<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
_________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
-----
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 16, 1996
-------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
_____ OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 001-10811
---------
SMART & FINAL INC.
(Exact name of registrant as specified in its charter)
Delaware No. 95-4079584
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4700 South Boyle Ave.
Los Angeles, California 90058
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (213) 589-1054
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
----- -----
The registrant had 20,327,616 shares of common stock outstanding as of July 23,
1996.
Number of Sequentially Numbered Pages: 46
Exhibit Index at Page: 13
================================================================================
<PAGE>
SMART & FINAL INC.
INDEX
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets 2
Unaudited Condensed Consolidated Statements of Income 3
Unaudited Condensed Consolidated Statements of Cash Flows 4
Notes to Unaudited Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 11
2. Changes in Securities 11
3. Defaults upon Senior Securities 11
4. Submission of Matters to a Vote of Security Holders 11
5. Other Information 11
6. Exhibits and Reports on Form 8-K 11
</TABLE>
1
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 16, December 31,
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents............................. $ 14,481 $ 15,415
Trade notes and accounts receivable, less
allowance for doubtful accounts of
$2,012 in 1996 and $1,867 in 1995................ 49,796 43,712
Inventories .......................................... 118,058 117,129
Prepaid expenses...................................... 4,071 3,637
Deferred tax asset.................................... 7,385 7,385
--------- ---------
Total current assets........................... 193,791 187,278
Property, plant and equipment:
Land.................................................. 1,262 1,262
Buildings and improvements............................ 3,170 3,170
Leasehold improvements................................ 48,400 45,765
Fixtures and equipment................................ 123,515 111,564
--------- ---------
176,347 161,761
Less - Accumulated depreciation and
amortization...................................... 67,433 60,114
--------- ---------
Net property, plant and equipment.............. 108,914 101,647
Assets under capital leases, net............................ 622 246
Goodwill.................................................... 8,040 8,136
Deferred tax asset.......................................... 3,118 3,118
Other assets................................................ 16,208 14,231
--------- ---------
Total assets..................................... $ 330,693 $ 314,656
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long term debt.................. $ 160 $ 39
Bank line of credit................................... 9,000 2,675
Accounts payable...................................... 68,781 68,471
Payable to Parent and affiliates...................... 957 1,992
Accrued salaries and wages............................ 8,355 7,853
Other accrued liabilities............................. 24,190 23,955
Workers' compensation reserve......................... 2,800 2,800
--------- ---------
Total current liabilities...................... 114,243 107,785
Long term liabilities:
Notes payable, net of current maturities.............. 8,355 8,176
Bank debt............................................. 35,000 35,000
Obligations under capital leases...................... 642 410
Postretirement and postemployment benefits ........... 21,617 21,798
--------- ---------
Total long term liabilities.................... 65,614 65,384
Minority interest........................................... 1,590 1,435
Stockholders' equity:
Preferred stock, $1 par value (authorized-
10,000,000 shares; no shares issued) - -
Common stock, $ .01 par value (authorized-
100,000,000 shares; 20,320,149 shares issued
and outstanding in 1996 and 20,262,727 in 1995)...... 203 203
Additional paid-in capital............................ 105,910 105,149
Cumulative translation loss .......................... (928) (928)
Retained earnings..................................... 44,061 35,628
--------- ---------
Total stockholders' equity..................... 149,246 140,052
--------- ---------
Total liabilities and stockholders' equity....... $ 330,693 $ 314,656
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
SMART & FINAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
------------------------- --------------------------
June 16, June 18, June 16, June 18,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales.......................................................... $ 307,408 $ 273,438 $ 589,742 $ 525,577
Cost of sales, buying and occupancy............................ 256,685 228,381 494,621 440,407
Lease expense to affiliates.................................... 4,041 3,939 8,009 7,858
----------- ----------- ----------- -----------
Gross margin................................................... 46,682 41,118 87,112 77,312
Operating and administrative expenses.......................... 36,020 32,141 68,617 61,793
Warehouse start up costs....................................... - 3,500 - 3,500
----------- ----------- ----------- -----------
Income from operations...................................... 10,662 5,477 18,495 12,019
----------- ----------- ----------- -----------
Interest income and (expense):
Interest income............................................. 109 112 230 203
Interest expense............................................ (827) (453) (1,550) (980)
----------- ----------- ----------- -----------
(718) (341) (1,320) (777)
Income before provision for income taxes and
minority share of net income................................. 9,944 5,136 17,175 11,242
Provision for income taxes..................................... 3,737 1,940 6,666 4,377
----------- ----------- ----------- -----------
6,207 3,196 10,509 6,865
Minority share of net income................................... 48 48 155 138
----------- ----------- ----------- -----------
Income from consolidated subsidiaries....................... 6,159 3,148 10,354 6,727
Equity earnings in unconsolidated subsidiary................... 109 - 109 (100)
----------- ----------- ----------- -----------
Net income..................................................... $ 6,268 $ 3,148 $ 10,463 $ 6,627
=========== =========== =========== ===========
Earnings per common share...................................... $ 0.30 $ 0.15 $ 0.50 $ 0.32
=========== =========== =========== ===========
Dividend per common share...................................... $ 0.05 $ 0.05 $ 0.10 $ 0.10
=========== =========== =========== ===========
Weighted average common shares and common
share equivalents............................................ 21,244,861 20,689,942 21,156,589 20,616,162
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
SMART & FINAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Twenty-four Weeks Ended
------------------------------
June 16, June 18,
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ........................................................ $ 10,463 $ 6,627
Adjustments to reconcile net income to net
cash provided by operating activities:
(Gain) loss on disposal of fixed assets .................... (20) (69)
Depreciation and amortization .............................. 8,697 6,990
Minority share of net income ............................... 155 138
Equity (earnings) loss in unconsolidated subsidiary ........ (109) 100
(Increase) decrease in:
Trade notes and accounts receivable ........................ (6,084) 3,105
Inventories ................................................ (929) 1,239
Prepaid expenses and other ................................. (434) (11)
Increase (decrease) in:
Accounts payable ........................................... 2,079 4,130
Payable to Parent and affiliates ........................... (1,035) (383)
Accrued liabilities ........................................ 502 (1,070)
Other liabilities .......................................... 119 6,662
-------- --------
Net cash provided by operating activities ............ 13,404 27,458
-------- --------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment ...................... (16,906) (16,100)
Proceeds from disposal of property, plant and equipment ........... 50 87
Investment in and advance to unconsolidated subsidiary ............ - (350)
Redemption of municipal bonds ..................................... 225 825
Acquisition of municipal bonds .................................... (325) (1,075)
Other ............................................................. (2,517) (1,040)
-------- --------
Net cash used in investing activities ................ (19,473) (17,653)
-------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock ............................ 693 89
Bank credit line .................................................. 6,325 -
Borrowings (payments) on notes payable ............................ 144 (1,069)
Payments on long term debt ........................................ - (2,727)
Quarterly dividend paid ........................................... (2,027) (2,022)
-------- --------
Net cash provided by (used in) financing activities ... 5,135 (5,729)
-------- --------
Increase (decrease) in cash and cash equivalents ........................... (934) 4,076
Cash and cash equivalents at beginning of period ........................... 15,415 10,494
-------- --------
Cash and cash equivalents at end of period ................................. $ 14,481 $ 14,570
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SMART & FINAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Smart & Final Inc. (the "Company") is a Delaware corporation and is a
53.1 percent owned subsidiary of Casino USA, Inc. (the "Parent").
The condensed consolidated balance sheet as of June 16, 1996, the
condensed consolidated statements of income for the twelve and twenty-four weeks
ended June 16, 1996, and June 18, 1995, and cash flows for the twenty-four weeks
ended June 16, 1996 and June 18, 1995 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of these financial
statements have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily indicative of results for
a full year.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K statement for the year ended December 31,
1995.
(2) EARNINGS PER COMMON SHARE
Earnings per common share is based on weighted average outstanding common
shares which include the common stock equivalents related to employee stock
options and a stock purchase agreement.
(3) FISCAL YEARS
The Company's fiscal year ends on the Sunday closest to December 31.
Each fiscal year consists of twelve week periods in the first, second and fourth
quarters and a sixteen week period in the third quarter.
(4) DIVIDEND
On May 9, 1996, the Company declared a dividend of $0.05 per share to
stockholders of record at July 5, 1996. The dividend was paid on July 26,
1996.
(5) INCOME TAXES
Tax sharing payments for state income taxes made by the Company to the
Parent were $1,375,000 and $628,000 in the twenty-four weeks ended June 16, 1996
and June 18, 1995, respectively. The Company paid $4,855,000 and $2,700,000 in
federal income taxes in the twenty-four week period ended June 16, 1996 and June
18, 1995, respectively.
5
<PAGE>
(6) STOCK OPTIONS
Compensation expenses, associated with employee stock option grants was
$152,128 for the twenty-four weeks ended June 18, 1995. These expenses were
based upon the discounted option price at the date the options were granted.
These compensation expenses were fully amortized at fiscal year end 1995.
(7) LEGAL ACTIONS
The Company has been named as defendant in various legal actions arising
in the normal conduct of its business. In the opinion of management, after
consultation with counsel, none of these actions are expected to result in
significant liability to the Company.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction
with the accompanying consolidated financial statements and notes thereto and
the Company's Form 10-K statement for the year ended December 31, 1995.
SUMMARY.
Smart & Final Inc. (the "Company") reported net income of $6.3 million
for the twelve weeks ended June 16, 1996, compared to net income of $3.1 million
for the twelve weeks ended June 18, 1995.
For the twenty four weeks ended June 16, 1996, the Company reported
net income of $10.5 million compared to a net income of $6.6 million for the
twenty four weeks ended June 18, 1995.
The increase in earnings for the second quarter and the first half of
1996 reflects strong operating results and also was due to the high start up
costs of the new Northern California distribution center which opened in April,
1995 which reduced earnings in the second quarter of 1995 by $3.5 million.
RESULTS OF OPERATIONS.
The following table shows for the periods indicated, certain condensed
consolidated income statement data, expressed as a percentage of total sales.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
------------------ -----------------------
JUNE 16, JUNE 18, JUNE 16, JUNE 18,
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales:
Store sales.............................................. 78.0% 79.8% 76.5% 77.7%
Foodservice distribution sales........................... 22.0 20.2 23.5 22.3
------ ------ ------ ------
Total Sales................................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and occupancy......................... 83.5 83.5 83.9 83.8
Lease expense to affiliates................................. 1.3 1.4 1.4 1.5
------ ------ ------ ------
Gross Margin................................................ 15.2 15.0 14.8 14.7
Operating and administrative expenses....................... 11.7 11.8 11.6 11.8
Warehouse start up costs.................................... - 1.3 - 0.7
------ ------ ------ ------
Income from operations................................... 3.5 2.0 3.1 2.3
Other income and (expense):
Interest income.......................................... - - - -
Interest expense......................................... (0.3) (0.2) (0.3) (0.2)
------ ------ ------ ------
(0.2) (0.1) (0.2) (0.1)
Income before provision for income tax, and
minority share of net income............................. 3.2 1.9 2.9 2.1
Provision for income taxes.................................. 1.2 1.7 1.1 0.8
------ ------ ------ ------
2.0 1.2 1.8 1.3
Minority share of net income................................ - - - -
------ ------ ------ ------
Income from consolidated subsidiaries.................... 2.0 1.2 1.8 1.3
Equity earnings in unconsolidated subsidiaries.............. - - - -
------ ------ ------ ------
Net income............................................... 2.0% 1.2% 1.8% 1.3%
====== ====== ====== ======
* Totals do not aggregate due to rounding.
</TABLE>
7
<PAGE>
BACKGROUND.
The Company continued its expansion program in 1995 and 1996 as shown in
the following table:
<TABLE>
<CAPTION>
Two Year
Quarter Ended Quarters Ended Ended
------------------- ---------------------- -----------
June 16, June 18, June 16, June 18, December 31,
1996 1995 1996 1995 1995
-------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
USA
Store count beginning 159 145 155 144 144
Stores opened:
In new markets 3 2 7 3 3
In mature markets - - - - 8
---- ---- ---- ---- ----
Total 3 2 7 3 11
Relocations - - 2 2 4
Stores relocated - - (2) (2) (4)
---- ---- ---- ---- ----
Ending number 162 147 162 147 155
MEXICO
Store count 3 3 3 3 3
---- ---- ---- ---- ----
Grand Total 165 150 165 150 158
==== ==== ==== ==== ====
</TABLE>
Mexico operations are not consolidated and are reported on the equity
basis.
Although new stores are important to the Company's continued growth and
profitability, each new store opening initially penalizes earnings because
stores are not immediately profitable. In recent years new stores opened in
existing market areas generally have achieved break even (after full allocation
of all corporate expenses) within the first six to eighteen months and new
stores opened in new market areas, which mature more slowly, generally have
achieved break even in approximately three years.
The Company plans to open approximately 20 new stores in the next twelve
months. The Company intends to finance its expansion through capital resources
available under lines of credit and cash flow provided through operations.
Management anticipates that its planned expansion will not have a significant
impact upon its liquidity or results of operations within the next twelve
months.
Each of the Company's fiscal years consists of twelve week periods in the
first, second and fourth quarters of the fiscal year and a sixteen week period
in the third quarter.
COMPARISON OF TWELVE WEEKS ENDED JUNE 16, 1996 WITH TWELVE WEEKS ENDED JUNE 18,
1995.
Sales. Second quarter 1996 sales were $307.4 million, up 12.4% from the
comparable 1995 period. Smart & Final Stores Corporation ("Smart & Final") store
sales increased 10.0%. Store sales increased as a result of the new store
openings and relocations in the United States which numbered fifteen in 1995 and
nine in the first half of 1996.
Comparable store sales for the second quarter of 1996 increased 4.2% over
the prior year period. Comparable customer transactions for the second quarter
increased 3.0% over the second quarter of 1995. Average comparable transaction
size increased by 1.2%, to $32.49.
Foodservice distribution sales for the second quarter increased to $67.5
million, with strong growth at Port Stockton where sales increased 45.3% and at
Henry Lee with a sales increase of 16.4%. Port Stockton's sales growth was, in
part, due to weak sales in the prior year during the start up of its new
distribution center.
Cost of Sales, Buying and Occupancy. These costs totaled $256.7 million in
the second quarter of 1996, up 12.4% from the second quarter of 1995, consistent
with the increase in sales. As a percentage of sales, these costs were 83.5% in
the second quarter of each year.
8
<PAGE>
Lease Expense to Affiliates. Lease expense to affiliates increased by 2.6%
from $3.9 million in the second quarter of 1995 to $4.0 million in the second
quarter of 1996. As a percentage of sales, this expense declined from 1.4% of
sales in the second quarter of 1995 to 1.3% in the current year quarter. The
affiliates ceased acquiring new properties at the end of fiscal 1993, and the
Company has leased properties from third parties since then. Lease expense to
third parties is reflected in Cost of Sales, Buying, and Occupancy.
Gross Margin. Gross margin increased 13.5% from $41.1 million in the second
quarter of 1995 to $46.7 million in the second quarter of 1996. As a percentage
of sales gross margin increased from 15.0% of sales in the second quarter of
1995 to 15.2% of sales in the current quarter. A factor in the increased gross
margin percentage was a higher level of promotional pricing activity in the
second quarter of 1995.
Operating and Administrative Expenses. Operating and administrative
expenses for the second quarter of 1996 were $36.0 million, up $3.9 million or
12.1% from the second quarter of 1995. Effective cost control resulted in these
expenses declining as a percentage of sales from 11.8% in the second quarter of
1995 to 11.7% in the current year quarter.
Warehouse Start Up Costs. A new 300,000 square foot distribution facility
located in Stockton, California commenced operations in April, 1995 and incurred
heavy initial start-up costs. These costs reduced second quarter 1995 earnings
by $3.5 million. Operating efficiency has greatly improved over the past year.
The distribution center is now serving 5,000 foodservice customers and 38
stores.
Income from Operations. Income from operations was $10.7 million for the
second quarter of 1996, up 94.7% from $5.5 million in the second quarter of
1995. The increase is due to strong operating results in the second quarter of
1996 and also due to the inclusion of $3.5 million of distribution center start-
up costs in the second quarter, 1995 results.
Interest Income and (Expense). Interest income and expense increased from
$0.3 million of expense in the second quarter of 1995 to $0.7 million of expense
in the second quarter of 1996. The increase is due to a $35.0 million increase
in bank debt since second quarter of 1995.
COMPARISON OF TWENTY FOUR WEEKS ENDED JUNE 16, 1996 WITH TWENTY FOUR WEEKS ENDED
JUNE 18, 1995.
Sales. First half 1996 sales were $589.7 million, up 12.2% from the
comparable 1995 period. Smart & Final store sales increased 10.5%. Store sales
increased as a result of the twenty-four new and relocated stores opened since
1995. Comparable store sales increased 5.4% in the first half of 1996. Average
comparable transaction size increased 1.8% to $32.24 in the first half of 1996.
Foodservice sales increased to $138.7 million with strong year to year
sales growth of 30.2% at Port Stockton and 16.1% at Henry Lee. Port Stockton's
sales growth was, in part, due to weak sales in the prior year during the start
up of its new distribution center.
Cost of Sales, Buying and Occupancy. These costs totaled $494.6 million in
the second quarter of 1996, up 12.3% from the second quarter of 1995, on a
comparable increase in sales. As a percentage of sales, these costs increased
slightly from 83.8% in the second quarter of 1995 to 83.9% in the second quarter
of the current year.
Lease Expense to Affiliates. Lease expense to affiliates increased by 1.9%
from $7.9 million in the first half of 1995 to $8.0 million in the first half of
1996. As a percentage of sales, this expense declined from 1.5% of sales in the
first half of 1995 to 1.4% in the current year half. The affiliates ceased
acquiring new properties at the end of fiscal 1993, and the Company has leased
properties from third parties since then. Lease expense to third parties is
reflected in Cost of Sales, Buying, and Occupancy.
Gross Margin. Gross margin increased 12.7% from $77.3 million in the first
half of 1995 to $87.1 million in the first half of 1996. As a percentage of
sales gross margin increased from 14.7% of sales in the first half of 1995 to
14.8% of sales in the current year. A factor in the increased gross margin
percentage was a higher level of promotional pricing activity in the first half
of 1995.
9
<PAGE>
Operating and Administrative Expenses. Operating and administrative
expenses for the first half of 1996 were $68.6 million, up $6.8 million or 11.0%
from the first half of 1995. Effective cost control resulted in these expenses
declining as a percentage of sales from 11.8% in the first half of 1995 to 11.6%
in the current year.
Warehouse Start Up Costs. A new 300,000 square foot distribution facility
located in Stockton, California commenced operations in April, 1995 and incurred
heavy initial start-up costs. These costs reduced first half 1995 earnings by
$3.5 million. Operating efficiency has greatly improved over the past year. The
distribution center is now serving 5,000 foodservice customers and 38 stores.
Income from Operations. Income from operations was $18.5 million for the
first half of 1996, up 53.9% from $12.0 million in the first half of 1995. The
increase is due to strong operating results in 1996 and also due to the
inclusion of $3.5 million of distribution center start-up costs in the results
of the first half of 1995.
Interest Income and (Expense). Interest income and expense increased from
$0.8 million of expense in the first half of 1995 to $1.3 million of expense in
the current year. The increase is due to a $35.0 million increase in bank debt
since the end of the second quarter of 1995.
FINANCIAL CONDITION.
Cash and cash equivalents declined from $15.4 million at December 31, 1995,
to $14.5 million at June 16, 1996. Cash provided by operating activities for the
twenty four weeks ended June 16, 1996 was $13.4 million. Cash used for investing
activities, primarily capital expenditures for property, plant, and equipment
was $19.5 million. Cash used for payment of dividends was $2.0 million.
Additional cash was provided by $6.3 million of borrowings under the Company's
bank credit line and $0.7 million of proceeds from issuance of common stock.
Trade notes and accounts receivable increased $6.1 million to $49.8 million
primarily as a result of strong growth in foodservice distribution sales.
Foodservice distribution sales are primarily on credit terms.
Stockholders' equity increased by $9.1 million from $140.1 million at
December 31, 1995 to $149.2 million at June 16, 1996 as result of the $10.5
million net income for the first twenty four weeks of 1996, and the $0.7 million
proceeds from the issuance of common stock, net of the quarterly cash dividends
of $2.0 million declared in the first two quarters of 1996.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's primary source of liquidity is cash flow from operations and
retained earnings. Cash provided by operating activities was $13.4 million in
the first half of 1996, down from $27.5 million in the comparable 1995 period.
The decline is due to the very strong growth in foodservice distribution sales
which increased trade notes and accounts payable.
At June 16, 1996 the Company had cash of $14.5 million, $149.2 million of
stockholders' equity, and $53.2 million of debt. The Company expects to be able
to fund future internal growth, acquisitions and other cash requirements by a
combination of available cash, cash from operations, borrowings and proceeds
from the issuance of equity securities. The Company has $15.0 million of
availability under its $50.0 million bank credit line.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGES IN SECURITIES
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders, held on May 10, 1996,
the Company's stockholders voted (i) to elect four directors of the Company to
serve until the 1999 meeting and their successors have been elected and
qualified; (ii) to approve Company's Non-Employee Director Stock Plan, and (iii)
to ratify the selection of Arthur Andersen & Co., independent public
accountants, as auditors for the Company for the year ending December 29, 1996.
In the votes taken in the election of the four nominees for director, the
results were as follows:
<TABLE>
<CAPTION>
Total Shares Total Votes
Name Voted For WITHHELD
- ---- ------------ -----------
<S> <C> <C>
Timm F. Crull 17,981,332 61,630
Martin A. Lynch 17,981,932 61,030
Georges Plassat 17,981,932 61,030
Ross E. Roeder 17,981,932 61,030
</TABLE>
In the vote taken to consider and vote upon the Company's Non-Employee
Director Stock Plan, 17,891,059 shares voted for, 137,240 shares voted against
and 14,572 shares voted to abstain. There were 91 broker non-votes.
In the vote taken to ratify the selection of Arthur Andersen, 18,494,797
shares voted for, 5,054 voted against and 10,046 voted to abstain. There were no
broker non-votes.
ITEM 5 OTHER INFORMATION
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and are thus prospective. Such statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to,
competitive pressures, changing economic conditions and the other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit
-------------- ----------------------
10.67 Asset Purchase Agreement
27 Financial Data Schedule
(b) Report on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMART & FINAL INC.
By:
Date: July 24, 1996 /s/ MARTIN A. LYNCH
__________________________________
Martin A. Lynch
Executive Vice President,
Principal Financial Officer, and
Principal Accounting Officer of the Company
12
<PAGE>
SMART & FINAL INC.
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------------- ---------------------- ------------
10.67 Asset Purchase Agreement 14
27 Financial Data Schedule
13
<PAGE>
EXHIBIT 10.67
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the ____ day of ______, 1996, by and among (i) PORT STOCKTON FOOD
DISTRIBUTORS, INC., a California corporation (the "Buyer"), (ii) CRAIG &
HAMILTON MEAT CO., INC., a California corporation (the "Company"), and (iii)
PATRICK D. CRAIG (hereinafter referred to as "Craig" or "Shareholder").
RECITALS
--------
A. Craig owns all of the outstanding shares of the Company.
B. The Company is engaged in the wholesale distribution of meat in
northern California (the "Business") and is interested in selling substantially
all of its assets and discontinuing the Business.
C. Buyer desires to purchase and the Company desires to sell
substantially all of the Company's assets, on the terms and conditions set forth
below.
ACCORDINGLY, in consideration of the foregoing and the mutual covenants set
forth below, the parties agree as follows:
AGREEMENT
---------
1. PURCHASE AND SALE OF ASSETS.
---------------------------
1.1 Transfer of Purchased Assets. In consideration of the payment of the
----------------------------
purchase price set forth in Section 1.6 below, the Company shall sell, assign
and deliver to Buyer, on the Closing Date (as defined in Section 2.1 below),
free and clear of any and all liens, charges, claims, encumbrances, pledges,
security interests, community property rights, equities, liabilities, debts,
obligations, restrictions on transfer or other defects in title of any kind or
nature, whether known or unknown, fixed or contingent, except for the Assumed
Liabilities (as defined in Section 1.3 below), and Buyer shall purchase and
accept, all assets, properties, rights, titles and interests of every kind and
nature owned or leased by the Company and used in connection with the Business
as of the Financials Date (as defined below), whether tangible or intangible,
real or personal, and wherever located and by whomever possessed (the "Purchased
Assets"), including, without limitation, the following, but excluding the
Excluded Assets (as defined in Section 1.2 below):
(a) all deposits, cash and cash equivalents, securities and investments;
<PAGE>
(b) all accounts and notes receivable, whether or not evidenced by a note;
(c) all prepayments, prepaid taxes and expenses, credits and deferred
charges;
(d) Intentionally Omitted.
(e) all raw materials, packaging, spare parts, work-in-process, finished
goods, inventories and supplies;
(f) all machinery, equipment, computers, telephone systems, furniture,
automobiles, trucks, tractors, trailers, vehicles and other tangible personal
property;
(g) all rights, title and interests in and to all patents, copyrights,
trademarks, trade names, service marks, service names, logos, and identifying
marks and styles, including, without limitation, the name "Craig & Hamilton Meat
Co., Inc." and any variant thereof;
(h) all rights under the contracts, agreements, orders, leases, licenses
and arrangements, to the extent assignable;
(i) all rights under all permits, licenses, variances, approvals and other
authorizations obtained from foreign, federal, state or local governments or
governmental agencies or other similar rights, to the extent assignable;
(j) all claims, insurance, warranties, guarantees, refunds, causes of
action, rights of recovery, rights of set-off and rights of recoupment of every
kind and nature, other than those relating exclusively to the Excluded Assets or
the Excluded Liabilities;
(k) all insurance, warranty and condemnation proceeds received after the
date hereof with respect to damage, non-conformance or loss to the Purchased
Assets;
(l) all books, ledgers, files, documents, correspondence, brochures, lists,
studies, reports, data, business records and other printed or written materials
(including, without limitation, records pertaining to past and current customer
accounts, suppliers, distributors, personnel and agents);
(m) all rights to receive mail and other communications addressed to the
Company (including, without limitation, the payments for accounts or notes
receivable);
<PAGE>
(n) all rights, title and interests in and to all confidential business and
technical information, trade secrets and proprietary rights of the Business; and
(o) the Business and all goodwill associated therewith.
1.2 Excluded Assets. Notwithstanding the foregoing, the following assets
---------------
are expressly excluded from the purchase and sale contemplated hereby (the
"Excluded Assets") and, as such, are not included in the Purchased Assets:
(a) the Company's and the Shareholder's rights under or pursuant to this
Agreement;
(b) all minute books, stock books, corporate seal and other corporate
records that relate exclusively to the Company's organization, existence and
capitalization;
(c) all contracts, agreements, orders, leases, licenses and arrangements
which are not expressly specified to be assumed by the Buyer or which are not
transferable to Buyer;
(d) all claims, insurance, warranties, guarantees, refunds, causes of
action, rights of recovery, rights of set-off and rights of recoupment that
relate exclusively to the Excluded Assets or the Excluded Liabilities; and
(e) the right to receive mail and other communications addressed to the
Company that relates exclusively to the Excluded Assets or the Excluded
Liabilities.
1.3 Limited Assumption of Liabilities. Subject to the terms and
---------------------------------
conditions of this Agreement, from and after the Closing Date, Buyer shall
assume and agree to pay, defend, discharge and perform as and when due only the
following specific liabilities and obligations of the Company which relate
exclusively to the Business (the "Assumed Liabilities")
(a) Intentionally Omitted.
(b) all liabilities and obligations under the contracts, agreements,
orders, leases, licenses and arrangements expressly assumed by and transferred
to Buyer on the Closing Date, but excluding any liabilities or obligations
relating to or arising out of (i) any breach or default occurring thereunder on
or prior to the Closing Date, (ii) any violation of law, tort or infringement
occurring with respect thereto on or prior to the Closing Date, or (iii) any
related action, complaint, proceeding, investigation, claim or demand; and
<PAGE>
(c) all current liabilities of the Company, reflected on the Company's
balance sheet as at the Financials Date (as defined below) which have not been
discharged or paid and such additional liabilities of the same kind and type
which have subsequently arisen in the ordinary course of business consistent
with past business practices, including all accrued vacation, sick pay and other
liabilities relating to employee benefit plans covering Company employees, and
all liabilities and obligations for transfer or sales and use taxes imposed by
virtue of the transfer and sale of the Purchased Assets hereunder.
1.4 Excluded Liabilities. Notwithstanding anything to the contrary
--------------------
contained in this Agreement and regardless of whether such liability or
obligation is disclosed herein or on any Exhibit or Schedule hereto, Buyer shall
not assume or in any way be responsible or liable for any liabilities or
obligations of the Company or the Shareholder or any other liabilities or
obligations whatsoever related to the operation of the Business or condition of
the Purchased Assets at any time on or prior to the Closing Date (the "Excluded
Liabilities"), except as specifically provided in subsections (a) - (c) of
Section 1.3 above. Without limiting the generality of the foregoing, the
Excluded Liabilities shall include, without limitation:
(a) all obligations, commitments or liabilities of or claims against the
Company and/or the Shareholder, arising out of or in connection with the
transfer and sale of the Purchased Assets hereunder;
(b) all liabilities and obligations for foreign, federal, state or local
taxes arising from the operation of the Business on or prior to the Financials
Date or as a result of the consummation of the transactions contemplated by the
Agreement;
(c) all liabilities and obligations for any damage or injury to person or
property arising from the ownership, possession or use of any products
manufactured or sold by the Company on or prior to the Closing Date;
(d) all liabilities and obligations arising from the operation of the
Business on or prior to the Closing Date in connection with any law, statute,
rule, regulation, order or decree of any foreign, federal, state or local
governmental or regulatory authority (including, without limitation, those
relating to business conduct, public health and safety, occupational health and
safety and the environment);
(e) all liabilities and obligations of the Company and/or any Shareholder
whatsoever not expressly assumed by Buyer in accordance with subsections (a)-(c)
of Section 1.3 above, including but not limited to the Company's note to Craig
dated March 19, 1996, in the original principal amount of $1,479,890.57.
<PAGE>
1.5 Offset for Uncollected Receivables. All accounts receivable as of
----------------------------------
the Financials Date listed in Section 1.3 which remain uncollected at December
31, 1996 (except accounts receivable payable over a longer period pursuant to
an agreement between the Company and certain customers as listed on Schedule
--------
3.15 hereto), and all merchandise inventories which remain unsold as of that
- ----
date shall be deemed uncollectible and unsalable, and Buyer shall have the
right to offset the amount of such uncollectible accounts receivable and/or such
unsalable inventory up to a maximum amount of $200,000 against the rental
payments due under the lease for the Company's real property which Buyer has
agreed to enter into as set forth in Exhibit B hereto. Buyer shall be entitled
---------
to offset such uncollectible accounts receivable and unsalable inventory to a
maximum of $200,000.00. This right of offset shall be Buyer's sole remedy for
any breach of this Agreement relating to the amounts of uncollectible accounts
receivable and/or unsalable inventory under this Agreement.
1.6 Purchase Price. The total purchase price (the "Purchase Price") for
--------------
the Purchased Assets to be acquired by Buyer on the Closing Date is (i) the
assumption of certain liabilities as described in Section 1.3 above, and (ii)
payment of the sum of One Million Seven Hundred Five and no/100 Dollars
($1,705,000.00), payable as follows:
(a) One Million Four Hundred Five Thousand Dollars ($1,405,000.00) payable
in cash at the Closing; provided, however, that the Company shall apply such
portion of the cash payment as is necessary to retire the Shareholder's debt to
the Bank of Agriculture and Commerce in the original principal amount of
$1,205,000.00.
(b) The balance of Three Hundred Thousand Dollars ($300,000.00) shall be
paid in four equal annual installments of Seventy-Five Thousand Dollars
($75,000.00) each, commencing on the first anniversary of this Agreement and
continuing on each anniversary thereafter until all principal and interest as
set forth below are paid in full. Buyer's obligation to pay the balance of the
Purchase Price shall be evidenced by a Promissory Note bearing interest at the
rate of seven percent (7%) per annum, payable in arrears.
1.7 Intentionally Omitted.
1.8 Lease. Concurrently with the Closing, Buyer and the Company will enter
-----
into a lease ("the Lease") for the Company's facilities located at 640, 721 and
727 Union Street, Stockton, California. The Lease, substantially in the form of
Exhibit B hereto, shall provide for an initial term of 10 years and 5 renewal
- ---------
periods of 5 years each. Buyer shall have the ability to terminate the Lease at
the end of the fifth year of the initial term upon payment of a termination fee
of Two Hundred Thousand Dollars ($200,000.00). The monthly rental under the
Lease will be Eleven Thousand Five Hundred Dollars ($11,500.00) per month
through the end of the first renewal period (subject to certain offsets as set
forth therein), at which time any additional renewal periods will have the rent
increased by the applicable increase in the Consumer Price Index for the San
<PAGE>
Francisco-Oakland Area, not to exceed three percent (3%) per year. The Lease
shall be a net lease.
2. THE CLOSING.
-----------
2.1 The Closing. The purchase and sale of the Purchased Assets shall take
-----------
place at 8:00 a.m. (local time) on July 12, 1996, at the offices of the
Company's counsel, Kroloff, Belcher, Smart, Perry & Christopherson, 7540
Shoreline Drive, Stockton, California, or at such other time and place as may be
mutually agreed upon in writing by Buyer, the Company and the Shareholder. The
time and date of purchase and sale, as the same may be postponed or accelerated
from time to time, are referred to in this Agreement as the "Closing" and the
"Closing Date," respectively.
2.2 Deliveries to be Made at Closing. On the Closing Date, the Company
--------------------------------
and the Shareholder shall deliver to Buyer such leases, warranty bills of sale,
assignments and other instruments satisfactory to Buyer and its counsel as are
necessary or desirable to transfer the Purchased Assets, against receipt of such
assumption agreements satisfactory to the Company and the Shareholder and their
counsel as are necessary or desirable to assume the Assumed Liabilities, and the
parties shall deliver the other items contemplated by Sections 6 and 7. All
deliveries shall be considered to have taken place simultaneously as a single
transaction, and no delivery shall be considered to have been made until all
deliveries are completed. With respect to any Purchased Assets sold hereunder
which cannot be physically delivered at the Closing because they are in the
possession of third parties, the Company shall give irrevocable instructions to
such third parties that all rights, title and interests in such Purchased Assets
have been vested in Buyer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER.
-----------------------------------------------------------------
The Company and each Shareholder, jointly and severally, represents and
warrants to Buyer as follows:
3.1 Ownership of the Purchased Assets. The Company has good and marketable
---------------------------------
title to all the Purchased Assets. The Purchased Assets are owned by the
Company, and at the Closing will be delivered to Buyer, free and clear of any
and all liens, charges, claims, encumbrances, pledges, security interests,
community property rights, equities, liabilities, debts, obligations,
restrictions on transfer or other defects in title of any kind or nature,
whether known or unknown, fixed or contingent, except for the Assumed
Liabilities.
3.2 Authority to Enter Agreement; Enforceability. The Company and each
--------------------------------------------
Shareholder has the right, power, legal capacity and authority to enter into and
to carry out the terms and provisions of this Agreement (including, without
limitation, the sale and delivery of the Purchased Assets being sold pursuant to
this Agreement) and the other agreements to be entered into by the Company
and/or that Share-
<PAGE>
holder in connection with the consummation of this Agreement without obtaining
the approval or consent of any other party or authority, and this Agreement and
such other agreements constitute the legal, valid and binding agreements of the
Company and that Shareholder, enforceable against it or him in accordance with
their respective terms.
3.3 Organization and Standing. The Company is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
California with full power and authority (corporate and other) to own, lease and
operate its property and carry on the Business as now conducted. The Company is
currently doing business in such jurisdiction, and is qualified to do business
in each such jurisdiction. The Company's books and records are complete and
correct in all material respects and fairly reflect the conduct of the Business.
3.4 Subsidiaries. The Company has no subsidiaries (that is, a corporation or
------------
other entity in which it has an equity interest or over which it is in a
position to exercise control, directly or indirectly).
3.5 Financial Statements. Schedule 3.5 to this Agreement contains the
-------------------- ------------
Company's consolidated balance sheets as of February 24, 1996. The foregoing
financial statements (i) are in accordance with the books and records of the
Company and were prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods and (ii) fairly
present the Company's financial condition and results of operations and cash
flows as at the dates and for the periods specified. The Company has no
liabilities or obligations, whether contingent or absolute, direct or indirect,
matured or unmatured, which are not shown or provided for on Schedule 3.5,
except those incurred in the ordinary course of business since February 24,
1996, and the Company and the Shareholder know of no basis for the assertion of
any such liabilities or obligations. February 24, 1996, which is the date of the
most recent unaudited balance sheet, is sometimes referred to below as the
"Financials Date".
3.6 Absence of Certain Changes. Since the Financials Date, except as
--------------------------
disclosed on Schedule 3.6 to this Agreement, there has not been:
------------
(a) any material or significant change in the condition (financial or
other), net worth, assets, liabilities, capitalization, prospects, business,
properties or results of operations of the Company other than changes (i)
described in the Schedules to this Agreement or (ii) made or incurred in the
ordinary course of business;
(b) any material or significant employment or other contracts or
commitments entered into by the Company, except as described in the Schedules to
this Agreement;
(c) any sale, assignment, transfer or other disposition of any assets or
properties, the latest cost of which on the accounting records of the
<PAGE>
Company exceeds $10,000, excluding any inventory or supplies disposed of in the
ordinary course of business consistent with past practices;
(d) any capital expenditure, capital addition or capital improvement
involving an amount in excess of $10,000;
(e) any mortgage, lien, pledge, encumbrance, or security interest created
on any purchased asset, tangible or intangible, except purchase money security
interests created in the ordinary course of business consistent with past
practices;
(f) any dividend or other distribution declared, paid or made or agreed to
on any shares of common stock of the Company, or any purchase or redemption of,
or any agreement for the purchase or redemption of, any such shares;
(g) any damage, destruction or loss (whether or not covered by insurance)
adversely affecting the properties, Business or prospects of the Company;
(h) any material or significant increase in the compensation payable or to
become payable by the Company to any officer, director or other employee, agent,
independent contractor or consultant or any Shareholder, or any declaration,
payment, commitment or obligation of any kind for the payment by the Company of
any bonus, additional salary or compensation, any worker compensation claims or
any retirement, termination or severance benefits, to officers, directors,
employees, agents, independent contractors, consultants or Shareholder, other
than pursuant to existing written commitments of the Company otherwise disclosed
in the Schedules to this Agreement, except in the ordinary course of business;
(i) any material or significant change in the amount of any notes or other
obligations payable by the Company to officers, directors, employees, agents,
independent contractors, consultants or Shareholder;
(j) any labor disturbances adversely affecting or threatening the Business
or operations of the Company;
(k) any revocation or termination, or any notice of any threatened
revocation or termination, of any permit or license issued to the Company or, to
the extent the Company's Business or prospects may be materially and adversely
affected by such termination, to any of its employees, independent contractors,
consultants or agents;
(l) any loan by the Company to any person or entity (except for normal
extension of trade credit and reasonable and customary advances for
<PAGE>
business related expenses incurred in the ordinary course of business) or any
guaranty by the Company of any loan;
(m) any change or anticipated change in the relationship between the
Company and any of its customers, vendors, suppliers, employees, agents,
independent contractors or consultants which materially and adversely affects
the properties, prospects or business of the Company;
(n) any other event or condition which has adversely affected the
properties business or prospects of the Company; or
(o) any agreement or commitment obligating the Company to do any of the
things set forth in this Section 3.7.
3.7 Accounts Receivable. The Company has previously provided to Buyer
-------------------
a complete and accurate list of the Company's acccounts receivable as at the
Financials Date, together with an accurate aging thereof. To the best of the
Company's and the Shareholder's knowledge, said accounts receivable and all
accounts receivable which have arisen since the Financials Date (i) are valid
and enforceable claims for the sales and services which give rise to such
accounts, and (ii) are subject to no defenses or offsets and are fully
collectible in the ordinary course of business, subject to any reserves
contained in the financial statements contained in Schedule 3.5 to this
------------
Agreement.
3.8 Inventories. All inventories reflected on the Company's unaudited
-----------
balance sheet as at the Financials Date and all inventories which have been
acquired since that date are stated on the Company's books and records at the
lower of average cost or market and are in good and salable condition and are
not obsolete.
3.9 Prepaid Items, Accounts Payable and Accrued Expenses. The Company's
----------------------------------------------------
unaudited balance sheet as at the Financials Date presents fairly the prepaid
items, accounts payable and accrued expenses of the Company as at and for the
Financials Date. All prepaid items, accounts payable and accrued expenses
incurred after the Financials Date were incurred in the ordinary course of
business and are usual and normal in amount, both individually and in the
aggregate.
3.10 Tax Matters. There is no known outstanding or proposed deficiency or
-----------
assessment by any federal, state, local or foreign government with respect to
any tax period. The amounts set up as reserves for taxes on the financial
statements contained in Schedule 3.5 to this Agreement are sufficient
------------
for the payment of all accrued and unpaid real property, use, withholding and
all other taxes imposed on the Company or its property or payable by it,
including interest, additions to taxes and penalties, if any, with respect
thereto, whether known or unknown and whether disputed or not, as of the
Financials Date, the dates of the respective financial statements and for all
periods prior thereto. The Company's federal, state and local tax returns have
not been audited and
<PAGE>
neither the Company nor either Shareholder is aware of any proposed audit by the
Internal Revenue Service or any foreign, state or local taxing authority. The
Company has not made a Section 341(f) election under the Internal Revenue Code
of 1986, as amended. The Company has provided Buyer with true and complete
copies of all federal, state, local and foreign tax returns filed by the Company
since 1989, including all amendments and adjustments, if any, to such returns.
3.11 Employees, Agents, Independent Contractors and Consultants;
-----------------------------------------------------------
Collective Bargaining Agreements.
- --------------------------------
(a) Schedule 3.11A to this Agreement contains a true and complete list of all
--------------
employees, agents, independent contractors and consultants of the Company. To
the best of the Company's and the Shareholder's knowledge, the Company has paid
in full to all employees, agents, independent contractors and consultants all
wages, salaries, commissions, bonuses and other direct compensation for all
services performed by them, except for such accrued and unpaid amounts,
including accrued sick pay and vacation pay as listed on Schedule 3.5 hereto.
------------
To the best of the Company's and the Shareholder's knowledge, the Company is in
compliance with all laws and regulations respecting employment and employment
practices, terms and conditions of employment, wages and hours, employee benefit
plans and taxes (including withholding taxes) relating to employment or to
personal services provided to the Company. To the best of the Company's and the
Shareholder's knowledge, no employee, agent, independent contractor or
consultant of the Company is in material violation of any employment agreement,
consulting agreement, proprietary information nondisclosure agreement or any
other contract or agreement with the Company or, to the best of the Company's
and the Shareholder's knowledge, such an agreement or contract with any previous
employer or other third party. Neither the Company nor any Shareholder has any
knowledge or information to the effect that any of the Company's employees
intend to terminate his or her employment relationship with the Company or that
any of the Company's agents, independent contractors or consultants intend to
terminate his or her contractual relationship with the Company. To the best of
the Company's and the Shareholder's knowledge, there are no agreements,
commitments or other obligations of the Company, whether oral or written, which
would prevent or obstruct the dismissal of any of the Company's employees,
agents, independent contractors or consultants.
(b) Schedule 3.11B to this Agreement contains a true and complete list of all
--------------
of the collective bargaining agreements entered into by the Company. Neither the
Company nor any Shareholder is aware of any intention of the Company's
nonunionized employees to seek union representation or its unionized employees
to seek any further concessions from the Company or to attempt to decertify the
current union. The Company has never experienced any labor strike or material
labor disputes, slowdown or stoppage, nor, to the best of the Company's and the
Shareholder's knowledge, is any threatened. Relations between the Company and
its employees, agents, independent contractors and consultants are good. No
union action or unfair labor practice
<PAGE>
claim has ever been filed or, to the best of the Company's and the Shareholder's
knowledge, is any threatened against the Company.
3.12 Intentionally Omitted.
-----------------------
3.13 Tangible Personal Property. Section 3.13A to this Agreement contains
-------------------------- -------------
a true and complete list describing and specifying the location of all vehicles,
equipment, furniture, fixtures, leasehold improvements and all other tangible
personal property or assets, used, owned, possessed or leased by, or in the
possession of, the Company in connection with the Business that have book values
of $10,000 or more. Except as set forth in Schedule 3.13B to this Agreement, all
--------------
personal property owned, used, possessed or leased by the Company is owned,
used, possessed or leased by the Company free and clear of all material liens,
claims, charges, pledges, security interests, encumbrances, liabilities, debts,
equities, restrictions on transfer or other defects in title of any kind or
nature. All items of personal property owned, used, possessed or leased by the
Company are in good operating condition and repair, normal wear and tear
excepted. All leases pursuant to which the Company holds any items of personal
property are listed on Schedule 3.13B to this Agreement and are in full
--------------
force and effect and are enforceable in accordance with their terms. Except as
set forth on Schedule 3.13B, none of such leases have been amended or modified.
--------------
Neither the Company nor, to the best of the Company's and the Shareholder's
knowledge, the other parties thereto are in material breach or default under any
of such leases; and no event has occurred which with notice or lapse of time, or
both, could constitute a material breach or default by Company or, to the best
of the Company's and the Shareholder's knowledge, the other parties thereto
under such leases or could accelerate any obligation or create any lien or
encumbrance under such leases. The Company has not assigned any of its interest
in such leases. No claim has been asserted or, to the best of the Company's and
the Shareholder's knowledge, exists that is adverse to the rights of the Company
to the continued possession of the leased property under such leases.
3.14 Intangible Property. Section 3.14 to this Agreement contains a true
------------------- ------------
and complete list of all patents, copyrights, trademarks, service marks, trade
names, logos and identifying marks and styles used by the Company in connection
with the Business (the "Intangible Property"). Except as disclosed on
Schedule 3.14 to this Agreement, and to the best of its knowledge, the Company
- -------------
owns and has the full right to use its name and all the Intangible Property in
each jurisdiction in which it conducts business. The Company has not infringed
and is not currently infringing any trade mark, service mark, trade name,
patent, copyright, logo or identifying mark, or wrongfully using any trade
secret, of any third party.
3.15 Contracts and Agreements. To the best of the Company's knowledge,
------------------------
and except as shown on Schedules 3.5 or in the accounts receivable,
-------------
Schedule 3.15 contains a true and complete list of the following agreements,
- -------------
contracts, leases (other than the leases already listed on Schedule 3.12 and
-------------
Schedule 3.13 to this Agreement) or other obligations or commitments, whether
- -------------
written or oral (collectively
<PAGE>
"Contracts"), to which the Company is a party or by which it or its property is
bound, including (i) contracts with employees, agents, independent contractors,
consultants, advisors, salespersons or sales representatives not cancelable at
will without cost or other liability by reason of such termination; (ii)
contracts with customers; (iii) contracts with suppliers or manufacturers of
products sold by the Company in the ordinary course of business; (iv) bonus,
deferred or incentive compensation, group insurance or other employee benefit
plans; (v) collective bargaining contracts; (vi) leases as lessor or lessee;
(vii) advertising or public relations contracts; (viii) conditional sales
contracts, security agreements, pledge agreements, trust receipts or any other
agreements or arrangements whereby any of the assets of the Company are subject
to a lien, encumbrance, charge or other restriction; (ix) mortgages, indentures,
notes or other instruments for or relating to any borrowing of money or the
extension of credit or the deferred purchase of property; (x) guarantees of any
obligations for the borrowing of money or otherwise, or any other agreements of
guarantee or indemnification (other than endorsements made for collection in the
ordinary course of business); (xi) agreements or arrangements for the purchase
or sale of any assets other than in the ordinary course of business; (xii)
continuing contracts for future purchase of materials, supplies or equipment;
(xiii) agreements, contracts or commitments relating to the issuance of any
securities; (xiv) agreements, contracts or commitments relating to the
acquisition of assets, capital stock or ownership interests of any business
enterprise; (xv) agreements, contracts, or commitments with any officer,
director or Shareholder of the Company; (xvi) contracts restricting doing
business in any areas or in any way limiting competition; and (xvii) any other
contracts (other than contracts entered into in the ordinary course of business)
to be performed in whole or in part more than 30 days from the date hereof
calling for aggregate payments by the Company in excess of $3,000 per month and
which are not terminable without cost or liability on 30-days' notice. Except as
set forth on Schedule 3.15, none of the Contracts have been amended or modified.
-------------
Each of the Contracts is in full force and effect and is enforceable in
accordance with its terms. Neither the Company nor, to the best of the Company's
and the Shareholder's knowledge, the other parties thereto are in material
breach or default under any such Contracts and no event has occurred which with
notice or lapse of time, or both, could constitute a material breach or default
under any such Contract or could accelerate any obligation or create any lien or
encumbrance under any such Contract. The Company has not assigned any of its
interest in the Contracts. No claim has been asserted or, to the best of the
Company's and the Shareholder's knowledge, exists that is adverse to the rights
of the Company under any of the Contracts.
3.16 Insurance. Schedule 3.16 to this Agreement contains a true and
--------- -------------
complete list of all life, fire, casualty, liability and all other insurance
policies maintained by the Company as of the Closing Date, all of which as of
such date are in full force and effect in the amounts provided therein. To the
best of the Company's and the Shareholder's knowledge as of the Closing Date,
there is no threat by any of the insurers to terminate or materially increase
the premiums payable under any such insurance policies due to the activities or
loss experience of the Company, and the Company is in compliance in all respects
with the conditions contained in such policies. To the best of the Company and
the Shareholder's knowledge, such policies cover the property and assets of the
<PAGE>
Company in amounts and against losses and risks such as are generally maintained
for comparably situated businesses.
3.17 Litigation. Except as set forth on Schedule 3.17 to this Agreement,
---------- -------------
there is no suit, action or legal, administrative, arbitration or other
proceeding pending, filed or initiated by, against or affecting the Company or
its properties, and neither the Company nor any Shareholder knows of any suit,
action or legal, administrative, arbitration or other proceeding threatened by,
against or affecting the Company or its properties or, with respect to matters
arising out of the Business, pending or threatened by, against or affecting the
Shareholder or any of the Company's officers or directors. Neither the Company
nor any Shareholder knows of any event or circumstance which could form the
basis of any such suit, action, proceeding or investigation.
3.18 Compliance with Law and Other Instruments. To the best of Company's
-----------------------------------------
and the Shareholder's knowledge, the business and operations of the Company have
been and are being conducted in accordance with all applicable laws, statutes,
ordinances, rules and regulations of all authorities (including, without
limitation, those relating to business conduct, public health and safety,
occupational health and safety and the environment). To the best of the
Company's and the Shareholder's knowledge, the Company is not in violation or
breach of, or in default under, any term or provision of its Articles of
Incorporation or its Bylaws or of any order, judgment, writ, injunction, decree,
license or permit of any court or any governmental or regulatory authority or of
any indenture, mortgage, deed of trust, lease, contract, instrument, commitment
or other agreement or arrangement, or subject to any restriction of any kind or
character, which might materially and adversely affect the Company or its
properties, business or prospects. To the best of the Company's and the
Shareholder's knowledge, neither the execution and delivery of this Agreement or
the other agreements to be entered into by the Company and/or any Shareholder
pursuant to this Agreement, nor the consummation of the transactions
contemplated by this Agreement and such other agreements, will conflict with, or
result in a violation or breach of, or constitute a default under, any term or
provision of the Company's Certificate of Incorporation or Bylaws or any order,
judgment, writ, injunction, decree, license, permit, law, statute, ordinance,
rule or regulation of any court or any governmental or regulatory authority or
any indenture, mortgage, deed of trust, lease, contract, instrument, commitment
or other agreement or arrangement to which the Company or any Shareholder is a
party or by which they or their properties are bound.
3.19 Conflicts of Interest. No Shareholder or any entity controlled
---------------------
by any Shareholder or, to the best of the Company's and the Shareholder's
knowledge, no director, officer or employee of the Company or any relative of a
Shareholder (i) owns, directly or indirectly, any interest in excess of 5% in,
or is an employee or representative of or consultant to, any corporation, firm,
association or other business entity or organization which is, or is engaged in
business as, a competitor, customer or supplier of the Company; (ii) owns,
directly or indirectly, in whole or in part, any tangible or intangible property
which the Company is using or the use of which is necessary for the conduct of
the Business (including, without limitation, any inventory, buildings,
<PAGE>
machinery or equipment); or (iii) has any cause of action or other claim
whatsoever against or owes any amount to the Company.
3.20 Licenses and Permits. Schedule 3.20 to this Agreement contains a
-------------------- -------------
true and complete list of all licenses, permits, orders, approvals and other
authorizations issued to the Company and its employees, which are in full force
and effect and which in any way relate to the Business. The Company and its
employees or agents have all licenses, permits, orders, approvals and other
authorizations required for the conduct of the Business as presently conducted
and, to the best of the Company's and the Shareholder's knowledge, no suspension
or cancellation of any of them is threatened.
3.21 Benefit Plans.
-------------
(a) Schedule 3.21 to this Agreement contains a true and complete list of all
-------------
group insurance programs and other benefit plans provided for the Company's
employees. Except as disclosed in Schedule 3.21 the Company does not have any
-------------
Employee Plans. For purposes of this Section, the term "Employee Plan" includes
all present (including those terminated or transferred within the past two
years) plans involving the Company providing any benefits to any current or
former employee of the Company which are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). The term Employee Plan
includes, but is not limited to, pension, retirement, profit sharing and stock
bonus plans and includes any Employee Plan that is a multi-employer plan as
defined in Section 3(37) of ERISA.
(b) Neither the Company nor any other person or entity which together with
the Company would be considered a single employer under Section 4001(b)(1) of
ERISA is or has been a party to or has any employees who are covered by any
multiemployer plan as defined in Section 3(37) of ERISA.
(c) Each Employee Plan is now, and has always been, established, maintained
and operated in all material respects in accordance with all applicable laws
(including but not limited to ERISA and the Internal Revenue Code of 1986, as
amended, and regulations thereunder) and in accordance with the plan documents.
All communications with respect to any Employee Plan by any person acting or
purporting to act on behalf of the Company (including but limited to the members
of any plan committee, all plan fiduciaries, plan administrators, the Company
and the Company's employees) accurately reflect, and have always accurately
reflected, in all material respects the documents and operations of any Employee
Plan. There is no unfunded liability for vested or nonvested benefits under any
Employee Plan. All material reports, forms and other documents required to be
filed with any governmental entity with respect to any Employee Plan have been
timely filed and are accurate. There is no pending or, to the best knowledge of
the Company and the Shareholder, threatened litigation or arbitration concerning
or involving any Employee Plan by any employee of the Company covered under such
Employee Plan.
<PAGE>
(d) No complaints by any governmental entity have been filed or, to the best
of the Company's and the Shareholder's knowledge, have been threatened with
respect to any Employee Plan. To the best of the Company's and the Shareholder's
knowledge, no complaints by an employee have been filed or are threatened to be
filed with respect to any Employee Plan.
3.22 Brokerage and Finders' Fees. Neither the Company nor any Shareholder
---------------------------
has incurred any liability to any broker, finder or agent for any brokerage
fees, finders' fees or commissions with respect to the transactions contemplated
by this Agreement.
3.23 Suppliers and Customers. No single supplier who accounted for more than
-----------------------
5% of the Company's purchases, or customer, other than Columbus Foods, who
accounted for more than 5% of the Company's sales, during its most recent
complete fiscal year, or the fiscal year to date, nor any supplier who is a
material source of supply of any goods essential to the Business, has (i)
canceled or otherwise terminated, or made any threat to cancel or otherwise
terminate, its relationship with the Company or (ii) materially decreased its
sale of services or supplies to the Company or its purchase of products
therefrom or made any threat with respect thereto. The Company has previously
provided a true and complete list of the principal customers and suppliers of
the Company to Buyer.
3.24 Bank and Financial Accounts. Schedule 3.24 is a true and complete list of
--------------------------- -------------
all names and locations of all banks and other financial institutions at which
the Company maintains accounts, the account number of each such account, and the
names of all persons authorized to make withdrawals therefrom.
3.25 Powers of Attorney. There are no persons holding a power of attorney on
------------------
behalf of the Company.
3.26 Officers and Directors. The officers and directors of the Company
----------------------
are as set forth on Schedule 3.26 to this Agreement.
-------------
3.27 Hazardous Materials. To the best of the Company and the Shareholder's
-------------------
knowledge, during any period in which the Company has owned, leased, rented or
occupied any real property (the "Real Property") and, to the best of the
Company's and the Shareholder's knowledge, during any period prior to the period
in which the Company has owned, leased, rented or occupied the Real Property,
there has been no storage, use, manufacture, generation, disposal, treatment or
release of any Hazardous Materials (as defined below) on, under or about the
Real Property or transport of Hazardous Materials to or from the Real Property,
except for (i) the removal of two underground storage tanks as previously
disclosed to Buyer, and (ii) and the existence of one diesel fuel storage tank
on the Real Property as previously disclosed to Buyer . For the purposes of this
Section, the term "Hazardous Materials" shall mean flammable explosives,
radioactive materials, hazardous wastes, toxic substances or any other
<PAGE>
materials which are included within the definition of "hazardous materials",
"hazardous substances", "hazardous wastes", or "toxic substances", under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (42 U.S.C. (S)(S) 9601 et seq.) or any other federal, state and local
-- ---
laws or ordinances pertaining to industrial hygiene, soil and ground water or
environmental conditions, including, without limitation, asbestos in any form
and urea formaldehyde insulation. The use of the Real Property is in compliance
with all local, state and federal statutes, laws, ordinances, rules and
regulations regarding Hazardous Materials. Without limiting the generality of
the foregoing, neither the Shareholder nor the Company has, with respect to the
Real Property:
(a) Received any notice from the Environmental Protection Agency, the
Occupational Safety and Health Administration (other than as previously
disclosed to Buyer), or any other federal, state or local governmental or
regulatory agency or regional office with responsibility for health,
environmental protection, waste disposal, toxic materials, underground tanks,
water quality, sanitation, public works or industrial hygiene of any violation
or potential violation of any applicable federal, state or local statutes, laws,
rules, ordinances or regulations relating to any Hazardous Materials; or
(b) Been the subject of an enforcement, cleanup, removal, closure,
quarantine or other governmental or regulatory action instituted, completed or,
to the best of the Company's and the Shareholder's knowledge threatened, with
respect to any Hazardous Materials; or
(c) Received or, to the best of the Company's and the Shareholder's
knowledge, been threatened with a claim by a third party against the Company or
its assets relating to damage, contribution, cost recovery compensation, loss or
injury resulting from any Hazardous Materials; or
(d) Imposed or had imposed on the Real Property, at any time for any period
of time, a condition to or restriction on the use, ownership, occupancy or
transferability of the Real Property or any part thereof, including, without
limitation, a closure or limitation of access, due to the use, manufacture,
storage, disposal or transport of Hazardous Materials on, under, about or across
the Real Property; or
(e) Conducted, or learned of the conduct by a third person or governmental
body of, any environmental audit or other investigation into the presence or
condition of Hazardous Materials on, under, about, neighboring or affecting the
Real Property, which audit or investigation concluded, directly or indirectly,
that there existed actual or potential liability or obligation under any of the
laws, regulations or ordinances regarding Hazardous Materials to remove, repair,
clean-up, detoxify, quarantine, or otherwise remedy a condition involving
Hazardous Materials on the Real Property; or
(f) Received any information regarding any of the properties bordering or
surrounding the Real Property, or any of the properties containing
<PAGE>
water or other materials used in connection with the Business, that any of the
events described in items (a) through (e) has occurred with respect to those
properties.
3.28 Full Disclosure. At the date of this Agreement the Company and
---------------
the Shareholder have, and at the Closing Date the Company and the Shareholder
will have, disclosed to Buyer all material events, conditions and facts known to
the Company and/or Shareholder which affect the Business, operations and
prospects of the Company and which are reasonably required for Buyer to evaluate
the acquisition of the Purchased Assets and the related assumption of the
Assumed Liabilities. No representations or warranties by the Company or
Shareholder contained in this Agreement or in any document, statement,
certificate, exhibit, report or schedule furnished or to be furnished hereunder
contain or will contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statement and facts contained therein not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
---------------------------------------
the Company and the Shareholder as follows:
4.1 Organization and Standing. Buyer is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of the State of California,
with full power and authority (corporate and other) to carry on its business and
to enter into and carry out the terms of this Agreement.
4.2 Authority to Enter Agreement; Enforceability. Buyer has the right,
--------------------------------------------
power and authority to enter into and to carry out the terms of this Agreement
and such other agreements, without obtaining the approval or consent of any
other party or authority. This Agreement and such other agreements constitute
the legal, valid and binding agreements of Buyer, enforceable against it in
accordance with their respective terms.
4.3 Compliance with Law and Other Instruments. Except for the requirement
-----------------------------------------
that the terms and conditions of this Agreement and the other agreements to be
entered into by Buyer in connection with the consummation of this Agreement be
approved by Buyer's Board of Directors, which approval has not yet been
obtained, neither the execution and delivery of this Agreement or such other
agreements, nor the consummation of the transactions contemplated by this
Agreement and such other agreements, will conflict with, or result in a
violation or breach of, or constitute a default under, any term or provision of
Buyer's Certificate of Incorporation or Bylaws or any order, judgment, writ,
injunction, decree, license, permit, law, statute ordinance, rule or regulation
of any court or any governmental or regulatory authority or any indenture,
mortgage, deed of trust, lease, contract, instrument, commitment or other
agreement or arrangement to which Buyer is a party or by which it or its
properties are bound.
<PAGE>
4.4 Brokerage and Finders' Fees. Buyer has not incurred any liability
---------------------------
to any broker, finder or agent for any brokerage fees, finders' fees or
commissions with respect to the transactions contemplated by this Agreement.
5. COVENANTS OF THE PARTIES.
------------------------
5.1 Operation of the Business of the Company. During the period from
----------------------------------------
and after the date of this Agreement and until the Closing Date, the Company and
the Shareholder covenant and agree that, unless they obtain Buyer's prior
written consent to the contrary, or except as specifically authorized in this
Agreement, the Company shall, and the Shareholder shall cause the Company to,:
(a) make, amend and terminate contracts only in the ordinary course of
business;
(b) refrain from suffering or refrain from creating any security interest,
encumbrance or restriction on its properties or assets, except in the ordinar
course of business consistent with past practices;
(c) refrain from disposing of any of its properties or assets, except in the
ordinary course of business consistent with past practices;
(d) refrain from entering into or becoming a party to any employment,
consulting or sales representation agreement, except in the ordinary course of
business consistent with past practices;
(e) refrain from increasing the rate of compensation paid or payable by it
to any of its officers, directors, employees, agents, independent contractors or
consultants, except pursuant to existing contractual obligations, and from
making loans or advances to officers, directors, agents, employees, independent
contractors, consultants or the Shareholder, or any member of the families of
any of them, except for advances for reasonable business expenses in accordance
with past practices;
(f) refrain from paying or agreeing to pay any bonus, extra compensation,
pension or severance pay under any pension plan or otherwise, except pursuant to
existing contractual obligations;
(g) maintain its books accounts and records in the usual, regular and
ordinary manner and in compliance with all applicable laws;
(h) meet its obligations under all contracts and not become in default
thereunder;
<PAGE>
(i) maintain all of its assets in good repair, order and condition, ordinary
wear and tear excepted;
(j) refrain from granting or committing to grant any options, warrants,
conversion or other rights to subscribe, purchase or otherwise acquire any
shares of stock of the Company or other ownership interest of the Company or
issuing or committing to issue any stock of the Company or other securities
convertible into shares of the stock of the Company or other ownership interest;
(k) not declare, set aside, or pay any dividend or distribution with respect
to the stock or other ownership interest of the Company;
(l) not directly or indirectly redeem, purchase or otherwise acquire or
commit to acquire any stock or other ownership interest of the Company;
(m) refrain from changing its Certificate of Incorporation or Bylaws;
(n) refrain from borrowing or agreeing to borrow any funds other than unde
existing banking relationships, in the ordinary course of business consistent
with past practices;
(o) refrain from guaranteeing or agreeing to guarantee the obligations of
others;
(p) refrain from waiving or committing to waive any rights of substantial
value except for good and valuable consideration;
(q) refrain from cancelling or materially amending any insurance policy
except in exchange for a new policy with at least the same coverage;
(r) refrain from entering into any transaction which would in any
significant respect change the character of the business conducted by the
Company; and
(s) operate in such manner as to assure that the representations and
warranties of the Company and the Shareholder set forth in this Agreement will
be true, correct and complete on and as of the Closing Date.
5.2 Access to Information and Records. The Company covenants and agrees,
---------------------------------
and the Shareholder covenants and agrees to cause the Company, to give Buyer and
its counsel, accountants and other representatives (collectively, "Buyer's
Representatives") full access, during normal business hours, throughout the
period prior to the Closing Date, to all of the Company's assets, properties,
contracts, commitments, books
<PAGE>
and records, and to cause the Company to furnish Buyer and Buyer's
Representatives during such period with all information concerning its affairs
as they reasonably may request. No investigation or inquiry made by Buyer or
Buyer's Representatives hereunder shall in any way affect or lessen the
representations and warranties made by the Company and the Shareholder under
this Agreement.
5.3 Best Efforts; Further Assurances. Each party to this Agreement shall
--------------------------------
use his or its best efforts to cause the satisfaction of all conditions to the
consummation of this Agreement which are in the control of such party and to
cooperate as necessary in the satisfaction of all other conditions to the
consummation of this Agreement. Each party hereto will, from time to time after
the execution and consummation of this Agreement, execute and deliver such
instruments, documents and assurances and take such further actions as the other
parties may reasonably request to carry out the purpose and intent of this
Agreement.
5.4 Publicity. All notices to third parties and all other publicity
---------
concerning this Agreement and the transactions contemplated by this Agreement
shall be jointly planned and coordinated between Buyer, on the one hand, and the
Company and the Shareholder, on the other hand. No party shall make a unilateral
press release or public announcement, or announcement to employees, creditors,
customers or others without the prior written approval of the other parties
except as may be required by law.
5.5 Trade Secrets, Non-Competition, Etc. As a material inducement to
-----------------------------------
Buyer to enter into and consummate this Agreement, the Company and the
Shareholder agree that, after the Closing Date:
(a) Trade Secrets. The Company and the Shareholder shall not, without the
-------------
prior written consent of Buyer, except as may be required by law, governmental
rules and regulations or litigation between the parties, disclose or use, in any
way, any confidential business or technical information or trade secret of the
Company, whether or not conceived of or prepared by the Company or Shareholder
(the "Trade Secrets"), including without limitation any information concerning
any procedures, operations, investments, techniques, data, compilations of
information, records, financing, costs, employees, purchasing, accounting,
marketing, merchandising, sales, customers, salaries, pricing, profits, plans
for future development, and the identity, requirements, preferences, practices
and methods of doing business of specific parties with whom the Company
transacts business, and all other information which is related to any service or
business of the Company; all of which Trade Secrets will be the exclusive and
valuable property of Buyer.
(b) Tangible Items. All customer lists, patents, copyrights, trademarks,
--------------
trade names, files, records, documents, drawings, plans, specifications,
manuals, books, forms, receipts, notes, reports, memoranda, studies, data,
calculations, recordings, catalogues, compilations of information,
correspondence and all copies, abstracts and summaries of the foregoing and all
physical items related to the business of
<PAGE>
the Company, other than a merely personal item, whether of a public nature or
not, and whether prepared by the Company or Shareholder or not, are and shall be
the exclusive property of Buyer and shall not be removed from the premises of
Buyer, without the prior written consent of Buyer.
(c) Solicitation of Customers. During the period commencing on the Closing
--------------------------
Date and ending five years from that date (such period not to include any period
of violation hereof by the Company or a Shareholder or period which is required
for litigation to enforce this Section 5.5(c)), neither the Company nor
Shareholder shall directly or indirectly, either for its or his own benefit or
purposes or for the benefit or purposes of any other person, solicit, call on,
interfere with, accept any business from, attempt to divert or entice away any
person or firm who was or is a customer of the Company prior to or on the
Closing Date or is a customer of Buyer after the Closing Date, if such business
involves the wholesale distribution of food or related equipment or supplies.
(d) Solicitation of Employees. During the period commencing on the Closing
-------------------------
Date and ending five years from that date (such period not to include any period
of violation hereof by the Company or a Shareholder or period which is required
for litigation to enforce this Section 5.5(d)), neither the Company nor either
Shareholder shall directly or indirectly, employ or offer to employ, call on,
solicit, interfere with, attempt to direct or entice away any prior or existing
employee or independent contractor of the Company in any capacity if that person
possesses or has knowledge of any Trade Secrets.
(e) Noncompetition.
--------------
(i) As used herein, the term "Competitive Activity" shall mean any
participation in, assistance of business from, engagement in business with, or
assistance, promotion or organization of, any person, partnership, corporation,
firm, association or other business organization, entity or enterprise by the
Company or either Shareholder which, directly or indirectly, is engaged in, or
hereinafter engages in the wholesale distribution of meat or related equipment
or supplies.
(ii) During the period commencing on the Closing Date and ending on five
years from that date (any such period not to include any period of violation
hereof by the Company or either Shareholder or period which is required for
litigation to enforce this Section 5.5(e)), neither the Company nor either
Shareholder shall engage in any Competitive Activity in the State of California;
(f) Exception for Consulting Agreements. A Shareholder shall not be deemed
-----------------------------------
to be in breach of his obligations under this Section 5.5, to the extent that he
is performing his duties and obligations to Buyer pursuant to a Consulting
Agreement (as defined below).
<PAGE>
(g) Injunctive Relief. The Company and the Shareholder hereby acknowledge
-----------------
and agree that it would be difficult to fully compensate Buyer for damages
resulting from the breach or threatened breach of the foregoing provisions and,
accordingly, that Buyer, without being required to post any bond, shall be
entitled to temporary and injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions, to enforce such
provisions. This provision with respect to injunctive relief shall not, however,
diminish the right of Buyer to claim and recover damages.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.
---------------------------------------------------
Buyer's obligation to consummate this Agreement is expressly subject to the
satisfaction, on or prior to the Closing Date, of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part by Buyer in writing):
6.1 Representation and Warranties. All representations and warranties of
-----------------------------
the Company and the Shareholder contained in this Agreement, or any certificate,
schedule, exhibit, statement, report or other document delivered or furnished by
Shareholder or the Company pursuant this Agreement, shall be true, correct and
complete as of the Closing Date as if made at and as of such date.
6.2 Covenants. The Company and the Shareholder shall have performed and
---------
satisfied all covenants and conditions required by this Agreement to be
performed or satisfied by them on or prior to the Closing Date.
6.3 Certificates.
------------
(a) On the Closing Date, the Company shall have furnished to Buyer a
certificate dated the Closing Date signed by an officer of the Company to effect
that (i) all of its representations and warranties contained in this Agreement,
or any certificate, schedule, exhibit, statement, report or other document
delivered or furnished by it pursuant to this Agreement, remain true, correct
and complete as of the Closing Date as if made at and as of such date; and (ii)
it has performed and satisfied all covenants and conditions required by this
Agreement to be performed or satisfied by it on or prior to the Closing Date.
(b) On the Closing Date, Shareholder shall have furnished Buyer with a
certificate dated the Closing Date signed by him to the effect that (i) all the
representations and warranties of the Company and the Shareholder contained in
this Agreement, or any certificate, schedule, exhibit, statement, report or
other document delivered or furnished by Shareholder or the Company pursuant to
this Agreement, remain true, correct and complete as of the Closing Date as if
made at and as of such date; and (ii) the Company and the Shareholder have
performed and satisfied all covenants and
<PAGE>
conditions required by this Agreement to be performed or satisfied by it or him
on or prior to the Closing Date.
6.4 Material Errors. Buyer shall not have discovered any material error,
---------------
misstatement or omission in any of the representations or warranties made by the
Company and the Shareholder in this Agreement, or any certificate, schedule,
exhibit, statement, report or other documents delivered or furnished by
Shareholder or the Company pursuant to this Agreement; or (ii) failure on the
part of the Company or Shareholder to perform or satisfy any covenants or
conditions required to be performed or satisfied by it or him under this
Agreement.
6.5 Absence of Litigation. No action or proceeding shall have been
---------------------
instituted or threatened prior to or at the Closing Date before any court or
other governmental body, or instituted or threatened by any public authority,
the result of which could prevent or make illegal the consummation of the
transactions contemplated hereunder or under the other agreements to be entered
into in connection with this Agreement or which could have a material adverse
effect the Company or its properties, Business or prospects.
6.6 Absence of Damage to Property. The tangible and real properties of
-----------------------------
the Company shall not have suffered any substantial damage or destruction,
whether by fire or otherwise, and whether or not covered by insurance, which
could have a material adverse effect on the Company or its properties, Business
or prospects.
6.7 Consents. The Company and the Shareholder shall have obtained the
--------
consent or approval of each person whose consent to or approval of the
transactions contemplated by this Agreement or the other agreements to be
entered into in connection with this Agreement is required in order to
consummate this such other agreements or to continue the operation of the
Business as it is currently conducted. Such consents and approvals shall
include, without limitation, the consent of the Company's current landlord and
the consents of the Shareholder's spouses, if any, in regard to their community
property rights, in forms satisfactory to Buyer and its counsel.
6.8 Governmental Approvals. The Company shall have obtained all consents
----------------------
and approvals of all governmental agencies that are necessary to permit the
consummation of the transactions contemplated by this Agreement, the other
agreements to be entered into in connection with this Agreement and the
operation of the Business as it is currently conducted.
6.9 Execution of Consulting Agreements. Craig shall have executed and
----------------------------------
delivered to Buyer, a Consulting Agreement in the form attached as
Exhibit C to this Agreement (a "Consulting Agreement").
- ---------
6.10 Intentionally Omitted.
---------------------
<PAGE>
6.11 Opinion of Counsel. The Company and the Shareholder shall have
------------------
furnished Buyer with the opinion of Kroloff, Belcher, Smart, Perry &
Christopherson dated as of the Closing Date, in form and substance reasonably
satisfactory to Buyer and its counsel, covering the matters specified in
Exhibit D to this Agreement.
- ---------
6.12 Due Diligence Review. On or prior to July 12, 1996 Buyer and
--------------------
Buyer's representatives shall have completed their due diligence review of the
Company, to their complete satisfaction.
6.13 Board Approval. Buyer's Board of Directors shall have approved of
--------------
the terms and conditions of this Agreement and the other agreements to be
entered into in connection with this Agreement.
6.14 Corporate Name Change. Within forty-five (45) days, the Company
---------------------
and the Shareholder shall have furnished to Buyer an amendment to the Company's
Articles of Incorporation, in form acceptable for filing with the California
Secretary of State, changing the Company's corporate name to a name that is, in
the reasonable opinion of Buyer and Buyer's counsel, not substantially similar
to "Craig & Hamilton Meat Co., Inc."
6.15 Approval of Documentation. The form and substance of all opinions,
--------------------------
certificates, instruments of transfer and other documents to be furnished by the
Company and the Shareholder and their counsel under this Agreement shall be
satisfactory in all reasonable respects to Buyer and its counsel.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
--------------------------------------------------------------
SHAREHOLDER TO CLOSE.
--------------------
The obligation of the Company and the Shareholder to consummate this
Agreementis expressly subject to the satisfaction, on or prior to the Closing
Date, of all of the following conditions (compliance with which or the
occurrence of which may be waived in whole or in part in writing by all of the
Company and the Shareholder):
7.1 Representations and Warranties. All representations and warranties of
------------------------------
Buyer contained in this Agreement shall be true, correct and complete as of the
Closing Date as if made at and as of such date.
7.2 Covenants. Buyer shall have performed and satisfied all covenants and
---------
conditions required by this Agreement to be performed or satisfied by it on or
prior to the Closing Date.
7.3 Buyer' Certificate. On the Closing Date, Buyer shall have furnished
------------------
to the Company and the Shareholder a certificate dated the Closing Date signed
by an officer of Buyer, to the effect that (i) all of its representations and
warranties con-
<PAGE>
tained in this Agreement, or any certificate, schedule, exhibit, statement,
report or other document delivered or furnished by it pursuant to this
Agreement, remain true, correct and complete as of the Closing Date as if made
at and as of such date; and (ii) it has performed and satisfied all covenants
and conditions required by this Agreement to be performed or satisfied by it on
or prior to the Closing Date.
7.4 Material Errors, Etc. The Shareholder shall not have discovered any
---------------
material (i) error, misstatement or omission in any of the representations or
warranties made by Buyer in this Agreement, or any certificate, schedule,
exhibit, statement, report or other document delivered or furnished by Buyer
pursuant to this Agreement; or (ii) failure on the part of Buyer to perform or
satisfy any covenants or conditions required to be performed or satisfied by it
hereunder.
7.5 Absence of Litigation. No action or proceeding shall have been instituted
---------------------
prior to or at the Closing Date before any court or other governmental body, or
instituted or threatened by any public authority, the result of which could
prevent or make illegal the consummation of the transactions contemplated
hereunder or under the other agreements to be entered into in connection with
this Agreement.
7.6 Opinion of Counsel. Buyer shall have furnished the Shareholder with the
------------------
opinion of Donald G. Alvarado, Esq., dated the Closing Date, in form and
substance reasonably satisfactory to the Company, the Shareholder and their
counsel, covering the matters specified in Exhibit E to this Agreement.
---------
7.7 Approval of Documentation. The form and substance of all opinions,
-------------------------
certificates and other documents to be delivered by Buyer and its counsel under
this Agreement shall be satisfactory in all reasonable respects to the Company,
the Shareholder and their counsel.
8. TERMINATION AND ABANDONMENT.
---------------------------
8.1 Termination. This Agreement may be terminated on or before the Closing
-----------
Date without liability on the part of any party exercising such right of
termination:
(a) by the mutual consent of Buyer, the Company and the Shareholder;
(b) by any party hereto if there has been a material misrepresentation or
breach on the part of the other party of the warranties of such other party as
set forth in this Agreement or made pursuant hereto, or if there has been any
material failure on the part of the other party to perform its obligations or
comply with the covenants under this Agreement; provided that for this purpose
the Company and the Shareholder shall be deemed one party and such termination
by the Company and the Shareholder may only be made by all of them.
<PAGE>
8.2 Procedure and Effect of Termination. In the event of termination and
-----------------------------------
abandonment by Buyer, as one party, or by the Company and the Shareholder, as
the other party, or by both parties pursuant to Section 8.1 above, written
notice thereof shall be given to the other party and this Agreement shall
terminate and be abandoned, without further action by any of the parties hereto.
If this Agreement is terminated as provided in Sections 8.1(a) or 8.1(b) above
or because a condition to a party's obligation to consummate the transactions
contemplated by this Agreement has not been satisfied by August 12, 1996, and
the other party is not in default, no party hereto shall have any liability or
further obligations to any other party to this Agreement.
9. SURVIVAL AND INDEMNIFICATION.
----------------------------
9.1 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and agreements made by Buyer, the Company and the
Shareholder in this Agreement (including statements contained in any schedule,
certificate, exhibit, statement, report or other document delivered by or on
behalf of any party hereto or in connection with the transactions contemplated
hereby) shall survive the execution, delivery and performance of this Agreement
and any investigations, inspections, examinations, or audits made by or on
behalf of the parties. All such representations and warranties shall remain in
full force and effect until the expiration of the applicable statute of
limitations, unless specific claims shall have been made in writing, or an
action at law or in equity shall have been commenced or filed, in good faith, on
or prior to such anniversary dates. Nothing in this Section 9.1 shall affect the
obligations and indemnities of the parties with respect to the covenants and
agreements contained in this Agreement that are permitted or required to be
performed, in whole or in part, after the Closing Date.
9.2 Indemnification.
---------------
(a) Except for the limitations on indemnification regarding uncollectible
accounts receivable and unsold inventory as set forth in Section 1.5 herein, the
Company and the Shareholder, jointly and severally, agree to indemnify Buyer and
hold it harmless against and in respect of any and all claims, losses, expenses,
obligations and liabilities, including court costs and reasonable attorneys'
fees associated therewith, which arise or result from or are incident or related
to (i) the inaccuracy of any representation or breach of any warranty of the
Company or Shareholder, or (ii) any default or failure of the Company's or
Shareholder's commitments or obligations under this Agreement, or (iii) by
reason of any act or omission of the Company or Shareholder which constitutes a
breach or default under this Agreement, or (iv) the Excluded Liabilities. The
Company and Shareholder shall reimburse Buyer on demand for any payment made or
loss suffered by Buyer at any time after the execution of this Agreement, based
upon the judgment of any court of competent jurisdiction or pursuant to a bona
fide compromise or settlement of claims, demands or actions, in respect of any
damages to which the foregoing indemnity relates. Notwithstanding the foregoing,
Buyer shall have the right, but shall not be required, to offset or reduce the
amount of any and all payments made as part of the
<PAGE>
Purchase Price by the amount of any such payment or loss. Any such offset or
reduction shall not be deemed a waiver of any right or remedy which Buyer may
have either under this Agreement or otherwise. Consummation of the transaction
contemplated under this Agreement shall not be deemed or construed to be a
waiver of any right or remedy of Buyer, nor shall this Section or any other
provision of this Agreement be deemed or construed to be a waiver of any ground
of defense by Buyer.
(b) Buyer agrees to indemnify the Company and the Shareholder and hold them
harmless against and in respect of any and all damages, claims, losses,
expenses, costs, obligations and liabilities, including court costs and
reasonable attorneys' fees, which arise or result from or are incident or
related to (i) the inaccuracy of any representation or breach of any warranty of
Buyer, or (ii) any default of the commitments or obligations of Buyer under this
Agreement, or (iii) by reason of any act or omission of Buyer which constitutes
a breach or default under this Agreement, or (iv) the Assumed Liabilities. Buyer
shall reimburse the Company and the Shareholder on demand for any payment made
or loss suffered by them at any time after the execution of the Agreement, based
on the judgment of any court of competent jurisdiction or pursuant to a bona
fide compromise or settlement of claims, demands or actions, in respect of any
damages to which the foregoing indemnity relates. Consummations of the
transaction contemplated under this Agreement shall not be deemed or construed
to be a waiver of any right or remedy of the Company or the Shareholder, nor
shall this Section or any other provision of this Agreement be deemed or
construed to be a waiver of any ground of defense by them.
(c) The party indemnified hereunder (the "Indemnitee") shall promptly notify
the indemnifying party (the "Indemnitor") of the existence of any claim, demand,
or other matter involving liabilities to third parties to which the Indemnitor's
indemnification obligations would apply and shall give the Indemnitor 30 days
(or such shorter period as required by the contingencies of such claim, demand
or other matter involving liabilities to third parties) in which to elect to
defend the same at its own expense and with counsel of its own selection (who
shall be approved by the Indemnitee, which approval shall not be unreasonably
withheld); provided that the Indemnitee shall at all times also have the right
to fully participate in the defense at its own expense. If the Indemnitor shall,
within such 30-day period, fail to defend, the Indemnitee shall have the right,
but not the obligation, to undertake the defense of, and to compromise or settle
(exercising reasonable business judgment) the claim or other matter on behalf,
for the account, and at the risk and expense of the Indemnitor. Except as
provided above, the Indemnitee shall not compromise or settle the claim or other
matter without the written consent of the Indemnitor, such consent not to be
unreasonably withheld. If the claim is one that cannot by its nature be defended
solely by the Indemnitor, the Indemnitee shall make available all information
and assistance that the Indemnitor may reasonably request; provided that any
associated expenses shall be paid by the Indemnitor.
10. MISCELLANEOUS.
-------------
<PAGE>
10.1 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing, and shall be deemed to have been given if
personally delivered or 72 hours after being placed in the United States mail,
registered or certified-return receipt requested, postage prepaid, addressed as
follows:
If to the Company:
Craig & Hamilton Meat Co., Inc.
P.O. Box 4441
Stockton, CA 95204
With a copy to:
Gary Christopherson, Esq.
Kroloff, Belcher, Smart, Perry & Christopherson
7540 Shoreline Drive
Stockton, CA 95219
If to Craig:
Mr. Patrick D. Craig
P.O. Box 4441
Stockton, CA 95204
If to Buyer:
Port Stockton Food Distributors, Inc.
4343 E. Fremont Street
P.O. Box 30
Stockton, CA 95201
Attn: John Goneau
With a copy to:
Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Attn: Donald G. Alvarado, Esq.
Each of the parties shall be entitled to specify a different address by giving
notice as aforesaid.
<PAGE>
10.2 Entire Agreement. This Agreement, and the Exhibits and
----------------
Schedules hereto, which are incorporated into this Agreement by reference and
are made a part hereof, constitute the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations, and discussions, whether oral or
written.
10.3 Amendment and Modification. No supplement, modification, waiver or
--------------------------
termination of this Agreement shall be binding unless executed in writing by the
party to be bound. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
10.4 Headings. Section and subsection headings are not to be considered
--------
part of this Agreement and are included solely for convenience and reference and
shall not be held to define, construe or limit the meaning of any provision of
this Agreement.
10.5 Successors and Assigns. All of the terms, provisions and obligations
----------------------
of this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, representatives, successors and
assigns. Notwithstanding the foregoing, neither this Agreement nor any rights or
obligations hereunder shall be assigned, pledged, hypothecated or otherwise
transferred by a party without the prior written consent of all other parties,
except (i) by operation of law, or (ii) by Buyer to any entity that Buyer
controls (provided that such assignment shall not relieve Buyer of its
obligations hereunder, if such assignee does not perform such obligations).
10.6 Governing Law; Venue. The validity, construction and interpretation of
--------------------
this Agreement shall be governed by the internal laws of the State of California
applicable to contracts made and to be performed wholly within that state.
10.7 Third Parties. Nothing in this Agreement, expressed or implied, is
-------------
intended to confer upon any person other than the parties hereto any rights or
remedies under or by reason of this Agreement.
10.8 Expenses. Each party shall bear the expenses (including, without
--------
limitation, attorneys' fees) incurred by him or it in connection with the
negotiation, execution and delivery of this Agreement and the agreements
contemplated by this Agreement.
10.9 Attorneys' Fees. In the event any party takes legal action to
---------------
enforce any of the terms of this Agreement, the unsuccessful party to such
action shall pay the successful party's reasonable expenses, including
attorneys' fees for pretrial investigation, at trial, and on appeal, incurred in
such action.
<PAGE>
10.10 Counterparts. This Agreement may be executed simultaneously and in
------------
two or more counterparts, each one of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
10.11 Joint and Several Obligations. All of the obligations of the
-----------------------------
Company and the Shareholder hereunder shall constitute the joint and several
obligations of each of the Company and each Shareholder.
10.12 Severable Provisions. If any of the provisions of this Agreement
--------------------
may be determined to be illegal or otherwise unenforceable, in whole or in part,
the remaining provisions, and any partially unenforceable provisions to be the
extent enforceable, shall nevertheless be binding and enforceable. For the
purpose of determining the scope of the covenants set forth in Section
5.5(e)(ii) above, each of the subsections thereof shall be considered a separate
covenant such that if the geographic scope of any such subsections shall be
determined by a court of competent jurisdiction to be excessive and invalid,
such subsections shall be severed and the remaining subsections shall be deemed
enforceable and remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first set forth above.
BUYER:
-----
PORT STOCKTON FOOD DISTRIBUTORS,
INC., a California
corporation
By______________________________
Its___________________________
THE COMPANY:
-----------
CRAIG & HAMILTON MEAT CO., INC., a
California corporation
By_____________________________
Its__________________________
THE SHAREHOLDER:
---------------
_______________________________
PATRICK D. CRAIG
<PAGE>
EXHIBITS
--------
A - Intentionally Omitted.
B - Form of Lease
C - Consulting Agreement
D - Opinion of Company's and Shareholder's Counsel
E - Opinion of Buyer's Counsel
<PAGE>
SCHEDULES
---------
Schedule No. Description
- ------------ -----------
3.5 Balance Sheeet as of February 24, 1996
3.6 Material or Significant Changes in
Financial Position
3.11A Employees
3.11B Collective Bargaining Agreements
3.13A List of Personal Property
3.13B Personal Property Leases
3.14 Intangible Property
3.15 Other Agreements
3.16 Insurance Policies
3.17 Litigation
3.20 Licenses and Permits
3.21 Employee Benefits
3.26 List of Officers and Directors
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-16-1996
<CASH> 14,481
<SECURITIES> 0
<RECEIVABLES> 51,808
<ALLOWANCES> 2,012
<INVENTORY> 118,058
<CURRENT-ASSETS> 193,791
<PP&E> 176,347
<DEPRECIATION> 67,433
<TOTAL-ASSETS> 330,693
<CURRENT-LIABILITIES> 114,243
<BONDS> 43,355
0
0
<COMMON> 203
<OTHER-SE> 149,043
<TOTAL-LIABILITY-AND-EQUITY> 330,693
<SALES> 307,408
<TOTAL-REVENUES> 307,408
<CGS> 256,685
<TOTAL-COSTS> 260,726
<OTHER-EXPENSES> 36,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 718
<INCOME-PRETAX> 10,005
<INCOME-TAX> 3,737
<INCOME-CONTINUING> 6,268
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,268
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0
</TABLE>
