CERTIFIED GROCERS OF CALIFORNIA LTD, 424B3, 1999-08-27

CERTIFIED GROCERS OF CALIFORNIA LTD
424B3, 1999-08-27
GROCERIES, GENERAL LINE

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FILED PURSUANT TO RULE 424b(3)
REGISTRATION NO. 333-85917

[LOGO OF CERTIFIED GROCERS]

CERTIFIED GROCERS OF CALIFORNIA, LTD.
5200 Sheila Street
Commerce, California 90040

August 27, 1999

Dear Shareholder:

The Boards of Directors of Certified Grocers of California, Ltd. and United
Grocers, Inc. have unanimously approved a merger agreement which will combine
the two companies. A special meeting of the shareholders of Certified will be
held on Monday, September 27, 1999 at 10:00 a.m. (Pacific Daylight Time). The
meeting will be held at 5200 Sheila Street, Commerce, California to approve the
merger and various amendments to the articles of incorporation and bylaws of
Certified.

This document provides detailed information concerning the merger and the
amendments to the articles of incorporation and the bylaws of Certified. Please
read this document carefully. In particular, please see the section entitled
"Risk Factors" on page 12 for a discussion of risks associated with the merger.

Your board of directors believes that this strategic business combination is
an important and significant step toward the goal of better serving independent
retailers which will become members and customers of the combined company. We
expect the merger to achieve economies of scale in the purchasing and
distribution of grocery products that will result in lower costs to independent
retailers and strengthen their competitive position. The board of directors
unanimously recommends that you vote FOR approval of the merger and FOR the
amendments to the articles of incorporation and bylaws.

Sincerely,

/s/ Alfred A. Plamann

Alfred A. Plamann,
President and Chief Executive Officer

YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Class A Shares or Class B Shares to
be issued in the merger or determined if this document is accurate or adequate.
Any representation to the contrary is a criminal offense.

Joint proxy statement/prospectus dated August 27, 1999, and first mailed to
shareholders on August 30, 1999.
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[LOGO OF CERTIFIED GROCERS]

CERTIFIED GROCERS OF CALIFORNIA, LTD.
5200 Sheila Street
Commerce, California 90040

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

We are holding a special meeting of the shareholders of Certified Grocers of
California, Ltd. on Monday, September 27, 1999 at 10:00 a.m. (Pacific Daylight
Time). The meeting will be held at 5200 Sheila Street, Commerce, California.

The shareholders will consider and vote upon the following matters at the
meeting:

. The approval and adoption of an Agreement and Plan of Merger among
Certified, United Grocers, Inc. and a wholly-owned subsidiary of
Certified. In the merger:

. Certified's wholly-owned subsidiary will merge into United;

. Each share of United's Common Stock will be converted into 0.228 shares
of Certified's Class A Shares or Class B Shares. The first 100 shares
issued to each shareholder at the exchange ratio will be Class A Shares
and the balance, if any, will be Class B Shares; and

. Certified's existing Class A Shares, Class B Shares and Class C
Shares will remain outstanding as shares of the combined company.

. The approval and adoption of amendments to the articles of incorporation
and bylaws of Certified to:

. Increase the authorized number of directors to 24,

. Change the name of Certified to Unified Western Grocers, Inc.,

. Modify the redemption price formula for Certified's Class A Shares
and Class B Shares, and

. Increase the authorized number of Class C Shares to 24.

. Such other business as may properly come before the meeting.

Only shareholders of record at the close of business on July 31, 1999 are
entitled to notice of, and to vote at, the meeting or any adjournment or
postponement. The merger and the amendments to the articles of incorporation
and bylaws must be approved by the holders of a majority of the Class A Shares,
the Class B Shares and the Class C Shares outstanding and entitled to vote,
each voting separately as a class. Certified can complete the merger only if
the amendments to the articles of incorporation and bylaws are approved. The
meeting may be adjourned or postponed from time to time.

By Order of the Board of Directors,

/s/ Robert M. Ling, Jr.
Robert M. Ling, Jr.
Senior Vice President,
General Counsel and Secretary

Commerce, California
August 27, 1999

Whether or not you plan to attend the meeting, please complete, sign and date
the enclosed proxy card and return it in the enclosed, prepaid envelope. If you
attend the meeting, you may vote in person if you wish, even if you previously
have returned your proxy card.
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[LOGO OF UNITED GROCERS] UNITED GROCERS, INC.
6433 S.E. Lake Road
Post Office Box 97269
Portland, Oregon 97222

August 27, 1999

Dear Shareholder:

The boards of directors of Certified Grocers of California, Ltd. and United
Grocers, Inc. have unanimously approved a merger agreement which will combine
the two companies. A special meeting of the shareholders of United will be held
on Monday, September 27, 1999 at 10:00 a.m. (Pacific Daylight Time). The
meeting will be held at 6433 S. E. Lake Road, Portland, Oregon.

This document provides detailed information concerning the merger. Please
read this document carefully. In particular, please see the section entitled
"Risk Factors" on page 12 for a discussion of risks associated with the merger.

Your board of directors believes that this strategic business combination is
an important and significant step toward the goal of better serving independent
retailers which will become members of the combined company. We expect the
merger to achieve economies of scale in the purchasing and distribution of
grocery products that should result in lower costs to independent retailers and
strengthen their competitive position. The board of directors unanimously
recommends that you vote FOR approval of the merger.

Sincerely,

/s/ Terry Olsen

T.W. Olsen,
President, Chief Executive Officer and Secretary

YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY

Joint proxy statement/prospectus dated August 27, 1999, and first mailed to
shareholders on August 30, 1999.
<PAGE>

UNITED GROCERS, INC.
[LOGO OF UNITED GROCERS] 6433 S.E. Lake Road
Post Office Box 97269
Portland, Oregon 97222

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

We are holding a special meeting of the shareholders of United Grocers, Inc.
on Monday, September 27, 1999 at 10:00 a.m. (Pacific Daylight Time). The
meeting will be held at 6433 S. E. Lake Road, Portland, Oregon.

The shareholders will consider and vote upon the following matters at the
meeting:

. The approval and adoption of an Agreement and Plan of Merger among
United, Certified Grocers of California, Ltd. and a wholly-owned
subsidiary of Certified and the merger contemplated by the merger
agreement. In the merger, each share of United's Common Stock will be
converted into 0.228 shares of the combined company's Class A Shares or
Class B Shares. The first 100 shares issued to each shareholder at the
exchange ratio will be Class A Shares and the balance, if any, will be
Class B Shares. In the merger, Certified's existing Class A Shares,
Class B Shares and Class C Shares will remain outstanding as shares of
the combined company.

. Such other business as may properly come before the meeting.

Only shareholders of record at the close of business on August 23, 1999 are
entitled to notice of, and to vote at, the meeting or any adjournment or
postponement. The merger must be approved by a majority of United's
shareholders entitled to vote. The meeting may be adjourned or postponed from
time to time.

In accordance with the Oregon Business Corporation Act, holders of United's
Common Stock may be entitled to exercise dissenters' rights in connection with
the merger.

By Order of the Board of Directors,

/s/ Terry Olsen
T.W. Olsen,
President, Chief Executive Officer
and Secretary

Portland, Oregon
August 27, 1999

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... 1

SUMMARY.................................................................... 3

SUMMARY AND SELECTED FINANCIAL AND OPERATING DATA OF CERTIFIED............. 9

SUMMARY AND SELECTED FINANCIAL AND OPERATING DATA OF UNITED................ 10

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA.............. 11

RISK FACTORS............................................................... 12

FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............................ 15

THE MEETINGS
Date, Time and Place..................................................... 16
The Purpose of the Meetings.............................................. 16
Who May Vote; What Vote is Required...................................... 16
Solicitation, Use and Revocation of Proxies; Solicitation Expenses....... 18

THE MERGER
General.................................................................. 19
Background of the Merger................................................. 19
Reasons for the Merger................................................... 21
Recommendations of the Boards of Directors............................... 21
Opinions of Financial Advisors........................................... 24
Officers and Directors After the Merger.................................. 33
Interests of Certain Persons in the Merger............................... 33
Material Federal Income Tax Considerations............................... 36
Accounting Treatment..................................................... 38
Regulatory Approvals..................................................... 38
Impact of the Merger on the Members of Unified Western................... 38
Financing of the Merger.................................................. 41
Rights of Dissenting Shareholders........................................ 42
Comparison of Rights of Shareholders..................................... 46

THE AMENDMENTS............................................................. 53

THE MERGER AGREEMENT
General.................................................................. 56
The Merger............................................................... 56
Conversion of United Shares.............................................. 56
Effect on Certified Shares............................................... 57
Representations and Warranties........................................... 57
Conduct of Business Pending the Merger................................... 58
Material Covenants....................................................... 59
No Solicitation of Transactions.......................................... 59
Director and Officer Indemnification..................................... 60
</TABLE>

(i)
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Tax Treatment........................................................... 60
Conditions to the Merger................................................ 60
Termination of the Merger Agreement..................................... 63
Termination Fees and Expenses........................................... 64
Amendment and Waiver.................................................... 65

INFORMATION CONCERNING CERTIFIED
Business................................................................ 66
Selected Financial Data................................................. 73
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 74
Directors and Executive Officers........................................ 82

INFORMATION CONCERNING UNITED
Business................................................................ 84
Selected Financial Data................................................. 91
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 92
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 101
Directors and Executive Officers........................................ 103
Executive Compensation.................................................. 105
Security Ownership of Certain Beneficial Owners and Management.......... 109
Certain Relationships and Related Transactions.......................... 110

LEGAL MATTERS............................................................. 112

EXPERTS................................................................... 112

WHERE YOU CAN FIND MORE INFORMATION....................................... 113

INDEX TO FINANCIAL STATEMENTS............................................. F-1
Certified............................................................... F-2
United.................................................................. F-29
Unaudited Pro Forma Condensed Combined Financial Statements............. F-58
</TABLE>

ANNEX A: Agreement and Plan of Merger
ANNEX B: Opinion of Rabobank International, New York Branch
ANNEX C: Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
ANNEX D: Selected Provisions of the California General Corporation Law
Regarding Dissenters' Rights
ANNEX E: Selected Provisions of the Oregon Business Corporation Act Regarding
Dissenters' Rights

(ii)
<PAGE>

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: Why are the two companies proposing to merge?

A: Competitive pressures on the independent retailer continue to increase due
to the rapid consolidation among supermarket chains and the continued
growth of alternative formats. We expect the merger to provide to the
independent retailer the benefits of economies of scale and an expanded
range of products and services by:

.Eliminating duplicative facilities and transportation equipment in
overlapping service areas;

.Eliminating duplicative functions, including legal and accounting services
and management information systems;

.Increasing purchasing volume in order to obtain more favorable pricing on
product purchases;

.Offering to all members the opportunity to purchase specialized products
and services currently offered by Certified or United alone; and

.Uniting the management and operational experience of both Certified and
United.

Q: What will be the name of the combined company?

A: The combined company will be named Unified Western Grocers, Inc. and will
continue to do business regionally under both the Certified and United
names.

Q: Will the combined company continue to operate as a cooperative owned by
participating retailer members?

A: Yes. The combined company will continue to operate as a cooperative owned
by its retailer member-shareholders. A common board of directors will
manage the combined company and will be advised by retailer advisory
committees selected by geographic regions. The combined company also will
continue to do business with non-shareholder retailers either on an
associate-patron basis or on a non-patronage basis.

Q: When do you expect the merger to be completed?

A: We hope to complete the merger by September 29, 1999. We are working
towards completing the merger as quickly as possible.

Q: What do I need to do now?

A: Please carefully review this document. Then indicate on your proxy card how
you want to vote, and sign and mail it in the enclosed, prepaid envelope as
soon as possible so that your shares will be represented at your
shareholder meeting. If you sign and send in your proxy but do not indicate
how you want to vote, your proxy will be counted as a vote in favor of the
merger and, for Certified's shareholders, the amendments. If you fail to
sign and send in your proxy or you sign and send in your proxy but you
abstain

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from voting, it will be the equivalent of a vote against the merger and, for
Certified's shareholders, the amendments.

Q: What if I have further questions?

A: If you have more questions about the merger or the amendments, or if you
would like additional copies of this document, you should contact:

For Certified:

Robert M. Ling, Jr.
Senior Vice President, General Counsel and Secretary
Certified Grocers of California, Ltd.
5200 Sheila Street
Commerce, California 90040
Telephone: (323) 264-5200 Ext. 4285

For United:

T. W. Olsen
President, Chief Executive Officer and Secretary
United Grocers, Inc.
6433 S.E. Lake Road
Portland, Oregon 97222
Telephone: (503) 833-1000

2
<PAGE>

SUMMARY

This summary highlights selected information found in greater detail
elsewhere in this document. This summary may not contain all of the information
that is important to you. Before you decide how to vote, you should read
carefully this entire document as well as the additional documents attached
hereto or incorporated by reference. See "WHERE YOU CAN FIND MORE INFORMATION"
(page 113). We have included page references parenthetically to direct you to a
more complete description of the topics in this summary.
The Companies

Certified Grocers of California, Ltd.
5200 Sheila Street
Commerce, California 90040
(323) 264-5200
(page 66)

Certified is a grocery wholesaler serving independent supermarket operators in
California, Nevada, Arizona, Hawaii and various foreign countries in the South
Pacific and elsewhere. In addition to offering a complete line of dry grocery,
frozen food, deli, meat, dairy, bakery, gourmet/specialty foods and general
merchandise products, Certified also provides finance, insurance, store design
and real estate services to retailers. Certified operates as a cooperative and
is owned by its member-patron shareholders who are primarily independent
grocers. As of June 30, 1999, Certified provided products and services to 2,216
retail food stores operated by 648 patrons and customers.

United Grocers, Inc.
6433 S.E. Lake Road
Post Office Box 97269
Portland, Oregon 97222
(503) 833-1000
(page 84)

United supplies groceries and related products to independent retail grocers
located in Oregon, Western Washington and Northern California. In addition,
United provides certain ancillary services to support the operation of a
grocery business. These services include marketing assistance, store design and
development, security services, information services, accounting and financing.
United operates as a cooperative and is owned by its member-shareholders. As of
July 2, 1999, United provided products and services to 324 retail food stores
operated by 247 member-shareholders and to approximately 1,400 retail food
stores operated by non-members.

The Meetings (page 16)

Certified will hold its meeting on Monday, September 27, 1999 at 10:00 a.m.
(Pacific Daylight Time) at 5200 Sheila Street, Commerce, California.

United will hold its meeting on Monday, September 27, 1999 at 10:00 a.m.
(Pacific Daylight Time) at 6433 S.E. Lake Road, Portland, Oregon.

Only shareholders of record at the close of business on July 31, 1999 for
Certified, and August 23, 1999 for United are entitled to notice of, and to
vote at, the meetings or any adjournments or postponements.

Recommendations of the Boards (page 21)

The board of directors of both Certified and United believe that the merger is
in the best interests of their respective shareholders and unanimously
recommend that you vote FOR the merger.

The board of directors of both Certified and United believe that the adoption
of the amendments to the articles of incorporation and bylaws is a necessary
condition to the merger and is in the best interests of the shareholders of the
combined company and unanimously
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recommend that Certified's shareholders vote FOR the amendments to the articles
of incorporation and bylaws.

Opinions of Financial Advisors (page 24)

In deciding to approve the merger, the board of directors of both Certified and
United considered the opinions from their respective financial advisors as to
the fairness, from a financial point of view, of the merger to the shareholders
of their respective companies.

The board of directors of Certified received an opinion from Rabobank
International, New York Branch, and the board of directors of United received
an opinion from Houlihan Lokey Howard & Zukin Financial Advisors, Inc. We
attached these opinions as Annexes B and C to this document, and encourage you
to read them.

Votes Required to Approve the Merger and the Amendments (page 16)

The affirmative vote of a majority of United's shareholders entitled to vote is
required to approve the merger.

The affirmative vote of a majority of Certified's outstanding Class A Shares,
Class B Shares and Class C Shares, each voting as a separate class, is required
to approve the merger and the amendments to the articles of incorporation and
bylaws. Directors of Certified hold 3.2%, 23.6% and 100% of the Certified Class
A Shares, Class B Shares and Class C Shares, respectively, and 6.4%, 48.2% and
100% of the Class A, Class B, and Class C votes, respectively, required to
approve the merger as Certified shareholders. Directors of United hold 11.7% of
the United Common Stock and 9.5% of the votes required to approve the merger as
United shareholders.

Your abstention or failure to vote will have the effect of a vote against the
proposals.

What United's Shareholders Will Receive in the Merger (page 56)

In the merger, each share of United's Common Stock will convert into
0.228 shares of Unified Western's capital stock. The first 100 shares received
by each United shareholder will be Class A Shares. Additional shares, if any,
will be Class B Shares. You will receive only whole shares. The combined
company will apply the value of any fractional share to your deposit account.
Each United shareholder that becomes a director of the combined company will
receive one Class C Share.

Example: If you own 600 shares of United's Common Stock, this transaction will
entitle you to receive:

. 100 of Unified Western's Class A Shares;

. 36 of Unified Western's Class B Shares; and

. The value of 0.8 shares of United's Common Stock credited to your
deposit account.

If you are a shareholder of United, you should not send in your stock
certificates with your proxy card. When the merger is completed you will
receive written instructions for exchanging your United stock certificates.

What Certified's Shareholders Will Receive in the Merger (page 57)

In the merger, Certified's existing Class A Shares, Class B Shares and Class C
Shares will remain outstanding. Immediately prior to the merger, Certified will
redeem shares previously tendered for redemption by terminated member-patrons
for cash at the current redemption price.

Ownership of Unified Western After the Merger (page 56)

The current shareholders of United will own approximately 25% of the combined
Class A

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Shares and Class B Shares and approximately 37% of the Class C Shares of the
combined company. The current shareholders of Certified will own approximately
75% of the combined Class A Shares and Class B Shares and approximately 63% of
the Class C Shares of the combined company.

Material Federal Income Tax Considerations (page 36)

We have structured the merger so that United's shareholders will recognize no
gain or loss for United States federal income tax purposes on the exchange of
United's Common Stock for Class A Shares and Class B Shares of the combined
company, except to the extent of deposit account credit received for fractional
shares. Certified's shareholders will recognize no gain or loss in connection
with retaining their shares.

Dissenters' Rights (page 42)

The shareholders of both Certified and United may exercise dissenters' rights
and receive cash for their shares of Certified's or United's capital stock. In
order to do so, a dissenting shareholder must strictly follow the procedures
prescribed by applicable law. Shareholders who exercise dissenters' rights will
not be eligible to purchase from the combined company as a member-patron.

Amendments of Articles and Bylaws (page 53)

The proposed amendments to the articles of incorporation and bylaws will:

. Increase the authorized number of directors to 24;

. Change the name of Certified to Unified Western Grocers, Inc.

. Change the redemption price formula for Class A Shares and Class B
Shares.

Class A Shares and Class B Shares held by terminating member-patrons generally
will be redeemed at the book value at Unified Western's fiscal year end
preceding the date of termination. However, in the first full fiscal year
following the merger the Class A Shares and Class B Shares will be valued at
Certified's book value at the year end preceding the date of the merger.

Excess Class B Shares tendered for redemption by continuing member-patrons will
be redeemed at Unified Western's book value at the fiscal year end prior to the
date of tender, and will not be redeemed until after the end of three full
fiscal years following the effective date of the merger unless the member
elects to have the shares redeemed at Certified's book value at the fiscal year
end prior to the merger.

In addition, the board of directors of Certified will amend the redemption
policy in the bylaws to:

. Suspend the redemption of Class B Shares held by terminated member-
patrons until after the third full fiscal year following the merger;

. Restrict the repurchase of excess Class B Shares held by continuing
member-patrons for the same period unless Unified Western repurchases
the shares at the redemption value existing at Certified's fiscal year
end prior to the merger; and

. Permit redemption of excess Class B Shares held by former United members
at the pre-merger book value of the United shares for which they were
exchanged until 120 days after the end of the fiscal year following
completion of the merger.

The Merger Agreement (page 56)

We attached the Agreement and Plan of Merger as Annex A to this document, and
encourage you to read it carefully since it is the legal document governing the
merger. The merger

5
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agreement includes important provisions relating to the merger including the
following.

Conditions to Closing (page 60)

We will not complete the merger unless certain conditions are met or waived,
including the following:

. Shareholder approval of the merger agreement by the shareholders of both
Certified and United;

. The approval of the amendments to Certified's articles of incorporation
and bylaws by the shareholders of Certified necessary to effect the
merger;

. The closing of financing necessary to complete the merger. Certified has
received commitments with respect to the necessary financing;

. Not greater than 5% of the outstanding shares of United's Common Stock
and not greater than 5% of the outstanding shares of Certified's
combined Class A Shares and Class B Shares having perfected dissenters'
rights with respect to the merger;

. The receipt of required regulatory approvals and third party consents,
including the consent of Western Family. The waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 was satisfied on
June 28, 1999; and

. The receipt of opinions of counsel with respect to the tax consequences
of the merger at closing. If the receipt of either opinion is waived and
the tax consequences differ materially from those described below,
Certified and United will resolicit shareholder approval of the merger.

Termination of the Merger Agreement (page 63)

The boards of directors of Certified and United together may agree to terminate
the merger agreement at any time prior to completing the merger. Either party
may also terminate the merger agreement for various reasons, including:

. Failure to complete the merger before October 12, 1999, except that
neither Certified nor United may terminate the merger agreement if
either's breach of the merger agreement is the reason the merger has not
been completed by that date;

. Any nonappealable final governmental order, decree, ruling or action
permanently prevents the merger;

. Failure to obtain the approval of the merger by the shareholders of
Certified or United;

. The other party breaches any representation, warranty, covenant or
agreement, which breach would cause the conditions to closing not to be
satisfied;

. The other party fails to hold a shareholder meeting under the
circumstances described on page 63;

. The other party breaches the non-solicitation covenant;

. The other party decides to recommend an alternative superior
transaction; and

. The occurrence of a material adverse event.

Termination Fees (page 64)

The merger agreement provides that under the circumstances described on page
64, if the merger agreement is terminated and either Certified or United enters
into a business combination with another party, the party

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<PAGE>

entering into the business combination will be required to pay a termination
fee of $2.5 million.

Officers and Directors After the Merger (page 33)

As part of the merger, Certified's articles of incorporation will be amended to
provide for nine additional directors, for a total of 24 directors. All current
directors of United will fill the vacancies created by the amendment, to serve
until the next annual meeting of the shareholders of Unified Western to be held
in February 2000. In addition, Certified's bylaws will be amended to require
the nominating committee to consider geographic representation in selecting
candidates for nomination as directors. See "THE AMENDMENTS" (page 53).

Alfred A. Plamann, the current President and Chief Executive Officer of
Certified, will serve as President and Chief Executive Officer of the combined
company. The board of directors will appoint the combined company's executive
officers and management, which will include members of the existing management
of Certified and United.

Classes of Members (page 38)

The bylaws of the combined company will provide for:

. Member-patrons, who are the shareholders of the combined company and
participate in the patronage dividend programs; and

. Associate-patrons, who do not own shares but do participate in the
patronage dividend programs.

For a description of the relative rights of member-patrons and associate-
patrons, see "THE MERGER--Impact of the Merger on the Members of Unified
Western" (page 38).

Patronage Dividends Policy After the Merger (page 38 )

The combined company will pay its patronage earnings to member-patrons and
associate-patrons on the basis of patronage business transacted with the
combined company's two patronage earnings divisions: the Dairy Division and the
Cooperative Division.

. The Dairy Division will be associated with patronage earnings generated
by the fluid milk and juice bottling plant located in Los Angeles,
California. Patronage dividends for this division will be paid solely to
patrons who purchase manufactured and related products from the Dairy
Division.

. The Cooperative Division will be associated with patronage earnings
generated from all other patronage activities of the combined company,
including sales of general merchandise previously sold through a
subsidiary, and will not give distinction to geographic location.

In 1997 and 1998, Certified paid patronage dividends in the amount of
$9,154,000 and $9,169,000, respectively, to Certified's shareholders with
respect to purchases from the Dairy Division. Due to logistics and geographic
constraints, the shareholders who purchase from the Dairy Division are
primarily in Southern California. Shareholders of Certified outside of Southern
California generally do not participate in the Dairy Division. It is not likely
that shareholders of the combined company outside of Southern California will
participate in the Dairy Division in the future.

We expect the merger to generate significant benefits and savings, primarily in
the Cooperative Division. As a result, we expect shareholders from all market
regions to benefit in proportion to their purchase volume in the patronage
earnings of the Cooperative Division.

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Credit Facility (page 41)

Certified has received financing commitments from financial institutions to
provide financing necessary to complete the merger. Under these commitments,
Certified will increase its bank revolving credit line to $200 million, secured
by accounts receivable and inventory. Certified's existing institutionally
placed $80 million of 7.22% senior unsecured notes due 2008 will be secured by
property, plant and equipment and the interest rate will be increased to 7.72%.
A new issue of $40 million in ten year senior mortgage notes would be issued
with an interest rate of 280 basis points over U.S. Treasury issues with a
corresponding maturity. These notes would also be secured by property, plant
and equipment. Approximately $37.6 million of United's capital investment notes
and capital stock residual notes will continue to be outstanding after the
merger.

Comparison of Rights of Shareholders (page 46)

Oregon law currently governs the rights of United's shareholders, articles of
incorporation and bylaws. If Certified and United complete the merger,
California law will determine the rights of United's former shareholders who
become shareholders of Unified Western, and govern Unified Western's articles
of incorporation and bylaws, which differ from Oregon law and United's articles
of incorporation and bylaws. The material differences are described starting on
page 46.

Anticipated Accounting Treatment (page 38 )

Due to the terms of the transaction, we expect to account for the merger using
the purchase method of accounting.

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SUMMARY AND SELECTED FINANCIAL AND OPERATING DATA OF CERTIFIED

We derived the summary financial information below regarding Certified from
the audited consolidated financial statements of Certified as of and for its
fiscal years ended September 3, 1994, September 2, 1995, August 31, 1996,
August 30, 1997 and August 29, 1998, and from the unaudited financial
statements of Certified as of and for the nine months ended May 30, 1998 and
May 29, 1999. The unaudited interim financial statements include all
adjustments, consisting of only normal recurring accruals, which Certified
considers necessary for a fair presentation of its financial position and
results of operations for these periods. Operating results for the nine months
ended May 29, 1999 do not necessarily indicate the results that may be expected
for the entire year ending August 28, 1999.

This information is only a summary and you should read it in conjunction
with Certified's historical financial statements and related notes contained
elsewhere in this document.

(In thousands, except book value per share and operating data)

<TABLE>
<CAPTION>
Fiscal Year(1) Nine Months Ended
------------------------------------------------------ ---------------------
May 30, May 29,
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Net sales $1,873,872 $1,822,804 $1,948,919 $1,927,092 $1,831,686 $1,401,219 $1,381,531
Operating income 25,639 27,197 29,502 31,549 26,252 20,562 20,851
Patronage dividends 10,837 11,571 13,200 14,464 10,149 7,986 10,580
Net earnings 94 769 1,517 2,307 3,389 3,027 1,934

Balance Sheet Data
Working capital $ 107,139 $ 107,685 $ 66,859 $ 59,026 $ 85,783 $ 94,474 $ 96,701
Total assets 398,569 398,603 374,737 394,002 389,218 385,220 441,396
Long-term notes payable 149,673 129,686 75,617 92,217 125,130 136,321 150,792
Shareholders' equity 71,306 72,160 72,706 76,027 78,333 75,463 76,689
Book value per share(2) 163.03 165.86 167.94 175.22 183.47 182.82 188.04

Operating Data
Member patrons
Number of stores 2,372 2,320 2,361 2,152 2,101 2,099 2,099
Number of member-
patrons 491 503 491 479 468 461 467
Total stores 3,007 3,045 2,985 2,781 2,759 2,794 2,549
Total patrons and
customers 776 807 756 729 684 693 642
</TABLE>
- --------
(1) Fiscal year 1994 contained 53 weeks. Fiscal years 1995 through 1998 each
contained 52 weeks.
(2) According to Certified's current bylaws, shares are redeemed at the book
value per share at the close of the fiscal year last ended. For a
description of the proposed amendments to Certified's redemption policy,
see "THE AMENDMENTS" (page 53).

9
<PAGE>

SUMMARY AND SELECTED FINANCIAL AND OPERATING DATA OF UNITED

We derived the summary financial information below regarding United from the
audited financial statements of United as of and for its fiscal years ended
September 27, 1996, October 3, 1997 and October 2, 1998, and from the unaudited
financial statements of United as of and for its fiscal years ended September
30, 1994 and September 29, 1995 and the nine months ended July 3, 1998 and July
2, 1999. The unaudited interim financial statements include all adjustments,
consisting of only normal recurring accruals, which United considers necessary
for a fair presentation of its financial position and results of operations for
these periods. Operating results for the nine months ended July 2, 1999 do not
necessarily indicate the results that may be expected for the entire year
ending October 1, 1999.

This information is only a summary and you should read it in conjunction
with United's historical financial statements and related notes included
elsewhere in this document.

(In thousands, except book value per share and operating data)
<TABLE>
<CAPTION>
Fiscal Year Nine Months Ended
------------------------------------------------------------ -----------------
July 3, July 2,
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ------------- ---------- ---------- -------- --------
(Unaudited) (Unaudited) (Restated)(2)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data(1)
Net sales $935,432 $995,453 $1,280,453 $1,306,602 $1,175,279 $892,279 $773,475
Operating income
(loss)(3) 16,244 20,340 9,948 (1,668) 1,327 3,842 (487)
Patronage dividends 8,730 8,350 4,000 0 0 0 0
Net earnings (loss) 2,044 3,685 (5,569) (8,660) 19,760 14,369 (2,213)

Balance Sheet Data
Working capital $ 45,678 $ 53,264 $ 56,329 $ 107,213 $ 31,152 $ 47,979 $ 24,834
Total assets 307,255 323,209 379,264 365,427 233,642 305,752 215,829
Long-term notes payable 114,669 115,624 143,134 187,995 74,434 98,887 56,596
Shareholders' equity 28,114 32,352 25,733 14,651 31,343 28,968 27,485
Book value per share(4) 43.17 49.34 40.31 24.97 59.82 49.36 54.05

Operating Data
(Unaudited)
Patrons
Number of stores 360 368 353 359 353 355 324
Number of patrons 250 253 248 254 250 251 247
Total stores(5) 454 463 1,614 1,585 1,630 1,686 1,724
Total patrons and
customers(5) 344 348 1,502 1,471 1,516 1,582 1,647
</TABLE>
- --------
(1) Operating data for all years is for continuing operations only.
(2) See Note 2 to Notes to Consolidated Financial Statements of United (page F-
38).
(3) Operating income is comprised of net sales less costs and expenses and
members' allowances.
(4) According to United's bylaws, shares are redeemed at the adjusted book
value per share at the close of the fiscal year last ended. For the
purposes of this table, book value per share equals the members' equity
divided by outstanding common shares at the corresponding date.
(5) The number of stores and customers increased significantly beginning in
1996 with the acquisition of Market Wholesale, Inc. in December 1995.

10
<PAGE>

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

Unified Western will account for the proposed merger of Certified and United
as a "purchase." Under purchase accounting, the combined company will allocate
consideration to the assets acquired and the liabilities assumed based on their
estimated fair values. For a description of purchase accounting, see "THE
MERGER--Accounting Treatment" (page 38).

We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. This unaudited pro forma
condensed combined financial data combines Certified's fiscal year ended August
29, 1998 with United's fiscal year ended October 2, 1998 and Certified's nine
months ended May 29, 1999 with United's nine months ended July 2, 1999. The
information is only a summary of the unaudited pro forma condensed combined
financial information presented elsewhere in this document (page F-58), and you
should read it in conjunction with our historical financial statements
presented elsewhere in this document (page F-1).

While we prepared this unaudited pro forma condensed combined financial
information based upon currently available information using assumptions which
we believe are appropriate, you should be aware that this unaudited pro forma
condensed combined financial information may not be indicative of what actual
results will be in the future or would have been for the periods presented.
Unaudited pro forma condensed combined financial information includes the
impact of transaction costs related to the merger, amortization of goodwill,
interest expense, depreciation expense, patronage dividends and the tax impact
related to these items. The unaudited pro forma condensed combined financial
information does not include any cost savings or operating benefits we expect
the combined company to realize.

You should read the notes to the unaudited pro forma condensed combined
financial statements for further discussion of the assumptions we made to
prepare this information (page F-58).

(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
August 29, 1998 May 29, 1999
----------------- -----------------
<S> <C> <C>
Pro Forma Operating Data
Net sales $3,006,965 $2,156,918
Operating income 26,769 21,669
Interest expense 24,327 18,041
Patronage dividends 8,823 7,901
Earnings (loss) before discontinued
operations, cumulative effect of change
in accounting principle and
extraordinary item 17,363 (549)

Pro Forma Balance Sheet Data
Working capital $ 167,652
Total assets 697,973
Long-term notes payable 281,993
Shareholders' equity 117,894
</TABLE>

11
<PAGE>

RISK FACTORS

You should carefully consider the risks described below before voting on the
merger or the proposed amendments to Certified's articles of incorporation and
bylaws. The risks described below are not the only risks facing us. Additional
risks and uncertainties that we do not presently know or that we do not
presently believe are important may also harm us. If any of the events or
conditions described in the following risks actually occur, our business,
financial condition, results of operations or prospects could be seriously
harmed.

Integrating business operations may prove difficult and may harm operating
results.

The merger will require integrating the operations and systems of the two
companies and eliminating duplicate facilities in Northern California. The
costs of eliminating duplicative facilities in Northern California may be
greater than Certified or United anticipated. If the combined company is not
successful in eliminating duplicate personnel in administrative functions,
anticipated cost savings will not be realized. If planned efficiencies in
distribution can not be realized, cost saving will not be realized and
prepatronage dividend income would be reduced or eliminated. These and other
difficulties associated with the merger, including the challenges in
assimilating personnel, may harm operating results.

The merger may harm the ability of the combined company to pay patronage
dividends.

The ability of the combined company to pay patronage dividends will be
dependent upon the existence of operating income from patronage activities.
United has been unable to pay patronage dividends to its members in the past
two years due to insufficient net patronage earnings. Unless cost savings or
operating benefits are realized in the merger, the historical level of
patronage dividends paid by Certified will decline. In the event of a loss in
one of the two patronage earnings divisions, Unified Western will deal with the
loss as determined by the board of directors in view of the attendant
circumstances. The board of directors may offset the loss in one division
against earnings in the other division in order to determine net earnings
available for patronage dividends. There can be no assurance that the combined
company will have, in any year, sufficient net patronage earnings to permit the
payment of patronage dividends.

United's shareholders are unlikely to participate in patronage dividends
attributable to Unified Western's Dairy Division.

For purposes of calculating and paying patronage dividends, Unified Western
will segregate its Dairy Division from all other cooperative activities of the
combined company. Because of logistics and geographic considerations, it is
unlikely that any of United's shareholders or Certified's shareholders beyond
the current geographic service area will make purchases from the Dairy Division
and, therefore, will not participate in any patronage dividends attributable to
the Dairy Division. See "THE MERGER--Impact of the Merger on the Members of
Unified Western" (page 38).

The proposed amendments to the articles of incorporation and bylaws will limit
the redemption rights of shareholders of the combined company.

The proposed amendments to the articles of incorporation and bylaws of
Unified Western will change the redemption rights of both Certified's and
United's shareholders. If the shareholders of Certified and United approve the
merger and the amendments to Unified Western's articles of incorporation,
member-shareholders of the combined company which terminate their membership

12
<PAGE>

after the merger will not be able to have their shares redeemed until after the
third full fiscal year following the merger. In addition, the redemption price
will be the book value at the year end prior to the termination of the member-
patron rather than the book value at the year end prior to the date of
repurchase. Such changes could adversely affect the redemption rights of
shareholders depending on their individual circumstances. See "THE AMENDMENTS"
(page 53).

There will be no market for the stock of the combined company.

There currently is no established market for either Certified's or United's
outstanding capital stock, and we do not expect there to be a trading market
for the stock of the combined company. In order to liquidate shares,
shareholders will be dependent on the ability of the combined company to redeem
its capital stock or upon the sale of the stock to a successor retailer in
connection with the sale of the shareholder's business.

You may not be able to redeem your shares.

Consistent with Certified's and United's current redemption policies, the
ability of the combined company to redeem shares pursuant to its redemption
policy will continue to depend upon the ability of the combined operations to
generate cash and operating results sufficient to maintain compliance with loan
covenants and applicable legal restrictions. There is no assurance that the
combined company will be able to redeem its shares at any future date.

We are dependent on key personnel.

The combined company will be dependent upon the continuing services of key
management personnel, including Alfred A. Plamann. The success of the
cooperative food distribution business is dependent upon management's knowledge
of customers, suppliers and competitive factors and its ability to manage a
business characterized by narrow margins and very competitive pricing. The loss
of services of any of the experienced key members of our management team or our
failure to attract other qualified personnel could harm our business, financial
condition and results of operations.

Certain shareholders of United may be underinvested following the merger and
may be required to purchase additional shares to maintain their status as
member-patrons.

A shareholder must own 100 Class A Shares to qualify as a member-patron of
Unified Western with full voting rights. The combined company will give those
United shareholders who receive less than 100 Class A Shares in the merger
three options, each with differing consequences:

. Purchase additional Class A Shares, if the shareholder meets the member-
patron minimum purchase requirement; or

. Elect to be an associate-patron, with the right to participate in
patronage dividends but without the right to vote, if the shareholder
meets the associate-patron minimum purchase requirement and does not
exceed the member-patron minimum purchase requirement. The Class A
Shares received in the merger will be repurchased at a price equal to
the book value of United's shares for which they were exchanged as of
April 2, 1999; or

. Elect to be served on a non-patronage basis, with neither the right to
vote nor the right to participate in patronage dividends, if the
shareholder does not meet the associate-patron minimum purchase
requirement. The Class A Shares received in the merger will be
repurchased at a price equal to the book value of United's shares for
which they were exchanged as of April 2, 1999.

13
<PAGE>

As of April 2, 1999, the book value of each share of United's Common Stock
was $57.90. See "THE MERGER--Impact of the Merger on the Members of Unified
Western" (page 38).

United's shareholders who become patrons will be permitted to build a minimum
deposit over time, increasing the credit risk to Unified Western.

Unified Western will require that each patron maintain a minimum deposit
tied to the volume of purchases by the patron. United members will be able to
build the required minimum deposit over time through the reinvestment of 80% of
patronage dividends received, provided that during the period of reinvestment
the member has in place a supply agreement with Unified Western. See "THE
MERGER--Impact of the Merger on the Members of Unified Western" (page 38).

Certified members have generally been required to meet the deposit
requirement as a condition to membership. The delay afforded to former United
members will increase the credit risk to Unified Western if a former United
member defaults in paying for merchandise before the deposit requirement is met
and the then existing deposit proves to be inadequate to cover the member's
obligations to Unified Western.

Your required minimum deposit will be at risk.

Unified Western will require each patron, whether a member-patron or an
associate-patron, to execute a subordination agreement which provides for the
subordination of the patron's right to repayment of its deposit to the prior
payment in full of certain indebtedness of the combined company. If the
combined company goes into default on its other indebtedness, member patrons
will not receive back their deposit unless the other creditors holding
indebtedness are paid in full. In addition, the combined company will require
each shareholder to pledge the Class A Shares and Class B Shares of the
combined company to secure its obligations to Unified Western, and individual
shareholders of corporate members will be required to guaranty the obligations
of the corporate member. As a condition to enjoying the full rights of a patron
of the combined company, Unified Western will require United's shareholders to
execute a similar subordination agreement. In the event the combined company
encounters financial difficulties, your deposit and your investment in Unified
Western's Class A Shares and Class B Shares will be at risk. See "THE MERGER--
Impact of the Merger on the Members of Unified Western" (page 38).

We may fail to identify and resolve significant Year 2000 computer issues.

Any unresolved or undetected Year 2000 problems experienced by Certified, or
its customers or vendors could have a material adverse effect on Unified
Western's operations. In addition, any unresolved or undetected Year 2000
problems experienced by United or its customers or vendors could have a
material adverse effect on Unified Western's operations. The Year 2000 issue
exists because the date codes used in some computer hardware and software
systems use only two digits and, therefore, are unable to distinguish between
the years 1900 and 2000. The failure of Certified, United or their members,
customers or vendors to identify and resolve Year 2000 problems could result in
the following problems:

. the inability of our members to place, or the combined company to
accept, orders;

. our inability to place, or our vendors' inability to accept and ship,
orders; and

. the disruption of our warehouse and manufacturing facilities and
trucking operations.

14
<PAGE>

Any of these problems could result in the following adverse consequences to us,
which could have a material adverse effect on our operations and financial
performance:

. delayed or lost revenue;

. diversion of resources;

. damage to our reputation;

. increased administrative and processing costs; and

. liability to members or vendors.

Both Certified and United have active Year 2000 programs which include
detailed reviews of their respective hardware, operating systems, applications
software, electronic data interchange with members and vendors and embedded
systems. After the merger, Unified Western will depend on the computer hardware
and software systems of both Certified and United. For a description of
Certified's Year 2000 program, see "INFORMATION CONCERNING CERTIFIED--
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000" (page 80). For a description of United's Year 2000
program, see "INFORMATION CONCERNING UNITED--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Preparations" (page 93).

We will continue to be subject to risk of loss of member volume.

The combined company will continue to be subject to the risks associated
with the consolidation of the grocery industry. When independent retailers are
acquired by large chains with self distribution capacity, are driven from
business by larger grocery chains, or become large enough to develop their own
self-distribution system, the combined company will lose distribution volume.
Members may also select other wholesale providers. Reduced volume is normally
injurious to profitable operations since fixed costs must be spread over a
lower volume of transactions.

FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE

This document, the documents of Certified incorporated by reference herein
and other communications to shareholders of Certified and United, respectively,
may contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements relate to
expectations concerning matters that are not historical facts. Also, when we
use words such as "believes," "expects," "anticipates" or similar expressions,
we are making forward-looking statements. Although each of Certified and United
believes that the expectations reflected in such forward-looking statements are
reasonable, neither can give you any assurance that such expectations will
prove correct. Important factors that could cause actual results to differ
materially from such expectations are disclosed in this document, including,
the documents of Certified incorporated by reference, and any other
communication, including the information contained in "RISK FACTORS" (page 12),
"INFORMATION CONCERNING CERTIFIED--Management's Discussion and Analysis of
Financial Condition and Results of Operations" (page 74) and "INFORMATION
CONCERNING UNITED--Business." (page 84) All forward-looking statements
attributable to Certified or United are expressly qualified in their entirety
by the factors which may cause actual results to differ materially.

15
<PAGE>

THE MEETINGS

Date, Time and Place

Certified

The special meeting of Certified's shareholders will be held at 10:00 a.m.
(Pacific Daylight Time) on Monday, September 27, 1999, at 5200 Sheila Street,
Commerce, California.

United

The special meeting of United's shareholders will be held at 10:00 a.m.
(Pacific Daylight Time) on Monday, September 27, 1999, at 6433 S.E. Lake Road,
Portland, Oregon.

The Purpose of the Meetings

Certified

The purpose of the special meeting of the shareholders of Certified is to
consider and to vote upon the following matters:

. Approval of the Agreement and Plan of Merger among United, Certified and
a wholly-owned subsidiary of Certified;

. Approval of amendments to the articles of incorporation and bylaws of
Certified to:

. increase the authorized number of directors to a number between 15
and 24, with the initial number to be 24,

. change the name of Certified to Unified Western Grocers, Inc.,

. modify the redemption price formula for Class A Shares and Class B
Shares, and

. increase the authorized number of Class C Shares to 24; and

. Other business as properly may come before the meeting.

United

The purpose of the special meeting of the shareholders of United is to
consider and to vote upon the following matters:

. Approval of the Agreement and Plan of Merger among United, Certified and
a wholly-owned subsidiary of Certified and the merger contemplated by
the merger agreement; and

. Other business as properly may come before the meeting.

Who May Vote; What Vote is Required

Certified

Only holders of record of Certified's Class A Shares, Class B Shares and
Class C Shares as of the record date, the close of business on July 31, 1999,
may vote at Certified's meeting. On the record date, there were outstanding
46,800 Class A Shares, 361,139 Class B Shares and 15 Class C Shares.

Shareholders are entitled to one vote for each of Certified's Class A
Shares, Class B Shares and Class C Shares held by them on all matters to be
voted upon at Certified's meeting. A majority of the

16
<PAGE>

shares of Certified's Class A Shares, Class B Shares and Class C Shares must be
present, in person or by proxy, at the meeting to have a quorum to transact
business.

Approval of the Agreement and Plan of Merger, the merger and the amendments
to Certified's articles of incorporation and bylaws require the affirmative
vote of each of:

. The holders of a majority of Certified's Class A Shares outstanding and
entitled to vote at the meeting;

. The holders of a majority of Certified's Class B Shares outstanding and
entitled to vote at the meeting; and

. The holders of a majority of Certified's Class C Shares outstanding and
entitled to vote at the meeting.

Abstentions will be counted as present for quorum purposes, but will have
the same effect as a vote "against" the proposal as to which the shareholder
abstains.

United

Only United's shareholders of record as of the record date, the close of
business on August 23, 1999, may vote at United's meeting. On the record date,
there were 483,307 shares of United's Common Stock outstanding and 252
shareholders of United.

Each of United's shareholders is entitled to one vote on all matters to be
voted upon at United's meeting, regardless of the number of shares of United's
Common Stock owned. One third of United's shareholders must be present, in
person or by proxy, at the meeting to have a quorum to transact business.

Approval of the Agreement and Plan of Merger and the merger requires the
affirmative vote of a majority of United's shareholders.

Abstentions will be counted as present for quorum purposes, but will have
the same effect as a vote "against" the proposal as to which the shareholder
abstains.

Votes Held by Directors

<TABLE>
<CAPTION>
Number of votes required to approve each
item covered by this document Number of votes held by directors
------------------------------------------------ ------------------------------------
Certified Certified Certified United Certified Certified Certified United
Class A Class B Class C Common Class A Class B Class C Common
Shares Shares Shares Stock Shares Shares Shares Stock
----------- ------------ ---------- -------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certified....... 23,400 176,671 8 -- 1,500 85,150 15 --
United.......... -- -- -- 127 -- -- -- 12
<CAPTION>
Percent of required votes
held by directors
------------------------------------
Certified Certified Certified United
Class A Class B Class C Common
Shares Shares Shares Stock
--------- --------- --------- ------
<S> <C> <C> <C> <C>
Certified....... 6.4% 48.2% 100.0% --
United.......... -- -- -- 9.5%
</TABLE>

The board of directors of both Certified and United have unanimously
approved each matter described in this document that their respective
shareholders will consider and act upon. In addition, each director of
Certified and United has stated that any member with whom he or she is
affiliated will vote FOR the merger and, in the case of each director of
Certified, FOR the proposed amendments to Certified's articles of incorporation
and bylaws.

17
<PAGE>

Solicitation, Use and Revocation of Proxies; Solicitation Expenses

This document is furnished in connection with the solicitation of proxies
for use at the meetings and at any and all adjournments or postponements of the
meetings:

. from the holders of Certified's Class A Shares, Class B Shares and Class
C Shares by Certified's board of directors, and

. from the holders of United's Common Stock by United's board of
directors.

Any person who has executed a proxy card may revoke it prior to the meetings
by delivering prior to or at the meetings either a letter revoking the proxy or
a new signed proxy bearing a later date. The shareholder should deliver the
letter or new proxy to the Secretary of Certified or United, respectively, at
the address given on the cover page above. Attendance at the meetings does not
by itself revoke a proxy.

Your proxy will be voted as you instruct, unless you revoke it properly. If
you return a proxy without instructions, it will be voted FOR the merger and,
for the shareholders of Certified, FOR the amendments. If you properly mark
your proxy "ABSTAIN," it will be treated as an abstention.

The meetings may be adjourned for a number of purposes, including for the
purpose of soliciting additional proxies. Shares represented by proxies voting
against the approval of the merger will be voted against a proposal to adjourn
the meetings for the purpose of soliciting additional proxies.

Certified and United will equally bear costs and expenses incurred in
connection with the filing, printing and mailing of this document, provided
that if the merger is completed all of these expenses will be paid by the
combined company. In addition to solicitation by use of the mail, directors,
officers and employees, Certified and United may solicit proxies from
shareholders in person or by telephone, facsimile or other means of
communication. Certified and United will not additionally compensate these
directors, officers and employees, but may reimburse them for reasonable out-
of-pocket expenses in connection with the solicitation of proxies. We urge
shareholders to send in their proxies as soon as possible after considering
this document.

United's shareholders should not send in any stock certificates with their
proxy cards. A transmittal form with instructions for the surrender of stock
certificates for United's Common Stock will be mailed to United's shareholders
as soon as practicable after the completion of the merger.

18
<PAGE>

THE MERGER

General

The merger agreement provides for the merger of a wholly-owned subsidiary of
Certified with and into United, with United surviving the merger. The merger
will become effective in accordance with the articles of merger to be filed
with the Secretary of State of the State of Oregon. A condition precedent to
the merger will be the filing with the California Secretary of State of a
Certificate of Amendment of the Articles of Incorporation of Certified to amend
the articles of incorporation. We anticipate that the parties will make these
filings as soon as practicable after the last of the conditions precedent to
the merger contained in the merger agreement has been satisfied or waived. We
have attached a copy of the Agreement and Plan of Merger as Annex A to this
document. We urge all shareholders of Certified and United to read the merger
agreement in its entirety because it is the legal document governing the
merger. The amendments to the articles of incorporation are described in more
detail elsewhere in this document. See "THE AMENDMENTS" (page 53).

Background of the Merger

In the 1990's the grocery industry witnessed a consolidation among the
larger supermarket chains resulting in a consolidation of buying power among
the large chains and increased competitive pressure on independent grocers and
smaller grocery chains.

During this period the managements of Certified and United, and other
grocery wholesalers that conduct business as cooperatives for the benefit of
their independent retailer members, experienced increased financial pressures
as large independent retailer members were acquired by large chains with
internal purchasing and distribution capabilities. The ongoing consolidation of
supermarket chains gives the chains, with which independent retailers compete,
greater buying power and economies of scale in the marketing and distribution
process.

In April 1998, six wholesale grocery cooperatives located in the Western
United States started discussions as to possible means of achieving economies
of scale in order to improve pricing to member-retailers. These discussions
included the possibility of combining in a joint venture or other form various
administrative functions such as purchasing, information systems and member
services. In October 1998, the cooperatives held a meeting in Portland to
discuss the subject of cooperative financing, in which the chief executive
officers, chief financial officers and board members participated. This was
followed by meetings in late October, 1998, in Las Vegas, and in early
November, in Portland, to gather information about possible efficiencies of
combined operations or specific aspects of various cooperative functions.

In early December 1998, the chairmen, chief executive officers and chief
financial officers of the cooperatives held a meeting to report on the study of
possible efficiencies of combination. Following that meeting, representatives
of Certified and United Grocers concluded that a transaction involving all six
cooperatives was probably not feasible at that time. After discussions as to
the possible benefits of a combination between the Certified and United, the
chief executive officers and board chairmen of the two companies concluded that
a possible merger should be explored.

On January 8, 1999, United executives met in Los Angeles with Certified
executives to discuss the possibility of a combination.

19
<PAGE>

On February 15 and 16, 1999, executives of Certified met with executives of
United in Portland. Certified proposed a transaction in which United
shareholders would receive approximately 25% of the stock of the combined
entity in a merger transaction. This proposal was based on a review by
Certified of the relative contributions of the two companies to the combined
company based on a variety of relative contribution factors including EBITDAP,
EBITDAP based on market multiples, book value, capitalization, and estimated
real property and asset values. After reviewing various alternatives, including
a combination based on comparative book values only, the parties agreed upon
the exchange ratio resulting in Certified shareholders owning approximately 75%
and United shareholders owning approximately 25% of the combined company. The
parties used fiscal 1998 actual EBITDAP and 1999 estimated EBITDAP. The
estimated fiscal 1999 EBITDAP for Certified was $41,810,000 and for United was
$19,921,000. Subsequently, but after the exchange ratio had been determined,
the parties revised the fiscal 1999 estimated EBITDAP to $44,774,000 for
Certified and $16,843,000 for United.

In March 1999, the parties reached preliminary agreement on the outline of a
merger transaction which incorporated the concept of a 75%/25% ownership
structure, and began preparation of a Letter of Understanding with respect to
the transaction structure.

On March 23, 1999, the parties executed a Letter of Understanding and
presented the Letter of Understanding to the board of directors of United on
March 25, 1999, and to the board of directors of Certified on March 26, 1999.
Both boards of directors unanimously approved the Letter of Understanding.

Between March 23, 1999 and June 9, 1999 the parties continued to conduct due
diligence, and negotiated the terms of the Agreement and Plan of Merger. During
this period, Certified and United each held meetings of their boards of
directors to report on the progress of negotiations and the status of the due
diligence investigation. Certified's board meetings were held on March 26,
1999, May 6, 1999 and May 26, 1999. The parties and their advisors held
numerous meetings and conference calls in order to negotiate various aspects of
the merger agreement, the amendments to the articles of incorporation and
bylaws, and the operating policies of the combined company with respect to
membership, patronage dividends and other issues. A meeting of the directors of
both companies to discuss issues common to independent retailers was held on
June 2, 1999.

On June 9, 1999, Certified's board of directors held a meeting in Commerce,
California to consider and vote upon the proposed merger agreement and related
amendments. At the meeting, Rabobank presented its opinion regarding the
fairness to the shareholders of Certified, from a financial point of view, of
the exchange ratio pursuant to the merger agreement. Additionally, management
made a report on its due diligence investigation and Certified's legal counsel
made a presentation regarding the significant terms of the merger agreement and
the amendments to the articles of incorporation and bylaws. Following these
presentations and further discussion, Certified's board of directors
unanimously approved the execution of the merger agreement and the amendments
to the articles of incorporation and bylaws. The material analyses presented in
connection with the opinion by Rabobank to Certified's board of directors are
summarized under "THE MERGER--Opinions of Financial Advisors--Certified" (page
24).

On June 9, 1999, United's board of directors held a meeting to consider and
vote upon the proposed merger agreement. At the meeting, representatives of
Houlihan Lokey presented their opinion regarding the fairness, from a financial
point of view, of the exchange ratio to the holders of United's Common Stock.
United's management also reported on the results of their due diligence

20
<PAGE>

investigation of Certified. Additionally, United's outside legal counsel
reviewed the fiduciary duties of United's board of directors in considering a
strategic business combination, and the significant terms of the merger
agreement and the amendments to Certified's articles of incorporation and
bylaws. Following these presentations, and further discussion, United's board
of directors unanimously approved the execution of the merger agreement and
related matters. The material analyses presented in connection with the opinion
by Houlihan Lokey to United's board of directors are summarized under "THE
MERGER--Opinions of Financial Advisors--United" (page 29).

Following their respective board meetings, each of the parties executed the
merger agreement. All parties adopted technical amendments to the merger
agreement in July and August, 1999.

Reasons for the Merger

The board of directors of both Certified and United believe that the
combined company will be able to respond more effectively to the competitive
pressures caused by the continuing consolidation of the grocery industry than
either Certified or United could on its own. The boards of directors identified
a number of potential benefits of the merger which they believe could
contribute to the success of the combined company, including the following:

. The geographic areas Certified and United serve overlap in Northern
California. We expect Unified Western to significantly reduce fixed
costs by eliminating duplicative facilities and transportation equipment
in this geographic area.

. We expect Unified Western to further reduce fixed costs by eliminating
duplicative functions, including legal and accounting services and
management information systems.

. Certified and United each have experienced a continuing decline in
volume while the chain stores with which their members compete have
grown as the grocery industry continues to consolidate. We expect
Unified Western to be able to obtain more favorable pricing from its
vendors and thereby enable its members to compete more effectively.

. We expect Unified Western to be able to offer to all members selected
products which currently are offered by either Certified or United
alone. For example, United currently offers produce, while Certified
does not; and Certified has an expanded specialty/gourmet food offering,
while United does not.

. Unified Western will benefit from the combined managerial and
operational expertise of both Certified and United.

In addition to the benefits of the merger listed above, the board of
directors of Certified and United each considered various additional benefits
and risks of the merger to their respective companies. These additional
benefits and risks are described directly below under "THE MERGER--
Recommendations of the Boards of Directors".

Recommendations of the Boards of Directors

Certified

The board of directors of Certified believes that the merger and the
amendments to the articles of incorporation and bylaws are in the best
interests of Certified and its shareholders. Accordingly, the board of
directors has unanimously approved the merger and the amendments to the
articles of incorporation and bylaws and recommends that Certified's
shareholders vote FOR the merger and FOR the amendments to the articles of
incorporation and bylaws.

21
<PAGE>

In reaching its decision to approve the merger and related amendments, the
board of directors of Certified considered and reviewed with management the
operating benefits described directly above under "THE MERGER--Reasons for the
Merger", as well as the following factors:

. The board reviewed historical information concerning United's business,
financial condition and prospects. The board considered favorably the
expertise of United's management, its position with retailers in its
geographic markets and the proximity and overlap of the geographic
markets served by Certified and United.

. The board reviewed the principal terms and conditions of the merger
agreement and concluded that they are reasonable and adequately protect
the interests of Certified's shareholders.

. The board considered the opinion of Rabobank, dated June 9, 1999,
including the related financial analyses, as to the fairness, from a
financial point of view, of the merger to the shareholders of Certified.
The board believes that the opinion of an independent, internationally
recognized financial advisor such as Rabobank is an important factor in
approving the merger.

. The board received reports from the management of Certified as to the
results of the due diligence investigations of United conducted by
Certified's management and advisors and concluded that these reports do
not contain issues that would preclude its approval of the merger.

The board of directors of Certified also considered and reviewed with
management the risks and uncertainties of the merger described above in "RISK
FACTORS" (page 12), including the following:

. The board considered the risk that the combined company may not realize
the operating benefits and cost savings anticipated by management or
that difficulties in integrating operations may disrupt the business of
the combined company.

. The board considered that United has been unable to pay patronage
dividends to its members for the past two years due to insufficient net
earnings. Realization of cost savings and operating benefits resulting
from the merger will be necessary to avoid a decline in the historical
level of patronage dividends paid by Certified.

. The board considered that modifications to Certified's articles of
incorporation and bylaws would restrict the ability of terminating
members to have Class B Shares redeemed until after three fiscal years
following the merger and that the redemption price formula would be
revised as to both terminating members and redemption of excess shares.

. The board considered that costs associated with the combination would
adversely affect operating results in the short term and that savings
and improved operating results would be necessary in order to avoid
negatively affecting patronage dividends in future periods.

. The board considered the risk that the requisite shareholder vote would
not be obtained or that dissenting shares could be in excess of 5% with
respect to outstanding capital stock of Certified or United.

. The board considered that the ability of the combined company to redeem
shares will continue to be dependent upon its ability to comply with
loan covenants and applicable legal restrictions.

22
<PAGE>

We do not intend the foregoing discussion of the factors considered by the
board of directors of Certified to be exhaustive, but we do believe it includes
the material factors considered. In view of the wide variety of factors
considered, the board of directors of Certified did not find it practical to,
and did not, assign any relative or specific weights to these factors, and
individual directors may have given differing weights to different factors. The
board of directors of Certified did not attempt to analyze the fairness of the
exchange ratio in isolation from its consideration of the businesses of
Certified and United, the strategic merits of the merger or the other
considerations referred to above. The board of directors of Certified did,
however, take into account, and placed reliance upon, the analyses performed
by, and the opinion rendered by, Rabobank as to the fairness from a financial
point of view of the exchange ratio to Certified and its shareholders.

United

The board of directors of United believes that the merger is in the best
interests of United and its shareholders. Accordingly, the board of directors
has unanimously approved the merger and recommends that United's shareholders
vote FOR the merger.

In reaching its decision to approve the merger, the board of directors of
United considered and reviewed with management the factors described above
under "THE MERGER--Reasons for the Merger" (page 21), as well as the following
factors:

. The board reviewed historical information concerning Certified's
business, financial condition and prospects. The board considered
favorably the expertise of Certified's management, its competitive
position in its geographic markets and the proximity and overlap of the
geographic markets served by Certified and United, and the capacities of
United and Certified in evaluating the prospects for enhanced operating
efficiencies.

. The board reviewed the principal terms and conditions of the merger
agreement and concluded that they are reasonable and adequately protect
United's interests.

. The board considered favorably the opinion of Houlihan Lokey, dated June
9, 1999, including the related financial analyses, as to the fairness,
from a financial point of view, of the merger to the shareholders of
United. The board believes that the opinion of an independent,
nationally recognized financial advisor such as Houlihan Lokey is an
important factor in approving the merger.

. The board received reports from the management of United as to the
results of the due diligence investigations of Certified conducted by
United's management and advisors and concluded that these reports do not
contain issues that would preclude its approval of the merger.

. The board reviewed the recent financial difficulties encountered by
United. Although the board acknowledges some improvement in United's
operating results, the board believes that the operating enhancements
offered by the merger will aid United's competitive position and
strengthen the financial position of the combined company.

23
<PAGE>

The board of directors of United also considered and reviewed with
management the risks and uncertainties of the merger described above in "RISK
FACTORS" (page 12), including the following:

. The board considered the risk that the combined company may not fully
realize the operating benefits and cost savings anticipated by
management or that difficulties in integrating operations may disrupt
the business of the combined company.

. The board considered that some United shareholders would be
underinvested and would be required to purchase additional shares in
order to vote or share in patronage earnings of the combined company.

. The board considered that the ability of the combined company to redeem
shares will continue to be dependent upon its ability to comply with
loan covenants and applicable legal restrictions.

We do not intend the foregoing discussion of the factors considered by the
board of directors of United to be exhaustive, but we do believe it includes
all material factors considered. In view of the wide variety of factors
considered, the board of directors of United did not find it practical to, and
did not, assign any relative or specific weights to these factors, and
individual directors may have given differing weights to different factors. The
board of directors of United did not attempt to analyze the fairness of the
exchange ratio in isolation from its consideration of the businesses of
Certified and United, the strategic merits of the merger or the other
considerations referred to above. The board of directors of United did,
however, take into account, and placed reliance upon, the analyses performed
by, and the opinion rendered by, Houlihan Lokey as to the fairness from a
financial point of view of the exchange ratio to United and its shareholders.

Opinions of Financial Advisors

Certified

On June 9, 1999, Rabobank International, New York Branch delivered its
written opinion to Certified's board of directors that as of the date of the
opinion, the exchange ratio in the merger agreement was fair from a financial
point of view to the shareholders of Certified.

The full text of Rabobank's opinion is attached as Annex B to this document.
This summary is qualified in its entirety by the opinion. We urge shareholders
of Certified to read the opinion in its entirety.

In connection with its opinion, Rabobank reviewed among other things:

. A draft of the merger agreement dated June 3, 1999;

. The annual reports to shareholders of Certified for the three fiscal
years ended August 29, 1998 and the Annual Reports on Form 10-K of
Certified for the three fiscal years ended August 29, 1998;

. The annual reports to shareholders of United for the three fiscal years
ended October 2, 1998 and the Annual Reports on Form 10-K of United for
its fiscal years ended October 2, 1998 and September 27, 1996;

. Interim reports to shareholders and Quarterly Reports on Form 10-Q of
Certified and United;

24
<PAGE>

. Other communications from Certified and United to their respective
shareholders; and

. Internal financial analyses and forecasts for Certified and United
prepared by their respective managements.

In addition, Rabobank:

. Held discussions with members of the senior management of Certified and
United regarding the strategic rationale for, and the potential benefits
of, the merger and the past and current business operations, financial
condition and future prospects of their respective companies;

. Compared financial information for Certified and United with publicly
available financial and stock market information for other companies
that Rabobank deemed relevant;

. Reviewed the financial terms of recent business combinations that
Rabobank deemed relevant;

. Compared the relative contributions to the combined company of both
Certified and United's earnings before interest, taxes, depreciation and
amortization; earnings before interest and taxes; book value; and other
financial information, with the relative ownership of the combined
company upon giving effect to the transaction; and

. Performed other studies and analyses as it considered appropriate.

Rabobank assumed the accuracy and completeness of all of the financial and
other information reviewed by it for purposes of rendering its opinion.
Rabobank assumed, with the consent of Certified's board of directors, the
reasonableness and accuracy of the financial forecasts prepared by Certified
and United, including the cost savings and other operating benefits projected
by the managements of Certified and United to result from the merger. Certified
and United informed Rabobank that they prepared their forecasts based on their
best available estimates and judgments. Rabobank did not make an independent
evaluation or appraisal of the assets and liabilities of Certified or United or
any of their respective subsidiaries. Rabobank did not participate in the
negotiation of the exchange ratio between Certified and United. Certified did
not impose any restrictions or limitations on Rabobank regarding the
investigations made or the procedures followed by Rabobank in rendering its
opinion. Rabobank's opinion was provided for the information and assistance of
Certified's board of directors in connection with its consideration of the
transaction contemplated by the merger agreement. Rabobank's opinion does not
constitute a recommendation as to how any shareholder of Certified should vote
with respect to the merger. The exchange ratio was determined through arm's-
length negotiations between Certified and United.

The following is a summary of the material financial analyses presented by
Rabobank to Certified's board of directors on June 9, 1999. Some of the
summaries of the financial analyses include information presented in tabular
format. The tables must be read together with the text accompanying each
summary.

Contribution Analysis. Rabobank compared United's contribution to the
projected financial performance of the combined company resulting from the
merger with the pro forma ownership of United's shareholders in the combined
company following the merger. Rabobank reviewed specific financial information,
including, among other things, sales, EBITDA, EBIT, book value and members'
capitalization utilizing United's results for the last twelve month period
ended April 2, 1999 and Certified's results for the last twelve month period
ended February 27, 1999. Rabobank

25
<PAGE>

also reviewed and compared the estimated real property values and the value of
the discounted cash flow of each company. The analysis was made prior to the
board meeting on June 9, 1999, based on second quarter information.

The analysis indicated, and the following table presents, the percentage of
sales, EBITDA, EBIT, book value, members' capitalization, real property values,
and value of the discounted cash flow that United would have contributed to the
combined company.

<TABLE>
<CAPTION>
United
------
<S> <C>
Sales................................. 37.8%
EBITDA................................ 25.9%
EBIT.................................. 13.4%
Book value............................ 28.0%
Members' capitalization............... 26.2%
Real property value................... 25.6%
Discounted cash flow.................. 35.5%
</TABLE>

The analysis compared these percentage contributions to the exchange ratio
which results in approximately 25% of the shares of the combined company held
by former United shareholders and 75% by Certified shareholders.

Selected Companies Analysis. This analysis compared specific financial
information of United with several public companies. The companies selected all
are public companies engaged in the distribution of food products. None of the
companies operate on a cooperative basis. Comparative market data on
cooperatives was not available since the stock of none of the regional grocery
cooperatives trades in the open market. A number of the companies selected are
substantially larger than Certified and United. Rabobank reviewed and compared
specific financial information relating to United with corresponding financial
information, ratios, and public market multiples for the following companies
which it considered relevant:

. Fleming Companies Inc.

. Richfood Holdings, Inc.

. United Natural Foods Inc.

. Nash-Finch Company

. Supervalu Inc.

. Fresh America Corp.

. United Foods Inc.

Rabobank compared United's EBITDA and EBIT over the last five years with
industry multiples derived from examining the above publicly traded companies
based on an enterprise value which is calculated as equity value, plus debt,
less cash, as a multiple of EBITDA and EBIT.

<TABLE>
<CAPTION>
Ranges for Selected
Companies United
------------------- -------------------
(In thousands)
<S> <C> <C>
EBITDA............................... 10.8x to 5.2x $196,916 to $94,812
EBIT................................. 13.5x to 9.2x $137,916 to $93,987
</TABLE>

This analysis was applicable to companies in which earnings from operations
belonged to the shareholders and the shares traded based on the perceived value
of the earnings stream utilizing either an EBITDA multiple or a EBIT multiple.
By contrast, earnings of cooperatives generally

26
<PAGE>

belong to the members based on volume of business done with the cooperative.
The cooperative is required to pay out patronage earnings in the form of
dividends based on usage. As a result, the values which resulted from this
analysis were considered to not be fully comparable. The proforma book value of
the aggregate shares to be received by United shareholders would approximate
$29 million, which is approximately the book value of shares of United at April
2, 1999, which would equate to an enterprise value of approximately $141
million. Utilizing the book value of member's equity of approximately
$30 million as of April 2, 1999 and adding total outstanding debt, net of cash,
of approximately $111 million as of April 2, 1999, results in an implied
enterprise value of United of approximately $141 million.

Selected Transaction Analysis. This analysis utilized publicly available
information concerning selected completed business combinations. The selected
transactions represent business combinations of companies engaged in the food
distribution business for which information was publicly available. Rabobank
analyzed purchase prices paid, or proposed to be paid, and implied transaction
multiples in the following selected transactions:

. ProSource, Inc./Ameriserve Food Distribution

. Rykoff-Sexton/JP Foodservice

. Super Food Services/Nash-Finch Company

. Super Rite Inc./Richfood Holdings, Inc.

Rabobank compared the purchase prices as a multiple of EBITDA and EBIT and
then derived a range of implied enterprise values for United based on its
financial condition and results for the last twelve month period ended of April
2, 1999.

<TABLE>
<CAPTION>
Ranges for Selected
Transactions United
------------------- --------------------
(In thousands)
<S> <C> <C>
EBITDA.............................. 16.6x to 7.4x $232,018 to $103,430
EBIT................................ 16.4x to 9.8x $ 63,042 to $ 37,671
</TABLE>

This analysis was applicable to transactions in which the price paid to
purchase shares was based on the earnings stream attributable to those shares
assuming that profits from operations belonged to shareholders. By contrast, in
the combination of United and Certified, both companies have operated as
cooperatives in which profits from operations do not belong to the shareholders
but to the member-patrons based on customer usage. After the transaction is
completed, the combined entity will continue to operate as a cooperative. As a
result, the values which would be derived from transactions in which shares
transferred represented the right to earnings from operations were not
considered to be fully comparable.

Discounted Cash Flow Analysis. This analysis generated implied valuations of
United based upon a discounted cash flow methodology. Rabobank performed a
discounted cash flow analysis using management projections. Rabobank calculated
a net present value of the free cash flows for the years 1999 through 2003
using discount rates ranging from 10% to 15%. Rabobank calculated terminal
values in the year 2003 based on multiples ranging from 7x EBITDA to 9x EBITDA.
These terminal values were then discounted to present value using discount
rates from 10% to 15%. Adding the net present value of free cash flows to the
net present value of United's terminal value in 2003,

27
<PAGE>

Rabobank calculated the implied enterprise value for United, which ranged from
$191.9 million to $132.3 million.

Pro Forma Merger Analysis. Rabobank also analyzed the potential impact of
the merger on Certified's earnings per share during the years 1999 through
2003. The analysis was based on Certified's and United's management's
projections and assumed cost savings and operating benefits between 1999 and
2003 as prepared by Certified and United's managements. Based on such
assumptions, Rabobank's pro forma analysis of the financial effects of the
merger before considering assumed cost savings and other operating benefits
indicated that these effects were dilutive to Certified's pro forma earnings
per share for the forecast period of 1999 through 2001 and accretive to
Certified's pro forma earnings per share for the forecast period of 2002 and
2003. Based on the assumed cost savings and other operating benefits,
Rabobank's pro forma analysis of the financial effects of the merger indicated
that these effects were dilutive to Certified's pro forma earnings per share
for the forecast period of 1999 and accretive to Certified's pro forma earnings
per share for the forecast period of 2000 through 2003. The midpoints of
Certified management's projected cost savings and other operating benefits were
$7.7 million for the year 2000, $18.9 million for the year 2001, $22.1 million
for the year 2002, and $22.1 million for the year 2003. Certified's management
did not include any cost savings and operating benefits for 1999. The actual
operating or financial results achieved by the pro forma combined company may
vary from projected results and variations may be material as a result of
business and operational risks, the timing and amount of cost savings, related
expenses and range of operating benefits expected to result from the merger,
the costs associated with achieving the operating benefits and other factors.

The forecast and projections furnished to Rabobank for Certified were
prepared by the management of Certified. As a matter of policy, Certified does
not publicly disclose internal management forecasts, projections or estimates
of the type furnished to Rabobank in connection with its analysis of the
merger, and such forecasts, projections and estimates were not prepared with a
view towards public disclosure. These forecasts, projections and estimates were
based on numerous variables and assumptions which are inherently uncertain and
which may not be within the control of management, including, without
limitation, general economic, regulatory and competitive conditions.
Accordingly, actual results could vary materially from those set forth in such
forecasts, projections and estimates.

The preparation of a fairness opinion is a complex process and is not
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering the
analyses as a whole, could create an incomplete view of the processes
underlying Rabobank's opinion. In arriving at its determination, Rabobank
considered the results of all these analyses. No company or transaction used in
the above analyses as a comparison is directly comparable to Certified or
United or the contemplated transaction. None of the selected companies
analyzed, and none of the selected transactions analyzed, involved the
combination, on a strategic basis, of food distribution companies organized and
operated as cooperatives. All of the selected companies and transactions
involved companies engaged in supplying grocery products to retailers or
restaurant operators in which profits inured to the benefit of shareholders and
were not distributed as patronage dividends based on usage. Rabobank prepared
the analyses solely for purposes of providing its opinion to Certified's board
of directors as to the fairness to Certified's shareholders from a financial
point of view of the exchange ratio. The analyses do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly
more or less favorable than suggested by these analyses. Because the analyses
are

28
<PAGE>

inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, actual future
results may differ materially from those forecasted. As described above,
Rabobank's opinion to Certified's board of directors was one of many factors
taken into consideration by Certified's board of directors in making its
determination to approve the merger agreement. This summary is not a complete
description of the analysis performed by Rabobank. You should read the entire
opinion of Rabobank in Annex B.

Rabobank is an international bank with over 90 offices in 32 countries.
Rabobank is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions. Certified selected
Rabobank to evaluate the fairness of the exchange ratio provided in the merger
from a financial point of view to the shareholders of Certified based on its
experience, expertise and its familiarity with Certified and its business and
paid Rabobank a fee of $200,000 for those services. Certified did not impose
any restrictions or limitations upon Rabobank regarding the investigations made
or procedures followed by Rabobank in rendering its opinion. In addition,
Certified has agreed to reimburse Rabobank for its reasonable out-of-pocket
expenses, including fees and expenses of its counsel, and to indemnify Rabobank
against various liabilities, including liabilities under the federal securities
laws. In the past, Rabobank and its affiliates have provided financial advisory
and corporate banking services to Certified and have received customary
compensation for the rendering of these services.

United

On June 9, 1999, Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
delivered to United's board of directors its written opinion that as of the
date of the opinion, the merger was fair to the holders of United's Common
Stock from a financial point of view.

The full text of the Houlihan Lokey opinion is contained in Annex C. You are
urged to read the Houlihan Lokey opinion in its entirety. Houlihan Lokey
provided its opinion for the information and assistance of United's board of
directors in connection with its consideration of the merger. It is not a
recommendation to any shareholder of United as to how one should vote on the
merger. United did not retain Houlihan Lokey as an advisor or agent to United's
shareholders or any person other than United's board of directors. Houlihan
Lokey did not participate in the negotiations between United and Certified and
the Houlihan Lokey opinion does not address United's underlying business
decision to effect the merger. Houlihan Lokey based its opinion upon financial,
economic, market and other conditions that existed and could be evaluated as of
the date of the opinion. Houlihan Lokey does not have any obligation to update,
revise or reaffirm its opinion as a result of any change in those conditions or
otherwise. United did not impose any restrictions or limitations upon Houlihan
Lokey regarding the investigations made or the procedures followed by Houlihan
Lokey in rendering its opinion. Houlihan Lokey was not requested to, and did
not, solicit the interest of any other party in any other transaction with
United. The summary of the Houlihan Lokey opinion below is qualified by its
full text, which is set forth at Annex C.

In connection with the opinion, Houlihan Lokey made such reviews, analyses
and inquiries as it deemed necessary and appropriate under the circumstances.
Among other things, Houlihan Lokey reviewed:

. A draft of the Agreement and Plan of Merger dated as of May 23, 1999;

. The audited financial statements of United for fiscal years 1996, 1997
and 1998 and the Annual Report on Form 10-K of United for fiscal year
1998, and of Certified for fiscal years ended 1996, 1997 and 1998;

29
<PAGE>

. A number of Quarterly Reports on Form 10-Q of United and Certified,
including all quarterly reports issued since the date of the most recent
Annual Reports on Form 10-K;

. A number of internal financial analyses and forecasts for United and
Certified prepared by their respective managements;

. A draft of the Registration Statement on Form S-4, including this joint
proxy statement/ prospectus, dated June 3, 1999, relating to the special
meetings of shareholders of United and Certified;

. The historical and pro forma book values, the implied per share
redemption prices, as well as managements' estimates of adjusted book
value for United and Certified;

. Certain other publicly available financial data for certain companies
that Houlihan Lokey deemed comparable to United and Certified; and

. The existing and proposed articles of incorporation and bylaws of United
and Certified.

Houlihan Lokey also held discussions with members of the senior managements
of United and Certified regarding the strategic rationale for, and the
potential benefits of, the merger and the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, Houlihan Lokey compared certain financial information for United and
Certified and similar information for several other companies with publicly
traded securities. Houlihan Lokey also performed other studies and analyses
which it considered appropriate.

Houlihan Lokey assumed the accuracy and completeness of all of the financial
and other information reviewed by it for purposes of rendering its opinion. In
that regard, Houlihan Lokey assumed, with United's board of directors' consent,
that the financial forecasts prepared by the managements of United and
Certified, including the cost savings and benefits to be realized, were
reasonably prepared on a basis reflecting the best currently available
judgments and estimates of United and Certified, and that these forecasts and
cost savings and benefits would be realized in the amounts and time periods
forecasted. Houlihan Lokey did not make an independent evaluation or appraisal
of the assets and liabilities of United or Certified or any of their
subsidiaries nor was it furnished with any evaluation or appraisal. Houlihan
Lokey also assumed, with United's board of directors' consent, that the merger
will be accounted for using the purchase method of accounting under generally
accepted accounting principles and will be treated as a reorganization under
Internal Revenue Code Section 368(a) for federal income tax purposes. Houlihan
Lokey noted that as of the date of its opinion letter, the number of shares of
Certified to be received in the merger for each share of United was 0.228.

Houlihan Lokey assumed that by virtue of logistic and geographic
considerations, it is unlikely that United's shareholders will make purchases
from Certified's dairy manufacturing plant, and, accordingly, will likely not
participate in patronage dividends attributable to Certified's Dairy Division.
Consequently, in its financial analyses described below, Houlihan Lokey
adjusted the historical and pro forma financial results of Certified to remove
the incremental revenues and cash flows associated with Certified's Dairy
Division.

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<PAGE>

The following is a summary of the material financial analyses used by
Houlihan Lokey in connection with providing its written opinion to United's
board of directors, but does not purport to be a complete description of all
the analyses Houlihan Lokey performed.

Selected Public Companies Analysis. Houlihan Lokey reviewed and compared
financial information relating to United and Certified to corresponding
financial information, ratios and public market multiples for six publicly
traded corporations: Fleming Companies, Inc., Fresh America Corp., Nash-Finch
Co., Richfood Holdings Inc., Supervalu, Inc. and United Natural Foods, Inc.
Houlihan Lokey calculated these multiples and ratios using closing stock prices
as of June 1, 1999, and based the multiples and ratios on the most recent
publicly available information. Houlihan Lokey selected these six companies
because they are engaged primarily in the food distribution business. However,
none of the selected companies is directly comparable to United or Certified,
because they are substantially larger than United or Certified and because the
shares of neither United nor Certified are actively traded on any public
market. In addition both are cooperatives with legal and financial structures
significantly different from those of the selected companies.

The financial information compared by Houlihan Lokey included, among other
things, enterprise value as a multiple of EBITDA and market value of equity to
earnings. Houlihan Lokey examined these market multiples for the latest twelve
month period as well as the projected fiscal 1999 period. The following table
presents the ranges and the median market multiples for the selected companies
for the latest twelve months and estimated fiscal 1999 EBITDA and earnings
multiples:

<TABLE>
<CAPTION>
Selected Company
------------------
Range Median
----------- ------
<S> <C> <C>
Latest Twelve Months:
Enterprise Value/EBITDA................................. 5.2x--12.9x 6.6x
Price/Earnings.......................................... 8.8x--27.6x 13.9x
Projected Fiscal 1999:
Enterprise Value/EBITDA................................. 4.7x--10.1x 6.0x
Price/Earnings.......................................... 8.1x--18.4x 12.7x
</TABLE>

Based on its selected market multiples, Houlihan Lokey calculated the equity
value of United to be in a range of $3 million to $14 million and the equity
value of Certified to be in a range of $78 million to $82 million. In
comparison, the United shareholders would receive in the merger total shares of
Certified with a proforma book value of approximately $29 million.

Discounted Cash Flow Analysis. Houlihan Lokey performed discounted cash flow
analyses of United and Certified utilizing their managements' projections for
the fiscal years 1999 through 2004. Houlihan Lokey calculated the net present
value of free cash flows for the years 1999 through 2004 using discount rates
ranging from 10% to 14%. Houlihan Lokey calculated implied enterprise values in
the year 2004 based on multiples ranging from 2.5x EBITDA to 5.5x EBITDA and
then discounted these terminal values using discount rates ranging from 10% to
14%. Houlihan Lokey arrived at such discount rates based on its analysis of the
expected rates of return from investments with similar risk characteristics.
Based on this analysis, Houlihan Lokey calculated the equity value of United to
be in a range of $6 million to $24 million and the equity value of Certified to
be in a range of $61 million to $91 million. In comparison, the United
shareholders would receive in the merger total shares of Certified with a
proforma book value of approximately $29 million.

Pro Forma Merger Analysis. Houlihan Lokey prepared a pro forma analysis of
the financial impact of the merger. The analysis was prepared using projections
for the combined entity provided

31
<PAGE>

by United and Certified managements and based on United and Certified business
plans as adjusted to reflect the merger savings and benefits, but without
giving effect to non-recurring costs related to the merger. Houlihan Lokey
compared the per-share redemption price for each of United and Certified on a
stand-alone basis, assuming the merger had not occurred, to that of the
combined company on a pro forma basis. The analysis indicated that the merger
would be neutral to slightly accretive on a per share redemption value basis to
the former shareholders of United in fiscal year 1999, and accretive to such
shareholders in fiscal years 2000 through 2003.

Contribution Analysis. Houlihan Lokey reviewed selected historical and
estimated future operating and financial information, including revenues,
EBITDA, book value and earnings for United and Certified, based on their
respective managements' estimates, and the pro forma combined entity. Houlihan
Lokey performed this analysis prior to the United board of directors meeting on
June 9, 1999, based on second quarter financial information for both United and
Certified.

Given the more speculative nature of projections for years beyond 1999,
Houlihan Lokey focused its attention on the relative contributions of United
and Certified on a pro forma basis for the last twelve months of historical
results and for fiscal 1999 projected results, excluding the effect of any
operating benefits that may be realized as a result of the merger and non-
recurring expenses related to the merger. Houlihan Lokey's analysis indicated
that on a combined pro forma basis, United would account for a percentage of
the combined company's pro forma book value and EBITDA somewhat greater than
the percentage interest that United's shareholders will receive in the combined
company as a result of the merger. However, Houlihan Lokey's selected public
companies analysis and discounted cash flows analysis indicated that United
would account for a substantially lower percentage of the combined company's
pro forma equity value than the percentage interest that United's shareholders
will receive in the combined company as a result of the merger. Houlihan Lokey
also noted, given historical and projected net losses by United, that Certified
would account for all of the pro forma combined company net income for the last
twelve months and as projected for fiscal 1999.

The forecasts and projections furnished to Houlihan Lokey for United were
prepared by the management of United. As a matter of policy, United does not
publicly disclose internal management forecasts, projections or estimates of
the type furnished to Houlihan Lokey in connection with its analysis of the
merger, and such forecasts, projections and estimates were not prepared with a
view towards public disclosure. These forecasts, projections and estimates were
based on numerous variables and assumptions which are inherently uncertain and
which may not be within the control of management, including, without
limitation, general economic, regulatory and competitive conditions.
Accordingly, actual results could vary materially from those set forth in such
forecasts, projections and estimates.

The preparation of fairness opinions involves various determinations as to
the most appropriate and relative quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances; therefore, such opinions are not readily susceptible to summary
description. Houlihan Lokey did not form a conclusion as to whether any
individual analysis supported or failed to support its opinion. Rather,
Houlihan Lokey considered the results of the analyses in light of each other
and reached its opinion based on the results of all of the analyses considered
together. Houlihan Lokey's conclusions also involved elements of judgment and
qualitative analyses. In addition, even though the separate analyses are
summarized above, Houlihan Lokey believes that its analyses must be considered
as a whole. Houlihan Lokey also believes that selecting portions of its
analyses, without considering all analyses, could create an incomplete view of
the evaluation process underlying its opinion.

32
<PAGE>

In performing its analyses, Houlihan Lokey made numerous assumptions
regarding industry performance, general business, financial, economic and
market conditions and other matters. Many of these matters are beyond the
control of United and Certified. In addition, mathematical analysis, such as
determining the mean or median, is not in itself a meaningful method of using
selected company or transaction data. Analyses relating to the value of
businesses or securities are not appraisals and do not reflect the prices at
which the businesses or securities can actually be sold. The analyses performed
by Houlihan Lokey do not indicate actual values or future results, which may be
significantly more or less favorable than those suggested by the analyses.

Houlihan Lokey, as part of its investment banking business, regularly
engages in the valuation of businesses and their securities in connection with
mergers and acquisitions, private placements of debt and equity, financial
restructurings, leveraged transactions, and merchant banking. Houlihan Lokey is
not affiliated with United or Certified and has not provided financial advisory
or investment banking services to United or Certified in the past. United has
agreed to pay Houlihan Lokey $150,000 in connection with its opinion. In
addition, United has agreed to reimburse Houlihan Lokey for its reasonable out-
of-pocket expenses, including the fees and expenses of Houlihan Lokey's
attorneys, and to indemnify Houlihan Lokey against various liabilities,
including certain liabilities under the federal securities laws. Houlihan Lokey
is independent of United and Certified and no part of Houlihan Lokey's opinion
fee is contingent upon the consummation of the merger. This summary is not a
complete description of the analysis performed by Houlihan Lokey. You should
read the entire opinion of Houlihan Lokey which appears as Annex C.

Officers and Directors After the Merger

The combined company will:

. expand the number of directors to 24 and appoint the nine current
directors of United to the board of directors of the combined company,
and

. announce officers of the combined companies which will be selected from
among the current officers of Certified and United.

Information regarding the directors is provided under "INFORMATION
CONCERNING CERTIFIED--Directors and Executive Officers" (page 82) and
"INFORMATION CONCERNING UNITED--Directors and Executive Officers" (page 103).

Interests of Certain Persons in the Merger

In considering the recommendations of Certified's board of directors and
United's board of directors with respect to the merger, you should be aware
that the directors of United have interests in the merger that are in addition
to their interests as shareholders of United generally and that some members of
Certified's and United's managements also have interests in the merger. The
names and titles of the individuals who are directors or executive officers of
United and who are known to have these additional interests are listed on the
tables located on pages 103 and 104 of this document. Certified's and United's
boards of directors were aware of these interests and considered them, among
other matters, in approving the merger.

Combined Company Board of Directors

The merger agreement provides that, as of the effective time of the merger,
all of the current members of United's board of directors are to become members
of the board of directors of the combined company. Upon the election of these
individuals, Certified's board of directors will consist of 24 directors,
including the former directors of United.

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<PAGE>

Severance--United

United has entered into agreements with Messrs. Thomas, Olsen, Tweedie and
Miller and Carolyn S. Fox which provide for severance benefits in the amounts
and circumstances described in the table below. The merger is a change in
control which may result in the duty to pay these severance benefits.

The following table summarizes the severance provisions applicable upon a
change in control of United:

<TABLE>
<CAPTION>
Name and Title of Event Triggering
Executive Officer Severance Payments Description of Severance Payments
----------------- ------------------------ ----------------------------------------
<S> <C> <C>
Terrence W. Olsen, Termination* . Payment of base compensation from the
President and without cause following date of termination until age 65 or
Chief Executive a change in control death, whichever is earlier--Mr.
Officer prior to retirement or Olsen's base compensation is currently
age 65, whichever is $300,000 per year.
earlier
. Payment of benefit at retirement equal
to the benefit which would have been
payable under existing retirement
plans if employment had continued
until retirement
Mr. Olsen is 59 years . Payment of life insurance premiums
old from date of termination until age 65
or death, whichever is earlier

. Continuation of medical and dental
insurance coverage for Mr. Olsen and
spouse until Mr. Olsen reaches age 65
so long as medical and dental plan
coverage can be continued or
comparable insurance coverage can be
obtained at a reasonable cost
Under Internal Revenue Code Section
280G, a substantial portion of the
severance benefits payable to Mr. Olsen,
and the amounts received by Mr. Olsen,
would constitute excess parachute
payments and would not be deductible by
United. In addition, Internal Revenue
Code Section 4999 will impose excise
taxes on Mr. Olsen for these amounts.
Mark Tweedie, Termination* . Payment of base compensation for a
Chief Financial without cause within period of 18 months following
Officer three years following a termination--Mr. Tweedie's base
change in control compensation is currently $150,000 and
and Mr. Miller's base compensation is
currently $140,000
Keith A. Miller, . Contribution to the supplemental
Vice President, executive retirement plan to cause
Business Strategy employee's retirement benefit to be
equal to that which would have been
payable to the employee under United's
retirement plans if employee had been
fully vested as of the date of
termination
. Life insurance premiums and health
benefits during the 18 months
following termination provided such
coverage can be obtained at reasonable
costs
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
Name and Title of Event Triggering
Executive Officer Severance Payments Description of Severance Payments
----------------- ------------------------ ----------------------------------------
<S> <C> <C>
Robin Thomas, Termination in Base compensation and medical and dental
Vice President, connection with a benefits for a period of four months
Sales merger, acquisition or following termination
other business
combination
Carolyn S. Fox: Termination* None specified in the agreement
President, United prior to July 6, 2000 or
Resources, Inc.; a reduction in
Assistant Secretary, compensation
United
</TABLE>
- --------
* Termination following a change in control includes any diminution in, or any
substantial adverse change in the employee's duties and responsibilities,
salary and benefits, or a requirement that the employee move to a location
outside of the Portland metropolitan area without his or her consent.

Indemnification and Insurance--United

Under the merger agreement, Certified has agreed to, or cause United to:

. Indemnify and hold harmless the present and former directors and
officers of United and its subsidiaries, serving in the past two years,
for all acts or omissions occurring prior to the effective time of the
merger, including the transactions contemplated by the merger agreement,
to the same extent such persons are indemnified and held harmless in
United's Articles of Incorporation, Bylaws or indemnity agreement as of
the date of the merger agreement; and

. Procure extended reporting (or "tail") coverage for United's current
director and officer liability policy to provide continuing coverage for
six years for United's directors and officers for pre-merger acts and
omissions.

Employment Agreement--United

The board of directors of Certified and United, respectively, have approved
an employment agreement with Terrence W. Olsen, the Chief Executive Officer of
United, to be effective as of the effective date of the merger. The initial
term of the contract is three years, commencing on the effective date of the
merger. The term will be extended automatically for successive one year terms
on each anniversary of the effective date of the merger unless either party
gives notice of an intention to terminate Mr. Olsen's employment at least
eleven months prior to such anniversary date. Under the contract, Mr. Olsen
serves as Certified's Executive Vice President--Chief Operating Officer and
receives a base salary, currently $300,000, subject to annual review and upward
adjustment at the discretion of the board of directors. Mr. Olsen is also
eligible to participate in Certified's Senior Management Incentive Compensation
Plan and Executive Salary Protection Plan. Additionally, Mr. Olsen will receive
employee benefits such as life insurance and pension and retirement
contributions. Upon effectiveness of the merger, Mr. Olsen's contract with
United will terminate.

The contract is terminable at any time by Certified, with or without cause,
and will also terminate upon Mr. Olsen's resignation, death or disability.
Except where termination is for cause or is due to Mr. Olsen's resignation
(other than a resignation following designated actions of Certified or its
successor which trigger a right by the executive to resign and receive
severance benefits), death or disability, the contract provides that Mr. Olsen
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.
Olsen would also continue to receive employee benefits such as life insurance
and pension and retirement contributions throughout the balance of the term of
the agreement.

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<PAGE>

Employment Agreement--Certified

The Letter of Understanding provided that the board of directors of
Certified and United would select the Chief Executive Officer of the combined
company by March 30, 1999. The boards of directors of Certified and United
unanimously selected Alfred A. Plamann as Chief Executive Officer. An effective
employment agreement between Unified Western and Mr. Plamann is a condition
precedent to completing the merger.

The board of directors of Certified and United, respectively, have approved
amending Mr. Plamann's existing employment agreement effective as of the
effective date of the merger. The initial term of the amended contract is three
years, commencing on the effective date of the merger. The term will be
extended automatically for successive one year terms on each anniversary of the
effective date of the merger unless either party gives notice of an intention
to terminate Mr. Plamann's employment at least eleven months prior to such
anniversary date. Under the amended contract, Mr. Plamann will serve as
President and Chief Executive Officer of the combined company and receive an
initial salary of $500,000, beginning as of the effective date of the merger
subject to annual review and upward adjustment at the discretion of the board
of directors. Mr. Plamann is also eligible for annual bonuses, up to a maximum
of 60% of base salary, based on performance criteria established by the board
of directors at the beginning of each fiscal year. Additionally, Mr. Plamann
will receive employee benefits such as life insurance and pension and
retirement contributions.

The contract is terminable at any time by Certified, with or without cause,
and will also terminate upon Mr. Plamann's resignation (other than a
resignation following designated actions of Certified or its successor which
trigger a right by the executive to resign and receive severance benefits),
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 pension and retirement contributions throughout the balance of the term of
the agreement.

Early Retirement Proposal--Certified

Certified has adopted an early retirement proposal in connection with the
merger which would be offered to eligible non-union employees who are age 50 or
over. The proposal will only be implemented if the merger is completed.
Employee acceptance of the proposal is voluntary. The proposal is designed to
give employees an incentive to retire early primarily by enhancing pension and
retiree medical benefits otherwise available through existing plans. The goal
of the proposal is to reduce the number of employees in connection with the
merger through voluntary employee action. Benefits offered under the proposal
are determined based on a formula tied to the combined total of age and years
of service of the participant. The Certified officers who are eligible to
accept the proposal have indicated they do not intend to accept the proposal.

Material Federal Income Tax Considerations

Treatment of United's Shareholders and the Corporations

We have structured the merger so that it will constitute a "reorganization"
within the meaning of Section 368(a) of the federal tax code. We have also
assumed that United Common Stock and Certified Class A Shares and Class B
Shares are capital assets in the hands of the United shareholders and the
Certified shareholders. Accordingly, subject to the limitations and
qualifications referred to below, the following tax consequences will result:

. Certified, United and the wholly-owned subsidiary of Certified to be
merged with United will recognize no gain or loss solely as a result of
the merger.

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<PAGE>

. Holders of United Common Stock will recognize no gain or loss upon the
receipt of Certified Class A Shares or Class B Shares in the merger,
except to the extent of cash applied to the holder's deposit account in
lieu of fractional shares.

. Cash applied to the holder's deposit account in lieu of fractional
shares will be taxable as capital gain (or loss) measured by the
difference between the cash applied and the portion of the tax basis in
the shares of United's Common Stock surrendered that is allocable to
such fractional share. Such capital gain (or loss) will be long-term
capital gain (or loss) if such fractional share is considered to have
been held for more than one year at the effective date of the merger.

. The aggregate tax basis of Unified Western Class A Shares and Class B
Shares received by a United shareholder in the merger will be the same
as the aggregate tax basis of United Common Stock surrendered in
exchange.

. The holding period of Unified Western Class A Shares and Class B Shares
received by a United shareholder will include the period for United
Common Stock surrendered in exchange for Unified Western Class A Shares
or Class B Shares.

. Cash payments received by a holder of United or Certified common stock
in connection with the exercise of dissenters' rights will be treated as
capital gain (or loss) measured by the difference between the cash
payment received and the tax basis in the shares of such common stock
for which dissenters' rights are exercised. The capital gain (or loss)
will be long-term capital gain (or loss) if the shares are considered to
have been held for more than one year when exchanged for such cash
payments.

The discussion above summarizes the opinions of Schwabe, Williamson & Wyatt,
P.C. and Sheppard, Mullin, Richter & Hampton LLP included as Exhibits 8.1 and
8.2 to the registration statement of which this document is a part. The
discussion and opinion is based upon current provisions of the Internal Revenue
Code, currently applicable United States Treasury regulations promulgated under
it, and judicial and administrative decisions and rulings. Schwabe, Williamson
& Wyatt, P.C. and Sheppard, Mullin, Richter & Hampton LLP have based their
opinions on the facts, representations and assumptions set forth or referred to
in the opinions, including representations contained in certificates executed
by officers of Certified and United. The opinions are not binding on the
Internal Revenue Service or the courts, and there can be no assurance that the
Internal Revenue Service or the courts will not take a contrary view. Neither
Schwabe Williamson & Wyatt, P.C., nor Sheppard, Mullin, Richter & Hampton LLP
has or will seek a ruling from the Internal Revenue Service. Future
legislative, judicial or administrative changes or interpretations could alter
or modify the statements and conclusions set forth above, and any such changes
or interpretations could be retroactive and could affect the tax consequences
to the shareholders of United.

A successful Internal Revenue Service challenge to the "reorganization"
status of the merger would result in a United shareholder recognizing gain or
loss with respect to each share of United's Common Stock surrendered in the
merger equal to the difference between the shareholder's basis in the share and
the fair market value, as of the effective date of the merger, of Unified
Western's Class A Shares or Class B Shares received in exchange therefor. In
this event, a United shareholder's aggregate tax basis in the Class A Shares or
Class B Shares received would equal its fair market value, and the United
shareholder's holding period for the stock would begin the day after the
merger.

The discussion above and the opinions of Schwabe, Williamson & Wyatt, P.C.
and Sheppard, Mullin, Richter & Hampton LLP do not purport to deal with all
aspects of federal income taxation that

37
<PAGE>

may affect particular shareholders in light of their individual circumstances,
and are not intended for shareholders subject to special treatment under the
federal income tax law. In addition, the discussion above and the opinions do
not consider the effect of any applicable state, local or foreign tax laws.

The merger agreement conditions the completion of the merger upon United's
receipt of a further opinion on the closing date from Schwabe, Williamson &
Wyatt, P.C. and Certified's receipt of a further opinion on the closing date
from Sheppard, Mullin, Richter & Hampton LLP to the effect that the merger will
qualify for federal income tax purposes as a reorganization within the meaning
of Internal Revenue Code Section 368(a). In the unlikely event that the receipt
of either closing date opinion is waived and the tax consequences differ
materially from those described above, Certified and United will resolicit
shareholder approval of the merger.

We urge each holder of United's Common Stock to consult his, her or its own
tax advisors as to the particular tax consequences to him, her or it of the
merger, including the applicability and effect of any state, local or foreign
tax laws, and of changes in applicable tax laws.

Treatment of Holders of Certified's Class A Shares, Class B Shares or Class
C Shares

The merger will not result in United States income tax consequences to the
holders of Certified's Class A Shares, Class B Shares or Class C Shares who do
not exercise dissenters' rights.

Accounting Treatment

Unified Western will account for the proposed merger as a purchase pursuant
to Accounting Principles Board Opinion No. 16, "Business Combinations."
Accordingly, Unified Western will allocate the consideration to assets and
liabilities based upon their relative fair values.

Regulatory Approvals

Certified and United may not merge unless they make all filings required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the waiting
period requirements under that Act have expired or have been earlier terminated
by the Federal Trade Commission and The Antitrust Division of the Department of
Justice. On June 28, 1999, the waiting period ended.

Impact of the Merger on the Members of Unified Western

The bylaws of the combined company will provide for:

. Member-patrons, who are the shareholders of the combined company and
participate in the patronage dividend programs; and

. Associate-patrons, who do not own shares but do participate in the
patronage dividend programs.

Both member-patrons and associate-patrons are required to maintain minimum
deposits based on their volume of purchases from the cooperative. The following
summarizes important provisions of the bylaws of the combined company
applicable to patrons.

Patronage Dividends Policy

Unified Western will pay its patronage earnings to member-patrons and
associate-patrons on the basis of patronage business transacted with the
combined company's two patronage earnings divisions: the Dairy Division and the
Cooperative Division.

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<PAGE>

. Unified Western will associate the Dairy Division with patronage
earnings generated by the fluid milk and juice bottling plant located in
Los Angeles, California. Patronage dividends for this division will be
paid solely to patrons who purchase manufactured and related products
from the Dairy Division.

. Unified Western will associate the Cooperative Division with patronage
earnings generated from all other patronage activities of the combined
company and will not give distinction to geographic location. The
Cooperative Division will include the general merchandise activity which
previously was conducted in a non-patronage subsidiary of Certified.

In the event of losses in one of these divisions, the loss will be offset
against earnings of the other division to determine net earnings available for
patronage dividends.

In 1997 and 1998, Certified paid patronage dividends in the amount of
$9,154,000 and $9,169,000, respectively, to Certified's shareholders with
respect to purchases from the Dairy Division. Due to logistics and geographic
constraints, the shareholders who purchase from the Dairy Division are
primarily in Southern California. Generally, no shareholder of Certified
outside of Southern California currently participates in the Dairy Division,
and it is not likely that shareholders of the combined company outside of
Southern California will participate in the Dairy Division.

We expect the merger to generate significant cost savings and operating
benefits, primarily in the Cooperative Division. As a result, we expect
shareholders from all market regions to benefit in proportion to their purchase
volume in the patronage earnings of the Cooperative Division.

Minimum Purchase Requirements

The combined company will require that each patron meet the minimum purchase
requirements established by the board of directors from time to time.
Currently, Certified's minimum purchase requirement for member-patrons is
$5,000 per week and for associate-patrons is $3,500 per week. Exceptions to the
minimum purchase requirements may be granted by the board of directors after
the merger. Entities not meeting these minimum purchase requirements may be
eligible to purchase product on a non-patronage basis.

Minimum Deposit Requirement

The combined company will require that each patron meet the minimum deposit
requirement at the time and in the manner established from time to time by the
board of directors. Currently, Certified's minimum deposit requirement
generally is equal to twice the average weekly purchases of selected products
by the patron or, if the patron does not purchase from Certified on a regular
basis, twice the average purchases.

Member-patrons may satisfy the minimum deposit requirement through a
combination of a cash deposit and the ownership of Class B Shares. For
Certified's shareholders, the deposit value of a Class B Share is based upon
its book value at the year end prior to the initial issuance of the Class B
Shares. For United's shareholders, the deposit value of the Class B Shares
received in the merger will be equal to the book value of the shares of
United's Common Stock for which they were exchanged calculated as of April 2,
1999. As of April 2, 1999, the book value for each share of United's Common
Stock was $57.90. United shareholders who do not have sufficient Class B Shares

39
<PAGE>

immediately following the merger to meet the minimum deposit requirements will
have the following alternatives:

. Provide a cash deposit for the deficiency; or

. Purchase additional Class B Shares to cover the deficiency; or

. Agree to assign 80% of the patronage dividends the shareholder will
receive in the future to the combined company to purchase Class B Shares
for the account of the shareholder until the deficiency is eliminated.
During that period, Unified Western will require the member to purchase
at least the percentage of product purchased during the most recent
12 month period under a supply agreement with Unified Western.

Associate-patrons may only satisfy the minimum deposit requirement through
a cash deposit.

Ownership of 100 Shares of Class A Stock

A member-patron of the combined company must own 100 Class A Shares. Those
United shareholders who receive less than 100 Class A Shares in the merger
will be given three options, each with differing consequences:

. Purchase additional Class A Shares to reach 100 Class A Shares, if the
shareholder meets the member-patron minimum purchase requirement; or

. Elect to be served as an associate-patron, if the shareholder meets the
associate-patron minimum purchase requirement and does not exceed the
member-patron minimum purchase requirement. Unified Western will
repurchase the Class A Shares received in the merger at a price equal to
the book value of United's shares for which they were exchanged as of
April 2, 1999; or

. Elect to be served on a non-patronage basis, if the shareholder does not
meet the associate-patron minimum purchase requirements. Unified Western
will repurchase the Class A Shares received in the merger at a price
equal to the book value of United's shares for which they were exchanged
as of April 2, 1999.

As of April 2, 1999, the book value for each share of United's Common Stock
was $57.90.

Repurchase of Excess Shares

If a holder decides to tender its excess Class B Shares for redemption in
the first three years following the merger, that holder may elect to have
those shares redeemed at Certified's book value as of the fiscal year end
preceding the effective date of the merger, or at Unified Western's book value
as of the year end preceding the date the excess shares are tendered for
redemption. In the latter case, purchase of the shares will be deferred until
three full fiscal years following the effective date of the merger. In either
case, the redemption will be subject to limitations imposed by Unified
Western's credit agreements, bylaws and applicable law.

During the period commencing on the effective date of the merger and ending
120 days after the end of the first fiscal year following the merger, Unified
Western will repurchase excess Class B Shares held by former shareholders of
United at the book value as of April 2, 1999 of the shares of United's Common
Stock for which the excess Class B Shares were exchanged in the merger. A
promissory note of the combined company will evidence the purchase price,
which will be payable in 20 equal quarterly principal installments and will
bear interest at 6% per year.

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Subordination Agreement and Pledge of Shares

Unified Western will require each patron, whether a member-patron or an
associate-patron, to execute a subordination agreement which provides for the
subordination in certain circumstances of the patron's right to repayment of
its deposit to the prior payment in full of certain indebtedness of Unified
Western. In addition, Unified Western will require each shareholder to pledge
the Class A Shares and Class B Shares of Unified Western to secure its
obligations to Unified Western, and individual shareholders of corporate
members will be required to guaranty the obligations of the corporate member.
With respect to continuing shareholders of United who are in compliance with
their obligations to United and its subsidiaries, Unified Western will not
require individual guarantees in the absence of financing transactions. As a
condition to enjoying the full rights of a patron of Unified Western, United's
shareholders will be required to execute similar subordination and pledge
agreements.

Financing of the Merger

In connection with the Merger, Certified has secured financing commitments
from institutional lenders, known as the term commitment, and from banks,
known as the revolver commitment, to facilitate the merger. Funding under
these commitments is subject to the satisfaction of a variety of customary
borrowing conditions including the execution of definitive borrowing
agreements and the absence of a material adverse change in the business,
assets, operations or affairs of Certified and United. The obligation of
Certified and United to complete the merger is subject to obtaining funding
under these commitments.

The revolver commitment provides for a five-year, $200 million revolving
credit secured by accounts receivables and inventory. Borrowings will bear
interest at either:

. LIBOR plus an applicable margin based on a funded debt to operating cash
flow ratio; or

. the higher of the lender's base rate or .50% above the lender's federal
funds borrowing rate.

The revolver commitment contemplates advances at up to 85% of eligible
accounts receivable and at 40-60% of eligible inventory. The security interest
would be released if the combined entity achieves designated investment grade
ratings for a period of not less than one year. The pricing, structure and
terms of the facility can be modified, if necessary, to achieve syndication
provided that interest expense cannot increase more than 50 basis points.

The term commitment from Certified's existing term lenders provides for
collateralization of Certified's existing $80 million 7.22% senior unsecured
notes with property, plant and equipment and the issuance of $40 million of
new ten year senior mortgage notes. The interest rate on the existing $80
million senior notes will increase by .50% and the senior mortgage notes will
bear interest at 2.8% over the applicable U.S. Treasury Rate for ten year
notes. The interest rate increase on the existing $80 million senior notes and
the securitization of both notes would be eliminated in the event the combined
entity achieves designated investment grade ratings for a period of not less
than one year.

Certified's existing revolver lender, Rabobank Nederland, an affiliate of
Rabobank International, New York Branch, will receive a fee of $1,750,000 at
closing of which $100,000 has been paid. In addition, Rabobank will receive an
annual administrative fee of $50,000.

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The credit agreements are expected to contain customary representations,
warranties, covenants and default provisions for financings of this type,
including financial ratio covenants which are modeled after covenants contained
in Certified's existing loan agreements, modified to reflect the merger and the
additional extension of credit reflected by the commitments.

The borrowings under these commitments are intended to provide funds to meet
the on-going borrowing requirements of the combined company, to repay existing
institutional indebtedness of United, to fund redemption of shares of
terminated members and to meet other cash requirements of the merger.

Rights of Dissenting Shareholders

Certified

Under California law, Certified's shareholders may, under certain
circumstances and by following the procedure prescribed by California law,
exercise appraisal rights and receive cash for their Class A Shares, Class B
Shares or Class C Shares. In order to do so, the shareholders must comply with
Chapter 13 of the California Code, which entitles the shareholders to receive
an amount equal to the fair market value of their shares as of March 30, 1999,
the last day before the public announcement of the merger. Fair value of
shareholder's shares is not necessarily equal to book value as historically
determined by Certified. Instead, fair value is determined by a court or by
agreement of Certified and the shareholder. Fair value may be more or less than
book value. A copy of Chapter 13 is attached as Annex D and should be read for
more complete information concerning dissenters' rights. The required
procedures set forth in Chapter 13 of the California Code must be followed
exactly or any dissenters' rights may be lost. The information set forth below
is a general summary of dissenters' rights as they apply to Certified's
shareholders and is qualified in its entirety by reference to Annex D.

Shareholders who exercise dissenters' rights will not be eligible to
purchase from Unified Western as a member-patron.

In order to be entitled to exercise dissenters' rights, a Certified
shareholder must not vote "FOR" the merger. If the Certified shareholder
returns a proxy without voting instructions or with instructions to vote "FOR"
the merger, his or her shares will be voted in favor of the merger and the
shareholder will lose any dissenters' rights.

Certified will have ten days after approval of the merger by Certified's
shareholders to send to those shareholders who have not voted for the approval
of the merger a written notice of the approval accompanied by a copy of Chapter
13, a statement of the price determined by Certified to represent the fair
market value of the dissenting shares as of March 30, 1999 and a brief
description of the procedure to be followed if a Certified shareholder desires
to exercise dissenters' rights. In order to preserve his or her dissenters'
rights, a Certified shareholder must make a written demand upon Certified for
the purchase of dissenting shares and payment to such Certified shareholder of
their fair market value, specifying the number of shares held of record by such
shareholder and a statement of what the shareholder claims to be the fair
market value of those shares as of March 30, 1999. This demand must be
addressed to Certified Grocers of California, Ltd., 5200 Sheila Street,
Commerce, California 90040, Attention: Robert M. Ling, Jr., Senior Vice
President, General Counsel and Secretary, and must be received by Certified
within 30 days after the date on which the notice of approval by Certified's
shareholders is mailed to those shareholders who have not voted in favor of

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the approval of the merger. Within this 30 day period, the dissenting
shareholder must surrender to Certified, at the office designated in the notice
of approval, the certificates representing the dissenting shares to be stamped
or endorsed with a statement that they are dissenting shares or to be exchanged
for certificates of appropriate denomination so stamped or endorsed. Any shares
of Certified that are transferred prior to their submission for endorsement
lose their status as dissenting shares.

If Certified and the dissenting shareholder agree that the surrendered
shares are dissenting shares and agree upon the price of the shares, the
dissenting shareholder will be entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of the agreement. Payment
of the fair market value of the dissenting shares, less any amount the
dissenting shareholder owes to Certified, shall be made within 30 days after
the amount thereof has been agreed upon or 30 days after any statutory or
contractual conditions to the merger have been satisfied, whichever is later,
subject to the surrender of the certificates, unless provided otherwise by
agreement.

If Certified denies that the shares surrendered are dissenting shares, or
Certified and the dissenting shareholder fail to agree upon a fair market value
of these shares, then the dissenting shareholder must, within six months after
the notice of approval is mailed, file a complaint in the Superior Court of the
proper county requesting the court to make such determinations or intervene in
any pending action brought by any other dissenting shareholder. If the
complaint is not filed or intervention in a pending action is not made within
the specified six-month period, the dissenters' rights are lost. If the fair
market value of the dissenting shares is at issue, the court will determine, or
will appoint one or more impartial appraisers to determine, the fair market
value.

A dissenting shareholder may not withdraw his or her dissent or demand for
payment unless Certified consents to the withdrawal.

Any Certified shareholder who effectively dissents from the merger and who
receives cash for his or her shares will recognize a gain (or loss) for federal
income tax purposes equal to the amount by which the cash received for those
shares exceeds, or is less than, the shareholder's tax basis for the shares.
The amount of that gain (or loss), if any, will be treated as ordinary income
(or loss) or long-term or short-term capital gain (or loss) depending on the
length of time the shares are held by the dissenter, whether the shares are
held as a capital asset, and whether the dissenter is deemed to own shares of
Certified pursuant to the attribution rules of Internal Revenue Code Section
318. A dissenter may be considered for tax purposes to own shares that are
actually owned by a non-dissenter that is related to the dissenter, with the
possible result that the cash received in the exercise of the dissenter's
rights could be treated as a dividend received pursuant to a corporate
distribution rather than an amount received pursuant to a sale or exchange of
shares of Certified.

United

The following discussion is not a complete statement of the Oregon Business
Corporation Act relating to dissenters' rights. The following discussion is
qualified in its entirety by reference to Sections 60.551 through 60.594 of the
Oregon Business Corporation Act attached to this document as Annex E and
incorporated herein by reference.

Any United shareholder who wishes to exercise dissenters' rights or who
wishes to preserve the right to do so, should carefully review this discussion
and Annex E, since failure to comply with the procedures of the statute will
result in the loss of dissenters' rights.

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Under the Oregon Business Corporation Act, a shareholder who is a record
shareholder or beneficial owner of shares held in a voting trust or a nominee
as the record shareholder may dissent from and obtain payment for the fair
value of the shareholder's shares in the event of completion of a plan of
merger if the shareholder is entitled to vote on the merger. Fair value of a
shareholder's shares is not necessarily equal to adjusted book value as
historically determined by United. Instead, fair value is determined by a court
or by agreement of United and the shareholder. Fair value may be more or less
than adjusted book value. A shareholder who wishes to assert dissenters' rights
must perform the following:

. Deliver to United, before the vote is taken, written notice of the
shareholder's intent to demand payment for the shareholder's shares if
the proposed merger is completed; and

. Not vote the shares in favor of the merger.

Pursuant to Sections 60.551 through 60.594 of the Oregon Business
Corporation Act, United's dissenting shareholders may require United to
repurchase their shares of United's Common Stock at a price equal to the fair
value of such shares determined as of March 30, 1999, the day before the first
announcement of the terms of the merger, excluding any appreciation or
depreciation in consequence of the proposed merger.

Within ten days following approval of the merger by the shareholders of
United, United is required to deliver a dissenters' notice to each person who
provided written notice prior to the vote of his or her intent to demand
payment for his or her dissenting shares and who did not vote in favor of the
merger. The dissenters' notice must contain the following:

. A statement describing:

. Where the payment demand must be sent;

. Where and when United's Common Stock certificates must be deposited;
and

. To what extent the transfer of uncertificated shares, if any, will
be restricted after the payment demand is received.

. A form for demanding payment, which must include the date of the first
announcement of the terms of the proposed merger to the media or to the
shareholders and require that any person asserting dissenters' rights
certify whether the person acquired beneficial ownership of the shares
before that date;

. A date by which United must receive the payment demand, which date may
not be less than 30 nor more than 60 days after the dissenters' notice
is delivered; and

. A copy of Sections 60.551 through 60.594 of the Oregon Business
Corporation Act.

A shareholder who has received a dissenters' notice must:

. Demand payment by sending the demand to the address provided in the
dissenters' notice;

. Certify whether the shareholder acquired beneficial ownership of the
shares before the date of the first announcement of the terms of the
proposed merger to the media or to shareholders; and

. Deposit the stock certificates in accordance with the terms of the
dissenters' notice.

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As soon as the merger is completed or upon receipt of a payment demand,
United must pay to each United dissenting shareholder the amount United
estimates to be the fair value of the dissenting shareholder's shares, plus
accrued interest. The payment must be accompanied by:

. United's balance sheet as of the end of the fiscal year ending not more
than 16 months before the date of payment and an income statement for
that year and the latest available interim financial statements, if any;

. A statement of United's estimate of the fair value of the shares;

. An explanation of how the interest was calculated;

. A statement of the dissenting shareholder's rights in the event the
dissenting shareholder is dissatisfied with the payment offer; and

. A copy of Sections 60.551 through 60.594 of the Oregon Business
Corporation Act.

If United does not complete the merger within 60 days after the date set for
demanding payment and depositing share certificates, United must return the
share certificates and release transfer restrictions on uncertificated shares,
if any. If United completes the merger after this action, United must send a
new dissenters' notice and repeat the payment demand procedure.

United may elect to withhold payment from a dissenting shareholder who was
not the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement of the proposed merger
to the media or to the shareholders. If United elects to withhold payment,
then, after completion of the merger, United must estimate the fair value of
the shares held by such dissenting shareholder plus accrued interest and pay
this amount to each dissenting shareholder who agrees to accept it in full
satisfaction of such demand.

Within 30 days after United makes or offers payment for the dissenting
shares, a dissenting shareholder may notify United in writing of the dissenting
shareholder's own estimate of the fair value of such dissenting shares and the
amount of interest due and demand payment of such estimate less any payment
received from United for such dissenting shares, or if United has withheld
payment pursuant to the foregoing paragraph, reject United's offer and demand
payment of such estimate, if:

. The dissenting shareholder believes that the amount paid or offered is
less than the fair value of the dissenting shares or that the interest
was incorrectly calculated;

. United fails to make payment within 60 days after the date set for
demanding payment; or

. United, having failed to consummate the merger, does not return the
share certificates or release transfer restrictions on uncertificated
shares, if any, within 60 days after the date set for demanding payment.

In the event a demand for payment remains unsettled after the dissenting
shareholder exercises the rights as set forth in the foregoing paragraph,
United must either:

. Commence a proceeding within 60 days after receiving the dissenting
shareholder's payment demand and petition the court to determine the
fair value of the dissenting shares and accrued interest; or

. Pay the dissenting shareholder the amount demanded by such dissenting
shareholder.

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United must begin the proceeding in the circuit court of Clackamas County,
Oregon and make all dissenting shareholders whose demands remain unsettled
parties to the proceeding. The circuit court may appoint one or more appraisers
to receive evidence and recommend the fair value of the dissenting shares. Each
dissenting shareholder is entitled to judgment for either the amount, if any,
by which the court finds fair value of the dissenting shares exceeds the amount
paid by the corporation, or for the fair value plus accrued interest of the
dissenting shareholders' after-acquired shares for which the corporation
elected to withhold payment. The court in an appraisal proceeding shall assess
all costs of the proceeding against United except that the court may assess
costs against dissenting shareholders if the court finds that the dissenting
shareholders acted arbitrarily, vexatiously or not in good faith. The court may
assess the fees and expenses of counsel and experts of the respective parties
in amounts the court finds equitable.

Any shareholder who fails to follow the procedures detailed above will lose
the right to dissent from the merger. A negative vote, alone, will not
constitute written objection required prior to the special meeting of
shareholders. Any shareholder making a written demand for payment is thereafter
entitled only to payment as provided in the Oregon Business Corporation Act and
is no longer entitled to vote or otherwise exercise any shareholder rights with
respect to United's Common Stock. The consent of United is required for the
withdrawal of a demand for payment.

Comparison of Rights of Shareholders

Certified is incorporated under the laws of the State of California and
United is incorporated under the laws of the State of Oregon. As a result of
the merger, United's shareholders will become shareholders of Certified.
Therefore, the rights of United's shareholders will be governed by California
law and the provisions of Certified's articles of incorporation and Certified's
bylaws, as amended, rather than United's articles of incorporation and United's
bylaws. The following summary, which does not purport to be a complete
statement of each difference between the rights of the shareholders of
Certified and United, sets forth the material differences between California
and Oregon law and between Certified's articles of incorporation and United's
articles of incorporation and between Certified's bylaws and United's bylaws.
We qualify this summary in its entirety by reference to the full text of each
such document and the California General Corporation Law and the Oregon
Business Corporation Act. For information as to how such documents may be
obtained, see "WHERE YOU CAN FIND MORE INFORMATION" (page 113).

Capital Stock; Membership; Voting Rights

Certified Capital Stock

California law requires that a corporation's articles of incorporation set
forth the total number of shares the corporation is authorized to issue if
there is only one class of shares for the corporation. If the corporation is
authorized to issue more than one class of shares, the articles of
incorporation must set forth, or the articles of incorporation may authorize
the board to set forth, the total number of shares of all classes of stock
which the corporation has authority to issue, and a statement of the
designations and the powers, preferences, rights, qualifications, limitations
or restrictions of each class.

The capital stock authorized by Certified's articles of incorporation
consists of:

. 500,000 Class A Shares, no par value;

. 2,000,000 Class B Shares, no par value; and

. 15 Class C Shares, no par value.

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As of May 29, 1999, 46,700 Class A Shares were outstanding, 361,139 Class B
Shares were outstanding, and 15 Class C Shares were outstanding. After giving
effect to the transactions contemplated by the merger agreement, and assuming
no other issuances of any class of stock after May 29, 1999, and assuming that
no shares of Certified or United are repurchased under dissenters' rights,
there will be approximately 67,800 Class A Shares, 395,117 Class B Shares and
24 Class C Shares outstanding.

Class A Shares. Class A Shares may only be held by member-patrons of
Certified. Certified's bylaws provide that member-patrons must have approved
financial standing, engage in the selling of groceries, patronize Certified in
the amounts to be determined by the board of directors, and comply with various
other membership conditions and application procedures. Each member-patron is
required to hold 100 Class A Shares. Subject to the voting rights of the Class
B Shares described below and except as provided by law, the holders of the
Class A Shares have exclusive voting rights and powers with respect to
Certified, including the exclusive right to notice of shareholders' meetings.
Each holder of Class A Shares is entitled to one vote per share on all matters
to be voted upon by the shareholders. Certified's shareholders may cumulate
votes in connection with the election of directors. See "--Cumulative Voting"
(page 49) and "--Nomination and Election of Directors" (page 51). Certified's
shareholders do not have any preemptive or preferential rights to purchase or
subscribe to any shares of Certified.

Class B Shares. Each holder of Class A Shares is also required to hold a
number of Class B Shares determined by the board of directors of Certified. The
board of directors establishes the number of Class B Shares that each member-
patron must hold, whether based on average weekly purchases or on some other
basis. Ownership of Class B Shares is limited to member-patrons or former
member-patrons who have tendered these shares to Certified for redemption.
Class B Shares currently have the right to elect three directors. In connection
with the merger, Certified will amend the articles of incorporation to provide
that Class B Shares have the right to elect 20% of the authorized number of
directors. Except as provided in Certified's articles of incorporation or
California law, the holders of Class B Shares do not have voting rights. See
"--Number of Directors (page 50) and "--Nomination and Election of Directors"
(page 51).

Class C Shares. Each member of the Certified's board of directors is issued
one Class C Share. Except as provided by California law, the holders of Class C
Shares do not have voting rights.

United Capital Stock

Oregon law requires that a corporation's articles of incorporation set forth
the total number of shares of all classes of stock which the corporation has
authority to issue and if more than one class of shares is authorized, to
include a statement, the contents of which may be determined by the board of
directors if so authorized, of the designations, preferences, limitations and
relative rights of each class of shares prior to the issuance of any such
shares.

The capital stock authorized by United's articles of incorporation consists
of 10,000,000 shares of Common Stock, par value $5.00 per share. As of July 2,
1999, 508,479 shares of Common Stock were outstanding. Each shareholder is
entitled to one vote on all matters to be voted upon by the shareholders
irrespective of the number of shares owned. Under Oregon law, shareholders do
not have a right to cumulative voting unless the articles of incorporation
provide otherwise. United's articles of incorporation do not provide for
cumulative voting for the election of directors. See "--Cumulative Voting"
(page 49) and "--Nomination and Election of Directors" (page 51).

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United's shareholders do not have any preemptive or preferential rights to
purchase or subscribe to any shares of United.

United's bylaws provide that the board of directors must approve member-
shareholders and member-shareholders must engage in the retail grocery
business. United's bylaws provide the board of directors with the right to
expel any member who:

. Reveals United's confidential matters, or any other matter likely to be
a detriment to United if revealed, to anyone other than to a United
shareholder in good standing;

. Purchases United goods for the use and benefit of a non-shareholder;

. Commits a felony under Oregon or federal law; or

. Acts to the detriment of United by his or her conduct with respect to
his or her business.

Restrictions on Transfer

Certified's bylaws provide that shareholders may not transfer Class A Shares
or Class B Shares except to Certified or with the consent of Certified to an
approved transferee, and such consent will not normally be given.

United's bylaws provide that United's Common Stock is non-transferable and
non-negotiable and any member who assigns or transfers the Common Stock will
have its membership immediately terminated. In addition, any shareholder who
does not make a purchase of warehoused merchandise from United for a period of
30 days or more must resign his or her membership and surrender his or her
Common Stock to United upon order of the board of directors.

Redemption

Certified

For a description of the provisions of Certified's articles of incorporation
regarding the redemption of Class A Shares and Class B Shares, see "THE
AMENDMENTS" (page 53).

United

Subject to the general restrictions imposed by Oregon law with respect to a
corporation's right to repurchase its own shares and certain restrictions
placed on United by its lender, United retains the sole and exclusive right to
redeem, repurchase, take-up, cancel, and control United's Common Stock. Any
shareholder resigning his or her membership or whose membership is terminated
for any reason is required to surrender his or her Common Stock. Under United's
bylaws, the following will occur upon delivery of Common Stock and acceptance
of the resignation by the board of directors:

. United will pay the shareholder the adjusted book value of the
surrendered United Common Stock as of the date of resignation or
termination less any indebtedness owed by the shareholder to United or
its subsidiaries;

. United may elect to pay the adjusted book value for shares in excess of
the number initially required of the resigning or terminating
shareholder, less any indebtedness to United or its subsidiaries, in 20
equal quarterly principal installments, together with a variable
interest rate provided in United's capital investment notes; or

. United may pay for such shares in such other manner as the board of
directors determines.

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Cumulative Voting

In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number
of directors to be elected. A shareholder may then cast all such votes for a
single candidate or may allocate them among as many candidates as the
shareholder may choose. Without cumulative voting, the holders of a majority of
the shares present at an annual meeting or any special meeting held to elect
directors would have the power to elect all the directors to be elected at that
meeting, and no person could be elected without the support of holders of a
majority of the shares voting at such meeting.

Certified

Under California law, the availability of the option of cumulative voting in
the election of directors is mandatory. Certified's shareholders may cumulate
votes in connection with the election of directors.

United

Under Oregon law, shareholders do not have a right to cumulative voting
unless the articles of incorporation provide otherwise. Under its existing
articles of incorporation and bylaws, United's shareholders may not cumulate
votes in connection with the election of directors.

Power to Call a Special Meeting of Shareholders

Under California law, the board, the chairman of the board, the president,
the holders of shares entitled to cast not less than 10% of the votes at a
meeting or such additional persons as may be provided in the articles of
incorporation or the bylaws may call a special meeting. Certified's bylaws
provide that the board of directors, the Chairman of the Board, the Vice
Chairman of the Board, the President, or the holders of shares entitled to cast
not less than 10% of the votes at a meeting may call a special meeting of the
shareholders at any time. Under Oregon law, the board of directors or any other
person authorized to do so in the articles of incorporation or the bylaws or
the holder of at least 10% of all votes entitled to be cast at a meeting may
call a special meeting of shareholders. United's bylaws provide that a special
meeting of shareholders may be called at any time by the Chairman or by a
majority of the board of directors or by at least 10% of the shareholders.

Shareholder Action Without a Meeting

Certified

Under California law, unless otherwise provided for in a corporation's
articles of incorporation, any action by a corporation's shareholders must be
taken at a meeting of the shareholders, unless the shareholders of the
corporation sign a consent in writing setting forth the action so taken having
not less than the minimum number of votes necessary to authorize or take the
action at a meeting at which all shares entitled to vote on the action were
present and voted.

Certified's bylaws provide that any action required to be taken at any
annual or special meeting of shareholders may be taken without a meeting and
without notice, if a consent in writing setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote on the action were
present and voted.

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United

Under Oregon law, any action required or permitted to be taken at a meeting
of the shareholders may be taken without a meeting if the action is taken by
all shareholders entitled to vote on the action. The action must be evidenced
by one or more written consents describing the action taken and signed by all
the shareholders entitled to vote on the action.

United's bylaws do not contain a provision relating to shareholder action
without a meeting.

Quorum Requirements

Certified

Under California law, unless otherwise provided in the articles of
incorporation, a majority of the shares entitled to vote shall constitute a
quorum. In no event may a quorum constitute less than one-third of, or more
than a majority of, the shares entitled to vote. Certified's bylaws provide
that a majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at any meeting of shareholders.

United

Under Oregon law, unless the articles of incorporation or the Oregon
Business Corporation Act provide for a lesser or greater number, a majority of
votes entitled to be cast on the matter by the voting group constitutes a
quorum of that voting group for action on that matter. United's articles of
incorporation provide that one-third of the shares entitled to vote,
represented in person or by proxy, will constitute a quorum at any meeting of
shareholders.

Number of Directors; Election of Directors

Under both California and Oregon law, unless a corporation's articles of
incorporation specifies the number of directors, the number shall be fixed by,
or in the manner provided in, its bylaws. A corporation's shareholders or its
board of directors may change the authorized number of directors by an
amendment to the corporation's bylaws or in such manner as is provided
therein. If the articles of incorporation specify the number of directors, the
number of directors can only be changed by amending the articles of
incorporation.

Certified

In connection with the merger, Certified is proposing an amendment to its
articles of incorporation. For a description of the proposed provisions of
Certified's articles of incorporation regarding the number and election of
directors, see "THE AMENDMENTS" (page 53).

Certified's articles of incorporation and bylaws do not provide for a
classified board.

United

United's bylaws provide for a classified board of directors consisting of
nine members, each elected for a term of three years. Three of the nine
directors are elected each year, and any director whose term has expired
cannot be eligible for re-election for one year from the date of the
expiration of his term.

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Nomination and Election of Directors

Certified

Certified's bylaws establish a procedure by which a nominating committee
appointed by the board of directors, consisting of three or more members of the
board of directors, selects nominees for election as directors. The nominating
committee then submits the nominees to the entire board of directors which
selects from those nominees a set of nominees for submission to the
shareholders for a vote. Under Certified's bylaws, the President of Certified
is an ex-officio member of the nominating committee. The proposed amendments to
the Bylaws will require the nominating committee to give due consideration to
geographic representation in selecting nominees for election to the board of
directors.

United

United's bylaws provide for a nominating committee, appointed by the
Chairman of the board of directors, consisting of three shareholders, none of
whom may be directors unless they are in the last year of their term as
director. The nominating committee then selects at least two qualified
shareholders to be nominated for each vacancy on the board of directors. The
nominating committee's selections may be supplemented by a written petition
signed by at least five shareholders, with the supplemented selections
presented, together with the nominating committee's selections, to the
shareholders for a vote at the annual shareholders' meeting.

Amendment of the Articles of Incorporation and Bylaws

Certified

California law allows amendment of a corporation's articles of incorporation
upon board of director approval together with approval by a majority of the
outstanding shares entitled to vote. If an amendment to the articles of
incorporation has any of the following effects it will entitle the holders of
the outstanding shares of the affected class of stock to vote as a separate
class upon the proposed amendment, whether or not they are entitled to vote on
the amendment by the articles of incorporation:

. increase or decrease the aggregate number of authorized shares of a
class of the corporation's stock;

. effect an exchange, reclassification, or cancellation of any of the
shares of a class;

. effect an exchange or a right of exchange of any shares of another class
into the shares of a class;

. change the rights, preferences, privileges or restrictions of the shares
of a class;

. create a new class; or

. increase the rights, preferences, or privileges of a class of shares
having rights, preferences or privileges prior to the shares of a class.

Under California law, unless otherwise provided in the articles of
incorporation or bylaws, the board of directors or a majority of the
outstanding shares entitled to vote may amend a corporation's bylaws.

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Certified's bylaws provide that they may be altered, amended or repealed by
the affirmative vote of the holders of not less than a majority of the voting
power. Certified's bylaws may be altered, amended or repealed by the board of
directors, other than for a change to the authorized number of directors or to
amend provisions with respect to patronage dividends.

United

Oregon law generally requires that in order to amend a corporation's
articles of incorporation, a corporation's board must adopt a resolution
setting forth the proposed amendment and directing that it be submitted to a
vote at either an annual or special meeting of the shareholders. To effect an
amendment to a corporation's articles of incorporation, Oregon law provides
that if a quorum exists at a shareholders meeting and if the votes cast in
favor of an amendment exceed the votes cast in opposition to the amendment then
the amendment is approved. However, if the amendment would create dissenters'
rights, a majority of the votes entitled to be cast on the amendment are
required for approval. Oregon law does not generally require separate class
votes of all voting classes in order to approve charter amendments or to
approve the sale of substantially all of a corporation's assets. Oregon law,
however, provides that all classes of stock, even nonvoting classes of stock,
vote on charter amendments, mergers and share exchanges that affect the rights
of holders of the class.

United's articles of incorporation do not alter the manner in which
amendments to them are effected under Oregon law. Under Oregon law, the board
of directors or the shareholders may amend a corporation's bylaws unless
otherwise provided in the articles of incorporation. The shareholders, in
amending the bylaws, may expressly provide that the bylaws may not be amended
by the board of directors. United's bylaws authorize a bylaw amendment at any
regular or special meeting of the shareholders upon a two-thirds vote of the
quorum present, provided that the corporation submits ten days notice of the
meeting to the shareholders in writing. United's board of directors may not
amend United's bylaws.

Limitation of Liability of Directors

California and Oregon law permit a corporation, subject to limitations
described below, to include a provision in its articles of incorporation
limiting the personal liability of a director or officer to the corporation or
its shareholders for damages for a breach of the director's fiduciary duty.
Certified's articles of incorporation include such a provision. United's
articles of incorporation do not limit a director's liability under any
circumstances. While such a provision provides directors with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, such a provision will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's breach of his or her duty of care.

Indemnification of Directors and Officers

Certified

California law permits a corporation to indemnify officers, directors,
employees and agents for actions taken in good faith and in a manner they
reasonably believed to be in the best interests of the corporation. With
respect to any criminal action, the indemnified party may not have had any
reasonable cause to believe the action was unlawful. California law provides,
upon receipt of an undertaking to reimburse the corporation if indemnification
is not appropriate, that a corporation may advance expenses of defense. In
addition, a corporation must reimburse a successful defendant for

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expenses, including attorneys' fees, actually and reasonably incurred.
California law also permits a corporation to purchase liability insurance for
its directors and officers. California law provides that a corporation may not
indemnify for any matter as to which a person has been adjudged to be liable to
the corporation, but only to the extent a court determines that the person is
entitled to indemnity.

Certified's bylaws provide that Certified will indemnify and hold harmless
each person who is involved in any actual or threatened proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or she, or a person of whom he or she is the legal representative, was an agent
of Certified or was serving at the request of Certified as a director, officer
or employee of another person, to the full extent permitted by California law
against all expenses, liabilities and losses, including, attorneys' fees,
judgments, fines, settlements and amounts expended in seeking indemnification.

United

Under Oregon law, a corporation may indemnify a director for actions taken
in good faith and which the individual reasonably believed to be in the best
interests of the corporation. In the case of a criminal proceeding, the
individual may not have had any reasonable cause to believe the conduct was
unlawful. A director may not be indemnified in connection with a proceeding in
which the director was found liable to the corporation or in which the director
was found to have improperly received a personal benefit. Oregon law provides
for mandatory indemnification of officers and directors when the indemnified
party is wholly successful in the defense of the proceeding.

United's articles of incorporation provide indemnification rights similar to
those provided by Certified and described above.

These indemnification rights are not exclusive of any other right to which
persons seeking indemnification may be entitled under any law, bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. Each
of Certified and United is authorized to purchase insurance on behalf of its
directors and officers.

THE AMENDMENTS

At Certified's shareholder meeting, Certified will ask its shareholders to
approve a proposal to amend the articles of incorporation and bylaws. The
merger agreement conditions the completion of the merger on the adoption of the
amendments. The proposed amendments are:

. To change the authorized number of directors to a flexible number not
less than 15 nor more than 24. The board of directors will fix the exact
number of directors within that range. The holders of Class A Shares,
voting as a class, will be entitled to elect 80%, rounded up to the
nearest whole number, of the authorized directors. The holders of
Class B Shares, voting as a class, will be entitled to elect the
remaining directors. If there are no Class B Shares issued and
outstanding, the holders of Class A Shares will be entitled to elect all
authorized directors. The initial number of directors will be
established at 24. All current directors of United will fill the
vacancies created by the amendment, to serve until the next annual
meeting of shareholders to be held in February 2000. The articles of
incorporation currently provide for 15 directors, 12 of which are
elected by the Class A Shares and three of which are elected by the
Class B Shares. In connection with

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this amendment, the authorized number of Class C Shares will be
increased to 24, and each additional member of the board of directors
will be issued one Class C Share. Effective upon shareholder approval of
these amendments to the articles of incorporation, the board of
directors has amended the bylaws to require the nominating committee to
consider geographic representation in selecting candidates for
nomination as directors.

. To change the redemption price formula for Class A Shares and Class B
Shares in the following respects:

. Class A Shares and Class B Shares held by a shareholder who is no
longer a qualified and active member-patron will be redeemed at the
book value of the combined company as of the close of the fiscal
year last ended prior to termination of member status. However, with
respect to terminations occurring in the first full fiscal year
following the effective date of the merger, the repurchase price
will be Certified's book value at the fiscal year end prior to the
effective date of the merger. The articles of incorporation
currently provide for repurchase at the book value as of the close
of the fiscal year last ended prior to the date of repurchase.

. Until the end of the third full fiscal year following the effective
date of the merger, Unified Western will redeem excess Class B
Shares at the option of the shareholder, at either:

. an amount equal to Certified's book value as of the close of the
fiscal year prior to the effective date of the merger; or

. an amount equal to the book value as of the close of the fiscal
year prior to the date the shares are tendered to the combined
company for repurchase, provided the repurchase price will not
be paid until after the end of the third full fiscal year
following the effective date of the merger.

. After the end of the third full fiscal year following the effective
date of the merger, Unified Western will repurchase excess Class B
Shares tendered for redemption at the book value as of the close of
the fiscal year prior to the date the shares are tendered for
repurchase. Excess Class B Shares currently are redeemed at the book
value at the end of the fiscal year preceding the date of
repurchase.

. During the period beginning on the effective date of the merger and
ending 120 days after the end of the first fiscal year following the
merger, Unified Western will repurchase excess Class B Shares
tendered for redemption which are held by former shareholders of
United at the book value as of April 2, 1999 of the shares of
United's Common Stock for which the excess Class B Shares were
exchanged in the merger. The purchase price will be evidenced by the
promissory note of the combined company which will be payable in
twenty equal quarterly principal installments and will bear interest
at 6% per year.

. The redemption policy will continue to provide that the amount of
Class B Shares which the combined company will be obligated to
redeem in any fiscal year will be limited to 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 such preceding fiscal year.

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During the period beginning on the effective date of the merger and
ending 120 days after the end of the first fiscal year following
the merger, the 5% limit will not apply to excess Class B Shares
received in the merger by former United shareholders which are
tendered for repurchase by Unified Western. The board of directors
will continue to have discretion to exceed the 5% limit.

. Effective upon shareholder approval of these amendments to the
articles of incorporation and the consummation of the merger, the
board of directors has amended the redemption policy to eliminate
the obligation to redeem Class B Shares of terminated members until
after the end of the third full fiscal year following the effective
date of the merger.

. To remove provisions of the articles of incorporation which are no
longer required to be contained in the articles of incorporation and
which do not affect shareholders' rights.

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THE MERGER AGREEMENT

General

The following is a brief summary of the material provisions of the Agreement
and Plan of Merger, a copy of which is attached as Annex A to this document and
is incorporated by reference. This summary is qualified in its entirety by
reference to the merger agreement. We urge you to read the merger agreement in
its entirety for a more complete description of the terms and conditions of the
merger.

The Merger

Pursuant to the merger agreement and, subject to the terms and conditions of
the merger agreement, when articles of merger are filed in Oregon, a wholly-
owned subsidiary of Certified will merge with and into United, and the separate
corporate existence of the merger sub will cease. United will be the surviving
corporation in the merger and will be a wholly owned subsidiary of Unified
Western. United and Unified Western will operate as a single cooperative for
all purposes, including determining patronage dividends. The merger will have
the effects specified under the Oregon Business Corporation Act. The time at
which the merger becomes effective is referred to as the effective time.

Conversion of United Shares

As a result of the merger, and without any action on the part of the United
shareholders, each share of United's Common Stock issued and outstanding
immediately prior to the effective time will be converted into 0.228 shares of
Unified Western's Class A Shares and Class B Shares. The first 100 shares
Unified Western issues to each shareholder at the exchange ratio will be Class
A Shares and the balance, if any, will be Class B Shares. All shares of
United's Common Stock when converted will cease to be outstanding and will be
canceled and retired. Each holder of a certificate representing shares of
United's Common Stock will cease to have any rights with respect to these
shares of United's Common Stock, except the right to receive, without interest,
Unified Western's Class A Shares and Class B Shares, if any, and deposit
account credit for fractional interests of Unified Western's Class A Shares and
Class B Shares upon the surrender of the certificate. United will cancel and
retire, without payment or consideration, each share of Common Stock held in
United's treasury at the effective time.

For each fractional share that Unified Western would otherwise issue to a
shareholder of United, the shareholder will receive deposit account credit,
rounded up to the nearest whole cent, equal to the product obtained by
multiplying (i) the book value of a share of United's Common Stock as of
April 2, 1999 (i.e., $57.90) by (ii) the fractional share interest to which the
shareholder would otherwise be entitled after taking into account all shares of
United's Common Stock then held of record by the shareholder.

Example: If you own 600 shares of United's Common Stock, you will be entitled
to receive:

. 100 of Unified Western's Class A Shares;

. 36 of Unified Western's Class B Shares; and

. The value of 0.8 shares of United's Common Stock credited to your
deposit account.

Promptly after the effective time of the merger, Unified Western will mail
to each holder of record of United's Common Stock a letter of transmittal and
instructions. Upon surrender of each

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United Common Stock certificate to the exchange agent, together with the
executed letter of transmittal, each holder of United's Common Stock will be
entitled to receive in exchange certificates evidencing the number of whole
Unified Western Class A Shares and Class B Shares, if any, to which the holder
is entitled and deposit account credit in lieu of fractional shares. Possession
of the share certificates will be retained by Unified Western for the account
of the holder in accordance with the Bylaws of Unified Western. United's
shareholders should not send in their certificates until they receive a
transmittal form.

Any former United shareholder who has not complied with these exchange
procedures may only look to Unified Western for payment of the merger
consideration. Neither Certified, United nor merger sub will be liable to any
holder of United's Common Stock for any merger consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.

In the event that any certificate has been lost, stolen or destroyed,
Unified Western will pay the merger consideration only if the claimant makes an
affidavit that the certificate was lost, stolen or destroyed and, at Unified
Western's discretion, posts a bond in such reasonable amount as Unified Western
may direct as indemnity against any claim that may be made against Unified
Western or United after the merger with respect to such certificate.

Effect on Certified Shares

In the merger, Certified's existing Class A Shares, Class B Shares and Class
C Shares will remain outstanding. Immediately prior to the merger, Certified
will redeem shares previously tendered for redemption by Certified's terminated
member-patrons for cash at the current redemption price.

Representations and Warranties

The merger agreement contains various standard representations and
warranties of Certified and United relating to, among other things:

. Due organization, valid existence and good standing of Certified and
United and other similar corporate matters;

. The capital structure of Certified and United;

. The authorization, execution, delivery and enforceability of the merger
agreement;

. The absence of conflicts under charters or bylaws and violations of any
instruments, contracts or agreements, and the obtaining of required
consents or approvals;

. Certain documents filed by each of Certified and United with the
Securities and Exchange Commission and the accuracy of the information
contained in these documents;

. The absence of certain material changes or events;

. Taxes;

. Litigation;

. Environmental matters;

. Retirement and other employee benefit plans of Certified and United;

. Labor matters;

. Year 2000 issues; and

. Brokers' and finders' fees with respect to the merger.

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See Articles III and IV of the merger agreement for additional information
regarding the representations and warranties of Certified and United,
respectively.

Conduct of Business Pending the Merger

Pursuant to the merger agreement, each of Certified and United has agreed,
among other things, that during the period from the date of the merger
agreement until the effective time of the merger, except as consented to in
writing by the other party or as permitted by the merger agreement, it will:

. Carry on its business in the ordinary course in substantially the same
manner as previously conducted;

. Pay its debts and taxes when due, subject to good faith disputes, in the
ordinary course in substantially the same manner as previously paid;

. Preserve intact its present business organization;

. Keep available the services of its present officers and key employees;
and

. Preserve its current relationships with customers, suppliers,
distributors and others having business dealings with it.

In addition, Certified and United have agreed that neither will:

. Amend its articles of incorporation or bylaws, except for the amendments
described in this document;

. Issue shares of capital stock other than upon acceptance of a new member
in accordance with its existing policies;

. Issue dividends other than patronage dividends consistent with past
practices;

. Purchase any shares of its capital stock other than pursuant to existing
member redemption policies;

. Increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees, or enter into any
employment or severance agreement with, any director, officer or
employee or adopt or amend any employee benefit plan;

. Sell or pledge assets other than in the ordinary course of business;

. Acquire any corporation, partnership or other business organization;

. Incur, assume or pre-pay any long-term debt or incur or assume any
short-term debt, other than in the ordinary course of business
consistent with past practices;

. Guarantee the obligations of any other person other than in the ordinary
course of business;

. Make any loans, advances or capital contributions to, or investments in,
any other person except in the ordinary course of business consistent
with past practice, including advances to employees; or

. Take other specified actions which are not in the ordinary course of
business and consistent with past practice.

Certified expects to pay a patronage dividend for the fiscal year ended
prior to the effective date of the merger. United does not anticipate having
sufficient earnings available to pay patronage dividends for that portion of
its fiscal year occurring prior to the effective date of the merger.

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Material Covenants

The merger agreement contains a number covenants, including covenants
relating to meetings of shareholders, public announcements, access to
information and cooperation regarding certain filings with and approvals from
governmental and other agencies and organizations.

No Solicitation of Transactions

Neither Certified nor United may, directly or indirectly:

. Solicit, initiate or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or
offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock, including without
limitation by way of a tender offer, or similar transaction of such
party, other than the transactions contemplated by the merger agreement.
Any of the above inquiries or proposals are referred to as an
"acquisition proposal";

. Engage in negotiations or discussions with any person other than
Certified or United or their respective affiliates (a "third party")
concerning, provide any non-public information to any person or entity
relating to, or take any other action to facilitate inquiries or the
making of any proposal that constitutes, an acquisition proposal; or

. Enter into any agreement with respect to any acquisition proposal.

However, the merger agreement does not prohibit either Certified or United
from furnishing non-public information to, or entering into discussions or
negotiations with, any third party in connection with an unsolicited bona fide
written proposal for an acquisition proposal by such third party, if and only
to the extent that:

. Such third party has made a written proposal to the board of directors
of such party to consummate an acquisition proposal, which proposal
identifies a price or range of values to be paid for the outstanding
securities or substantially all of the assets of Certified or United;

. The board of directors of such party determines in good faith, after
consultation with a financial advisor of nationally recognized
reputation, that such acquisition proposal is reasonably capable of
being completed on substantially the terms proposed, and would, if
completed, result in a transaction that would provide greater benefit to
the holders of Certified's capital stock or United's Common Stock than
the transaction contemplated by the merger agreement (a "superior
proposal");

. The board of directors of such party determines in good faith, based on
the advice of outside legal counsel, that the failure to take such
action would be inconsistent with its fiduciary duties to its
shareholders under applicable law; and

. Prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, the board of
directors receives from the person or entity an executed confidentiality
and standstill agreement, unless the board of directors determines, in
good faith upon the advice of counsel, that requiring the person or
entity to enter into a standstill agreement would violate the board's
fiduciary duty, with material terms no less favorable to such party than
those contained in the confidentiality agreements between Certified and
United.

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In the event either Certified or United terminates the merger agreement
prior to the approval of the merger by its shareholders in order to accept a
superior proposal, the terminating party will pay the other party a termination
fee of $2.5 million upon completion of a business combination with a third
party if an agreement is entered into with respect to the business combination
within 12 months of the date of the merger agreement. See "THE MERGER
AGREEMENT--Termination of the Merger Agreement" (page 63) and "THE MERGER
AGREEMENT--Termination Fees and Expenses" (page 64).

In addition, the merger agreement does not prohibit Certified or United from
complying with Rule 14e-2 under the Securities Exchange Act of 1934.

Director and Officer Indemnification

Certified will, and will cause Unified Western to, indemnify, defend and
hold harmless each present director and officer of United and each person
serving as a director or officer within the last two years against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities or amounts paid in settlement incurred in connection with
any claim, action, suit, proceeding or investigation whether civil, criminal,
administrative or investigative, arising out of or pertaining to wrongful acts
or omissions, and which relate to:

. The indemnified party's status as an officer or director of United,
whether asserted or claimed prior to, at or after the effective time of
the merger, to the fullest extent that United would have been permitted
to indemnify such indemnified party under applicable law, or under
United's articles of incorporation, its bylaws or any indemnity
agreements with United (and Certified will advance expenses prior to the
final disposition of any such action or proceeding to each indemnified
party to the full extent permitted by Oregon law upon receipt of any
undertaking required by applicable Oregon law); or

. All liability based in whole or in part on, or arising in whole or in
part out of, or pertaining to the merger agreement or the transaction
contemplated by the merger agreement.

Immediately prior to the effective time of the merger, United will purchase
a six year extension of coverage and the reporting period under its existing
directors' and officers' liability insurance policy for a cost not to exceed
100% of the current annual premium.

Tax Treatment

Certified and United intend, and will use their best efforts to cause, the
merger to qualify as a reorganization under Internal Revenue Code Sections
368(a)(1)(A) and 368(a)(2)(E).

Conditions to the Merger

Conditions to Each Party's Obligations to Effect the Merger

Certified's, United's and the merger sub's respective obligations to effect
the merger are subject to the satisfaction or waiver of the following
conditions on or prior to the effective time of the merger:

. Shareholder Approval. The merger agreement and the merger having been
approved by the shareholders of Certified and United. Certified's
shareholders having approved the amendments to Certified's articles of
incorporation discussed under "The Amendments."

. No Injunctions. No governmental entity having enacted, issued,
promulgated, enforced or entered any order, executive order, stay,
decree, judgment or injunction or statute, rule,

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regulation which is in effect and which has the effect of making the
merger illegal or otherwise prohibiting consummation of the merger.

. Governmental Approvals. All governmental approvals applicable to the
merger having been obtained and remaining in full force and effect; all
statutory waiting periods having expired.

. Registration Statement. The registration statement having become
effective under the Securities Act of 1933 and not being the subject of
any stop order or proceeding seeking a stop order.

. Financing. The financing contemplated by the financing commitments
having been completed at the effective time of the merger.

. Dissenters. Not greater than 5% of the outstanding shares of United's
Common Stock or not greater than 5% of Certified's combined Class A
Shares and Class B Shares having perfected dissenters' rights with
respect to the merger.

. Certified Shareholders. Shares previously tendered for redemption by
terminated member-patrons having been redeemed for cash at the current
redemption price.

Additional Conditions to the Obligations of United

United's obligations to effect the merger are subject to the satisfaction or
waiver of the following additional conditions:

. Representations and Warranties. The representations and warranties of
Certified and the merger sub in the merger agreement having been true
and correct and United having received a certificate signed on behalf of
Certified by the Chief Executive Officer and the Chief Financial Officer
of Certified to that effect.

. Performance of Obligations. Certified having performed in all material
respects all obligations required to be performed by it prior to the
closing date and United having received a certificate signed on behalf
of Certified by the Chief Executive Officer and the Chief Financial
Officer of Certified to that effect.

. Tax Opinion Regarding Merger. United having received an opinion from
Schwabe, Williamson & Wyatt, P.C. to the effect that, based upon
representations, assumptions and conditions customary for transactions
such as the merger, the merger will qualify for federal income tax
purposes as a reorganization within the meaning of Internal Revenue Code
Section 368(a).

. No Material Adverse Change. Prior to the effective time of the merger,
there not having been any event, development, condition or state of
affairs which resulted in or is reasonably likely to result in a
material adverse change in the business, properties, financial condition
or results of operations of Certified and its subsidiaries, taken as a
whole. The failure of Certified to maintain performance consistent with
its performance prior to the date of the merger agreement will be
considered to have violated this condition.

. Third-Party Consents. Certified having received all third-party consents
and approvals required to be obtained by Certified in connection with
the transactions contemplated by the merger agreement, under any
contract to which Certified (or any of its subsidiaries) may be a party,
except for such third-party consents and approvals as to which the
failure to obtain, either individually or in the aggregate, would not
reasonably be expected to result in a material adverse effect.

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. Articles of Incorporation and Bylaws of Certified; Adoption of
Redemption Policy. The approval by Certified's board of directors of the
amendments to Certified's bylaws described under "THE AMENDMENTS" and
the adoption of the amendments to Certified's redemption policy
described under "THE MERGER--Impact of the Merger on the Members of
Unified Western."

. Articles of Incorporation and Bylaws of Merger Sub. The board of
directors of United having approved the content and substance of the
articles of incorporation and bylaws of the merger sub.

. Consent of Western Family. Western Family Holding Company having
consented to the transfer of its shares of capital stock owned by United
to Certified as part of the merger, and committed to continuing
availability after the merger of products bearing the "Western Family"
private label for resale to those of Unified Western's shareholders who
were United members prior to the merger. Western Family Holding Company
sells products bearing selected private labels to United for resale to
United's members. See "INFORMATION CONCERNING UNITED--Business (page
84)."

Additional Conditions to the Obligations of Certified

Certified's obligations to effect the merger are subject to the satisfaction
or waiver of the following additional conditions:

. Representations and Warranties. The representations and warranties of
United in the merger agreement having been true and correct and
Certified having received a certificate signed on behalf of United by
the Chief Executive Officer and the Chief Financial Officer of United to
that effect.

. Performance of Obligations. United having performed in all material
respects all obligations required to be performed by it prior to the
closing date and Certified having received a certificate signed on
behalf of United by the Chief Executive Officer and the Chief Financial
Officer of United to that effect.

. Tax Opinion Regarding Merger. Certified having received an opinion of
Sheppard, Mullin, Richter & Hampton llp to the effect that, based upon
representations, assumptions and conditions customary for transactions
such as the merger, the merger will qualify for federal income tax
purposes as a reorganization within the meaning of Internal Revenue Code
Section 368(a).

. No Material Adverse Change. Prior to the effective time of the merger,
there not having been any event, development, condition or state of
affairs which resulted in or is reasonably likely to result in a
material adverse change in the business or properties, financial
condition or results of operations of United and its subsidiaries, taken
as a whole. The failure of United to maintain performance consistent
with its performance prior to the date of the merger agreement will be
considered to have violated this condition.

. No Impediment to Conducting Insurance Business. The parties having taken
satisfactory steps to ensure Certified that, following the merger,
Certified will not be excluded from continuing to operate its insurance
business in structure or arrangement as is satisfactory to Certified.

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. Third-Party Consents. United having received all third-party consents
and approvals required to be obtained by United in connection with the
transactions contemplated by the merger agreement, under any contract to
which United, or any of its subsidiaries, may be a party, except for
such third-party consents and approvals as to which the failure to
obtain, either individually or in the aggregate, would not reasonably be
expected to result in a material adverse effect.

Termination of the Merger Agreement

Prior to the effective time of the merger, notwithstanding any requisite
adoption of the merger agreement, the merger agreement may be terminated as
follows:

. By mutual written consent of Certified and United;

. By either of Certified or United, if the effective time has not occurred
on or before October 12, 1999; provided, however, that:

. the right to terminate under this provision shall not be available
to any party whose failure to fulfill any obligation under the
merger agreement shall have caused, or resulted in, the failure of
the effective time of the merger to occur on or before such date;
and

. the merger agreement may be extended to December 10, 1999 by
Certified or United by written notice to the other party if the
merger shall not have been completed as a direct result of the
failure to obtain the requisite governmental approvals or consents
and are still being pursued;

. By either Certified or United if any order, decree or ruling has been
entered into and such action is final and nonappealable in each case
having the effect of permanently restraining, enjoining or prohibiting
the merger;

. The required approval of Certified's or United's shareholders has not
been obtained at Certified's or United's shareholders meeting (including
any adjournments of the shareholders meeting);

. By either of Certified or United, if for any reason either party fails
to call and hold its shareholders meeting by September 29, 1999, unless
such failure is due to the fact that:

. the registration statement or this document was not declared
effective or cleared sufficiently in advance to enable either
Certified or United to hold their respective shareholders meeting;
or

. a court has enjoined or temporarily restrained the merger and any
such occurrence has not resulted by any breach of the merger
agreement by either Certified or United;

Provided, however, that neither party may terminate pursuant to this
provision if it has materially breached any representation, warranty,
covenant or agreement in the merger agreement;

. By Certified or United, if Certified or United receives a superior
proposal and its board of directors determines in good faith that it
must terminate the merger agreement in order to comply with its
fiduciary duties;

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<PAGE>

. By Certified or United, if the other has materially breached any
representation, warranty, covenant or agreement in the merger agreement;
or

. By Certified or United, if financing commitments substantially
consistent with the financing described in the documents jointly
submitted to potential lenders are not obtained within thirty (30) days
of the execution of the merger agreement.

Termination Fees and Expenses

Termination Fee Payable by United

The merger agreement obligates United to pay to Certified $2.5 million if:

. Certified terminates the merger agreement under the fifth bullet point
in the "--Termination of the Merger Agreement" above,

. United terminates the merger agreement under the sixth bullet point in
the "--Termination of the Merger Agreement" above, or

. Certified terminates the merger agreement pursuant to a breach by United
of the nonsolicitation provisions of the merger agreement discussed
above and, notwithstanding anything to the contrary described above,
such amount shall be payable by United only if United thereafter is
acquired by or combines with another entity based upon a letter of
intent or any other form of agreement with respect to such acquisition
or combination executed within twelve months of the date of the merger
agreement.

Termination Fee Payable by Certified

The merger agreement obligates Certified to pay to United $2.5 million if:

. United terminates the merger agreement under the fifth bullet point in
the "--Termination of the Merger Agreement" above,

. Certified terminates the merger agreement under the sixth bullet point
in the "--Termination of the Merger Agreement" above, or

. United terminates the merger agreement pursuant to a breach by Certified
of the nonsolicitation provisions of the merger agreement discussed
above and, notwithstanding anything to the contrary described above,
such amount shall be payable by Certified only if Certified thereafter
is acquired by or combines with another entity based upon a letter of
intent or any other form of agreement with respect to such acquisition
or combination within twelve months of the date of the merger agreement.

Expenses

All fees and expenses incurred in connection with the merger agreement and
the merger will be paid by the party incurring such expenses, except as
provided above and except that if the merger is completed these reorganization
expenses incurred by United will be paid by the combined company. If the merger
is not completed, Certified and United will share equally the costs and
expenses in connection with the filing, printing and mailing of this document,
and the Hart-Scott-Rodino filing fee.

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<PAGE>

Amendment and Waiver

The merger agreement may be amended by a written instrument signed by the
parties, by action taken or authorized by their respective board of directors,
at any time prior to or after approval by the shareholders of Certified or
United; provided, however, that after adoption of the merger agreement by the
Certified or United shareholders no amendment may be made except amendments
that have received the requisite shareholder approval or are permitted to be
made without shareholder approval.

At any time prior to the effective time of the merger, Certified and United
may, by action taken or authorized by their respective board of directors, by
written instrument signed by the parties, extend the time for or waive
compliance with performance of the obligations or other acts of the other
parties to the merger agreement or may waive inaccuracies in the
representations or warranties contained in the merger agreement or in any
document delivered pursuant thereto.

65
<PAGE>

INFORMATION CONCERNING CERTIFIED

Business

General

Certified is a grocery wholesaler serving independent supermarket operators
in California. Certified also serves retail food stores in Nevada, Arizona,
Hawaii and various foreign countries in the South Pacific and elsewhere. In
addition to offering a complete line of dry grocery, frozen food, deli, meat,
dairy, bakery, gourmet/specialty foods and general merchandise products,
Certified also provides finance, insurance, store design and real estate
services to its patrons. As of June 30, 1999, Certified provided products and
services to 2,216 retail food stores operated by 648 patrons and customers.
Certified's marketing platform is built on offering its patrons greater value
than found elsewhere by combining competitive pricing with superior selection,
quality, service and convenience.

A California corporation organized in 1922 and incorporated in 1925,
Certified does business primarily with those patrons who qualify and have been
accepted as "member-patrons." Certified is owned by its member-patrons who are
primarily independent grocers. Certified is operated and, with the exception of
its subsidiaries, is taxed on a cooperative basis. The primary businesses
operated by Certified's subsidiary companies include the distribution of
general merchandise, health and beauty care and specialty products and the sale
of insurance, finance and store planning services primarily to operators of
retail food stores. Certified establishes minimum purchase requirements for the
member-patrons, which may be modified from time to time. Patrons not meeting
member-patron purchasing requirements conduct business with Certified either as
"associate-patrons" or as customers on a non-patronage basis. The earnings of
Certified's subsidiaries are generally retained by Certified, while the
earnings of the parent company are generally distributed to its patrons in the
form of patronage dividends. The benefit of this structure is that taxes are
paid on the Certified earnings only once, that is, when notice of a patronage
dividend payout is received by the patron. See "Business--Tax Matters" (page
70), and for a description of the relative rights of member-patrons and
associate-patrons see "THE MERGER--Impact of the Merger on the Members of
Unified Western" (page 38).

Wholesale Distribution

Certified's wholesale distribution business represented approximately 95%
and 98% of sales for the nine month period ended May 29, 1999 and for fiscal
1998, respectively. The wholesale business includes a broad range of branded
and private label products in dry grocery, frozen, delicatessen, general
merchandise, boxed meat, service deli, ice cream, bakery and dairy.

Certified distributes its various product lines from warehouse and
manufacturing complexes located in Los Angeles, Commerce, Stockton and Fresno,
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. Certified is not dependent upon any single source of supply in any
of its businesses, except for the dairy. Most of the raw milk is purchased from
a dairy cooperative which provides such products at prices established by the
State of California. Management believes that alternative suppliers are
available for substantially all of Certified's products and that the loss of
any one supplier would not have a material adverse effect on Certified's
business.

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<PAGE>

Certified currently makes certain charges in addition to the listed prices
for merchandise, including fees for warehousing and delivery, based on
published schedules. Warehousing fees, also known as service fees, are
primarily based on average order sizes and frequency of orders, while delivery
fees are based primarily on the distance from Certified's supplying warehouse
and the amount of capacity or cube used by the load.

During the course of its business, Certified may enter into supply
agreements with certain members of Certified. These agreements require the
member to purchase certain agreed amounts of its merchandise requirements from
Certified and obligate Certified to supply such merchandise under agreed terms
and conditions relating to such matters as pricing, delivery, discounts and
allowance. These terms and conditions may vary from standard terms and
conditions, and these supply agreements may vary in terms and length.

Support Businesses

Certified's retail support businesses collectively accounted for
approximately 2% of Certified's total sales for the nine month period ended
May 29, 1999 and for fiscal 1998. Retail support operations include Grocers
Capital Company, which provides financing for inventory purchases, equipment
purchases, store remodeling and new store acquisitions, and Grocers Equipment
Company, which provides store planning and development services, retail
pricing comparisons and scanning support and also sells equipment to
Certified's customers. Certified also provides insurance brokerage services
for retailers through Grocers and Merchants Insurance Services, Inc., and
underwrites selected insurance risks through two insurance subsidiaries.

Retail Business

Certified, through its subsidiaries, currently owns all of the common stock
of Sav Max Foods, Inc. which operates seven retail grocery stores in Northern
California. Certified expects the seven stores to have retail sales of
approximately $110 million in fiscal 1999. The retail sales represented
approximately 3% of sales for the nine month period ended May 29, 1999. The
ownership of SavMax is temporary. Certified plans to sell the retail
operations to a qualified buyer(s) and secure the volume within the
cooperative membership. Periodically, Certified makes investments in retail
grocery businesses and temporarily manages these businesses until a suitable
new owner can be located.

In May 1999, Certified entered into an agreement to purchase certain assets
related to 32 stores being divested in connection with Albertson's, Inc.
merger with American Stores, Inc. Coincident to the closing of the
transaction, 26 of the subject stores will be transferred to Certified
members. The remaining six stores will be retained until a suitable buyer is
identified.

Retail Development

Certified offers a banner store program designed to convert older stores
into state-of-the-art retail operations. Operating under the common name
"Apple Markets," the stores are owned and operated by patrons of Certified or
by Certified. Certified intends them to have the look of a chain store because
each store carries the same name and logo and utilizes the same design layout.

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<PAGE>

Competition

The food industry is characterized by intense competition and low profit
margins. In order to compete effectively, Certified 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. Certified competes with local, regional and national grocery
wholesalers and with a number of major manufacturers which market their
products directly to retailers. Certified'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 large chain store operations.

Customers

Certified's patrons are primarily retail grocery store operators ranging in
size from single store operators to multiple store chains. Certified's largest
customer and ten largest customers accounted for approximately 6% and 31%,
respectively, of net sales in fiscal 1998, and 6% and 27%, respectively, of net
sales for the nine month period ending May 29, 1999.

Capital Stock

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 amounts
and in a manner as may be established by the Board of Directors; (2) must have
approved 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.

Certified requires each of its member-patrons to hold 100 Class A Shares.
The price for these shares is 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
currently does not intend to authorize the issuance of Class B Shares except to
member-patrons.

With the exception of new members, Certified requires each member-patron to
hold Class B Shares having combined issuance values in an amount equal to the
lesser of the member-patron's required subordinated cash deposit or twice the
member-patron's average weekly purchases. 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.

Class B Shares are generally issued to a new member-patron as part of the
patronage dividends paid to the 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 its Class B share requirement after the
fifth patronage dividend.

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<PAGE>

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 will
be issued to the member-patron in a quantity sufficient to achieve the required
amount. Issuance of these additional Class B Shares will be paid for by
charging the member-patron's cash deposit account in an amount equal to the
issuance value of the additional Class B Shares.

At May 29, 1999, the book value per share of Certified's Class A and Class B
Shares was $188.04.

Class C Shares. Class C Shares are held by members of the board of
directors. Each board member purchases one Class C Share for $10. Class C
Shares are nonvoting shares and share in liquidation only to the extent of $10
per share.

Patronage Dividends

Certified distributes patronage dividends based upon the net patronage
earnings of the parent company during the fiscal year. The board of directors
approves divisional dividends. Certified distributes patronage dividends to
each patron in proportion to the dollar volume of patronage purchases from each
division of the parent company 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.

The following table shows the patronage dividend experience of Certified
during the past three fiscal years.

(In thousands)

<TABLE>
<CAPTION>
Division 1996(1) 1997(1) 1998(1)
- -------- ------- ------- -------
<S> <C> <C> <C>
Dairy................................................... $ 8,100 $ 9,154 $ 9,169
Dry grocery............................................. 2,940 2,970 562
Beans and rice.......................................... 390 400 190
Delicatessen............................................ 940 1,030 182
Frozen food............................................. 660 730 46
Ice cream............................................... 170 180 --
------- ------- -------
Total(1)............................................ $13,200 $14,464 $10,149
======= ======= =======
</TABLE>
- --------
(1) Results in prior periods are not necessarily indicative of results in
future periods.

After the merger, the combined company will pay its patronage earnings to
member-patrons and associate-patrons on the basis of patronage business
transacted with the combined company's two patronage earnings divisions: the
Dairy Division and the Cooperative Division.

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<PAGE>

Due to logistics and geographic constraints, patrons who purchase from the
Dairy Division are primarily in Southern California. Patrons of Certified
outside of Southern California generally do not participate in the Dairy
Division, and it is not likely that patrons of the combined company outside of
Southern California will participate in the Dairy Division. See "THE MERGER--
Impact of the Merger on the Members of Unified Western" (page 38).

Certified's bylaws provide that patronage dividends may be distributed in
cash or in any other form that 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, that 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.

Dairy patronage dividends are generally paid in cash. Patronage dividends
for the remaining divisions 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; third, the remainder is credited
to the member-patron's deposit account. In addition, Certified issued
subordinated patronage dividend certificates evidencing the retention of a
portion of patronage dividends for fiscal years 1993, 1994 and 1995. The
amounts retained as patronage certificates in those years were deducted from
each member-patron's patronage dividend prior to the issuance of Class B Shares
to such member-patron. See Note 8 to the consolidated financial statements
included elsewhere in this document.

Patron Deposits

Certified generally requires that its 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 the
purchases are not on a regular basis. Required deposits are determined twice a
year, at the end of Certified'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.

Member-patrons holding Class B Shares are presently given credit against the
above described cash deposit requirement based upon the respective book values
of the shares as of the fiscal years last ended prior to their issuance.
Certified 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 Certified's price reservation
program are required to maintain a noninterest-bearing deposit based upon the
value of their inventory included in this program. Under Certified'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 Certified. As a
condition of becoming a patron, each patron is required to execute a
subordination agreement providing for the subordination of the patron's

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<PAGE>

required deposits. Generally, the subordination is such that no payment can be
made by Certified with respect to the required deposits in the event of an
uncured default by Certified 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.

Upon request, Certified will return to patrons the amount of cash deposits
that are in excess of the required deposits, provided the patron is not in
default of its obligations to Certified. On termination of membership, patrons
are entitled to a return of deposits, less all amounts that may be owing by the
patron to Certified. 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

Certified is a corporation operating primarily on a cooperative basis.
Certified is subject to federal and state income and franchise taxes and must
pay other taxes applicable to corporations, such as sales, excise and real and
personal property taxes.

As a corporation operating on a cooperative basis, Certified is subject to
Subchapter T of the Internal Revenue Code. Under Subchapter T, Certified 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 Certified and the portion thereof
which constitutes a patronage dividend.

Under Subchapter T, Certified 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 Certified
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. Certified 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.

Certified currently 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 are expected to be paid
in cash. Certified 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 these taxes in other states.

Certified 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. Certified files consolidated income tax returns with its
subsidiaries, none of which is a cooperative and each of which is therefore
subject to tax.

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<PAGE>

To the extent that Class B Shares are received by the patron as patronage
dividends under Subchapter T, the Internal Revenue Service 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.

Certified's subsidiaries do not pay patronage dividends and are not taxed in
accordance with Subchapter T.

Employees

Certified employs approximately 2,800 employees, of whom approximately 1,640
are members of one of several unions, the largest being the International
Brotherhood of Teamsters. The Teamsters' contracts cover approximately 1,285
employees and have various expiration dates. The Stockton and Southern
California Teamsters' contract covers approximately 1,080 warehouse workers and
truck drivers and expires on September 15, 2002. The Teamsters' contract which
covers approximately 120 Fresno warehouse workers and truck drivers expires on
February 1, 2003. The Teamsters' contract which covers approximately 30
mechanical maintenance workers expires on March 29, 2003. The Teamsters'
contract which covers approximately 55 Hayward warehouse workers and truck
drivers expires on February 29, 2000. Approximately 265 employees employed at
the company's SavMax retail stores are subject to collective bargaining
agreements between SavMax and the United Food and Commercial Workers Union. A
contract impacting approximately 50 employees expires in October 1999, with the
remaining employees subject to a contract which expires in June 2001. Certified
believes its labor relations to be good.

Energy Matters

Certified's operations are dependent upon the continued availability of
electric power, diesel fuel, and gasoline. Certified'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 Certified's service
representatives and, thus, adversely affect Certified's sales.

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<PAGE>

Properties

Certified's corporate offices, warehouses, retail stores and manufacturing
facilities as of May 29, 1999 are summarized as follows:

<TABLE>
<CAPTION>
Approximate
Square Footage
-----------------
Description Owned Leased
----------- --------- -------
<S> <C> <C>
Corporate offices........................................... 17,000 153,000
Dry grocery................................................. 1,361,000 784,000
General merchandise......................................... -- 323,000
Frozen foods, ice cream, delicatessen and meat.............. 454,000 66,000
Bakery...................................................... 91,000 --
Dairy....................................................... 74,000 --
Retail stores............................................... 360,000
</TABLE>

All of Certified's warehouse facilities are located in California.

On May 19, 1998, Certified completed the sale of approximately 24 acres of
property located in Commerce, California. This transaction required certain
administrative offices and distribution facilities to be relocated. Certified
is utilizing its remaining properties to accommodate most of the displaced
facilities.

Legal Proceedings

Certified is a defendant in a number of cases currently in litigation or
potential claims encountered in the normal course of business that are being
vigorously defended. In the opinion of management, the resolutions of these
matters will not have a material adverse effect on Certified's financial
position or results of operations.

The United States Environmental Protection Agency notified Certified in 1993
that, together with others, it was a potentially responsible party for the
disposal of hazardous substances at a landfill site located in Monterey Park,
California. Certified believes that its share of cost for the remaining phases
of cleanup will not exceed the amounts which Certified has reserved.

Selected Financial Data

The selected financial information below regarding Certified has been
derived from the audited consolidated financial statements of Certified as of
and for its fiscal years ended August 31, 1996, August 30, 1997 and August 29,
1998, and from the unaudited financial statements of Certified as of and for
the nine months ended May 30, 1998 and May 29, 1999. The unaudited interim
financial statements include all adjustments, consisting of normal recurring
accruals, which Certified considers necessary for a fair presentation of its
financial position and results of operations for these periods. Operating
results for the nine months ended May 29, 1999 do not necessarily indicate the
results that may be expected for the entire year ending August 28, 1999.

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<PAGE>

This information is only a summary and should be read in conjunction with
Certified's historical financial statements, and related notes, contained
elsewhere in this document. See "INDEX TO FINANCIAL STATEMENTS" (page F-1).

(In thousands, except book value per share)

<TABLE>
<CAPTION>
Fiscal Year(1) Nine Months Ended
-------------------------------- ---------------------
August 31, August 30, August 29, May 30, May 29,
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,948,919 $1,927,092 $1,831,686 $1,401,219 $1,381,531
Operating income........ 29,502 31,549 26,252 20,562 20,851
Patronage dividends..... 13,200 14,464 10,149 7,986 10,580
Net earnings............ 1,517 2,307 3,389 3,027 1,934
Total assets............ 374,737 394,002 389,218 385,220 441,396
Long-term notes pay-
able................... 75,617 92,217 125,130 136,321 150,792
Book value per
share(2)............... 167.94 175.22 183.47 182.82 188.04
</TABLE>
- --------
(1) Fiscal years 1996 through 1998 each contained 52 weeks.
(2) According to Certified's current Bylaws, shares are redeemed at the book
value per share at the close of the fiscal year last ended. For a
description of the proposed amendments to Certified's redemption policy,
see "THE AMENDMENTS" (page 53).

Management's Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion of Certified's financial condition and results of
operations should be read in conjunction with the financial statements and
notes to the financial statements included elsewhere in this document. The
discussion reflects a restatement of previously filed information with respect
to the unaudited period ended May 29, 1999. The restatement reflects the
consolidation of SavMax from the date of its acquisition in December, 1998.

Results of Operations

The following table sets forth selected financial data of Certified
expressed as a percentage of net sales for the periods indicated below:

<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
-------------------------------- -----------------------
August 31, August 30, August 29, May 30, May 29,
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 90.8 91.0 91.1 91.1 90.9
Distribution, selling
and administrative
expenses............... 7.7 7.4 7.5 7.4 7.6
Operating income........ 1.5 1.6 1.4 1.5 1.5
Interest expense........ 0.7 0.7 0.7 0.7 0.6
Other income............ 0.2 0.2 0.1
Earnings before
patronage dividends,
provision for income
taxes and extraordinary
item................... 0.8 0.9 0.9 1.0 1.0
Patronage dividends..... 0.7 0.7 0.5 0.5 0.8
Provision for income
taxes.................. 0.1 0.1 0.2 0.1
Extraordinary item, net
of taxes............... 0.1 0.1
Net earnings............ 0.1 0.1 0.2 0.2 0.1
</TABLE>

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Nine Month Period Ended May 29, 1999 ("1999 period") Compared to Nine Month
Period Ended May 30, 1998 ("1998 period")

Net Sales. Net sales totaled $1.38 billion for the 1999 period and $1.4
billion in the 1998 period. The sales decrease of $19.7 million represents a
1.4% decrease over the 1998 period. Hughes Markets and Nob Hill Markets were
acquired by entities that have self-distribution programs; accordingly, product
supply to the Hughes and Nob Hill stores migrated into the corresponding self-
distribution facilities in the period between March 1998 through November 1998.
The $81.3 million sales volume lost as a result of the Hughes and Nob Hill
transactions has been partially offset by $24.8 million from the addition of
North State Grocery Company as a member-patron in October 1998 and increased
sales to the ongoing membership base.

Cost of Sales. In the 1999 period cost of sales were $1.3 billion, or 90.9%
of net sales, compared to $1.3 billion, or 91.1% of net sales, in the 1998
period. The overall gross margin as a percentage of net sales is slightly
higher compared to the comparable period in 1998. The increase in gross margin
is due to additional gross margin from retail sales generated by Sav Max Foods,
Inc., which Certified acquired in December 1998. The increased margins were
partially offset by increased claims expense of $4.0 million in one of
Certified's insurance subsidiaries and lower margins in the cooperative
divisions.

Distribution, Selling and Administrative. Distribution, selling and
administrative expenses were $104.4 million, or 7.6% of net sales in the 1999
period, as compared to $103.7 million, or 7.4% of net sales, in the 1998
period. The increase is due to additional costs of $9.3 million related to
retail operations of Sav Max. These costs were partially offset by efficiency
improvements in warehouse and delivery expenses in the 1999 period, and
nonrecurring charges relating to a settlement of litigation that occurred in
the 1998 period.

Interest. Interest expense decreased from $9.4 million, or 0.7% of net
sales, in the 1998 period to $8.8 million, or 0.6% of net sales, in the 1999
period. The decrease is due to lower interest rates associated with the $180.0
million refinancing completed in April 1998. Interest rates related to the
senior notes and revolving credit in the 1998 period were 8.29% and 6.91% in
the 1999 period.

Other Income (Expense). During the 1999 period, Certified sold its 10%
investment in common stock of K.V. Mart Co. for $4.5 million. The sale resulted
in a pretax gain of $1.5 million. Other income in the 1998 period was $3.3
million. In May 1998, Certified completed the sale of approximately 24 acres of
property located in Commerce, California. This sale resulted in a gain (net of
expenses related to the sale) of $3.2 million. Additionally, GCC periodically
sells loans in its portfolio to a third party. These loan sales resulted in a
net gain of $147,000 in the 1998 period.

Estimated Patronage Dividends. Estimated patronage dividends totaled $10.6
million for the 1999 period as compared to $8.0 million for the 1998 period.
The increase is due to lower distribution, selling and administrative expenses,
and interest expense, offset by lower gross margins.

Net Earnings. Net earnings for the 1999 period were $1.93 million compared
to $3.0 million for the 1998 period. Net earnings are generated by the
Company's subsidiaries and nonpatronage activities, which do not distribute
patronage dividends.

Fiscal Year 1998 Compared to Fiscal Year 1997

Net Sales. Net sales totaled $1.8 billion for fiscal 1998 as compared to
$1.9 billion in fiscal 1997. Sales decreased 4.9% from fiscal 1997. The
reduction in sales is the result of reduced sales to

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<PAGE>

Megafoods Stores, Nob Hill and Hughes which amounted to $86.3 million.
Megafoods, Nob Hill and Hughes were all acquired by entities that have self-
distribution programs. Accordingly, product supply to their respective stores
migrated into the corresponding self-distribution facilities in the period
between February 1997 through August 1998.

Cost of Sales. In fiscal 1998, the overall gross margin as a percentage of
net sales is consistent with fiscal 1997. An increase in service fees
implemented mid-year was offset by a substantial reduction in margins from
retail operations that were disposed of in fiscal 1997.

Distribution, Selling and Administrative. Distribution, selling and
administrative expenses were $137.2 million, or 7.5% of net sales, in fiscal
1998, as compared to $142.6 million, or 7.4% of net sales, in fiscal 1997. The
level of expense as a percentage of sales for fiscal 1998 is greater than
fiscal 1997 primarily due to the lower volume levels discussed under "Net
Sales," nonrecurring charges relating to a settlement of litigation and costs
to update computer programs that will be impacted by the Year 2000 issue. These
increased costs were partially offset by reduced costs resulting from the
implementation of radio frequency and automated routing programs in several of
Certified's distribution facilities.

Interest. Interest expense decreased from $13.0 million in fiscal 1997 to
$12.3 million in fiscal 1998. The decrease is primarily due to lower interest
rates associated with Certified's refinancing of its debt completed in April
1998 and reduced average borrowing requirements resulting from reductions in
inventories and accounts receivable. See "--Liquidity and Capital Resources."

Other Income (Expense), Net. Net other income in fiscal 1998 was $3.2
million as compared to other expense of $655,000 in fiscal 1997. In May 1998,
Certified completed the sale of approximately 24 acres of property located in
Commerce, California. This sale resulted in a gain, net of expenses related to
the sale, of $3.2 million. Other expense of $655,000 in fiscal 1997 resulted
from a $1.5 million reduction in the fair value of Certified's investment in
Sav Max, offset by gains realized from the sale of finance receivables
($387,000) and the remainder of Certified's interest in Major Market, Inc.
($458,000).

Patronage Dividends. Patronage dividends totaled $10.1 million for fiscal
1998 as compared to $14.5 million for fiscal 1997. The reduction is primarily
due to lower sales through the cooperative divisions, the refinancing charge
and the nonrecurring charges discussed previously, offset by reduced interest
costs.

Extraordinary Charge. The extraordinary loss of $1.08 million, net of income
taxes, in fiscal 1998 is related to the early extinguishment of debt in
connection with Certified's refinancing transaction. This charge covers
prepayment premiums paid and the write-off of financing costs relating to debt
refinanced in the transaction.

Net Earnings. Net earnings were $3.4 million for fiscal 1998 as compared to
$2.3 million for fiscal 1997. The increase reflects the earnings generated by
Certified's subsidiaries and the gain on the sale of the Commerce property,
which are not subject to patronage distribution but are retained and serve to
increase book value per share.

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<PAGE>

Fiscal Year 1997 Compared to Fiscal Year 1996

Net Sales. Fiscal 1997 sales decreased $21.8 million or 1.1% from fiscal
1996. This decrease is a result of reduced purchases by Food 4 Less GM, Inc.,
Megafoods and the sale of Certified's Hawaiian subsidiary, Hawaiian Grocery
Stores, Ltd., in May 1996. During fiscal 1997, sales relating to Food 4 Less,
Megafoods and Hawaiian Grocery were approximately $120 million below fiscal
1996. These sales decreases were partially offset by additional sales in all
divisions resulting from the benefits of Certified's impact-based pricing
strategy, which was implemented at the beginning of fiscal 1997. Impact-based
pricing is a volume incentive pricing program that recognizes the benefits and
efficiencies of order size and calculates fees primarily at category level. The
pricing program has resulted in increased sales, due to lower fees on price
sensitive items that retailers were purchasing through alternate channels.
Sales have also increased as a result of three Northern California retail
stores acquired at the beginning of fiscal 1997, the addition of a significant
dairy customer in February 1996, and the expansion of meat distribution in
Northern California in September 1996.

Cost of Sales. Cost of sales increased from 90.8% of sales in fiscal 1996 to
91.0% of sales in fiscal 1997. The impact-based pricing program has resulted in
an increase in the cost of sales as a percent of sales due to the reduced fees
charged to customers who contribute to the efficiency of the warehouse. This
fee reduction has been partially offset by the reduced cost of sales associated
with the retail stores operated by Certified in Northern California. Beginning
in July 1996, Certified acquired and operated three retail stores in Northern
California. The gross profit margins at retail were higher than the margins
related to the wholesale sales. In November 1997, the stores were sold to an
independent retail store operator.

Distribution, Selling and Administrative. Distribution, selling and
administrative expenses were $142.6 million or 7.4% of net sales in fiscal
1997, as compared to $149.1 million or 7.7% of net sales in fiscal 1996.
Certified has implemented several new programs and procedures in its
distribution facilities that have impacted the level of operating costs as a
percentage of sales. Two significant examples of these changes, and the
associated benefits are:

. radio frequency transmitters have been installed on forklifts in some
facilities, which facilitates the receiving and selection process; and

. plastic pallets have replaced wooden pallets in most facilities, which
reduces the cost of pallet repairs and allows for greater utilization of
truck space for backhauls.

Operating Income. Operating income increased to $31.5 million in fiscal
1997, representing a $2.0 million increase over fiscal 1996. This increase is
due to the reduction in operating costs, which more than offset the impact of
lost sales and reduced margins.

Interest. Interest expense decreased from $14.4 million in fiscal 1996 to
$13.0 million in fiscal 1997. The decrease is due to lower borrowing
requirements resulting from the sale of finance receivables in August 1996,
January 1997 and August 1997.

Other (Expense) Income, Net. Net other expense of $655,000 in fiscal 1997
resulted from a $1.5 million reduction in the fair value of Certified's
investment in Sav Max offset by gains realized from the sale of finance
receivables and the remainder of Certified's minority interest in Major Market.
In fiscal 1996, Certified sold 100% of its common stock ownership in Hawaiian
Grocery for $2.4 million. The sale resulted in a pretax gain of $366,000.
Pursuant to this transaction, Certified retained an ownership interest in
Hawaiian Grocery represented by 1,000 shares of preferred stock with a total
book value of $1 million.

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<PAGE>

Patronage Dividends. Patronage dividends totaled $14.5 million in fiscal
1997 as compared to $13.2 million in fiscal 1996. The increase is primarily due
to cost control measures and lower interest expense.

Net Earnings. Net earnings for fiscal 1997 were $2.3 million as compared to
net earnings of $1.5 million for fiscal 1996, an increase of 52%. The increase
reflects the earnings generated by Certified's subsidiaries, which are not
subject to patronage distribution but are retained and serve to increase book
value per share.

Liquidity and Capital Resources

Certified relies upon cash flow from operations, patron deposits,
shareholdings and borrowings under Certified's credit lines, to finance
operations. Net cash utilized by operating activities totaled $21.3 million for
the 1998 period. Net cash provided by operating activities totaled $14.3
million for the 1999 period. Net cash provided for the 1999 period is primarily
due to decreased long-term notes receivable in the distribution operations,
increased accrued liabilities in the distribution, insurance and SavMax
operations, and increased long-term liabilities in the distribution and SavMax
operations. At May 29, 1999, working capital was $96.7 million. The current
ratio was 1.6 to 1 at the 1998 period and 1999 period. Working capital varies
primarily as a result of seasonal inventory requirements.

Capital expenditures totaled $11.8 million in the 1999 period, $18.4 million
in fiscal 1998, and $15.2 million in fiscal 1997.

Certified has $80,000,000 in senior notes outstanding to certain insurance
companies and pension funds. The proceeds of the senior notes were utilized to
pay off substantially all existing senior, subordinated and secured long-term
notes payable and a portion of amounts due under Certified's revolving credit
agreement with banks. The senior notes are unsecured, due in April 2008 and
bear interest at 7.22% per annum. Certified also has a $100,000,000 revolving
credit facility with a group of banks. The revolving credit is unsecured,
expires in April of 2003 and bears interest at the bank's base rate or at an
adjusted LIBOR rate plus a margin ranging from 0.375% to 0.90% depending on
Certified's leverage ratio. Both the senior notes and the revolving credit
limit the incurrence of additional funded debt, restrict the issuance of
secured indebtedness and prohibit the payment of dividends (other than
patronage dividends). These credit agreements contain various financial
covenants. Obligations under the credit agreements are senior to the rights of
member-patrons with respect to deposits and patronage dividend certificates.

Certified will refinance its senior notes and revolving credit in connection
with the merger. See "THE MERGER--Financing of the Merger" (page 41).

Certified entered into a five-year interest rate collar agreement during
February 1999 in relation to certain borrowings on its variable rate revolving
credit. The collar agreement was put in place without incurring any costs. The
hedge agreement is structured such that Certified pays a variable rate of
interest between 6% (cap rate) and 4.94% (floor rate) based on a notional
amount of $50,000,000. The weighted average interest rate on borrowings on the
revolving credit were 5.96% at May 29, 1999.

A $10 million credit agreement is collateralized by Grocers Capital
Company's member loan receivables. The primary function of Grocers Capital is
to provide loan financing to Certified's member-patrons. The funding for loans
made by Grocers Capital is provided by Grocers Capital's cash reserves

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<PAGE>

as well as the $10 million credit agreement. The maturity date of the credit
agreement is September 20, 2001, but is subject to an annual extension of one
year by the mutual consent of Grocers Capital and the bank. No amounts were
outstanding under this credit line at May 29, 1999. The unused portion of this
credit line is subject to commitment fees of 0.125% plus $25,000 annually.

In May 1999 Certified entered into an agreement with Albertson's, Inc. to
purchase certain assets related to 32 stores being sold as a result of a
required divestiture of stores associated with Albertson's merger with American
Stores, Inc. Certified will sell or otherwise permit the direct transfer of a
total of 26 of the stores to Certified members coincident to the closing of the
transaction. Certified will retain six stores until it locates a suitable buyer
for the stores. Certified has provided some members with financing support from
Grocers Capital Company in connection with this transaction. Financing support
is provided on a member by member basis. In addition, Certified will provide
credit enhancement with respect to certain of the leases involved in the
transaction in the form of guarantees or as a sublessee/sublessor.

Member loans receivable are periodically sold by Grocers Capital to a bank
through a loan purchase agreement. The maturity date of the loan purchase
agreement is August 29, 2001, but is subject to extension by mutual agreement
of Certified 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. Grocers
Capital entered into another loan purchase agreement with a different bank in
January 1999. This loan purchase agreement can be terminated upon ninety days
prior written notice. There is no maximum limitation on the loan purchases. At
August 29, 1998 and May 29, 1999, the aggregate principal outstanding balance
of loans purchased by the banks was $17 million and $25 million, respectively.
The loan sales are subject to limited recourse provisions.

Certified distributes at least 20% of the patronage dividends in cash and
distributes Class B Shares as a portion of the patronage dividends distributed
to its member-patrons.

Patrons are generally required to maintain subordinated deposits with
Certified and member-patrons purchase Class B shares to satisfy this
requirement. Upon termination of patron status, the withdrawing patron will be
entitled to recover deposits in excess of its obligations to Certified 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. Certified's
current redemption policy limits the Class B Shares that Certified 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 1998, this
limitation restricted Certified's redemption of shares to 19,300 shares for
$3.4 million. In fiscal 1999, the 5% limitation will restrict Certified's
redemption of shares to 19,007 shares for $3.5 million. The number of shares
tendered for redemption at May 29, 1999 totaled 66,022, which exceeds the
amount that can be redeemed in fiscal 2000. Consequently, under its current
redemption policy Certified will be required to make redemptions in fiscal
2000, 2001 and 2002, with such redemptions approximating $12.1 million based on
fiscal 1998 year-end book value. 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 Certified's
credit lines.

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<PAGE>

Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments and requires reporting for
selected information about operating segments in financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement is effective for
financial statements for periods beginning after December 15, 1997. Management
is in the process of determining the effects on Certified's financial statement
disclosures of adopting this statement.

The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The statement requires that
Certified recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. As amended by SFAS
No. 137, this statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Management is in the process of determining the
effects on Certified's financial statements.

Year 2000

Certified has had an active Year 2000 program since August 1996. This
program includes a detailed review of Certified's software applications,
hardware, and embedded technology. Certified has utilized an outside consultant
to assess the embedded chip technology within its facilities. This assessment
found 95% of the chips to be either already compliant or in the process of
being updated by various vendors.

In 1996, Certified began assessing the application software of Certified to
determine risk of Year 2000 failure. The assessment process was used to
identify the business applications that would be at risk for potential century
date impact and to prioritize the critical, moderate, and low risk applications
for remediation or replacement. Applications that will be impacted by Year 2000
are scheduled for remediation or replacement. Certified is approximately 85%
complete with replacing or remediating business critical applications, 75%
complete with respect to applications that were identified as moderate risk and
50% complete as to low risk applications. The schedules for remediation or
replacement are reviewed monthly by management. With the exception of one
system that is being replaced and will be completed by December 1999, the
Company expects that 100% of all critical and moderate risk applications will
be completed by August 1999.

Certified had decided to replace certain systems that were not Year 2000
compliant. The systems being replaced are older systems that would have been
replaced prior to Year 2000 regardless of the non-compliant issue. The
estimated total cost of the Year 2000 project, including replacement of the
systems, is approximately $6.8 million. The estimated total cost of the new
systems is approximately $3.1 million, which is being capitalized. The
remaining $3.7 million has been or will be expensed. The total amount incurred
on the project through May 29, 1999 was $5.4 million, of which $2.7 million
related to the cost to remediate software, which cost has been expensed, and
$2.7 million related to the replacement of systems including hardware.

Certified has notified its members of the Year 2000 issues through
newsletters, meetings, and discussions. Certified's Interactive Ordering
Program, which allows retailers to order electronically, and CertiNet, which is
a comprehensive in-store system, are Year 2000 compliant.

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<PAGE>

The Year 2000 project team is also addressing interaction with vendors and
the potential impact of Year 2000 issues. Certified has completed the upgrade
and implementation of the Year 2000 compliant version of the Uniform Commercial
Standard transactions. Certified is working with UCS vendors to make sure that
processing of orders, invoices, and payments via electronic data interchange
will be Year 2000 compliant. For those UCS vendors that are not ready for Year
2000, Certified has a contingency plan that converts the vendor's data into
Year 2000 compliant data before processing through Certified's systems.

Additionally, Certified is a member of the National Grocers Association's
Year 2000 Task Force, which was formed to assist retailers in resolving the
Year 2000 problem in their businesses through the sharing of information. The
objectives of this group are to:

. identify the hardware and software systems at risk;

. communicate with the vendor community and establish definitive position
statements regarding cash systems; and

. communicate these findings to NGA members. Many of Certified's members
are members of NGA. A comprehensive report of the findings of the Task
Force is available to all members and vendors that are associated with
Certified and the contents thereof have been discussed at several recent
industry meetings. Certified has set up an electronic bulletin board
with information on Year 2000 issues for its members.

As the Year 2000 program progresses, Certified will be developing additional
contingency plans. Certified's contingency plans will be intended to address
both remediation of systems and the overall business operating risk.

Certified has not initiated a formal confirmation process with its members
or vendors on their state of readiness for Year 2000. However, Certified has
been meeting with its members during the last two years to raise their
awareness of the potential for business interruption due to Year 2000.
Transactions with vendors are being reviewed vendor by vendor. Certified has
established contingency plans that will convert member and vendor data into
Year 2000 compliant data before processing through Certified's systems. Failure
of Certified's members or vendors to be Year 2000 compliant could have a
material adverse impact on Certified's operations. However, as discussed above,
Certified is actively working with members and vendors to address the Year 2000
issues.

Forward-Looking Information

This document includes forward-looking statements concerning Certified that
(a) predict or forecast future events or results, (b) depend on future events
for their accuracy, or (c) embody assumptions which may prove to have been
inaccurate. For a description of the forward-looking information, see "FORWARD-
LOOKING STATEMENTS MAY PROVE INACCURATE" (page 15).

Quantitative and Qualitative Disclosures About Market Risk

Certified has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-
defined interest rate risks. Certified entered into a five-year interest rate
collar agreement during February 1999 in relation to certain borrowings on its
variable rate revolving credit. The collar agreement was put in place without
incurring a fee with respect to the collar transaction. The hedge agreement is
structured such that Certified pays a variable rate of interest between 6% (cap
rate) and 4.94% (floor rate) based on a notional amount of $50,000,000. The
weighted average interest rate on borrowings on the revolving credit were 5.96%
at May 29, 1999.

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<PAGE>

Directors and Executive Officers

The current bylaws of Certified provide that twelve directors are to be
elected by the holders of Certified's Class A Shares and three directors are to
be elected by the holders of Certified's Class B Shares. Each director is
elected at Certified's annual meeting to serve until the next annual meeting
and until their successors are elected and qualified. For a description of a
proposed amendment to Certified's articles of incorporation and bylaws to
change the authorized number of directors, see "THE AMENDMENTS" (page 53).

The following table sets forth information concerning the directors of
Certified as of August 15, 1999.

<TABLE>
<CAPTION>
Year
First Principal Occupation
Name Age Elected During Last 5 Years
- ---- --- ------- --------------------
<S> <C> <C> <C>
CLASS A DIRECTORS
Louis A. Amen........... 70 1974 President, Super A Foods, Inc.

Bill Andronico.......... 41 1999 President, Andronico's Markets

David Bennett........... 45 1999 Vice President and Secretary, Albeco, Inc.,
operating Mollie Stone's Markets

John Berberian.......... 48 1991 President, Berberian Enterprises, Inc.,
operating Jons Markets

Edmund Kevin Davis...... 45 1998 President, Chairman and Chief Executive
Officer, Bristol Farms Markets

David M. Goodwin........ 49 1999 President, Goodwin & Sons, Inc.

Mark Kidd............... 49 1992 President, Mar-Val Food Stores, Inc.

Jay McCormack........... 49 1993 Owner-Operator, Alamo Market; Co-owner,
Glen Avon Apple Market

Morrie Notrica.......... 70 1988 President and Chief Operating Officer, Joe
Notrica, Inc.

Michael A. Provenzano... 57 1986 President, Pro & Son's, Inc., President,
Provo, Inc. and President Pro and Family,
Inc.

Edward J. Quijada....... 51 1998 Executive Vice President, Tresierras Bros.
Corp., operating Tresierras Markets

James R. Stump.......... 61 1982 President, Stump's Market, Inc.

CLASS B DIRECTORS
Darioush Khaledi........ 53 1993 Chairman of the Board and Chief Executive
Officer, K.V. Mart Co., operating Top Valu
Markets and Valu Plus Food Warehouse

Mimi R. Song............ 42 1998 President and Chief Executive Officer,
Super Center Concepts, Inc.

Robert E. Stiles........ 59 1999 President, Gelson's Markets Inc.
</TABLE>

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<PAGE>

The following table sets forth information concerning the officers of
Certified as of August 15, 1999

<TABLE>
<CAPTION>
Principal Occupation
Name Age During Last 5 Years
- ---- --- --------------------
<S> <C> <C>
Alfred A. Plamann..... 57 Corporate President and Chief Executive Officer
since 1994; previously Senior Vice President--
Finance and Chief Financial Officer.

George D. Gardner..... 45 Vice President--Non Foods and Specialty Products
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.

Corwin J. Karaffa..... 44 Vice President--Distribution since January 1995;
previously Facilities Manager, Procter and Gamble
Distribution Co.

Robert M. Ling, Jr.... 42 Senior Vice President, General Counsel and Secretary
since October 1997; 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, Megafood
Stores, Inc., July 1994 to April 1996; previously
Vice President, General Counsel and Secretary,
Reliable Drug Stores, Inc.

Richard J. Martin..... 53 Senior Vice President, Finance and Administration
and Chief Financial Officer since May 1998;
previously Executive Vice President and Chief
Financial Officer, Rykoff-Sexton, Inc. through mid-
December 1997 when it merged with J.P. Foodservice
to form what is now US Foodservice and Executive
Vice President Finance and Administration of the
combined entity until early January 1998.

Joseph A. Ney......... 51 Vice President--Insurance since November 1998;
previously President, Grocers and Merchants
Insurance Service, Springfield Insurance Company,
and Springfield Insurance Company, Ltd.

Charles J. Pilliter... 51 Senior Vice President and President--Northern
California

Jack E. Scott II...... 48 Vice President and Chief Information Officer since
June 1996; Chief Information Officer, World Vision
United States, November 1993 to May 1996.

Phillip S. Smith...... 48 Vice President--Procurement since October 1997;
Executive Director--Purchasing, July 1997 to October
1997; General Manager--Northern California, June
1996 to July 1997; Manager--Product Sales, September
1994 to June 1996; previously Division Manager,
Market Wholesale.

David A. Woodward..... 56 Treasurer since August 1996; previously Corporate
Secretary/Treasurer.
</TABLE>

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<PAGE>

INFORMATION CONCERNING UNITED

Business

General

United is an Oregon business corporation engaged primarily in the wholesale
grocery and food service distribution business. United was organized in 1915
and is operated and taxed as a cooperative.

United supplies groceries and related products to independent retail grocers
located in Oregon, Western Washington and Northern California. In addition,
United and its wholly owned subsidiaries provide various services ancillary to
the operation of a retail grocery business. These services include marketing
assistance, store design and development, security services, information
services, accounting and financing.

During the first fiscal quarter of 1999, United sold its Medford
distribution center. With the exception of dairy and produce, the business
previously handled through the Medford distribution center has been
consolidated into the Tracy and Modesto, California, and Portland, Oregon
distribution centers. United estimates the closure costs associated with
closing the Medford distribution center to be $700,000.

During fiscal 1998, United sold its Cash & Carry division, Rich and Rhine
subsidiary, and insurance subsidiaries. United has entered into supply
agreements with the purchasers of Cash & Carry and Rich and Rhine.

Membership

Independent retail grocers within United's market area are eligible to apply
for membership. All applicants for membership are subject to approval by
United's board of directors on the basis of financial responsibility and
operational ability. On approval, and subject to compliance with applicable
securities laws, applicants are required to purchase shares of United Common
Stock. The following table summarizes the number of United members and member-
owned retail grocery stores:

<TABLE>
<CAPTION>
Number of
Number of Member Retail
As of Members Grocery Stores
----- --------- --------------
<S> <C> <C>
July 2, 1999........................................... 247 324
October 2, 1998........................................ 250 353
October 3, 1997........................................ 254 359
</TABLE>

By pooling the buying power of its member and non-member customers, United
is able to purchase goods in large quantities at prices lower than the prices
generally available to individual independent retail grocers. The savings from
the consolidated purchases are passed along to members through product pricing
in the form of rebates, allowances and patronage dividends. United may also pay
its members annual patronage dividends, based on the overage, or excess of net
sales over cost of goods sold less expenses, on sales to members for the year.
Each year, United's board of directors determines the portion of the overage
which may be distributed as patronage dividends. Decisions concerning the
portion of the overage to be retained are based upon various factors, including
United's future capital needs and the amount of earnings available from
operations which do not qualify for distribution as patronage dividends. The
patronage dividends, if any, are allocated among the members in proportion to
their contribution to United's patronage activities. United has

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<PAGE>

historically paid patronage dividends partly in cash and partly in United
Common Stock. United did not pay any patronage dividends during the fiscal 1997
or 1998 periods.

Generally, United's membership consists of a range of small to large volume
retail grocery stores. Members generally have single stores but some members
have several stores. Members accounted for approximately 70% of United's
wholesale distribution business in fiscal 1998.

United's largest member is Ray's Food Place which accounted for nearly 10%
of United's annual revenue in fiscal 1998. United's largest customer is Smart &
Final, a non-member, which accounted for nearly 20% of United's annual revenue
in fiscal 1998. United's management believes that, with the exception of these
two customers, the loss of any one or a few of its members or other customers
would not have a material effect on its business or financial condition.

Products and Services

Consolidated revenues by principal product lines and services appear in the
following table:

(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
September 27, 1996 October 3, 1997 October 2, 1998
--------------------- --------------------- ---------------------
Percentage Percentage Percentage
of Total of Total of Total
Product or Service Revenue Revenue Revenue Revenue Revenue Revenue
------------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Grocery(1) ............. $ 668,321 52.20% $ 715,340 54.75% $ 562,121 47.83%
Dairy and deli.......... 113,094 8.83 114,045 8.73 137,933 11.74
Meat.................... 76,850 6.00 59,990 4.59 73,040 6.21
Produce................. 48,456 3.78 45,772 3.50 50,970 4.34
Frozen foods............ 71,602 5.59 63,136 4.83 80,708 6.87
General merchandise..... 48,396 3.78 47,044 3.60 47,190 4.02
Institutional(2)........ 232,913 18.19 247,509 18.94 212,045 18.04
Retail services......... 18,249 1.43 11,124 0.85 10,010 0.84
Store finance........... 2,572 0.20 2,642 0.21 1,262 0.11
---------- ------ ---------- ------ ---------- ------
Total............... $1,280,453 100.00% $1,306,602 100.00% $1,175,279 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
- --------
(1) Grocery revenues include sales from retail stores operated on a temporary
basis.
(2) Institutional revenues include sales of all product lines.

Wholesale Distribution

United purchases and distributes grocery products to its member and non-
member customers. United offers a broad selection of the following products:
groceries, ice cream, dairy, frozen food, deli, service deli/bakery, bread,
general merchandise, health and beauty care, candy, tobacco, fresh meat, fresh
produce, eggs, and gourmet foods. United offers a full line of private brand
goods including Western Family, Home & Garden, Valley Fare and Better Buy
labels.

Products are distributed from one of three locations: a full line facility
in Portland, Oregon, a perishables facility located in Tracy, California and a
grocery facility in Modesto, California. United closed its Medford produce
facility in July 1999. In addition to products stored in United's distribution
facilities, United's suppliers ship complete customer orders to United for
immediate delivery by United to the customer.

85
<PAGE>

Wholesale distribution accounted for approximately 81% and 87% of annual
revenues in fiscal 1998 and 1997. United expects wholesale distribution to
represent approximately 97% of United's revenues in fiscal 1999.

Member Services

General United provides a number of services to its members, either directly
or through one or more of its subsidiaries, to support the activities and
operations of its members' retail grocery stores. Services that do not carry a
specific fee include marketing information, retail store counseling and
merchandising assistance.

United also offers its members, for a fee, the following:

. Advertising services;

. Complete bookkeeping, accounting and tax services;

. Graphic design and printing services;

. Security services;

. Retail pricing and retail shelf "unit pricing" services;

. Payroll services;

. Retail information network and applications services; and

. Education and training programs.

Finance Services United's subsidiary, United Resources, Inc. offers finance
services to members including loans for store remodeling, store acquisitions,
equipment purchases and other financial services. Loans to members are
generally made at rates based on the prime interest rate. Such loans generally
are for terms of one to ten years. United has a note purchase arrangement with
National Consumer Cooperative Bank. United makes loans directly and sells
certain of the loans to National Consumer Cooperative Bank with limited
recourse to United. As of July 2, 1999, the aggregate principal amount of
direct and limited recourse loans outstanding was $29,380,071, consisting of
$10,054,757 in direct loans and $19,325,314 in limited recourse loans. As of
October 2, 1998, the aggregate principal amount of direct and limited recourse
loans outstanding was $40,170,218, consisting of $15,744,218 in direct loans
and $24,426,000 in limited recourse loans. United Resources' interest income
for the year ended 1998 was approximately $1,261,000. In the normal course of
its business, United Resources acquires retail stores through foreclosure or
purchase. Occasionally, United Resources operates these stores on a temporary
basis.

As of July 2, 1999, United Resources was operating four stores. During 1999,
United Resources acquired three stores through foreclosure, and disposed of
three stores through sale or closure. United Resources owned and operated four
stores during 1998. In 1998, United Resources acquired three stores through
foreclosure, and disposed of three stores through sale or closure. During 1997,
United Resources acquired two stores through foreclosure, and disposed of two
stores through sale or closure.

United, in order to enable members to obtain prime commercial space, leases
retail space and subleases the space to qualified members. At July 31, 1999,
United was obligated on 45 retail leases. At October 2, 1998, United was
obligated on 47 retail leases, compared to 49 retail leases at October 3, 1997.
During 1996, the Company changed its policy from requiring lease insurance on

86
<PAGE>

subleases where United is the main lessee to a policy of charging premiums on
its subleases to compensate the Company for its sublease risk.

Retail Development Services United offers a variety of advertising group
solutions. Advertising groups are designed to offer the retail owner a "chain"-
like identity, combined with effective and professional advertising,
consolidated buying power, consistent standards and disciplined operational
plans. United offers Thriftway, Sentry, Select, U.S.A. and Quality Plus for its
various advertising groups. United also offers a less structured advertising
program under the name of United West.

Technology Services United provides a high quality, standard computing
package for its retail customers. This standard platform is marketed under the
name of Project Enterprise.

Project Enterprise bundles software, hardware, network connections, and
maintenance together into a single product offering. The Project Enterprise
platform includes an integrated store processor, United's U-Link family of
services, a laser printer, and United's Ready Pay electronic payment system.
This entire system is placed in the retail location and store personnel are
trained by United staff. The retailer's only financial responsibility is to pay
a weekly fee for the use of the system. Project Enterprise has allowed United
to make a computing system affordable to its retailers while providing volume
discounts for hardware and maintenance. As of July 31, 1999, there are 161
Project Enterprise systems in place.

Food Service Distribution

United's wholesale/retail food service division, Cash & Carry, was sold in
May of 1998 to a national operator, Smart & Final. United continues to supply
wholesale grocery products to the previously owned Cash & Carry stores pursuant
to a five year supply agreement with Smart & Final.

Convenience Store Distribution

United sold its convenience store distributor, Rich and Rhine, in 1998.
United entered into a two year supply agreement with the purchaser of Rich and
Rhine and continues to supply a small portion of wholesale grocery products to
the purchaser.

Insurance

United sold its insurance operations in July of 1998 to Orion Capital
Corporation. United entered into an agreement to purchase insurance from Orion
as part of the sale. Results of insurance operations for the 1997 and 1998
fiscal years are included under the heading "Discontinued Operations," in
United's consolidated financial statements included in this document. As part
of the sale, United agreed to restrict its activities in the insurance
business. United and Orion are in on-going negotiations and have reached a
tentative agreement with respect to the continuing insurance business of
Certified's insurance subsidiary. Satisfactory resolution of this matter is a
condition to Certified's obligation to complete the merger.

Competition

The grocery industry is characterized by intense competition. United's
wholesale grocery marketing area includes Oregon, Northern California, and
Western Washington. Principal wholesale competitors include two national
grocery wholesalers, which because of their operations in other areas are
larger than United, and three regional grocery wholesalers.

87
<PAGE>

Other competitors include a number of local grocery wholesalers, many of
whom are limited to special product lines, such as candy and tobacco, meat,
produce, service deli/bakery or sell only to limited market segments, such as
restaurants, hospitals, schools and other institutional customers. United also
competes with a significant number of producers which market their products
directly to retailers and with several chain store organizations that control
both their wholesale and retail operations.

Based on available information, United estimates that its members, many of
whom are in competition with one another, account for approximately 13% of the
retail grocery market within United's marketing area. Although members are free
to purchase from sources other than United, members generally purchase goods
(except goods which United does not supply, such as beer and wine), principally
from United. United does not account for a significant percentage of the
national wholesale grocery market.

Past trends in the results of United's member stores have continued. In
general, members outside major metropolitan areas, and those operating newer
stores, price oriented stores or super stores registered various gains in unit
volume. Members operating average sized conventional stores generally
registered smaller unit volume increases.

United's success is dependent on the ability to supply goods and services to
customers in a cost efficient manner and the ability of its customers to
compete effectively with other independents, chain stores and non-traditional
retailers.

Employees

United employed approximately 1,363 persons at July 31, 1999. Approximately
990 of its employees are members of a union and subject to collective
bargaining agreements.

The following table summarizes the status of United's collective bargaining
agreements as of July 31, 1999:

<TABLE>
<CAPTION>
Approximate
Number of
Employees
Union Location Covered Expiration Date
- ----- -------------------- ----------- ---------------
<S> <C> <C> <C>
Joint Council of Teamsters
Local 37 and a number of
Teamsters Local Unions....... All Oregon locations 488 4/1/01
Office and Professional
Employees International Union
Local 11..................... Oregon locations 55 1/31/01
Teamsters Local 439........... Tracy, CA 41 12/31/99
Teamsters Local 386........... Modesto, CA 148 4/15/01
Teamsters Local 624........... Santa Rosa, CA 6 10/15/01
UFCW Local 588................ Oroville, CA 85 1/31/02
UFCW Local 588................ North Highlands, CA 44 1/31/02
UFCW Local 555................ Longview, WA 123 12/30/00
</TABLE>

Teamsters Local 439 has recently ratified an extension of the existing
agreement covering the Tracy, California location through December 31, 1999.

88
<PAGE>

United has not experienced a strike or similar labor disruption since 1978.
United considers its relations with its employees to be satisfactory.

Suppliers

United purchases goods from a wide variety of sources, ranging from local
farmers to large multinational corporations. United attempts to obtain the
lowest possible price by pooling the buying power of its members. United is not
dependent on any single supplier. The loss of any single supplier would not
have a material effect on its business.

United is one of six shareholders of Western Family Holding Company, a
corporation that pools the buying power of its shareholders in order to obtain
lower cost merchandise. United owns approximately 21% of the stock in Western
Family Holding Company. United purchases private label products under the
labels such as "Western Family." Purchases from Western Family Holding Company
accounted for about 14% of United's wholesale merchandise, exclusive of direct
store delivered merchandise such as dairy, eggs and bread. Total purchases of
Western Family products is approximately 17-18% of all wholesale purchases,
including dairy, eggs and bread.

Environmental

United's operations are not of a type which ordinarily result in the
discharge of significant quantities of pollutants. United believes that its
operations meet or exceed all applicable environmental regulations.

Income Taxes

United operates and is taxed as a cooperative. Accordingly, patronage
dividends are not included in United's taxable income, but are instead taxed to
the individual members receiving the patronage dividends. The Internal Revenue
Code of 1986 requires that not less than 20% of each member's patronage
dividend be paid in cash. United's patronage dividend policy meets that
requirement, providing for cash payments of up to 100% of dividends based on
ratios of the value of stock holdings by member stores to their average weekly
purchases, and total number of shares of stock owned. Patronage dividends not
paid in cash are paid in additional United Common Stock, subject to compliance
with applicable securities laws. Members are required to agree to abide by all
United's Bylaw provisions, including those applicable to Federal income
taxation of patronage dividends. Accordingly, members must report as taxable
income that total amount of patronage dividends, whether paid in cash or United
Common Stock, in the year such patronage dividends are received, and such
amounts are not taxable to United.

United is taxed on income that does not qualify for distribution as
patronage dividends and on the portion of income that is not distributed to
members. Profits or (losses) from operations of United's subsidiaries are
retained.

Government Contract Business

United does not generate significant business based upon contracts with
local, state or federal government entities.

89
<PAGE>

Properties

As of July 31, 1999, United operated three distribution centers. One of the
distribution centers is owned and the other two are leased. United's
distribution centers are modern, one floor, concrete construction buildings,
with internal sprinkler systems.

The main distribution center, located at corporate headquarters in
Milwaukie, Oregon, contains over 904,500 square feet of warehouse space. It is
situated on a 62 acre site owned by United. Also at this location are 43,000
square feet of office space, a small credit union office building and a small
truck repair shop. United distributes frozen food, dairy, produce, meat,
groceries, deli, general merchandise, health and beauty care, store supplies,
candy, tobacco, and gourmet foods from this location. This facility is subject
to various mortgages, the terms of which are summarized in the Notes to
United's Consolidated Financial Statements. See "INDEX TO FINANCIAL
STATEMENTS--United."

United's Southern Oregon division distribution center was located in
Medford, Oregon on a site which United previously owned. United now leases a
portion of a building consisting of 64,000 square feet of refrigerated space.
The facility was closed in July of 1999. United will retain the business
through its Portland, Oregon distribution center and an arrangement with NorCal
Produce Company of California.

United's California Division is split between two sites: Modesto, California
and Tracy, California. Both facilities are leased.

The Modesto, California distribution center contains over 252,100 square
feet of warehouse space, situated on a 30 acre site. Also at this location are
12,900 square feet of office space, and a 10,000 square foot truck repair shop.
Dry groceries, store supplies, candy, tobacco and merchandise originating from
the Portland distribution center are distributed from the Modesto location.

The Tracy, California distribution center is approximately 160,166 square
feet. Meat, frozen food, and deli products are distributed from this center.
Also on this site are a truck repair shop and office space.

United also operates from three other facilities. One of these is in
Milwaukie, Oregon and houses the Creative Process subsidiary. Another is
located in Woodland, California and houses Western Passage Express, the
transportation subsidiary. The final property is in Milwaukie, Oregon and is
the home for the U.G. data center.

United and its subsidiaries operate a truck fleet, consisting of 205
tractors and 401 dry and refrigerated semi-trailers, including both owned and
leased units.

United leases a mainframe computer, together with related peripheral
equipment, under various leases expiring in August 2001.

United is also the prime lessee of certain retail stores, which are
subleased to members, totaling approximately 1.2 million square feet. Further,
United and its subsidiaries are the lessees and operators of four retail stores
acquired through foreclosure. These four stores have approximately 160,000
square feet of retail selling space.

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<PAGE>

United leases several distribution and office locations with lease terms and
rents as follows:

<TABLE>
<CAPTION>
Location Use Square Feet Lease Expiration Monthly Rent
- -------- ---- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Santa Rosa, CA................... D.C. 244,000 7/27/05 $80,250
Modesto, CA...................... D.C. 275,000 7/27/05 $74,250
Tracy, CA........................ D.C. 160,166 7/27/05 $84,888
Milwaukie, OR.................... C.P. 16,000 6/30/02 $ 7,236
Medford, OR...................... D.C. 64,000 12/31/08 $48,000
Milwaukie, OR.................... Rec. 9,600 9/30/00 $ 3,119
Milwaukie, OR.................... I.S. 14,097 12/31/02 $15,272
Woodland, CA..................... WPX 68,400 9/30/05 $25,286
</TABLE>
- --------
<TABLE>
<S> <C>
D.C. = Product Distribution Center Rec. = Reclamation Center
C.P. = Creative Process Subsidiary I.S. = Information Services Office
WPX = Western Passage Express Subsidiary
</TABLE>

Legal Proceedings

United is a party to routine legal proceedings which are not expected to
have a material effect on the business.

Selected Financial Data
(In thousands, except book value per share and operating data)

<TABLE>
<CAPTION>
Fiscal Year Nine Months Ended
------------------------------------------------------------ -----------------
July 3, July 2,
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ------------- ---------- ---------- -------- --------
(Unaudited) (Unaudited) (Restated)(2)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data(1)
Net sales............... $935,432 $995,453 $1,280,453 $1,306,602 $1,175,279 $892,279 $773,475
Operating income
(loss)(3).............. 16,244 20,340 9,948 (1,668) 1,327 3,842 (487)
Patronage dividends..... 8,730 8,350 4,000 0 0 0 0
Net earnings (loss)..... 2,044 3,685 (5,569) (8,660) 19,760 14,369 (2,213)
Balance Sheet Data
Working capital......... $ 45,678 $ 53,264 $ 56,329 $ 107,213 $ 31,152 $ 47,979 $ 24,834
Total assets............ 307,255 323,209 379,264 365,427 233,642 305,752 215,829
Long-term notes
payable................ 114,669 115,624 143,134 187,995 74,434 98,887 56,596
Members' equity......... 28,114 32,352 25,733 14,651 31,343 28,968 27,485
Book value per
share(4)............... 43.17 49.34 40.31 24.97 59.82 49.36 54.05
Operating Data
(Unaudited)
Patrons
Number of stores....... 360 368 353 359 353 355 324
Number of patrons...... 250 253 248 254 250 251 247
Total stores(5)......... 454 463 1,614 1,585 1,630 1,686 1,724
Total patrons and
customers(5)........... 344 348 1,502 1,471 1,516 1,582 1,647
</TABLE>
- --------
(1) Operating data for all years is for continuing operations only.
(2) See Note 2 to Notes to Consolidated Financial Statements of United (page F-
38).
(3) Operating income is comprised of net sales less costs and expenses and
members' allowances.
(4) According to United's Bylaws, shares are redeemed at the adjusted book
value per share at the close of the fiscal year last ended. For the
purposes of this table, book value per share equals the members' equity
divided by outstanding common shares at the corresponding date.
(5) The number of stores and customers increased significantly beginning in
1996 with the acquisition of Market Wholesale, Inc. in December 1995.

91
<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Overview

Fiscal 1998 was a year of major changes for United. These changes were a
result of United's decision to increase the emphasis on the "core" business
activity, grocery product distribution. The result of these changes on the
financial statements is to make some of the results of operations and balance
sheet items less comparable when reviewing years side by side. The effect of
these changes on the financial statements will be described as part of this
discussion in the appropriate sections.

During fiscal 1997, United experienced significant losses from adjustments
to the reserve for uncollectible receivables.

The financial data for fiscal 1996 referenced in this item has been
restated. The changes are summarized in Note 2 of the Notes to Consolidated
Financial Statements following the consolidated financial statements filed in
this document. See "INDEX TO FINANCIAL STATEMENTS--United" (page F-1).

Discontinued Operations

In September 1997, United's management and Board of Directors approved a
plan whereby the insurance operations would be sold to an unrelated party.
Accordingly, the results of operations of the insurance segment for the annual
and year-to-date periods have been presented as "discontinued operations" in
the accompanying consolidated statements of operations.

The sale was completed on July 8, 1998 to Orion Capital Corporation. Net
proceeds from the sale of the stock of United's insurance subsidiary totaled
approximately $36 million, resulting in a pre-tax gain of approximately $5.4
million, which was recorded in the fourth quarter of fiscal 1998, and is shown
on the Consolidated Statements of Operations following the heading "Gain on
disposal of insurance segment." Proceeds from the sale were used to reduce
United's long-term debt. See "INDEX TO FINANCIAL STATEMENTS--United" (page F-
1).

The following is a summary of the assets and liabilities of the insurance
segment as of July 3, 1998:

<TABLE>
<S> <C>
Assets:
Investments..................................................... $45,993,000
Receivables and other current assets............................ 28,646,000
Long-term assets................................................ 733,000
-----------
75,372,000
Liabilities:
Insurance reserves supported by investments..................... 27,762,000
Accounts payable and other current liabilities.................. 16,393,000
-----------
Net investment in insurance segment............................. $31,217,000
===========
</TABLE>

The sale of the insurance segment is estimated to have a positive effect on
the income of United during fiscal year 1999. In fiscal 1999, United estimates
that there will be a decline in operating income of $3.0 million which will be
offset by a reduction of interest expense related to the reduction in debt
levels of approximately $3.1 million. United estimates that sales will decline
approximately $23.9 million in fiscal year 1999 as a result of the sale of the
insurance segment.

92
<PAGE>

Sale of Retail Operations

On May 1, 1998, United completed the sale of its Rich and Rhine, Inc.
subsidiary to Kero Corporation. The purchase price consisted of $3.5 million in
cash, plus a promissory note of approximately $1.4 million. The promissory note
is collateralized by a pledge of the common stock of the buyer.

On May 15, 1998, United completed the sale of its Cash & Carry division to
Smart & Final, Inc. The gross sales proceeds consisted of $42.5 million in
cash, plus a $17.5 million, 5-year unsecured note. In May 1999, United and
Smart & Final settled a dispute arising out of the sale. United has agreed to
accept a reduction of $250,000 in each of the next four installments under the
5-year unsecured note. This reduction will be charged to earnings in the third
quarter of fiscal 1999. The gain is shown on the "Gain on sale of Cash & Carry
division" line of the Consolidated Statements of Operations. See "INDEX TO
FINANCIAL STATEMENTS--United" (page F-1).

In connection with the sale of its Cash & Carry division, United entered
into a five-year supply agreement with Smart & Final, Inc.

Year 2000 Preparations

This section captioned "Year 2000 Preparations" and other statements about
Year 2000 issues are "Year 2000 Readiness Disclosures" pursuant to the Year
2000 Information and Readiness Disclosure Act.

United is addressing the possible Year 2000 problems with a systematic
approach. To make a smooth transition into the next century, United has entered
into the "Year 2000 Project," which is comprised of four major areas of
concern:

1. Infrastructure (Hardware & System Operating Software);

2. Applications Software;

3. Third Party Suppliers (Trading Partners, Banks, Utilities); and

4. Process Control and Instrumentation (Embedded Systems).

Area 1--The Infrastructure area consists of hardware and operating system
software. Updating in this area was completed on April 15, 1999.

Area 2--The Application Software area consists of conversion of software
that is not Year 2000 compliant, and where available, the replacement of such
software from the vendor. United has engaged Applied Decisions USA, Inc. to
assist in project management, and in conversion and testing of certain non-
compliant application software code.

The conversion phase was completed on March 31, 1999. The testing phase is
progressing in an organized fashion as the software is repaired or replaced.
The testing was 99% complete as of June 30, 1999.

United uses software from the Armature Company for warehousing and
purchasing functions. Year 2000 compliant software installation was completed
on November 21, 1998.

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<PAGE>

Area 3--The Third Party Suppliers area includes the identification and
prioritizing of critical suppliers, financial institutions, and utilities, and
communicating with them about their plans and progress in addressing the Year
2000 issue. United has identified and contacted 4,324 suppliers requesting
information on their plans and progress on the Year 2000 issue. As of June 30,
1999, United has received a response from 85% of the identified suppliers.
Responses from the identified suppliers indicate progress in addressing the
Year 2000 issue, with a majority of the respondents expecting full compliance
by September 30, 1999. United has a follow up plan in place scheduled through
the remainder of 1999. Contingency planning in this area began in February 1999
with the completed plan estimated to be in place by August 31, 1999.

Area 4--The Process Control and Instrumentation area consists of
identification and prioritization of hardware and software associated with
embedded chips used in operation of all facilities of United. United estimates
it has identified and corrected 99% of the identified items. The remaining 1%
is expected to be completed by September 30, 1999. Contingency planning in this
area began in January 1999 and will be completed by September 30, 1999.

The major phases associated with the Project are:

A. Inventory of potential Year 2000 items;

B. Assigning priorities to the items identified as material to United;

C. Assessing the Year 2000 compliance of the inventoried items;

D. Repairing or replacing material items that are determined not to be Year
2000 compliant;

E. Testing material items; and

F. Developing contingency and business continuation plans for each
functional area and location.

On November 21, 1998 the Inventory, Prioritization, and Assessment phases,
phases A, B and C, of the Project were declared completed.

Phase D--Material items are those identified by United that affect the
ability of United to perform its core business functions that support United's
customer base, or affect revenues. All material items have been repaired or
replaced as of December 31, 1998.

Phase E--Full systems testing commenced in January 1999, and completion is
expected by August 31, 1999. Vendor software upgrades continue on schedule.

Phase F--Contingency planning for all areas is ongoing and is expected to be
completed by September 30, 1999.

Costs--The estimated cost of the Year 2000 Project is approximately $4.9
million. The total amount expended on the project through June 30, 1999 was
$3.8 million related to the cost of conversion or replacement of application
software, $200,000 related to the replacement of hardware, and $75,000 related
to the cost of identifying and communicating with third party suppliers. The
estimated future costs of completing the Year 2000 project is estimated to be
$800,000 for replacement of software and related hardware, $50,000 to identify
and communicate with third party suppliers and to repair or replace embedded
systems.

94
<PAGE>

Risks--The failure to correct material Year 2000 issues could result in
interruption in or failure of, key core business processes. The most reasonably
likely worst case scenario is business being partially or totally disrupted for
a period of a few hours to one week. There can be no assurance that actual
results will not differ materially from those projected.

Safety Net Preparation--The Year 2000 team has, as part of their project,
been identifying manual or modified processes that would need to be employed in
the unlikely event that some of the upgrades fail.

Nine months ended July 2, 1999 ("1999 period") compared to nine months
ended July 3, 1998 ("1998 period")

Results of Operations

Overview. In March 1999, United executed a letter of intent with respect to
a proposed merger with Certified Grocers of California, Ltd., a grocery
cooperative headquartered in Commerce, California. The completion of the merger
is conditional upon the approval of a definitive merger agreement by the
shareholders of both entities, required filings with regulatory entities and
other customary conditions.

During 1999, United incurred significant expenses related to the proposed
merger and Year 2000 remediation. During 1998, United's financial condition and
results of operations were affected by implementation of the closure of the
Medford, Oregon grocery distribution operations, the consolidation of selected
California operations with Oregon operations, the implementation of a new
marketing plan and the sales of the Cash & Carry and Rich and Rhine, Inc.
retail operations.

Net Sales and Operations. The decrease in sales is due to the sale of the
Rich and Rhine, Inc. subsidiary (approximately $21 million) and lower volume
due to the elimination of certain unprofitable accounts (approximately $97
million).

Costs and Expenses. Total costs and expenses decreased $114.5 million
(12.9%) from the 1998 period to $774.0 million for the 1999 period (99.8% of
sales). This compares to $888.4 million (99.4% of sales) in the 1998 period.
The components of costs and expenses are outlined below.

Costs and expenses as a percent of net sales and operations were as follows:

<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
July 2, July 3,
1999 1998
----------- -----------
<S> <C> <C>
Cost of sales........................................... 86.1% 86.3%
Member's allowances..................................... 1.8 1.0
Operating expenses...................................... 8.8 9.3
Selling and administrative expenses..................... 2.1 1.9
Depreciation and amortization........................... 1.0 0.9
---- ----
Total................................................. 99.8% 99.4%
==== ====
</TABLE>

Cost of sales as a percent of net sales and operations decreased from 86.3%
to 86.1% from the 1998 period to the 1999 period. The decrease in cost of sales
and increase in members' allowances are attributable to changes in United's
marketing plan. Operating expenses as a percent of net sales and operations
decreased from 9.3% to 8.8% from the 1998 period to the 1999 period. The net
decrease in operating expenses is due to internal cost efficiencies, including
the consolidation of the procurement and accounting staffs of United's
California division with those of the Oregon

95
<PAGE>

operations. In addition, the 1998 period included costs incurred in connection
with the closure of United's Medford grocery distribution facility.

Other Income/Expense. Interest expense decreased $4.2 million from the 1998
period to the 1999 period, due to debt reductions resulting from the sale of
United's Cash & Carry division and certain non-core assets. Interest income
increased $.6 million from the 1998 period to the 1999 period as a result of an
increase in United's notes receivable. Gain on sale of retail operations of
$26.2 million in the 1998 period is due to the sale of the Cash & Carry and
Rich and Rhine, Inc. retail operations, as described above.

Liquidity and Capital Resources

United believes that anticipated needs for working capital, capital
expenditures and repayment of long-term debt through fiscal 1999 will be met
from funds generated by operations and borrowings under the credit facility. At
July 2, 1999, approximately $36.4 million was available for borrowing under the
bank lines of credit.

Cash Flows From Operating Activities. In the 1999 period, United used $5.1
million in cash in its operating activities, resulting from a decrease of
approximately $5.0 million in accrued expenses. In the 1998 period, United
provided $1.3 million from its operating activities, resulting from increases
in accrued expenses.

Cash Flows From Investing Activities. In the 1999 period, United provided
$14.7 million in cash from investing activities, compared to the $59.3 million
in cash provided by investing activities in the 1998 period. The decrease of
$44.6 million is due to a decrease in the net sales of investments of $5.5
million and a decrease of $45.3 million in net proceeds from the sale of
assets, offset by a net increase of $6.1 million in net collections on loans.

Cash Flows From Financing Activities. In the 1999 period, United's financing
activities used $7.0 million in cash compared to $55.2 million used in the 1998
period. In the 1998 period, net proceeds from the sale of retail operations and
property, plant and equipment were used to reduce debt by $55.1 million. In the
1999 period, proceeds from collections on loans and sales of property, plant
and equipment were used to reduce debt by $3.3 million and for net repurchases
of common stock of $3.7 million.

Year ended October 2, 1998 ("1998") compared to year ended October 3, 1997
("1997")

Results of Operations

Net Sales and Operations. Net sales and operations decreased to $1,175.3
million from $1,306.6 million in 1997, a decline of 10.1%. Income from
continuing operations before members' allowances and income taxes increased
$46.6 million to $35.3 million (3.0% of net sales). This compares to a loss of
$11.3 million (0.9% of net sales) in 1997.

During 1998, $131.3 million, or 100%, of the decrease in net sales and
operations was attributable to the distribution segment. The distribution
segment experienced a decline in sales of $50.7 million due to the elimination
of certain unprofitable accounts. United has a supply agreement with the
purchaser of the Cash & Carry operations and does not expect any reduction of
sales volume during fiscal 1999 related to the sale of the Cash & Carry
division.

96
<PAGE>

In 1998, United had increased profits within its distribution segment from
one time gains on sales of its Cash & Carry division and other businesses and
properties, and lower operating losses at United-owned retail stores. These
profit gains were partially offset by increased operating expenses of
approximately $17.0 million in the distribution segment due to cost inflation
and system integration activities.

Gross Operating Income. Gross operating income (net sales less cost of sales
and member allowances) decreased to $145.9 million (12.4% of net sales) in 1998
from $162.6 million (12.4% of net sales) in 1997. The decline in gross
operating income is consistent with the decline in net sales discussed above.
During 1999, United expects gross operating income to decline slightly as the
sales from the former Cash & Carry division are reported at a wholesale level,
which is lower than the retail sale level, which was used through the time of
sale of the division.

Operating, Selling and Administrative Expenses. In 1998, operating, selling,
and administrative expenses decreased $18.5 million to $134.2 million (11.4% of
net sales). In 1997, these expenses were $152.7 million (11.7% of net sales).
The dispositions of the insurance segment and the retail operations are
expected to have a negligible effect on these expenses in fiscal 1999.

The components of these expenses are summarized below:

<TABLE>
<CAPTION>
Percent of
Net Sales and
Operations
--------------
1998 1997
------ ------
<S> <C> <C>
Salaries and wages........................................... 6.3% 6.0%
Rents, maintenance and repairs............................... 2.0 2.0
Taxes, other than income..................................... 0.8 0.8
Utilities, supplies and services............................. 1.0 1.1
Other expenses............................................... 1.1 1.0
Provision for doubtful accounts.............................. 0.2 0.8
------ ------
Total...................................................... 11.4% 11.7%
====== ======
</TABLE>

During 1998, total operating, selling, and administrative expenses decreased
approximately $10.6 million due to lower unit volume in the distribution
segments.

The provision for doubtful accounts was $2.4 million (0.2% of net sales) in
1998. This compares to $10.8 million (0.8% of net sales) in 1997. The decrease
in the provision from 1997 to 1998 relates to one-time adjustments recorded in
fiscal 1997 to the reserve for uncollectible accounts.

Interest expense decreased $2.7 million to $13.6 million (1.2% of net sales)
in 1998. This decrease was due to lower debt levels associated with sales of
assets and the insurance segment and reduced inventory levels.

Net income from continuing operations before income taxes was $21.2 million
compared to a loss of $21.6 million in 1997. The increase is due to the gain on
sale of the Cash & Carry Division of $29.0 million, a $2.7 million decrease in
interest expense and a gain on the disposition of assets of $2.2 million in
1998 as compared to a loss of $5.2 million in 1997.

Discontinued operations include net income from the operations of the
insurance segment, which decreased from $2.5 million in 1997 to $1.4 million in
1998, due to the sale of the insurance operations in July 1998. In addition, a
$3.4 million net gain was realized in 1998 as a result of the sale.

97
<PAGE>

In 1998, United recognized $1.7 million, net of income taxes of $1.2
million, as the cumulative effect on prior years of changing the method of
amortizing the unrecognized net gain on United's defined benefit pension plan.
This change was recorded in the fourth quarter of fiscal 1998 in connection
with United's decision to utilize a 3-year amortization of the unrecognized
gain, versus the minimum allowed under generally accepted accounting
principles. United believes the change more currently recognizes the effects of
changes in the actuarial assumptions and differences between the assumptions
used and the actual experience. The effect of this change on 1998 results of
operations was to increase net income before cumulative effect of change in
accounting principles by $996,000.

Net income was $19.8 million (1.7% of net sales) in 1998, an increase of
$28.4 million from a loss of $8.7 million (0.7% of net sales) in 1997.

The effective income tax rate changed from a 50.4% benefit in 1997 to a
37.8% provision in 1998. The higher effective rate in 1997 was due to the
reversal of a valuation allowance in 1997, due to the implementation of a tax
planning strategy.

Liquidity and Capital Resources

Cash Flows From Operating Activities. In 1998, United used $13.5 million in
cash in its operating activities. A decrease in accounts payable partially
offset by a decrease in inventory were the major factors involved. In 1997
United was provided $12.9 million from operating activities. The major
components were loss on disposition of assets and increase in accounts payable.

Cash Flows From Investing Activities. In 1998, United was provided $88.2
million from its investing activities, with the sale of business units,
investments and other assets being the biggest factors. In 1997, United used
$1.9 million in investing, with the proceeds of asset sales being offset with
purchases of property, plant and equipment.

Cash Flows From Financing Activities. In 1998, United used $83.7 million in
its financing activities. Repayments of debt in 1998 totaled $82.6 million,
$64.8 million of which was repaid using proceeds from sales of the insurance
segment and Cash & Carry division. In 1997, United used $17.3 million in
similar efforts.

Capital Resources. In 1998, United's working capital decreased $76.1 million
from $107.2 million at October 3, 1997 to $31.2 million at October 2, 1998. The
reasons for the decrease were the sale of the insurance segment and the Cash &
Carry division, the proceeds from which were used to reduce debt, and the
reclassification of an additional $31.0 million of long-term debt as notes
payable under current liabilities.

As of October 2, 1998, United had $36.1 million in unused credit lines
available. Amounts available under the Company's credit facilities are subject
to reduction by the lender being permitted to establish availability reserves
based upon certain events, conditions, contingencies or risks which it may in
good faith determine.

At October 2, 1998, United was in compliance with all financial covenants
with its lenders.

98
<PAGE>

Year ended October 3, 1997 ("1997") compared to year ended September 27,
1996 ("1996")

Results of Operations

Net Sales and Operations. Net sales and operations increased 2.0% in 1997 to
$1,306.6 million from $1,280.5 million in 1996. The increase included $24.0
million attributable to the distribution segment, which experienced an increase
in sales due to the addition of volume in California with the purchase of
Market Wholesale. Income from continuing operations before members' allowances
and income taxes decreased $18.8 million to a loss of $11.3 million (0.86 % of
sales). This compares to an income of $7.6 million (0.59% of net sales) in
1996. During fiscal 1997, United experienced significant losses of $10.8
million from adjustments in the reserve for uncollectible receivables.

Gross Operating Income. Gross operating income (net sales less cost of sales
and member allowances) increased $9.5 million to $162.6 million from the 1996
gross operating income of $153.1 million.

Operating, Selling and Administrative Expenses. Operating, selling, and
administrative expenses increased $17.6 million to $152.7 million (11.7% of
sales) from the 1996 level of $135.1 million (10.6% of sales).

The components of these expenses are summarized below:

<TABLE>
<CAPTION>
Percent of Net Sales
and Operations
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Salaries and wages...................................... 6.0% 5.5%
Rents, maintenance and repairs.......................... 2.0 1.3
Taxes, other than income................................ 0.8 0.9
Utilities, supplies and services........................ 1.1 1.2
Other expenses.......................................... 1.0 1.1
Provision for doubtful accounts......................... 0.8 0.6
---------- ----------
Total................................................. 11.7% 10.6%
========== ==========
</TABLE>

During 1997 the operating, selling, and administrative expenses increased
due to increases in the provision for doubtful accounts of $3.5 million,
increases in salaries and wages of $8.1 million and increases in rents,
maintenance and repairs of $6.0 million.

The provision for doubtful accounts was $10.8 million (0.8% of net sales) in
1997. This compares to $7.3 million (0.6% of net sales) in 1996. The increase
in the provision relates to additional adjustments of $3.5 million recorded in
fiscal 1997 to reserve for uncollectible accounts.

In 1997 interest expense increased $1.5 million to $16.3 million (1.2% of
net sales) due to increases in debt borrowings during the year.

Net income from continuing operations before taxes was a loss of $21.6
million in 1997 compared to a loss of $8.0 million in 1996. The increased loss
was due to additional operating, selling and administrative expenses of $17.6
million, a $3.5 million increase in depreciation and amortization expense, a
$1.5 million increase in interest expense and an increase of $4.4 million in
losses or write-down on disposition of assets, which was offset by a $4.0
million reduction in patronage dividends and a $9.5 million increase in gross
operating income.

99
<PAGE>

In 1996, United recorded a valuation allowance which resulted in no income
tax benefit. In 1997 the valuation allowance was reversed due to the
implementation of a tax planning strategy and a tax benefit of $10.5 million
was recognized.

Net loss was $8.7 million (0.7% of net sales) in 1997 and $5.6 million (0.4%
of net sales) in 1996. The net loss in 1997 increased due to the changes noted
above for net income from continuing operations affected by the increased tax
benefit.

Liquidity and Capital Resources

Cash Flows From Operating Activities. In 1997, United was provided $12.9
million by its operating activities, compared to $12.6 million provided in
1996. The major factor in both years was the increase in accounts payable.

Cash Flows From Investing Activities. In 1997, United used $1.9 million in
investing activities, with the proceeds of asset sales being offset with
purchases of property, plant and equipment and other assets. In 1996, United
used $46.6 million in investing, including $16.2 million for purchases of
property, plant and equipment and other assets, and $23.3 million for the
acquisition of the California operations.

Cash Flows From Financing Activities. In 1997, United used $17.3 million in
its financing activities, including $15.2 million for the net repayment of
notes payable. In 1996, United was provided with $37.5 million from financing
activities, including $39.4 million provided by net increases in notes payable,
which was offset by $1.9 million, net, used in repurchasing common stock.

Recent Accounting Pronouncements

During the first quarter of 1998, United adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," which establishes requirements for
disclosure of comprehensive income. The objective of SFAS No. 130 is to report
a measure of all changes in equity that result from transactions and economic
events other than transactions with owners. Comprehensive income is the total
of net income and all other non-owner changes in equity. Comprehensive income
did not differ significantly from reported net income in the period presented.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement will change the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and earns revenues, and its major
customers. The statement is effective for fiscal years beginning after December
15, 1997.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pension and Other Postretirement Benefits." This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The statement
suggests combined formats for presentation of pension and other postretirement
benefit disclosures. The statement is effective for fiscal years beginning
after December 15, 1997, but is not required to be presented in interim
financial information in the year of adoption.

100
<PAGE>

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheets as either an asset or liability measured at its fair market
value. SFAS No. 133 also requires that changes in the derivative instrument's
fair market value be recognized currently in results of operations unless
specific hedge accounting criteria are met. SFAS No. 133, as amended by SFAS
No. 137, is effective for fiscal years beginning after June 15, 2000.

United's management has studied the implications of SFAS Nos. 131 and 132,
and based on the initial evaluation, expects the adoption to have no impact on
United's financial condition or results of operations, but will require revised
disclosures when the respective statements become effective. United's
management has studied the implications of SFAS No. 133 and based on the
initial evaluation, expects the adoption to have no impact on United's
financial condition or the results of operations.

Quantitative And Qualitative Disclosures About Market Risk

United does not currently use derivative financial instruments for
speculative purposes which expose United to market risk. United is exposed to
cash flow and fair value risk due to changes in interest rates with respect to
its long-term debt. Information required by this item is set forth in Notes 7
and 20 of the Notes to Consolidated Financial Statements. See "INDEX TO
FINANCIAL STATEMENTS--United" (page F-1).

Forward-looking Statements

Statements above and elsewhere in this document regarding future events or
performance are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. For a description of the forward-
looking information, see "FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE"
(page 15).

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

DeLap, White & Raish, the independent accounting firm that was previously
engaged as the principal accountants to audit United's financial statements,
was dismissed effective June 17, 1997. The Board of Directors of United
recommended and approved the change of accountants.

None of the reports of DeLap, White & Raish for the past two years contained
any adverse opinion or disclaimer of opinion or was qualified or modified as to
uncertainty, audit scope, or accounting principles.

During United's two most recent fiscal years and subsequent interim periods
preceding the dismissal of DeLap, White & Raish, there were no disagreements
between United and DeLap, White & Raish on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
which, if not resolved to the satisfaction of DeLap, White & Raish, would have
caused DeLap, White & Raish to make reference to the subject matter of the
disagreement or disagreements in its report.

After the completion of the audit for the fiscal year ended September 27,
1996, United and DeLap, White & Raish learned additional information concerning
the collectibility of certain advertising notes receivable that led both United
and DeLap, White & Raish to believe further information was required to
determine the appropriate treatment of those items for financial

101
<PAGE>

statements for subsequent periods. At the time Delap, White & Raish was
dismissed, such further information had not been obtained and, accordingly,
constituted unresolved material items as of the date of dismissal.

Except as set forth in the preceding paragraph, during United's two most
recent fiscal years and subsequent interim periods preceding its dismissal,
DeLap, White & Raish, did not:

. Advise United that the internal controls necessary for United to develop
reliable financial statements did not exist;

. Advise United that information had come to DeLap, White & Raish's
attention that led it to no longer be able to rely on management's
representations or made it unwilling to be associated with the financial
statements prepared by management;

. Advise United of the need to expand significantly the scope of its
audit, in a case where the scope of its audit was not subsequently
expanded;

. Advise United that information had come to DeLap, White & Raish's
attention within United's two most recent fiscal years and succeeding
period that if further investigated may have:

. Materially impacted the fairness or reliability of either a
previously issued report or the underlying financial statements or
subsequent financial statements issued or to be issued and covered
by an audit report; or

. Caused DeLap, White & Raish to be unwilling to rely on management's
representations or be associated with United's financial statements,
in a case where DeLap, White & Raish did not conduct such further
investigation; or

. Advise United that information had come to DeLap, White & Raish's
attention that it concluded materially impacted the fairness or
reliability of either a previously issued audit report or the underlying
financial statements or subsequent financial statements issued or to be
issued and covered by an audit report, which issue was not resolved to
DeLap, White & Raish's satisfaction prior to its dismissal.

Effective June 17, 1997, United engaged PricewaterhouseCoopers LLP (formerly
Coopers & Lybrand L.L.P.) as its principal accountants to audit United's
financial statements. During United's two most recent fiscal years and
subsequent interim periods prior to the engagement of PricewaterhouseCoopers
LLP, United did not, nor did anyone on United's behalf, consult
PricewaterhouseCoopers LLP regarding either:

. The application of accounting principles to a specified completed or
proposed transaction, or the type of audit opinion that might be
rendered on United's financial statements as to which a written report
or oral advice was provided to United that was an important factor
considered by United in reaching a decision as to an accounting,
auditing or financial reporting issue; or

. Any matter that was the subject of a disagreement between United and
DeLap, White & Raish or a reportable event under the preceding
paragraph.

United provided DeLap, White & Raish with a copy of the above disclosures.
United requested that DeLap, White & Raish furnish United with a letter
addressed to the SEC stating whether DeLap, White & Raish agrees with the
statements made by United in the above disclosures and, if not, stating the
respects in which it does not agree.

102
<PAGE>

Directors and Executive Officers

The bylaws of United provide that the number of directors of United shall be
nine and shall be divided into three classes which are elected for staggered
three year terms. The term of each class expires at the annual meeting of
shareholders in the year 2000 (Class I), 2001 (Class II) and 2002 (Class III).

The following table sets forth certain information concerning the directors
of United as of July 31, 1999:

<TABLE>
<CAPTION>
Name Age Class Principal Occupation
- ---- --- ----- --------------------
<S> <C> <C> <C>
James F. Glassel.................. 58 I President, Fatewell, Inc.
Kenneth W. Findley................ 59 I President, Bales for Food, Inc.
Gaylon G. Baese................... 62 I President, Howards on Scholls, Inc.
Peter J. O'Neal................... 54 II President, Estacada Foods, Inc.
Mary McDonald..................... 64 II President, M & S Grocers, Inc.
Floyd West........................ 58 II President, Pioneer Super Save, Inc.
Gordon Smith...................... 54 III President, Marlea Foods, Inc.
Kenneth Tucker.................... 51 III President, Evergreen Markets, Inc.
Richard L. Wright................. 62 III President, Wright's Foodliner, Inc.
</TABLE>

Each director has been principally engaged in the retail grocery business
for more than the past five years with the firm shown opposite his or her name
above. Except as described below, no such firm is a parent, subsidiary or other
affiliate of United.

103
<PAGE>

The following table sets forth certain information concerning the executive
officers of United as of July 31, 1999:

<TABLE>
<CAPTION>
Name Age Position Period Held Prior Business Experience(1)
---- --- ------------------------ ----------------- ---------------------------------
<C> <C> <S> <C> <C>
Terrence W. Olsen.. 59 President, Chief January 1999 to United A. G. Coop, Inc.,
Executive Officer and Present President
Secretary

Executive Vice President August 1997 to
and Chief Operating January 1999
Officer

Mark Tweedie....... 41 Chief Financial Officer 1998 to Present Foodland Distributors, Director
and Vice President of Finance

Paula Anctil....... 43 Senior Vice 1997 to Present Brown & Cole, Inc., Vice
President/Marketing President; Fleming Companies,
Sales Manager

Director of Sales and 1996 to 1997
Business Development

Keith A. Miller.... 39 Vice President/Business April 1998 to
Strategy Present

Director of Business April 1997 to
Strategy April 1998

Director of Marketing 1989 to 1997

Ron McKillip....... 44 Vice May 1998 to Thrifty Payless, VP Distribution
President/Distribution Present and Transportation
Operations
Director of Distribution June 1997 to
Operations May 1998

Robin Thomas....... 50 Vice President/Sales September 1998 to Supervalu, Inc., Marketing
Present Director

William A. Seidl... 33 Vice President/Business January 1997 to 1996--Sheri's Restaurants,
Development Services Present developed stores; 1989-1996, Fred
Meyer, various finance and real
estate functions

Carolyn S. Fox..... 58 Assistant Secretary and July 1998 to Evergreen International Aviation,
President of United Present Director, Vice President/Finance
Resources, Inc. and Corporate Treasurer
</TABLE>
- --------
(1) Prior to employment by United, each officer was employed as set forth. Each
such former employer was of a similar or larger size as United, with the
exception of Brown & Cole, Inc., which is a regional operator of
supermarkets. The duties and responsibilities of the named officers were of
similar scope to those they are performing for United.

None of United's directors or executive officers were selected pursuant to
any arrangement or understanding, other than with the directors and executive
officers of United acting within their capacity as such. There are no family
relationships among directors or executive officers of United and, except as
set forth above, as of the date hereof, no directorships are held by any
director in a company which has a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, or subject to the
requirements of Section 15(d) of the Exchange Act or any company registered as
an investment company under the Investment Company Act of 1940. Officers serve
at the discretion of the board of directors.

104
<PAGE>

Executive Compensation

Summary Compensation Table

The following table shows the compensation, during each of the fiscal years
in the three year period ended October 2, 1998, earned by the chief executive
officer and the four most highly compensated executive officers of United whose
total annual salary and bonus for any such year exceeded $100,000. The table
excludes individuals who were not officers at fiscal year end but includes
individuals who served as chief executive officer at any time during fiscal
1998. United does not provide long term compensation to its executive officers
other than retirement benefits, as discussed below.

<TABLE>
<CAPTION>
Annual Compensation
------------------------- All Other
Name of Individual and Principal Position Year Salary Bonus Compensation(1)
- ----------------------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
Charles E. Carlbom.................... 1998 $180,000 $200,000 $ 2,908
Former President, Secretary, 1997 55,385 -0- -0-
Treasurer and Chief Executive Officer 1996(2) -0- -0- -0-

Terrence W. Olsen..................... 1998 150,000 25,000 3,462
Executive Vice President and Chief 1997 11,077 -0- -0-
Operating Officer 1996(2) -0- -0- -0-

Mark Tweedie.......................... 1998 120,000 18,067 -0-
Chief Financial Officer and Vice 1997 79,644 -0- -0-
President 1996(2) -0- -0- -0-

Ron McKillip.......................... 1998 122,692 -0- 2,213
Vice President/Distribution 1997 34,615 -0- 1,131
Operations 1996(2) -0- -0- -0-

Keith A. Miller....................... 1998 100,154 18,067 2,328
Vice President/Business Strategy 1997 96,575 -0- 1,871
1996 94,962 20,000 2,020

Paula Anctil.......................... 1998 114,385 -0- 1,917
Senior Vice President 1997 92,111 -0- -0-
1996 43,077 12,000 840

Alan Jones(3)......................... 1998 -0- -0- 325,877
Former Secretary, 1997 229,200 -0- 119,457
Treasurer and Chief 1996 268,676 60,000 37,228
Executive Officer
</TABLE>
- --------
(1) Includes amounts paid pursuant to programs generally available to employees
of United, including 401(k) matching contributions. Also includes $43,700
paid in 1998, $43,700 paid in 1997, and $30,000 paid in 1996 for the
benefit of Mr. Jones as insurance benefits. United provides Mr. Jones with
a company car and provided him with a social membership at a local golf
club through 1997. See note (3) below.
(2) Was not employed by United during the fiscal year.
(3) Mr. Jones' employment terminated in July 1997. He received payments in the
amount of $275,000 in 1998 and $45,000 in 1997 pursuant to the severance
provisions of an employment contract in place at the time his employment
ceased, which amounts are included under "All Other Compensation" above.
Beginning October 3, 1998, United is obligated to pay Mr. Jones
approximately $137,500 per year through February 2003, plus certain
insurance benefits.

105
<PAGE>

Retirement Plan

United's retirement plan is an actuarially funded defined benefit plan. The
following table shows the estimated annual benefits payable upon retirement,
assuming normal retirement at age 65, for employees at specified annual salary
levels, based upon the highest average of five consecutive years, with various
years of service.

<TABLE>
<CAPTION>
Years of Service(1)
------------------------------------------------------------------
Annual
Remuneration 10 15 20 25 30 35
------------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $7,432 $11,148 $14,863 $18,579 $22,395 $26,011
75,000 12,057 18,085 24,113 30,142 36,170 42,198
100,000 16,682 25,022 33,363 41,704 50,045 58,386
125,000 21,306 31,960 42,613 53,267 63,920 74,573
150,000 25,932 38,898 51,863 64,829 77,795 90,791
</TABLE>
--------
(1) Under the present terms of United's retirement plan, the maximum salary
level and number of years of service considered for the purposes of
determining benefits are $150,000 and 35 years, respectively.

The number of years of service under the plan for the officers listed above
is as follows:

<TABLE>
<CAPTION>
Years of
Name Service
---- --------
<S> <C>
Charles E. Carlbom.................. 2
Terrence W. Olsen................... 2
Mark Tweedie........................ 2
Ron McKillip........................ 2
Keith A. Miller..................... 10
Paula Anctil........................ 3
</TABLE>

The amount of compensation used in the calculation of pension benefits for
all officers is the dollar amount shown above, subject to plan limitations.
Amounts payable under the plan are not subject to deduction for social security
or other offset amounts.

Employment Agreements

United has employment agreements with its current Chief Executive Officer
(Terrence W. Olsen), its former Chief Executive Officer (Charles E. Carlbom)
and two of its four most highly compensated executive officers, Mark Tweedie
and Keith A. Miller, other than its Chief Executive Officer. Set out below is a
summary of the terms of the employment agreements. Certified has entered into
an employment agreement with Mr. Olsen, to be effective as of the effective
date of the merger. Upon the effective date of the merger, Mr. Olsen's current
employment agreement will terminate. See "THE MERGER--Interests of Certain
Persons in the Merger" (page 33).

Terrence W. Olsen

Position: President and Chief Executive Officer.

Compensation: Mr. Olsen receives a base salary of $300,000, subject to
mutual adjustment, and participates in benefits generally available to key
employees, any supplemental pension or bonus plan available to key employees
and in any incentive bonus plan developed by the Board of Directors, and
receives other specified benefits.

106
<PAGE>

Term of employment: Mr. Olsen's term of employment is 3 years. Beginning
March 1, 2002, Mr. Olsen's term of employment will be automatically extended
each year unless United notifies Mr. Olsen no sooner than 240 days and no less
than 180 days prior to March 1 each year.

Termination by United without cause: The board of directors may terminate
Mr. Olsen without cause by notifying him 180 days in advance of his
termination. If Mr. Olsen is terminated without cause he will receive his base
compensation and health and insurance benefits for the longer of the remaining
term of the agreement, as extended, or 180 days.

Termination by United for cause: Mr. Olsen may be terminated at any time for
cause which includes fraud, dishonesty, conduct involving moral turpitude
related to employment and breach of the employment agreement by the employee.
If Mr. Olsen is terminated for cause he will receive his base salary earned up
until the date of termination and other specified benefits.

Termination by Mr. Olsen: Mr. Olsen may terminate his employment for any
reason by notifying United 60 days in advance of his termination.

Termination upon a change in control: For a description of severance
provisions applicable upon a change of control see "THE MERGER--Severance--
United" (page 34).

Nondisclosure and Noncompetition: Mr. Olsen is prohibited from disclosing
any confidential information concerning United during the term of his
employment and until two years after his employment is terminated. If Mr. Olsen
is terminated for cause or he voluntarily terminates employment then he is
prohibited from competing with United for a period of two years.

Mark Tweedie

Position: Chief Financial Officer.

Compensation: Mr. Tweedie receives a base salary of $150,000, subject to
mutual adjustment, and participates in benefits generally available to key
employees and in any supplemental pension or bonus plan available to key
employees, and receives other specified benefits.

Term of employment: Mr. Tweedie's term of employment is 3 years. Beginning
March 22, 2002, Mr. Tweedie's term of employment will be automatically extended
each year unless United notifies Mr. Tweedie no sooner than 240 days and no
less than 180 days prior to March 22 each year.

Termination by United without cause: The Board of Directors may terminate
Mr. Tweedie without cause by notifying him 180 days in advance of his
termination. If Mr. Tweedie is terminated without cause he will receive his
base compensation and health and insurance benefits for the longer of:

. the remaining term of the agreement or 18 months, whichever is less;

. the remaining term of any extension of the agreement; or

. one year after notice of termination.

Termination by United for cause: Mr. Tweedie may be terminated at any time
for cause which includes fraud, dishonesty, conduct involving moral turpitude
related to employment and breach of the employment agreement by the employee.
If Mr. Tweedie is terminated for cause he will receive his base salary earned
up until the date of termination and other specified benefits.

107
<PAGE>

Termination by Mr. Tweedie: Mr. Tweedie may terminate his employment for any
reason by notifying United 60 days in advance of his termination.

Termination upon a change in control: For a description of severance
provisions applicable upon a change of control see "THE MERGER--United--
Severance" (page 34).

Nondisclosure and Noncompetition: Mr. Tweedie is prohibited from disclosing
any confidential information concerning United during the term of his
employment and until two years after his employment is terminated. If Mr.
Tweedie is terminated for cause or he voluntarily terminates employment then he
is prohibited from competing with United for a period of two years.

Keith A. Miller

Position: Vice President/Business Strategy.

Compensation: Mr. Miller receives a base salary of $140,000, subject to
mutual adjustment, and participates in benefits generally available to key
employees, and any supplemental pension or bonus plan available to key
employees, and receives other specified benefits.

Term of employment: Mr. Miller's term of employment is 3 years beginning in
March 1999. Beginning March 22, 2002, Mr. Miller's term of employment will be
automatically extended each year unless United notifies Mr. Miller no sooner
than 240 days and no less than 180 days prior to March 22 each year.

Termination by United without cause: The Board of Directors may terminate
Mr. Miller without cause by notifying him 180 days in advance of his
termination. If Mr. Miller is terminated without cause he will receive his base
compensation and health and insurance benefits for the longer of:

. the remaining term of the agreement or 18 months, whichever is less,

. the remaining term of any extension of the agreement, or

. one year after notice of termination.

Termination by United for cause: Mr. Miller may be terminated at any time
for cause which includes fraud, dishonesty, conduct involving moral turpitude
related to employment and breach of the employment agreement by the employee.
If Mr. Miller is terminated for cause he will receive his base salary earned up
until the date of termination and other specified benefits.

Termination by Mr. Miller: Mr. Miller may terminate his employment for any
reason by notifying United 60 days in advance of his termination.

Termination upon a change in control: For a description of severance
provisions applicable upon a change of control see "THE MERGER--United--
Severance" (page 34).

Nondisclosure and Noncompetition: Mr. Miller is prohibited from disclosing
any confidential information concerning United during the term of his
employment and until two years after his employment is terminated. If Mr.
Miller is terminated for cause or he voluntarily terminates employment then he
is prohibited from competing with United for a period of two years.

108
<PAGE>

Charles E. Carlbom

Position: Mr. Carlbom was hired as President and Chief Executive Officer.
However, he is not currently an officer of United. Mr. Carlbom currently serves
as Senior Executive, Mergers and Acquisitions of United.

Compensation: Mr. Carlbom receives a base salary of $180,000, subject to
mutual adjustment, and participates in benefits generally available to key
employees, any supplemental pension or bonus plan available to key employees,
and receives other specified benefits.

Term of employment: Mr. Carlbom's term began on July 1, 1997 and will
continue through August 30, 1999.

Termination by United: Mr. Carlbom may be terminated with or without cause
by a two-thirds vote of the Board of Directors. If Mr. Carlbom is terminated
without cause he will receive his base compensation for a period of six months
following termination. Termination for cause includes termination for
disclosure of privileged information, failure to perform or meet reasonable
objectives and measurable standards and disloyalty, dishonesty and illegal
conduct.

Nondisclosure: Mr. Carlbom is prohibited from disclosing any confidential
information concerning United during the term of his employment and until five
years after his employment is terminated.

Remuneration of Directors

Directors, except the Chairman of the Board, received $10, plus expenses,
for each board meeting attended. The Chairman received $25, plus expenses, for
each board meeting attended and for each additional day spent on the conduct of
United's business.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information as of July 31, 1999, regarding
each person known to United to be the beneficial owner of more than five
percent of United's Common Stock.

<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
------------------- -------------------- ----------------
<S> <C> <C>
Raymond L. Nidiffer.................... 57,637 shares(1) 10.3%
P. O. Box 730
Brookings, OR 97415
</TABLE>
- --------
(1) Mr. Nidiffer has sole voting and investment power with respect to the
shares indicated in the table.

109
<PAGE>

As of July 31, 1999, the directors of United owned United Common Stock as
follows:

<TABLE>
<CAPTION>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1)(2) Percent of Class
------------------------ -------------------------- ----------------
<S> <C> <C>
Kenneth Tucker................. 526 shares .1(3)
Floyd West..................... 3,273 shares .6(3)
Peter J. O'Neal................ 683 shares .1(3)
Mary McDonald.................. 4,212 shares .8(3)
Gaylon G. Baese................ 4,216 shares .8(3)
Kenneth W. Findley............. 11,499 shares 2.1(4)
James Glassel.................. 1,155 shares .2(3)
Richard L. Wright.............. 26,447 shares 4.7(3)
Gordon Smith................... 4,349 shares .8(5)
Directors and officers as a
group......................... 56,360 shares 10.1
</TABLE>
- --------
(1) According to the bylaws, each shareholder of record is entitled to one vote
and one vote only, irrespective of number of shares owned. All of the
above-named individuals have only one vote, except for Messrs. O'Neal,
Wright and Findley, who may have two votes each because they have interests
in various entities that own shares.
(2) Except as indicated below, all of the above-named individuals have sole
voting and investment power with respect to the shares indicated in the
table.
(3) These shares are owned jointly by the person named and his spouse or by a
corporation whose stock is owned jointly by the person named and his
spouse.
(4) These shares are owned by two corporations in which Mr. Findley has a
voting interest.
(5) Includes shares owned by a corporation in which Mr. Smith has an equity
interest.

Certain Relationships and Related Transactions

Each of the completed transactions described below was approved by the board
of directors of United and was made on terms comparable to what United might
obtain from unaffiliated parties. United expects that the proposed transaction
described below, if completed, will be approved by the board of directors and
will be made on terms comparable to what United might obtain from an
unaffiliated party.

Transactions with Management and Others

All directors (or their firms), as members of United, purchase groceries and
related products from United in the ordinary course of business at prices
available to members generally.

In the ordinary course of business, United enters into prime leases and
subleases property to qualified members. United presently is a party to
subleases with entities affiliated with Richard L. Wright and Gaylon Baese,
directors of United, and Robert Lamb, a former director of United. At October
2, 1998, monthly payments due pursuant to the subleases were $62,903, $20,625
and $95,452, respectively.

Pursuant to a stock purchase agreement dated September 17, 1997, United sold
145,256 shares of stock of C & K Market, Inc. to C&K for $6,023,000. The
purchase price was determined by negotiation between United and C&K. United had
acquired the shares from C&K in 1994 for $5,750,000. Raymond L. Nidiffer, a
holder of more than five percent of United's Common Stock, is a controlling
shareholder of C&K.

110
<PAGE>

United sold a retail store and real property in Cloverdale, California to
C&K pursuant to an agreement dated September 17, 1997, for a net purchase price
of approximately $4.7 million. The purchase price was determined by negotiation
between United and C&K. United had acquired the real property in 1994 and had
constructed the store and related improvements. United recognized a loss of
approximately $500,000 in connection with the transaction in fiscal year 1997.

In June 1999, C&K purchased a store from United for $1.4 million plus an
additional amount based on the value of inventory at closing. United acquired
the store, located in Tillamook, Oregon, by foreclosure. In connection with the
purchase, United has committed to finance $1 million of the purchase price
pursuant to a promissory note over a 10 year period at a variable interest rate
equal to prime. The promissory note is secured by the purchased real property.
In connection with the purchase, United and C&K entered into a supply agreement
to supply product to the purchased store. The term of the supply agreement is
equal to the term of the promissory note.

There is a proposed transaction with Lambko, LLC, a company controlled by
Robert Lamb, in which United may guaranty a loan made by a third party lender
to Lambko, LLC of up to $600,000 to remodel a store. United has not entered
into an agreement and specific terms of the transaction have not been proposed.
Robert Lamb is a former director of United who served during fiscal 1998.

Certain Business Relationships

During fiscal year 1998, RAF, LLC, a company controlled by Wright's
Foodliner, Inc., purchased groceries and other products in the ordinary course
of business from United in the amount of $2,933,180. The terms of sale for
these products were identical to terms offered to all members of United. United
owns a 94% equity interest in RAF, LLC. Wright's Foodliner, Inc. is controlled
by Richard L. Wright, a director of United.

Indebtedness of Management

The following directors, officers, or related persons or entities were
indebted to United during the fiscal year ended October 2, 1998 as follows:

<TABLE>
<CAPTION>
Largest aggregate amount
of debt outstanding during
year ended October 2, Balance at Rate of
Name of Debtor 1998 July 31, 1999 Interest
-------------- -------------------------- ------------- ---------------
<S> <C> <C> <C>
Lambko, LLC*........ $184,000 $129,702 Variable, prime
plus 2%
Robert Lamb,
Former Director
</TABLE>
- --------
* Robert Lamb, a former director of United who served during fiscal year 1998,
controls Lambko, LLC.

The above loan was for purchase of equipment and is collateralized by real
estate.

United guarantees a commercial loan from a bank to Garden Home Enterprises,
Inc. in the original amount of approximately $4.9 million. The loan is also
personally guaranteed by Lamb's Inc. and relatives of Robert Lamb. Robert Lamb
controls Lambs, Inc. The loan proceeds were used to remodel a shopping complex
owned by Garden Home Enterprises, Inc., including grocery store space leased by
Lambs, Inc. Remodeling the grocery store space allowed Lambs, Inc. to increase
its

111
<PAGE>

purchases from United. In addition, United guarantees an equipment lease
between a commercial equipment lessor and Garden Home Enterprises, Inc., for
approximately $2 million worth of equipment used by Lambs, Inc. In order to
protect its obligations under the guaranties, United has the right to cure a
breach of the equipment lease by Garden Home Enterprises, Inc.

United has entered into various agreements under which it sells notes
receivable from members, including directors, subject to limited recourse
provisions. These notes are collateralized by real and personal property,
securities and guaranties. United is currently subject to limited recourse
liability on two loans owed by Peter O'Neal to National Consumer Cooperative
Bank. The balance of the loans as of April 30, 1999 was $1,069,411. Peter
O'Neal is a director of United.

LEGAL MATTERS

Certain legal matters in connection with the issuance of Certified's Class A
Shares and Class B Shares in the merger will be passed upon by Sheppard,
Mullin, Richter & Hampton LLP, Los Angeles, California.

EXPERTS

The financial statements of Certified as of August 29, 1998 and August 30,
1997, and for each of the three years in the period ended August 29, 1998,
included in this prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the registration statement and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.

The financial statements of United at October 2, 1998 and October 3, 1997,
and for each of the three years in the period ended October 2, 1998, included
in this document, have been included in reliance upon the report (which
includes an explanatory paragraph related to the restatement of the 1996
financial statements as described in Note 2 to United's financial statements)
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.

112
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

Certified and United each files annual, quarterly and current reports and
other information with the Securities and Exchange Commission ("SEC"). In
addition, Certified files proxy statements with the SEC. You may read and copy
any reports, statements or other information filed by Certified at the SEC's
public reference rooms at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices of the SEC:
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and 7 World Trade Center, Suite 1300, New York, New York 10048.

Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Certified's and United's filings are also available to you
from commercial document retrieval services and at the Internet web site
maintained by the SEC at http://www.sec.gov.

The rules of the SEC do not allow United to "incorporate by reference" any
information into this document. You should only rely on the information
concerning United contained in this document.

The rules of the SEC allow Certified to "incorporate by reference"
information into this document. This means that Certified may disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is
considered to be part of this document, except for any information modified or
replaced by information in, or incorporated by reference in, this document.
This document incorporates by reference the documents set forth below that
previously have been filed by Certified with the SEC and any future filings
Certified makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, after the date of this document and before the
shareholder meetings. These documents contain important information about
Certified and its finances.

. Certified's Annual Report on Form 10-K for the fiscal year ended August
29, 1998; and

. Certified's Quarterly Report on Form 10-Q for the quarter ended February
27, 1999.

. Certified's Quarterly Report on Form 10-Q for the quarter ended May 29,
1999.

. Certified's Proxy Statement on Schedule 14A with respect to the annual
meeting held on February 23, 1999.

Certified will provide, without charge, a copy of any or all of these
documents (other than exhibits to such documents, unless the exhibits are
specifically incorporated by reference in such documents). You may obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone from Certified at the following address:

Certified Grocers of California, Ltd.
5200 Sheila Street
Commerce, California 90040
Attention: Robert M. Ling, Jr.,
Senior Vice President, General Counsel and Secretary
Telephone: (323) 264-5200

If you would like to request documents, please do so by September 10, 1999
to receive them before your shareholder meeting.

113
<PAGE>

You can also get more information about Certified by visiting Certified's
web site at www.certifiedgrocers.com. Web site materials are not part of this
document.

Certified filed a Registration Statement on Form S-4 to register with the
SEC Certified's Class A Shares and Class B Shares to be issued in the merger.
This document is a part of that registration statement and constitutes a
prospectus of Certified for those shares in addition to being a proxy statement
for each of Certified and United for their respective shareholder meetings. As
allowed by the SEC's rules, this document does not contain all of the
information you can find in the registration statement or the exhibits to the
registration statement. This document summarizes some of the documents that are
exhibits to the registration statement, and you should refer to the exhibits
for a more complete description of the matters covered by those documents.

Certified has supplied all information contained or incorporated by
reference in this document relating to Certified, and United has supplied all
information contained in this document relating to United.

You should rely only on the information contained or incorporated by
reference in this document. We have authorized no one to provide you with
different information. This joint proxy statement/prospectus is dated August
27, 1999. You should not assume that the information in this joint proxy
statement/prospectus is accurate as of any date other than such date.

114
<PAGE>

INDEX TO FINANCIAL STATEMENTS

Certified

<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at August 30, 1997, August 29, 1998 and May
29, 1999 (Unaudited)..................................................... F-3
Consolidated Statements of Earnings and Comprehensive Earnings for the
years ended August 31, 1996, August 30, 1997 and August 29, 1998 and for
the nine months ended May 30, 1998 and May 29, 1999 (Unaudited).......... F-4
Consolidated Statements of Shareholders' Equity for the years ended August
31, 1996, August 30, 1997 and August 29, 1998 and for the nine months
ended May 29, 1999 (Unaudited)........................................... F-5
Consolidated Statements of Cash Flows for the years ended August 31, 1996,
August 30, 1997 and August 29, 1998 and for the nine months ended May 30,
1998 and May 29, 1999 (Unaudited)........................................ F-6
Notes to Consolidated Financial Statements................................ F-7

United

Report of Independent Accountants......................................... F-29
Consolidated Balance Sheets at October 3, 1997, October 2, 1998 and July
2, 1999.................................................................. F-30
Consolidated Statements of Operations for the years ended September 27,
1996 (as restated), October 3, 1997 and October 2, 1998 and the nine
month periods ended July 3, 1998 and July 2, 1999 (Unaudited)............ F-31
Consolidated Statements of Members' Equity for the years ended September
27, 1996 (as restated), October 3, 1997 and October 2, 1998 and the nine
month period ended July 2, 1999 (Unaudited).............................. F-32
Consolidated Statements of Cash Flows for the years ended September 27,
1996 (as restated), October 3, 1997 and October 2, 1998, and the nine
month periods ended July 3, 1998 and July 2, 1999 (Unaudited)............ F-33
Notes to Consolidated Financial Statements................................ F-34

Unaudited Pro Forma Condensed Combined Financial Statements

Unaudited Pro Forma Condensed Combined Balance Sheet at May 29, 1999...... F-59
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet at May 29,
1999..................................................................... F-60
Unaudited Pro Forma Condensed Combined Statement of Operations for the
nine months ended May 29, 1999........................................... F-62
Notes to Unaudited Pro Forma Condensed Combined Statements of Operations
for the nine months ended May 29, 1999................................... F-63
Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended August 29, 1998............................................... F-65
Notes to Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended August 29, 1998....................................... F-66
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Certified Grocers of California, Ltd.

We have audited the accompanying consolidated balance sheets of Certified
Grocers of California, Ltd. and subsidiaries (the "Company") as of August 30,
1997 and August 29, 1998, and the related consolidated statements of earnings
and comprehensive earnings, shareholders' equity, and cash flows for the years
ended August 31, 1996, August 30, 1997, and August 29, 1998. 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 audits 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of August 30,
1997 and August 29, 1998, and the results of its operations and its cash flows
for the years ended August 31, 1996, August 30, 1997, and August 29, 1998 in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Los Angeles, California
October 30, 1998

F-2
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Consolidated Balance Sheets
(dollars in thousands)

<TABLE>
<CAPTION>
May 29,
1999
August 30, August 29, (as restated,
1997 1998 see Note 17)
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 7,900 $ 4,105 $ 8,401
Accounts and notes receivable, net....... 94,493 95,672 105,152
Inventories.............................. 135,272 124,419 140,192
Prepaid expenses......................... 4,907 4,744 6,950
Deferred taxes........................... 3,427 3,853 4,277
--------- --------- --------
Total current assets................... 245,999 232,793 264,972
Properties, net............................ 76,135 76,299 79,277
Investments................................ 36,714 41,341 35,707
Notes receivable........................... 19,515 21,792 19,090
Other assets............................... 15,639 16,993 42,350
--------- --------- --------
Total Assets........................... $ 394,002 $ 389,218 $441,396
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................... $ 104,498 $ 80,870 $ 85,831
Accrued liabilities...................... 54,320 51,767 62,209
Current portion of notes payable......... 11,329 743 5,798
Patrons' excess deposits and declared
patronage dividends..................... 16,826 13,630 14,433
--------- --------- --------
Total current liabilities.............. 186,973 147,010 168,271
Notes payable, due after one year.......... 92,217 125,130 150,792
Long-term liabilities, other............... 18,151 20,440 24,149
Commitments and contingencies (Note 12)
Patrons' deposits and certificates:
Patrons' required deposits............... 14,358 12,147 15,509
Subordinated patronage dividend
certificates............................ 6,276 6,158 5,986
Shareholders' equity:
Class A Shares........................... 5,361 5,479 5,622
Class B Shares........................... 57,349 56,992 54,404
Retained earnings........................ 13,162 15,685 16,557
Accumulated other comprehensive
earnings................................ 155 177 106
--------- --------- --------
Total shareholders' equity............. 76,027 78,333 76,689
--------- --------- --------
Total Liabilities and Shareholders'
Equity................................ $ 394,002 $ 389,218 $441,396
========= ========= ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Consolidated Statements of Earnings and Comprehensive Earnings
(dollars in thousands)

<TABLE>
<CAPTION>
Years Ended Nine months ended
---------------------------------- -------------------------
May 29, 1999
August 31, August 30, August 29, May 30, (as restated,
1996 1997 1998 1998 see Note 17)
---------- ---------- ---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales............... $1,948,919 $1,927,092 $1,831,686 $1,401,219 $1,381,531
Costs and expenses:
Cost of sales......... 1,770,339 1,752,899 1,668,202 1,276,960 1,256,294
Distribution, selling
and administrative... 149,078 142,644 137,232 103,697 104,386
---------- ---------- ---------- ---------- ----------
Operating income........ 29,502 31,549 26,252 20,562 20,851
Interest expense........ (14,406) (13,020) (12,320) (9,444) (8,816)
Other income (expense),
net.................... 366 (655) 3,200 3,347 1,500
---------- ---------- ---------- ---------- ----------
Earnings before
patronage dividends,
provision for income
taxes and extraordinary
item................... 15,462 17,874 17,132 14,465 13,535
Patronage dividends..... (13,200) (14,464) (10,149) (7,986) (10,580)
---------- ---------- ---------- ---------- ----------
Earnings before
provision for income
taxes and extraordinary
item................... 2,262 3,410 6,983 6,479 2,955
Provision for income
taxes.................. 745 1,103 2,515 2,373 1,021
---------- ---------- ---------- ---------- ----------
Earnings before
extraordinary item..... 1,517 2,307 4,468 4,106 1,934
---------- ---------- ---------- ---------- ----------
Extraordinary item (net
of income taxes of
$714).................. 1,079 1,079
---------- ---------- ---------- ---------- ----------
Net earnings............ 1,517 2,307 3,389 3,027 1,934
---------- ---------- ---------- ---------- ----------
Other comprehensive
earnings, net of income
tax:
Unrealized holding
(losses) gains....... (398) 522 (5) 109 (71)
Minimum pension
liability
adjustment........... (255) 172 27
---------- ---------- ---------- ---------- ----------
Comprehensive earnings.. $ 864 $ 3,001 $ 3,411 $ 3,136 $ 1,863
========== ========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Consolidated Statements of Shareholders' Equity for the years ended August 31,
1996, August 30, 1997 and August 29, 1998 and for the nine month period ended
May 29, 1999 (unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Class A Class B Other
--------------- ----------------- Retained Comprehensive
Shares Amount Shares Amount Earnings Earnings
------ ------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
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 deferred tax
benefit of $195)..... (255)
------ ------- ------- -------- -------- -----
Balance, August 31,
1996................... 49,100 5,305 383,815 56,504 11,436 (539)
Class A Shares
issued............... 4,100 689
Class A Shares
redeemed............. (5,300) (633) (257)
Class B Shares
issued............... 21,366 3,744
Class B Shares
redeemed............. (19,191) (2,899) (324)
Net earnings.......... 2,307
Net unrealized gain on
appreciation of
investments (net of
deferred tax
liability of $271)... 522
Minimum pension
liability adjustment
(net of deferred tax
liability of $132)... 172
------ ------- ------- -------- -------- -----
Balance, August 30,
1997................... 47,900 5,361 385,990 57,349 13,162 155
Class A Shares
issued............... 4,800 841
Class A Shares
redeemed............. (5,900) (723) (311)
Class B Shares
issued............... 13,456 2,470
Class B Shares
redeemed............. (19,300) (2,827) (555)
Net earnings.......... 3,389
Net unrealized loss on
depreciation of
investments (net of
deferred tax
liability of $5)..... (5)
Minimum pension
liability adjustment
(net of deferred tax
liability of $17).... 27
------ ------- ------- -------- -------- -----
Balance, August 29,
1998................... 46,800 5,479 380,146 56,992 15,685 177
Class A Shares issued
(unaudited).......... 3,200 586
Class A Shares
redeemed
(unaudited).......... (3,300) (443) (162)
Class B Shares
redeemed
(unaudited).......... (19,007) (2,588) (900)
Net earnings
(unaudited).......... 1,934
Net unrealized loss on
depreciation of
investments (net of
deferred tax benefit
of $39) (unaudited).. (71)
------ ------- ------- -------- -------- -----
Balance, May 29, 1999
(as restated, see Note
17) (unaudited)........ 46,700 $ 5,622 361,139 $ 54,404 $ 16,557 $106
====== ======= ======= ======== ======== =====
</TABLE>
The accompanying notes are an integral part of these statements.

F-5
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Consolidated Statements of Cash Flows
(dollars in thousands)

<TABLE>
<CAPTION>
Years ended Nine months ended
-------------------------------- ----------------------
May 29,
1999
August 31, August 30, August 29, May 30, (as restated,
1996 1997 1998 1998 see Note 17)
---------- ---------- ---------- ------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings............ $ 1,517 $ 2,307 $ 3,389 $ 3,027 $ 1,934
Adjustments to
reconcile net earnings
to net cash provided
(utilized) provided by
operating activities:
Depreciation and
amortization.......... 10,022 12,204 14,792 11,163 12,300
Deferred taxes......... (3,819) (107) (1,219) (424)
Gain on sale of
investments in
affiliates, member
loan receivables, and
properties, net....... (524) (562) (2,460) (3,078) (1,490)
Reduction in fair value
of investment......... 1,500
(Increase) decrease in
assets:
Accounts and notes
receivable, net....... 1,892 (93) (1,297) 8,248 (5,178)
Inventories............ 6,893 1,031 10,853 9,025 (10,413)
Prepaid expenses....... 131 (282) 163 151 (1,937)
Notes receivable....... (10,547) (13,462) (5,057) (3,958) 3,650
Increase (decrease) in
liabilities:
Accounts payable....... 14,905 6,030 (23,628) (43,744) 877
Accrued liabilities.... 9,846 (2,474) (7,293) (2,878) 10,442
Patrons' excess
deposits and declared
patronage dividends... 2,943 1,669 (3,196) (924) 803
Long-term liabilities,
other................. 4,963 (1,586) 2,329 1,664 3,709
------- ------- ------- ------- -------
Net cash provided
(utilized) by operating
activities............. 38,222 6,175 (12,624) (21,304) 14,273
------- ------- ------- ------- -------
Cash flows from
investing activities:
Purchase of
properties............ (13,350) (15,166) (18,414) (17,596) (11,752)
Investment in
securities, net....... (4,888) (9,839) (4,632) (3,546) 4,499
Proceeds from sales of
notes receivable...... 27,860 6,256 2,780 2,780 2,652
Proceeds from sales of
properties............ 1,846 1,229 12,320 11,914 61
Increase in other
assets................ (1,635) (3,100) (2,236) (2,455) (25,847)
Sales of investments in
affiliates, net of
cash disposed*........ 1,785 500
Acquisition of net
assets from wholesale
distribution
company**............. (8,954)
------- ------- ------- ------- -------
Net cash provided
(utilized) by investing
activities............. 11,618 (20,120) (10,182) (8,903) (39,341)
------- ------- ------- ------- -------
Cash flows from
financing activities:
Additions to long-term
notes payable......... 27,944 124,000 135,000 26,605
Reduction of long-term
notes payable......... (37,329) (15) (90,344) (90,344)
Additions to short-term
notes payable......... 3,628
Reduction of short-term
notes payable......... (11,573) (11,440) (11,329) (11,151) (552)
Redemption of patronage
dividend
certificates.......... (249) (172)
Repurchase of shares
from members.......... (4,186) (4,112) (4,416) (4,100) (4,093)
(Decrease) increase in
members' required
deposits.............. (1,498) (1,166) (2,211) (242) 3,362
Issuance of shares to
members............... 3,868 4,432 3,311 400 586
------- ------- ------- ------- -------
Net cash (utilized)
provided by financing
activities............. (50,718) 15,394 19,011 29,563 29,364
------- ------- ------- ------- -------
Net (decrease) increase
in cash and cash
equivalents............ (878) 1,449 (3,795) (644) 4,296
Cash and cash
equivalents at
beginning of year...... 7,329 6,451 7,900 7,900 4,105
------- ------- ------- ------- -------
Cash and cash
equivalents at end of
year................... $ 6,451 $ 7,900 $ 4,105 $ 7,256 $ 8,401
------- ------- ------- ------- -------
Supplemental disclosure
of cash flow
information:
Cash paid during the
year for:
Interest............... $14,929 $13,264 $12,790 $10,210 $ 9,344
Income taxes........... $ 980 $ 2,688 $ 3,179 $ 1,497 $ 763
*Sales of investments in
affiliates, net of cash
disposed:
**Acquisition of net
assets from wholesale
distribution company:
Working capital, other
than cash............. $ 7,188 $(5,847)
Property, plant and
equipment............. 460 (1,734)
Investment in preferred
stock................. (1,000)
Other assets........... 71 (1,373)
Proceeds in excess of
net assets of
affiliates sold, net.. 366 $ 500
Long-term debt......... (5,300)
------- -------
Net cash effect from
sales of investments
in affiliates......... $ 1,785 $ 500
------- ------- -------
Acquisition of net
assets from wholesale
distribution company.. $(8,954)
-------
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements (dollars in thousands)

Years Ended August 31, 1996 August 30, 1997 and August 29, 1998 and the Nine
Months Ended May 30, 1998 (Unaudited) and May 29, 1999 (Unaudited)

1. Summary of Significant Accounting Policies:

Unaudited Interim Consolidated Financial Statements:

In the opinion of management, the unaudited consolidated financial
statements for the nine months ended May 30, 1998 and May 29, 1999 are
presented on a basis consistent with the audited consolidated financial
statements and reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results thereof. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the entire year.

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. Grocers Capital Company ("GCC") is a wholly owned subsidiary.

Nature of Business:

The Company is a cooperative organization engaged principally 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 pursuant to published terms or according to the provisions of supply
agreements.

The Company makes investments in retail grocery operations to assist its
membership. Periodically, the Company will own and manage retail grocery stores
on a temporary basis until a qualified and suitable owner can be identified.

The Company's fiscal year ends on the Saturday nearest to August 31.

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.

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 or market. Cost is determined on
the first-in first-out method for items of the warehouse stock and by the
retail inventory method for retail stores.

F-7
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Depreciation:

Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 40 years. 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.

Goodwill:

Amounts paid in excess of the fair value of acquired net assets are
amortized on a straight-line basis. The recoverability of goodwill is assessed
by determining whether the goodwill balance can be recovered through projected
cash flows and operating results over its remaining life. Impairment of the
asset would be recognized when it is probable that such future undiscounted
cash flows will be less than the carrying value of the asset. As of May 29,
1999, goodwill net of accumulated amortization amounted to $23.1 million.

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.

Transfers and Servicing of Financial Assets:

The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which the
Company adopted in 1997. 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 conformed to the new requirements of SFAS No. 125 for transactions
involving the sale of member loans receivable for applicable transactions
occurring after December 31, 1996.

Comprehensive Income:

As of August 30, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components. Comprehensive income is net
income, plus certain other items that are recorded

F-8
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

directly to shareholders' equity, bypassing net income. The only items
currently applicable to the Company are the unrealized gain or loss on
appreciation or depreciation of investments and the minimum pension liability
adjustment. The balance and current period change for each component of
comprehensive earnings are summarized as follows:
<TABLE>
<CAPTION>
Net Unrealized Gain
(Loss) On Appreciation Minimum Pension
(Depreciation) of Investments Liability Adjustment
----------------------------- --------------------
<S> <C> <C>
Balance, September 2,
1995................... $ 114
Current-period change.. (398) $(255)
----- -----
Balance, August 31,
1996................... (284) (255)
Current-period change.. 522 172
----- -----
Balance, August 30,
1997................... 238 (83)
Current-period change.. (5) 27
----- -----
Balance, August 29,
1998................... 233 (56)
Current-period change
(unaudited)........... (71)
----- -----
Balance, May 29, 1999
(unaudited)............ $ 162 $ (56)
===== =====
</TABLE>

Disclosures about Segments of an Enterprise and Related Information:

The FASB issued SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information," which establishes standards for reporting information
about operating segments and requires reporting for selected information about
operating segments in financial statements. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement is effective for the Company's 1999 fiscal year.
Management is in the process of determining the effects on the Company's
financial statement disclosures.

Accounting for Derivative Instruments and Hedging Activities:

The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The statement requires that the
Company recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. As amended by SFAS
No. 137, this statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Management is in the process of determining the
effects on the Company's financial statements.

2. Properties:

Properties at August 30, 1997, August 29, 1998, and May 29, 1999 stated at
cost, are comprised of:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Land......................................... $ 8,812 $ 8,350 $ 8,337
Buildings and leasehold improvements......... 66,185 52,353 58,952
Equipment.................................... 82,849 94,011 105,202
Equipment under capital leases............... 7,595 6,094 6,094
-------- -------- --------
165,441 160,808 178,585
Less accumulated depreciation and
amortization................................ 89,306 84,509 99,308
-------- -------- --------
$ 76,135 $ 76,299 $79,277
======== ======== ========
</TABLE>

F-9
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

On May 19, 1998, the Company completed the sale of approximately 24 acres of
property located in Commerce, California. The sale resulted in a gain (net of
expenses related to the sale) of $3.2 million. This transaction required
certain administrative offices and distribution facilities to be relocated. The
Company utilized its remaining properties to accommodate most of the displaced
facilities.

3. Investments:

The amortized cost and fair value of available-for-sale investments,
including equity securities, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
August 30, 1997 Cost Gains Losses Value
--------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies........ $11,569 $ 73 $143 $11,499
Corporate securities.............. 6,227 271 58 6,440
Mortgage backed securities........ 4,952 48 22 4,978
------- ---- ---- -------
Sub-total....................... 22,748 392 223 22,917
Redeemable preferred stock.......... 8,946 204 12 9,138
Equity securities................... 4,658 1 4,659
------- ---- ---- -------
$36,352 $597 $235 $36,714
======= ==== ==== =======
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
August 29, 1998 Cost Gains Losses Value
--------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies........ $13,276 $150 $ 7 $13,419
Corporate securities.............. 3,807 268 131 3,944
Mortgage backed securities........ 10,776 86 14 10,848
------- ---- ---- -------
Sub-total....................... 27,859 504 152 28,211
Redeemable preferred stock.......... 8,253 59 49 8,263
Equity securities................... 4,867 4,867
------- ---- ---- -------
$40,979 $563 $201 $41,341
======= ==== ==== =======

<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
May 29, 1999 (unaudited) --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies........ $16,899 $164 $251 $16,812
Corporate securities.............. 5,580 342 126 5,796
Mortgage backed securities........ 7,974 59 8 8,025
------- ---- ---- -------
Sub-total....................... 30,453 565 385 30,633
Redeemable preferred stock.......... 2,257 103 36 2,324
Equity securities................... 2,744 6 0 2,750
------- ---- ---- -------
$35,454 $674 $421 $35,707
======= ==== ==== =======

</TABLE>

F-10
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Fixed maturity investments are due as follows:

<TABLE>
<CAPTION>
Amortized Fair
August 30, 1997 Cost Value
--------------- --------- -------
<S> <C> <C>
Fixed Maturities Available for Sale:
Due after one year through five years................... $ 7,356 $ 7,395
Due after five years through ten years.................. 10,739 10,874
Due after ten years..................................... 4,653 4,648
------- -------
$22,748 $22,917
======= =======

<CAPTION>
Amortized Fair
August 29, 1998 Cost Value
--------------- --------- -------
<S> <C> <C>
Fixed Maturities Available for Sale:
Due after one year through five years................... $10,762 $10,954
Due after five years through ten years.................. 7,584 7,612
Due after ten years..................................... 9,513 9,645
------- -------
$27,859 $28,211
======= =======
</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.

Investment income is summarized as follows:

<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Fixed maturities....................................... $1,834 $1,728 $2,526
Preferred stock........................................ 350 91 444
Equity securities...................................... 132 75 82
Cash and cash equivalents.............................. 197 332 364
------ ------ ------
2,513 2,226 3,416
Less investment expenses............................... 95 137 22
------ ------ ------
Net investment income................................ $2,418 $2,089 $3,394
====== ====== ======
</TABLE>

Investments carried at fair values of $20,359, $17,975 and $19,239
(unaudited) at August 30, 1997, August 29, 1998 and May 29, 1999, 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.

At August 29, 1998, the Company owned an equity interest in SavMax Foods,
Inc. ("SavMax"), a member-patron. SavMax is an operator of seven retail grocery
stores with retail sales of approximately $110 million per year. The investment
consisted of (a) 10% of the outstanding Series A common stock with an original
cost of $2.5 million and (b) $6.3 million of 8.5% Series B cumulative
redeemable preferred stock.

F-11
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

The Company purchased the remaining common and preferred shares of SavMax
Foods, Inc. as of December 31, 1998, for an aggregate purchase price of
approximately $4.5 million (unaudited) (see Note 17). The transaction also
included an ongoing covenant not to compete from a selling shareholder,
termination of the sellers' existing employment and consulting agreements, and
the entry into a consulting arrangement with a selling shareholder. The
acquisition has been accounted for as a purchase pursuant to Accounting
Principles Board Opinion No. 16, "Business Combinations." Accordingly, the
consideration has been allocated to the assets and liabilities based on their
relative fair values. The excess of the purchase price over the fair market
value of the net assets was $23.4 million and was recorded as goodwill. The
results of the acquired business have been included in the consolidated
financial statements from the effective date December 31, 1998 through May 29,
1999. Although SavMax has been consolidated, the Company's plans are to sell
its investment to a qualified buyer(s) in the future. The following recaps the
fair value of assets acquired and the liabilities assumed based on SavMax's
balance sheet dated January 2, 1999 and is subject to final determination based
on real estate, leasehold and equipment valuation studies which are not yet
complete:

<TABLE>
<CAPTION>
Accounts Receivable, net............................................ $ 1,689
<S> <C>
Inventories, net.................................................... 6,118
Other current assets................................................ 723
Equipment and leasehold improvements, net........................... 4,467
Other assets........................................................ 2,681
--------
Total assets...................................................... 15,678
--------
Accounts payable.................................................... 12,724
Accrued liabilities and deferred credits............................ 5,747
Notes payable....................................................... 8,673
--------
Total liabilities................................................. 27,144
--------
Net................................................................. (11,466)
Total investment common and preferred stock......................... 11,888
--------
Goodwill............................................................ $ 23,354
========
</TABLE>

The Company has also entered into lease guarantees or subleases (see Note 6)
on six SavMax stores. The current minimum annual rent on locations underlying
such lease guarantees or subleases is $2.7 million. The commitments have
expiration dates through 2012.

4. Accrued Liabilities:

Accrued liabilities at August 30, 1997, August 29, 1998 and May 29, 1999 are
summarized as follows:

<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Insurance loss reserves & other liabilities.... $19,676 $17,290 $19,051
Accrued wages & related taxes.................. 9,966 12,136 16,678
Accrued income & other taxes payable........... 6,952 6,230 5,637
Accrued promotional liabilities................ 3,940 2,561 520
Other accrued liabilities...................... 13,786 13,550 20,323
------- ------- -------
$54,320 $51,767 $62,209
======= ======= =======
</TABLE>

F-12
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

5. Notes Payable:

Notes payable at August 30, 1997, August 29, 1998 and May 29, 1999 are
summarized as follows:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Senior notes payable to a life insurance com-
pany expiring April 1, 2008, interest rate
at 7.22% payable monthly, interest only
through April 1, 2000 and $832 principal and
interest thereafter through April 1, 2008,
remaining $34.8 million due May 1, 2008..... $ 80,000 $ 80,000
Note payable to banks under a $100 million
revolving credit agreement expiring April
10, 2003, interest rate at the agent's base
rate (7.75% at May 29, 1999 (unaudited) and
8.5% at August 29, 1998) or adjusted LIBOR
(5.06% plus 0.9% at May 29, 1999 (unaudited)
and 5.69% plus 0.825% at August 29, 1998)... 44,000 70,000
Note payable to a revocable trust, due Janu-
ary 4, 2000, interest rate at 7.00%......... 1,036
Line of credit agreement with a bank, inter-
est fluctuates based on Bank's prime rate
plus 1% (9.75% at May 29, 1999)............. 2,991
Notes payable to NCCB, interest at prime plus
1.5%, 9.25% at May 29, 1999, principal and
interest due in monthly installments through
October 2002, secured by equipment and in-
ventory of Sav Max.......................... 705
Revolving term loan payable to bank, interest
fluctuates based on Bank's prime rate plus
1%, 9.75% at May 29, 1999, due in full in
October 1999, secured by first priority in
receivables, inventory, and other intangi-
bles and equipment of Sav Max............... 232
Notes payable to banks under a $135 million
revolving credit agreement, paid on April
14, 1998.................................... $ 55,626
Subordinated note payable to a life insurance
company, paid on April 14, 1998............. 17,500
Senior note payable to a life insurance com-
pany, paid on April 14, 1998................ 15,000
Other notes payable, paid on April 14, 1998.. 12,724
Obligations under capital leases............. 2,696 1,873 1,626
-------- -------- --------
Total notes payable........................ 103,546 125,873 156,590
Less portion due within one year............. 11,329 743 5,798
-------- -------- --------
$ 92,217 $125,130 $150,792
======== ======== ========
</TABLE>

F-13
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Maturities of notes payable as of August 29, 1998 are:

<TABLE>
<CAPTION>
Fiscal year
-----------
<S> <C>
1999................................................................ $ 743
2000................................................................ 2,213
2001................................................................ 4,790
2002................................................................ 4,790
2003................................................................ 49,147
Thereafter.......................................................... 64,190
--------
$125,873
========
</TABLE>

On April 14, 1998, the Company issued $80 million in Senior Notes (the
"Senior Notes") to a life insurance company and pension funds. The proceeds of
the Senior Notes were utilized to pay off substantially all existing senior,
subordinated and secured long-term notes payable and a portion of amounts due
under the Company's revolving credit agreement with banks. The Senior Notes are
unsecured, due in April 2008 and bear interest at 7.22% per annum. On the same
date, the Company entered into a new $100 million revolving credit facility
with a group of banks (the "Revolving Credit"). The Revolving Credit is
unsecured, expires in April of 2003 and bears interest at the bank's base rate
or at an adjusted LIBOR rate plus a margin ranging from 0.375% to 0.90%
depending on the Company's leverage ratio. Both the Senior Notes and the
Revolving Credit (the "Credit Agreements") limit the incurrence of additional
funded debt, restrict the issuance of secured indebtedness and prohibit the
payment of dividends (other than patronage dividends). The Credit Agreements
contain various financial covenants. Obligations under the Credit Agreements
are senior to the rights of member patrons with respect to deposits and
patronage dividend certificates.

The Company entered into a five-year interest rate collar agreement during
February 1999 in relation to certain borrowings on its variable rate Revolving
Credit. The collar agreement was put in place without incurring any costs. The
hedge agreement is structured such that the Company pays a variable rate of
interest between 6% (cap rate) and 4.94% (floor rate) based on a notional
amount of $50,000,000. The weighted average interest rate on borrowings on the
Revolving Credit were 5.96% at May 29, 1999.

The extraordinary loss of $1.08 million, net of income taxes, in fiscal 1998
is related to the early extinguishment of debt in connection with the Company's
refinancing transaction. This charge covers prepayment premiums paid and the
write-off of financing costs relating to debt refinanced in the transaction.

A $10 million credit agreement is collateralized by GCC's member loan
receivables. The primary function of GCC is to provide loan financing to the
Company's member-patrons. Member loans are made at a market rate of interest
starting at prime plus 1/2%. The funding for loans made by GCC is provided by
GCC's cash reserves as well as the $10 million credit agreement. The maturity
date of the credit agreement is September 20, 2001, but is subject to an annual
extension of one year by the mutual consent of GCC and the bank. Amounts
advanced under the credit agreement bear interest at prime (8.5% at August 29,
1998) or Eurodollar (5.73% at August 29, 1998) plus 0.9%. No amounts were
outstanding under this credit line at May 29, 1999 (unaudited) or August 29,
1998. The unused portion of this credit line is subject to commitment fees of
0.125% plus $25 annually.

F-14
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Member loans receivable are periodically sold by GCC to a bank through a
loan purchase agreement. The maturity date of the loan purchase agreement 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. GCC entered into another loan
purchase agreement with a different bank in January 1999. This loan purchase
agreement can be terminated upon ninety days prior written notice. There is no
maximum limitation on the loan purchases. At August 29, 1998 and May 29, 1999,
the aggregate principal outstanding balance of loans purchased by the banks was
$17 and $25 million (unaudited), respectively. The loan sales are subject to
limited recourse provisions.

The Company and GCC have also guaranteed loans made directly to members by
third party lenders. At August 29, 1998 and May 29, 1999, the maximum principal
amount of these guarantees was $7.8 million and $7.6 million, respectively.
Member loans, provided by GCC and third parties, are generally secured with
collateral which usually consists of personal and real property owned by
member-patrons and personal guarantees of member-patrons.

As a result of maturing long-term debt (a noncash financing activity), the
Company reclassified from long to short-term debt $11.4 million, $11.3 million,
$0.7 million, and $0.6 million and $0.9 million (unaudited) in fiscal 1996,
1997, and 1998, and at the nine month period ended May 30, 1998 and May 29,
1999, respectively.

6. Leases:

The Company has entered into operating and capital leases for certain
warehouse, transportation and data processing equipment. The Company has also
entered into operating leases for approximately 26 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, on August 29, 1998, the Company was contingently liable with
respect to 17 lease guarantees for certain member-patrons. The total current
annual rent on locations underlying such lease guarantees is approximately $6.1
million. The commitments have expiration dates through 2017. The Company
believes the locations underlying these leases are marketable and, accordingly,
the Company would be able to recover a substantial portion of the guaranteed
amounts in the event the Company is required to satisfy its obligations under
the guarantees.

In consideration of lease guarantees and subleases, the Company receives a
monthly fee equal to 5% of the monthly rent under the lease guarantees 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 in certain instances, personal guarantees and
reimbursement and indemnification agreements.

Total rent expense was $20.5 million, $17.0 million, and $16.2 million in
1996, 1997, and 1998 respectively. Sublease rental income was $6.2 million,
$5.3 million, and $6.2 million in 1996, 1997, and 1998, respectively.

F-15
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Minimum rentals on properties leased by the Company, including properties
subleased to third parties, as of August 29, 1998 are summarized as follows:

<TABLE>
<CAPTION>
Fiscal year Capital Leases Operating Leases
----------- -------------- ----------------
<S> <C> <C>
1999...................................... $ 851 $ 15,456
2000...................................... 852 13,936
2001...................................... 340 12,162
2002...................................... 10,306
2003...................................... 9,402
Thereafter................................ 49,156
------ --------
Total minimum lease payments............ 2,043 $110,418
========
Less amount representing interest.......... 170
------
Present value of net minimum lease
payments.................................. 1,873
Less current portion....................... 743
------
Total long term portion.................. $1,130
======
</TABLE>

Future minimum sublease rental income on operating leases as of August 29,
1998 is summarized as follows:

<TABLE>
<CAPTION>
Fiscal year
-----------
<S> <C>
1999................................................................ $ 3,613
2000................................................................ 3,069
2001................................................................ 3,015
2002................................................................ 2,942
2003................................................................ 2,604
Thereafter.......................................................... 21,748
-------
$36,991
=======
</TABLE>

7. Income Taxes:

The significant components of income tax expense are summarized as follows:

<TABLE>
<CAPTION>
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Federal:
Current........................................... $ 3,641 $ 932 $2,367
Deferred.......................................... (2,849) 162 (820)
------- ------ ------
Total federal................................... 792 1,094 1,547
------- ------ ------
State:
Current........................................... 923 278 653
Deferred.......................................... (970) (269) (399)
------- ------ ------
Total state..................................... (47) 9 254
------- ------ ------
Income tax expense.............................. $ 745 $1,103 $1,801
======= ====== ======
</TABLE>

F-16
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

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 30, August 29,
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable.................................. $ 2,808 $ 2,388
Accrued benefits..................................... 7,188 9,159
Deferred income...................................... 575 1,697
Insurance reserves................................... 2,034 1,788
Investment valuation adjustment...................... 646 642
Accrued environmental liabilities.................... 530 313
Alternative minimum tax and other credits............ 435 1,080
Net operating loss carryforwards..................... 301 5
Other................................................ 1,237 786
------- -------
Total gross deferred tax assets.................... 15,754 17,858
Less valuation allowance............................. 1,400 1,400
------- -------
Deferred tax assets.............................. $14,354 $16,458
------- -------
<CAPTION>
August 30, August 29,
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment........................ $ 5,648 $ 5,939
Capitalized software................................. 1,864 1,988
Intangible assets.................................... 629 627
Deferred state taxes................................. 610 753
Other................................................ 59 191
------- -------
Total gross deferred tax liabilities............... 8,810 9,498
------- -------
Net deferred tax asset........................... $ 5,544 $ 6,960
======= =======
</TABLE>

Net deferred tax assets of $3.4 million and $3.9 million are included in
deferred taxes, current and $2.1 million and $3.1 million in other assets on
the Company's accompanying consolidated balance sheets as of August 30, 1997
and August 29, 1998, 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.

F-17
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate (34%) as follows:

<TABLE>
<CAPTION>
Nine months ended
-------------------
May 30, May 29,
1996 1997 1998 1998 1999
----- ------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal income tax expense at
the statutory rate............ $ 769 $ 1,159 $ 1,765 $ 1,593 $ 1,010
State income taxes, net of
federal income tax benefit.... 139 209 303 273 174
Insurance subsidiary not
recognized for state taxes.... (123) (324) (278) (228) (124)
Other, net..................... (40) 59 11 21 (39)
----- ------- ------- -------- --------
Provision for income taxes (net
of taxes related to
extraordinary item in 1998)... $ 745 $ 1,103 $ 1,801 $ 1,659 $ 1,021
===== ======= ======= ======== ========
</TABLE>

At August 29, 1998, the Company has alternative minimum tax credit
carryforwards of approximately $698 available to offset future regular income
taxes payable to the extent such regular taxes exceed alternative minimum taxes
payable.

8. Subordinated Patronage Dividend Certificates:

The Company has a patronage dividend retention program whereby, subject to
annual Board approval, it may retain a portion of the patronage dividends and
issue Patronage Certificates (the "Patronage Certificates") evidencing the
indebtedness respecting the retained amounts. The program provides for the
issuance of the Patronage Certificates to patrons in a portion and at an
interest rate determined by the Board in connection with its approval of a
particular issuance. The Patronage Certificates are unsecured general
obligations, subordinated to certain indebtedness of Certified, and
nontransferable without the consent of Certified.

The Company has issued Patronage Certificates for fiscal years 1993, 1994
and 1995. The outstanding 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 outstanding Patronage Certificates and their
respective terms:

<TABLE>
<CAPTION>
Aggregate Annual
Fiscal Year Principal Amount Interest Rate Maturity Date
----------- ---------------- ------------- -------------
<S> <C> <C> <C>
1993........................... $ 1,807 7% 12/15/00
1994........................... $ 2,257 8% 12/15/01
1995........................... $ 1,922 7% 12/15/02
</TABLE>

During fiscal 1996, 1997, and 1998 Certified set off approximately $12,
$273, and $118 respectively, in Patronage Certificates against a portion of
amounts owed to the Company by the holders.

Patronage Certificates have not been issued subsequent to fiscal 1995.
However, the program has not been discontinued, and the Board could authorize
the issuance of Patronage Certificates in connection with patronage dividends
payable in future years.

F-18
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

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, or member who holds Class B Shares in
excess of their Class B Share requirement, may 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. In fiscal 1999, the 5% limitation will restrict
Certified's redemption of shares to 19,007 shares for $3.5 million.
Additionally, 8,133 (unaudited) shares have been tendered for redemption
between August 29, 1998 and May 29, 1999. 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
----------- -------- -------- --------- ----------
<S> <C> <C> <C> <C>
Years prior to 1996................... 79,231 $14,537
1996.................................. 14,875 19,238 74,868 $13,736
1997.................................. 10,396 19,191 66,073 $12,122
1998.................................. 30,123 19,300 76,896 $14,108
1999 (unaudited)...................... 8,133 19,007 66,022 $12,113
</TABLE>

Because the 5% limit for fiscal year 1999 has been met, Board approval would
be required to redeem the remaining 66,022 shares (or approximately $12.1
million, using fiscal 1998 year end book value) not redeemed in fiscal year
1999, as well as the redemption of any additional Class B Shares tendered
during fiscal 1999. At present, such approvals are not expected to be given.
The total of Class B Shares tendered and awaiting redemption will also cause
the 5% limits for fiscal 2000 through 2002 to be met, thereby delaying the
redemption of Class B Shares tendered during those years. The redemptions
required for fiscal years 1999 through 2002 are estimated to be $12.1 million
(unaudited) based on the fiscal 1998 year end book value. The funds needed to
redeem shares are expected to be provided from operations, patron deposits, new
share issuances and borrowings under

F-19
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

the Company's credit lines. Any additional tenderings of Class B Shares could
also potentially cause 5% limits beyond fiscal 2002 to be exceeded.

There are 500,000 authorized Class A Shares, of which 47,900 and 46,800 were
outstanding at August 30, 1997 and August 29, 1998, respectively. There are
2,000,000 authorized Class B Shares, of which 385,990 and 380,146 were
outstanding at August 30, 1997 and August 29, 1998, respectively, including
21,366 and 13,456 respectively issued after year-end. Once redeemed, such
shares are not available for reissuance to member-patrons.

No member-patron may hold more than 100 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 100 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 100 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.

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.

F-20
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

The funded status of the plan and the amounts recognized in the balance
sheet are:

<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits.............................................. $23,679 $27,566
Effect of assumed future increase in compensation
levels................................................ 10,834 12,348
------- -------
Projected benefit obligation for services rendered to
date.................................................. 34,513 39,914
Plan assets at fair value.............................. 37,276 41,511
------- -------
Plan assets in excess of projected benefit
obligations........................................... (2,763) (1,597)
Unrecognized net loss.................................. (807) (801)
Unrecognized transition asset.......................... 1,221 912
Unrecognized prior service cost........................ 265 226
------- -------
Prepaid pension costs at June 1........................ (2,084) (1,260)
Fourth quarter contribution............................ (600)
Fourth quarter net periodic pension cost............... 241 195
------- -------
Prepaid pension cost at fiscal year-end................ $(2,443) $(1,065)
======= =======
</TABLE>

<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net pension cost included the following
components:
Service cost--benefits earned during the
period...................................... $ 1,448 $ 1,514 $ 1,586
Interest cost on projected benefit
obligation.................................. 2,709 2,641 2,705
Actual return on plan assets................. (6,321) (6,292) (6,887)
Net amortization and deferral................ 3,476 3,102 3,374
------- ------- -------
Net periodic pension cost.................... $ 1,312 $ 965 $ 778
======= ======= =======
Major assumptions:
Assumed discount rate........................ 7.5% 7.5% 7.0%
Assumed rate of future compensation
increases................................... 5.5% 5.5% 5.5%
Expected rate of return on plan assets....... 8.5% 8.5% 9.0%
</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 $22.3 million
and $26.8 million at August 30, 1997 and August 29, 1998, respectively.

The Company also made contributions of $5.7 million, $6.1 million, and $5.6
million in 1996, 1997, and 1998, 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 ("SSP"), which is a
defined contribution plan, adopted pursuant to Section 401(k) of the Internal
Revenue Code for substantially all of 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
$2.1 million, $2.2 million, and $2.3 million, in 1996, 1997, and 1998,
respectively.

F-21
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

The Company has an Employee Savings Plan ("ESP"), which is a defined
contribution plan, for substantially 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, 1997, and 1998.

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 is
facilitated through the purchase of life insurance policies, the premiums of
which are paid by the Company.

The amounts recognized in the balance sheet relative to ESPP II are:

<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits................................................ $3,648 $3,846
Effect of assumed future increase in compensation
levels.................................................. 317 453
------ ------
Projected benefit obligation for services rendered to
date.................................................... 3,965 4,299
------ ------
Plan assets in deficiency of projected benefit
obligation.............................................. 3,965 4,299
Unrecognized net loss.................................... (618) (592)
Unrecognized prior service cost.......................... (1,459) (1,463)
------ ------
Accrued pension cost as of June 1........................ 1,888 2,244
Fourth quarter net periodic pension cost................. 159 42
Additional minimum liability............................. 1,601 1,560
------ ------
Accrued pension cost at fiscal year-end.................. $3,648 $3,846
====== ======
</TABLE>

The additional minimum liability represents the excess of the unfunded
accumulated benefit obligation over previously accrued pension costs. A
corresponding intangible asset is recorded as an offset to this additional
liability. Because the asset recognized may not exceed the amount of
unrecognized prior service cost, the balance, net of tax benefits, of $83,000
and $56,000 is reported as a separate component of shareholders' equity at
August 30, 1997 and August 29, 1998, respectively.

The components of the net periodic pension cost under ESPP II for the fiscal
years ending include:

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits attributed to service during the
period................................................. $194 $193 $200
Interest cost on projected benefit obligation........... 257 303 294
Net amortization and deferral........................... 110 141 127
---- ---- ----
Net periodic pension cost............................. $561 $637 $621
==== ==== ====
Major assumptions:
Assumed discount rate................................. 7.5% 7.5% 7.0%
Assumed rate of future compensation increases......... 4.0% 4.0% 4.0%
</TABLE>

F-22
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

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 $3.6 million
and $3.8 million at August 30, 1997 and August 29, 1998, respectively.

11. Postretirement Benefit Plans Other Than Pensions:

The Company sponsors postretirement benefit plans that cover both nonunion
and union employees. Retired nonunion employees currently are eligible for a
plan providing medical benefits. A certain group of retired nonunion employees
currently participate in a plan providing life insurance benefits for which
active nonunion employees are no longer eligible. Certain eligible union and
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>
1997 1998
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................. $ 14,377 $ 17,701
Fully eligible active plan participants.............. 4,160 5,474
Other active plan participants....................... 9,915 10,116
-------- --------
Accumulated postretirement benefit obligation........ 28,452 33,291
Unrecognized transition obligation................... (17,977) (16,853)
Unrecognized net loss................................ (1,017) (4,297)
-------- --------
Accrued postretirement benefit cost at June 1........ 9,458 12,141
Fourth quarter contributions......................... (380) (416)
Fourth quarter net periodic postretirement benefit
cost................................................ 1,052 1,123
-------- --------
Accrued postretirement benefit cost at fiscal year-
end................................................. $ 10,130 $ 12,848
======== ========
</TABLE>

The components of the net periodic postretirement benefit cost for the
fiscal year ending include:

<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits attributed to service during
the period.......................................... $ 796 $ 788 $ 920
Interest cost on accumulated postretirement benefit
obligation.......................................... 1,855 1,960 2,145
Amortization of transition obligation over 20 years.. 1,124 1,124 1,124
Net amortization and deferral........................ (2) 19 79
------ ------ ------
Net periodic postretirement benefit cost........... $3,773 $3,891 $4,268
====== ====== ======
</TABLE>

For measurement purposes, a 7.24% annual rate of increase in the per capita
cost of covered health care benefits was assumed for fiscal year 1999; the
rate was assumed to decrease gradually to 4.97% in fiscal 2003 and remain at
that 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
29, 1998 by $4.5 million and the aggregate benefit cost for the year then
ended by $486.

F-23
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0%.

The Company's union employees participate in a multiemployer plan that
provides health care benefits for retired union employees. Amounts contributed
to the multiemployer plan for these union employees totaled $1.1 million in
fiscal years 1996, 1997, and 1998, respectively.

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
resolution 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 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. The Company believes
that its share of cost for the remaining phases of cleanup will not exceed the
amounts which the Company has reserved.

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.

The Company's largest customer and ten largest customers accounted for
approximately 6% and 31%, respectively, of net sales in fiscal 1998 and 6% and
27% (unaudited), respectively, of net sales for the nine month period ending
May 29, 1999.

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.

F-24
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

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. The Company regularly evaluates securities carried at cost to
determine whether there has been any diminution in value that is deemed to be
other than temporary and adjusts the value accordingly.

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. The fair value for notes payable, notes payable due after one
year, and patronage dividend certificates approximated fair value at August
30, 1997 and August 29, 1998.

The methods and assumptions used to estimate the fair values of the
Company's financial instruments at August 29, 1998 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:

Members affiliated with directors of the Company make purchases of
merchandise from the Company and also may receive benefits and services which
are generally offered by the Company to its eligible members.

Since the programs listed below are only available to patrons of the
Company, it is not possible to assess whether transactions with members of the
Company, including directors of the Company, are less favorable to the Company
than similar transactions with unrelated third parities. However, management
believes such transactions are on terms which are consistent with terms
available to other patrons similarly situated.

A brief description of related party transactions with members affiliated
with directors of the Company follows:

Loans and Loan Guarantees:

As described in Note 5 "Notes Payable", GCC provides loan financing to its
members. GCC had the following loans outstanding at August 29, 1998 and May
29, 1999 to members affiliated with directors of the Company:

<TABLE>
<CAPTION>
Aggregate Loan Aggregate Loan
Balance at Balance at Maturity
Director August 29, 1998 May 29, 1999 Date
-------- --------------- -------------- ---------
(unaudited)
<S> <C> <C> <C>
Bill Andronico...................... $2,171 1999-2004
Michael A. Provenzano, Jr. ......... $246 2005
</TABLE>

F-25
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

As described in Note 5 "Notes Payable", member loans are periodically sold
to a bank, subject to limited recourse provisions. At August 29, 1998 and May
29, 1999, the principal balances of loans to members affiliated with directors
of the Company that were sold with recourse were as follows:

<TABLE>
<CAPTION>
Aggregate Loan Aggregate
Balances at Maturity Loan Balances at
Director August 29, 1998 Dates May 29, 1999 Maturity Dates
-------- --------------- --------- ---------------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Darioush Khaledi........ $1,597 1999 $1,262 1999
Michael A. Provenzano,
Jr. ................... 1,096 2000-2004 935 2000-2004
Willard R. "Bill"
MacAloney.............. 542 2002
Jay McCormack........... 335 1998-2001 39 2000
Mark Kidd............... 292 2003 198 2003
John Berberian.......... 255 1999-2000 117 1999-2000
James R. Stump.......... 221 1999-2001 153 1999-2001
Edward J. Quijada....... 4 1999
</TABLE>

As described in Note 5 "Notes Payable" the Company provides loan guarantees
to its members. The Company has guaranteed certain third party loans to Super
Center Concepts, Inc., of which director Mimi R. Song is an affiliate. At
August 29, 1998 and May 29, 1999 (unaudited), the maximum principal amount of
this guarantee was $3.8 million. GCC has guaranteed 10% of the principal amount
of certain third party loans to K.V. Mart Co. of which director Darioush
Khaledi is an affiliate. At August 29, 1998, and May 29, 1999, the maximum
principal amount of this guarantee was $590 and $570 (unaudited), respectively.

Lease Guarantees and Subleases:

As described in Note 6 "Leases", the Company provides lease guarantees and
subleases to its members. The Company has executed lease guarantees or
subleases to members affiliated with directors of the Company at August 29,
1998 as follows:

<TABLE>
<CAPTION>
No. Of Total Current Expiration
Director Stores Annual Rent Date(s)
-------- ------ ------------- ----------
<S> <C> <C> <C>
Edmund K. Davis.............................. 1 $1,319 2009
Darioush Khaledi............................. 3 1,095 2004-2011
Willard R. "Bill" MacAloney.................. 3 385 2002-2012
Michael A. Provenzano, Jr. .................. 2 351 2016-2017
Harley DeLano (retired May, 1999)............ 2 327 2009
Mark Kidd.................................... 1 121 2008
James R. Stump............................... 2 110 1998-2002
</TABLE>

Other Leases:

The Company leases its produce warehouse to Joe Notrica, Inc., with which
director Morrie Notrica is affiliated. The lease is for a term of five years
expiring in November 2003. Monthly rent during the term is $24.

Supply Agreements:

During the course of its business, the Company enters into supply agreements
with members of the Company. These agreements require the member to purchase
certain agreed amounts of its merchandise requirements from the Company and
obligate the Company to supply such merchandise

F-26
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

under agreed terms and conditions relating to such matters as pricing,
delivery, discounts and allowances. Members affiliated with directors Davis,
DeLano, Khaledi, Kidd, MacAloney, McCormack, Provenzano, and Song have entered
into supply agreements with the Company. These supply agreements vary in terms
and length, and expire at various dates through 2004, but are subject to
earlier termination in certain events.

Direct Investment:

At August 29, 1998, GCC owned 10% of the common stock of K.V. Mart Co.
("KV"), of which Certified director Darioush Khaledi is affiliated. The cost of
the investment was approximately $3 million. The Stock Purchase Agreement
contained a provision which allowed KV to repurchase the shares upon certain
terms and conditions. In March 1999, KV exercised its repurchase rights under
the agreement.

On March 27, 1999, the Company, GCC and KV entered into a stock repurchase
agreement (the "Agreement"). Under the Agreement KV purchased the shares for
$4.5 million, payable in cash and in an interest-bearing note as provided for
in the Stock Purchase Agreement, resulting in a pre-tax gain of $1.5 million.
Coincident to the transaction, KV entered into a supply agreement with
Certified for a five-year term. The Agreement also provides that for a three-
year period commencing as of the date of the Agreement, in the event of (i) a
change of control of KV or (ii) a breach of the supply agreement by KV, KV
shall pay the Company $900 or an amount equal to the difference between 10% of
the appraised value of KV as of the approximate date of the Agreement (as
prepared by an independent third party appraisal firm) and $4.5 million,
whichever is greater (unaudited).

Other:

In August 1997, the Company entered into an agreement with Ralphs Grocery
Company ("Ralphs") providing for the dissolution of Golden Alliance
Distribution ("GAD"), a joint venture partnership previously formed for the
purpose of providing for the shared use of the Company's general merchandise
warehouse located in Fresno, California. The dissolution agreement provides
that certain amounts owed by Ralphs to Certified at August 30, 1997 will be
offset by future redemptions of excess Class B shares (see Note 9) held by
Ralphs and its affiliates. If redemptions of Class B shares are insufficient to
satisfy the remaining obligation at December 31, 2000, Ralphs will satisfy the
shortfall with a cash payment.

At August 29, 1998, the Company subleased a store in Riverside, California
to Jax Apple Market, Inc. ("Jax"), of which former Director Willard R. "Bill"
MacAloney is a principal. Mr. MacAloney's term as a director expired as of the
Shareholders' Meeting held February 23, 1999. The Company asserted that monthly
lease and other occupancy-related payments and equipment purchases related to
the Riverside store had not been paid timely by Jax. Jax disputed the amounts
claimed due by the Company.

On April 5, 1999, the Company entered into an agreement with Jax, Mr.
MacAloney and other entities controlled by Mr. MacAloney (collectively, "the
MacAloney entities"). Pursuant to the Agreement, the MacAloney entities paid
the indebtedness due the Company and its affiliates related to the Riverside
store, and the sublease was terminated. In addition, the Company acquired a
right of first refusal to purchase all of the common stock related to
supermarket entities controlled by Mr. MacAloney for a period of five years
(unaudited).

F-27
<PAGE>

Certified Grocers of California, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

16. Subsequent Events (Unaudited)

In June 1999, the Company executed an Agreement and Plan of Merger with
respect to a proposed merger with United Grocers, Inc. ("United"), a grocery
cooperative headquartered in Portland, Oregon. Pursuant to the merger
agreement, shareholders of United would exchange their shares for the Company's
Class A Shares and Class B Shares based on an exchange ratio of 0.228 shares of
the Company's stock for each share of United Common Stock outstanding. Existing
Company Class A Shares and Class B Shares would remain outstanding except that
prior to the merger, Class B Shares held by previously terminated members would
be redeemed. Consummation of the merger agreement is conditioned on the
approval of amendments to the Articles of Incorporation and Bylaws of the
Company including amendments to increase the number of directors of Certified
and to modify redemption provisions as they affect Class A Shares and Class B
Shares. The consummation of the merger is conditioned upon the approval of the
agreement by the shareholders of both entities, approval of the related
amendments by the shareholders of the Company, required filings with regulatory
entities, and other customary conditions. Certified has received financing
commitments from financial institutions to provide financing necessary to
complete the merger. Under these commitments, Certified will increase its bank
revolving credit line to $200 million, secured by accounts receivable and
inventory. Certified's existing institutionally placed $80 million of 7.22%
Senior Unsecured Notes due 2008 will be secured by property, plant and
equipment and the interest rate will be increased to 7.72%. A new issue of $40
million in ten year senior mortgage notes would be issued with an interest rate
of 280 basis points over U.S. Treasury issues with a corresponding maturity.
These notes would also be secured by property, plant and equipment.

17. Restatement (Unaudited)

Subsequent to the issuance of the Company's quarterly report on Form 10-Q
for the nine months ended May 29, 1999, the Company's management determined to
account for the acquisition of SavMax, as described in Note 3, as a purchase
pursuant to Accounting Principles Board Opinion No. 16 "Business Combinations".
As a result, the financial statements for the nine-month period ended May 29,
1999 have been restated from the amounts previously reported to reflect the
consolidation of SavMax with the Company. This restatement increased current
assets by $7,000 and increased total assets by $14,000. Shareholder's equity
and net earnings each decreased by $16.

F-28
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
United Grocers, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, members' equity and cash flows, present
fairly, in all material respects, the financial position of United Grocers,
Inc. and Subsidiaries (United) at October 3, 1997 and October 2, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended October 2, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
United's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As discussed in Note 1 to the consolidated financial statements, during the
year ended October 2, 1998, United changed its method of amortizing the
unrecognized gains and losses in connection with its defined benefit plan.

As discussed in Note 2 to the consolidated financial statements, results of
operations for the year ended September 27, 1996 and members' equity as of
September 29, 1995 and September 27, 1996 have been restated.

PricewaterhouseCoopers LLP

Portland, Oregon
April 30, 1999

F-29
<PAGE>

United Grocers, Inc. and Subsidiaries

Consolidated Balance Sheets
(dollars in thousands, except share data)

<TABLE>
<CAPTION>
October 3, October 2, July 2,
1997 1998 1999
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 10,223 $ 1,294 $ 3,907
Investments restricted or maintained for
insurance reserves........................ 51,513 -- --
Accounts and notes receivable, net......... 78,537 67,269 64,582
Inventories................................ 102,333 68,898 69,716
Other current assets....................... 7,037 5,115 5,918
Deferred income taxes...................... 8,147 1,526 1,525
-------- -------- --------
Total current assets..................... 257,790 144,102 145,648
Notes receivable, net........................ 16,498 29,201 20,143
Investments in affiliated companies.......... 6,971 3,360 3,354
Other receivables............................ 4,837 3,033 3,169
Deferred income taxes........................ 553 -- --
Other assets, net............................ 17,335 16,032 13,129
Property, plant and equipment, net........... 61,443 37,914 30,386
-------- -------- --------
$365,427 $233,642 $215,829
======== ======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Notes payable, current portion............. $ 10,191 $ 41,159 $ 55,688
Accounts payable........................... 97,587 59,676 57,840
Insurance reserves......................... 26,356 -- --
Compensation and taxes payable............. 8,328 6,335 4,578
Other current liabilities.................. 8,115 5,780 2,708
-------- -------- --------
Total current liabilities................ 150,577 112,950 120,814
Notes payable, net of current portion........ 187,995 74,434 56,596
Deferred gains on sale-leaseback
transactions................................ 3,650 1,257 1,168
Deferred income taxes........................ -- 2,233 2,233
Other liabilities............................ 7,434 7,520 5,647
-------- -------- --------
Total liabilities........................ 349,656 198,394 186,458
-------- -------- --------
Commitments and contingencies
Redeemable members' equity................... 1,120 3,905 1,886
-------- -------- --------
Members' equity:
Common stock--authorized, 10,000,000 shares
at $5.00 par value; issued and
outstanding, 586,834, 523,955 and 508,479
(unaudited) shares, respectively.......... 2,934 2,620 2,542
Additional paid-in capital................. 22,886 20,394 18,827
Retained earnings (accumulated deficit).... (11,431) 8,329 6,116
Unrealized gain on investments............. 262 -- --
-------- -------- --------
Total members' equity.................... 14,651 31,343 27,485
-------- -------- --------
$365,427 $233,642 $215,829
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-30
<PAGE>

United Grocers, Inc. and Subsidiaries

Consolidated Statements of Operations
(dollars in thousands)

<TABLE>
<CAPTION>
Nine month
Years ended periods ended
------------------------------------ ------------------
September 27,
1996 October 3, October 2, July 3, July 2,
(Restated) 1997 1998 1998 1999
------------- ---------- ---------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales and
operations............. $1,280,453 $1,306,602 $1,175,279 $892,279 $773,475
---------- ---------- ---------- -------- --------
Costs and expenses:
Cost of sales.......... 1,115,735 1,133,690 1,015,268 771,653 667,883
Operating expenses..... 119,785 130,323 114,595 83,214 68,659
Selling and
administrative
expenses.............. 15,365 22,425 19,565 16,795 16,405
Depreciation and
amortization.......... 8,015 11,483 10,416 7,715 7,413
---------- ---------- ---------- -------- --------
1,258,900 1,297,921 1,159,844 879,377 760,360
---------- ---------- ---------- -------- --------
Other income (expense):
Interest expense....... (14,825) (16,307) (13,585) (11,229) (7,069)
Interest income........ 828 733 2,206 1,330 1,912
Gain on sale of Cash &
Carry division........ -- -- 29,033 26,670 --
Gain (loss) on write-
down or disposition
of assets, net........ -- (4,385) 2,213 1,077 1,956
---------- ---------- ---------- -------- --------
(13,997) (19,959) 19,867 17,848 (3,201)
---------- ---------- ---------- -------- --------
Income (loss) from
continuing
operations before
members' allowances,
members' patronage
dividends,
cumulative effect on
prior years of a
change in accounting
principle and income
taxes............... 7,556 (11,278) 35,302 30,750 9,914
Members' allowances..... (11,605) (10,349) (14,108) (9,060) (13,602)
Members' patronage
dividends.............. (4,000) -- -- -- --
---------- ---------- ---------- -------- --------
Income (loss) from
continuing
operations before
cumulative effect on
prior years of a
change in accounting
principle and income
taxes............... (8,049) (21,627) 21,194 21,690 (3,688)
Income tax benefit
(provision)............ -- 10,466 (7,939) (8,676) 1,475
---------- ---------- ---------- -------- --------
Net income (loss)
from continuing
operations, before
cumulative effect of
a change in
accounting
principle........... (8,049) (11,161) 13,255 13,014 (2,213)
Discontinued operations:
Income from operations
of insurance segment
(less income taxes of
$0, $1,666, $903 and
$624 (unaudited),
respectively)......... 2,480 2,501 1,355 1,355 --
Gain on disposal of
insurance segment
(less income taxes of
$2,000 for 1998)...... -- -- 3,403 -- --
---------- ---------- ---------- -------- --------
Net income (loss)
before cumulative
effect of a change
in accounting
principle........... (5,569) (8,660) 18,013 $ 14,369 $ (2,213)
======== ========
Cumulative effect on
prior years (to October
3, 1997) of changing
methods of amortizing
the unrecognized net
gain in the Company's
defined benefit pension
plan (less income taxes
of $1,165 for 1998).... -- -- 1,747
---------- ---------- ----------
Net income (loss).... $ (5,569) $ (8,660) $ 19,760
========== ========== ==========
Pro forma net income
(loss), assuming the
new amortization
method is applied
retroactively....... $ (4,877) $ (8,342) $ 18,013
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-31
<PAGE>

United Grocers, Inc. and Subsidiaries

Consolidated Statements of Members' Equity
(dollars in thousands, except for share data)

<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Unrealized
--------------- Paid-in (Accumulated Gain on
Shares Amount Capital Deficit) Investments Total
------- ------ ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 29,
1995 (restated)........ 655,663 $3,278 $23,957 $ 4,918 $ 199 $32,352
Common stock issued..... 18,724 94 1,059 -- -- 1,153
Repurchase of common
stock.................. (48,936) (245) (1,527) (1,232) -- (3,004)
Patronage dividends..... 13,000 65 735 -- -- 800
Net loss (restated)..... -- -- -- (5,569) -- (5,569)
Changes in unrealized
gains on investments... -- -- -- -- 1 1
------- ------ ------- -------- ----- -------
Balance, September 27,
1996 (restated)........ 638,451 3,192 24,224 (1,883) 200 25,733
Common stock issued..... 13,775 69 780 -- -- 849
Repurchase of common
stock.................. (34,609) (173) (1,152) (888) -- (2,213)
Redemptions pending..... (30,783) (154) (966) -- -- (1,120)
Net loss................ -- -- -- (8,660) -- (8,660)
Change in unrealized
gain on investments.... -- -- -- -- 62 62
------- ------ ------- -------- ----- -------
Balance, October 3,
1997................... 586,834 2,934 22,886 (11,431) 262 14,651
Repurchase of common
stock.................. (577) (3) (18) -- -- (21)
Redemptions pending..... (62,302) (311) (2,474) -- -- (2,785)
Net income.............. -- -- -- 19,760 -- 19,760
Change in unrealized
gain on investments.... -- -- -- -- (262) (262)
------- ------ ------- -------- ----- -------
Balance, October 2,
1998................... 523,955 2,620 20,394 8,329 -- 31,343
Common stock issued
(unaudited)............ 21,528 108 655 -- -- 763
Repurchase of common
stock (unaudited)...... (96,124) (481) (3,947) -- -- (4,428)
Redemptions pending
(unaudited)............ 59,120 295 1,725 -- -- 2,020
Net loss (unaudited).... -- -- -- (2,213) -- (2,213)
------- ------ ------- -------- ----- -------
Balance, July 2, 1999
(unaudited)............ 508,479 $2,542 $18,827 $ 6,116 $ -- $27,485
======= ====== ======= ======== ===== =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-32
<PAGE>

United Grocers, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
(dollars in thousands)

<TABLE>
<CAPTION>
Nine month
Years ended periods ended
----------------------------------- ------------------
September 27,
1996 October 3, October 2, July 3, July 2,
(Restated) 1997 1998 1998 1999
------------- ---------- ---------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $ (5,569) $ (8,660) $ 19,760 $ 14,369 $ (2,213)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization........ 8,202 11,842 10,522 7,875 7,413
Patronage dividends
paid in common
stock............... 800 -- -- -- --
Loss (gain) on write-
down or disposition
of assets........... -- 4,385 (2,213) (1,077) (1,956)
Gain on disposal of
discontinued
operations.......... -- -- (5,403) -- --
Gain on sale of Cash
& Carry division.... -- -- (29,033) (26,670) --
Equity in earnings of
affiliated
companies........... (568) (107) (41) -- --
Deferred income
taxes............... -- (8,700) 9,407 -- --
Changes in assets and
liabilities:
Accounts
receivable........ 4,731 (2,133) (6,932) (2,910) 3,137
Inventories........ (2,631) 2,312 7,900 16,296 (818)
Other assets....... 1,354 (96) (1,731) 4,400 (2,081)
Accounts payable... 8,902 14,864 (11,465) (18,225) (1,836)
Insurance
reserves.......... (397) (3,206) 1,406 1,406 --
Compensation and
taxes payable..... 403 3,306 (1,850) (1,468) (1,757)
Other liabilities.. 791 (1,117) (1,418) 7,278 (5,034)
Members' patronage
payable........... (3,447) (2,427) -- -- --
Deferred gains on
sale leaseback
transactions...... -- 2,650 (2,393) -- --
---------- -------- ---------- -------- --------
Net cash flows
provided by (used
in) operating
activities.......... 12,571 12,913 (13,484) 1,274 (5,145)
---------- -------- ---------- -------- --------
Cash flows from
investing activities:
Loans to members....... (22,512) (10,396) (2,416) (1,647) (358)
Collections on member
loans................. 10,626 4,988 3,798 2,603 8,966
Proceeds from sale of
member loans.......... 10,549 13,205 2,918 1,550 --
Sale of investment in
affiliated company.... -- 6,023 -- -- --
Purchase of
investments
restricted or
maintained for
insurance reserves.... (13,404) (10,226) (3,167) (3,167) --
Sale of investments
restricted or
maintained for
insurance reserves.... 7,385 5,604 8,685 8,685 --
Investment in
affiliated
companies............. (267) (48) -- -- --
Proceeds from
disposition of
assets................ 6,884 11,036 18,313 15,193 7,912
Purchase of property,
plant and equipment... (16,231) (15,607) (3,677) (1,870) (1,789)
Purchase of other
assets................ (6,417) (6,446) (1,011) -- --
Acquisition of
California
operations............ (23,252) -- -- -- --
Proceeds from sale of
discontinued
operations, net....... -- -- 26,813 -- --
Proceeds from sale of
Cash & Carry
division.............. -- -- 37,986 37,986 --
---------- -------- ---------- -------- --------
Net cash flows
provided by (used
in) investing
activities.......... (46,639) (1,867) 88,242 59,333 14,731
---------- -------- ---------- -------- --------
Cash flows from
financing activities:
Sale of common stock... 1,153 76 -- -- 762
Repurchase of common
stock................. (3,004) (2,213) (21) -- (4,427)
Proceeds from notes
payable............... 1,091,567 932,370 1,171,161 871,891 818,850
Repayments of notes
payable............... (1,052,183) (947,566) (1,253,754) (927,050) (822,158)
Payment of debt
issuance costs........ -- -- (1,073) -- --
---------- -------- ---------- -------- --------
Net cash flows
provided by (used
in) financing
activities.......... 37,533 (17,333) (83,687) (55,159) (6,973)
---------- -------- ---------- -------- --------
Net increase
(decrease) in cash
and cash
equivalents......... 3,465 (6,287) (8,929) 5,448 2,613
Cash and cash
equivalents, beginning
of year................ 13,045 16,510 10,223 10,223 1,294
---------- -------- ---------- -------- --------
Cash and cash
equivalents, end of
year................... $ 16,510 $ 10,223 $ 1,294 $ 15,671 $ 3,907
========== ======== ========== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-33
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Operations and Summary of Significant Accounting Policies:

Organization and Nature of Operations

United Grocers, Inc. and subsidiaries (United) operates a distribution
business primarily in Oregon, Southern Washington and Northern California. The
distribution business includes all operations relating to wholesale grocery and
related product sales, service department revenues and financing income and
fees. Through July 1998, United had an additional operating segment, which
included all operations relating to insurance underwriting, commissions and
reinsurance, primarily to provide workers' compensation and property-casualty
coverage. As discussed in Note 9, the insurance operations were sold in July
1998 and those operations discontinued by United.

Its member customers own United's stock. Sales to these members accounted
for approximately 80%, 56% and 57% of sales from continuing operations for the
years ended September 27, 1996, October 3, 1997 and October 2, 1998,
respectively.

Unaudited Interim Financial Statements

In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the consolidated
financial position of United at July 2, 1999 and the consolidated results of
operations and cash flows for the nine month periods ended July 3, 1998 and
July 2, 1999.

Operating results for the interim period ended July 2, 1999 are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending October 1, 1999, or any other period.

Fiscal Year

United reports on a fiscal year of 52 or 53 weeks, which is the fiscal year
of the distribution segment. United's fiscal closing date is the Friday nearest
September 30. The fiscal year of the subsidiaries included in the insurance
segment ended on September 30.

Principles of Consolidation

The consolidated financial statements include the accounts of United
Grocers, Inc. and its wholly-owned subsidiaries as follows: Western Passage
Express, Inc.; Northwest Process, Inc.; UG Resources, Inc.; United Resources,
Inc.; Western Security Services, Ltd.; R&R Liquidating Corporation; and
Bergrens Market, Inc. The consolidated financial statements also include:
Grocers Insurance Group, Inc.; Grocers Insurance Agency, Inc., UGIC Ltd.,
Grocers Insurance Company and United Workplace Consultants, Inc. (collectively,
the insurance segment) through July 1998 (see Notes 9 and 13); and Rich and
Rhine, Inc. through May 1998. All intercompany balances and transactions have
been eliminated upon consolidation.

Cash and Cash Equivalents

United considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.

F-34
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Investments

Investments, which were held by subsidiaries within the insurance segment,
were classified and accounted for as follows:

. held-to-maturity securities were reported at amortized cost.

. available-for-sale securities were reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a
separate component of members' equity.

The cost of investments used in computing realized gains or losses was
determined using the specific identification method.

Reinsurance

United accounted for reinsurance transactions in accordance with Statement
of Financial Accounting Standards (SFAS) No. 113, Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts. SFAS No. 113
requires that transactions relating to reinsurance transactions be reported at
gross amounts rather than net amounts. Net premiums earned are reported as net
sales and operations while net losses and loss adjustment expenses are reported
as cost of sales.

In the normal course of business, United sought to reduce the losses that
may have resulted from catastrophes or other events that would cause
unfavorable underwriting results by reinsuring certain levels of risk in
various areas of exposure with other insurance enterprises or reinsurers.
Amounts recoverable from reinsurers were estimated in a manner consistent with
the claim liability associated with the reinsured policy. Amounts paid for
prospective reinsurance were reported as prepaid reinsurance premiums and
amortized over the remaining contract period in proportion to the amount of
insurance protection provided.

Inventories and Cost of Sales

Inventories are stated at the lower of cost or market. The cost of these
inventories is determined under the first-in, first-out (FIFO) method or other
methods that approximate FIFO.

Cost of sales includes primarily the costs of distribution, which include
the purchases of product, net of allowances paid and received and the net
advertising department margins, plus the handling allowances made to members
based upon the cost of servicing their accounts.

Restricted Assets and Net Assets

Restricted assets and net assets that could not be transferred to the parent
company in the form of loans, advances or cash dividends by the insurance
subsidiary without the consent of state insurance agencies as of October 3,
1997 were as follows:

<TABLE>
<S> <C>
Restricted cash................................................ $ 401,000
Investments.................................................... 18,486,000
-----------
Total........................................................ $18,887,000
===========
</TABLE>

F-35
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

In addition, the balance of the investments of $32,626,000 represented
assets that had been accumulated for the possible payment of claims against the
insurance reserves.

Investments in Affiliated Companies

Investments in affiliated companies represent United's ownership in entities
in which it does not have a controlling interest. The investments are accounted
for using the equity method, in which carrying value represents cost plus
United's share of earnings since acquisition, less distributions received.

Other Assets

Software costs, non-competition agreements and other intangibles, included
in other assets in the accompanying balance sheets, are stated at cost and are
being amortized and charged to operating expenses on a straight-line basis over
the estimated or contractual lives of three to five years.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and include expenditures
for new facilities and those that substantially increase the useful lives of
the existing plant and equipment. United capitalizes interest when applicable
as a component of the cost of significant construction projects. No interest
was capitalized for the years ended September 27, 1996, October 3, 1997 and
October 2, 1998.

Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets. Estimated useful lives are generally as
follows:

<TABLE>
<S> <C>
Buildings and improvements...................................... 4-75 years
Warehouse equipment............................................. 5-20 years
Truck equipment................................................. 3-8 years
Office equipment................................................ 3-10 years
</TABLE>

Maintenance and repairs are charged to expense as incurred. Upon the sale or
retirement of property, plant and equipment, any gain or loss on disposition is
reflected in the consolidated statement of operations and the related asset
cost and accumulated depreciation are removed from the respective accounts.

Recoverability of Long-Term Assets

Management of United reviews the carrying value of long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.

Debt Classification

United classifies as current liabilities any line of credit arrangements
that contain a subjective acceleration clause and a lock-box arrangement.

F-36
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Income Taxes

United files a consolidated income tax return. United operates and is taxed
as a cooperative. Accordingly, amounts distributed as qualified patronage
dividends are not included in its taxable income but are instead taxed to the
patrons receiving the patronage dividends. Deferred income taxes are recorded
to reflect the tax consequences on future years of the non-patronage portion of
temporary differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the years in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred income tax assets to the amount expected to be
realized. Income tax expense is the combination of the tax payable for the year
and the change during the year in net deferred tax assets and liabilities.

Earnings per Common Share

United's policy is to distribute earnings only in the form of patronage
dividends. No dividends have ever been declared on the common stock of United
and all earnings not distributed as patronage dividends have been retained. In
accordance with generally accepted accounting principles, earnings per share
information is not presented because United does not have publicly held common
stock.

Common Stock

United's Board of Directors' policy, subject to change without notice,
requires United to repurchase on request the number of shares a member owns in
excess of 4,000 shares. The excess shares are redeemed in exchange for cash or
capital stock residual notes, payable over a five-year period. In fiscal 1998,
United's Board of Directors temporarily suspended redemptions of members'
capital stock. Future redemptions are at the discretion of the Board of
Directors.

At October 3, 1997, October 2, 1998 and July 2, 1999, there were 30,783,
93,085 and 33,965 (unaudited) shares in the amounts of $1,120,000, $3,905,000
and $1,886,000 (unaudited), respectively, which have been presented by members
for redemption, but which had not yet been redeemed. These shares are included
in redeemable members' equity in the accompanying consolidated balance sheet.

As of October 2, 1998, United holds $111,000 to be used for issuance of
5,400 shares to new members.

Advertising Costs

United expenses the costs of advertising the first time the advertising
takes place. Advertising expense for the years ended September 27, 1996,
October 3, 1997 and October 2, 1998 was $2,593,000, $1,734,000 and $444,000,
respectively, exclusive of costs incurred on behalf of members for which United
is reimbursed.

F-37
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Members' Allowances

United makes rebates to members based on the respective members' volume of
purchases over defined periods of time.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Change in Method of Accounting for Net Periodic Pension Costs

For the year ended October 2, 1998, United began amortizing its unrecognized
net gains and losses in connection with its defined benefit pension plan (see
Note 14) over a three-year period. In previous years United used the minimum
amortization allowed by SFAS No. 87, Employer's Accounting for Pensions. The
new method was adopted to more currently recognize the effects of changes in
actuarial assumptions and differences between the assumptions used and the
actual experience. The pro forma amounts in the statement of operations have
been adjusted for the effect of the retroactive application of the change on
operating expenses and related income taxes. The effect of the change on the
statement of operations for the year ended October 2, 1998 was to increase net
income before the cumulative effect of the change in accounting method by
approximately $996,000.

Transfers and Servicing of Financial Assets

The Financial Accounting Standards Board (FASB) issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, which United adopted in 1997. 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, United conformed to the new requirements of SFAS No.
125 for transactions involving the sale of member loans receivable for
applicable transactions occurring after December 31, 1996.

Accounting Pronouncements

During the first quarter of 1998, United adopted FASB SFAS No. 130,
Reporting Comprehensive Income, which establishes requirements for disclosure
of comprehensive income. The objective of SFAS No. 130 is to report a measure
of all changes in equity that result from transactions and economic events
other than transactions with owners. Comprehensive income is the total of net
income and all other non-owner changes in equity. Comprehensive income did not
differ significantly from reported net income or loss in the periods presented.

F-38
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. This statement will change the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information
in their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and earns revenues and its major customers.
The statement is effective for fiscal years beginning after December 15, 1997.

In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. This statement revises employers'
disclosures about pension and other post-retirement benefit plans. It does not
change the measurement or recognition of those plans. The statement suggests
combined formats for presentation of pension and other post-retirement benefit
disclosures. The statement is effective for fiscal years beginning after
December 15, 1997.

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative instrument's fair
value be recognized currently in results of operations unless specific hedge
accounting criteria are met. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000.

2. Restatement:

United previously reported retained earnings as of September 29, 1995 and
September 27, 1996 of $14,923,000 and $13,843,000, respectively. These amounts
have been restated to retained earnings of $4,918,000 as of September 29, 1995
and an accumulated deficit of $1,883,000 as of September 27, 1996 in the
accompanying consolidated statements of members' equity. The adjustments which
necessitated the restatement, and their effect on United's net income for the
year ended September 27, 1996 and members' equity as of September 29, 1995 are
summarized as follows:

<TABLE>
<CAPTION>
Decrease (Increase) In:
----------------------------
Members' Equity
Fiscal 1996 September 29,
Net Income 1995
----------- ---------------
<S> <C> <C>
Accruals for losses on lease/sublease
arrangements................................. $(2,258,000) $11,872,000
Write-off of advertising and other
receivables.................................. 3,561,000 --
Accrual of vendor trust account liabilities... 1,581,000 --
Adjustment of carrying value of used store
equipment to net realizable value............ 1,309,000 --
Income taxes.................................. (74,000) (2,126,000)
Other......................................... 1,602,000 259,000
----------- -----------
Net restatement............................. $ 5,721,000 $10,005,000
=========== ===========
</TABLE>

F-39
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

3. Investments Restricted or Maintained for Insurance Reserves:

The amortized costs and estimated fair values of investments in debt
securities and other investments at October 3, 1997 are as follows:

<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
Available-for-sale securities
- -----------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities.......... $ 3,512,000 $ 103,000 $ -- $ 3,615,000
Obligations of states, political
subdivisions and government
agencies......................... 4,410,000 134,000 -- 4,544,000
Corporate securities.............. 1,026,000 25,000 -- 1,051,000
----------- ---------- --------- -----------
Subtotal...................... 8,948,000 262,000 -- 9,210,000
Common stocks..................... 225,000 -- -- 225,000
----------- ---------- --------- -----------
Total......................... $ 9,173,000 $ 262,000 $ -- $ 9,435,000
=========== ========== ========= ===========
<CAPTION>
Held-to-maturity securities
- ---------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities.......... $16,547,000 $ 848,000 $ (42,000) $17,353,000
Obligations of states, political
subdivisions and government
agencies......................... 19,154,000 255,000 (66,000) 19,343,000
Corporate securities.............. 5,976,000 141,000 (19,000) 6,098,000
----------- ---------- --------- -----------
Total......................... $41,677,000 $1,244,000 $(127,000) $42,794,000
=========== ========== ========= ===========
<CAPTION>
Restricted assets
- -----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents......... $ 401,000 $ -- $ -- $ 401,000
=========== ========== ========= ===========
Reconciliation to balance sheet:
Available-for-sale securities,
at fair value.................. $ 9,435,000
Held-to-maturity securities, at
amortized cost................. 41,677,000
Restricted assets, at fair
value.......................... 401,000
-----------
Total investments............. $51,513,000
===========
</TABLE>

Gross realized gains of $3,000 were realized in the year ended October 3,
1997 from the maturity and redemption of held-to-maturity securities being
called by the issuers. The amortized cost of these securities at the time of
call was $4,470,000. There were no realized losses.

Proceeds from the sale of available-for-sale securities were $1,105,000 and
$1,131,000 in the years ended September 27, 1996 and October 3, 1997,
respectively. The gross realized gains on these sales were $4,226 in the year
ended September 27, 1996 and losses on these sales were $9,000 in the year
ended October 3, 1997.

F-40
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

4. Accounts and Notes Receivable:

These consist of amounts due principally from members at the balance sheet
date as follows:

<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
------------------------ ------------
October 3, October 2, July 2,
1997 1998 1999
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Accounts receivable.................... $69,778,000 $60,503,000 $60,198,000
Insurance premiums receivable and
related balances...................... 14,521,000 -- --
Less allowance for doubtful accounts... (7,598,000) (1,236,000) (1,185,000)
----------- ----------- -----------
Net accounts receivable.............. 76,701,000 59,267,000 59,013,000
----------- ----------- -----------
Notes receivable, current portion...... 1,977,000 8,002,000 5,569,000
Less allowance for doubtful notes...... (141,000) -- --
----------- ----------- -----------
Net current notes receivable......... 1,836,000 8,002,000 5,569,000
----------- ----------- -----------
Net accounts and current notes
receivable.......................... $78,537,000 $67,269,000 $64,582,000
=========== =========== ===========
Notes receivable, non-current portion.. $18,886,000 $29,515,000 $20,899,000
Less allowance for doubtful accounts... (2,388,000) (314,000) (756,000)
----------- ----------- -----------
Net non-current notes receivable..... $16,498,000 $29,201,000 $20,143,000
=========== =========== ===========
</TABLE>

During the year ended October 2, 1998, United wrote off approximately $11
million of accounts and notes receivable, and adjusted the related allowance
for doubtful accounts, for amounts determined to be uncollectible.

The notes receivable from members are generally for periods of two to ten
years at annual interest rates of 3% to 11%. The notes receivable as of
October 2, 1998 include $17.5 million in connection with the sale of the Cash
& Carry division (see Note 10). This note carries an annual interest rate of
6.5%. The annual maturities of notes receivable for each of the next five
fiscal years following October 2, 1998 are as follows:

<TABLE>
<S> <C>
1999........................................................... $ 8,002,000
2000........................................................... 4,349,000
2001........................................................... 6,859,000
2002........................................................... 6,632,000
2003........................................................... 6,562,000
Thereafter..................................................... 5,113,000
-----------
$37,517,000
===========
</TABLE>

F-41
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Changes in the allowance for doubtful accounts for the years ended September
27, 1996, October 3, 1997 and October 2, 1998 and for the nine month period
ended July 2, 1999 are summarized as follows:

<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and end of
Description of year expenses Deductions year
----------- ----------- ----------- ------------ -----------
1996:
- -----
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts for:
Accounts receivable....... $ 1,177,000 $ 6,213,000 $ (6,250,000) $ 1,140,000
Notes receivable.......... 508,000 1,062,000 (460,000) 1,110,000
----------- ----------- ------------ -----------
Total................... $ 1,685,000 $ 7,275,000 $ (6,710,000) $ 2,250,000
=========== =========== ============ ===========
<CAPTION>
1997:
- -----
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts for:
Accounts receivable....... $ 1,140,000 $ 7,829,000 $ (1,371,000) $ 7,598,000
Notes receivable.......... 1,110,000 2,943,000 (1,524,000) 2,529,000
----------- ----------- ------------ -----------
Total..................... $ 2,250,000 $10,772,000 $ (2,895,000) $10,127,000
=========== =========== ============ ===========
<CAPTION>
1998:
- -----
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts for:
Accounts receivable....... $ 7,598,000 $ 1,440,000 $ (7,802,000) $ 1,236,000
Notes receivable.......... 2,529,000 1,000,000 (3,215,000) 314,000
----------- ----------- ------------ -----------
Total................... $10,127,000 $ 2,440,000 $(11,017,000) $ 1,550,000
=========== =========== ============ ===========
<CAPTION>
1999:
- -----
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts for:
Accounts receivable
(unaudited).............. $ 1,236,000 $ 291,000 $ (342,000) $ 1,185,000
Notes receivable
(unaudited).............. 314,000 450,000 (8,000) 756,000
----------- ----------- ------------ -----------
Total (unaudited)....... $ 1,550,000 $ 741,000 $ (349,000) $ 1,941,000
=========== =========== ============ ===========
</TABLE>

5. Other Assets:

Other assets consist of the following:

<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
------------------------ ------------
October 3, October 2, July 2,
1997 1998 1999
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Software............................. $18,356,000 $19,999,000 $21,195,000
Prepaid loan fees.................... -- 1,073,000 1,111,000
Other................................ 2,570,000 1,941,000 1,973,000
----------- ----------- -----------
Subtotal........................... 20,926,000 23,013,000 24,279,000
Less accumulated amortization........ (3,591,000) (6,981,000) (11,150,000)
----------- ----------- -----------
Total other assets, net............ $17,335,000 $16,032,000 $13,129,000
=========== =========== ===========
</TABLE>

Amortization expense for the years ended September 27, 1996, October 3, 1997
and October 2, 1998 was $1,573,000, $4,152,000 and $4,143,000, respectively,
and $3,091,000 (unaudited) and $4,052,000 (unaudited) for the nine month
periods ended July 3, 1998 and July 2, 1999, respectively.

F-42
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

6. Property, Plant and Equipment:

Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
------------------------ ------------
October 3, October 2, July 2,
1997 1998 1999
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Land................................ $ 3,865,000 $ 2,163,000 $ 537,000
Buildings and improvements.......... 55,999,000 42,996,000 37,128,000
Warehouse and truck equipment....... 31,316,000 24,022,000 22,148,000
Office equipment.................... 14,185,000 14,432,000 13,405,000
Construction in progress............ 5,069,000 466,000 470,000
----------- ----------- -----------
Total property, plant and
equipment........................ 110,434,000 84,079,000 73,688,000
Less accumulated depreciation....... (48,991,000) (46,165,000) (43,302,000)
----------- ----------- -----------
Property, plant and equipment,
net.............................. $61,443,000 $37,914,000 $30,386,000
=========== =========== ===========
</TABLE>

Depreciation expense for the years ended September 27, 1996, October 3, 1997
and October 2, 1998 was $6,629,000, $7,690,000 and $6,379,000, respectively,
including $187,000, $359,000 and $160,000, respectively, related to
discontinued operations. Depreciation expense for the nine month periods ended
July 3, 1998 and July 2, 1999 was $4,784,000 (unaudited) and $3,361,000
(unaudited), respectively, including $160,000 (unaudited) related to
discontinued operations for the nine month period ended July 3, 1998. Due to
operating losses incurred by a retail store in Sacramento, California, United
recorded during the year ended October 3, 1997 a write-down of approximately
$1.8 million to reduce the carrying cost of the store's assets to estimated net
realizable value. The loss is included in "gain/loss on write-down or
disposition of assets, net" in the accompanying statements of operations. The
store incurred losses for the years ended September 27, 1996, October 3, 1997
and October 2, 1998 of $601,000, $520,000 and $562,000, respectively. The
carrying value of the store's assets at October 2, 1998 is $10,000. The store
is being operated but is being held for sale.

F-43
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

7. Notes Payable:

Notes payable consists of the following:

<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
-------------------------- ------------
October 3, October 2, July 2,
1997 1998 1999
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Line of credit with financial
institution......................... $ 69,000,000 $ 34,315,000 $ 47,568,000
Notes payable with financial
institution:
Term loan, interest at 7.344%,
payable in four equal annual
payments beginning May 1999....... -- 10,000,000 10,000,000
Real estate term loan, interest at
7.344%, payable in 120 equal
monthly principal and interest
payments beginning February 1999.. -- 25,000,000 16,863,000
Notes payable, other:
Capital stock residual notes,
payable in 20 quarterly
installments plus interest at a
variable interest rate based on
the current capital investment
note rate......................... 4,071,000 2,327,000 3,683,000
Capitalized equipment leases,
payable in monthly installments of
$43,853, including interest at 12%
to 20% through 2005
(collateralized by equipment)..... 2,276,000 1,563,000 --
Other notes payable................ 1,495,000 281,000 150,000
Redeemable notes and certificates:
Capital investment notes
(subordinated), interest at 7.5%,
maturity dates through 2005....... 41,745,000 39,277,000 31,302,000
Registered redeemable building
notes (subordinated), interest at
8%, not fixed maturity date....... 3,088,000 2,830,000 2,718,000
Credit agreement notes, interest
from 7.0875% to 7.1875%........... 42,915,000 -- --
Senior notes payable to insurance
companies, interest at 8.42% and
9.15%............................... 29,999,000 -- --
Mortgage notes payable, interest at
7.25%............................... 3,597,000 -- --
------------ ------------ ------------
Total............................ 198,186,000 115,593,000 112,284,000
Less current portion................. (10,191,000) (41,159,000) (55,688,000)
------------ ------------ ------------
Total notes payable, net of
current portion................. $187,995,000 $ 74,434,000 $ 56,596,000
============ ============ ============
</TABLE>

Maturities of notes payable subsequent to October 2, 1998 are as follows:

<TABLE>
<S> <C>
1999.......................................................... $ 41,159,000
2000.......................................................... 7,942,000
2001.......................................................... 9,984,000
2002.......................................................... 9,206,000
2003.......................................................... 6,200,000
Thereafter.................................................... 41,102,000
------------
$115,593,000
============
</TABLE>

F-44
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

United has a credit agreement with a financial institution providing for a
line of credit of $100 million for revolving loans and $35 million for term
loan facilities. The agreement was entered into in August 1998 and matures in
February 2002. The agreement provides for letter of credit accommodations up to
$1 million.

The amount of borrowings available under the revolving line of credit, based
upon a lending formula applied to accounts and notes receivable and inventory,
was $70.4 million as of October 2, 1998. The revolving line of credit bears
interest at LIBOR plus 1.75% or at prime rate (7.125% and 8.5%, respectively,
at October 2, 1998). United had $34.3 million outstanding under the revolving
loans, $20 million at LIBOR and $14.3 million at prime. The term loans bear
interest at LIBOR plus 1.75% as of October 2, 1998. The revolving line of
credit and term loans are collateralized by account receivables, inventory and
other assets.

As of October 2, 1998, United had letters of credit totaling $11 million, $1
million required by certain real property leases and $10 million required under
its cash management agreement with a bank. The revolving and term loans and
letters of credit are cross-collateralized by essentially all assets of the
borrowers (United Grocers, Inc. and United Resources, Inc.) and are guaranteed
by all subsidiaries.

United's most restrictive covenants require it to maintain certain minimum
adjusted net worth, minimum accounts receivable turnover and fill rates (as
defined). United is in compliance with covenants related to its credit
agreements as of October 2, 1998.

Amounts available under the credit agreement and letter of credit
accommodations are subject to reduction by the lender being permitted to
establish availability reserves based upon certain events, conditions,
contingencies or risks which it may in good faith determine.

8. Income Taxes:

The income tax (provision) benefit, including amounts associated with
discontinued operations and the cumulative effect of a change in accounting
method, for the years ended September 27, 1996, October 3, 1997 and October 2,
1998 consists of the following:

<TABLE>
<CAPTION>
1996 1997 1998
------ ---------- ------------
<S> <C> <C> <C>
Current:
Federal.................................. $ -- $ 100,000 $ (2,600,000)
------ ---------- ------------
Deferred:
Federal.................................. -- 7,493,000 (8,135,000)
State.................................... -- 1,207,000 (1,272,000)
------ ---------- ------------
-- 8,700,000 (9,407,000)
------ ---------- ------------
$ -- $8,800,000 $(12,007,000)
====== ========== ============
</TABLE>

The current provision for the year ended October 2, 1998 primarily relates
to the gain on disposal of the insurance segment.

F-45
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

The reconciliation of the statutory Federal tax rate to the effective income
tax rate for the years ended September 27, 1996, October 3, 1997 and October 2,
1998 is as follows:

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Statutory income tax rate (34%).... $ 1,893,000 $ 5,937,000 $(10,801,000)
State income taxes, net of Federal
income tax benefit................ 223,000 797,000 (1,272,000)
Tax exempt interest................ 98,000 -- --
Establishment of valuation
allowance......................... (2,156,000) -- --
Reversal of valuation allowance due
to tax planning strategy.......... -- 3,568,000 --
Patronage-related book/tax
differences....................... -- (1,502,000) --
Other.............................. (58,000) -- 66,000
----------- ----------- ------------
Total............................ $ -- $ 8,800,000 $(12,007,000)
=========== =========== ============
</TABLE>

The significant components of deferred income taxes as of October 3, 1997
and October 2, 1998 is as follows:

<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Deferred income taxes, current asset:
Insurance reserves............................. $ 1,359,000
Inventories.................................... 362,000 $ 309,000
Allowance for doubtful accounts................ 1,650,000 253,000
Accrued employee benefits...................... 192,000 168,000
Capitalized lease insurance.................... 244,000 244,000
Nonpatronage net operating loss carryforward... 4,128,000 --
Alternative minimum tax credit................. 150,000 178,000
Other.......................................... 62,000 374,000
----------- -----------
Net current deferred tax asset............... 8,147,000 1,526,000
----------- -----------
Deferred income taxes, non-current asset
(liability):
Accumulated depreciation....................... (2,561,000) (3,088,000)
Impairment reserve............................. 689,000 --
Lease accrual.................................. 1,474,000 1,302,000
Prepaid pension cost........................... -- (738,000)
Deferred income on sale-leaseback
transactions.................................. 845,000 --
Deferred compensation.......................... 106,000 291,000
----------- -----------
Net non-current deferred tax asset
(liability)................................. 553,000 (2,233,000)
----------- -----------
Total........................................ $ 8,700,000 $ (707,000)
=========== ===========
</TABLE>

9. Discontinued Operations:

In September 1997, United's management and board of directors approved a
plan whereby the insurance operations would be sold to an unrelated party. The
sale of the insurance operations was completed in July 1998. Accordingly, the
results of operations of the insurance segment for the years ended September
27, 1996, October 3, 1997 and October 2, 1998 have been presented as
"discontinued operations" in the accompanying statements of operations.

F-46
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

The following is a summary of the assets and liabilities of the insurance
segment as of October 3, 1997:

<TABLE>
<S> <C>
Assets:
Investments................................................. $51,513,000
Receivables and other current assets........................ 22,070,000
Long-term assets............................................ 1,328,000
-----------
74,911,000
Liabilities:
Insurance reserves supported by investments................. 26,356,000
Accounts payable and other current liabilities.............. 19,544,000
-----------
Net investment in insurance segment....................... $29,011,000
===========
</TABLE>

10. Sale of Cash & Carry Division:

On May 15, 1998, United sold to an unrelated party the assets and
liabilities of its Cash & Carry division, consisting of 40 wholesale grocery
stores. The net sales proceeds included a $17,500,000 note from the buyer.
United realized a gain on the sale, as follows:

<TABLE>
<S> <C>
Net sales proceeds............................................ $55,486,000
-----------
Net investment in Cash & Carry division:
Current assets.............................................. 26,589,000
Non-current assets.......................................... 5,864,000
Current liabilities......................................... (6,000,000)
-----------
26,453,000
-----------
$29,033,000
===========
</TABLE>

The accompanying consolidated statements of operations for the years ended
September 27, 1996, October 3, 1997 and October 2, 1998 (through May 15, 1998)
include the following amounts with respect to the Cash & Carry division:

<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales and operations........... $ 32,882,000 $ 37,530,000 $ 22,797,000
Costs and expenses................. (32,133,000) (34,551,000) (22,380,000)
Other income....................... 1,707,000 1,179,000 1,519,000
------------ ------------ ------------
Income before income taxes....... $ 2,456,000 $ 4,158,000 $ 1,936,000
============ ============ ============
</TABLE>

11. Members' Patronage Dividends:

United's income from sales to members, before income taxes and patronage
dividends, is available at the discretion of the Board of Directors, to be
returned to the members in the form of patronage dividends. For the year ended
September 27, 1996, the Board of Directors voted to distribute $4 million in
patronage dividends, approximately $3.2 million which was paid in cash and
approximately $800,000 which was distributable in the form of common stock. No
patronage earnings were available to pay patronage dividends for the years
ended October 3, 1997 and October 2, 1998.

F-47
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

12. Reinsurance:

Reinsurance contracts do not relieve United from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to United. United evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities, or economic characteristics of the reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.

United limits the maximum net loss that can arise from large risks or risks
in concentrated areas of exposure by reinsuring (ceding) certain levels of high
risk with other insurers or reinsurers, either on an automatic basis under
general reinsurance contracts known as "treaties" or by negotiation on
substantial individual risks. Ceded reinsurance is treated as the risk and
liability of the assuming companies.

Reinsurance amounts reflected in the financial statements as of October 3,
1997 and for the years ended September 27, 1996 and October 3, 1997 are as
follows:

<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
For the balance sheet:
Reinsurance recoverable......................... $ 9,440,000
Prepaid reinsurance premiums.................... 3,746,000
------------
Total......................................... $ 13,186,000
============
For the statement of operations:
Premiums written:
Gross......................................... $28,988,000 $ 31,198,000
Assumed....................................... 567,000 742,000
Ceded......................................... (8,185,000) (10,331,000)
----------- ------------
Net premiums written.......................... $21,370,000 $ 21,609,000
=========== ============
Premiums earned:
Gross......................................... $26,515,000 $ 29,596,000
Assumed....................................... 598,000 682,000
Ceded......................................... (7,403,000) (9,698,000)
----------- ------------
Net premiums earned........................... $19,710,000 $ 20,580,000
=========== ============
Expenses:
Losses and loss adjustment expenses........... $18,051,000 $ 16,610,000
Reinsurance recoveries........................ (4,617,000) (3,142,000)
----------- ------------
Net losses and loss adjustment expenses....... $13,434,000 $ 13,468,000
=========== ============
</TABLE>

F-48
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

13. Segment Reporting:

A summary of information about United's operations by the distribution and
insurance segments for the years ended September 27, 1996 and October 3, 1997
is as follows:

<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Net sales and operations:
Distribution.............................. $1,280,453,000 $1,306,602,000
Insurance (1)............................. 20,096,000 22,231,000
-------------- --------------
Total................................... $1,300,549,000 $1,328,833,000
============== ==============
Income (loss) before income taxes:
Distribution.............................. $ (8,049,000) $ (21,627,000)
Insurance (1)............................. 2,480,000 4,167,000
-------------- --------------
Total................................... $ (5,569,000) $ (17,460,000)
============== ==============
Depreciation and amortization expense:
Distribution.............................. $ 8,015,000 $ 11,483,000
Insurance (1)............................. 187,000 359,000
-------------- --------------
Total................................... $ 8,202,000 $ 11,842,000
============== ==============
Capital expenditures, including software:
Distribution.............................. $ 22,568,000 $ 21,974,000
Insurance................................. 80,000 79,000
-------------- --------------
Total................................... $ 22,648,000 $ 22,053,000
============== ==============
Total assets at October 3, 1997:
Distribution.............................. $ 290,516,000
Insurance................................. 74,911,000
--------------
Total................................... $ 365,427,000
==============
</TABLE>
- --------
(1) Reported as discontinued operations.

14. Retirement Plans:

United has a company-sponsored pension plan that covers substantially all of
its salaried employees. United has made annual contributions to the plan equal
to the amount annually accrued for pension expense. United's funding policy is
to satisfy the funding requirements of the Employees' Retirement Income
Security Act.

In determining the actuarial present value of the projected benefit
obligation, a discount rate of 8%, 7.75% and 6.75% was used for the years ended
September 27, 1996, October 3, 1997 and October 2, 1998, respectively, and a
future maximum compensation increase rate of 4%, 3.75% and 2.75% was used for
the years ended September 27, 1996, October 3, 1997 and October 2, 1998,
respectively. The expected long-term rate of return on assets was 8%.

F-49
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

Pension costs for the plan consists of the following for the years ended
September 27, 1996, October 3, 1997 and October 2, 1998, respectively:

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Company-sponsored:
Service costs of benefits earned.. $ 952,000 $ 1,155,000 $ 1,184,000
Interest cost on the projected
benefit obligation............... 1,668,000 1,788,000 1,856,000
Expected return on plan assets.... (1,932,000) (2,197,000) (2,616,000)
Amortization of:
Unrecognized net asset.......... (168,000) (168,000) (168,000)
Unrecognized net gain........... (38,000) (100,000) (4,962,000)
Unrecognized prior service
cost........................... 61,000 61,000 61,000
----------- ----------- -----------
Net periodic pension cost
(benefit)...................... $ 543,000 $ 539,000 $(4,645,000)
=========== =========== ===========
</TABLE>

Amortization of the unrecognized net gain for the year ended October 2,
1998, includes the cumulative effect of a change in accounting method (see Note
1) of $2,912,000.

The following table sets forth the plan's funded status as of the years
ended October 3, 1997 and October 2, 1998:

<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested......................................... $17,200,000 $27,082,000
Non-vested..................................... 1,137,000 841,000
----------- -----------
Accumulated benefit obligation............... 18,337,000 27,923,000
Effect of projected future compensation
levels........................................ 5,268,000 2,125,000
----------- -----------
Projected benefit obligation................. 23,605,000 30,048,000
Plan assets at fair value, primarily listed
stocks, fixed income and bond and equity funds.. 33,541,000 33,919,000
----------- -----------
Excess of plan assets over projected benefit
obligation.................................. 9,936,000 3,871,000
Unrecognized net asset........................... (1,393,000) (1,225,000)
Unrecognized net gain............................ (9,064,000) (976,000)
Unrecognized prior service cost.................. 594,000 271,000
----------- -----------
Prepaid pension cost......................... $ 73,000 $ 1,941,000
=========== ===========
</TABLE>

United also participates in several multi-employer pension plans for the
benefit of its employees who are union members. The data available from
administrators of the multi-employer plans is not sufficient to determine the
accumulated benefits obligation, nor the net assets attributable to the multi-
employer plans in which United's union employees participate. United's costs
for these multi-employer plans for the years ended September 27, 1996, October
3, 1997 and October 2, 1998 were $3,326,000, $3,874,000 and $3,965,000,
respectively.

In addition to providing pension benefits, United provides certain medical
benefits for certain salaried retirees, spouse and eligible dependents.
Employees who were hired prior to January 1, 1989, the last eligibility date,
and have met United's minimum service requirements, become eligible for

F-50
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

these benefits. The post-retirement medical benefits available are non-
contributory in nature and it is United's practice to fund these benefits as
incurred.

The following table presents the status of the plan and amounts recognized
for post-retirement benefits in United's financial statements as of and for the
years ended October 3, 1997 and October 2, 1998:

<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees....................................... $ 1,810,000 $ 2,515,000
Fully eligible active plan participants........ 1,578,000 1,111,000
Other active plan participants................. 927,000 370,000
----------- -----------
Total accumulated post-retirement benefit
obligation.................................. 4,315,000 3,996,000
Unrecognized net transition obligation........... (3,331,000) (3,075,000)
----------- -----------
Accrued post-retirement benefit obligation... $ 984,000 $ 921,000
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net periodic post-retirement benefit cost
includes the following components for the years
ended September 27, 1996, October 3, 1997 and
October 2, 1998:
Service cost.................................. $ 52,000 $ 52,000 $ 24,000
Interest cost................................. 271,000 271,000 246,000
Amortization of transition obligation......... 169,000 169,000 178,000
-------- -------- --------
Net periodic post-retirement benefit cost... $492,000 $492,000 $448,000
======== ======== ========
</TABLE>

The assumed health care cost trend rate used to measure the expected cost of
benefits was 11% in year one, decreasing 1% per year to a minimum rate of 4%.
The effect of a 1% increase in the assumed health care cost trend rate on the
aggregate of the service and interest cost components of the net periodic post-
retirement benefit cost and the accumulated post-retirement benefit obligation
would be to increase these amounts by approximately $170,000, $170,000 and
$12,000 for the years ended September 27, 1996, October 3, 1997 and October 2,
1998, respectively. The discount rate used in determining the accumulated post-
retirement benefit obligation was 7.75%, 8% and 7% as of September 27, 1996,
October 3, 1997 and October 2, 1998, respectively.

United also has two separate company-sponsored 401(k) plans. In one plan,
all salaried non-union employees are eligible to participate. Contributions by
United are at the discretion of the Board of Directors. In the other plan,
union employees are eligible to participate, but United makes no matching
contributions. For the years ended September 27, 1996, October 3, 1997 and
October 2, 1998, United made matching contributions to the 401(k) plans
totaling $291,000, $305,000 and $262,000, respectively.

15. Leases:

United has various operating leases for buildings and equipment, certain of
which are subleased to affiliated companies and members. The leases expire at
various dates through 2022. Rental

F-51
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

expense consists of the following for the years ended September 27, 1996,
October 3, 1997 and October 2, 1998:

<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Minimum rentals...................... $19,463,000 $ 24,551,000 $25,768,000
Less sublease income................. (6,873,000) (10,506,000) (8,844,000)
----------- ------------ -----------
Net rental expense................. $12,590,000 $ 14,045,000 $16,924,000
=========== ============ ===========
</TABLE>

The following is a schedule by years showing future minimum rentals under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of October 2, 1998:

<TABLE>
<CAPTION>
(a) (b)
Minimum Minimum Net
Fiscal Year Payments Receipts Minimum
----------- ------------ ----------- -----------
<S> <C> <C> <C>
1999.................................... $ 21,486,000 $ 8,890,000 $12,596,000
2000.................................... 19,408,000 8,143,000 11,265,000
2001.................................... 17,016,000 7,689,000 9,327,000
2002.................................... 15,616,000 7,247,000 8,369,000
2003.................................... 13,786,000 6,567,000 7,219,000
Thereafter.............................. 82,695,000 57,044,000 25,651,000
------------ ----------- -----------
Total............................... $170,007,000 $95,580,000 $74,427,000
============ =========== ===========
Summary:
Building leases....................... $141,073,000 $89,266,000 $51,807,000
Equipment leases...................... 28,934,000 6,314,000 22,620,000
------------ ----------- -----------
Total............................... $170,007,000 $95,580,000 $74,427,000
============ =========== ===========
</TABLE>
- --------
(a) Minimum payments are those required by the Company over the terms of
significant leases.
(b) Minimum receipts are those to be received by the Company from sublease
agreements.

United has accrued $7,310,000 and $7,751,000 as of October 3, 1997 and
October 2, 1998, respectively, for the estimated losses on subleasing
arrangements, $5,505,000 and $5,896,000, respectively, of which is included in
other liabilities and $1,805,000 and $1,855,000, respectively, of which is
included in other current liabilities in the accompanying consolidated balance
sheets.

United has entered into sale-leaseback transactions for various supermarket
properties, which resulted in deferred gains of approximately $3,650,000 and
$1,257,000 as of October 3, 1997 and October 2, 1998, respectively. The
deferred gains are being amortized over the leaseback periods of twenty years.
The total remaining lease commitments at October 2, 1998 are approximately
$7,877,000 over nineteen years with an annual rental of approximately $336,000.

F-52
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

16. Supplemental Cash Flow Information:

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid during the years for:
Interest........................... $14,546,000 $16,342,000 $12,738,000
Income taxes, net of refunds of
$1,200,000 in 1998................ 279,000 151,000 4,800,000
Supplemental schedule of noncash
investing and financing activities:
Sale of insurance segment in
exchange for note receivable...... -- -- 4,000,000
Sale of Cash & Carry division and
other assets in exchange for notes
receivable........................ -- -- 18,846,346
Members' allowances paid in common
stock............................. -- 773,000 --
Exchange of member receivable for
equity interest in affiliate...... 3,250,000 362,000 --
Exchange of investment in affiliate
for note receivable............... -- -- 4,550,000
</TABLE>

17. Affiliated Companies:

United owns interests in affiliates, which are accounted for on the equity
method. One affiliate is a vendor that provides private label brand
merchandise. The other affiliates operate retail grocery stores and are also
members of United. A member of United's Board of Directors controls R.A.F.
Limited Liability Company.

An approximate summary of aggregate balances and transactions with
affiliates in which United had an interest as of year-end is as follows:

<TABLE>
<CAPTION>
October 3, October 2,
1997 1998
---------- ----------
<S> <C> <C>
Balance sheet:
Investment in affiliated companies................... $6,971,000 $3,360,000
Accounts receivable.................................. 2,898,000 2,651,000
Notes receivable..................................... 428,000 --
Accounts payable..................................... 7,046,000 4,079,000
</TABLE>

<TABLE>
<CAPTION>
Year ended
--------------------------------------
September 27, October 3, October 2,
1996 1997 1998
------------- ------------ -----------
<S> <C> <C> <C>
Statement of operations:
Sales............................. $129,855,000 137,029,000 2,933,000
Purchases......................... 111,348,000 118,268,000 119,495,000
Volume incentive rebate for
purchases from affiliated
company.......................... 2,931,000 3,909,000 4,361,000
Refunds, rebates and member
allowances to affiliated
companies........................ 2,570,000 1,985,000 34,000
Equity in earnings of affiliated
companies........................ 568,000 107,000 169,000
</TABLE>

F-53
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

These affiliates and United's net investments as of October 3, 1997 and
October 2, 1998 and percentages of ownership during the years then ended are as
follows:

<TABLE>
<CAPTION>
Net Percentage
1997 Investment Ownership
---- ---------- ----------
<S> <C> <C>
Western Family Holding Company......................... $1,974,000 22%
C & K Market, Inc. (sold July 1997).................... -- 22%
R.A.F. Limited Liability Company....................... 1,081,000 94%
North State Grocery, Inc............................... 3,623,000 26%
Other.................................................. 293,000
----------
$6,971,000
==========
<CAPTION>
1998
----
<S> <C> <C>
Western Family Holding Company......................... $2,143,000 22%
R.A.F. Limited Liability Company....................... 1,081,000 94%
Other.................................................. 136,000
----------
$3,360,000
==========
</TABLE>

Combined unaudited financial information of the affiliated entities,
including third-party interests is as follows:

<TABLE>
<CAPTION>
October 3, October 2,
1997 1998
----------- -----------
<S> <C> <C>
Current assets...................................... $55,359,000 $41,903,000
Non-current assets.................................. 13,559,000 4,185,000
Current liabilities................................. 49,193,000 35,905,000
Non-current liabilities............................. 3,872,000 --
Owners' equity...................................... 15,853,000 10,184,000
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 27, October 3, October 2,
1996 1997 1998
------------- ------------ ------------
<S> <C> <C> <C>
Revenues............................ $777,379,000 $633,124,000 $525,514,000
Gross profit........................ 98,929,000 46,506,000 19,550,000
Net income (loss)................... 2,531,000 220,000 (77,000)
</TABLE>

All of these affiliates are privately held companies for which no ready
market values are available. In management's opinion, the equity interests as
stated are equal to or less than the fair market value of United's interests in
these affiliates.

18. Related Party Transactions:

United is owned by its primary customers, and its Board of Directors
consists entirely of members who are also customers; accordingly, the nature of
United's business involves a significant number of related party transactions.
Such transactions with members, some of whom are directors, include leasing and
sub-leasing arrangements, sale of merchandise and related extensions of trade
credit, extensions of long-term credit for members' purchases of fixed assets,
notes payable to members for capital stock and capital investment notes and
payment of purchase incentives (see

F-54
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

members allowances in the accompanying consolidated statements of operations)
in the form of cash and shares of United's stock.

19. Concentrations of Credit Risk:

Financial instruments that potentially subject United to significant
concentrations of credit risk consist principally of cash and cash equivalents,
investments, store financing loans and trade accounts receivable.

United holds its cash and cash equivalents in several banks located in the
Pacific Northwest and a zero balance bank account located in the Midwest. Each
bank is covered by Federal Depositors Insurance Corporation insurance; balances
in excess of coverage are not insured.

As a cooperative, the majority of United's accounts receivable represent
sales to its members who are located throughout the Pacific Northwest and
Northern California. These accounts are not generally collateralized but each
member has stock holdings in United as well as patronage rebates, which United
could apply against account balances.

United makes store financing loans to members from time-to-time, mainly to
finance the acquisition of grocery store properties and equipment. These loans
are represented by notes receivable which are collateralized with personal
property, securities and guarantees.

United performs ongoing credit evaluations of its members' financial
condition and maintains allowances for potential credit losses.

Two customers accounted for more than 10% of United's net sales for the year
ended October 2, 1998. Sales to these customers were approximately $118 million
and $235 million.

20. Fair Value of Financial Instruments:

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by United using available market information and
appropriate valuation methodologies.

United in estimating its fair value disclosures for financial instruments
used the following methods and assumptions:

Cash and cash equivalents and long-term notes receivables--the carrying
amounts reported in the balance sheet for cash and cash equivalents and
long-term receivables approximate their fair value.

Investments restricted or maintained for insurance reserves--see Note 4.

Investment in and accounts with affiliated companies--it is not
practicable to estimate the fair value of an investment representing the
common stock of a privately-held company because the stock is not traded;
thus, the investments are carried at original cost plus equity in earnings
to date in the consolidated balance sheet. Such investments are subject to
review for possible impairment.

Notes payable--the carrying amounts of variable-rate debt instruments
approximate their fair value. The fair values of fixed-rate long-term debt
are estimated using discounted cash flow

F-55
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

analyses based on United's incremental borrowing rates for similar types of
borrowing arrangements. The assumed incremental borrowing rates used to
determine the fair value of fixed-rate long-term debt were 11% and 8% for
1997 and 1998.

The carrying amounts and approximate fair values of United's financial
instruments at the balance sheet dates are as follows:

<TABLE>
<CAPTION>
Carrying Fair
1997 Amounts Values
---- ------------ ------------
<S> <C> <C>
Cash and cash equivalents........................ $ 10,223,000 $ 10,223,000
Long-term notes receivable, including the current
portion, net of allowance for doubtful notes.... 18,334,000 18,334,000
Investment in and accounts with affiliated
companies....................................... 6,971,000 6,971,000
Notes payable.................................... 198,186,000 193,886,000
<CAPTION>
1998
----
<S> <C> <C>
Cash and cash equivalents........................ $ 1,294,000 $ 1,294,000
Long-term notes receivable, including the current
portion, net of allowance for doubtful notes.... 37,203,000 37,203,000
Investment in and accounts with affiliated
companies....................................... 3,360,000 3,360,000
Notes payable.................................... 115,593,000 112,688,000
</TABLE>

21. Commitments and Contingencies:

United has entered into various agreements under which it sells certain of
its notes receivable from members subject to limited recourse provisions.
Personal property, securities and guarantees collateralize these notes. United
in turn receives a monthly service fee. United recognizes the net present value
of the excess of the future service fees over the estimated service cost as a
servicing asset and related gain upon the sale of a loan. The service asset is
amortized over the life of the related note agreement. In the years ended
September 27, 1996, October 3, 1997 and October 2, 1998, United sold notes
totaling approximately $10,549,000, $13,205,000 and $1,518,000, respectively,
and recognized $330,852, $1,734,000 and $20,000, respectively, of gains on the
sales. The balances of transferred notes that were outstanding and subject to
recourse provisions were approximately $39,313,000 and $24,426,000 at October
3, 1997 and October 2, 1998, respectively. The unamortized service asset as of
October 3, 1997 and October 2, 1998 was $1,969,000 and $1,281,000,
respectively. In the event United is in default of other credit agreements, the
buyer of these notes has the right to demand collection of the outstanding
notes balances from United.

United is guarantor of a covenant not to compete and loans by members as of
October 2, 1998 totaling approximately $6,740,000 with annual payments of
approximately $837,000.

United is a party to various litigation and claims arising in the ordinary
course of business. While the ultimate effect of such actions cannot be
predicted with certainty, United expects the outcome of these matters will not
result in a material adverse effect on United's consolidated financial
position, results of operations or cash flows.

United is guarantor of a letter of credit a customer has with a bank. The
letter of credit is $1,500,000 of which no amount has been drawn at October 2,
1998.

F-56
<PAGE>

United Grocers, Inc. and Subsidiaries

Notes to Consolidated Financial Statements--(Continued)

22. Proposed Merger (Unaudited):

In March 1999, United executed a letter of intent with respect to a proposed
merger with Certified Grocers of California, Ltd., a grocery cooperative
headquartered in Commerce, California. The consummation of the merger is
conditional upon the execution of a mutually approved definitive merger
agreement following completion of due diligence, approval of the agreement by
the shareholders of both entities, required filings with regulatory entities,
and other customary conditions.

F-57
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The proposed merger will be accounted for as a purchase pursuant to
Accounting Principles Board Opinion No. 16, "Business Combinations."
Accordingly, the consideration will be allocated to the assets and liabilities
based on their relative fair values. For a description of purchase accounting,
see "THE MERGER--Accounting Treatment."

The unaudited pro forma condensed combined financial statements, including
the notes thereto, are based upon, and should be read in conjunction with, the
historical consolidated financial statements of both Certified and United,
including the notes thereto, contained elsewhere in this document.

The unaudited pro forma condensed combined balance sheet gives effect to the
proposed merger as if it had occurred as of May 29, 1999. The unaudited pro
forma condensed combined statements of operations for the nine months ended May
29, 1999 and the year ended August 29, 1998 assume the proposed merger took
place as of the beginning of the periods presented. The unaudited pro forma
condensed combined statements of operations combine Certified's year ended
August 29, 1998 with United's year ended October 2, 1998 and Certified's nine
months ended May 29, 1999 with United's nine months ended July 2, 1999.

The adjustments included in the unaudited pro forma condensed combined
financial statements represent a preliminary determination of these adjustments
based upon available information. The consideration is expected to exceed the
fair value of the net assets acquired. This difference has been allocated to
goodwill, which will be amortized over forty years. Such allocations are
subject to final determination based on real estate, leasehold and equipment
valuation studies which are not yet complete. These studies are expected to be
completed before the end of the fiscal year 2000. Accordingly, the final
allocations may be different from the amounts reflected herein.

The computation of patronage earnings involves complex cost allocations
among member/non-member groups and non-patronage activities. United's
management believes that patronage earnings for the fiscal year ended October
2, 1998 and the nine month period ended July 2, 1999 would have approximated
break-even.

Management is in the process of assessing and formulating its integration
plans, which are expected to include the elimination of duplicative facilities
and functions, the amendment of credit facilities and other restructuring
actions. The pro forma financial information includes only the impact of
transaction costs related to the merger, amortization of goodwill, interest
expense and the related tax effect of these items. The pro forma financial
information does not include any synergy cost savings the combined company is
expected to realize. Based on the timing of the closing of the transaction, the
finalization of the integration plans and other factors, the final purchase
accounting adjustments may differ materially from those presented in these
unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position and results of operations that would have been
realized had Certified and United been a combined company during the specified
periods.

F-58
<PAGE>

Unified Western Grocers, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet
May 29, 1999
(Dollars in thousands)

<TABLE>
<CAPTION>
Pro Forma
Certified United Unified
Grocers Grocers Pro Forma Western
May 29, 1999 July 2, 1999 Adjustments Grocers, Inc.
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current:
Cash and cash
equivalents........... $ 8,401 $ 3,907 $ 12,308
Accounts and notes
receivable, net....... 105,152 64,582 169,734
Inventories............ 140,192 69,716 209,908
Other current assets... 6,950 5,918 12,868
Deferred income taxes.. 4,277 1,525 $ 426 (3) 6,228
-------- -------- -------- --------
Total current
assets.............. 264,972 145,648 426 411,046
Notes receivable, net.... 19,090 20,143 39,233
Investments.............. 35,707 -- 35,707
Property, plant and
equipment, net.......... 79,277 30,386 13,263 (2) 122,926
Other assets
Goodwill, net.......... 23,110 -- 29,913 (2) 53,023
Deferred financing
costs, net............ 681 793 2,200 (1) 2,581
(1,093)(3)
Other.................. 18,559 18,859 (3,129)(2) 33,457
(832)(2)
-------- -------- -------- --------
Total assets......... $441,396 $215,829 $ 40,748 $697,973
======== ======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current:
Notes payable.......... $ 5,798 $ 55,688 $(52,568)(1) $ 9,295
377 (1)
Accounts payable and
other current
liabilities........... 148,040 65,126 10,200 (2) 223,366
Patrons' excess
deposits and patronage
dividends............. 14,433 -- (3,700)(3) 10,733
-------- -------- -------- --------
Total current
liabilities......... 168,271 120,814 (45,691) 243,394
Notes payable, net of
current portion......... 150,792 56,596 (91,863)(1) 281,993
164,959 (1)
1,509 (1)
Other long-term
liabilities............. 24,149 9,048 33,197
Patrons' deposits and
certificates:
Patrons' required
deposits.............. 15,509 -- 15,509
Subordinated patronage
dividend
certificates.......... 5,986 -- 5,986
-------- -------- -------- --------
Total liabilities.... 364,707 186,458 28,914 580,079
Redeemable members'
equity.................. -- 1,886 (1,886)(1) --
Shareholders' equity:
Class A shares......... 5,622 -- 9,709 (3) 15,331
Class B shares......... 54,404 2,542 (2,542)(3) 90,565
(10,830)(1)
43,291 (3)
3,700 (3)
Additional paid in
capital............... -- 18,827 (18,827)(3) --
Retained earnings...... 16,557 6,116 (6,116)(3) 11,892
(3,998)(1)
(667)(3)
Accumulated other
comprehensive
earnings.............. 106 -- -- 106
-------- -------- -------- --------
Total shareholders'
equity.............. 76,689 27,485 13,720 117,894
-------- -------- -------- --------
Total liabilities and
shareholders'
equity.............. $441,396 $215,829 $ 40,748 $697,973
======== ======== ======== ========
</TABLE>

See Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet

F-59
<PAGE>

Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet as of May 29,
1999 (Dollars in thousands)

(1) Gives effect to the new credit facility as contemplated by the merger, and
the application of the net proceeds therefrom (including payment of debt,
redeemed shares, and related fees) as follows:

<TABLE>
<S> <C> <C>
Proceeds from new credit facility...................... $ 164,959
Conversion of United redeemable members' equity
Notes payable, current............................... $ 377
Notes payable, net of current portion................ 1,509 1,886
--------
Repayment of bank borrowings and senior debt
Notes payable, current............................... (52,568)
Notes payable, net of current portion................ (91,863) (144,431)
--------
Purchase of Certified shares pending redemption
Initial issue value.................................. (10,830)
Redemption value in excess of initial issue value.... (3,998) (14,828)
--------
Redeemable members' equity of United................... (1,886)
Merger related costs................................... (3,500)
Financing costs........................................ (2,200)
---------
Net cash............................................. $ --
=========
</TABLE>

Certified has secured financing commitments for a new term loan of $40
million and a revolving credit facility for $200 million.

(2) Consideration for the Merger will consist of issuance of Unified Western
Grocers, Inc. shares for all of the outstanding shares of United Grocers,
Inc. based upon the exchange ratio as described in "THE MERGER AGREEMENT--
Conversion of United Shares." At the conclusion of the exchange, former
members of Certified and United will own approximately 75% and 25%,
respectively, of the total outstanding shares of Unified. The proposed
merger will be accounted for as a purchase pursuant to Accounting
Principles Board Opinion No. 16, "Business Combinations." Accordingly, the
consideration will be allocated to the assets and liabilities based upon
their relative fair values. Such allocations are subject to final
determination based on valuations and other studies to be performed. The
final values may differ from those set forth below:

<TABLE>
<S> <C> <C>
Equity issued (Class A & B shares)...................... $ 53,000
Acquisition costs....................................... 3,500
Less book value of net assets acquired.................. (27,485)
--------
Excess of purchase price over book value of net assets
acquired............................................... $ 29,015
========

Allocation of excess purchase price over book value of assets of United:

Property, plant and equipment, net
Land.................................................. $ 7,374
Buildings............................................. 8,789
Equipment............................................. (2,900) $ 13,263
-------
Other assets
Over-funded pension .................................. 3,871
Capitalized software.................................. (7,000) (3,129)
-------
Accrued liabilities (primarily severance and duplicate
facility closure costs)................................ (10,200)
Deferred taxes on temporary differences (39%)........... (832)
Goodwill................................................ 29,913
--------
$ 29,015
========
</TABLE>

F-60
<PAGE>

Notes to the Unaudited Pro Forma Condensed Combined Balance Sheet as of May 29,
1999 (Dollars in thousands)--(Continued)

(3) Following is a summary of the change in shareholders' equity as a result of
the merger and refinancing:

<TABLE>
<S> <C> <C> <C>
Issuance of new Unified Western Class A
Shares....................................... $ 9,709
Issuance of new Unified Western Class B
Shares....................................... 43,291
Elimination of United historical members'
equity....................................... (27,485)
Estimated normal patronage dividend--Class B
Shares....................................... 3,700
Elimination of Certified shares tendered for
redemption................................... (14,828)

<CAPTION>
Cost Tax Effect
------ ----------
<S> <C> <C> <C>
Write-off United historical deferred financing
costs........................................ (793) 309
Write-off Certified historical deferred
financing costs.............................. (300) 117
------ ---
(1,093) 426 (667)
--------
Pro forma adjustment to shareholders' equity.. $ 13,720
========
</TABLE>

F-61
<PAGE>

Unified Western Grocers, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine
Months ended May 29, 1999
(Dollars in Thousands)

<TABLE>
<CAPTION>
Certified United
Grocers Grocers
(August (October
30, 1998- 3, 1998- Pro Forma
May 29, July 2, Pro Forma Unified Western
1999) 1999) Adjustments Grocers, Inc.
---------- -------- ----------- ---------------
<S> <C> <C> <C> <C>
Net sales................... $1,381,531 $775,387 -- $2,156,918
Costs and expenses:
Cost of sales............. 1,256,294 681,485 1,937,779
Distribution, selling and
administrative........... 104,386 92,477 $ 46 (A) 197,470
561 (A)
---------- -------- ------- ----------
1,360,680 773,962 607 2,135,249
---------- -------- ------- ----------
Operating income............ 20,851 1,425 (607) 21,669
Interest expense............ 8,816 7,069 2,156 (B) 18,041
Other income, net........... 1,500 1,956 3,456
---------- -------- ------- ----------
Earnings (loss) before
patronage dividends and
provision (benefit) for
income taxes............... 13,535 (3,688) (2,763) 7,084
Patronage dividends......... 10,580 -- (2,679)(C) 7,901
---------- -------- ------- ----------
Earnings (loss) before
provision (benefit) for
income taxes............... 2,955 (3,688) (84) (817)
Provision (benefit) for
income taxes............... 1,021 (1,475) 186 (D) (268)
---------- -------- ------- ----------
Net earnings (loss)......... $ 1,934 $ (2,213) $ (270) $ (549)
========== ======== ======= ==========
</TABLE>

See Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations

F-62
<PAGE>

Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations for
the Nine Months Ended May 29, 1999
(Dollars in thousands)

(A) Reflects adjustments to depreciation and amortization based upon the
preliminary purchase accounting allocations related to property, plant and
equipment and intangible assets in connection with the proposed merger of
Certified and United as more fully described in Note (2) to the unaudited
pro forma condensed combined balance sheet. Buildings and equipment are
being depreciated over their remaining useful lives and goodwill is being
amortized over forty years. Depreciation and amortization for the nine
months ended May 29, 1999 would have increased by $46 and $561,
respectively.

(B) Represents the elimination of historical interest expense on debt which is
expected to be refinanced, offset by the additional interest expense that
would have been incurred had the merger and new credit facility occurred at
the beginning of the pro forma period. For purposes of the unaudited pro
forma condensed combined statement of operations, the interest rate on the
new $200 million revolving credit facility was assumed to be LIBOR plus
2.0% and the interest rate on the new $40 million subordinated notes was
assumed to be 8.75%. The interest rate on Certified's existing senior term
debt will increase from 7.22% to 7.72%. The weighted average rate assumed
was 7.69%. The proceeds from the new credit facility will be used to
refinance substantially all of United's institutional debt, and to
refinance Certified's revolving credit agreement and purchase shares of
members previously tendered for redemption at book value. The unused
portion of the $200 million revolving credit facility will be used to fund
the Company's normal and seasonal business operations and maintain
additional working capital to provide for future business opportunities.
The interest rates on the debt to be retired ranged from 7.1% to 8.3% on
United's institutional debt, 6.07% to 6.76% on Certified's revolving credit
agreement and 7.22% on Certified's senior notes. United's redeemable
members' equity would be converted to residual stock notes payable over
twenty quarters plus interest at 6%. Following is a summary of the
pro forma interest adjustment:

<TABLE>
<S> <C>
Historical Interest Expense
Congress Term Loan and Revolver................................... $ 4,615
Certified Senior Term Notes....................................... 4,380
Certified Revolving Credit Agreement.............................. 2,869
-------
$11,864
-------
Pro Forma Interest Expense
Senior Term Notes................................................. $ 4,632
Subordinated Term Notes........................................... 2,625
Revolver (including unused fees).................................. 6,596
Residual Stock Notes.............................................. 167
-------
$14,020
-------
Net increase in interest expense.................................... $ 2,156
=======
</TABLE>

A 0.125% increase or decrease in the weighted average interest rate would
change pro forma interest expense by $228 for the nine months ended May 29,
1999.

See Note 7 to the consolidated financial statements of United included
elsewhere herein for further information regarding the historical
indebtedness of United. See Note 5 to the consolidated financial statements
of Certified included elsewhere herein for further information with respect
to the historical indebtedness of Certified.

F-63
<PAGE>

Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations for
the
Nine Months Ended May 29, 1999
(Dollars in thousands)--(Continued)

(C) Pro forma adjustments to depreciation expense, amortization of goodwill,
and interest expense would be allocated to patronage and non-patronage
activities and result in a reduction of patronage dividends paid of $2,679.

(D) The pro forma adjustment to the provision (benefit) for income taxes is
based upon a tax rate of 39% applied to the pro forma earnings (loss)
before provision (benefit) for income taxes adjusted for amortization of
goodwill.

F-64
<PAGE>

Unified Western Grocers, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year ended August 29, 1998
(Dollars in Thousands)

<TABLE>
<CAPTION>
Certified Grocers United Grocers
(August 31, 1997- (October 4, 1997- Pro Forma
August 29, 1998) October 2, 1998) Pro Forma Unified Western
(audited) (audited) Adjustments Grocers, Inc.
----------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
Net sales............... $1,831,686 $1,175,279 $3,006,965
Costs and expenses:
Cost of sales......... 1,668,202 1,029,376 2,697,578
Distribution, selling
and administrative... 137,232 144,576 $ 62 (A) 282,618
748 (A)
---------- ---------- ------ ----------
1,805,434 1,173,952 810 2,980,196
---------- ---------- ------ ----------
Operating income........ 26,252 1,327 (810) 26,769
Interest expense, net... 12,320 11,379 628 (B) 24,327
Other income, net....... 3,200 31,246(E) 34,446
---------- ---------- ------ ----------
Earnings before
patronage dividends,
provision for income
taxes, discontinued
operations, cumulative
effect of change in
accounting principle
and extraordinary
item................... 17,132 21,194 (1,438) 36,888
Estimated patronage
dividends.............. 10,149 -- (1,326)(C) 8,823
---------- ---------- ------ ----------
Earnings before
provision for income
taxes.................. 6,983 21,194 (112) 28,065
Provision for income
taxes.................. 2,515 7,939 248 (D) 10,702
---------- ---------- ------ ----------
Earnings before
discontinued
operations, cumulative
effect of change in
accounting principle
and extraordinary
item................... $ 4,468 $ 13,255 $ (360) $ 17,363
========== ========== ====== ==========
</TABLE>

See Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations

F-65
<PAGE>

Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations for
the Year Ended August 29, 1998
(Dollars in thousands)

(A) Reflects adjustments to depreciation and amortization based upon the
preliminary purchase accounting allocations related to property, plant and
equipment and intangible assets in connection with the proposed merger of
Certified and United as more fully described in Note (2) to the unaudited
pro forma condensed combined balance sheet. Buildings and equipment are
being depreciated over their remaining useful lives and goodwill is being
amortized over forty years. Depreciation and amortization for the year
ended August 29, 1998 would have increased $62 and $748, respectively.

(B) Represents the elimination of historical interest expense on debt which is
expected to be refinanced, offset by the additional interest expense that
would have been incurred had the merger and new credit facility occurred at
the beginning of the pro forma period. For purposes of the unaudited pro
forma condensed combined statement of operations, the interest rate on the
new $200 million revolving credit facility was assumed to be LIBOR plus
2.0% and the interest rate on the new $40 million subordinated notes was
assumed to be 8.75%. The interest rate on Certified's existing senior term
debt will increase from 7.22% to 7.72%. The weighted average rate assumed
was 7.60%. The proceeds from the new credit facility will be used to
refinance substantially all of United's institutional debt, and to
refinance Certified's revolving credit agreement and purchase shares of
members previously tendered for redemption at book value. The unused
portion of the $200 million revolving credit facility will be used to fund
the Company's normal and seasonal business operations and maintain
additional working capital to provide for future business opportunities.
The interest rates on the debt to be retired ranged from 6.9% to 9.95% on
United's institutional debt, 6.69% to 9.14% on Certified's revolving credit
agreement and 7.22% to 10.8% on Certified's senior notes. United's
redeemable members' equity would be converted to residual stock notes
payable over twenty quarters plus interest at 6%. Following is a summary of
the pro forma interest adjustment:

<TABLE>
<S> <C>
Historical Interest Expense
Congress Term Loan and Revolver................................... $ 9,425
Certified Senior Term Notes....................................... 4,253
Certified Revolving Credit Agreement.............................. 5,002
-------
$18,680
-------
Pro Forma Interest Expense
Senior Term Notes................................................. $ 6,176
Subordinated Term Notes........................................... 3,500
Revolver (including unused fees).................................. 9,398
Residual Stock Notes.............................................. 234
-------
$19,308
-------
Net increase in interest expense.................................... $ 628
=======
</TABLE>

A 0.125% increase or decrease in the weighted average interest rate would
change interest expense by $318 for the year ended August 29, 1998.

F-66
<PAGE>

Notes to the Unaudited Pro Forma Condensed Combined Statement of Operations for
the Year Ended August 29, 1998
(Dollars in thousands)--(Continued)

(D) The pro forma adjustment to the provision for income taxes is based upon a
tax rate of 39% applied to the pro forma earnings before provision for
income taxes adjusted for amortization of goodwill.

(E) Included in "Other Income, net" for United is the recorded gain on the sale
of the Cash & Carry division totaling $29,033. See Note 5 to the
consolidated financial statements of United included elsewhere herein for
further information.

F-67
<PAGE>

ANNEX A

AGREEMENT AND PLAN OF MERGER

CERTIFIED GROCERS OF CALIFORNIA, LTD.

UNITED GROCERS, INC.

AND

NEW UG CORP.

DATED AS OF

JUNE 14, 1999

AND AMENDED AS OF AUGUST 11, 1999
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I. THE MERGER.................................................. A-1
Section 1.1 The Merger........................................... A-1
Section 1.2 Effective Time of the Merger......................... A-1
Section 1.3 Closing.............................................. A-1
Section 1.4 Effect of the Merger................................. A-2
Section 1.5 Articles of Incorporation and Bylaws of the Surviving
Corporation.......................................... A-2
Section 1.6 Directors and Officers of the Surviving Corporation.. A-2
ARTICLE II. EFFECT OF THE MERGER ON SECURITIES OF THE CONSTITUENT
CORPORATIONS............................................... A-2
Section 2.1 Conversion of Securities............................. A-2
Section 2.2 Exchange of Certificates............................. A-4
Section 2.3 Accounting Treatment................................. A-5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF UG...................... A-5
Section 3.1 Organization of UG and its Subsidiaries.............. A-6
Section 3.2 Capitalization....................................... A-6
Section 3.3 Authority; No Conflict; Required Filings and
Consents............................................. A-7
Section 3.4 Public Filings; Financial Statements................. A-8
Section 3.5 No Undisclosed Liabilities........................... A-8
Section 3.6 Absence of Certain Changes or Events................. A-9
Section 3.7 Taxes................................................ A-9
Section 3.8 Litigation........................................... A-11
Section 3.9 Environmental Matters................................ A-12
Section 3.10 Employee Benefit Plans............................... A-13
Section 3.11 Labor Matters........................................ A-15
Section 3.12 Compliance........................................... A-15
Section 3.13 Year 2000............................................ A-16
Section 3.14 Joint Proxy Statement/Prospectus; Registration
Statement............................................ A-16
Section 3.15 Opinion of Financial Advisor......................... A-16
Section 3.16 No Existing Discussions.............................. A-17
Section 3.17 Oregon Takeover Statute.............................. A-17
Section 3.18 Brokers and Others................................... A-17
Section 3.19 Transactions with Affiliates......................... A-17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF CERTIFIED AND MERGER
SUB........................................................ A-17
Section 4.1 Organization......................................... A-17
Section 4.2 Capitalization....................................... A-18
Section 4.3 Authority; No Conflict; Required Filings and
Consents............................................. A-19
Section 4.4 Public Filings; Financial Statements................. A-20
</TABLE>

i
<PAGE>

TABLE OF CONTENTS--(Continued)

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.5 No Undisclosed Liabilities........................... A-20
Section 4.6 Absence of Certain Changes or Events................. A-20
Section 4.7 Taxes................................................ A-21
Section 4.8 Litigation........................................... A-23
Section 4.9 Environmental Matters................................ A-23
Section 4.10 Employee Benefit Plans............................... A-23
Section 4.11 Labor Matters........................................ A-26
Section 4.12 Compliance........................................... A-26
Section 4.13 Year 2000............................................ A-27
Section 4.14 Joint Proxy Statement/Prospectus; Registration
Statement............................................ A-27
Section 4.15 Opinion of Financial Advisor......................... A-27
Section 4.16 No Existing Discussions.............................. A-27
Section 4.17 No Operations of Merger Sub.......................... A-27
Section 4.18 Brokers and Others................................... A-27
Section 4.19 Transactions with Affiliates......................... A-28
ARTICLE V. COVENANTS................................................... A-28
Section 5.1 Conduct of Business of UG and Certified.............. A-28
Section 5.2 Cooperation; Notice; Cure............................ A-30
Section 5.3 No Solicitation...................................... A-31
Section 5.4 Joint Proxy Statement/Prospectus; Registration
Statement............................................ A-32
Section 5.5 Stockholders' Meetings............................... A-34
Section 5.6 Access to Information................................ A-34
Section 5.7 Governmental Approvals............................... A-34
Section 5.8 Publicity............................................ A-35
Section 5.9 Indemnification...................................... A-35
Section 5.10 Employee Benefits.................................... A-35
Section 5.11 Tax Treatment of Reorganization...................... A-36
Section 5.12 Further Assurances and Actions....................... A-36
Section 5.13 Letter of UG's Accountants........................... A-37
Section 5.14 Letter of Certified's Accountants.................... A-37
Section 5.15 Certified's Board of Directors....................... A-37
ARTICLE VI. CONDITIONS TO MERGER....................................... A-37
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger............................................... A-37
Section 6.2 Additional Conditions to Obligations of UG........... A-38
Section 6.3 Additional Conditions to Obligations of Certified.... A-39
ARTICLE VII. TERMINATION AND AMENDMENT................................. A-40
Section 7.1 Termination.......................................... A-40
</TABLE>

ii
<PAGE>

TABLE OF CONTENTS--(Continued)

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 7.2 Effect of Termination................................. A-41
Section 7.3 Fees and Expenses..................................... A-41
Section 7.4 Amendment............................................. A-42
Section 7.5 Extension; Waiver..................................... A-42
ARTICLE VIII. MISCELLANEOUS............................................ A-43
Section 8.1 Nonsurvival of Representations, Warranties, Covenants
and Agreements........................................ A-43
Section 8.2 Notices............................................... A-43
Section 8.3 Interpretation........................................ A-43
Section 8.4 Counterparts.......................................... A-44
Section 8.5 Entire Agreement; No Third Party Beneficiaries........ A-44
Section 8.6 Governing Law......................................... A-44
Section 8.7 Assignment............................................ A-44
Section 8.8 Severability; Enforcement............................. A-44
Section 8.9 Specific Performance.................................. A-44
</TABLE>

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AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 14, 1999,
and amended as of August 11, 1999, by and among CERTIFIED GROCERS OF
CALIFORNIA, LTD., a California corporation ("Certified"), NEW UG CORP., an
Oregon corporation and a direct wholly-owned subsidiary of Certified ("Merger
Sub"), and UNITED GROCERS, INC., an Oregon corporation ("UG").

WHEREAS, Certified and UG have determined to engage in a business
combination as peer firms in a merger with equality;

WHEREAS, in furtherance thereof the respective Boards of Directors of
Certified, UG and Merger Sub, have approved the merger of Merger Sub into UG
and the change of Certified's name to Unified Western Grocers, Inc., all
pursuant to the terms and conditions of this Agreement;

WHEREAS, the Board of Directors of UG has determined that the merger of
Merger Sub with and into UG, upon the terms and subject to the conditions set
forth in this Agreement (the "Merger"), is fair to, and in the best interests
of, UG and its stockholders;

WHEREAS, the Boards of Directors of Certified and Merger Sub have determined
that the Merger is fair to, and in the best interests of Certified and Merger
Sub and their respective stockholders;

WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization described in Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");

WHEREAS, the Boards of Directors of Certified, Merger Sub and UG have each
approved and adopted this agreement and approved the Merger and the other
transactions contemplated hereby; and

NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:

ARTICLE I.

THE MERGER

Section 1.1 The Merger. Upon the terms and subject to the provisions of this
Agreement, at the Effective Time (as defined in Section 1.2), Merger Sub shall
be merged with and into UG. As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and UG shall continue as the surviving
corporation (the "Surviving Corporation").

Section 1.2 Effective Time of the Merger. Subject to the provisions of this
Agreement (including Section 7.1 hereof), articles of merger with respect to
the Merger (the "Articles of Merger") shall be duly prepared, executed and
acknowledged and thereafter delivered to the Secretary of State of the State of
Oregon for filing, as early as practicable on the Closing Date (as defined in
Section 1.3). The Merger shall become effective at the later of the date of
filing of the Articles of Merger or at such time within 90 days of the date of
filing as is specified in the Articles of Merger (the "Effective Time").

Section 1.3 Closing. The closing of the Merger (the "Closing") will take
place at such time and place to be agreed upon by the parties hereto, on a date
to be specified by Certified and UG,

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which shall be no later than the third business day after satisfaction or, if
permissible, waiver of the conditions set forth in Article VI (the "Closing
Date"), unless another date is agreed to by Certified and UG.

Section 1.4 Effect of the Merger. Upon becoming effective, the Merger shall
have the effects set forth in Section 60.497 of the Oregon Business Corporation
Act (the "OBCA"). Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all properties, rights, privileges, powers and
franchises of Merger Sub and UG shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Merger Sub and UG shall become the debts,
liabilities and duties of the Surviving Corporation.

Section 1.5 Articles of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time, the Articles of Incorporation and Bylaws of
the Surviving Corporation shall be amended to be identical to the Articles of
Incorporation and Bylaws, respectively, of Merger Sub as in effect immediately
prior to the Effective Time (except that the name of the Surviving Corporation
shall be "United Grocers, Inc."), in each case until duly amended in accordance
with applicable law.

Section 1.6 Directors and Officers of the Surviving Corporation. The
directors of Merger Sub immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation. The officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation.

ARTICLE II.

EFFECT OF THE MERGER ON SECURITIES
OF THE CONSTITUENT CORPORATIONS

Section 2.1 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of any of the parties hereto or
the holders of any of the following:

(a) UG Common Stock. Each share of common stock, par value $5.00 per
share, of UG ("UG Common Stock") issued and outstanding immediately prior
to the Effective Time (other than shares to be canceled in accordance with
Section 2.1(b)) shall be converted, subject to Section 2.1(e), (f) and (g),
into the right to receive a number of Certified Class A Shares and Class B
Shares determined as follows:

(i) Aggregate Certified Shares: each holder of UG Common Stock shall
receive such aggregate number of shares of Certified Class A Stock and
Class B Stock that results from multiplying (x) the number of shares of
UG Common Stock held by such holder, by (y) the Exchange Ratio (which
product is herein referred to as the "Resulting Shares");

(ii) Class A Shares: the first one hundred Resulting Shares (or, if
(i) above produces less than one hundred shares, all of the Resulting
Shares) shall be Certified Class A Shares;

(iii) Class B Shares: all remaining shares issuable at the Exchange
Ratio shall be Certified Class B Shares.

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(b) For this purpose, the Exchange Ratio shall be that each share of UG
Common Stock will convert into .228 shares of Certified Class A Shares or
Class B Shares based on the allocation in (a)(i), (ii) and (iii) above. All
shares of UG Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares
shall cease to have any ownership or other rights with respect thereto,
except the right to receive the Merger Consideration, as defined in Section
2.2(b), in exchange for such shares upon the surrender of such certificate
in accordance with Section 2.2.

(c) Cancellation of Treasury Stock and Certified-Owned Stock. All shares
of UG Common Stock that are owned by UG as treasury stock and any shares of
UG Common Stock owned by Certified or any wholly-owned Subsidiary (as
defined in Section 3.1) of Certified shall be canceled and retired and
shall cease to exist and no consideration shall be delivered in exchange
therefor.

(d) Capital Stock of Merger Sub. Each issued and outstanding share of
the common stock, par value $.01 per share, of Merger Sub shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation.

(e) UG Debt Securities. All notes and other debt instruments of UG that
are outstanding at the Effective Time shall continue to be outstanding
subsequent to the Effective Time as debt instruments of the Surviving
Corporation, subject to their respective terms and provisions.

(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse stock split, stock
dividend, reorganization, recapitalization or any other like change with
respect to Certified Common Stock or UG Common Stock occurring after the
date hereof and prior to the Effective Time. References to the Exchange
Ratio elsewhere in this Agreement shall be deemed to refer to the Exchange
Ratio as it may have been adjusted pursuant to this Section 2.1(e).

(g) Fractional Shares. No certificates or scrip representing fractional
shares of Certified Class A Shares or Class B Shares shall be issued in
connection with the Merger, and such fractional share interests will not
entitle the owner thereof to vote or to any rights as a stockholder of
Certified. In lieu of any such fractional shares, each holder of UG Common
Stock upon surrender of a certificate (a "Certificate") for exchange shall
be paid an amount in cash (without interest) or by credit to a member's
deposit account, rounded up to the nearest cent, determined by multiplying
(i) the adjusted book value of a share of UG Common Stock as of April 2,
1999 (as calculated pursuant to, and with such adjustments as are called
for under, UG's Bylaws) by (ii) the fractional share to which such holder
would otherwise be entitled (after taking into account all shares of UG
Common Stock then held of record by such holder).

(h) UG Dissenting Common Shares. Shares of UG Common Stock held by any
holder entitled to and seeking relief as a dissenting shareholder under
Section 60.554 of the OBCA (the "UG Dissenting Common Shares") shall not be
converted into the right to receive Certified Class A Shares or Class B
Shares but shall be converted into such consideration as may be due with
respect to such shares pursuant to the applicable provisions of the OBCA,
unless and until the right of such holder to receive fair value for such UG
Dissenting Common Shares terminates in accordance with the OBCA. If such
right is terminated otherwise than by the purchase of such shares by UG,
then such shares shall cease to be UG Dissenting Common Shares and shall be
converted into and represent the right to receive Certified Class A Shares
and Class B Shares as provided in Section 2.1(a).

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(i) Certified Dissenting Shares. Shares of Certified Class A Shares or
Class B Shares held by any holder entitled to and seeking relief as a
dissenting shareholder under Section 1300 of the California General
Corporation Law (the "CGCL") (the "Certified Dissenting Shares") shall be
converted into such consideration as may be due with respect to such shares
pursuant to the applicable provisions of the CGCL, unless and until the
right of such holder to receive fair cash value for such Certified
Dissenting Shares terminates in accordance with the CGCL. If such right is
terminated otherwise than by the purchase of such shares by Certified, then
such shares shall cease to be Certified Dissenting Shares.

(j) Certified Class A Shares and Class B Shares. Except to the extent
provided in Section 2.1(h), the Certified Class A Shares and Class B Shares
shall remain outstanding.

Section 2.2 Exchange of Certificates.

(a) Exchange of Certificates. At or prior to the Effective Time,
Certified shall make available for the benefit of the holders of shares of
UG Common Stock outstanding immediately prior to the Effective Time, for
exchange of their Certificates ("Certificates") in accordance with this
Section 2.2 (i) certificates evidencing the Certified Class A Shares and
Class B Shares issuable pursuant to Section 2.1(a) in exchange for
outstanding shares of UG Common Stock and (ii) cash in an aggregate amount
sufficient to pay for fractional shares pursuant to Section 2.1(f).

(b) Exchange Procedures. Promptly after the Effective Time, Certified
will mail to each holder of record of Certificates (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to Certified and shall be in such form and have such
other provisions as Certified may reasonably specify), and (ii)
instructions to effect the surrender of the Certificates in exchange for
the certificates evidencing Certified Class A Shares and Class B Shares, if
any (plus cash in lieu of fractional shares, if any). Upon surrender of a
Certificate for cancellation to Certified together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) certificates
evidencing that number of whole shares of Certified Class A Shares and
Class B Shares, which such holder has the right to receive in accordance
with the Exchange Ratio in respect of the shares of UG Common Stock
formerly evidenced by such Certificate (provided that possession of such
Certificates will be retained by Certified for the account of such holder
in accordance with the Bylaws of Certified) and (B) cash in respect of
fractional shares as provided in Section 2.1(f) (such shares of Certified
Class A Shares and Class B Shares, if any, and cash, collectively, the
"Merger Consideration"), and the Certificate so surrendered shall forthwith
be canceled. In the event of a transfer of ownership of shares of UG Common
Stock which is not registered in the transfer records of UG as of the
Effective Time, the Merger Consideration may be issued and paid in
accordance with this Article II to a transferee, in all events subject to
all applicable restrictions on transferability, if the Certificate
evidencing such shares of UG Common Stock is presented to Certified,
accompanied by all documents required to evidence and effect such transfer
pursuant to this Section 2.2(b) and by evidence that any applicable stock
transfer taxes have been paid. Until so surrendered, each outstanding
Certificate that prior to the Effective Time represented shares of UG
Common Stock will be deemed from and after the Effective Time for all
corporate purposes (subject to Section 2.1(e) and (f)) to evidence the
ownership of the number of full shares of Certified Class A Shares and
Class B Shares into which such shares of UG Common Stock shall have been so
converted.

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(c) Transfers of Ownership. At the Effective Time, the stock transfer
books of UG shall be closed, and there shall be no further registration of
transfers of UG Common Stock thereafter on the records of UG. If any
certificate for shares of Certified Class A Shares or Class B Shares is to
be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance
thereof that the Certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer, that the transfer will comply with
or be exempt from all restrictions on transferability set forth in UG's
Articles of Incorporation or Bylaws, and that the person requesting such
exchange will have paid to Certified or any agent designated by it any
transfer or other taxes required by reason of the issuance of a certificate
for Certified shares in any name other than that of the registered holder
of the certificate surrendered, or have established to the reasonable
satisfaction of Certified or any agent designated by it that such tax has
been paid or is not payable.

(d) No Liability. None of Certified, Merger Sub or UG shall be liable to
any holder of UG Common Stock for any Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.

(e) Withholding Rights. Certified shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any holder of Certificates which prior to the Effective Time
represented shares of UG Common Stock such amounts as Certified is required
to deduct and withhold with respect to the making of such payment under the
Code or any provision of state, local, or foreign tax law. To the extent
that amounts are so withheld by Certified, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the
holder of the shares of UG Common Stock in respect of which such deduction
and withholding was made by Certified.

(f) Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, Certified shall pay
and/or issue, in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof, such
Merger Consideration as may be required pursuant to Section 2.2; provided,
however, that Certified may, in its discretion, and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen
or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Certified, UG or New UG Corp. with respect to the Certificates alleged to
have been lost, stolen or destroyed.

Section 2.3 Accounting Treatment. The Merger shall be so accounted for on a
purchase accounting basis and shall be so recorded and reflected on the books
of Certified and the Surviving Corporation.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF UG

UG represents and warrants to Certified and Merger Sub that the statements
contained in this Article III are true and correct except as set forth herein
and in the disclosure schedule delivered by UG to Certified and Merger Sub on
or before the date of this Agreement (the "UG Disclosure Schedule"). The UG
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III and the
disclosure in any paragraph shall qualify other paragraphs in this Article III
only to the extent that it is reasonable from a reading of such disclosure that
it also qualifies or applies to such other paragraphs.

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<PAGE>

Section 3.1 Organization of UG and its Subsidiaries. Each of UG and its
Subsidiaries (as defined below) is duly organized and validly existing under
the laws of the jurisdiction of its organization and has the requisite
corporate, partnership or limited liability company power and authority to
carry on its business as now being conducted. Each of UG and its Subsidiaries
is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so qualified, licensed or in good
standing, would not be reasonably likely to have a material adverse effect on
the business, properties, financial condition, results of operations, or
prospects of UG and its Subsidiaries, taken as a whole (a "UG Material Adverse
Effect"). UG has delivered to Certified a true and correct copy of the Articles
of Incorporation and Bylaws of UG and each of its Subsidiaries, as amended to
the date of this Agreement. Except as set forth in UG SEC Reports (as defined
in Section 3.4) filed prior to the date hereof or in Schedule 3.1 of the UG
Disclosure Schedule, neither UG nor any of its Subsidiaries directly or
indirectly owns (other than ownership interests of UG in one or more of its
Subsidiaries) any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity. As used in this Agreement, the
word "Subsidiary" means, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such party
or any other Subsidiary of such party is a general partner or (ii) at least a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its Subsidiaries.

Section 3.2 Capitalization.

(a) The authorized capital stock of UG as of May 5, 1999, consisted of
10,000,000 shares of UG Common Stock, $5.00 par value per share. As of such
date, 508,390 shares of UG Common Stock are issued and outstanding, all of
which are validly issued, fully paid and nonassessable. Schedule 3.2(a) of
the UG Disclosure Schedule sets forth the number of shares of UG Common
Stock reserved for future issuance upon exercise of rights, warrants,
options or other agreements. Except as disclosed in Schedule 3.2(a) of the
UG Disclosure Schedule or the UG SEC Reports, there are no obligations,
contingent or otherwise, of UG or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of UG Common Stock or the capital
stock or ownership interests of any of its Subsidiaries or to provide funds
to or make any material investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity other
than guarantees of bank obligations or indebtedness for borrowed money of
Subsidiaries of UG entered into in the ordinary course of business. All of
the outstanding shares of capital stock or other ownership interests of
each of UG's Subsidiaries are duly authorized, validly issued, fully paid
and nonassessable and, except as disclosed in Schedule 3.2 of the UG
Disclosure Schedule or the UG SEC Reports, all such shares and ownership
interests are owned by UG or another Subsidiary of UG free and clear of all
security interests, liens, claims, pledges, agreements, limitations on UG's
voting rights, charges or other encumbrances or restrictions on transfer of
any nature.

(b) There are no bonds, debentures, notes or other indebtedness having
voting rights (or convertible into securities having such rights) ("Voting
Debt") of UG or any of its Subsidiaries issued and outstanding. Except as
set forth in Schedule 3.2(b) of the UG Disclosure Schedule or the UG SEC
Reports, as of the date hereof, (i) there are no shares of capital stock of
any class

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of UG, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding; (ii) there are no
options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which UG or any of its Subsidiaries is a
party or by which it is bound obligating UG or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other ownership interests (including
Voting Debt) of UG or any of its Subsidiaries or obligating UG or any of
its Subsidiaries to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or
agreement; and (iii) there are no voting trusts, proxies or other voting
agreements or understandings with respect to the shares of capital stock of
UG to which UG or any of its Subsidiaries is a party.

Section 3.3 Authority; No Conflict; Required Filings and Consents.

(a) UG has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by UG have been duly
authorized by all necessary corporate action on the part of UG, subject
only to the approval and adoption of this Agreement and the Merger by a
majority of UG's stockholders. This Agreement has been duly executed and
delivered by UG and assuming the due authorization, execution and delivery
by Certified and Merger Sub, constitutes the valid and binding obligation
of UG, enforceable against it in accordance with its terms.

(b) Other than as disclosed in Schedule 3.3(b) of the UG Disclosure
Schedule, the execution and delivery of this Agreement by UG does not, and
the consummation of the transactions contemplated hereby will not, (i)
conflict with, or result in any violation or breach of, any provision of
the Articles of Incorporation or Bylaws of UG or the comparable charter or
organizational documents of any of its Subsidiaries, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material
benefit) under, or require a consent or waiver under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which UG or any of
its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iii) subject to the governmental
filings and other matters referred to in Section 3.3(c), conflict with or
violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to UG or any
of its Subsidiaries or any of its or their properties or assets, except in
the case of clauses (ii) and (iii) for any such conflicts, violations,
defaults, terminations, breaches, cancellations, accelerations or
requirements for consent or waiver not obtained which (x) are not,
individually or in the aggregate, reasonably likely to have a UG Material
Adverse Effect and (y) would not impair or unreasonably delay the
consummation of the Merger.

(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission,
or other governmental authority or instrumentality or other similar
governmental entity, whether foreign or domestic ("Governmental Entity") is
required by or with respect to UG or any of its Subsidiaries in connection
with the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby, except for (i) the filing of the pre-
merger notification report under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), (ii) the filing of the
Articles of Merger with respect to the Merger with the [Secretary of State
of the State of Oregon], (iii) the filing of the Joint Proxy
Statement/Prospectus and the Registration

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Statement (as such terms are defined in Section 3.14 below) with the
Securities and Exchange Commission (the "SEC") in accordance with the
Securities Act of 1933, as amended (the "Securities Act") and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iv) such
consents; approvals, orders, authorizations, permits, filings or
registrations related to, or arising out of, compliance with statutes,
rules or regulations regulating the consumption, serving or sale of
alcoholic beverages, (v) such filings and consents as may be required under
any environmental health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or
the transactions contemplated by this Agreement, and (vi) such other
filings, consents, approvals, orders, registrations and declarations as may
be required under the laws of any jurisdiction in which UG or any of its
Subsidiaries conducts any business or owns any assets the failure of which
to obtain would not be reasonably likely to have a UG Material Adverse
Effect.

Section 3.4 Public Filings; Financial Statements.

(a) Except as disclosed on Schedule 3.4(a), UG has filed and made
available to Certified all forms, reports and documents required to be
filed by UG with the SEC since January 1, 1996 (collectively, the "UG SEC
Reports"). Except as disclosed in Schedule 3.4(a) of the UG Disclosure
Schedule, none of UG's Subsidiaries is required to file forms, reports and
documents with the SEC. Except as disclosed on Schedule 3.4(a), the UG SEC
Reports (including any financial statements filed as a part thereof or
incorporated by reference therein) (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Act
and the Exchange Act, as the case may be, and (ii) did not, at the time
they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing), contain any untrue
statement of a material fact or omit to state a material fact required to
be stated in such UG SEC Reports or necessary in order to make the
statements in such UG SEC Reports, in the light of the circumstances under
which they were made, not misleading.

(b) Each of the consolidated financial statements (including, in each
case, any related notes) of UG contained in the UG SEC Reports complied as
to form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of
unaudited statements, as indicated in the UG SEC Reports) and fairly
presented the consolidated financial position of UG and its consolidated
Subsidiaries as of the dates and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which, were not or are not expected to be material in amount.
The audited balance sheet of UG as of October 2, 1998 is referred to herein
as the "UG Balance Sheet."

Section 3.5 No Undisclosed Liabilities. Except as disclosed in the UG SEC
Reports filed prior to the date of this Agreement or in Schedule 3.5 of the UG
Disclosure Schedule, and except for liabilities and obligations incurred since
the date of the UG Balance Sheet in the ordinary course of business consistent
with past practices, UG and its consolidated Subsidiaries do not have any
indebtedness, obligations or liabilities of any kind, whether accrued,
contingent or otherwise (whether or not required to be reflected in financial
statements in accordance with GAAP), and whether due or to become due, which
would be reasonably likely to have a UG Material Adverse Effect.

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Section 3.6 Absence of Certain Changes or Events. Except as disclosed in the
UG SEC Reports filed prior to the date of this Agreement or in Schedule 3.6 of
the UG Disclosure Schedule, since the date of the UG Balance Sheet, UG and its
Subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since such date, there has not been
(i) any event, development, state of affairs or condition, or series or
combination of events, developments, states of affairs or conditions, which,
individually or in the aggregate, has had or is reasonably likely to have a UG
Material Adverse Effect; (ii) any damage, destruction or loss (whether or not
covered by insurance) with respect to UG or any of its Subsidiaries which is
reasonably likely to have a UG Material Adverse Effect; (iii) any material
change by UG in its accounting methods, principles or practices; (iv) any
revaluation by UG of any of its assets which is reasonably likely to have a UG
Material Adverse Effect; (v) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to the equity interests of UG or of any of its Subsidiaries, other than
dividends paid by wholly owned Subsidiaries of UG to UG (and for this purpose
patronage dividends, to the extent declared, set-aside or paid in the ordinary
course of business and in accordance with past practices or as contemplated by
this Agreement, shall not be deemed to be a dividend or distribution with
respect to the equity interests of UG), (vi) any redemption, purchase or other
acquisition by UG of any securities of UG other than pursuant to its published
membership stock redemption policies; (vii) any split, combination or
reclassification of any of UG's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for, shares of UG's capital stock; (viii) any amendment of
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing or other employee benefit plan, the effect of which is to
increase benefits to participants in such plan, or any other increase in the
compensation payable or to become payable to any officers or key employees of
UG or any Subsidiary of UG, other than increases which would not be material,
individually or in the aggregate, with respect to such officers or employees
receiving such benefit or compensation (based upon a comparison to benefits and
compensation received in the prior fiscal year); (ix) any entry into, renewal,
modification or extension of, any material contract, arrangement or agreement
with any other party except for contracts, arrangements or agreements in the
ordinary course of business or as contemplated by this Agreement; or (x) any
settlement of pending or threatened litigation involving UG or any of its
Subsidiaries (whether brought by a private party or a Governmental Entity)
other than any settlement which is not reasonably likely to have a UG Material
Adverse Effect. Schedule 3.6 contains a list of all customers of UG that
purchased in excess of $500,000 of merchandise from UG and its subsidiaries in
the 1998 fiscal year and that have ceased making purchases or have
substantially diminished the level of purchases in fiscal 1999, or have given
notice of their intention to cease making purchases or substantially diminish
the level of purchases.

Section 3.7 Taxes.

(a) Except as set forth in Schedule 3.7(a) of the UG Disclosure
Schedule:

(i) Each of UG and its Subsidiaries (and any affiliated group
(within the meaning of Section 1504 of the Code) of which UG or any of
its Subsidiaries is now or ever has been a member) has timely filed
with the appropriate taxing authorities all federal and other Tax
Returns (as defined in Section 3.7(c)) required to be filed through the
date hereof and will timely file any such returns required to be filed
on or prior to the Closing Date. All such Tax Returns were (and, to the
extent they will be filed prior to the Effective Time, will be)
complete and accurate in all material respects. None of UG, its
Subsidiaries, nor any affiliated group (within the meaning of Section
1504 of the Code) of which UG or any of

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its Subsidiaries is now or was a member, has pending any request for an
extension of time within which to file federal income Tax Returns.

(ii) All Taxes (as defined in Section 3.7(c)) in respect of periods
ending on or before the Closing Date (including without limitation the
portion before the Closing Date of any period beginning before and
ending after the Closing Date) have been paid or will be timely paid,
or an adequate reserve has been or will be established therefor in
accordance with GAAP, by each of UG and its Subsidiaries, subject to
such exceptions as would not be reasonably likely to have, individually
or in the aggregate, a UG Material Adverse Effect.

(iii) UG and each of its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes and have, within the time and in
all material respects in the manner prescribed by law, withheld and
paid over to the proper governmental authorities all amounts required
to be so withheld and paid over under applicable laws, subject to such
exceptions as would not be reasonably likely to have, individually or
in the aggregate, a UG Material Adverse Effect.

(iv) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns of UG or any of its
Subsidiaries. Neither UG nor any of its Subsidiaries has received a
written notice or announcement of any material audits or proceedings.
No requests for waivers of time to assess any Taxes are pending and
none of UG or any of its Subsidiaries has waived any statute of
limitations with respect to Taxes or agreed to any extension of time
with respect to any Tax assessment or deficiency for any open taxable
year.

(v) Neither the IRS nor any other taxing authority (whether domestic
or foreign) has asserted in writing, or to the best knowledge of UG, is
threatening in writing to assert, (a) against UG or any of its
Subsidiaries any deficiency or claim for Taxes in excess of the
reserves established therefor or (b) that UG or any of its Subsidiaries
should have, but did not, file a Tax Return in a particular
jurisdiction; except as which would not be reasonably likely to have a
UG Material Adverse Effect.

(vi) Neither UG nor any of its Subsidiaries is either obligated to
make any payments, or party to any agreement that under any
circumstances would obligate UG or any of its Subsidiaries to make any
payments, that either (A) are, or under any circumstances would be,
"parachute payments" within the meaning of Section 280G of the Code or
(B) are or would be nondeductible under Section 162(m) of the Code
(assuming that, during the same taxable year as such payments are or
would be received, the recipient also was to receive other "applicable
employee remuneration" within the meaning of Section 162(m) of the Code
equal to the "applicable employee remuneration" received by the
employee during the last taxable year of UG ending before the Closing
Date).

(b) Except as set forth in Schedule 3.7(b) of the UG Disclosure
Schedule:

(i) There are no liens for Taxes upon any property or assets of UG
or any Subsidiary thereof, except for liens for Taxes not yet due and
payable and liens for Taxes that are being contested in good faith by
appropriate proceedings as set forth in Schedule 3.7(a) of UG
Disclosure Schedule and as to which adequate reserves have been
established in accordance with GAAP.

(ii) Neither UG nor any of its Subsidiaries is or has been a member
of an affiliated group of corporations filing a consolidated federal
income tax return (or a group of corporations filing a consolidated,
combined or unitary income tax return under comparable

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provisions of state, local or foreign tax law) for any taxable period
beginning on or after January 1, 1992, other than a group the common
parent of which is or was UG or any Subsidiary of UG.

(iii) Neither UG nor any of its Subsidiaries has (a) any obligation
under any Tax sharing agreement or similar arrangement with any other
person with respect to Taxes of any other person or (b) entered into a
closing agreement or other similar agreement related to Taxes with any
taxing authority for any open or future taxable year.

(iv) Neither UG nor any of its Subsidiaries has, with regard to any
assets or property held or acquired by any of them, filed a consent to
the application of Section 341(f) of the Code, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by UG or any of its Subsidiaries;

(v) To the best knowledge of UG, no member of the UG affiliated
group (as defined in Section 1504 of the Code) has realized any
material gain in connection with any intercompany transaction that has
been deferred for federal income tax purposes, except for such gains as
have been taken into account on Tax Returns filed prior to the date
hereof in accordance with Treas. Reg. Section 1.1502-13.

(vi) UG has no stockholder who has held more than 5% of any class of
UG stock within the last five years for whom such stock would be
treated as a "United States real property interest" within the meaning
of Section 897(c) of the Code.

(vii) Neither UG nor any of its Subsidiaries has agreed to, or is
required to make, any adjustments under Section 481 of the Code for any
open or future taxable year, except as which would not be reasonably
likely to have, individually or in the aggregate, a UG Material Adverse
Effect.

(c) For purposes of Sections 3.7 and 4.7: "Taxes" shall mean any and all
taxes, charges, fees, levies, duties, liabilities, impositions or other
assessments, including, without limitation, income, gross receipts,
profits, alternative or add-on minimum, excise, real (due and payable) or
personal property, environmental, recapture, sales, use, value-added,
withholding, social security, estimated retirement, employment,
unemployment, disability, occupation, service, registration, license,
customs duties, net worth, payroll, franchise, gains, stock, stamp,
transfer and recording taxes, fees and charges, imposed by the Internal
Revenue Service ("IRS") or any other taxing authority (whether domestic or
foreign including, without limitation, any state, county, local or foreign
government or any subdivision or taxing agency thereof (including a United
States possession)), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest
whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments; and "Tax Return" shall mean any
report, return, document, declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction (foreign or
domestic) with respect to Taxes, including, without limitation, any
amendments of any such tax or information returns and any schedules,
exhibits or other documents with respect to or accompanying any such tax or
information returns or any payments of estimated Taxes or requests for the
extension of time in which to file any such report, return, document,
declaration or other information.

Section 3.8 Litigation. Except as disclosed in the UG SEC Reports filed
prior to the date of this Agreement or in Schedules 3.8 or 3.11 of the UG
Disclosure Schedule, (a) there is no action, suit

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or proceeding, claim, arbitration or investigation against UG or any of its
Subsidiaries pending, or as to which UG or any of its Subsidiaries has received
any written notice of assertion or, to the best knowledge of UG, threatened
against or affecting, UG or any of its Subsidiaries or any property or asset of
UG or any of its Subsidiaries, before any Governmental Entity, that,
individually or in the aggregate, could reasonably be expected to (i) have a UG
Material Adverse Effect or (ii) prevent the consummation of the transactions
contemplated by this Agreement; and (b) there is no judgment, order, injunction
or decree of any Governmental Entity outstanding against UG or any of its
Subsidiaries that could reasonably be expected to have any effect referred to
in clauses (i) or (ii) above.

Section 3.9 Environmental Matters. Except as disclosed in Schedule 3.9 of
the UG Disclosure Schedule or as would not be reasonably likely to have a UG
Material Adverse Effect, (a) UG and its Subsidiaries are in compliance with all
Environmental Laws, (b) there are no Environmental Claims pending or, to the
best knowledge of UG, threatened against UG and its Subsidiaries, (c) to the
best knowledge of UG, there are no Environmental Conditions relating to any
portion of the UG Real Property, (d) to the best knowledge of UG, no asbestos
containing materials, polychlorinated biphenyls (i.e., PCBs) or underground
storage tanks are present at any of the UG Real Property, (e) none of UG and
its Subsidiaries has received any notices from any governmental agency or other
third party alleging liability under or violation of any Environmental Law, or
alleging responsibility for the removal, investigation, or remediation of any
Environmental Condition and (f) UG is not subject to any enforcement or
investigatory action by any governmental agency of which it has received
notice, and is not conducting any removal, investigation or remediation,
regarding an Environmental Condition with respect to any UG Real Property.

For purposes of this Section 3.9 and Section 4.9, the following definitions
shall apply:

"Hazardous Materials" means, without limitation, all wastes, substances or
materials defined as hazardous or toxic under any Environmental Laws.

"Environmental Laws" means all applicable foreign, federal, state and local
statutes or laws, common law, judgments, orders, regulations, licenses,
permits, rules and ordinances relating to pollution or protection of human
health, safety or the environment, including, but not limited to the Federal
Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), Resource Conservation
and Recovery Act (42 U.S.C. (S) 6901 et seq.), Safe Drinking Water Act (42
U.S.C. (S) 3000(f) et seq.), Toxic Substances Control Act (15 U.S.C. (S) 2601
et seq.), Clean Air Act (42 U.S.C. (S) 7401 et seq.), Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. (S) 9601 et
seq.) and similar state and local statutes, in effect as of the date hereof.

"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, remedial action costs, governmental response costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (a) the presence or release of any
Hazardous Materials at any location, whether or not owned or operated by UG and
its Subsidiaries or Certified and its Subsidiaries, or (b) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law.

"Environmental Condition" means the release into the environment of any
Hazardous Material as a result of which UG (or, as used in Section 4.9,
Certified) (1) is or was in violation of any Environmental Law, (2) has or may
be required to incur response costs for investigation or remediation, or (3) by
reason of which any of the UG Real Property (or, as used in Section 4.9,

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Certified Real Property) or other assets of UG (or, as used in Section 4.9,
Certified), may be subject to any lien under Environmental Laws.

"UG Real Property" means any owned or leased real property in which UG or
any of its Subsidiaries has an interest.

"Certified Real Property" means any owned or leased real property in which
Certified or any of its Subsidiaries has an interest.

Section 3.10 Employee Benefit Plans.

(a) Definitions. The following terms, when used in this Section 3.10
shall have the following meanings. Any of these terms may, unless the
context otherwise requires, be used in the singular or the plural depending
on the reference.

(i) Benefit Arrangement. "Benefit Arrangement" shall mean any
employment, consulting, severance or other similar contract,
arrangement or policy (including but not limited to any letter or
memorandum relating to employment) and each plan, program or agreement
providing for workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life
insurance, health, accident benefits (including without limitation any
"voluntary employees' beneficiary association" as defined in Section
501(c)(9) of the Code providing for the same or other benefits),
deferred compensation, profit-sharing bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive
compensation which (1) is not a Welfare Plan, Pension Plan, or
Multiemployer Plan under which UG or any ERISA Affiliate may incur any
liability, and (2) covers any employee or former employee of UG or any
ERISA Affiliate (with respect to their relationship with such
entities).

(ii) Code. "Code" shall have the meaning set forth in the preamble
to this Agreement.

(iii) Employee Plans. "Employee Plans" shall mean all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans,
under which UG or any ERISA Affiliate may incur any liability.

(iv) ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.

(v) ERISA Affiliate. "ERISA Affiliate" shall mean any entity which
is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, or a member of an
"affiliated service group" with, UG as defined in Section 414(b), (c),
(n) or (o) of the Code or any partnership of which UG or any of its
Subsidiaries is a general partner.

(vi) Multiemployer Plan. "Multiemployer Plan" shall mean any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA, under
which UG or any ERISA Affiliate may incur any liability.

(vii) Pension Plan. "Pension Plan" shall mean any "employee pension
benefit plan", as defined in Section 3(2) of ERISA, other than a
Multiemployer Plan, under which UG or any ERISA Affiliate may incur any
liability.

(viii) Welfare Plan. "Welfare Plan" shall mean any "employee welfare
benefit plan", as defined in Section 3(l) of ERISA, under which UG or
any ERISA Affiliate may incur any liability.

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(b) Disclosure; Delivery of Copies of Relevant Documents and Other
Information. Schedule 3.10 of the UG Disclosure Schedule contains a
complete list of the Employee Plans. Copies of (i) each Employee Plan other
than any Multiemployer Plan, and, if applicable, related trust agreement,
and any amendment thereto, (ii) the most recent determination letter issued
by the IRS with respect to each Employee Plan which is intended to qualify
under Section 401(a) of the Code and (iii) the most recent Annual Report on
Form 5500 Series required to be filed with any governmental agency for each
Pension Plan and Welfare Plan have been delivered by UG to Certified and
are true and complete copies of such documents.

(i) Employee Plans.

(A) Each Pension Plan (with its related trust) that is intended
to qualify under the provisions of Code Section 401(a) has received
a favorable determination letter from the Internal Revenue Service
stating that the Pension Plan is so qualified and the related trust
is exempt from federal income tax under Section 501(a) of the Code
and, to the best knowledge of UG, nothing has occurred since the
date of the last such determination letter which has resulted in or
is likely to result in the revocation of such determination letter.

(B) Each Employee Plan has been maintained in material
compliance with its terms and, both as to form and in operation,
with the requirements prescribed by any and all applicable laws,
including without limitation ERISA and the Code to the extent
applicable.

(C) The fair market value, as of the date hereof, of the assets
held by each Pension Plan that is subject to the requirements of
Section 412 of the Code, Part 3 of Title I of ERISA or Title IV of
ERISA is not materially less than the present value of the
accumulated benefit obligations (determined as of the date hereof)
of the participants and beneficiaries under such Pension Plan,
based on the actuarial methods, tables and assumptions heretofore
utilized by such Pension Plan's actuary to determine such Pension
Plan's funded status. None of the Pension Plans that are subject to
Section 412 of the Code or Section 302 of ERISA has ever incurred
an "accumulated funding deficiency" (as defined in such Code and
ERISA sections).

(ii) Multiemployer Plans. Neither UG nor any ERISA Affiliate has, at
any time, withdrawn from a Multiemployer Plan in a "complete
withdrawal" or a "partial withdrawal" as defined in Sections 4203 and
4205 of ERISA, respectively, so as to result in a liability, contingent
or otherwise (including without limitation the obligations pursuant to
an agreement entered into in accordance with Section 4204 of ERISA), of
UG or any ERISA Affiliate which has not been fully satisfied. Neither
UG nor any ERISA Affiliate has engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction described
in Section 4212(c) of ERISA.

(iii) Welfare Plans. None of UG, any ERISA Affiliate or any Welfare Plan
has any present or future obligation to make any payment to, or with
respect to any present or former employee of UG or any ERISA Affiliate
pursuant to, any retiree medical benefit plan, or other retiree Welfare
Plan, except to the extent required by the Code or ERISA.

(iv) Litigation. To the best knowledge of UG, there is no material
action, order, writ, injunction, judgment or decree outstanding or claim,
suit, litigation, proceeding, arbitral action,

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governmental audit or investigation relating to or seeking benefits under
any Employee Plan that is pending against UG, any ERISA Affiliate or any
Employee Plan other than routine claims for benefits.

(v) Miscellaneous Matters. As of the date hereof (a) all material
payments required to be made on or before the date hereof by or under any
Employee Plan, any related trust, or any collective bargaining agreement
have been made or are being processed in accordance with normal operating
procedures, and except as set forth in UG's financial statement, all
material amounts required to be reflected thereon have been properly
accrued to date as liabilities under or with respect to each Employee Plan,
(b) UG and its ERISA Affiliates have performed all material obligations
required to be performed by them on or before the date hereof under any
Employee Plan and (c) UG and its ERISA Affiliates have no material
liability as a result of any "prohibited transaction" (as defined in
Section 406 of ERISA and Section 4975 of the Code) for any excise tax or
civil penalty.

Section 3.11 Labor Matters. Except as disclosed in Schedule 3.11 of the UG
Disclosure Schedule or as would not be reasonably likely to have a UG Material
Adverse Effect, (i) there are no discrimination, wage and hour, family leave or
other employment-related complaints, suits, actions, or charges pending in or
before any Governmental Entity, and there are no other claims or controversies
pending or, to the best knowledge of UG or any of its Subsidiaries, threatened,
between UG or any of its Subsidiaries and any of their respective present or
former employees; (ii) to the best knowledge of UG, there are no activities or
proceedings of any labor union to organize any non-unionized employees; (iii)
neither UG nor any of its Subsidiaries has breached or otherwise failed to
comply with any material provision of any collective bargaining agreement or
contract and there are no grievances outstanding against UG or any of its
Subsidiaries under any such agreement or contract; (iv) there are no unfair
labor practice charges and/or complaints pending against UG or any of its
Subsidiaries before the National Labor Relations Board, or any similar foreign
labor relations governmental bodies, or any current union representation
questions involving employees of UG or any of its Subsidiaries; (v) there is no
strike, slowdown, work stoppage or lockout, or, to the best knowledge of UG,
threat thereof, by or with respect to any employees of UG or any of its
Subsidiaries, and (vi) UG is in full compliance with the Warn Act. UG and its
Subsidiaries are not parties to any collective bargaining agreements, except
for collective bargaining agreements disclosed in Schedule 3.11 of the UG
Disclosure Schedule.

Section 3.12 Compliance. Except as set forth on Schedule 3.12 of the UG
Disclosure Schedule and except as otherwise provided in Sections 3.7, 3.9 and
3.10, each of UG and its Subsidiaries, hold all permits, registrations,
licenses, variances, exemptions, certificates of occupancy, orders and
approvals of all Governmental Entities (including all authorizations under
Environmental Laws) necessary to conduct the business and operations of UG and
each of its Subsidiaries, each of which is in full force and effect in all
material respects, except for such permits, registrations, licenses, variances,
exemptions, certificates of occupancy, orders and approvals the failure of
which to hold would not, individually or in the aggregate, be reasonably likely
to have a UG Material Adverse Effect (the "UG Permits") and no event has
occurred which permits, or upon the giving of notice or passage of time or both
would permit, revocation, nonrenewal, modification, suspension, limitation or
termination of any UG Permit that currently is in effect the loss of which
either individually or in the aggregate would be reasonably likely to have a UG
Material Adverse Effect. Except as disclosed in the UG SEC Reports filed prior
to the date of this Agreement, or except as set forth on Schedule 3.12 of the
UG Disclosure Schedule, and except as otherwise disclosed or permitted in
Sections 3.7, 3.9 and 3.10 and the Schedules related thereto, each of UG and
its

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Subsidiaries, are in compliance with the terms of the UG Permits, except for
such failures to comply, which singly or in the aggregate, would not be
reasonably likely to have a UG Material Adverse Effect. Except as disclosed in
the UG SEC Reports filed prior to the date of this Agreement or except as set
forth on Schedule 3.12 of the UG Disclosure Schedule, and except as otherwise
disclosed or permitted in Sections 3.7, 3.9 and 3.10 and the Schedules related
thereto, the businesses of UG and its Subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity,
except for possible violations which individually or in the aggregate do not
and would not be reasonably likely to have a UG Material Adverse Effect. To the
best knowledge of UG, no investigation or review by any Governmental Entity
with respect to UG or any of its Subsidiaries is pending, or threatened, nor
has any Governmental Entity indicated any intention to conduct the same, other
than those the outcome of which would not, individually or in the aggregate, be
reasonably likely to have a UG Material Adverse Effect.

Section 3.13 Year 2000. Schedule 3.13 of the UG Disclosure Schedule
describes the measures UG has taken to ensure that all computer software
necessary for the conduct of its business (the "Software") is designed to be
used prior to, during, and after the calendar year 2000 A.D., and to ensure
that the Software will operate during each such time period without error
relating to the year 2000, specifically including any error relating to, or the
product of, date data which represents or references different centuries or
more than one century.

Section 3.14 Joint Proxy Statement/Prospectus; Registration Statement. None
of the information supplied or to be supplied by UG or its Subsidiaries to be
included or incorporated by reference in the joint proxy statement/prospectus
to be sent to the stockholders of Certified and UG in connection with the
meeting of UG's stockholders (the "UG Stockholders' Meeting") and the meeting
of Certified stockholders (the "Certified Stockholders' Meeting") to consider
the Agreement and the Merger (the "Joint Proxy Statement/Prospectus") or any
amendment thereof or supplement thereto, will, on the date it becomes effective
with the SEC, at the time of the mailing of the Joint Proxy
Statement/Prospectus or any amendment or supplement, at the time of UG
Stockholders' Meeting and the Certified Stockholders' Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Joint Proxy Statement/Prospectus will comply as to
form in all material respects with the provisions of the Securities Act and the
Exchange Act and the rules and regulations thereunder; provided, however, that
UG makes no representation with respect to any information supplied or to be
supplied by Certified or Merger Sub for inclusion in the Joint Proxy
Statement/Prospectus or any amendment thereof or supplement thereto. None of
the information supplied by UG or its Subsidiaries to be included or
incorporated by reference from UG SEC filings in the registration statement on
Form S-4 pursuant to which Certified Class A Shares and Class B Shares issued
in the Merger will be registered under the Securities Act (the "Registration
Statement"), of which the Joint Proxy Statement/Prospectus will form a part,
will, at the time the Registration Statement is declared effective by the SEC,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.

Section 3.15 Opinion of Financial Advisor. UG has received the opinion of
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. to the effect that the
Exchange Ratio is fair to the holders of UG Common Stock from a financial point
of view.

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Section 3.16 No Existing Discussions. As of the date hereof, UG is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal (as defined in Section
5.4).

Section 3.17 Oregon Takeover Statutes. As of the date hereof, the
restrictions of Sections 60.801 through 60.816 and Sections 60.825 through
60.845 of the OBCA do not and will not affect the Merger or the benefits and
obligations under this Agreement.

Section 3.18 Brokers and Others. None of UG or any of its Subsidiaries, or
to the knowledge of UG, any of their respective officers, directors or
employees have employed or contracted with any broker, financial advisor,
finder or other person or incurred any liability for any brokerage fees,
commissions, finder's fees or other fees in connection with the transactions
contemplated by this Agreement, except that UG has retained Houlihan Lokey
Howard & Zukin Financial Advisors, Inc. as its financial advisor to render the
opinion referred to in Section 3.15, the arrangements with which have been
disclosed in writing to Certified and Merger Sub prior to the date of this
Agreement.

Section 3.19 Transactions with Affiliates. Other than the transactions
contemplated by this Agreement and except to the extent disclosed in the UG SEC
Documents filed prior to the date of this Agreement or as disclosed in Schedule
3.19 of the UG Disclosure Schedule, from January 1, 1997 through the date of
this Agreement, there have been no transactions, agreements, arrangements or
understandings between UG or any of its Subsidiaries, on the one hand, and UG's
affiliates or other persons, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES
OF CERTIFIED AND MERGER SUB

Certified and Merger Sub represent and warrant to UG that the statements
contained in this Article IV are true and correct except as set forth herein
and in the disclosure schedule delivered by Certified and Merger Sub to UG on
or before the date of this Agreement (the "Certified Disclosure Schedule"). The
Certified Disclosure Schedule shall be arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article IV and the
disclosure in any paragraph shall qualify other paragraphs in this Article IV
only to the extent that it is reasonable from a reading of such disclosure that
it also qualifies or applies to such other paragraphs.

Section 4.1 Organization. Each of Certified and its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has the requisite corporate, partnership
and limited liability company power and authority to carry on its business as
now being conducted. Each of Certified and its Subsidiaries is duly qualified
or licensed to do business and is in good standing in each jurisdiction in
which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary,
except where the failure to be so qualified, licensed or in good standing would
not be reasonably likely to have a material adverse effect on the business,
properties, financial condition, results of operations or prospects of
Certified and its Subsidiaries, taken as a whole (a "Certified Material Adverse
Effect"). Certified has delivered to UG true and correct copies of the
Certificate of Incorporation and Bylaws of each of Certified and each of its
Subsidiaries (including, without

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limitation, the Merger Sub), in each case as amended to the date of this
Agreement. Except as set forth in Certified SEC Reports (as defined in Section
4.4) filed prior to the date hereof or in Schedule 4.1 of the Certified
Disclosure Schedule, neither Certified nor any of its Subsidiaries directly or
indirectly owns (other than ownership interests of Certified in one or more of
its Subsidiaries) any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture or other business association or entity.

Section 4.2 Capitalization.

(a) The authorized capital stock of Certified consists of 500,000 Class
A Shares, 2,000,000 Class B Shares, and 19 Class C Shares. As of February
27, 1999, (i) 46,800 Class A Shares were issued and outstanding, (ii)
361,139 Class B Shares were issued and outstanding, and 15 Class C Shares
were issued and outstanding, all of which are validly issued, fully paid
and nonassessable. No shares of Certified authorized capital stock are held
in Treasury. Schedule 4.2(a) of the Certified Disclosure Schedule sets
forth the number of shares of Certified's authorized capital stock reserved
for future issuance upon the exercise of rights, warrants, options or other
agreements. Except as disclosed in Schedule 4.2(a) of the Certified
Disclosure Schedule, there are no obligations, contingent or otherwise, of
Certified or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of Certified authorized capital stock or the capital
stock or ownership interests of any of its Subsidiaries or to provide funds
to or make any material investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity other
than guarantees of bank obligations or indebtedness for borrowed money of
Subsidiaries of Certified entered into in the ordinary course of business.
All of the outstanding shares of capital stock or other ownership interests
of each of Certified's Subsidiaries are duly authorized, validly issued,
fully paid and nonassessable and, except as disclosed in Schedule 4.2(a) of
the Certified Disclosure Schedule or the Certified SEC Reports, all such
shares and ownership interests are owned by Certified or another Subsidiary
of Certified free and clear of all security interests, liens, claims,
pledges, agreements, limitations on Certified's voting rights, charges or
other encumbrances or restrictions on transfer of any nature.

(b) There is no Voting Debt of Certified or any of its Subsidiaries
issued and outstanding. Except as set forth in Section 4.2(a), (i) there
are no shares of capital stock of any class of Certified, or any security
exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding; (ii) there are no options, warrants,
equity securities, calls, rights, commitments or agreements of any
character to which Certified or any of its Subsidiaries is a party or by
which it is bound obligating Certified or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other ownership interests (including Voting
Debt) of Certified or any of its Subsidiaries or obligating Certified or
any of its Subsidiaries to grant, extend, accelerate the vesting of or
enter into any such option, warrant, equity security, call, right,
commitment or agreement; and (iii) there are no voting trusts, proxies or
other voting agreements or understandings with respect to the shares of
capital stock of Certified or to which Certified or any of its Subsidiaries
is a party.

(c) The authorized capital stock of Merger Sub consists of 2,500 shares
of Common Stock, $0.01 par value ("Merger Sub Common Stock"), of which 100
shares are issued and outstanding. Certified owns directly all the
outstanding shares of Merger Sub Common Stock. The outstanding shares of
Merger Sub Common Stock are duly authorized, validly issued, fully paid and
non-assessable and free of any preemptive rights.

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Section 4.3 Authority; No Conflict; Required Filings and Consents.

(a) Certified and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by
Certified and Merger Sub have been duly authorized by all necessary
corporate action on the part of Certified and Merger Sub, subject only to
the approval and adoption of this Agreement and the Merger by a majority of
each class of Certified stockholders. This Agreement has been duly executed
and delivered by Certified and Merger Sub and assuming the due
authorization, execution and delivery by UG, constitutes the valid and
binding obligation of Certified and Merger Sub, enforceable against each of
them in accordance with its terms.

(b) Other than or as disclosed in Schedule 4.3(b) of the Certified
Disclosure Schedule, the execution and delivery of this Agreement by
Certified and Merger Sub does not, and the consummation of the transactions
contemplated hereby will not, (i) conflict with, or result in any violation
or breach of, any provision of the Certificate of Incorporation or Bylaws
of Certified or the comparable charter or organizational documents of any
of its Subsidiaries, (ii) result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Certified or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound, or
(iii) subject to the governmental filings and other matters referred to in
Section 4.3(c), conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Certified or any of its Subsidiaries or any of its
or their properties or assets, except in the case of clauses (ii) and (iii)
for any such conflicts, violations, defaults, terminations, breaches,
cancellations, accelerations or requirements for consent or waiver not
obtained which (x) are not, individually or in the aggregate, reasonably
likely to have a Certified Material Adverse Effect and (y) would not impair
or unreasonably delay the consummation of the Merger.

(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Certified or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the pre-
merger notification report under the HSR Act, (ii) the filing of the
Articles of Merger with respect to the Merger with the Secretary of State
of the State of Oregon, (iii) the filing of the Joint Proxy
Statement/Prospectus and the Registration Statement (as such terms are
defined in Section 3.14 above) with the SEC in accordance with the
Securities Act and the Exchange Act, (iv) such consents, approvals, orders,
authorizations, permits, filings, or registrations related to, or arising
out of, compliance with statutes, rules or regulations regulating the
consumption, sale or serving of alcoholic beverages, (v) such filings and
consents as may be required under any environmental, health or safety law
or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or the transactions contemplated by this
Agreement, and (vi) such other filings, consents, approvals, orders,
registrations and declarations as may be required under the laws of any
jurisdiction in which Certified or any of its Subsidiaries conducts any
business or owns any assets the failure of which to obtain would not be
reasonably likely to have a Certified Material Adverse Effect.

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Section 4.4 Public Filings; Financial Statements.

(a) Certified has filed and made available to UG all forms, reports and
documents required to be filed by Certified with the SEC since January 1,
1996 (collectively, the "Certified SEC Reports"). None of Certified's
Subsidiaries is required to file forms, reports or documents with the SEC.
The Certified SEC Reports (including any financial statements filed as a
part thereof or incorporated by reference therein) (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and (ii) did not,
at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing), contain
any untrue statement of a material fact or omit to state a material fact
required to be stated in such Certified SEC Reports or necessary in order
to make the statements in such Certified SEC Reports, in the light of the
circumstances under which they were made, not misleading.

(b) Each of the consolidated financial statements (including, in each
case, any related notes) of Certified and its Subsidiaries contained in the
Certified SEC Reports complied as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto,
was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to
such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q under the Exchange Act) and fairly presented the
consolidated financial position of Certified and its consolidated
Subsidiaries as of the dates and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
The audited balance sheet of Certified as of August 29, 1998 is referred to
herein as the "Certified Balance Sheet."

Section 4.5 No Undisclosed Liabilities. Except as disclosed in the Certified
SEC Reports filed prior to the date of this Agreement or in Schedule 4.5 of the
Certified Disclosure Schedule, and except for liabilities and obligations
incurred since the date of the Certified Balance Sheet in the ordinary course
of business consistent with past practices, Certified and its consolidated
Subsidiaries do not have any indebtedness, obligations or liabilities of any
kind, whether accrued, contingent or otherwise (whether or not required to be
reflected in financial statements in accordance with GAAP), and whether due or
to become due, which would be reasonably likely to have a Certified Material
Adverse Effect.

Section 4.6 Absence of Certain Changes or Events. Except as disclosed in the
Certified SEC Reports filed prior to the date of this Agreement or in Schedule
4.6 of the Certified Disclosure Schedule, since the date of the Certified
Balance Sheet, Certified and its Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any event, development, state of
affairs or condition, or series or combination of events, developments, states
of affairs or conditions, which, individually or in the aggregate, has had or
is reasonably likely to have a Certified Material Adverse Effect; (ii) any
damage, destruction or loss (whether or not covered by insurance) with respect
to Certified or any of its Subsidiaries which is reasonably likely to have a
Certified Material Adverse Effect; (iii) any material change by Certified in
its accounting methods, principles or practices; (iv) any revaluation by
Certified of any of its assets which is reasonably likely to have a Certified
Material Adverse Effect; (v) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to the equity interests of Certified, other than dividends paid by
wholly owned Subsidiaries of Certified to Certified (and for this purpose
patronage dividends, to the

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extent declared, set-aside or paid in the ordinary course of business and in
accordance with past practices or as contemplated by this Agreement, shall not
be deemed to be a distribution with respect to the equity interests of
Certified); (vi) any redemption, purchase or other acquisitions by Certified of
any securities of Certified other than pursuant to its published membership
stock redemption policies; (vii) any split, combination or reclassification of
any of Certified capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for, shares of Certified capital stock; (viii) any amendment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing or other employee benefit plan, the effect of which is to increase
benefits to participants in such plans, or any other increase in the
compensation payable or to become payable to any officers or key employees of
Certified or any of its Subsidiary other than increases which would not be
material, individually or in the aggregate, with respect to such officers or
employees receiving such benefit or compensation (based on a comparison to
benefits and compensation received in the prior fiscal year); (ix) any entry
into, renewal, modification or extension of, any material contract, arrangement
or agreements with any other party except for contracts, arrangements or
agreements in the ordinary course of business or as contemplated by this
Agreement; or (x) any settlement of pending or threatened litigation involving
Certified or any of its Subsidiaries (whether brought by a private party or a
Governmental Entity) other than any settlement which is not reasonably likely
to have a Certified Material Adverse Effect. Schedule 4.6 contains a list of
all customers of Certified that purchased in excess of $500,000 of merchandise
from Certified and its subsidiaries in the 1998 fiscal year and that have
ceased making purchases or have substantially diminished the level of purchases
in fiscal 1999 or have given notice of their intention to cease making
purchases or to substantially diminish the level of purchases.

Section 4.7 Taxes.

(a) Except as set forth in Schedule 4.7(a) of the Certified Disclosure
Schedule:

(i) Each of Certified and its Subsidiaries (and any affiliated group
(within the meaning of Section 1504 of the Code)) of which Certified or
any of its Subsidiaries is now or ever has been a member) has timely
filed with the appropriate taxing authorities all federal and other Tax
Returns (as defined in Section 3.7(c)) required to be filed through the
date hereof and will timely file any such returns required to be filed
on or prior to the Closing Date. All such Tax Returns were (and, to the
extent they will be filed prior to the Effective Time, will be)
complete and accurate in all material respects. None of Certified, its
Subsidiaries, nor any affiliated group (within the meaning of Section
1504 of the Code) of which Certified or any of its Subsidiaries is now
or was a member, has pending any request for an extension of time
within which to file federal income Tax Returns.

(ii) All Taxes (as defined in Section 3.7(c)) in respect of periods
ending on or before the Closing Date (including without limitation the
portion before the Closing Date of any period beginning before and
ending after the Closing Date) have been paid or will be timely paid,
or an adequate reserve has been or will be established therefor in
accordance with GAAP, by each of Certified and its Subsidiaries,
subject to such exceptions as would not be reasonably likely to have,
individually or in the aggregate, a Certified Material Adverse Effect.

(iii) Certified and each of its Subsidiaries have complied in all
material respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes and have, within the
time and in all material respects in the manner prescribed by law,
withheld and paid over to the proper governmental authorities all
amounts required to be so

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withheld and paid over under applicable laws subject to such exceptions
as would not be reasonably likely to have, individually or in the
aggregate, a Certified Material Adverse Effect.

(iv) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns of Certified or any of its
Subsidiaries. Neither Certified nor any of its Subsidiaries has
received a written notice or announcement of any material audits or
proceedings. No requests for waivers of time to assess any Taxes are
pending, and none of Certified or any of its Subsidiaries has waived
any statute of limitations with respect to Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency for
any open taxable year.

(v) Neither the IRS nor any other taxing authority (whether domestic
or foreign) has asserted in writing, or to the best knowledge of
Certified, is threatening in writing to assert, (a) against Certified
or any of its Subsidiaries any deficiency or claim for Taxes in excess
of the reserves established therefor or (b) that Certified or any of
its Subsidiaries should have, but did not, file a Tax Return in a
particular jurisdiction; except as which would not be reasonably likely
to have a Certified Material Adverse Effect.

(vi) Neither Certified nor any of its Subsidiaries is either
obligated to make any payments, or party to any agreement that under
any circumstances would obligate Certified or any of its Subsidiaries
to make any payments, that either (A) are, or under any circumstances
would be, "parachute payments" within the meaning of Section 280G of
the Code or (B) are or would be nondeductible under Section 162(m) of
the Code (assuming that, during the same taxable year as such payments
are or would be received, the recipient also was to receive other
"applicable employee remuneration" within the meaning of Section 162(m)
of the Code equal to the "applicable employee remuneration" received by
the employee during the last taxable year of Certified ending before
the Closing Date).

(b) Except as set forth in Schedule 4.7(b) of the Certified Disclosure
Schedule:

(i) There are no liens for Taxes upon any property or assets of
Certified or any Subsidiary thereof, except for liens for Taxes not yet
due and payable and liens for Taxes that are being contested in good
faith by appropriate proceedings as set forth in Schedule 4.7(a) of the
Certified Disclosure Schedule and as to which adequate reserves have
been established in accordance with GAAP.

(ii) Neither Certified nor any of its Subsidiaries is or has been a
member of an affiliated group of corporations filing a consolidated
federal income tax return (or a group of corporations filing a
consolidated, combined or unitary income tax return under comparable
provisions of state, local or foreign tax law) for any taxable period
beginning on or after January 1, 1992, other than a group the common
parent of which is or was Certified or any Subsidiary of Certified.

(iii) Neither Certified nor any of its Subsidiaries has (a) any
obligation under any Tax sharing agreement or similar arrangement with
any other person with respect to Taxes of any other person or (b)
entered into a closing agreement or other similar agreement related to
Taxes with any taxing authority for any open or future taxable year.

(iv) Neither Certified nor any of its Subsidiaries has, with regard
to any assets or property held or acquired by any of them, filed a
consent to the application of

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Section 341(f) of the Code, or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as such term
is defined in Section 341(f)(4) of the Code) owned by Certified or any
of its Subsidiaries;

(v) To the best knowledge of Certified, no member of the Certified
affiliated group (as defined in Section 1504 of the Code) has realized
any material gain in connection with any intercompany transaction that
has been deferred for federal income tax purposes, except for such
gains as have been taken into account on Tax Returns filed prior to the
date hereof in accordance with Treas. Reg. Section 1.1502-13.

(vi) Certified has no stockholder who has held more than 5% of any
class of Certified stock within the last five years for whom such stock
would be treated as a "United States real property interest" within the
meaning of Section 897(c) of the Code.

(vii) Neither Certified nor any of its Subsidiaries has agreed to,
or is required to make, any adjustments under Section 481 of the Code
for any open or future taxable year, except as which would not be
reasonably likely to have, individually or in the aggregate, a
Certified Material Adverse Effect.

Section 4.8 Litigation. Except as disclosed in the Certified SEC Reports
filed prior to the date of this Agreement or in Schedules 4.8 or 4.11 of the
Certified Disclosure Schedule, (a) there is no action, suit or proceeding,
claim, arbitration or investigation against Certified or any of its
Subsidiaries pending, or as to which Certified or any of its Subsidiaries has
received any written notice of assertion or, to the best knowledge of
Certified, threatened against or affecting, Certified or any of its
Subsidiaries or any property or asset of Certified or any of its Subsidiaries,
before any Governmental Entity, that, individually or in the aggregate, could
reasonably be expected to (i) have a Certified Material Adverse Effect or (ii)
prevent the consummation of the transactions contemplated by this Agreement;
and (b) there is no judgment, order, injunction or decree of any Governmental
Entity outstanding against Certified or any of its Subsidiaries that could
reasonably be expected to have any effect referred to in clauses (i) or (ii)
above.

Section 4.9 Environmental Matters. Except as disclosed in Schedule 4.9 of
the Certified Disclosure Schedule or as would not be reasonably likely to have
a Certified Material Adverse Effect, (a) Certified and its Subsidiaries are in
compliance with all Environmental Laws, (b) there are no Environmental Claims
pending or, to the best knowledge of Certified, threatened against Certified
and its Subsidiaries, (c) to the best knowledge of Certified, there are no
Environmental Conditions relating to any portion of the Certified Real
Property, (d) to the best knowledge of Certified, no asbestos containing
materials, polychlorinated biphenyls (i.e., PCBs) or underground storage tanks
are present at any of the real properties owned or operated by Certified, (e)
none of Certified or its Subsidiaries has received any notices from any
governmental agency or other third party alleging liability under or violation
of any Environmental Law, or alleging responsibility for the removal,
investigation, or remediation of any Environmental Condition and (f) Certified
is not subject to any enforcement or investigatory action by any governmental
agency of which it has received notice, and is not conducting any removal,
investigation or remediation, regarding an Environmental Condition with respect
to any Certified Real Property.

Section 4.10 Employee Benefit Plans.

(a) Definitions. The following terms, when used in this Section 4.10
shall have the following meanings. Any of these terms may, unless the
context otherwise requires, be used in the singular or the plural depending
on the reference.

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(i) Benefit Arrangement. "Benefit Arrangement" shall mean any
employment, consulting, severance or other similar contract,
arrangement or policy (including but not limited to any letter or
memorandum relating to employment) and each plan, program or agreement
providing for workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life
insurance, health, accident benefits (including without limitation any
"voluntary employees' beneficiary association" as defined in Section
501(c)(9) of the Code providing for the same or other benefits),
deferred compensation, profit-sharing bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive
compensation which (1) is not a Welfare Plan, Pension Plan, or
Multiemployer Plan under which Certified or any ERISA Affiliate may
incur any liability, and (2) covers any employee or former employee of
Certified or any ERISA Affiliate (with respect to their relationship
with such entities).

(ii) Code. "Code" shall have the meaning set forth in the preamble
to this Agreement.

(iii) Employee Plans. "Employee Plans" shall mean all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans,
under which Certified or any ERISA Affiliate may incur any liability.

(iv) ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.

(v) ERISA Affiliate. "ERISA Affiliate" shall mean any entity which
is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, or a member of an
"affiliated service group" with, Certified as defined in Section
414(b), (c), (n) or (o) of the Code or any partnership of which
Certified or any of its Subsidiaries is a general partner.

(vi) Multiemployer Plan. "Multiemployer Plan" shall mean any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA, under
which Certified or any ERISA Affiliate may incur any liability.

(vii) Pension Plan. "Pension Plan" shall mean any "employee pension
benefit plan", as defined in Section 3(2) of ERISA, other than a
Multiemployer Plan, under which Certified or any ERISA Affiliate may
incur any liability.

(viii) Welfare Plan. "Welfare Plan" shall mean any "employee welfare
benefit plan", as defined in Section 3(l) of ERISA, under which
Certified or any ERISA Affiliate may incur any liability.

(b) Disclosure; Delivery of Copies of Relevant Documents and Other
Information. Schedule 4.10 of the Certified Disclosure Schedule contains a
complete list of the Employee Plans. Copies of (i) each Employee Plan other
than any Multiemployer Plan, and, if applicable, related trust agreement,
and any amendment thereto, (ii) the most recent determination letter issued
by the IRS with respect to each Employee Plan which is intended to qualify
under Section 401(a) of the Code and (iii) the most recent Annual Report on
Form 5500 Series required to be filed with any governmental agency for each
Pension Plan and Welfare Plan have been delivered by Certified to UG and
are true and complete copies of such documents.

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(i) Employee Plans.

(A) Each Pension Plan (with its related trust) that is intended
to qualify under the provisions of Code Section 401(a) has received
a favorable determination letter from the Internal Revenue Service
stating that the Pension Plan is so qualified and the related trust
is exempt from federal income tax under Section 501(a) of the Code
and, to the best knowledge of Certified, nothing has occurred since
the date of the last such determination letter which has resulted
in or is likely to result in the revocation of such determination
letter.

(ii) Multiemployer Plans. Neither Certified nor any ERISA Affiliate
has, at any time, withdrawn from a Multiemployer Plan in a "complete
withdrawal" or a "partial withdrawal" as defined in Sections 4203 and
4205 of ERISA, respectively, so as to result in a liability, contingent
or otherwise (including without limitation the obligations pursuant to
an agreement entered into in accordance with Section 4204 of ERISA), of
Certified or any ERISA Affiliate which has not been fully satisfied.
Neither Certified nor any ERISA Affiliate has engaged in, or is a
successor or parent corporation to an entity that has engaged in, a
transaction described in Section 4212(c) of ERISA.

(iii) Welfare Plans. None of Certified, any ERISA Affiliate or any
Welfare Plan has any present or future obligation to make any payment
to, or with respect to any present or former employee of Certified or
any ERISA Affiliate pursuant to, any retiree medical benefit plan, or
other retiree Welfare Plan, except to the extent required by the Code
or ERISA.

(iv) Litigation. To the best knowledge of Certified, there is no
material action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, arbitral action,
governmental audit or investigation relating to or seeking benefits
under any Employee Plan that is pending against Certified, any ERISA
Affiliate or any Employee Plan other than routine claims for benefits.

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financial statement, all material amounts required to be reflected
thereon have been properly accrued to date as liabilities under or with
respect to each Employee Plan, (b) Certified and its ERISA Affiliates
have performed all material obligations required to be performed by
them on or before the date hereof under any Employee Plan and (c)
Certified and its ERISA Affiliates have no material liability as a
result of any "prohibited transaction" (as defined in Section 406 of
ERISA and Section 4975 of the Code) for any excise tax or civil
penalty.

Section 4.11 Labor Matters. Except as disclosed in Schedule 4.11 of the
Certified Disclosure Schedule or as would not have a Certified Material Adverse
Effect, (i) there are no discrimination, wage and hour, family leave or other
employment-related complaints, suits, actions, or charges pending in or before
any Governmental Entity, and there are no other claims or controversies pending
or, to the best knowledge of Certified or any of its Subsidiaries, threatened,
between Certified or any of its Subsidiaries and any of their respective
present or former employees; (ii) to the best knowledge of Certified, there are
no activities or proceedings of any labor union to organize any non-unionized
employees; (iii) neither Certified nor any of its Subsidiaries has breached or
otherwise failed to comply with any provision of any collective bargaining
agreement or contract and there are no grievances outstanding against Certified
or any of its Subsidiaries under any such agreement or contract; (iv) there are
no unfair labor practice charges and/or complaints pending against Certified or
any of its Subsidiaries before the National Labor Relations Board, or any
similar foreign labor relations governmental bodies, or any current union
representation questions involving employees of Certified or any of its
Subsidiaries; (v) there is no strike, slowdown, work stoppage or lockout, or,
to the best knowledge of Certified, threat thereof, by or with respect to any
employees of Certified or any of its Subsidiaries; and (vi) Certified and its
Subsidiaries are in full compliance with the Warn Act. Certified and its
Subsidiaries are not parties to any collective bargaining agreements, except
for collective bargaining agreements disclosed in Schedule 4.11 of the
Certified Disclosure Schedule.

Section 4.12 Compliance. Except as set forth on Schedule 4.12 of the
Certified Disclosure Schedule and except as otherwise provided in Sections 4.7,
4.9 and 4.10, each of Certified and its Subsidiaries hold all permits,
registrations, licenses, variances, exemptions, certificates of occupancy,
orders and approvals of all Governmental Entities (including all authorizations
under Environmental Laws), necessary to conduct the business and operations of
Certified and each of its Subsidiaries, each of which is in full force and
effect in all material respects, except for such permits, registrations,
licenses, variances, exemptions, certificates of occupancy, orders and
approvals the failure of which to hold would not, individually or in the
aggregate, be reasonably likely to have a Certified Material Adverse Effect
(the "Certified Permits") and no event has occurred which permits, or upon the
giving of notice or passage of time or both would permit, revocation, non-
renewal, modification, suspension, limitation or termination of any Certified
Permit that currently is in effect the loss of which either individually or in
the aggregate would be reasonably likely to have a Certified Material Adverse
Effect. Except as disclosed in the Certified SEC Reports filed prior to the
date of this Agreement, or as set forth on Schedule 4.12 of the Certified
Disclosure Schedule and except as otherwise disclosed or permitted in Sections
4.7, 4.9 and 4.10 and the Schedules relating thereto, each of Certified and its
Subsidiaries are in compliance with the terms of the Certified Permits, except
for such non-compliance which, singly or in the aggregate, would not be
reasonably likely to have a Certified Material Adverse Effect. Except as
disclosed in the Certified SEC Reports filed prior to the date of this
Agreement, or except as set forth on Schedule 4.12 of the Certified Disclosure
Schedule, and except as otherwise disclosed or permitted in Sections 4.7, 4.9
and 4.10 and the Schedules relating thereto, the businesses of Certified and
its Subsidiaries are not being conducted in

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violation of any law, ordinance or regulation of any Governmental Entity,
except for possible violations which individually or in the aggregate do not
and would not be reasonably likely to have a Certified Material Adverse Effect.
No investigation or review by any Governmental Entity with respect to Certified
or any of its Subsidiaries is pending, or, to the best knowledge of Certified,
threatened, nor has any Governmental Entity indicated any intention to conduct
the same, other than those the outcome of which would not, individually or in
the aggregate, be reasonably likely to have a Certified Material Adverse
Effect.

Section 4.13 Year 2000. Schedule 4.13 of the Certified Disclosure Schedule
describes the measures Certified has taken to ensure that all computer software
necessary for the conduct of its business (the "Software") is designed to be
used prior to, during, and after the calendar year 2000 A.D., and to ensure
that the Software will operate during each such time period without error
relating to the year 2000, specifically including any error relating to, or the
product of, date data which represents or references different centuries or
more than one century.

Section 4.14 Joint Proxy Statement/Prospectus; Registration Statement. None
of the information supplied or to be supplied by Certified or Merger Sub to be
included or incorporated by reference in the Joint Proxy Statement/Prospectus
or any amendment thereof or supplement thereto, will, on the date it becomes
effective with the SEC, at the time of the mailing of the Joint Proxy
Statement/Prospectus or any amendment or supplement thereto to the stockholders
of Certified or UG, at the time of the Certified Stockholders' Meeting and the
UG Stockholders' Meeting and at the Effective Time, contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder; provided, however, that Certified makes no
representation with respect to any information supplied or to be supplied by UG
for inclusion or incorporated by reference from UG SEC filings in the Joint
Proxy Statement/Prospectus or any amendment thereof or supplement thereto. None
of the information supplied by Certified or Merger Sub to be included or
incorporated by reference from Certified SEC filings in the Registration
Statement will, at the time the Registration Statement is declared effective by
the SEC, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.

Section 4.15 Opinion of Financial Advisor. Certified has received the
opinion of Rabobank Nederland, New York Branch, dated the date of this
Agreement, to the effect that the Exchange Ratio is fair to the shareholders of
Certified from a financial point of view.

Section 4.16 No Existing Discussions. As of the date hereof, Certified is
not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to an Acquisition Proposal (as defined in Section
5.4).

Section 4.17 No Operations of Merger Sub. Other than in connection with the
transactions contemplated by this Agreement, since its date of incorporation,
Merger Sub has not conducted any business, has not owned, leased or operated
any real property and has not incurred any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise.

Section 4.18 Brokers and Others. None of Certified, any of its Subsidiaries,
or any of their respective officers, directors or employees have employed or
contracted with any broker, financial

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advisor, finder or other person or incurred any liability for any brokerage
fees, commissions, finder's fees or other fees in connection with the
transactions contemplated by this Agreement, except that Certified has retained
Rabobank Nederland, New York Branch, as its financial advisor to render the
opinion referred to in Section 4.15, the arrangements with which have been
disclosed in writing to UG prior to the date hereof.

Section 4.19 Transactions with Affiliates. Other than the transaction
contemplated by this Agreement, and except to the extent disclosed in the
Certified SEC Documents filed prior to the date of this Agreement or as
disclosed in Schedule 4.19 of the Certified Disclosure Schedule, from January
1, 1997 through the date of this Agreement, there have been no transactions,
agreements, arrangements or understandings between Certified or any of its
Subsidiaries, on the one hand, and Certified's affiliates or other person, on
the other hand, that would be required to be disclosed under Item 404 of
Regulation S-K under the Securities Act.

ARTICLE V.

COVENANTS

Section 5.1 Conduct of Business of UG and Certified. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, each party hereto agrees as to itself
and each of its Subsidiaries to carry on its business in the ordinary course in
substantially the same manner as previously conducted, to pay its debts and
taxes when due, subject to good faith disputes over such debts or taxes, in the
ordinary course in substantially the same manner as previously paid, to pay or
perform its other obligations when due in the ordinary course in substantially
the same manner as previously paid or performed, and, to the extent consistent
with such business, use all reasonable efforts consistent with past practices
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, and others having
business dealings with it. Each of UG and Certified shall promptly notify the
other of any event or occurrence not in the ordinary course of business of such
notifying party. Without limiting the generality of the foregoing and except as
expressly contemplated by his Agreement, or as specifically disclosed on
Schedule 5.1 of the UG Disclosure Schedule or Schedule 5.1 of the Certified
Disclosure Schedule, as applicable, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, without the written consent of the other, neither
Certified nor UG shall, nor shall either permit any of its Subsidiaries to:

(i) adopt any amendment to its Articles of Incorporation or Bylaws or
comparable charter or organizational documents;

(ii) issue, pledge or sell, or authorize the issuance, pledge or sale of
additional shares of capital stock of any class (other than upon acceptance
of a new Member in accordance with its existing policies), or securities
convertible into capital stock of any class, or any rights, warrants or
options to acquire any convertible securities or capital stock, or any
other securities in respect of, in lieu of, or in substitution for, shares
of capital stock outstanding on the date hereof;

(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in
respect of any class or series of its capital stock other than dividends by
any wholly-owned Subsidiary to its parent (and for this purpose patronage
dividends shall not be deemed a dividend or other distribution in respect
of any class or series of its Capital Stock);

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(iv) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire,
any shares of its capital stock, or any of its other securities other than
pursuant to existing member redemption policies;

(v) increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees, or pay any benefit not
required by any existing plan or arrangement or grant any severance or
termination pay to (except pursuant to existing agreements or policies
previously disclosed in writing to the other parties hereto, which shall be
interpreted and implemented in a manner consistent with past practice), or
enter into any employment or severance agreement with, any director,
officer or employee or any of its Subsidiaries or establish, adopt, enter
into, or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, savings,
welfare, deferred compensation, employment, termination, severance or other
employee benefit plan, agreement, trust, fund, policy or arrangement for
the benefit or welfare of any directors, officers or current or former
employees, including any Employee Plan (as defined in Section 3.10 with
respect to UG and Section 4.10 with respect to Certified), except (A) to
the extent required by applicable law or regulation, (B) pursuant to any
collective bargaining agreements or Employee Plan as in effect on the date
of this Agreement consistent with past practices, or (C) for salary and
benefit increases in the ordinary course of business consistent with past
practice to employees other than executive officers;

(vi)(A) sell, pledge, lease, dispose of, grant, encumber, or otherwise
authorize the sale, pledge, disposition, grant or encumbrance of any of its
properties or assets or the properties and assets of any of its
Subsidiaries, except for sales of assets in the ordinary course of
business; (B) acquire (including, without limitation, by merger,
consolidation, lease or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof (or a
substantial portion of the assets thereof) or any other assets;

(vii)(A) incur, assume or pre-pay any long-term debt or incur or assume
any short-term debt, except in the ordinary course of business consistent
with past practice under existing lines of credit, (B) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except
in the ordinary course of business consistent with past practice, or (C)
make any loans, advances or capital contributions to, or investments in,
any other person except in the ordinary course of business consistent with
past practice (including advances to employees);

(viii) authorize, recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution;

(ix) make or rescind any material express or deemed election relating to
Taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes, or except as may be required by applicable law, make any change to
any of its material methods of reporting income or deductions (including,
without limitation, any change to its methods or basis or write-offs of
accounts receivable) for federal income tax purposes from those employed in
the preparation of its federal income tax return for the most recently
filed completed tax year;

(x) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted, unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the consolidated financial
statements of the applicable entity;

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(xi) other than in the ordinary course of business and consistent with
past practice, waive any rights of substantial value or make any payment,
direct or indirect, of any material liability before the same comes due in
accordance with its terms;

(xii) fail to maintain its existing insurance coverage of all types in
effect or, in the event any such coverage shall be terminated or lapse, to
the extent available at reasonable cost, procure substantially similar
substitute insurance policies which in all material respects are in at
least such amounts and against such risks as are currently covered by such
policies;

(xiii) enter into any collective bargaining agreement (other than as
required by law or extensions of existing agreements in the ordinary course
of business);

(xiv) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures, unless required by GAAP or the SEC;

(xv) modify, amend or terminate any of its Material Contracts or waive,
release or assign any material rights or claims, except in the ordinary
course of business consistent with past practice;

(xvi) take, or agree to commit to take, any action that would be
reasonably likely to cause the representations and warranties contained
herein, individually or in the aggregate, not to be true and correct in all
material respects;

(xvii) take or agree to take any action that would prevent the Merger
from qualifying as a reorganization as described in Section 368(a) of the
Code;

(xviii) settle any litigation relating to the transactions contemplated
hereby other than any settlement which would not (A) be reasonably likely
to have a Material Adverse Effect as to the settling party or (B)
materially adversely affect the consummation of the transactions
contemplated hereby;

(xix) declare or pay any patronage dividend except a patronage dividend,
to the extent earned, for the partial fiscal year ended prior to the
Effective Time of the Merger, declare on a basis consistent with the Bylaws
of UG and Certified, respectively; or

(xx) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.

Section 5.2 Cooperation; Notice; Cure. Subject to compliance with applicable
law, from the date hereof until the Effective Time, each of Certified and UG
shall confer on a regular and frequent basis with one or more representatives
of the other party to report on the general status of ongoing operations. Each
of Certified and UG shall promptly notify the other in writing of, and will use
all commercially reasonable efforts to cure before the Closing Date, any event,
transaction or circumstance, as soon as practical after it becomes known to
such party, that causes or will cause any covenant or agreement of Certified or
UG, as the case may be, under this Agreement to be breached in any material
respect or that renders or will render untrue in any material respect any
representation or warranty of Certified or UG contained in this Agreement. No
notice given pursuant to this paragraph shall have any effect on the
representations, warranties, covenants or agreements contained in this
Agreement for purposes of determining satisfaction of any condition contained
herein. All information disclosed by UG and Certified pursuant to this Section
5.2 shall be deemed confidential, and shall be so treated by the non-disclosing
party in accordance with the Confidentiality Agreements as defined in Section
5.3.

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Section 5.3 No Solicitation.

(a) Neither UG nor Certified shall, directly or indirectly, through any
officer, director, employee, financial advisor, representative or agent of
such party (i) solicit, initiate, or encourage any inquiries or proposals
that constitute, or could reasonably be expected to lead to, a proposal or
offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transaction of such party
involving other than the transactions contemplated by this Agreement (any
of the foregoing inquiries or proposals being referred to in this Agreement
as an "Acquisition Proposal"), (ii) engage in negotiations or discussions
with any person (or group of persons) (other than with each other as
contemplated hereby) or its respective affiliates (a "Third Party")
concerning, provide any non-public information to any person or entity
relating to, or take any other action to facilitate inquiries or the making
of any proposal that constitutes, an Acquisition Proposal, or (iii) enter
into any agreement with respect to any Acquisition Proposal; provided,
however, that nothing contained in this Section 5.3 shall prevent a party
hereto or its Board of Directors from furnishing non-public information to,
or entering into discussions or negotiations with, any Third Party in
connection with an unsolicited bona fide written proposal for an
Acquisition Proposal by such Third Party, if and only to the extent that
(1) such Third Party has made a written proposal to the Board of Directors
of such party to consummate an Acquisition Proposal, which proposal
identifies a price or range of values to be paid for the outstanding
securities or substantially all of the assets of UG or Certified, as the
case may be, (2) the Board of Directors of such party determines in good
faith, after consultation with a financial advisor of nationally recognized
reputation, that such Acquisition Proposal is reasonably capable of being
completed on substantially the terms proposed, and would, if consummated,
result in a transaction that would provide greater benefit to the holders
of UG Common Stock or the Certified capital stock, as the case may be, than
the transaction contemplated by this Agreement (a "Superior Proposal"), (3)
the Board of Directors of such party determines in good faith, based on the
advice of outside legal counsel, that the failure to take such action would
be inconsistent with its fiduciary duties under applicable law, and
(4) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, such Board of
Directors receives from such person or entity an executed confidentiality
and standstill agreement (unless the Board of Directors determines in good
faith upon the advice of counsel, that requiring such person or entity to
enter into a standstill agreement would violate such Board's fiduciary
duty) with material terms no less favorable to such party than those
contained in the Confidentiality Agreements each dated October 16, 1998
between Certified and UG (the "Confidentiality Agreements"). Each party
agrees not to release any Third Party from, or waive any provision of, any
standstill agreement to which it is a party or any confidentiality
agreement between it and another person who has made, or who may reasonably
be considered likely to make, an Acquisition Proposal, unless the Board of
Directors of such party determines in good faith, based on the advice of
outside legal counsel, that the failure to take such action would be
inconsistent with its fiduciary duties to its stockholders under applicable
law.

(b) Each party shall notify the other promptly after receipt of any
Acquisition Proposal or any request for non-public information in
connection with an Acquisition Proposal or for access to its properties,
books or records by any person or entity that informs such party that it is
considering making or has made an Acquisition Proposal. Such notice shall
be made orally and in writing and shall indicate the identity of the
offeror and the material terms and conditions of such proposal, inquiry or
contact. Each party shall (i) keep the other party informed of the status

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(including any change to the material terms) of any such Acquisition
Proposal or request for non-public information and (ii) provide to the
other party as soon as practicable after receipt or delivery thereof with
copies of all correspondence and other written material (A) sent or
provided to such party or any of its employees, representatives or agents
from any Third Party in connection with any Acquisition Proposal or request
for non-public information or (B) sent or provided by such party or any of
its employees, representatives or agents to any Third Party in connection
with any Acquisition Proposal or request for non-public information.

(c) Except as expressly permitted by this Section 5.3, neither the Board
of Directors of UG or Certified nor any committee thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to the other party, the approval or recommendation by such Board of
Directors of this Agreement or the Merger, (ii) approve or cause UG or
Certified, respectively, to enter into a letter of intent, agreement in
principle or any legally binding acquisition agreement or similar agreement
relating to any Acquisition Proposal (any such legally binding agreement,
an "Acquisition Agreement") or (iii) approve or recommend, or propose to
publicly approve or recommend, any Acquisition Proposal. Notwithstanding
the foregoing, if either party has received a Superior Proposal, and the
Board of Directors of such party determines in good faith, after
consultation with and based upon the advice of outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to the
Company and its shareholders, such party may terminate this Agreement
pursuant to Section 7.1(f), but only at a time that is more than 48 hours
following receipt by the non-terminating party of written notice advising
it that the Board of Directors of the terminating party is prepared to
accept such Superior Proposal, specifying the material terms and conditions
of such Superior Proposal and identifying the Third Party making such
Superior Proposal.

(d) Nothing contained in this Section 5.3 shall prohibit either party
from taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to its stockholders if, in the good faith judgment of the Board
of Directors, after consultation with outside legal counsel, failure to so
disclose would violate applicable law, including (without limitation) Rule
14e-2 promulgated under the Exchange Act; provided, however, that neither
party nor its Board of Directors (nor any committee thereof) shall withdraw
or modify, or propose publicly to withdraw or modify, its position with
respect to this Agreement or the Merger, or approve or recommend, or
propose publicly to approve or recommend, an Acquisition Proposal, except
as permitted by Section 5.3(c).

Section 5.4 Joint Proxy Statement/Prospectus; Registration Statement.

(a) As promptly as practicable after the execution of this Agreement, UG
and Certified shall cooperate, prepare and file with the SEC, the Joint
Proxy Statement/Prospectus and the Registration Statement in which the
Joint Proxy Statement/Prospectus will be included as a prospectus, provided
that Certified may delay the filing of the Registration Statement until
approval of the Joint Proxy Statement/Prospectus by the SEC. UG and
Certified will use all reasonable efforts to cause the Joint Proxy
Statement/Prospectus and the Registration Statement to comply as to form in
all material respects with the applicable provisions of the Securities Act,
the Exchange Act and the rules and regulations thereunder. Each of
Certified and UG shall use all reasonable efforts to have or cause the
Joint Proxy Statement/Prospectus to be cleared by the SEC and to cause the
Registration Statement to become effective as promptly as practicable.
Without limiting the generality of the foregoing, each of UG and Certified
shall, and shall cause its respective representatives to, fully cooperate
with the other party and its respective

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representatives in the preparation of the Joint Proxy Statement/Prospectus
and the Registration Statement, and shall, upon request, furnish the other
party with all information concerning it and its affiliates, directors,
officers and stockholders as the other may reasonably request in connection
with the preparation of the Joint Proxy Statement/Prospectus and the
Registration Statement. Subject to Section 5.3, the Joint Proxy
Statement/Prospectus with respect to the Merger shall include the
determination and recommendation of the Board of Directors of UG and the
Board of Directors of Certified that their respective shareholders vote in
favor of the approval and adoption of this Agreement and the Merger. UG and
Certified shall use reasonable efforts to take all actions required under
any applicable federal or state securities or Blue Sky Laws in connection
with the issuance of Certified Class A Shares and Class B Shares pursuant
to the Merger. As promptly as practicable after the Registration Statement
with respect to the Merger shall have become effective, UG and Certified
shall cause the Joint Proxy Statement/Prospectus with respect to the Merger
to be mailed to their respective stockholders.

(b) Without limiting the generality of the foregoing, (i) UG and
Certified shall notify each other as promptly as practicable upon becoming
aware of any event or circumstance which should be described in an
amendment of, or supplement to, the Joint Proxy Statement/ Prospectus or
the Registration Statement, and (ii) UG and Certified shall each notify the
other as promptly as practicable after the receipt by it of any written or
oral comments of the SEC on, or of any written or oral request by the SEC
for amendments or supplements to, the Joint Proxy Statement/Prospectus or
the Registration Statement, and shall promptly supply the other with copies
of all correspondence between it or any of its representatives and the SEC
with respect to any of the foregoing filings.

(c) The information supplied by UG for inclusion or incorporation by
reference in the Joint Proxy Statement/Prospectus and the Registration
Statement shall not (i) at the time the Registration Statement is declared
effective, (ii) at the time the Joint Proxy Statement/Prospectus (or any
amendment thereof or supplement thereto) is first mailed to the holders of
UG Common Stock, (iii) at the time of the UG Stockholders' Meeting and (iv)
at the Effective Time, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
are made, not misleading. If at any time prior to the Effective Time any
event or circumstance relating to UG or any if its affiliates or its or
their respective officers and directors should be discovered by UG which
should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, UG shall promptly
inform Certified of such event or circumstance.

(d) The information supplied by Certified for inclusion or incorporation
by reference in the Joint Proxy Statement/Prospectus and the Registration
Statement shall not (i) at the time the Registration Statement is declared
effective, (ii) at the time the Joint Proxy Statement/Prospectus (or any
amendment thereof or supplement thereto) is first mailed to the holders of
Certified and UG capital stock, (iii) at the time of the Certified and UG
Stockholder's Meeting, and (iv) at the Effective Time, contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they are made, not misleading. If at any time
prior to the Effective Time any event or circumstance relating to Certified
or any if its affiliates or its or their respective officers and directors
should be discovered by Certified which should be set forth in an amendment
to the Registration Statement or a supplement to the Joint Proxy Statement/
Prospectus, Certified shall promptly inform UG of such event or
circumstance.

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Section 5.5 Stockholders' Meetings. UG and Certified shall each call a
meeting of its respective stockholders to be held as promptly as practicable
for the purpose of considering and voting upon a proposal to approve and adopt
this Agreement and the Merger. Each of UG and Certified shall, through its
respective Board of Directors, recommend to their respective stockholders
adoption of this Agreement and approval of such matters, shall coordinate and
cooperate with the respect to the timing of such meetings and shall use their
best efforts to hold such meetings as soon as practicable after the date
hereof. Each of UG and Certified shall use all reasonable efforts to solicit
from its stockholders proxies in favor of such matters. Without limiting the
generality of the foregoing, unless this Agreement is terminated pursuant to
Section 7.1(f), each party agrees that its obligations pursuant to this Section
5.5 shall not be affected by the commencement, public proposal or communication
to it of any Acquisition Proposal.

Section 5.6 Access to Information. Upon reasonable notice, each of Certified
and UG (and each of their respective Subsidiaries) shall afford to the other
party and its officers, employees, accountants, counsel and other
representatives, reasonable access, during normal business hours during the
period prior to the Effective Time, to all its management personnel,
properties, books, contracts, commitments and records and, during such period,
each of Certified and UG shall, and shall cause each of its respective
Subsidiaries to, furnish promptly to the other (a) copies of monthly financial
reports and development reports, (b) a copy of each report, schedule,
registration statement and other documents filed or received by it during such
period pursuant to the requirements of federal or state securities laws and (c)
all other information concerning its business, properties and personnel as the
other party may reasonably request. Each party making such requests will hold
any such information furnished to it by the other party which is nonpublic in
confidence in accordance with the Confidentiality Agreement binding on such
party. No information or knowledge obtained in any investigation pursuant to
this Section 5.6 shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of
the parties to consummate the Merger.

Section 5.7 Governmental Approvals.

(a) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings,
to obtain as promptly as practicable all permits, registrations, licenses,
consents, variances, exemptions, orders, approvals and authorizations of
all third parties and Governmental Entities which are necessary to
consummate the transactions contemplated by this Agreement, including,
without limitation, all filings required under the HSR Act ("Governmental
Approvals"), and to comply with the terms and conditions of all such
Governmental Approvals. Each of the parties hereto shall use their
reasonable best efforts to file all required documents in connection with
obtaining the Governmental Approvals and shall act reasonably and promptly
thereafter in responding to additional requests in connection therewith.
Notwithstanding the foregoing, nothing herein shall require either party to
comply with any legal requirement or agree to the imposition of any order
of any Governmental Entity that would (i) prohibit or restrict the
ownership or operation of either UG or Certified or their respective
Subsidiaries of any material portion of their business or assets, (ii)
compel UG or Certified of any of their respective Subsidiaries to dispose
of or hold separate any material portion of their business or assets, or
(iii) impose any limitation on the ability of UG or Certified or any of
their respective Subsidiaries to own or operate their businesses and
operations, substantially in the manner such businesses are presently
conducted.

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(b) UG and Certified shall promptly advise each other upon receiving any
communication from any Governmental Entity whose consent or approval is
required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any approval needed from a Governmental Entity will not be
obtained or that the receipt of any such approval will be materially
delayed.

Section 5.8 Publicity. Certified and UG shall agree on the form and content
of the initial press release regarding the transactions contemplated hereby and
thereafter shall consult with each other before issuing, and use all reasonable
efforts to agree upon, any press release or other public statement with respect
to any of the transactions contemplated hereby and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law.

Section 5.9 Indemnification.

(a) From and after the Effective Time, Certified agrees that it will,
and will cause the Surviving Corporation to, indemnify, defend and hold
harmless each present director and officer of UG and its Subsidiaries and
each person serving in such capacities within the last two years (the
"Indemnified Parties"), against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities or amounts
paid in settlement incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to wrongful acts or omissions
whensoever existing or occurring (i) relating to such Indemnified Party's
status as an officer or director of UG or any of its Subsidiaries, whether
asserted or claimed prior to, at or after the Effective Time, to the
fullest extent that UG would have been permitted to indemnify such
Indemnified Party under applicable law, or under UG' Articles of
Incorporation, its Bylaws or any indemnity agreements with UG (and
Certified shall advance expenses prior to the final disposition of any such
action or proceeding to each Indemnified Party to the fullest extent
permitted by Oregon law upon receipt of any undertaking required by
applicable Oregon law), or (ii) relating to all liability based in whole or
in part on, or arising in whole or in part out of, or pertaining to this
Agreement or the transaction contemplated hereby. Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising
before or after the Effective Time) (i) Certified may retain counsel
satisfactory to it and to the Indemnified Parties, and shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties,
and (ii) Certified will use all reasonable efforts to assist in the
vigorous defense of any such matter.

(b) Immediately prior to the Effective Time, UG shall purchase a 6 year
extended coverage and reporting period under its existing directors' and
officers' liability insurance policy (copies of which have been heretofore
delivered by UG to Certified) modified to reduce the insured vs. insured
claims exclusion from 36 months to 12 months for a cost of not to exceed
100% of the current annual premium of such policy.

(c) The provisions of this Section 5.9 are intended to be an addition to
the rights otherwise available to the officers and directors of UG by law,
charter, statute, bylaw or agreement, and shall operate for the benefit of,
and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.

Section 5.10 Employee Benefits. Nothing in this Agreement is intended to
create any right of employment for any person or to create any obligation for
Certified or the Surviving Corporation to continue any Employee Plan of UG or
Certified following the Effective Time.

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Section 5.11 Tax Treatment of Reorganization.

(a) The parties intend the Merger to qualify as a reorganization under
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and shall use their best
efforts (and shall cause their respective Subsidiaries to use their best
efforts) to cause the Merger to so qualify. Neither UG nor Certified, nor
any of their respective Subsidiaries or other Affiliates, shall take any
action, or fail to take any action, that is not specifically provided for
by this Agreement that would or would be reasonably likely to adversely
affect the treatment of the Merger as a reorganization under Section 368(a)
of the Code. UG and Certified shall, and shall cause their respective
Subsidiaries to, take the position for all purposes that the Merger
qualifies as a reorganization under those Sections of the Code.

(b) UG and Certified shall cooperate and use their best efforts in
obtaining the opinions of Schwabe, Williamson & Wyatt, P.C., counsel to UG,
and Sheppard, Mullin, Richter & Hampton LLP, counsel to Certified, dated as
of the Closing Date, to the effect that the Merger will qualify for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code.

(c) UG and Certified shall cooperate and use their best efforts to
confirm that there is no UG stockholder with respect to whom any Tax,
withholding, reporting or other obligation would arise under Sections 897
or 1445 (or related provisions) of the Code as a result of the Merger.

Section 5.12 Further Assurances and Actions.

(a) Subject to the terms and conditions herein, each of the parties
hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement, including, without limitation, (i) using their respective
reasonable best efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental
Entities and parties to contracts with each party hereto as are necessary
for consummation of the transactions contemplated by this Agreement, and
(ii) to fulfill all conditions precedent applicable to such party pursuant
to this Agreement.

(b) At and after the Effective Time, Certified shall make such
contribution or contributions to the capital of UG as shall be necessary to
fund the payment of amounts due to holders of UG Dissenting Common Shares
pursuant to Section 60.554 of the OBCA

(c) In case at any time after the Effective Date any further action is
necessary or desirable to carry out the purposes of this Agreement or to
vest the Surviving Corporation with full title to all properties, assets,
rights, approvals, immunities, franchises of any of the parties to the
Merger, the proper officers and/or directors of Certified, UG and the
Surviving Corporation shall take all such necessary action to effect the
same.

(d) Notwithstanding anything to the foregoing to the contrary, in the
event that the Merger or any of the other transactions contemplated by this
Agreement will give rise to any default or breach under the terms of the
Indentures governing UG's indebtedness, the seeking of the waiver or
consent of the holders of such indebtedness to such default or breach shall
be on terms and conditions determined by Certified in its sole and absolute
discretion, which may include, subject to such discretion, the repayment or
repurchase of such indebtedness and the amendment of the terms of such
indebtedness which remains outstanding, in each case on terms that are
usual and customary for similar transactions. In the event that a consent
or waiver necessary to satisfy Section 6.3(d) shall not be received on
terms and conditions acceptable to

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Certified, then Certified shall not be obligated to consummate the Merger
or any other transaction contemplated hereby.

Section 5.13 Letter of UG's Accountants. UG shall use all reasonable efforts
to cause to be delivered to Certified a letter of PricewaterhouseCoopers LLP,
UG's independent auditors, dated a date within two business days before the
date on which the Registration Statement shall become effective and addressed
to Certified, in form reasonably satisfactory to Certified and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.

Section 5.14 Letter of Certified's Accountants. Certified shall use all
reasonable efforts to cause to be delivered to UG a letter of Deloitte & Touche
LLP, Certified independent auditors, dated a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to UG, in form reasonably satisfactory to UG and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.

Section 5.15 Certified's Board of Directors. Certified shall take such
action as may be necessary to: (a) expand its Board of Directors to 24, and to
cause to be elected 9 designees of UG promptly upon consummation of the Merger,
(b) change its name to Unified Western Grocers, Inc., effective upon
consummation of the Merger; and (c) amend its Articles of Incorporation and
Bylaws and adopt revisions to its policies regarding deposit requirements and
patronage dividends, in all cases substantially in such manner as is described
in a memorandum submitted to United Grocers prior to the date of this
Agreement, the substance of which will be described in the Joint Proxy
Statement/Prospectus.

ARTICLE VI.

CONDITIONS TO MERGER

Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction or waiver by each party prior to the
Effective Time of the following conditions:

(a) Stockholder Approval. This Agreement and the Merger shall have been
approved by the stockholders of UG and the stockholders of Certified in the
manner required by law and the Articles of Incorporation of UG and
Certified, respectively, and the stockholders of Certified shall have
approved the Amendments to the Articles of Incorporation of Certified
contemplated by this Agreement and as described in the Registration
Statement.

(b) No Injunctions. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment or injunction or statute, rule, regulation which is in effect and
which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.

(c) Governmental Approvals. All Governmental Approvals required to
consummate the transactions contemplated hereby shall have been obtained,
all such approvals shall remain in full force and effect, all statutory
waiting periods (including, without limitation, under the HSR Act) shall
have expired, and no such approval shall contain, or expiration of waiting
period be subject to, any conditions, limitations or restrictions which
will have or would reasonably be expected to have a UG Material Adverse
Effect or a Certified Material Adverse Effect.

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(d) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceeding seeking a stop order.

(e) Financing Transaction. The financing described in the commitment
letter received by Certified prior to the mailing of the Joint Proxy
Statement/Prospectus, copies of which will be provided to UG (the
"Financing") shall close prior to or contemporaneously with the Closing.

(f) Dissenters. Not greater than 5% of the outstanding shares of UG
Common Stock and Certified Class A Shares or Class B Shares shall have
perfected dissenters rights with respect to the Merger.

(g) Employment Agreement. An Employment Agreement between Certified and
Alfred A. Plamann, as Chief Executive Officer, shall have been executed and
delivered by each party.

Section 6.2 Additional Conditions to Obligations of UG. The obligation of UG
to effect the Merger is subject to the satisfaction of each of the following
conditions prior to the Effective Time, any of which may be waived in writing
exclusively by UG:

(a) Representations and Warranties. The representations and warranties
of Certified and Merger Sub set forth in this Agreement shall be true and
correct as of the date of this Agreement and, except to the extent such
representations speak as of an earlier date, as of the Closing Date as
though made on and as of the Closing Date, except for (i) changes
contemplated by this Agreement and (ii) other than for representations and
warranties already qualified as to materiality or a Certified Material
Adverse Effect, inaccuracies which, individually or in the aggregate have
not had and are not reasonably likely to have a Certified Material Adverse
Effect. UG shall have received a certificate signed on behalf of Certified
by the chief executive officer and the chief financial officer of Certified
to such effect.

(b) Performance of Obligations of Certified. Certified and the Merger
Sub shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing Date,
and UG shall have received a certificate signed on behalf of Certified by
the chief executive officer and the chief financial officer of Certified to
such effect.

(c) Tax Opinion Regarding Merger. Schwabe, Williamson & Wyatt, P.C.,
counsel to UG, shall have delivered to UG an opinion, dated as of the
Closing Date, to the effect that, based upon representations, assumptions
and conditions customary for transactions such as the Merger (including
customary representation letters), that the Merger will qualify for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code. In rendering such opinion, such counsel may rely upon
representations and certifications of Certified, UG and Merger Sub.

(d) Third-Party Consents. Certified shall have received all third-party
consents and approvals required to be obtained by Certified in connection
with the transactions contemplated hereby, under any contract to which
Certified (or any of its Subsidiaries) may be a party, except for such
third-party consents and approvals as to which the failure to obtain,
either individually or in the aggregate, would not reasonably be expected
to result in a Certified Material Adverse Effect. United shall have
received (i) the consent of Western Family Holding Company ("Western
Family") to the transfer of its shares in Western Family in connection with
the Merger and (ii) assurance from Western Family of a continued source of
supply of Western Family products to United members following the Merger.

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(e) No Material Adverse Change. Since the date of this Agreement, there
shall have been no changes, occurrences or circumstances involving the
business, results of operations or financial condition or prospects of
Certified and its Subsidiaries, considered as a whole, that, individually
or taken together constitute a Certified Material Adverse Effect. For this
purpose, the failure of Certified to maintain performance consistent with
the budgeted performance provided to UG prior to the date hereof shall be
considered a Certified Material Adverse Effect.

(f) Approval of Bylaws and Articles of Merger Sub. The Board of
Directors of UG shall have approved the content and substance of the
Articles of Incorporation and bylaws of the Merger Sub.

Section 6.3 Additional Conditions to Obligations of Certified. The
obligations of Certified and Merger Sub to effect the Merger are subject to the
satisfaction of each of the following conditions prior to the Effective Time,
any of which may be waived in writing exclusively by Certified:

(a) Representations and Warranties. The representations and warranties
of UG set forth in this Agreement shall be true and correct as of the date
of this Agreement and, except to the extent such representations speak as
of an earlier date, as of the Closing Date as though made on and as of the
Closing Date, except for (i) changes contemplated by this Agreement and
(ii) other than for representations and warranties already qualified as to
materiality or a UG Material Adverse Effect, inaccuracies which,
individually or in the aggregate have not had and are not reasonably likely
to have a UG Material Adverse Effect. Certified shall have received a
certificate signed on behalf of UG by the chief executive officer and the
chief financial officer of UG to such effect.

(b) Performance of Obligations of UG. UG shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date and Certified shall have received
a certificate signed on behalf of UG by the chief executive officer and the
chief financial officer of UG to each such effect.

(c) Tax Opinion Regarding Merger. Sheppard, Mullin, Richter & Hampton
LLP, counsel to Certified, shall have delivered to Certified an opinion,
dated as of the Closing Date, to the effect that, based upon
representations, assumptions and conditions customary for transactions such
as the Merger (including customary representation letters), that the Merger
will qualify for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code. In rendering such opinion, such
counsel may rely upon representations and certifications of Certified, UG
and Merger Subsidiaries.

(d) Third-Party Consents. UG shall have received all third-party
consents and approvals required to be obtained by UG in connection with the
transactions contemplated hereby, under any contract to which UG (or any of
its Subsidiaries) may be a party, except for such third-party consents and
approvals as to which the failure to obtain, either individually or in the
aggregate, would not reasonably be expected to result in a UG Material
Adverse Effect.

(e) No Material Adverse Change. Since the date of this Agreement, there
shall have been no changes, occurrences or circumstances involving the
business, results of operations or financial condition or prospects of UG
and its subsidiaries, considered as a whole, that, individually or taken
together, constitute a UG Material Adverse Effect. For this purpose, the
failure of UG to maintain performance consistent with the budgeted
performance provided to Certified prior to the date hereof shall be
considered a UG Material Adverse Effect.

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(f) No Impediment to Conducting Insurance Business. The parties shall
have taken such steps that are in all respects satisfactory to Certified to
ensure that, following the Merger, Certified will not be precluded from
continuing to operate its insurance business in such manner as it has been
conducted prior hereto, or in such other form, structure or arrangement as
is satisfactory to Certified.

ARTICLE VII.

TERMINATION AND AMENDMENT

Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time (with respect to Sections 7.1(b) through 7.1(h), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of UG and Certified:

(a) by mutual written consent of UG and Certified; or

(b) by either Certified or UG if the Merger shall not have been
consummated by October 12, 1999 (provided that (i) if the Merger shall not
have been consummated because the requisite Governmental Approvals required
under Section 6.1(c) shall not have been obtained and are still being
pursued, either Certified or UG may extend such date to December 10, 1999
by providing written notice thereof to the other party on or prior to
October 12, 1999 and (ii) the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date); or

(c) by either Certified or UG if a court of competent jurisdiction or
other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or

(d)(i) by either Certified or UG, if, at the UG Stockholders' Meeting
(including any adjournment or postponement), the requisite vote of the
stockholders of UG in favor of the approval and adoption of this Agreement
and the Merger shall not have been obtained; or (ii) by either UG or
Certified, if, at the Certified Stockholders' Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Certified in favor of the approval and adoption of this Agreement and the
Merger shall not have been obtained; or

(e)(i) by Certified, if for any reason UG fails to call and hold the UG
Stockholders' Meeting by September 29, 1999, unless such failure is due to
the fact that (A) the Registration Statement or Joint Proxy
Statement/Prospectus was not declared effective or otherwise cleared
sufficiently in advance of such date to enable UG to hold the UG
Stockholders' Meeting by such date, or (B) a court of competent
jurisdiction enjoined or temporarily restrained the Merger, and any such
occurrence or omission has not resulted from any breach of this Agreement
by UG; provided, that Certified's right to terminate this Agreement under
this clause (e)(i) shall not be available if at such time UG would be
entitled to terminate this Agreement under Section 7.1(h); or (ii) by UG,
if for any reason Certified fails to call and hold the Certified
Stockholders' Meeting by September 29, 1999; unless such failure is due to
the fact that (A) the Registration Statement or Joint Proxy
Statement/Prospectus was not declared effective or otherwise cleared
sufficiently in advance of such date to enable Certified to hold the
Certified Stockholders' Meeting by such date, or (B) a court of competent
jurisdiction enjoined

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or temporarily restrained the Merger, and any such occurrence or omission
has not resulted from any breach of this Agreement by Certified: provided,
that UG's right to terminate this Agreement under this clause (e)(ii) shall
not be available if at such time Certified would be entitled to terminate
this Agreement under Section 7.1(h); or

(f) by UG, in accordance with Section 5.3(c); provided, however, that no
termination pursuant to this Section 7.1(f) shall be deemed effective
unless UG shall have materially complied with all provisions contained in
Section 5.3(c), including the notice provision therein, and the applicable
requirements of Section 7.3; or

(g) by Certified, in accordance with Section 5.3(c); provided, however,
that no termination pursuant to this Section 7.1(g) shall be deemed
effective unless Certified shall have materially complied with all
provisions contained in Section 5.3(c), including the notice provisions
thereof, and the applicable requirements of Section 7.3; or

(h) by Certified or UG, if there has been a breach of any
representation, warranty, covenant or agreement set forth in this Agreement
by the other, which breach will cause the conditions set forth in Section
6.2(a) or (b) (in the case of termination by UG) or 6.3(a) or (b) (in the
case of termination by Certified) not to be satisfied; provided that a
breach of Section 5.3 by either party shall be deemed to be a breach which
caused such condition, as applicable, not to be satisfied; or

(i) by either Certified or UG, if financing commitments substantially
consistent with the financing described in the bank book jointly submitted
to potential lenders are not obtained within (30) days of the date of
execution of this Agreement.

Section 7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Certified,
Merger Sub or UG, or their respective officers, directors, stockholders or
Affiliates, except as set forth in Section 7.3 and except that such termination
shall not limit liability for a willful breach of this Agreement; provided that
the provisions of this Section 7.2, Section 7.3 of this Agreement and the
Confidentiality Agreements shall remain in full force and effect and survive
any termination of this Agreement.

Section 7.3 Fees and Expenses.

(a) Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated.

(b) In the event the Closing occurs, Certified shall assume and pay all
of UG's valid reorganization expenses within the meaning of Revenue Ruling
73-54 promulgated under Section 368 of the Code. In the event the Closing
does not occur, the costs and expenses incurred in connection with the
filing, printing and mailing of the joint proxy statement/prospectus and
the Hart-Scott-Rodino filing fee will be borne equally by Certified and
United.

(i) the termination of this Agreement by Certified pursuant to
Section 7.1(e)(i);

(ii) the termination of this Agreement by UG pursuant to Section
7.1(f);

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(iii) the termination of this Agreement by Certified pursuant to
Section 7.1(h) by reason of a breach by UG of Section 5.3

and, notwithstanding anything to the contrary herein set forth, such amount
shall be payable by UG only upon the consummation of any transaction with
another entity in which a material portion of its shares of capital stock
or its assets, or business in whole or in part, is acquired by or combined
with another entity in a transaction in which UG Shareholders do not hold,
after the combination, in excess of 50% of the voting shares of the
combined entity, whether directly or indirectly, through purchase, merger,
consolidation or otherwise (other than sales of inventory or immaterial
portions of its assets in the ordinary course) based on a letter of intent
or any other agreement executed within twelve months of the date of this
Agreement.

(d) Certified will pay UG a termination fee of $2.5 million in the
following events:

(i) the termination of this Agreement by UG pursuant to Section
7.1(e)(ii);

(ii) the termination of this Agreement by Certified pursuant to
Section 7.1(g);

(iii) the termination of this Agreement by UG pursuant to Section
7.1(h) by reason of the breach by Certified of Section 5.3;

and, notwithstanding anything to the contrary herein set forth, such amount
shall be payable by Certified only upon the consummation of any transaction
with another entity in which a material portion of its shares of capital
stock or its assets, or business in whole or in part, is acquired by or
combined with another entity in a transaction in which UG Shareholders do
not hold, after the combination, in excess of 50% of the voting shares of
the combined entity, whether directly or indirectly, through purchase,
merger, consolidation or otherwise (other than sales of inventory or
immaterial portions of its assets in the ordinary course) based on a letter
of intent or any other agreement executed within twelve months of the date
of this Agreement.

(e) Payment of a termination fee pursuant to subsections (c) and (d)
shall be the sole and exclusive remedy of a party against the other and any
of its Subsidiaries and their respective directors, officers, employees,
agents, advisors or other representatives with respect to the occurrences
giving rise to such payment; provided that this limitation shall not apply
in the event of a willful breach of this Agreement.

Section 7.4 Amendment. This Agreement may be amended by the parties hereto,
by action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of UG or the stockholders of Certified, but, after
any such approval, no amendment shall be made which by law requires further
approval by such stockholders without such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.

Section 7.5 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained here. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.

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ARTICLE VIII.

MISCELLANEOUS

Section 8.1 Nonsurvival of Representations, Warranties, Covenants and
Agreements. None of the representations, warranties, covenants and agreements
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Effective Time, except for the agreements contained in
Sections 2.1, 2.2, 5.9, 5.10, 5.12(b) and 5.15.

Section 8.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (which
is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):

(a) if to UG, to

United Grocers, Inc.
6433 S.E. Lake Road
Portland, OR 97222
Attn.: Charles E. Carlbom
Fax: (503) 833-1008

with a copy to

Schwabe, Williamson & Wyatt, P.C.
1211 Southwest fifth Ave.
Portland, OR 97204
Attn.: Mark A. Long, Esq.
Fax: (503) 796-2900

(b) if to Certified or Merger Sub, to

Certified Grocers of California, Ltd.
5200 Sheila Street
Commerce, CA 90040
Attn.: Robert M. Ling, Jr., Esq.
Senior Vice President, General Counsel and Secretary
Fax: (323) 265-3716

with a copy to:

Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48th Floor
Los Angeles, CA 90071
Attn.: John D. Hussey, Esq.
Fax: (213) 617-5508

Section 8.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available
if requested by the party to whom such information is to be made available.

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Section 8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.

Section 8.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
and the Confidentiality Agreement and all documents and instruments referred to
herein and therein (a) constitute the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) except as provided in Section
5.9, are not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder; provided that the Confidentiality Agreements
shall remain in full force and effect until the Effective Time. Each party
hereto agrees that, except for the representations and warranties contained in
this Agreement, none of Certified, Merger Sub or UG makes any other
representations or warranties, and each hereby disclaims any other
representations and warranties made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
representatives, with respect to the execution and delivery of this Agreement
or the transactions contemplated hereby, notwithstanding the delivery or
disclosure to any of them or their respective representatives of any
documentation or other information with respect to any one or more of the
foregoing.

Section 8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California without regard to any
applicable conflicts of law.

Section 8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, provided, that no such assignment shall relieve
Certified of its obligations hereunder. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.

Section 8.8 Severability; Enforcement. Except to the extent that the
application of this Section 8.8 would be reasonably likely to have a Certified
Material Adverse Effect with respect to Certified or a UG Material Adverse
Effect with respect to UG, the invalidity of any portion hereof shall not
affect the validity, force or effect of the remaining portions hereof. If it is
ever held that any covenant hereunder is too broad to permit enforcement of
such covenant to its fullest extent, each party agrees that a court of
competent jurisdiction may enforce such covenant to the maximum extent
permitted by law, and each party hereby consents and agrees that such scope may
be judicially modified accordingly in any proceeding brought to enforce such
covenant.

Section 8.9 Specific Performance. The parties hereto agree that the remedy
at law for any breach of this Agreement will be inadequate and that any party
by whom this Agreement is enforceable shall be entitled to specific performance
in addition to any other appropriate relief or remedy. Such party may, in its
sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other relief as such court may deem just and
proper in order to enforce this Agreement or prevent any violation hereof and,
to the extent permitted by applicable laws, each party hereto waives any
objection to the imposition of such relief.

[END OF TEXT]

A-44
<PAGE>

IN WITNESS WHEREOF, Certified, Merger Sub and UG have caused this Agreement
to be signed by their respective duly authorized officers as of the date first
written above.

UNITED GROCERS, INC. CERTIFIED GROCERS OF CALIFORNIA,
LTD.

/s/ T.W. Olsen
By: _________________________________ /s/ Alfred A. Plamann
By: _________________________________
By: T.W. Olsen By: Alfred A. Plamann
Its: President, Chief Executive Its: President and Chief
Officer and Secretary Executive Officer

NEW UG CORP.

/s/ Alfred A. Plamann
By: _________________________________
By: Alfred A. Plamann
Its: President and Chief
Executive Officer

A-45
<PAGE>

ANNEX B

[LOGO OF RABOBANK]
Rabobank
New York Branch
245 Park Avenue
New York, NY 10167-0062 U.S.A.
212-916-7800

PERSONAL AND CONFIDENTIAL

June 9, 1999

Board of Directors
Certified Grocers of California, Ltd.
5200 Sheila Street
Commerce, CA 90040

Gentlemen:

We understand that Certified Grocers of California, Ltd. ("Certified") and
United Grocers, Inc. ("United") propose to enter into an Agreement and Plan of
Merger (the "Agreement") to which Certified, a newly formed, wholly-owned
subsidiary of Certified, and United are parties. In the merger contemplated by
the Agreement, shares of United's common stock will be converted into the
right to receive Certified's Class A Shares and Class B Shares. The exchange
ratio shall be .228 shares of Certified's Class A Shares or Class B Shares for
each outstanding share of United common stock (the "Exchange Ratio"). The
first 100 shares issued at the Exchange Ratio will be Class A Shares and the
balance, if any, will be Class B Shares. After the merger, new holders of
Class A Shares will have the right to elect 80% of the number of authorized
directors and holders of Class B Shares will have the right to elect the
remaining number of directors. In the merger, Certified's existing Class A
Shares, Class B Shares and Class C Shares will remain outstanding as shares of
the combined company. After the merger, United and Certified will operate as a
single cooperative for purposes of determining patronage dividends.

You have requested our opinion as to the fairness of the Exchange Ratio,
from a financial point of view, to Certified. In arriving at our opinion, we
have reviewed, among other things, the draft of the Agreement dated June 3,
1999; the Annual Reports to Stockholders of Certified for the three fiscal
years ended August 29, 1998 and the Annual Reports on Form 10-K of Certified
for the three fiscal years ended August 29, 1998; the Annual Reports to
Stockholders of United for the three fiscal years ended October 2, 1998 and
the Annual Reports on Form 10-K of United for its fiscal years ended October
2, 1998 and September 27, 1996; certain interim reports to shareholders and
Quarterly Reports on Form 10-Q of Certified and United; certain other
communications from Certified and United to their respective shareholders; and
certain internal financial analyses and forecasts for Certified and United
prepared by their respective managements, including certain cost savings and

Rabobank
International

B-1
<PAGE>

operating synergies (the "Synergies") projected by the management of Certified
and United to result from the merger. We also held discussions with members of
the senior management of Certified and United regarding the strategic rationale
for, and the potential benefits of, the merger and the past and current
business operations, financial condition and future prospects of their
respective companies. In addition, we (i) compared certain financial
information for Certified and United with publicly available financial and
stock market information for certain other companies which we deemed relevant;
(ii) reviewed the financial terms of certain recent business combinations which
we deemed relevant; (iii) compared the relative contributions to the combined
company of both Certified's and United's earnings before interest, taxes,
depreciation and amortization; earnings before interest and taxes; book value
and other financial information, with the relative ownership of the combined
company upon giving effect to the transaction; and (iv) conducted such other
studies and analyses as we considered appropriate.

We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the financial forecasts prepared by the
managements of Certified and United, including the Synergies, have been
reasonably prepared on a basis reflecting the best available estimates and
judgements of Certified and United, and that such forecasts will be realized in
the amounts and time periods contemplated thereby. We also have not made an
independent evaluation or appraisal of the assets and liabilities of Certified
or United or any of their respective subsidiaries. We assumed that the
consummation of the transaction contemplated by the Agreement would be
accounted for as a purchase of United by Certified under generally accepted
accounting principles. Further, we have assumed that the final form of the
Agreement will be substantially similar to the last draft reviewed by us.

Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on information made available to us as of, the
date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion expressed herein is provided for
the information and assistance of the Board of Directors of Certified in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
shareholder of Certified should vote with respect to such transaction.

Rabobank International ("Rabobank"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions. In the past, Rabobank
and its affiliates have provided financial advisory and corporate banking
services to Certified and have received customary compensation for the
rendering of these services. Rabobank will also receive a fee from Certified
for rendering this opinion.

Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to
Certified.

Very truly yours,

/s/ Rabobank International, New York Branch
RABOBANK INTERNATIONAL, NEW YORK BRANCH

B-2
<PAGE>

ANNEX C

[HLHZ LETTERHEAD]

PERSONAL AND CONFIDENTIAL

June 9, 1999

Board of Directors of United Grocers, Inc.
6433 Southeast Lake Road
Portland, Oregon 97222

Members of the Board:

We understand that United Grocers, Inc. ("United" or the "Company") is
considering entering into a series of transactions (collectively, the
"Transaction") pursuant to which the Company will become a subsidiary of
Certified Grocers of California, Ltd. ("Certified"). In order to effect the
Transaction (as defined in the Agreement and Plan of Merger), Certified will
form a wholly-owned subsidiary ("Merger Sub"), which will merge with and into
the Company with the Company being the surviving entity (the "Merger"). As a
result of the Merger, the separate corporate existence of Merger Sub will
cease and United will be a wholly-owned subsidiary of Certified. Upon the
effective date of the Merger, each issued and outstanding share of common
stock of United, will be converted into 0.228 shares of Certified's Class A or
Class B common stock. The first one hundred shares issued to each United
Shareholder will be Class A Shares. Consistent with the structure of shares
outstanding among current Certified shareholders, the balance of shares issued
to each United Shareholder will be shares of Certified's Class B Shares.

In connection with the Transaction, you requested our written opinion (the
"Opinion") as to the fairness of the Transaction to the holders of United
common stock, from a financial point of view. The Opinion does not address the
Company's underlying business decision to effect the Transaction. We were not
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of the Company. At your request, we have not
negotiated the Transaction or advised you with respect to alternatives to it.
Our Opinion does not constitute a recommendation to shareholders of United as
to how they should vote on the proposed Transaction.

In connection with the Opinion, we made such reviews, analyses and inquiries
as we deemed necessary and appropriate under the circumstances. Among other
things, we reviewed:

1. a draft of the Agreement and Plan of Merger dated as of May 23, 1999;

2. the audited financial statements of United for fiscal years 1996, 1997
and 1998 and the annual report on Form 10-K of United for fiscal year
1998, and of Certified for fiscal years ended 1996, 1997 and 1998;

3. a number of Quarterly Reports on Form 10-Q of United and Certified,
including all quarterly reports issued since the date of the most recent
annual reports on Form 10-K;

C-1
<PAGE>

4. a number of internal financial analyses and forecasts for United and
Certified prepared by their managements;

5. a draft of the Registration Statement on Form S-4, including the Joint
Proxy Statement/Prospectus, dated June 3, 1999, relating to the Special
Meetings of Stockholders of United and Certified;

6. the historical and pro forma book values, the implied per share
redemption prices, as well as managements' estimates of adjusted book
value for United and Certified;

7. certain other publicly available financial data for certain companies
that we deem comparable to United and Certified; and

8. the existing and proposed Articles of Incorporation and Bylaws of United
and Certified.

In addition to the foregoing, we conducted such other studies, analyses and
inquiries as we have deemed appropriate. We also visited certain facilities and
business offices of United and Certified and met with certain members of the
senior management of United and Certified to discuss the operations, financial
condition, future prospects and projected operations and performance of each
company.

We relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial condition, business or prospects of
the Company since the date of the most recent historical financial statements
made available to us.

We assumed that, by virtue of logistic and geographic considerations, it is
unlikely that United's shareholders will make purchases from Certified's dairy
manufacturing plant, and, accordingly, will likely not participate in patronage
dividends attributable to Certified's dairy division.

We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.

The Company, like other companies and any business entities analyzed by
Houlihan Lokey or which are otherwise involved in any manner in connection with
this Opinion, could be materially affected by complications that may occur, or
may be anticipated to occur, in computer-related applications as a result of
the year change from 1999 to 2000 (the "Y2K Issue"). In accordance with long-
standing practice and procedure, Houlihan Lokey's services are not designed to
detect the likelihood and extent of the effect of the Y2K Issue or any other
potential or contingent liabilities, directly or indirectly, on the financial
condition and/or operations of a business. Further, Houlihan Lokey has no
responsibility with regard to the Company's efforts to make its systems, or any
other systems (including its vendors and service providers), Year 2000
compliant on a timely basis. Accordingly, Houlihan Lokey shall not be
responsible for any effect of the Y2K Issue or any other potential or
contingent liabilities on the matters set forth in this Opinion.

This Opinion is delivered subject to the conditions, scope of engagement,
limitations and understandings set forth in this Opinion and in our engagement
letter with the Company, and subject to the understanding that the obligations
of Houlihan Lokey in connection with delivering this

C-2
<PAGE>

opinion are solely corporate obligations, and no officer, director, employee,
agent, shareholder or controlling person of Houlihan Lokey shall be subjected
to any personal liability whatsoever to any person, nor will any such claim be
asserted by or on behalf of you or your affiliates.

Based upon the foregoing, and in reliance thereon, it is our opinion that the
Transaction is fair to the holders of United common shares from a financial
point of view.

/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.

HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.

C-3
<PAGE>

ANNEX D

SELECTED PROVISIONS OF THE CALIFORNIA GENERAL
CORPORATION LAW REGARDING DISSENTERS' RIGHTS

(S)1300. Right to Require Purchase -- "Dissenting Shares" and "Dissenting
Shareholder" Defined.

(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter,
require the corporation in which the shareholder holds shares to purchase for
cash at their fair market value the shares owned by the shareholder which are
dissenting shares as defined in subdivision (b). The fair market value shall
be determined as of the day before the first announcement of the terms of the
proposed reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split or share dividend which becomes effective
thereafter.

(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:

(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.

(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.

(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.

(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.

(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record. Leg. H.
1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1982 ch. 36, effective
February 17, 1982, 1990 ch. 1018, 1993 ch. 543.

D-1
<PAGE>

(S)1301. Demand for Purchase.

(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.

(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received, by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.

(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
Leg.H. 1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1980 chs. 501,
1155.

(S)1302. Endorsement of Shares.

Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares. Leg.H. 1975 ch. 682, effective January 1, 1977, 1986 ch.
766.

(S)1303. Agreed Price -- Time for Payment.

(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest

D-2
<PAGE>

thereon at the legal rate on judgments from the date of the agreement. Any
agreements fixing the fair market value of any dissenting shares as between the
corporation and the holders thereof shall be filed with the secretary of the
corporation.

(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement. Leg.H. 1975 ch. 682,
effective January 1, 1977, 1980 ch. 501, 1986 ch. 766.

(S)1304. Dissenter's Action to Enforce Payment.

(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.

(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.

(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares. Leg.H. 1975 ch.
682, effective January 1, 1977.

(S)1305. Appraiser's Report--Payment--Costs.

(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.

(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.

(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.

(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.

D-3
<PAGE>

(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301). Leg.H. 1975 ch. 682, 1976 ch. 641, effective January 1, 1977,
1977 ch. 235, 1986 ch. 766.

(S)1306. Dissenting Shareholder's Status as Creditor.

To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5. Leg.H. 1975 ch. 682, effective
January 1, 1977.

(S)1307. Dividends Paid as Credit Against Payment.

Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor. Leg.H. 1975 ch. 682, effective January 1, 1977.

(S)1308. Continuing Rights and Privileges of Dissenting Shareholders.

Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto. Leg.H. 1975 ch. 682, effective January 1, 1977.

(S)1309. Termination of Dissenting Shareholder Status.

Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:

(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.

(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.

(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.

D-4
<PAGE>

(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Leg.H. 1975 ch. 682, effective January 1, 1977.

(S)1310. Suspension of Proceedings for Payment Pending Litigation.

If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Section 1304 and 1305 shall be suspended until final determination of
such litigation. Leg.H. 1975 ch. 682, effective January 1, 1977.

(S)1311. Exempt Shares.

This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger. Leg.H. 1975 ch. 682,
effective January 1, 1977, 1988 ch. 919.

(S)1312. Attacking Validity of Reorganization or Merger.

(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those term and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.

(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or shortform
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.

(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled. Leg.H. 1975 ch. 682, 1976 ch.
641, effective January 1, 1977, 1988 ch. 919.

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<PAGE>

ANNEX E

SELECTED PROVISIONS OF THE OREGON
BUSINESS CORPORATION ACT REGARDING DISSENTERS' RIGHTS

Right to Dissent and Obtain Payment for Shares

60.551 Definitions for 60.551 to 60.594.--As used in ORS 60.551 to 60.594:

(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.

(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.

(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ORS 60.554 and who exercises that right when and in the
manner required by ORS 60.561 to 60.587.

(4) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.

(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.

(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.

(7) "Shareholder" means the record shareholder or the beneficial
shareholder.

60.554 Right to dissent.--(1) Subject to subsection (2) of this section, a
shareholder is entitled to dissent from, and obtain payment of the fair value
of the shareholder's shares in the event of, any of the following corporate
acts:

(a) Consummation of a plan of merger to which the corporation is a party
if shareholder approval is required for the merger by ORS 60.487 or the
articles of incorporation and the shareholder is entitled to vote on the
merger or if the corporation is a subsidiary that is merged with its parent
under ORS 60.491;

(b) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;

(c) Consummation of a sale or exchange of all or substantially all of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;

(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:

(A) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities; or

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(B) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under ORS 60.141; or

(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.

(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under ORS 60.551 to 60.594 may not challenge the corporate
action creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.

(3) Dissenters' rights shall not apply to the holders of shares of any class
or series if the shares of the class or series were registered on a national
securities exchange or quoted on the National Association of Securities
Dealers, Inc. Automated Quotation System as a National Market System issue on
the record date for the meeting of shareholders at which the corporate action
described in subsection (1) of this section is to be approved or on the date a
copy or summary of the plan of merger is mailed to shareholders under ORS
60.491, unless the articles of incorporation otherwise provide.

60.557 Dissent by nominees and beneficial owners.--(1) A record shareholder
may assert dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf the shareholder asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares regarding which the shareholder dissents and the
shareholder's other shares were registered in the names of different
shareholders.

(2) A beneficial shareholder may assert dissenters' rights as to shares held
on the beneficial shareholder's behalf only if:

(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and

(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.

Procedure for Exercise of Rights

60.561 Notice of dissenters' rights.--(1) If proposed corporate action
creating dissenters' rights under ORS 60.554 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under ORS 60.551 to 60.594 and be
accompanied by a copy of ORS 60.551 to 60.594.

(2) If corporate action creating dissenters' rights under ORS 60.554 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was
taken and send the shareholders entitled to assert dissenters' rights the
dissenters' notice described in ORS 60.567.

60.564 Notice of intent to demand payment.--(1) If proposed corporate action
creating dissenters' rights under ORS 60.554 is submitted to a vote at a
shareholders' meeting, a shareholder

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who wishes to assert dissenters' rights shall deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effectuated and shall
not vote such shares in favor of the proposed action.

(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under this
chapter.

60.567 Dissenters' notice. -- (1) If proposed corporate action creating
dissenters' rights under ORS 60.554 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of ORS 60.564.

(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action was taken, and shall:

(a) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;

(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;

(c) Supply a form for demanding payment that includes the date of the
first announcement of the terms of the proposed corporate action to news
media or to shareholders and requires that the person asserting dissenters'
rights certify whether or not the person acquired beneficial ownership of
the shares before that date;

(d) Set a date by which the corporation must receive the payment demand.
This date may not be fewer than 30 nor more than 60 days after the date the
subsection (1) of this section notice is delivered; and

(e) Be accompanied by a copy of ORS 60.551 to 60.594.

60.571 Duty to demand payment. -- (1) A shareholder sent a dissenters'
notice described in ORS 60.567 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant to ORS
60.567(2)(c), and deposit the shareholder's certificates in accordance with the
terms of the notice.

(2) The shareholder who demands payment and deposits the shareholder's
shares under subsection (1) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.

(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.

60.574 Share restrictions. -- (1) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
ORS 60.581.

(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.

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60.577 Payment. -- (1) Except as provided in ORS 60.584, as soon as the
proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with ORS 60.571, the amount
the corporation estimates to be the fair value of the shareholder's shares,
plus accrued interest.

(2) The payment must be accompanied by:

(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year and the latest available interim financial
statements, if any;

(b) A statement of the corporation's estimate of the fair value of the
shares;

(d) A statement of the dissenter's right to demand payment under ORS
60.587; and

(e) A copy of ORS 60.551 to 60.594.

60.581 Failure to take action. -- (1) If the corporation does not take the
proposed action within 60 days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.

(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under ORS 60.567 and repeat the payment demand procedure.

60.584 After-acquired shares. -- (1) A corporation may elect to withhold
payment required by ORS 60.577 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action.

(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
such demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under ORS
60.587.

60.587 Procedure if shareholder dissatisfied with payment or offer. -- (1) A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and amount of interest due, and
demand payment of the dissenter's estimate, less any payment under ORS 60.577
or reject the corporation's offer under ORS 60.584 and demand payment of the
dissenter's estimate of the fair value of the dissenter's shares and interest
due, if:

(a) The dissenter believes that the amount paid under ORS 60.577 or
offered under ORS 60.584 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;

(b) The corporation fails to make payment under ORS 60.577 within 60
days after the date set for demanding payment; or

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(c) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.

(2) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within 30 days after the corporation made
or offered payment for the dissenter's shares.

Judicial Appraisal of Shares

60.591 Court action. -- (1) If a demand for payment under ORS 60.587 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand under ORS 60.587 and petition the court under
subsection (2) of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within
the 60-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.

(2) The corporation shall commence the proceeding in the circuit court of
the county where a corporation's principal office is located, or if the
principal office is not in this state, where the corporation's registered
office is located. If the corporation is a foreign corporation without a
registered office in this state, it shall commence the proceeding in the county
in this state where the registered office of the domestic corporation merged
with or whose shares were acquired by the foreign corporation was located.

(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.

(4) The jurisdiction of the circuit court in which the proceeding is
commenced under subsection (2) of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the
powers described in the court order appointing them, or in any amendment to the
order. The dissenters are entitled to the same discovery rights as parties in
other civil proceedings.

(5) Each dissenter made a party to the proceeding is entitled to judgment
for:

(a) The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation; or

(b) The fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under
ORS 60.584.

60.594 Court costs and counsel fees. -- (1) The court in an appraisal
proceeding commenced under ORS 60.591 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under ORS 60.587.

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(2) The court may also assess the fees and expenses of counsel and experts
of the respective parties in amounts the court finds equitable:

(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of ORS 60.561 to 60.587; or

(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by this chapter.

(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to counsel reasonable fees to be paid out of the amount awarded
the dissenters who were benefited.

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