year to the end of such fiscal
quarter), accompanied by a certificate of the chief financial officer of GCC,
that such unaudited balance sheet and statement of income and retained earnings
have been prepared in accordance with U.S. GAAP and present fairly the financial
position and the results of operations of GCC as of the end of and for such
fiscal quarter; (v) within 60 days after the end of Certified's fiscal quarter,
the Quarterly Report on Form 10-Q for such quarter filed by Certified;
(vi) within 60 days after the end of each fiscal quarter of GCC, a certificate
signed by GCC's chief financial officer, to the effect that as of the end of
such fiscal quarter, GCC, as Seller and Servicer hereunder an as Guarantor under
the Guaranty Agreement, has remained in compliance with its obligations
hereunder and under the Guaranty Agreement; (vii) prompt notice of any material
borrowings or material adverse changes in GCC's financial condition; and
(viii) such
<PAGE>
other statements, reports and other information as Buyer may reasonably request
concerning the financial condition and the servicing and collection operations
of GCC.
(ttttt) NOTIFICATION. Promptly after learning thereof, to notify
Buyer of (i) the details of any action, proceeding, investigation or claim
against or affecting the Seller or Servicer, as the case may be, instituted
before any court, arbitrator or Governmental Authority or, to the Seller's or
Servicer's knowledge, as the case may be, threatened to be instituted, which,
after taking into account the likelihood of success, might reasonably result in
a judgment or order against the Seller or Servicer, as the case may be (in
excess of insurance coverage and when combined with all other pending or
threatened claims), of more than Five Hundred Thousand Dollars ($500,000);
(ii) if the Seller or Servicer, as the case may be, or any member of the
Controlled Group gives or is required to give notice to the PBGC of any
"reportable event" (as defined in subsections (b)(1)(2)(5)(6) of Section 403 of
ERISA) with respect to any Plan (or the Internal Revenue Service gives notice to
the PBGC of any "Reportable Event" as defined in subsection (c)(2) of Section
4043 of ERISA and the Seller or Servicer, as the case may be, attains knowledge
thereof) which might constitute grounds for termination of such Plan under Title
IV of ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the notice of
such reportable event given or required to be given to the PBGC; (iii) any
representation or warranty set forth in Section 4.01 or 4.02 (with respect to
Seller and Loans) and Section 5.12 (with respect to Servicer) which proves to
have been incorrect in any material respect when made; (iv) Seller's or
Servicer's material breach of its obligations under this Agreement; (v) any
Obligor Default; (vi) any Loan that has become a Defaulted Loan; (vii) any
circumstance or event of which Seller or Servicer has actual knowledge which
materially impairs or might reasonably be expected to impair an Obligor's
ability to repay or perform its obligations under, the related Loan (including,
without limitation, (A) Obligor's ceasing to be a Certified Patron in good
standing, becoming 30 days or more past due on its open account with Certified,
or being required to pay cash on delivery for negative credit reasons or
(B) default by Obligor or any Affiliate on a "recourse" obligation to GCC); or
(viii) the occurrence of any Servicer Default or Termination Event or other
event which, with notice or lapse of time or both, would constitute a Servicer
Default or Termination Event.
(uuuuu) ADDITIONAL PAYMENTS; ADDITIONAL ACTS. From time to time,
to (i) pay or reimburse the Buyer on request for all taxes imposed on this
Agreement or the sale of any Loans hereunder (other than taxes based on Buyer's
net income, items of tax preference, or gross receipts); and (ii) obtain and
promptly furnish to Buyer evidence of all such Government Approvals as may
<PAGE>
be required to enable the Seller or Servicer, as the case may be, to comply with
its obligations under this Agreement.
(vvvvv) LIENS. (i) To remove, no later than 12:01 a.m. (Eastern
Daylight Time) on September 17, 1996, all liens, charges, mortgages,
encumbrances, and rights of others (other than those in favor of NCB, as Buyer
hereunder, in, on and to each of the Initial Loans; and (ii) not to create,
assume or suffer to exist any lien, security interest or other encumbrance
except (A) liens on the Seller's or Servicer's properties, as the case may be,
securing mortgage indebtedness relating to such properties, and any extensions,
refinancing or renewals thereof in an amount not exceeding the amount of such
indebtedness prior to such extension, refinancing or renewal; (B) capital lease
obligations; (C) liens to secure indebtedness for the deferred price of property
acquired after the date hereof, but only if such liens are limited to such
property and its proceeds; (D) liens imposed by law (such as mechanic's liens)
incurred in good faith in the ordinary course of business which are not
delinquent or which remain payable without penalty or the validity or amount of
which are being contested in good faith by appropriate proceeding upon stay of
execution of the enforcement thereof; (E) deposits or pledges under workmen's
compensation, unemployment insurance, social security or similar laws or made to
secure the performance of bids, tenders, contracts (except for the repayment of
borrowed money) or leases, or to secure statutory obligations or surety or
appeal bonds or to secure indemnity, performance or other similar bonds given in
the ordinary course of business; or (F) liens arising under the Portfolio Credit
Facility.
(wwwww) LIQUIDATION, MERGER, SALE OF ASSETS, ETC. To not
liquidate, dissolve or enter into any merger, consolidation, joint venture,
partnership or other combination nor sell, lease, dispose of such portion of its
business or assets (excepting (i) sales of goods in the ordinary course of
business, (ii) sales of assets made with notice to and the consent of the Buyer
(PROVIDED, that the Buyer's consent shall not be required if such sale could not
result in GCC's Tangible Net Worth (as defined in the Capital Maintenance
Agreement) becoming less than $12,500,000, and (iii) sales of the Loans to the
Buyer) as constitutes a substantial portion thereof; PROVIDED, HOWEVER, so long
as no Servicer Default or Termination Event or event which with the passage of
time or the giving of notice or both would constitute a Servicer Default or
Termination Event shall have occurred and be continuing or will occur as a
result of such merger or consolidation, Seller or Servicer, as the case may be,
may merge or consolidate with any Person or sell all or substantially all of its
business or assets to any other Person so long as (A)(i) the Seller or Servicer,
as the case may be, shall be the surviving or continuing corporation or (a), if
the Seller or Servicer, as the case may be, shall not be the
<PAGE>
surviving or continuing corporation or shall sell all or substantially all of
its assets to a Person such surviving, continuing or purchasing Person shall be
incorporated under the laws of the United States or any jurisdiction thereof,
shall assume in writing all obligations of the Seller or Servicer, as the case
may be, under this Agreement, shall be eligible to borrow from NCB pursuant to
the provisions of the Bank Act and shall have a Consolidated Tangible Net Worth
not less than the Seller or Servicer, as the case may be, prior to the merger or
consolidation, and (B) at the time of such consolidation, merger or sale and
after giving effect thereto no Servicer Default or Termination Event shall have
occurred and be continuing.
(xxxxx) TRANSACTIONS WITH AFFILIATES. To not directly or
indirectly enter into or permit to exist any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property) with any of
Seller's or Servicer's Affiliates, as the case may be, on terms that are less
favorable to Seller or Servicer, as the case may be, than those which might be
obtained at the time from Persons who are not Affiliates.
(yyyyy) ERISA COMPLIANCE. To not and not allow any member of its
Controlled Groups or any Plan of any of them to: (i) engage in any "prohibited
transaction" as such term is defined in Section 4.06 or Section 2003(a) of
ERISA; (ii) incur any "accumulated funding deficiencies" (as such term is
defined in Section 3.02 of ERISA) in an amount which would represent a potential
material liability of Seller and its Subsidiaries or affect materially the
ability of Seller to perform this Agreement; (iii) terminate any Plan in a
manner which could result in the imposition of a lien on any property of the
Seller or Servicer, as the case may be, or any member of their respective
Controlled Groups pursuant to Section 4068 of ERISA; or (iv) violate state or
federal securities laws applicable to any Plan.
(zzzzz) NO NAME CHANGE, ETC. To not change its name, identity or
corporate structure in any manner which could make any financing or continuation
statement filed hereunder seriously misleading within the meaning of Section
9-402(7) of any applicable enactment of the Uniform Commercial Code without
giving Buyer at last 60 days prior written notice thereof and unless prior
thereto it shall have caused such financing statement or continuation statement
to be amended or a new financing statement to be filed such that such financing
statement or continuation statement would not be seriously misleading.
(aaaaaa) RELOCATION OF OFFICES. To give Buyer at least 60 days
prior written notice of any relocation of its chief executive offices or the
offices where records concerning the Loans and related Property are kept.
<PAGE>
(bbbbbb) LIMITATION ON TRANSFERS, ETC. To not transfer or attempt
to transfer in any manner whatsoever to any Person other than the Buyer pursuant
to the terms of this Agreement, and except in favor of the Buyer hereunder shall
not create, cause to be created or permit any lien, pledge, charge, security
interest, ownership interest, participation interest or any other interest of
any nature whatever in respect of the Loans and related Property.
(cccccc) NO CHANGES. To make no change in the Credit and
Collection Policy, which change would impair the collectibility of any material
amount of the Loans; make no material change in the Credit and Collection Policy
or in its current payment terms with respect to Loans without prior written
consent of the Buyer (which consent shall not be unreasonably withheld).
(dddddd) SECURITY INTEREST. To defend Buyer's security interest in
and to the Collateral related to any Loan against all claims and demands of all
Persons at any time claiming the same or any interest therein (i) adverse to
that of Obligors or Buyer or (ii) prior to that of Buyer. Further, to take all
actions to transfer to Buyer, at Buyer's request, a security interest in all or
any specified portion of that Collateral securing any Loan which was not
transferred to Buyer on the applicable Incremental Purchase Date (transferring
to the Buyer the same interest as the Seller had and disclosed to the Buyer on
the applicable Incremental Purchase Date) and to provide evidence reasonably
satisfactory to Buyer that all actions as are necessary or appropriate to
perfect Buyer's security interest in such Collateral have been taken.
(eeeeee) BANK ACT ELIGIBILITY. To use its best efforts to remain
"eligible" to borrow from NCB pursuant to the provisions of the Bank Act.
(ffffff) CAPITAL MAINTENANCE AGREEMENT. To use its best efforts to
maintain the Capital Maintenance Agreement in full force and effect.
[End of Article VI]
<PAGE>
ARTICLE VII
SELLER OBLIGATIONS AND REPURCHASE OPTIONS
SECTION 7.01 REPURCHASE OF LOANS.
In addition to the repurchase rights and obligations contained in
Sections 2.02(d), 4.04(b), 7.02 and 9.02 of this Agreement, Buyer has the option
to cause Seller to repurchase any Loan sold by Seller to Buyer if (i) the
payments with respect to such Loan are past due at least 90 days, or (ii) with
respect to a Loan purchased by Buyer hereunder prior to January 1, 1997, an
Obligor Event of the type described in clause (b) of the definition thereof, has
occurred and (except for any such Obligor Event occurring with respect to any of
the Initial Loans) has at the time of Buyer's exercise of such right been
continuing for at least 60 days, or (iii) with respect to a Loan purchased by
Buyer hereunder on or after January 1, 1997, an Obligor Default has occurred and
has at the time of Buyer's exercise of such right been continuing for at least
60 days, or (iv) such Loan was purchased by Buyer hereunder on or after January
1, 1997, and is a Restructured Loan that results in or with respect to which
there are Modification Losses. Such Loan shall be repurchased by Seller from
Buyer by the last day of the Due Period during which Seller receives notice of
any such Defaulted Loan or notice of adverse event, or during which the Obligor
Default occurs, as the case may be. Any repurchase pursuant to this Section
7.01 shall be accomplished on the same terms as set forth in the third and
fourth sentences of Section 2.02(d) and at the Repurchase Amount.
<PAGE>
SECTION 7.02 MINIMAL BALANCES. On any Payment Date on or after
January 1, 1997, Seller may elect to repurchase all of the Loans then owned by
the Buyer for their aggregate Principal Balance, if as of such Payment Date the
aggregate Principal Balance of all such Loans is less than ten percent (10%) of
the aggregate total of all of the Principal Balances of each of the Loans, as
calculated, in each case, on the Initial Purchase Date or on the Incremental
Purchase Date applicable to such Loan, as the case may be. If Seller elects to
repurchase all of the Loans pursuant to this Section 7.02, Seller shall provide
Buyer and Servicer with thirty (30) days prior written notice. The Repurchase
Amount shall be paid by Seller to Servicer in immediately available funds prior
to 12:00 noon, Washington, D.C. time. Immediately upon the payment of the
required Repurchase Amount, all right, title and interest in the Loans being
repurchased shall pass to Seller and such Loans shall cease to be "Loans" for
all purposes of this Agreement. Any resale of a Loan and related Property
pursuant to the terms of this Section 7.02 shall constitute the simultaneous
resale by Buyer and repurchase by Seller of all Loans and related Property. Any
resale of a Loan and related Property pursuant to this Section 7.02 shall be
without recourse or warranty of any kind except that Buyer shall be deemed to
have warranted that such Loans and related Property are free and clear of all
liens or claims resulting from or arising out of its acts or omissions (other
than acts of Buyer resulting from Seller's or Servicer's failure to perform as
required by this Agreement) or claims of Buyer's creditors.
[End of Article VII]
<PAGE>
ARTICLE VIII
SERVICER DEFAULT
SECTION 8.01 SERVICER DEFAULTS. Any of the following acts or
occurrences shall constitute "Servicer Defaults" under this Agreement.
(gggggg) PAYMENT DEFAULT. Any failure by the Servicer to make any
required payment, transfer, withdrawal or deposit or to give instructions or
notice to the Buyer or by Seller to make any required payment, transfer,
withdrawal or deposit on or before the date occurring three (3) Business Days
after the date such payment, transfer, deposit or withdrawal or such notice or
instruction is required to be made or given, as the case may be, under the terms
of this Agreement;
(hhhhhh) PERFORMANCE DEFAULT. Failure on the part of the Servicer
or Seller duly to observe or perform in any material respect any of the other
covenants or agreements, including the providing of accurate and timely reports
as required in Article V hereof and elsewhere in this Agreement and the
establishment of a Separate Account when required by the terms hereof, to be
performed under this Agreement which failure continues unremedied for a period
of 30 days after the date on which written notice of such failure requiring the
same to be remedied, shall have been given to the Servicer by the Buyer.
(iiiiii) INVOLUNTARY BANKRUPTCY, ETC. The entry of a decree or
order for relief by a court having jurisdiction in respect of the Servicer or
any Subsidiary thereof in an involuntary case under the federal bankruptcy laws,
as now or hereafter in effect, or any other present or future federal or state
bankruptcy, insolvency or similar law, or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Servicer or any Subsidiary thereof or of any substantial part of the property of
the Servicer or any Subsidiary thereof, or ordering the winding up or
liquidation of the affairs of the Servicer or any Subsidiary thereof and the
continuance of any such decree or order unstayed and in effect for a period of
60 consecutive days; or
(jjjjjj) VOLUNTARY BANKRUPTCY, ETC. The commencement by the
Servicer or any Subsidiary thereof of a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or future
federal or state bankruptcy, insolvency or similar law, or the consent by the
Servicer or any Subsidiary thereof, as the case may be, to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Servicer or any Subsidiary thereof
or of any substantial part of the property of the Servicer or any Subsidiary
thereof or the making
<PAGE>
by the Servicer or any Subsidiary thereof of an assignment for the benefit of
creditors or the failure by the Servicer or any Subsidiary thereof, as the case
may be, generally to pay its debts as such debts become due or the taking of
corporate action by the Servicer or any Subsidiary thereof, as the case may be,
in furtherance of any of the foregoing; or
(kkkkkk) INSOLVENCY, ETC. Servicer or any Subsidiary thereof shall
(i) make a general assignment for the benefit of its creditors or (ii) consent
to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, or custodian of all or a substantial part of the property of Servicer
or any Subsidiary thereof, or (iii) admit its insolvency or liability to pay its
debts generally as they become due, or (iv) fail generally to pay its debts as
they become due, or (v) take any action (or suffer any action to be taken by its
directors or shareholders) looking to the dissolution or liquidation of Servicer
or any Subsidiary thereof; or
(llllll) ERISA. Servicer or any member of the Controlled Group
shall fail to pay when due an amount or amounts aggregating in excess of Five
Hundred Thousand Dollars ($500,000) which it shall have become liable to pay to
the PBGC or to a Plan under Section 515 of ERISA or Title IV of ERISA; or notice
of intent to terminate a Plan or Plans (other than a Multiemployer Plan), having
aggregate Unfunded Vested Liabilities in excess of Five Hundred Thousand Dollars
($500,000) shall be filed under Title IV of ERISA by the Servicer, any member of
the Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate any such Plan or Plans;
then, in the event of any Servicer Default, so long as the Servicer Default
shall not have been remedied, the Buyer may, by notice given to the Servicer,
terminate all of the rights and powers of the Servicer under this Agreement,
including without limitation all rights of the Servicer to receive the Servicing
Fee. In addition, upon the occurrence of a Servicer Default specified in (c),
(d) or (e) of this Section 8.01, subject to the provisions of Section 10.13,
this Agreement shall automatically and immediately terminate. Upon the giving
of such notice, all rights and powers of the Servicer under this Agreement shall
vest in the Buyer, and the Buyer is hereby authorized and empowered to execute
and deliver on behalf of the Servicer, as attorney-in-fact or otherwise, all
documents and other instruments (including any notices to Obligors deemed
necessary or advisable by the Buyer), and to do or accomplish all other acts or
things necessary or appropriate to effect such vesting, and the Servicer agrees
to cooperate with the Buyer in effecting the termination of the Servicer's
rights and responsibilities hereunder and shall promptly provide to the
successor servicer appointed under Section 8.02 (the "Successor Servicer") all
documents and records
<PAGE>
(electronic and otherwise) reasonably requested to enable it to assume the
servicing functions hereunder.
SECTION 8.02 BUYER TO ACT; APPOINTMENT OF SUCCESSOR.
(a) From and after the time the Servicer receives a notice of
termination pursuant to Section 8.01 or in the event of a resignation of the
Servicer pursuant to Section 5.13, the Buyer shall be the successor in all
respects to the Servicer in its capacity as Servicer under this Agreement and
the transactions set forth or provided for herein and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof, PROVIDED, HOWEVER, that
notwithstanding the foregoing the Buyer shall have no obligation whatsoever in
respect of any liability incurred by the Servicer at or prior to the time of
receipt by the Servicer of said notice. As compensation therefor the Buyer
shall be entitled to receive any and all funds, including the Servicing Fee,
which the Servicer would have been entitled to receive if the Servicer had
continued to act hereunder. However, if the Buyer is unable or unwilling to act
as successor to the Servicer hereunder, the Buyer may appoint any Person with a
net worth of at least $10,000,000 and whose regular business includes the
servicing of loans similar to the Loans as the successor to the Servicer
hereunder in the assumption of all or part of the servicing functions hereunder
(such Person, a "Successor Servicer"). In connection with such appointment and
assumption, the Buyer may make such arrangements for the compensation of such
Successor Servicer from payments on the Loans and related Property as the Buyer
and such Successor Servicer shall agree; PROVIDED, that no such compensation
shall be in excess of that permitted the Servicer hereunder or such amount as is
commercially reasonable at the time in question. The Buyer and such Successor
Servicer shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession.
(b) Either the Buyer, as successor to the Servicer in its capacity as
Servicer hereunder, or any Successor Servicer may establish a Separate Account
to serve as the Servicing Account, and neither the Buyer nor any such Successor
Servicer shall have any liability to any Person other than the Buyer with any
ownership or security interest in or to any amounts or funds on deposit in a
Servicing Account which is not a Separate Account that are not and are not
deemed to be Property or payments received or amount otherwise held in respect
of a Loan or any Property.
(nnnnnn) Upon any termination of the rights and powers of the Servicer pursuant
to either Section 5.13 or Section 8.01 and the
<PAGE>
Buyer's succeeding to the rights and obligations of the Servicer hereunder, the
Buyer may unilaterally terminate this Agreement.
(oooooo) Upon any termination of the rights and powers of the
Servicer pursuant to either Section 5.13 or Section 8.01 and the vesting in
either the Buyer or a Successor Servicer of the rights and obligations of the
Servicer as described in Section 8.01 and 8.02, the Servicer shall have no
additional obligations or liabilities for acts or omissions of the Successor
Servicer or otherwise relating to its performance of its obligations under this
Agreement after the date of such termination.
(pppppp) Upon the occurrence and continuation of a Servicer
Default, the Servicer shall remit the Servicing Fee to the Buyer. Further, upon
the occurrence and continuation of any Servicer Default (other than a Servicer
Default under Section 8.01(b)) or Guarantor Default, the Servicer shall remit
the Guaranty Fee to the Buyer.
[End of Article VIII]
<PAGE>
ARTICLE IX
TERMINATION EVENTS
SECTION 9.01 TERMINATION EVENTS. The occurrence of any of the
following events shall constitute a "Termination Event" hereunder.
(qqqqqq) BREACH OF COVENANT. Seller shall fail to perform or
observe any covenant, obligation or term of Articles VI or X or of Section
2.02(d) or 4.04 of this Agreement and, except in the case of a breach of Section
6.01(c) or of Section 6.01(f)(iii), (iv) or (v) or of Section 6.01(h)(i), such
failure shall remain unremedied for 30 days after written notice thereof shall
have been given to Seller by the Buyer; or
(rrrrrr) GUARANTOR DEFAULTS. A Guarantor Default shall have
occurred and be continuing; or
(ssssss) INVOLUNTARY BANKRUPTCY, ETC. The entry of a decree or
order for relief by a court having jurisdiction in respect of the Seller,
Certified or any Subsidiary thereof in an involuntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any other present or future
federal or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Seller, Certified or any Subsidiary thereof or of any
substantial part of the property of the Seller, Certified or any Subsidiary
thereof, or ordering the winding up or liquidation of the affairs of the Seller,
Certified or any Subsidiary thereof and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
(tttttt) VOLUNTARY BANKRUPTCY, ETC. The commencement by the
Seller, Certified or any Subsidiary thereof of a voluntary case under the
federal bankruptcy laws, as now or hereafter in effect, or any other present or
future federal or state bankruptcy, insolvency or similar law, or the consent by
the Seller, Certified or any Subsidiary thereof, as the case may be, to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Seller,
Certified or any Subsidiary thereof or of any substantial part of the property
of the Seller, Certified or any Subsidiary thereof or the making by the Seller,
Certified or any Subsidiary thereof of an assignment for the benefit of
creditors or the failure by the Seller, Certified or any Subsidiary thereof, as
the case may be, generally to pay its debts as such debts become due or the
taking of corporate action by the Seller, Certified or any Subsidiary thereof,
as the case may be, in furtherance of any of the foregoing; or
<PAGE>
(uuuuuu) INSOLVENCY, ETC. Seller, Certified or any Subsidiary
thereof shall (i) make a general assignment for the benefit of its creditors or
(ii) consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, or custodian of all or a substantial part of the
property of Seller, Certified or any Subsidiary thereof, or (iii) admit its
insolvency or liability to pay its debts generally as they become due, or (iv)
fail generally to pay its debts as they become due, or (v) take any action (or
suffer any action to be taken by its directors or shareholders) looking to the
dissolution or liquidation of Seller, Certified or any Subsidiary thereof; or
(vvvvvv) ERISA. GCC or any member of the Controlled Group shall
fail to pay when due an amount amounts aggregating in excess of Five Hundred
Thousand Dollars ($500,000) which it shall have become liable to pay to the PBGC
or to a Plan under Section 515 of ERISA or Title IV of ERISA; or notice of
intent to terminate a Plan or Plans (other than a Multiemployer Plan), having
aggregate Unfunded Vested Liabilities in excess of Five Hundred Thousand Dollars
($500,000) shall be filed under Title IV of ERISA by GCC, any member of the
Controlled Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate any
such Plan or Plans.
(wwwwww) SERVICER DEFAULT. A Servicer Default shall have occurred
and be continuing and Buyer, in its sole discretion, shall deem it to be a
Termination Event.
(xxxxxx) BREACH OF REPRESENTATION OR WARRANTY. Buyer shall have
knowledge of any representation or warranty which shall have been incorrect when
made and shall not have been cured as provided in Section 4.04(a) and Buyer
shall determine, in its sole discretion, that its interests hereunder cannot be
protected by requiring the Seller, pursuant to Section 4.04(b), to repurchase
the Loan or Loans as to which such breach exists.
(yyyyyy) CAPITAL MAINTENANCE. The Capital Maintenance Agreement
shall cease to be in full force and effect.
(zzzzzz) BANK ACT ELIGIBILITY. Seller ceases to be an "eligible
borrower" pursuant to the provisions of the Bank Act.
(k) INITIAL LOAN LIENS. Seller shall fail to remove, discharge or
cause to be removed or discharged, all of the liens, charges, mortgages,
encumbrances and rights of any other Person with respect to any Initial Loan or
related Property, or shall fail to cause the Buyer to have good and indefeasible
title to and sole ownership of each Initial Loan, subject to no liens, charges,
mortgages, encumbrances or rights of others.
<PAGE>
SECTION 9.02 CONSEQUENCES OF TERMINATION EVENT. Upon the occurrence
of any Termination Event specified in (c), (d), or (e) of Section 9.01 or a
Termination Event arising out of GCC's insolvency or involvement in a voluntary
or involuntary bankruptcy proceeding, subject to the provisions of Section
10.13, this Agreement shall automatically and immediately terminate. If any
Termination Event shall occur and be continuing, then in any such case and at
any time thereafter so long as any such Termination Event shall be continuing,
the Buyer may, at its option, immediately terminate the Buyer's commitment to
make any Incremental Purchases hereunder. If any Termination Event under
Section 9.01(k) shall occur, then at any time thereafter the Buyer shall have
the right, exercisable in its sole discretion, immediately to terminate this
Agreement. Thereafter, and before exercising any other remedies provided herein
or by applicable law, Buyer may, with respect to Loans purchased by Buyer
hereunder on or after January 1, 1997, at its option, require Seller to, and
Seller shall, repurchase all Loans and related Property for the Repurchase
Amount within ten (10) Business Days after receipt of notice from the Buyer of
its election to cause such repurchase of all Loans. In addition, Buyer may
pursue all other rights and remedies available herein and by applicable law
including, without limitation, its rights to pursue collection from the Seller
in an amount equal to the Repurchase Amount.
SECTION 9.03 REMEDIES OF A SECURED PARTY. Following the occurrence
of a Termination Event, and in addition to its rights under Section 9.02, the
Buyer shall have all remedies provided by law and without limiting the
generality of the foregoing shall have the following remedies: (a) the remedies
of a secured party under the Uniform Commercial Code; (b) the right to make
notification and pursue collection or, at Buyer's option, to sell or cause
Servicer, as agent for the Buyer, to sell all or any part of the Loans and
related Property; (c) the right to exercise all of owner's or secured party's
rights under the Loans and related Property; and (d) to the extent that notice
shall be required by law to be given, Seller agrees that a period of twenty (20)
days from the time the notice is sent shall be a reasonable period of
notification of a sale or other, disposition of the Loans and related Property.
[End of Article IX]
<PAGE>
ARTICLE X
MISCELLANEOUS
SECTION 10.01 FURTHER ASSURANCES. Each party hereto agrees to
execute and deliver to the other party and to perform all such other acts as the
other party may reasonably request to carry out the transactions contemplated by
this Agreement. Without limiting the foregoing, Buyer agrees to endorse without
recourse the Note related to any Loan being resold to Seller pursuant to
Articles II, IV, VII or IX, and to execute assignments and related Uniform
Commercial Code financing statements to evidence the assignment of the Related
Documents to Seller.
(bbbbbbb) Seller and Servicer will defend and hereby indemnify Buyer and its
successors, assigns, servants and agents (hereinafter "Indemnitees") against and
agree to protect, save and keep harmless and make whole each thereof, from any
and all liabilities, obligations, losses, damages, penalties, claims, actions,
suits, costs (including any net increase in the tax liability of an Indemnitee
resulting from its receipt of indemnity payments made under this Section 10.02),
expenses and disbursements, including reasonable attorneys' fees, of whatsoever
kind and nature imposed on, incurred by or asserted against any Indemnitee in
any way relating to or arising out of (i) any breach or alleged breach of any
covenant, agreement or other obligation by the Seller or Servicer under this
Agreement or the Guarantor under the Guaranty Agreement, (ii) any representation
or warranty made by the Seller or Servicer under this Agreement or the Guarantor
under the Guaranty Agreement which was untrue or alleged by a Person other than
Buyer to be untrue when made or delivered, (iii) any environmental claim or
liability relating to any real property securing any Loans, or (iv) Buyer's
control of the Servicing Account or establishment of a Separate Account or
transfer of any amount to a Separate Account; PROVIDED that no Indemnitee shall
be entitled to indemnification for any claim or liability arising as a result of
such Indemnitee's gross negligence or willful misfeasance in acting or failing
to act under this Agreement. Any indemnity payments required under this Section
10.02 shall be paid within thirty (30) days following notice thereof from the
Indemnitee to Seller or Servicer, as the case may be (which notice shall
describe in reasonable detail the matter with respect to which indemnification
is required and shall set forth the computation used in determining the amount
of the indemnity payment). All of the rights and privileges of each Indemnitee
under this Section 10.02, and the rights, privileges and obligations of Seller
and Servicer hereunder, shall survive the expiration or other termination of
this Agreement.
<PAGE>
(ccccccc) The foregoing indemnities with regard to any particular
Indemnitee shall not extend to any liability, obligation, loss, damage, penalty,
claim, suit, expense or disbursement that results from the willful misconduct or
gross negligence of such Indemnitee.
SECTION 10.03 NO WAIVER: REMEDIES CUMULATIVE. No failure by the
Seller, Servicer or Buyer to exercise, and no delay in exercising, any right,
power or remedy under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or remedy under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power, or remedy. The rights and remedies provided herein are
cumulative and not exclusive of any right or remedy provided by law.
SECTION 10.04 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 10.05 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. The
Buyer, Servicer and Seller hereby irrevocably submit to the jurisdiction of any
state or federal court sitting in the District of Columbia or the State of
California in any action or proceeding brought to enforce or otherwise arising
out of or relating to this Agreement and irrevocably waive to the fullest extent
permitted by law any objection which they may now or hereafter have to the
laying of venue in any such action or proceeding in such fora, and hereby
further irrevocably waive any claim that any such forum is an inconvenient
forum. The parties agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in any other jurisdiction by suit on the
judgment or in any other manner provided by law.
SECTION 10.06 NOTICES. All notices and other communications provided
for in this Agreement shall be in writing or (unless otherwise specified) by
telex, telegram or cable and shall be sent for next Business Day delivery to
each party at the address set forth under its name on the signature page hereof,
or at such other address as shall be designated by such party in a written
notice to each other party. Except as otherwise specified, all such notices and
communications if duly given or made shall be effective upon receipt.
SECTION 10.07 ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective Successors and assigns.
Notwithstanding the foregoing, neither the Seller nor the Servicer may assign or
otherwise transfer all or any part of its rights or obligations hereunder
without the prior written consent of the Buyer, and any such assignment or
transfer purported to be made without such consent shall be ineffective. Buyer
may at any time sell, assign
<PAGE>
or transfer the Loans and related Property or participations therein without the
consent of the Seller, the Servicer or the Guarantor.
SECTION 10.08 CAPITAL MARKETS FUNDING. Seller and Servicer hereby
agree to cooperate with Buyer in making such reasonable modifications to this
Agreement and the Related Documents, in executing such other documents and
certificates, in causing to be prepared and delivered such opinions,
certificates, financial reports and letters, and in taking such other actions,
including permitting the Rating Agencies, credit enhancers and institutional
investors to review records and other information relating to the Loans and to
visit, on reasonable notice, the premises of the Seller and the Servicer, as are
reasonably necessary to achieve capital markets funding of the Loans and the
related Property or to improve the execution of such funding; PROVIDED, HOWEVER,
that (a) any expenses of Seller in connection with such modifications shall be
for the account of Buyer and be reimbursed promptly following request therefor,
(b) no such modification shall be materially adverse to the interests of Seller
and (c) no such modification shall require any change in the accounting
treatment of the transaction contemplated by this Agreement under U.S. GAAP. In
addition, Seller and Servicer agree to use their best efforts to cause Obligors
to agree to and execute any changes to the Related Documents.
SECTION 10.09 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall as to such jurisdiction be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
SECTION 10.10 ATTORNEY'S FEES. In the event it is necessary for any
party hereto or its Successors or assigns to institute suit in connection with
this Agreement or the breach thereof, the prevailing party in such suit shall be
entitled to reimbursement for its reasonable costs, expenses and attorney's fees
incurred including fees incurred on any appeal.
SECTION 10.11 SETOFF. In addition to any rights now or hereafter
granted under applicable law, upon the occurrence of any Termination Event or
Servicer Default, Buyer is hereby authorized by Seller and Servicer at any time,
without notice to Seller or Servicer, to set off and to appropriate and to apply
to the amounts then owed by Seller or Servicer hereunder, or by Guarantor under
the Guaranty Agreement, as the case may be, to Buyer, any and all deposits
(general or special, including, but not limited to, indebtedness evidenced by
certificates of
<PAGE>
deposit, whether matured or unmatured, but not including trust accounts) and any
other Indebtedness at any time held or owing by Buyer to Seller or Servicer.
SECTION 10.12 LIMITATION ON THIRD PARTY BENEFICIARIES. No provision,
warranty, representation, or agreement herein, whether express or implied, is
intended to or shall be construed as conferring upon any Person not a party
hereto (including, without limitation, any Obligor) any rights or remedies
whatsoever.
SECTION 10.13 TERM OF AGREEMENT. This Agreement shall terminate upon
the earlier to occur of (i) the reduction of the aggregate Principal Balance of
the Loans (including Liquidated Loans as to which there remain unpaid
Liquidation Losses) to zero and (ii) the date on which this Agreement is
automatically terminated following the occurrence of any of the Termination
Events specified in Section 9.02; PROVIDED, HOWEVER, that (a) the rights accrued
to the Buyer prior to such termination, (b) the obligations of the Guarantor
under the Guaranty Agreement and (c) the indemnification provisions set forth in
Section 10.02, shall be continuing and shall survive any termination of this
Agreement.
SECTION 10.14 ENTIRE AGREEMENT; AMENDMENT. This Agreement comprises
the entire agreement of the parties and may not be amended or modified except by
written agreement of the parties hereto. No provision of this Agreement may be
waived except in writing and then only in the specific instance and for the
specific purpose for which given.
SECTION 10.15 HEADINGS. The headings of the various provisions of
this Agreement are for convenience of reference only, do not constitute a part
hereof, and shall not affect the meaning or construction of any provision
hereof.
SECTION 10.16 COUNTERPARTS. This Agreement may be executed in any
number of identical counterparts, any set of which signed by all parties hereto
shall be deemed to constitute a complete, executed original for all purposes.
[End of Article X]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Purchase
and Servicing Agreement to be executed by their respective officers or agents
thereunto duly authorized as of the date first above written.
GROCERS CAPITAL COMPANY, as Seller and
Servicer
By ___________________________
Its _____________________
By ___________________________
Its _____________________
Notice Address:
2601 South Eastern Avenue
Los Angeles, California 90040
NATIONAL CONSUMER COOPERATIVE BANK,
as Buyer
By ___________________________
Its _____________________
Notice Address:
1401 Eye Street, N.W.
Suite 700
Washington, D.C. 20005
ACKNOWLEDGEMENTS:
GROCERS CAPITAL COMPANY,
as Guarantor
By ___________________________
Its _____________________
By ___________________________
Its _____________________
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
GROCERS CAPITAL COMPANY
---------------------------------
$10,000,000
CREDIT AGREEMENT
Dated as of September 20, 1996
---------------------------------
NATIONAL COOPERATIVE BANK
AGENT
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms; GAAP Changes . . . . . . . . . . . . . . . . . . 17
(a) Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . 17
(b) GAAP Changes. . . . . . . . . . . . . . . . . . . . . . . . . 17
1.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II
THE LOANS
2.1 The Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Borrowing Availability. . . . . . . . . . . . . . . . . . . . 18
(b) Payment of Overadvance. . . . . . . . . . . . . . . . . . . . 18
2.2 Borrowing Procedure. . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Date of Borrowing . . . . . . . . . . . . . . . . . . . . . . 18
(b) Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . 19
(c) Telephonic Notice . . . . . . . . . . . . . . . . . . . . . . 19
2.3 Conversion or Continuation Requirements. . . . . . . . . . . . . . 19
(a) Option to Convert or Continue . . . . . . . . . . . . . . . . 19
(b) Notice of Conversion or Continuation. . . . . . . . . . . . . 19
(c) Telephonic Notice . . . . . . . . . . . . . . . . . . . . . . 20
(d) Irrevocable Notice. . . . . . . . . . . . . . . . . . . . . . 20
2.4 Eurodollar Costs . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.5 Illegality; Impossibility. . . . . . . . . . . . . . . . . . . . . 21
2.6 Disaster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.7 Lending Offices. . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.8 Notes; Recordkeeping; Statements of Obligations. . . . . . . . . . 22
(a) Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . 22
(c) Monthly Statements. . . . . . . . . . . . . . . . . . . . . . 22
2.9 Loans By Lenders . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.10 Pro Rata Treatment.. . . . . . . . . . . . . . . . . . . . . . . . 23
2.11 Payments; Application. . . . . . . . . . . . . . . . . . . . . . . 23
(a) Payments by Borrower. . . . . . . . . . . . . . . . . . . . . 23
(b) Payments From Account Debtors . . . . . . . . . . . . . . . . 23
(c) Application of Payments . . . . . . . . . . . . . . . . . . . 24
(d) Payments to Lenders . . . . . . . . . . . . . . . . . . . . . 24
i
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2.12 Non-Receipt of Funds.. . . . . . . . . . . . . . . . . . . . . . . 24
2.13 Termination of the Commitments; Repayment of the Loans . . . . . . 24
2.14 Voluntary Commitment Reductions. . . . . . . . . . . . . . . . . . 25
ARTICLE III
INTEREST, PAYMENTS, FEES AND TAXES
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Overdue Payment Rate. . . . . . . . . . . . . . . . . . . . . 25
3.2 Interest Payment Dates . . . . . . . . . . . . . . . . . . . . . . 25
(a) Prime Rate Loans. . . . . . . . . . . . . . . . . . . . . . . 25
(b) Eurodollar Rate Loans . . . . . . . . . . . . . . . . . . . . 26
(c) Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . 26
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Agent's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Audit Expenses. . . . . . . . . . . . . . . . . . . . . . . . 26
3.4 Computation of Interest and Fees . . . . . . . . . . . . . . . . . 26
3.5 Highest Lawful Rate. . . . . . . . . . . . . . . . . . . . . . . . 27
3.6 Increased Risk-Based Capital Cost. . . . . . . . . . . . . . . . . 27
3.7 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) No Reduction of Payments. . . . . . . . . . . . . . . . . . . 28
(b) Deduction or Withholding; Tax Receipts. . . . . . . . . . . . 28
(c) Indemnity.. . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) Forms 1001 and 4224.. . . . . . . . . . . . . . . . . . . . . 28
(e) Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions Precedent to the Initial Loans. . . . . . . . . . . . . 29
(a) Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . 29
(c) UCC Search. . . . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Additional Closing Documents. . . . . . . . . . . . . . . . . 29
(e) Corporate Documents.. . . . . . . . . . . . . . . . . . . . . 30
(f) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . 31
(g) Due Diligence and Other Matters . . . . . . . . . . . . . . . 31
(h) Termination of Intercompany Obligations . . . . . . . . . . . 31
4.2 Conditions Precedent to All Loans. . . . . . . . . . . . . . . . . 31
(a) Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Borrowing Base Certificate and Collateral Reports . . . . . . 31
ii
<PAGE>
(c) Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Material Adverse Effect.. . . . . . . . . . . . . . . . . . . 32
(e) Representations and Warranties; No Default. . . . . . . . . . 32
(f) Additional Documents. . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties.. . . . . . . . . . . . . . . . . . 32
(a) Organization and Powers.. . . . . . . . . . . . . . . . . . . 32
(b) Authorization; No Conflict. . . . . . . . . . . . . . . . . . 33
(c) Binding Obligation. . . . . . . . . . . . . . . . . . . . . . 33
(d) Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) No Defaults.. . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Title to Properties; Liens. . . . . . . . . . . . . . . . . . 33
(g) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 33
(h) Compliance with Environmental Laws. . . . . . . . . . . . . . 33
(i) Governmental Regulation.. . . . . . . . . . . . . . . . . . . 34
(j) ERISA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(k) Subsidiaries; Ownership.. . . . . . . . . . . . . . . . . . . 35
(m) Margin Regulations. . . . . . . . . . . . . . . . . . . . . . 36
(n) Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(o) Patents and Other Rights. . . . . . . . . . . . . . . . . . . 36
(p) Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . 36
(q) Financial Statements. . . . . . . . . . . . . . . . . . . . . 36
(r) Liabilities.. . . . . . . . . . . . . . . . . . . . . . . . . 37
(s) Labor Disputes, Etc.. . . . . . . . . . . . . . . . . . . . . 37
(t) Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 37
(u) Subordinated Debt; Other Agreements . . . . . . . . . . . . . 37
(v) Material Adverse Effect . . . . . . . . . . . . . . . . . . . 37
(w) Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VI
COVENANTS
6.1 Reporting Covenants. . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Financial Statements and Other Reports. . . . . . . . . . . . 37
(b) Additional Information. . . . . . . . . . . . . . . . . . . . 39
6.2 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . 41
(a) Debt Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . 41
(b) Minimum Tangible Net Worth. . . . . . . . . . . . . . . . . . 41
(c) Interest Coverage Ratio.. . . . . . . . . . . . . . . . . . . 41
6.3 Additional Affirmative Covenants.. . . . . . . . . . . . . . . . . 41
(a) Preservation of Existence, Etc. . . . . . . . . . . . . . . . 41
iii
<PAGE>
(b) Payment of Taxes. Etc.. . . . . . . . . . . . . . . . . . . . 41
(c) Maintenance of Insurance. . . . . . . . . . . . . . . . . . . 41
(d) Keeping of Records and Books of Account.. . . . . . . . . . . 42
(e) Inspection Rights; Audits.. . . . . . . . . . . . . . . . . . 43
(f) Compliance with Laws, Etc.. . . . . . . . . . . . . . . . . . 43
(g) Maintenance of Properties, Etc. . . . . . . . . . . . . . . . 43
(h) Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(i) Action Under Environmental Laws.. . . . . . . . . . . . . . . 43
(j) Use of Proceeds.. . . . . . . . . . . . . . . . . . . . . . . 44
(k) NCB Stock.. . . . . . . . . . . . . . . . . . . . . . . . . . 44
(l) Further Assurances and Additional Acts. . . . . . . . . . . . 44
6.4 Negative Covenants.. . . . . . . . . . . . . . . . . . . . . . . . 44
(a) Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . 44
(b) Liens.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(c) Change in Nature of Business. . . . . . . . . . . . . . . . . 45
(d) Restrictions on Fundamental Changes.. . . . . . . . . . . . . 45
(e) Sales and Leases of Assets. . . . . . . . . . . . . . . . . . 45
(f) Loans and Investments.. . . . . . . . . . . . . . . . . . . . 46
(g) Capital Expenditures. . . . . . . . . . . . . . . . . . . . . 47
(h) Operating Leases. . . . . . . . . . . . . . . . . . . . . . . 47
(i) Sales and Leasebacks. . . . . . . . . . . . . . . . . . . . . 47
(j) Distributions.. . . . . . . . . . . . . . . . . . . . . . . . 47
(k) Amendments of Certain Documents.. . . . . . . . . . . . . . . 48
(l) Amendments of GCC Loan Guidelines.. . . . . . . . . . . . . . 48
(m) Transactions with Related Parties.. . . . . . . . . . . . . . 48
(n) Hazardous Substances. . . . . . . . . . . . . . . . . . . . . 48
(o) Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . 49
(p) Purchases under NCB Loan Purchase Agreement . . . . . . . . . 49
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . 49
(a) Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(b) Representations and Warranties. . . . . . . . . . . . . . . . 49
(c) Failure by Borrower to Perform Certain Covenants. . . . . . . 49
(d) Failure by Borrower to Perform Other Covenants. . . . . . . . 49
(e) Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . 49
(f) Default Under Other Indebtedness. . . . . . . . . . . . . . . 50
(g) Judgments.. . . . . . . . . . . . . . . . . . . . . . . . . . 50
(h) ERISA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(i) Material Adverse Effect.. . . . . . . . . . . . . . . . . . . 51
(j) Change in Ownership or Control. . . . . . . . . . . . . . . . 52
iv
<PAGE>
(k) Failure to Perform Under Operating Agreement or Certified
Consent; or Invalidity of Operating Agreement or Certified
Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(l) Invalidity of Subordination Provisions. . . . . . . . . . . . 52
(m) Invalidity of or Breach Under Collateral Documents. . . . . . 52
(n) Purchases under NCB Loan Purchase Agreement . . . . . . . . . 52
7.2 Effect of Event of Default . . . . . . . . . . . . . . . . . . . . 53
ARTICLE VIII
AGENT AND LENDERS
8.1 Appointment and Powers of Agent. . . . . . . . . . . . . . . . . . 53
8.2 Agent's Reliance . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.3 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.4 Rights as a Lender; Rights under NCB Loan Purchase Agreement . . . 55
8.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.6 Non-Reliance by Lenders. . . . . . . . . . . . . . . . . . . . . . 55
8.7 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.8 Excess Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.9 Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . . . 56
8.10 Characterization Of Activity . . . . . . . . . . . . . . . . . . . 57
8.11 Resignation by or Removal of Agent . . . . . . . . . . . . . . . . 57
8.12 No Obligation of Borrower. . . . . . . . . . . . . . . . . . . . . 58
ARTICLE IX
LENDERS' REPRESENTATIONS
9.1 Investment Representation. . . . . . . . . . . . . . . . . . . . . 58
9.2 Participation in the Notes; Compliance with Law. . . . . . . . . . 58
ARTICLE X
EXPENSES AND INDEMNITEES
10.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(a) Payment by Agent on Behalf of Borrower. . . . . . . . . . . . 58
(b) Agent's Expenses Due on Demand. . . . . . . . . . . . . . . . 59
10.2 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE XI
MISCELLANEOUS
11.1 Destruction of Borrower's Documents. . . . . . . . . . . . . . . . 60
11.2 Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 60
(a) Amendments with Consent of Agent. . . . . . . . . . . . . . . 60
(b) Amendments with Consent of Lenders. . . . . . . . . . . . . . 61
v
<PAGE>
11.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
11.4 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . 62
11.5 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.6 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.7 Benefits of Agreement. . . . . . . . . . . . . . . . . . . . . . . 63
11.8 Assignments and Participations . . . . . . . . . . . . . . . . . . 63
(a) Assignments . . . . . . . . . . . . . . . . . . . . . . . . . 63
(b) Participations. . . . . . . . . . . . . . . . . . . . . . . . 64
(c) Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 64
(d) Inurement; No Assignment by Borrower. . . . . . . . . . . . . 64
11.9 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.10 JURISDICTION AND VENUE. . . . . . . . . . . . . . . . . . . . 65
11.11 WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . 65
11.12 Demand, Protest, Notice . . . . . . . . . . . . . . . . . . . 66
11.13 Confidential Relationships. . . . . . . . . . . . . . . . . . 66
11.14 Limitation on Liability . . . . . . . . . . . . . . . . . . . 66
11.15 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 66
11.16 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . 66
11.17 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 67
11.18 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 67
11.19 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 67
SCHEDULES
Schedule 1.1P-1 Existing Liens
Schedule 5.1(k) Subsidiaries
Schedule 6.4(a)(iv) Existing Indebtedness
Schedule 6.4(f)(v) Exempted Transactions and Indebtedness
EXHIBITS
Exhibit 1.1B-1 Form of Borrowing Base Certificate
Exhibit 1.1C-1 Form of Compliance Certificate
Exhibit 1.1G-1 GCC Loan Guidelines
Exhibit 1.1N-1 Form of Note
Exhibit 1.1N-2 Form of Notice of Borrowing
Exhibit 1.1N-3 Form of Notice of Conversion or Continuation
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), dated as of September 20,
1996, is made among GROCERS CAPITAL COMPANY, a California corporation
("Borrower"), the financial institutions listed on the signature pages of this
Agreement under the heading "Lenders" (each a "Lender" and, collectively, the
"Lenders"), and NATIONAL CONSUMER COOPERATIVE BANK, dba National Cooperative
Bank, a federally chartered banking corporation with principal offices located
in Washington, D.C. ("NCB"), as agent for Lenders (NCB in such capacity and any
successor in such capacity is referred to herein as "Agent").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
As used in this Agreement, the following terms shall have the
following meanings:
"ADDITIONAL LOAN/LEASE RECEIVABLES" means Deposit Fund Loans,
Affiliate Loans, EFT Program Leases, and, if designated as Additional Loan/Lease
Receivables pursuant to Section 6.4(l), New Lease/Loan Products.
"AFFILIATE" means any Person which, directly or indirectly,
controls, is controlled by or is under common control with another Person. For
purposes of the foregoing, "control," "controlled by" and "under common control
with" with respect to any Person shall mean the possession, directly or
indirectly, of the power (i) to vote more than 10% of the securities having
ordinary voting power of the election of directors of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
The mere fact that a representative of a Certified Patron serves and acts as a
director of Certified or Borrower shall not cause such Certified Patron to be an
Affiliate of Certified or Borrower.
"AFFILIATE LOANS" means loans made by Borrower to wholly-owned,
direct or indirect, subsidiaries of Certified, but excluding GGMC and GSC.
"AGENT" has the meaning set forth in the introduction to this
Agreement.
"AGENT'S ACCOUNT" means the account of Agent maintained at Bank,
bearing such number as Agent from time to time shall designate in a written
notice to Borrower and Lenders, the balance of which account shall be deposited
daily into Borrower's Account except as otherwise provided in Section 7.2(ii).
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"AGENT'S EXPENSES" means and includes all actual out-of-pocket:
(a) costs or expenses (including, without limitation, taxes and insurance
premiums), presently existing or arising hereafter, required to be paid by
Borrower under this Agreement, the Security Agreement or under any of the Notes
which are paid or advanced by Agent or any Lender; (b) filing, recording,
publication and search fees incurred or paid by Agent or any Lender in
connection with Agent's and such Lender's transactions with Borrower; (c) all
fees, costs and expenses incurred or paid by Agent in connection with any audit
during the existence of an Event of Default, and up to $5,000 fees plus all out-
of-pocket costs and expenses incurred or paid by Agent in connection with not
more than one (1) audit for each fiscal year which is conducted absent an Event
of Default; (d) costs and expenses (including reasonable attorneys' fees)
incurred by Agent or any Lender in collecting the Collateral (with or without
suit), or in gaining possession, of, maintaining, handling, preserving, storing,
shipping, selling, preparing for sale or advertising to sell the Collateral,
whether or not a sale is consummated; (e) costs and expenses incurred by Agent
or any Lender in defending this Agreement, the Notes, the Security Agreement and
all other agreements, instruments, and documents contemplated hereby and
thereby, or any portion hereof or thereof, whether or not suit is brought; (f)
the cost of delivering the Notes to Lender pursuant to the provisions of this
Agreement; and (g) the reasonable costs and expenses (including reasonable
attorneys' fees and expenses, including allocated fees and expenses of in-house
counsel or local counsel of Agent) incurred by Agent or any Lender in connection
with any bankruptcy or other insolvency proceeding, reorganization, workout,
composition, or other creditor arrangement of Borrower, or of any of Borrower's
Subsidiaries; PROVIDED, HOWEVER, that each Lender (other than Agent) agrees to
instruct its counsel to take reasonable steps to avoid duplication of effort
with counsel to Agent.
"AUTHORIZED OFFICER" means any individual authorized by Borrower
to act on Borrower's behalf in connection with the Loan Documents as specified
in the certificate delivered pursuant to Section 4.1(e)(ii), or in the latest
such certificate delivered by Borrower to Agent to reflect any change in the
authorization of any such individual.
"BANK" means Union Bank of California, N.A.
"BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978.
"BASE LIBOR" means the offered quotation, if any, to first-class
banks in the Eurodollar market by Bank for U.S. Dollar deposits of amounts in
funds comparable to the principal amount of the Eurodollar Rate Loan for which
the Eurodollar Rate is being determined with maturities comparable to the
Interest Period for which such Eurodollar Rate will apply as of approximately
2:00 p.m., Washington, D.C. time, two (2) Business Days prior to the
commencement of such Interest Period.
"BORROWER" has the meaning set forth in the introduction of this
Agreement.
"BORROWER'S ACCOUNT" means the account of Borrower maintained at
Bank's branch located at 445 South Figueroa Street, Los Angeles, California
90071, bearing the number
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0700479994, or such other account as Borrower from time to time shall
designate in a written notice to Agent for the deposit of funds borrowed
under this Agreement.
"BORROWING" means a borrowing consisting of simultaneous Loans
made at any one time to Borrower from Lenders pursuant to Article II.
"BORROWING BASE" means at any time the sum of (i) 75% of Eligible
Collateral consisting of Finance Receivables, plus (ii) 50% of Eligible
Collateral consisting of Additional Loan/Lease Receivables.
"BORROWING BASE CERTIFICATE" means a certificate of the chief
financial officer or treasurer of Borrower, in substantially the form of EXHIBIT
1.1B-1, with such changes thereto as Agent or any Lender may from time to time
reasonably request.
"BT CREDIT AGREEMENT" means that certain Credit Agreement, dated
as of April 25, 1994, as amended, among Borrower, BT Commercial Corporation, a
Delaware corporation, as agent, and the other lenders party thereto.
"BUSINESS DAY" means a day (i) other than Saturday or Sunday, and
(ii) on which commercial banks are open for business in Washington, D.C., and
Los Angeles, California.
"CAPITAL DEBT" means, as of any date of determination, any and
all Indebtedness of Borrower due more than one year from the date of
determination which is (i) owed to any Affiliate of Borrower, and (ii) by its
terms expressly subordinated to all Senior Debt and to any Subordinated Debt of
Borrower on terms no less favorable to the holders of such Senior Debt and
Subordinated Debt than those set forth in the Investment Agreement.
"CAPITAL LEASE" means, for any Person, any lease of property
(whether real, personal or mixed) which, in accordance with GAAP, would, at the
time a determination is made, be required to be recorded as a capital lease in
respect of which such Person is liable as lessee.
"CERTIFIED" means Certified Grocers of California, Ltd., a
California corporation.
"CERTIFIED CONSENT" means that certain Consent to Assignment and
Agreement, dated as of even date herewith, between Certified and GEC.
"CERTIFIED LOAN AGREEMENT" means the Amended and Restated Loan
and Security Agreement dated as of March 17, 1994, as may be from time to time
amended, among Certified and the other borrowers party thereto, the Lenders
party thereto, BT Commercial Corporation, as agent, and Union Bank and First
National Bank of Boston, as co-agents, or such other credit agreement or credit
facility of Certified as may hereafter replace such Amended and Restated Loan
and Security Agreement.
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"CERTIFIED NOTE" means that certain Secured Subordinated Note,
dated March 17, 1994, in the amount of Ten Million Dollars ($10,000,000),
executed by Borrower to the order of Certified.
"CERTIFIED PATRONS" means member-patrons and associate patrons of
Certified.
"CERTIFIED SUBORDINATION AND SECURITY AGREEMENT" means that
certain Subordination and Security Agreement, dated as of March 17, 1994, by and
between Borrower and Certified, to secure the Certified Note.
"CLOSING DATE" means the date when all of the conditions set
forth in Section 4.1 have been satisfied.
"COLLATERAL" means the property described in the Collateral
Documents, and all other property now existing or hereafter acquired which may
at any time be or become subject to a Lien in favor of Agent or Lenders pursuant
to the Collateral Documents or otherwise, securing the payment and performance
of Obligations; but in no event shall "Collateral" include Released Collateral.
"COLLATERAL DOCUMENTS" means the Security Agreement, any other
agreement pursuant to which Borrower or any other Person provides a Lien on its
assets in favor of Lenders or Agent for the benefit of Lenders and all financing
statements, fixture filings, patent, trademark and copyright filings,
assignments, acknowledgments and other filings, documents and agreements made or
delivered pursuant thereto.
"COLLATERAL PROCEDURES" means any procedures and documentation
specified in Section 3(b) of the Security Agreement for perfection of the first
priority Lien of Agent (on behalf of Lenders) on the Collateral.
"COMMITMENT" means, when used with reference to any Lender at the
time any determination thereof is to be made, the amount set forth opposite the
name of such Lender on the signature pages of this Agreement, as such amount may
be reduced from time to time pursuant to Section 2.14, or, where the context so
requires, the obligation of such Lender to make Loans up to such amount, as such
amount may be reduced from time to time pursuant to Section 2.14, on the terms
and conditions set forth in this Agreement.
"COMMITMENT TERMINATION DATE" means September 20, 2001.
"COMPLIANCE CERTIFICATE" means a certificate of the chief
financial officer of Borrower, in substantially the form of EXHIBIT 1.1C-1, with
such changes thereto as Agent or any Lender may from time to time reasonably
request.
"CONSOLIDATED" means, when used in connection with any financial
statement or financial term, that the statement or term has been prepared or
determined on a consolidated basis
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<PAGE>
in accordance with GAAP for Certified and its Subsidiaries, or for Borrower
and its Subsidiaries, as the case may be.
"CONSOLIDATED ADJUSTED TANGIBLE NET WORTH" means, as of any date
of determination, Consolidated Total Assets plus Capital Debt MINUS Consolidated
Total Liabilities; PROVIDED, HOWEVER, that there shall be excluded from
Consolidated Total Assets the following: (i) all assets which would be
classified as intangible assets in accordance with GAAP, including goodwill,
organizational expense, research and development expense, patent applications,
patents, trademarks, trade names, brands, copyrights, trade secrets, customer
lists, licenses, franchises and covenants not to compete; (ii) all unamortized
debt discount and expense; (iii) all treasury stock; (iv) all receivables from
and other obligations of directors (other than in their capacities as Certified
Patrons), employees or officers of Borrower; and (v) the excess, if any, of
(A) the aggregate balance of Receivables that are more than 90 days past due,
over (B) reserves for loan losses.
"CONSOLIDATED EBIT" means, for any period, Consolidated net
income, PLUS Consolidated Interest Expense, PLUS income tax expense of Borrower
and its Subsidiaries on a Consolidated basis, as determined in accordance with
GAAP; PROVIDED, HOWEVER, that for purposes of determining Consolidated EBIT
there shall be excluded from Consolidated net income any notes or other payment
in kind received by Borrower in payment of any obligations owing to it.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, interest
expense (including that attributable to Capital Leases) and of Borrower and its
Subsidiaries on a Consolidated basis, as determined in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means, as of any date of
determination, Consolidated Total Assets MINUS Consolidated Total Liabilities;
PROVIDED, HOWEVER, that there shall be excluded from Consolidated Total Assets
the following: (i) all assets which would be classified as intangible assets in
accordance with GAAP, including goodwill, organizational expense, research and
development expense, patent applications, patents, trademarks, trade names,
brands, copyrights, trade secrets, customer lists, licenses, franchises and
covenants not to compete; (ii) all unamortized debt discount and expense;
(iii) all treasury stock; and (iv) all receivables from and other obligations of
directors (other than in their capacities as Certified Patrons), employees or
officers of Borrower or Certified.
"CONSOLIDATED TOTAL ASSETS" means, as of any date of
determination, the total assets of Borrower and its Subsidiaries on a
Consolidated basis, as determined in accordance with GAAP.
"CONSOLIDATED TOTAL LIABILITIES" means, as of any date of
determination, the total liabilities of Borrower and its Subsidiaries on a
Consolidated basis, as determined in accordance with GAAP.
"DEFAULT" means an Event of Default or an event or condition
which with notice or lapse of time or both would constitute an Event of Default.
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<PAGE>
"DEPOSIT FUND LOANS" means "Deposit Fund Loans" made to Certified
Patrons by Borrower in accordance with the GCC Loan Guidelines.
"DOLLARS" and "$" each means lawful money of the United States.
"EFT PROGRAM LEASES" means leases entered into with Certified
Patrons by Borrower under Borrower's "EFT Financing Program" in accordance with
the GCC Loan Guidelines.
"ELIGIBLE COLLATERAL" means at any time the aggregate amount of
Receivables arising in the ordinary course of Borrower's business, excluding the
following:
(i) Receivables for which Borrower's right to receive payment
has not been fully earned by performance or is contingent upon the fulfillment
of any condition whatsoever or which otherwise do not arise from a bona fide
completed transaction with Borrower;
(ii) Receivables which have been disputed, or against which there
have been asserted any defenses, offsets, claims, counterclaims, or other
defenses of any nature, whether well-founded or otherwise, or which are
otherwise conditional;
(iii) any Receivable that does not comply with all applicable
legal requirements, including all laws, rules, regulations and orders of any
Governmental Authority;
(iv) Receivables which are not owned by Borrower free and clear
of all Liens and rights of others (other than the Liens in favor of Agent on
behalf of Lenders and other than other Permitted Liens);
(v) Receivables in which Agent on behalf of Lenders shall not
have a valid and perfected first-priority Lien;
(vi) Receivables owing by any officer, director (other than in
his or her capacity as a Certified Patron), employee, agent, partner, Subsidiary
or Affiliate of Borrower (other than Affiliate Loans);
(vii) Receivables owing by the United States or any department,
agency or instrumentality thereof or by a State or any department, agency,
instrumentality or political subdivision thereof;
(viii) Receivables denominated in a currency other than Dollars or
owing by any non-resident of the United States;
(ix) Receivables not complying with the GCC Loan Guidelines and
other documentation, credit and collection policies and practices of Borrower as
in effect from time to time;
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<PAGE>
(x) Receivables owing by any Receivable Debtor who, as of the
end of the previous collection period, has failed to make full payment within 90
days from the due date on the Receivables or any portion thereof owing to
Borrower by such Receivable Debtor, except that if a good faith dispute exists
as to any such unpaid Receivables of a Receivable Debtor, only such unpaid
Receivables shall be excluded;
(xi) Receivables owing by any Receivable Debtor who is the
subject of a case or proceeding described in Section 7.1(e) or who takes any
other action described in Section 7.1(e);
(xii) Receivables which are subordinated to the prior payment of
any other obligations of the Receivable Debtor obligated in respect of such
Receivable;
(xiii) Receivables with respect to which the terms or conditions
prohibit or restrict assignment or collection rights or which require the
consent of the Receivable Debtor, and such consent has not been obtained; and
(xiv) Receivables with respect to which Agent, in its reasonable
discretion, deems the creditworthiness or financial condition of the Receivable
Debtor to be unsatisfactory or the prospect of payment or performance to be
impaired, and other Receivables which, in Agent's reasonable discretion, are
otherwise ineligible.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directives, requests, licenses, authorizations
and permits of, and agreements with, any Governmental Authorities, in each case
relating to or imposing liability or standards of conduct concerning
environmental protection matters, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal
Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Community Right-to-Know Act, the California Hazardous
Waste Control Law, the California Solid Waste Management, Resource Recovery and
Recycling Act, the California Water Code and the California Health and Safety
Code.
"EQUIPMENT LOANS" means "Equipment Loans" made to Certified
Patrons by Borrower in accordance with the GCC Loan Guidelines.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which is under common control with Borrower or Certified within
the meaning of Section 4001(a)(14) of ERISA or Sections 414(b), (c) or (m) of
the Internal Revenue Code.
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"EURODOLLAR BUSINESS DAY" means any Business Day on which major
commercial banks are open for international business (including dealings in
Dollar deposits) in Los Angeles, California, Washington, D.C., and London,
England.
"EURODOLLAR RATE" means the rate per annum (rounded upwards if
necessary to the nearest whole one-hundredth of one percent (.01%)), determined
as the quotient of: (i) Base LIBOR; DIVIDED BY (ii) the number equal to one
hundred percent (100%) MINUS the LIBOR Reserve Percentage. The Eurodollar Rate
shall be adjusted automatically on the effective date of any change in the LIBOR
Reserve Percentage, such adjustment to affect any Eurodollar Loans outstanding
on such effective date to the extent such change is applied retroactively to
eurocurrency funding of a member bank in the Federal Reserve System. Each
determination of a Eurodollar Rate by Agent or Bank, including, but not limited
to, any determination as to the applicability or allocability of reserves to
eurocurrency liabilities or as to the amount of such reserves, shall be
conclusive and final in the absence of manifest error.
"EURODOLLAR RATE LOAN" means any Loan bearing interest by
reference to the Eurodollar Rate pursuant to the designation by Borrower under
Sections 2.2 or 2.3.
"EVENT OF DEFAULT" has the meaning set forth in Section 7.1.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100 of 1%), as determined by
Agent, equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for any day of determination (or if such day of
determination is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal funds brokers of recognized
standing selected by Agent.
"FINANCE RECEIVABLES" means Store Development Loans, Equipment
Loans, Inventory Loans, and, if designated as Finance Receivables pursuant to
Section 6.4(l), New Lease/Loan Products.
"GAAP" means generally accepted accounting principles in the U.S.
as in effect from time to time.
"GCC LOAN GUIDELINES" means the written guidelines of Borrower
for provision of financing to qualified Certified Patrons and the documentation
thereof as in effect from time to time and furnished to Agent and Lenders in
accordance herewith, described on EXHIBIT 1.1G-1.
"GEC" means Grocers Equipment Company, a California corporation.
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<PAGE>
"GGMC" means Grocers General Merchandise Company, a California
corporation.
"GSC" means Grocers Specialty Company, a California corporation.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or other
governmental department, commission, board, bureau, agency, central bank, court,
tribunal or other instrumentality or authority, domestic or foreign, exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTY" means that certain Guaranty, dated as of August 29,
1996, executed by Borrower in favor of NCB.
"GUARANTY OBLIGATION" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to
any Indebtedness, lease, dividend, letter of credit or other obligation (the
"primary obligations") of another Person (the "primary obligor"), including any
obligation of that Person (i) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (ii) to advance or provide funds (A) for the payment or discharge
of any such primary obligation, or (B) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain he net worth or solvency
or any balance sheet item, level of income or financial condition of the primary
obligor, or (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (iv)
otherwise to assure or hold harmless the holder of any such primary obligation
against loss in respect thereof.
"HAZARDOUS SUBSTANCES" means any toxic or-hazardous substances,
materials or wastes, contaminants or pollutants, including asbestos, PCBs,
petroleum products and byproducts, substances defined or listed as "hazardous
substances," "hazardous materials" or "toxic substances" (or similarly
identified), regulated under or forming the basis for liability under any
applicable Environmental Law.
"INCREMENTAL PURCHASE" has the meaning set forth in the NCB Loan
Purchase Agreement.
"INDEBTEDNESS" means, for any Person: (i) all indebtedness or
other obligations of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property, assets or businesses; (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property); (iv)
all obligations under Capital Leases; (v) all reimbursement or other obligations
of such Person under or in respect of letters of credit, bankers acceptances,
interest rate swaps, caps, floors
9
<PAGE>
and collars, currency swaps, or other similar financial products; (vi) all
Guaranty Obligations; and (vii) all indebtedness of another Person secured by
any Lien upon or in property owned by the Person for whom Indebtedness is
being determined, whether or not such Person has assumed or become liable for
the payment of such indebtedness of such other Person.
"INTEREST PERIOD" means, with respect to each Eurodollar Rate
Loan, the period commencing on the date of such Eurodollar Rate Loan and ending
one (1), two (2), three (3) or six (6) months thereafter, as Borrower may elect
pursuant to the applicable Notice of Borrowing or Notice of Conversion or
Continuation; PROVIDED, HOWEVER, that:
(i) any Interest Period which would otherwise end on a day which
is not a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar Business Day falls in another
calendar month in which case such Interest Period shall end on the next
preceding Eurodollar Business Day;
(ii) any Interest Period which begins on the last Eurodollar
Business Day of the calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Eurodollar Business Day of the calendar month in
which it would have ended if there were a numerically corresponding day in such
calendar month; and
(iii) no Interest Period may extend beyond the Commitment
Termination Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986,
including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
"INVENTORY LOANS" means "Inventory Loans" and secured "Inventory
Deferred Loans" made to Certified Patrons by Borrower in accordance with the GCC
Loan Guidelines.
"INVESTMENT AGREEMENT" means that certain Second Amended and
Restated Investment Agreement, dated as of April 25, 1994, among Borrower, GEC
and Certified, as may be from time to time amended, supplemented or restated.
"IRS" means the Internal Revenue Service, or any successor
thereto.
"LENDER" and "LENDERS" each has the meaning set forth in the
introduction of this Agreement.
"LENDING OFFICE" has the meaning set forth in Section 2.6.
"LIBOR RESERVE PERCENTAGE" means, for any Interest Period of any
Eurodollar Rate Loan, the daily average of the stated maximum rate (rounded
upward to the nearest one-hundredth of one percent (.01%)), as determined by
Agent in accordance with its usual procedures
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(which determination shall be conclusive in the absence of manifest error),
at which reserves are required to be maintained during such Interest Period
(including supplemental, marginal, and emergency reserves) under Regulation D
by Agent or Majority Lenders against "Eurocurrency liabilities" (as such term
is defined in Regulation D), but without benefit or credit of proration,
exemptions, or offsets that might otherwise be available to Agent or any
Lender from time to time under Regulation D. Without limiting the generality
of the foregoing, "LIBOR Reserve Percentage" shall include any other reserves
required by law to be maintained by Agent or Majority Lenders against (i) any
category of liabilities that includes deposits by reference to which the
Eurodollar Rate for a Eurodollar Rate Loan is being determined and (ii) any
category of extension of credit or other assets that includes Eurodollar Rate
Loans.
"LIEN" means any mortgage, deed of trust, pledge, security
interest, assignment, deposit arrangement, charge or encumbrance, lien
(statutory or other), or other preferential arrangement (including any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing or any agreement
to give any security interest).
"LOAN" has the meaning set forth in Section 2.1(a).
"LOAN DOCUMENTS" means this Agreement, the Notes, the Collateral
Documents, the Certified Consent, and all other certificates, documents,
agreements and instruments delivered to Agent and Lenders under or in connection
with this Agreement.
"LOAN PURCHASE AGREEMENTS" means the NCB Loan Purchase Agreement
and the Other Loan Purchase Agreement.
"MAJORITY LENDERS" means at any time Lenders holding at least 51%
of the then aggregate unpaid principal amount of the Loans, or, if no such
principal amount is then outstanding, at least three Lenders having at least 51%
of the aggregate Commitments.
"MATERIAL ADVERSE EFFECT" means any event, matter, condition or
circumstance which (i) has or would reasonably be expected to have a material
adverse effect on the business, properties, results of operations or condition
(financial or otherwise) of Borrower or any of its Subsidiaries, or Certified
and its Subsidiaries taken as a whole; (ii) would materially impair the ability
of Borrower or any other Person to perform or observe its obligations under or
in respect of the Loan Documents; or (iii) affects the legality, validity or
enforceability of any of the Loan Documents or the perfection or priority of any
Lien granted to Lenders or Agent for the benefit of Lenders under any of the
Collateral Documents.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
Sections 3(37) and 4001(a)(3) of ERISA.
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"NCB" means National Consumer Cooperative Bank, dba National
Cooperative Bank, a federally chartered banking corporation with principal
offices located in Washington, D.C.
"NCB LOAN PURCHASE AGREEMENT" means that certain Loan Purchase
and Servicing Agreement, dated as of August 29, 1996, between Borrower, as
seller and servicer, and NCB, as buyer, as amended or restated from time to
time.
"NCB STOCK" shall have the meaning given to such term in Section
6.3(k).
"NEW LEASE/LOAN PRODUCTS" means new lease and loan products
entered into or made to Certified Patrons under new lease or loan programs in
accordance with the GCC Loan Guidelines.
"NOTE" means a Promissory Note of Borrower payable to the order
of a Lender, in substantially the form of EXHIBIT 1.1N-1.
"NOTICE OF BORROWING" means an irrevocable notice from Borrower
to Agent of Borrower's intention to borrow, substantially in the form of EXHIBIT
1.1N-2.
"NOTICE OF CONVERSION OR CONTINUATION" means a written notice
given pursuant to the terms of Section 2.3, substantially in the form of
EXHIBIT 1.1N-3.
"OBLIGATIONS" means the indebtedness, liabilities and other
obligations of Borrower to Agent or any Lender under or in connection with this
Agreement, the Notes or any other Loan Documents, including all Loans, all
interest accrued thereon, all fees due under this Agreement and all other
amounts payable by Borrower to Agent or any Lender thereunder or in connection
therewith, whether now or hereafter existing or arising, and whether due or to
become due, absolute or contingent, liquidated or unliquidated, determined or
undetermined.
"OPERATING AGREEMENT" means that certain Second Amended and
Restated Operating Agreement dated as of April 25, 1994, among Borrower, GEC and
Certified, as may be from time to time amended, supplemented or restated.
"OPERATING LEASE" means, for any Person, any lease of any
property of any kind by that Person as lessee which is not a Capital Lease.
"OTHER LOAN PURCHASE AGREEMENT" means a Loan Purchase and
Servicing Agreement, in form and substance substantially similar in effect to
the NCB Loan Purchase Agreement and which is otherwise satisfactory to Agent in
its reasonable discretion, between Borrower, as seller and servicer, and another
institution as buyer, providing for acquisitions of Finance Receivables and
Additional Loan/Lease Receivables in an aggregate amount not to exceed
$20,000,000, as amended or restated from time to time.
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"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PENSION PLAN" means any employee pension benefit plan covered by
Title IV of ERISA (other than a Multiemployer Plan) that is maintained for
employees of Borrower, Certified or any ERISA Affiliate or with regard to which
the, Borrower, Certified or an ERISA Affiliate is a contributing sponsor within
the meaning of Sections 4001(a)(13) or 4069 of ERISA.
"PERMITTED INVESTMENTS" means any of the following investments
denominated and payable in Dollars, maturing within one year from the date of
acquisition, selected by Borrower: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States;
(ii) marketable direct obligations issued by any state of the United States or
any political subdivision of any such state or any public instrumentality
thereof and, at the time of acquisition, having the highest credit rating
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper or corporate
promissory notes bearing at the time of acquisition the highest credit rating
either of S&P or Moody's issued by United States, Australian, Canadian, European
or Japanese bank holding companies or industrial or financial companies; (iv)
certificates of deposit issued by and bankers acceptances of and interest
bearing deposits with any Lender, or with any United States, Australian,
Canadian, European or Japanese commercial banks having combined capital and
surplus of at least $1,000,000,000 or the equivalent and which has (or the
parent of which has) long-term debt term securities bearing a credit rating from
S&P of "AA" or better or from Moody's of "Aa2" or better; and (v) money market
funds organized under the laws of the United States or any state thereof that
invest predominantly in any of the foregoing investments permitted under clauses
(i), (ii), (iii) and (iv).
"PERMITTED LIENS" means:
(i) Liens in favor of Lenders or Agent for the benefit of
Lenders to secure the Obligations;
(ii) the existing Liens listed in SCHEDULE 1.1P-1 or incurred in
connection with the extension, renewal or refinancing of the Indebtedness
secured by such existing Liens, PROVIDED that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase;
(iii) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and which are adequately reserved for in accordance with
GAAP;
(iv) Liens of materialmen, mechanics, warehousemen, carriers or
employees or other like Liens arising in the ordinary course of business and
securing obligations either not delinquent or being contested in good faith by
appropriate proceedings and which are adequately
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reserved for in accordance with GAAP and which do not in the aggregate
materially impair the use or value of the property or risk the loss or
forfeiture of title thereto;
(v) Liens consisting of deposits or pledges to secure the
payment of worker's compensation, unemployment insurance or other social
security benefits or obligations, or to secure the performance of bids, trade
contracts, leases, public or statutory obligations, surety or appeal bonds or
other obligations of a like nature incurred in the ordinary course of business
(other than for Indebtedness or any Liens arising under ERISA);
(vi) easements, rights of way, servitudes or zoning or building
restrictions and other minor encumbrances on real property and irregularities in
the title to such property which do not in the aggregate materially impair the
use or value of such property or risk the loss or forfeiture of title thereto;
(vii) statutory landlord's Liens under leases to which Borrower or
any of its Subsidiaries is a party;
(viii) any judgment, attachment or similar Lien, unless the
judgment it secures is not fully covered by insurance and has not been
discharged or execution thereof effectively stayed pending appeal within 20 days
of the entry thereof, or shall not have been discharged within 20 days of the
expiration of any such stay;
(ix) Liens in favor of NCB on the NCB Stock; and
(x) Liens granted under the Loan Purchase Agreements, so long as
such Liens attach only to the Released Collateral or to any Separate Account,
Security Account or Lockbox Account (each as defined in the NCB Loan Purchase
Agreement).
"PERSON" means an individual, corporation, partnership, joint
venture, trust, unincorporated organization or any other entity of whatever
nature or any Governmental Authority.
"PLAN" means any employee pension benefit plan as defined in
Section 3(2) of ERISA (including any Multiemployer Plan) and any employee
welfare benefit plan, as defined in Section 3 (1) of ERISA (including any plan
providing benefits to former employees or their survivors).
"PREMISES" means any and all real property, including all
buildings and improvements now or hereafter located thereon and all
appurtenances thereto, now or hereafter owned, leased, occupied or used by
Borrower and its Subsidiaries.
"PRIME RATE" means the higher of: (i) the Federal Funds Rate
plus one-quarter of one (0.25) percentage points (25 basis points); and (ii) the
variable rate of interest, per annum, most recently announced by Agent at its
principal office in Washington, D.C., as its "prime rate," with the
understanding that the Agent's "prime rate" is one of its base rates and serves
as a basis upon
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which effective rates of interest are calculated for loans making reference
thereto and may not be the lowest of the Agent's base rates.
"PRIME RATE LOAN" means any Loan bearing interest by reference to
the Prime Rate pursuant to the designation by Borrower under Sections 2.2 or
2.3.
"PURCHASE NOTICE" has the meaning set forth in the Security
Agreement.
"RECEIVABLE DEBTOR" means any Person obligated on a Receivable.
"RECEIVABLES" means all present and future rights, interests and
claims of Borrower under and in respect of Finance Receivables and Additional
Loan/Lease Receivables, including all rights of Borrower to receive moneys due
or to become due with respect thereto, other than such rights, interest and
claims in any Released Collateral or proceeds thereof.
"REGULATION D" means Regulation D of the Board of Governors of
the Federal Reserve System.
"RELEASE" has the meaning set forth in the Security Agreement.
"RELEASED COLLATERAL" means such of the Finance Receivables,
Additional Loan/Lease Receivables, and any related assets of Borrower
constituting Property (as defined in the NCB Loan Purchase Agreement), for which
Borrower has duly executed and delivered to Agent a Purchase Notice, and Agent
has duly executed and delivered a Release pursuant to Section 3(d)(ii) of the
Security Agreement.
"SECURITY AGREEMENT" means that certain Security Agreement
between Borrower and Agent, of even date herewith, securing the Obligations, and
any amendments, supplements or restatements thereto or thereof.
"SENIOR DEBT" means the obligations and any and all other
Indebtedness (if any) of the types referred to in clauses (i), (ii) and (iv) of
the definition of Indebtedness in this Section 1.1 other than Capital Debt and
Subordinated Debt.
"SOLVENT" means, with respect to any Person on the date any
determination thereof is to be made, that on such date: (a) the present fair
valuation of the property and assets of such Person is greater than such
Person's probable liability in respect of existing Indebtedness; (b) such Person
does not intend to, and does not believe that it will, incur Indebtedness beyond
such Person's ability to pay as such Indebtedness matures; and (c) such Person
is not engaged in business or a transaction, and is not about to engage in
business or a transaction, which would leave such Person with property and
assets remaining which would constitute unreasonably small capital after giving
effect to the nature of the particular business or transaction. For purposes of
this definition (i) the "fair valuation" of any property or assets means the
amount realizable within a reasonable time, either through collection or sale of
such property or assets at their regular market value, which is the amount
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obtainable by a capable and diligent Person from an interested buyer willing to
purchase such property or assets within a reasonable time under ordinary
circumstances; and (ii) the term "Indebtedness" includes any payment obligation,
whether or not reduced to judgment, equitable or legal, matured or unmatured,
liquidated or unliquidated, disputed or undisputed, secured or unsecured,
absolute, fixed or contingent.
"STORE DEVELOPMENT LOANS" means "Store Development Loans" (also
referred to as "Buy/Sell Loans") made to Certified Patrons by Borrower in
accordance with the GCC Loan Guidelines.
"SUBORDINATED DEBT" means any Indebtedness of Borrower due more
than one year from the date of determination which is (A) owed to any Person
other than an Affiliate of Borrower, and (B) by its terms expressly subordinated
to the Senior Debt on terms satisfactory to the Majority Lenders.
"SUBSIDIARY" means any corporation, association, partnership,
joint venture or other business entity of which more than 50% of the voting
stock or other equity interest is owned directly or indirectly by any Person or
one or more of the other Subsidiaries of such Person or a combination thereof.
"TAXES" has the meaning set forth in Section 3.8(a).
"TERMINATION EVENT" means any of the following:
(i) with respect to a Pension Plan, a reportable event described
in Section 4043 of ERISA and the regulations issued thereunder (other than a
reportable event not subject to the provisions for 30-day notice to the PBGC
under such regulations);
(ii) the withdrawal of Borrower, Certified or an ERISA Affiliate
from a Pension Plan during a plan year in which the withdrawing employer was a
"substantial employer" as defined in Section 4001(a)(2) or 4062(e) of ERISA;
(iii) the taking of any actions (including the filing of a notice
of intent to terminate) by Borrower, Certified, an ERISA Affiliate, the PBGC, a
Plan Administrator, or any other Person to terminate a Pension Plan or the
treatment of a Plan amendment as a termination of a Pension Plan under Section
4041 of ERISA;
(iv) any other event or condition which might constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan; or
(v) the complete or partial withdrawal of Borrower, Certified or
an ERISA Affiliate from a Multiemployer Plan.
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"UCC" means the Uniform Commercial Code of the jurisdiction the
law of which governs the Loan Document in which such term is used or the
attachment, perfection or priority of the Lien on any Collateral.
"UNFUNDED ACCRUED BENEFITS" means the excess of a Pension Plan's
accrued benefits, as defined in Section 3(23) of ERISA, over the current value
of that Plan's assets, as defined in Section 3(26) of ERISA.
"UNITED STATES" and "U.S." each means the United States of
America.
1.2 ACCOUNTING TERMS; GAAP CHANGES.
(a) ACCOUNTING TERMS. Unless otherwise defined or the context
otherwise requires, all accounting terms used herein shall be construed in
accordance with GAAP, and, except where otherwise specified, all financial data
required to be delivered hereunder shall be prepared in accordance with GAAP.
(b) GAAP CHANGES. If any changes in GAAP from those used in the
preparation of the financial statements referred to in Section 6.1(a) ("GAAP
Changes") hereafter occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by the Financial Accounting Standards
Board of the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) result in a change in the method of
calculation of any of the financial covenants, standards or other terms or
conditions found in this Agreement, the parties hereto agree to enter into
negotiations to amend such provisions so as to reflect equitably such GAAP
Changes with the desired result that the criteria for evaluating the financial
condition and performance of Borrower and its Subsidiaries shall be the same
after such GAAP Changes as if such GAAP Changes had not been made.
1.3 INTERPRETATION.
In this Agreement and the other Loan Documents, except to the
extent the context otherwise requires:
(i) Any reference to an Article, a Section, a Schedule or an
Exhibit is a reference to an article or section of the particular agreement in
which the reference appears, or a schedule or an exhibit to the particular
agreement in which the reference appears, respectively, and to a subsection or a
clause is, unless otherwise stated, a reference to a subsection or a clause of
the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and the
like mean and refer to this Agreement or any other Loan Document as a whole and
not merely to the specific Article, Section, subsection, paragraph or clause in
which the respective word appears.
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(iii) The meaning of defined terms shall be equally applicable to
both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual instruments
shall be deemed to include all subsequent amendments and other modifications
thereto, but only to the extent such amendments and other modifications are not
prohibited by the terms of the Loan Documents.
(vi) References to statutes or regulations are to be construed as
including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation referred to.
(vii) Any table of contents, captions and headings are for
convenience of reference only and shall not affect the construction of this
Agreement or any other Loan Document.
ARTICLE II
THE LOANS
2.1 THE LOANS.
(a) BORROWING AVAILABILITY. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make revolving loans (each a
"Loan" and, collectively, the "Loans") to Borrower from time to time from the
Closing Date up to but not including the Commitment Termination Date, in an
aggregate principal amount up to but not exceeding at any time such Lender's
Commitment; PROVIDED, HOWEVER, that immediately after giving effect to such
Loans the aggregate principal amount of Loans then outstanding shall not exceed
the Borrowing Base. Within the foregoing limits, during such period Borrower
may borrow, repay the Loans in whole or in part, and reborrow, all in accordance
with the terms and conditions hereof.
(b) PAYMENT OF OVERADVANCE. All Loans shall be added to and be
deemed part of the Obligations when made or extended. If, at any time and for
any reason, the aggregate amount of the Loans exceeds the percentages or
limitations set forth in Section 2.1(a), Borrower shall immediately pay to
Agent, on behalf of Lenders, in immediately available Dollars, the amount of
such excess.
2.2 BORROWING PROCEDURE.
(a) DATE OF BORROWING. Each Borrowing of a Prime Rate Loan
shall be made on a Business Day and each Borrowing of a Eurodollar Rate Loan
shall be made on a Eurodollar Business Day.
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(b) NOTICE OF BORROWING. Each Borrowing shall be made upon
written notice by way of a Notice of Borrowing, given by telex, telecopy, mail,
or personal service, delivered to Agent at Agent's office located at 1401 I
Street, NW Suite 700, Washington, D.C. 20005, setting forth the amount of the
requested Loan in accordance with Section 2.1(a), whether the Borrowing is of a
Prime Rate Loan or a Eurodollar Rate Loan, and, in the latter case, the
requested Interest Period. If for a Prime Rate Loan, Agent shall be given
notice no later than 2:00 p.m., Washington, D.C. time, on the day on which such
Prime Rate Loan is to be made, and, if for a Eurodollar Rate Loan, Agent shall
be given notice at least three (3) Eurodollar Business Days prior to the day on
which such Eurodollar Rate Loan is to be made, and such notice shall state the
amount thereof (subject to the provisions of this Article 2).
(c) TELEPHONIC NOTICE. In lieu of providing a Notice of
Borrowing, an Authorized Officer may give Agent telephonic notice by the
required time of any proposed Prime Rate Loan; PROVIDED, HOWEVER, that, if
requested by Agent, Borrower shall promptly deliver a Notice of Borrowing with
respect to such Borrowing. Agent and Lenders shall not incur any liability to
Borrower in acting upon any telephonic notice which Agent believes in good faith
to have been given by a Authorized Officer, or for otherwise acting in good
faith under this Section 2.2(c), and in making any Loans pursuant to telephonic
notice.
2.3 CONVERSION OR CONTINUATION REQUIREMENTS.
(a) OPTION TO CONVERT OR CONTINUE. Borrower shall have the
option to: (i) convert, at any time, all or any part of the outstanding Loans
equal to One Million Dollars ($1,000,000), and integral multiples of One Hundred
Thousand Dollars ($100,000) in excess of such amount, from a Prime Rate Loan to
a Eurodollar Rate Loan and vice-versa; or (ii) upon the expiration of any
Interest Period applicable to a Eurodollar Rate Loan, to continue all or any
portion of the Eurodollar Rate Loan as a Eurodollar Rate Loan, with the
succeeding Interest Period(s) of such continued Eurodollar Rate Loan commencing
on the expiration date of the Interest Period previously applicable thereto;
PROVIDED, HOWEVER, that a Eurodollar Rate Loan may only be converted into a
Prime Rate Loan or continued as a Eurodollar Rate Loan on the expiration date of
the Interest Period applicable thereto; PROVIDED FURTHER, HOWEVER, that no
outstanding Loan may be continued as, or be converted into, a Eurodollar Rate
Loan in the event that, on the earlier of the date of the delivery of the Notice
of Conversion or Continuation or the telephonic notice in respect thereof, any
Default has occurred and is continuing; PROVIDED FURTHER, HOWEVER, that if
Borrower fails to deliver the appropriate Notice of Conversion or Continuation
or the telephonic notice in respect thereof, pursuant to the required notice
period, before the expiration of the Interest Period of a Eurodollar Rate Loan,
such Eurodollar Rate Loan shall automatically be converted to a Prime Rate Loan.
(b) NOTICE OF CONVERSION OR CONTINUATION. Borrower shall
deliver a Notice of Conversion or Continuation, given by telex, telecopy, mail,
or personal service, delivered to Agent at 1401 I Street, NW Suite 700,
Washington, D.C. 20005, no later than 2:00 p.m., Washington, D.C. time, on the
proposed conversion date (in the case of a conversion to a Prime Rate Loan), and
at least three (3) Eurodollar Business Days in advance of the proposed
conversion or continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan). If such Notice of
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Conversion or Continuation is received by Agent not later than 2:00 p.m.,
Washington, D.C. time, on a Eurodollar Business Day such day shall be treated
as the first Eurodollar Business Day of the required notice period. In any
other event, such notice will be treated as having been received at the
opening of business of the next Eurodollar Business Day. A Notice of
Conversion or Continuation shall specify: (1) the proposed conversion or
continuation date (which shall be a Business Day or a Eurodollar Business
Day, as applicable); (2) the amount of the Loan to be converted or continued;
(3) the nature of the proposed conversion or continuation; and (4) in the
case of a conversion to, or continuation of, a Eurodollar Rate Loan, the
requested Interest Period.
(c) TELEPHONIC NOTICE. In lieu of delivering a Notice or
Continuation or Conversion, an Authorized Officer may give Agent telephonic
notice by the required time of any proposed conversion or continuation under
this Section 2.3; PROVIDED, HOWEVER, that such notice shall be promptly
confirmed in writing by delivery of an appropriate Notice of Conversion or
Continuation to Agent on or before the proposed conversion or continuation date.
Agent and Lenders shall incur no liability to Borrower in acting upon any
telephonic notice referred to above which Agent believes in good faith to have
been given by a duly authorized officer or other person authorized to act on
behalf of Borrower or for otherwise acting in good faith under this
Section 2.3(c) and in conversion or continuation by Agent and Lenders in
accordance with this Agreement pursuant to any telephonic notice.
(d) IRREVOCABLE NOTICE. Any Notice or Continuation or
Conversion (or telephonic notice in respect thereof) shall be irrevocable and
Borrower shall be bound to convert or continue in accordance therewith.
2.4 EURODOLLAR COSTS.
Borrower shall reimburse Agent or Lenders for any increase in
their costs (which shall include, but not be limited to, taxes, other than taxes
imposed on the overall net income of Agent or Lenders, fees or charges), or any
loss or expense (including, without limitation, any loss or expense incurred by
reason of the liquidation or re-employment of deposits or other funds acquired
by Agent or Lenders to fund or maintain outstanding the principal amount of the
Loans) incurred by them directly or indirectly resulting from the making of any
Eurodollar Rate Loan due to: (i) the modification, adoption, new application or
enactment of any law, regulation or treaty or the interpretation thereof by any
governmental or other authority (whether or not having the force of law); (ii)
compliance by Agent or Lenders with any request or directive (whether or not
having the force of law) of any monetary or fiscal agency or authority;
(iii) violations by Borrower of the terms of this Agreement; or (iv) any
prepayment of a Eurodollar Rate Loan at any time prior to the end of the
applicable Interest Period.
The amount of such costs, losses, or expenses shall be determined
solely by Agent or any Lender asserting such claim for reimbursement based upon
the assumption that Agent or any such Lender funded one hundred percent (100%)
of each Eurodollar Rate Loan in the Eurodollar market. In attributing Agent's
or any such Lender's general costs relating to its eurocurrency operations to
any transaction under this Agreement, or averaging any costs over a
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period of time, Agent or such Lender may use any reasonable attribution or
averaging methods which it deems appropriate and practical. Agent or such
Lender shall notify Borrower of the amount due Agent or such Lender pursuant
to this Section 2.4 in respect of any Eurodollar Rate Loan as soon as
practicable but in any event within forty-five (45) days after the last day
of the Interest Period of such Loan and Borrower shall pay to Agent or such
Lender the amount due within fifteen (15) days of its receipt of such notice.
A certificate as to the amounts payable pursuant to the foregoing sentence,
together with whatever detail is reasonably available to Agent or such
Lender, shall be submitted by Agent or such Lender to Borrower. Such
determination shall, if not objected to within ten (10) days, be conclusive
and binding upon Borrower in the absence of manifest error. If Agent or any
Lender claim increased costs, losses or expenses pursuant to this Section
2.4, then Agent or such Lender, if requested by Borrower, will use reasonable
efforts to take such steps, that Borrower reasonably requests, including
designating different lending offices, as would eliminate or reduce the
amount of such increased costs, losses or expenses, so long as taking such
steps would not, in the judgment of Agent or such Lender, otherwise be
disadvantageous to Agent or such Lender. Any recovery by Agent or any Lender
or their Lending Offices of amounts previously borne by Borrower pursuant to
this Section 2.4 shall be promptly remitted, without interest (unless Lender
received interest on such recovered amounts), to Borrower by Agent or any
such Lender.
2.5 ILLEGALITY; IMPOSSIBILITY.
In the event that any change in circumstances or any law,
regulation, treaty or directive, or any change therein or in the interpretation
or application thereof, shall at any time in the reasonable opinion of Agent or
Majority Lenders make it unlawful or impractical for Agent or Majority Lenders
to fund or maintain a Eurodollar Rate Loan in the Eurodollar market or to
continue such funding or maintaining, or to determine or charge interest rates
based upon any appropriate Eurodollar Rate, Agent shall give notice of such
circumstances to Borrower and (i) in the case of any Eurodollar Rate Loan which
is outstanding, Borrower shall, if requested by Agent, prepay such Eurodollar
Rate Loan on or before the date specified in such request, together with
interest accrued thereon and any amounts due pursuant to Section 2.4, and
concurrently with any such prepayment, Lenders shall make a Prime Rate Loan to
Borrower in a principal amount equal to the principal amount of the Eurodollar
Rate Loan so prepaid, and (ii) Lenders shall not be obligated to make any
further Eurodollar Rate Loans to Borrower until Agent or Majority Lenders shall
determine that it would no longer be unlawful or impractical to do so. If Agent
or Majority Lenders shall give any notice pursuant to this Section 2.5, then
Agent or Majority Lenders, if requested by Borrower, will use reasonable efforts
to take such steps, that Borrower reasonably requests, including designating
different Lending Offices, as would avoid the illegality or impracticality which
is the subject of such notice, so long as taking such steps would not, in the
judgment of Agent or Majority Lenders, otherwise be disadvantageous to Agent or
Lender.
2.6 DISASTER.
Notwithstanding anything herein to the contrary, if Agent
reasonably determines (which determination shall be conclusive) that (a) Agent
is unable to determine the Eurodollar Rate with respect to any Notice of
Borrowing or Notice of Conversion or Continuation
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selecting the Eurodollar Rate because quotations of interest rates for the
relevant deposits are not being provided in the relevant amounts or for the
relative maturities or (b) the Eurodollar Rate will not adequately reflect
the cost to Majority Lenders of making or funding Eurodollar Rate Loans, THEN
(i) the right of Borrower to select the Eurodollar Rate shall be suspended
until Agent notifies Borrower that the circumstances causing such suspension
no longer exist, and (ii) Borrower shall repay in full the then outstanding
principal balance of all Eurodollar Rate Loans, together with interest
accrued thereon, on the last day of the Interest Period applicable to each
such Eurodollar Rate Loan.
2.7 LENDING OFFICES.
The Loans made by each Lender may be made from and maintained at
such offices (each a "Lending Office") of such Lender or its Affiliates as such
Lender may from time to time designate (whether or not such office or Affiliate
is specified on the signature pages hereof). A Lender shall not elect a Lending
Office that, at the time of making such election, increases the amounts which
would have been payable by Borrower to such Lender under this Agreement in the
absence of such election. With respect to Eurodollar Rate Loans made from and
maintained at any Lender's foreign offices or Affiliates, the obligation of
Borrower to repay such Eurodollar Rate Loans shall nevertheless be to such
Lender and shall, for all purposes of this Agreement (including for purposes of
the definition of the term "Majority Lenders") be deemed made or maintained by
it, for the account of any such office or Affiliate.
2.8 NOTES; RECORDKEEPING; STATEMENTS OF OBLIGATIONS.
(a) NOTES. As additional evidence of the Indebtedness of
Borrower to each Lender resulting from the Loans made by such Lender, Borrower
shall execute and deliver for the account of each Lender, a Note, dated the
Closing Date, setting forth such Lender's Commitment as the maximum principal
amount thereof.
(b) RECORDKEEPING. Each Lender shall record in its internal
records the date and amount of each Loan made, each conversion to a different
interest rate, each relevant Interest Period, the amount of principal and
interest due and payable from time to time hereunder, each payment thereof and
the resulting unpaid principal balance of such Loan. Any such recordation shall
be rebuttable presumptive evidence of the accuracy of the information so
recorded. Any failure so to record or any error in doing so shall not, however,
limit or otherwise affect the obligations of Borrower hereunder and under any
Note to pay the principal of and interest on the Loans.
(c) MONTHLY STATEMENTS. Agent shall render monthly statements
of the Obligations, including statements of all principal, interest, and Agent's
Expenses owing, and such statements shall be presumed to be correct and accurate
and constitute an account stated between Borrower and Agent unless, within
thirty (30) days after receipt thereof by Borrower, Borrower shall deliver to
Agent, in accordance with Section 11.3, written objection thereof specifying the
error or errors, if any, contained in any such statement.
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2.9 LOANS BY LENDERS.
Agent shall promptly notify each Lender of that Lender's pro rata
portion of a Borrowing requested pursuant to Section 2.2. Not later than
2:00 p.m., Washington, D.C. time, on the date specified by Agent, which shall be
at least weekly, each Lender, subject to the terms and conditions hereof, shall
make its pro rata portion (as advised by Agent) of the Borrowing available, in
immediately available Dollars, to Agent at Agent's office located at 1401 I
Street, NW Suite 700, Washington, D.C. 20005, together with interest thereon
accrued from the date of such Borrowing to the date on which Lender initiates
payment to Agent at the Prime Rate.
Each Lender's obligation to make any Loan pursuant hereto is
several, and not joint or joint and several, and is not conditioned upon the
performance by each, any, or all of the other Lenders of their obligations to
make Loans. The failure by any Lender to perform its obligation to make Loans
will not affect or increase any other Lender's share of the Commitment. Agent
shall notify Lenders of the failure by any Lender to perform its obligation to
make a Loan required to be made by it hereunder and any Lender (other than a
Lender that has failed to perform its obligation to make its Loan) may, if it
desires, assume, in such proportion as Agent may determine, the obligation to
make Loans of the nonperforming Lender or Lenders, but no Lender shall be
obligated to do so.
2.10 PRO RATA TREATMENT.
Except as otherwise provided in this Agreement, each Borrowing
hereunder, each payment (including each prepayment) by Borrower on account of
the principal of and interest on the Loans and on account of any upfront fee or
commitment fee, and each conversion or continuation of Loans, shall be made
ratably in accordance with the Commitments.
2.11 PAYMENTS; APPLICATION.
(a) PAYMENTS BY BORROWER. Borrower shall make each payment
hereunder or under the Notes by making, or causing to be made, the amount
thereof available to Agent, for the account of each Lender, in immediately
available Dollars, by deposit to Agent's Account (or at such other location as
Agent may designate, in writing, from time to time), not later than 2:00 p.m.,
Washington, D.C. time, on the date of payment.
(b) PAYMENTS FROM ACCOUNT DEBTORS. Unless and until Agent gives
Borrower other written instructions, Borrower shall instruct all Receivable
Debtors and other account debtors of Borrower to remit all payments as
contemplated under the Operating Agreement. Upon the occurrence of an Event of
Default, Agent may instruct Receivable Debtors and other account debtors to
remit all payments to post office boxes which have been established as lock
boxes by Agent and Borrower, and, in such event, all checks and other payments
received by Agent shall be applied by Agent, in accordance with the provisions
of Section 2.10(c), in reduction of the Obligations. The receipt of any check
or other payment by Agent shall not be considered a payment on account until
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such check or other payment is honored when presented for payment by Agent and
has been paid to Agent.
(c) APPLICATION OF PAYMENTS. In the event of receipt of direct
collections by Agent, all checks and other instruments received by Agent in
payment of or on account of the Obligations constitute only conditional payment
until such items are actually paid to Agent. Agent will credit Borrower with
any such payments made by check or other instruments on the same day that such
items are credited to Agent by their depositary bank. All such payments shall
be deemed made to each Lender and shall constitute satisfaction of Borrower's
obligations to each Lender with respect to the Loans so repaid on the same day
that such items are credited to Agent by their depositary bank in compliance
with the terms of this Section 2.10(c). Borrower waives the right to direct the
application of any and all payments at any time or times hereafter received by
Agent on account of the Obligations and Borrower agrees that Agent shall have
the continuing exclusive right to apply and reapply such payments in any manner
as Agent may deem advisable, notwithstanding any entry by Agent upon its books.
(d) PAYMENTS TO LENDERS. Agent shall, at least weekly, initiate
payment to each Lender of its pro rata share of the Loans repaid. If Agent
shall initiate such payment to a Lender later than the date on which Agent
receives a payment from Borrower, then Agent shall pay to such Lender, in
addition to its pro rata share of the Loans repaid, interest on such amount,
until payment is initiated, at the Prime Rate.
2.12 NON-RECEIPT OF FUNDS.
Unless Agent shall have received notice from Borrower prior to
the date on which any payment is due to any of Lenders hereunder that Borrower
shall not make such payment in full, Agent may assume that Borrower has made
such payment in full to Agent on such date and Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent Borrower shall
not have so made such payment in full to Agent, each Lender shall repay to Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to Agent, at the Federal
Funds Rate.
2.13 TERMINATION OF THE COMMITMENTS; REPAYMENT OF THE LOANS.
The Commitments shall terminate on the Commitment Termination
Date. Borrower shall repay to Lenders in full on the Commitment Termination
Date the aggregate principal amount of the Loans outstanding on such date plus
all accrued but unpaid interest thereon.
2.14 VOLUNTARY COMMITMENT REDUCTIONS.
Prior to the Commitment Termination Date, Borrower shall have the
right, at any time and from time to time, subject to Section 2.4, to voluntarily
reduce permanently the
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unfunded and unused portion of the Commitment. Borrower shall give Agent
not less than ten (10) Business Days' prior written notice designating the
date (which shall be a Business Day) of such reduction and the amount of such
reduction. Such reduction shall be effective on the date specified in
Borrower's notice given in compliance herewith. Any reduction shall be in a
minimum amount of Five Million Dollars ($5,000,000) and, thereafter, in any
integral multiple of One Million Dollars ($1,000,000), divided among the
Lenders on a pro-rata basis.
ARTICLE III
INTEREST, PAYMENTS, FEES AND TAXES
3.1 INTEREST.
(a) RATES. Borrower shall pay interest on the unpaid principal
amount of each Loan at the following rates:
(i) in respect of each Prime Rate Loan, at a per annum rate
equal at all times to the Prime Rate PLUS one-quarter of one percent (0.25%).
(ii) in respect of each Eurodollar Rate Loan, at a per annum
rate equal at all times during each Interest Period for such Eurodollar Rate
Loan to the Eurodollar Rate for such Interest Period PLUS one and one-quarter
percent (1.25%).
Unless otherwise requested by Borrower, all Loans shall bear interest at the
rate specified in Section 3.1(a)(i).
(b) OVERDUE PAYMENT RATE. In the event that any amount of
principal of or interest on any Loan, or any other amount payable hereunder or
under the Notes, is not paid in full when due (whether at stated maturity, by
acceleration or otherwise), Borrower agrees to pay interest on such unpaid
principal, interest or other amount, from the date such amount becomes due until
the date such amount is paid in full, payable on demand, at a per annum rate
equal at all times to two percent (2%) in excess of the rates otherwise
applicable thereto.
3.2 INTEREST PAYMENT DATES. Except as otherwise provided in Section
3.1(b), and, unless sooner accelerated pursuant to Section 7.2, interest on the
Loans shall be payable in arrears on the following dates:
(a) PRIME RATE LOANS. Interest on each Prime Rate Loan shall be
payable (i) monthly on the first Business Day of each month, (ii) on the date of
any prepayment or conversion of any such Prime Rate Loan, and (iii) on the
Commitment Termination Date;
(b) EURODOLLAR RATE LOANS. Interest on each Eurodollar Rate
Loan shall be payable (i) on the last day of each Interest Period for such
Eurodollar Rate Loan, and (ii) on the Commitment Termination Date; PROVIDED that
(A) in the case of any such Interest Period which is
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greater than ninety (90) days, interest on such Eurodollar Rate Loan shall be
payable on each date occurring at ninety (90) day intervals from the
beginning of such Interest Period, and on the last day of such Interest
Period and (B) if any prepayment, conversion or continuation is effected
other than on the last day of such Interest Period, accrued interest on such
Eurodollar Rate Loan shall be due on such prepayment, conversion or
continuation date as to the principal amount of such Eurodollar Rate Loan
prepaid, converted or continued.
(c) HOLIDAYS. Any payment (other than in respect of a
Eurodollar Rate Loan) which would otherwise become due on a day other than a
Business Day, shall instead become due on the next succeeding Business Day and
such extension shall be reflected in the computation of any payments hereunder
on such adjusted date.
3.3 FEES.
(a) UNUSED LINE FEE. Borrower agrees to pay to Agent for the
account of each Lender an unused line fee on the average daily unused portion of
such Lender's Commitment as in effect from time to time from the Closing Date
until the Commitment Termination Date at the rate of one-eighth of one percent
(0.125%) per annum, payable (i) monthly in arrears on the first Business Day of
each month, commencing on the first such date after the Closing Date, and (ii)
on the Commitment Termination Date.
(b) AGENT'S FEE. Borrower agrees to pay to Agent an annual fee
in the amount of Twenty-Five Thousand Dollars ($25,000), payable in advance on
the Closing Date with respect to the first year. Each year thereafter, such
annual fee shall be payable, in arrears, in quarterly installments of Six
Thousand Two Hundred Fifty Dollars ($6,250) each, commencing January 1, 1998,
and continuing on the first day of each third month thereafter until the
Commitment Termination Date, at which time a final installment of Six Thousand
Two Hundred Fifty Dollars ($6,250) shall be due and payable.
(c) AUDIT EXPENSES. Borrower agrees to pay to Agent and
Lenders, upon demand therefor, all out of pocket audit expenses actually
incurred by Agent and/or Lenders in connection with each audit conducted
pursuant to Section 6.3(e), regardless of frequency of such audits.
3.4 COMPUTATION OF INTEREST AND FEES.
All computations of interest and unused line fees for any period
shall be calculated on the basis of a year of three hundred sixty (360) days for
the actual days elapsed in such period. Interest shall accrue from the first
day of the making of a Loan to the date of repayment of such Loan in accordance
with the provisions of this Agreement; PROVIDED, HOWEVER, that if a Loan is
repaid on the same day on which it is made, then one (1) day's interest shall be
paid on that Loan. Any and all interest not paid when due shall thereafter be
deemed to be a Prime Rate Loan made under Section 2.1 and shall bear interest
thereafter as provided for in Section 3.1(a)(i) to the greatest extent permitted
by law.
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3.5 HIGHEST LAWFUL RATE.
Anything herein to the contrary notwithstanding, if during any
period for which interest is computed hereunder, the applicable interest rate,
together with all fees, charges and other payments which are treated as interest
under applicable law, as provided for herein or in any other Loan Document,
would exceed the maximum rate of interest which may be charged, contracted for,
reserved, received or collected by any Lender in connection with this Agreement
under applicable law (the "Maximum Rate"), Borrower shall not be obligated to
pay, and such Lender shall not be entitled to charge, collect, receive, reserve
or take, interest in excess of the Maximum Rate, and during any such period the
interest payable hereunder shall be limited to the Maximum Rate.
3.6 INCREASED RISK-BASED CAPITAL COST.
If the amount of capital required or expected to be maintained by
any Lender or any Person directly or indirectly owning or controlling such
Lender (each a "Control Person"), shall be affected by:
(i) the introduction or phasing in of any law, rule or
regulation after the date hereof,
(ii) any change after the date hereof in the interpretation of
any existing law, rule or regulation by any central bank or United States or
foreign governmental authority charged with the administration thereof, or
(iii) compliance by such Lender or such Control Person with any
directive, guideline or request from any central bank or United States or
foreign governmental authority (whether or not having the force of law)
promulgated or made after the date hereof,
and such Lender shall have reasonably determined that such introduction, phasing
in, change or compliance shall have had or will thereafter have the effect of
reducing (x) the rate of return on such Lender's or such Control Person's
capital, or (y) the asset value to such Lender or such Control Person of the
Loans made or maintained by such Lender, in either case to a level below that
which such Lender or such Control Person could have achieved or would thereafter
be able to achieve but for such introduction, phasing in, change or compliance
(after taking into account such Lender's or such Control Person's policies
regarding capital), in either case by an amount which such Lender in its
reasonable judgment deems material, then, promptly upon demand by such Lender
given concurrently to Agent and Borrower, Borrower shall pay to such Lender or
such Control Person such additional amount or amounts as shall be sufficient to
compensate such Lender or such Control Person, as the case may be, for such
reduction. Each Lender shall use its commercial best efforts to notify Agent
and Borrower within 45 days of such Lender obtaining notice that amounts will be
due under this Section 3.6; PROVIDED, HOWEVER, any failure by any Lender to so
notify Agent or Borrower, shall not limit or otherwise affect the obligations of
Borrower hereunder to pay such amounts.
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3.7 TAXES.
(a) NO REDUCTION OF PAYMENTS. Borrower shall pay all amounts of
principal, interest, fees and other amounts due hereunder free and clear of, and
without reduction for or on account of, any present and future taxes, levies,
imposts, duties, fees, assessments, charges, deductions or withholdings and all
liabilities with respect thereto excluding in the case of each Lender and Agent,
income and franchise taxes imposed on it by the jurisdiction under the laws of
which such Lender or Agent is organized or in which its principal executive
offices may be located or any political subdivision or taxing authority thereof
or therein, and by the jurisdiction of such Lender's Lending Office and any
political subdivision or taxing authority thereof or therein (all such
nonexcluded taxes, levies, imposts, duties, fees, assessments, charges,
deductions, withholdings and liabilities being hereinafter referred to as
"Taxes"). If any Taxes shall be required by law to be deducted or withheld from
any payment, Borrower shall increase the amount paid so that the respective
Lender receives, or Agent receives, when due (and is entitled to retain), after
deduction or withholding for or on account of such Taxes (including deductions
or withholdings applicable to additional sums payable under this Section 3.8),
the full amount of the payment provided for in this Agreement.
(b) DEDUCTION OR WITHHOLDING; TAX RECEIPTS. If Borrower makes
any payment hereunder in respect of which it is required by law to make any
deduction or withholding, it shall pay the full amount to be deducted or
withheld to the relevant taxation or other authority within the time allowed for
such payment under applicable law and promptly thereafter shall furnish to Agent
(for itself or for redelivery to the Lender to or for the account of which such
payment was made) an original or certified copy of a receipt evidencing payment
thereof, together with such other information and documents as Agent or any
Lender (through Agent) may reasonably request.
(c) INDEMNITY. If any Lender or Agent is required by law to
make any payment on account of Taxes, or any liability in respect of any Tax is
imposed, levied or assessed against any Lender or Agent, Borrower shall
indemnify Agent and Lenders for and against such payment or liability, together
with any incremental taxes, interest or penalties, and all costs and expenses,
payable or incurred in connection therewith, including Taxes imposed on amounts
payable under this Section 3.8, whether or not such payment or liability was
correctly or legally asserted. A certificate of Agent or any Lender as to the
amount of any such payment shall, in the absence of manifest error, be
conclusive and binding for all purposes.
(d) FORMS 1001 AND 4224. Each Lender that is incorporated under
the laws of any jurisdiction outside the United States agrees to deliver to
Agent and Borrower on or prior to the Closing Date, and in a timely fashion
thereafter, Form 1001, Form 4224 or such other documents and forms of the United
States Internal Revenue Service, duly executed and completed by such Lender, as
are required under United States law to establish such Lender's status for
United States withholding tax purposes.
(e) MITIGATION. Each Lender agrees that as promptly as
practicable after it becomes aware of the occurrence of an event that would
cause Borrower to make any payment in respect of Taxes to such Lender or a
payment in indemnification with respect to any Taxes, and in
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any event if so requested by Borrower following such occurrence, each Lender
shall use reasonable efforts to make, fund or maintain its affected Loan (or
relevant part thereof) through another Lending Office if as a result thereof
the additional amounts so payable by Borrower would be avoided or materially
reduced and if, in the reasonable opinion of such Lender, the making, funding
or maintaining of such Loan (or relevant part thereof) through such other
Lending Office would not in any material respect be disadvantageous to such
Lender or contrary to such Lender's normal banking practices.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO THE INITIAL LOANS.
The obligations hereunder of each Lender, including the
obligation to make its initial Loan, shall be subject to the satisfaction of
each of the following conditions precedent on or before the Closing Date:
(a) FEES. Borrower shall have paid all fees then due in
accordance with Section 3.3.
(b) LOAN DOCUMENTS. Agent shall have received (i) this
Agreement and the Notes, duly executed by Borrower; (ii) the Collateral
Documents duly executed by each of the respective parties thereto; and (iii) the
Certified Consent, duly executed by Certified and GEC.
(c) UCC SEARCH. Agent shall have received the results, dated as
of a recent date prior to the Closing Date, of searches conducted in the UCC
filing records in each of the governmental offices in each jurisdiction in which
personal property and fixture Collateral is located, which shall have revealed
no Liens with respect to any of the Collateral except Permitted Liens.
(d) ADDITIONAL CLOSING DOCUMENTS. Agent shall have received the
following, in form and substance satisfactory to it:
(i) a certificate of the chief financial officer of
Borrower, dated the Closing Date, certifying copies of the Investment Agreement
(setting forth such terms and conditions as Agent shall require and otherwise in
form and substance satisfactory to Agent and its counsel), the Operating
Agreement (setting forth such terms and conditions as Agent shall require and
otherwise in form and substance satisfactory to Agent and its counsel), the GCC
Loan Guidelines (including therein descriptions of EFT Program Leases) and all
agreements and documents relating to outstanding Subordinated Debt and Capital
Debt;
(ii) evidence of termination of the BT Credit Agreement and
all related documents;
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(iii) certificates of one or more nationally recognized
insurance brokers or other insurance specialists acceptable to Agent, dated as
of a recent date prior to the Closing Date, evidencing that all insurance with
respect to Borrower required under this Agreement and the Collateral Documents
is in full force and effect, naming Agent as loss payee with respect to casualty
coverages and as additional insured with respect to all general liability
coverages;
(iv) evidence that all (A) authorizations or approvals, and
all material licenses, permits or authorizations, of any Governmental Authority
and (B) approvals or consents of any other Person, required in connection with
the execution, delivery and performance of the Loan Documents or the operation
and conduct of Borrower's business and ownership of its properties shall have
been obtained and shall be in full force and effect;
(v) (in sufficient copies for Lenders) the unaudited
Consolidated financial statements of Borrower and its Subsidiaries as at
July 31, 1996;
(vi) a completed Borrowing Base Certificate as of the date
not more than two Business Days before the Closing Date, together with the
related collateral reports and information, also as of such date, specified in
Section 6.1(a);
(vii) a certificate of the chief financial officer of
Borrower, dated the Closing Date, stating that (A) the representations and
warranties contained in Article V and in the other Loan Documents are true and
correct on and as of the date of such certificate as though made on and as of
such date, (B) on and as of the Closing Date, no Default shall have occurred and
be continuing or shall result from the initial Borrowing and (C) no Material
Adverse Effect has occurred and is continuing;
(viii) a certificate of the chief financial officer of
Borrower, attesting that both before and after giving effect to the transactions
contemplated by this Agreement, Borrower is and will be Solvent; and
(ix) a certificate of the chief financial officer of
Borrower, attesting that there is no pending or threatened litigation,
proceeding, inquiry or other action seeking an injunction, restraining order,
damages or other relief of any kind or nature whatsoever, legal or equitable,
with respect to the transactions contemplated by this Agreement, the Collateral
Documents, or Borrower's other business activities.
(e) CORPORATE DOCUMENTS. Agent shall have received the
following, in form and substance satisfactory to it:
(i) certified copies of the articles of incorporation of
Borrower, together with certificates as to good standing and tax status, from
the Secretary of State or other Governmental Authority, as applicable, of
Borrower's state of incorporation and certificates from the Secretary of State
or other Governmental Authority, as applicable, of each other state where
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Borrower is qualified to do business as a foreign corporation as to Borrower's
status as a foreign corporation and tax status, each dated as of a recent date
prior to the Closing Date; and
(ii) a certificate of the Secretary or Assistant Secretary
of Borrower, dated the Closing Date, certifying (A) copies of the bylaws of
Borrower and the resolutions of the Board of Directors of Borrower authorizing
the execution, delivery and performance of the Loan Documents and (B) the
incumbency, authority and signatures of each Authorized officer who will act as
such in connection with the Loan Documents.
(f) LEGAL OPINION. Agent shall have received the opinion of
Sheppard, Mullin, Richter & Hampton, counsel to Borrower, GEC and Certified,
dated the Closing Date, in substantially the form of the opinion rendered by
such law firm in connection with the BT Credit Agreement.
(g) DUE DILIGENCE AND OTHER MATTERS. Agent shall have completed
its due diligence investigation of Borrower, and shall be satisfied, in its sole
discretion, with the results thereof, including an investigation confirming that
there has not occurred a substantial impairment of the financial markets
generally.
(h) TERMINATION OF INTERCOMPANY OBLIGATIONS. All obligations
owing by Borrower to Certified under the Certified Note shall be paid in full,
and Agent shall have received copies of the Certified Note and the Certified
Subordination and Security Agreement marked "Cancelled".
4.2 CONDITIONS PRECEDENT TO ALL LOANS.
The obligation of each Lender to make a Loan on the occasion of
each Borrowing, including the initial Loan, shall be subject to the satisfaction
of each of the following conditions precedent:
(a) NOTICE. Borrower shall have given the Notice of Borrowing
or telephonic notice thereof as provided in Section 2.2.
(b) BORROWING BASE CERTIFICATE AND COLLATERAL REPORTS. Borrower
shall have delivered to Agent a completed Borrowing Base Certificate dated as of
a date at least as recent as that required under Section 6.1(a)(viii), in form
and substance satisfactory to Agent, together with the related collateral
reports and information required under Section 6.1(a)(viii), and the statements
contained therein shall be true and correct on and as of the date thereof. The
giving of any Notice of Borrowing and the acceptance by Borrower of the proceeds
of a Borrowing shall each be deemed a certification to Agent and Lenders that on
and as of the date of such Borrowing such statements are true and correct as of
the date of such Borrowing Base Certificate and that any changes in the
information set forth therein have been only in the ordinary course of business.
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(c) COLLATERAL. Agent shall have received, in form and
substance satisfactory to it, evidence that all filings, registrations and
recordings have been made in the appropriate governmental offices, and all other
action has been taken, which shall be necessary to create, in favor of Agent on
behalf of Lenders, a perfected first priority Lien on the Collateral, including
the filing of completed UCC-1 financing statements in the appropriate
governmental offices, any necessary deliveries of Collateral (including all
Collateral consisting of instruments) to the extent and in the manner provided
in Section 3 of the Security Agreement, together with appropriate endorsements,
and compliance with all other Collateral Procedures.
(d) MATERIAL ADVERSE EFFECT. On and as of the date of such
Borrowing, there shall have occurred no Material Adverse Effect since the date
of this Agreement (in the case of the initial Borrowing) or the date of the most
recent Borrowing (in the case of any subsequent Borrowing), as the case may be.
(e) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. On the date of
such Borrowing, both before and after giving effect thereto and to the
application of proceeds therefrom: (i) the representations and warranties
contained in Article V and in the other Loan Documents shall be true and correct
on and as of the date of such Borrowing as though made on and as of such date;
and (ii) no Default shall have occurred and be continuing or shall result from
such Borrowing. For purposes of this Section 4.2(e) in respect of the
representation and warranty contained in Section 5.1(p), clause (i) shall be
deemed to refer to the last day of the most recent fiscal quarter and fiscal
year for which financial statements have then been delivered and shall not be
deemed to refer to any other representations and clause (i) warranties which
relate solely to a specific date (PROVIDED that such other representations and
warranties shall be true and correct as of such date). The giving of any Notice
of Borrowing and the acceptance by Borrower of the proceeds of each Borrowing
following the Closing Date shall each be deemed a certification to Agent and
Lenders that on and as of the date of such Borrowing such statements are true.
(f) ADDITIONAL DOCUMENTS. Agent shall have received, in form
and substance satisfactory to it, such additional approvals, opinions, documents
and other information as Agent or any Lender (through Agent) may reasonably
request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to each Lender and Agent that:
(a) ORGANIZATION AND POWERS. Each of Borrower and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the law of the jurisdiction of its incorporation, is qualified to
do business and is in good standing in each jurisdiction in which the failure so
to qualify or be in good standing would have a Material Adverse Effect and has
all
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requisite power and authority to own its assets and carry on its business and
to execute, deliver and perform its obligations under the Loan Documents.
(b) AUTHORIZATION; NO CONFLICT. The execution, delivery and
performance by Borrower of the Loan Documents have been duly authorized by all
necessary corporate action of Borrower and do not and will not (i) contravene
the terms of the certificate or articles, as the case may be, of incorporation
and the bylaws of Borrower or result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower is a party or by which it or its properties may be
bound or affected; (ii) violate any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree or the like binding on or affecting
Borrower; or (iii) except as contemplated by this Agreement, result in, or
require, the creation or imposition of any Lien upon or with respect to any of
the properties of Borrower.
(c) BINDING OBLIGATION. The Loan Documents to which Borrower is
or will become a party constitute, or when delivered under this Agreement will
constitute, legal, valid and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms.
(d) CONSENTS. No authorization, consent, approval, license,
exemption of, or filing or registration with, any Governmental Authority, or
approval or consent of any other Person, is required for the due execution,
delivery or performance by Borrower of any of the Loan Documents, except for
recordings or filings in connection with the perfection of the Liens on the
Collateral in favor of Agent on behalf of Lenders.
(e) NO DEFAULTS. Neither Borrower nor any of its Subsidiaries
is in default under any material contract, lease, agreement, judgment, decree or
order to which it is a party or by which it or its properties may be bound,
which default would have a Material Adverse Effect.
(f) TITLE TO PROPERTIES; LIENS. Borrower and its Subsidiaries
have good and marketable title to their properties and assets, including all
property forming a part of the Collateral, and there is no Lien upon or with
respect to any of such properties or assets, including any of the Collateral,
except for Permitted Liens.
(g) LITIGATION. There are no actions, suits or proceedings
pending or, to the best of Borrower's knowledge, threatened against or affecting
Borrower or any of its Subsidiaries or the properties of Borrower or any of its
Subsidiaries before any Governmental Authority or arbitrator which if determined
adversely to Borrower or any such Subsidiary would have a Material Adverse
Effect.
(h) COMPLIANCE WITH ENVIRONMENTAL LAWS. Each of Borrower and
its Subsidiaries is in full compliance with all Environmental Laws, whether in
connection with the ownership, use, maintenance or operation of its Premises or
the conduct of any business thereon, or otherwise. Neither Borrower, any of its
Subsidiaries nor to the best of Borrower's knowledge, after due and diligent
inquiry and investigation, any previous owner, tenant, occupant, user or
operator of the Premises, or any present tenant or other present occupant, user
or operator of
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the Premises, has used, generated, manufactured, installed, treated,
released, stored or disposed of any Hazardous Substances on, under, or at the
Premises, except in compliance with all applicable Environmental Laws. After
due and diligent inquiry and investigation, Borrower has determined that no
Hazardous Substances have at any time been spilled, leaked, dumped,
deposited, discharged, disposed of or released on, under, at or from the
Premises, nor have any of the Premises been used at any time by any Person as
a landfill or waste disposal site. There are no actions, suits, claims,
notices of violation, hearings, investigations or proceedings pending or, to
the best of Borrower's knowledge, threatened against or affecting Borrower or
any of its Subsidiaries or with respect to the ownership, use, maintenance
and operation of the Premises, relating to Environmental Laws or Hazardous
Substances.
(i) GOVERNMENTAL REGULATION. Neither Borrower nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the
Interstate Commerce Act, any state public utilities code or any other federal or
state statute or regulation limiting its ability to incur Indebtedness.
(j) ERISA.
(i) Borrower and all ERISA Affiliates have satisfied all
applicable contribution requirements under Section 412(c)(11) of the Internal
Revenue Code and have never sought a waiver under Section 412(d) of the Internal
Revenue Code;
(ii) no Termination Event has occurred and is continuing, or
is reasonably expected to occur;
(iii) the aggregate amount of Unfunded Accrued Benefits under
all Pension Plans (excluding in such computation Pension Plans with assets
greater than accrued benefits) does not exceed $250,000;
(iv) there is no condition or event under which Borrower,
any ERISA Affiliate, or any Plan maintained by Borrower or any ERISA Affiliate
could be subject to any risk of material liability under ERISA or the Internal
Revenue Code, regardless of whether Borrower or any ERISA Affiliate engaged in a
transaction giving rise to the liability;
(v) neither Borrower nor any ERISA Affiliate has unfunded,
contingent liability that exceeds $250,000 with respect to Plans that provide
post-retirement welfare benefits; and
(vi) all Plans maintained by, or contributed to by, Borrower
or any ERISA Affiliate comply in all material respects, and have been
administered in material compliance with, the requirements of applicable law
(including, if applicable, foreign law, ERISA and the Internal Revenue Code),
and in accordance with each Plan's terms.
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(k) SUBSIDIARIES; OWNERSHIP.
(i) The name, capital structure and ownership of each
Subsidiary of Borrower on the date of this Agreement is as set forth in SCHEDULE
5.1(k). All of the outstanding capital stock of, or other interest in, each
such Subsidiary has been validly issued, and is fully paid and nonassessable.
Except as set forth in such Schedule, on the date of this Agreement Borrower has
no material equity interest in any Person.
(ii) Certified is directly, or indirectly through GEC, the
record and beneficial owner of 100% of the issued and outstanding shares of
capital stock of Borrower.
(l) RECEIVABLES.
(i) At the time of the creation of a Receivable, such
Receivable will be a bona fide existing obligation in the ordinary and usual
course of Borrower's business; to the best of Borrower's knowledge at the time
of the creation of a Receivable, such Receivable will be owed to Borrower
without any defenses, disputes, offsets, or counterclaims, or any rights of
cancellation; Borrower shall not have received notice of actual or imminent
bankruptcy or insolvency of any Receivable Debtor at the time the Receivable due
from such Receivable Debtor is created; in accordance with prudent credit
policies, to the best knowledge of Borrower at the time of the creation of any
Receivable, the Receivable Debtor will be able to timely discharge all of its
Indebtedness to Borrower; and, in the event Borrower becomes aware or is
notified that any of the warranties, representations or covenants contained in
this Section 5.1(l) is no longer completely accurate or true, or becomes aware
of any fact or event which would adversely affect any or all of the Receivable
Debtor's ability to timely discharge any or all of their Indebtedness to
Borrower, Borrower will immediately provide Agent with written notification of
such change in circumstances and any and all information Borrower has regarding
same.
(ii) At the time each Receivable is created, all performance
by Borrower giving rise to such Receivable shall have been completed. Borrower
shall deliver to Agent, all originals of all Store Development Loans, Equipment
Loans, Inventory Loans, Deposit Fund Loans, Affiliate Loans, EFT Program Leases,
and such other documentation as Agent may from time to time require. All copies
of all such items, whether retained by Borrower, the Receivable Debtor
thereunder, or any other party, shall be conspicuously marked "Copy."
(iii) At the time each Receivable is created, all such
Receivables will be due and payable on terms based upon Borrower's historical
ordinary course of business practices, or less (or on such other terms approved
in writing by Agent in advance of the creation of such Receivable and which are
expressly set forth on the face of all Finance Receivables and Additional
Loan/Lease Receivables, copies of which shall be held by Borrower as custodian
for Agent).
(iv) Agent shall retain its security interest in all
Receivables, eligible and ineligible, until all Obligations have been fully
repaid and the Commitments have been terminated. Borrower shall promptly notify
Agent of all recoveries and, on request, promptly notify Agent of all
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disputes and claims. During the existence of an Event of Default, no
discount, credit or allowance shall be granted to any Receivable Debtor by
Borrower without Agent's consent. Agent may, during the existence of an
Event of Default, settle or adjust disputes and claims directly with
Receivable Debtors for amounts and upon terms which Agent considers
advisable, and in such cases Agent will credit Borrower's account with only
the net amounts received by Agent in payment of the Receivables, after
deducting all Agent's Expenses in connection therewith.
(m) MARGIN REGULATIONS. Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying "margin stock"
(within the meaning of Regulations G or U of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of the
Loans will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock.
(n) TAXES. Each of Borrower and its Subsidiaries has duly filed
all tax and information returns required to be filed, and has paid all taxes,
fees, assessments and other governmental charges or levies that have become due
and payable, except to the extent such taxes or other charges are being
contested in good faith and are adequately reserved against in accordance with
GAAP.
(o) PATENTS AND OTHER RIGHTS. Each of Borrower and its
Subsidiaries possesses all permits, franchises, licenses, patents, trademarks'
trade names, service marks, copyrights and all rights with respect thereto, free
from burdensome restrictions, that are necessary for the ownership, maintenance
and operation of its business and neither Borrower nor any such Subsidiary is in
violation of any rights of others with respect to the foregoing.
(p) INSURANCE. The properties of Borrower and its Subsidiaries
are insured, with financially sound and reputable insurance companies, in such
amounts, with such deductibles and covering such risks as is customarily carried
by companies engaged in similar businesses and owning similar properties in the
localities where Borrower or such Subsidiary operates.
(q) FINANCIAL STATEMENTS. The audited Consolidated balance
sheet of Borrower and its Subsidiaries as at August 31, 1995, and the related
Consolidated statements of income, shareholders' equity and cash flows for the
fiscal year then ended, and the unaudited Consolidated balance sheet of Borrower
and its Subsidiaries as at July 31, 1996 and the related Consolidated statement
of income for the month then ended and the eleven month period then ended, are
complete and correct and fairly represent the financial condition of Borrower
and its Subsidiaries as at such dates and the results of operations of Borrower
and its Subsidiaries for the periods covered by such statements, in each case in
accordance with GAAP consistently applied, subject, in the case of the July 31,
1996 financial statements, to normal year-end adjustments. Since August 31,
1995, there has been no Material Adverse Effect.
(r) LIABILITIES. Neither Borrower nor any of its Subsidiaries
has any material liabilities, fixed or contingent, that are not reflected in the
financial statements referred to in subsection (q), in the notes thereto or
otherwise disclosed in writing to Lenders, other than liabilities
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arising in the ordinary course of business since August 31, 1995 the NCB Loan
Purchase Agreement and the Guaranty.
(s) LABOR DISPUTES, ETC. There are no strikes, lockouts or
other labor disputes against Borrower or any of its Subsidiaries, or, to the
best of Borrower's knowledge, threatened against or affecting Borrower or any of
its Subsidiaries, which may have a Material Adverse Effect.
(t) DISCLOSURE. None of the representations or warranties made
by Borrower or any of its Subsidiaries in the Loan Documents as of the date of
such representations and warranties, and none of the statements contained in
each exhibit or report furnished by or on behalf of Certified, Borrower or any
of its Subsidiaries to Agent and Lenders in connection with the Loan Documents,
contains any untrue statement of a material fact or omits any material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they are made, not misleading.
(u) SUBORDINATED DEBT; OTHER AGREEMENTS. Borrower is not in
default under or in breach of the terms of any Subordinated Debt or any other
indentures or agreements to which it is a party.
(v) MATERIAL ADVERSE EFFECT. No other Material Adverse Effect
has occurred and is continuing.
(w) SOLVENCY. Borrower is and shall hereafter be at all times
Solvent.
ARTICLE VI
COVENANTS
6.1 REPORTING COVENANTS.
So long as any of the Obligations shall remain unpaid or any
Lender shall have any Commitment, Borrower agrees that:
(a) FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will
furnish to Agent in sufficient copies for distribution to Lenders:
(i) as soon as available and in any event within 120 days
after the end of each fiscal year of Borrower, a Consolidated balance sheet of
Borrower and its Subsidiaries as of the end of such fiscal year, and the related
Consolidated statements of shareholders' equity and cash flows of Borrower and
its Subsidiaries for such fiscal year, prepared in accordance with GAAP
consistently applied, all in reasonable detail and setting forth in comparative
form the figures for the previous fiscal year, and accompanied by a report
thereon of independent certified public accountants of recognized national
standing acceptable to Agent, which report shall be unqualified as to scope of
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audit or the status of Borrower and its Subsidiaries as a going concern,
together with a certificate of such independent public accountants stating that
(1) their audit examination of Borrower and its Subsidiaries has included a
review of the terms of this Agreement as they relate to accounting matters; (2)
in the course of such audit examination, which audit was conducted by such
accountants in accordance with generally accepted auditing standards, such
accountants have obtained no knowledge that any Default has occurred and is
continuing, or, if such Default has occurred and is continuing, indicating the
nature thereof; PROVIDED that such accountants shall not be liable by reason of
any failure to obtain knowledge of any Default that would not be disclosed in
the course of their audit examination; and (3) based on their audit examination
nothing has come to their attention which causes them to believe that the
matters set forth in the Compliance Certificate delivered pursuant to clause (v)
for the applicable fiscal year with respect to compliance with the provisions of
Section 6.2 and subsections (a), (f), (g) and (h) of Section 6.4 are not stated
in accordance with the terms of this Agreement;
(ii) as soon as available and in any event within 45 days
after the end of each calendar month, a Consolidated balance sheet of Borrower
and its Subsidiaries as of the end of such month, and the related Consolidated
and consolidating statement of income of Borrower and its Subsidiaries for such
month and the portion of the fiscal year through such month, prepared in
accordance with GAAP consistently applied, all in reasonable detail and setting
forth in comparative form (A) the figures for the corresponding period in the
preceding fiscal year and (B) the projected figures for the corresponding period
contained in the forecast for the current fiscal year delivered to Lenders
hereunder, together with a certificate of the chief financial officer of
Borrower stating that such financial statements fairly present the financial
condition of Borrower and its Subsidiaries as at such date and the results of
operations of Borrower and its Subsidiaries for the period ended on such date
and have been prepared in accordance with GAAP (except for the absence of
footnote disclosure) consistently applied, subject to changes from normal,
year-end adjustments;
(iii) concurrent with the financial statements delivered
pursuant to subsection (i) above, copies of the reports submitted to Borrower by
its independent certified public accountants in connection with each annual
audit examination of Borrower and its Subsidiaries made by such accountants,
including the "management letter" submitted by such accountants to Borrower in
connection with their annual audit relating to the results of operations of
Borrower and any variance from Borrower's projections;
(iv) as soon as available and in any event within 45 days
after the end of each of the first three fiscal quarters of each fiscal year of
Borrower and together with the annual financial statements required pursuant to
clause (i), a Compliance Certificate as of the end of such fiscal quarter or
fiscal year;
(v) as soon as available and in any event not more than 90
days after the start of each fiscal year of Borrower and its Subsidiaries, a
Consolidated financial forecast for Borrower and its Subsidiaries for the
following fiscal year, including forecasted Consolidated balance sheets and
statements of income and cash flow of Borrower and its Subsidiaries, which
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forecast shall (A) state the assumptions used in the preparation thereof, (B)
contain such other information as requested by any Lender and (C) be in form
satisfactory to the Majority Lenders;
(vi) as soon as available, copies of all financial
statements and reports delivered by Certified under Section 6.12 of the
Certified Loan Agreement, together with all certificates accompanying or
delivered in connection such financial statements and reports;
(vii) as soon as available and in any event not later than
fifteen Business Days after the end of each calendar month (or more frequently
if requested by the Majority Lenders), (A) a completed Borrowing Base
Certificate, (B) a report with respect to the Receivables containing (1)
detailed aging information, (2) summaries of the Receivables, including a
breakdown thereof by category, (3) descriptions of any amendments modifications
and waivers entered into with or otherwise granted to any Receivable Debtors,
and (4) a listing of all charge-offs since the date of the last such report, and
(C) the "Watch Report" prepared by Borrower with respect to the Receivable
Debtors, each as of the end of such month (or other reporting period so
requested) and in form and substance satisfactory to Agent;
(viii) such reports and notices as are required by the
Security Agreement;
(ix) prompt written notice of any proposed changes in the
GCC Loan Guidelines and material changes to the other documentation, credit and
collection policies and practices of Borrower, setting forth the details
thereof; and
(x) promptly after the giving, sending or filing thereof,
copies of all reports, if any, which Certified sends to the holders of its
capital stock or other securities and of all reports or filings, if any, by
Certified, Borrower or any of their Subsidiaries with the Securities and
Exchange Commission or any national securities exchange.
(b) ADDITIONAL INFORMATION. Borrower will furnish to Agent:
(i) concurrent with the financial statements delivered
pursuant to Sections 6.1(a)(i) and (ii), a certificate of the chief financial
officer of Borrower certifying that as of the end of the fiscal year, fiscal
quarter or month, as applicable, no Default has occurred and is continuing, or,
if a Default has occurred and is continuing, setting forth details of such
Default and the action which Borrower proposes to take with respect thereto;
(ii) prompt written notice of (A) any proposed acquisition
of stock, assets or property by Borrower that could reasonably be expected to
result in environmental liability under Environmental Laws, and (B) (1) any
spillage, leakage, discharge, disposal, leaching, migration or release of any
Hazardous Substances required to be reported to any Governmental Authority under
applicable Environmental Laws, and (2) all actions, suits, claims, notices of
violation, hearings, investigations or proceedings pending, or to the best of
Borrower's knowledge, threatened against or affecting Borrower with respect to
the ownership, use, maintenance and operation of the Premises,
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relating to Environmental Laws or Hazardous Substances, in each case together
with a statement of an Authorized Officer setting forth the details thereof
and the action which Borrower proposes to take with respect thereto;
(iii) prompt written notice of all actions, suits and
proceedings before any Governmental Authority or arbitrator pending, or to the
best of Borrower's knowledge, threatened against or affecting Borrower or any of
its Subsidiaries which (A) if adversely determined would involve an aggregate
liability of $250,000 or more, or (B) otherwise may have a Material Adverse
Effect;
(iv) promptly and in any event within 30 days after Borrower
has knowledge that any Termination Event has occurred, a statement of an
Authorized Officer setting forth details as to such Termination Event and the
action which Borrower proposes to take with respect thereto, together with a
copy of any notice of such Termination Event to the PBGC; and promptly after
Borrower becomes aware thereof, the details concerning any action taken or
proposed to be taken by the IRS, PBGC, Department of Labor or other Person with
respect thereto;
(v) promptly upon the commencement or increase of
contributions to, the adoption of, or an amendment to, a Plan by Borrower or an
ERISA Affiliate, if such commencement or increase of contributions, adoption, or
amendment could reasonably be expected to result in a net increase in unfunded
liability to Borrower or an ERISA Affiliate in excess of $250,000, a calculation
of the net increase in unfunded liability;
(vi) promptly after filing or receipt thereof by Borrower or
any ERISA Affiliate, copies of the following: (A) any notice received from the
PBGC of intent to terminate or have a trustee appointed to administer any
Pension Plan; (B) any notice received from the sponsor of a Multiemployer Plan
concerning the imposition, delinquent payment, or amount of withdrawal
liability; (C) any demand by the PBGC under Subtitle D of Title IV of ERISA; and
(D) any notice received from the IRS regarding the disqualification of a Plan
intended to qualify under Section 401(a) of the Internal Revenue Code;
(vii) the information regarding insurance maintained by
Borrower as required under Section 6.3(c);
(viii) prompt written notice of any Event of Default or any
other condition or event which has resulted, or that could reasonably be
expected to result, in a Material Adverse Effect; and
(ix) such other information respecting the operations,
properties, business or condition (financial or otherwise) of Certified,
Borrower or their respective Subsidiaries (including with respect to the
Collateral) as any Lender (through Agent) may from time to time reasonably
request.
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6.2 FINANCIAL COVENANTS.
So long as any of the Obligations shall remain unpaid or any
Lender shall have any Commitment, Borrower agrees that:
(a) DEBT RATIO. Borrower will maintain a ratio of its
Indebtedness (excluding any Capital Debt) to Consolidated Adjusted Tangible Net
Worth as of the end of each of Borrower's fiscal quarters of not more than 1.6
to 1.0.
(b) MINIMUM TANGIBLE NET WORTH. Borrower will maintain
Consolidated Tangible Net Worth at all times of not less than $12,500,000.
(c) INTEREST COVERAGE RATIO. Borrower will maintain a ratio of
Consolidated EBIT to Consolidated Interest Expense, for the period of four
consecutive fiscal quarters of the Borrower then ended (taken as one accounting
period), of not less than 0.9 to 1.0, as determined as of the end of each of
Borrower's first three fiscal quarters, and of not less than 1.0 to 1.0, as of
each of Borrower's fiscal year ends.
6.3 ADDITIONAL AFFIRMATIVE COVENANTS.
So long as any of the Obligations shall remain unpaid or any
Lender shall have any Commitment, Borrower agrees that:
(a) PRESERVATION OF EXISTENCE, ETC. Borrower will, and will
cause each of its Subsidiaries to, maintain and preserve its corporate
existence, its rights to transact business and all other rights, franchises and
privileges necessary or desirable in the normal course of its business and
operations and the ownership of its properties.
(b) PAYMENT OF TAXES. ETC. Borrower will, and shall cause each
of its Subsidiaries to, pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it or upon its properties or assets
prior to the date on which penalties attach thereto, and all lawful claims for
labor, materials and supplies which, if unpaid, might become a Lien upon any
properties or assets of Borrower or any Subsidiary, except to the extent such
taxes, fees, assessments or governmental charges or levies, or such claims, are
being contested in good faith by appropriate proceedings and are adequately
reserved against in accordance with GAAP.
(c) MAINTENANCE OF INSURANCE. Borrower, at its expense, shall
keep and maintain the Collateral insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks ordinarily insured
against by other owners who use such properties in businesses for the full
insurable replacement value thereof. Borrower shall also keep and maintain
business interruption insurance and public liability and property damage
insurance relating to Borrower's ownership and use of the Collateral and its
other assets. All such policies of insurance shall be in such form, with such
companies and in such amounts as may be satisfactory to Agent. Borrower shall
deliver to Agent certified copies of such policies of insurance and, upon
Agent's
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request, evidence of the payments of all premiums therefor. All such
policies of insurance except those of public liability and those relating to
property damage caused by Borrower or Borrower's agents and employees shall
contain an endorsement in a form satisfactory to Agent showing Agent, on
behalf of Lenders, as an additional insured thereunder, with a waiver of
warranties thereof, and all proceeds payable thereunder shall be payable to
Agent, on behalf of Lenders, and, upon receipt by Agent, shall be applied on
the account of the Obligations. To secure the payment of the Obligations,
Borrower grants Agent, on behalf of Lenders, a security interest in and to
all such policies of insurance relating to the Collateral and the proceeds
thereof, and Borrower shall direct all insurers under such policies of
insurance relating to the Collateral to pay all proceeds thereof directly to
Agent, on behalf of Lenders.
Borrower hereby irrevocably appoints Agent, on behalf of
Lenders (acting through any of Agent's officers, employees or agents designated
by Agent) to act, during the existence of an Event of Default, as Borrower's
attorney in fact for the purpose of making, settling, and adjusting claims under
such policies of insurance relating to the Collateral, endorsing the name of
Borrower on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. Absent the existence of
an Event of Default, Borrower shall have the right to make, settle and adjust
any and all claims under such policies of insurance; PROVIDED, HOWEVER, that
Borrower shall not legally conclude the settlement or adjustment of any claim in
excess of Two Hundred Fifty Thousand Dollars ($250,000) without first obtaining
the written consent of Agent. Borrower will not cancel any of such policies
without Agent's prior written consent. Each such insurer shall agree by
endorsement upon the policy or policies of insurance issued by it to Borrower as
required above, or by independent instruments furnished to Agent, that it will
give Agent at least ten (10) days' written notice before any such policy or
policies of insurance shall be altered or cancelled, and that no act or default
of Borrower, or any other Person, shall affect the right of Agent to recover
under such policy or policies of insurance required above or to pay any premium
in whole or in part relating thereto. If Borrower fails to obtain such policy
or policies of insurance, Agent may, without waiving or releasing any
Obligations or Default, but shall have no obligation to do so, obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect to such policies which Agent deem advisable. All sums so
disbursed by Agent, as well as reasonable attorneys' fees, court costs,
expenses, and other charges relating thereto, shall be a part of the Obligations
and payable on demand.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Borrower at all
times hereafter shall maintain, and shall cause each of its Subsidiaries to
maintain, a standard and modern system of accounting in accordance with GAAP,
consistently applied, with ledger and account cards or computer tapes and
computer discs, computer printouts and computer records pertaining to the
Collateral which contain information as may from time to time be requested by
Agent. Borrower shall not, and Borrower shall not permit any of its
Subsidiaries to, modify or change its method of accounting or enter into, modify
or terminate any agreement presently existing, or at any time hereafter entered
into with any third party accounting firm or service bureau for the preparation
or storage of Borrower's and its Subsidiaries' accounting records without
written consent of Agent first
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obtained and without said accounting firm or service bureau agreeing to
provide information regarding the Collateral and Borrower's financial
condition to Agent.
(e) INSPECTION RIGHTS; AUDITS. Borrower will at any reasonable
time and from time to time (i) permit Agent and Lenders or any of their
respective agents or representatives to visit and inspect any of the properties
of Borrower and its Subsidiaries and to examine and make copies of and abstracts
from the records and books of account of Borrower and its Subsidiaries, and to
discuss the business affairs, finances and accounts of Borrower and any such
Subsidiary with any of the officers, employees or accountants of Borrower or
such Subsidiary, and (ii) permit Agent or any of its agents or representatives
to conduct one (1) periodic audit of the Collateral each twelve month period,
commencing the Closing Date (or more during the continuance of an Event of
Default and at such other frequencies as Agent or the Majority Lenders shall
reasonably request absent an Event of Default), PROVIDED that communications
between Agent or its agents or representatives and any Receivable Debtor in
connection with any such audit shall be subject to the prior consent of Borrower
at all times other than during the existence of an Event of Default, which
consent of Borrower shall not be unreasonably withheld.
(f) COMPLIANCE WITH LAWS, ETC. Borrower will, and will cause
each of its Subsidiaries to, comply in all material respects with the
requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority (including all Environmental Laws) and the terms of any
indenture, contract or other instrument to which it may be a party or under
which it or its properties may be bound.
(g) MAINTENANCE OF PROPERTIES, ETC. Borrower will, and will
cause each of its Subsidiaries to, maintain and preserve all of its properties
necessary or useful in the proper conduct of its business in good working order
and condition in accordance with the general practice of other corporations of
similar character and size, ordinary wear and tear excepted.
(h) LICENSES. Borrower will, and will cause each of its
Subsidiaries to, obtain and maintain all licenses, authorizations, consents,
filings, exemptions, registrations and other governmental approvals necessary in
connection with the execution, delivery and performance of the Loan Documents,
the consummation of the transactions therein contemplated or the operation and
conduct of its business and ownership of its properties.
(i) ACTION UNDER ENVIRONMENTAL LAWS. Borrower will, and will
cause each of its Subsidiaries to, upon becoming aware of the presence of any
Hazardous Substance or the existence of any environmental liability under
applicable Environmental Laws with respect to the Premises, take all actions, at
their cost and expense, as shall be necessary or advisable to investigate and
clean up the condition of the Premises, including all removal, containment and
remedial actions, and restore the Premises to a condition in compliance with
applicable Environmental Laws.
(j) USE OF PROCEEDS. Borrower will use the proceeds of the
Loans solely for the purpose of providing financing to the Certified Patrons in
accordance with the GCC Loan Guidelines and to Affiliates of Borrower pursuant
to Affiliate Loans.
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(k) NCB STOCK. Borrower shall hold that number of shares of
Class B capital stock of NCB ("NCB Stock"), par value $100 per share, which is
equal to one percent (1%) of the maximum amount of NCB's Commitment, and
Borrower shall promptly execute and deliver such additional documents or
instruments as NCB shall deem necessary or appropriate for NCB to obtain a
perfected first priority Lien on such NCB Stock.
(l) FURTHER ASSURANCES AND ADDITIONAL ACTS. Borrower will
execute, acknowledge, deliver, file, notarize and register at its own expense
all such further agreements, instruments, certificates, documents and assurances
and perform such acts as Agent or the Majority Lenders shall deem necessary or
appropriate to effectuate the purposes of the Loan Documents, and promptly
provide Agent with evidence of the foregoing satisfactory in form and substance
to Agent and the Majority Lenders, including, without limitation, any such
agreements, instruments and documents that Agent shall deem necessary or
desirable to reflect the release of any Collateral in connection with an
Incremental Purchase.
6.4 NEGATIVE COVENANTS.
So long as any of the Obligations shall remain unpaid or any
Lender shall have any Commitment, Borrower agrees that:
(a) INDEBTEDNESS. Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or otherwise become liable for or
suffer to exist any Indebtedness, other than:
(i) Indebtedness of Borrower to Lenders hereunder;
(ii) accounts payable to trade creditors for goods and
services and current operating liabilities (not the result of the borrowing of
money) incurred in the ordinary course of Borrower's or such Subsidiary's
business in accordance with customary terms and paid within the specified time,
unless contested in good faith by appropriate proceedings and reserved for in
accordance with GAAP;
(iii) Indebtedness consisting of guarantees resulting from
endorsement of negotiable instruments for collection by Borrower or any of its
Subsidiaries in the ordinary course of business;
(iv) existing Indebtedness of Borrower and its Subsidiaries
set forth in SCHEDULE 6.4(A)(IV);
(v) Senior Debt and Subordinated Debt of Borrower and its
Subsidiaries in an aggregate principal amount not to exceed $30,000,000 at any
time outstanding;
(vi) Indebtedness consisting of Capital Debt;
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(vii) Indebtedness of Borrower and its Subsidiaries under
Capital Leases in an aggregate principal amount not to exceed $1,000,000 at any
time outstanding;
(viii) Indebtedness of Borrower to any of its wholly-owned
Subsidiaries or of any of its wholly-owned Subsidiaries to another of its
wholly-owned Subsidiaries; and
(ix) Indebtedness of Borrower incurred pursuant to the Loan
Purchase Agreements in a maximum principal amount not to exceed $70,000,000 and
Indebtedness of Borrower under the Guaranty.
(b) LIENS. Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any of its properties or assets, whether now owned or hereafter
acquired, other than Permitted Liens.
(c) CHANGE IN NATURE OF BUSINESS. Borrower will not, and will
not permit any of its Subsidiaries to, engage in any material line of business
substantially different from those lines of business carried on by it at the
date hereof.
(d) RESTRICTIONS ON FUNDAMENTAL CHANGES. Borrower will not, and
will not permit any of its Subsidiaries to, (i) liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or (ii) merge with or
consolidate into, or acquire all or substantially all of the assets of, any
Person, or enter into any partnership or joint venture with any Person, or sell,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets, except that any
of Borrower's wholly-owned Subsidiaries may merge with, consolidate into or
transfer all or substantially all of its assets to another of Borrower's
wholly-owned Subsidiaries or to Borrower.
(e) SALES AND LEASES OF ASSETS. Borrower will not, and will not
permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose
of, or part with control of (whether in one transaction or a series of
transactions) any assets (including any shares of stock in any Subsidiary or
other Person), except (i) sales or other dispositions of assets in the ordinary
course of business which have become worn out or obsolete or which are promptly
being replaced; (ii) sales or other dispositions of assets by any of its
wholly-owned Subsidiaries to another of its wholly-owned Subsidiaries or to
Borrower; (iii) the sale of any Receivables to Certified to facilitate the
collection of such Receivables in accordance with the provisions of the
Operating Agreement; (iv) the sale or other disposition of Receivables or other
lease or loan assets if (A) such sale or other disposition by Borrower is
effected as part of and contemporaneously with the extension of credit by
Borrower to the Receivables Debtor which gives rise to the Receivable, loan or
lease asset subject of the sale or disposition, and (B) payments by the
Receivable Debtors thereon shall be made directly to the transferees of such
assets and such transferees shall have all other loan servicing obligations with
respect to such assets; (v) the sale or other disposition effected by Borrower
of assets acquired as an Investment permitted under Section 6.4(f)(v) which sale
or other disposition is effected in compliance
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with obligations of Borrower incurred when such Investment was made; and (vi)
the sale of the Released Collateral in accordance with the Loan Purchase
Agreements.
(f) LOANS AND INVESTMENTS. Borrower will not, and will not
permit any of its Subsidiaries to, purchase or otherwise acquire the capital
stock, assets (constituting a business unit), obligations or other securities of
or any interest in any Person, or otherwise extend any credit to or make any
additional investments in any Person, other than in connection with:
(i) Receivables under the GCC Loan Guidelines in the
ordinary course of Borrower's business, except as provided in clause (v);
(ii) extensions of credit to customers of GEC in accordance
with the GCC Loan Guidelines in the ordinary course of Borrower's business not
to exceed $750,000 at any time outstanding;
(iii) Affiliate Loans;
(iv) Permitted Investments and the NCB Stock; or
(v) extensions of credit in the form of subordinated
Indebtedness from, and equity investments in, Certified Patrons, PROVIDED that,
except for the investments and subordinated Indebtedness set forth on SCHEDULE
6.4(F)(V), no such extension of credit shall be made or investment consummated
if, after and giving effect thereto, the aggregate amount of such subordinated
Indebtedness and equity investments shall exceed, at the time of the credit
extension or investment, as the case may be, the amount set forth below under
the heading "Maximum Amount" during a time that the amount of Consolidated
Adjusted Tangible Net Worth of Borrower shall be within the range set forth
opposite such Maximum Amount:
Consolidated Adjusted Maximum
Tangible Net Worth Amount
-------------------------- -----------
Less than $14,500,000 $ 0
$14,500,000 to $14,999,999 $ 5,000,000
$15,000,000 to $17,499,999 $ 8,000,000
$17,500,000 to $19,999,999 $10,000,000
$20,000,000 to $22,499,999 $12,000,000
$22,500,000 to $24,999,999 $14,000,000
$25,000,000 to $27,499,999 $16,000,000
$27,500,000 to $29,999,999 $18,000,000
$30,000,000 and above $20,000,000
PROVIDED that nothing in the foregoing clause (v) shall require the liquidation
or redemption of any such subordinated Indebtedness or equity investment that
was permitted hereunder when made; PROVIDED, FURTHER, any increase in the book
or fair market value of any such equity investments in
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Certified Patrons shall be disregarded for purpose of the computation of
Maximum Amount; PROVIDED FURTHER, for the purpose of calculating Consolidated
Adjusted Tangible Net Worth for this Section 6.4(f)(v), Capital Debt shall
not include that portion, if any, thereof that exceeds fifty percent (50%) of
Consolidated Tangible Net Worth.
(g) CAPITAL EXPENDITURES. Borrower will not, and will not
permit any of its Subsidiaries to, make any expenditures for fixed or capital
assets, including obligations under Capital Leases, in excess of $100,000, on a
Consolidated basis, in any fiscal year of Borrower. For purposes of the
foregoing, the acquisition by Borrower of (i) equipment for the purpose of
leasing such equipment to Certified Patrons in the ordinary course of business
or (ii) assets upon foreclosure of a security interest securing a Receivable, or
in settlement thereof, arising in the ordinary course of business shall not be
deemed an expenditure for fixed or capital assets.
(h) OPERATING LEASES. Borrower will not, and will not permit
any of its Subsidiaries to, make any expenditures in respect of Operating
Leases, except for: (i) Operating Leases between Borrower and any of its
wholly-owned Subsidiaries or between any Subsidiary and any of Borrower's
wholly-owned Subsidiaries; and (ii) Operating Leases which would not cause
Borrower and its Subsidiaries, on a Consolidated basis, to make payments
exceeding $100,000 in any fiscal year of Borrower.
(i) SALES AND LEASEBACKS. Borrower will not, and will not
permit any of its Subsidiaries to, become liable, directly or indirectly, with
respect to any lease, whether an Operating Lease or a Capital Lease, of any
property (whether real, personal or mixed), whether now owned or hereafter
acquired, (i) which Borrower or such Subsidiary has sold or transferred or is to
sell or transfer to any other Person or (ii) which Borrower or such Subsidiary
intends to use for substantially the same purposes as any other property which
has been or is to be sold or transferred by Borrower or such Subsidiary to any
other Person in connection with such lease.
(j) DISTRIBUTIONS. (i) Borrower will not declare or pay any
dividends in respect of Borrower's capital stock, or purchase, redeem, retire or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, return any capital to its shareholders as such, or make any
distribution of assets to its shareholders as such, or permit any of its
Subsidiaries to purchase, redeem, retire, or otherwise acquire for value any
stock of Borrower, except that Borrower may declare and deliver dividends and
distributions payable only in common stock of Borrower. (ii) Borrower will not
permit any Subsidiary of Borrower to grant or otherwise agree to or suffer to
exist any consensual restrictions on the ability of such Subsidiary to pay
dividends and make other distributions to Borrower, or to pay any Indebtedness
owed to Borrower or transfer properties and assets to Borrower.
(k) AMENDMENTS OF CERTAIN DOCUMENTS. Borrower will not (i)
agree to or permit any amendment, modification or waiver of Section 8 of the
Operating Agreement, or agree to or permit any amendment, modification or waiver
of any other material provision of, or terminate, the Investment Agreement or
the Operating Agreement; or (ii) agree to or permit any amendment, modification
or waiver of any provision of any agreement related to any Capital Debt or
Subordinated
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Debt (including any amendment, modification or waiver pursuant to an exchange
of other securities or instruments for outstanding Capital Debt or
Subordinated Debt) if the effect of such amendment, modification or waiver is
to (A) increase the interest rate on such Capital Debt or Subordinated Debt
or change (to earlier dates) the dates upon which principal and interest are
due thereon; (B) alter the redemption, prepayment or subordination provisions
thereof; (C) alter the covenants and events of default in a manner which
would make such provisions more onerous or restrictive to Borrower or such
Subsidiary; or (D) otherwise increase the obligations of Borrower in respect
of such Subordinated Debt or Capital Debt or confer additional rights upon
the holders thereof which individually or in the aggregate would be adverse
to Borrower, its Subsidiaries or Lenders.
(l) AMENDMENTS OF GCC LOAN GUIDELINES. Borrower will not agree
to or permit any amendment, modification or waiver of any provision of the GCC
Loan Guidelines or other documentation, credit and collection policies and
practices of Borrower that has the effect of diminishing the credit quality
standards or expanding the credit availability criteria set forth in the GCC
Loan Guidelines, making such policies and practices less rigorous, adding New
Lease/Loan Products, or that otherwise would have a Material Adverse Effect
without the prior written consent of Majority Lenders, which consent will not be
unreasonably delayed or withheld and which consent shall include, with respect
to New Lease/Loan Products, a designation as to whether each such New Lease/Loan
Product shall be considered a Finance Receivable or an Additional Loan/Lease
Receivable.
(m) TRANSACTIONS WITH RELATED PARTIES. Borrower will not, and
will not permit any of its Subsidiaries to, enter into any transaction,
including the purchase, sale or exchange of property or the rendering of any
services, with any Affiliate, any officer or director thereof or any Person
which beneficially owns or holds five percent (5%) or more of the equity
securities, or five percent (5%) or more of the equity interest, thereof (a
"Related Party"), or enter into, assume or suffer to exist, or permit any
Subsidiary to enter into, assume or suffer to exist, any employment or
consulting contract with any Related Party, except a transaction or contract
which is in the ordinary course of Borrower's or such Subsidiary's business and
which is upon fair and reasonable terms not less favorable to Borrower or such
Subsidiary than it would obtain in a comparable arm's length transaction with a
Person not a Related Party; PROVIDED, HOWEVER, that nothing in this subsection
shall prohibit the Operating Agreement or any Affiliate Loans made by Borrower
in the ordinary course of its business (subject to the limitations thereon set
forth in subsection (f)).
(n) HAZARDOUS SUBSTANCES. Borrower will not, and will not
permit any of its Subsidiaries to, use, generate, manufacture, install, treat,
release, store or dispose of any Hazardous Substances, except in compliance with
all applicable Environmental Laws.
(o) SUBORDINATED DEBT. Borrower will not, and will not permit
any of its Subsidiaries to, prepay, purchase, acquire, redeem or retire any
Subordinated Debt.
(p) PURCHASES UNDER NCB LOAN PURCHASE AGREEMENT. Borrower will
not make Incremental Purchases, or sell, transfer or otherwise dispose of any
Collateral or rights or interest therein to NCB in connection with any
Incremental Purchase, unless Borrower shall,
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contemporaneously with delivery under the NCB Loan Purchase Agreement to the
Seller (as defined in the NCB Loan Purchase Agreement) of proper written
notice of a request to make an Incremental Purchase, deliver to Agent a duly
executed Purchase Notice and completed, unsigned Release.
ARTICLE VII
EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT.
Any of the following events which shall occur shall constitute an
"Event of Default":
(a) PAYMENTS. Borrower shall fail to pay when due any amount of
principal of, or interest on, any Loan or Note, or any fee or other amount
payable hereunder or under any of the other Loan Documents, when due.
(b) REPRESENTATIONS AND WARRANTIES. Any representation or
warranty by Borrower under or in connection with this Agreement or the other
Loan Documents shall prove to have been incorrect in any material respect when
made or deemed made.
(c) FAILURE BY BORROWER TO PERFORM CERTAIN COVENANTS. Borrower
shall fail in any material respect to perform or observe any term, covenant or
agreement contained in Section 6.2, subsections (a) or (j) of Section 6.3 or
Section 6.4.
(d) FAILURE BY BORROWER TO PERFORM OTHER COVENANTS. Borrower
shall fail in any material respect to perform or observe any other term,
covenant or agreement contained in this Agreement or any other Loan Document on
its part to be performed or observed and any such failure shall remain
unremedied for a period of twenty (20) days from the occurrence thereof (unless
the Majority Lenders determine that such failure is not capable of remedy).
(e) BANKRUPTCY. Borrower or any of its Subsidiaries, or
Certified or any of its Subsidiaries ("Other Certified Subsidiaries"), shall
admit in writing its inability to, or shall fail generally or be generally
unable to, pay its debts (including its payrolls) as such debts become due, or
shall make a general assignment for the benefit of creditors; or Borrower,
Certified or any such Subsidiary of Borrower or Other Certified Subsidiary shall
file a voluntary petition in bankruptcy or a petition or answer seeking
reorganization, to effect a plan or other arrangement with creditors or any
other relief under the Bankruptcy Code or under any other state or federal law
relating to bankruptcy or reorganization granting relief to debtors, whether now
or hereafter in effect, or shall file an answer admitting the jurisdiction of
the court and the material allegations of any involuntary petition filed against
Borrower, Certified or any such Subsidiary of Borrower or Other Certified
Subsidiary pursuant to the Bankruptcy Code or any such other state or federal
law; or Borrower, Certified or any such other Certified Subsidiary or Subsidiary
of Borrower shall be adjudicated a bankrupt, or shall make an assignment for the
benefit of creditors, or shall apply for or consent to the
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appointment of any custodian, receiver or trustee for all or any substantial
part of Borrower's, Certified's or any such Subsidiary of Borrower or Other
Certified Subsidiary's property, or shall take any action to authorize any of
the actions set forth above in this subsection; or an involuntary petition
seeking any of the relief specified in this subsection shall be filed against
Borrower, Certified or any such Subsidiary of Borrower or Other Certified
Subsidiary and shall not be dismissed within twenty (20) days; or any order
for relief shall be entered against Borrower, Certified or any such
Subsidiary of Borrower or Other Certified Subsidiary in any involuntary
proceeding under the Bankruptcy Code or any such other state or federal law
referred to in this subsection (e).
(f) DEFAULT UNDER OTHER INDEBTEDNESS. (i) Borrower, Certified
or any Subsidiary of Borrower shall fail (A) to make any payment of any
principal of, or interest or premium on, any Indebtedness (other than in respect
of the Loans) in an aggregate principal amount outstanding of at least $250,000
when due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Indebtedness, or (B) to perform or observe any term, covenant or condition on
its part to be performed or observed under any agreement or instrument relating
to any such Indebtedness, when required to be performed or observed, and such
failure shall continue after the applicable grace period, if any, specified in
such agreement or instrument, if the effect of such failure to perform or
observe is to accelerate, or to permit the acceleration of, the maturity of such
Indebtedness; or any such Indebtedness shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; (ii) any "Event of Default"
shall occur under the Certified Loan Agreement; or (iii) any "Termination Event"
or event of default shall occur under the Loan Purchase Agreements or the
Guaranty.
(g) JUDGMENTS. (i) A final judgment or order for the payment of
money in excess of $250,000 which is not fully covered by insurance shall be
rendered against Borrower or any of its Subsidiaries; or (ii) any non-monetary
judgment or order shall be rendered against Borrower or any of its Subsidiaries
which has or would reasonably be expected to have a Material Adverse Effect; and
in each case there shall be any period of twenty (20) consecutive days during
which a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect.
(h) ERISA.
(i) Borrower, Certified or an ERISA Affiliate shall fail to
pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under a
Multiemployer Plan;
(ii) Borrower, Certified or an ERISA Affiliate shall fail to
satisfy its contribution requirements under Section 412(c)(11) of the Internal
Revenue Code, whether or not it has sought a waiver under Section 412(d) of the
Internal Revenue Code;
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(iii) in the case of a Termination Event involving the
withdrawal from a Pension Plan of a "substantial employer" (as defined in
Section 4001(a)(2) or Section 4062(e) of ERISA), Borrower's, Certified's or an
ERISA Affiliate's proportionate share of that Pension Plan's Unfunded Accrued
Benefits is more than $250,000;
(iv) in the case of a Termination Event involving the
complete or partial withdrawal from a Multiemployer Plan, Borrower, Certified or
an ERISA Affiliate has incurred a withdrawal liability in an aggregate amount
exceeding $250,000;
(v) in the case of a Termination Event not described in
clause (iii) or (iv), the Unfunded Accrued Benefits of the relevant Pension Plan
or Plans exceed $250,000;
(vi) a Plan of Borrower, Certified or an ERISA Affiliate
that is intended to be qualified under Section 401(a) of the Internal Revenue
Code shall lose its qualification, and the loss can reasonably be expected to
impose on Borrower, Certified or an ERISA Affiliate liability (for additional
taxes, to Plan participants, or otherwise) in the aggregate amount of $250,000
or more;
(vii) the commencement or increase of contributions to, the
adoption of, or the amendment of a Plan by, Borrower, Certified or an ERISA
Affiliate shall result in a net increase in unfunded liabilities to Borrower,
Certified or an ERISA Affiliate in excess of $250,000; or
(viii) the occurrence of any combination of events listed in
clauses (iii) through (vii) that involves a net increase in aggregate Unfunded
Accrued Benefits and unfunded liabilities in excess of $250,000.
(i) MATERIAL ADVERSE EFFECT. A Material Adverse Effect not
otherwise expressly mentioned in this Section 7.1, shall have occurred which
gives reasonable grounds to conclude, in the reasonable judgment of the Majority
Lenders, that Borrower may not, or will be unable to, perform or observe its
obligations under the Loan Documents or Certified or GEC may not, or will be
unable to, perform or observe in the normal course its obligations under the
Operating Agreement.
(j) CHANGE IN OWNERSHIP OR CONTROL. Certified shall (A) cease
to own and control, directly or indirectly, one hundred percent (100%) of the
issued and outstanding shares of capital stock of Borrower or (B) fail to
possess, directly or indirectly, capital stock representing voting control of
Borrower.
(k) FAILURE TO PERFORM UNDER OPERATING AGREEMENT OR CERTIFIED
CONSENT; OR INVALIDITY OF OPERATING AGREEMENT OR CERTIFIED CONSENT. Certified or
GEC shall fail to perform or observe any term, covenant or agreement in Section
8 of the Operating Agreement, or shall fail in any material respect to perform
or observe any other term, covenant or agreement contained in the Operating
Agreement or the Certified Consent on its part to be performed or observed and
any such
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failure shall remain unremedied for a period of twenty (20) days from the
occurrence thereof (unless the Majority Lenders determine that such failure
in not capable of remedy); or the Operating Agreement or the Certified
Consent shall for any reason be revoked or invalidated, or otherwise
terminate or cease to be in full force and effect, or Certified, GEC or any
other Person shall contest in any manner the validity or enforceability
thereof or deny that it has any further liability or obligation thereunder.
(l) INVALIDITY OF SUBORDINATION PROVISIONS. The Investment
Agreement or any agreement or instrument governing any Subordinated Debt or
Capital Debt shall for any reason be revoked or invalidated, or otherwise cease
to be in full force and effect; or Certified, GEC or any other Person shall
contest in any manner the validity or enforceability thereof or deny that it has
any further liability or obligation thereunder, or the Indebtedness hereunder
shall for any reason be subordinated or shall not have the priority contemplated
by this Agreement or the Investment Agreement.
(m) INVALIDITY OF OR BREACH UNDER COLLATERAL DOCUMENTS.
Borrower or any other Person shall fail in any material respect to perform or
observe any term, covenant or agreement contained in the Collateral Documents on
its part to be performed or observed and any such failure shall remain
unremedied for a period of twenty (20) days from the occurrence thereof (unless
the Majority Lenders determine that such failure is not capable of remedy); any
of the Collateral Documents after delivery thereof shall for any reason be
revoked or invalidated, or otherwise cease to be in full force and effect, or
Borrower or any other Person shall contest in any manner the validity or
enforceability thereof, or Borrower or any other Person shall deny that it has
any further liability or obligation thereunder; or any of the Collateral
Documents for any reason, except to the extent permitted by the terms thereof,
shall cease to create a valid and perfected first priority Lien subject only to
Permitted Liens in any of the Collateral purported to be covered thereby.
(n) PURCHASES UNDER NCB LOAN PURCHASE AGREEMENT. Borrower shall
sell, or shall accept any amount in respect of the Purchase Price (as defined in
the NCB Loan Purchase Agreement) for, any Property (as defined in the NCB Loan
Purchase Agreement) without obtaining the execution of and delivery by Agent of
a Release with respect to all Collateral constituting or relating to such
Property.
7.2 EFFECT OF EVENT OF DEFAULT.
If any Event of Default shall occur, Agent may, subject to
Section 8.3, at its election, and without notice of election and without demand,
on behalf of Lenders, do any one or more of the following all of which are
authorized by Borrower:
(i) Declare the Obligations, whether evidenced by this
Agreement, by the Notes, or otherwise, immediately due and payable;
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(ii) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement and terminate the daily automatic funds
transfers from Agent's Account to Borrower's Account;
(iii) Terminate this Agreement and the Commitments as to any
future liability or obligation of Agent and Lenders, but without affecting
Agent's and Lenders' rights and security interest in the Collateral and the
Obligations;
(iv) Exercise any or all of Agent's rights and remedies under the
Collateral Documents; and
(v) proceed to enforce all other rights and remedies available
to Agent and Lenders under applicable law.
ARTICLE VIII
AGENT AND LENDERS
8.1 APPOINTMENT AND POWERS OF AGENT.
Each Lender hereby appoints and authorizes Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
this Agreement and the Collateral Documents as are delegated to Agent by the
terms hereof and thereof, together with such powers as are reasonably incidental
thereto. Without limiting the foregoing, each Lender hereby expressly
authorizes Agent to execute, deliver, and perform its obligations under this
Agreement and each of the Collateral Documents to which Agent is a party, and to
exercise all rights, powers, and remedies that Agent may have hereunder or
thereunder. As to any matters not expressly provided for by this Agreement or
the Collateral Documents (including enforcement or collection of the Notes),
Agent (which term as used in this sentence, in Section 8.2, in Section 8.5, and
in the first sentence of Section 8.6 shall include reference to its Affiliates
and to its own and its Affiliates' officers, directors, employees, and agents)
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of Majority Lenders, and
such instructions shall be binding upon all Lenders and all holders of the
Notes; PROVIDED, HOWEVER, that Agent shall not be required to take any action
which exposes Agent to personal liability or which is contrary to this
Agreement, the Collateral Documents, the Notes, or applicable law. Agent agrees
to give to each Lender prompt notice of each notice given to it by Borrower
pursuant to the terms of this Agreement or the Collateral Documents.
8.2 AGENT'S RELIANCE.
Agent shall not be liable for any action taken or omitted to be
taken by it under or in connection with this Agreement, the Notes, any Purchase
Notice, any Release, or any Collateral Document, except for its own gross
negligence or wilful misconduct. Without limiting the generality of the
foregoing, Agent: (a) may treat the payee of any Note as the holder thereof
until Agent
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receives and accepts an assignment and acceptance entered into by the Lender
which is the payee of such Note, as assignor, and an assignee as provided in
Section 11.8; (b) may consult with legal counsel, independent public
accountants, and other experts selected by them and shall not be liable for
any action taken or omitted to be taken in good faith by them in accordance
with the advice of such counsel, accountants, or experts; (c) makes no
warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties, or representations made in or in
connection with this Agreement, the Notes, or any Collateral Document; (d)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants, or conditions of this Agreement,
the Notes, or any of the Collateral Documents on the part of any Person party
hereto or thereto or to inspect any asset (including the books and records)
of Borrower or any of its subsidiaries; (e) shall not be responsible to any
Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency, or value of this Agreement, the Notes, or any
Collateral Document, or any other instrument or document furnished pursuant
hereto or thereto; (f) shall incur no liability under or in respect of this
Agreement, the Notes, or any Collateral Document by acting upon any notice,
consent, certificate, or other instrument or writing (which may be by
telegram, cable, telefacsimile, or telex) believed by them to be genuine and
signed or sent by the proper Person or Persons; and (g) may execute and
deliver, and shall incur no liability under or in respect to this Agreement,
the Notes, or any Collateral Document by executing and delivering, or
executing or delivering any other document, instrument or agreement releasing
any Collateral in connection with such execution and delivery of, a Release
in respect of any Purchase Notice received by it.
8.3 DEFAULTS.
Agent shall not be deemed to have knowledge of the occurrence of
an Event of Default unless Agent has received notice from a Lender or Borrower
specifying the occurrence of such Event of Default and stating that such notice
is a "Notice of Default." In the event that Agent receives such a notice of the
occurrence of an Event of Default, Agent shall give prompt notice thereof to
Lenders (and shall give each Lender prompt notice of each such nonpayment).
Agent shall (subject to Sections 8.1, 8.5, and 8.7) take such action with
respect to such Event of Default as shall be directed by Majority Lenders;
PROVIDED, HOWEVER, that, unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default as it
shall in its sole and absolute discretion deem advisable in the best interest of
Lenders.
8.4 RIGHTS AS A LENDER; RIGHTS UNDER NCB LOAN PURCHASE AGREEMENT.
With respect to its Commitment and the Loans made by it, NCB (and
any successor acting as Agent), in its capacity as a Lender hereunder, shall
have the same rights and powers hereunder as any other Lender and may exercise
the same as though it were not an Agent, and the term "Lender" or "Lenders"
shall, unless otherwise expressly indicated, include NCB (and any successor
acting as Agent), in its individual capacity. NCB (and any successor acting as
Agent), and its Affiliates may (without having to account therefor to any
Lender) accept deposits from (to the extent permitted by law), lend money to,
act as trustee under indentures of, and generally engage in
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any kind of banking, trust, or other business with Borrower, or any of its
Subsidiaries or Affiliates, as if it were an Agent, and NCB and its
Affiliates, may accept fees and other consideration from Borrower, or any of
its Subsidiaries or Affiliates, for services rendered in connection with this
Agreement or otherwise without having to account for the same to Lenders.
NCB shall have the right to perform its obligations in its capacity as
"Buyer" under the NCB Loan Purchase Agreement.
8.5 INDEMNIFICATION.
Each Lender hereby agrees to indemnify and hold Agent harmless
(to the extent not reimbursed on demand by Borrower), ratably according to the
respective principal amount of the Notes then held by each of them (or, if no
principal is outstanding under the Notes at that time, according to their share
of the Commitment) from and against any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgments, demands, damages, costs,
disbursements, or expenses (including attorneys' fees and expenses) of any kind
or nature whatsoever which are imposed on, incurred by, or asserted against
Agent in any way relating to or arising out of this Agreement, the Notes, or the
Collateral Documents, or as a result of any action taken or omitted to be taken
by Agent; PROVIDED, HOWEVER, that no Lender shall be liable for any portion of
any such losses, liabilities (including liabilities for penalties), actions,
suits, judgments, demands, damages, costs, disbursements, or expenses resulting
from the gross negligence or willful misconduct of Agent. Without limiting the
generality of the foregoing, each Lender hereby agrees, in the ratio aforesaid,
to reimburse Agent promptly following demand for reimbursement of any
out-of-pocket expenses (including attorneys' fees and expenses) incurred by
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment, or enforcement (whether through negotiations, legal
proceedings, or otherwise) of, or legal advice in respect of, their rights or
responsibilities under this Agreement, the Notes, or the Collateral Documents,
or any of them or any other documents contemplated by this Agreement, to the
extent that Agent is not reimbursed (or are not entitled to be reimbursed), on
demand, for such amounts by Borrower. Each Lender's obligations hereunder shall
survive the termination of this Agreement and the discharge of Borrower's
obligations hereunder.
8.6 NON-RELIANCE BY LENDERS.
Each Lender hereby acknowledges that it has, independent by of
and without reliance upon Agent or any other Lender, and based upon the
financial statements referred to in Section 4.1(d) and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently of and without reliance upon Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own independent credit decisions in taking or
omitting to take action under or in connection with this Agreement. Agent shall
not be required to keep informed as to the performance or observance by Borrower
or any other Person of this Agreement, the Notes, or the Collateral Documents,
or to inspect the assets or books and records of Borrower, any of its
Subsidiaries or Affiliates, or any other Person. Agent shall promptly furnish
to Lenders, as and when received by Agent, copies of the financial statements
and reports set forth in Section 6.1(a) and of any other notices, reports, and
other documents as Lenders
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may reasonably request of Agent. Except for notices, reports, and other
documents and information expressly required to be furnished to Lenders by
Agent hereunder, Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the affairs,
financial condition, or business of Borrower or its subsidiaries or
Affiliates which may come into the possession of Agent or any of its
Affiliates.
8.7 FAILURE TO ACT.
Except for action expressly required of Agent hereunder, Agent
shall in all cases be fully justified in failing or refusing to act hereunder
unless it shall be indemnified to its satisfaction by Lenders against any and
all liability and expense which may be incurred by them by reason of taking or
continuing to take any such action.
8.8 EXCESS PAYMENTS.
If any Lender or other holder of a Note shall obtain any payment
or other recovery (whether voluntary, involuntary, by application of offset,
setoff, or otherwise) on account of principal of or interest on any Note in
excess of its pro rata share of payments and other recoveries obtained by all
Lenders or holders of Notes, such Lender or other holder shall purchase from the
other Lenders or holders such participations in the Notes held by them as shall
be necessary to cause such purchasing Lender or holder to share the excess
payment or other recovery ratably with each of the other Lenders or holders;
PROVIDED, HOWEVER, that, if all or any portion of the excess payment or other
recovery is thereafter recovered from such purchasing Lender or holder, the
purchase shall be rescinded and the purchase price restored to such Lender or
other holder to the extent of such recovery, but without interest.
8.9 SHARING OF SETOFFS.
Each Lender severally agrees that if it, through the exercise of
the right of setoff, banker's lien, or counterclaim against Borrower or
otherwise, receives payment of the Obligations due it hereunder and under the
Notes that is ratably more than any other Lender, through any means, then: (a)
the Lender exercising the right of setoff, banker's lien, or counterclaim or
otherwise receiving such payment shall purchase, and shall be deemed to have
simultaneously purchased, from the other Lenders a participation in the
Obligations held by the other Lenders and shall pay to the other Lenders a
purchase price in an amount so that the share of the Obligations held by each
Lender after the exercise of the right of setoff, banker's lien, or counterclaim
or receipt of payment shall be in the same proportion that existed prior to the
exercise of the right of setoff, banker's lien, or counterclaim or receipt of
payment, and (b) such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that all Lenders share
any payment obtained in respect of the Obligations ratably in accordance with
each Lender's share of the Obligations immediately prior to, and without taking
into account, the payment; PROVIDED, HOWEVER, that, if all or any portion of a
disproportionate payment obtained as a result of the exercise of the right of
setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Lender by Borrower or any Person claiming through or succeeding
to the rights of
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Borrower, the purchase of a participation shall be rescinded and the purchase
thereof shall be restored to the extent of the recovery, but without
interest; PROVIDED, FURTHER, HOWEVER, that the rights of NCB with respect to
the NCB Stock shall not be subject to the provisions of this Section 8.9.
Each Lender that purchases a participation in the Obligations pursuant to
this Section 8.9 shall from and after the purchase have the right to give all
notices, requests, demands, directions and other communications under this
Agreement with respect to the portion of the Obligations purchased to the
same extent as though the purchasing Lender were the original owner of the
Obligations purchased. Borrower expressly consents to the foregoing
arrangements and agrees that any Lender holding a participation in an
Obligation so purchased may exercise any and all rights of setoff, banker's
lien or counterclaim with respect to the participation as fully as if the
Lender were the original owner of the Obligation purchased; PROVIDED,
HOWEVER, that each Lender agrees that it shall not exercise any right of
setoff, banker's lien or counterclaim without first obtaining the consent of
the Majority Lenders.
8.10 CHARACTERIZATION OF ACTIVITY.
Nothing contained in this Agreement, and no action taken by any
Lender or Agent pursuant hereto or in connection herewith or pursuant to or in
connection with the Notes or the Collateral Documents shall be deemed to
constitute Lenders, together or with or without Agent, a partnership,
association, joint venture, or other entity.
8.11 RESIGNATION BY OR REMOVAL OF AGENT.
Agent may resign at any time as an Agent under this Agreement and
the Collateral Documents by giving written notice thereof to Lenders and
Borrower and may be removed at any time with or without cause by Majority
Lenders. Upon any such resignation or removal, the Majority Lenders shall have
the right to appoint a successor Agent. If no successor Agent shall have been
so appointed by Majority Lenders and shall have accepted such appointment,
within thirty (30) calendar days after the retiring Agent's giving of notice of
resignation or Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of Lenders, appoint a successor Agent. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all of the
obligations, rights, powers, privileges, and duties of the retiring Agent, and
the retiring Agent shall be discharged from its duties and obligations under
this Agreement, and the Collateral Documents. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article XI
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
8.12 NO OBLIGATION OF BORROWER.
Borrower shall not have any obligations to Agent or any Lender
under this Article VIII which governs solely the rights and obligations of
Lenders and Agent, INTER SE.
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ARTICLE IX
LENDERS' REPRESENTATIONS
9.1 INVESTMENT REPRESENTATION.
Each Lender hereby represents to Borrower and to each other
Lender that it will make its Loans for its own account in the ordinary course of
its commercial lending business and not with a view to the public distribution
or sale of any Note held by such Lender.
9.2 PARTICIPATION IN THE NOTES; COMPLIANCE WITH LAW.
Each Lender hereby agrees to keep confidential all information
concerning Borrower or its subsidiaries which has been supplied by Borrower to
such Lender other than: (a) information previously filed with any governmental
agency and available to the public; (b) information previously published in any
public medium from a source other than, directly or indirectly, such Lender; and
(c) information previously disclosed by Borrower to any Person not associated
with Borrower without a confidentiality agreement substantially similar to the
terms of this Section 9.2; PROVIDED, HOWEVER, that each Lender shall have the
right at any time to furnish one or more purchasers or potential purchasers of
an interest in its Loans with any and all information concerning Borrower or its
Subsidiaries which has been supplied by Borrower to such Lender, if such
purchaser or potential purchaser shall have agreed to keep confidential any of
such information other than such information as is described in clauses (a),
(b), and (c) of this Section 9.2. Nothing in this Section 9.2 shall be
construed to create or give rise to any fiduciary duty on the part of any Lender
to Borrower.
ARTICLE X
EXPENSES AND INDEMNITEES
10.1 EXPENSES.
(a) PAYMENT BY AGENT ON BEHALF OF BORROWER. If Borrower fails
to pay promptly when due to any other Person, expenses or monies which Borrower
is required to pay by reason of any provision in this Agreement, Agent may, but
shall not be required to, pay the same and charge Borrower's account therefor as
Agent's Expenses; PROVIDED, HOWEVER, that Agent shall not pay the same to the
extent and so long as: (a) the same are being diligently contested, in good
faith and by appropriate proceedings, and in such a manner as not to cause any
Material Adverse Effect; and (b) Borrower shall have set aside on its books
reserves (segregated to the extent required by GAAP) adequate with respect
thereto. All such sums shall become additional Obligations owing to Lenders,
shall bear interest at the rate set forth in Section 3.1(a)(i), and shall be
secured by the Collateral. Any payments made by Agent shall not constitute:
(i) an agreement by Agent to make similar payments in the future, or (ii) a
waiver by Agent of any Default. Agent need not inquire as to, or contest the
validity of, any such expense, tax, security interest, encumbrance, or lien and
the receipt of any customary official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
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(b) AGENT'S EXPENSES DUE ON DEMAND. Irrespective of whether the
transactions contemplated hereby shall be consummated, Borrower hereby agrees to
pay to Agent, on demand, all Agent's Expenses, and Borrower hereby authorizes
and approves all advances and payments by Agent for items constituting Agent's
Expenses.
10.2 INDEMNITY.
In addition to the payment of Agent's Expenses pursuant to
Section 10.1 and irrespective of whether the transactions contemplated hereby
shall be consummated, Borrower hereby agrees to indemnify, exonerate, pay, and
hold harmless Agent, Lenders, and the holders of any of the Notes, and the
officers, directors, employees, and agents of Agent, Lenders, or such holders
(collectively, the "Indemnitees" and individually, an "Indemnitee") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, causes of action, judgments, suits, claims, costs, expenses, of any
kind or nature whatsoever, including the reasonable fees and expenses of counsel
to Indemnitees (including allocated fees and expenses of in-house counsel of
Agent), in connection with any investigative, administrative, or judicial
proceeding, irrespective of whether such Indemnitee shall be designated a party
thereto, which may be imposed on, incurred by, or asserted against such
Indemnitee, in any manner relating to or arising out of this Agreement, any
Loans hereunder, the use or intended use of the proceeds of the Loans, or the
consummation of the transactions contemplated by this Agreement (the
"Indemnified Liabilities"); PROVIDED, HOWEVER, that Borrower's obligations to
indemnify shall not extend to any losses, damages, liabilities, actions, or
claims against any Indemnitee arising as a result of the gross negligence or
willful misconduct of such Indemnitee. Each Indemnitee shall promptly notify
Borrower of each event of which it has knowledge which may give rise to a claim
under the indemnification provisions of this Section 10.2. If any investigative,
judicial, or administrative proceeding arising from any of the foregoing is
brought against any Indemnitee, Borrower, to the extent and in the manner
directed by such Indemnitee or upon Borrower's election (by prior notice to the
Indemnitee) to so do, will resist and defend such action, suit, or proceeding by
counsel designated by Borrower (which counsel shall be reasonably satisfactory
to such Indemnitee); PROVIDED, HOWEVER, that Borrower's obligation to so resist
or defend any such action, suit, or proceeding shall exist if and only if
Borrower is directed to do so by the Indemnitee or if Borrower has given
Indemnitee prior notice of its election to assume such defense. Such Indemnitee
will use its best efforts to cooperate in all respects in the defense of any
such action, suit, or proceeding. To the extent that the undertaking to
indemnify, exonerate, pay, and hold harmless set forth in this Section 10.2 may
be unenforceable because it is violative of any law or public policy as
determined by a final judgment of a court of competent jurisdiction, Borrower
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. The
obligations of Borrower under this Section 10.2 shall survive the termination of
this Agreement and the discharge of Borrower's other obligations hereunder.
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ARTICLE XI
MISCELLANEOUS
11.1 DESTRUCTION OF BORROWER'S DOCUMENTS.
Except for original instruments or chattel paper, any documents,
schedules, invoices or other papers delivered to Agent may be destroyed by Agent
six (6) months after they are delivered to or received by Agent, unless
(i) Borrower does request, in writing, the return of the said documents,
schedules, invoices or other papers and makes arrangements, at Borrower's
expense, for their return or (ii) such documents, schedules, invoices or other
papers relate to any Released Collateral.
11.2 AMENDMENTS, ETC.
(a) AMENDMENTS WITH CONSENT OF AGENT. Borrower and Agent may
enter into one or more amendments to any Collateral Document or this Agreement
without the consent of any Lender for any of the following purposes:
(i) to cure any ambiguity, defect or inconsistency herein
or in any Collateral Document or to make any change not inconsistent with the
provisions hereof;
(ii) to convey, transfer, assign, mortgage, or pledge any
property to or with Agent, or to make any other provisions with respect to
matters or questions arising hereunder or under any Collateral Document, so long
as such action shall not adversely affect the interests of Lenders;
(iii) to add to the covenants of Borrower hereunder for the
benefit of Lenders; and
(iv) to add to the rights of Lenders.
Any such amendment must be in writing and signed by Agent to be effective and
then such amendment shall be effective only in the specific instance and for the
specific purpose for which given. Agent shall promptly deliver to each Lender a
copy of any such amendment.
(b) AMENDMENTS WITH CONSENT OF LENDERS. Except as provided in
subsection (a) of this Section 11.2, no amendment or waiver of any provision of
this Agreement or any Collateral Document, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Lenders and then such waiver or consent shall
be effective only in specific instance and for the specific purpose for which
given; PROVIDED, HOWEVER, that no amendment, waiver, or consent shall, unless in
writing and signed by all Lenders, do any of the following: (i) increase the
Commitments of Lenders or subject Lenders to any additional obligations, (ii)
reduce the principal of, or interest on, the Loans or any fees or other amounts
payable hereunder, (iii) postpone any date fixed for any payment of principal
of, or interest
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on, the Loans or any fees or other amounts payable hereunder, including,
without limitation, to extend the Commitment Termination Date, (iv) change
the percentage, or the aggregate unpaid principal amount of the Notes or
Loans, or the number of Lenders, which shall be required for Lenders or any
of them to take any action hereunder, (v) release any Collateral, except to
the extent expressly provided herein or in the Collateral Documents, or (vi)
amend this Section 11.2; PROVIDED FURTHER, however, that no amendment,
waiver, or consent shall, unless in writing and signed by Agent in addition
to the Lenders required above to take such action, affect the rights or
duties of Agent under this Agreement or any other Collateral Document.
11.3 NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement shall be in writing and either
(a) personally served or (b) sent by regular United States mail, first class
postage prepaid, with a copy sent via facsimile or overnight courier; to
Borrower or to Agent, as the case may be, at its address set forth below:
If to Borrower: GROCERS CAPITAL COMPANY
2601 South Eastern Avenue
Los Angeles, California 90040
Facsimile No.: (213) 888-2915
Attn: Mr. David Woodward
Chief Financial Officer
With copies to: SHEPPARD, MULLIN, RICHTER & HAMPTON
333 South Hope Street, 48th Floor
Los Angeles, California 90071
Facsimile No.: (213) 620-1398
Attn: Charles E. McCormick, Esq.
If to Agent: NATIONAL COOPERATIVE BANK
1401 I Street, N.W., Suite 700
Washington, D.C. 20005
Facsimile No.: (202) 336-7804
Attn: Corporate Banking Division
With a copy to: BUCHALTER, NEMER, FIELDS & YOUNGER
601 South Figueroa Street
Suite 2400
Los Angeles, California 90017
Facsimile No.: (213) 896-0400
Attn: Richard Jay Goldstein, Esq.
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands
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sent in accordance with this Section 11.3 shall be deemed received on the
earlier of the date of actual receipt or five (5) days after the deposit
thereof in the United States mail. Delivery of notice shall not be deemed
defective solely upon the failure to deliver a copy of any notice or demand
to counsel to Borrower or Agent, as the case may be.
11.4 NO WAIVER; CUMULATIVE REMEDIES.
No failure on the part of Agent or any Lender to exercise, and no
delay in exercising, any right, remedy, power or privilege hereunder or under
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement and the other
Loan Documents are cumulative and not exclusive of any rights, remedies, powers
and privileges that may otherwise be available to Agent or any Lender.
11.5 RIGHT OF SET-OFF.
Upon the occurrence and during the continuance of any Event of
Default and obtaining the prior written consent of Agent, each Lender hereby is
authorized at any time and from time to time, without notice to Borrower (any
such notice being expressly waived by Borrower), subject to Section 8.9, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender to or for the credit or the account of Borrower against any and
all of the obligations of Borrower now or hereafter existing under this
Agreement and the Note held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement or such Note and although
such obligations may be unmatured. Each Lender agrees promptly to notify
Borrower (through Agent) after any such set-off and application made by such
Lender; PROVIDED that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender under this
Section 11.5 are in addition to other rights and remedies (including other
rights of set-off) which such Lender may have.
11.6 SURVIVAL.
All covenants, agreements, representations and warranties made in
any Loan Documents shall, except to the extent otherwise provided therein,
survive the execution and delivery of this Agreement, the making of the Loans
and the execution and delivery of the Notes, and shall continue in full force
and effect so long as Lenders have any Commitments, any Loans remain outstanding
or any other Obligations remain unpaid or any obligation to perform any other
act hereunder or under any other Loan Document remains unsatisfied. Without
limiting the generality of the foregoing, the obligations of Borrower under
Sections 2.4, 2.5, 3.6, 3.7, 3.8, 10.1 and 10.2 and of Lenders under
Sections 3.8 and 8.5, and all similar obligations under the other Loan Documents
(including all obligations to pay costs and expenses and all indemnity
obligations), shall survive the repayment of the Loans and the termination of
the Commitments.
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11.7 BENEFITS OF AGREEMENT.
This Agreement and the other Loan Documents are entered into for
the sole protection and benefit of the parties hereto and their successors and
assigns, and no other Person shall be a direct or indirect beneficiary of, or
shall have any direct or indirect cause of action or claim in connection with,
this Agreement or any other Loan Document.
11.8 ASSIGNMENTS AND PARTICIPATIONS.
(a) ASSIGNMENTS. Any Lender may make one or more assignments of
its interests in the Loans to one or more assignees (the "Assignee") with the
prior written consent of Borrower (which consent will not be unreasonably
withheld); PROVIDED, HOWEVER, that any Lender may, subject to the limitations
contained hereinbelow in this Section 11.8(a), assign to another Lender any
portion of its Loans or Commitments without the prior written consent of
Borrower or Agent; PROVIDED FURTHER, however, that Borrower shall not be
obligated to pay the costs and expenses of any assigning Lender or any Assignee
in connection with any such assignment. Each such Assignee shall become a party
to this Agreement as a "Lender" upon: (i) the execution of an amendment to this
Agreement or the execution of a supplemental assignment and acceptance agreement
with the assigning Lender, the Assignee, Agent, and, in the event Borrower's
prior written consent to such assignment is required, Borrower; (ii) the
notification of Borrower and Agent by the assigning Lender of the identity of
the Assignee and the amount of the Loans or Commitment assigned; and (iii) the
payment to Agent, for its own account, of a processing and recordation fee of
Three Thousand Dollars ($3,000); whereupon, from and after the effective date of
such assignment as designated by Agent, the assigning Lender shall be released
and discharged from, and such Assignee shall assume, all rights, duties and
obligations with respect to the interest so assigned. Any such assignment shall
be made pro rata according to all of such Lender's Loans or portion of the
Commitment. At such time, the Commitment amounts referenced herein shall be
modified to reflect the pro rata share of the Commitment of such new Lender and
of the existing Lenders. In addition, if any such Assignee becomes a Lender
while Loans or the Commitment are outstanding hereunder, Borrower will, in
exchange for the assigning Lender's existing Notes issue new Notes hereunder to
such new Lender and to the assigning Lender in conformity with the requirements
of this Agreement in order to reflect their revised pro rata shares of the
Commitment and, if applicable, Loans. The Notes received by Agent in exchange
for such new Notes shall be cancelled and returned to Borrower. Any partial
assignment under this Agreement (other than to any Affiliate of the assigning
Lender or to any other Lender) shall be in a minimum amount equal to Five
Million Dollars ($5,000,000).
(b) PARTICIPATIONS. Any Lender may grant one or more
participations in its interests in the Loans or portions of the Commitment;
PROVIDED, HOWEVER, that: (i) such Lender shall remain a "Lender" for all
purposes under this Agreement and the participant shall not constitute a
"Lender" under this Agreement; (ii) any such grant of a participation will be
made in compliance with all applicable state or federal laws, rules, and
regulations; (iii) any such participation shall be made pro rata according to
all of such Lender's Loans or portion of the Commitment; and (iv) no Lender
shall grant any participation under which the participant shall have rights to
approve any amendment to or waiver of this Agreement, the Notes, or the
Collateral Documents, except as to
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matters specifically relating to rates of interest on the obligations, the
amount of such Lender's Commitment, and extensions to the Commitment
Termination Date. In the case of any participation, the participant shall
not have any rights under this Agreement or any of the other documents
entered into in connection herewith (the participant's rights against such
Lender in respect of such participation to be those set forth in the
participation or other agreement executed by such Lender and the participant
relating thereto) and all amounts payable to any Lender hereunder shall be
determined as if such Lender had not sold such participation. In no event
shall any participant grant a participation in its participation interest in
the Loans or portion of the Commitment without the prior written consent of
Agent.
(c) AFFILIATES. Notwithstanding anything to the contrary
contained in clauses (a) and (b) of this Section 11.8, no Lender shall be
restricted from making assignments or granting participations to any of its
Affiliates.
(d) INUREMENT; NO ASSIGNMENT BY BORROWER. Subject to (a), (b),
and (c) of this Section 11.8, this Agreement shall bind and inure to the benefit
of the respective successors and assigns of Lenders. Borrower may not assign
this Agreement or any rights hereunder without Lenders' prior written consent
and any prohibited assignment shall be absolutely void. No consent to an
assignment by Lenders shall release Borrower of its Obligations to Lenders.
11.9 GOVERNING LAW.
EXCEPT AS SPECIFICALLY SET FORTH IN ANY COLLATERAL DOCUMENT:
(A) THIS AGREEMENT, THE NOTES, AND THE COLLATERAL DOCUMENTS SHALL BE DEEMED TO
HAVE BEEN MADE IN THE STATE OF CALIFORNIA; AND (B) THE VALIDITY OF THIS
AGREEMENT, THE NOTES, AND THE COLLATERAL DOCUMENTS, AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
11.10 JURISDICTION AND VENUE.
THE PARTIES HERETO AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT, THE NOTES, OR THE COLLATERAL DOCUMENTS SHALL
BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. EACH OF BORROWER, LENDERS, AND
AGENT HEREBY WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 11.10 AND STIPULATES THAT THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, SHALL HAVE IN
PERSONAM JURISDICTION AND VENUE
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OVER IT FOR THE PURPOSE OF LITIGATING ANY SUCH DISPUTE, CONTROVERSY, OR
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE NOTES, OR THE
COLLATERAL DOCUMENTS. SERVICE OF PROCESS SUFFICIENT FOR PERSONAL
JURISDICTION IN ANY ACTION AGAINST EACH OF BORROWER, LENDERS, AND AGENT MAY
BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS
ADDRESS INDICATED IN SECTION 11.10. EACH OF BORROWER, LENDERS, AND AGENT
AGREES THAT ANY FINAL JUDGMENT RENDERED AGAINST IT IN ANY ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AS TO THE SUBJECT OF SUCH FINAL JUDGMENT AND
MAY BE ENFORCED IN OTHER JURISDICTIONS IN ANY MANNER PROVIDED BY LAW.
11.11 WAIVER OF TRIAL BY JURY.
EACH OF BORROWER, LENDERS, AND AGENT HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR
PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS AGREEMENT, THE NOTES, OR THE
COLLATERAL DOCUMENTS, OR IN ANY WAY CONNECTED WITH, OR RELATED TO, OR INCIDENTAL
TO, THE DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS AGREEMENT, THE
NOTES, THE COLLATERAL DOCUMENTS, OR THE TRANSACTIONS RELATED HERETO OR THERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. EACH OF BORROWER, LENDERS,
AND AGENT HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY
HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 11.11 WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER PARTY OR PARTIES HERETO TO
WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY.
11.12 DEMAND, PROTEST, NOTICE.
Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of any or all commercial paper, accounts, documents, instruments, chattel paper,
and guarantees at any time held by Agent or Lenders on which Borrower may in any
way be liable.
11.13 CONFIDENTIAL RELATIONSHIPS.
Borrower waives the right to assert a confidential relationship,
if any, it may have with any accounting firm or service bureau in connection
with any information requested by Agent or Lenders pursuant to or in accordance
with this Agreement, and agrees that Agent or
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Lenders may contact directly any such accounting firm or service bureau in
order to obtain such information.
11.14 LIMITATION ON LIABILITY.
No claim shall be made by Borrower or its Affiliates against
Agent, Lenders or any of their respective Affiliates, directors, employees,
attorneys or agents for any special, indirect, exemplary, consequential or
punitive damages in respect of any breach or wrongful conduct (whether or not
the claim therefor is based on contract, tort or duty imposed by law), in
connection with, arising out of or in any way related to the transactions
contemplated by this Agreement or the other Loan Documents or any act or
omission or event occurring in connection therewith; and Borrower hereby waives,
releases and agrees not to sue upon any such claim for any such damages, whether
or not accrued and whether or not known or suspected to exist in its favor.
11.15 ENTIRE AGREEMENT.
This Agreement and the other Loan Documents reflect the entire
agreement among Borrower, Lenders and Agent with respect to the matters set
forth herein and therein and supersede any prior agreements, drafts,
communications, commitments, discussions and understandings, oral or written,
with respect thereto.
11.16 INTERPRETATION.
This Agreement and the other Loan Documents are the result of
negotiations between and have been reviewed by counsel to Agent, Borrower and
other parties, and are the product of all parties hereto. Accordingly, this
Agreement and the other Loan Documents shall not be construed against any of
Lenders or Agent merely because of Agent's or any Lender's involvement in the
preparation thereof.
11.17 CONFIDENTIALITY.
Each Lender and Agent shall hold all non-public information
relating to Certified, Borrower and their respective Subsidiaries obtained by it
under this Agreement in accordance with its customary procedures for handling
confidential information of this nature, except for: (i) disclosure to its
counsel or to any agent or advisor acting on its behalf in connection with the
negotiation, execution or performance of the Loan Documents; (ii) disclosure as
reasonably required in connection with a transfer to a prospective assignee or
participant of all or part of its Loan or any participation therein, as provided
in Section 11.8; (iii) disclosure as may be required or requested by any
Governmental Authority or representative thereof or pursuant to legal process;
and (iv) any other disclosure with the prior written consent of Borrower or
Certified, as the case may be. Prior to any disclosure by any Lender or Agent
of such non-public information permitted under clause (iii) (other than in
connection with an examination of the financial condition of such Lender, Agent
or any of their Affiliates by any Governmental Authority), it shall, if
permitted by applicable laws or judicial order, notify Borrower of such pending
disclosure. In no event shall any Lender or Agent be
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obligated or required to return any materials furnished by Certified,
Borrower or any of their Subsidiaries. Notwithstanding the foregoing, such
obligation of confidentiality shall not apply if the information or
substantially similar information (A) is rightfully received by any Lender or
Agent from a Person other than Certified, Borrower or any of their Affiliates
without such Lender or Agent being under an obligation to such Person not to
disclose such information, or (B) is or becomes part of the public domain.
11.18 SEVERABILITY.
Whenever possible, each provision of this Agreement and the other
Loan Documents shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of this
Agreement or any of the other Loan Documents shall be prohibited by or invalid
under any such law or regulation in any jurisdiction, it shall, as to such
jurisdiction, be deemed modified to conform to the minimum requirements of such
law or regulation, or, if for any reason it is not deemed so modified, it shall
be ineffective and invalid only to the extent of such prohibition or invalidity
without affecting the remaining provisions of this Agreement and the other Loan
Documents, or the validity or effectiveness of such provision in any other
jurisdiction.
11.19 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement. This
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Agreement shall become effective when it shall have been executed by Borrower
and Agent and when Agent shall have been notified by each Lender that such
Lender has executed it.
IN WITNESS WHEREOF the parties hereto have duly executed this
Agreement as of the date first above written.
BORROWER
GROCERS CAPITAL COMPANY
By
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Title:
AGENT
NATIONAL CONSUMER COOPERATIVE BANK
By
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Title:
COMMITMENT LENDERS
$10,000,000 NATIONAL CONSUMER COOPERATIVE BANK
By
-----------------------------------------------------
Title:
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SECURED PROMISSORY NOTE
$10,000,000 Los Angeles, California
as of September 20, 1996
FOR VALUE RECEIVED, GROCERS CAPITAL COMPANY, a California corporation
("Maker"), hereby promises to pay to the order of NATIONAL CONSUMER COOPERATIVE
BANK, dba National Cooperative Bank, a federally chartered banking corporation
("Lender"), the principal sum of Ten Million Dollars ($10,000,000) or such
lesser amount as shall equal the aggregate outstanding principal balance of the
Loans severally made by Lender pursuant to the Credit Agreement (as defined
below), and to pay interest on said sum, or such lesser amount, at the rates and
on the dates provided in the Credit Agreement.
Maker shall make all payments hereunder for the account of Lender as
provided in Section 2.10 of the Credit Agreement.
Maker hereby authorizes Lender to record on the schedule(s) annexed to
this Note the date and amount of each Loan and of each payment of principal made
by Maker and agrees that all such notations shall constitute prima facie
evidence of the matters noted.
This Note is one of the Notes referred to in the Credit Agreement,
dated as of September 20, 1996, among Maker, on the one hand, and Lender, the
other financial institutions a party thereto (collectively, the "LENDERS"), and
NATIONAL CONSUMER COOPERATIVE BANK, dba National Cooperative Bank, a federally
chartered banking corporation, as Agent for the Lenders, on the other hand (as
such Credit Agreement may be from time to time hereafter amended, restated or
supplemented, the "Credit Agreement"). This Note is subject to the terms of the
Credit Agreement and Maker's obligations under this Note are secured by the
Collateral as provided in the Collateral Documents. Nothing herein shall be
deemed to limit any of the terms or provisions of the Credit Agreement or the
Collateral Documents, and all of Lender's rights and remedies hereunder and
thereunder are cumulative. Capitalized terms used herein have the meanings
assigns to those terms in the Credit Agreement, unless otherwise defined herein.
The transfer, sale or assignment of any rights under or interest in
this Note is subject to certain restrictions contained in the Credit Agreement,
including Section 11.8 thereof.
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No waiver or modification of any of the terms or provisions of this
Note shall be valid or binding unless set forth in a writing in compliance with
Section 11.2 of the Credit Agreement, and then only to the extent specifically
set forth.
Maker hereby waives notice of presentment, demand, protest or notice
of any other kind. This Note shall be governed by and construed in accordance
with the laws of the State of California without regard to principles of
conflicts of laws.
GROCERS CAPITAL COMPANY, a California corporation
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
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SCHEDULE TO PROMISSORY NOTE
Amount of
Date Made, Principal Unpaid Name of
Continued, Continued Principal Person
Converted Amount of Converted Balance Making
or Paid Type Loan or Paid of Note Notation
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of September 20,
1996, is made among GROCERS CAPITAL COMPANY, a California corporation
("Borrower"), and NATIONAL CONSUMER COOPERATIVE BANK, dba National Cooperative
Bank, a federally chartered banking corporation with principal offices located
in Washington, D.C. ("Agent"), as agent for the ratable benefit of Lenders (as
defined below).
Borrower, certain financial institutions as lenders ("Lenders"), and
Agent are parties to a Credit Agreement dated as of even date herewith (as
amended, restated, modified, renewed or extended from time to time, the "Credit
Agreement"). It is a condition precedent to the borrowings under the Credit
Agreement that Borrower enter into this Agreement and grant to Agent, for itself
and for the ratable benefit of Lenders, the security interests hereinafter
provided to secure the obligations of Borrower described below.
Accordingly, the parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms used in
this Agreement and not otherwise defined herein shall have the meanings assigned
to them in the Credit Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"ACCOUNTS" means any and all accounts, accounts receivable, and all
rights to payment for merchandise, goods, or commodities sold or leased or to be
sold or leased or for services rendered or to be rendered, however evidenced,
and all other forms of obligations owing to Borrower, all guaranties and
security therefor, and letters of credit relating thereto, in each case whether
now existing or hereafter acquired; PROVIDED, HOWEVER, that "Accounts" shall not
include (i) Released Collateral or any proceeds of Released Collateral and (ii)
each Separate Account and Lockbox Account (each as defined in the NCB Loan
Purchase Agreement) or any funds or amounts therein or proceeds thereof.
"BOOKS" means all books, records and other written, electronic or
other documentation in whatever form maintained now or hereafter by or for
Borrower in connection with the ownership of its assets or the conduct of its
business or evidencing or containing information relating to the Collateral,
including: (i) ledgers; (ii) records indicating, summarizing, or evidencing
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Borrower's assets (including Inventory and Rights to Payment), business
operations or financial condition; (iii) computer programs and software; (iv)
computer discs, tapes, files, manuals, spreadsheets; (v) computer printouts and
output of whatever kind; (vi) any other computer prepared or electronically
stored, collected or reported information and equipment of any kind; and (vii)
any and all other rights now or hereafter arising out of any contract or
agreement between Borrower and any service bureau or computer, data processing
company or other Person charged with preparing or maintaining any of Borrower's
books or records or with credit reporting, including with regard to the
Accounts.
"CHATTEL PAPER" means all writings of whatever sort which evidence a
monetary obligation and a security interest in or lease of specific goods,
whether now existing or hereafter arising; PROVIDED, HOWEVER, that "Chattel
Paper" shall not include Released Collateral.
"COLLATERAL" means the following property of Borrower, wherever
located and whether now existing or owned or hereafter acquired or arising: (i)
all Accounts; (ii) all Chattel Paper; (iii) all Deposit Accounts; (iv) all
Documents; (v) all Equipment; (vi) all General Intangibles; (vii) all
Instruments; (viii) all Inventory; (ix) all Receivable Collateral; (x) all
Books; and (xi) all products and Proceeds of any and all of the foregoing;
PROVIDED, HOWEVER, that "Collateral" shall not include Released Collateral or
any proceeds of Released Collateral.
"DEPOSIT ACCOUNT" means any demand, time, savings, passbook or like
account now or hereafter maintained by or for the benefit of Borrower with a
bank, savings and loan association, credit union or like organization (including
Agent and each Lender) and all funds and amounts therein, whether or not
restricted or designated for a particular purpose; PROVIDED, HOWEVER, that
"Deposit Account" shall not include (i) Released Collateral or any proceeds of
Released Collateral and (ii) each Separate Account and Lockbox Account (each as
defined in the NCB Loan Purchase Agreement) or any funds or amounts therein or
proceeds thereof.
"DOCUMENTS" means any and all documents of title, bills of lading,
dock warrants, dock receipts, warehouse receipts and other documents of
Borrower, whether or not negotiable, and includes all other documents which
purport to be issued by a bailee or agent and purport to cover goods in any
bailee's or agent's possession which are either identified or are fungible
portions of an identified mass, including such documents of title made available
to Borrower for the purpose of ultimate sale or exchange of goods or for the
purpose of loading, unloading, storing, shipping, transshipping, manufacturing,
processing or otherwise dealing with goods in a manner preliminary to their sale
or exchange, in each case whether now existing or hereafter acquired; PROVIDED,
HOWEVER, that "Documents shall not include Released Collateral.
"EQUIPMENT" means all now existing or hereafter acquired equipment,
machinery, furniture, furnishings and fixtures in which Borrower now or
hereafter acquires any right, and all other goods and tangible personal property
(other than Inventory), including tools, parts and supplies, automobiles,
trucks, tractors and other vehicles, computer and other electronic data
processing
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equipment and other office equipment, computer programs and related data
processing software, and all additions, substitutions, replacements, parts,
accessories, and accessions to and for the foregoing, now owned or hereafter
acquired, and including any of the foregoing which are or are to become
fixtures on real property.
"FINANCING STATEMENTS" has the meaning set forth in Section 3.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, now
existing or hereafter acquired, and in any event includes: (i) all tax and other
refunds, rebates or credits of every kind and nature to which Borrower is now or
hereafter may become entitled; (ii) all goodwill, choses in action and causes of
action, whether legal or equitable, whether in contract or tort and however
arising; (iii) all Intellectual Property Collateral; (iv) all uncertificated
securities and interests in limited and general partnerships; (v) all rights of
stoppage in transit, replevin and reclamation; (vi) all licenses, permits,
consents, indulgences and rights of whatever kind issued in favor of or
otherwise recognized as belonging to Borrower by any Governmental Authority; and
(vii) all indemnity agreements, guaranties, insurance policies and other
contractual, equitable and legal rights of whatever kind or nature; PROVIDED,
HOWEVER, that "General Intangibles" shall not include Released Collateral.
"INSTRUMENTS" means any and all negotiable instruments, certificated
securities and every other writing which evidences a right to the payment of
money, in each case whether now existing or hereafter acquired; PROVIDED,
HOWEVER, that "Instruments" shall not include Released Collateral.
"INTELLECTUAL PROPERTY COLLATERAL" means the following properties and
assets owned or held by Borrower or in which Borrower otherwise has any
interest, now existing or hereafter acquired or arising:
(i) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties with
respect to any licenses, all rights to sue for past, present or future
infringement thereof, all rights arising therefrom and pertaining thereto and
all reissues, divisions, continuations, renewals, extensions and continuations
in-part thereof;
(ii) all copyrights and applications for copyright, domestic or
foreign, together with the underlying works of authorship (including titles),
whether or not the underlying works of authorship have been published and
whether said copyrights are statutory or arise under the common law, and all
other rights and works of authorship, all rights, claims and demands in any way
relating to any such copyrights or works, including royalties and rights to sue
for past, present or future infringement, and all rights of renewal and
extension of copyright;
(iii) all state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration of
such trademarks, service marks and trade names, all licenses relating to any of
the foregoing and all income and royalties with respect to any
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licenses, whether registered or unregistered and wherever registered, all
rights to sue for past, present or future infringement or unconsented use
thereof, all rights arising therefrom and pertaining thereto and all
reissues, extensions and renewals thereof;
(iv) all trade secrets, confidential information, customer lists,
license rights, advertising materials; operating manuals, methods, processes,
know-how, sales literature, drawings, specifications, blue prints, descriptions,
inventions, name plates and catalogs; and
(v) the entire goodwill of or associated with the businesses now or
hereafter conducted by Borrower connected with and symbolized by any of the
aforementioned properties and assets.
"INVENTORY" means any and all of Borrower's goods (including goods in
transit) whether now owned or hereafter acquired, which are held for sale, lease
or other disposition, including those held for display or demonstration or out
on lease or consignment or to be furnished under a contract of service or are
raw materials, work in process, finished materials, or materials used or
consumed, or to be used or consumed, in Borrower's business, and the resulting
product or mass, and all repossessed, returned, rejected, reclaimed and
replevied goods, together with all materials, parts, supplies, packing and
shipping materials used or usable in connection with the manufacture, packing,
shipping, advertising, selling or furnishing of such goods; and all other items
hereafter acquired by Borrower by way of substitution, replacement, return,
repossession or otherwise, and all additions and accessions thereto, and any
Document representing or relating to any of the foregoing at any time.
"PROCEEDS" means whatever is receivable or received from or upon the
sale, lease, license, collection, use, exchange or other disposition, whether
voluntary or involuntary, of any Collateral or other assets of Borrower,
including "proceeds" as defined at UCC Section 9306, any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to or for the account of
Borrower from time to time with respect to any of the Collateral, any and all
payments (in any form whatsoever) made or due and payable to Borrower from time
to time in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of Governmental Authority), any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral or for or on account of any damage or injury to or conversion of any
Collateral by any Person, any and all other tangible or intangible property
received upon the sale or disposition of Collateral, and all proceeds of
proceeds; PROVIDED, HOWEVER, that "Proceeds" shall not include Released
Collateral or any proceeds of Released Collateral.
"PURCHASE NOTICE" means a Purchase Notice in the form of EXHIBIT 1.
"RECEIVABLE COLLATERAL" means all rights, interests and claims of
Borrower under and in respect of Finance Receivables and Additional Loan/Lease
Receivables, whether now existing or
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hereafter acquired or arising, including (i) all rights of Borrower in, to
and under the Operating Agreement, and any other agreement, contract,
instrument, collateral document or other document to which Borrower now or
hereafter is a party or now or hereafter issued in its favor, relating to or
evidencing the Receivable Collateral or the servicing thereof, as each such
agreement, contract, instrument, collateral document or other document may be
amended, modified, renewed or extended from time to time; (ii) all rights of
Borrower to receive moneys and other payments and distributions due or to
become due with respect to any Receivable Collateral; (iii) all rights of
Borrower to receive proceeds of any insurance, indemnity, warranty, letter of
credit or guaranty with respect to any Receivable Collateral; (iv) all claims
of Borrower for damages arising out of any breach or default under or in
respect of any Receivable Collateral; and (v) the right of Borrower to
terminate, amend, supplement or modify any such agreement, contract,
insurance policy, indemnity agreement, guaranty, letter of credit,
instrument, collateral document or other document, to perform thereunder and
to compel performance and otherwise exercise all rights and remedies
thereunder; PROVIDED, HOWEVER, that "Receivable Collateral" shall not include
Released Collateral or any proceeds of Released Collateral, or the right,
title or interest of Borrower in or to the NCB Loan Purchase Agreement, the
Guaranty and any other documents, instruments and agreements executed or
delivered in connection with the transactions contemplated by the NCB Loan
Purchase Agreement.
"RELEASE" means an Instrument of Partial Release in the Form of
EXHIBIT 2.
"RIGHTS TO PAYMENT" means all Accounts and any and all rights and
claims to the payment or receipt of money or other forms of consideration of any
kind in, to and under all Chattel Paper, Documents, General Intangibles,
Instruments, Receivable Collateral and Proceeds; ; PROVIDED, HOWEVER, that
"Rights to Payment" shall not include Released Collateral or any proceeds of
Released Collateral or the right to receive any Released Collateral or proceeds
thereof.
"SECURED OBLIGATIONS" means the indebtedness, liabilities and other
obligations of Borrower to Agent and Lenders under or in connection with the
Credit Agreement, the Notes and the other Loan Documents, including all unpaid
principal of the Loans, all interest accrued thereon, all fees due under the
Credit Agreement and all other amounts payable by Borrower to Agent and Lenders
thereunder or in connection therewith, whether now existing or hereafter
arising, and whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; PROVIDED, HOWEVER, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State
of California, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such attachment, perfection or priority and for purposes of definitions
related to such provisions.
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(c) TERMS DEFINED IN UCC. Where applicable and except as otherwise
defined herein, terms used in this Agreement shall have the meanings assigned to
them in the UCC.
(d) INTERPRETATION. The rules of interpretation set forth in Section
1.03 of the Credit Agreement shall be applicable to this Agreement and are
incorporated herein by this reference.
SECTION 2 SECURITY INTEREST.
(a) GRANT OF SECURITY INTEREST. As security for the payment and
performance of the Secured Obligations, Borrower hereby pledges, assigns,
transfers, hypothecates and sets over to Agent, for itself and on behalf of and
for the ratable benefit of Lenders, and hereby grants to Agent, for itself and
on behalf of and for the ratable benefit of Lenders, a security interest in all
of Borrower's right, title and interest in, to and under the Collateral. The
Agent, for itself and on behalf of the Lenders, hereby acknowledges and agrees
that, notwithstanding the previous sentence, NCB has a first priority perfected
security interest in each Deposit Account, and all funds and amounts therein and
proceeds thereof, that is a Servicing Account or a Separate Account (as each
term is defined in the NCB Loan Purchase Agreement).
(b) BORROWER REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (i) Borrower shall remain liable under any contracts and
agreements included in the Collateral (including all contracts and agreements
relating to the Receivable Collateral), to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (ii) the exercise by Agent of any of the
rights hereunder shall not release Borrower from any of its duties or
obligations under such contracts and agreements included in the Collateral and
(iii) Agent shall not have any obligation or liability under any contracts and
agreements included in the Collateral by reason of this Agreement, nor shall
Agent be obligated to perform any of the obligations or duties of Borrower
thereunder or to take any action to collect or enforce any Receivable Collateral
or other Right to Payment included in the Collateral hereunder.
(c) CONTINUING SECURITY INTEREST. Borrower agrees that this
Agreement shall create a continuing security interest in the Collateral which
shall remain in effect until terminated in accordance with Section 22.
SECTION 3 FINANCING STATEMENTS, ETC.; RELEASES.
(a) FINANCING STATEMENTS. Borrower shall execute and deliver to
Agent concurrently with the execution of this Agreement, and at any time and
from time to time thereafter, all financing statements, continuation financing
statements, termination statements, security agreements, chattel mortgages,
assignments, patent, copyright and trademark collateral assignments, fixture
filings, warehouse receipts, documents of title, affidavits, reports, notices,
schedules of account, letters of authority and all other documents and
instruments, in form satisfactory to Agent (the "Financing Statements"), and
take all such other action, as Agent may request to perfect and con-
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tinue perfected, maintain the priority of or provide notice of Agent's
security interest in the Collateral and to accomplish the purposes of this
Agreement.
(b) COLLATERAL PROCEDURES. Without limiting the generality of the
foregoing provisions of this Section 3, Borrower agrees (i) to deliver to or for
the account of Agent, at the address and to the Person to be designated by
Agent, any certificates, instruments, Chattel Paper, or other writings
evidencing Receivable Collateral, with any necessary endorsements thereon and
other instruments of transfer or assignment, all in form and substance
satisfactory to Agent, as Agent shall require, such delivery to occur on or
prior to the Closing Date and the earlier to occur of (A) the delivery of any
Borrowing Base Certificate and (B) five Business Days following the receipt of
any such certificates, instruments, Chattel Paper, or other writings evidencing
Receivable Collateral; and (ii) otherwise to comply with the procedures
reasonably established by Agent, as modified from time to time by Agent to
conform to current legal requirements or Agent's practices and policies,
relating to the perfection of the first priority security interest in and pledge
of the Receivable Collateral, including Chattel Paper, to Agent for itself and
on behalf of and for the ratable benefit of Lenders.
(c) NOTICE OF SECURITY INTEREST. In accordance with Section
9302(l)(g) of the California UCC, written notice of the security interest of
Agent, for itself and on behalf of and for the ratable benefit of Lenders, in
each Deposit Account maintained with a Lender is hereby given to such Lender.
(d) RELEASES.
(i) Borrower shall have the right to request Agent to release
from time to time any certificates, instruments, Chattel Paper, and other
writings evidencing any Receivable Collateral in connection with any
modifications or terminations thereof permitted hereunder and under the Credit
Agreement. Promptly following delivery by Borrower of a written request to
Agent requesting any such release and describing in reasonable detail the basis
for the release request, and upon receipt of any additional information Agent
may reasonably request, Agent shall release (or cause to be released) the
certificate, instrument or other writing which is the subject of the release
request. In the case of a request contemplating the substitution of any
certificate, instrument or other writing, Borrower shall deliver the substitute
certificate, instrument or other writing on the date of the release; PROVIDED,
HOWEVER, that if such simultaneous substitution shall be impracticable, Borrower
shall deliver the substitute certificate, instrument or other writing within
five Business Days following the release.
(ii) Provided that an Event of Default is not continuing,
Borrower shall have the right to request Agent to release from time to time any
certificates, instruments, Chattel Paper, and other writings evidencing any
Receivable Collateral in connection with any sale of such Receivable Collateral
pursuant to the Loan Purchase Agreements by delivery of a duly executed Purchase
Notice listing the Receivable Collateral requested to be released. Promptly
following receipt thereof, Agent shall execute and deliver to Borrower a
Release, and Agent shall release (or
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cause to be released), and contemporaneously deliver, or cause to be
delivered to Buyer (as defined is the NCB Purchase Agreement), the
certificates, instruments, Chattel Paper, and other writings evidencing the
Receivable Collateral requested to be released in the such Purchase Notice;
PROVIDED that immediately after giving effect to such release of Receivable
Collateral, the aggregate principal amount of the Loans outstanding shall not
exceed the Borrowing Base. Agent agrees to take all such other actions as
Borrower may reasonably request to accomplish the release of Receivable
Collateral in accordance with the terms of this Section 3(d)(ii).
SECTION 4 REPRESENTATIONS AND WARRANTIES.
In addition to the representations and warranties of Borrower set
forth in the Credit Agreement, which are incorporated herein by this reference,
Borrower represents and warrants to each Lender and Agent that until this
Agreement has been terminated in accordance with Section 22:
(a) LOCATION OF CHIEF EXECUTIVE OFFICE AND COLLATERAL. Borrower's
chief executive office is located at the address set forth in Schedule 1, and
all other locations where Borrower conducts business or Collateral is kept are
set forth in Schedule 1.
(b) LOCATIONS OF BOOKS. All locations where Books pertaining to the
Rights to Payment are kept, including all equipment necessary for accessing such
Books and the names and addresses of all service bureaus, computer or data
processing companies and other Persons keeping any Books or collecting Rights to
Payment for Borrower, are set forth in Schedule 1.
(c) TRADE NAMES AND TRADE STYLES. All trade names and trade styles
under which Borrower presently conducts its business operations are set forth in
Schedule 1, and, except as set forth in Schedule 1, Borrower has not, at any
time during the preceding five years: (i) been known as or used any other
corporate, trade or fictitious name; (ii) changed its name; (iii) been the
surviving or resulting corporation in a merger or consolidation; or (iv)
acquired through asset purchase or otherwise any business of any Person.
(d) OWNERSHIP OF COLLATERAL. Borrower is, and, except as permitted
by Section 5(i), shall continue to be, the sole and complete owner of the
Collateral (or, in the case of after-acquired Collateral, at the time Borrower
acquires rights in such Collateral, shall be the sole and complete owner
thereof), free from any Lien other than Permitted Liens.
(e) ENFORCEABILITY; PRIORITY OF SECURITY INTEREST. (i) This
Agreement creates a security interest which is enforceable against the
Collateral in which Borrower now has rights and will create a security interest
which is enforceable against the Collateral in which Borrower hereafter acquires
rights at the time Borrower acquires any such rights, and (ii) Agent has a
perfected security interest (to the fullest extent perfection can be obtained by
filing, notification to third parties or possession) and (other than with
respect to each Deposit Account, and all funds and amounts therein and proceeds
thereof, that is a Servicing Account or a Separate Account (as each term is
defined in the NCB Loan Purchase Agreement), as to which NCB has a first
priority perfected security interest) a first priority security interest in the
Collateral in which Borrower now has rights, and (other than with respect to
each Deposit Account, and all funds and amounts therein and proceeds thereof,
that is a Servicing Accounting or Separate Account (as each term is defined in
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the NCB Loan Purchase Agreement), as to which NCB has a first priority perfected
security interest) will have a perfected and first priority security interest in
the Collateral in which Borrower hereafter acquires rights at the time Borrower
acquires any such rights, in each case securing the payment and performance of
the Secured Obligations.
(f) OTHER FINANCING STATEMENTS. Other than (i) Financing Statements
disclosed to Agent, (ii) Financing Statements in favor of Agent on behalf of
Lenders, and (iii) Financing Statements with respect to NCB's rights to the
Released Collateral and to each Deposit Account, and all funds and amounts
therein and proceeds thereof, that is a Servicing Account or Separate Account
(as each term is defined in the NCB Loan Purchase Agreement), no effective
Financing Statement naming Borrower as debtor, assignor, grantor, mortgagor,
pledgor or the like and covering all or any part of the Collateral is on file in
any filing or recording office in any jurisdiction.
(g) RIGHTS TO PAYMENT.
(i) the Rights to Payment represent valid, binding and
enforceable obligations of the Receivable Debtors or other Persons obligated
thereon, representing undisputed, bona fide transactions completed in accordance
with the terms and provisions contained in any documents related thereto, and
are and will be genuine, free from Liens, adverse claims, counterclaims,
setoffs, defaults, disputes, defenses, retainages, holdbacks and conditions
precedent of any kind of character, except to the extent reflected by Borrower's
reserves for uncollectible Rights to Payment or as otherwise disclosed to
Lenders through Agent in writing;
(ii) to the best of Borrower's knowledge and belief, all
Receivable Debtors and other obligors on the Rights to Payment are solvent and
generally paying their debts as they come due except as disclosed to Lenders
through Agent;
(iii) all Rights to Payment comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable any federal and state consumer credit laws;
(iv) Borrower has not assigned any of its rights under the Rights
to Payment except as provided in this Agreement or as set forth in the other
Loan Documents;
(v) with respect to each Right to Payment constituting Eligible
Collateral, except as disclosed in writing to Agent, Borrower has no knowledge
that any of the criteria for eligibility are not or are no longer satisfied;
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(vi) all statements made, all unpaid balances and all other
information in the Books and other documentation relating to the Rights to
Payment are true and correct and in all respects what they purport to be; and
(vii) Borrower has no knowledge of any fact or circumstance
which would impair the validity or collectibility of any of the Rights to
Payment.
(h) INVENTORY. No Inventory is stored with any bailee, warehouseman
or similar Person or on any Promises leased to Borrower, nor has any Inventory
been consigned to Borrower or consigned by Borrower to any Person or is held by
Borrower for any Person under any "bill and hold" or other arrangement, except
as set forth in Schedule 1.
(i) INTELLECTUAL PROPERTY.
(i) except as set forth in Schedule 1, Borrower (directly or
through any Subsidiary) does not own, possess or use under any licensing
arrangement any patents, copyrights, trademarks, service marks or trade names,
nor is there currently pending before any Governmental Authority any application
for registration of any patent, copyright, trademark, service mark or trade
name;
(ii) all patents, copyrights, trademarks, service marks and trade
names are subsisting and have not been adjudged invalid or unenforceable in
whole or in part;
(iii) all maintenance fees required to be paid on account of
any patents have been timely paid for maintaining such patents in force, and, to
the best of Borrower's knowledge, each of the patents is valid and enforceable
and Borrower has notified Agent in writing of all prior art (including public
uses and sales) of which it is aware;
(iv) to the best of Borrower's knowledge after due inquiry, no
material infringement or unauthorized use presently is being made of any
Intellectual Property Collateral by any Person;
(v) Borrower is the sole and exclusive owner of the Intellectual
Property Collateral and the past, present and contemplated future use of such
Intellectual Property Collateral by Borrower has not, does not and will not
infringe or violate any right, privilege or license agreement of or with any
other Person; and
(vi) Borrower owns, has material rights under, is a party to, or
an assignee of a party to all material licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, trade names and
all other Intellectual Property Collateral necessary to continue to conduct its
business as heretofore conducted.
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(j) EQUIPMENT.
(i) none of the Equipment or other Collateral is affixed to real
property, except Collateral with respect to which Borrower has supplied Agent
with all information and documentation necessary to make all fixture filings
required to perfect and protect the priority of Agent's security interest in all
such Collateral which may be fixtures as against all Persons having an interest
in the Premises to which such property may be affixed; and
(ii) none of the Equipment is leased from or to any Person,
except as set forth at Schedule 1 or as otherwise disclosed to Agent and
Lenders.
(k) DEPOSIT ACCOUNTS. The names and addresses of all financial
institutions at which Borrower maintains its Deposit Accounts, and the account
numbers and account names of such Deposit Accounts, are set forth in Schedule 1.
SECTION 5 COVENANTS.
In addition to the covenants of Borrower set forth in the Credit
Agreement, which are incorporated herein by this reference, until this Agreement
has been terminated in accordance with Section 22, Borrower agrees that:
(a) DEFENSE OF COLLATERAL. Borrower shall appear in and defend any
action, suit or proceeding which may affect to a material extent its title to or
right or interest in, or Agent's right or interest in, the Collateral.
(b) PRESERVATION OF COLLATERAL. Borrower shall do and perform all
reasonable acts that may be necessary and appropriate to maintain, preserve and
protect the Collateral.
(c) COMPLIANCE WITH LAWS, ETC. Borrower shall comply with all laws,
regulations and ordinances, and all policies of insurance, relating in a
material way to the possession, operation, maintenance and control of the
Collateral.
(d) LOCATION OF BOOKS AND CHIEF EXECUTIVE OFFICE. Borrower shall:
(i) keep all Books pertaining to the Rights to Payment at the locations set
forth in Schedule 1; and (ii) give at least 30 days' prior written notice to
Agent of (A) any changes in any such location where Books pertaining to the
Rights to Payment are kept, including any change of name or address of any
service bureau, computer or data processing company or other Person preparing or
maintaining any Books or collecting Rights to Payment for Borrower or (B) any
change in the location of Borrower's chief executive office or principal place
of business.
(e) LOCATION OF COLLATERAL. Borrower shall: (i) keep the Collateral
at the locations set forth in Schedule 1 and not remove the Collateral from such
locations (other than disposals of
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Collateral permitted by subsection (i)) except upon at least 30 days' prior
written notice of any removal to Agent by delivering to Agent an amended
Schedule 1; and (ii) give Agent at least 30 days' prior written notice of any
change in the locations set forth in Schedule 1 by delivering to Agent an
amended Schedule 1.
(f) CHANCE IN NAME, TRADE NAME OR TRADE STYLE. Borrower shall give
at least 30 days' prior written notice of any changes in the its name, or of any
changes in, additions to or other modifications of its trade names and trade
styles set forth in Schedule 1 by delivering to Agent an amended Schedule 1.
(g) MAINTENANCE OF RECORDS. Borrower shall keep separate, accurate
and complete Books with respect to the Collateral, disclosing Agent's security
interest hereunder.
(h) INVOICING OF SALES. Borrower shall invoice all of its sales upon
forms customary in the industry and to maintain proof of delivery and customer
acceptance of goods.
(i) DISPOSITION OF COLLATERAL. Borrower shall not surrender or lose
possession of (other than to Agent), sell, lease, rent, or otherwise dispose of
or transfer any of the Collateral or any right or interest therein, except to
the extent permitted by the Credit Agreement.
(j) LIENS; ASSIGNMENTS OF ASSIGNED AGREEMENTS. (i) Borrower shall
keep the Collateral free of all Liens except Permitted Liens. (ii) Without
limiting the generality of the foregoing, Borrower shall not make any other
assignment (other than to Agent) of its rights under the Receivable Collateral.
(k) EXPENSES. Borrower shall pay all expenses of protecting,
storing, warehousing, insuring, handling and shipping the Collateral.
(l) LEASED PREMISES. At Agent's request, Borrower shall obtain from
each Person from whom Borrower leases any Premises at which any Collateral is at
any time present such subordination, waiver, consent and estoppel agreements as
Agent may require, in form and substance satisfactory to Agent.
(m) RIGHTS TO PAYMENT. Borrower shall:
(i) perform and observe all terms and provisions of the Rights
to Payment and all obligations to be performed or observed by it in connection
therewith and maintain the Rights to Payment in full force and effect;
(ii) enforce all Rights to Payment strictly in accordance with
their terms and the GCC Loan Guidelines and Borrower's documentation, credit and
collection policies and practices, and take all such action to such end as may
be from time to time reasonably requested by
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Agent;
(iii) if, to the knowledge of Borrower, any dispute, setoff,
claim, counterclaim or defense shall exist or shall be asserted or threatened
with respect to a Right to Payment (whether with or against Borrower or
otherwise) involving in excess of $50,000, disclose such fact fully to Agent in
the Books relating to such Account or other Right to Payment and in connection
with any report furnished by Borrower to Agent relating to such Right to
Payment;
(iv) not without the prior consent of Agent, (A) cancel or
terminate any of the Receivable Collateral or consent to or accept any
cancellation or termination thereof, except against full payment of the balance
owing thereon; (B) amend or otherwise modify in any material respect any
Receivable Collateral involving in excess of $50,000 or give any material
consent, waiver or approval thereunder; (C) waive any material default under or
breach of any Receivable Collateral involving in excess of $50,000; or (D) take
any other action in connection with the Receivable Collateral that would
materially impair the value of the interest or rights of Borrower thereunder or
that would materially impair the interest or rights of Agent and Lenders;
(v) furnish to Agent promptly upon receipt thereof copies of all
material notices, requests and other documents received by Borrower from any
Receivable Debtor whose obligations in respect of Receivable Collateral equal or
exceed $1,000,000 in aggregate principal amount, and from time to time (A)
furnish to Agent such information and reports regarding the Receivable
Collateral and other Rights to Payment as Agent may reasonably request, and (B)
upon request of Agent make such demands and requests for information and reports
as Borrower is entitled to make in respect of the Receivable Collateral and
other Rights to Payment;
(n) DOCUMENTS, ETC. Upon the request of Agent, Borrower shall (i)
immediately deliver to Agent, or an agent designated by it, appropriately
endorsed or accompanied by appropriate instruments of transfer or assignment,
all Documents, Instruments and Chattel Paper, and all other Rights to Payment at
any time evidenced by promissory notes, trade acceptances or other instruments
and (ii) mark all Documents and Chattel Paper with such legends as Agent shall
specify.
(o) INVENTORY. Borrower shall:
(i) at such times as Agent shall request, prepare and deliver to
Agent periodic reports pertaining to the Inventory, in form and substance
satisfactory to Agent;
(ii) upon the request of Agent, take a physical listing of the
Inventory and upon request of Agent promptly deliver a copy of such physical
listing to Agent; and
(iii) not store any Inventory with a bailee, warehouseman or
similar Person or on Premises leased to Borrower, nor dispose of any Inventory
on a bill-and-hold, guaranteed sale, sale and return, sale on approval,
consignment or similar basis, nor acquire any Inventory from any
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Person on any such basis, without in each case giving Agent prior written
notice thereof.
(p) EQUIPMENT. Borrower shall, upon Agent's request, deliver to
Agent a report of each item of Equipment, in form and substance satisfactory to
Agent.
(q) INTELLECTUAL PROPERTY COLLATERAL. Borrower shall:
(i) not enter into any agreement (including any license or
royalty agreement) pertaining to any Intellectual Property Collateral without in
each case giving Agent prior notice thereof;
(ii) not allow or suffer any Intellectual Property Collateral to
become abandoned, nor any registration thereof to be terminated, forfeited,
expired or dedicated to the public;
(iii) promptly give Agent notice of any rights Borrower may
obtain to any new patentable inventions, copyrightable works or other new
Intellectual Property Collateral, prior to the filing of any application for
registration thereof; and
(iv) diligently prosecute all applications for patents,
copyrights and trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for certificate of
correction and like matters as shall be reasonable and appropriate in accordance
with prudent business practice, and promptly and timely pay any and all
maintenance, license, registration and other fees, taxes and expenses incurred
in connection with any Intellectual Property Collateral.
SECTION 6 COLLECTION OF RIGHTS TO PAYMENT.
Agent or Agent's designee, at any time during the continuance of an
Event of Default, may notify the Receivable Debtors and the account debtors that
the Receivable Collateral and the Accounts have been assigned to Agent, on
behalf of Lenders, that Agent has a security interest therein, and may collect
payment of all Rights to Payment directly and charge all collection costs and
expenses to the Obligations. Unless and until Agent does so or gives Borrower
other written instructions, Borrower shall instruct the Receivable Debtors and
account debtors to remit all payments of the Rights to Payment to post office
boxes which have been established as lock boxes by Agent and Borrower. All
checks and other payments received on the Rights to Payment by Agent shall be
applied by Agent, in accordance with the provisions of Section 2.10 of the
Credit Agreement, in reduction of the Obligations. The receipt of any check or
other payment by Agent in respect of the Rights to Payment shall not be
considered a payment on account of the Obligations until such check or other
payment is honored when presented for payment by Agent and has been paid to
Agent. If the NCB Loan Purchase Agreement is still in effect, Agent shall
segregate and pay to NCB all funds and amounts received by Agent not
constituting Collateral or as to which NCB has a first priority security
interest. NCB shall have the right to demand an accounting from Agent of all
funds and
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amounts not constituting collateral or as to which NCB has a first priority
security interest, and Agent shall hold NCB harmless against the loss or
misapplication of any such funds and amounts.
SECTION 7 AUTHORIZATION; AGENT APPOINTED ATTORNEY-IN-FACT.
Agent shall have the right to, in the name of Borrower, or in the name
of Agent or otherwise, without notice to or assent by Borrower, and Borrower
hereby constitutes and appoints Agent (and any of Agent's officers or employees
or agents designated in writing by Agent) as Borrower's true and lawful
attorney-in-fact, with full power and authority to:
(i) sign any of the Financing Statements which must be executed or
filed to perfect or continue perfected, maintain the priority of or provide
notice of Agent's security interest in the Collateral;
(ii) endorse any notes, acceptances, checks, drafts, money orders or
other forms of payment or security which may come into the possession of Agent
and collect any Proceeds of any Collateral;
(iii) sign any invoice or bill of lading relating to any of the
Collateral, on drafts against customers or other obligors, on notices of
assignment, and on notices to customers or other obligors;
(iv) notify the Postal Service authorities to change the address for
delivery of mail addressed to Borrower to such address as Agent may designate
(provided, that, Agent shall reasonably promptly return to Borrower all mail
other than the Collateral in an orderly fashion) and, without limiting the
generality of the foregoing, establish with any Person lockbox or similar
arrangements for the payment of the Rights to Payment;
(v) receive, open and dispose of all mail addressed to Borrower;
(vi) send requests for verification of Rights to Payment to the
customers or other obligors of Borrower;
(vii) contact all Receivable Debtors and other obligors on the
Rights to Payment and instruct such Receivable Debtors and other obligors to
make all payments directly to Agent;
(viii) notify each Person maintaining lockbox or similar
arrangements for the payment of the Rights to Payment to remit all amounts
representing collections on the Rights to Payment directly to Agent;
(ix) assert, adjust, sue for, compromise or release any claims under
any policies of insurance;
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(x) enforce payment or any other rights in respect of the Rights to
Payment and otherwise grant consents, agree to any amendments, modifications or
waivers of the agreements and documents governing the Rights to Payment, file
any claims, take any action or institute, defend, settle or adjust any actions,
suits or proceedings with respect to the Collateral, as Agent may deem necessary
or desirable to maintain, preserve and protect the Collateral, to collect the
Collateral or to enforce the rights of Agent with respect to the Collateral;
(xi) execute any and all applications, documents, papers and
instruments necessary for Agent to use the Intellectual Property Collateral and
grant or issue any exclusive or non-exclusive license or sublicense with respect
to any Intellectual Property Collateral;
(xii) execute any and all endorsements, assignments or other
documents and instruments necessary to sell, lease, assign, convey or otherwise
transfer title in or dispose of the Collateral; and
(xiii) execute any and all such other documents and instruments,
and do any and all acts and things for and on behalf of Borrower, which Agent
may deem necessary or advisable to maintain, protect, realize upon and preserve
the Collateral and Agent's security interest therein and to accomplish the
purposes of this Agreement.
Agent agrees that, except upon and after the occurrence of an Event of Default,
it shall not exercise the power of attorney, or any rights granted to Agent,
pursuant to clauses (ii) through (xii). The foregoing power of attorney is
coupled with an interest and irrevocable so long as Lenders have any Commitments
or the Secured Obligations have not been indefeasibly paid and performed in
full.
SECTION 8 AGENT PERFORMANCE; AGENT'S DUTIES.
(a) AGENT PERFORMANCE OF BORROWERS DUTIES. Agent may perform or pay
any obligation which Borrower has agreed to perform or pay under or in
connection with this Agreement, and Borrower shall reimburse Agent on demand for
any amounts paid by Agent pursuant to this Section 8(a).
(b) AGENT'S DUTIES. Notwithstanding any provision contained in this
Agreement, Agent shall have no duty to exercise any of the rights, privileges or
powers afforded to it and shall not be responsible to Borrower or any other
Person for any failure to do so or delay in doing so. Beyond the exercise of
reasonable care to assure the safe custody of Collateral in Agent's possession
and the accounting for moneys actually received by Agent hereunder, Agent shall
have no duty or liability to exercise or preserve any rights, privileges or
powers pertaining to the Collateral.
SECTION 9 AGREEMENT FOR SECURITY PURPOSES.
This Agreement is for security purposes only. Accordingly, Agent
shall not, pursuant
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to this Agreement (except to the extent expressly provided herein), enforce
Borrower's rights with respect to the Collateral, including the exercise of
any rights granted under or in respect of the Receivable Collateral, until
such time as an Event of Default shall have occurred, and until such time,
subject to the terms of the Loan Documents, Borrower reserves the right to
exercise all of its right, title and interest in, to and under the Collateral
(including the Receivable Collateral).
SECTION 10 REMEDIES.
(a) REMEDIES. Upon the occurrence of any Event of Default, Agent
shall have, in addition to all other rights and remedies granted to them in this
Agreement, the Credit Agreement or any other Loan Document, all rights and
remedies of a secured party under the UCC and other applicable laws. Without
limiting the generality of the foregoing, Borrower agrees that:
(i) Agent may peaceably and without notice enter the Premises on
which any Collateral may be located and take possession of the Collateral and
remove or dispose of all or part of the Collateral on any Premises or elsewhere,
or, in the case of Equipment, render it nonfunctional, and Borrower shall not
resist or interfere with such action.
(ii) Agent may require Borrower to assemble all or any part of
the Collateral and make it available to Agent, at any place and time designated
by Agent.
(iii) Agent may use or transfer any of Borrower's rights and
interests in any Intellectual Property Collateral, by license, by sublicense (to
the extent permitted by an applicable license) or otherwise, on such conditions
and in such manner as Agent may determine.
(iv) Agent may notify the account debtors under the Receivable
Collateral and collect, pursuant to UCC Section 9502, any and all Rights to
Payment.
(v) Agent may withdraw (or cause to be withdrawn) any and all
funds from Deposit Accounts; PROVIDED, HOWEVER, that (i) the Agent may not
withdraw funds or amounts on deposit in any Deposit Account that do not
constitute Collateral, and (ii) without the prior written consent of NCB, the
Agent may not withdraw funds or amounts on deposit in any Deposit Account that
is a Servicing Account or Separate Account (as each term is defined in the NCB
Loan Purchase Agreement).
(vi) Agent may secure the appointment of a receiver of the
Collateral or any part thereof (to the extent and in the manner provided by
applicable law).
(vii) Agent may sell, resell, lease, use, assign, transfer or
otherwise dispose of any or all of the Collateral in its then condition or
following any commercially reasonable preparation or processing (utilizing in
connection therewith any of Borrower's assets, without charge or liability to
Agent therefor) at public or private sale, by one or more contracts, in one or
more
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parcels, at the same or different times, for cash or credit, all as Agent
deem advisable; PROVIDED, HOWEVER, that Borrower shall be credited with the
net proceeds of sale only when such proceeds are finally collected by Agent.
Borrower hereby agrees that the sending of notice by ordinary mail, postage
prepaid, to the address of Borrower set forth in the Credit Agreement, of the
place and time of any public sale or of the time after which any private sale
or other intended disposition is to be made, shall be deemed reasonable
notice thereof if such notice is sent ten days prior to the date of such sale
or other disposition or the date on or after which such sale or other
disposition may occur, PROVIDED that Agent may provide Borrower shorter
notice or no notice, to the extent permitted by the UCC or other applicable
law.
(b) LICENSE. For the purpose of enabling Agent to exercise its
rights and remedies under this Section 10 or otherwise in connection with this
Agreement, Borrower hereby grants to Agent an irrevocable, non-exclusive and
assignable license (exercisable without payment or royalty or other compensation
to Borrower) to use, license or sublicense any Intellectual Property Collateral.
(c) EFFECTS OF SECURITIES ACT COMPLIANCE. Borrower hereby
acknowledges that the sale by Agent of any Collateral (or any portion thereof)
pursuant to the terms hereof in compliance with the Securities Act of 1933, or
any similar statute hereafter adopted with similar purpose of effect (the
"Securities Act"), as well as applicable "Blue Sky" or other state securities
laws may require limitations as to the manner in which Agent or any subsequent
transferee of the Collateral (or any portion thereof) may offer or dispose
thereof. Borrower further acknowledges and agrees that to protect Agent's
interest it may be necessary to sell Collateral (or any portion thereof) that
constitutes a "security" under such statute at a price less than the maximum
price attainable if a sale were delayed in order to be made in a public offering
under the Securities Act. Borrower has no objection to any sale of any such
Collateral in such a manner that avoids the filing of a registration statement
with any Governmental Authority (if and to the extent such sale is otherwise
commercially reasonable) and agrees that Agent shall have no obligation to file
a registration statement as aforesaid in order to obtain the maximum possible
price for the Collateral (or any portion thereof). Without limiting the
generality of the foregoing, Borrower agrees that, upon the occurrence and
during the continuation of an Event of Default, Agent may, subject to applicable
law, from time to time attempt to sell all or any part of the Collateral (or any
portion thereof) the sale of which is or may be subject to any federal or state
securities law by a private placement, restricting the bidders and prospective
purchasers to those who will represent and agree that they are purchasing for
investment only and not for distribution and are qualified for any applicable
private placement exemptions under the Securities Act and Blue Sky laws. In
doing so, Agent may solicit offers to buy the Collateral (or any portion
thereof) subject to such sale or any part thereof, from a limited number of
investors deemed by Agent, in its sole discretion, to be institutional investors
or other responsible parties who might be interested in purchasing the
Collateral (or any portion thereof). If Agent shall solicit such offers, then
the acceptance by Agent of one of the offers shall be conclusively deemed to be
a commercially reasonable method of disposition of such Collateral.
(d) APPLICATION OF PROCEEDS. The cash proceeds actually received
from the sale
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or other disposition or collection of Collateral, and any other amounts
received in respect of the Collateral the application of which is not
otherwise provided for herein, shall be applied as provided in Section
6.02(d)(ii) of the Credit Agreement. Any surplus thereof which exists after
payment and performance in full of the Secured Obligations shall be promptly
paid over to Borrower or otherwise disposed of in accordance with the UCC or
other applicable law. Borrower shall remain liable to Agent and Lenders for
any deficiency which exists after any sale or other disposition or collection
of Collateral.
SECTION 11 CERTAIN WAIVERS.
Borrower waives any right to require Agent or Lenders (i) to proceed
against any Person; (ii) to exhaust any other collateral or security for any of
the Secured Obligations; (iii) to pursue any remedy in Agent's or any of
Lenders' power; or (iv) to make or give any presentments, demands for
performance, notices of nonperformance, protests, notices of protests or notices
of dishonor in connection with any of the Collateral.
SECTION 12 NOTICES.
All notices or other communications hereunder shall be given in the
manner and to the addresses specified in the Credit Agreement. All such notices
and other communications shall be effective if delivered by hand, when
delivered; if sent by mail, upon the earlier of the date of receipt or five
Business Days after deposit in the mail, first class, postage prepaid; if sent
by telex, upon receipt by the sender of an appropriate answerback; and if sent
by facsimile transmission, when sent.
SECTION 13 NO WAIVER; CUMULATIVE REMEDIES.
No failure on the part of Agent or any Lender to exercise, and no
delay in exercising, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, remedy, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
rights and remedies under this Agreement are cumulative and not exclusive of any
rights, remedies, powers and privileges that may otherwise be available to Agent
or any Lender.
SECTION 14 COSTS AND EXPENSES; INDEMNIFICATION; OTHER CHARGES.
(a) COSTS AND EXPENSES. Borrower agrees to pay on demand:
(i) the reasonable out-of-pocket costs and expenses of Agent and
any of its Affiliates, and the reasonable fees and disbursements of counsel to
Agent (including allocated costs of internal counsel), in connection with the
negotiation, preparation, execution, delivery and administration of this
Agreement, and any amendments, modifications or waivers of the terms thereof,
and the custody of the Collateral;
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(ii) all title, appraisal (including the allocated costs of
internal appraisal services), survey, audit, consulting, search, recording,
filing and similar fees, costs and expenses incurred or sustained by Agent or
any of its Affiliates in connection with this Agreement or the Collateral,
including any costs, fees and expenses in respect of the report referred to in
Section 7.01(c)(ii) of the Credit Agreement and the inspections or audits
contemplated by Section 9.03(e) of the Credit Agreement; and
(iii) all costs and expenses of Agent, its Affiliates and
Lenders, and the fees and disbursements of counsel (including the allocated
costs of internal counsel), in connection with the enforcement or attempted
enforcement of, and preservation of any rights or interests under, this
Agreement, any out-of-court workout or other refinancing or restructuring or in
any bankruptcy case, and the protection, sale or collection of, or other
realization upon, any of the Collateral, including all expenses of taking,
collecting, holding, sorting, handling, preparing for sale, selling, or the
like, and other such expenses of sales and collections of Collateral, and any
and all losses, costs and expenses sustained by Agent and any Lender as a result
of any failure by Borrower to perform or observe its obligations contained
herein.
(b) INDEMNIFICATION. Borrower hereby agrees to indemnify Agent and
each Lender, any of its Affiliates, and their respective directors, officers,
employees, agents, counsel and other advisors (each an "Indemnified Person")
against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including the
reasonable fees and disbursements of counsel to an Indemnified Person (including
allocated costs of internal counsel), which may be imposed on, incurred by, or
asserted against any Indemnified Person, in any way relating to or arising out
of this Agreement or the transactions contemplated hereby or any action taken or
omitted to be taken by it hereunder (the "Indemnified Liabilities"); PROVIDED
that Borrower shall not be liable to any Indemnified Person for any portion of
such Indemnified Liabilities to the extent they are found by a final decision of
a court of competent jurisdiction to have resulted from such Indemnified
Person's gross negligence or willful misconduct. If and to the extent that the
foregoing indemnification is for any reason held unenforceable, Borrower agrees
to make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
(c) OTHER CHARGES. Borrower agrees to indemnify Agent and each of
Lenders against and hold each of them harmless from any and all present and
future stamp, transfer, documentary and other such taxes, levies, fees,
assessments and other charges made by any jurisdiction by reason of the
execution, delivery, performance and enforcement of this Agreement.
(d) INTEREST. Any amounts payable to Agent or any Lender under this
Section 14 or otherwise under this Agreement if not paid upon demand shall bear
interest beginning on the date ten days from the date of such demand until paid
in full, at the rate of interest set forth in Section 3.02 of the Credit
Agreement.
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SECTION 15 BINDING EFFECT.
This Agreement shall be binding upon, inure to the benefit of and be
enforceable by Borrower, Agent and each Lender and their respective successors
and assigns; PROVIDED, HOWEVER, Borrower shall not assign this Agreement, nor
delegate any of its duties hereunder, without the prior written consent of Agent
and any such prohibited assignment shall be absolutely void; PROVIDED, FURTHER,
Agent may assign this Agreement at any time in accordance with the terms of the
Credit Agreement.
SECTION 16 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND TO THE
EXTENT THE VALIDITY OR PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR THE
REMEDIES HEREUNDER, IN RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A
JURISDICTION OTHER THAN CALIFORNIA.
SECTION 17 ENTIRE AGREEMENT; AMENDMENT.
This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof and shall not be amended except by the
written agreement of the parties as provided in the Credit Agreement.
SECTION 18 SEVERABILITY.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Agreement shall be
prohibited by or invalid under any such law or regulation in any jurisdiction,
it shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not deemed
so modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this
Agreement, or the validity or effectiveness of such provision in any other
jurisdiction.
SECTION 19 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement.
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SECTION 20 INCORPORATION OF PROVISIONS OF THE CREDIT AGREEMENT.
To the extent the Credit Agreement contains provisions of general
applicability to the Loan Documents, including any such provisions contained in
Article XI thereof, such provisions are incorporated herein by this reference.
SECTION 21 NO INCONSISTENT REQUIREMENTS.
Borrower acknowledges that this Agreement and the other Loan Documents
may contain covenants and other terms and provisions variously stated regarding
the same or similar matters, and agrees that all such covenants, terms and
provisions are cumulative and all shall be performed and satisfied in accordance
with their respective terms.
SECTION 22 TERMINATION.
Upon the termination of the Commitments of Lenders and indefeasible
payment and performance in full of all Secured Obligations, this Agreement shall
terminate and Agent shall promptly execute and deliver to Borrower such
documents and instruments reasonably requested by Borrower as shall be necessary
to evidence termination of all security interests given by Borrower to Agent
hereunder; PROVIDED, HOWEVER, that the obligations of Borrower under Section 14
shall survive
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such termination.
SECTION 23 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Secured Obligations by Borrower or any guarantor of
the Secured Obligations or the transfer by either or both of such parties to
Agent for the ratable benefit of Lenders of any property of either or both of
such parties should for any reason subsequently be declared to be void or
voidable under any state or federal law relating to creditors' rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Lenders are required to
repay or restore, in whole or in part, any such Voidable Transfer, or elect to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lenders are required or elect to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of Agent
related thereto, the liability of Borrower or such guarantor, and the security
interest granted herein, automatically shall be revived, reinstated, and
restored and shall exist as though such Voidable Transfer had never been made.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
BORROWER
GROCERS CAPITAL COMPANY
By
-------------------------------------------
Title:
-------------------------------------
AGENT
NATIONAL CONSUMER COOPERATIVE BANK
By
-------------------------------------------
Title:
-------------------------------------
23
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SCHEDULE 1
to the Security Agreement
1. LOCATION OF CHIEF EXECUTIVE OFFICE AND OTHER LOCATIONS, INCLUDING OF
COLLATERAL
a. Chief Executive Office:
2601 South Eastern Avenue
Los Angeles, California 90040
b. Other locations where Borrower conducts business or Collateral is
kept:
At the office of Agent or a Person designated by Agent pursuant to
Section 3(b).
2. LOCATIONS OF BOOKS PERTAINING TO RIGHTS TO PAYMENT
2601 South Eastern Avenue
Los Angeles, California 90040
Note: Books relating to the Rights to Payment are also maintained
by Certified at the above address.
3. TRADE NAMES AND TRADE STYLES OTHER CORPORATE, TRADE OR, FICTITIOUS NAMES;
ETC.
None.
4. INVENTORY STORED WITH WAREHOUSEMEN OR ON LEASED PREMISES, ETC.
None.
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5. PATENTS, COPYRIGHTS, TRADEMARKS, ETC.
None.
6. LEASED EQUIPMENT
None.
7. DEPOSIT ACCOUNTS
Account No. 700424561 at
Union Bank's branch located at
445 South Figueroa Street
Los Angeles, California 90071
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EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of the
____ day of _________, 1996, by and between Certified Grocers of California,
Ltd., a California corporation (the "Company"), and Alfred A. Plamann (the
"Executive").
WHEREAS, the Executive has been serving as the President and Chief
Executive Officer of the Company since January 1994; and
WHEREAS, the Company desires to continue to employ the Executive upon
the terms and conditions specified in this Agreement and the Executive desires
to remain in the employ of the Company upon such terms and conditions; and
WHEREAS, the Company and the Executive desire to set forth in a
written agreement the terms and conditions of Executive's employment with the
Company.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained, it is agreed as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ the
Executive and the Executive hereby agrees to remain in the employ of the Company
upon the terms and conditions herein set forth.
2. TERM. Employment shall be for a term commencing on the date
hereof and, subject to termination under Section 8, expiring three (3) years
from the date hereof. Notwithstanding the previous sentence, this Agreement and
the employment of the Executive shall be automatically extended (subject to
Section 8) for successive one-year periods upon the terms and conditions set
forth herein, commencing on the first anniversary of the date of this Agreement,
and on each anniversary date thereafter, unless either party to this Agreement
gives the other party written notice (in accordance with Section 16) of such
party's intention to terminate this Agreement and the employment of the
Executive within the 60 day period prior to the first anniversary and prior to
each succeeding anniversary date thereafter, as applicable. Notwithstanding the
foregoing, after the fifth anniversary, the notice shall be given within 60 days
of the end of the second year of the extended term instead of within 60 days of
the end of the first year of the extended term. For purposes of this
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Agreement, any reference to the "term" of this Agreement shall include the
original term and any extension thereof.
3. DUTIES OF THE EXECUTIVE. The Executive shall serve as the
President and Chief Executive Officer of the Company, serving at the pleasure of
the Company's Board of Directors (the "Board"). The Executive shall devote
substantially all of his normal working time and his best efforts, full
attention and energies to the business of the Company, the responsibilities
provided for the President and Chief Executive Officer in the Company's Bylaws,
and such other related duties and responsibilities as may from time to time be
reasonably prescribed by the Board. Notwithstanding the foregoing and with the
advance approval of the Board, which approval may be withheld for any reason,
the Executive may serve on the boards of directors of unrelated companies and
may devote reasonable time to fulfilling his responsibilities as a member of
such boards.
4. COMPENSATION.
(a) During the term of this Agreement, the Company shall pay to
the Executive a base salary of not less than $365,000 per annum, which base
salary shall be reviewed annually by the Board and may be increased (but not
decreased) from time to time by the Board in its sole discretion, payable at the
times and in the manner consistent with the Company's general policies regarding
compensation of executive employees. The Board may from time to time authorize
such additional compensation to the Executive, in cash or in property, as the
Board may determine in its sole discretion to be appropriate.
(b) The Executive shall be eligible to participate in a CEO
Incentive Bonus Plan, administered by the Company's Personnel and Executive
Compensation Committee ("Compensation Committee"). Annually, at or near the
inception of each fiscal year (and at the inception of this contract), the
Compensation Committee shall establish an incentive bonus formula for the
Executive based on reasonably assigned short-term and long-term goals and
objectives. Within three (3) months of the end of each fiscal year, the
Compensation Committee shall determine the Executive's bonus based on
Executive's performance measured by the Board against the established goals.
5. EXECUTIVE BENEFITS.
(a) In addition to the compensation described in Section 4, the
Company shall make available to the Executive, subject to the terms and
conditions of the applicable plans, including without limitation the eligibility
rules thereof,
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participation for the Executive and his eligible dependents in all
Company-sponsored employee welfare benefit plans and all plans intended to
benefit executives which are adopted or maintained by the Company, including
the Company's Employees' Sheltered Savings Plan and Employees' Excess Benefit
and Supplemental Deferred Compensation Plan.
(b) The Executive shall be provided with supplemental retirement
benefits under that certain Executive Salary Protection Plan effective January
4, 1995 ("ESPP II"), subject to all of the terms and conditions thereof.
6. EXPENSES. The Company shall pay or reimburse the Executive for
reasonable and necessary expenses incurred by the Executive in connection with
his duties on behalf of the Company in accordance with the general policies of
the Company.
7. PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be based at the principal executive office of the
Company in Southern California, except for travel reasonably required for
Company business.
8. TERMINATION.
(a) INVOLUNTARY TERMINATION. The Executive's employment
hereunder may be terminated by the Company for any reason by written notice as
provided in Section 16. The Executive will be treated for purposes of this
Agreement as having been involuntarily terminated by the Company if the
Executive terminates his employment with the Company under the following
circumstances: (i) the Company has breached any material provision of this
Agreement and within 30 days after notice thereof from the Executive, the
Company fails to cure such breach; (ii) at any time after the Company has
notified the Executive pursuant to Section 2 hereof that the Company intends to
terminate this Agreement and the Executive's employment (rather than allow the
Agreement to automatically renew); (iii) a successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company fails to assume
liability under this Agreement or enter into a substitute agreement satisfactory
to Executive; (iv) the Board fails to appoint the Executive as President and
Chief Executive Officer; or (v) the Board elects to give notice of termination
pursuant to this Section 8(a) other than for Cause (as hereinafter defined) or
Disability (as defined herein).
(b) VOLUNTARY TERMINATION. Upon sixty (60) days' prior notice
to the Company as provided in Section 16, the Executive may voluntarily
terminate
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this Agreement. The Executive's death or termination by reason of Disability
during the term of the Agreement shall constitute a voluntary termination of
employment for purposes of liability for Termination Payments and Benefits as
provided in Section 9.
(c) Subject to Section 9 and any benefit continuation
requirements of applicable laws, in the event the Executives's employment
hereunder is voluntarily or involuntarily terminated for any reason whatsoever,
the compensation and benefits obligations of the Company under Sections 4 and 5
shall cease as of the effective date of such termination, except for any
compensation and benefits earned or accrued but unpaid through such date.
9. TERMINATION PAYMENTS AND BENEFITS. If the Executive's employment
hereunder is involuntarily terminated by the Company other than for Cause (as
defined herein) or Disability (as defined herein) prior to the end of the term
of this Agreement, then the Company shall be obligated to pay to the Executive
certain termination payments and make available certain benefits during the
termination payment period, as follows:
(a) TERMINATION PAYMENT PERIOD. Termination payments shall
be made for the balance of the term of this Agreement as defined in
Section 2.
(b) CALCULATION OF TERMINATION PAYMENTS. Subject to
subsection (g) below, termination payments calculated on an annual basis
shall equal the sum of (i) the Executive's highest annual base salary
during the three-year period prior to the Executive's termination PLUS
(ii) the Executive's average annual incentive bonus during the three-year
period prior to the Executive's termination (or such shorter period that
an incentive bonus plan has been in effect).
(c) METHOD OF PAYMENT. Termination payments shall be paid to
the Executive in accordance with the Company's regular payroll schedule.
If the Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be
paid to the Executive's surviving spouse, or, if she is not then living,
to the Executive's estate.
(d) BENEFITS. During the termination payment period as set
forth above in subsection (a), the Company shall use its best efforts to
maintain in full force and effect for the continued benefit of the
Executive all employee welfare benefit plans and perquisite programs in
which the Executive was entitled to participate immediately prior to the
Executive's termination or shall
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arrange to make available to the Executive benefits substantially
similar to those which the Executive would otherwise have been entitled
to receive if his employment had not been terminated. Such welfare
benefits shall be provided to the Executive on the same terms and
conditions (including employee contributions toward the premium
payments) under which the Executive was entitled to participate
immediately prior to his termination.
Notwithstanding the foregoing, with respect to the Executive's
continued coverage under the Company's medical and dental plan, or a successor
plan, pursuant to this provision, the Executive's "qualifying event" for
purposes of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA")
shall be his date of termination from the Company.
Any termination payments hereunder shall not be taken into account for
purposes of any retirement plan or other benefit plan sponsored by the Company,
except as otherwise expressly required by such plans or applicable law.
(e) TERMINATION FOR CAUSE. For purposes of this Agreement,
"Cause" shall mean
(i) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other
than any such failure resulting from the Executive's
incapacity due to physical or mental illness), after demand
for substantial performance is delivered by the Company to the
Executive that specifically identifies the manner in which the
Company believes the Executive has not substantially performed
his duties,
(ii) the willful engaging by the Executive in
misconduct which is materially injurious to the Company,
monetarily or otherwise, or
(iii) the material breach of the Confidentiality and
Nonsolicitation Agreement set forth in Section 10.
No act, or failure to act, on the Executive's part shall be considered "willful"
unless done, or omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was in the best interest of the
Company.
(f) DISABILITY DEFINED. "Disability" shall mean the
Executive's incapacity due to physical or mental illness to
substantially perform his duties on a
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full-time basis for six (6) consecutive months and, within thirty (30)
days after a notice of termination is thereafter given by the Company,
the Executive shall not have returned to the full-time performance of
the Executive's duties; provided, however, if the Executive shall not
agree with a determination to terminate him because of Disability, the
question of the Executive's disability shall be subject to the
certification of a qualified medical doctor agreed to by the Company
and the Executive or, in the event of the Executive's incapacity to
designate a doctor, the Executive's legal representative. In the
absence of agreement between the Company and the Executive, each party
shall nominate a qualified medical doctor and the two doctors shall
select a third doctor, who shall make the determination as to
Disability.
(g) NO OBLIGATION TO MITIGATE. The Executive is under no
obligation to mitigate damages or the amount of any payment provided
for hereunder by seeking other employment or otherwise; provided,
however, that the Executive's coverage under the Company's welfare
benefit plans will terminate when the Executive becomes covered under
any employee benefit plan made available by another employer and
covering the same type of benefits. The Executive shall notify the
Company within thirty (30) days after the commencement of any such
benefits.
(h) FORFEITURE. Notwithstanding the foregoing, any right of
the Executive to receive termination payments and benefits hereunder
shall be forfeited to the extent of any amounts payable after any
breach of Section 10 by the Executive.
10. CONFIDENTIALITY AND NONSOLICITATION AGREEMENT.
(a) The Executive acknowledges that in the course of his
employment by the Company, he will or may have access to and become informed of
confidential and secret information which is a competitive asset of the Company
("Confidential Information"), including, without limitation, (i) the terms of
any agreement between the Company and any employee, customer or supplier,
(ii) pricing strategy, (iii) merchandising and marketing methods, (iv) product
development ideas and strategies, (v) personnel training and development
programs, (vi) financial results, (vii) strategic plans and demographic
analyses, (viii) proprietary computer and systems software, and (ix) any
non-public information concerning the Company, its employees, suppliers or
customers. The Executive agrees that he will keep all Confidential Information
in strict confidence during the term of his employment by the Company and
thereafter and will never directly or indirectly make known, divulge, reveal,
furnish, make available, or use any Confidential Information (except in the
course of his regular authorized duties on behalf of the Company). The
Executive agrees that the obligations of confidentiality hereunder shall survive
termination of his employment at the Company regardless of any actual or alleged
breach by the Company of this
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Agreement and shall continue for two years following such termination
provided that such obligation shall terminate earlier (i) as to specific
information that shall have become, through no fault of the Executive,
generally known to the public or (ii) as to Confidential Information which
the Executive is required by law to disclose (after giving the Company notice
and an opportunity to contest such requirement). The Executive's obligations
under this Section 10 are in addition to, and not in limitation or preemption
of, all other obligations of confidentiality which the Executive may have to
the Company under general legal or equitable principles.
(b) Except in the ordinary course of the Company's business, the
Executive has not made, nor shall at any time following the date of this
Agreement, make or cause to be made, any copies, pictures, duplicates,
facsimiles or other reproductions or recordings or any abstracts or summaries
including or reflecting Confidential Information. All such documents and other
property furnished to the Executive by the Company or otherwise acquired or
developed by the Company shall at all times be the property of the Company.
Upon termination of the Executive's employment by the Company, the Executive
will return to the Company any such documents or other property of the Company
which are in the possession, custody or control of the Executive.
(c) In the event of the Executive's voluntary or involuntary
termination of employment at the Company, the Executive agrees that he will not
in any capacity, on his own behalf or on behalf of any other firm, person or
entity, for a period of two years, solicit, or assist in the solicitation of,
any employee of the Company to terminate his or her employment with the Company.
(d) The Executive acknowledges and agrees that a violation of
the foregoing provisions of this Section 10 (referred to collectively as the
Confidentiality and Nonsolicitation Agreement) that results in material
detriment to the Company would cause irreparable harm to the Company, and that
the Company's remedy at law for any such violation would be inadequate. In
recognition of the foregoing, the Executive agrees that, in addition to any
other relief afforded by law or this Agreement, including damages sustained by a
breach of this Agreement and any forfeitures under Section 9, and without any
necessity or proof of actual damages, the Company shall have the right to
enforce this Agreement by specific remedies, which shall include, among other
things, temporary and permanent injunctions, it being the understanding of the
undersigned parties hereto that damages, the forfeitures described above and
injunctions shall all be proper modes of relief and are not to be considered as
alternative remedies.
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11. POST-TERMINATION ASSISTANCE. The Executive agrees that after his
employment with the Company has terminated he will provide, upon reasonable
notice from the Company, such information and assistance to the Company as may
reasonably be requested by the Company in connection with any litigation in
which it or any of its affiliates is or may become a party; provided, however,
that the Company agrees to reimburse the Executive for any related expenses,
including travel expenses.
12. ARBITRATION. Any dispute between the Executive and the Company
under this Agreement shall be resolved (except as provided below) through
arbitration by an arbitrator selected under the rules of the American
Arbitration Association (located in Los Angeles, California) and the arbitration
shall be conducted in that location under the rules of said Association. Each
party shall each be entitled to present evidence and argument to the arbitrator.
The arbitrator shall have the right only to interpret and apply the provisions
of this Agreement and may not change any of its provisions. The arbitrator
shall permit reasonable pre-hearing discovery of facts, to the extent necessary
to establish a claim or a defense to a claim, subject to supervision by the
arbitrator. The determination of the arbitrator shall be conclusive and binding
upon the parties and judgment upon the same may be entered in any court having
jurisdiction thereof. The arbitrator shall give written notice to the parties
stating his or their determination, and shall furnish to each party a signed
copy of such determination. The expenses of arbitration shall be borne equally
by the Executive and the Company or as the arbitrator shall otherwise equitably
determine.
Notwithstanding the foregoing, the Company shall not be required to
seek or participate in arbitration regarding any breach of the Executive's
Confidentiality and Nonsolicitation Agreement contained in Section 10, but may
pursue its remedies for such breach in a court of competent jurisdiction in
Los Angeles, California.
13. AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the subject matter hereof and contains all of the covenants and agreements
between the parties with respect to such subject matter. Each party to this
Agreement acknowledges that no representations, inducements, promises, or other
agreements, orally or otherwise, have been made by any party, or anyone acting
on behalf of any party, pertaining to the subject matter hereof, which are not
embodied herein, and that no other agreement, statement, or promise pertaining
to the subject matter hereof that is not contained in this Agreement shall be
valid or binding on either party.
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14. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
15. SUCCESSORS AND BINDING AGREEMENT.
(a) This Agreement will be binding upon and inure to the benefit
of the Company and any successor to the Company by merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be deemed the
"Company" for the purposes of this Agreement), but will not otherwise be
assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 15(a) and 15(b). Without limiting the generality
or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by the
Executive's will or by the laws of descent and distribution and, in the event of
any attempted assignment or transfer contrary to this Section 15, the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
16. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof confirmed), or five business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three business days after having been sent by a
nationally recognized overnight courier service, addressed to the Company (to
the attention of the Secretary of the Company) at its principal executive office
and to the Executive at his principal residence, or to such other address as any
party may have furnished to the other in writing and in accordance herewith,
except that notices of changes of address shall be effective only upon receipt.
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17. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of California, without giving effect to
the principles of conflict of laws of such State.
18. VALIDITY. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
19. SURVIVAL OF PROVISIONS. Notwithstanding any other provision of
this Agreement, the parties' respective rights and obligations under Sections 9,
10, 11 and 12 will survive any termination or expiration of this Agreement or
the termination of the Executive's employment for any reason whatsoever.
20. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. Unless otherwise noted, references to
"Sections" are to sections of this Agreement. The captions used in this
Agreement are designed for convenient reference only and are not to be used for
the purpose of interpreting any provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Company:
CERTIFIED GROCERS OF
CALIFORNIA, LTD.
By:__________________________
Its:_________________________
Executive:
_____________________________
Alfred A. Plamann
-11-
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF THE REGISTRANT
As of August 31, 1996, the Company's subsidiaries, all wholly-owned and
incorporated in California (except where noted otherwise) are:
Grocers Equipment Co.
Grocers and Merchants Insurance Service, Inc.
(1)Grocers Capital Company
Springfield Insurance Company Limited (incorporated in Bermuda)
Grocers Specialty Company
(2)Grocers Development Center, Inc.
Grocers and Merchants Management Company
Preferred Public Storage Company
Crown Grocers, Inc.
Grocers General Merchandise Company
(3)Springfield Insurance Company
(4)Banner Marketing, Inc.
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(1) Outstanding capital shares are owned by Grocers Equipment Co. (67.63%)
and the Registrant (32.37%).
(2) Outstanding capital shares are owned by Grocers Equipment Co.
(3) Outstanding capital shares are owned by Grocers and Merchants Insurance
Services, Inc.
(4) Outstanding capital shares are owned by Grocers Equipment Co.
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-3-1995
<PERIOD-END> AUG-31-1996
<CASH> 6,451
<SECURITIES> 27,541
<RECEIVABLES> 108,305
<ALLOWANCES> (9,881)
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<CURRENT-ASSETS> 251,159
<PP&E> 155,699
<DEPRECIATION> 82,128
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<BONDS> 75,617
0
0
<COMMON> 61,809
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<SALES> 1,948,919
<TOTAL-REVENUES> 1,948,919
<CGS> 1,770,339
<TOTAL-COSTS> 1,919,417
<OTHER-EXPENSES> (366)
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<INTEREST-EXPENSE> 14,406
<INCOME-PRETAX> 2,262
<INCOME-TAX> 745
<INCOME-CONTINUING> 1,517
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