Form 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mt2aTdAnPPR84dXFWk4tJxRV8JTtZctN8ObThp2vRxalWiOGqrWTTMI8RreVJRF8 3x1wrAjXaORyYTBCHw5/qw== 0001193125-03-083237.txt : 20031118 0001193125-03-083237.hdr.sgml : 20031118 20031118131130 ACCESSION NUMBER: 0001193125-03-083237 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20031005 FILED AS OF DATE: 20031118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMART & FINAL INC/DE CENTRAL INDEX KEY: 0000875751 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 954079584 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10811 FILM NUMBER: 031010011 BUSINESS ADDRESS: STREET 1: 600 CITADEL DRIVE CITY: CITY OF COMMERCE STATE: CA ZIP: 90040 BUSINESS PHONE: 3238697500 MAIL ADDRESS: STREET 1: 600 CITADEL DRIVE CITY: CITY OF COMMERCE STATE: CA ZIP: 90040 FORMER COMPANY: FORMER CONFORMED NAME: SFI CORP /CA DATE OF NAME CHANGE: 19600201 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

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 October 5, 2003

¨	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

incorporation or organization)

(IRS Employer

Identification No.)

600 Citadel Drive
City of Commerce, California		90040
(Address of principal executive offices)		(zip code)

(323) 869-7500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨.

As of November 12, 2003, the registrant had outstanding 29,919,274 shares of common stock.

SMART & FINAL INC.

Index

Caption		Page

Forward-Looking Statements		3

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Consolidated Balance Sheets	4

	Unaudited Consolidated Statements of Operations	5

	Unaudited Consolidated Statements of Cash Flows	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	29

Item 4.	Controls and Procedures	30

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 2.	Changes in Securities and Use of Proceeds	32

Item 3.	Defaults upon Senior Securities	32

Item 4.	Submission of Matters to a Vote of Security Holders	32

Item 5.	Other Information	32

Item 6.	Exhibits and Reports on Form 8-K	33

SIGNATURES		36

Forward-Looking Statements

When used in this report, the words “believe,” “expect,” “anticipate” and similar expressions, together with other discussion of future trends or results, are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are subject to certain risks and uncertainties, including those discussed below that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date hereof. All of these forward-looking statements are based on estimates and assumptions made by our management which, although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such statements. Actual results may differ materially and adversely from such statements due to known and unknown factors. The following important factors, among others, could cause our results of operations to be materially and adversely affected in future periods:

•	increased competitive pressures;

•	deterioration in national or regional economic conditions;

•	interruption and/or inability to obtain adequate supplies of products; and

•	adverse state or federal legislation or regulation that increases the costs of compliance or adverse findings by a regulator with respect to existing operations.

Many of these factors are beyond our control. There can be no assurance that we will not incur new or additional unforeseen costs in connection with the ongoing conduct of our business. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. Additional information regarding these factors and other risks is included in Item 1 – Business, Risk Factors in our Annual Report on Form 10-K for the year ended December 29, 2002.

SMART & FINAL INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	October 5, 2003			December 29, 2002
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	40,925		$	23,002
Trade accounts receivable, less allowance for doubtful accounts of $404 in 2003 and $398 in 2002		18,645			18,430
Inventories		123,013			123,578
Prepaid expenses and other current assets		14,405			8,370
Deferred tax asset		12,513			13,162
Assets of discontinued operations		8,966			154,432

Total current assets		218,467			340,974
Property, plant and equipment:
Land		68,156			32,207
Buildings and improvements		64,251			30,308
Leasehold improvements		110,922			109,098
Fixtures and equipment		176,690			173,458

		420,019			345,071
Less—Accumulated depreciation and amortization		172,902			155,240

Net property, plant and equipment		247,117			189,831
Assets under capital leases, net of accumulated amortization of $9,486 in 2003 and $9,416 in 2002		4,198			4,280
Goodwill, net of accumulated amortization of $3,455 in 2003 and in 2002		34,775			34,775
Deferred tax asset		32,234			8,963
Other assets		51,070			42,234

Total assets	$	587,861		$	621,057

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Current maturities of long-term debt and capital leases	$	77,027		$	136,719
Accounts payable		75,071			72,753
Accrued salaries and wages		13,035			8,432
Other accrued liabilities		56,556			38,720
Liabilities of discontinued operations		10,586			31,233

Total current liabilities		232,275			287,857
Long-term liabilities:
Obligations under capital leases		4,812			5,314
Notes payable		66,603			—
Notes payable to affiliate		20,100			—
Other long-term liabilities		19,912			17,557
Workers’ compensation reserve, postretirement and postemployment benefits		38,161			38,794

Total long-term liabilities		149,588			61,665
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $1 par value (authorized 10,000,000 shares; no shares issued)		—			—
Common stock, $0.01 par value (authorized 100,000,000 shares; 29,915,624 shares issued and outstanding in 2003 and 29,443,198 in 2002)		299			294
Additional paid-in capital		208,495			206,926
Notes receivable for common stock		(100	)		(100	)
Accumulated other comprehensive loss		(10,745	)		(11,787	)
Retained earnings		8,049			76,202

Total stockholders’ equity		205,998			271,535

Total liabilities and stockholders’ equity	$	587,861		$	621,057

The accompanying notes are an integral part of these consolidated financial statements.

SMART & FINAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share amounts)

	Sixteen Weeks Ended						Forty Weeks Ended
	October 5,			October 6,			October 5,			October 6,
	2003			2002			2003			2002
	(Unaudited)						(Unaudited)
Sales	$	538,392		$	498,127		$	1,285,693		$	1,207,682
Cost of sales, buying and occupancy		442,892			416,132			1,065,735			1,017,020

Gross margin		95,500			81,995			219,958			190,662
Operating and administrative expenses		77,042			65,607			183,288			155,267
Other charges, net		(400	)		—			18,000			—

Income from operations		18,858			16,388			18,670			35,395
Interest expense, net		5,976			3,986			11,424			9,645

Income from continuing operations before income tax provision		12,882			12,402			7,246			25,750
Income tax provision		(4,858	)		(4,726	)		(3,175	)		(10,014	)
Equity earnings in unconsolidated subsidiary		297			405			372			598

Income from continuing operations		8,321			8,081			4,443			16,334
Discontinued operations, net of tax		(7,405	)		(5,406	)		(67,295	)		(11,010	)

Income (loss) before cumulative effect of accounting change		916			2,675			(62,852	)		5,324
Cumulative effect of accounting change (variable interest entity, net of tax of $3,534)		—			—			(5,301	)		—

Net income (loss)	$	916		$	2,675		$	(68,153	)	$	5,324

Earnings (loss) per common share
Earnings per common share from continuing operations	$	0.28		$	0.27		$	0.15		$	0.56
Loss per common share from discontinued operations		(0.25	)		(0.18	)		(2.26	)		(0.37	)
Cumulative effect of accounting change per common share		—			—			(0.18	)		—

Earnings (loss) per common share	$	0.03		$	0.09		$	(2.29	)	$	0.18

Weighted average common shares		29,740,307			29,432,264			29,787,585			29,409,699

Earnings (loss) per common share, assuming dilution
Earnings per common share, assuming dilution, from continuing operations	$	0.28		$	0.27		$	0.15		$	0.55
Loss per common share, assuming dilution, from discontinued operations		(0.25	)		(0.18	)		(2.26	)		(0.37	)
Cumulative effect of accounting change per common share, assuming dilution		—			—			(0.18	)		—

Earnings (loss) per common share, assuming dilution	$	0.03		$	0.09		$	(2.29	)	$	0.18

Weighted average common shares and common share equivalents		29,924,408			29,433,016			29,787,585			29,552,151

The accompanying notes are an integral part of these consolidated financial statements.

SMART & FINAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

	Forty Weeks Ended
	October 5, 2003			October 6, 2002
	(Unaudited)
Cash Flows from Operating Activities:
Net (loss) income	$	(68,153	)	$	5,324
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Gain on disposal of property, plant and equipment		(5,192	)		(1,549	)
Depreciation and amortization		28,103			27,481
Deferred tax provision (benefit)		2,276			(332	)
Amortization of deferred financing costs		2,378			1,410
Equity earnings in unconsolidated subsidiary		(372	)		(598	)
Asset impairment charges, net of tax		14,973			—
Non-cash restructuring and other charges, net of tax		14,940			—
Loss on sale and divestiture of Foodservice operations, net of tax		36,661			—
Cumulative effect of accounting change, net of tax		5,301			—
Decrease (increase) in:
Trade notes and accounts receivable		13,308			9,617
Inventories		20,407			6,692
Prepaid expenses and other current assets		1,282			(811	)
Increase (decrease) in:
Accounts payable		(8,448	)		(6,246	)
Accrued salaries and wages		3,170			(3,214	)
Other accrued liabilities		(10,410	)		4,969

Net cash provided by operating activities		50,224			42,743

Cash Flows from Investing Activities:
Acquisition of property, plant and equipment		(18,158	)		(38,239	)
Proceeds from disposal of property, plant and equipment		17,233			5,710
Investment in capitalized software		(7,029	)		(2,673	)
Net proceeds from divestitures		38,752			—
Other		(1,564	)		(1,246	)

Net cash provided by (used in) investing activities		29,234			(36,448	)

Cash Flows from Financing Activities:
Payments on bank line of credit		(62,500	)		(17,000	)
Borrowings on bank line of credit		7,500			20,000
Payments on notes payable		(6,535	)		(7,381	)
Proceeds from issuance of common stock, net of costs		—			11

Net cash used in financing activities		(61,535	)		(4,370	)

Increase in cash and cash equivalents		17,923			1,925
Cash and cash equivalents at beginning of year		23,002			23,016

Cash and cash equivalents at end of period	$	40,925		$	24,941

The accompanying notes are an integral part of these consolidated financial statements.

SMART & FINAL INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation

Smart & Final Inc. is a Delaware corporation and, as of October 5, 2003, was a 55.8 percent owned subsidiary of Casino USA, Inc. (“Casino USA”). References in this report to “we”, “our” and “us” are to Smart & Final Inc. and its subsidiaries, collectively.

Casino Guichard-Perrachon, S.A. (“Groupe Casino”), a publicly traded French joint stock limited liability company, is the principal shareholder of Casino USA. Collectively, Groupe Casino and its subsidiaries own approximately 58.8 percent of our common stock as of October 5, 2003.

The consolidated financial statements include the financial statements of Smart & Final Inc. and its wholly-owned subsidiaries. The 50 percent-owned joint venture in Mexico is reported on the equity basis of accounting. Effective June 15, 2003, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities,” which requires us to consolidate a variable interest entity discussed in Note 5. Accounting Changes. As a result, the accompanying consolidated financial statements include the effects of consolidating the variable interest entity and the cumulative effect of the change in accounting principle as of June 15, 2003. All significant intercompany balances and transactions have been eliminated in consolidation.

The consolidated balance sheet as of October 5, 2003 and the consolidated statements of operations and cash flows for the sixteen weeks and forty weeks ended October 5, 2003 and October 6, 2002 are unaudited. In the opinion of management, all adjustments, which consisted of normal recurring items necessary for a fair presentation of these financial statements in conformity with accounting principles generally accepted in the United States, and the accounting change to adopt FASB Interpretation No. 46 as of June 15, 2003, have been included.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 29, 2002. Certain reclassifications, including those of the discontinued operations discussed in Note 3. Discontinued Operations, have been made to prior periods to conform to current presentations.

2.	Fiscal Year

Our 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.

3.	Discontinued Operations

During the second quarter of 2003, we announced the sale and divestiture of our Florida broadline foodservice operations and our Florida stores businesses (collectively, the “Florida Operations”), which was completed during the third quarter. During the third quarter of 2003, we also announced and completed the sale of our broadline foodservice operations in northern California (the “Northern California Foodservice Operations”). Certain residual assets and liabilities were retained by us in conjunction with the sale transactions and divestitures of the Florida Operations and the Northern California Foodservice Operations. In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the accompanying consolidated financial statements reflect the results of operations and financial position of the Florida Operations and the Northern California Foodservice Operations separately as discontinued operations.

The assets and liabilities of the discontinued operations are presented in the consolidated balance sheets under the captions Assets of discontinued operations and Liabilities of discontinued operations. The underlying assets and liabilities of the discontinued operations for the periods presented are as follows, dollars in thousands:

	October 5,		December 29,
	2003		2002
Cash and cash equivalents	$	4,610	$	3,524
Trade notes and accounts receivable, net		1,615		49,345
Inventories		—		41,665
Prepaid expenses and other current assets		8		2,397
Property, plant and equipment, net		2,733		35,948
Assets under capital leases, net		—		160
Goodwill, net		—		17,657
Deferred tax asset		—		1,347
Other assets		—		2,389

Assets of discontinued operations	$	8,966	$	154,432

Current maturities of capital leases	$	—	$	165
Accounts payable		973		24,309
Accrued salaries and wages		475		2,989
Other accrued liabilities		9,138		2,802
Obligation under capital leases		—		130
Workers’ compensation reserve,
postretirement and postemployment benefits		—		838

Liabilities of discontinued operations	$	10,586	$	31,233

The following table sets forth the loss from the discontinued operations of each period presented by segment, as defined in Note 14. Segment Reporting, dollars in thousands. Related interest expense and income tax benefit from the discontinued operations are included under Corporate.

	Stores			Foodservice			Corporate			Total
Sixteen weeks ended October 5, 2003:
Sales	$	11,806		$	80,749		$	—		$	92,555
Pre-tax loss from operations		(1,958	)		(7,987	)		(4	)		(9,949	)
Pre-tax (loss) gain on sale and divestiture		(6,535	)		(6,246	)		4,088			(8,693	)
Income tax benefit		—			—			11,237			11,237
Net (loss) income		(8,493	)		(14,233	)		15,321			(7,405	)

Sixteen weeks ended October 6, 2002:
Sales	$	16,730		$	112,367		$	—		$	129,097
Pre-tax loss from operations		(3,338	)		(4,159	)		(1,448	)		(8,945	)
Income tax benefit		—			—			3,539			3,539
Net (loss) income		(3,338	)		(4,159	)		2,091			(5,406	)

Forty weeks ended October 5, 2003:
Sales	$	39,848		$	265,624		$	—		$	305,472
Pre-tax loss from operations		(5,576	)		(37,363	)		(165	)		(43,104	)
Pre-tax (loss) gain on sale and divestiture		(18,635	)		(40,946	)		4,088			(55,493	)
Income tax benefit		—			—			31,302			31,302
Net (loss) income		(24,211	)		(78,309	)		35,225			(67,295	)

Forty weeks ended October 6, 2002:
Sales	$	43,781		$	296,714		$	—		$	340,495
Pre-tax loss from operations		(7,626	)		(8,964	)		(1,664	)		(18,254	)
Income tax benefit		—			—			7,244			7,244
Net (loss) income		(7,626	)		(8,964	)		5,580			(11,010	)

Pre-tax loss from discontinued operations does not include allocation of Corporate overhead or costs. Pre-tax gain or loss on sale and divestiture was determined based on the excess or shortfall of sale prices, net of related transaction expenses, over the carrying amounts of net assets sold and other divestiture charges.

Through October 5, 2003, we have recorded a pre-tax loss of $52.6 million on the sale and divestiture of the Florida Operations, including an estimated $46.8 million pre-tax loss previously recorded in the second quarter and an additional $5.8 million of pre-tax expenses recorded in the third quarter, primarily associated with the termination of certain lease obligations and severance obligations related to the Florida stores business.

Under separate sale agreements with the buyer of the Florida Operations, two Florida properties of the variable interest entity discussed in Note 5. Accounting Changes were sold in addition to the Florida Operations. The sale of these two Florida properties resulted in a pre-tax

gain of $4.1 million in the 2003 third quarter, which is reflected in Corporate of the above schedule as part of the loss on sale and divestiture. This $4.1 million gain is also reflected in Gain on disposal of property, plant and equipment on the consolidated statement of cash flows for the forty weeks ended October 5, 2003.

During the 2003 second quarter, we recorded $19.1 million of pre-tax charges associated with the restructuring of the Northern California Foodservice Operations. These charges related to warehouse and facility closures, early terminations of related service and lease agreements and workforce reductions. During the 2003 third quarter, we also recorded a $7.5 million pre-tax gain on sales of certain assets at the Northern California Foodservice Operations, as well as $14.5 million of additional pre-tax charges primarily related to asset impairment and vendor obligations.

The following table sets forth the balances at June 15, 2003, the activities during the third quarter of 2003 and the remaining balances at October 5, 2003, related to certain reserves for exiting Florida Operations and Northern California Foodservice Operations, dollars in thousands.

	Balance at June 15, 2003		Additional Charges and Adjustments		Payments and Adjustments			Balance at October 5, 2003
Lease termination costs	$	5,800	$	7,100	$	(7,100	)	$	5,800
Employee severance and related obligations		1,100		2,800		(1,600	)		2,300
Vendor and other obligations		—		1,800		—			1,800

Total	$	6,900	$	11,700	$	(8,700	)	$	9,900

4.	Other Charges

Through October 5, 2003, we have recorded $18.0 million of pre-tax charges related to litigation reserves as discussed in Note 15. Legal Actions, as well as financing fees associated with the amendments and waivers of the financial covenants contained in the revolving bank credit facility and lease facility. This pre-tax charge includes the $18.4 million of charges originally recorded during the second quarter and an adjustment to reduce that estimate by $0.4 million during the third quarter.

5.	Accounting Changes

Variable Interest Entity

On January 17, 2003 the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” The objective of FASB Interpretation No. 46 is to improve financial reporting by companies involved with variable interest entities. FASB Interpretation No. 46 changes certain consolidation requirements by requiring a variable interest entity to be consolidated by a company that is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both.

In November 2001, we entered into a five-year operating lease agreement (“Lease Agreement”) with a national banking association. Under FASB Interpretation No. 46, the Lease

Agreement, as it is currently structured, is considered a variable interest entity and subject to consolidation. Participants in the Lease Agreement structure include several banks and financing institutions as well as Casino USA, which owned 55.8 percent of our common stock at October 5, 2003. In the second quarter of 2003, Casino USA increased its share of participation in financing of the variable interest entity from $16.1 million to $20.1 million by acquiring the equity interest in the variable interest entity from a third party. The total Casino USA participation of $20.1 million is presented as “Notes payable to affiliate” in the consolidated balance sheet at October 5, 2003. Subsequent to October 5, 2003, Casino USA increased its share of participation to $33.2 million by acquiring debt interests in the variable interest entity from a third party. The Lease Agreement as amended, with a value of $86.8 million and an interest rate of 9.07 percent, currently provides for the financing of two distribution facilities and 14 store locations, and additionally, holds $14.3 million of available funds as of October 5, 2003. The $14.3 million of available funds was generated through the sale of a Florida distribution facility and a Florida store property during the process of sale and divestiture of the Florida Operations. As of October 5, 2003, the Lease Agreement was amended to allow these proceeds to be held by the real estate trust for future purchases of replacement properties. The Lease Agreement expires on November 30, 2006. At the end of the term, the Lease Agreement requires us to elect to purchase all the properties by a final payment of $86.4 million or sell all the properties to a third party. If the properties are sold to a third party and the aggregate sales price is less than $69.2 million, we are obligated to pay the difference of the aggregate sales price and $69.2 million.

The consolidated statements of operations for the forty weeks ended October 5, 2003 included a $5.3 million, net of tax, cumulative effect of a change in accounting principle, or $0.18 per diluted share, representing the cumulative amount of depreciation and interest expense, in excess of the rental income as of the effective date of adoption of FASB Interpretation No. 46 as of June 15, 2003. The consolidated statements of operations for the sixteen weeks and forty weeks ended October 5, 2003 included $0.4 million of the depreciation and interest expenses in excess of the rental income for the third quarter in the results from continuing operations, and a $2.4 million gain, net of tax, from the sale of the two Florida properties in the results from discontinued operations.

Had consolidation of this variable interest entity been effective for the entire periods presented, the net-of-tax impact to the operating results, excluding the gain on sale of the Florida properties, would have been $0.3 million, or $0.01 per diluted share, for the sixteen weeks ended October 6, 2002, $0.4 million, or $0.02 per diluted share, for the forty weeks ended October 5, 2003 and $0.7 million, or $0.03 per diluted share, for the forty weeks ended October 6, 2002.

EITF Issue No. 02-16

Beginning in the second quarter of 2003, we adopted the provisions of Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor.” Issue No. 02-16 provides guidance on how a reseller should characterize the cash consideration received from a vendor and when and how the cash consideration should be recorded on its income statements. Issue No. 02-16 requires that the cash consideration received from the vendor be considered as a reduction of cost of sales when recognized in the reseller’s income statement. If the cash consideration received from a

vendor is the direct, specific and incremental reimbursement of costs incurred by the reseller to sell the vendor’s products, the cash consideration should be treated as a reduction of such selling costs.

As a result of the implementation of Issue No. 02-16, we record the cooperative advertising allowances not representing reimbursement of direct, specific and incremental advertising costs as a reduction of the cost of merchandise purchased. Under the new rules, these allowances will be realized and recorded as a reduction of cost of sales in future periods as the goods are sold. We previously recorded these allowances as a reduction of operating and administrative expenses when received and earned. The effect on the pre-tax operating results from adoption of Issue No. 02-16 was immaterial.

6.	New Accounting Pronouncements

In November 2002, the EITF reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables,” which requires the revenue from sales with multiple deliverables be accounted for based on a determination of whether the multiple deliverables qualify to be accounted for as separate units of accounting. The consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. We do not expect a material impact on our results of operations or financial condition as a result of the adoption of Issue No. 00-21.

In April 2003, FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 is effective prospectively for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The exception to these requirements are the provisions of SFAS No. 149 related to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. We do not expect a material impact on our results of operations or financial condition as a result of the adoption of SFAS No. 149.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope, which may have previously been reported as equity, as a liability or an asset in some circumstances. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 in July 2003 had no material impact on our consolidated balance sheet and statement of operations. The FASB is addressing certain implementation issues associated with the application of SFAS No. 150. On October 29,

2003, the FASB decided to defer certain provisions of SFAS No. 150 related to noncontrolling interests in subsidiaries included in consolidated financial statements. We will monitor the actions of the FASB and assess the impact, if any, that these actions may have on our financial statements.

Debt

In November 2001, we entered into a $175.0 million three-year senior secured revolving credit facility (“Credit Agreement”) with a syndicate of banks. The Credit Agreement expires on November 30, 2004. At our option, the Credit Agreement can be used to support up to $15.0 million of commercial letters of credit. Availability under the Credit Agreement, as amended during the third quarter of 2003, is subject to a formula based on the value of eligible accounts receivable, inventory and real properties. As of October 5, 2003, we made pay-downs toward the Credit Agreement, primarily with the proceeds generated from the sale and divestiture of the Florida Operations and the Northern California Foodservice Operations. These pay-downs are treated as permanent reductions to the amount available. As a result, the remaining commitment under the Credit Agreement was $127.8 million at October 5, 2003. At October 5, 2003, $75.0 million of revolving loan and $4.8 million of letters of credit were outstanding and the remaining availability based on the formula was $34.3 million.

Both the Credit Agreement and the Lease Agreement (as discussed in Note 5. Accounting Changes) contain various customary and restrictive covenants, including restrictions on cash dividends declared or paid and additional debt and capital expenditures, and require us to maintain certain fixed charge coverage ratios and other financial ratios under each agreement. The covenants do not require us to maintain a public debt rating or a certain liquidity level.

As of December 29, 2002, we were not in compliance with certain of these financial covenants. In February 2003, we obtained waivers of non-compliance as of December 29, 2002 and an amendment of certain covenants for the first quarter of 2003. Our obligation under the Credit Agreement was classified as a current liability in our consolidated balance sheet as of December 29, 2002 pending the execution of an amended Credit Agreement. In July 2003, we obtained waivers of non-compliance and amendments on certain covenants through November 4, 2003. In October 2003, we negotiated and entered into an amended Credit Agreement and an amended Lease Agreement, which amend the covenants in response to the effects of the sale and divestiture of the Florida Operations and Northern California Foodservice Operations. We are currently in compliance with the amended covenants. The Credit Agreement expires on November 30, 2004, and it is our intention to negotiate and enter into a new Credit Agreement prior to its expiration; accordingly, we have classified our obligation under the Credit Agreement as a current liability in our consolidated balance sheet as of October 5, 2003. The Lease Agreement expires on November 30, 2006, and our obligations under the Lease Agreement have been classified as long-term liabilities.

8.	Derivatives

As of October 5, 2003, we had an interest rate collar agreement with a major bank to limit the impact of interest rate fluctuations on floating rate debt. This agreement, expiring in November 2004, hedges principal amounts of an aggregate of $70 million and limits the effect of

LIBOR fluctuations to interest rate ranges from 5.48 percent to 8.00 percent. This agreement is designated as a cash flow hedge and is considered fully effective. Accordingly, the instrument is marked to market at the end of every quarter, with the changes in fair value recorded as other comprehensive income (“OCI”) and the ineffective portion recorded to current earnings and included under interest expense, net on the consolidated statements of operations.

This agreement had a cumulative loss of $3.3 million recorded to OCI as of October 5, 2003 and $4.9 million at the beginning of fiscal year 2003. The change in the cumulative loss is comprised of reclassification of the ineffective portion from OCI to current earnings and a $0.7 million decrease in the fair value of the hedge as of October 5, 2003. Such reclassification was $0.9 million in the sixteen weeks ended October 5, 2003 and $1.1 million in the sixteen weeks ended October 6, 2002. The reclassification aggregated $2.3 million in the forty weeks ended October 5, 2003 and $2.6 million in the forty weeks ended October 6, 2002. We estimate that approximately $2.9 million of net derivative loss included in OCI will be recognized in results of operations within the next twelve months.

9.	Comprehensive Income (Loss)

Comprehensive income (loss) was computed as follows, amounts in thousands:

	Sixteen Weeks Ended					Forty Weeks Ended
	October 5, 2003		October 6, 2002			October 5, 2003			October 6, 2002
Net income (loss)	$	916	$	2,675		$	(68,153	)	$	5,324
Other comprehensive income (loss):
Net income (loss) on derivative instruments, net of tax		152		(1,153	)		(405	)		(2,058	)
Reclassification adjustments, net of tax, included in net income (loss)		567		632			1,378			1,563
Foreign currency translation adjustments		171		(387	)		69			(136	)

Total other comprehensive income (loss)		890		(908	)		1,042			(631	)

Total comprehensive income (loss)	$	1,806	$	1,767		$	(67,111	)	$	4,693

See Note 8. Derivatives for the activities recorded to OCI due to changes in fair values of derivative instruments designated as cash flow hedges during the reporting period. In accordance with accounting principles generally accepted in the United States, the functional currency for our Mexico operations has been the Mexican Peso. As such, foreign currency translation gains and losses are included in OCI.

10.

Interest Expense

Interest expense was incurred primarily on borrowings under the Credit Agreement and the Lease Agreement. Interest paid on our debt aggregated $12.6 million in the forty weeks ended October 5, 2003 and $10.7 million in the forty weeks ended October 6, 2002.

11.

Income Taxes

Smart & Final Inc. and Casino USA are parties to a tax sharing arrangement covering income tax obligations in the state of California. Under this arrangement, we make tax sharing payments to, or receive benefits from, Casino USA based upon pre-tax income or loss for financial reporting purposes adjusted for certain agreed upon items. Tax payments made to, or benefits received from, governments and Casino USA are as follows, dollars in thousands:

	Forty Weeks Ended
	October 5, 2003			October 6, 2002
(Tax benefits received from) tax sharing payments to Casino USA	$	(1,270	)	$	272
Taxes paid for states other than California		86			77
Taxes paid to federal government		650			1,570

Total (benefits received) taxes paid	$	(534	)	$	1,919

Tax provision of $3.5 million was provided on the net gain from sale of the Northern California Foodservice Operations and an offsetting tax benefit was provided on a portion of the net loss on sale and divestiture of the Florida Operations. No tax effect was provided on the remainder of the loss on sale and divestiture of the Florida Operations due to the nature of the loss.

12.

Stock-Based Compensation

We have stock options granted to our employees under the Long-Term Equity Compensation Plan and both employees and members of our Board of Directors under the Stock Incentive Plan. We account for options under these plans using the intrinsic value method as allowed under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Disclosures of pro forma information regarding net income and earnings per share are required under SFAS No. 123, “Accounting for Stock-Based Compensation,” which uses the fair value method. As of fiscal year end 2002, we adopted SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” regarding the additional disclosure requirements of pro forma information.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Sixteen Weeks Ended						Forty Weeks Ended
	October 5, 2003			October 6, 2002			October 5, 2003			October 6, 2002
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Expected volatility		39	%		37	%		38	%		37	%
Risk-free interest rates		4.8	%		5.9	%		4.9	%		5.1	%
Weighted average expected lives
Executives		4.90 years			4.90 years			4.90 years			4.90 years
Non-executives		4.60 years			4.60 years			4.60 years			4.60 years
Weighted average fair value of options granted	$	2.51		$	1.77		$	2.01		$	3.65

The following is the pro forma information had the fair value method under SFAS No. 123, as amended by SFAS No. 148, been adopted:

	Sixteen Weeks Ended				Forty Weeks Ended
	October 5, 2003		October 6, 2002		October 5, 2003			October 6, 2002
Net income (loss) as reported	$	916	$	2,675	$	(68,153	)	$	5,324
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of related tax effects		403		435		1,091			1,066

Pro forma net income (loss)	$	513	$	2,240	$	(69,244	)	$	4,258


Earnings (loss) per share:
Basic, as reported	$	0.03	$	0.09	$	(2.29	)	$	0.18

Basic, pro forma	$	0.02	$	0.08	$	(2.32	)	$	0.14

Diluted, as reported	$	0.03	$	0.09	$	(2.29	)	$	0.18

Diluted, pro forma	$	0.02	$	0.08	$	(2.32	)	$	0.14

The impact of applying SFAS No. 123, as amended by SFAS No. 148, in this pro forma disclosure is not necessarily indicative of the effect on income in the future. SFAS No. 123, as amended by SFAS No. 148, does not apply to awards granted prior to 1995. We anticipate making additional stock-based compensation awards in the future.

13.

Earnings per Common Share

Earnings per common share are based on the weighted average number of common shares outstanding. Earnings per common share, assuming dilution, includes the weighted average number of common stock equivalents outstanding related to stock options.

14.

Segment Reporting

Our two reportable segments have historically been Stores and Foodservice. The Stores segment provides food and related items in bulk sizes and quantities through non-membership grocery warehouse stores. The Foodservice distribution segment provides delivery of food, restaurant equipment and supplies to mainly restaurant customers. As mentioned in Note 3. Discontinued Operations, we have completed the sale and divestiture of the Foodservice segment in Florida and northern California and have reported the operating results from these two units as discontinued operations. Corporate is comprised primarily of corporate expenses incidental to the activities of the reportable segments, the variable interest entity and rental income from Smart & Final stores and Smart & Final Mexico. Our 50 percent-owned joint venture in Mexico is reported on the equity basis of accounting. These reportable segments are strategic business units that offer different products and services. They have been managed separately because each segment requires different technology and marketing strategies. We evaluate performance based on profit or loss from operations before income taxes, not including nonrecurring gains and losses.

The accounting policies of the segments are consistent, except as described below, with those described in the summary of significant accounting policies included in our Annual Report on Form 10-K for the year ended December 29, 2002. Beginning in 2003, the policy for intercompany real estate charges has changed and as a result, the segment data for the sixteen weeks and forty weeks ended October 6, 2002 were reclassified as if the current policy had been in effect during fiscal year 2002. As a result, Stores’ pre-tax income and Corporate’s pre-tax loss increased by $1.8 million, respectively, for the sixteen weeks ended October 6, 2002. Stores’ pre-tax income and Corporate’s pre-tax loss increased by $4.4 million, respectively, for the forty weeks ended October 6, 2002.

The sales, profit or loss and other information from our continuing operations, the loss, net of tax, from discontinued operations and total assets of each segment are as follows, amounts in thousands:

	Stores			Foodservice			Corporate			Total
Sixteen weeks ended October 5, 2003:
Sales to external customers	$	538,392		$	—		$	—		$	538,392
Cost of sales, buying and occupancy		445,269			—			(2,377	)		442,892
Intercompany real estate charge (income)		4,080			—			(4,080	)		—
Other charges		—			—			(400	)		(400	)
Interest income		—			—			266			266
Interest expense		—			—			6,242			6,242
Pre-tax income (loss)		20,129			—			(7,247	)		12,882
Discontinued operations, net of tax		(8,493	)		(14,233	)		15,321			(7,405	)
As of October 5, 2003:
Total assets	$	409,299		$	8,966		$	169,596		$	587,861

	Stores			Foodservice			Corporate			Total
Sixteen weeks ended October 6, 2002:
Sales to external customers	$	498,127		$	—		$	—		$	498,127
Cost of sales, buying and occupancy		416,132			—			—			416,132
Intercompany real estate charge (income)		4,217			—			(4,217	)		—
Interest income		—			—			159			159
Interest expense		—			—			4,145			4,145
Pre-tax income (loss)		18,540			—			(6,138	)		12,402
Discontinued operations, net of tax		(3,338	)		(4,159	)		2,091			(5,406	)
As of October 6, 2002:
Total assets	$	414,759		$	138,390		$	69,834		$	622,983

	Stores			Foodservice			Corporate			Total
Forty weeks ended October 5, 2003:
Sales to external customers	$	1,285,693		$	—		$	—		$	1,285,693
Cost of sales, buying and occupancy		1,068,112			—			(2,377	)		1,065,735
Intercompany real estate charge (income)		10,262			—			(10,262	)		—
Other charges		—			—			18,000			18,000
Interest income		—			—			537			537
Interest expense		—			—			11,961			11,961
Pre-tax income (loss)		42,543			—			(35,297	)		7,246
Discontinued operations, net of tax		(24,211	)		(78,309	)		35,225			(67,295	)

	Stores			Foodservice			Corporate			Total
Forty weeks ended October 6, 2002:
Sales to external customers	$	1,207,682		$	—		$	—		$	1,207,682
Cost of sales, buying and occupancy		1,017,020			—			—			1,017,020
Intercompany real estate charge (income)		10,440			—			(10,440	)		—
Interest income		—			—			406			406
Interest expense		—			—			10,051			10,051
Pre-tax income (loss)		39,231			—			(13,481	)		25,750
Discontinued operations, net of tax		(7,626	)		(8,964	)		5,580			(11,010	)

15	Legal Actions

We have been named as a defendant in a suit filed on September 13, 2001 in the Superior Court of the State of California for the County of Los Angeles. This suit, Camacho vs. Smart & Final Inc., was filed by the plaintiff, on his behalf and on behalf of all other store managers and assistant managers in California, alleging that we misclassified the status of store managers and assistant managers in California as exempt employees for employment purposes. The action seeks to be classified as a “class action” and seeks unspecified monetary damages. On February 24, 2003, following an extensive period of investigation and discovery, the plaintiff filed a motion for class certification. On May 2, 2003, we filed our opposing papers to plaintiff’s motion

for class certification. We believe the merits of this action do not warrant class action status and we believe we have certain defenses to the claim.

We have also been named as a defendant in a suit filed on April 7, 2003 in the Superior Court of the State of California for the County of Los Angeles. This suit, Perea vs. Smart & Final Inc., was filed by the plaintiff, on his behalf and on behalf of all other employees who participate in the commission program in California, alleging that we improperly calculated commission payments. The action seeks to be classified as a “class action” and seeks unspecified monetary damages. We believe the merits of this action do not warrant class action status and we believe we have certain defenses to the claim.

In September 2003, we entered into a tentative settlement agreement for the resolution of the Camacho and Perea actions. In October 2003, the court consolidated the Camacho and Perea actions and, on October 27, 2003, preliminarily approved the settlement and set a fairness hearing and final court certification of the settlement for January 13, 2004. Under the terms of the settlement, we will pay $7.6 million in cash and $1.5 million in scrip redeemable at our Smart & Final stores. Plaintiff’s attorney fees, costs and administrative expenses will be paid from the settlement amount. In addition, we will pay our own attorney fees and certain other expenses.

In the second quarter of 2003, we recorded a litigation charge associated with our assessment of the ultimate resolution of the above-named actions. The charge is adequate to provide for the preliminarily approved settlement. See Note 4. Other Charges for further discussion.

We have been named as a defendant in a suit filed on May 24, 2001 in the Orange County Superior Court of the State of California. This suit, Olivas vs. Smart & Final Inc., was filed by the plaintiff and another former non-exempt store employee, on their behalf and on behalf of all non-exempt Smart & Final employees in California alleging that we failed to pay proper overtime compensation. The action seeks to be classified as a “class action” and seeks unspecified monetary damages. On August 9, 2001, we filed a general denial to these claims and asserted numerous defenses. A hearing on plaintiff’s motion for class certification has been set for December 11, 2003. We believe the merits of this action do not warrant class action status and we believe we have certain defenses to the claim.

We are named as a defendant in a number of other lawsuits or are otherwise a party to certain litigation arising in the ordinary course from our operations. We do not believe that the ultimate determination of these other cases will either individually or in the aggregate have a material adverse effect on our results of operations or financial position.

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 unaudited consolidated financial statements and notes thereto and our Annual Report on Form 10-K for the year ended December 29, 2002.

Each of our 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.

Summary

Income from continuing operations was $8.3 million, or $0.28 per diluted share, for the sixteen weeks ended October 5, 2003, compared to $8.1 million, or $0.27 per diluted share for the sixteen weeks ended October 6, 2002. Income from continuing operations for the forty weeks ended October 5, 2003 was $4.4 million, or $0.15 per diluted share, compared to $16.3 million, or $0.56 per diluted share for the forty weeks ended October 6, 2002. Included in Income from continuing operations for the forty weeks ended October 5, 2003 was an $18.0 million pre-tax charge ($10.8 million net of tax, or $0.36 per diluted share) related to litigation reserves and financing fees associated with amendments and waivers to our revolving bank credit facility and lease facility.

We reported net income of $0.9 million, or $0.03 per diluted share, for the sixteen weeks ended October 5, 2003, compared to net income of $2.7 million, or $0.09 per diluted share, for the sixteen weeks ended October 6, 2002. The net loss was $68.2 million, or $2.29 per diluted share, for the forty weeks ended October 5, 2003, compared to net income of $5.3 million, or $0.18 per diluted share, for the forty weeks ended October 6, 2002. The net loss for the forty weeks ended October 5, 2003 was primarily due to the loss on sale and divestiture of discontinued operations, restructuring and other charges and the cumulative effect of a change in accounting principle to adopt Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities.”

Accounting Changes

The consolidated statements of operations for the forty weeks ended October 5, 2003 included a $5.3 million, net of tax, or $0.18 per diluted share, cumulative effect of a change in accounting principle, representing the cumulative amount of depreciation and interest expense, in excess of the rental income of the variable interest entity, as a result of adopting FASB Interpretation No. 46 as of June 15, 2003.

Beginning in second quarter 2003, we adopted Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor.” As a result of the implementation of Issue No. 02-16, cooperative advertising allowances not representing reimbursement of direct, specific and incremental advertising costs have been recorded as a reduction of the cost of merchandise purchased. Prior to fiscal year 2003, these allowances were recorded as a reduction of operating and administrative expenses.

Results of Operations

The following table shows, for the periods indicated, certain condensed consolidated statements of operations data, expressed as a percentage of sales. Totals may not aggregate due to rounding.

	Sixteen Weeks Ended				Forty Weeks Ended
	October 5, 2003		October 6, 2002		October 5, 2003		October 6, 2002
	October 5, 2003		October 6, 2002		October 5, 2003		October 6, 2002
Sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales, buying and occupancy	82.3		83.5		82.9		84.2

Gross margin	17.7		16.5		17.1		15.8
Operating and administrative expenses	14.3		13.2		14.3		12.9
Other charges	(0.1	)	—		1.4		—

Income from operations	3.5		3.3		1.5		2.9
Interest expense, net	1.1		0.8		0.9		0.8

Income from continuing operations before income tax provision	2.4		2.5		0.6		2.1
Income tax provision	(0.9	)	(0.9	)	(0.2	)	(0.8	)
Equity earnings in unconsolidated subsidiary	0.1		0.1		—		—

Income from continuing operations	1.5		1.6		0.3		1.4
Discontinued operations, net of tax	(1.4	)	(1.1	)	(5.2	)	(0.9	)

Income (loss) before cumulative effect of accounting change	0.2		0.5		(4.9	)	0.4
Cumulative effect of accounting change (variable interest entity), net of tax	—		—		(0.4	)	—

Net income (loss)	0.2	%	0.5	%	(5.3	)%	0.4	%

Comparison of Sixteen Weeks Ended October 5, 2003 with Sixteen Weeks Ended October 6, 2002.

Sales

Third quarter 2003 sales from continuing operations were $538.4 million, up 8.1 percent from $498.1 million in the third quarter of 2002. The sales increase was attributable to the improved comparable store sales and the new and relocated stores opened since the third quarter of 2002. Comparable store sales for the third quarter of 2003 increased 6.8 percent over prior year’s same quarter. Average comparable transaction size increased by 2.9 percent to $40.26 in the third quarter of 2003. During the third quarter of 2003, we opened one new store, relocated three stores and closed one. As of October 5, 2003, we operated 219 stores compared to 216 stores at the end of the third quarter of 2002.

Gross margin

Gross margin from continuing operations increased $13.5 million to $95.5 million, and as a percentage of sales, increased from 16.5 percent in third quarter 2002 to 17.7 percent in the current year’s quarter. The increase in gross margin as a percentage of sales was primarily due to

the improved merchandise margins and inventory control and the effects of adopting two new accounting pronouncements as discussed above partially offset by increased distribution costs.

As a result of adopting FASB Interpretation No. 46, we recorded approximately $2.4 million of costs as interest expense in the third quarter of 2003 that previously were recorded in cost of sales as rental expense. In addition, pursuant to FASB Interpretation No. 46, we recorded in the third quarter of 2003 approximately $0.4 million of depreciation expense in cost of sales that previously was not recorded. When compared to the prior year third quarter, the net effect of FASB Interpretation No. 46 to the third quarter of 2003 was to increase the gross margin from continuing operations as a percentage of sales by 0.4 percent.

As a result of adopting EITF Issue No. 02-16, the cooperative advertising allowances for the 2003 third quarter of $4.1 million, or 0.8 percent of total sales, were recorded as a reduction of cost of sales.

Operating and administrative expenses

Operating and administrative expenses from continuing operations for the third quarter of 2003 were $77.0 million, up $11.4 million, or 17.4 percent, over the third quarter of 2002. These expenses, as a percentage of sales, increased from 13.2 percent in the third quarter of 2002 to 14.3 percent in the third quarter of 2003. This percentage of sales increase was primarily due to the accelerated vesting of $1.0 million in restricted stock compensation, increased fringe benefit costs including performance-based compensation, information system integration expenses, legal expense and the accounting impact of adopting EITF Issue No. 02-16. Approximately $4.1 million of cooperative advertising allowances were recorded as a reduction of cost of sales in the third quarter of 2003 as a result of the adoption of EITF Issue No. 02-16. In the third quarter of 2002, these allowances, in the amount of $3.4 million, or 0.7 percent of Stores’ sales, were recorded as a reduction of operating and administrative expenses.

Interest expense, net

Interest expense, net increased from $4.0 million recorded in third quarter 2002 to $6.0 million in the third quarter of 2003 primarily due to $2.4 million of interest expense of the variable interest entity that previously was reflected as rental expense in cost of sales.

Comparison of Forty Weeks Ended October 5, 2003 with Forty Weeks Ended October 6, 2002.

Sales

Sales from continuing operations for the forty weeks ended October 5, 2003 were $1,285.7 million, up 6.5 percent from $1,207.7 million in the equivalent period of 2002. The sales increase was attributable to the improved comparable store sales and the new and relocated stores opened since the third quarter of 2002. Comparable store sales for the first three quarters of 2003 increased 5.1 percent over prior year’s same period. Average comparable transaction size increased by 1.5 percent to $39.44 in the first three quarters of 2003. During the first three quarters of 2003, we opened three new stores, relocated five stores and closed one.

Gross margin

Gross margin from continuing operations increased 15.4 percent, from $190.7 million in the first three quarters of 2002 to $220.0 million in the first three quarters of current year. As a percentage of sales, gross margin increased from 15.8 percent in the first three quarters of 2002 to 17.1 percent in the same period of 2003. The increase in gross margin as a percentage of sales was primarily due to the improved merchandise margins and inventory control and the effects of adopting two new accounting pronouncements as discussed above, partially offset by increased distribution costs.

As a result of adopting FASB Interpretation No. 46, we recorded approximately $2.4 million of costs as interest expense in the third quarter of 2003 that previously were recorded in cost of sales as rental expense. In addition, pursuant to FASB Interpretation No. 46, we recorded in the third quarter of 2003 approximately $0.4 million of depreciation expense in cost of sales that previously was not recorded. When compared to the prior year’s same period, the net effect of FASB Interpretation No. 46 to the first three quarters of 2003 as a percentage of sales was insignificant.

As a result of adopting EITF Issue No. 02-16, the cooperative advertising allowances for the 2003 first three quarters of $10.3 million, or 0.8 percent of total sales, were recorded as a reduction of cost of sales.

Operating and administrative expenses

Operating and administrative expenses from continuing operations for the first three quarters of 2003 were $183.3 million, up $28.0 million, or 18.0 percent, over the same period of 2002. These expenses, as a percentage of sales, increased from 12.9 percent in the first three quarters of 2002 to 14.3 percent in the equivalent period of 2003. This percentage of sales increase was primarily due to the accelerated vesting of $1.0 million in restricted stock compensation, increased fringe benefit costs including performance-based compensation, information system integration expenses, legal expense and the accounting impact of adopting EITF Issue No. 02-16. Approximately $10.3 million of cooperative advertising allowances were recorded as a reduction of cost of sales in the first three quarters of 2003 as a result of the adoption of EITF Issue No. 02-16. For the first three quarters of 2002, these allowances, in the amount of $9.7 million, or 0.8 percent of Stores’ sales, were recorded as a reduction of operating and administrative expenses.

Interest expense, net

Interest expense, net increased from $9.6 million recorded in the first three quarters of 2002 to $11.4 million in the first three quarters of 2003 primarily due to $2.4 million of interest expense of the variable interest entity that previously was reflected as rental expense in cost of sales.

Discontinued Operations

During the second quarter of 2003, we announced the sale and divestiture of our Florida broadline foodservice operations and our Florida stores businesses (collectively, the “Florida Operations”.) During the third quarter, the transactions were completed and the Florida Operations were sold and divested. During the third quarter of 2003, we also announced and completed the sale of our broadline foodservice operations in northern California (the “Northern California Foodservice Operations”). Certain residual assets and liabilities were retained by us in conjunction with the sale transactions and divestitures of the Florida Operations and the Northern California Foodservice Operations. In accordance with the provisions related to discontinued operations specified within Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the accompanying consolidated financial statements reflect the results of operations and financial position of the Florida Operations and the Northern California Foodservice Operations separately as discontinued operations in our consolidated financial statements and in the related discussions and comparisons between current and prior fiscal years.

The following is a summary of loss and other information of the discontinued operations for the periods presented, dollars in thousands, except per diluted share value. Totals of per diluted share value may not aggregate due to rounding.

	Sixteen Weeks Ended						Forty Weeks Ended
	October 5, 2003			October 6, 2002			October 5, 2003			October 6, 2002
	October 5, 2003			October 6, 2002			October 5, 2003			October 6, 2002
Sales	$	92,555		$	129,097		$	305,472		$	340,495
Pre-tax loss from operations	$	(9,949	)	$	(8,945	)	$	(43,104	)	$	(18,254	)
Pre-tax loss on sale and divestiture		(8,693	)		—			(55,493	)		—
Income tax benefit		11,237			3,539			31,302			7,244

Net loss	$	(7,405	)	$	(5,406	)	$	(67,295	)	$	(11,010	)


	Sixteen Weeks Ended						Forty Weeks Ended
	October 5, 2003			October 6, 2002			October 5, 2003			October 6, 2002
	October 5, 2003			October 6, 2002			October 5, 2003			October 6, 2002
Per diluted share:
Pre-tax loss from operations	$	(0.33	)	$	(0.30	)	$	(1.45	)	$	(0.62	)
Pre-tax loss on sale and divestiture		(0.29	)		—			(1.86	)		—
Income tax benefit		0.38			0.12			1.05			0.25

Net loss	$	(0.25	)	$	(0.18	)	$	(2.26	)	$	(0.37	)

Pre-tax loss from discontinued operations does not include allocation of Corporate overhead or costs. The net pre-tax loss on sale and divestiture was determined based on the excess or shortfall of sale prices, net of related transaction expenses, over the carrying amounts of net assets sold and other divestiture charges.

Under separate sale agreements with the buyer of the Florida Operations, two Florida properties of a variable interest entity discussed in Note 5. Accounting Changes were sold to the buyer in addition to the Florida Operations. The sale of these two Florida properties resulted in a pre-tax gain of $4.1 million in the 2003 third quarter.

During the 2003 second quarter, we recorded $19.1 million of pre-tax charges associated with the restructuring of the Northern California Foodservice Operations. These charges related to warehouse and facility closures, early terminations of related service and lease agreements and workforce reduction. During the 2003 third quarter, we also recorded a $7.5 million pre-tax gain on sales of certain assets at the Northern California Foodservice Operations, as well as $14.5 million of additional pre-tax charges primarily related to asset impairment, severance obligations and vendor obligations.

Liquidity and Capital Resources

Cash flows and financial positions

Net cash provided by operating activities was $50.2 million in the first three quarters of 2003 compared to $42.7 million in the same period of 2002. The increase in cash provided by operating activities reflects our operating performance and the timing of receipts and disbursements. In the first three quarters of 2003, decreases in inventories, trade accounts receivable and prepaid expenses and other current assets and increases in accrued salaries and wages were partially offset by decreased accounts payable and other accrued liabilities.

Net cash provided by investing activities was $29.2 million in the first three quarters of 2003 as opposed to net cash used in investing activities of $36.4 million in the first three quarters of 2002. Such change was primarily due to $38.8 million of net proceeds generated from sale and divestiture of the Florida Operations and the Northern California Foodservice Operations and $17.2 million in proceeds from the sale of the two Florida properties in the variable interest entity, partially offset by the decrease in the sale and disposal of closed and relocated store properties during the first three quarters of 2003, as compared to the prior year’s same period. Additionally, capital expenditure requirements for new and relocated stores decreased $20.1 million, partially offset by the increase of $4.4 million in investments for capitalized software, as compared to the prior year’s same period.

Net cash used in financing activities was $61.5 million in the first three quarters of 2003 compared to $4.4 million used in the first three quarters of 2002. The increase in net cash used in financing activities primarily reflected pay-down on our revolving credit facility (“Credit Agreement”), payoff on a note in connection with an acquisition in 1998 and payments on bank debt and capital leases.

At October 5, 2003, we had cash and cash equivalents of $40.9 million, stockholders’ equity of $206.0 million and debt, excluding capital leases, of $161.8 million. At October 5, 2003, current assets were $218.5 million and current liabilities were $232.3 million. Included in our current liabilities is a $75.0 million obligation under the Credit Agreement which we intend to restructure prior to its expiration in November 2004 (see Bank credit facility, lease facility and other financing activities below.)

Capital expenditure and other capital requirements

Our primary requirement for capital is the financing of the building, leasehold improvements, equipment and initial set-up expenditures for new, relocated and remodeled stores as well as general working capital requirements. During the first three quarters of 2003, we opened three new stores and relocated five stores. New store growth is planned for the remainder of fiscal 2003. We estimate that new capital expenditures, including investment in capitalized software, for 2003 will aggregate approximately $35.2 million. However, we cannot assure that these estimates will be realized and our capital program plans are subject to change upon our further review.

We have various retirement plans, which subject us to various funding obligations. Our noncontributory pension plan covers substantially all of our full time employees, except for those employees of our Foodservice segment. We fund this plan with contributions as required by the Employee Retirement Income Security Act of 1974. Recent changes in the benefit plan assumptions as well as the funded status of the plan have impacted the funding and expense levels for 2003 and future periods. These changes require increased cash contributions to the plan. During the first three quarters of 2003, we made $8.5 million of contributions.

Bank credit facility, lease facility and other financing activities

In November 2001, we entered into the Credit Agreement with a syndicate of banks. The Credit Agreement expires on November 30, 2004. At our option, the Credit Agreement can be used to support up to $15.0 million of commercial letters of credit. Availability under the Credit Agreement, as amended during the third quarter of 2003, is subject to a formula based on the value of eligible accounts receivable, inventory and real properties. As of October 5, 2003, we made pay-downs toward the Credit Agreement, primarily with the proceeds generated from the sale and divestiture of the Florida Operations and the Northern California Foodservice Operations. These pay-downs are treated as permanent reductions to the amount available. As a result, the remaining commitment under the Credit Agreement was $127.8 million at October 5, 2003. At October 5, 2003, $75.0 million of revolving loan and $4.8 million of letters of credit were outstanding and the remaining availability based on the formula was $34.3 million.

In November 2001, we entered into a five-year operating lease agreement (“Lease Agreement”) with a national banking association. Under FASB Interpretation No. 46, the Lease Agreement, as it is currently structured, is considered a variable interest entity and subject to consolidation. Participants in the Lease Agreement structure include several banks and financing institutions as well as Casino USA, Inc. (“Casino USA”), which owned 55.8 percent of our common stock at October 5, 2003. In the second quarter of 2003, Casino USA increased its share of participation in financing of the variable interest entity from $16.1 million to $20.1

million by acquiring the equity interest in the variable interest entity from a third party. The total Casino USA participation of $20.1 million is presented as “Notes payable to affiliate” in the consolidated balance sheet at October 5, 2003. Subsequent to October 5, 2003, Casino USA increased its share of participation to $33.2 million by acquiring debt interests in the variable interest entity from a third party. The Lease Agreement as amended, with a value of $86.8 million and an interest rate of 9.07 percent, currently provides for the financing of two distribution facilities and 14 store locations, and additionally holds $14.3 million of available funds as of October 5, 2003. The $14.3 million of available funds was generated through the sale of a Florida distribution facility and a Florida store property during the process of sale and divestiture of the Florida Operations. As of October 5, 2003, the Lease Agreement was amended to allow these proceeds to be held by the real estate trust for future purchases of replacement properties. The Lease Agreement expires on November 30, 2006. At the end of the term, the Lease Agreement requires us to elect to purchase all the properties by a final payment of $86.4 million or sell all the properties to a third party. If the properties are sold to a third party and the aggregate sales price is less than $69.2 million, we are obligated to pay the difference of the aggregate sales price and $69.2 million.

Both the Credit Agreement and the Lease Agreement contain various customary and restrictive covenants, including restrictions on cash dividends declared or paid and additional debt and capital expenditures, and require us to maintain certain fixed charge coverage ratios and other financial ratios under each agreement. The covenants do not require us to maintain a public debt rating or a certain liquidity level.

Historically, our primary source of liquidity has been cash flows from operations. Additionally, we have availability under bank credit facilities. We expect to be able to fund future acquisitions and other cash requirements by a combination of available cash, cash from operations and other borrowings and proceeds from the issuance of equity securities. We believe that our sources of funds are adequate to provide for working capital, capital expenditures and debt service requirements for the foreseeable future.

New Accounting Pronouncements

At June 15, 2003, we adopted FASB Interpretation No. 46. The Lease Agreement discussed in Bank credit facility, lease facility and other financial activities above is considered a variable interest entity and subject to consolidation. As a result, the financial statements of this variable interest entity were included in our consolidated financial statements. Before June 15, 2003, the Lease Agreement was accounted for as an operating lease; thus the related fixed assets and lease liabilities were not included in our consolidated balance sheets.

Beginning in the second quarter of 2003, we adopted the provisions of EITF Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor.” Issue No. 02-16 provides guidance on how a reseller should characterize the cash consideration received from a vendor and when and how the cash consideration should be recorded on its income statements. Issue No. 02-16 requires that the cash consideration received from the vendor be considered as a reduction of cost of sales when recognized in the reseller’s income statement. If the cash consideration received from a vendor is direct, specific and incremental reimbursement of costs incurred by the reseller to sell the vendor’s products, the cash consideration should be treated as a reduction of such selling costs.

2003. We do not expect a material impact on our results of operations or financial condition as a result of the adoption of SFAS No. 149.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported assets, liabilities, sales and expenses in the accompanying financial statements. Critical accounting policies are those that require the most subjective and complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. These critical accounting policies, under different conditions or using different assumption or estimates, could show materially different results on our financial condition and results of operations. During the first three quarters of 2003, other than the adoption of Interpretation No. 46 and EITF Issue No. 02-16, as discussed above, we did not make any other changes in our critical accounting policies.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to market risks relating to fluctuations in interest rates and the exchange rate between the U.S. Dollar and Mexican Peso. Our major financial risk management objective is to minimize the negative impact of interest rate fluctuations on our earnings and cash flows. As of October 5, 2003, our exposure to foreign currency risk was limited.

Interest Rate Risk

Interest rate risk is managed through the use of an interest rate collar agreement to limit the effect of interest rate fluctuations on floating rate debt. The agreement, expiring in November 2004, hedges principal amounts of an aggregate of $70 million and limits the effect of LIBOR fluctuations to interest rate ranges from 5.48 percent to 8.00 percent. This agreement was entered into with a major financial institution thereby minimizing risk of credit loss.

Credit Risk

We are exposed to limited credit risk on trade accounts receivable. Concentrations of credit risk with respect to trade accounts receivables are limited due to the number of customers comprising our customer base. We currently believe our allowance for doubtful accounts is sufficient to cover customer credit risks.

Foreign Currency Risk

Our exposure to foreign currency risk is limited to our operations under Smart & Final de Mexico S.A. de C.V. (“Smart & Final Mexico”) and the equity earnings in its Mexico joint venture. As of October 5, 2003, such exposure was the $5.1 million net investment in Smart & Final Mexico, comprised primarily of its Mexico joint venture. Our other transactions are conducted in U.S. dollars and are not exposed to fluctuations in foreign currency. We do not hedge our foreign currency exposure and therefore are not exposed to such hedging risk.

Item 4.

CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) that is required to be included in our periodic Security Exchange Commission reports. There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

In September 2003, we entered into a tentative settlement agreement for the resolution of the aforementioned Camacho and Perea actions. In October 2003, the court consolidated the Camacho and Perea actions and, on October 27, 2003, preliminarily approved the settlement and set a fairness hearing and final court certification of the settlement for January 13, 2004. Under the terms of the settlement, we will pay $7.6 million in cash and $1.5 million in scrip redeemable at our Smart & Final stores. Plaintiff’s attorney fees, costs and administrative expenses will be paid from the settlement amount.

Item 2.

Changes in Securities and Use of Proceeds

Not applicable.

Item 3.

Defaults upon Senior Securities

Not applicable

Item 4.

Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit Number		Description of Exhibit

10.29* **		Severance Letter Agreement between Smart & Final Inc. and Robert Schofield dated February 28, 2003 (a portion of this exhibit has been omitted pursuant to a request for confidential treatment being filed with the Securities and Exchange Commission.)

10.30*		Waiver and Amendment Agreement No. 4 dated and effective as of July 11, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc.

10.31*		Fourth Amendment and Waiver to Credit Agreement entered into as of July 11, 2003 by and among BNP Paribas and Smart & Final Inc.

10.32*		Share Purchase Agreement dated as of August 6, 2003 by and between Smart & Final Inc. and American Foodservice Distributors and GFS Holding, Inc. and related exhibits.

10.33*		Asset Purchase Agreement dated as of August 6, 2003 by and among Smart & Final Inc., Smart & Final Stores Corporation, American Foodservice Distributors and GFS Holding, Inc. and GFS Orlando, LLC, and GFS Stores, LLC and related exhibits.

10.34*		Asset Purchase Agreement dated as of August 18, 2003 by and among Port Stockton Food Distributors, Inc. and American Foodservice Distributors and Smart & Final Inc. and SYSCO Corporation and related exhibits.

10.35*		Consent, Waiver, Collateral Release and Amendment Agreement No. 5A dated as of September 3, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc.

10.36*		Fifth Amendment, Waiver and Collateral Release entered into as of September 3, 2003 by and among BNP Paribas and Smart & Final Inc.

10.37*		First Supplement to Consent, Waiver, Collateral release and Amendment Agreement No. 5A dated as of September 5, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc.

10.38*		Asset Purchase Agreement dated as of September 11, 2003 by and between Port Stockton Food Distributors, Inc. and Smart & Final


		Stores Corporation and Pacific Fresh Sea Food and related exhibits.

10.39	*	Sixth Amendment and Waiver to Lease Agreement dated as of September 12, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc.

10.40	*	Sixth Amendment and Waiver to Credit Agreement entered into as of September 12, 2003 by and among BNP Paribas and Smart & Final Inc.

10.41	*	Consent, Waiver and Amendment Agreement No. 5B dated as of September 26, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc.

10.42	* **	First Amendment to Severance and Consulting Services Agreement between Smart & Final Inc. and Dennis L. Chiavelli.

10.43	*	Seventh Amendment to Credit Agreement entered into as of October 14, 2003 by and among BNP Paribas and Smart & Final Inc.

10.44	*	Amendment Agreement No. 7 dated as of October 21, 2003 between Wells Fargo Bank Northwest, National Association and Smart & Final Inc.

31.1	*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer

31.2	*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer

32.1	*	Section 1350 Certification of Chief Executive Officer

32.2	*	Section 1350 Certification of Chief Financial Officer

*	Filed herewith.

**	Management contracts and compensatory plans, contracts and arrangements of the Company.

(b) Reports on Form 8-K

Date Filed		Item Reported

July 24, 2003		Attaching as an Exhibit a News Release dated July 23, 2003 regarding the earnings of Smart & Final Inc. for the second quarter ended June 15, 2003.

August 7, 2003		Attaching as an Exhibit a News Release dated August 6, 2003 regarding the announcement by Smart & Final Inc. of reaching definitive agreement on sale of Florida Operations.


August 20, 2003		Attaching as an Exhibit a News Release dated August 19, 2003 regarding the announcement by Smart & Final Inc. of selling northern California foodservice assets.

September 11, 2003		Dated September 10, 2003 regarding the progress on sale of Florida Operations.

September 17, 2003		Attaching as an Exhibit a News Release dated September 16, 2003 regarding the announcement by Smart & Final Inc. of completing sale of Florida Operations.

September 18, 2003		Dated September 18, 2003 regarding receiving the consents of lenders on various transactions as a result of the sale of Florida Operations and northern California foodservice assets.

September 25, 2003		Attaching as an Exhibit a News Release dated September 24, 2003 regarding the announcement by Smart & Final Inc. of reaching agreement to dispose California lawsuits concerning managerial compensation.

September 29, 2003		Attaching as an Exhibit a News Release dated September 25, 2003 regarding the announcement by Smart & Final Inc. of the newly appointed president and chief operating officer.

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.

Date: November 17, 2003	By:	/s/ RICHARD N. PHEGLEY

		Richard N. Phegley Senior Vice President and Chief Financial Officer

EX-10.29 3 dex1029.txt SEVERANCE LETTER AGREEMENT BETWEEN SMART & FINAL AND ROBERT SCHOFIELD Exhibit 10.29 Ross E. Roeder Chairman and CEO Smart & Final. Food . Supplies . Business . Home Smart & Final Inc. 600 Citadel Drive Commerce, CA 90040 Phone: (323) 869-7745 Fax: (323 869-7871 Mailing Address: P.O. Box 512377 Los Angeles, CA 90051 - 0377 February 27, 2003 Mr. Robert Schofield ** ** Dear Bob, The purpose of this letter is to amend your 2001 Executive Severance Plan (the Plan) to provide further protection to you should Smart & Final, Inc. undertake a strategy to divest itself of the foodservice distribution businesses. Your leadership of the foodservice division is very important to Smart & Final, and should the Company decide to exit the foodservice distribution business your support during this process would be even more critical. Section 4.2 of the plan which defines "Qualifying General Termination" shall be amended to include: (c) the Company exits or transition all of its foodservice distribution business ("the foodservice event") during the term of the Plan, and (i) the foodservice event is not a change-in-control as defined in the plan, and (ii)you satisfactorily perform your current responsibilities and duties, and (iii) you satisfactorily perform any new responsibilities assigned to you regarding the divestiture of the foodservice distribution businesses, and (iv)you remain in the position of Chief Operating Officer of Foodservice until such time that Smart & Final no longer requires your service in that capacity and, after which, not transfer to a mutually agreeable position within Smart & Final. If the foodservice event occurs and you meet the requirements as defined above, you will be entitled to receive an Enhanced General Severance Benefit as set forth below: Enhanced General Severance Benefit (a) The severance period will be 24 months. (b) The bonus will be paid at target during the severance period. (c) Your options and restricted stock will 100% vest at the end of the severance period. (d) Your options exercise rights will extend up to 3 years following the end of the severance period. (e) You will qualify for Early Retirement of your vested SERP benefit without the reduction factor of 6% a year being applied [**] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. Page -2- February 27, 2003 Robert Schofield Severance If the Company were to sell the foodservice distribution businesses, you would not have to become employed by the acquiring Company. You would be expected to cooperate to ensure a smooth transition, and be available to consult with the acquiring Company under mutually agreeable terms. Should you decided to join the acquiring company you would waive your severance benefits and your last day worked would serve as the end of the severance period for purposes of (c) and (d) above, and you would be guaranteed vesting credit for 5 service years on your SERP. However, by joining the acquiring company, you would not waive your rights to stock vesting and exercise rights as defined above, or your qualification of early retirement of your vested SERP benefit as defined above. Bob, it is the intent of this amendment to provide additional benefits to you if there is a foodservice event that is not a change-in-control as defined in the Plan. It is not the intent of this amendment to alter your rights or the Company's rights if Smart & Final, Inc., were to go through a change-in-control. If a change-in-control of Smart & Final were to occur, all provisions of the Plan would still be in effect. Of course if there is no foodservice event or change-in-control event, you are still eligible for the General Severance Benefit as defined in the Plan. Nothing contained herein or in the Plan is meant to constitute a contract of employment, or a guarantee of employment or continued employment. Our most immediate and primary objective is to turnaround the performance of our foodservice distribution businesses. Your leadership is very important to achieving success in this objective. For these reasons, your request for protection has been granted. I look forward to your continued contributions. Very truly yours, /s/ Ross Roeder Ross Roeder Accepted /s/ Robert J. Schofield Robert Schofield Date: February 28, 2003 EX-10.30 4 dex1030.txt WAIVER AND AMENDMENT AGREEMENT NO. 4 Exh. 10.30 WAIVER AND AMENDMENT AGREEMENT NO. 4 This Waiver and Amendment Agreement No. 4, dated and effective as of July 11, 2003 (this "Agreement"), is among the Persons that have executed this Agreement (the "Parties"). Capitalized terms used, but not defined, in this Agreement are used as defined in the Lease Agreement, dated as of November 30, 2001, between Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1, as lessor, and Smart & Final Inc., as lessee, as amended by Waiver and Amendment Agreement No. 1, dated as of June 4, 2002, by Waiver and Amendment Agreement No. 2, dated as of February 14, 2003, and by Amendment Agreement No. 3, dated as of June 1, 2003 (the "Lease"). WHEREAS, Lessee has requested a one-time waiver of Lessee's compliance with certain Lease covenants, and certain Secured Parties have agreed to waive those covenants, subject to the terms and conditions of this Agreement. NOW, THEREFORE, for good and valuable consideration received, the Parties agree as follows. 1. Waiver. The Majority Secured Parties waive Lessee's compliance with Section 28.5(a), (b), (c), (d) and (f) for the second fiscal quarter of Lessee's fiscal year 2003. 2. Conditions Precedent. The effectiveness of this Agreement is subject to the satisfaction of each of the following conditions precedent. (a) The Agent shall have received all of the following, in form and substance satisfactory to the Agent: (i) Amendment Documents. This Agreement and any other instrument, document or certificate required by the Agent to be executed or delivered by Lessee or any other Person in connection with this Agreement, duly executed by them (the "Amendment Documents"); (ii) Consent of Majority Secured Parties. The Majority Secured Parties' written consent to this Agreement; (iii) Amendment to Lessee Credit Agreement. Evidence that the parallel financial covenants contained in the Lessee Credit Agreement have been waived in the same manner as set forth in this Agreement; and (iv) Additional Information. Such additional documents, instruments and information as the Agent may reasonably request to effect the transactions contemplated hereby. (b) Each Lender who executes this Agreement by 5:00 p.m. (EDT) on July 11, 2003 shall have received an amendment fee of 0.20% of its Commitment. (c) The representations and warranties contained in this Agreement and in the Lease shall be true and correct as of, and as if made on, the date hereof (except for those that by their terms specifically refer to an earlier date, in which case such representations and warranties shall be true and correct as of the earlier date). (d) All corporate proceedings taken in connection with the transactions contemplated by this Agreement and all other agreements, documents and instruments executed or delivered pursuant to it, and all legal matters incident thereto, shall be satisfactory to the Agent. (e) No Default or Event of Default shall have occurred and be continuing after giving effect to this Agreement. 3. Representations and Warranties. Lessee hereby represents and warrants to the Agent and the Secured Parties that, as of the date of and after giving effect to this Agreement, (a) the execution, delivery and performance of this Agreement and all other Amendment Documents executed or delivered in connection herewith have been authorized by all requisite corporate action on the part of Lessee and will not violate Lessee's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Lease and in any other Operative Agreement are true and correct as if made again on and as of such date (except those, if any, that by their terms specifically relate only to an earlier date, in which case such representations and warranties are true and correct as of the earlier date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Lease (as amended by this Agreement) and all other Operative Agreements are and remain legal, valid, binding and enforceable obligations in accordance with their terms. 4. Survival of Representations and Warranties. All representations and warranties made in this Agreement or any other Operative Agreement shall survive the execution and delivery of this Agreement and the other Operative Agreements, and no investigation by the Agent or the Secured Parties, or any closing, shall affect the representations and warranties or the right of the Agent and the Secured Parties to rely upon them. 5. Costs and Expenses. The Borrower shall pay on demand all reasonable costs and expenses of the Agent (including the reasonable fees, costs and expenses of counsel to the Agent) incurred in connection with the preparation, execution and delivery of this Agreement. 6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT-OF-LAWS PRINCIPLES. 7. Execution. This Agreement may be executed in any number of counterparts and by different Parties on separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. A Party's delivery of an executed counterpart of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 8. Limited Effect. This Agreement relates only to the specific matters it covers, shall not be considered to be a waiver of any rights any Secured Party may have under the 2 Operative Agreements (other than as expressed in Section 1), and shall not be considered to create a course of dealing or to otherwise obligate any Secured Party to grant similar waivers or execute any amendments under the same or similar circumstances in the future. 9. Ratification By Guarantors. Each Guarantor consents to this Agreement and acknowledges that its guaranty shall remain in full force and effect without any modification. 10. Certain Waivers. Each Credit Party agrees that none of the Financing Parties shall be liable under a claim of, and waives any claim against any Financing Party based upon, lender liability (including, but not limited to, liability for breach of the implied covenant of good faith and fair dealing, fraud, negligence, conversion, misrepresentation, duress, control and interference, infliction of emotional distress, defamation and breach of fiduciary duty) as a result of any discussions or actions taken or not taken by any Financing Party on or before the date hereof, the discussions conducted pursuant hereto, or any course of action taken by any Financing Party in response thereto or arising therefrom. This Section 10 shall survive the execution and delivery of this Agreement and the expiration or termination of the Lease. [Remainder of the Page is Intentionally Left Blank] 3 This Agreement may be executed by the parties hereto on separate counterparts. LESSOR: Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1 By: /s/ Val T. Orton ------------------------------ Name: Val T. Orton Title: Vice President LESSEE: Smart & Final Inc. By: /s/ Richard N. Phegley By: ------------------------------ -------------------------------- Name: Richard N. Phegley Name: Title: Senior Vice President & ------------------------------- Chief Financial Officer Title: ------------------------------ [Waiver and Consent Agreement] A-2 LENDER AND B LENDER: Fleet Capital Corporation By: /s/ Renay McLeish ------------------------------ Name: Renay McLeish Title: Vice President A-2 LENDER: GMAC Commercial Finance, LLC, successor by merger to GMAC Business Credit, LLC By: /s/ David W. Berry ------------------------------ Name: David W. Berry Title: Vice President A-2 LENDER: Cooperative Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland," New York Branch By: /s/ Bradford F. Scott By: /s/ Andre Blom ------------------------------ -------------------------------- Name: Bradford F. Scott Name: Andre Blom Title: Executive Director Title: Managing Director Credit Risk Management A-2 LENDER: Natexis Banques Populaires By: /s/ Anne Ulrich By: /s/ Evan S. Kraus ------------------------------ -------------------------------- Name: Anne Ulrich Name: Evan S. Kraus Title: Vice President Title: Vice President A-2 LENDER: BNP Paribas By: /s/ Clive Bettles By: /s/ Frederique Merhaut ------------------------------ -------------------------------- Name: Clive Bettles Name: Frederique Merhaut Title: Managing Director Title: Director [Waiver and Consent Agreement] B LENDER: Transamerica Equipment Financial Services Corporation By: /s/ James R. Bates ------------------------------ Name: James R. Bates Title: Vice President [Waiver and Consent Agreement] HOLDER: Casino USA, Inc. By: /s/ Andre Delolmo ------------------------------ Name: Andre Delolmo Title: President [Waiver and Consent Agreement] GUARANTOR: American Foodservice Distributors By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Smart & Final Stores Corporation By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Smart & Final Oregon, Inc. By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Port Stockton Food Distributors, Inc. By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President - Finance GUARANTOR: Henry Lee Company By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President - Finance [Waiver and Consent Agreement] GUARANTOR: Amerifoods Trading Company By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Casino Frozen Foods, Inc. By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: FoodServiceSpecialists.Com, Inc. By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Okun Produce International, Inc. By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: HL Holding Corporation By: /s/ Richard N. Phegley ------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer [Waiver and Consent Agreement] EX-10.31 5 dex1031.txt FOURTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT Exh 10.31 FOURTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT This Fourth Amendment and Waiver to Credit Agreement (this "Amendment") is entered into as of July 11, 2003, by and among SMART & FINAL INC., a Delaware corporation (the "Borrower"), the Guarantors listed on the signature pages hereof, the financial institutions and other entities party hereto (the "Lenders") and BNP PARIBAS, as Administrative Agent for the Lenders (the "Administrative Agent"). RECITALS A. The Borrower, the Lenders, the Administrative Agent, Harris Trust & Savings Bank, as syndication agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as documentation agent, are parties to that certain Credit Agreement dated as of November 30, 2001 (as amended to date, the "Credit Agreement"). Capitalized terms used herein without definition have the meanings ascribed to such terms in the Credit Agreement. B. The Borrower, the Lenders and the Administrative Agent have agreed to waive certain covenants and amend the Credit Agreement as provided hereinbelow. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: Section 1. Section References. Unless otherwise expressly stated herein, all Section references herein shall refer to Sections of the Credit Agreement. Section 2. Amendment to Section 1.01. The definition of "Applicable Margin" set forth in Section 1.01 is hereby amended by deleting the proviso thereto and replacing it with the following: "provided, however, that, notwithstanding the foregoing, (i) on the Closing Date and until the six month anniversary thereof, the Applicable Margin shall be 2.5% for Eurodollar Rate Advances and 1.5% for Base Rate Advances, (ii) for purposes of determining the Applicable Margin at any time following the six month anniversary of the Closing Date, the Adjusted Leverage Ratio shall be deemed to be greater than or equal to 4.25 to 1.0 at all times when a Default has occurred and is continuing based on the Borrower's failure to deliver any financial statement, compliance certificate or Borrowing Base Certificate as and when required pursuant to Sections 6.03(a), 6.03(c) or 6.03(d), as applicable, and (iii) during the period commencing on July 11, 2003 until the later of (A) November 4, 2003 and (B) the date that the Borrower delivers the financial statements required under Section 6.03(c) with respect to the third fiscal quarter of Fiscal Year 2003, the Applicable Margin shall equal 2.90% per annum with respect to Eurodollar Rate Advances and 1.90% per annum with respect to Base Rate Advances. For purposes of this Agreement, any change in the Applicable Margin based on a change in the Adjusted Leverage Ratio shall be effective three Business Days after the date of receipt by the Administrative Agent of the financial statements, compliance certificate and Borrowing Base Certificate required by Sections 6.03(a), 6.03(c) and 6.03(d), as applicable, reflecting such change." Section 3. Waiver. The Lenders hereby waive compliance by the Borrower with Section 6.04(a), (b), (c), (d) and (f) for the second fiscal quarter of Fiscal Year 2003. Section 4. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: (a) The Administrative Agent shall have received all of the following, in form and substance satisfactory to the Administrative Agent: (i) Amendment Documents. This Amendment and any other instrument, document or certificate required by the Administrative Agent to be executed or delivered by the Borrower or any other Person in connection with this Amendment, duly executed by such Persons (the "Amendment Documents"); (ii) Consent of Required Lenders. The written consent of the Required Lenders to this Amendment; (iii) Amendment to Synthetic Lease Documents. Evidence that (A) the financial covenants contained in the Synthetic Lease Documents have been waived in the same manner as set forth in this Amendment and (B) any conforming changes to the Synthetic Lease Documents reasonably requested by the Administrative Agent have been made; (iv) Additional Information. Such additional documents, instruments and information as the Administrative Agent may reasonably request to effect the transactions contemplated hereby. (b) Each of the Lenders consenting to this Amendment on or prior to 5:00 p.m. (EST) on July 11, 2003 shall have received an amendment fee of 0.08% of its Commitment. (c) The representations and warranties contained herein and in the Credit Agreement shall be true and correct as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date). (d) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Administrative Agent. 2 (e) No Default or Event of Default shall have occurred and be continuing, after giving effect to this Amendment. Section 5. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that, as of the date of and after giving effect to this Amendment, (a) the execution, delivery and performance of this Amendment and any and all other Amendment Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Borrower and will not violate the Borrower's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Credit Agreement and in any other Loan Document are true and correct as if made again on and as of such date (except those, if any, which by their terms specifically relate only to an earlier date, in which case such representations and warranties are true and correct as of such earlier date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Credit Agreement (as amended by this Amendment), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof. Section 6. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Administrative Agent or the Lenders, or any closing, shall affect the representations and warranties or the right of the Administrative Agent and the Lenders to rely upon them. Section 7. Certain Waivers. The Borrower and each Guarantor hereby agrees that neither the Administrative Agent nor any Lender shall be liable under a claim of, and hereby waives any claim against the Administrative Agent and the Lenders based upon, lender liability (including, but not limited to, liability for breach of the implied covenant of good faith and fair dealing, fraud, negligence, conversion, misrepresentation, duress, control and interference, infliction of emotional distress and defamation and breach of fiduciary duties) as a result of any discussions or actions taken or not taken by the Administrative Agent or the Lenders on or before the date hereof or the discussions conducted pursuant hereto, or any course of action taken by the Administrative Agent or any Lender in response thereto or arising therefrom. This Section 7 shall survive the execution and delivery of this Amendment and the other Loan Documents and the termination of the Credit Agreement. Section 8. Reference to Agreement. Each of the Loan Documents, including the Credit Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Credit Agreement, whether direct or indirect, shall mean a reference to the Credit Agreement as amended hereby. Section 9. Costs and Expenses. The Borrower shall pay on demand all reasonable costs and expenses of the Administrative Agent (including the reasonable 3 fees, costs and expenses of counsel to the Administrative Agent) incurred in connection with the preparation, execution and delivery of this Amendment. Section 10. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. Section 11. Execution. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. Section 12. Limited Effect. This Amendment relates only to the specific matters covered herein, shall not be considered to be a waiver of any rights any Lender may have under the Credit Agreement (other than as expressly set forth herein), and shall not be considered to create a course of dealing or to otherwise obligate any Lender to execute similar amendments or grant any waivers under the same or similar circumstances in the future. Section 13. Ratification By Guarantors. Each of the Guarantors hereby agrees to this Amendment and acknowledges that such Guarantor's Guaranty shall remain in full force and effect without modification thereto. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. SMART & FINAL INC., as Borrower By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer SMART & FINAL STORES CORPORATION By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer SMART & FINAL OREGON, INC. By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer PORT STOCKTON FOOD DISTRIBUTORS, INC. By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance HENRY LEE COMPANY By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance AMERIFOODS TRADING COMPANY By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer CASINO FROZEN FOODS, INC. By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer FOODSERVICESPECIALISTS.COM, INC. By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer OKUN PRODUCE INTERNATIONAL, INC. By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer HL HOLDING CORPORATION By: /s/ Richard N. Phegley -------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer BNP PARIBAS, as Administrative Agent and a Lender By: /s/ Clive Bettles -------------------------------------- Name: Clive Bettles Title: Managing Director By: /s/ Frederique Merhaut -------------------------------------- Name: Frederique Merhaut Title: Director HARRIS TRUST & SAVINGS BANK By: /s/ Julie Hossack -------------------------------------- Name: Julie Hossack Title: Vice President COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ Bradford F. Scott -------------------------------------- Name: Bradford F. Scott Title: Executive Director By: /s/ Andre Blom -------------------------------------- Name: Andre Blom Title: Credit Risk Management CREDIT INDUSTRIEL ET COMMERCIAL By: /s/ Eric Dulot -------------------------------------- Name: Eric Dulot Title: Vice President By: /s/ Eric Longuet -------------------------------------- Name: Eric Longuet Title: Vice President COBANK, ACB By: /s/ S. Richard Dill -------------------------------------- Name: S. Richard Dill Title: Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ Peter Thompson -------------------------------------- Name: Peter Thompson Title: Vice President U.S. BANK NATIONAL ASSOCIATION By: /s/ Janet Jordan -------------------------------------- Name: Janet Jordan Title: Vice President NATEXIS BANQUE-BFCE By: /s/ Anne Ulrich -------------------------------------- Name: Anne Ulrich Title: Vice President By: /s/ Pieter J. van Tulder -------------------------------------- Name: Pieter J. van Tulder Title: Vice President And Manager Multinational Group TRANSAMERICA BUSINESS CAPITAL CORPORATION By: /s/ Stephen Goetschius -------------------------------------- Name: Stephen Goetschius Title: Senior Vice President CITY NATIONAL BANK By: /s/ Abdi Rais -------------------------------------- Name: Abdi Rais Title: Senior Vice President RZB FINANCE LLC By: /s/ John A. Valiska -------------------------------------- Name: John A. Valiska Title: Group Vice President By: /s/ Frank J. Yautz -------------------------------------- Name: Frank J. Yautz Title: First Vice President BANK OF THE WEST By: /s/ Daniel Flores -------------------------------------- Name: Daniel Flores Title: Syndications Officer PREFERRED BANK By: /s/ Walt Duchanin -------------------------------------- Name: Walt Duchanin Title: Executive Vice President BANK LEUMI USA By: /s/ Jacques V. Delvoye -------------------------------------- Name: Jacques V. Delvoye Title: Vice President EX-10.32 6 dex1032.txt SHARE PURCHASE AGREEMENT DATED AUGUST 6, 2003 Exhibit 10.32 Execution Copy SHARE PURCHASE AGREEMENT Dated as of August 6, 2003 by and between SMART & FINAL INC., a Delaware corporation and AMERICAN FOODSERVICE DISTRIBUTORS a California corporation (the "Sellers") and GFS HOLDING, INC., a Delaware corporation (the "Buyer") ARTICLE I PURCHASE AND SALE OF SHARES 1.1 Sale and Purchase of the Shares........................................2 1.2 Purchase Price and Payment.............................................2 1.3 Adjustment of Purchase Price...........................................2 1.4 Adjustment Procedure...................................................2 1.5 Accounts Receivable Purchase Price Adjustment..........................4 1.6 Accounts Receivable Purchase Price Adjustment Procedure................4 1.7 Adjustment Allocations.................................................5 1.8 Closing................................................................5 1.9 Closing Deliveries.....................................................6 ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS 2.1 Organization and Qualification of the Company..........................8 2.2 Authority; No Conflict.................................................9 2.3 Capitalization........................................................10 2.4 Financial Statements..................................................10 2.5 Books and Records.....................................................10 2.6 No Undisclosed Liabilities............................................11 2.7 Compliance with Legal Requirements; Governmental Authorizations.......11 2.8 Absence of Certain Changes............................................12 2.9 Personal Property.....................................................14 2.10 Inventory.............................................................14 2.11 Accounts Receivable...................................................15 2.12 Contracts; No Defaults................................................15 2.13 Guaranties............................................................17 2.14 Employee Benefits.....................................................18 2.15 Employees.............................................................22 2.16 Labor Relations; Compliance...........................................22 2.17 Litigation............................................................23 2.18 Real Property.........................................................24 2.19 Taxes.................................................................25 2.20 Insurance.............................................................25 2.21 Environmental Matters.................................................26 2.22 Relationships with Related Persons....................................27 2.23 Subsidiaries..........................................................27 2.24 Warranties............................................................27 2.25 Change in Business Relationships......................................27 2.26 Brokers...............................................................27 2.27 True and Correct Information..........................................27 2.28 Intellectual Property.................................................27 i ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER 3.1 Organization and Good Standing........................................28 3.2 Authority; No Violation...............................................28 3.3 Investment Intent.....................................................29 3.4 Certain Proceedings...................................................29 3.5 Brokers or Finders....................................................29 3.6 Sufficiency of Funds..................................................29 3.7 Knowledge of Claims...................................................29 ARTICLE IV COVENANTS OF SELLERS PRIOR TO CLOSING DATE 4.1 Access and Investigation..............................................29 4.2 Operation of the Business of the Company..............................30 4.3 Negative Covenant.....................................................30 4.4 Required Approvals....................................................30 4.5 Notification..........................................................30 4.6 No Negotiation........................................................30 4.7 Commercially Reasonable Efforts.......................................31 4.8 Intercompany Balances.................................................31 4.9 Synthetic Lease Agreement.............................................31 4.10 Disposition of Subsidiaries...........................................31 4.11 Sellers' Environmental Investigation..................................31 ARTICLE V COVENANTS OF BUYER AND SELLERS PRIOR TO CLOSING DATE 5.1 Approvals of Governmental Bodies......................................31 5.2 Commercially Reasonable Efforts.......................................31 5.3 Cooperation...........................................................32 ARTICLE VI POST-CLOSING COVENANTS OF BUYER AND SELLERS 6.1 General...............................................................32 6.2 Litigation Support....................................................32 6.3 Transition............................................................33 6.4 Non-Company Employees Engaged in the Foodservice Business.............33 6.5 Employee Benefits.....................................................33 6.6 Certain Employees.....................................................34 6.7 Company 401(k) Plan...................................................34 6.8 Real Property Consents................................................34 6.9 Insurance Matters.....................................................34 6.10 Tax Covenant..........................................................35 6.11 Accounts Receivable Collection........................................35 ii 6.12 Tax Matters...........................................................35 6.13 Environmental Testing.................................................36 ARTICLE VII CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE 7.1 Accuracy of Representations...........................................37 7.2 Buyer's Performance...................................................37 7.3 Additional Documents..................................................37 7.4 No Injunction.........................................................38 7.5 Closing of Asset Purchase Transaction.................................38 7.6 Consents..............................................................38 ARTICLE VIII CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE 8.1 Accuracy of Representations...........................................38 8.2 Sellers' Performance..................................................38 8.3 Consents..............................................................38 8.4 Additional Documents..................................................38 8.5 No Injunction.........................................................38 8.6 No Proceedings........................................................39 8.7 No Claim Regarding Stock or Sale Proceeds.............................39 8.8 No Prohibition........................................................39 8.9 Closing of Asset Purchase Transaction.................................39 8.10 Execution and Closing of the Real Estate Purchase Agreement...........39 8.11 Release of Guaranty...................................................39 ARTICLE IX TERMINATION 9.1 Termination Events....................................................39 9.2 Effect of Termination.................................................40 ARTICLE X INDEMNIFICATION 10.1 Indemnity by Sellers..................................................40 10.2 Indemnity by Buyer....................................................41 10.3 Procedure and Payment.................................................41 10.4 Calculation of Losses.................................................42 10.5 Survival of Representations and Warranties of Sellers.................43 10.6 Survival of Representations and Warranties of Buyer...................43 10.7 Escrow................................................................43 10.8 Indemnified Environmental Matters.....................................43 iii ARTICLE XI DEFINITIONS ARTICLE XII GENERAL PROVISIONS 12.1 Expenses With Respect to Transaction..................................56 12.2 Public Announcements..................................................56 12.3 Confidentiality.......................................................56 12.4 Notices...............................................................57 12.5 Jurisdiction..........................................................58 12.6 Further Assurances....................................................59 12.7 Waiver................................................................59 12.8 Entire Agreement and Modification.....................................59 12.9 Assignments, Successors, and No Third-Party Rights....................59 12.10 Severability..........................................................60 12.11 Section Headings, Construction........................................60 12.12 Preamble; Preliminary Statement.......................................60 12.13 Governing Law.........................................................60 12.14 No Strict Construction................................................60 12.15 Dispute Resolution....................................................60 12.16 Supplemental Disclosure...............................................61 12.17 Reliance..............................................................61 12.18 Counterparts..........................................................61 iv SCHEDULES Schedule 1.3 Accounting Policies and Practices Schedule 2.1 Qualified to do Business Schedule 2.2 Notices; Consents Schedule 2.4(a) Financial Statements Schedule 2.4(b) Other Financial Statements Schedule 2.4(c) Financial Statement Exceptions Schedule 2.6 Undisclosed Liabilities Schedule 2.7 Compliance with Legal Requirements Schedule 2.7(b) Governmental Authorizations Schedule 2.8 Absence of Certain Changes Schedule 2.9 Personal Property Schedule 2.11 Accounts Receivable Schedule 2.12(a) List of Contracts Schedule 2.12(b) Contracts; No Limitations Schedule 2.12(c) Contracts in Full Force and Effect Schedule 2.12(d) Compliance with Contracts Schedule 2.13 Guaranties Schedule 2.14(b)(i) Employee Benefits-Company Plans Schedule 2.14(b)(ii) Multi-Employer Plans Schedule 2.14(d) Compliance with Plans Schedule 2.15 Employees Schedule 2.16 Labor Relations; Compliance Schedule 2.17(a) Litigation Proceedings Schedule 2.17(b) Litigation Orders Schedule 2.17(c) Litigation-Compliance with Orders Schedule 2.18 List of Real Property Schedule 2.19 Taxes Schedule 2.20(a) Insurance Policy Loss Experience Schedule 2.20(b) Insurance Premiums Schedule 2.21 Environmental Matters Schedule 2.22 Relationships with Related Persons Schedule 2.23 List of Subsidiaries Schedule 2.25 Changes in Business Relationships Schedule 2.28 Trademarks and Tradenames Schedule 6.4 Employees of Seller to be Offered Employment Schedule 6.6 List of Severance Agreements Schedule 6.8 Certain Leases Schedule 6.11 Accounts Receivable Collection Practices Schedule 8.3 Material Consents Schedule 10.1(a) Indemnified Matters v EXHIBITS Exhibit A Escrow Agreement Exhibit B Noncompetition Agreement Exhibit C Software License and Support Agreement Exhibit D Tradename and Trademark License Agreements Exhibit E Release Exhibit F Transitional Services Agreement Exhibit G Employee Leasing Agreement Exhibit H Opinion of Counsel Exhibit I Real Estate Purchase Agreement Exhibit J Vendor Contract Participation Agreement vi SHARE PURCHASE AGREEMENT THIS SHARE PURCHASE AGREEMENT (this "Agreement") is dated as of August 6, 2003, by and among SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD" and together with SFI, the "Sellers"), and GFS HOLDING, INC., a Delaware corporation (the "Buyer"). Capitalized terms used, but not otherwise defined herein, shall have the meaning set forth in Article XI hereof. PRELIMINARY STATEMENT SFI is the record and beneficial owner of all of the issued and outstanding equity securities of AFD. AFD is the record and beneficial owner of all of the issued and outstanding equity securities of Henry Lee Company, a Florida corporation (the "Company"), through which AFD conducts a foodservice distribution business in the State of Florida (the "Foodservice Business"). The Foodservice Business does not, however, include any business conducted directly or indirectly by either of the Sellers under the name "Southern Foods". In addition to the Foodservice Business, AFD also operates, among other things, a fresh meat processing business in the state of Florida under the name "Orlando Food Service" (the "Meat Processing Business"). SFI is the record and beneficial owner of all of the issued and outstanding equity securities of Smart & Final Stores Corporation, a California corporation ("SF Stores" and, together with SFI and AFD, the "Seller Parties"). SF Stores is engaged in the retail food store business in the State of Florida and operates from several locations within that state. In a separate but related transaction, Buyer's wholly-owned subsidiaries, GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando"), and GFS Stores, LLC, a Delaware limited liability company ("GFS Stores" and, together with Buyer and GFS Orlando, the "Buyer Parties"), will acquire from AFD and SF Stores, respectively, all of the assets that are used by AFD and SF Stores, respectively, in the operation of the Meat Processing Business and the Retail Store Business and located in the state of Florida pursuant to an Asset Purchase Agreement dated the date hereof by and among Buyer Parties and Seller Parties (the "Asset Purchase Agreement"). This Agreement is being entered into by Buyer and Sellers to set forth the terms and conditions upon which Buyer will purchase from Sellers all of the issued and outstanding equity securities of the Company (the "Shares"). SFI joins in this Agreement for the purpose of making certain representations and warranties to, agreeing to perform certain covenants for the benefit of, and providing indemnification to Buyer as provided herein. NOW, THEREFORE, in consideration of the mutual agreements and covenants herein contained and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I PURCHASE AND SALE OF SHARES 1.1 Sale and Purchase of the Shares. On the Closing Date (as such term is defined in Section 1.5), AFD shall sell to Buyer, and Buyer shall acquire from AFD, the Shares, free and clear of all Encumbrances, on the terms and subject to the conditions set forth in this Agreement. 1.2 Purchase Price and Payment. The purchase price to be paid by Buyer to Sellers on the Closing Date for the Shares shall be Twenty-Four Million Two Hundred Eighty Two Thousand Eight Hundred Sixty-Eight Dollars ($24,282,868), subject to adjustment for changes in the Net Working Capital of the Company as described in Section 1.3 below (the "Purchase Price"). The Net Working Capital of the Company as of March 23, 2003, is Thirty Million Seven Hundred Seventy Three Thousand Two Hundred Forty-Eight Dollars ($30,773,248) (the "March 23, 2003 Net Working Capital"). In order to establish a reasonable estimate of the Purchase Price at Closing, Sellers shall prepare and deliver to Buyers, not less than five (5) business days prior to the Closing Date, a detailed written statement (the "Preliminary Purchase Price Statement") of Sellers' reasonable good faith calculation of the Company's Net Working Capital as of the Closing Date (the "Preliminary Net Working Capital"). If the Preliminary Net Working Capital is less than the March 23, 2003 Net Working Capital, the Purchase Price shall be reduced dollar for dollar by such difference and if the Preliminary Net Working Capital is greater than the March 23, 2003 Net Working Capital the Purchase Price shall be increased dollar for dollar by such difference. The Purchase Price shall be paid at Closing as follows: (a) an amount equal to the Purchase Price (based on the Preliminary Purchase Price Statement) less the sum of One Million Dollars ($1,000,000) shall be paid to Sellers by wire transfer of immediately available funds (the "Closing Payment"); and (b) the sum of One Million Dollars ($1,000,000) (the "Escrow Payment") shall be delivered to Wells Fargo Bank (the "Escrow Agent") to be held in escrow on the terms and subject to the conditions set forth in an escrow agreement substantially in the form attached hereto as Exhibit A (the "Escrow Agreement"). 1.3 Adjustment of Purchase Price. The Purchase Price shall be adjusted on a dollar-for-dollar basis to reflect any increases or decreases in the Preliminary Net Working Capital as of the Closing Date. For purposes of this Agreement, the term "Net Working Capital" means the difference between (a) the sum of cash, cash equivalents, temporary investments, accounts receivable, inventories and prepaid expenses and other current assets and (b) the sum of accounts payable and accrued expenses and other current liabilities, in each case with respect to the Company and in each case computed in accordance with GAAP utilizing the accounting policies and practices set forth on Schedule 1.3. 1.4 Adjustment Procedure. 2 (a) Sellers shall prepare the Closing Financial Statement (as defined below) and shall cause Ernst & Young, LLP to undertake a balance sheet audit (the "Balance Sheet Audit") as of the Closing Date and compute the Net Working Capital of the Company as of the Closing Date and the adjustment, if any, to the Purchase Price required by Section 1.3, and Ernst & Young LLP shall, and Sellers shall cause Ernst & Young, LLP to, deliver to Buyer, within forty-five (45) days of the Closing Date, a detailed written statement with reasonable supporting documentation (the "Closing Financial Statement") reflecting the result of its audit. Buyer and Seller shall have access to, and will have the opportunity to present to Ernst & Young, LLP any material relating to, the Closing Financial Statement, and to discuss the audit of the Closing Financial Statement with Ernst & Young, LLP. The parties agree that with respect to the audit contemplated in this Agreement and by Section 1.5(a) of the Asset Purchase Agreement, (i) Sellers cost shall not exceed, in the aggregate Thirty Five Thousand Dollars ($35,000) and that any amount in excess of $35,000 shall be the obligation of Buyer and (ii) Sellers shall cause Ernst & Young LLP to limit the scope of such audit upon receiving a reasonable written request from Buyer setting forth the scope of such restrictions within five (5) days of Ernst & Young LLP commencing such audit. For the avoidance of doubt, other than (A) the adjustment of the Purchase Price to reflect changes in the Preliminary Net Working Capital pursuant to Section 1.3 and (B) claims for breaches of the representations and warranties contained in this Agreement that require the Sellers to indemnify Buyer pursuant to Article X, the Balance Sheet Audit shall have no effect on any adjustment to the Purchase Price. If within thirty (30) days following delivery of the Closing Financial Statement Buyer has not given Sellers notice of its objection to the Closing Financial Statement (which notice must contain a reasonable statement of the basis of the objection), then the Closing Financial Statement shall be deemed to be the "Final Closing Financial Statement" and the Net Working Capital amount set forth therein shall be deemed to be the "Final Net Working Capital". If Buyer gives such notice of objection, then the issues in dispute will be submitted to one of the "Big Four" national accounting firms (other than Ernst & Young, LLP) mutually acceptable to Buyer and Sellers (the "Accountants") for resolution. If issues in dispute are submitted to the Accountants for resolution, (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may reasonably request and are available to that party (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) Buyer will bear fifty percent (50%) and Sellers will bear fifty percent (50%) of the fees of the Accountants for such determination. If Buyer has given a notice of objection in accordance with this Section 1.4(a), the Closing Financial Statement, as modified by resolution of any such disputes with respect thereto by the Accountants, shall be the "Final Closing Financial Statement" and the Net Working Capital amount set forth therein shall be the "Final Net Working Capital". (b) On the fifth (5th) business day following the final determination of the Final Closing Financial Statement, if the Final Net Working Capital is greater than the Preliminary Net Working Capital, Buyer will pay such difference to Sellers in immediately available funds and the Escrow Agent shall, and Buyer shall cause the Escrow Agent to, deliver to Sellers Five Hundred Thousand Dollars ($500,000) from the Escrow Payment in accordance with the Escrow Agreement. 3 (c) On the fifth (5th) business day following the final determination of the Final Closing Financial Statement, if the Final Net Working Capital is less than the Preliminary Net Working Capital (such difference, the "Difference") and such Difference is less than or equal to Five Hundred Thousand Dollars ($500,000), Sellers shall direct the Escrow Agent to deliver to Buyer, from the amounts held pursuant to the Escrow Agreement, the Difference, and Buyer shall direct the Escrow Agent to deliver to Sellers, from the Escrow Payment Five Hundred Thousand Dollars ($500,000) less the Difference, all in accordance with the Escrow Agreement. (d) On the fifth (5th) business day following the final determination of the Final Closing Financial Statement, if the Difference is greater than Five Hundred Thousand Dollars ($500,000), Sellers shall direct the Escrow Agent to deliver to Buyer, from the Escrow Payment, Five Hundred Thousand Dollars ($500,000) in accordance with the Escrow Agreement and shall pay to Buyer, in immediately available funds, the Difference less Five Hundred Thousand Dollars ($500,000). (e) Unless otherwise specifically provided for herein, any item which is contained within the Final Net Working Capital or the Balance Sheet Audit that has been reviewed as part of the adjustment process in arriving at the Final Net Working Capital shall not serve as a basis for an indemnification claim for a breach of a representation, warranty, covenant or agreement under this Agreement. 1.5 Accounts Receivable Purchase Price Adjustment. The aggregate Purchase Price (the sum of the Purchase Price as defined herein and in the Asset Purchase Agreement) shall be reduced by an amount equal to Sixty Five Cents ($0.65) on the dollar for each dollar amount of the Accounts Receivable not collected by the Buyer (but excluding those Accounts Receivable from customers who are as of the first anniversary of the Closing Date paying currently on negotiated extended payment terms) as of the first anniversary of the Closing Date, as modified below (the "Accounts Receivable Settlement Date"), but only in the event and to the extent that such uncollected amount exceeds the amount of the allowance for doubtful accounts set forth on the Final Closing Financial Statement (as defined herein and in the Asset Purchase Agreement) (the aggregate dollar amount that exceeds such allowance for doubtful accounts is referred to herein as the "Uncollected Amount"); provided, however, that the Uncollected Amount or the Final Uncollected Accounts Receivable (as defined below), as applicable, shall not include any amounts that the Buyer is unable to collect as a result of its failure to comply with Section 6.11 or as a result of a Force Majeure Event; provided, further, that in the event an account is uncollectible as a result of a Force Majeure Event that occurs on or prior to the first anniversary of the Closing Date, the collection period for such account shall be extended to sixty (60) days from the date of occurrence of the Force Majeure Event (the "60 Day Period") and if such 60 Day Period extends beyond the first anniversary of the Closing Date, then the Accounts Receivable Settlement Date shall be the last day of such 60 Day Period. 1.6 Accounts Receivable Purchase Price Adjustment Procedure. (a) Buyer shall prepare the Accounts Receivable Statement (as defined below) and deliver to Sellers, within fifteen (15) days of the Accounts Receivable Settlement Date, a detailed written statement setting forth the Uncollected Amount with reasonable 4 supporting documentation (the "Accounts Receivable Statement"). If within fifteen (15) days following delivery of the Accounts Receivable Statement Sellers have not given Buyer notice of their objection to the Accounts Receivable Statement (which notice must contain a reasonable statement of the basis of the objection), then the Accounts Receivable Statement shall be deemed to be the "Final Accounts Receivable Statement" and the amount of uncollected Accounts Receivable (less the allowance for doubtful accounts and excluding Accounts Receivable from customers who are as of the first anniversary of the Closing Date paying currently on negotiated extended payment terms) set forth therein shall be deemed to be the "Final Uncollected Accounts Receivable". If Sellers give such notice of objection, then the issues in dispute will be submitted to one of the "Big Four" national accounting firms (other than Ernst & Young, LLP) mutually acceptable to Buyer and Sellers for resolution. If issues in dispute are submitted to the Accountants for resolution, (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may reasonably request and are available to that party (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) Buyer will bear fifty percent (50%) and Sellers will bear fifty percent (50%) of the fees of the Accountants for such determination. If Sellers have given a notice of objection in accordance with this Section 1.6(a), the Final Accounts Receivable Statement, as modified by resolution of any such disputes with respect thereto by the Accountants, shall be the "Final Accounts Receivable Statement" and the uncollected Accounts Receivable amount (less the allowance for doubtful accounts and excluding Accounts Receivable from customers who are as of the first anniversary of the Closing Date paying currently on negotiated extended payment terms) set forth therein shall be the "Final Uncollected Accounts Receivable ". (b) On the fifth (5th) business day following the final determination of the Final Accounts Receivable Statement, Sellers shall pay to Buyer in immediately available funds the product of (i) $0.65 and (ii) the Final Uncollected Accounts Receivable. (c) Any item which is contained within the Final Uncollected Accounts Receivable or that has been reviewed as part of the adjustment process in arriving at the Final Uncollected Accounts Receivable shall not serve as a basis for an indemnification claim for a breach of a representation, warranty, covenant or agreement under this Agreement. 1.7 Adjustment Allocations. The parties agree that the allocation of any adjustment of the Purchase Price pursuant to Sections 1.3 and 1.5 between this Agreement and the Asset Purchase Agreement shall be performed in good faith and consistent with the allocation methodology used with respect to the March 23, 2003 Orlando Balance Sheet, the March 23, 2003 SF Stores Balance Sheet and the Company's March 23, 2003 Balance Sheet. 1.8 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Foley & Lardner, 2029 Century Park East, Suite 3500, Los Angeles, California 90067-3021, within three (3) business days following the satisfaction or waiver by Buyer or Sellers (as applicable) of all of the conditions set forth in Articles VII and VIII, or at such other time and place as may be mutually agreed upon by Buyer 5 and Sellers (such time and date being hereinafter referred to as the "Closing Date"). The parties currently intend the Closing Date to be as of September 7, 2003. 1.9 Closing Deliveries. (a) Closing Deliveries By Sellers. On the Closing Date, Sellers shall deliver, and cause to be delivered, to Buyer: (i) Assignment Documents. The certificate or certificates representing the Shares, duly endorsed in blank or accompanied by an irrevocable stock power duly endorsed in blank, sufficient to transfer and assign to Buyer good and marketable title to the Shares, free and clear of any and all Encumbrances; (ii) Resignation. The resignation of each person that is a director or officer of the Company as a director and officer of the Company effective as of the Closing; (iii) Consents. Copies of all notices or Consents listed on Schedule 2.2, duly executed by the appropriate parties thereto; (iv) Bring-Down Certificate. A certificate signed by a duly authorized officer of each of the Sellers dated the Closing Date certifying that the conditions contained in Sections 8.1 and 8.2 have been satisfied; (v) Certificates of Good Standing. A Certificate of Good Standing with respect to the Company and each of the Sellers issued by the appropriate state official for its jurisdiction of organization, each dated not more than twenty (20) days prior to the Closing Date; (vi) Escrow Agreement. The Escrow Agreement contemplated by Section 1.2(b); (vii) Noncompetition Agreement. A Noncompetition Agreement signed by the Sellers in the form attached as Exhibit B; (viii) Software License and Support Agreement. A Software License and Support Agreement signed by Sellers substantially in the form attached as Exhibit C; (ix) Tradename and Trademark License Agreements. The Tradename and Trademark License Agreements signed by the Sellers substantially in the form attached as Exhibit D; (x) Release. A Release signed by Sellers substantially in the form attached as Exhibit E; 6 (xi) Transitional Services Agreement. A Transitional Services Agreement signed by Sellers substantially in the form attached as Exhibit F; (xii) Employee Leasing Agreement. An Employee Leasing Agreement signed by Sellers substantially in the form attached as Exhibit G; (xiii) Opinion of Counsel. An opinion of Sellers' counsel, dated the Closing Date, substantially in the form attached as Exhibit H; (xiv) Estoppel Certificates. Estoppel Certificates from each of the landlords of the properties referenced in Items 1-4 of Schedule 2.18, provided, however, that if Sellers are unable to obtain an Estoppel Certificate from any landlord after reasonable efforts to do so, Sellers may instead certify the status of the specific lease to Buyer by delivery of a Sellers' Estoppel Certificate in a form reasonably acceptable to Buyer and indemnify Buyer from the inaccuracy of any of the information contained in Sellers' Estoppel Certificate; (xv) Real Estate Purchase Agreement. A Real Estate Purchase Agreement with respect to the Frozen Food Facility and Parking Lot signed by Sellers and the necessary lenders and other parties to the Synthetic Lease Agreement substantially in the form attached as Exhibit I; (xvi) Vendor Contract Participation Agreement. A Vendor Contract Participation Agreement signed by the appropriate Sellers substantially in the form attached as Exhibit J; and (xvii) Further Documents. Such other documents as Buyer may reasonably request in good faith at least ten (10) days prior to the Closing Date for the purpose of facilitating the consummation of the Contemplated Transactions. (b) Closing Deliveries By Buyer. On the Closing Date, Buyer shall deliver, or cause to be delivered, to Sellers: (i) Closing Payment. The Closing Payment by delivery of immediately available funds; (ii) Escrow Payment. Evidence of payment of the Escrow Payment to the Escrow Agent; (iii) Escrow Agreement. The Escrow Agreement contemplated by Section 1.2(b); (iv) Noncompetition Agreement. A Noncompetition Agreement signed by Buyer in the form attached as Exhibit B; 7 (v) Software License and Support Agreement. A Software License and Support Agreement signed by the Company substantially in the form attached as Exhibit C; (vi) Tradename and Trademark License Agreements. The Tradename and Trademark License Agreements signed by the Company substantially in the forms attached as Exhibit D; (vii) Transitional Services Agreement. A Transitional Services Agreement signed by the Company substantially in the form attached as Exhibit F; (viii) Employee Leasing Agreement. An Employee Leasing Agreement signed by the Company substantially in the form attached as Exhibit G; (ix) Real Estate Purchase Agreement. A Real Estate Purchase Agreement signed by Buyer with respect to the Frozen Food Facility and Parking Lot substantially in the form attached as Exhibit I; (x) Vendor Contract Participation Agreement. A Vendor Contract Participation Agreement signed by Buyer substantially in the form attached as Exhibit J; and (xi) Further Documents. Such other documents as Sellers may reasonably request in good faith at least ten (10) days prior to the Closing Date for the purpose of facilitating the consummation of the Contemplated Transactions. ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS The Sellers, jointly and severally, represent and warrant to Buyer as follows: 2.1 Organization and Qualification of the Company. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida. AFD is a corporation duly organized, validly existing and in good standing under the laws of the State of California. SFI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. SFI, AFD and the Company each has full power and authority to carry on its business as it is now being conducted, to own or hold under lease the properties and assets it now owns or holds under lease, and perform all of its obligations under the Applicable Contracts, except for such failures which would not have a Material Adverse Effect. The Company is duly qualified to do business and is in good standing as a foreign corporation in the jurisdictions listed on Schedule 2.1 and there are no other jurisdictions in which the conduct of its businesses or activities or its ownership of assets requires such qualification under applicable law, except for such failures which would not have a Material Adverse Effect. Copies of minute books, records and Organizational Documents of the 8 Company as currently in effect have been delivered to Buyer and in the form so delivered are true and complete in all material respects. 2.2 Authority; No Conflict. (a) This Agreement constitutes the legal, valid, and binding obligation of Sellers, enforceable against each of the Sellers in accordance with its terms. Upon the execution and delivery by Sellers of the Escrow Agreement, the Noncompetition Agreement, the Software License and Support Agreement, the Tradename and Trademark License Agreement, the Transitional Services Agreement, the Employee Leasing Agreement, the Release, the Real Estate Purchase Agreement, the Vendor Contract Participation Agreement, the documents of assignment and conveyance contemplated by Section 1.9(a)(i) and any other documents delivered pursuant to Section 1.9(a)(xvii) (the "Related Agreements"), the Related Agreements will constitute the legal, valid, and binding obligations of Sellers, enforceable against each of the Sellers in accordance with their respective terms. Sellers have the right, power, and authority to execute and deliver this Agreement and the Related Agreements and to perform their obligations under this Agreement and the Related Agreements. (b) Except as set forth in Schedule 2.2, neither the execution and delivery of this Agreement and the Related Agreements nor the consummation or performance of any of the Contemplated Transactions will (with or without notice or lapse of time): (i) contravene, conflict with, or result in a violation of any provision of the Organizational Documents of Sellers or the Company; (ii) contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which the Company or either of the Sellers, or any of the assets owned or used by the Company, are subject, except for such failures, contraventions, violations or conflicts which would not have a Material Adverse Effect; (iii) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the business of, or any of the assets owned or used by the Company, except for such failures which would not have a Material Adverse Effect; (iv) contravene, conflict with, or result in a violation or breach of any provision of, or to Sellers' Knowledge give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, in any material respect, any Applicable Contract; or (v) result in the imposition or creation of any Encumbrance (other than Permitted Encumbrances) upon or with respect to any of 9 the assets owned or used by Sellers or the Company in connection with the Foodservice Business. Except as set forth in Schedule 2.2, neither Sellers nor the Company is required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation of any of the Contemplated Transactions. 2.3 Capitalization. The authorized equity securities of the Company consists solely of (i) 24,000 Class A non-cumulative, non-voting preferred stock, $.01 par value, (ii) 24,000 Class B non-cumulative, non-voting preferred stock, $.01 par value, (iii) 60,000 Class B common stock, $1.00 par value, and (iv) 7,500 Class A common shares, $1 par value per share, of which 5000 Class A common shares are issued and outstanding. AFD is the record and beneficial owner and holder of all of the Shares, free and clear of all Encumbrances. Upon consummation of the transactions provided for in this Agreement in accordance with the terms hereof, Sellers will deliver to Buyer good title to the Shares free and clear of all Encumbrances. All of the outstanding equity securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. Neither the Sellers nor the Company is bound by any agreement relating to the issuance, sale, or transfer of any equity securities or other securities of the Company. None of the equity securities or other securities of the Company was issued in violation of the Securities Act or any other material Legal Requirement. The Company does not own, or have any Contract to acquire, any equity securities of any Person or any direct or indirect equity or ownership interest in any other business. 2.4 Financial Statements. Schedule 2.4(a) contains (i) the unaudited balance sheets of the Company as of December 29, 2002, March 23, 2003 and June 15, 2003 (the "Balance Sheets") and (ii) the unaudited statements of profits and losses of the Company for the fiscal year ended December 29, 2002 and the fiscal year-to-date period ended June 15, 2003 (the "P&L Statements" and, together with the Balance Sheets, the "Financial Statements"). Except as set forth on Schedule 2.4(b), no financial statements of any Person other than the Company are required by GAAP to be included in the financial statements of the Company. The Financial Statements have been extracted from the books and records of the Company and on the basis of the presentation as reflected on Schedule 1.3. Except as set forth on Schedule 2.4(c), the Financial Statements are true, correct and complete in all material respects fairly present the financial position of the Company and the results of its operations and changes in stockholders' equity as of the dates thereof or for the periods covered thereby, and have been prepared in conformity with GAAP applied consistently throughout the periods indicated. 2.5 Books and Records. The books of account, minute books, stock record books and other records of the Company, all of which have been made available to Buyer, are complete and correct in all material respects and have been maintained in accordance with Sellers' customary practices. The minute books of the Company contain accurate and complete records in all material respects of all meetings of, and action taken by, the shareholders and board of directors (and committees thereof), as the case may be, of the Company, and no such meeting has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, to the Sellers' Knowledge all such books and records will be in the possession of the Company. 10 2.6 No Undisclosed Liabilities. Except as set forth on Schedule 2.6, neither the Sellers (with respect to the Foodservice Business) nor the Company has any material liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Balance Sheets and liabilities incurred in the Ordinary Course of Business since the respective dates thereof none of which, individually, or in the aggregate would have a Material Adverse Effect . 2.7 Compliance with Legal Requirements; Governmental Authorizations. (a) Except as set forth on Schedule 2.7 and except for those violations or failures that would not have a Material Adverse Effect: (i) Each of the Sellers (with respect to the Foodservice Business) and the Company is, and at all times since January 1, 2000, has been, in compliance with each Legal Requirement that is applicable to it or to the conduct or operation of the Foodservice Business or the ownership or use of any of its assets; (ii) no event has occurred or circumstance exists that (with or without notice or lapse of time), to Sellers' Knowledge (A) would constitute or result in a violation by Sellers or the Company of, or a failure on the part of Sellers or the Company to comply with, any Legal Requirement applicable to the Foodservice Business, or (B) give rise to any obligation on the part of Sellers or the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and (iii) neither Sellers nor the Company has received, at any time since January 1, 2000, any written notice or other written communication, or to Sellers' Knowledge, any other notice or communication, from any Governmental Body or any other Person regarding (A) any actual, alleged or potential violation of, or failure to comply with, any Legal Requirement applicable to the Foodservice Business, or (B) any actual, alleged or potential obligation on the part of Sellers (as it relates to the Foodservice Business) or the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. (b) Schedule 2.7(b) contains a complete and accurate list of each material Governmental Authorization that is held by each of the Sellers (with respect to the Foodservice Business) or the Company or that otherwise relates to the Foodservice Business, or to any of the assets owned or used by Sellers (with respect to the Foodservice Business) or the Company. Each material Governmental Authorization listed on Schedule 2.7(b) is valid and in full force and effect. Except as set forth on Schedule 2.7(b) and except for those violations or failures that would not have a Material Adverse Effect: (i) each of the Sellers (with respect to the Foodservice Business) and the Company is, and at all times since January 1, 2000, has been, in 11 compliance in all material respects with all of the terms and requirements of each Governmental Authorization identified on Schedule 2.7(b); (ii) no event has occurred or circumstance exists that would (with or without notice or lapse of time) (A) constitute or result in a violation of or a failure to comply with any term or requirement of any Governmental Authorization listed on Schedule 2.7(b), or (B) result in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any Governmental Authorization listed on Schedule 2.7(b); (iii) neither Sellers (with respect to the Foodservice Business) nor the Company has received, at any time since January 1, 2000, any written notice or other written communication, or to Sellers' Knowledge, any other notice or communication, from any Governmental Body or any other Person regarding (A) any actual, alleged or potential violation of or failure to comply with any term or requirement of any Governmental Authorization listed on Schedule 2.7(b), or (B) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to, any Governmental Authorization listed on Schedule 2.7(b); and (iv) all applications legally required to have been filed for the renewal of the Governmental Authorizations listed on Schedule 2.7(b) have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies. The Governmental Authorizations listed on Schedule 2.7(b) collectively constitute all of the Governmental Authorizations necessary to permit each of the Sellers and the Company to lawfully conduct and operate the Foodservice Business in the manner they currently conduct and operate the Foodservice Business and to permit each of the Sellers (with respect to the Foodservice Business) and the Company to own and use their assets in the manner in which they currently own and use such assets. 2.8 Absence of Certain Changes. Except as disclosed on Schedule 2.8, since December 30, 2002, each of the Sellers (as it relates to the Foodservice Business) and the Company has conducted its business only in the Ordinary Course of Business and there has not been any Material Adverse Effect. Without limiting the generality of the foregoing, and except as otherwise disclosed on Schedule 2.8, since December 30, 2002, there has not been: (a) Any change in the authorized or issued shares of the Company, grant of any option or right to purchase shares or other equity interests of the Company, issuance of any security convertible into such shares or equity interests, grant of any registration rights, purchase, redemption, retirement or other acquisition by the Company of any such shares or equity interests or declaration or payment of any distribution or payment in respect of such shares or equity interests; 12 (b) Any amendment to the Organizational Documents of the Company; (c) Any damage, destruction, casualty or other similar occurrence or event (whether or not insured against) affecting Sellers (with respect to the Foodservice Business) or the Company which either singly or in the aggregate materially adversely affects their respective assets, liabilities, earnings, business or operations; (d) Any mortgage or pledge of or encumbrance on any of the properties or assets of Sellers (that are used primarily in the conduct of the Foodservice Business) or the Company; (e) Any incurrence or creating by Sellers (with respect to the Foodservice Business) or the Company of any liability, commitment, or obligation in excess of $25,000, except unsecured current liabilities incurred in the Ordinary Course of Business and Contracts entered into in the Ordinary Course of Business; (f) Any sale, lease, transfer, or other disposition of the Company's or Sellers' (with respect to the Foodservice Business) assets in excess of $25,000, except assets sold, leased, transferred or otherwise disposed of in the Ordinary Course of Business; (g) Any payment or increase in compensation (including, without limitation, bonuses, salaries, commissions, profit sharing, or pension) to any shareholder, officer, or director or (except in the Ordinary Course of Business) employee involved in the Foodservice Business or entry into any employment, severance, or similar Contract with any officer, director, or employee involved primarily in the Foodservice Business other than increases or changes in the Ordinary Course of Business; (h) Any material change from the past practice, of Sellers (with respect to the Foodservice Business) or the Company regarding the incurrence and timing of payment of trade payables; (i) Any loan or advance by Sellers (with respect to the Foodservice Business) or the Company to, or guarantee by Sellers (with respect to the Foodservice Business) or the Company for the benefit of, any party with respect to the Foodservice Business other than sales to customers of the Foodservice Business on credit in the Ordinary Course of Business consistent with past custom and practices; (j) Any cancellation, waiver, or release by Sellers (with respect to the Foodservice Business) or the Company of any material debts, rights, or claims; (k) Any material modification, amendment, or termination of any Contract to which Sellers (with respect to the Foodservice Business) or the Company is a party, other than expiration of Contracts in accordance with their terms; (l) Any loss or adverse modification of the relationship of Sellers (with respect to the Foodservice Business) or the Company with any material customer, supplier, or key employee of the Foodservice Business or receipt of notification (with respect to the Foodservice Business) to such effect; 13 (m) Any material change from past practices in the application of accounting principles, methods, or practices (including, but without limitation, any change in depreciation or amortization policies or rates) utilized by Sellers (with respect to the Foodservice Business) or the Company; (n) Any capital expenditures or commitments therefor by Sellers (with respect to the Foodservice Business) or the Company in each case in excess of $25,000, other than capital expenditures or commitments therefor to replace obsolete or unrepairable equipment used in the Foodservice Business in the Ordinary Course of Business; (o) Any Encumbrance, other than Permitted Encumbrances, on any asset of Sellers (with respect to the Foodservice Business) or the Company used primarily in the conduct of the Foodservice Business other than the items described on Schedule 2.8 (the "Permitted Exceptions") (p) Any entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement relating to the Foodservice Business, or (ii) any Contract or transaction involving a total remaining commitment to or by Sellers or the Company of at least $25,000 relating to the Foodservice Business other than in the Ordinary Course of Business; or (q) Any agreement, whether oral or written, by Sellers or the Company to do any of the foregoing. 2.9 Personal Property. Schedule 2.9 contains (a) a list of all material leases (other than real property leases), pursuant to which either of the Sellers or the Company is either a lessor or lessee of tangible personal property used in the conduct of the Foodservice Business and located in Florida and (b) a list of all material tangible and intangible personal property owned or used by each of the Sellers and the Company primarily in connection with the Foodservice Business and located in Florida. Except as set forth in Schedule 2.9, the Company has title to, or a valid leasehold interest in, each of the items listed on Schedule 2.9, in each case free and clear of any Encumbrances, except for Permitted Encumbrances. The Company owns or leases all tangible or intangible personal property, rights, and assets necessary for the operation by the Company of the Foodservice Business as now conducted. Except as set forth in Schedule 2.9, none of the personal property listed on Schedule 2.9 is held under any material lease, security agreement, conditional sales contract or other title retention or security arrangement or is located other than on the premises owned or used by the Company. The assets used in the conduct of the Foodservice Business are being sold in "as is" condition and, to Sellers' Knowledge, such assets are not subject to any known defects or conditions that would require Buyer to expend a material amount of funds to repair other than routine maintenance. 2.10 Inventory. (a) All items included in the inventory of the Company, whether or not reflected on the Balance Sheets, are (a) of good and standard quality and (b) saleable in the Ordinary Course of Business. The Company has provided for slow moving and obsolete inventory by establishing a reserve for the slow moving and obsolete inventory and a reserve for 14 shrinkage. Such reserves, based on the Sellers' Knowledge, are considered adequate. Inventories reflected on the Balance Sheets have been priced at the lower of cost or, net realizable value. (b) The aggregate amount of the reserves for slow-moving and obsolete inventory and shrinkage with respect to the Foodservice Business, the Meat Processing Business and the Retail Store Business (as such terms are defined in the Asset Purchase Agreement) is no less than Eight Hundred Thousand Dollars ($800,000) in the aggregate. 2.11 Accounts Receivable. All of the Accounts Receivable (not including the Meat Processing and the Retail Store Business) reflected on the Balance Sheets represent valid obligations arising from sales actually made or services actually performed by Sellers in the Ordinary Course of Business. The allowance for doubtful accounts reflected on the Balance Sheets has been calculated on a consistent basis with past practice based on the Knowledge of Sellers' management at those dates and are considered adequate. Schedule 2.11 contains a complete and accurate list of all Accounts Receivable (not including the Meat Processing and the Retail Store Business) as of the dates set forth on the Balance Sheets, which list sets forth the aging of such Accounts Receivable (not including the Meat Processing and the Retail Store Business). 2.12 Contracts; No Defaults. (a) Schedule 2.12(a) contains a complete and accurate list, and Sellers have delivered to Buyer true and complete copies (except for the Vendor Agreements as set forth on Annex 1 of the Schedule attached hereto) of: (i) each Applicable Contract that involves the performance of services or delivery of goods or materials to the Company of an amount or value in excess of $25,000; (ii) each Applicable Contract that was not entered into in the Ordinary Course of Business and that involves expenditures or receipts of the Company in excess of $25,000; (iii) each lease, rental or occupancy agreement, license, installment and conditional sale agreement, and other Applicable Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real or personal property used primarily in the conduct of the Foodservice Business (except personal property leases and installment and conditional sales agreements having a value per item or aggregate payments of less than $25,000 and with terms of less than one year); (iv) each licensing agreement or other Applicable Contract with respect to patents, trademarks, copyrights, or other intellectual property used primarily in the conduct of the Foodservice Business, including agreements with current or former employees, consultants, or contractors regarding the appropriation or the nondisclosure of any of the Intellectual Property Rights; 15 (v) each collective bargaining agreement and other Applicable Contract to or with any labor union or other employee representative of a group of employees of the Foodservice Business. (vi) each joint venture, partnership, investment or other agreement involving a sharing of profits, losses, costs, or liabilities by Sellers or the Company with any other Person relating to the Foodservice Business; (vii) each Applicable Contract containing covenants that restrict the business activity of Sellers (with respect to the Foodservice Business) or the Company or limits the freedom of Sellers (with respect to the Foodservice Business) or the Company to engage in any line of business or to compete with any Person; (viii) each Applicable Contract providing for payments to or by any Person based on sales, purchases, or profits, other than direct payments for goods; (ix) each power of attorney that is currently outstanding; (x) each Applicable Contract entered into other than in the Ordinary Course of Business that contains or provides for an express undertaking by Sellers (as it relates to the Foodservice Business) or the Company to be responsible for consequential damages; (xi) each Applicable Contract for capital expenditures or for the purchase of intangible assets in excess of $25,000; (xii) each written warranty, guaranty, and or other similar undertaking with respect to contractual performance extended by Sellers with respect to the Foodservice Business or the Company other than in the Ordinary Course of Business; and (xiii) each material amendment, supplement, and modification in respect of any of the foregoing. (b) Except as set forth in Schedule 2.12(b), no officer, director, agent, employee, consultant, or contractor of Sellers (with respect to the Foodservice Business) or the Company is bound by any Contract that limits the ability of such officer, director, agent, employee, consultant, or contractor to (A) engage in or continue any conduct, activity, or practice relating to the Foodservice Business, or (B) assign to the Company or to any other Person any rights to any invention, improvement, or discovery. (c) Except as set forth in Schedule 2.12(c), each Applicable Contract identified or required to be identified in Schedule 2.12(a) is in full force and effect and is valid and enforceable in accordance with its terms. (d) Except as set forth in Schedule 2.12(d): 16 (i) Sellers (with respect to the Foodservice Business) and the Company is, and at all times since January 1, 2000, has been, in compliance in all material respects with all applicable terms and requirements of each Contract relating to the Foodservice Business under which Sellers (with respect to the Foodservice Business) or the Company has or had any obligation or liability or by which Sellers (with respect to the Foodservice Business) or the Company or any of the assets owned or used by Sellers (with respect to the Foodservice Business) or the Company is or was bound; (ii) to Sellers' Knowledge, each other Person that has or had any obligation or liability under any Contract under which Sellers (with respect to the Foodservice Business) or the Company has or had any rights relating to the Foodservice Business is, and at all times since January 1, 2000, has been, in material compliance with all applicable terms and requirements of such Contract; (iii) no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give Sellers (with respect to the Foodservice Business) or the Company or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; and (iv) neither Sellers (with respect to the Foodservice Business) nor the Company has given to or received from any other Person, at any time since January 1, 2000, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Contract relating to the Foodservice Business. (e) There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to Sellers or the Company under current or completed Contracts relating to the Foodservice Business with any Person and no such Person has made written demand for such renegotiation. (f) The Contracts relating to the sale, production, manufacture, or provision of products or services by Sellers and the Company with respect to the Foodservice Business have been entered into in the Ordinary Course of Business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement. (g) To Sellers' Knowledge, there are no material oral contracts with respect to the Foodservice Business. 2.13 Guaranties. Except as set forth in Schedule 2.13, neither Sellers (with respect to the Foodservice Business) nor the Company is a guarantor or otherwise liable for any material liability or obligation (including indebtedness) of any other Person. 17 2.14 Employee Benefits. (a) The following terms have the meanings set forth below: "Company Other Benefit Obligation" means an Other Benefit Obligation owed, adopted, or followed by the Company or an ERISA Affiliate of the Company to any employee of the Company. "Company Plan" means all Plans of which the Company or an ERISA Affiliate of the Company is or was a Plan Sponsor, or to which the Company or an ERISA Affiliate of the Company otherwise contributes or has contributed for the benefit of any employee or former employee of the Company, or in which the Company or an ERISA Affiliate of the Company otherwise participates or has participated for the benefit of any employee or former employee of the Company, within the last 6 years prior to the date hereof. All references to Plans are to Company Plans unless the context requires otherwise. "Company VEBA" means a VEBA whose members include employees of the Company. "ERISA Affiliate" means, with respect to the Company, any other Person that, together with the Company, would be treated as a "single employer" within the meaning of Section 4001(b) of ERISA. "Multi-Employer Plan" has the meaning given in ERISA (S) 3(37)(A). "Other Benefit Obligations" means all obligations, arrangements, or customary practices, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees and agents of the Company, other than such obligations, arrangements, and practices that are Plans. Other Benefit Obligations include consulting agreements under which the compensation paid does not depend upon the amount of service rendered, sabbatical policies, severance payment policies, and fringe benefits within the meaning of IRC (S) 132. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" has the meaning given in ERISA (S) 3(2)(A). "Plan" has the meaning given in ERISA (S) 3(3). "Plan Sponsor" has the meaning given in ERISA (S) 3(16)(B). "Qualified Plan" means any Plan that meets or purports to meet the requirements of IRC (S) 401(a). "Title IV Plans" means all Pension Plans that are subject to Title IV of ERISA, 29 U.S.C. (S) 1301 et seq., other than Multi-Employer Plans. 18 "VEBA" means a voluntary employees' beneficiary association under IRC (S) 501(c)(9). "Welfare Plan" has the meaning given in ERISA (S) 3(1). (b) (i) Schedule 2.14(b)(i) contains a complete and accurate list of all Company Plans, Company Other Benefit Obligations, and Company VEBAs. (ii) Schedule 2.14(b)(ii) sets forth, each Multi-Employer Plan. (iii) There are no Company VEBAs. (c) Sellers have delivered to Buyer, or will deliver to Buyer within ten (10) days of the date of this Agreement: (i) all documents that set forth the terms of the Company Plans, or Company Other Benefit Obligations and of any related trusts, including (A) all plan descriptions and summary plan descriptions of Company Plans for which Sellers or the Company is required to prepare, file, and distribute plan descriptions and summary plan descriptions, and (B) all summaries and descriptions furnished to participants and beneficiaries regarding Company Plans, and Company Other Benefit Obligations for which a plan description or summary plan description is not required; (ii) all personnel, payroll, and employment manuals and policies; (iii) all collective bargaining agreements pursuant to which contributions have been made or obligations incurred (including both pension and welfare benefits) by the Company and the ERISA Affiliates of the Company, and all collective bargaining agreements pursuant to which contributions are being made or obligations are owed by such entities; (iv) a written description of any Company Plan or Company Other Benefit Obligation that is not otherwise in writing; (v) all insurance policies purchased by or to provide benefits under any Company Plan; (vi) all contracts with third party administrators, actuaries, investment managers, consultants, and other independent contractors that relate to the Company Plans or Company Other Benefit Obligations; (vii) all reports submitted within the two (2) years preceding the date of this Agreement by third party administrators, actuaries, investment managers, consultants, or other independent contractors with respect to the Company Plans or Company Other Benefit Obligations; 19 (viii) the Form 5500 filed for each of the most recent two (2) plan years with respect to each Company Plan, including all schedules thereto and the opinions of independent accountants; (ix) all notices that were given by the Company or any ERISA Affiliate of the Company or any Company Plans to the IRS, the PBGC, pursuant to statute, within the four (4) years preceding the date of this Agreement, that are not expressly mentioned elsewhere in this Section 2.14; (x) all notices that were given by the IRS, the PBGC, or the Department of Labor to the Company, any ERISA Affiliate of the Company, or any Company Plan within the four (4) years preceding the date of this Agreement; (xi) with respect to Qualified Plans, the most recent determination letter for each Plan of the Company that is a Qualified Plan; and (xii) with respect to Title IV Plans, the Form PBGC-1 filed for each of the two (2) most recent years. (d) Except as set forth in Schedule 2.14(d): (i) To the Knowledge of Sellers the Company has performed, in all material respects, all of its respective obligations under all Company Plans, and Company Other Benefit Obligations. The Company has made appropriate entries in its financial records and statements for all obligations and liabilities under such Plans and Obligations that have accrued but are not due. (ii) To the Knowledge of Sellers, no written statement has been made by the Company to any Person with regard to any Plan or Other Benefit Obligation that was not in accordance with the Plan or Other Benefit Obligation and that could have a material adverse economic consequence to the Company, the Foodservice Business or the Buyer. (iii) The Company, with respect to all Company Plans and Company Other Benefit Obligations, are, and each Company Plan and Company Other Benefit Obligation, is, in full material compliance with ERISA, the IRC, the privacy requirements of the Health Insurance Portability and Accountability Act of 1996, and other applicable Legal Requirements including the provisions of such Legal Requirements expressly mentioned in this Section 2.14, and with any applicable collective bargaining agreement. (A) To the Knowledge of Sellers no transaction prohibited by ERISA (S) 406 and no "prohibited transaction" under IRC (S) 4975(c) have occurred with respect to any Company Plan. 20 (B) Neither Sellers nor the Company has any material liability to PBGC with respect to any Plan or has any liability under ERISA (S) 502 or (S) 4071. (iv) Other than claims for benefits submitted by participants or beneficiaries, no claim against, or legal proceeding involving any Company Plan or Company Other Benefit Obligation is pending or, to Sellers' Knowledge, is threatened. (v) Any Company Plan intended to be a Qualified Plan has received a determination letter from the IRS or has applied for a determination letter from the IRS stating that it is so qualified. To the Knowledge of the Sellers, each Plan intended to be a Qualified Plan, in form and operation, is so qualified. (vi) The Company and each ERISA Affiliate of the Company has met the minimum funding standard, and has made all contributions required, under ERISA (S) 302 and IRC (S) 402. (vii) The Company has paid all amounts due to the PBGC pursuant to ERISA (S) 4007. (viii) Neither the Company nor any ERISA Affiliate of the Company has withdrawn from any Title IV Plan in a manner that would that could be reasonably expected to subject any entity or Sellers to liability under ERISA (S) 4062(e), (S) 4063 or (S) 4064. (ix) Neither the Company nor any ERISA Affiliate of the Company has filed a notice to terminate any Plan, and neither the Company nor any ERISA Affiliate of the Company has adopted any amendment to treat a Plan as terminated. The PBGC has not instituted proceedings to treat the Company Plan as terminated. No event has occurred or circumstance exists that would constitute grounds under ERISA (S) 4042 for the termination of, or the appointment of a trustee to administer, any Company Plan. (x) No amendment has been made, or is reasonably expected to be made, to any Plan that has required or could require the provision of security under ERISA (S) 307 or IRC (S) 401(a)(29). (xi) Neither Sellers nor the Company has Knowledge of any facts or circumstances that would give rise to any liability of Sellers, the Company, or Buyer to the PBGC under Title IV of ERISA. (xii) Neither the Company nor any ERISA Affiliate of the Company has ever established, maintained, or contributed to or otherwise participated in, or had an obligation to maintain, contribute to, or otherwise participate in, any Multi-Employer Plan. 21 (xiii) Except to the extent required under ERISA (S) 601 et seq. and IRC (S) 4980B, the Company does not provide health or welfare benefits for any retired or former employee and the Company is not obligated to provide health or welfare benefits to any active employee following such employee's retirement or other termination of service. (xiv) The Company has the right to modify and terminate benefits to retirees (other than pensions) with respect to both retired and active employees. (xv) No payment that is owed or becomes due to any director, officer, employee, or agent of the Company will be non-deductible to the Company or subject to tax under IRC (S) 280G or (S) 4999; nor will the Company be required to "gross up" or otherwise compensate any such person because of the imposition of any excise tax on a payment to such person. (xvi) The consummation of the Contemplated Transactions will not result in the payment, vesting, or acceleration of any benefit. 2.15 Employees. (a) Schedule 2.15 contains a complete and accurate list of the following information for each employee, officer or director of each of the Sellers (with respect to the Foodservice Business) and of the Company who earned more than $75,000 in calendar year 2002, or is reasonably expected to earn more than $75,000 in calendar year 2003, including each employee on leave of absence or layoff status: name; job title; current compensation paid or payable and any change in compensation since December 30, 2002. (b) To Sellers' Knowledge, no employee, officer or director of Sellers or the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such employee, officer or director and any other Person ("Proprietary Rights Agreement") that in any way adversely affects or will affect (i) the performance of his or her duties as an employee, officer or director of either of the Sellers or the Company, or (ii) the ability of the Company to conduct the Foodservice Business, including any Proprietary Rights Agreement with either of the Sellers or the Company by any such employee or director. To the Knowledge of Sellers, no director, officer, or other key employee of the Company intends to terminate his or her employment with the Company prior to the Closing Date. (c) Schedule 2.15 also contains a complete and accurate list of the following information for each retired employee, officer or director of the Company or their dependents receiving benefits or scheduled to receive benefits in the future: name, pension benefit, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits. 2.16 Labor Relations; Compliance. Except as set forth in Schedule 2.16 neither Sellers ( with respect to the Foodservice Business) nor the Company during the past three years has been, or presently is, a party to, any collective bargaining or other labor Contract. 22 During the past three years there has not been, and presently there is no pending or existing, and to Sellers' Knowledge there is not threatened (a) any strike, slowdown, picketing, work stoppage, or employee grievance process, (b) any material proceeding against or affecting the Company or the Foodservice Business relating to the alleged violation of any Legal Requirements pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable Governmental Body, organizational activity, or other labor or employment dispute against or affecting the Foodservice Business, the Company or their premises, or (c) any application for certification of a collective bargaining agent. To Sellers' Knowledge, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. There is no lockout of any employees of the Foodservice Business by Sellers or the Company, and no such action is contemplated by Sellers or the Company. Each of the Sellers (with respect to the Foodservice Business) and the Company has complied in all material respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. Neither Sellers (with respect to the Foodservice Business) nor the Company is liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements. 2.17 Litigation. (a) Except as set forth on Schedule 2.17(a), there is no pending Proceeding: (i) that has been commenced by or against Sellers (as it relates to the Foodservice Business) or the Company or any of the assets owned or used by Sellers (as it relates to the Foodservice Business) or the Company; or (ii) that challenges or that would reasonably be expected to prevent, delay, or make illegal any of the Contemplated Transactions. To the Knowledge of Sellers, (1) no such Proceeding has been threatened and (2) no event has occurred or circumstance exists that would give rise to or serve as a basis for the commencement of any such Proceeding. Sellers have made available to Buyer the attorneys representing Sellers in the Proceedings and such attorneys have made available to Buyer summaries of all pleadings, correspondence, and other documents relating to each Proceeding listed on Schedule 2.17(a). The Proceedings listed on Schedule 2.17(a) would not, individually or in the aggregate, have a Material Adverse Effect. (b) Except as set forth on Schedule 2.17(b): (i) there is no Order to which the Company or any of the assets used primarily in the Foodservice Business is subject; (ii) the Sellers are not subject to any Order that relates to the Foodservice Business or any of the assets owned or used by, the Company; and 23 (iii) no officer, director, agent, or employee of the Company is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any material conduct, activity, or practice relating to the Foodservice Business. (c) Except as set forth on Schedule 2.17(c): (i) Sellers (with respect to the Foodservice Business) and the Company, is, and at all times since January 1, 2000, has been, in material compliance with all of the terms and requirements of each Order to which it, or any of the assets owned or used by it, is or has been subject; (ii) no event has occurred or circumstance exists that would constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which Sellers (with respect to the Foodservice Business) or the Company, or any of the assets owned or used by Sellers (with respect to the Foodservice Business) or the Company, is subject; and (iii) neither Sellers (with respect to the Foodservice Business) nor the Company has received, at any time since January 1, 2001, any written notice or other written communication, or to the Knowledge of Sellers any oral communication, from any Governmental Body regarding any actual, alleged or potential violation of, or failure to comply with, any term or requirement of any Order to which Sellers (with respect to the Foodservice Business) or the Company, or any of the assets owned or used by Sellers (with respect to the Foodservice Business) or the Company, is or has been subject. 2.18 Real Property. Schedule 2.18 contains a complete and accurate list of all real property, leaseholds, or other interests therein owned by Sellers or the Company in connection with the Foodservice Business. Sellers have delivered to Buyer copies of the leases and other instruments (as recorded) by which Sellers or the Company acquired such real property interests, and copies of all title insurance policies, opinions, abstracts, and surveys in the possession or control of Sellers or the Company and relating to such property or interests. The Company owns the leasehold interests and all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) related thereto that it purports to lease in connection with the conduct of the Foodservice Business and are located in the facilities owned or operated by the Company or reflected as leased in the books and records of the Company, including all of the properties and assets reflected in the Balance Sheets (except for assets held under capitalized leases disclosed or not required to be disclosed in Schedule 2.18 and personal property sold since the date of the Financial Statements, as the case may be, in the Ordinary Course of Business), and all of the properties and assets purchased or otherwise acquired by the Company since the date of the Balance Sheets (except for personal property acquired and sold since the date of the Balance Sheets in the Ordinary Course of Business and consistent with past practice), which subsequently purchased or acquired properties and assets (other than inventory and short-term investments) are listed in Schedule 2.18. Except as set forth in the preliminary title reports for the properties leased by the Company and previously delivered to Buyer, all material properties 24 and assets reflected in the Balance Sheets are free and clear of all Encumbrances and are not, in the case of real property, subject to any rights of way, building or use restrictions, exceptions, variances, reservations, or limitations of any nature. 2.19 Taxes. The Company and each affiliated group of which the Company is a member has filed all Tax Returns required to be filed by it within the time period required by law, including, without limitation, returns of federal, state, local and foreign income taxes, and all such Tax Returns are true and correct in all material respects as they relate to the Company and its Subsidiaries. The Company and each affiliated group of which the Company is a member has paid in full all Taxes, interest, penalties, assessments, or deficiencies shown to be due or claimed to be due on such Tax Returns. The amount set forth on the Balance Sheet as the accrual for Taxes will be sufficient for the payment of all unpaid Taxes of the Company, and all interest and penalties in respect thereof, accrued or applicable or attributable to the period ended December 30, 2002, and all years and periods prior thereto. All monies required to be withheld by the Company from employees or collected from customers for income taxes, social security and unemployment insurance taxes and sales, excise and use taxes, and the portion of any such taxes to be paid by the Company to Governmental Bodies or set aside in accounts for such purpose have been approved, reserved against and entered upon the books and financial statements of the Company. All material Taxes payable by the Company with respect to the period up to the Closing Date shall be paid prior to the Closing Date or an adequate reserve for the payment of such Taxes shall be reflected on the Final Closing Financial Statement. Except as disclosed in Schedule 2.19, there are no material contested Taxes, interest, penalties, assessments or deficiencies outstanding for the Company. True and complete copies of all material Tax Returns for the Company for the past three (3) years (together with copies of any examination reports of federal, state, local and foreign tax authorities relating thereto) have been furnished to Buyer. Except as set forth on Schedule 2.19, no federal income tax returns of the Company has been examined by the IRS for any past years, nor, to the Knowledge of Sellers, is any examination currently pending. Any deficiencies proposed as a result of any governmental audits have been paid or settled by the Company and there are no present inquiries by or disputes with any Governmental Body (received in writing) with respect to Taxes payable by the Company or its Subsidiaries and, to the Knowledge of Sellers, any other present inquiries or disputes with any Governmental Body with respect to Taxes payable by the Company or its Subsidiaries. Neither the Company nor any other member of the affiliated group of which the Company is a member has waived or granted any extension to any taxing authority of the limitation period during which any Tax liability may be asserted. 2.20 Insurance. (a) Schedule 2.20(a) sets forth, by year, for the current policy year and each of the two (2) preceding policy years: (i) a summary of the loss experience under each policy that provides coverage to the Company. (b) Except as set forth in Schedule 2.20(b): 25 (i) Sellers have paid all premiums due under each policy that provides coverage to the Company and its assets. (c) The Company does not have in effect a separate insurance policy. (d) Each of the Company and its Subsidiaries has been continuously covered during the past five (5) years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during such period. All such coverage is provided by reputable insurers. (e) All policies providing coverage to the Company are in full force and effect and provide coverage on an "occurrence" basis. 2.21 Environmental Matters. To the Knowledge of Sellers or except as would not be reasonably likely to result in a Material Adverse Effect or except as set forth on Schedule 2.21: (a) Compliance with Environmental Laws. The Company is in compliance with all applicable Environmental Laws, and is not in violation of or liable under, any applicable Environmental Law in connection with the operation of the Foodservice Business. Neither the Company nor any other Person for whose conduct it is held responsible, received any notice of any violation or alleged violation of any material Environmental Laws in connection with the operation of the Foodservice Business, with the exception of notices of violation or alleged liability that have been fully resolved with no future obligations on the Foodservice Business or the Company. The Company possesses all permits, licenses, certificates and registrations required of it under applicable Environmental Laws. (b) No Hazardous Substances. None of the Sellers has released, and to Sellers' Knowledge no Hazardous Substances have been released in, under or upon any real property at any time owned, leased, used or operated by Sellers or the Company in connection with the Foodservice Business except in compliance with all applicable Environmental Laws. There are no underground storage tanks under any real property now or heretofore owned, leased, used or operated by Sellers or the Company in connection with the Foodservice Business. (c) No Actions or Proceedings. Neither Sellers nor the Company is subject to, nor have they received any notice of, any private, administrative or judicial action, or notice of any intended private, administrative, or judicial action, relating to the presence or alleged presence of Hazardous Substances in, under or upon any real property, equipment or other personal property now or heretofore owned, leased, used or operated by Sellers or the Company in connection with the Foodservice Business or any predecessor or any property, whether or not it was owned, leased, used or operated by Sellers or the Company in connection with the Foodservice Business, which was used by Sellers or the Company for the storage of inventory or production of finished goods or for the storage, treatment or disposal of any waste, product or by-product. There are no pending, or to Sellers' Knowledge any threatened actions or proceedings or notices of potential actions or proceedings from any Governmental Body or any other entity against Sellers or the Company regarding any matter relating to applicable Environmental Law. 26 2.22 Relationships with Related Persons. Except as set forth on Schedule 2.22, none of Sellers or the Company has a controlling ownership interest in, or any other right to control or direct the management or operation of, any material competitor, supplier or customer of the Company or the Foodservice Business or in any Person from whom or to whom the Company leases any real or material personal property. 2.23 Subsidiaries. Schedule 2.23 contains a complete and accurate list of each Subsidiary owned or operated by the Company during the last five (5) years. None of the Subsidiaries listed on Schedule 2.23 has been liquidated or otherwise disposed of by the Company. 2.24 Warranties. Neither Sellers (with respect to the Foodservice Business) nor the Company makes any material express written warranties independent of, or in addition to, warranties made by suppliers or manufacturers of products sold or disturbed in connection with the operation of the Foodservice Business. Neither Sellers nor the Company has received any material warranty claims as they relate to the Foodservice Business. 2.25 Change in Business Relationships. Except as set forth on Schedule 2.25, neither Sellers (with respect to the Foodservice Business) nor the Company has received any written notice or communication, or to Sellers' Knowledge, any other notice or communication that (a) any material customer or supplier with a material business relationship with Sellers (with respect to the Foodservice Business) or the Company intends to discontinue or materially diminish or change its relationship with the Company or the Foodservice Business, or (b) any management employee of the Company intends to terminate his or her employment prior to the Closing Date. 2.26 Brokers. None of the Company, the Sellers, nor their Affiliates has employed or used the services of, or incurred any obligation or liability to, any broker, agent or finder in connection with the transactions contemplated by this Agreement. 2.27 True and Correct Information. No representation or warranty of the Sellers in this Agreement and no statement in the schedules hereto omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. 2.28 Intellectual Property. (a) Schedule 2.28 attached hereto constitutes a complete and accurate list and summary description of all registered trademarks and tradenames that are owned by Sellers (with respect to the Foodservice Business) and the Company. (b) Sellers (with respect to the Foodservice Business) and the Company do not own or use any patents, patent applications, or inventions or discoveries that may be patentable. (c) Sellers (with respect to the Foodservice Business) and the Company do not own or use any rights in mask works. 27 (d) Sellers (with respect to the Foodservice Business) and the Company do not own or use any registered copyrights. (e) Sellers (with respect to the Foodservice Business) and the Company have taken reasonable precautions to protect the secrecy, confidentiality and value of any trade secrets which Sellers (with respect to the Foodservice Business) and the Company may own, and Sellers (with respect to the Foodservice Business) and the Company own such trade secrets and have the valid right to use same. To the Knowledge of Sellers, the trade secrets are not part of the public knowledge or literature and have not been used, divulged or appropriated either for the benefit of any person (other than Sellers with respect to the Foodservice Business or the Company) or to the detriment of Sellers (with respect to the Foodservice Business) or the Company. To the Knowledge of Sellers, no material trade secret is subject to any adverse claim or has been challenged or threatened in any way. For purposes of this Agreement, trade secrets are defined as all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blueprints used in the conduct of the Foodservice Business. (f) Other than pursuant to the Tradename and Trademark License Agreements to be entered into between Sellers and the Company, Sellers (with respect to the Foodservice Business) and the Company are not a party to any contract or arrangement whereby royalties are paid or received by Sellers or the Company with respect to trademarks, tradenames, copyrights, rights in mask works, patents, or trade secrets. (g) None of the current employees of Sellers (with respect to the Foodservice Business) or the Company have executed written contracts with Sellers or the Company that assign to Sellers or the Company any and all rights to any inventions, improvements, discoveries or information relating to the Foodservice Business. To the Knowledge of Sellers, no employee of Sellers (with respect to the Foodservice Business) or the Company has entered into any contract that restricts or limits in any material way the scope or type of work in which the employee may be engaged, or requires the employee to transfer, assign or disclose information concerning his or her work to anyone other than Sellers or the Company. ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers as follows: 3.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. 3.2 Authority; No Violation. Buyer has the requisite right, power and authority to execute, deliver, and perform Buyer's obligations under this Agreement and the other agreements contemplated by this Agreement to which such Buyer is a party ("Buyer's Other Agreements"). Upon the execution and delivery by Buyer of this Agreement and Buyer's Other Agreements, this Agreement and Buyer's Other Agreements will constitute the legal, valid, and binding obligations of Buyer, enforceable against Buyer in accordance with their respective 28 terms. Neither the execution, delivery, and performance by Buyer of this Agreement and the Buyer's Other Agreements, nor the consummation of the Contemplated Transactions will (a) violate any of Buyer's Organizational Documents, (b) violate, conflict with, result in any breach of, constitute a default under, result in the termination or acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any Contract, license, or permit to which Buyer is a party or by which it is bound, (c) require any authorization, consent, approval, exemption or other action by or notice to any court, other Governmental Body, or other person or entity under, the provisions of any Legal Requirement or any Contract or permit to which it is subject, bound, or affected, or (d) violate or require any consent or notice under any Legal Requirement or other restriction of any Governmental Body to which it is subject, bound, or affected. 3.3 Investment Intent. Buyer is acquiring the Shares for its own account and not with a view to, or for offer or sale in connection with, any distribution within the meaning of Section 2(11) of the Securities Act. 3.4 Certain Proceedings. There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, this Agreement or Buyer's Other Agreements. To Buyer's Knowledge, no such Proceeding has been threatened. 3.5 Brokers or Finders. Buyer and its officers and agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement and will indemnify and hold Sellers harmless from any such payment alleged to be due by or through Buyer as a result of the action of Buyer or its officers or agents. 3.6 Sufficiency of Funds. Buyer has and at Closing will have sufficient funds for the payment of the Purchase Price. 3.7 Knowledge of Claims. To the actual knowledge of Buyer, there is no claim that could be brought against Sellers as a result of any of the Sellers' breach of any representation or warranty, or as a result of any of the Sellers' failure to comply with any covenant or agreement contained in this Agreement. ARTICLE IV COVENANTS OF SELLERS PRIOR TO CLOSING DATE 4.1 Access and Investigation. Between the date of this Agreement and the earlier of the Closing Date and the termination of this Agreement pursuant to Article IX, upon receipt of reasonable notice, Sellers will, and will cause the Company and its Representatives to (a) afford Buyer and its Representatives and prospective lenders and their Representatives (collectively, "Buyer's Advisors") reasonable access to their personnel, properties, contracts, customers, books and records, and other documents and data relating to the Foodservice Business, (b) furnish Buyer and Buyer's Advisors with copies of all such contracts, books and records, and other existing documents and data as Buyer may reasonably request, and (c) furnish 29 Buyer and Buyer's Advisors with such additional financial, operating, and other data and information as Buyer may reasonably request. 4.2 Operation of the Business of the Company. Between the date of this Agreement and the Closing Date, Sellers will, and will cause the Company to: (a) conduct the Foodservice Business only in the Ordinary Course of Business; (b) use commercially reasonable efforts to, preserve intact the current business organization of the Company and the Foodservice Business (except as necessary to accommodate the transactions contemplated hereby), keep available the services of the current officers, key employees, and agents of the Company, and maintain the relations and goodwill with suppliers, customers, landlords, creditors, employees, agents, and others having business relationships with the Company; (c) confer with Buyer concerning operational matters of a material nature; and (d) otherwise discuss periodically with Buyer the status of the business, operations, and finances of the Company and the operation of the Foodservice Business. 4.3 Negative Covenant. Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, Sellers will not, and will cause the Company not to, without the prior written consent of Buyer, take any affirmative action or fail to take any reasonable action within their or its control as a result of which any of the changes or events listed in Section 2.8 is likely to occur, including, but not limited to, incurring on behalf of Sellers any long-term indebtedness or engaging in any transaction that would be required to be recorded as a long-term liability on a balance sheet of Sellers prepared in accordance with GAAP. 4.4 Required Approvals. As promptly as practicable after the date of this Agreement, Sellers will, and will cause the Company to, make all filings required by Legal Requirements to be made by them in order to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Sellers will, and will cause the Company to, cooperate with Buyer with respect to all filings that Buyer is required by Legal Requirements to make in connection with the Contemplated Transactions. 4.5 Notification. Between the date of this Agreement and the Closing Date, Sellers will promptly notify Buyer in writing if Sellers or the Company becomes aware of any fact or condition that causes or constitutes a breach of any of Sellers' representations and warranties as of the date of this Agreement. During the same period, Sellers will promptly notify Buyer of the occurrence of any breach of any covenant of Sellers in this Article IV or of the occurrence of any event that would reasonably be expected to make the satisfaction of the conditions in Article VIII impossible or unlikely. 4.6 No Negotiation. Until such time, if any, as this Agreement is terminated pursuant to Article IX, Sellers will not, and will cause the Company and each of its 30 Representatives not to, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Buyer) relating to any transaction involving the sale of the Foodservice Business or assets (other than in the Ordinary Course of Business) of the Company, or any of the capital stock of the Company, or any merger, consolidation, business combination, or similar transaction involving the Company. 4.7 Commercially Reasonable Efforts. Between the date of this Agreement and the Closing Date, Sellers will use their commercially reasonable efforts to cause the conditions in Article VIII to be satisfied. 4.8 Intercompany Balances. At or prior to the Closing, all intercompany balances between the Company and any Affiliate of the Company shall be cancelled and shall be treated as a net contribution to the capital of the Company. 4.9 Synthetic Lease Agreement. Between the date of this Agreement and the Closing Date, Sellers shall perform, at their sole cost and expense, all of the "Lessee's" (as such term is defined in the Synthetic Lease Agreement) obligations under the Synthetic Lease Provisions and the Participation Agreement Provisions, but only to the extent that such obligations relate to the Frozen Food Facility and Parking Lot. 4.10 Disposition of Subsidiaries. Prior to the Closing Date, AFD shall have caused the Company to distribute its entire interest in each of its Subsidiaries. 4.11 Sellers' Environmental Investigation. Nothing in this Agreement shall be interpreted to prohibit Sellers' from undertaking their own environmental investigation, including environmental testing, of the owned real property or leased real property of the Company, prior to the Closing Date. ARTICLE V COVENANTS OF BUYER AND SELLERS PRIOR TO CLOSING DATE 5.1 Approvals of Governmental Bodies. As promptly as practicable after the date of this Agreement, Buyer will, and will cause each of its Related Persons to, make all filings required by Legal Requirements to be made by it to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Buyer will, and will cause each Related Person to, (a) cooperate with Sellers with respect to all filings that Sellers are required by Legal Requirements to make in connection with the Contemplated Transactions, and (b) cooperate with Sellers in obtaining all consents identified in Schedule 2.2; provided, however, that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other material burden to obtain a Governmental Authorization. 5.2 Commercially Reasonable Efforts. Except as set forth in the proviso to Section 5.1, between the date of this Agreement and the Closing Date, Buyer will use its commercially reasonable efforts to cause the conditions in Article VII to be satisfied. 31 5.3 Cooperation. Between the date of this Agreement and the Closing Date, each of the Sellers and Buyer shall cooperate, and use their reasonable commercial efforts, to make all filings and obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and other third parties necessary to consummate the Contemplated Transactions. In addition to the foregoing, Buyer agrees to provide such assurances as to financial capability, resources and creditworthiness as may be reasonably requested by any third party whose consent or approval is sought hereunder. Notwithstanding the foregoing, nothing herein shall obligate or be construed to obligate (A) Sellers or Buyer to make any payment to any third party in order to obtain the consent or approval of such third party or to transfer any contract, license or permit in violation of its terms or (B) Buyer to provide any financial information that is not publicly available. Sellers shall use commercially reasonable efforts to obtain such third party consents as Buyers may reasonably deem necessary in connection with the transfer of the leases set forth on Schedule 6.8 and the consents set forth on Schedule 2.2, it being understood that (i) nothing in this Section 5.3 is intended to be a covenant that Sellers shall in fact obtain on Buyer's behalf any such consents, (ii) obtaining such consents shall not be a condition to Closing (except as provided in Section 8.3) and (iii) Sellers' failure to obtain such consents as a result of Buyer's failure or inability to provide financial information pursuant to the exemption provided in the prior sentence shall not be regarded as a breach by Sellers of its obligations to obtain such consents pursuant to this Agreement. Buyer shall cooperate and use commercially reasonable efforts to assist Sellers in obtaining such consents. ARTICLE VI POST-CLOSING COVENANTS OF BUYER AND SELLERS Buyer and Sellers agree as follows with respect to the period following the Closing: 6.1 General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as any other party may request, all at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification therefore under Article X below). Sellers acknowledge and agree that from and after the Closing the Buyer will be entitled to possession of all documents, books, records, agreements, and financial data relating to the Company and the Foodservice Business; provided, however, that notwithstanding anything to the contrary contained herein, Buyer shall not be entitled to possession of any of Sellers' Tax records, but Buyer shall be provided access to such Tax records to the extent necessary to comply with all applicable Legal Requirements. 6.2 Litigation Support. In the event and for so long as any party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (a) any transaction contemplated under this Agreement or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Company or the Foodservice Business, each of the other parties will reasonably 32 cooperate with such party and its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be reasonably necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending party (unless the contesting or defending party is entitled to indemnification therefore under Article X below). 6.3 Transition. Sellers will not take any action that is designed or intended or may reasonably be expected to discourage any lessor, licensor, customer, supplier, employee, or other business associate of the Company or the Foodservice Business from maintaining substantially the same business relationships with the Company and the Foodservice Business after the Closing as it maintained with the Company or Sellers (with respect to the Foodservice Business) prior to the Closing. Sellers will use commercially reasonable efforts to refer all customer inquiries relating to the Foodservice Business to Buyer from and after the Closing. 6.4 Non-Company Employees Engaged in the Foodservice Business. Effective as of the Closing Date, Buyer shall cause the Company or an Affiliate of the Company to offer employment to each of the employees of Seller who immediately prior to the Closing Date are primarily engaged in the Company's Foodservice Business, as set forth in Schedule 6.4 (the "Foodservice Employees"). The terms of such employment for each such Foodservice Employee shall be substantially equivalent in base salary, bonus compensation, and benefits in the aggregate to those provided on the Closing Date to such Foodservice Employees. Those Foodservice Employees who accept such offers of employment, combined with all Persons employed by the Company on the Closing Date who continue to be employed by the Company following the Closing Date shall be referred to herein as "Continuing Employees." 6.5 Employee Benefits. (a) Buyer shall take all necessary actions to provide that all Continuing Employees shall, through December 31, 2003, be allowed to participate without an increase in cost to such employees, in either the employee welfare benefit plans or arrangements in which such employees participated immediately prior to the Closing Date or in substantially similar employee benefit plans or arrangements. (b) Buyer shall take all necessary actions to provide that, with respect to any welfare benefits provided to Continuing Employees on or after the Closing Date, (i) service accrued by Continuing Employees during employment with the Company or its Affiliates prior to the Closing Date shall be recognized, to the extent such service was recognized under comparable Company Plans, for purposes of (A) eligibility for benefits and (B) application of any and all pre-existing condition limitations and (ii) Continuing Employees shall be given credit for amounts paid under a Company Plan during the applicable period for purposes of applying deductibles, co-payments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the employee welfare plans in which any Continuing Employee becomes entitled to participate; provided, however, that nothing in this Section 6.5(b) shall require the payment of duplicative benefits. Further, nothing in this Section 6.5(b), whether express or implied, shall confer upon any Person who is not a party to this Agreement, including any Continuing Employee, any right to employment or recall, any right to 33 continued employment, any right to compensation or benefits, or any other right of any kind or nature whatsoever. 6.6 Certain Employees. On or before the date of this Agreement, Sellers have entered into, caused the Company to enter into, or expressed an intention to enter into or cause the Company to enter into employment, severance or similar agreements (collectively, "Severance Agreements") with certain key employees of the Foodservice Business, all of whom are listed on Schedule 6.6 (each a "Covered Employee"). The Severance Agreements provide, among other things, for the payment of a severance benefit to each Covered Employee if his or her employment is terminated on certain conditions. In the event that the employment of a Covered Employee is terminated, directly or indirectly, by Buyer on or before December 31, 2003, and the termination triggers the obligation to pay a severance benefit under such Covered Employee's Severance Agreement, Sellers, jointly and severally, shall pay all severance benefits payable to such Covered Employee and shall defend and indemnify Buyer with respect to the payment as provided in Section 10.1. In the event that the employment of a Covered Employee is terminated, directly or indirectly, by Buyer on or after January 1, 2004, Buyer shall pay or cause to be paid all amounts payable to such Covered Employee under his or her Severance Agreement and shall defend and indemnify Sellers with respect to the payment as provided in Section 10.2. 6.7 Company 401(k) Plan. Sellers shall use their reasonable best efforts to cause the operational failures of the Henry Lee Second Profit Sharing Plan and Trust (the "Company 401(k) Plan") to be corrected prior to the Closing Date through use of the Employee Plans Compliance Resolution System of the IRS (the "EPCRS"). It is intended that the filing under the EPCRS be made by Sellers before the Closing Date. To the extent that such failures have not been corrected prior to the Closing Date, Sellers shall reimburse Buyer for the reasonable costs of correcting such failures, including but not limited to any fees or penalties assessed by the IRS and attorney fees. Sellers shall also fully cooperate with Buyer to complete any corrections not made before the Closing Date. Sellers shall indemnify and hold harmless the Buyer, its officers, directors, employees and agents and Affiliates, from and against any and all liabilities arising out of or related to the operational failures of the Company 401(k) Plan which occurred prior to the Closing Date. 6.8 Real Property Consents. Sellers shall cooperate with Buyer and shall use their commercially reasonable efforts to obtain all consents, permits, approvals and authorizations necessary to transfer the leases set forth on Schedule 6.8 to Buyer as soon as is commercially practicable. 6.9 Insurance Matters. (a) Sellers shall remit to Buyer or the Company any monies received by Sellers under its insurance policies (net of deductibles) as a result of any worker's compensation claims relating to the Company or the Foodservice Business that arise out of events that occur on or prior to the Closing Date. Sellers shall use their commercially reasonable efforts to file all worker's compensation claims relating to the Foodservice Business or the Company that arise out of events that occur on or prior to the Closing Date. 34 (b) After the Closing Date, Buyer shall cause the Company to maintain and provide insurance policies for the Company (including, property, general liability and workers compensation) that provide coverages that are comparable to those provided to the Company prior to the Closing Date. (c) After the Closing Date, Buyer shall be responsible for all worker's compensation claims with respect to the Foodservice Business or the Company (regardless of the date of occurrence or the date any such claim was reported). (d) After the Closing Date, Sellers shall be responsible for all insurance claims (other than worker's compensation claims) with respect to the Foodservice Business or the Company that arise from events that occur on or prior to the Closing Date and shall pay to Buyer any amounts that Buyer or the Company is required to pay with respect to such claims to the extent such claims exceed in the aggregate the reserve for such claims reflected as a current liability on the Final Closing Financial Statement, which reserve shall not be less than One Hundred Thousand Dollars ($100,000). (e) Sellers and Buyer shall cooperate with one another and use their commercially reasonable efforts to assist each other in the administration of any claim that is the responsibility of the other party under this Section 6.9. 6.10 Tax Covenant. Buyer shall not (and shall not cause or permit its Affiliates or the Company to) amend, refile or otherwise modify any Tax Return or change any accounting method relating in whole or in part to the Company with respect to any taxable year or period ending on or before or which includes the Closing Date without the prior written consent of the Sellers. Any refunds or credits of Taxes of the Company with respect to any Tax Return amended or refiled by Sellers with respect to any taxable period ending on or before or which includes the Closing Date shall be for the account of Sellers and, if received by Buyer, shall be paid by Buyer to Seller within 10 business days after Buyer receives such refund or after the relevant Tax Return is filed in which the credit is applied against Buyer's liability for Taxes. Any refunds or credits of Taxes of the Company with respect to any taxable period beginning after the Closing Date shall be for the account of Buyer. 6.11 Accounts Receivable Collection. Between the Closing Date and the Accounts Receivable Settlement Date, Buyer shall follow consistent historical practices (as practiced by Sellers) as set forth on Schedule 6.11 with respect to determination of allowance for doubtful accounts, collection efforts, continuous service and offering of extended payment terms to delinquent customers and write-off of Accounts Receivable. 6.12 Tax Matters. (a) Tax Sharing Agreements. Any tax sharing agreement between Sellers and any of the Company and its Subsidiaries is terminated as of the Closing Date and will have no further effect for any taxable year (whether the current year, a future year, or a past year). (b) Taxes of Other Persons. Each of the Sellers agrees to indemnify the Buyer from and against any Losses the Buyer may suffer resulting from, arising out of, relating 35 to, in the nature of, or caused by any liability of any of the Company and its Subsidiaries for Taxes of any Person other than any of the Company and its Subsidiaries (i) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv) otherwise. (c) Returns for Periods Through the Closing Date. SFI will include the income of the Company and its Subsidiaries on the SFI consolidated federal income Tax Returns for all periods through the Closing Date and pay any federal income Taxes attributable to such income. The Company and its Subsidiaries will furnish Tax information to SFI for inclusion in SFI's federal consolidated income Tax Return for the period which includes the Closing Date in accordance with the Company's past custom and practice. SFI will take no position on such returns that relate to the Company and its Subsidiaries that would adversely affect the Company after the Closing Date. The income of the Company and its Subsidiaries will be apportioned to the period up to and including the Closing Date and the period after the Closing Date by closing the books of the Company and its Subsidiaries as of the end of the Closing Date. (d) Audits. SFI will allow the Company and its counsel to participate at its own expense in any audits of SFI consolidated federal income Tax Returns to the extent that such returns relate to the Company and its Subsidiaries. SFI will not settle any such audit in a manner which would adversely affect the Company after the Closing Date without the prior written consent of the Buyer, which consent shall not be unreasonably withheld. (e) Retention of Carryovers. SFI will not elect to retain any net operating loss carryovers or capital loss carryovers of the Company and its Subsidiaries under Treasury Regulation Section 1.1502-20(g). 6.13 Environmental Testing. (a) Subject to the conditions set forth herein, Sellers have the right to conduct environmental testing, at their own expense, at any of the Real Property by providing written notice to the Buyer within ninety (90) days after the Closing Date. The Buyer and the Company agree to provide access to said Real Property to Sellers and Sellers' consultants and contractors, and to reasonably cooperate with Sellers and Sellers' consultants, with respect to said environmental testing, including, but not limited to, providing all relevant information to Sellers and their consultants and contractors relating to any potential obstructions that may interfere with environmental testing or cause property damage or personal injury. (b) If Sellers determine that they desire to conduct environmental testing as set forth above, Sellers shall provide written notice to Buyer at least five business days prior to the date Sellers desire to conduct such environmental testing. Sellers' written notice shall include a copy of the proposed sampling plan with respect to each property at which they proposed to conduct testing. The sampling plan shall include, at a minimum, a reasonable approximation of where samples will be collected; the environmental media to be sampled; and the analyses which Sellers proposed to perform on said samples. (c) Prior to being allowed access to the Real Property, Sellers' consultants or contractors shall provide to Buyer copies of insurance certificates demonstrating 36 that said consultants or contractors have appropriate insurance (in amounts consistent with customary industry standards) to insure against property damage or personal injury claims that may result from the performance of the environmental testing. (d) Sellers agree that they shall be responsible for ensuring that after the completion of environmental testing, their consultants or contractors shall restore the Real Property to its prior condition, including, but not limited to, taking all steps required to properly abandon any monitoring wells that have been installed in connection with the environmental testing. (e) Sellers agree that they shall promptly provide Buyer with copies of any sampling results and related reports with respect to the environmental testing conducted pursuant to this provision. Sellers also agree that if, as a result of the environmental testing, reporting to a Governmental Authority is required, Sellers shall notify Buyer prior to reporting its findings to said Governmental Authority. (f) Buyer may accompany and monitor the environmental testing performed by Sellers pursuant to this Section 6.13, including, without limitation, retaining, at its own expense, its own consultants, attorneys or other professionals to monitor said environmental testing. In addition, Sellers agree that they will allow Buyer to collect split samples at Buyer's request if it is reasonably practicable given the amount of sample collected in any particular instance. ARTICLE VII CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE Sellers' obligation to sell the Shares and to take the other actions required to be taken by Sellers at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Sellers, in whole or in part): 7.1 Accuracy of Representations. The representations and warranties of Buyer contained herein shall be true and correct at the date hereof and as of the Closing Date, except to the extent that such representations and warranties are made as of a specified date, in which case such representations and warranties shall be true and correct as of such date, and except for such failures to be true and correct which, in each case or in the aggregate would not have a material adverse effect on the ability of Buyer to consummate the Contemplated Transactions. 7.2 Buyer's Performance. Buyer shall have performed in all material respects all obligations and agreements and complied in all material respects with all covenants required by this Agreement to be performed or complied with by Buyer prior to or at the Closing. 7.3 Additional Documents. Each of the following documents shall have been delivered to the Sellers: (a) each document required to be delivered pursuant to Section 1.9(b); and 37 (b) evidence, satisfactory to the Sellers in their reasonable discretion, that Buyer is in good standing in its state of incorporation and that the Buyer has the requisite authority to enter into the Agreement and to consummate the transactions contemplated thereby. 7.4 No Injunction. There is not in effect any Legal Requirement or any injunction or other Order that prohibits the sale of the Shares by Sellers to Buyer. 7.5 Closing of Asset Purchase Transaction. The closing of the transactions contemplated in the Asset Purchase Agreement shall have occurred simultaneously with the Closing. 7.6 Consents. Each of the material Consents identified in Schedule 8.3 shall have been obtained. ARTICLE VIII CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE Buyer's obligation to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): 8.1 Accuracy of Representations. The representations and warranties of Sellers contained herein shall be true and correct at the date hereof and as of the Closing Date, except to the extent that such representations and warranties are made as of a specified date, in which case such representations and warranties shall be true and correct as of such date, and except for such failures to be true and correct which, in each case or in the aggregate would not have a Material Adverse Effect. 8.2 Sellers' Performance. Sellers shall have performed in all material respects all obligations and agreements and complied in all material respects with all covenants required by this Agreement to be performed or complied with by Sellers prior to or at the Closing. 8.3 Consents. Each of the material Consents identified in Schedule 8.3 shall have been obtained. 8.4 Additional Documents. Each of the following documents shall have been delivered to Buyer: Each document required to be delivered pursuant to Section 1.9(a)(i), 1.9(a)(ii), 1.9(a)(iv), 1.9(a)(v), 1.9(a)(vi), 1.9(a)(vii), 1.9(a)(viii), 1.9(a)(ix), 1.9(a)(x), 1.9(a)(xi), 1.9(a)(xii),1.9(a)(xiii), 1.9(a)(xv), 1.9(a)(xvi) and 1.9(a)(xvii). 8.5 No Injunction. There is not in effect any Legal Requirement or any injunction or other Order that prohibits the sale of the Shares by Sellers to Buyer. 38 8.6 No Proceedings. Since the date of this Agreement, there shall not have been commenced or threatened against Sellers or Buyer any Proceeding involving any challenge to or seeking damages or other relief in connection with any of the Contemplated Transactions that would have a Material Adverse Effect. 8.7 No Claim Regarding Stock or Sale Proceeds. There shall not have been made by any Person any claim, which would have a Material Adverse Effect, asserting that such Person (a) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock of, or any other voting, equity or ownership interest in, the Company, or (b) is entitled to all or any portion of the Purchase Price payable for the Shares. 8.8 No Prohibition. Neither the consummation nor the performance of any of the Contemplated Transactions shall, (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, (a) any applicable Legal Requirement or Order, or (b) any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Body, and such contravention, conflict or violation would have a Material Adverse Effect. 8.9 Closing of Asset Purchase Transaction. The closing of the transactions contemplated in the Asset Purchase Agreement shall have occurred simultaneously with the Closing. 8.10 Execution and Closing of the Real Estate Purchase Agreement. The Real Estate Purchase Agreement shall have been executed and delivered by all necessary parties thereto and the closing of the transactions contemplated thereby shall have occurred simultaneously with the Closing 8.11 Release of Guaranty. The Company's guarantee granted pursuant to the Synthetic Lease Agreement shall have been completely and unconditionally released without liability or obligation to Buyer or the Company. ARTICLE IX TERMINATION 9.1 Termination Events. This Agreement may, by notice given prior to or at the Closing, be terminated: (a) By either Sellers or Buyer if a material breach of any provision of this Agreement has occurred or been committed by the other party and such breach has not been waived or cured within thirty (30) days of receipt of written notice of such breach by the other party and failure to cure such breach would have a Material Adverse Effect; or (b) By the mutual written consent of Buyer and Sellers; or (c) By either Buyer or Sellers if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before October 5, 2003 (the "Termination Date"), or at 39 such later date as the parties may agree upon in writing; provided, however, that in the event either party provides a notice to terminate this Agreement pursuant to Section 9.1(a) the Termination Date will be extended, if necessary, to allow for the 30 day cure or waiver period set forth therein. 9.2 Effect of Termination. Each party's right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement or otherwise. Any exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the parties under this Agreement will terminate, except that the obligations of Sections 12.1 and 12.3 will survive; provided, however, that if this Agreement is terminated by a party because of a willful breach of the Agreement by the other party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's willful failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. ARTICLE X INDEMNIFICATION 10.1 Indemnity by Sellers. (a) Sellers shall, from and after the Closing, jointly and severally, indemnify Buyer and its Affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Buyer Indemnified Parties") against and hold each of them harmless from any and all Losses incurred or suffered by the Buyer Indemnified Parties (whether originally asserted against or imposed on the Buyer Indemnified Parties by a third party or originally incurred or suffered directly by the Buyer Indemnified Parties) arising directly out of (i) any breach of any representation or warranty, covenant or agreement made or to be performed by Sellers pursuant to this Agreement, (ii) the matters described in Schedule 10.1(a) and (iii) subject to the terms set forth in Section 10.8, Indemnified Environmental Matters (such breach, a "Seller Breach"), which breach shall be determined giving effect to any and all amendments and supplements of the schedules of the Sellers and the Company pursuant to Section 12.16. (b) Sellers' obligations to indemnify the Buyer Indemnified Parties pursuant to Section 10.1 are subject to the following limitations: (A) No indemnification shall be made by Sellers unless the amount of Losses under this Agreement, the Asset Purchase Agreement, the Real Estate Purchase Agreement for the Frozen Food Facility and Parking Lot,, and the Real Estate Purchase Agreement for the Fort Lauderdale Store (as such term is defined in the Asset Purchase Agreement) exceed in the aggregate an amount equal to $560,000, it being understood that such amount shall be a "deductible" for Sellers (the "Seller Deductible"); provided, however, that the Seller Deductible shall be inapplicable to any Losses incurred or suffered by the Buyer Indemnified Parties as a result of (i) fraud by Sellers (as determined by a court of law), (ii) Sellers' breach of the representation set forth in Section 2.3, (iii) Sellers' failure to perform their covenants in Section 6.6, Section 6.7 40 and Section 6.9 and (iv) liabilities and obligations arising in connection with the matters described in Schedule 10.1(a); and (B) in no event shall Sellers' obligations to indemnify the Buyer Indemnified Parties under this Agreement, the Asset Purchase Agreement, the Real Estate Purchase Agreement for the Frozen Food Facility and Parking Lot and the Real Estate Purchase Agreement for the Fort Lauderdale Store exceed Fifty Million Dollars ($50,000,000) in the aggregate. 10.2 Indemnity by Buyer. (a) Buyer shall, from and after the Closing indemnify Sellers and their Affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Seller Indemnified Parties") against and hold each of them harmless from any and all Losses incurred or suffered by the Seller Indemnified Parties (whether originally asserted against or imposed on the Seller Indemnified Parties by a third party or originally incurred or suffered directly by the Seller Indemnified Parties) arising directly out of any breach of any representation, warranty, covenant or agreement made or to be performed by Buyer pursuant to this Agreement (such breach, a "Buyer Breach"). (b) Buyer's obligations to indemnify the Seller Indemnified Parties pursuant to Section 10.2 are subject to the following limitations: (A) No indemnification shall be made by Buyer unless the amount of Losses under this Agreement, the Asset Purchase Agreement, the Real Estate Purchase Agreement for the Frozen Food Facility and Parking Lot and the Real Estate Purchase Agreement for the Fort Lauderdale Store exceed in the aggregate an amount equal to $560,000, it being understood that such amount shall be a "deductible" for Buyer (the "Buyer Deductible"); provided, however, that the Buyer Deductible shall be inapplicable to any Losses incurred or suffered by the Seller Indemnified Parties as a result of fraud by Buyer (as determined by a court of law) and (B) in no event shall Buyer's obligations to indemnify the Seller Indemnified Parties under this Agreement, the Asset Purchase Agreement, the Real Estate Purchase Agreement for the Frozen Food Facility and Parking Lot and the Real Estate Purchase Agreement for the Fort Lauderdale Store exceed Fifty Million Dollars ($50,000,000) in the aggregate. 10.3 Procedure and Payment. (a) The person seeking indemnification under Section 10.1, and 10.2 (the "Indemnified Party") agrees to give prompt notice to the Person against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding, in respect of which indemnity may be sought under such Section and will provide the Indemnifying Party such information with respect thereto as the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have materially and adversely prejudiced the Indemnifying Party. (b) The Indemnifying Party shall be entitled to defend any claim asserted by any third party ("Third Party Claim") with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying Party notifies the 41 Indemnified Party in writing within fifteen (15) days after the Indemnified Party has given notice of the Third Party Claim that it will indemnify the Indemnified Party from and against all Losses that the Indemnified Party may suffer resulting from, arising out of, relating to, or caused by the Third Party Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations under this Agreement, (iii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (iv) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party and (v) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (c) So long as the Indemnifying Party is conducting the defense of any Third Party Claim in accordance with the provisions of this Section 10.3, the Indemnified Party shall be entitled to participate in the defense of such Third Party Claim and to employ separate counsel of its choice for such purpose. The fees and expenses of such separate counsel shall be paid by the Indemnified Party. (d) Each party shall cooperate, and cause its Affiliates to cooperate, in the defense or prosecution of any Third Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested by any other party in connection therewith. 10.4 Calculation of Losses. (a) The amount of any Losses payable under Section 10.1 and 10.2 by the Indemnifying Party shall be net of any amounts recovered by the Indemnified Party under applicable insurance policies and the Indemnified Party shall use commercially reasonable efforts to collect any amounts available under such insurance policies. (b) If the Indemnified Party receives an amount under insurance coverage or from a third party with respect to Losses at any time subsequent to any indemnification provided by the Indemnifying Party pursuant to Section 10.1 and 10.2, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification up to such amount received by such Indemnified Party, but net of any expenses incurred by such Indemnified Party in collecting such amount. (c) In no event shall either Buyer or Sellers be liable to the other party for any consequential damages unless such amounts are actually paid or awarded in connection with a Third Party Claim. (d) The parties hereto shall treat any indemnity payment made under this Agreement and any payment made as a result of any Final Uncollected Accounts Receivable as 42 an adjustment to the Purchase Price unless required by law to treat such payment as other than an adjustment to the Purchase Price. (e) The parties shall take into account the time value of money (using a variable rate equal to the prime rate of interest as published in the Money Rates section of the Wall Street Journal) in determining Losses for purposes of this Article X beginning the day after notice of an indemnification claim is made. 10.5 Survival of Representations and Warranties of Sellers. Absent fraud by Sellers (as determined by a court of law), all representations and warranties made by Sellers in this Agreement shall survive the Closing for a period of two (2) years after the Closing Date, except for (a) the representations and warranties contained in Sections 2.19 and 2.21, which shall survive for one (1) month after the maximum period permitted by law and (b) the representations and warranties contained in Section 2.3, which shall survive indefinitely; provided, however, that any representation, warranty, covenant or agreement pertaining to a claim for which Buyer shall have given written notice to Sellers describing in reasonable detail the facts relating to such claim on or prior to the expiration of the applicable period specified above shall survive (solely for the purpose of resolving such claim) until the resolution of such claim. 10.6 Survival of Representations and Warranties of Buyer. Absent fraud by Buyer (as determined by a court of law), all representations and warranties made by Buyer in this Agreement shall survive the Closing for a period of two (2) years after the Closing Date; provided, however, that any representation, warranty, covenant or agreement pertaining to a claim for which Sellers shall have given written notice to Buyer describing in reasonable detail the facts relating to such claim on or prior to the expiration of the period specified above shall survive (solely for the purpose of resolving such claim) until the resolution of such claim. 10.7 Escrow. Payments (under this Article X) to be made to the Buyer Indemnified Parties as a result of Losses arising out of the breaches of representations, warranties and covenants of Sellers shall be made pursuant to the terms set forth in the Escrow Agreement. 10.8 Indemnified Environmental Matters. (a) (1) Sellers hereby agree to indemnify the Buyer Indemnified Parties in respect of any and all Losses incurred by the Buyer Indemnified Parties, including, without limitation, Losses relating to Remediation or for third party claims for property damage or personal injury, in connection with Hazardous Substances that were disposed of or released into soils, groundwater, surface water, sediments or similar environmental media, prior to the Closing Date, at any of the real property that is or has been owned, leased or operated by the Company (the "Real Property"). (2) Sellers hereby agree to indemnify the Buyer Indemnified Parties with respect to any fines and penalties that may be asserted against Buyer Indemnified Parties with respect to any violation of applicable Environmental Law by the Company prior to the Closing Date, including, but not limited, any fines and penalties that may be asserted with respect to a release of ammonia from the facility located at 2850 NW 120th Street, Miami, Florida that was reported 43 in June 2003. For purposes of clarification, the indemnity set forth herein does not include any costs or expenses associated with any corrective actions that may be required with respect to such violations or release of ammonia. (3) The matters described in Sections 10.8(a)(1) and (2) are the "Indemnified Environmental Matters." (b) Sellers' obligation to indemnify the Buyer Indemnified Parties with respect to the Indemnified Environmental Matters shall be subject to the provisions of Article X, including, without limitation, Section 10.1(b) and Section 10.8. Furthermore, any matter subject to indemnity pursuant to Section 10.1(a) which by its nature also falls within the scope of Section 10.8(a)(1) or 10.8(a)(2) also shall be governed by the provisions of Section 10.8 to the extent applicable. (c) (1) With respect to the matters identified in Section 10.8(a)(1) that relate to Remediation of Real Property, Sellers shall only be required to defend, indemnify and hold harmless Buyer Indemnified Parties with respect to such Indemnified Environmental Matters to the extent that: (A) the Remediation of the Hazardous Substances is required pursuant to an applicable Environmental Law that is in effect as of the Closing; (B) the Remediation Standards applicable to the Remediation are the least stringent Remediation Standards that would be applicable based on the use of the Real Property as of the Closing Date; and (C) the Remediation shall be conducted in a reasonable, cost effective manner consistent with applicable Environmental Law. Buyer Indemnified Parties agree that they shall accept appropriate engineering controls or institutional controls, including, if necessary, deed restrictions or limitations on the drilling and use of water wells, if such controls are needed in order for the parties to complete a Remediation consistent with the use of the least stringent Remediation Standards; provided, that Buyer Indemnified Parties shall not be obligated to accept engineering or institutional controls that unreasonably interfere with Buyer Indemnified Parties' operations on the Real Property if such operations are materially the same as the operations of the Company as of the Closing Date on said properties. (2) Notwithstanding anything to the contrary herein, Sellers shall have no obligation to defend, indemnify and hold harmless the Buyer Indemnified Parties to the extent that any Remediation with respect to such Indemnified Environmental Matters results from the cessation of all or substantially all of the operations at the Real Property or a material change in the use of the Real Property. (d) Notwithstanding anything to the contrary herein, with respect to claims arising pursuant to Section 10.8, Sellers shall not be obligated to indemnify Buyer Indemnified Parties for any costs or expenses of Buyer Indemnified Parties related to the time spent on any indemnified matter by employees or management of Buyer Indemnified Parties. (e) If Buyer Indemnified Parties or any of their affiliates intend to sell, lease, sublease or otherwise convey the Real Property, Buyer Indemnified Parties or said affiliate shall include, as a condition of such sale, lease, sublease or other agreement terms and conditions that will ensure that any institutional or engineering controls that have been accepted with respect to the Real Property are not disturbed (or, if such controls will be disturbed, will be 44 restored at the expense of the party causing the disturbance or, if additional Remediation is required as a result of the disturbance of such controls, that such additional Remediation will be performed at the sole cost and expense of the party causing the disturbance). (f) For purposes of this Agreement: (1) the term "Remediation Standard" means a numerical or narrative standard (whether resulting from an enacted statute, promulgated regulation, guidance or policy document issued by a regulatory agency, or developed on a case-by-case basis through a risk assessment or other methodology authorized pursuant to an applicable Environmental Law) that defines the concentrations of Hazardous Substances that may be permitted to remain in any environmental media after an investigation, remediation or containment of a release of Hazardous Substances; and (2) the term "Remediation" means any action of any kind to investigate and/or clean up a release of Hazardous Substances into an environmental medium, including, but not limited to, the following activities: (A) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (B) obtaining any permits, consents, approvals or authorizations of any governmental authority necessary to conduct any such activity; (C) preparing and implementing any plans or studies for any such activity; and (D) obtaining a written notice from a Governmental Authority with jurisdiction over the site being investigated and/or cleaned up under Environmental Laws that no additional work is required by such Governmental Authority. (g) (1) Buyer Indemnified Parties, consistent with the provisions of this Section 10.8, shall be entitled to control Remediations with respect to the Indemnified Environmental Matters to the extent that such Remediations are necessary. Buyer Indemnified Parties shall promptly provide copies to Sellers of all notices, correspondence, draft reports, submissions, work plans, and final reports. Buyer Indemnified Parties shall provide Sellers a reasonable opportunity (at Sellers' own expense) to comment on any submissions Buyer Indemnified Parties intend to deliver or submit to the appropriate regulatory body prior to said submission. Further, Buyer Indemnified Parties and Sellers agree to work together in good faith to agree on the legal, regulatory, investigatory and remedial strategy and actions with respect to such Remediations. Sellers may, at their own expense, hire their own consultants, attorneys or other professionals to monitor the work performed by Buyer Indemnified Parties, including any field work undertaken by Purchaser. Notwithstanding the above, Sellers shall not take any actions that shall unreasonably interfere with Buyer Indemnified Parties. If Buyer Indemnified Parties' performance of any Remediation with respect to Indemnified Environmental Matters does not substantially conform with the requirements of this section, including, without limitation, Section 10.8(c), Sellers shall have no obligation to defend, indemnify and hold harmless Buyer Indemnified Parties with respect to the Indemnified Environmental Matters. (2) Buyer Indemnified Parties acknowledge that with respect to the former underground storage tank areas and/or former fuel dispenser areas at 3301 NW 125th Street, Miami, Florida) (the "Dry Warehouse Facility"), the Florida Department of Environmental Protection ("FDEP") has or may have issued no further action letters or their equivalent in March 1994 and December 1995. Accordingly, it is possible that the levels of Hazardous Substances detected in the environment in or in the vicinity of these areas in the Phase I/II Environmental Site Assessment, dated July 24, 2003, prepared by Hydro-Logic Associates, Inc., on behalf of Buyer Indemnified Parties, may be consistent with the prior approvals of the FDEP. 45 To the extent that the Hazardous Substances detected at the former underground storage tank area and/or the former fuel dispensers at the Dry Warehouse are consistent with prior approvals from the FDEP, Buyer Indemnified Parties shall not have a right to indemnification from Sellers with respect to any areas that are covered by such prior approvals. (3) Buyer Indemnified Parties acknowledge that with respect to the former underground storage tanks and fuel dispensing areas at 3505 NW 125th Street, Miami, Florida ("Truck Maintenance Facility"), the Truck Maintenance Facility is on a ranked waiting list for state funded cleanup activities. Accordingly, Buyer Indemnified Parties agree that no action will be required with respect to the findings in the Phase I/II Environmental Site Assessment, dated July 24, 2003, prepared by Hydro-Logic Associates, Inc., in connection with the Truck Maintenance Facility, to the extent that such findings are covered by the Truck Maintenance Facility's listing on the state waiting list, until such time as the FDEP or such other relevant governmental agency approves funding for the Remediation of such site. (4) In addition to any other limitations on Buyer Indemnified Parties' right to indemnification with respect to the Indemnified Environmental Matters, Sellers' obligation to defend, indemnify and hold harmless Buyer Indemnified Parties with respect to the Indemnified Environmental Matters shall terminate at such time as the aggregate limits set forth in Section 10.8(b) have been reached or, with respect to any individual Environmental Matter, a no further action letter or equivalent approval has been issued by the FDEP, Dade County Environmental Resources Management or other relevant Governmental Authority, whichever comes first. (h) Exclusive Remedy for Environmental Matters; Indemnification by Buyer. Notwithstanding anything to the contrary in this Agreement, Buyer Indemnified Parties hereby agree that their sole and exclusive remedy against Sellers and their officers, managers, members, employees, Affiliates, successors and assigns) (collectively, the "Seller Parties"), with respect to any and all matters arising under or related to Environmental Law or Hazardous Substances, in connection with the Company, shall be the indemnity set forth in this Section 10.8 and a claim for breach of representation pursuant to Section 10.1(a)(i). Except with respect to the remedy referred to in the preceding sentence, the Buyer Indemnified Parties hereby waive, to the fullest extent permitted under applicable law, and forever release the Seller Parties, in connection with the Company, and indemnify and hold harmless the Seller Parties against, any and all claims or Losses arising under or related to Environmental Laws, Hazardous Substances or the environment. ARTICLE XI DEFINITIONS For purposes of this Agreement, the following terms have the meaning set forth below: "AAA" is defined in Section 12.15(a) of this Agreement. "Accountants" is defined in Section 1.4(a) of this Agreement. 46 "Accounts Receivable" means the trade receivables as reflected on the Final Closing Balance Sheet with respect to the Foodservice Business, the Retail Store Business and the Meat Processing Business (as such terms are defined in the Asset Purchase Agreement). "Accounts Receivable Statement" is defined in Section 1.6(a) of this Agreement. "Accounts Receivable Settlement Date" is defined in Section 1.5 of this Agreement. "AFD" is defined in the preamble of this Agreement. "Affiliate" means, with respect to any party, any Person directly or indirectly controlling, controlled by, or under common control with such party, and any officer, director or executive employee of such party. "Agreement" is defined in the preamble of this Agreement. "Agreement Disputes" is defined in Section 12.15 of this Agreement. "Applicable Contract" means any Contract (a) under which either of the Sellers or the Company has or has the option to acquire any material rights relating to the Foodservice Business, (b) under which either of the Sellers or the Company has or is subject to any obligation or liability relating to the Foodservice Business, or (c) by which either of the Sellers (with respect to the Foodservice Business) or the Company or any of the assets owned or used by the Company in connection with the Foodservice Business is bound. "Asset Purchase Agreement" is defined in the Preliminary Statement of this Agreement. "Balance Sheets" is defined in Section 2.4. "Buyer" is defined in the first paragraph of this Agreement. "Buyer Breach" is defined in Section 10.2(a) of this Agreement. "Buyer Deductible" is defined in Section 10.2(b) of this Agreement. "Buyer Indemnified Parties" is defined in Section 10.1(a) of this Agreement. "Buyer Parties" is defined in the Preliminary Statement of this Agreement. "Buyer's Advisors" is defined in Section 4.1 of this Agreement. "Buyer's Other Agreements" is defined in Section 3.2 of this Agreement. "Closing" is defined in Section 1.8 of this Agreement. "Closing Date" is defined in Section 1.8 of this Agreement. 47 "Closing Financial Statement" is defined in Section 1.4(a) of this Agreement. "Closing Payment" is defined in Section 1.2 of this Agreement. "Company" is defined in the Preliminary Statement of this Agreement. "Confidentiality Agreement" is defined in Section 12.3 of this Agreement. "Consent" means any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). "Contemplated Transactions" means all of the transactions contemplated by this Agreement. "Continuing Employees" is defined in Section 6.3 of this Agreement. "Contract" means any material written agreement, contract, obligations, promise, or undertaking that is legally binding. "Covered Employee" is defined in Section 6.4 of this Agreement. "Difference" is defined in Section 1.4(c) of this Agreement. "Dispute Notice" is defined in Section 12.15(a) of this Agreement. "Dry Warehouse" is defined in Section 10.8(g)(2) of this Agreement. "Encumbrance" means any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership. "Environmental Laws" means all applicable federal, state and local laws, rules, regulations and ordinances relating to public health and safety, worker health and safety and pollution and protection of the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S)9601 et seq., the Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. (S)6901 et seq., the Emergency Planning and Community Right-to-Know Act ("Right-to-Know Act"), 42 U.S.C. (S)11001 et seq., the Clean Air Act ("CAA"), 42 U.S.C. (S)7401 et seq., the Federal Water Pollution Control Act ("Clean Water Act"), 33 U.S.C.(S)1251 et seq., the Toxic Substances Control Act ("TSCA"), 15 U.S.C. (S)2601 et seq., the Safe Drinking Water Act, 42 U.S.C. (S)300f et seq., the Occupational Safety and Health Act ("OSHA"), 42 U.S.C. (S)651 et seq., and the Hazardous Materials Transportation Act, 49 U.S.C. (S)1801, all as amended, and any regulations, rules or ordinances adopted promulgated pursuant thereto. "EPCRS" is defined in Section 6.7 of this Agreement. 48 "ERISA" means the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Escrow Agent" is defined in Section 1.2 of this Agreement. "Escrow Agreement" is defined in Section 1.2 of this Agreement. "Escrow Payment" is defined in Section 1.2 of this Agreement. "FDEP" is defined in Section 10.8(g)(2) of this Agreement. "Final Accounts Receivable Statement" is defined in Section 1.6(a) of this Agreement. "Final Closing Financial Statement" is defined in Section 1.4(a) of this Agreement. "Final Net Working Capital" is defined in Section 1.4(a) of this Agreement. "Financial Statements" is defined in Section 2.4. "Final Uncollected Accounts Receivable" is defined in Section 1.6(a) of this Agreement. "Foodservice Business" is defined in the Preliminary Statement of this Agreement. "Foodservice Employees" is defined in Section 6.3 of this Agreement. "Force Majeure Event" means any of the following causes beyond Buyer's reasonable control: acts of war or terrorism, acts of God, earthquake, flood, hurricane, embargo, riot, sabotage or governmental act. "Frozen Food Facility and Parking Lot" means the premises located at 2850 NW 120th Terrace, Miami, Florida, together with certain items of equipment located therein and the parking lot nearby which is located on a separate parcel of land. "GAAP" means generally accepted United States accounting principles, applied on a consistent basis. "GFS Orlando" is defined in the Preliminary Statement of this Agreement. "GFS Stores" is defined in the Preliminary Statement of this Agreement. "Governmental Authorization" means any material approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "Governmental Body" means any: 49 (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign, or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (d) multi-national organization or body; or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. "Hazardous Substances" means any pollutant or contaminant (as that term is defined in 42 U.S.C. (S)9601(33)), toxic pollutant (as that term is defined in 33 U.S.C. (S)1362(13)), hazardous substance (as that term is defined in 42 U.S.C. (S)(S)9601 et seq. and the regulations promulgated thereunder), hazardous chemical (as that term is defined by 29 C.F.R. (S)1910.1200(c)), hazardous waste (as that term is defined in 42 U.S.C. (S)6202(2)), radioactive material, including without limitation any source, special nuclear or by-product material as defined in 42 U.S.C. (S)(S)2011 et seq., friable asbestos and asbestos containing material, regulated levels of polychlorinated biphenyls, petroleum and petroleum waste, including crude oil or any petroleum derived substance, waste or breakdown or decomposition product thereof, or any constituent of any such petroleum substance or waste, or any substance or material which because of its toxicity, corrosiveness, ignitability, reactivity or infectious characteristics may pose a threat to human health or the environment. "Indemnified Environmental Matters" is defined in Section 10.8(a)(3) of this Agreement. "Indemnified Party" is defined in Section 10.3(a) of this Agreement. "Indemnifying Party" is defined in Section 10.3(a) of this Agreement. "IRC" means the Internal Revenue Code of 1986 or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. "IRS" means the United States Internal Revenue Service or any successor agency, and to the extent relevant, the United States Department of the Treasury. "Knowledge" means (i) in the case of an individual, such individual's actual knowledge; or (ii) in the case of a Person (other than an individual or the Sellers) the actual knowledge of any executive officer of such Person. In addition to the foregoing, Sellers will be deemed to have "Knowledge" of a particular fact or matter if any executive officer of SFI or AFD or any of Bruce Samples, Joe Copeland, Steve Trocke, Dan McGruder or Mike Altif has actual knowledge of such fact or matter or should have known of such fact or matter after undertaking reasonable inquiry. 50 "Legal Requirement" means any federal, state, local, municipal, foreign, international, or other administrative order, constitution, principle of common law, treaty, law, rule, ordinance, or regulation (including, but not limited to, building and zoning ordinances, occupational health and safety laws and regulations, and Environmental Laws, statutes, and ordinances). "Losses" means any and all liabilities, obligations, demands, claims, actions, causes of actions, losses (including diminution in value), assessments, costs, damages, fines or expenses, including, without limitation, interest, penalties, reasonable attorney fees and all amounts paid in investigation, defense or settlement of any of the foregoing. "Material Adverse Effect" means any condition, event, circumstance, change or effect that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the business, assets, properties, results of operation or financial condition or Prospects of the Foodservice Business, the Meat Processing Business (as such term is defined in the Asset Purchase Agreement) and the Retail Store Business (as such term is defined in the Asset Purchase Agreement) in the aggregate, it being understood that none of the following shall be deemed by itself or by themselves, either alone or in combination, to constitute a material adverse effect: (i) any changes resulting from the announcement of the transactions contemplated hereby or from any action taken by the terms hereof, (ii) any changes in general economic conditions in industries in which the Foodservice Business, the Meat Processing Business or the Retail Store Business operates, which conditions do not affect the Foodservice Business, the Meat Processing Business or the Retail Store Business (as applicable) disproportionately relative to other entities operating in such industries, (iii) any changes in the United States or global economy as a whole, (iv) any changes arising as a result of any action taken by the Buyer and (v) the departure of any employee or employees involved primarily in the Foodservice Business, Meat Processing Business or Retail Store Business as a result of any action taken by the Buyer at any time prior to the Closing. "Meat Processing Business" is defined in the Preliminary Statement of this Agreement. "Net Working Capital" is defined in Section 1.3 of this Agreement. "Noncompetition Agreement" is defined in Section 1.9(a)(vii) of this Agreement. "Order" means any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body. "Ordinary Course of Business" is defined such that an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: (a) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; 51 (b) such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); (c) such action is substantially similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. "Organizational Documents" means, as applicable, (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) the articles or certificate of organization and the operating or limited liability company agreement of a limited liability company; (e) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (f) any amendment to any of the foregoing. "P & L Statements" is defined in Section 2.4. "Participation Agreement" means the agreement dated as of November 30, 2001 among Smart & Final, Inc., as lessee, the parties identified therein as "Guarantors," Wells Fargo Bank Northwest, National Association, not individually except as expressly stated therein but solely as the Owner Trustee under the S&F Trust 1998-1, the various parties identified therein as "Holders," the various parties identified therein as "Lenders, and Fleet Capital Corporation, as the agent for the Lenders and, in respect of the Security Documents (as defined therein), as agent for the Lenders and the Holders. "Participation Agreement Provisions" means Section 11 of such agreement (Indemnification). "Permitted Encumbrances" means (i) any statutory liens for current Taxes not yet due and payable and (ii) Encumbrances arising in the Ordinary Course of Business with respect to the Foodservice Business since the date of the most recent Financial Statements, none of which, individually or in the aggregate, would have a Material Adverse Effect.1 "Permitted Exceptions" is defined in Section 2.8(o) of this Agreement. "Person" means any individual, sole proprietorship, partnership, limited partnership, joint venture, estate, trust, unincorporated association, organization, labor union, limited liability company, corporation or other entity or any Governmental Body. "Preliminary Net Working Capital" is defined in Section 1.2 of this Agreement. "Preliminary Purchase Price Statement" is defined in Section 1.2 of this Agreement. - ---------- /1/ SMF to confirm. 52 "Proceeding" means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative or investigative) commenced, brought, conducted, or heard by or before any Governmental Body or arbitrator. "Proprietary Rights Agreement" is defined in Section 2.15(b) of this Agreement. "Prospects" means, to the Sellers' knowledge, the prospects as of the date of this Agreement of the Foodservice Business, the Retail Store Business and the Meat Processing Business (as such term is defined in the Asset Purchase Agreement) in the aggregate. "Purchase Price" is defined in Section 2.2 of this Agreement. "Real Estate Purchase Agreement for the Frozen Food Facility and the Parking Lot" is defined in Section 1.9(xv) of this Agreement. "Real Property" is defined in Section 10.8(a)(1) of this Agreement. "Related Agreements" is defined in Section 2.2(a) of this Agreement. "Related Person" means with respect to a particular individual: (a) each other member of such individual's Family; (b) any Person that is directly or indirectly controlled by such individual; (c) any Person in which such individual or members of such individual's Family hold (individually or in the aggregate) a Material Interest; and (d) any Person with respect to which such individual or one or more members of such individual's Family serves as a director, officer, partner, executor, or trustee (or in a similar capacity). With respect to a specified Person other than an individual: (a) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person; (b) any Person that holds a Material Interest in such specified Person; (c) each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a similar capacity); (d) any Person in which such specified Person holds a Material Interest; (e) any Person with respect to which such specified Person serves as a general partner or trustee (or in a similar capacity); and 53 (f) any Related Person of any individual described in clause (b) or (c). For purposes of this definition, (a) the "Family" of an individual includes (i) the individual, (ii) the individual's spouse, (iii) any other natural person who resides permanently with such individual, and (b) "Material Interest" means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least 25% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 25% of the outstanding equity securities or equity interests in a Person. "Remediation" is defined in Section 10.8(f)(2) of this Agreement. "Remediation Standard" is defined in Section 10.8(f)(1) of this Agreement. "Representative" means with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "Retail Store Business" means the retail food store business engaged in by SF Stores at the properties referenced in Items 1-9 of Schedule 2.17 to the Asset Purchase Agreement. "Schedule" means the disclosure schedules attached hereto, as amended and supplemented in accordance with Section 12.16. "Securities Act" means the Securities Act of 1933, or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Seller Deductible" is defined in Section 10.1(b) of this Agreement. "Sellers" is defined in the first paragraph of this Agreement. "Seller Breach" is defined in Section 10.1(a) of this Agreement. "Seller Indemnified Parties" is defined in Section 10.2(a) of this Agreement. "Seller Parties" is defined in the Preliminary Statement of this Agreement. "Seller Parties" with respect to Indemnified Environmental Matters is defined in Section 10.8(h) of this Agreement. "Severance Agreements" is defined in Section 6.4 of this Agreement. "SF Stores" is defined in the Preliminary Statement of this Agreement. "Shares" is defined in the Preliminary Statement of this Agreement. "60 Day Period" is defined in Section 1.5 of this Agreement. 54 "Software License and Support Agreement" is defined in Section 1.9(a)(viii) of this Agreement. "Subsidiary" of any entity means, at any date, any Person: (i) the accounts of which would be consolidated with those of the applicable entity in such entity's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date; or (ii) of which securities, membership interests or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests or more than 50% of the profits or losses of which are, as of such date, owned, controlled or held by the applicable entity or one or more direct or indirect subsidiaries of such entity. "Synthetic Lease Agreement" means the Agreement, dated as of November 30, 2001 between Wells Fargo Bank Northwest, National Association, not individually but solely as the Owner Trustee under S&F Trust 1998-1, as lessor, and Smart & Final Inc., as lessee. "Synthetic Lease Provisions" means the following provisions of the Synthetic Lease Agreement: (i) Section 4.1 (Taxes; Utility Charges); (ii) paragraphs (a), (c) and (e) of Section 8.2 (Possession and Use of the Properties); (iii) Section 8.3 (Integrated Properties); (iv) Section 9.1 (Compliance with Legal Requirements, etc.); (v) Section 10.1 (Maintenance and Repair; Return); (vi) Section 11.1 (Modifications); (vii) Article XIII (Permitted Contests and Payment of Impositions, Utility Charges and other Matters); (viii) Article XIV (insurance); (ix) Section 28.2(a) (Compliance with Laws); (x) Section 28.2(b) (Payment of Taxes); (xi) Section 28.2(c) (Compliance with Environmental Laws); and (xii) Section 28.2(f) (Inspection Rights). "Tax" and "Taxes" means all taxes, charges, withholdings, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, real or personal property, tollgate, capital, net worth, sales, use, ad valorem, single business, transfer, franchise, profits, license, leasing, withholding, payroll, employment, social security, unemployment, excise, estimated, severance, stamp, occupation, services, property or other taxes, customs duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any federal, state, local or other taxing authority, domestic or foreign. "Tax Return" means any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "Termination Date" is defined in Section 9.1(d). "Third Party Claim" is defined in Section 10.3(b) of this Agreement. "Tradename and Trademark License Agreement" is defined in Section 1.9(a)(ix) of this Agreement. 55 "Truck Maintenance Facility" is defined in Section 10.8(g)(3) of this Agreement. "Uncollected Amount" is defined in Section 1.5 of this Agreement. "Vendor Agreements" means the agreements listed in Annex 1 of Schedule 2.12(a). ARTICLE XII GENERAL PROVISIONS 12.1 Expenses With Respect to Transaction. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel and accountants. 12.2 Public Announcements. Prior to the signing of this Agreement, Sellers and Buyer shall prepare a mutually agreeable release announcing the Contemplated Transactions. Except for such press release, neither Sellers nor Buyer shall, without the approval of the other, make any press release or other announcement concerning the existence of this Agreement or the terms of the Contemplated Transactions, except as and to the extent that any such party shall be so obligated by Legal Requirements, in which case the other party shall be advised and the parties shall use their reasonable best efforts to cause a mutually agreeable release or announcement to be issued; provided, however, that the foregoing shall not preclude communications or disclosures necessary to comply with accounting, stock exchange or federal securities law disclosure obligations. Sellers and Buyer will consult with each other concerning the means by which the employees, customers, and suppliers of the Company and others having dealings with the Company will be informed of the Contemplated Transactions. 12.3 Confidentiality. Buyer and Sellers shall abide by and comply with all of the terms and conditions of the Non-Disclosure Agreement entered into by and among SFI and Buyer and dated as of February 10, 2003, as amended (the "Confidentiality Agreement"). Notwithstanding the foregoing, if required by Legal Requirements, Sellers and Buyer (and each of their respective employees, representatives, or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and any facts that may be relevant to the tax structure of the Contemplated Transactions beginning on the earliest of (i) the date of the public announcement of discussions relating to the Contemplated Transactions, (ii) the date of public announcement of the Contemplated Transactions, or (iii) the date of the execution of an agreement (with or without conditions) to enter into the Contemplated Transactions, provided, however, that neither Sellers nor Buyer (nor any of their respective Representatives) may disclose any other information that is not relevant to understanding the tax treatment and tax structure of the Contemplated Transactions (including the identity of any party and any information that could lead another to determine the identity of any party), or any other information to the extent that such disclosure could result in a violation of any federal or state securities law. 56 12.4 Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyer: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Legal Department Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 And a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II 57 12.5 Jurisdiction. (a) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such courts, and agrees that, except as permitted pursuant to this Section 12.5, it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (b) In the event the state court specified in Section 12.5(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Sellers against the Buyer arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (c) In the event the state court specified in Section 12.5(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by the Buyer against any of the Sellers arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any 58 state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (d) The parties hereby waive any right to a jury trial. 12.6 Further Assurances. From time to time after the Closing Date, at the request of the other party hereto and at the expense of the party so requesting (unless the requesting party is entitled to indemnification therefor under Article X), each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. Sellers and Buyer shall provide each other with such cooperation and information as either of them may reasonably request of the other in filing the Tax Returns relating to the Company. 12.7 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in the Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 12.8 Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties other than the Confidentiality Agreement with respect to its subject matter (including the Letter of Intent between Buyer and SFI dated May 29, 2003, as amended) and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. 12.9 Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights under this Agreement without the prior consent of the other parties except that Buyer may assign any of its rights under this Agreement to any Affiliate of Buyer. 59 Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 12.10 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 12.11 Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 12.12 Preamble; Preliminary Statement. The Preliminary Statement set forth in the Preamble hereto is hereby incorporated and made a part of this Agreement. 12.13 Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. 12.14 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. 12.15 Dispute Resolution. Except as hereinafter provided in this Section 12.15 and subject to the provisions set forth in Article X , from and after the Closing, all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (a) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 12.4 hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") in effect on the date of this Agreement, 60 unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (b) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (c) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (d) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 12.5 without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. 12.16 Supplemental Disclosure. Sellers shall have the right from time to time up to seven (7) days prior to the Closing to supplement or amend the disclosure schedules with respect to any matter hereafter arising that, if existing or known at the date of this Agreement, would have been required to be set forth or described in such disclosure schedule. Any such supplemental or amended disclosure shall be deemed to have cured any breach of any representation or warranty made in this Agreement for purposes of Article X, but will not be deemed to have cured any such breach made in this Agreement or to have been disclosed as of the date of this Agreement for purposes of Article VIII. 12.17 Reliance. All covenants, warranties and representations made herein by any party (including the disclosures made on the Schedules hereto) shall be deemed to be relied upon by the other party notwithstanding any investigation or actual knowledge of such by the other party. 12.18 Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. [Remainder of page intentionally left blank] 61 IN WITNESS WHEREOF, the parties have each executed and delivered this Agreement as of the day and year first above written. SELLERS: SFI: SMART & FINAL INC. By /s/ DENNIS CHIAVELLI ----------------------------------- Its EVP ---------------------------------- By /s/ DONALD G. ALVARADO ----------------------------------- Its SVP ---------------------------------- AFD: AMERICAN FOODSERVICE DISTRIBUTORS By /s/ DENNIS CHIAVELLI ----------------------------------- Its EVP ---------------------------------- By /s/ DONALD G. ALVARADO ----------------------------------- Its SVP ---------------------------------- BUYER: GFS HOLDING, INC. By /s/ JEFF MADDOX ----------------------------------- Its AUTHORIZED AGENT ---------------------------------- 62 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Agreement") is entered into and effective as of August , 2003 (the "Effective Date"), by and between SMART & FINAL INC., -- a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"), and WELLS FARGO BANK, N.A., solely in its capacity as Escrow Agent as is set forth herein (the "Escrow Agent"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Share Purchase Agreement (as defined below). RECITALS A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated of even date herewith, by and between SFI, AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding common shares of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated of even date herewith, by and among GFS Holding, GFS Orlando and GFS Stores, and Sellers, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD (collectively, the "Assets" and, together with Henry Lee, the "Companies"). B. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the Companies. C. The Asset Purchase Agreement requires that the Buyers deposit with the Escrow Agent the sum of Two Million Dollars ($2,000,000) and the Share Purchase Agreement requires that the Buyers deposit with the Escrow Agent the sum of One Million Dollars ($1,000,000), for an aggregate deposit of Three Million Dollars ($3,000,000) (the "Escrow Fund"). D. An aggregate amount equal to One Million Five Hundred Thousand Dollars ($1,500,000) (the "Purchase Price Escrow Deposit") of the Escrow Fund shall be a fund against which claims by the Buyers may be made with respect to adjustments to the Purchase Price pursuant to Sections 1.4 and 1.5 of the Asset Purchase Agreement and Sections 1.3 and 1.4 of the Share Purchase Agreement. E. An aggregate amount equal to One Million Five Hundred Thousand Dollars ($1,500,000) (the "Indemnity Escrow Deposit") of the Escrow Fund shall be a fund against which claims for indemnification against the Sellers may be made by the Buyers pursuant to Article X of the Asset Purchase Agreement and pursuant to Article X of the Share Purchase Agreement. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt of which is hereby acknowledged, the Buyers, the Sellers and the Escrow Agent agree as follows: 1. Appointment of Escrow Agent. (a) The Escrow Agent is hereby appointed escrow agent in accordance with the instructions set forth in this Agreement and hereby agrees to act as the Escrow Agent under this Agreement. The Escrow Agent shall have no duty to enforce any provision hereof requiring performance by any other party hereunder. (b) The Escrow Agent hereby acknowledges receipt of the Escrow Fund. (c) The Escrow Agent shall not have any interest in the Escrow Fund, but shall serve as escrow holder only and have only possession thereof. The Escrow Agent expressly waives any right to set off and appropriate any amounts under the Escrow Fund. 2. Distribution of Purchase Price Escrow Deposit. The Buyers and the Sellers shall, not more than five (5) business days after the final determination of the Final Closing Financial Statement and the adjustments to the Purchase Price, if any, pursuant to Sections 1.4 and 1.5 of the Asset Purchase Agreement and Sections 1.3 and 1.4 of the Share Purchase Agreement, provide the Escrow Agent with a written notice (the "Distribution Notice") with respect to the disposition of the Purchase Price Escrow Deposit. The Distribution Notice shall be signed by authorized officers of the Buyers and the Sellers, and shall describe the portions of the Purchase Price Escrow Deposit to be distributed to the Buyers or to the Sellers, as the case may be. Not more than five (5) business days after the delivery of the Distribution Notice, the Escrow Agent shall distribute the Purchase Price Escrow Deposit in the manner described in the Distribution Notice, together with any interest and income earned on the portion so distributed. The parties acknowledge that no distributions shall be made under this Section 2 until the Final Closing Financial Statement, and adjustments to the Purchase Price with respect to the determination of the Final Net Working Capital, if any, have been determined under both the Asset Purchase Agreement and the Share Purchase Agreement, and that any such distribution will be of the net amount under both the Asset Purchase Agreement and the Share Purchase Agreement. 3. Claim Certificates With Respect to the Indemnity Escrow Deposit. The Buyers, from time to time on or prior to the first anniversary of the Closing Date, may make an indemnification claim against the Indemnity Escrow Deposit under and pursuant to Article X of 2 the Asset Purchase Agreement and/or Article X of the Share Purchase Agreement (as applicable), on behalf of themselves or another Buyer Indemnified Party, for up to all of the Indemnity Escrow Deposit (a "Claim") by delivering to the Escrow Agent a certificate (a "Claim Certificate") signed by authorized officers of the Buyers stating: (a) That the Buyers or another Buyer Indemnified Party are entitled to be indemnified under Section 10.1 of the Asset Purchase Agreement and/or Section 10.1 of the Share Purchase Agreement (as applicable); (b) The reasons therefore, set forth in reasonable detail; (c) The amount of the Claim by the Buyers or such other Buyer Indemnified Party, provided, however, that where the amount of the Claim is not a liquidated sum, the amount of the Claim shall be the amount reasonably estimated by the Buyers in good faith; and (d) That the Buyers have delivered a copy of such Claim Certificate to the Sellers and their legal counsel and the date on which such copy was delivered. Whenever a Claim Certificate is delivered to the Escrow Agent, the Escrow Agent shall thereupon promptly deliver a copy to the Sellers and their legal counsel. 4. Disputed Claims With Respect to the Indemnity Escrow Deposit. The Sellers may dispute any Claim in whole or in part (hereinafter a "Disputed Claim"), by delivering to the Escrow Agent a written notice (an "Objection Notice") within twenty (20) days of receipt of the Claim Certificate from the Buyers stating: (a) That the Sellers dispute or object in good faith to such Claim in whole or in part; (b) A reasonably detailed description of the reasons for such good faith objection or dispute; (c) That the Sellers have delivered a copy of the Objection Notice to the Buyers and their legal counsel and the date on which such copy was delivered; (d) The portion of the Claim set forth in the Claim Certificate to which there is a good faith dispute or objection, including a reasonable estimate of the dollar amount of such portion of the Claim (the "Disputed Claims Amount"); and (e) The portion of the Claim set forth in the Claim Certificate, if any, to which there is no dispute or objection, including a reasonable estimate of the dollar amount of such portion of the Claim (hereinafter referred to as an "Undisputed Claim"). Whenever there shall be delivered to the Escrow Agent an Objection Notice, the Escrow Agent shall thereupon promptly deliver a copy to the Buyers and their legal counsel. 3 5. Payment of Claims With Respect to the Indemnity Escrow Deposit. (a) If the Escrow Agent does not receive an Objection Notice within twenty (20) days of the date that the Sellers receive a Claim Certificate from the Buyers, the Escrow Agent shall thereupon promptly pay to the Buyers from the Indemnity Escrow Deposit an amount equal to the amount of the Claim specified in the Claim Certificate plus interest on the amount so paid, computed from the date of the Claim Certificate. (b) If the Escrow Agent receives from the Sellers an Objection Notice which consents or agrees to all or part, or does not dispute a portion, of a Claim, the Escrow Agent shall thereupon promptly pay to the Buyers from the Indemnity Escrow Deposit an amount equal to the aggregate amount of such Undisputed Claim as specified in such notice from the Sellers plus interest on the amount so paid, computed from the date of the Claim Certificate. (c) If the Indemnity Escrow Deposit is not sufficient to pay in full any amounts payable to the Buyers under the preceding Section 5(a) or 5(b), the Escrow Agent shall pay to the Buyers the full amount of the Indemnity Escrow Deposit and all interest thereon and this escrow shall thereupon terminate. 6. Distribution of Indemnity Escrow Deposit. Except as provided in Section 5 hereof, the Escrow Agent shall not make any distribution of the Indemnity Escrow Deposit with respect to any Claim made by the Buyers hereunder until: (a) it receives the written consent or agreement from the Sellers with respect to such distribution; or (b) there is a Final Decision with respect to a Disputed Claim. As used herein, "Final Decision" means a resolution of the Disputed Claim by facilitative mediation pursuant to Section 12.15 of the Asset Purchase Agreement and/or Section 12.15 of the Share Purchase Agreement (as the case may be) or, if the Disputed Claim is not resolved by facilitative mediation, a final decision, order, judgment or decree of a court having jurisdiction which is either not subject to appeal or as to which notice of appeal has not been timely filed or served. 7. Administration of Escrow. (a) So long as the Escrow Fund is held in escrow, it shall be invested and reinvested by the Escrow Agent solely in Investments, pursuant to written instructions signed by the Buyers and the Sellers. Neither the Escrow Agent, the Buyers, nor the Sellers shall be liable or responsible for any loss resulting from any investment or reinvestment made pursuant to this Section 7(a). All investments of the Escrow Fund shall be held by, or registered in the name of, Escrow Agent or its nominee. As used herein "Investments" means: (i) direct obligations of, or obligations fully guaranteed by, the United States of America or any agency thereof with any residual amount being invested in the Federal Treasury Obligations Money Market Fund; 4 (ii) any taxable publicly traded money market fund; (iii) certificates of deposit whether negotiable or nonnegotiable, issued by any bank, trust company or national banking association, including the Escrow Agent, provided that such certificates of deposit shall (A) be issued by a bank, trust company or national banking association having a capital stock and surplus of more than Five Hundred Million Dollars ($500,000,000), (B) be fully insured by the Federal Deposit Insurance Corporation or (C) be fully and continuously secured by direct obligations of, or obligations unconditionally guaranteed by, the United States of America, which (1) shall have a market value (exclusive of accrued interest) at all times at least equal to the principal amount of such certificates of deposit, (2) shall be lodged with the Escrow Agent (or any correspondent bank or trust company designated by the Escrow Agent), as custodian, by the bank, trust company or national banking association issuing such certificate of deposit, and (3) the bank, trust company or national banking association issuing each certificate of deposit required to be so secured shall furnish the Escrow Agent with an undertaking satisfactory to it that the aggregate market value of such obligations securing each such certificate of deposit will at all times be an amount equal to the principal amount of each such certificate of deposit (and the Escrow Agent shall be entitled to rely on each such undertaking); or (iv) in the absence of written direction, the Escrow Fund may be invested in Wells Fargo 100% Treasury Money Market, a money market fund. (b) Maturities or unexpired terms of maturities of instruments in which the Escrow Fund is invested shall not exceed ninety (90) days. The Escrow Agent is authorized to sell any such Investments as may be required to make any payment required to be made under this Agreement, and the Escrow Agent shall not be liable for any loss due to early redemption. In the event that no written instructions are given by the Buyers and the Sellers as to any uninvested portion of the Escrow Fund, such portion shall be invested by the Escrow Agent in United States treasury bills for a thirty (30) day period; provided, however that if such period is not available, such portion shall be invested for the closest period of shorter duration. (c) Not less than ten (10) nor more than fifteen (15) business days prior to the termination of this Agreement, the Escrow Agent shall deliver to the Buyers and the Sellers a report outlining (i) the total amount of the Escrow Fund as of such date and the total amount of interest earned on the Escrow Fund prior thereto and not distributed pursuant to the terms of this Agreement and (ii) copies of or a description of all Claim Certificates pursuant to which payments from the Escrow Fund have been made and a description of all other payments made from the Escrow Fund during the preceding twenty-three (23) month period and all pending Claim Certificates as of such date. (d) At the prior written request of either the Buyers or the Sellers at any time, the Escrow Agent shall deliver to the Buyers and the Sellers such information as shall be 5 reasonably requested with respect to the Escrow Fund and any interest earned thereon or payments made therefrom. (e) Net profits resulting from, and interest and income produced by investments of, the Escrow Fund shall be deemed a part of the Escrow Fund and reinvested by Escrow Agent. 8. Reliance. Escrow Agent may act upon any instrument or other writing believed by it in good faith to be genuine and to be signed or presented by the proper person or persons and shall not be liable in connection with the performance by it of its duties pursuant to the provisions hereof, except for its own bad faith, fraud, willful misconduct or gross negligence. The Buyers on the one hand and the Sellers on the other shall indemnify and hold harmless the Escrow Agent for one half (1/2) of all losses, costs, and expenses which may be incurred by it without bad faith, fraud, gross negligence or willful misconduct on the part of the Escrow Agent, arising out of or in connection with its entering into this Agreement and carrying out its duties hereunder. Such indemnification provisions shall survive the termination of this Agreement or the removal or resignation of the Escrow Agent. 9. Distribution of Funds; Termination of Escrow. Unless earlier terminated pursuant to Section 5(c): On the first anniversary of the Closing Date, the Indemnity Escrow Deposit held by the Escrow Agent pursuant to the terms of this Agreement less (i) all amounts previously distributed pursuant to Section 5 hereof and (ii) an amount equal to One Hundred Percent (100%) of the Disputed Claims Amount (including, for purposes hereof, all Claims with respect to which the Sellers have not submitted an Objection Notice), shall be paid by the Escrow Agent to the Sellers for the benefit of the Sellers, together with any interest and income earned on the funds so distributed. Upon settlement of all Disputed Claims outstanding as of the first anniversary of the Closing Date, this escrow shall thereupon terminate, and the remainder of the Indemnity Escrow Deposit held by the Escrow Agent after any payment due to the Buyers shall be paid by the Escrow Agent to the Sellers for the benefit of the Sellers, together with any interest and income earned on the funds so distributed, in accordance with such settlement, written notice of which shall be delivered to the Escrow Agent. 10. Fees and Expenses. The Escrow Agent shall be entitled to compensation for its services as stated in the schedule attached as Annex I, which compensation shall be paid one-half (1/2) by the Sellers and one-half (1/2) by the Buyers. The fee agreed upon for the services rendered hereunder is intended as full compensation for the Escrow Agent's services as contemplated by this Agreement; provided, however, that in the event that the conditions for the disbursement of funds under this Agreement are not fulfilled, or the Escrow Agent tenders any material service not contemplated in this Agreement or there is any assignment of interest in the subject matter of this Agreement not contemplated herein, or any material modification hereof, or if any material controversy arises hereunder, or the Escrow Agent is made a party to any litigation pertaining to this Agreement, or the subject matter hereof, then the Escrow Agent shall 6 be reasonably compensated for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorney fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable one-half (1/2) from the Sellers and one-half (1/2) from the Buyers. 11. Liability of the Escrow Agent. (a) The Escrow Agent shall hold, invest and disburse the Escrow Fund and any interest, dividends, or other income accrued thereon only in accordance with (a) this Agreement or (b) written instructions accompanied by a certificate signed by the Buyers and the Sellers confirming that such written instructions are being given in conformity with this Agreement. The Escrow Agent shall not be bound in any way by, or be deemed to have knowledge of, the Asset Purchase Agreement and the Share Purchase Agreement or any other agreement between or among the parties hereto, other than this Agreement. The Escrow Agent shall have no duties other than those expressly imposed on it herein and shall not be liable with respect to any action taken by it, or any failure on its part to act, except to the extent that such actions constitute a breach of this Agreement, bad faith, fraud, gross negligence, or willful misconduct. (b) The Escrow Agent makes no representations and has no responsibility as to the validity, genuineness or sufficiency of any of the documents or instruments delivered to it hereunder. Subject to Section 11(a) hereof, the Escrow Agent (i) shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity of the service thereof and (ii) may act in reliance upon any instrument or signature reasonably believed by it to be genuine and may assume that any person purporting to give notice, receipt or advice or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. The Escrow Agent may act in reliance upon the written advice of counsel satisfactory to it in reference to any matter in connection with this Agreement and shall not incur any liability for any action taken in good faith in accordance with such written advice. (c) In the event of any disagreement between the other parties hereto resulting in adverse claims or demands being made in connection with the Escrow Fund, or in the event that the Escrow Agent in good faith is in doubt as to what action it should take hereunder, the Escrow Agent shall be entitled to refrain from acting until the Escrow Agent shall have received (i) a final nonappealable order of a court of competent jurisdiction directing delivery of the amount of the Escrow Fund in dispute or (ii) written instructions jointly executed by the Sellers and the Buyers directing delivery of the amount of the Escrow Fund in dispute, in which event the Escrow Agent shall deliver the amount of the Escrow Fund in dispute in accordance with such order or instructions. Any court order referred to in clause (i) above shall be accompanied by a legal opinion by counsel for the presenting party reasonably satisfactory to the Escrow Agent to the effect that said order or determination is final and nonappealable. The Escrow Agent shall act on such court order and legal opinion without further questions. 7 12. Resignation; Removal. (a) The Escrow Agent may resign upon thirty (30) days advance written notice to the parties. If a successor escrow agent is not appointed by the mutual agreement of the Buyers and the Sellers within the thirty (30) day period following such notice, the Escrow Agent may petition any court of competent jurisdiction to name a successor escrow agent or may tender into the registry or custody of any court of competent jurisdiction any part or all of the Escrow Fund, whereupon Escrow Agent's duties hereunder shall terminate. (b) The Escrow Agent shall be entitled to its compensation earned prior to its resignation hereunder. (c) The Buyers and the Sellers may, at any time substitute a new escrow agent by giving thirty (30) days notice thereof to the existing Escrow Agent and paying all fees and expenses of such Escrow Agent incurred to the date of the substitution. Upon the effective date of the substitution of a successor escrow agent, the Escrow Agent shall deposit all of the Escrow Fund with such successor. 13. Tax Reporting. (a) Any payments of income from the Escrow Fund shall be subject to withholding regulations then in force with respect to United States taxes. For federal and state income tax purposes, all interest earned on the Escrow Fund shall be considered the currently reportable income of the party who receives the distribution with respect thereto. The Escrow Agent shall file annually all information returns with the Internal Revenue Service and other governmental authorities documenting such interest income. (b) Prior to Closing, the Buyers and the Sellers shall provide the Escrow Agent with certified tax identification numbers by furnishing appropriate forms W-9 or W-8 and other forms and documents that the Escrow Agent may reasonably request. The Buyers and the Sellers understand that if such tax reporting documentation is not so certified to the Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code of 1986, as amended, to withhold a portion of any interest or other income earned on the investment of monies or other property held by the Escrow Agent pursuant to this Agreement. (c) To the extent that the Escrow Agent becomes liable for the payment of any taxes in respect of income derived from the investment of funds held or payments made hereunder, the Escrow Agent shall satisfy such liability to the extent possible from the Escrow Fund. The Buyers and the Sellers agree to indemnify and hold the Escrow Agent harmless from and against any taxes, additions for late payment, interest, penalties and other expenses that may be assessed against the Escrow Agent on or with respect to any payment or other activities under this Agreement unless any such tax addition for late payment, interest, penalties and other expenses shall arise out of or be caused by the actions of, or failure to act by, the Escrow Agent. 8 14. Miscellaneous Provisions. (a) Confidentiality. Each of Sellers and Buyers (as appropriate, the "Promisor") covenant and agree to and will cause their respective authorized agents, representatives, affiliates, employees, officers, directors, accountants, counsel and other designated representatives (collectively, "Representatives") to (i) treat and hold as confidential (and not disclose or provide access to any person to) all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") concerning the other party (the "Promisee") and the Escrow Fund in the Promisor's possession or furnished by the Promisee or its Representatives pursuant to this Agreement, (ii) in the event that Promisor or its Representatives become legally compelled to disclose any such Information, provide the Promisee with prompt written notice of such requirement so that the Promisee may seek a protective order or other remedy or waive compliance with this Section 14(a), and (iii) in the event that such protective order or other remedy is not obtained, or the Promisee waives compliance with this Section 14(a), furnish only that portion of such Information which is legally required to be provided and exercise Promisor's best efforts to obtain assurances that confidential treatment will be accorded such Information; provided, however, that this sentence shall not apply to any Information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by such party or its Representatives; and provided further, however, that the provisions of clauses (i) and (ii) above shall not preclude a party from disclosing Information to its Representatives (provided that each such Representative shall be advised of the confidential nature of such Information) or from disclosing Information to or filing Information with any governmental authority or agency with jurisdiction over such party. Each party agrees and acknowledges that remedies at law for any breach of its obligations under this Section 14(a) are inadequate and that in addition thereto the other party shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach, without the necessity of demonstrating the inadequacy of monetary damages. The provisions of this Section 14(a) shall not apply to the extent any such Information is required to be disclosed by applicable law. (b) Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 Telephone: (616) 717-4457 Facsimile: (616) 717-4660 9 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 Telephone: (231) 326-5563 Facsimile: (231) 326-6005 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead Telephone: (616) 831-1756 Facsimile: (616) 988-1756 If to Sellers: Dennis Chiavelli Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 Telephone: (323) 869-7736 Facsimile: (323) 869-6707 With a copy to: Donald G. Alvarado Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 Telephone: (323) 869-7697 Facsimile: (323) 869-7862 With a copy to: Sue Mullins Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 Telephone: (323) 869-7741 Facsimile: (323) 869-7871 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell Telephone: (212) 735-3380 Facsimile: (212) 735-3597 10 And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II Telephone: (310) 975-7726 Facsimile: (310) 557-8475 If to Escrow Agent: Wells Fargo Bank, N.A. Corporate Trust Services 707 Wilshire Blvd., 17th Floor Los Angeles, California 90017 Attention: Sandy Chan Telephone: (213) 614-5854 Facsimile: (213) 614-3355 (c) Jurisdiction. (1) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 14(c), it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (2) In the event the state court specified in Section 14(c)(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and 11 (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (3) In the event the state court specified in Section 14(c)(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Seller Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (4) The parties hereby waive any right to a jury trial. (d) Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting, each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. (e) Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent 12 permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. (f) Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. (g) Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights or obligations under this Agreement without the prior consent of the other parties, except that (i) GFS Holding may assign any of its rights under this Agreement to any Affiliate of GFS Holding, and (ii) any entity into which the Escrow Agent may be merged or converted or with which it may be consolidated, or entity resulting from any merger, conversion or consolidation to which the Escrow Agent shall be a party, or any entity succeeding to the business of the Escrow Agent shall be the successor of the Escrow Agent hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. (h) Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. (i) Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. (j) Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. 13 (k) Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. (l) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. (m) Dispute Resolution. Except as hereinafter provided in this Section 14(m) all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (1) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 14(b) hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (2) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (3) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (4) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 14(c) of Delaware without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights 14 or ability to seek such monetary award or relief in another action or proceeding. (n) Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. IN WITNESS WHEREOF, Sellers and Buyers and Escrow Agent have executed this Agreement as of the date set forth in the first paragraph hereof. SELLERS: SFI: SMART & FINAL INC. By: /s/ Donald G. Alvarado ------------------------------------ Its: DONALD G. ALVARADO ----------------------------------- Senior Vice President and Secretary SF STORES: SMART & FINAL STORES CORPORATION By: /s/ Donald G. Alvarado ------------------------------------ Its: DONALD G. ALVARADO ----------------------------------- Senior Vice President and Secretary AFD: AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Donald G. Alvarado ------------------------------------ Its: DONALD G. ALVARADO ----------------------------------- Senior Vice President and Secretary 15 BUYERS: GFS HOLDING: GFS HOLDING, INC. By: /s/ David L. Gray ------------------------------------ Its: ----------------------------------- GFS ORLANDO: GFS ORLANDO, LLC By: /s/ David L. Gray ------------------------------------ Its: ----------------------------------- GFS STORES: GFS STORES, LLC By: /s/ David L. Gray ------------------------------------ Its: ----------------------------------- ESCROW AGENT: WELLS FARGO BANK, N.A. By: /s/ Sandy Chan ------------------------------------ Its: Sandy Chan ----------------------------------- Vice Presidnet 16 ANNEX I FEE SCHEDULE 1. Annual escrow fee $2,000 2. Reimbursement of expenses $1,000 advance NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of September 7, by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), and GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS ORLANDO, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Share Purchase Agreement (as defined below). RECITALS A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI, AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated August 6, 2003, by and among Sellers and GFS Holding, GFS Stores and GFS Orlando, GFS Holding, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD ("OFS") (collectively, the "Assets"). B. Sellers are, directly or indirectly, respectively, the owners of all of the issued and outstanding equity securities of Henry Lee, and of the Assets. C. Henry Lee, SF Stores and OFS are engaged in the foodservice distribution, retail food store, and meat processing business in the State of Florida (collectively, the "Business"). D. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the Business. E. Buyers have required as a material condition to the closing of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement that Sellers agree to the restrictions and covenants contained in this Agreement. AGREEMENT In consideration of the recitals set forth above and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Non-Competition. (a) Definition of Competitor. As used in this Agreement, "Competitor" means any person, corporation, partnership, association, joint venture or other organization or entity that now or hereafter engages in or attempts to engage in any aspect of the Business in the states of Florida, Michigan, Illinois, Indiana and Ohio, or any aspect of the foodservice business in the Caribbean, Central America or South America (specifically excluding Mexico from this definition) (the "Territory"). (b) Covenant Not To Compete. The Sellers covenant and agree that they will not, during the Non-Competition Period (as defined below), directly or indirectly: (i) engage in, continue in, or carry on, invest in, own, manage, operate, finance or control, or participate in the ownership, management, operation, finance or control, of any business that competes in any aspect of the Business in the Territory, including, without limitation, owning or controlling any financial interest in any Competitor in the Territory; or (ii) be retained by, employed by, consult with, advise or assist in any way, whether or not for consideration, any Competitor in any aspect of the Business in the Territory; or (iii) neither for itself or any other Person, induce or attempt to induce any customer, supplier, licensee or business relation of Buyers or any entity controlled by or under common control with any Buyer entity that may subsequently operate the Business to cease doing business with Buyers with respect to the Business in the Territory or in any way interfere with the relationship between any customer, supplier, licensee or business relation of Buyers with respect to the Business in the Territory; (iv) neither for itself or any other Person, solicit the business of any Person known to be a customer of Buyers with respect to the Business in the Territory, whether or not Sellers had prior contact with such Person; or (v) engage in any practice the purpose of which is to evade the provisions of this covenant not to compete; provided, however, that the none of the foregoing shall prohibit the ownership of securities of a corporation that is listed on a national securities exchange or traded in the national over-the-counter market in an amount that does not exceed five percent (5%) of the outstanding shares of any such corporation. 2 2. Term. (a) The covenants stated in Section 1 (the "Covenants") shall be effective from the date of this Agreement to and including the second (2nd) anniversary of the Closing Date of the Share Purchase Agreement (the "Non-Competition Period"). (b) In the event of a material breach by Sellers of any covenant set forth above, the Noncompetition Period shall be extended by the amount of time during which such breach continues. 3. Remedies. All remedies, either under this Agreement or by law or otherwise afforded to Buyers and their respective successors and assigns, shall be cumulative and not alternative. Sellers acknowledge and agree that the provisions and restrictions contained in Sections 1 and 2 are not overbroad, are not overlong, and are reasonably necessary to protect the legitimate continuing business interests of Buyers, that any violation or breach of such provisions and restrictions will result in irreparable injury to Buyers for which a remedy at law would be inadequate and that, in addition to any relief for damages that may be available to Buyers for such violation or breach, and regardless of any other provision contained in this Agreement, Buyers shall be entitled to such injunctive and other equitable relief as a court may grant after considering the intent of Sections 1 and 2. 4. Enforceability. If any court determines that any of the Covenants, or any parts thereof, are invalid or unenforceable, the other Covenants and the remainder of any of the Covenants so impaired shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Covenants, or any parts thereof, are unenforceable because of the duration or geographic scope thereof, the parties agree that the duration or geographic scope of such Covenants, or any parts thereof, shall be the maximum duration or geographic scope, as the case may be, provided by law, of such Covenants, and, in such reduced form, such Covenants shall then be enforceable. 5. Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 3 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell and a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II 6. Jurisdiction. (a) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 6, it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (b) In the event the state court specified in Section 6(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; 4 (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (c) In the event the state court specified in Section 6(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Seller Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (d) In the event the state court specified in Section 6(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then in addition to the jurisdictions available to the parties under Sections 6(b) and 6(c) above, any party also may commence a proceeding for damages or equitable relief for alleged breach of this Agreement in any state or federal court of the jurisdiction where the alleged breach occurs. (e) The parties hereby waive any right to a jury trial. 5 7. Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting, each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. 8. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in the Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 9. Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. 10. Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights under this Agreement without the prior consent of the other parties except that Buyer may assign any of its rights under this Agreement to any Affiliate of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 11. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 12. Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or 6 Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 13. Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. 14. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. 15. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. 16. Dispute Resolution. Except as hereinafter provided in this Section 16, all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (a) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 5 hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (b) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (c) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (d) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable 7 relief in the state or federal courts pursuant to the procedures set forth in Section 6 without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. IN WITNESS WHEREOF, Sellers and Buyers have executed this Non-Competition Agreement as of the date set forth in the first paragraph hereof. "SFI" SMART & FINAL INC. a Delaware corporation By: /s/ Dennis Chiavelli ---------------------------------- Its: --------------------------------- "AFD" AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By: /s/ Dennis Chiavelli ---------------------------------- Its: --------------------------------- "SF Stores" SMART & FINAL STORES CORPORATION a California corporation By: /s/ Dennis Chiavelli ---------------------------------- Its: --------------------------------- 8 "GFS Holding" GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- "Henry Lee" HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- "GFS Stores" GFS STORES, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- 9 "GFS Orlando" GFS Orlando, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- 10 SOFTWARE LICENSE, USE AND SUPPORT AGREEMENT THIS SOFTWARE LICENSE, USE AND SUPPORT AGREEMENT (this "Agreement"), effective as of the 7th day of September, 2003, is made by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, the "Licensors"), and GFS HOLDING, INC., a Delaware corporation ("GFSH"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS ORLANDO, LLC, a Delaware limited liability company ("GFS Orlando"), and GFS STORES, LLC, a Delaware limited liability company ("GFS Stores" and, together with GFSH, Henry Lee and GFS Orlando, the "Licensees"). RECITALS A. SFI is the record and beneficial owner of all of the issued and outstanding equity securities of AFD and SF Stores. SF Stores is engaged in the retail food store business in the State of Florida and operates from several locations within that state (the "Retail Store Business"). B. AFD is the record and beneficial owner of all of the issued and outstanding common shares of Henry Lee, through which AFD conducts a foodservice distribution business in the State of Florida (the "Foodservice Business"). C. In addition to the Foodservice Business, AFD also operates, among other things, a fresh meat processing business in the State of Florida under the name "Orlando Food Service" (the "Meat Processing Business" and, together with the Retail Store Business and the Foodservice Business, the "Florida Business"). D. Licensors have historically used both proprietary and commercially available computer software from their California operations in the conduct of the Florida Business. Licensors have also provided technical support to the Florida Business with respect to this software. E. Pursuant to a Share Purchase Agreement dated August 6, 2003 (the "Share Purchase Agreement"), GFSH is on the date of this Agreement acquiring from SFI and AFD all of the issued and outstanding equity securities of Henry Lee. F. In a separate related transaction, GFSH's wholly-owned subsidiaries, GFS Orlando and GFS Stores, will acquire from AFD and SF Stores, respectively, substantially all of the assets used or useful in the operation of the Meat Processing Business and the Retail Store Business pursuant to an Asset Purchase Agreement dated August 6, 2003 (the "Asset Purchase Agreement" and, together with the Share Purchase Agreement, the "Purchase Agreements"). G. One of the conditions to the closing of the transactions contemplated by each of the Purchase Agreements is the granting by Licensors to Licensees of a fee-free license to use the Smart & Final proprietary computer software identified on the attached Exhibit A (the "Licensor Proprietary Software"), as well as the right to use certain third-party computer operating systems (the "OEM Software" and, together with the Licensor Proprietary Software, the "Software") identified on the attached Exhibit A used in the conduct of the Florida Business, under Licensors' licenses with the third-party vendors, for a limited period of time. This Agreement does not operate to grant any license in the OEM Software. This Agreement is being entered into by the parties as required by the Purchase Agreements. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Licensors and Licensees agree as follows: 1. Grant of License for Licensor Proprietary Software. Licensors grant to Licensees, and Licensees accept, subject to the restrictions set forth in this Agreement, a non-transferable, non-exclusive license (the "License") to use the Licensor Proprietary Software and related Documentation as identified on the attached Exhibit A, including any updates or new releases related thereto that are developed by or at the request of the Licensors during the Term to ensure the reliability and continued functionality thereof. The scope and limitations of the License are set forth on Exhibit A. For purposes of this Agreement, the term "Documentation" shall mean all of the system specifications, help files (including online help materials accessible through the Licensor Proprietary Software), and technical manuals, and all other user instructions regarding the capabilities, operation, and use of the Licensor Proprietary Software. 2. Permission to Use OEM Software. Licensors grant to Licensees permission to use the OEM Software (hereinafter the "OEM Software"), for the Term and subject to all of the terms and conditions of Licensors' licenses with the third party manufacturers of the OEM Software that are applicable to Licensors. 3. License Restrictions Neither Licensees nor their agents shall (i) reverse engineer, decompile, or disassemble the Software (except as may be reasonably necessary to provide compatibility with Licensees' software for use solely in the Florida Business); (ii) assign, sublicense, rent, timeshare, loan, lease or otherwise transfer the Software; or (iii) remove any proprietary notices (e.g., copyright and trademark notices) from the Software. Except as may be provided herein, Licensors reserve all right, title, and interest in and to the Licensor Proprietary Software and all derivative works. The vendors of the OEM Software reserve all right, title and interest in and to the OEM Software. 4. Technical Support. During the Term and subject to third party OEM vendors' approval (in the case of the OEM Software only), Licensors will provide Licensees with updates, modifications or changes to the Software which are developed by or at the request of Licensors or become available from applicable third party vendors during the Term and are reasonably necessary to correct errors, and ensure continued efficient operation of the Software. All such updates, enhancements, modifications or changes shall be included in the definitions of Software. In addition, Licensors shall provide or cause to be provided to Licensees reasonable technical support (which may be provided via e-mail, telephone, or other reasonable means of communication) in order to ensure the continued efficient operation of the Software. 2 5. Confidentiality 5.1 Definition. Each party agrees that all confidential or proprietary information supplied by one party and its affiliates and agents (collectively, the "Disclosing Party") to the other (the "Receiving Party") in connection with this Agreement, including, without limitation, (i) source and object code, prices, trade secrets, business processes, mask works, databases, hardware, software, designs and techniques, programs, engine protocols, models, displays and manuals, and the selection, coordination, and arrangement of the contents of such materials and (ii) any unpublished information concerning research activities and plans, customers, marketing or sales plans, sales forecasts or results of marketing efforts, pricing or pricing strategies, costs, operational techniques, strategic plans, customer information, and unpublished financial information, including information concerning revenues, profits and profit margins that does not relate to the Florida Business, will be deemed confidential and proprietary to the Disclosing Party, regardless of whether such information was disclosed intentionally or unintentionally or marked as "confidential" or "proprietary" ("Confidential Information"). Neither party shall have any obligation with respect to Confidential Information which: (i) is or becomes generally known to the public by any means other than a breach of the obligations of the Receiving Party; (ii) was previously known to the Receiving Party or rightly received by the Receiving Party from a third party; (iii) is independently developed by the Receiving Party; or (iv) is subject to disclosure under court order or other lawful process. 5.2 Obligations of Licensees. Licensees agree not to make Licensors' Confidential Information available in any form to any unauthorized third party or to use Licensors' Confidential Information for any purpose other than as specified in this Agreement. Licensees agree to take all reasonable steps to ensure that Confidential Information of Licensors is not disclosed or distributed by its employees, agents or contractors in violation of the provisions of this Agreement. Licensors' Confidential Information shall remain its sole and exclusive property. Licensees acknowledge that any use or disclosure of Licensors' Confidential Information other than as specifically provided for in this Agreement may result in irreparable injury and damage to the Licensors. Accordingly, Licensees hereby agree that, in the event of use or disclosure other than as specifically provided for in this Agreement, Licensors may be entitled to equitable relief as granted by any appropriate judicial body. 5.3 Obligations of Licensors. Licensors agree not to make Licensees' Confidential Information available in any form to any unauthorized third party or to use Licensees' Confidential Information for any purpose other than as specified in this Agreement. Licensors agree to take all reasonable steps to ensure that Confidential Information of Licensees is not disclosed or distributed by its employees, agents or contractors in violation of the provisions of this Agreement. Licensees' Confidential Information shall remain its sole and exclusive property. Licensors acknowledge that any use or disclosure of Licensees' Confidential Information other than as specifically provided for in this Agreement may result in irreparable injury and damage to the Licensees. Accordingly, Licensors hereby agree that, in the event of use or disclosure other than as specifically provided for in this Agreement, Licensees may be entitled to equitable relief as granted by any appropriate judicial body. 6. Term. The term of this Agreement (the "Term") shall commence on the date hereof and shall continue for a period not to exceed one hundred eighty (180) days, or until 3 terminated as provided in Section 7 herein, or by mutual written agreement of the parties. Upon termination or expiration of this Agreement, Licensees agree to immediately discontinue all use of, and deliver to Licensors, the Licensor Proprietary Software, Documentation, and the OEM Software, and acknowledge that all rights in the Licensor Proprietary Software, Documentation and OEM Software shall remain the property of Licensors, or the applicable third-party vendors. 7. Termination If either party materially defaults in the performance of any of its obligations under this Agreement, which default is not substantially cured within thirty (30) days after written notice is given to the defaulting party specifying the default, the party not in default may, by giving written notice thereof to the defaulting party, terminate this Agreement and pursue all remedies for such breach available at law or in equity. 8. Licensors' Warranties. Licensors, jointly and severally, warrant to Licensees as follows: (a) Licensors warrant that they have the full power, capacity and authority to enter into and perform this Agreement and to make the grant of rights contained herein and that to the best of Licensors' knowledge, and provided that Licensees do not exceed the scope of the license and permissions granted hereunder, Licensees' use of the Software as permitted hereunder will not infringe the patent, copyright, trade mark, trade secret, or other proprietary rights of any third party, and further warrant that there is currently no actual or, to the best of their knowledge, threatened suit by any such third party based on an alleged violation of such right by Licensors. (b) Licensors warrant that during the Term, the Software shall materially conform to the requirements set forth in this Agreement and, to the extent not inconsistent with the foregoing, the Documentation (collectively, the "Specifications") and function in a manner consistently with its functionality prior to the date of this Agreement. 9. Licensors' Indemnification. Licensors shall indemnify, defend, and hold harmless Licensees and their shareholders, directors, officers, managers, members, agents, employees, members, subsidiaries and successors in interest from any claim, liability and expense, including reasonable attorneys' fees, arising out of any claim that Licensees' permitted use of the Software infringes the patent, copyright, trade mark, trade secret or other proprietary rights of a third party. In the event a claim of infringement is asserted, Licensors shall procure for Licensees the right to continue using the Software pursuant to this Agreement. Any costs associated with implementing either of the above alternatives will be borne by Licensors. 10. Licensees' Indemnification. Licensees shall indemnify, defend, and hold harmless Licensors and their directors, officers, agents, employees, members, subsidiaries and successors in interest from any claim, liability and expense, including reasonable attorneys' fees, arising out of Licensee's exceeding the scope of the License and the permissions granted hereunder with respect to Licensees' use of the OEM Software including, but not limited to, Licensees' continuing to use the OEM Software beyond the Term of this Agreement. 4 11. DISCLAIMER. (a) EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, LICENSORS MAKE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, OR TITLE/NON-INFRINGEMENT AND ALL SUCH WARRANTIES ARE HEREBY SPECIFICALLY DISCLAIMED. (b) LICENSEE UNDERSTANDS AND ACKNOWLEDGES THAT THE SYSTEMS ARE NOT GTIN 2005 OR RSS COMPLIANT, AND LICENSOR WILL NOT PROVIDE UPDATES TO THE SYSTEMS AND HARDWARE TO ALLOW THEM TO MEET GTIN 2005 AND RSS REQUIREMENTS. IN ADDITION, THE ELECTRONIC PAYMENT SYSTEMS ARE NOT TRIPLE DES/DUKPT COMPLIANT, AND LICENSOR WILL NOT PROVIDE UPDATES TO THE SYSTEMS AND HARDWARE TO ALLOW THEM TO MEET TRIPLE DES/DUKPT REQUIREMENTS. 12. License Fees. Provided Licensees do not exceed the scope of the License and permissions granted under this Agreement, there shall be no license fees owed or payable to Licensors. 13. Notices. All notices, requests, demands or other communications required or permitted to be given under this Agreement shall be in writing and shall be effective when delivered if personally delivered or three (3) days after mailing if mailed by registered or certified mail with postage prepaid, return receipt requested, and addressed to the parties at the addresses set forth in Section 12.4 of each of the Purchase Agreements or at such other addresses as the parties may designate in writing by providing notice thereof in compliance with this paragraph. 14. Amendment. No provision of this Agreement may be modified except by a written document signed by a duly authorized representative of each of the parties. 15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and to their respective assigns. This Agreement cannot be assigned by any party except upon the express prior written consent of the other parties hereto, which shall not be unreasonably withheld, conditioned or delayed. 16. Severability. If any provisions of this Agreement shall be prohibited or unenforceable by any applicable law, the provision shall be ineffective only to the extent and for the duration of the prohibition of unenforceability, without invalidating any of the remaining provisions. 17. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. Any dispute arising out of this Agreement shall be resolved in accordance with the procedures set forth in Section 12.5 of each of the Purchase Agreements. 5 18. Entire Agreement. The terms and conditions of this Agreement, together with the terms and conditions of the attached Exhibits, constitute the entire agreement between Licensees and Licensors with respect to the subject matter of this Agreement and supersedes all earlier agreements and understandings, oral and written, between the parties. 19. Counterparts. This Agreement may be executed in counterparts, each of which, when so executed, shall be deemed to be an original and such counterparts shall together constitute one and the same instrument. 20. Construction. This Agreement shall be deemed to represent the mutual intent of the parties hereto and no rule of strict construction shall be applied against any party by virtue of having drafted this Agreement. 21. Survival The following provisions shall survive any termination or expiration of this Agreement: Sections 5 (Confidentiality), 9 (Licensors' Indemnification), 10 (Licensees' Indemnification), 18 (Entire Agreement), 21 (Survival). Licensors and Licensees have caused this Agreement to be signed as of the day and year first above written. LICENSORS: SFI: SMART & FINAL INC. By: /s/ Donald G. Alvarado ---------------------------------- Its: ----------------------------- AFD: AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Donald G. Alvarado ---------------------------------- Its: ----------------------------- SF STORES: SMART & FINAL STORES CORPORATION By: /s/ Donald G. Alvarado ---------------------------------- Its: ----------------------------- [Signatures Continued On Next Page] 6 LICENSEES: GFSH: GFS HOLDING, INC. By: /s/ David L. Gray ---------------------------------- Its: ----------------------------- HENRY LEE: HENRY LEE COMPANY By: /s/ David L. Gray ---------------------------------- Its: ----------------------------- GFS ORLANDO: GFS ORLANDO, LLC By: /s/ David L. Gray ---------------------------------- Its: ----------------------------- GFS STORES: GFS STORES, LLC By: /s/ David L. Gray ---------------------------------- Its: ----------------------------- 7 EXHIBIT "A" Licensor Proprietary Software Cash Proof DSD POS End of Day Processing Inventory Adjustment Price Change System Host Price Verify shelf Tags Pricing Method Labels OEM Software DEX ACS 4.0 COPS Shelf Tag Audit TRADENAME AND TRADEMARK LICENSE AGREEMENT THIS TRADENAME AND TRADEMARK LICENSE AGREEMENT (this "Agreement") is entered into and effective as of September 7, 2003 (the "Effective Date"), by and between SMART & FINAL INC., a Delaware corporation ("SFI"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores"), and AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD" and, together with SFI and SF Stores, the "Licensors"), GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS ORLANDO, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, the "Licensees"). RECITALS A. Henry Lee, SF Stores and AFD (through a division operated under the name "Orlando Foodservice") are engaged in the foodservice distribution, retail food store, and meat processing businesses, respectively, in the State of Florida (the "Businesses"). B. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI and AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee. In a separate related transaction and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement") dated August 6, 2003, by and among GFS Holding, GFS Orlando and GFS Stores, and Licensors, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Licensors certain of the assets of SF Stores related to the retail food store business in the State of Florida and all of the assets of AFD used in the operation of the meat processing business in the State of Florida. C. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Licensees will operate the Businesses. D. Licensors are the owners of the trademarks (collectively, the "Trademarks") and the tradenames (collectively, the "Tradenames") described in Exhibit "A" attached hereto. E. Licensees desire to obtain a license to use the Trademarks and the Tradenames on the terms set forth below for a period of two (2) years after the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement. F. Licensees have required as a condition to the execution of the Share Purchase Agreement and the Asset Purchase Agreement that Licensors enter into this Agreement. NOW THEREFORE, in consideration of the premises set forth above, the representations and warranties set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Licensors and Licensees agree as follows: AGREEMENT 1. Grant of License. On the terms and subject to the conditions set forth herein, Licensors hereby grant to Licensees a limited, non-transferable (except as may be provided herein) license ("License") to Use (as defined in Section 11 below) the Trademarks and Tradenames solely for purposes of conducting the Businesses. Licensees shall not have any right to sublicense the right to use the Trademarks or Tradenames to any third party. 2. Exclusivity. Licensors grant to Licensees the exclusive right to Use the Trademarks and the Tradenames within the Territory (as defined in Section 11 below) during the term of this Agreement. Licensors covenant and agree not to use the Trademarks or the Tradenames, or any combination thereof, during the term of this Agreement within the Territory without the prior written consent of Licensees. The parties acknowledge that Licensor's use of the Internet, television and radio for advertising or other purposes in connection with its business outside the Territory shall not constitute a violation of the rights granted to Licensee hereunder. 3. Restrictions. Except as expressly provided for herein, nothing contained in this Agreement will be deemed to grant to Licensees any right, title or interest in or to the Trademarks and Tradenames. Subject only to the License, Licensors shall own all right, title and interest in and to the Trademarks and Tradenames, including all Intellectual Property Rights and goodwill therein and thereto. Licensees shall not use the Trademarks and/or Tradenames with any activity that (a) disparages, or may be reasonably expected to have a disparaging effect on, Licensors or any of their affiliates, or any products or services of Licensors or their affiliates; or (b) violates or infringes any Intellectual Property Rights of Licensors or any third party. Licensees will not challenge or contest Licensors' ownership in, or the validity or scope of, any of the Trademarks or Tradenames in any jurisdiction, nor the validity of any licenses to any of the Trademarks and Tradenames granted by Licensors to any third party in any jurisdiction, and will not do anything inconsistent with Licensors' title, right and interest in and to the Trademarks and Tradenames, including any attempted registration of any of them, or any use or any attempted registration of any other trademark or service mark that is confusingly similar to any of the Trademarks or Tradenames. 4. Form of Use. Licensees agree to use the Trademarks and the Tradenames in form and manner not materially inconsistent with Licensors' use immediately prior to the date hereof. Licensees further agree to use commercially reasonable efforts to maintain the quality of the products sold by each of them in connection with the Businesses at a level reasonably consistent with the level of quality typical of Licensors' products. 5. Term. The term of this Agreement and the License granted herein shall 2 commence on the Effective Date and shall continue for a period of two (2) years, unless sooner terminated as set forth in Section 6 or unless extended by mutual agreement by the parties. 6. Termination. In the event that either party breaches this Agreement, then the non-breaching party may provide written notice to the breaching party indicating: (a) the nature and basis of such default with reference to the applicable provisions of this Agreement; (b) instructions for cure; and (c) the non-defaulting party's intention to terminate this Agreement. In the event that such default is not cured within thirty (30) days after such notice (or such longer cure period as the parties may agree upon), the non-defaulting party may terminate this Agreement upon written notice effective immediately to the breaching party. 7. Effect of Termination. The terms and conditions of the following Sections will survive termination or expiration of this Agreement: Sections 3, 6, 8, 9, 12.1 through 12.3, and 13 through 21. In addition, the termination or expiration of this Agreement shall not relieve either party of any liability that accrued prior to such termination or expiration. Except as expressly provided in this Section 7, all other provisions of this Agreement shall terminate upon the expiration or termination hereof. Upon termination or expiration of this Agreement, Licensees' license and right to Use the Trademarks and Tradenames shall immediately and automatically terminate, all rights granted hereunder shall automatically revert to Licensors, Licensees shall immediately cease, completely and permanently, to Use the Trademarks and Tradenames and any name confusingly similar thereto in any manner or for any purpose, delete the same from their corporate or business name, and destroy all printed materials bearing the Trademarks and the Tradenames. Notwithstanding the foregoing, in the event of termination, Licensees shall have the right to Use the Trademarks and the Tradenames (a) to sell products that are on hand at the date of termination or expiration of this Agreement and with respect to those products that Licensees are obligated to purchase at such date, and (b) to carry out marketing projects to which Licensees have committed at the date of termination or expiration of this Agreement. 8. Royalty-Free. The License shall be royalty-free. The License is being granted in consideration of the transactions described in the Asset Purchase Agreement and the Share Purchase Agreement and no further consideration shall be payable. 9. Indemnification 9.1 Licensors shall defend Licensees and their affiliates, and their respective employees, officers, directors, managers, members, stockholders, consultants and other agents (collectively the "Licensees' Indemnified Parties") from any and all third-party Claims and Losses (as defined below) imposed on, incurred by or asserted against any of the Licensees' Indemnified Parties as a result of any alleged infringement by the Trademarks or Tradenames on any third party's legally enforceable Intellectual Property Rights. Licensors shall indemnify and hold the Licensees' Indemnified Parties harmless from any and all such Claims and Losses imposed on, incurred by or asserted against them. Licensors' obligation to defend and indemnify under this subsection shall be conditioned on 3 the following: (a) Licensees shall promptly notify Licensors in writing of the claim, action or allegation (but, in any event, in a time frame that does not prejudice the rights of Licensors); (b) Licensees shall provide all reasonable cooperation, at Licensors' expense, with Licensors in the defense thereof; and (c) Licensors shall have sole control of the defense and all related settlement negotiations, but shall apprise Licensees of the status of any proceedings or negotiations, provided, however, that no such settlement shall materially and adversely affect Licensees right to Use the Trademarks and Tradenames in the Territory during the term of this Agreement. 9.2 Licensors shall not have the obligation to defend, indemnify and hold the Licensees' Indemnified Parties harmless to the extent Claims and Losses imposed on, incurred by or asserted against the Licensees' Indemnified Parties as a result of (a) Licensees' gross negligence or willful tortious misconduct; or (b) any allegation of infringement to the extent such infringement is attributable to the fact that the Trademarks or Tradenames have not been Used in accordance with this Agreement. 9.3 Licensees shall defend Licensors and their affiliates, and their respective employees, officers, directors, consultants and other agents (collectively the "Licensors' Indemnified Parties") from any and all third-party Claims and Losses imposed on, incurred by or asserted against any of the Licensors' Indemnified Parties arising out of Licensees' Use of the Trademarks and Tradenames in violation of this Agreement. Notwithstanding any of the foregoing, Licensors shall have the right, at their option and expense, to participate in the defense and related settlement negotiations of any claim, action or allegation to the extent it relates to the Trademarks and Tradenames, provided, however, that Licensors shall not settle any claim or action without Licensees' prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed. If Licensors choose not to participate in the defense and related settlement negotiations as provided above, Licensees shall have the right to control the defense and related settlement negotiations, provided, however that Licensees shall not settle any claim or action without Licensors' prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed. In the event Licensors choose not to participate in the defense and related settlement negotiations pursuant to this Section 9.3, Licensors shall use their best efforts to cooperate with Licensees in the defense thereof and Licensees shall be liable to Licensors for Licensors' reasonable expenses incurred in providing such cooperation. 9.4 Unless otherwise stated herein, "Claims or Losses" means any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, judgments, and reasonable costs and expenses awarded to, or agreed to be paid to, a third party of whatever nature including, without limitation, (a) indirect, special, punitive, consequential or incidental loss or damage awarded to a third party 4 (including, without limitation, by way of settlement) against a party entitled to indemnification under this Section, and (b) reasonable administrative costs, litigation costs, and auditors' and attorneys' fees, both in-house and outside counsel, and related disbursements. 9.5 This Section 9 sets forth the entire liability of the Parties with respect to Claims or Losses arising out of or relating to any claims, actions, suits or other proceedings in connection with alleged infringement of Intellectual Property Rights by the Trademarks or Tradenames or the Use thereof by Licensees, and the exclusive remedy of the Licensees' Indemnified Parties and the Licensors' Indemnified Parties in connection with such Claims or Losses. 10. Maintenance and Enforcement of Registrations. Licensors shall have the right and obligation to undertake such actions, including making applicable registrations and filings with the appropriate authorities, as are reasonably necessary to establish and protect the Trademarks and Tradenames in the Territory or in any other jurisdiction in the world. Licensors shall pay all costs or fees associated with any such actions, and Licensee shall provide all reasonable cooperation to Licensors with respect to such actions. Moreover, Licensors shall have the right to defend or prosecute any trademark infringement actions as may be necessary to protect the Trademarks or Tradenames in the Territory. Licensors shall have sole control of any such actions and all related settlement negotiations. Licensees shall, at Licensors' expense, provide all reasonable cooperation to Licensors (a) in assisting Licensors with respect to such actions and any related settlement negotiations upon Licensors' request, and (b) in protecting Licensors' rights in the Trademarks and Tradenames by giving prompt notice to Licensors of any infringement that Licensee becomes aware of. 11. Certain Definitions. For purposes of this Agreement, the following capitalized terms shall have the meanings assigned to them below: 11.1 "Territory" shall mean the States of Florida, Michigan, Illinois, Indiana and Ohio, the Caribbean, Central America and South America (specifically excluding Mexico from this definition). 11.2 "Intellectual Property Rights" shall mean all intellectual property rights in any jurisdiction, including, without limitation, all common law rights, state registrations, and federal registrations in and to trademarks, service marks, brand names, certification marks, trade dress, trade names and other indications of origin. 11.3 "Use" means the use of the Trademarks and Tradenames within the Territory for the purpose of conducting the Businesses in accordance with the terms hereof and any trademark usage guidelines that may be provided by Licensors to licensees from time to time. 12. Disclaimers/Limitations of Liability. 5 12.1 EXCEPT FOR THE WARRANTIES EXPRESSLY STATED IN SECTION 13 BELOW NEITHER PARTY MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED OR STATUTORY (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES ARISING FROM TRADE USAGE, COURSE OF DEALING, OR COURSE OF PERFORMANCE, OR THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE), AND BOTH PARTIES HEREBY EXPRESSLY DISCLAIM ALL SUCH WARRANTIES. 12.2 EXCEPT FOR BOTH PARTIES' INDEMNIFICATION OBLIGATIONS UNDER SECTION 9, NEITHER PARTY NOR ANY OF EITHER PARTY'S AFFILIATES SHALL BE LIABLE TO THE OTHER PARTY OR TO ANY OTHER INDIVIDUAL OR ENTITY FOR ANY INDIRECT, SPECIAL, PUNITIVE, EXEMPLARY, CONSEQUENTIAL, OR INCIDENTAL LOSS OR DAMAGE OF ANY KIND OR NATURE, RELATING TO OR ARISING OUT OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO ANY LOSS OF REVENUES, ANTICIPATED PROFITS OR SAVINGS, LOSS BY REASON OF SHUTDOWN IN OPERATION OR FOR INCREASED EXPENSES OF OPERATION, EVEN IF THEY OR ANY OF THEIR AFFILIATES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES. 12.3 NO LIMITATION SET FORTH IN THIS SECTION 12 SHALL RELIEVE EITHER PARTY AND THEIR AFFILIATES FROM LIABILITY FOR DAMAGES THAT RESULT FROM (I) THEIR OWN GROSS NEGLIGENCE OR WILLFUL TORTIOUS MISCONDUCT; OR (II) PERSONAL INJURY OR WRONGFUL DEATH CLAIMS. 13. Representations and Warranties of Licensors. Licensors jointly and severally represent and warrant to Licensees as follows: 13.1 Licensors represent and warrant to Licensees that they own all right, title and interest in the Trademarks and Tradenames and have the absolute and unrestricted right, power, and authority to grant the rights hereunder. 13.2 Licensors represent and warrant to Licensees that they are authorized to enter into this Agreement and that their license of the Trademarks and Tradenames under the terms of this Agreement shall not violate any other agreements, or obligations of Licensors, or any Federal, state, local, or foreign laws, rules, or regulations relating to Licensors or Licensors' use of the Trademarks and Tradenames. 13.3 Exhibit A attached hereto constitutes a complete and accurate list and summary description of all U.S. and Puerto Rico registered trademarks and tradenames owned by Licensors and used by Licensors in the conduct of the Businesses. 6 13.4 Licensors do not own or use any patents, patent applications, or inventions or discoveries that may be patentable in connection with the Businesses. 13.5 Licensors do not own or use any registered copyrights in connection with the Businesses. 13.7 Licensors have taken reasonable precautions to protect the secrecy, confidentiality and value of any trade secrets which Licensors may own, and Licensors own such trade secrets and have the valid right to use same. To the best of Licensors' knowledge, the trade secrets are not part of the public knowledge or literature and have not been used, divulged or appropriated either for the benefit of any person (other than Licensors) or to the detriment of Licensors. To the best of Licensors' knowledge, no material trade secret is subject to any adverse claim or has been challenged or threatened in any way. For purposes of this Agreement, trade secrets are defined as all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blueprints used in the conduct of the Businesses. 13.8 Licensors are not a party to any contract or arrangement whereby royalties are paid or received by Licensors with respect to trademarks, tradenames, copyrights, rights in mask works, patents, or trade secrets. 13.9 None of the current employees of Licensors that are involved in the Businesses have executed written contracts with Licensors that assign to Licensors any rights to any inventions, improvements, discoveries or information relating to the Businesses. To the best of Licensors' knowledge, no employee of Licensors that is involved in any of the Businesses has entered into any contract that restricts or limits in any material way the scope or type of work in which the employee may be engaged, or requires the employee to transfer, assign or disclose information concerning his or her work to anyone other than Licensors. 14. Notices. All notices, requests, demands or other communications required or permitted to be given under this Agreement shall be in writing and shall be effective when delivered if personally delivered or three (3) days after mailing if mailed by registered or certified mail with postage prepaid, return receipt requested, and addressed to the parties at the addresses set forth in Section 12.4 of the Share Purchase Agreement or at such other addresses as the parties may designate in writing by providing notice thereof in compliance with this paragraph. 15. Amendment. No provision of this Agreement may be modified except by a written document signed by a duly authorized representative of each of the parties. 16. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and to their respective assigns. This Agreement cannot be assigned by any party except upon the express prior written consent of the other parties hereto, which shall not be unreasonably withheld, conditioned or delayed, provided, however, that Licensees may assign 7 their rights and obligations hereunder to any person controlled by or under common control with GFS Holding or any purchaser of any portion of the Businesses without first obtaining the consent of Licensors. Any assignee or transferee (voluntary or involuntary) of rights in the Trademarks and the Tradenames shall be subject to the terms of this Agreement. 17. Severability. If any provisions of this Agreement shall be prohibited or unenforceable by any applicable law, the provision shall be ineffective only to the extent and for the duration of the prohibition of unenforceability, without invalidating any of the remaining provisions. 18. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. Any dispute arising out of this Agreement shall be resolved in accordance with the procedures set forth in Section 12.5 of the Asset Purchase Agreement. 19. Entire Agreement. This Agreement constitutes the entire agreement between Licensees and Licensors with respect to the subject matter of this Agreement and supersedes all earlier agreements and understandings, oral and written, between the parties. 20. Counterparts. This Agreement may be executed in counterparts, each of which, when so executed, shall be deemed to be an original and such counterparts shall together constitute one and the same instrument. 21. Construction. This Agreement shall be deemed to represent the mutual intent of the parties hereto and no rule of strict construction shall be applied against any party by virtue of having drafted this Agreement. 8 IN WITNESS WHEREOF, Licensors and Licensees have caused this Agreement to be signed the day and year first above written. LICENSORS: SFI: SMART & FINAL INC. a Delaware corporation By: Donald G. Alvarado ---------------------------------- Its: ---------------------------------- AFD: AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By: Donald G. Alvarado ---------------------------------- Its: ---------------------------------- SF Stores: SMART & FINAL STORES CORPORATION a California corporation By: Donald G. Alvarado ---------------------------------- Its: ---------------------------------- 9 LICENSEES: GFS Holding: GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray ---------------------------------- Its: ---------------------------------- Henry Lee: HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray ---------------------------------- Its: ---------------------------------- GFS Stores: GFS STORES, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: ---------------------------------- 10 GFS Orlando: GFS Orlando, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: ---------------------------------- 11 U.S. TRADE MARKS

U. S. TRADE MARKS

U.S. TRADE MARKS

U.S. TRADE MARKS

RELEASE THIS RELEASE (this "Release") is being executed and delivered in accordance with Section 1.9(a)(x) of the Share Purchase Agreement dated as of August 6, 2003 (the "SPA"), by and between GFS HOLDING, INC., a Delaware corporation ("Buyer"), SMART & FINAL INC., a Delaware corporation ("S&F"), and AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD", and together with S&F, "Sellers"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the SPA. For valuable consideration received from Buyer and having been represented by counsel and having been fully and adequately informed as to the facts, consequences, and circumstances surrounding this Release, Sellers and their respective shareholders, officers, directors, and affiliates (collectively, the "Seller Parties"), release and discharge, individually and collectively, Buyer and the Company (collectively, the "Buyer Parties"), and the Buyer Parties' shareholders, officers, directors, successors, assigns and affiliates, and the predecessors, successors, and assigns of all or any of them (collectively, the "Combined Buyer Parties") from all claims, actions, causes of action, suits, debts, dues, sums of money, accounts, bonds, bills, covenants, contracts, controversies, liens, subordinations, agreements, promises, variances, trespasses, damages, judgments, extents, executions, counterclaims and offsets, and demands whatsoever, whether known or unknown and whether based upon facts now known or unknown, direct or derivative, in law, equity, or bankruptcy, against the Combined Buyer Parties, or any of them, the Seller Parties, any of the Seller Parties' affiliates, heirs, successors, assigns, executors, administrators, affiliates, benefactors (including current beneficiaries, their heirs and assigns, as well as remaindermen, and their assigns), anyone claiming in a derivative capacity from the Seller Parties, and the predecessors, successors and assigns of any or all of them ever jointly or individually had, now have, or hereafter can, shall, or may have against the Company, provided, however, that nothing contained herein shall operate to release any obligation of Buyer or the Company arising under the SPA or any agreement contemplated thereby. Sellers acknowledge that execution and delivery of this Release is a condition to Buyer's obligation to purchase the outstanding capital stock of the Company pursuant to the SPA and that Buyer is relying on this Release in consummating such purchase. An "affiliate" of the Buyer Parties or any Seller Party shall mean a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified. Whenever the text hereof requires, the use of a singular or plural number shall include the appropriate singular or plural number as the context may require. This Release may not be changed or terminated orally but only in a written instrument signed by Sellers and Buyer. This Release may be executed in any number of counterparts, all of which together shall constitute a single instrument. This Release shall be governed by and interpreted in accordance with the laws of the State of Delaware without regard to conflict of laws principles (whether of the State of Delaware or any other jurisdiction) that would result in the application of the laws of any jurisdiction other than the State of Delaware. Each of the parties to this Release acknowledges that it has been represented by counsel and that it has read and fully understood the terms hereof. Each of the parties represents that the individual executing this Release on its behalf has been duly authorized for this purpose by all necessary action and that this Release constitutes a valid and binding obligation of each party enforceable against it in accordance with its terms. Sellers agree to keep the existence and contents of this Release confidential, and not to disclose the same except (i) to their management employees having a need to know the content of this Release, each of whom will be advised of and required to maintain the confidentiality of the existence and contents of this Release; or (ii) in response to a subpoena or court order, after having given Buyer five (5) days prior written notice of such a subpoena or court order, provided, however, that Sellers shall make commercially reasonable efforts to limit the amount of disclosure required by such subpoena or court order. IN WITNESS WHEREOF, S&F and AFD have executed this Release on September , 2003. --- S&F: SMART & FINAL INC. By /s/ Donald G. Alvarado ------------------------------------ Its Senior Vice President and Secretary ----------------------------------- AFD: AMERICAN FOODSERVICE DISTRIBUTORS By /s/ Donald G. Alvarado ------------------------------------ Its Secretary ----------------------------------- 2 TRANSITIONAL SERVICES AGREEMENT THIS TRANSITIONAL SERVICES AGREEMENT (this "Agreement") is entered into and effective as of September 7, 2003 (the "Effective Date"), by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), and GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Share Purchase Agreement (as defined below). RECITALS A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI, AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated August 6, 2003, by and among GFS Holding, GFS Orlando and GFS Stores, and Sellers, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD (collectively, the "Assets"). B. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the businesses conducted by AFD, SF Stores and Henry Lee in the State of Florida (the "Business"). C. Buyers desire to engage the services of Sellers and its personnel to provide transitional support for a period of up to six (6) months after the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement. D. Buyers have required as a condition to the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement that Sellers enter into this Agreement. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Sellers and Buyers agree as follows: 1. Services for Stores. During the Term of this Agreement, Sellers will provide the transitional services described in this Section 1 for the benefit of the stores (the "Stores") being acquired by GFS Stores from SF Stores in the state of Florida. These transitional services will include the resources reasonably necessary to maintain continuous operation of the Stores in a manner substantially consistent with current practices and in the areas described below. Sellers represent and warrant to Buyers that nothing contained in any of the agreements to which Sellers are a party prohibits Sellers from providing the Services, Systems and Support to Buyers as provided in Section 1 of this Agreement. For purposes of Section 1 of this Agreement, "Systems" is defined as the hardware and software located in each Store or in SFI's Commerce facility reasonably necessary to support the transitional service process. "Services" is defined as providing substantially the same activities currently provided by SFI from its Commerce facility or by third parties that are necessary to continue the current business operations in the Stores. "Support" is defined as the materials, communications and intervention necessary to continue operations substantially as they are presently conducted in the Stores. All of the transitional services to be provided by Sellers pursuant to this Section 1 shall be provided consistent with historical practices at the Stores and at levels substantially the same as presently provided with no unique services or support required except as specifically set forth herein. Sellers' obligations under this Section 1 also are subject to compliance with all applicable laws and regulations, and with all confidentiality agreements or obligations. Buyers agree to cooperate with Sellers and use their commercially reasonable efforts to promptly respond to Sellers' requests for information and action that may be required in order to facilitate Sellers' provision of transitional services hereunder. The transitional services to be provided by Sellers pursuant to this Section 1 are the following: A. Business Process Systems, Service and Support. (1) Advertising: Sellers will provide GFS Stores the ability to influence Hot Sheet advertising direction, materials and activities during the transition period. This includes the continuation of mailed and inserted Hot Sheet promotional services, including logo and graphics materials. GFS Stores will define the product and pricing within the theme and format of Sellers' Hot Sheet promotional period and provide same to Sellers, who then will provide creative design, layout, SFI name and the processes to produce and deliver the materials. GFS Stores will identify the customer types for the mailed Hot Sheet, and Sellers will develop and deliver the pieces to those customers. 2 Sellers will provide copies of all template, logo and item art work that may be used in developing and delivering Hot Sheet promotional pieces during the time period from the 2003 Memorial Day promotion period until the termination of this Agreement. Such materials will be delivered to Buyers as soon as they are available. Sellers do not own or have rights to, and will not provide Buyers with, any radio jingles or other radio materials utilizing the SFI name. (2) Henry Lee support: Continue to provide the systems and data interfaces to support the existing Henry Lee/SFI Florida price/cost, credit authorization and A/R management, item maintenance, and DSR commissions, so long as Buyer conducts POS using ACS 4.0 and NCR POS equipment. (3) Pricing support for all items sold within the Stores including DSD, warehouse, and corporate brands, provided that Sellers retain the right to change inventory items consistent with product changes throughout all of Sellers' stores, and provided further that if requested by Buyers, a reasonably limited number of inventory items may be changed, bearing in mind the restraints on Sellers' Systems. Provide ability to influence direction, materials, and activities, including promotional pricing. (4) Category Management support for all product categories within the Stores, including procurement, vendor agreements, and logistics. (5) Loyalty card program: Subject to compliance with the existing program and applicable law, all processes and systems to support use of the Smart Advantage program in the Stores, including all card benefits (reseller tax management, tobacco sales management and control, charge on account privileges, e-discounts/couponing/promotional and quantity discounts). (6) Store tagging and in-store signage systems, services, and support. (7) Store space management systems, services and support. (8) Product information maintenance, systems, services and support, including item setup, modifications, deletions, and category support, all consistent with current practices. 3 (9) Product order entry systems, services, and support to maintain a continuous flow of product from existing vendors, although there can be no assurance of continued vendor participation. (10) Electronic communications capability to employees via e-mail, fax, voice systems, services, and support as necessary to operate the Stores, provided that Buyers' employees agree to and sign SFI's computing policy and Buyers agree to enforce those policies. (11) Existing-store financial reporting including intranet reports (a list of which is attached hereto as Exhibit "A"), used to manage the day-to-day operations of the Stores by Store managers and regional staff members. (12) Loss prevention systems, services, and support, including exception (XBR) reporting, camera systems, and access to camera systems. (13) Individual Store level income statement process, including a period by period, Store by Store, and general ledger download of each Store account. (14) Accounts payable systems, services, and support in the format currently utilized by Sellers. (15) Store accounts receivable systems, services, and support during normal East Coast business hours. (16) Fixed asset management systems, services, and support. (17) Vendor agreement systems, services, and support. (18) Check authorization systems, services, and support, including Telecheck. Buyers agrees to abide by SCAN reporting and check management processes. (19) Electronic payments, systems agreements, systems, services, and support, including Visa, MC, Discover, Debit, Gift Card, and Henry Lee charge, including customer dispute management of charged transactions. Buyers will absorb all transaction charge backs for Credit, Debit, A/R and check transactions and will be subject to the settlement fees as defined in Sellers' transaction agreements. Sellers and Buyers each will accept financial responsibility for any penalties assessed to the other party by reason of their actions or failure to act. 4 (20) Inventory management systems, services, and support, including RIMA. (21) Store receiving systems, services, and support to input, transmit, and maintain invoicing records from vendors, including the payment process. (22) Consumables and supplies necessary to operate equipment in the Stores, including all computer systems. (23) Armored car pickup/delivery service to Stores. B. Information. (1) Item master file information necessary for conversion to GFS Stores systems: An initial one (1) time download (file format specification to be provided by Buyers), then a daily update of changes until conversion to GFS Stores systems is complete. (2) Customer identification information necessary for conversion to GFS Stores systems: An initial one (1) time download (file format specification to be provided by Buyers), then a daily update of changes until conversion to GFS Stores systems is complete. Subject to compliance with the existing program and applicable law, a complete description of the customer number layout, any alias customer number relationships that exist for the Smart Advantage card program, and/or the Henry Lee customer number relationship. (3) Pricing master file information necessary for conversion to GFS Stores systems: An initial one (1) time download (file format specification to be provided by Buyers) that specifies store/item/price, and in the case of Henry Lee customer/item/price), then a daily update of changes until conversion to GFS Stores systems is complete. (4) Sales information: An initial one (1) time download (file format specification to be provided by Buyers) of the available historical sales transaction data extracted from the Florida POS systems (excluding credit card data) in a flat file readable format (non-TLOG format, assuming MATRA output), then a daily update of changes until conversion to the GFS Stores systems is complete. (5) Fixed assets: A one (1) time download of all asset data available, by Store, including the asset description, date 5 placed in service, acquisition cost, accumulated depreciation and net-book-value. (6) Store profile: A one (1) time download of all Store specific information for normal systems operations, including tax tables/rules and licensing information. (7) Vendors: A listing of all vendor information unique to Store operations, with a daily update of changes. (8) Henry Lee integration: A one (1) time download of all interfaces provided to/from Henry Lee, along with file format specifications. (9) Reseller Tax: A one (1) time download of customer/item reseller tax information. C. Computer Systems Hardware and Software and Support. (1) Provide temporary benefit of output from all systems necessary to continue Store operations as currently in existence. All maintenance and service agreements to be provided during this period, including all hardware, software licensing and support, third party services provided (AfterBot, ACI, Electronic payment systems, and telecommunications, both data and voice). (2) Computer Systems & Support (all consistent with current practice): a. Battery backup systems (UPS) b. Cashier balance, cash proof c. Copiers d. Daily sales audit and end-of-day processing e. Data warehouse reporting provided to Stores f. Digital receipt via AfterBot g. DSD receiving/reporting h. EPS ACI systems support - Debit, Credit, Check authorization, Gift card, In-house credit (Henry Lee) i. FAX j. Intranet, as needed to operate the Stores and subject to signed SFI computing policy agreement. k. Item/price maintenance - store/central l. Invoice processing m. Operating systems n. Order entry, including COPS o. PBX/in-store voice & communications systems 6 p. PCs q. POS systems and interfaces and peripherals r. POS XBR Loss prevention system exception reporting, client access only for LP rep. s. Price verification t. Product lookup u. Product management maintenance v. RF network and hand held devices w. Satellite communications infrastructure x. Scales y. Servers z. Signs/tags printing aa. Special order entry system bb. Store/regional manager financial reporting cc. Time and attendance dd. Timeclocks, time data capture ee. Virus protection software (3) Central Systems - Requiring continued support of applications (all consistent with current practice): a. General Ledger (GEAC) b. Financial Reporting (TM1) c. Reporting database (RIMA) d. Accounts Receivable (GEAC/Base 24) e. Inventory/Costing (RIMA) f. Inventory Ordering (COPS) g. Accounts Payable (GEAC) h. Cash Reconciliation (Daily cash proof) i. Fixed Assets (GEAC) j. Vendor Support (mainframe) k. Digital Receipt/Sales Tax (Afterbot). l. Property Tax (Fixed asset system) m. Credit Card Processing n. Resale licensing (Tandem) Subject to Florida stores completing signup process of resale customers 2. Services for Florida Food Service Operations. During the Term of this Agreement, Sellers will provide the transitional services described in this Section 2 for the benefit of the Henry Lee and/or Orlando Food Service Operations (collectively, the "Florida Food Service Operations"). These transitional services will include the resources reasonably necessary to maintain continuous operation of the Florida Food Service Operations in Florida in a manner substantially consistent with current practices. Sellers represent and warrant to Buyers that nothing contained in any of the agreements to which Sellers are a party prohibits Sellers from providing the Services, Systems and Support to Buyers as provided in Section 2 of this Agreement. For purposes of Section 2 of this Agreement, "Systems" is defined as the hardware and software located in Florida 7 or elsewhere necessary to support the transitional service process. "Services" is defined as providing substantially the same activities currently provided by SFI from its Commerce facility or by third parties that are necessary to continue the current business operations in the Florida Food Service Operations. "Support" is defined as the materials, communications and intervention necessary to continue operations substantially as they are presently conducted in the Florida Food Service Operations. All of the transitional services to be provided by Sellers pursuant to this Section 2 shall be provided consistent with historical practices in the Foodservice Operations and at levels substantially the same as presently provided with no unique services or support required except as specifically set forth herein. Sellers' obligations under this Section 2 also are subject to compliance with all applicable laws and regulations, and with all confidentiality agreements or obligations. Buyers agree to cooperate with Sellers and use their commercially reasonable efforts to promptly respond to Sellers' requests for information and action that may be required in order to facilitate Sellers' provision of transitional services hereunder. The transitional services to be provided by Sellers pursuant to this Section 2 are the following: A. Payroll Processing (1) ADP agreement feed through Commerce, California (Solely for start-up purposes and transition of payroll processing to Henry Lee Company) B. Network Support (1) Currently some network and infrastructure support services are being provided in Stockton, California for the Florida Food Service Operations. GFS Orlando will require this support to continue for up to six (6) months. C. E-mail Addresses (1) Systems, services and support required to provide continuous access to the e-mail addresses. Seller to provide e-mail addresses of Florida Stores, relevant personnel and transition staff. D. Wide Area Network (1) Support of the ordering process from the Stores to Henry Lee. These orders are processed in Commerce, California and sent to Henry Lee for fulfillment. E. Fixed Asset Accounting (1) Continued support of the fixed asset accounting system for up to six (6) months. 8 3. Personnel Cooperation. Commencing upon execution of this Agreement, and continuing for two (2) weeks thereafter, at no cost to Buyers, Sellers will provide Buyers with the use of an office at Sellers' Commerce, California facility for one (1) designated person ("Point Person"), together with related telephones, equipment and access (including remote access) to Sellers' systems that apply to the Stores and the Florida Food Service Operations. Sue Mullins is hereby designated as Sellers' initial contact with the Point Person, and the Point Person shall be afforded full access to all of Sellers' personnel and systems to assist in a smooth transition of the Stores and the Florida Food Service Operations to Buyers. After the expiration of the two (2) week period, the Point Person also shall be provided with remote access and access at the Commerce facility for one (1) day per week for follow-up issues, and Sellers' personnel will also be available by telephone to assist the Point Person in connection with transition matters. 4. Term. The Term of this Agreement shall commence upon the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement and, at Buyers' option, shall continue for up to six (6) months thereafter. The Term of this Agreement may be shortened upon written notice from Buyers to Sellers; provided, that, if this Agreement is shortened as to the provision of the Systems services provided hereunder, it must be shortened as to all Systems services concurrently. 5. Compensation for Services. In consideration of provision of the transitional services described in Sections 1, 2 and 3 above (the "Basic Services") to be provided by Sellers to Buyers in connection with the Stores and the Florida Food Service Operations, Buyers will reimburse Sellers for the actual out-of-pocket initial start-up and set-up costs incurred in connection with the e-mail conversion, but in no event shall such reimbursement exceed $50,000. Sellers shall receive no other compensation for the Basic Services. In the event Buyers request additional services not included in the Basic Services, the parties will meet to discuss same and the cost therefor, but Sellers shall be under no obligation to provide any additional services, except upon terms acceptable to Sellers. 6. Default; Termination. A. Sellers' Default. Sellers shall be in default under this Agreement if Sellers breach any material provision or condition of this Agreement (a "Sellers' Event of Default"). If a Sellers' Event of Default occurs (i) which event does not result in a material adverse effect on the provision of Basic Services, and is not cured by Sellers within thirty (30) days after receipt of written notice from Buyers to cure such breach, or (ii) which event results in a material adverse effect on the provision of Basic Services, and is not cured by Sellers within three (3) business days after receipt of written notice from Buyers to cure such breach, then, in such event, in addition to any other right or remedy Buyers may have under this Agreement, Buyers shall have the right to terminate this Agreement, so long as such Event of Default is not the result of the action or inaction of a third-party. 9 B. Buyers' Default. Buyers shall be in default under this Agreement if Buyers breach any material provision or condition of this Agreement (a "Buyers' Event of Default"). If a Buyers' Event of Default occurs (i) which event does not result in a material adverse effect on Sellers' operations or information systems, and is not cured by Buyers within thirty (30) days after receipt of written notice from Sellers to cure such breach, or (ii) which event results in a material adverse effect on Sellers' operations or information systems, and is not cured by Buyers within three (3) business days after receipt of written notice from Sellers to cure such breach, then, in such event, in addition to any other right or remedy Sellers may have under this Agreement, Sellers shall have the right to terminate this Agreement, so long as such Event of Default is not the result of the action or inaction of a third-party. C. Limitation on Damages; No Offset. In no event shall Sellers or Buyers be liable to the other party for any consequential damages or lost profits in excess of $750,000, and in no event shall either party be entitled to offset against any amounts due under this Agreement any amounts payable under the Share Purchase Agreement, the Asset Purchase Agreement, or any other agreement executed in connection therewith. 7. Indemnification. A. Indemnity by Sellers. Sellers shall, jointly and severally, indemnify Buyers and their affiliates, directors, officers, managers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Buyer Indemnified Parties") against and hold each of them harmless from any and all damage, loss, cost, penalty, liability and expense (including, without limitation, reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("Damages") incurred or suffered by the Buyer Indemnified Parties (whether originally asserted against or imposed on the Buyer Indemnified Parties by a third party or originally incurred or suffered directly by the Buyer Indemnified Parties) arising directly out of any breach of any representation or warranty, covenant or agreement made or to be performed by Sellers pursuant to this Agreement (such breach, a "Seller Breach"). B. Indemnity by Buyers. Buyers shall indemnify Sellers and their affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Seller Indemnified Parties") against and hold each of them harmless from any and all Damages incurred or suffered by the Seller Indemnified Parties (whether originally asserted against or imposed on the Seller Indemnified Parties by a third party or originally incurred or suffered directly by the Seller Indemnified Parties) arising directly out of any breach of any representation, warranty, covenant or agreement made or to be performed by Buyers pursuant to this Agreement, and from any and all liability or expenses, including fines by any governmental entities, incurred by reason of providing the Smart Advantage program 10 information to Buyers pursuant to Section 1.A(5) above (such breach, a "Buyer Breach"). C. Procedure and Payment. (1) The person seeking indemnification under Section 7.A, and 7.B (the "Indemnified Party") agrees to give prompt notice to the Person against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding, in respect of which indemnity may be sought under such Section and will provide the Indemnifying Party such information with respect thereto as the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have materially and adversely prejudiced the Indemnifying Party. (2) The Indemnifying Party shall be entitled to defend any claim asserted by any third party ("Third Party Claim") with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying Party notifies the Indemnified Party in writing within fifteen (15) days after the Indemnifying Party has given notice of the Third Party Claim that it will indemnify the Indemnified Party from and against all Damages that the Indemnified Party may suffer resulting from, arising out of, relating to, or caused by the Third Party Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations under this Agreement, (iii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, and (iv) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (3) So long as the Indemnifying Party is conducting the defense of any Third Party Claim in accordance with the provisions of this Section 7.C, the Indemnified Party shall be entitled to participate in the defense of such Third Party Claim and to employ separate counsel of its choice for such purpose. The fees and expenses of such separate counsel shall be paid by the Indemnified Party. 11 (4) Each party shall cooperate, and cause its Affiliates to cooperate, in the defense or prosecution of any Third Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested by any other party in connection therewith. D. Calculation of Damages. (1) The amount of any Damages payable under Section 7.A and 7.B by the Indemnifying Party shall be net of any amounts recovered by the Indemnified Party under applicable insurance policies and the Indemnified Party shall use commercially reasonable efforts to collect any amounts available under such insurance policies. (2) If the Indemnified Party receives an amount under insurance coverage or from a third party with respect to Damages at any time subsequent to any indemnification provided by the Indemnifying Party pursuant to Section 7.A and 7.B, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification up to such amount received by such Indemnified Party, but net of any expenses incurred by such Indemnified Party in collecting such amount. (3) In no event shall either Buyers or Sellers be liable to the other party for any consequential damages or lost profits in excess of $750,000. 8. Force Majeure. Neither Sellers nor Buyers shall be responsible to the other for any delay in or failure of performance of their obligations under this Agreement to the extent such delay or failure is attributable to any cause beyond their reasonable control, including, without limitation, any act of God, fire, accident, strike or other labor difficulties, war, embargo or other governmental act, or riot that, in the case of Sellers, prevents Sellers from providing services under this Agreement, or, in the case of Buyers, prevents Buyers from utilizing the services under this Agreement; provided that the party affected thereby gives the other party prompt notice of the occurrence of any event which has caused or is likely to cause any such delay or failure, setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; and provided further that said affected party shall use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance or utilization. 12 9. Miscellaneous Provisions. A. Confidentiality. Each of Sellers and Buyers (as appropriate, the "Promisor") covenant and agree to and will cause their respective authorized agents, representatives, affiliates, employees, officers, directors, accountants, counsel and other designated representatives (collectively, "Representatives") to (i) treat and hold as confidential (and not disclose or provide access to any person to) all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") concerning the other party (the "Promisee") in the Promisor's possession or furnished by the Promisee or its Representatives pursuant to this Agreement, (ii) in the event that Promisor or its Representatives become legally compelled to disclose any such Information, provide the Promisee with prompt written notice of such requirement so that the Promisee may seek a protective order or other remedy or waive compliance with this Section 9.A, and (iii) in the event that such protective order or other remedy is not obtained, or the Promisee waives compliance with this Section 9.A, furnish only that portion of such Information which is legally required to be provided and exercise Promisor's best efforts to obtain assurances that confidential treatment will be accorded such Information; provided, however, that this sentence shall not apply to any Information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by such party or its Representatives; and provided further, however, that the provisions of clauses (i) and (ii) above shall not preclude a party from disclosing Information to its Representatives (provided that each such Representative shall be advised of the confidential nature of such Information) or from disclosing Information to or filing Information with any governmental authority or agency with jurisdiction over such party. Each party agrees and acknowledges that remedies at law for any breach of its obligations under this Section 9.A are inadequate and that in addition thereto the other party shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach, without the necessity of demonstrating the inadequacy of monetary damages. The provisions of this Section 9.A shall not apply to the extent any such Information is required to be disclosed by applicable law. B. Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 13 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Donald G. Alvarado Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Sue Mullins Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II C. Jurisdiction. (1) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 9.C, it will not bring any action relating to this Agreement or any 14 of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (2) In the event the state court specified in Section 9.C(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (3) In the event the state court specified in Section 9.C(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Seller Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the 15 jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (4) The parties hereby waive any right to a jury trial. D. Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting (unless the requesting party is entitled to indemnification therefor under Section 7), each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. E. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. F. Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. G. Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights or obligations under this Agreement without the prior consent of the other parties, except that GFS Holding may assign any of its rights under this Agreement to any Affiliate of GFS Holding. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are 16 for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. H. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. I. Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. J. Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. K. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. L. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. M. Dispute Resolution. Except as hereinafter provided in this Section 9.M all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (1) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 9.B hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration 17 Association (the "AAA") in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (2) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (3) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (4) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 9.C without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. N. Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. O. Relationship of Parties. The relationship between Sellers and Buyers for purposes of this Agreement shall be that of an independent contractor and not of employment and, except to the extent required to enable Sellers to perform their duties hereunder, neither party is an agent of the other. By entering into this 18 Agreement, neither party to this Agreement is, in any way, assuming any liabilities, debts or obligations of the other party, whether now existing or hereafter created. IN WITNESS WHEREOF, Sellers and Buyers have executed this Agreement as of the date set forth in the first paragraph hereof. "SFI" SMART & FINAL INC. a Delaware corporation By: /s/ Dennis Chiavelli ---------------------------------- Its: --------------------------------- "AFD" AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By: /s/ Dennis Chiavelli ---------------------------------- Its: --------------------------------- "SF Stores" SMART & FINAL STORES CORPORATION a California corporation By: /s/ Dennis Chiavelli ---------------------------------- Its: --------------------------------- "GFS Holding" GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray ---------------------------------- Its: ---------------------------------- 19 "Henry Lee" HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- "GFS Stores" GFS STORES, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- "GFS Orlando" GFS Orlando, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- 20 Exhibit "A"

A-1 EMPLOYEE LEASING AGREEMENT THIS EMPLOYEE LEASING AGREEMENT (this "Agreement") is entered into and effective as of September 7, 2003 (the "Effective Date"), by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), and GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando" and together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Share Purchase Agreement (as defined below). RECITALS A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI and AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated August 6, 2003, by and among GFS Holding, GFS Orlando, and GFS Stores, and Sellers, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD (collectively, the "Assets"). B. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the businesses operated by AFD, SF Stores and Henry Lee in the State of Florida (the "Business"). C. Buyers desire to lease from Sellers certain employees of Sellers who are knowledgeable about the certain aspects of the Business and for the purpose of performing such tasks as are beneficial to the transition and ownership of the Business. D. Buyers have required as a condition to the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement that Sellers enter into this Agreement. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Sellers and Buyers agree as follows: 1. Lease of Employees. 1.1 Leased Employees. During the period beginning 12:01 a.m. on the Effective Date and ending on 11:59 p.m. on the first anniversary of the Effective Date (the "Lease Period"), and subject to the provisions of this Agreement, Sellers shall furnish to Buyers the full- time services of the Leased Employees of Sellers listed on Exhibit "A" attached hereto (the "Leased Employees"). 1.2 Location. The location of work to be performed by of each Leased Employee shall be as set forth on Exhibit "A" attached hereto, unless otherwise consented to by Sellers. 1.3 Payment and Employment Policies. Sellers shall have sole responsibility for: (i) establishment and payment of all wages, salaries and other forms of compensation for the Leased Employees; (ii) payment of all payroll, social security and unemployment taxes related to the Leased Employees; (iii) establishing all personnel policies and employee benefit programs for the Leased Employees; and (iv) determination of work schedules for the Leased Employees. Buyers shall have full authority to direct the Leased Employees with respect to the performance by Leased Employees of their respective Services (as defined below) to Buyers. Sellers shall use their reasonable diligent efforts to ensure that the Leased Employees perform the Services (as defined below) in the best interests of Buyers. 1.4 Employment of Leased Employees. Sellers shall have full responsibility and authority for decisions regarding termination and reassignment of Leased Employees. In the event that Buyers provide reasonable evidence to Sellers that the performance of a Leased Employee is unsatisfactory or if Buyers notify Sellers that the services of a particular Leased Employee are no longer needed, then Sellers shall reassign the Leased Employee from Buyers, subject to and in accordance with the personnel policies of Sellers. In the event Buyers request the reassignment of the services of a Leased Employee, or in the event of the resignation, retirement or other termination of services by a Leased Employee for Buyers, such Leased Employee shall be reassigned to Sellers, who shall be responsible for taking any action with respect to such Leased Employee's employment by Sellers. Leased Employees who are reassigned from Buyers or are terminated during the Lease Period are referred to herein as "Former Leased Employees." Exhibit "A" shall be revised to exclude such Former Leased Employees from time to time, as appropriate. 1.5 Permanent Hire. Buyers may, in their discretion and at any time during the Lease Period, offer to permanently hire any of the Leased Employees without any additional compensation therefor payable to Sellers, other than for the payments provided pursuant to this Agreement. 2. Payment For Leased Employees. 2.1 Payment Terms. On or before the 25th day of each calendar month, Sellers shall issue an invoice to Buyers specifying the Reimbursable Amount (as defined in Section 2.2 below) for the immediately preceding calendar month. Buyers shall pay the Reimbursable Amount specified in each such invoice within ten (10) days after receipt of such invoice. 2.2 Reimbursable Amount. The term "Reimbursable Amount" is an amount equal to the costs paid and expenses accrued (as hereafter provided) by Sellers during such period, solely with respect to the Leased Employees that are providing services to Buyers hereunder, including, without limitation, the reasonable cost of: (i) salaries, wages and incentive, vacation, holiday and self-funded sick pay; (ii) Seller-paid social security taxes, medicare taxes -2- and other payroll taxes; (iii) premiums paid by Sellers on behalf of Leased Employees for coverage by any long-term disability insurance, insured short-term disability benefits, group term life insurance, accidental death and disability insurance, business travel accident insurance requested by Buyers, and insured group health, dental or vision plans; (iv) other employee welfare benefits, fringe benefits or perquisites, including, but not limited to, benefits under any employee welfare benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended), supplemental unemployment compensation plan benefits or any other fringe benefit arrangement which does not constitute an employee benefit plan, or Sellers' costs under any employment agreement not otherwise described in this Section which have been disclosed to Buyers; (v) Sellers' contributions to any tax-qualified defined contribution plan on behalf of Leased Employees (other than employee pretax deferral amounts included in (i) above, as wages); (vi) Sellers' provided benefits under any tax-qualified defined benefit pension plan; (vii) Sellers' provided self-funded group health, dental and vision benefits; (viii) Sellers' costs for administration of any benefit plan, program or arrangement provided to or for the benefit of the Leased Employees; (ix) any other government charges relating to the employment of the Leased Employees, including worker's compensation claims; (x) amounts paid for the insurance coverage required under Section 3 below, (xi) expenses of complying with and administering any collective bargaining agreement with respect to Leased Employees; and (xii) any amounts due Sellers pursuant to Section 4 below, in each case to the extent that such payments and benefits are generally provided to Sellers' employees as a group. 2.3 Late Payment. Any portion of the Reimbursable Amount that is not paid as and when due pursuant to the payment terms provided in this Section shall be considered a "Late Payment." Sellers shall notify Buyers of such Late Payment, in writing, and interest shall accrue on such Late Payment (or any portion thereof) from the date that such Late Payment was first invoiced to Buyers until the date such amount is fully paid to Sellers at the rate equal to the lesser of: (i) the maximum rate allowed by law, or (ii) the prime rate as announced from time to time by Wells Fargo Bank, N.A. plus five percentage (5%) points per annum. 2.4 Covenant of Sellers. Sellers covenant and agree not to increase the levels of compensation and benefits provided to any of the Leased Employees during the Lease Period, other than for normal increases in compensation and benefits to similarly-situated employees of Sellers, and in the ordinary course and operation of Sellers' business. 3. Sellers' Insurance Obligations. 3.1 Insurance. Sellers shall obtain and maintain at their own expense general liability, worker's compensation, disability and casualty and other similar employee benefit insurance, in amounts reasonably sufficient to meet state requirements, including insurance for any claims, losses, costs and expenses incurred in connection with the injury or death of a Leased Employee pursuant to this Agreement. 3.2 Additional Insurance. Sellers shall be required to purchase and maintain such insurance with limits described in Section 3.3 below and as approved by Buyers as will protect it from claims set forth below which may arise out of or result from the Leased Employee's provision of Services (as defined in Section 5.2 below) under this Agreement; provided, -3- however, that Sellers shall not be required to obtain errors and omissions insurance. Coverage shall include, but not be limited to, the following claims: (a) Claims under Workmen's Compensation; (b) Claims for damage because of bodily injury, occupational sickness or disease, or death of employees; (c) Claims for damages because of bodily injury, sickness or disease, or death of any person other than employees of Buyers; (d) Claims for damages insured by usual personal injury liability coverage which are sustained by any other person; (e) Claims for damages because of injury to or destruction of tangible property, including loss of use resulting therefrom; and (f) Claims for damages because of bodily injury or death of any person or property damage arising out of the use of any of Buyers' motor vehicles. 3.3 Insurance Amounts. Sellers' comprehensive General Liability Insurance shall be in an amount not less than $1,000,000 for property damage, injuries, including accidental death, to any one person and subject to the same limit for each person, and in an amount not less than $1,000,000 for one occurrence. Sellers shall also obtain and maintain Excess Umbrella Liability Insurance in an amount of at least $1,000,000 for each occurrence and aggregate. Sellers shall be required to maintain the above coverages for the period of time extending throughout the Lease Period. 4. Indemnification. 4.1 Indemnification of Sellers. Buyers shall indemnify and hold harmless Sellers and their Affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Seller Indemnified Parties") from and with respect to any and all Losses incurred by the Seller Indemnified Parties in connection with or arising out of (i) Buyers' or their Affiliates', or Buyers' or their Affiliates' employees', acts or omissions relating to the Leased Employees; (ii) the employment, the failure to employ or the termination of employment of any Leased Employee with respect to the Lease Period or in relation to Section 1.4 above taken by Buyers or their Affiliates or Buyers' or their Affiliates' employees, including, but not limited to, constructive termination, claims arising under any employment agreement, collective bargaining agreement, employment law or regulation, including without limitation Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act of 1967, as amended; the Internal Revenue Code of 1986, as amended; the Employee Retirement Income Security Act of 1974, as amended; the Worker Adjustment Retraining and Notification Act; or claims arising under any other federal, state, or local civil rights, employee benefit, labor, contract, tort, or common law; (iii) acts or omissions of Leased Employees taken at the direction of Buyers' or their Affiliates' employees; or (iv) the negligent acts or omissions or willful misconduct of the Leased Employees taken at the direction of Buyers' or their Affiliates' employees. Buyers' indemnification obligations -4- under this Section 4.1 shall not extend to any Losses incurred by any of the Seller Indemnified Parties as a result of the acts or omissions of the Seller Indemnified Parties relating to the Leased Employees. 4.2 Survival of Provisions. The indemnification obligations of the Buyers under this Agreement shall survive any termination of this Agreement for a period of one (1) year. 5. Services. 5.1 General. Leased Employees are Buyers' agents and will act as directed by and under the supervision of Buyers and their employees, and will confer with Buyers regarding the Leased Employee's Services (as defined in Section 5.2 below). 5.2 Services. Buyers and Sellers hereby covenant and agree that in return for the fee provided for in Section 2 above, Sellers shall cause the Leased Employees to devote their full time and efforts to the diligent and faithful performance of such tasks as are beneficial to the transition and ownership of the Business from Buyers to Sellers (the "Services"). 6. Maintenance of Records. 6.1 Buyers and Sellers shall each have the following rights and obligations with respect to the maintenance of records and the following rights with respect to the inspection of the records maintained by the other: (a) Buyers shall maintain accurate records of all hours worked by each Leased Employee in such form as Sellers shall reasonably request and, at such times as Sellers shall reasonably request, Buyers shall furnish such records to Sellers. (b) All business records and information relating to the business activities of either Buyers or Sellers shall be the property of that party. (c) Each of Buyers and Sellers shall safeguard all records maintained by it pursuant to this Agreement for a period of six years, or if longer, as required by applicable law. (d) The parties shall give each other and their respective counsel, auditors and other authorized representatives reasonable access to each other's books and records relating to Leased Employees and Former Leased Employees, including, without limitation, correspondence, accounting records, personnel files, and legal complaints, upon reasonable notice and during normal business hours, as may be necessary for the performance of the respective duties and obligation hereunder; provided, however, that any review of Sellers' books and records pursuant to this Section shall be conducted in a manner as not to interfere unreasonably with the conduct of the business of Sellers. 7. Force Majeure. 7.1 Neither Sellers nor Buyers shall be responsible to the other for any delay in or failure of performance of its obligations under this Agreement to the extent such delay or failure -5- is attributable to any cause beyond its reasonable control, including, without limitation, any act of God, fire, accident, strike or other labor difficulties, war, embargo or other governmental act, or riot that, in the case of Sellers, prevents Sellers from providing Leased Employees under this Agreement, or, in the case of Buyers, prevents Buyers from utilizing the services of Leased Employees under this Agreement; provided that the party affected thereby gives the other party prompt notice of the occurrence of any event which has caused or is likely to cause any such delay or failure, setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; and provided further that said affected party shall use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance or utilization. 8. Termination and Replacement. 8.1 Termination. This Agreement may be terminated: (a) By either Sellers or Buyers upon not less than fifteen (15) days' prior written notice to the other party in the event that such other party has materially breached its obligations under this Agreement and has failed or refused to remedy such breach within fifteen (15) days after written demand therefor is given by the aggrieved party to the other or in the event that such other party has materially breached the same obligation under this Agreement more than once (regardless of whether such breach is remedied); (b) By either Sellers or Buyers upon written notice to the other party, effective immediately, in the event the other party shall become the subject (voluntarily or involuntarily) of any proceeding relating to bankruptcy or insolvency, or make an assignment or other arrangement for the benefit of its creditors, or be dissolved or liquidated (except as a consequence of a merger, consolidation or other corporate reorganization not involving the insolvency of such dissolved or liquidated party); 8.2 Obligations Upon Termination. Upon termination or expiration of this Agreement, Buyers shall be liable to Sellers for all unpaid Reimbursable Amounts attributable to any period(s) prior to the termination of this Agreement. 9. Sellers Not Fiduciary. 9.1 Nothing set forth in this Agreement shall be deemed to constitute Sellers a fiduciary of Buyers, nor shall Sellers have any liability to Buyers with respect to the service of the Leased Employees provided under this Agreement other than as expressly set forth in Section 4 above. 10. Limited Warranty; Limitation of Liability; Compliance with Employment Laws. 10.1 Warranties of Compliance with Employment Laws. As an inducement to the parties to enter into this Agreement, Buyers and Sellers represent, warrant and covenant to each other that they each will comply in all material respects with all applicable federal, state and local laws, rules, regulations and ordinances applicable to the Leased Employees and their services hereunder, to the extent that such party exclusively controls a matter or supervises a Leased Employee with respect to a matter, including without limitation, those relating to -6- workers' compensation, labor and employment relations, employee health and safety, and employment discrimination. 10.2 Limitation of Warranty; Limitation of Liability. Except as expressly provided in Section 10.1, Leased Employees are provided under this Agreement without warranty of any kind whatsoever. For breaches of warranty and other breaches of contract with respect to this Agreement, Seller's liability shall in no event exceed the total amount paid by Buyers under this Agreement. Without limitation, Sellers SHALL NOT BE SUBJECT TO AND EXPRESSLY DISCLAIM: (A) ANY OTHER OBLIGATIONS OR LIABILITIES ARISING OUT OF BREACH OF CONTRACT OR WARRANTY; (B) ANY OBLIGATIONS OR LIABILITIES WHATSOEVER ARISING FROM TORT CLAIMS (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR ARISING UNDER OTHER THEORIES OF LAW WITH RESPECT TO THE UNDERTAKINGS, ACTS OR OMISSIONS OF LEASED EMPLOYEES HEREUNDER; AND (C) CONSEQUENTIAL, INCIDENTAL, INDIRECT OR CONTINGENT DAMAGES WHATSOEVER WITH RESPECT TO THIS AGREEMENT, OR ANY UNDERTAKINGS, ACTS OR OMISSIONS OF LEASED EMPLOYEES PROVIDED HEREUNDER. 11. Miscellaneous Provisions. 11.1 Confidentiality. Each of Sellers and Buyers (as appropriate, the "Promisor") covenant and agree to and will cause their respective authorized agents, representatives, affiliates, employees, officers, directors, accountants, counsel and other designated representatives (collectively, "Representatives") to (i) treat and hold as confidential (and not disclose or provide access to any person to) all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") concerning the other party (the "Promisee") or the Leased Employees in the Promisor's possession or furnished by the Promisee or its Representatives pursuant to this Agreement, (ii) in the event that Promisor or its Representatives become legally compelled to disclose any such Information, provide the Promisee with prompt written notice of such requirement so that the Promisee may seek a protective order or other remedy or waive compliance with this Section 11.1, and (iii) in the event that such protective order or other remedy is not obtained, or the Promisee waives compliance with this Section 11.1, furnish only that portion of such Information which is legally required to be provided and exercise Promisor's best efforts to obtain assurances that confidential treatment will be accorded such Information; provided, however, that this sentence shall not apply to any Information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by such party or its Representatives; and provided further, however, that the provisions of clauses (i) and (ii) above shall not preclude a party from disclosing Information to its Representatives (provided that each such Representative shall be advised of the confidential nature of such Information) or from disclosing Information to or filing Information with any governmental authority or agency with jurisdiction over such party. Each party agrees and acknowledges that remedies at law for any breach of its obligations under this Section 11.1 are inadequate and that in addition thereto the other party shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach, without the necessity of demonstrating the inadequacy of monetary damages. The provisions of this Section 11.1 shall not apply to the extent any such Information is required to be disclosed by applicable law. -7- 11.2 Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Donald G. Alvarado Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Sue Mullins Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II -8- 11.3 Jurisdiction. (a) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 11.3, it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (b) In the event the state court specified in Section 11.3(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (c) In the event the state court specified in Section 11.3(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Seller Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States -9- District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (d) The parties hereby waive any right to a jury trial. 11.4 Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting (unless the requesting party is entitled to indemnification therefor under Section 4), each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. 11.5 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 11.6 Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. 11.7 Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights or obligations under this Agreement without the prior consent of the -10- other parties, except that GFS Holding may assign any of its rights under this Agreement to any Affiliate of GFS Holding. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 11.8 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 11.9 Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 11.10 Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. 11.11 Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. 11.12 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. 11.13 Dispute Resolution. Except as hereinafter provided in this Section 11.13 all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (a) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 11.2 hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") -11- in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (b) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (c) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (d) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 11.3 without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. 11.14 Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. IN WITNESS WHEREOF Sellers and Buyers have executed this Agreement as of the date set forth in the first paragraph hereof. "SFI" SMART & FINAL INC. a Delaware corporation By: /s/ Donald G. Alvarado ---------------------------------- Its: ---------------------------------- -12- "AFD" AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By: /s/ Donald G. Alvarado ---------------------------------- Its: ---------------------------------- "SF Stores" SMART & FINAL STORES CORPORATION a California corporation By: /s/ Donald G. Alvarado ---------------------------------- Its: --------------------------------- "GFS Holding" GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray ---------------------------------- Its: ---------------------------------- "Henry Lee" HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray ---------------------------------- Its: ---------------------------------- -13- "GFS Stores" GFS STORES, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: ---------------------------------- "GFS Orlando" GFS Orlando, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: ---------------------------------- -14- EXHIBIT "A" TO EMPLOYEE LEASING AGREEMENT LEASED EMPLOYEES LOCATION Dale Davidson Miami Michael Peters Miami A-1 FOLEY & LARDNER 2029 CENTURY PARK EAST, SUITE 3500 LOS ANGELES, CALIFORNIA 90067-3021 310.277.2223 TEL 310.557.8475 FAX www.foleylardner.com WRITER'S DIRECT LINE 310.277.2223 CLIENT/MATTER NUMBER 024041-0111 September 7, 2003 GFS Holding, Inc. c/o Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 Re: Share Purchase Agreement Dated as of August 6, 2003 Ladies and Gentlemen: We have acted as counsel for Smart & Final Inc., a Delaware corporation ("Smart & Final"), and American Foodservice Distributors, a California corporation ("American Foodservice" and, together with Smart & Final, "Sellers"), in connection with the transactions pursuant to and referenced in the Share Purchase Agreement (the "Share Purchase Agreement") dated as of August 6, 2003 and executed by and among Sellers and GFS Holding, Inc., a Delaware corporation ("Buyer"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Share Purchase Agreement. We are rendering this opinion to you pursuant to Section 1.6(a)(xiii) of the Share Purchase Agreement. In our capacity as counsel to Sellers, we have examined originals, or copies identified to our satisfaction as being true copies of such corporate records, agreements, instruments and other documents of Sellers as in our judgment are necessary or appropriate to enable us to render the opinions set forth herein. These records, agreements, instruments and documents include, without limitation: a. The Share Purchase Agreement, and the Schedules thereto; b. An Escrow Agreement (the "Escrow Agreement") dated September , --- 2003 and executed by and among Sellers, Smart & Final Stores Corporation, a California corporation ("SF Stores"), Buyer, GFS Stores, LLC, a Delaware limited liability company ("GFS Stores"), GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando"), Henry Lee Company, a Florida corporation ("Henry Lee") and Wells Fargo Bank, N.A., as Escrow Agent; BRUSSELS DETRIOT MILWAUKEE SAN DIEGO TAMPA CHICAGO JACKSONVILLE ORLANDO SAN DIEGO/DEL MAR TOKYO DENVER LOS ANGELES SACRAMENTO SAN FRANCISCO WASHINGTON. D.C. MADISON TALLAHASSEE WEST PALM BEACH FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 2 c. A Noncompetition Agreement (the "Noncompetition Agreement") dated September , 2003 and executed by and among Sellers, SF Stores,, Buyer, --- Henry Lee, GFS Stores and GFS Orlando; d. A Software License, Use and Support Agreement (the "Software License Agreement") dated as of September , 2003 and executed by and --- among Sellers and SF Stores, and Buyer, Henry Lee, GFS Stores and GFS Orlando; e. A Tradename and Trademark License Agreement (the "Trademark License Agreement") dated as of September , 2003 and executed by and --- among Sellers, SF Stores, Buyer, Henry Lee, GFS Stores and GFS Orlando; f. A Release (the "Release") dated September , 2003 and executed --- by Sellers; g. A Transitional Services Agreement (the "Transitional Services Agreement") dated as of September , 2003 and executed by and among --- Sellers, SF Stores, Buyer, Henry Lee, GFS Stores and GFS Orlando; h. An Employee Leasing Agreement (the "Employee Leasing Agreement") dated as of September , 2003 and executed by and among Sellers, SF --- Stores, Buyer, Henry Lee, GFS Stores and GFS Orlando; i. A Real Estate Purchase Agreement (the "Real Estate Purchase Agreement") dated as of September , 2003 and executed by and between --- Smart & Final and , with respect to the Frozen ------------------------- Food Facility and the Parking Lot; j. A Vendor Contract Participation Agreement (the "Vendor Contract Participation Agreement") dated as of September , 2003 and executed and --- among the Sellers, SF Stores, Buyer, Henry Lee, GFS Stores and GFS Orlando k. Amendment No. 5 ("Amendment No. 5 to the Lease Agreement"), dated , 2003, to that certain Lease Agreement (and related documents) ----- --- dated as of November 30, 2001 between Wells Fargo Bank, NW, N.A., as the Owner Trustee and Lessor and Smart & Final Inc., as Lessee, as previously amended by amendments Nos. 1-4 thereto dated June 4, 2002, February 14, 2003, June 1, 2003 and July 11, 2003, respectively; l. Amendment No. 5 ("Amendment No. 5 to the Credit Agreement"), dated , 2003, to that certain Credit Agreement (and related ------ --- documents), dated as of November 30, 2001, among Smart & Final Inc., as Borrower, and various parties, as Lenders, BNP Paribas, as Administrative Agent and Lead Arranger, Harris Trust & Savings Bank, as Syndication Agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", as Documentation Agent, as previously amended by amendments Nos. 1-4 thereto dated June 4, 2002, February 18, 2003, June 1, 2003 and July 11, 2003, respectively (referred to along with the Escrow Agreement, the Noncompetition Agreement, the Software FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 3 License Agreement, the Trademark License Agreement, the Release, the Transitional Services Agreement, the Employee Leasing Agreement, the Real Estate Purchase Agreement, the Vendor Contract Participation Agreement, Amendment No. 5 to the Credit Agreement, and Amendment No. 5 to the Lease Agreement, collectively, as the "Related Agreements"); m. The Certificate of Incorporation of Smart & Final, certified on August 27, 2003 by the Delaware Secretary of State; n. The Articles of Incorporation of American Foodservice, certified on August 29, 2003 by the California Secretary of State; o. The Bylaws of Smart & Final, certified by the Secretary or Assistant Secretary of Smart & Final; p. The Bylaws of American Foodservice, certified by the Secretary or Assistant Secretary of American Foodservice; q. A Certificate of Good Standing as to Smart & Final, certified on August 21, 2003 by the Delaware Secretary of State; r. A Certificate of Good Standing as to Smart & Final, certified on August 29, 2003 by the Florida Secretary of State; s. A Certificate of Status as to American Foodservice, certified on September 2, 2003 by the California Secretary of State; t. A Certificate of Good Standing as to American Foodservice, certified on August 29, 2003 by the Florida Secretary of State; u. The resolutions of the Board of Directors of Smart & Final with respect to the Share Purchase Agreement and the Related Agreements, certified by the Secretary or Assistant Secretary of Smart & Final; v. The resolutions of the Board of Directors of American Foodservice with respect to the Share Purchase Agreement and the Related Agreements, certified by the Secretary or Assistant Secretary of American Foodservice; w. The Officer's Certificate of Smart & Final delivered to us in connection with this opinion, a copy of which is attached hereto as Exhibit "A"; and x. The Officer's Certificate of American Foodservice delivered to us in connection with this opinion, a copy of which is attached hereto as Exhibit "B". For the purposes of our opinions, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 4 copies, and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the genuineness of the signatures of persons signing all documents in connection with which these opinions are rendered. We have further assumed: (i) the authority of such persons signing all documents on behalf of the parties thereto other than Sellers; (ii) the due authorization of all documents by the parties thereto other than Sellers; (iii) the due execution and delivery of all documents by the parties thereto other than Sellers; (iv) the absence of duress, fraud, undue influence, or mutual mistake of material fact on the part of the parties; (v) that the choice of law provisions in the Share Purchase Agreement and the Related Agreements were not made with a view towards evading otherwise applicable law or the consequences thereof; and (vi) that the application of Delaware law to the Share Purchase Agreement and the Related Agreements would not be contrary to a fundamental public policy of a jurisdiction that has a materially greater interest than the State of Delaware in the determination of a particular question at issue. As to any facts material to the opinions set forth herein, which we have not independently established or verified, we have relied solely upon the representations and warranties of the officers of Sellers, the representations and warranties of Sellers contained in the Share Purchase Agreement and the Related Agreements, and upon the Officer's Certificates from each of the Sellers, but without any further independent investigation. In addition, we have obtained and relied upon such certificates from public officials as we have deemed necessary. We have assumed that such representations and warranties, and such certifications, are true, correct and complete. As used in this opinion, the expression "to our knowledge" with reference to matters of fact: (i) means that, after an examination of documents made available to us by or on behalf of Sellers and based on the representations and warranties of the officers of Sellers, the representations and warranties of Sellers contained in the Share Purchase Agreement and the Related Agreements, and upon the Officer's Certificates from each of the Sellers, but without any further independent investigation, we find no reason to believe that the opinions set forth herein are factually incorrect; and (ii) refers to the current actual knowledge of the attorneys of this law firm who have worked on matters for Sellers in connection with the consummation of the transactions contemplated by the Share Purchase Agreement and the Related Agreements. Except to the extent expressly set forth hereinabove, we have not undertaken any independent investigation to determine the existence or absence of any fact, and no inference as to our knowledge of the existence or absence of any fact should be drawn from our representation of Sellers or the rendering of the opinions set forth herein. In addition to the foregoing, in rendering the opinions set forth herein, we note that the Share Purchase Agreement and the Related Agreements state that they are to be governed by Delaware law. We advise you that we are not admitted to practice in that state, although we are familiar with the corporate laws of that state. Based solely upon the foregoing, and subject to the qualifications and exceptions heretofore and hereinafter set forth, we are of the opinion that: 1. Smart & Final is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, is qualified to transact business and is in corporate good standing under the laws of the State of Florida, and has all corporate power required to carry on FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 5 its business as now conducted and as proposed to be conducted and to execute, deliver and perform its obligations under the Share Purchase Agreement and the Related Agreements. 2. American Foodservice is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California, is qualified to transact business and is in corporate good standing under the laws of the State of Florida, and has all corporate power required to carry on its business as now conducted and as proposed to be conducted and to execute, deliver and perform its obligations under the Share Purchase Agreement and the Related Agreements. 3. American Foodservice is the sole owner of all of the outstanding shares of capital stock (the "Shares") of Henry Lee. All the Shares have been duly authorized and validly issued and are fully paid and non-assessable and, when transferred to Buyer, will be transferred free and clear of any security interest, claim, encumbrance, or adverse interest of any nature, except for such restrictions as may be imposed by state or federal securities law. 4. The execution, delivery and performance by Sellers of the Share Purchase Agreement and the Related Agreements have been duly authorized by all necessary corporate action, and do not violate or contravene the Certificate of Incorporation or Articles of Incorporation, as applicable, or the Bylaws of Sellers. The Share Purchase Agreement and the Related Agreements have been duly executed by and delivered on behalf of Sellers. 5. The Share Purchase Agreement and the Related Agreements have been duly executed and delivered and constitute the legally valid and binding obligation of Sellers and, other than the Noncompetition Agreement, are enforceable against Sellers in accordance with their terms, except as enforceability may be limited by any bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles affecting creditors' rights generally, and except as provided further below in this letter. 6. Except as disclosed in the Schedules to the Share Purchase Agreement, the execution, delivery and performance by Sellers of the Share Purchase Agreement and the Related Agreements: (i) requires no approval, filing with, authorization, consent, adjudication or order of any governmental authority which has not been obtained; (ii) does not violate any current law or regulation of the States of California or Delaware, or the federal laws of the United States of America binding on Sellers which a lawyer, using customary professional diligence, would reasonably recognize as applicable to Sellers and the transactions contemplated by the Share Purchase Agreement and the Related Agreements; (iii) to the best of our knowledge, does not violate any order, writ, judgment, injunction, decree or award binding on Sellers; and (iv) subject to the exceptions set forth below, does not violate, contravene or constitute a default under any material agreement binding upon Sellers. The foregoing opinions are subject to the following additional exceptions assumptions and qualifications: 1. We express no opinion as to the applicability of, compliance with, or effect of: FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 6 a. any principles of public policy which may limit enforceability of the Share Purchase Agreement or any of the Related Agreements; b. the effect of bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other similar laws or judicially developed doctrine (such as substantive consolidation or equitable subordination) now or hereafter in effect relating to or affecting the rights and remedies of creditors generally; c. the effect of procedural due process, general principles of equity including, without limitation, principles of commercial reasonableness, good faith and fair dealing, whether such enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought, including the court's failure or refusal to enforce provisions of agreements or documents if enforcement thereof is based upon defaults or breaches which are immaterial to the ultimate performance contemplated thereby or for other reasons deemed equitable by the court; d. the availability of the remedy of specific performance, or of any other equitable remedy or relief to enforce any right under any agreement or document; and e. the enforceability, in any particular circumstance, of any provision of the Share Purchase Agreement or the Related Agreements which provides for the severability of illegal or unenforceable provisions. For purposes of the opinions in paragraphs 1 and 2 above, we have relied exclusively upon a certificate issued by a governmental authority in each relevant jurisdiction, and statements and representations of officers of Sellers. Such opinions are not intended to provide any conclusion or assurance beyond that conveyed by such certificate. We have assumed without investigation that there has been no relevant change or development between the date of such certificate and the date of this letter. In addition, in rendering the opinions set forth above, we have assumed that the transactions described in or contemplated by the Share Purchase Agreement have been or will be consummated consistent with the descriptions of such transactions as set forth in the Share Purchase Agreement and the Related Agreements as provided to us, and in accordance with the operative documents relating to such transactions. The opinions set forth above are based on the laws of the States of California and Delaware only as they exist as of the date of this letter, and we assume no obligation to modify, supplement or update this letter to reflect any facts or circumstances which may hereafter come to our attention or on account of changes in such laws or court decisions which may hereafter occur. Furthermore, we advise you that we are not admitted to practice in the State of Delaware. As to matters of Delaware law set forth in this letter, we advise you that, with your permission, we have relied on the opinion of The Bayard Firm. FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 7 This opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matter relating to Sellers or to any investment therein, or under any other law. This opinion is solely for your benefit and, without our prior written consent, shall not be quoted in whole or in part, summarized or otherwise referred to, relied upon or filed with or supplied to any other person or entity. Very truly yours, FOLEY & LARDNER EXECUTION VERSION AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE THIS AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE (this "Agreement") is made this day of September, 2003, between SMART & FINAL, INC., a ------ Delaware corporation, of 600 Citadel Drive, Commerce, California 90040 (the "Seller") and HENRY LEE PROPERTIES, LLC, a Delaware limited liability company, of 333 - 50th Street, S.W., Grand Rapids, Michigan 49508 (the "Buyer"). RECITALS: A. Seller, American Foodservice Distributors ("AFD") and GFS Holding, Inc. ("GFS") have heretofore entered into that certain Share Purchase Agreement dated as of August 6, 2003 (the "SPA"), pursuant to which GFS has agreed to purchase all of the shares of Henry Lee Company, a Florida corporation, from Seller and AFD. B. Seller currently leases the Subject Property (as defined in Section 1(b) below) from Wells Fargo Bank Northwest, National Association, not in its individual capacity but solely as owner trustee under the S&F Trust 1998-1 (the "Owner Trustee") pursuant to that certain Lease Agreement dated as of November 30, 2001 (as amended and supplemented to date, the "Synthetic Lease," and together with the Participation Agreement, the Trust Agreement, the Credit Agreement, and the Mortgage Instruments (as each such term is defined in Appendix A to the Participation Agreement) relating to the Subject Property, referred to herein collectively as the "Synthetic Lease Documents"). A copy of each of the Synthetic Lease Documents, redacted to preserve the confidentiality of the financial terms of the transaction contemplated thereby, has previously been provided by Seller to Buyer. C. This Agreement is being entered into pursuant to and in contemplation of the consummation of the transactions contemplated by the SPA. D. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Subject Property, all on the terms and subject to the conditions set forth below. IN CONSIDERATION OF THE MUTUAL COVENANTS CONTAINED IN THIS AGREEMENT, THE PARTIES AGREE AS FOLLOWS: 1. Property Included in Purchase and Sale Agreement. (a) Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, subject to the terms of this Agreement, the real property, improvements, fixtures and appurtenances located at 2850 NW 120th Terrace, Miami, Florida, together with an unimproved parcel of land located nearby, all of which real property is more particularly 1 described on attached Exhibit A (the "Real Property"). The legal description for the Real Property shall be subject to verification by Buyer prior to Closing (as defined in Section 13 of this Agreement) based on the survey and title commitment to be provided by Seller under this Agreement. (b) Also included in this sale at no additional cost to Buyer are the items of equipment and other personal property associated with the Real Property and leased to Seller pursuant to the Synthetic Lease (the "Personal Property"). The Real Property and the Personal Property are collectively referred to in this Agreement as the "Subject Property." (c) For the avoidance of doubt, Seller and Buyer mutually acknowledge and agree that the Subject Property shall include all improvements located on the Real Property, all fixtures affixed to such improvements (including, without limitation, all shelving, racks and refrigeration units or equipment), all beneficial easements, including, without limitation, easements relating to ingress and egress, all rights, permits, licenses and appurtenances pertaining to the Real Property, if any, and all of Seller's right, title and interest in all public ways adjoining the same. 2. Purchase Price. The purchase price for the Subject Property shall be the sum of Eleven Million Two Hundred Forty Thousand Dollars ($11,240,000.00) (the "Purchase Price"). 3. Payment of Purchase Price; Payment by Seller. (a) The Purchase Price shall be paid by Buyer at Closing in the form of cashier's check or bank money order or by wire transfer of immediately available funds. (b) Concurrently with the payment of the Purchase Price by Buyer at Closing, Seller shall pay to Buyer the sum of One Million Dollars ($1,000,000) in the form of cashier's check or bank money order or by wire transfer of immediately available funds as payment for certain improvements reflected on the books of Henry Lee Company. 4. Taxes and Assessment; Utilities and Rents. (a) Seller shall assume and pay all real estate and personal property taxes ("Taxes") on the Subject Property which are billed or become due and payable on or before the Closing Date (as defined in Section 13 of this Agreement) and all outstanding special assessments, including any certified municipal or county special assessments, which have been levied or assessed or which are a lien against the Subject Property as of the Closing Date whether due or not. All Taxes coming due and payable during the calendar year in which the Closing occurs shall be prorated between Buyer and Seller as of the Closing Date with the Seller being responsible for that portion of such Taxes allocable to the period from January 1 of the year of Closing to the Closing Date and the Buyer being responsible for the balance of such Taxes. If the precise amount of such Taxes is not known as of the Closing Date, such Taxes shall be estimated based 2 upon the best available information. Notwithstanding the foregoing provisions of this Section 4(a), Seller and Buyer expressly acknowledge and agree that, as specified in Section 13, Buyer shall be solely responsible for paying any and all documentary stamps/transfer taxes and surtaxes which are payable upon the recording of the deed as to the conveyance to Buyer only. (b) All bills for utility services to the Subject Property shall either (i) be paid by Seller up to the Closing Date or (ii) be fully accrued up to the Closing Date as a current liability on the Final Closing Financial Statement (as defined in the SPA) of Henry Lee Company (in which case Seller shall not be obligated to pay such bills because the accrued liability will be taken into account in determining the Net Working Capital (as defined in the SPA) of Henry Lee Company and therefore in adjusting the purchase price payable by GFS pursuant to the SPA). Any prepaid rents and other amounts paid under any written and oral leases covering all or any portion of the Subject Property (the "Leases") shall be prorated to the Closing Date. All claims for unpaid rent shall be assigned to Buyer without additional consideration. 5. Conveyance of Title; Indemnity by Seller. (a) Fee simple title to the Subject Property shall be conveyed to Buyer at Closing pursuant to a deed direct from the Owner Trustee, which deed, Buyer hereby expressly acknowledges and agrees, may take the form of a quitclaim deed so long as such quitclaim deed is satisfactory to the Title Company (as defined in Section 6 below) for purposes of issuing the title insurance policy referenced therein. Seller hereby acknowledges and agrees that, if such quitclaim deed is not satisfactory to the Title Company for such purpose, then Seller shall either cause the Owner Trustee to convey title to Buyer pursuant to a Special Warranty Deed (as commonly known in Florida real estate transactions), or shall procure and obtain such other instruments and documents as may reasonably be required by the Title Company in order to issue the title insurance policy referenced in Section 6 on the basis of the quitclaim deed from the Owner Trustee. (b) Subject to and expressly conditioned upon the occurrence of the Closing, Seller hereby expressly represents and warrants to Buyer that title to the Subject Property conveyed by the Owner Trustee pursuant to any quitclaim deed delivered by the Owner Trustee to Buyer at the Closing will be free and clear of any and all liens, encumbrances, security interests, easements, restrictions and rights of third parties created by, through or under either Seller or the Owner Trustee, other than Permitted Encumbrances (as defined below), and Seller further undertakes and agrees to defend such title against all persons claiming by, through or under either Seller or the Owner Trustee. For purposes of this Section 5(b) and all other purposes of this Agreement, "Permitted Encumbrances" shall mean and include any and all liens, encumbrances, security interests, easements, restrictions and rights of third parties whatsoever that would not materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used, including without limitation, all such liens, encumbrances, security interests, easements, restrictions and rights of third parties which are specifically identified in this Agreement as constituting "Permitted Encumbrances." 3 (c) Seller represents and warrants that no work or materials have been supplied to or incorporated into the Subject Property (other than routine maintenance and repairs made in the ordinary course of business) which could give rise to a lien of any kind prior to the date of this Agreement, and that no such work or materials will be supplied to or incorporated into the Subject Property prior to surrender of possession to Buyer which have not been paid for in full or which will not be paid in the ordinary course of business. For the avoidance of doubt, Seller expressly acknowledges and agrees that it will pay in full all costs associated with any work performed on or with respect to the Subject Property prior to the Closing in the ordinary course of business (it being expressly understood by both parties that such payments may be made after the Closing). Seller shall provide the following affidavits to the Title Company that issues the commitment referenced in Section 6. (i) Seller's Affidavit. An affidavit from Seller attesting that: (a) no individual, entity or governmental authority (except as to work performed at the direction of the Buyer) has any claim against the Subject Property under applicable construction lien laws; (b) no individual, entity or governmental authority is either in possession of the Subject Property or has a possessory interest or claim in the Subject Property; and (c) no improvements to the Subject Property have been made (except as to work performed at the direction of Buyer) for which payment has not been made, and (d) containing information necessary to enable the Title Company to delete exceptions to the title commitment for matters appearing during the so-called "gap" period and for parties in possession and boundary disputes. (ii) FIRPTA. A Non-Foreign Transferor Affidavit in accordance with Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"). 6. Title Insurance. Seller shall furnish Buyer at Seller's expense an ALTA owner's title insurance policy issued by Chicago Title Insurance Company (the "Title Company") covering the Real Property in the amount of the Purchase Price and insuring good and marketable title to the Real Property and all beneficial easements, subject only to the Permitted Encumbrances. Such policy shall have the standard exceptions for gap period, the rights of parties in possession, matters discoverable by survey, and taxes and assessments other than for the year of the Closing and thereafter deleted. The commitment for such policy shall be delivered to Buyer as soon as reasonably practicable but in no event later than ten (10) days after the execution of this Agreement. Seller shall furnish Buyer with a "marked up" title insurance commitment conforming to the standards specified in this Section 6 and Section 8 below at the Closing. 7. Survey; Architectural and Engineering Drawings and Reports; Service Contracts. (a) As soon as reasonably possible and in no event later than fifteen (15) days after the execution of this Agreement, Seller shall provide to Buyer, at Seller's 4 expense, with a survey of the Real Property showing the area, dimensions and location of the Real Property to the nearest monuments, streets, the location of all improvements and encroachments, and the location of all recorded easements upon or appurtenant to the Real Property, which survey shall be subject to Buyer's approval and shall: (i) prepared by a Florida licensed surveyor. The survey must meet or exceed the minimum standards established under Chapter 61G17 of the Florida Administrative Code and must be certified by the surveyor to Buyer, Seller and the Title Company ; (ii) show the size, location and type of any and all buildings, structures and improvements on the Real Property; (iii)show that there are no rights-of-way over, or encroachments by any buildings, structures or improvements located on adjacent property onto or uses affecting, the Real Property or easement areas on the Real Property; and (iv) confirm that the legal description of the Real Property as set forth in the title commitment is exactly the same as the legal description set forth in the survey. (b) Buyer's obligation to close this transaction is contingent upon the Real Property being free from all encroachments and other survey defects that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used. As soon as reasonably practicable and in no event later than ten (10) days after the execution of this Agreement, Seller shall also provide Buyer with copies of: (i) all existing architectural and engineering drawings and reports concerning the Real Property currently in Seller's possession or under Seller's control; and (ii) all service contracts for all or any portion of the Subject Property, each of which is listed in Exhibit B attached hereto (the "Contracts"). 8. Correction of Title or Survey Defects. If the title insurance commitment or survey discloses any title or survey defects that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used, Buyer shall notify Seller of Buyer's objections to the defects within ten (10) days following Buyer's receipt of such title insurance commitment or survey, as the case may be, and Seller shall be obligated, as of the Closing, to discharge or obtain title insurance coverage over any such liens, encumbrances, or mortgages that may be discharged by the payment of money. If Seller is unable to cure any title or survey defects that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used, Buyer may, at its sole option, elect to: (a) terminate its obligation to purchase the Subject Property and have no further obligation or liability under this Agreement; or (b) waive any and all such defects and proceed to close this transaction. For the avoidance of doubt, Seller and Buyer expressly acknowledge and agree that (i) any title or survey defects that would not materially and significantly impair Buyer's functional use of the 5 Subject Property for the purposes for which it is currently being used shall be deemed "Permitted Encumbrances" for all purposes of this Agreement, (ii) Seller shall have no obligation whatsoever to cure any such Permitted Encumbrances (except that Seller hereby agrees to cure such Permitted Encumbrances, if any, which may be cured at no cost whatsoever to Seller), and (iii) Buyer shall be obligated to purchase the Subject Property and consummate the Closing notwithstanding the occurrence or existence of any such Permitted Encumbrances. 9. Physical Inspection of Subject Property; Environmental Assessment. (a) For a period of ten (10) days after the execution of the SPA (the "Inspection Period"), Buyer shall have the right to further inspect the Subject Property, to determine its physical characteristics and suitability for its use by Buyer. For this purpose, such inspections, investigations, appraisals, tests and determinations of the Subject Property during the Inspection Period shall include, but shall not be limited to, inquiring as to the existence of utility services, public services and access; review of any Leases relating to the Subject Property; review of the blueprints and "as built" specifications for the improvements on the Subject Property; and insuring compliance as to applicable zoning ordinances, use regulations and business codes. Buyer's obligation to close this transaction is contingent upon Buyer's satisfaction with its inspection findings. Notwithstanding anything to the contrary set forth above or elsewhere in this Section 9, however, Buyer hereby expressly acknowledges and agrees that, prior to the execution of this Agreement, Buyer has performed a Phase I and Phase II environmental assessment of the Subject Property, and that Buyer is fully satisfied with the results of such assessments and does not require, and will not be entitled to perform, any further soil testing, borings or other tests or inspections of the state of compliance of the Subject Property with Environmental Laws (as defined in the SPA). (b) Buyer shall provide reasonable prior notice to Seller of any proposed inspection or testing by Buyer or any Representative (as defined in the SPA) of Buyer pursuant to this Section 9 and shall schedule such inspection or testing so as to not disrupt the normal business operations of Seller at the Real Property. Seller and its agents and employees shall fully cooperate with Buyer and shall provide Buyer with such information and records as Buyer may reasonably request concerning the Real Property. Costs and expenses incurred in connection with Buyer's inspection and testing of the Real Property shall be paid by Buyer. Upon completion of its inspections, Buyer shall repair and restore any damage to the Subject Property caused by such inspections and testing. (c) Buyer hereby expressly agrees to indemnify and hold Seller harmless for any and all Losses (as defined in Section 17(a) below) arising out of any damage to property or any personal injury or death suffered by any person (including, but not limited to, Buyer or any Representative (as defined in the SPA) of Buyer) resulting from or arising out of the negligence of Buyer or any Representative of Buyer in connection with any of the activities contemplated by this Section 9. 6 10. Representations and Warranties of Seller. In addition to any other representations and warranties contained in this Agreement, Seller makes the following representations and warranties, each of which is expressly qualified by and subject to any and all disclosures made by Seller pursuant to the SPA, and each of which, as so qualified and except as otherwise specified below, shall be true both as of the date of this Agreement and as of the Closing Date, and each of which shall survive for two years following the Closing (except that the representations in subsections (a), (b) and (c) (but solely to the extent relating to notice of any public health or environmental law or regulation) below shall survive for one month after the maximum period permitted by law): (a) To Seller's Knowledge (as defined in Section 29 of this Agreement), or except as would not be reasonably likely to have a material adverse effect on the value or the use of the Subject Property by Buyer for the purposes for which the Subject Property is currently being used, or except as set forth on Schedule 2.21 to the SPA, no Hazardous Substances have been released in, under or upon the Subject Property except in compliance with all applicable Environmental Laws (as defined in the SPA). (b) To Seller's Knowledge or except as set forth on Schedule 2.21 to the SPA, there are no underground storage tanks on the Real Property, and, to Seller's Knowledge, or except as would not be reasonably likely to have a material adverse effect on the value or the use of the Subject Property by Buyer for the purposes for which the Subject Property is currently being used, or except as set forth on Schedule 2.21 to the SPA, no friable asbestos is present on or in the Subject Property. (c) Except as set forth on Schedules 2.7 and 2.21 to the SPA and except for any non-compliance that would not be reasonably likely to have a material adverse effect on the value or the use of the Subject Property by Buyer for the purposes for which the Subject Property is currently being used, Seller has not received any written notice or communication, and to Seller's Knowledge, Seller has not received any other notice or communication, from any Governmental Body (as defined in the SPA) asserting that the Subject Property is not in compliance with any applicable zoning, building, public health or environmental law or regulation, or any other law or regulation of any Governmental Body having jurisdiction over the Subject Property, with the exception of notices of violation or alleged liability that have been fully resolved with no future obligations on the Foodservice Business (as defined in the SPA), Buyer or Henry Lee Company. (d) To Seller's Knowledge, there are no pending or proposed special assessments or condemnation proceedings affecting or which may affect the Subject Property or any part of the Subject Property. (e) Except as provided pursuant to the terms of the Synthetic Lease Documents and that certain Credit Agreement dated as of November 30, 2001 among Seller, as borrower, BNP Paribas as administrative agent and lead arranger, and certain other parties as defined therein (the "Revolving Credit Agreement," and together with all Loan Documents as defined therein, the "Revolving Credit Documents"), there are no 7 agreements of sale, options or other rights of third parties to acquire the Subject Property, other than this Agreement. To Seller's Knowledge, there are no unrecorded easements, leases, claims, restrictions, covenants, agreements, or encumbrances affecting all or any portion of the Subject Property (except the Leases) or any other agreements which would otherwise affect the Subject Property. (f) Subject to the prior receipt of all consents required pursuant to the terms of the Synthetic Lease Documents and the Revolving Credit Documents, Seller has the sole power to execute, deliver and carry out the terms and provisions of this Agreement, and has taken all necessary action to authorize the execution, delivery, and performance of this Agreement, and this Agreement constitutes the legal, valid and binding obligation of Seller enforceable in accordance with its terms. (g) There are no actions, suits or proceedings which have been instituted, or to Seller's Knowledge threatened, against or which affect the Subject Property, at law or in equity, or before any federal, state or municipal governmental commissions, board, bureau, agency, or instrumentality which may affect the value, occupancy, or use of the Subject Property. Seller will give Buyer prompt written notice of any such action, suit or proceeding of which it obtains Knowledge subsequent to the date of this Agreement and prior to the Closing, to the extent Seller acquires such Knowledge. (h) Except as provided in Section 15 below, Seller shall not make or allow to occur any material change to, or deterioration of, the physical condition of the Subject Property, or any part thereof, which has not been corrected as of the date of Closing. (i) Seller shall pay all debts, charges, taxes and all other obligations, liabilities, costs and expenses related to Seller's ownership, use and occupancy of the Subject Property in the ordinary course of business, and shall timely file all tax returns required to be filed by Seller by any federal, state or local governmental unit or agency. (j) Seller shall promptly comply with all governmental laws, statutes, ordinances and regulations applicable to Seller in connection with this transaction. (k) To Seller's Knowledge, except as to items listed in Exhibit C attached, the improvements located on the Real Property and all fixtures and equipment, plumbing, well, septic system, heating and electrical systems, are in good condition and repair, ordinary wear and tear excepted, and, except as to that portion of the Real Property consisting of unimproved land, the Subject Property is served by electricity, gas, city water and sewer service sufficient to operate the Subject Property as of the Closing in the same manner as presently operated. (l) Seller is not a "foreign person" as that term is defined in Section 7701 of the Code, and Seller will provide an affidavit at Closing attesting to this and including Seller's tax identification number. 8 11. Buyer's Conditions Precedent. Buyer shall not be obligated to close the transaction contemplated hereunder unless the following conditions precedent shall each have been satisfied prior to the Closing: (a) Environmental Matters. There shall not have occurred any change or circumstance since the date of the Phase II environmental assessment performed at Buyer's request with respect to the presence or release of any Hazardous Substances in, on or under the Subject Property that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used. (b) No Litigation. There shall be no actions, proceedings or investigations involving Seller or Buyer which would materially interfere with Seller's or Buyer's performance of their respective obligations hereunder or Buyer's intended use of the Subject Property. (c) Compliance with Laws. There shall be no material uncured violations, including, without limitation, environmental violations, of any laws, ordinances, orders, regulations, rules or requirements of any governmental authority having jurisdiction over the Subject Property. (d) Good Title and Survey. Except as otherwise provided herein, the title insurance commitment referred to in Section 6 shall disclose good and marketable title to the Real Property vested in the Owner Trustee, free and clear of all title exceptions that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used, and the survey shall not disclose any encroachments or other defects that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used. (e) Authorizations. Buyer shall have received all such instruments and documents as Buyer's counsel shall reasonably require (i) to establish the power and authority of Seller to accept this offer and to carry out Seller's obligations hereunder, and (ii) to eliminate any title exceptions that are not permitted hereby, in the title commitment. (f) Inspection Reports. Buyer shall have completed the inspections set forth above, or the Inspection Period shall have expired. (g) Closing of Related Transactions. The closing of the transactions contemplated by (i) the SPA, (ii) a certain Asset Purchase Agreement between Seller and certain other parties dated August 6, 2003 (the "APA"), and (iii) a certain Real Estate Purchase Agreement dated the date hereof between Seller and GFS Marketplace Realty Four, LLC with respect to the Fort Lauderdale retail food store shall occur simultaneously with the Closing.. (h) Representations. All Seller representations and warranties are true and correct as of the Closing. 9 (i) Consent of Seller's Lenders; Release of Guaranty and Related Matters. All consents required pursuant to the terms of the Synthetic Lease Documents and the Revolving Credit Documents shall have been obtained, including, in each instance, such waivers or amendments of any of the terms thereof as may be required to permit the consummation of the transactions contemplated by this Agreement and the other agreements described in Section 11(g) and the documents referenced therein. Henry Lee Company, a Florida corporation, shall be released from all of its obligations under the Synthetic Lease Documents and the Revolving Credit Documents, and all documents and instruments executed in connection therewith including, but not limited to, that certain Guaranty executed in connection with the Synthetic Lease Documents and that certain Guaranty included within the Revolving Credit Documents, concurrently with the Closing of the transactions contemplated by this Agreement and the related transactions described in Section 11(g) above. As Buyer shall determine that each of the conditions set forth above have been satisfied prior to the Closing, Buyer shall so notify Seller in writing. Buyer may, at its option, terminate this Agreement without liability to either party, in the absence of such notice as to any condition prior to the Closing. 12. Seller's Conditions Precedent. Seller shall not be obligated to close the transaction contemplated hereunder unless the conditions precedent specified in Section 11(g) and 11(i) above shall each have been satisfied prior to the Closing 13. Closing and Possession; Transfer of Property. The closing of the transactions contemplated by this Agreement (the "Closing") shall occur within three (3) days after all of the conditions precedent specified in Section 11 above (other than such conditions which are to occur simultaneously with the Closing hereunder) have been satisfied or waived and Buyer gives Seller notice of its intent to close; provided, however, that the Closing shall not occur later than the earlier of September 7, 2003 or such later date (but no later than October 5, 2003) as the date on which the closing of the transactions described in Section 11(g) occurs. The date of Closing is referred to in this Agreement as the "Closing Date". The Closing shall occur at the time and place specified in the SPA for the closing of the transaction contemplated by the SPA or at such other place as the parties shall mutually agree. Seller shall surrender possession of the Subject Property to Buyer at Closing. However, prior to Closing, Buyer and its agents, employees, contractors and consultants shall have reasonable access to the Subject Property for purposes of the inspections permitted under Section 9 above. At the Closing, Seller shall deliver to Buyer each of the following: (a) A deed (which, subject to the terms and conditions specified in Section 5(a) above, may be a quitclaim deed) duly executed and in recordable form, conveying the Real Property to Buyer. (b) A bill of sale (which may be a quitclaim bill of sale from the Owner Trustee, but which shall include Seller's warranty as to title consistent with the 10 provisions of Section 5(b) above) duly executed conveying the Personal Property to Buyer. (c) An assignment, in a form satisfactory to Buyer, assigning to Buyer all rights and obligations Seller may have under any assignable Contracts that Buyer desires to assume. All Contracts not assumed by Buyer shall be terminated by Seller as of the Closing Date. (d) All books, records and other financial information concerning the Subject Property which are in Seller's possession or under Seller's control (the "Books and Records"). In addition, the parties shall execute and deliver to each other at Closing a closing statement showing the computation of the funds payable to the Seller pursuant to this Agreement, all of which funds each of Seller and Buyer expressly acknowledges and agrees shall be released directly to the Owner Trustee at the Closing. Buyer shall pay all of the documentary stamps/transfer taxes and surtaxes which are payable upon the recording of the deed as to the conveyance to Buyer only. 14. Synthetic Lease. At or prior to Closing, Seller shall procure or obtain such documents or instruments as may be required in order to terminate the Synthetic Lease with respect to the Subject Property and to release the Subject Property from all liens and encumbrances created pursuant to the Synthetic Lease Documents and the Revolving Credit Documents. Any such instruments of termination or release, as the case may be, with respect to the Real Property shall be in such form as the Title Company may reasonably require to be recordable in the real property records of the county in which the Real Property is located. 15. Condition of Subject Property. (a) In the event the Subject Property should be damaged by fire or other casualty or become subject to condemnation proceedings prior to the Closing, Buyer shall nonetheless proceed to close this transaction, and Seller shall, subject to the immediately following sentence, assign to Buyer, effective as of the Closing, all of Seller's rights to any insurance or condemnation proceeds and to cause the Owner Trustee and the Agent (as defined in the Synthetic Lease Documents) to assign to Buyer all of their respective rights, if any, to any such insurance or condemnation proceeds. For the avoidance of doubt, Seller and Buyer hereby acknowledge and agree that, in the event of any such casualty or condemnation, (i) Seller shall use any insurance or condemnation proceeds actually received by Seller (to the extent that Seller is not required by the terms of the Synthetic Lease to turn over such proceeds to the Owner Trustee or to the Agent) to repair (or commence repair) of damage to the Subject Property caused by such casualty or condemnation, and (ii) Seller shall deliver, or cause to be delivered, to Buyer at the Closing the remaining, unused balance, if any, of such proceeds (including that portion, if any, of such proceeds paid to the Owner Trustee or to the Agent pursuant to the terms of the Synthetic Lease Documents). 11 (b) Each of Seller and Buyer hereby expressly acknowledges and agrees that, notwithstanding anything to the contrary set forth in Section 15(a) above, in the event that all of the following conditions shall occur: (i) any casualty damage to or condemnation of the Subject Property occurs prior to the Closing; (ii) any insurance proceeds or condemnation awards are actually paid to the Owner Trustee or the Agent pursuant to the Synthetic Lease Documents prior to the Closing (all such proceeds being referred to herein collectively as the "Actual Proceeds"); (iii)Buyer has provided written notice of the satisfaction of all conditions precedent specified in Section 11 (other than those which are to occur simultaneously with the Closing) and Buyer has deposited, in escrow with instructions for release upon the Closing, the full amount of the Purchase Price in the form of a cashier's check or wired funds to the Title Company or such other person as Buyer and Seller may agree in writing to act as escrow agent for purposes of effecting the closing of the transaction contemplated by this Agreement (in either case, the "Escrow Agent"); and (iv) either the Owner Trustee or the Agent, or both of them, shall fail to either (x) deposit with the Escrow Agent the full amount of the Actual Proceeds received by the Owner Trustee or the Agent, as the case may be, together with written instructions to release the same to Buyer upon the Closing, or else (y) issue written instructions to the Escrow Agent authorizing the Escrow Agent to credit the full amount of the Actual Proceeds against the Purchase Price, to disburse to the Owner Trustee or the Agent, as the case may be, at Closing only the net amount of the Purchase Price after giving effect to such credit (and to release any and all instruments deposited into escrow by the Owner Trustee and/or the Agent against the disbursement of such amount to the Owner Trustee or the Agent, as the case may be), and to disburse to Buyer the portion of the funds deposited by Buyer equal to the amount of the Actual Proceeds at Closing; then Buyer shall have the right, by written notice to Seller and to the Escrow Agent, to cancel the proposed purchase of the Subject Property and terminate this Agreement, and upon such termination, neither party shall have any further liability to the other hereunder or in connection with the transactions contemplated hereby. 16. Insurance; Risk of Loss. Until the Closing, Seller shall maintain in full force and effect all fire and public liability insurance covering the Subject Property maintained by Seller in the ordinary course of business, and such insurance with respect to casualty damage shall be for the replacement value of the Subject Property. The risk of loss shall remain with Seller until Closing, subject to Buyer's rights under Section 15, above. 12 17 . Seller's Indemnities. (a) Seller shall indemnify and hold Buyer harmless from any and all liabilities, obligations, losses (including diminution in value), damages, claims, charges, costs and expenses, including reasonable actual attorney's fees (collectively, "Losses") to the extent, if any, such Losses are incurred as the result of any of the following: (i) the failure of any of the representations and warranties contained in this Agreement to be true and accurate in all respects (which, for the avoidance of doubt, shall not include any Losses arising out of or in connection with exceptions to such representations and warranties expressly disclosed to Buyer pursuant to this Agreement or the SPA); (ii) the failure of Seller to perform any of its obligations under this Agreement; (iii) any act or event occurring on or in connection with the Subject Property prior to the date of Closing or otherwise attributable (but solely to the extent so attributable) to the use or operation of the Subject Property prior to Closing, including, but not limited to, liabilities for environmental contamination caused by the release of Hazardous Substances in, on or under the Subject Property prior to Closing; or (iv) the failure of Seller to pay any of its debts, charges, taxes, liabilities or other obligations, whether accrued, absolute, contingent, known or unknown as of the date of Closing. The terms of this Section 17 shall survive for two years following the Closing (except that, with respect to any matters relating to the representations set forth in subsections (a), (b) and (c) (to the extent specified in the introductory paragraph of Section 10) of Section 10 above and any matters relating to environmental contamination covered by subclause (iii) above, the provisions of this Section 17 shall survive for one month after the maximum period permitted by law. (b) Seller's liability under the indemnity set forth above shall be subject to all of the terms, conditions and limitations set forth in Section 10 of the SPA, including, without limitation, the application of the Seller Deductible (as defined in Section 10.1 thereof). In addition, and without limiting the generality of the immediately preceding sentence, Buyer expressly acknowledges and agrees that Seller shall have no liability to indemnify Buyer for any Losses under Section 17(a) above to the extent such Losses arise from or are attributable to (i) the gross negligence or willful misconduct of any Buyer Party (as defined in the SPA), or (ii) any act or event occurring on or in connection with the Subject Property following the Closing. (c) For the avoidance of doubt, Seller and Buyer hereby acknowledge and agree that, Sections 17(a)(iii) and 17(b)(ii) above shall be read together so that, in the event that Buyer incurs any Losses in connection with or as a result of any release of Hazardous Substances in, on or under the Subject Property following the Closing, Seller shall indemnify Buyer solely for the incremental increase, if any, in such Losses incurred by Buyer that is attributable to any prior record of the release of Hazardous Substances in, on or under the Subject Property prior to Closing. 18. Seller's Default. In the event of any material default by Seller under this Agreement (which, for the avoidance of doubt, shall consist of any default or defaults, which, if uncured, individually or in the aggregate, would materially and significantly impair Buyer's functional use and/or ownership of the Subject Property for 13 the purposes for which it is currently used), Buyer shall have the right to terminate this Agreement by written notice to Seller if such material default is not cured within thirty (30) days following Seller's receipt of written notice of such material default from Seller. In addition, Buyer shall have all such rights and remedies as may be available to it under applicable law or in equity, including, but not limited to, the right to recover such damages as it may be entitled to as a result of such material default by Seller (including costs and attorney's fees), or to specifically enforce Seller's obligations under this Agreement. For the avoidance of doubt, Buyer acknowledges and agrees that Buyer shall not have the right to terminate this Agreement in the event of any default by Seller that is not material, but may still pursue damage remedies, if any, for such a default. 19. Buyer's Default. In the event of any material default by Buyer under this Agreement, Seller shall have the right to terminate this Agreement by written notice to Buyer if such material default is not cured within thirty (30) days following Buyer's receipt of written notice of such material default from Seller. In addition, Seller shall have all such rights and remedies as may be available to it under applicable law or in equity, including, but not limited to, the right to recover such damages as it may be entitled to as a result of such material default by Buyer (including costs and attorney's fees). For the avoidance of doubt, Seller acknowledges and agrees that Seller shall not have the right to terminate this Agreement in the event of any default by Buyer that is not material, but may still pursue damage remedies, if any, for such a default. 20. Survival of Representations and Warranties. All representations and warranties made in this Agreement shall survive for two years following the Closing (except that the representations set forth in subsections (a), (b) and (c) (to the extent specified in the introductory paragraph of Section 10) of Section 10 above shall survive for one month after the maximum period permitted by law. 21. Enforceability. Except as otherwise expressly provided, this Agreement shall inure to the benefit of, be binding upon, and be specifically enforceable by Seller and Buyer, and their respective successors and assigns. 22. Entire Agreement. This Agreement, together with the SPA, contains all of the representations and statements by each party to the other and expresses the entire understanding between the parties with respect to its subject matter. All prior communications concerning this transaction are merged in and replaced by this Agreement. 23. Commission. Seller and Buyer each represent to the other that neither party has engaged the services of a real estate broker or salesperson and that no other person is entitled to a fee or commission as a result of the transaction contemplated in this Agreement. 24. Notices. All notices required or given under this Agreement shall be in writing and either delivered personally by reputable courier or mailed by regular, first class U.S. mail (postage prepaid) addressed to the parties at their addresses specified above or such other address as a party may specify by providing notice thereof in 14 accordance with this Section. Notices delivered personally or by courier shall be effective upon receipt, and notices mailed by first class U.S. mail shall be effective three days following deposit in the mail, postage prepaid. 25. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 26. Construction. This Agreement shall be construed under the laws of the State of Florida, and shall not be construed against either party as draftsman. 27. Radon Gas. Section 404.056(7) Florida Statutes requires the following disclosure in any contract for sale of real estate: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. 28. Dispute Resolution. All Agreement Disputes (as defined in the SPA) shall be dealt with as set forth in the SPA. 29. Definition of "Knowledge". The term "Knowledge" as applied to Seller in this Agreement means that the particular fact or matter is actually known by any executive officer of Seller or AFD, or any of Bruce Samples, Joe Copeland, or Steve Trocke, or any of the foregoing officers or individuals should have known of such fact or matter after undertaking reasonable inquiry. 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. SMART & FINAL, INC. By /s/ Richard N. Phegley ---------------------------------- Its Richard N. Phegley ------------------------------ Senior Vice President and Chief Financial Officer SELLER HENRY LEE PROPERTIES, LLC By: /s/ Robert R. Stead --------------------------------- Its: Manager ----------------------------- BUYER 16 EXHIBIT A DESCRIPTION OF REAL PROPERTY PARCEL 1: Lots 156 and 157, of FOURTH ADDITION TO SEABOARD INDUSTRIAL PARK SECTION 1-A, according to the plat thereof as recorded in Plat Book 104, Page 88, of the public records of Miami-Dade County, Florida. PARCEL 2: Lots 454, 455, 456, 457, 458, 459, 460, 461, 462 and 463, of EIGHT ADDITION TO SEABOARD INDUSTRIAL PARK, according to the plat thereof as recorded in Plat Book 142, Page 57, of the public records of Miami-Dade County, Florida. EXHIBIT B SERVICE AGREEMENTS Services Agreement between Rentokil Pest Control and Henry Lee Company for Pest Control Services. Agreement between ADT Security Systems, Inc and Smart & Final dated December 8, 1994. EXHIBIT C EXCEPTIONS TO REPRESENTATION IN SECTION 10(K) None. VENDOR CONTRACT PARTICIPATION AGREEMENT THIS VENDOR CONTRACT PARTICIPATION AGREEMENT (this "Agreement") is entered into and effective as of September 7, 2003 (the "Effective Date"), by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), and GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Share Purchase Agreement (as defined below). RECITALS A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI, AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated August 6, 2003, by and among GFS Holding, GFS Orlando and GFS Stores, and Sellers, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD (collectively, the "Assets"). B. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the businesses conducted by AFD, SF Stores and Henry Lee in the State of Florida (the "Business"). C. Sellers are parties to various vendor contracts (the "Vendor Contracts") described in the Schedules to the Share Purchase Agreement and the Asset Purchase Agreement and to be assigned to or utilized by Buyers after the Closing. Many of the Vendor Contracts are multiple party contracts ("Multiple Party Vendor Contracts") which contain provisions unrelated to the Business, and therefore Sellers have provided Buyers with summaries of the portions of the Multiple Party Vendor Contracts which relate to the Business instead of disclosing the entire contract. Buyers have requested, and Sellers have agreed, to cooperate with Buyers in the use and operation of the Vendor Contracts, including the Multiple Party Vendor Contracts, on the terms set forth below. D. Buyers have required as a condition to the consummation of the transactions contemplated by of the Share Purchase Agreement and the Asset Purchase Agreement that Sellers enter into this Agreement. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Sellers and Buyers agree as follows: 1. Term. The term of this Agreement shall commence upon the Closing of the Share Purchase Agreement and the Asset Purchase Agreement and shall continue until expiration of the last of the Vendor Contracts to expire. Buyers expressly acknowledge that Sellers are under no obligation to renew or extend any of the Vendor Contracts beyond their stated terms. 2. Cooperation. From time to time after the Closing Date, Sellers shall cooperate with Buyers in arranging for purchases within the State of Florida pursuant to the Vendor Contracts. Sellers also shall permit Buyers to contact the vendors under each of the Vendor Contracts so that Buyers may establish new relationships with those vendors if Buyers so desire. Sellers also shall provide Buyers with all correspondence, information and invoices related to performance of the Vendor Contracts in the State of Florida to enable Buyers to deal with such vendors on an effective basis. 3. Contract Performance. Buyers may elect to purchase products under the Vendor Contracts, and if and to the extent that Buyers elect to do so, Sellers and Buyers each agree to honor the terms of all of the Vendor Contracts, and to conduct their respective purchases under the Multiple Party Vendor Contracts in such a manner as to not disrupt the purchasing rights and obligations of the other parties to the Multiple Party Vendor Contracts. In particular, Sellers and Buyers each agree to honor any payment terms of the Vendor Contracts (subject to good faith disputes with such vendors). 4. Indemnification. A. Indemnity by Sellers. Sellers shall, jointly and severally, indemnify Buyers and their affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Buyer Indemnified Parties") against and hold each of them harmless from any and all damage, loss, cost, penalty, liability and expense (including, without limitation, reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("Damages") incurred or suffered by the Buyer Indemnified Parties (whether originally asserted against or imposed on the Buyer Indemnified Parties by a third party or originally incurred or suffered directly by the Buyer Indemnified Parties) arising directly out of any breach of any representation or warranty, covenant or agreement made or to be performed by Sellers pursuant to this Agreement, or arising directly out of any liability or obligations under the Multiple Party Vendor Contracts to the extent such liability or obligations have not been disclosed to Buyers in the summaries of the Multiple Party Vendor Contracts (such breach, a "Seller Breach"). B. Indemnity by Buyers. Buyers shall indemnify Sellers and their affiliates, directors, officers, employees, controlling persons, agents and representatives and their 2 successors and assigns (collectively, the "Seller Indemnified Parties") against and hold each of them harmless from any and all Damages incurred or suffered by the Seller Indemnified Parties (whether originally asserted against or imposed on the Seller Indemnified Parties by a third party or originally incurred or suffered directly by the Seller Indemnified Parties) arising directly out of any breach of any representation, warranty, covenant or agreement made or to be performed by Buyers pursuant to this Agreement (such breach, a "Buyer Breach"). C. Procedure and Payment. (1) The person seeking indemnification under Section 4.A, and 4.B (the "Indemnified Party") agrees to give prompt notice to the Person against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding, in respect of which indemnity may be sought under such Section and will provide the Indemnifying Party such information with respect thereto as the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have materially and adversely prejudiced the Indemnifying Party. (2) The Indemnifying Party shall be entitled to defend any claim asserted by any third party ("Third Party Claim") with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying Party notifies the Indemnified Party in writing within fifteen (15) days after the Indemnified Party has given notice of the Third Party Claim that it will indemnify the Indemnified Party from and against all Damages that the Indemnified Party may suffer resulting from, arising out of, relating to, or caused by the Third Party Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations under this Agreement, (iii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, and (iv) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (3) So long as the Indemnifying Party is conducting the defense of any Third Party Claim in accordance with the provisions of this Section 4.C, the Indemnified Party shall be entitled to participate in the defense of such Third Party Claim and to employ separate counsel of its choice for such purpose. The fees and expenses of such separate counsel shall be paid by the Indemnified Party. (4) Each party shall cooperate, and cause its Affiliates to cooperate, in the defense or prosecution of any Third Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested by any other party in connection therewith. 3 D. Calculation of Damages. (1) The amount of any Damages payable under Section 4.A and 4.B by the Indemnifying Party shall be net of any amounts recovered by the Indemnified Party under applicable insurance policies and the Indemnified Party shall use commercially reasonable efforts to collect any amounts available under such insurance policies. (2) If the Indemnified Party receives an amount under insurance coverage or from a third party with respect to Damages at any time subsequent to any indemnification provided by the Indemnifying Party pursuant to Section 4.A and 4.B, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification up to such amount received by such Indemnified Party, but net of any expenses incurred by such Indemnified Party in collecting such amount. 5. Force Majeure. Neither Sellers nor Buyers shall be responsible to the other for any delay in or failure of performance of their obligations under this Agreement to the extent such delay or failure is attributable to any cause beyond their reasonable control, including, without limitation, any act of God, fire, accident, strike or other labor difficulties, war, embargo or other governmental act, or riot; provided that the party affected thereby gives the other party prompt notice of the occurrence of any event which has caused or is likely to cause any such delay or failure, setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; and provided further that said affected party shall use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance or utilization. 6. Miscellaneous Provisions. A. Confidentiality. Each of Sellers and Buyers (as appropriate, the "Promisor") covenant and agree to and will cause their respective authorized agents, representatives, affiliates, employees, officers, directors, accountants, counsel and other designated representatives (collectively, "Representatives") to (i) treat and hold as confidential (and not disclose or provide access to any person to) all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") concerning the other party (the "Promisee") and the Vendor Contracts in the Promisor's possession or furnished by the Promisee or its Representatives pursuant to this Agreement, (ii) in the event that Promisor or its Representatives become legally compelled to disclose any such Information, provide the Promisee with prompt written notice of such requirement so that the Promisee may seek a protective order or other remedy or waive compliance with this Section 6.A, and (iii) in the event that such protective order or other remedy is not obtained, or the Promisee waives compliance with this Section 6.A, furnish only that portion of such Information which is legally required to be provided and exercise Promisor's best efforts to obtain assurances that confidential treatment will be accorded such Information; provided, however, that this sentence shall not apply to any Information that, at the time of disclosure, is available publicly and was not disclosed in 4 breach of this Agreement by such party or its Representatives; and provided further, however, that the provisions of clauses (i) and (ii) above shall not preclude a party from disclosing Information to its Representatives (provided that each such Representative shall be advised of the confidential nature of such Information) or from disclosing Information to or filing Information with any governmental authority or agency with jurisdiction over such party. Each party agrees and acknowledges that remedies at law for any breach of its obligations under this Section 6.A are inadequate and that in addition thereto the other party shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach, without the necessity of demonstrating the inadequacy of monetary damages. The provisions of this Section 6.A shall not apply to the extent any such Information is required to be disclosed by applicable law. B. Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Donald G. Alvarado Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 5 With a copy to: Sue Mullins Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II C. Jurisdiction. (1) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 6.C, it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (2) In the event the state court specified in Section 6.C(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and 6 (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (3) In the event the state court specified in Section 6.C(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Sellers arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (4) The parties hereby waive any right to a jury trial. D. Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting (unless the requesting party is entitled to indemnification therefor under Section 4), each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. E. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred 7 to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. F. Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. G. Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights or obligations under this Agreement without the prior consent of the other parties, except that GFS Holding may assign any of its rights under this Agreement to any Affiliate of GFS Holding. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. H. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. I. Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. J. Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. 8 K. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. L. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. M. Dispute Resolution. Except as hereinafter provided in this Section 6.M all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (1) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 6.B hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (2) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (3) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (4) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 6.C without having to submit the matter or 9 Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. N. Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. O. Relationship of Parties. The relationship between Sellers and Buyers for purposes of this Agreement shall be that of an independent contractor and not of employment and, except to the extent required to enable Sellers to perform their duties hereunder, neither party is an agent of the other. By entering into this Agreement, neither party to this Agreement is, in any way, assuming any liabilities, debts or obligations of the other party, whether now existing or hereafter created. IN WITNESS WHEREOF, Sellers and Buyers have executed this Agreement as of the date set forth in the first paragraph hereof. "SFI" SMART & FINAL INC. a Delaware corporation By: Dennis Chiavelli ---------------------------------- Its: --------------------------------- "AFD" AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By: Dennis Chiavelli ---------------------------------- Its: --------------------------------- "SF Stores" SMART & FINAL STORES CORPORATION a California corporation By: Dennis Chiavelli ---------------------------------- Its: --------------------------------- 10 "GFS Holding" GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray ---------------------------------- Its: Director --------------------------------- "Henry Lee" HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- "GFS Stores" GFS STORES, LLC a Delaware limited liability company By: GFS HOLDINGS, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- "GFS Orlando" GFS Orlando, LLC a Delaware limited liability company By: GFS HOLDINGS, INC. Its: Manager By: /s/ David L. Gray ---------------------------------- Its: --------------------------------- 11 EX-10.33 7 dex1033.txt ASSET PURCHASE AGREEMENT DATED AS OF AUGUST 6, 2003 Exh. 10.33 Execution Copy ASSET PURCHASE AGREEMENT Dated as of August 6, 2003 by and among SMART AND FINAL INC., a Delaware corporation and SMART AND FINAL STORES CORPORATION, a California corporation and AMERICAN FOODSERVICE DISTRIBUTORS a California corporation and GFS HOLDING, INC., a Delaware corporation and GFS ORLANDO, LLC, a Delaware limited liability company and GFS STORES, LLC, a Delaware limited liability company TABLE OF CONTENTS ARTICLE I PURCHASE AND SALE OF ASSETS 1.1 Sale and Purchase of the Assets........................................2 1.2 Purchase Price and Payment.............................................2 1.3 Assumption of Liabilities..............................................2 1.4 Adjustment of Purchase Price...........................................3 1.5 Adjustment Procedure...................................................3 1.6 Closing................................................................4 1.7 Closing Deliveries.....................................................5 1.8 Allocation of Purchase Price...........................................8 1.9 Transfer Taxes.........................................................8 ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES 2.1 Organization and Qualification of the Seller Parties...................8 2.2 Authority; No Conflict.................................................9 2.3 Financial Statements..................................................10 2.4 Books and Records.....................................................10 2.5 No Undisclosed Liabilities............................................10 2.6 Compliance with Legal Requirements; Governmental Authorizations.......11 2.7 Absence of Certain Changes............................................12 2.8 Personal Property.....................................................14 2.9 Inventory.............................................................15 2.10 Accounts Receivable...................................................15 2.11 Contracts; No Defaults................................................15 2.12 Guaranties............................................................18 2.13 Employee Benefits.....................................................18 2.14 Employees.............................................................23 2.15 Labor Relations; Compliance...........................................23 2.16 Litigation............................................................24 2.17 Real Property.........................................................25 2.18 Insurance.............................................................26 2.19 Environmental Matters.................................................26 2.20 Relationships with Related Persons....................................27 2.21 Warranties............................................................27 2.22 Change in Business Relationships......................................27 2.23 Brokers...............................................................27 2.24 Solvency..............................................................27 2.25 True and Correct Information..........................................28 2.26 Ownership.............................................................28 2.27 Sufficiency of Assets.................................................28 i 2.28 Title.................................................................28 2.29 Taxes.................................................................28 2.30 Intellectual Property.................................................28 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER PARTIES 3.1 Organization and Good Standing........................................30 3.2 Authority; No Violation...............................................30 3.3 Certain Proceedings...................................................30 3.4 Brokers or Finders....................................................30 3.5 Sufficiency of Funds..................................................30 3.6 Registration in State of Florida......................................30 3.7 Knowledge of Claims...................................................31 ARTICLE IV COVENANTS OF SELLER PARTIES PRIOR TO CLOSING DATE 4.1 Access and Investigation..............................................31 4.2 Operation of the Retail Store Business and the Meat Processing Business...........................................................31 4.3 Negative Covenant.....................................................32 4.4 Required Approvals....................................................32 4.5 Notification..........................................................32 4.6 Payment of Indebtedness by Related Persons............................32 4.7 No Negotiation........................................................32 4.8 Commercially Reasonable Efforts.......................................32 4.9 Employees.............................................................32 4.10 Clearance Certificates................................................34 4.11 Seller Parties' Environmental Investigation...........................35 ARTICLE V COVENANTS OF THE BUYER PARTIES AND THE SELLER PARTIES PRIOR TO CLOSING DATE 5.1 Approvals of Governmental Bodies......................................35 5.2 Commercially Reasonable Efforts.......................................35 5.3 Cooperation...........................................................35 5.4 Synthetic Lease Agreement.............................................36 ARTICLE VI POST-CLOSING COVENANTS OF THE BUYER PARTIES AND THE SELLER PARTIES 6.1 General...............................................................36 6.2 Litigation Support....................................................36 6.3 Transition............................................................36 6.4 Delivery of Property Received After Closing...........................37 6.5 Real Property Consents................................................37 6.6 Insurance Matters.....................................................37 ii 6.7 Assistance and Cooperation............................................37 6.8 Assumed Contracts Consents............................................38 6.9 Environmental Testing.................................................38 ARTICLE VII CONDITIONS PRECEDENT TO THE SELLER PARTIES' OBLIGATION TO CLOSE 7.1 Accuracy of Representations...........................................39 7.2 Performance...........................................................40 7.3 Additional Documents..................................................40 7.4 No Injunction.........................................................40 7.5 Closing of Share Purchase Transaction.................................40 7.6 Consents..............................................................40 ARTICLE VIII CONDITIONS PRECEDENT TO THE BUYER PARTIES' OBLIGATION TO CLOSE 8.1 Accuracy of Representations...........................................40 8.2 Performance...........................................................41 8.3 Consents..............................................................41 8.4 Additional Documents..................................................41 8.5 No Injunction.........................................................41 8.6 No Proceedings........................................................41 8.7 No Claim Regarding Assets or Sale Proceeds............................41 8.8 No Prohibition........................................................41 8.9 Closing of Share Purchase Transaction.................................41 8.10 Execution and Closing of Real Estate Purchase Agreement...............41 ARTICLE IX TERMINATION 9.1 Termination Events....................................................42 9.2 Effect of Termination.................................................42 ARTICLE X INDEMNIFICATION 10.1 Indemnity by the Seller Parties.......................................42 10.2 Indemnity by the Buyer Parties........................................44 10.3 Procedure and Payment.................................................44 10.4 Calculation of Losses.................................................45 10.5 Survival of Representations and Warranties of the Seller Parties......46 10.6 Survival of Representations and Warranties of the Buyer Parties.......46 10.7 Escrow................................................................46 10.8 Indemnified Environmental Matters.....................................46 ARTICLE XI DEFINITIONS iii ARTICLE XII GENERAL PROVISIONS 12.1 Expenses With Respect to Transaction..................................59 12.2 Public Announcements..................................................59 12.3 Confidentiality.......................................................59 12.4 Notices...............................................................60 12.5 Jurisdiction..........................................................61 12.6 Further Assurances....................................................62 12.7 Waiver................................................................62 12.8 Entire Agreement and Modification.....................................63 12.9 Assignments, Successors, and No Third-Party Rights....................63 12.10 Severability..........................................................63 12.11 Section Headings, Construction........................................63 12.12 Preamble; Preliminary Statement.......................................63 12.13 Governing Law.........................................................63 12.14 No Strict Construction................................................64 12.15 Dispute Resolution....................................................64 12.16 Supplemental Disclosure...............................................64 12.17 Reliance..............................................................65 12.18 Counterparts..........................................................65 iv SCHEDULES Schedule 1.1(b) Excluded Assets Schedule 1.3(a) Assumed Liabilities Schedule 1.3(b) Excluded Liabilities Schedule 1.4 Accounting Policies and Practices Schedule 2.1 Qualified to do Business Schedule 2.2 Notices; Consents Schedule 2.2(b) No Conflicts Schedule 2.3 Financial Statements Schedule 2.5 Undisclosed Liabilities Schedule 2.6 Compliance with Legal Requirements Schedule 2.6(b) Governmental Authorizations Schedule 2.7 Absence of Certain Changes Schedule 2.8 Personal Property Schedule 2.10 Accounts Receivable Schedule 2.11(a) Contracts; No Defaults Schedule 2.11(b) Contracts; Obligations Schedule 2.11(c) Contracts in Full Force and Effect Schedule 2.11(d) Compliance with Contracts Schedule 2.12 Guaranties Schedule 2.13(b)(i) Employee Benefits-Company Plans Schedule 2.13(b)(ii) Multi-Employer Plans Schedule 2.13(d) Compliance with Plans Schedule 2.14 Employees Schedule 2.15 Labor Relations; Compliance Schedule 2.16(a) Litigation Proceedings Schedule 2.16(b) Litigation Orders Schedule 2.16(c) Compliance with Orders Schedule 2.17 List of Real Property Schedule 2.18(a) Insurance Loss Experience Schedule 2.18(b) Payment of Insurance Premiums Schedule 2.19 Environmental Matters Schedule 2.20 Relationships with Related Persons Schedule 2.22 Change in Business Relationships Schedule 2.27 Sufficiency of Assets Schedule 2.30 Trademarks and Tradenames Schedule 4.6 Payment of Indebtedness by Related Persons Schedule 6.5 Certain Leases Schedule 8.3 Material Consents Schedule 10.1(a) Indemnified Matters v EXHIBITS Exhibit A Escrow Agreement Exhibit B Assumption Agreement Exhibit C Noncompetition Agreement Exhibit D Software License and Support Agreement Exhibit E Tradename and Trademark License Agreement Exhibit F Transitional Services Agreement Exhibit G Employee Leasing Agreement Exhibit H Opinion of Counsel Exhibit I Real Estate Purchase Agreement Exhibit J Vendor Contract Participation Agreement vi ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is dated as of August 6, 2003, by and among GFS HOLDING, INC., a Delaware corporation (the "Buyer Member"), GFS ORLANDO, LLC, a Delaware limited liability company ("GFS Orlando") and GFS STORES, LLC, a Delaware limited liability company ("GFS Stores" and, together with GFS Orlando, the "Buyers"), and SMART & FINAL INC., a Delaware corporation (the "Seller Shareholder"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores") and AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD" and, together with SF Stores, the "Sellers"). Buyer Member, GFS Orlando, and GFS Stores are sometimes referred to in this Agreement as the "Buyer Parties," and Seller Shareholder, SF Stores, and AFD are sometimes referred to in this Agreement as the "Seller Parties." Capitalized terms used, but not otherwise defined herein, shall have the meanings set forth in Article XI hereof. PRELIMINARY STATEMENT Seller Shareholder is the record and beneficial owner of all of the issued and outstanding equity securities of SF Stores and AFD. SF Stores is engaged in the retail food store business in the State of Florida and operates from several locations within that state. AFD operates, among other things, a fresh meat processing business in the state of Florida under the name "Orlando Foodservice" (the "Meat Processing Business"). AFD also conducts a foodservice distribution business (the "Foodservice Business") through its wholly-owned subsidiary, Henry Lee Company, a Florida corporation ("Henry Lee"). Buyer Member is the record and beneficial owner of all of the outstanding membership interests of GFS Orlando and GFS Stores. GFS Orlando was formed for the purpose of acquiring all of the assets that are used by AFD in the operation of the Meat Processing Business and located in the state of Florida. GFS Stores was formed for the purpose of acquiring certain of the assets that are used by SF Stores in the operation of its retail store business and located in the state of Florida. In a separate related transaction, Buyer Member will acquire from AFD all of the issued and outstanding equity securities of Henry Lee pursuant to a Share Purchase Agreement dated the date hereof by and among Buyer Member, Seller Shareholder, and AFD (the "Share Purchase Agreement"). This Agreement is being entered into by the Buyer Parties and the Seller Parties to set forth the terms and conditions upon which Buyers will acquire from Sellers certain of the assets that are used by SF Stores in the operation of its retail store business and located in the state of Florida and all of the assets that are used by AFD in the operation of the Meat Processing Business and located in the state of Florida. NOW, THEREFORE, in consideration of the mutual agreements and covenants herein contained and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS 1.1 Sale and Purchase of the Assets. On the Closing Date (as such term is defined in Section 1.6), Sellers shall sell to Buyers, and Buyers shall acquire from Sellers, the Assets, free and clear of all Encumbrances (other than Permitted Encumbrances), and Buyers shall assume the Assumed Liabilities (with GFS Stores acquiring that portion of the Assets and assuming that portion of the Assumed Liabilities relating to the Retail Store Business and GFS Orlando acquiring that portion of the Assets and assuming that portion of the Assumed Liabilities relating to the Meat Processing Business), on the terms and subject to the conditions set forth in this Agreement. 1.2 Purchase Price and Payment. The purchase price to be paid by Buyers to Sellers for the Assets shall be Three Million Eight Hundred Seventeen Thousand One Hundred Thirty-Two Dollars ($3,817,132), subject to adjustment following the Closing Date for changes in Net Working Capital with respect to the Meat Processing Business and the Retail Store Business as described in Section 1.4 below (the "Purchase Price"). The Net Working Capital of Sellers with respect to the Retail Store Business and the Meat Processing Business as of March 23, 2003, is Four Million Seven Hundred Seventy One Thousand Two Hundred Fifty-Seven Dollars ($4,771,257) (the "March 23, 2003 Net Working Capital"). In order to establish a reasonable estimate of the Purchase Price at Closing, Sellers shall prepare and deliver to Buyers, not less than five (5) business days prior to the Closing Date, a detailed written statement (the "Preliminary Purchase Price Statement") of Sellers' reasonable good faith calculation of the Net Working Capital with respect to the Retail Store Business and the Meat Processing Business as of the Closing Date (the "Preliminary Net Working Capital"). If the Preliminary Net Working Capital is less than the March 23, 2003 Net Working Capital, the Purchase Price shall be reduced dollar for dollar by such difference and if the Preliminary Net Working Capital is greater than the March 23, 2003 Net Working Capital the Purchase Price shall be increased dollar for dollar by such difference. The Purchase Price shall be paid at Closing as follows: (a) An amount equal to the Purchase Price (based on the Preliminary Purchase Price Statement) less the sum of Two Million Dollars ($2,000,000) shall be paid to Sellers by wire transfer of immediately available funds (the "Closing Payment"); and (b) The sum of Two Million Dollars ($2,000,000) (the "Escrow Payment") shall be delivered to Wells Fargo Bank (the "Escrow Agent") to be held in escrow on the terms and subject to the conditions set forth in an Escrow Agreement substantially in the form attached hereto as Exhibit A (the "Escrow Agreement"). 1.3 Assumption of Liabilities. Subject to the terms of this Agreement, GFS Stores will, and Buyer Member will cause GFS Stores to, assume and become responsible for all of the Assumed Liabilities relating to the Retail Store Business and GFS Orlando will, and Buyer Member will cause GFS Orlando to, assume and become responsible for all of the Assumed Liabilities relating to the Meat Processing Business at the Closing, specifically including those liabilities identified on Schedule 1.3(a). Buyers will not assume or have any responsibility, however, with respect to any other obligation or liability of the Seller Parties not included within 2 the Assumed Liabilities, including those specifically set forth on Schedule 1.3(b) (the "Excluded Liabilities"). 1.4 Adjustment of Purchase Price. The Purchase Price shall be adjusted on a dollar-for-dollar basis to reflect any increases or decreases in the Preliminary Net Working Capital as of the Closing Date. For purposes of this Agreement, the term "Net Working Capital" means the difference between (a) the sum of cash, cash equivalents, temporary investments, accounts receivable, inventories and prepaid expenses and other current assets and (b) the sum of accounts payable and accrued expenses and other current liabilities, in each case solely with respect to the Assets being acquired and the Assumed Liabilities being assumed hereunder and in each case computed in accordance with GAAP utilizing the accounting policies and practices set forth on Schedule 1.4. 1.5 Adjustment Procedure. (a) Seller Shareholder shall prepare the Closing Financial Statement (as defined below) and shall cause Ernst & Young, LLP to undertake a balance sheet audit (the "Balance Sheet Audit") with respect to the Retail Store Business and the Meat Processing Business as of the Closing Date and compute the Net Working Capital of Sellers as of the Closing Date with respect to the Retail Store Business and the Meat Processing Business and the adjustment, if any, to the Purchase Price required by Section 1.4, and Ernst & Young LLP shall, and Seller Shareholder shall cause Ernst & Young, LLP to, deliver to Buyer Parties, within forty-five (45) days of the Closing Date, a detailed written statement with reasonable supporting documentation (the "Closing Financial Statement") reflecting the result of its audit. Buyers and Sellers shall have access to, and will have the opportunity to present to Ernst & Young, LLP any material relating to, the Closing Financial Statement, and to discuss the audit of the Closing Financial Statement with Ernst & Young, LLP. The parties agree that with respect to the audit contemplated by this Agreement and by Section 1.4(a) of the Share Purchase Agreement, (i) the Seller Shareholder's cost shall not exceed, in the aggregate, Thirty Five Thousand Dollars ($35,000) and that any amount in excess of $35,000 shall be the obligation of Buyers, and (ii) the Seller Shareholder shall cause Ernst & Young LLP to limit the scope of such audit upon receiving a reasonable written request from Buyers setting forth the scope of such restrictions within five (5) days of Ernst & Young LLP commencing such audit. For the avoidance of doubt, other than (A) the adjustment of the Purchase Price to reflect changes in the Preliminary Net Working Capital pursuant to Section 1.4 and (B) claims for breaches of the representations and warranties contained in this Agreement that require the Seller Parties to indemnify Buyers pursuant to Article X , the Balance Sheet Audit shall have no effect on any adjustment to the Purchase Price. If within thirty (30) days following delivery of the Closing Financial Statement Buyer Parties have not given Seller Shareholder notice of their objection to the Closing Financial Statement (which notice must contain a reasonable statement of the basis of the objection), then the Closing Financial Statement shall be deemed to be the "Final Closing Financial Statement" and the Net Working Capital amount set forth therein shall be deemed to be the "Final Net Working Capital". If Buyer Parties give such notice of objection, then the issues in dispute will be submitted to one of the "Big Four" national accounting firms (other than Ernst & Young, LLP) mutually acceptable to Buyer Parties and Seller Parties (the "Accountants") for resolution. If issues in dispute are submitted to the Accountants for resolution, (i) each party will furnish to the Accountants such work papers and other documents and information relating to the 3 disputed issues as the Accountants may reasonably request and are available to that party (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) Buyer Parties will bear fifty percent (50%) and Seller Parties will bear fifty percent (50%) of the fees of the Accountants for such determination. If Buyer Parties have given a notice of objection in accordance with this Section 1.5(a), the Closing Financial Statement, as modified by resolution of any such disputes with respect thereto by the Accountants, shall be the "Final Closing Financial Statement" and the Net Working Capital amount set forth therein shall be the "Final Net Working Capital". (b) On the fifth (5th) business day following the final determination of the Final Closing Financial Statement, if the Final Net Working Capital is greater than the Preliminary Net Working Capital, Buyers will pay such difference to Sellers in immediately available funds and the Escrow Agent shall, and Buyers shall cause the Escrow Agent to, deliver to Sellers One Million Dollars ($1,000,000) from the Escrow Payment in accordance with the Escrow Agreement. (c) On the fifth (5th) business day following the final determination of the Final Closing Financial Statement, if the Final Net Working Capital is less than the Preliminary Net Working Capital (such difference, the "Difference") and such Difference is less than or equal to One Million Dollars ($1,000,000), Sellers shall direct the Escrow Agent to deliver to Buyers, from the Escrow Payment, the Difference, and Buyers shall direct the Escrow Agent to deliver to Sellers, from the Escrow Payment, One Million Dollars ($1,000,000) less the Difference in accordance with the Escrow Agreement. (d) On the fifth (5th) business day following the final determination of the Final Closing Financial Statement, if the Difference is greater than One Million Dollars ($1,000,000), Sellers shall direct the Escrow Agent to deliver to Buyers, from the Escrow Payment, One Million Dollars ($1,000,000) and Seller Parties shall pay to Buyers, in immediately available funds, the Difference less One Million Dollars ($1,000,000) in accordance with the Escrow Agreement. (e) Unless otherwise specifically provided for herein or in the Share Purchase Agreement, any item which is contained within the Final Net Working Capital or the Balance Sheet Audit or that has been reviewed as part of the adjustment process in arriving at the Final Net Working Capital shall not serve as a basis for an indemnification claim for a breach of a representation, warranty, covenant or agreement under this Agreement. 1.6 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Foley & Lardner, 2029 Century Park East, Suite 3500, Los Angeles, California 90067-3021, within three (3) business days following the satisfaction or waiver by the Buyer Parties or the Seller Parties (as applicable) of all of the conditions set forth in Articles VII and VIII, or at such other time and place as may be mutually agreed upon by Buyers and Sellers (such time and date being hereinafter referred to as the "Closing Date"). The parties currently intend the Closing Date to be as of September 7, 2003. 4 1.7 Closing Deliveries. (a) Closing Deliveries By Seller Parties. On the Closing Date, Seller Parties shall deliver, and cause to be delivered, to Buyers: (i) Assignment Documents. A bill of sale, warranty deeds relating to the owned real property and other documents of transfer and conveyance sufficient to transfer and assign to the appropriate Buyer good title to the Assets that it is acquiring, free and clear of any and all Encumbrances (other than Permitted Encumbrances); (ii) Assumption Documents. Assumption Agreements substantially in the form of Exhibit B (the "Assumption Agreement") whereby Buyers will assume all of the Assumed Liabilities; (iii) Consents. Copies of all notices or Consents listed on Schedule 2.2 duly executed by the appropriate parties thereto; (iv) Bring-Down Certificate. A certificate signed by the Seller Parties dated the Closing Date certifying that the conditions contained in Sections 8.1 and 8.2 have been satisfied; (v) Certificates of Good Standing. Certificates of good standing with respect to each of the Seller Parties issued by the appropriate state official for its jurisdiction of organization, each dated not more than twenty (20) days prior to the Closing Date; (vi) Escrow Agreement. The Escrow Agreement contemplated by Section 1.2(b); (vii) Noncompetition Agreement. A Noncompetition Agreement signed by the appropriate Seller Parties in the form attached as Exhibit C; (viii) Software License and Support Agreement. A Software License and Support Agreement signed by the appropriate Seller Parties substantially in the form attached as Exhibit D; (ix) Tradename and Trademark License Agreements. The Tradename and Trademark License Agreements signed by the appropriate Seller Parties substantially in the forms attached as Exhibit E; (x) Transitional Services Agreement. A Transitional Services Agreement signed by the appropriate Seller Parties substantially in the form attached as Exhibit F; 5 (xi) Employee Leasing Agreement. An Employee Leasing Agreement signed by the appropriate Seller Parties substantially in the form attached as Exhibit G; (xii) Opinion of Counsel. An opinion of counsel to the Seller Parties, dated as of the Closing Date, substantially in the form attached as Exhibit H; (xiii) Real Estate Purchase Agreement. A Real Estate Purchase Agreement with respect to the Fort Lauderdale Store included within the Assets signed by the appropriate Seller Parties and the necessary lenders and other parties to the Synthetic Lease Agreement substantially in the form attached as Exhibit I; (xiv) Non-Foreign Affidavit. The Seller Parties shall have delivered to Buyers a non-foreign affidavit dated as of the Closing Date and in form and substance required under the Treasury Regulations issued pursuant to Section 1445 of the IRC; (xv) Estoppel Certificates. Estoppel Certificates from each of the landlords of the properties referenced in Items 1-9 of Schedule 2.17, provided, however, that if Seller Parties are unable to obtain an Estoppel Certificate from any landlord after reasonable efforts to do so, Seller Parties may instead certify the status of the specific lease to Buyers by delivery of a Seller Parties' Estoppel Certificate in a form reasonably acceptable to Buyers and indemnify Buyers from the inaccuracy of any of the information contained in Seller Parties' Estoppel Certificate; (xvi) Vendor Contract Participation Agreement. A Vendor Contract Participation Agreement signed by the appropriate Seller Parties substantially in the form attached as Exhibit J; (xvii) Tax Clearances. The tax clearance certificates contemplated by Section 4.10; and (xviii) Further Documents. Such other documents as the Buyer Parties may reasonably request in good faith at least ten (10) days prior to the Closing Date for the purpose of facilitating the consummation of the Contemplated Transactions. (b) Closing Deliveries By Buyers. On the Closing Date, Buyers shall deliver to Sellers: (i) Closing Payment. The Closing Payment by delivery of immediately available funds; 6 (ii) Assumption Documents. The Assumption Agreement signed by the appropriate Buyer substantially in the form attached as Exhibit B; (iii) Escrow Payment. Evidence of payment of the Escrow Payment to the Escrow Agent; (iv) Noncompetition Agreement. A Noncompetition Agreement signed by Buyers in the form attached as Exhibit C; (v) Escrow Agreement. The Escrow Agreement contemplated by Section 1.2(b); (vi) Software License and Support Agreement. The Software License and Support Agreement signed by the appropriate Buyer Parties substantially in the form attached as Exhibit D; (vii) Tradename and Trademark License Agreements. The Tradename and Trademark License Agreements signed by the appropriate Buyer Parties substantially in the form attached as Exhibit E; (viii) Transitional Services Agreement. The Transitional Service Agreement signed by the appropriate Buyer Parties substantially in the form attached as Exhibit F; (ix) Employee Leasing Agreement. The Employee Leasing Agreement signed by the appropriate Buyer substantially in the form attached as Exhibit G; (x) Real Estate Purchase Agreement. A Real Estate Purchase Agreement with respect to the Fort Lauderdale Store included within the Assets signed by the appropriate Buyer Parties substantially in the form attached as Exhibit I; (xi) Vendor Contract Participation Agreement. A Vendor Contract Participation Agreement signed by the appropriate Buyer Parties substantially in the form attached as Exhibit J; (xii) Bring-Down Certificate. A certificate signed by the Buyer Parties dated the Closing Date certifying that the conditions contained in Sections 7.1 and 7.2 have been satisfied; (xiii) Resale Certificate. Valid resale certificates signed by each of GFS Orlando and GFS Stores with respect to inventory and other Assets intended for resale by the Buyer Parties; and (xiv) Further Documents. Such other documents as Sellers may reasonably request in good faith at least ten (10) days prior to the Closing 7 Date for the purpose of facilitating the consummation of the Contemplated Transactions. 1.8 Allocation of Purchase Price. During the thirty (30) days following the final determination of the Purchase Price, the Buyer Parties and the Seller Parties shall in good faith agree upon the allocation of the Purchase Price among the Assets and Seller Parties' other covenants set forth in this Agreement. Such allocation shall be conclusive and binding on the Buyer Parties and the Seller Parties for all purposes including, but not limited to, reporting and disclosure requirements under Section 1060 of the IRC, and any other federal, state, local or foreign Tax and other provisions. The Buyer Parties and the Seller Parties agree to prepare and timely file a U.S. Treasury Form 8594 reflecting the allocations of the Purchase Price in accordance with such allocation. 1.9 Transfer Taxes. The Buyer Parties will be liable for, will pay, will timely file all Tax Returns in respect of, and will indemnify and hold harmless the Seller Parties against, all conveyance, excise, sales, value added, use, registration, stamp, franchise, property transfer, recording, registration and similar Taxes, levies, charges and fees (collectively, "Transfer Taxes"), which become payable in connection with the Contemplated Transactions. ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES The Seller Parties jointly and severally represent and warrant to Buyer Parties as follows: 2.1 Organization and Qualification of the Seller Parties. (a) SF Stores is a corporation duly organized, validly existing, and in good standing under the laws of the State of California, and AFD is a corporation duly organized, validly existing, and in good standing under the laws of the State of California. Each of the Sellers has full power and authority to carry on its business as it is now being conducted, to own or hold under lease the properties and assets it now owns or holds under lease, and to perform all of its obligations under the Assumed Contracts, except for such failures which would not have a Material Adverse Effect. Each of the Sellers is duly qualified to do business and is in good standing as a foreign corporation in the jurisdictions listed on Schedule 2.1 and, except as disclosed on Schedule 2.1, there are no other jurisdictions in which the conduct of its businesses or activities or its ownership of assets requires such qualification under applicable law, except for such failures which would not have a Material Adverse Effect. Copies of all Organizational Documents of each of the Sellers, as currently in effect, have been delivered to Buyers and in the form so delivered are true and complete in all material respects. The Retail Store Business is conducted exclusively by and through SF Stores, and the Meat Processing Business is conducted exclusively by and through AFD. 8 (b) Seller Shareholder is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller Shareholder has full power and authority to carry on its business as it is now being conducted. 2.2 Authority; No Conflict. (a) This Agreement constitutes the legal, valid and binding obligation of each of the Seller Parties, enforceable against each of the Seller Parties in accordance with its terms. Upon the execution and delivery by the Seller Parties of the Escrow Agreement, the Noncompetition Agreement, the Software License and Support Agreement, the Tradename and Trademark License Agreement, the Transitional Services Agreement, the Employee Leasing Agreement, the Real Estate Purchase Agreement, the Vendor Contract Participation Agreement, the documents of assignment and conveyance contemplated by Section 1.7(a)(i) and any other document delivered pursuant to Section 1.7(a)(xviii) (the "Related Agreements"), the Related Agreements will constitute the legal, valid and binding obligation of each of the Seller Parties that is a party to such Related Agreement, enforceable against such Seller Parties in accordance with their respective terms. Each of the Seller Parties has the right, power and authority to execute and deliver this Agreement and the Related Agreements and to perform its obligations under this Agreement and the Related Agreements to which it is a party. (b) Except as set forth in Schedule 2.2(b), neither the execution and delivery of this Agreement and the Related Agreements nor the consummation or performance of any of the Contemplated Transactions will (with or without notice or lapse of time): (i) contravene, conflict with, or result in a violation of any provision of the Organizational Documents of any of the Seller Parties; (ii) contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which any of the Seller Parties, or any of the assets owned or used by Seller Parties, are subject, except for such failures, contraventions, violations or conflicts which would not have a Material Adverse Effect; (iii) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by the Seller Parties or that otherwise relates to the business of, or any of the assets owned or used by, the Seller Parties (with respect to the Retail Store Business or the Meat Processing Business), except for such failures which would not have a Material Adverse Effect; (iv) contravene, conflict with, or result in a violation or breach of any provision of, or to Seller Parties' Knowledge give any Person the right to declare a default or exercise any remedy under, or to accelerate the 9 maturity or performance of, or to cancel, terminate, or modify, in any material respect, any Assumed Contract; or (v) result in the imposition or creation of any Encumbrance (other than Permitted Encumbrances) upon or with respect to any of the assets owned or used by Sellers in connection with the Retail Store Business or the Meat Processing Business. Except as set forth in Schedule 2.2, none of the Seller Parties is required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation of any of the Contemplated Transactions. 2.3 Financial Statements. Schedule 2.3 contains (i) the unaudited balance sheets of AFD (with respect to the Meat Processing Business) as of December 29, 2002, March 23, 2003 and June 15, 2003 (the "Orlando Balance Sheets"), (ii) the unaudited statements of profits and losses of AFD (with respect to the Meat Processing Business) for the fiscal year ended December 29, 2002 and the fiscal year-to-date period ended June 15, 2003 (the "Orlando P & L Statements"), (iii) the unaudited balance sheet of SF Stores with respect to that portion of the Retail Store Business included in the Assets as of March 23, 2003 (the "SF Stores Balance Sheet") and (iv) the unaudited statements of profits and losses of SF Stores with respect to that portion of the Retail Store Business included in the Assets for the fiscal year-to-date period ended June 15, 2003 (the "SF Stores P & L Statements" and, together with the Orlando Balance Sheets, the Orlando P & L Statements and the SF Stores Balance Sheet, the "Financial Statements"). The Financial Statements have been extracted from the books and records of AFD (with respect to the Meat Processing Business) and SF Stores (with respect to the Retail Store Business) and on the basis of the presentation as reflected on Schedule 1.4. The Financial Statements are true, correct and complete in all material respects and fairly present the financial position of AFD (with respect to the Meat Processing Business) and SF Stores (with respect to the Retail Store Business) and the results of their respective operations as of the dates thereof or for the periods covered thereby, and have been prepared in conformity with GAAP applied consistently throughout the periods indicated. No financial statements of any Person other than the Sellers are required by GAAP to be included in the financial statements of any of the Sellers. 2.4 Books and Records. The books of account, minute books, stock record books and other records of each of the Sellers, all of which have been made available to Buyers, are complete and correct in all material respects and have been maintained in accordance with Sellers' customary practices. The minute books of each of the Sellers contain accurate and complete records in all material respects of all meetings of, and action taken by, the shareholders and board of directors (and committees thereof), as the case may be, of each of the Sellers, and no such meeting has been held for which minutes have not been prepared and are not contained in such minute books. 2.5 No Undisclosed Liabilities. Except as set forth on Schedule 2.5, neither SF Stores (with respect to the Retail Store Business) nor AFD (with respect to the Meat Processing Business) has any material liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Orlando Balance Sheets or the SF Stores Balance 10 Sheet and liabilities incurred in the Ordinary Course of Business since the respective dates thereof none of which, individually or in the aggregate, would have a Material Adverse Effect. 2.6 Compliance with Legal Requirements; Governmental Authorizations. (a) Except as set forth on Schedule 2.6 and except for those violations or failures that would not have a Material Adverse Effect: (i) SF Stores (with respect to the Retail Store Business) and AFD (with respect to the Meat Processing business) are, and at all times since January 1, 2001, have been, in compliance with each Legal Requirement that is applicable to each of them or to the conduct or operation of the Retail Store Business or the Meat Processing Business, as appropriate, or the ownership or use of any of their respective assets; (ii) no event has occurred or circumstance exists that (with or without notice or lapse of time), to the Knowledge of the Seller Parties (A) would constitute or result in a violation by Sellers of, or a failure on the part of Sellers to comply with, any Legal Requirement applicable to the Retail Store Business or the Meat Processing Business, or (B) give rise to any obligation on the part of Sellers to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and (iii) Seller Parties have not received, at any time since January 1, 2001, any written notice or other written communication, or to the Knowledge of Seller Parties, any other notice or communication, from any Governmental Body or any other Person regarding (A) any actual, alleged or potential violation of, or failure to comply with, any Legal Requirement applicable to the Retail Store Business or the Meat Processing Business, or (B) any actual, alleged or potential obligation on the part of SF Stores (as it relates to the Retail Store Business) or AFD (as it relates to the Meat Processing Business) to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. (b) Schedule 2.6(b) contains a complete and accurate list of each material Governmental Authorization that is held by each of the Sellers (with respect to the Retail Store Business or the Meat Processing Business) or that otherwise relates to the Retail Store Business or the Meat Processing Business, or to any of the assets owned or used by Sellers in connection with the Retail Store Business or the Meat Processing Business. Each material Governmental Authorization listed on Schedule 2.6(b) is valid and in full force and effect. Except as set forth on Schedule 2.6(b) and except for those violations or failures that would not have a Material Adverse Effect: (i) each of SF Stores (with respect to the Retail Store Business) and AFD (with respect to the Meat Processing Business) is, and at all times since January 1, 2001, has been, in compliance in all material respects with 11 all of the terms and requirements of each Governmental Authorization identified on Schedule 2.6(b); (ii) no event has occurred or circumstance exists that would (with or without notice or lapse of time) (A) constitute or result in a violation of or a failure to comply with any term or requirement of any Governmental Authorization listed on Schedule 2.6(b), or (B) result in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any Governmental Authorization listed or required to be listed on Schedule 2.6(b); (iii) neither SF Stores (with respect to the Retail Store Business) nor AFD (with respect to the Meat Processing Business) has received, at any time since January 1, 2001, any written notice or other written communication, or to the Knowledge of the Seller Parties, any other notice or communication, from any Governmental Body or any other Person regarding (A) any actual, alleged or potential violation of or failure to comply with any term or requirement of any Governmental Authorization listed on Schedule 2.6(b), or (B) any actual, proposed or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to, any Governmental Authorization listed on Schedule 2.6(b); and (iv) all applications legally required to have been filed for the renewal of the Governmental Authorizations listed on Schedule 2.6(b) have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies. The Governmental Authorizations listed on Schedule 2.6(b) collectively constitute all of the Governmental Authorizations necessary to permit SF Stores to lawfully conduct and operate the Retail Store Business and AFD to lawfully conduct and operate the Meat Processing Business in the manner each currently conducts and operates such business and to permit each of the Sellers (with respect to such business) to own and use their assets in the manner in which they currently own and use such assets. 2.7 Absence of Certain Changes. Except as disclosed on Schedule 2.7, since December 30, 2002, each of SF Stores (with respect to the Retail Store Business) and AFD (with respect to the Meat Processing Business) has conducted its business only in the Ordinary Course of Business, and there has not been any Material Adverse Effect. Without limiting the generality of the foregoing, and except as otherwise disclosed on Schedule 2.7, since December 30, 2002, there has not been: (a) Any change in the authorized or issued shares of SF Stores or AFD, grant of any option or right to purchase shares or other equity interests of SF Stores or AFD, issuance of any security convertible into such shares or equity interests, grant of any registration rights, purchase, redemption, retirement or other acquisition by SF Stores or AFD of any such 12 shares or equity interests, or declaration or payment of any distribution or payment in respect of such shares or equity interests; (b) Any amendment to the Organizational Documents of SF Stores or AFD; (c) Any damage, destruction, casualty or other similar occurrence or event (whether or not insured against) affecting the Assets, SF Stores (with respect to the Retail Store Business), or AFD (with respect to the Meat Processing Business) which either singly or in the aggregate materially adversely affects their respective assets, liabilities, earnings, business or operations; (d) Any mortgage or pledge of or encumbrance on any of the properties or assets of Sellers that are used in the operation of the Retail Store Business or the Meat Processing Business and located in the state of Florida; (e) Any incurrence or creating by SF Stores (with respect to the Retail Store Business) or AFD (with respect to the Meat Processing Business) of any liability, commitment, or obligation in excess of $25,000, except unsecured current liabilities incurred in the Ordinary Course of Business and Assumed Contracts entered into in the Ordinary Course of Business; (f) Any sale, lease, transfer, or other disposition of any assets that are used in the operation of the Retail Store Business or the Meat Processing Business and located in the state of Florida in excess of $25,000, except assets sold, leased, transferred or otherwise disposed of in the Ordinary Course of Business; (g) Any payment or increase in compensation (including, without limitation, bonuses, salaries, commissions, profit sharing, or pension) to any shareholder, officer, or director or (except in the Ordinary Course of Business) employee involved in the Retail Store Business or the Meat Processing Business or entry into any employment, severance, or similar Assumed Contract with any officer, director, or employee involved primarily in the Retail Store Business or the Meat Processing Business other than increases or changes in the Ordinary Course of Business; (h) Any material change from the past practice of SF Stores (with respect to the Retail Store Business) or AFD (with respect to the Meat Processing Business) regarding the incurrence and timing of payment of trade payables; (i) Any loan or advance by Sellers (with respect to the Retail Store Business or the Meat Processing Business) to, or guarantee by Sellers (with respect to the Retail Store Business or the Meat Processing Business) for the benefit of, any party with respect to the Retail Store Business or the Meat Processing Business other than sales to customers of the Retail Store Business or the Meat Processing Business on credit in the Ordinary Course of Business consistent with past custom and practices; (j) Any cancellation, waiver, or release by Sellers of any material debts, rights, or claims with respect to the Retail Store Business or the Meat Processing Business; 13 (k) Any material modification, amendment, or termination of any Assumed Contract to which either of the Sellers is a party with respect to the Retail Store Business or the Meat Processing Business, other than expiration of Assumed Contracts in accordance with their terms; (l) Any loss or adverse modification of the relationship of Sellers (with respect to the Retail Store Business or the Meat Processing Business) with any material customer, supplier, or key employee of the Retail Store Business or the Meat Processing Business or receipt of notification to such effect; (m) Any material change from past practices in the application of accounting principles, methods, or practices (including, but without limitation, any change in depreciation or amortization policies or rates) utilized by Sellers with respect to the Retail Store Business or the Meat Processing Business; (n) Any capital expenditures or commitments therefor by Sellers with respect to the Retail Store Business or the Meat Processing Business in each case in excess of $25,000, other than capital expenditures or commitments therefor to replace obsolete or unrepairable equipment used in the Retail Store Business or the Meat Processing Business in the Ordinary Course of Business; (o) Any Encumbrance, other than Permitted Encumbrances, on any asset of Sellers (with respect to the Retail Store Business or the Meat Processing Business) that are used in the operation of the Retail Store Business or the Meat Processing Business and located in the state of Florida other than the items described on Schedule 2.7 (the "Permitted Exceptions"); (p) Any entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement relating to the Retail Store Business or the Meat Processing Business, or (ii) any Assumed Contract or transaction involving a total remaining commitment to or by Sellers of at least $25,000 relating to the Retail Store Business or the Meat Processing Business other than in the Ordinary Course of Business; or (q) Any agreement, whether oral or written, by Sellers to do any of the foregoing. 2.8 Personal Property. Schedule 2.8 contains (a) a list of all material leases (other than real property leases), pursuant to which either of the Sellers is either a lessor or lessee of tangible personal property that are used in the operation of the Retail Store Business or the Meat Processing Business and located in the state of Florida and (b) a list of all material tangible and intangible personal property that are owned or used by each of the Sellers in connection with the Retail Store Business or the Meat Processing Business and located in the state of Florida. Except as set forth on Schedule 2.8, SF Stores and AFD have title to, or a valid leasehold interest in, each of the items listed on Schedule 2.8 that it owns or leases, respectively, in each case free and clear of any Encumbrances, except for Permitted Encumbrances, and all items of tangible and intangible personal property listed on Schedule 2.8 are included within the Assets or are 14 licensed to Buyers pursuant to the Software License and Support Agreement or the Tradename and Trademark License Agreements. Sellers own or lease all tangible or intangible personal property, rights, and assets necessary for the operation by Sellers of the Retail Store Business and the Meat Processing Business as now conducted. Except as set forth in Schedule 2.8, none of the personal property listed on Schedule 2.8 is held under any material lease, security agreement, conditional sales contract or other title retention or security arrangement or is located other than on the premises owned or used by Sellers in the state of Florida. The assets used in the conduct of the Retail Store Business or the Meat Processing Business are being sold in "as is" condition and, to the Knowledge of Seller Parties, such assets are not subject to any known defects or conditions that would require Buyers to expend a material amount of funds to repair other than routine maintenance. 2.9 Inventory. (a) All items included in the inventory of Sellers (with respect to the Meat Processing Business and the Retail Store Business), whether or not reflected on the Orlando Balance Sheets or the SF Stores Balance Sheet, are (i) of good and standard quality and (ii) saleable in the Ordinary Course of Business. Sellers have provided for slow moving and obsolete inventory by establishing a reserve for the slow moving and obsolete inventory and a reserve for shrinkage. Such reserves, based on the Sellers' Knowledge, are considered adequate. Inventories reflected on the Orlando Balance Sheet and the SF Stores Balance Sheet have been priced at the lower of cost or net realizable value. (b) The aggregate amount of the reserves for slow-moving and obsolete inventory and shrinkage with respect to the Meat Processing Business, the Retail Store Business and the Foodservice Business (as such term is defined in the Share Purchase Agreement) is no less than Eight Hundred Thousand Dollars ($800,000) in the aggregate. 2.10 Accounts Receivable. All of the Accounts Receivable (not including the Foodservice Business) reflected on the Orlando Balance Sheets and the SF Stores Balance Sheet represent valid obligations arising from sales actually made or services actually performed by Sellers, as applicable, in the Ordinary Course of Business. The allowance for doubtful accounts reflected on the Orlando Balance Sheet and the SF Stores Balance Sheet has been calculated on a consistent basis with past practice based on the Knowledge of Seller's management at those dates and are considered adequate. Schedule 2.10 contains a complete and accurate list of all Accounts Receivable (not including the Foodservice Business) as of the date of the Orlando Balance Sheets and the SF Stores Balance Sheet, which list sets forth the aging of such Accounts Receivable (not including the Foodservice Business). 2.11 Contracts; No Defaults. Schedule 2.11(a) contains a complete and accurate list, and Sellers have delivered to Buyers true and complete copies (except for the Vendor Agreements as set forth on Annex 2 of the schedule attached hereto) of: (i) each Assumed Contract that involves the performance of services or delivery of goods or materials to SF Stores (with respect to the Retail Store Business) and AFD (with respect to the Meat Processing Business) of an amount or value in excess of $25,000; 15 (ii) each Assumed Contract that was not entered into in the Ordinary Course of Business and that involves expenditures or receipts of SF Stores (with respect to the Retail Store Business) and AFD (with respect to the Meat Processing Business) in excess of $25,000; (iii) each lease, rental or occupancy agreement, license, installment and conditional sale agreement, and other Assumed Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real or personal property used in the operation of the Retail Store Business or the Meat Processing Business (except personal property leases and installment and conditional sales agreements having a value per item or aggregate payments of less than $25,000 and with terms of less than one year); (iv) each licensing agreement or other Assumed Contract with respect to patents, trademarks, copyrights, or other intellectual property that are used in the operation of the Retail Store Business or the Meat Processing Business, including agreements with current or former employees, consultants, or contractors regarding the appropriation or the nondisclosure of any of the Intellectual Property Rights; (v) each collective bargaining agreement and other Assumed Contract to or with any labor union or other employee representative of a group of employees of the Retail Store Business or the Meat Processing Business. (vi) each joint venture, partnership, investment or other agreement involving a sharing of profits, losses, costs, or liabilities by Sellers with any other Person relating to the Retail Store Business or the Meat Processing Business; (vii) each Assumed Contract containing covenants that restrict the business activity of the Seller Parties (with respect to the Retail Store Business or the Meat Processing Business) or limits the freedom of the Seller Parties (with respect to the Retail Store Business or the Meat Processing Business) to engage in any line of business or to compete with any Person ; (viii) each Assumed Contract providing for payments to or by any Person based on sales, purchases, or profits, other than direct payments for goods; (ix) each power of attorney that is currently outstanding; (x) each Assumed Contract entered into other than in the Ordinary Course of Business that contains or provides for an express undertaking by Sellers (as it relates to the Retail Store Business or the Meat Processing Business) to be responsible for consequential damages; 16 (xi) each Assumed Contract for capital expenditures or for the purchase of intangible assets in excess of $25,000; (xii) each written warranty, guaranty, and or other similar undertaking with respect to contractual performance extended by Sellers with respect to the Retail Store Business or the Meat Processing Business other than in the Ordinary Course of Business; and (xiii) each material amendment, supplement, and modification in respect of any of the foregoing. (b) Except as set forth in Schedule 2.11(b), no officer, director, agent, employee, consultant, or contractor of Seller Parties (with respect to the Meat Processing Business or the Retail Store Business) is bound by any Contract that limits the ability of such officer, director, agent, employee, consultant, or contractor to (A) engage in or continue any conduct, activity, or practice relating to the Retail Store Business or the Meat Processing Business, or (B) assign to Sellers (with respect to the Meat Processing Business or the Retail Store Business) or to any other Person any rights to any invention, improvement, or discovery. (c) Except as set forth in Schedule 2.11(c), each Assumed Contract identified or required to be identified in Schedule 2.11(a) is in full force and effect and is valid and enforceable in accordance with its terms. (d) Except as set forth in Schedule 2.11(d): (i) Sellers (with respect to the Meat Processing Business and the Retail Store Business) are, and at all times since January 1, 2001, have been, in compliance in all material respects with all applicable terms and requirements of each Assumed Contract relating to the Retail Store Business or the Meat Processing Business under which Sellers (with respect to the Meat Processing Business or the Retail Store Business) have or had any obligation or liability or by which Sellers (with respect to the Meat Processing Business or the Retail Store Business) or any of the assets owned or used by Sellers (with respect to the Meat Processing Business or the Retail Store Business) are or were bound; (ii) to the Knowledge of Seller Parties, each other Person that has or had any obligation or liability under any Assumed Contract under which Sellers have or had any rights relating to the Retail Store Business or the Meat Processing Business is, and at all times since January 1, 2001, has been, in material compliance with all applicable terms and requirements of such Assumed Contract; (iii) no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give Sellers (with respect to the Meat Processing Business and the Retail Store Business) or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Assumed Contract; and 17 (iv) Sellers (with respect to the Meat Processing Business and the Retail Store Business) have not given to or received from any other Person, at any time since January 1, 2001, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Assumed Contract relating to the Retail Store Business or the Meat Processing Business. (e) There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to Sellers under current or completed Assumed Contracts relating to the Retail Store Business or the Meat Processing Business with any Person and no such Person has made written demand for such renegotiation. (f) The Contracts relating to the sale, production, manufacture, or provision of products or services by Sellers with respect to the Retail Store Business and the Meat Processing Business have been entered into in the Ordinary Course of Business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement. (g) Except for the oral agreements referenced in Items 3 and 9 of Section 2.11(a)(i) on Schedule 2.11(a), to the Knowledge of Seller Parties there are no material oral contracts with respect to the Meat Processing Business or the Retail Store Business. 2.12 Guaranties. Except as set forth in Schedule 2.12, neither Seller Shareholder nor Sellers is a guarantor or otherwise liable for any material liability or obligation (including indebtedness) of any other Person. 2.13 Employee Benefits. (a) The following terms have the meanings set forth below: "Company Other Benefit Obligation" means an Other Benefit Obligation owed, adopted, or followed by Sellers or an ERISA Affiliate of either of the Sellers to any employee of Sellers. "Company Plan" means all Plans of which Sellers or an ERISA Affiliate of either of the Sellers is or was a Plan Sponsor, or to which Sellers or an ERISA Affiliate of either of the Sellers otherwise contributes or has contributed for the benefit of any employee or former employee of Sellers, or in which Sellers or an ERISA Affiliate of either of the Sellers otherwise participates or has participated for the benefit of any employee or former employee of either of the Sellers, within the last 6 years prior to the date hereof. All references to Plans are to Company Plans unless the context requires otherwise. "Company VEBA" means a VEBA whose members include employees of either of the Sellers. 18 "ERISA Affiliate" means, with respect to each of SF Stores and AFD, any other Person that, together with SF Stores or AFD, would be treated as a "single employer" within the meaning of Section 4001(b) of ERISA. "Multi-Employer Plan" has the meaning given in ERISA (S) 3(37)(A). "Other Benefit Obligations" means all obligations, arrangements, or customary practices, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees and agents of Sellers, other than such obligations, arrangements, and practices that are Plans. Other Benefit Obligations include consulting agreements under which the compensation paid does not depend upon the amount of service rendered, sabbatical policies, severance payment policies, and fringe benefits within the meaning of IRC (S) 132. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" has the meaning given in ERISA (S) 3(2)(A). "Plan" has the meaning given in ERISA (S) 3(3). "Plan Sponsor" has the meaning given in ERISA (S) 3(16)(B). "Qualified Plan" means any Plan that meets or purports to meet the requirements of IRC (S) 401(a). "Title IV Plans" means all Pension Plans that are subject to Title IV of ERISA, 29 U.S.C. (S) 1301 et seq., other than Multi-Employer Plans. "VEBA" means a voluntary employees' beneficiary association under IRC (S) 501(c)(9). "Welfare Plan" has the meaning given in ERISA (S) 3(1). (b) (i) Schedule 2.13(b)(i) contains a complete and accurate list of all Company Plans, Company Other Benefit Obligations. (ii) Schedule 2.13(b)(ii) sets forth each Multi-Employer Plan. (iii) There are no Company VEBAs. (c) Sellers have delivered to Buyers, or will deliver to Buyers within ten (10) days of the date of this Agreement: (i) all documents that set forth the terms of the Company Plans, or Company Other Benefit Obligations, and of any related trusts, including (A) all plan descriptions and summary plan descriptions of Company Plans for which Sellers is required to prepare, file, and distribute plan descriptions 19 and summary plan descriptions, and (B) all summaries and descriptions furnished to participants and beneficiaries regarding Company Plans, and Company Other Benefit Obligations, for which a plan description or summary plan description is not required; (ii) all personnel, payroll, and employment manuals and policies; (iii) all collective bargaining agreements pursuant to which contributions have been made or obligations incurred (including both pension and welfare benefits) by Sellers and the ERISA Affiliates of either of the Sellers, and all collective bargaining agreements pursuant to which contributions are being made or obligations are owed by such entities; (iv) a written description of any Company Plan or Company Other Benefit Obligation that is not otherwise in writing; (v) all insurance policies purchased by or to provide benefits under any Company Plan; (vi) all contracts with third party administrators, actuaries, investment managers, consultants, and other independent contractors that relate to the Company Plans or Company Other Benefit Obligation; (vii) all reports submitted within the two (2) years preceding the date of this Agreement by third party administrators, actuaries, investment managers, consultants, or other independent contractors with respect to the Company Plans or Company Other Benefit Obligations; (viii) the Form 5500 filed for each of the most recent two (2) plan years with respect to each Company Plan, including all schedules thereto and the opinions of independent accountants; (ix) all notices that were given by the Seller Parties or any ERISA Affiliate of the Seller Parties or any Company Plans to the IRS, the PBGC, pursuant to statute, within the four (4) years preceding the date of this Agreement, that are not expressly mentioned elsewhere in this Section 2.14; (x) all notices that were given by the IRS, the PBGC, or the Department of Labor to any of the Seller Parties, any ERISA Affiliate of any of the Seller Parties, or any Company Plan within the four (4) years preceding the date of this Agreement; (xi) with respect to Qualified Plans, the most recent determination letter for each Plan of SF Stores or AFD that is a Qualified Plan; and 20 (xii) with respect to Title IV Plans, the Form PBGC-1 filed for each of the two (2) most recent years. (d) Except as set forth in Schedule 2.13(d): (i) To the Knowledge of the Seller Parties, SF Stores and AFD have performed, in all material respects, all of their respective obligations under all Company Plans, and Company Other Benefit Obligations. SF Stores and AFD have made appropriate entries in its financial records and statements for all obligations and liabilities under such Plans, and Obligations that have accrued but are not due. (ii) To the Knowledge of the Seller Parties, no written statement has been made by any of the Seller Parties to any Person with regard to any Plan or Other Benefit Obligation that was not in accordance with the Plan or Other Benefit Obligation and that could have a material adverse economic consequence to SF Stores, AFD, the Retail Store Business, the Meat Processing Business, or Buyers. (iii) Each of SF Stores and AFD, with respect to all Company Plans, and Company Other Benefit Obligations, is, and each Company Plan, and Company Other Benefit Obligation is, in full material compliance with ERISA, the IRC, the privacy requirements of the Health Insurance Portability and Accountability Act of 1996, and other applicable Legal Requirements including the provisions of such Legal Requirements expressly mentioned in this Section 2.14, and with any applicable collective bargaining agreement. (A) To the Knowledge of the Seller Parties, no transaction prohibited by ERISA(S)406 and no "prohibited transaction" under IRC(S) 4975(c) has occurred with respect to the Company Plan. (B) None of the Seller Parties has any material liability to PBGC with respect to any Plan or has any liability under ERISA (S) 502 or (S) 4071. (iv) Other than claims for benefits submitted by participants or beneficiaries, no claim against, or legal proceeding involving, any Company Plan or Company Other Benefit Obligation is pending or, to the Knowledge of Seller Parties, is threatened. (v) Each Company Plan intended to be a Qualified Plan has received a determination letter from the IRS or has applied for a determination letter from the IRS stating that it is so qualified. To the Knowledge of the Seller Parties, each Plan intended to be a Qualified Plan, in form and operation, is so qualified. 21 (vi) SF Stores and AFD and each ERISA Affiliate of SF Stores and AFD have met the minimum funding standard, and have made all contributions required, under ERISA (S) 302 and IRC (S) 402. (vii) The Seller Parties have paid all amounts due to the PBGC pursuant to ERISA (S) 4007. (viii) Neither SF Stores or AFD nor any ERISA Affiliate of SF Stores or AFD has withdrawn from any Title IV Plan in a manner that would that could be reasonably expected to subject any entity or any of the Seller Parties to liability under ERISA (S) 4062(e), (S) 4063 or (S) 4064. (ix) None of the Seller Parties and no ERISA Affiliate of the Seller Parties has filed a notice to terminate any Plan, and none of the Seller Parties and no ERISA Affiliate of the Seller Parties has adopted any amendment to treat a Plan as terminated. The PBGC has not instituted proceedings to treat the Company Plan as terminated. No event has occurred or circumstance exists that would constitute grounds under ERISA (S) 4042 for the termination of, or the appointment of a trustee to administer, the Company Plan. (x) No amendment has been made, or is reasonably expected to be made, to any Plan that has required or could require the provision of security under ERISA (S) 307 or IRC (S) 401(a)(29). (xi) None of the Seller Parties has Knowledge of any facts or circumstances that would give rise to any liability of Seller Shareholder, SF Stores, AFD, or Buyers to the PBGC under Title IV of ERISA. (xii) None of the Seller Parties and no ERISA Affiliate of any of the Seller Parties has ever established, maintained, or contributed to or otherwise participated in, or had an obligation to maintain, contribute to, or otherwise participate in, any Multi-Employer Plan. (xiii) Except to the extent required under ERISA (S) 601 et seq. and IRC (S) 4980B, neither SF Stores nor AFD provides health or welfare benefits for any retired or former employee and neither SF Stores nor AFD is obligated to provide health or welfare benefits to any active employee following such employee's retirement or other termination of service. (xiv) SF Stores and AFD each have the right to modify and terminate benefits to retirees (other than pensions) with respect to both retired and active employees. (xv) No payment that is owed or becomes due to any director, officer, employee, or agent of SF Stores or AFD will be non-deductible to SF Stores or AFD or subject to tax under IRC (S) 280G or (S) 4999; nor will SF Stores or AFD be required to "gross up" or otherwise compensate any such person because of the imposition of any excise tax on a payment to such person. 22 (xvi) The consummation of the Contemplated Transactions will not result in the payment, vesting, or acceleration of any benefit. 2.14 Employees. (a) Schedule 2.14 contains a complete and accurate list of the following information for each employee, officer or director of each of SF Stores (with respect to the Retail Store Business) and of AFD (with respect to the Meat Processing Business) who earned more than $75,000 in calendar year 2002, or is reasonably expected to earn more than $75,000 in calendar year 2003, including each employee on leave of absence or layoff status: name; job title; current compensation paid or payable and any change in compensation since December 30, 2002. (b) To the Knowledge of the Seller Parties, no employee, officer, or director of Sellers is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such employee, officer, or director and any other Person ("Proprietary Rights Agreement") that in any way adversely affects or will affect (i) the performance of his or her duties as an employee, officer, or director of either of the Sellers, or (ii) the ability of SF Stores to conduct the Retail Store Business or AFD to conduct the Meat Processing Business, including any Proprietary Rights Agreement with either of the Sellers by any such employee or director. To the Knowledge of the Seller Parties, no director, officer, or other key employee of SF Stores or AFD involved in the Retail Store Business or the Meat Processing Business, respectively, intends to terminate his or her employment with SF Stores or AFD prior to the Closing Date. (c) Schedule 2.14 also contains a complete and accurate list of the following information for each retired employee, officer or director of SF Stores or AFD involved in the Retail Store Business or the Meat Processing Business, respectively, or their dependents receiving benefits or scheduled to receive benefits in the future: name, pension benefit, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits. 2.15 Labor Relations; Compliance. Except as set forth in Schedule 2.15, neither SF Stores (with respect to the Retail Store Business) nor AFD (with respect to the Meat Processing Business) during the past three years has been, or presently is, a party to, any collective bargaining or other labor Contract. During the past three years there has not been, and presently there is no pending or existing, and to the Knowledge of the Seller Parties there is not threatened (a) any strike, slowdown, picketing, work stoppage, or employee grievance process, (b) any material proceeding against or affecting SF Stores, AFD, the Retail Store Business, or the Meat Processing Business relating to the alleged violation of any Legal Requirements pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable Governmental Body, organizational activity, or other labor or employment dispute against or affecting SF Stores, AFD, the Retail Store Business, the Meat Processing Business, or their premises, or (c) any application for certification of a collective bargaining agent. To the Knowledge of the Seller Parties, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. There is no 23 lockout of any employees of the Retail Store Business or the Meat Processing Business by SF Stores or AFD, and no such action is contemplated by SF Stores or AFD. Each of SF Stores and AFD has complied in all material respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. Neither SF Stores nor AFD is liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements. 2.16 Litigation. (a) Except as set forth on Schedule 2.16(a), there is no pending Proceeding: (i) that has been commenced by or against Sellers (as it relates to the Retail Store Business or the Meat Processing Business), or any of the assets owned or used by, Sellers in connection with the Retail Store Business or the Meat Processing Business; or (ii) that challenges or that would reasonably be expected to prevent, delay or make illegal any of the Contemplated Transactions. To the Knowledge of the Seller Parties, (1) no such Proceeding has been threatened and (2) no event has occurred or circumstance exists that would give rise to or serve as a basis for the commencement of any such Proceeding. Sellers have made available to Buyers the attorneys representing Sellers in the Proceedings, and such attorneys have made available to Buyers summaries of all pleadings, correspondence, and other documents, as applicable, relating to each Proceeding listed on Schedule 2.16(a). The Proceedings listed on Schedule 2.16(a) would not, individually or in the aggregate, have a Material Adverse Effect. (b) Except as set forth on Schedule 2.16(b): (i) there is no Order to which SF Stores or AFD or any of the assets that are used in the Retail Store Business or the Meat Processing Business and located in the state of Florida is subject; (ii) Sellers are not subject to any Order that relates to the Retail Store Business or the Meat Processing Business or any of the assets owned or used by, Sellers (with respect to the Meat Processing Business or the Retail Store Business); and (iii) no officer, director, agent, or employee of SF Stores or AFD is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any material conduct, activity, or practice relating to the Retail Store Business or the Meat Processing Business. (c) Except as set forth on Schedule 2.16(c): 24 (i) Each of the Sellers is, and at all times since January 1, 2000, has been, in material compliance with all of the terms and requirements of each Order relating to the Retail Store Business or the Meat Processing Business to which it, or any of the assets owned or used by it in the Retail Store Business or the Meat Processing Business, is or has been subject; (ii) no event has occurred or circumstance exists that would constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which SF Stores or AFD, or any of the assets owned or used by SF Stores or AFD in the Retail Store Business or the Meat Processing Business, is subject; and (iii) none of the Seller Parties (with respect to the Retail Store Business or the Meat Processing Business) has received, at any time since January 1, 2001, any written notice or other written communication, or to the Knowledge of the Seller Parties any oral communication, from any Governmental Body regarding any actual, alleged or potential violation of, or failure to comply with, any term or requirement of any Order to which SF Stores or AFD or any of the assets owned or used by SF Stores or AFD in the Retail Store Business or the Meat Processing Business, is or has been subject. 2.17 Real Property. Schedule 2.17 contains a complete and accurate list of all real property, leaseholds, or other interests therein owned by SF Stores or AFD in connection with the Retail Store Business or the Meat Processing Business. Sellers have delivered to Buyers copies of the leases and other instruments (as recorded) by which Sellers acquired such real property interests, and copies of all title insurance policies, opinions, abstracts, and surveys in the possession or control of the Seller Parties and relating to such property or interests. SF Stores and AFD own the leasehold interests and all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) related thereto that they purport to lease and use in connection with the conduct of the Retail Store Business or the Meat Processing Business, respectively, and are located in the facilities owned or operated by SF Stores or AFD or reflected as leased in the books and records of SF Stores and AFD, including all of the properties and assets reflected in the Orlando Balance Sheets and the SF Stores Balance Sheet (except for assets held under capitalized leases disclosed or not required to be disclosed in Schedule 2.17 and personal property sold since the date of the Orlando Balance Sheets and the SF Stores Balance Sheet, as the case may be, in the Ordinary Course of Business), and all of the properties and assets purchased or otherwise acquired by Sellers since the date of the Orlando Balance Sheets and the SF Stores Balance Sheet (except for personal property acquired and sold since the date of the Orlando Balance Sheets and the SF Stores Balance Sheet in the Ordinary Course of Business and consistent with past practice), which subsequently purchased or acquired properties and assets (other than inventory and short-term investments) are listed in Schedule 2.17. Except as set forth in the preliminary title reports for the properties leased by AFD (with respect to the Meat Processing Business) and SF Stores and previously delivered to Buyers, all material properties and assets reflected in the Orlando Balance Sheets and the SF Stores Balance Sheet are free and clear of all Encumbrances and are not, in the case of real property, subject to any rights of way, building or use restrictions, exceptions, variances, reservations, or limitations of any nature. 25 2.18 Insurance. (a) Schedule 2.18(a) sets forth, by year, for the current policy year and each of the two (2) preceding policy years: (i) a summary of the loss experience under each policy that provides coverage to AFD (with respect to the Meat Processing Business) and SF Stores. (b) Except as set forth in Schedule 2.18(b): (i) the Seller Parties have paid all premiums due under each policy that provides coverage to AFD (with respect to the Meat Processing Business) and SF Stores. (c) AFD (with respect to the Meat Processing Business) and SF Stores do not have in effect a separate insurance policy. (d) Each of AFD (with respect to the Meat Processing Business) and SF Stores has been continuously covered since such time as the relevant assets relating to the Meat Processing Business and the Retail Store Business were acquired by Sellers by insurance in scope and amount customary and reasonable for the businesses in which they have engaged during such period. All such coverage is provided by reputable insurers. (e) All policies providing coverage to AFD (with respect to the Meat Processing Business) and SF Stores are in full force and effect and provide coverage on an "occurrence" basis. 2.19 Environmental Matters. To the Knowledge of the Seller Parties or except as would not be reasonably likely to result in a Material Adverse Effect or except as set forth on Schedule 2.19: (a) Compliance with Environmental Laws. Each of the Sellers is in compliance with all applicable Environmental Laws, and is not in violation of or liable under, any applicable Environmental Law in connection with the operation of the Retail Store Business or the Meat Processing Business. Neither the Seller Parties nor any other Person for whose conduct they are or may be held responsible, received any notice of any violation or alleged violation of any material Environmental Laws in connection with the operation of the Retail Store Business or the Meat Processing Business, with the exception of notices of violation or alleged liability that have been fully resolved with no future obligations on the Retail Store Business or the Meat Processing Business or Sellers. Sellers possess all permits, licenses, certificates and registrations required of it under applicable Environmental Laws. (b) No Hazardous Substances. None of the Seller Parties has released any, and to the Knowledge of Seller Parties, no Hazardous Substances have been released in, under or upon any real property at any time owned, leased, used or operated by the Seller Parties in connection with the Retail Store Business or the Meat Processing Business except in compliance with all applicable Environmental Laws. There are no underground storage tanks 26 under any real property now or heretofore owned, leased, used or operated by the Seller Parties in connection with the Retail Store Business or the Meat Processing Business. (c) No Actions or Proceedings. None of the Seller Parties is subject to, nor have they received any notice of, any private, administrative or judicial action, or notice of any intended private, administrative, or judicial action, relating to the presence or alleged presence of Hazardous Substances in, under or upon any real property, equipment or other personal property now or heretofore owned, leased, used or operated by the Seller Parties in connection with the Retail Store Business or the Meat Processing Business or any predecessor or any property, whether or not it was owned, leased, used or operated by the Seller Parties in connection with the Retail Store Business or the Meat Processing Business, which was used by the Seller Parties for the storage of inventory or production of finished goods or for the storage, treatment or disposal of any waste, product or by-product. There are no pending or threatened actions or proceedings or notices of potential actions or proceedings from any Governmental Body or any other entity against Sellers regarding any matter relating to applicable Environmental Law. 2.20 Relationships with Related Persons. Except as set forth on Schedule 2.20, none of the Seller Parties has a controlling ownership interest in, or any other right to control or direct the management or operation of, any material competitor, supplier or customer of the Retail Store Business or the Meat Processing Business or in any Person from whom or to whom Sellers lease any real or material personal property. 2.21 Warranties. None of the Seller Parties (with respect to the Retail Store Business or the Meat Processing Business) makes any material express written warranties independent of, or in addition to, warranties made by suppliers or manufacturers of products sold or distributed in connection with the operation of the Retail Store Business or the Meat Processing Business. None of the Seller Parties has received any material warranty claims as they relate to the Retail Store Business or the Meat Processing Business. 2.22 Change in Business Relationships. Except as set forth on Schedule 2.22, none of the Seller Parties (with respect to the Retail Store Business or the Meat Processing Business) has received any written notice or communication, or to the Knowledge of the Seller Parties, any other notice or communication, that (a) any material customer or supplier with a material business relationship with Sellers (with respect to the Retail Store Business or the Meat Processing Business) intends to discontinue or materially diminish or change its relationship with the Retail Store Business or the Meat Processing Business, or (b) any management employee of the Retail Store Business or the Meat Processing Business intends to terminate his or her employment prior to the Closing Date. 2.23 Brokers. None of the Seller Parties nor their Affiliates has employed or used the services of, or incurred any obligation or liability to, any broker, agent or finder in connection with the transactions contemplated by this Agreement. 2.24 Solvency. 27 (a) None of the Seller Parties is now insolvent nor will be rendered insolvent by any of the Contemplated Transactions. As used in this Section, "insolvent" means that the sum of the debts and other probable liabilities of such Seller Party exceeds the present fair saleable value of such Seller Party's assets. (b) Immediately after giving effect to the consummation of the Contemplated Transactions: (i) each of the Seller Parties will be able to pay its liabilities as they become due in the Ordinary Course of Business and (ii) none of the Seller Parties will have unreasonably small capital with which to conduct its business as presently conducted. 2.25 True and Correct Information. No representation or warranty of the Seller Parties in this Agreement and no statement in the schedules hereto omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. 2.26 Ownership. Seller Shareholder is the record and beneficial owner and holder of and has the exclusive right to vote all of the issued and outstanding equity securities of SF Stores and AFD. 2.27 Sufficiency of Assets. Except as set forth on Schedule 2.27, or as contemplated in the Transitional Services Agreement, the Software License and Support Agreement and the Tradename and Trademark License Agreements, following the Closing, the Assets transferred to Buyer Parties pursuant hereto will constitute all of the assets necessary or required to permit Buyer Parties to carry on the Retail Store Business and the Meat Processing Business after the Closing in substantially the same manner as presently conducted. 2.28 Title. Except as set forth on Schedule 2.8 and Schedule 2.17 and the preliminary title reports referred to in Section 2.17, the Seller Parties have good and valid title to, or enforceable leasehold interests in or valid rights under license or otherwise to use the Assets, in each case free and clear of any Encumbrances, other than Permitted Encumbrances. Upon consummation of the Contemplated Transactions, Buyer Parties will have acquired good and valid title to, or enforceable leasehold interests in or valid rights under to use the Assets, free and clear of any Encumbrances, other than Permitted Encumbrances. 2.29 Taxes. Sellers have filed all state, local and foreign Tax Returns relating to the Retail Store Business and the Meat Processing Business required to be filed by them, (ii) all such Tax Returns are true and correct in all material respects and all Taxes reflected as due thereon have been paid in full, and (iii) there are no liens for Taxes upon the Assets, except for liens for current Taxes not yet due and payable. 2.30 Intellectual Property. (a) Schedule 2.30 attached hereto constitutes a complete and accurate list and summary description of all registered trademarks and tradenames that are owned by AFD (with respect to the Meat Processing Business) or SF Stores (with respect to the Retail Store Business) and presently used in the operation of the Meat Process Business or the Retail Store Business all of which are included in the Assets, or are licensed to Buyers pursuant to the Software License and Support Agreement or the Tradename and Trademark License 28 Agreements. (b) Sellers do not own or use any patents, patent applications, or inventions or discoveries that may be patentable in connection with the Meat Processing Business or the Retail Store Business in the state of Florida. (c) Sellers do not own or use any rights in mask works in connection with the operation of the Meat Processing Business or the Retail Store Business in the state of Florida. (d) Sellers do not own or use any registered copyrights in connection with the Meat Processing Business or the Retail Store Business in the state of Florida. (e) Sellers have taken reasonable precautions to protect the secrecy, confidentiality and value of any trade secrets which Sellers (with respect to the Meat Processing Business or the Retail Store Business) may own, and Sellers (with respect to the Meat Processing Business and the Retail Store Business) own such trade secrets and have the valid right to use same. All such trade secrets are included within the Assets. To the Knowledge of Sellers, the trade secrets are not part of the public knowledge or literature and have not been used, divulged or appropriated either for the benefit of any person (other than Sellers) or to the detriment of Sellers. To the Knowledge of Sellers, no material trade secret is subject to any adverse claim or has been challenged or threatened in any way. For purposes of this Agreement, trade secrets are defined as all know-how, trade secrets, confidential information, customer lists, technical information, data, operational processes, plans, drawings, and blueprints used in the conduct of the Meat Processing Business or the Retail Store Business and located in the state of Florida. (f) Other than pursuant to the Tradename and Trademark License Agreement to be entered into between the appropriate Seller Parties and the appropriate Buyer Parties, Sellers (with respect to the Meat Processing Business or the Retail Store Business) are not a party to any contract or arrangement whereby royalties are paid or received by Sellers with respect to trademarks, tradenames, copyrights, rights in mask works, patents, or trade secrets. (g) None of the current employees of Sellers (with respect to the Meat Processing Business or the Retail Store Business) that are involved in the Meat Processing Business or the Retail Store Business in the state of Florida have executed written contracts with Sellers that assign to Sellers any and all rights to any inventions, improvements, discoveries or information relating to the Meat Processing Business or the Retail Store Business in the state of Florida. To the Knowledge of Sellers, no employee of Sellers (with respect to the Meat Processing Business or the Retail Store Business) in the state of Florida has entered into any contract that restricts or limits in any material way the scope or type of work in which the employee may be engaged, or requires the employee to transfer, assign or disclose information concerning his or her work to anyone other than Sellers. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER PARTIES 29 The Buyer Parties represent and warrant to the Seller Parties as follows: 3.1 Organization and Good Standing. Buyer Member is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. GFS Orlando and GFS Stores are each limited liability companies duly organized, validly existing, and in good standing under the laws of the State of Delaware. 3.2 Authority; No Violation. Each of the Buyer Parties has the requisite right, power and authority to execute, deliver, and perform its obligations under this Agreement and the other agreements contemplated by this Agreement to which such Buyer Party is a party ("Buyers' Other Agreements"). Upon the execution and delivery by the Buyer Parties of this Agreement and Buyers' Other Agreements, this Agreement and Buyers' Other Agreements will constitute the legal, valid, and binding obligations of those Buyer Parties that executed such agreements, enforceable against the Buyer Party that executed such agreement in accordance with their respective terms. Neither the execution, delivery, and performance by the Buyer Parties of this Agreement and the Buyers' Other Agreements, nor the consummation of the Contemplated Transactions will (a) violate any of the Organizational Documents of any of the Buyer Parties, (b) violate, conflict with, result in any breach of, constitute a default under, result in the termination or acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any Contract, license, or permit to which any of the Buyer Parties is a party or by which any is bound, (c) require any authorization, consent, approval, exemption or other action by or notice to any court, other Governmental Body, or other person or entity under, the provisions of any Legal Requirement or any Contract or permit to which any of the Buyer Parties is subject, bound, or affected, or (d) violate or require any consent or notice under any Legal Requirement or other restriction of any Governmental Body to which any of the Buyer Parties is subject, bound, or affected. 3.3 Certain Proceedings. There is no pending Proceeding that has been commenced against any of the Buyer Parties and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, this Agreement or Buyers' Other Agreements. To the Knowledge of the Buyer Parties, no such Proceeding has been threatened. 3.4 Brokers or Finders. Neither the Buyer Parties nor their respective officers or agents have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement and will indemnify and hold the Seller Parties harmless from any such payment alleged to be due by or through Buyers as a result of the action of the Buyer Parties or their respective officers or agents. 3.5 Sufficiency of Funds. Buyer Parties have and at Closing will have sufficient funds for the payment of the Purchase Price. 3.6 Registration in State of Florida. GFS Orlando and GFS Stores are each duly registered and qualified to do business in the state of Florida. 30 3.7 Knowledge of Claims. To the actual knowledge of Buyer Parties there is no claim that could be brought against Seller Parties as a result of any of the Seller Parties' breach of any representation or warranty, or as a result of any of the Seller Parties' failure to comply with any covenant or agreement contained in this Agreement. ARTICLE IV COVENANTS OF SELLER PARTIES PRIOR TO CLOSING DATE 4.1 Access and Investigation. Between the date of this Agreement and the earlier of the Closing Date and the termination of this Agreement pursuant to Article IX, upon receipt of reasonable notice, each of the Seller Parties will, and will cause their respective Representatives to, (a) afford the Buyer Parties and their Representatives and prospective lenders and their Representatives (collectively, "Buyers' Advisors") reasonable access to their personnel, properties, contracts, customers, books and records, and other documents and data relating to the Retail Store Business and the Meat Processing Business, (b) furnish the Buyer Parties and Buyers' Advisors with copies of all such contracts, books and records, and other existing documents and data as the Buyer Parties may reasonably request, and (c) furnish the Buyer Parties and Buyers' Advisors with such additional financial, operating, and other data and information as the Buyer Parties may reasonably request. 4.2 Operation of the Retail Store Business and the Meat Processing Business. Between the date of this Agreement and the Closing Date, the Seller Parties will, and Seller Shareholder will cause each of the Sellers to: (a) conduct the Retail Store Business and the Meat Processing Business only in the Ordinary Course of Business; (b) use commercially reasonable efforts to preserve intact the current business organization of Sellers (with respect to the Retail Store Business and the Meat Processing Business) and the Retail Store Business and the Meat Processing Business (except as necessary to accommodate the transactions contemplated hereby), keep available the services of the current officers, key employees, and agents of Sellers that are involved in the Retail Store Business or the Meat Processing Business, and maintain the relations and goodwill with suppliers, customers, landlords, creditors, employees, agents, and others having business relationships with Sellers with respect to the Retail Store Business or the Meat Processing Business; (c) confer with the Buyer Parties concerning operational matters of a material nature; and (d) otherwise discuss periodically with the Buyer Parties the status of the business, operations, and finances of Sellers with respect to the Retail Store Business and the Meat Processing Business. 31 4.3 Negative Covenant. Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, the Seller Parties will not, and Seller Shareholder will cause Sellers not to, without the prior written consent of the Buyer Parties, take any affirmative action or fail to take any reasonable action within their or its control as a result of which any of the changes or events listed in Section 2.7 is likely to occur, including, but not limited to, incurring on behalf of Sellers any long-term indebtedness or engaging in any transaction that would be required to be recorded as a long-term liability on a balance sheet of Sellers prepared in accordance with GAAP, that would be included within the Assumed Liabilities. 4.4 Required Approvals. As promptly as practicable after the date of this Agreement, the Seller Parties will, and Seller Shareholder will cause Sellers to, make all filings required by Legal Requirements to be made by them in order to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, the Seller Parties will, and Seller Shareholder will cause Sellers to, cooperate with the Buyer Parties with respect to all filings that any of the Buyer Parties is required by Legal Requirements to make in connection with the Contemplated Transactions. 4.5 Notification. Between the date of this Agreement and the Closing Date, the Seller Parties will promptly notify the Buyer Parties in writing if any of the Seller Parties becomes aware of any fact or condition that causes or constitutes a breach of any of the Seller Parties' representations and warranties as of the date of this Agreement. During the same period, the Seller Parties will promptly notify the Buyer Parties of the occurrence of any breach of any covenant of any of the Seller Parties in this Article IV or of the occurrence of any event that would reasonably be expected to make the satisfaction of the conditions in Article VIII impossible or unlikely. 4.6 Payment of Indebtedness by Related Persons. Except as provided in this Agreement or as set forth on Schedule 4.6, Seller Shareholder will cause all indebtedness owed to Sellers (with respect to the Retail Store Business or the Meat Processing Business) by Seller Shareholder or any Related Person to Seller Shareholder to be paid in full prior to Closing. 4.7 No Negotiation. Until such time, if any, as this Agreement is terminated pursuant to Article IX, the Seller Parties will not, and Seller Shareholder will cause each of the Sellers and each of their Representatives not to, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than the Buyer Parties) relating to any transaction involving the sale of the Retail Store Business or the Meat Processing Business or the Assets (other than in the Ordinary Course of Business), or any of the capital stock of the Sellers or any merger, consolidation, business combination, or similar transaction involving the Sellers. 4.8 Commercially Reasonable Efforts. Between the date of this Agreement and the Closing Date, the Seller Parties will use their commercially reasonable efforts to cause the conditions in Article VIII to be satisfied. 4.9 Employees. 32 (a) Termination of Sellers' Employees. Before the Closing, Sellers shall give notice to all of their employees that are involved in the Retail Store Business or the Meat Processing Business that their employment with Sellers will terminate effective upon completion of the Closing. (b) Offers of Employment. Buyers have no obligation to hire or offer employment to any of Sellers' employees. However, Buyers are free, without obligation, to interview, seek employment applications from, and employ any of Sellers' employees that are involved in the Retail Store Business or the Meat Processing Business, and Sellers agree to assist Buyers in all reasonable respects in connection with Buyers' efforts to hire any of Sellers' employees that are involved in the Retail Store Business or the Meat Processing Business as designated by Buyers. (c) Seller Employee Benefit Plans or Other Obligations. With respect to any employee of Sellers hired by Buyers, Buyers shall not assume, honor, or be obligated to perform, and the Seller Parties shall remain solely responsible for, jointly and severally, any duties, responsibilities, commitments, or obligations of Sellers with respect to any qualified or non-qualified employee benefit plan presently maintained by Sellers or for the benefit of Sellers' employees or any other contract or commitment concerning any of Sellers' employees, except contracts or commitments specifically included in the Assumed Liabilities. The terms and conditions of employment, if any, offered by Buyers to any employee of Sellers shall be determined by Buyers in Buyers' sole discretion. (d) Employee Benefits. Buyer shall take all necessary actions to provide that all Persons employed by the Sellers and involved in the Retail Stores Business or the Meat Processing Business on the Closing Date who are employed by the Buyer following the Closing Date ("Transferred Employees") shall, through December 31, 2003, be allowed to participate without an increase in cost to such employees, in either the employee welfare benefit plans or arrangements in which such employees participated immediately prior to the Closing Date or in substantially similar employee benefit plans or arrangements. Buyers shall take all necessary actions to provide that, with respect to any welfare benefits provided to Transferred Employees on or after the Closing Date, (i) service accrued by Transferred Employees during employment with Company or its Affiliates prior to the Closing Date shall be recognized, to the extent such service was recognized under comparable Company Plans, for purposes of (A) eligibility for benefits and (B) application of any and all pre-existing condition limitations, and (ii) Transferred Employees shall be given credit for amounts paid under a Company Plan during the applicable period for purposes of applying deductibles, co-payments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the employee welfare plans in which any Transferred Employee becomes entitled to participate, provided, however, that nothing in this Section 4.9(d) shall require the payment of duplicative benefits. Further, nothing in this Section 4.9(d) whether express or implied, shall confer upon any Person who is not a party to this Agreement, including any Transferred Employee, any right to employment or recall, any right to continued employment, any right to compensation or benefits, or any other right of any kind or nature whatsoever. (e) Treatment of 401(k) Accounts. As soon as practicable following the first closing of the plan year of the Buyer 401(k) Plan (as defined below) after the Closing Date, 33 Seller Shareholder shall cause the trustee of the Smart & Final Inc. 401(k) Plan ("SFI 401(k) Plan") to transfer (in accordance with the requirements of Section 414(l) of the IRC), in cash (or, with respect to SFI 401(k) Plan loan promissory notes, in kind), the account balances (including outstanding loan balances) under the SFI 401(k) Plan (the "Transferred Account Balances") of each Transferred Employee who is a participant in the SFI 401(k) Plan to the trustee of a defined contribution plan (the "Buyer 401(k) Plan") and trust maintained by any one or more of the Buyer Parties on or after the Closing Date (such plan and trust to be established or designated by Buyer Parties) which are intended to be qualified under Sections 401(a) and 501(a) of the IRC, respectively. Upon the making of such transfer (the "Transfer") and the receipt by the trustee of the Buyer 401(k) Plan of the Transferred Account Balances, the Buyer 401(k) Plan shall automatically assume all liabilities for accrued benefits under the SFI 401(k) Plan in respect of such Transferred Employees, and the SFI 401(k) Plan shall be relieved of all such liabilities. Effective as of the Transfer, Buyer Parties shall indemnify and hold harmless the SFI 401(k) Plan, the trustees thereof, Sellers, their officers, directors, employees and agents and Affiliates, from and against any and all liabilities arising out of or related to the participation of such Transferred Employees in the SFI 401(k) Plan and the transfer of assets described herein. The parties shall cooperate in the taking of any action and the filing of any documents that may be required in connection with the transfer of assets and liabilities described herein. Following the Closing Date, but prior to the Transfer, Buyer shall permit Transferred Employees to participate in the Buyer 401(k) Plan. Following the Closing Date, but prior to the Transfer, Buyer shall also make payroll withholdings during each pay period with respect to the outstanding loans of any Transferred Employee under the SFI 401(k) Plan and shall and forward such amounts to the trustee of the SFI 401(k) Plan as soon as practicable following each such withholding. (f) COBRA Coverage. Notwithstanding anything to the contrary in this Agreement, Seller Parties or their Affiliates shall provide group health plan continuation coverage pursuant to Section 4980B of the Code and Sections 601 through 609 of ERISA (together with the regulations promulgated thereunder "COBRA") with respect to any COBRA Eligible Individual (as defined below) during such individual's COBRA Coverage Period (as defined below). For purposes of this Section 4.9(f), a "COBRA Eligible Individual" is (i) an individual who (A) was an employee of the Seller Parties and involved in the Meat Processing Business or Retail Store Business prior to the Closing Date and who had or has a "qualifying event" (within the meaning of Section 4980B(f)(3) of the Code) with respect to the Seller Parties before the Closing Date or as a result of his or her termination pursuant to Section 4.9 of this Agreement and (B) has elected or is eligible to elect continuation coverage from the Seller Parties or their Affiliates with respect to such qualifying event, and (ii) each individual (such as a dependent) who is a qualified beneficiary with respect to individuals described in clause (i). The "COBRA Coverage Period" with respect to each COBRA Eligible Individual shall be the period during which continuation coverage would be required to be provided to such individual under COBRA. 4.10 Clearance Certificates. On or prior to the Closing Date, the Seller Parties will provide Buyers, with all clearance certificates or similar documents that may be required by any state, local or other taxing authority in order to relieve Buyers of any obligation to withhold or escrow any portion of the Purchase Price. 34 4.11 Seller Parties' Environmental Investigation. Nothing in this Agreement shall be interpreted to prohibit Seller Parties' from undertaking their own environmental investigation, including environmental testing, of the Real Property, prior to the Closing Date. ARTICLE V COVENANTS OF THE BUYER PARTIES AND THE SELLER PARTIES PRIOR TO CLOSING DATE 5.1 Approvals of Governmental Bodies. As promptly as practicable after the date of this Agreement, each Buyer will, and will cause each of its Related Persons to, make all filings required by Legal Requirements to be made by it or them to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, each Buyer will, and will cause each Related Person to, (a) cooperate with the Seller Parties with respect to all filings that the Seller Parties are required by Legal Requirements to make in connection with the Contemplated Transactions, and (b) cooperate with the Seller Parties in obtaining all consents identified in Schedule 2.2; provided, however, that this Agreement will not require the Buyer Parties to dispose of or make any change in any portion of its business or to incur any other material burden to obtain a Governmental Authorization. 5.2 Commercially Reasonable Efforts. Except as set forth in the proviso to Section 5.1, between the date of this Agreement and the Closing Date, the Buyer Parties will use their commercially reasonable efforts to cause the conditions in Article VII to be satisfied. 5.3 Cooperation. Each of the Seller Parties and Buyer Parties shall cooperate, and use their reasonable commercial efforts, to make all filings and obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and other third parties necessary to consummate the Contemplated Transactions. In addition to the foregoing, the Buyer Parties agree to provide such assurances as to financial capability, resources and creditworthiness as may be reasonably requested by any third party whose consent or approval is sought hereunder. Notwithstanding the foregoing, nothing herein shall obligate or be construed to obligate (A) the Seller Parties or the Buyer Parties to make any payment to any third party in order to obtain the consent or approval of such third party or to transfer any contract, license or permit in violation of its terms or (B) the Buyer Parties to provide any financial information that is not publicly available. The Sellers shall use commercially reasonable efforts to obtain such third party consents as Buyers may reasonably deem necessary in connection with the transfer of the Assumed Contracts, it being understood that (i) nothing in this Section 5.3 is intended to be a covenant that the Seller Parties shall in fact obtain on the Buyer Parties' behalf any such consents, (ii) obtaining such consents shall not be a condition to Closing (except as provided in Section 8.3) and (iii) Seller Parties' failure to obtain such consents as a result of Buyer Parties' failure or inability to provide financial information pursuant to the exemption provided in the prior sentence shall not be regarded as a breach by Seller Parties of its obligations to obtain such consents pursuant to this Agreement. The Buyer Parties shall cooperate and use commercially reasonable efforts to assist the Seller Parties in obtaining such consents. 35 5.4 Synthetic Lease Agreement. Between the date of this Agreement and the Closing Date, the Seller Parties shall perform, at their sole cost and expense, all of the "Lessee's" (as such term is defined in the Synthetic Lease Agreement) obligations under the Synthetic Lease Provisions and the Participation Agreement Provisions, but only to the extent that such obligations relate to the Fort Lauderdale Store. ARTICLE VI POST-CLOSING COVENANTS OF THE BUYER PARTIES AND THE SELLER PARTIES The Buyer Parties and the Seller Parties agree as follows with respect to the period following the Closing: 6.1 General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as any other party may request, all at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification therefore under Article X below). Sellers acknowledge and agree that from and after the Closing the Buyers will be entitled to possession of all documents, books, records, agreements, and financial data relating to the Retail Store Business and the Meat Processing Business; provided, however, that notwithstanding anything to the contrary contained herein, Buyers shall not be entitled to possession of any of Sellers' Tax records. 6.2 Litigation Support. In the event and for so long as any party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (a) any transaction contemplated under this Agreement or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Retail Store Business and the Meat Processing Business, each of the other parties will reasonably cooperate with such party and its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be reasonably necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending party (unless the contesting or defending party is entitled to indemnification therefore under Article X below). 6.3 Transition. The Seller Parties will not take any action that is designed or intended, or may reasonably be expected to discourage any lessor, licensor, customer, supplier, employee, or other business associate of Sellers with respect to the Retail Store Business or the Meat Processing Business from maintaining substantially the same business relationships with Buyers with respect to the Retail Store Business and the Meat Processing Business after the Closing as it maintained with Sellers (with respect to the Retail Store Business and the Meat Processing Business) prior to the Closing. The Seller Parties will use commercially reasonable 36 efforts to refer all customer inquiries relating to the Retail Store Business and the Meat Processing Business to Buyers from and after the Closing. 6.4 Delivery of Property Received After Closing. After the Closing, the Seller Parties shall promptly transfer to Buyers, from time to time, any property received by the Seller Parties that is used in the operation of the Retail Store Business or the Meat Processing Business and any cash related thereto, including, but not limited to, collections on accounts receivable that are included in the Assets. 6.5 Real Property Consents. Seller Parties shall cooperate with Buyers and shall use their commercially reasonable efforts to obtain all consents, permits, approvals and authorizations necessary to transfer the leases set forth on Schedule 6.5 to Buyers as soon as is commercially practicable. 6.6 Insurance Matters. (a) Seller Parties shall remit to Buyers any monies received by Seller Parties under its insurance policies (net of deductibles) as a result of any claims relating to AFD (with respect to the Meat Processing Business) or SF Stores that arise out of events that occur on or prior to the Closing Date. Seller Parties shall use their commercially reasonable efforts to file all claims relating to AFD (with respect to the Meat Processing Business) or SF Stores (with respect to the Retail Store Business) that arise out of events that occur on or prior to the Closing Date. Seller Parties shall directly pay to Buyers any deductibles related to any such claims. (b) Seller Parties shall pay to Buyers any amounts that Buyers are required to pay with respect to workers' compensation claims arising out of events that occur on or prior to the Closing Date to the extent that such claims exceed in the aggregate the reserve for such claims reflected as a current liability on the Final Closing Financial Statement, which reserve shall not be less than Ninety Six Thousand Dollars ($96,000). (c) After the Closing Date, Buyers shall maintain and provide insurance policies for the Retail Store Business and the Meat Processing Business (including, property, general liability and workers compensation) that provide coverages that are comparable to those provided to AFD (with respect to the Meat Processing Business) and SF Stores prior to the Closing Date. (d) Buyers shall be responsible for all claims that arise from events that occur after the Closing Date. (e) Seller Parties and Buyers shall cooperate with one another and use their commercially reasonable efforts to assist each other in the administration of any claim that is the responsibility of the other party under this Section 6.6. 6.7 Assistance and Cooperation. After the Closing Date, each Seller Party and each Buyer Party shall (and shall cause their respective Affiliates to): 37 (a) timely sign and deliver such certificates or forms as may be necessary or appropriate to establish an exemption from or otherwise reduce (if entitled), or to file Tax Returns or other reports, with respect to Transfer Taxes; (b) reasonably cooperate in preparing for any audits of, or disputes with taxing authorities regarding, any Tax Returns relating to the Retail Store Business and the Meat Processing Business; and (c) make available to the other party as reasonably requested all information relating to Taxes or Tax Returns of or relating to the Retail Store Business and the Meat Processing Business. Notwithstanding the foregoing or any other provision in this Agreement to the contrary, no Buyer Party or any Affiliate thereof shall have the right to receive or obtain any information relating to Taxes of the Seller Parties, any of their Affiliates, or any of their predecessors other than information relating to the Assets or necessary to file any Tax Returns for any period that includes the Closing Date. 6.8 Assumed Contracts Consents. With respect to any Assumed Contract for which any required consent or approval is not obtained prior to the Closing, this Agreement shall not constitute an assignment or an attempted assignment thereof if such assignment or attempted assignment would constitute a breach thereof or a default thereunder, and the Seller Parties and Buyer Parties shall each use commercially reasonable efforts to obtain any such consent or approval after the Closing until such consent or approval has been obtained (but Buyer Parties shall have no obligation to provide financial information except to the extent provided by Section 5.3) and Seller Parties shall use their commercially reasonable efforts to provide the Buyer Parties with the same benefits arising under such Assumed Contract, including performance by the appropriate Seller Parties (or the Buyer Parties, if applicable) as agent, if legally feasible; provided that the Buyer Parties (or Seller Parties, if applicable) shall provide Seller Parties (or Buyer Parties, if applicable) with such access to the premises, books and records (other than financial records of the Buyer Parties) and personnel as is reasonably necessary to enable Seller Parties (or Buyer Parties, if applicable) to perform its obligations under such Assumed Contract and Buyer Parties shall pay or satisfy the corresponding liabilities for the enjoyment of such benefits to the extent Buyer Parties would have been responsible therefor if such consent or approval had been obtained. 6.9 Environmental Testing. (a) Subject to the conditions set forth herein, Sellers Parties have the right to conduct environmental testing, at their own expense, at any of the Real Property by providing written notice to the Buyer Parties within ninety (90) days after the Closing Date. The Buyer Parties agree to provide access to said Real Property to Seller Parties and Seller Parties' consultants and contractors, and to reasonably cooperate with Seller Parties and Seller Parties' consultants, with respect to said environmental testing, including, but not limited, providing all relevant information to Seller Parties and their consultants and contractors relating to any potential obstructions that may interfere with environmental testing or cause property damage or personal injury. 38 (b) If Seller Parties determine that they desire to conduct environmental testing as set forth above, Seller Parties shall provide written notice to Buyer Parties at least five business days prior to the date Seller Parties desire to conduct such environmental testing. Seller Parties' written notice shall include a copy of the proposed sampling plan with respect to each property at which they proposed to conduct testing. The sampling plan shall include, at a minimum, a reasonable approximation of where samples will be collected; the environmental media to be sampled; and the analyses which Seller Parties proposed to perform on said samples. (c) Prior to being allowed access to the Real Property, Seller Parties' consultants or contractors shall provide to Buyer Parties copies of insurance certificates demonstrating that said consultants or contractors have appropriate insurance (in amounts consistent with customary industry standards) to insure against property damage or personal injury claims that may result from the performance of the environmental testing. (d) Seller Parties agree that they shall be responsible for ensuring that after the completion of environmental testing, their consultants or contractors shall restore the Real Property to its prior condition, including, but not limited to, taking all steps required to properly abandon any monitoring wells that have been installed in connection with the environmental testing. (e) Seller Parties agree that they shall promptly provide Buyer Parties with copies of any sampling results and related reports with respect to the environmental testing conducted pursuant to this provision. Seller Parties also agree that if, as a result of the environmental testing, reporting to a Governmental Authority is required, Seller Parties shall notify Buyer Parties prior to reporting its findings to said Governmental Authority. (f) Buyer Parties may accompany and monitor the environmental testing performed by Seller Parties pursuant to this Section 6.9, including, without limitation, retaining, at its own expense, its own consultants, attorneys or other professionals to monitor said environmental testing. In addition, Seller Parties agree that they will allow Buyer Parties to collect split samples at Buyer Parties' request if it is reasonably practicable given the amount of sample collected in any particular instance. ARTICLE VII CONDITIONS PRECEDENT TO THE SELLER PARTIES' OBLIGATION TO CLOSE Sellers' obligation to sell the Assets and to take the other actions required to be taken by the Seller Parties at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Sellers, in whole or in part): 7.1 Accuracy of Representations. The representations and warranties of the Buyer Parties contained herein shall be true and correct at the date hereof and as of the Closing Date, except to the extent that such representations and warranties are made as of a specified date, in which case such representations and warranties shall be true and correct as of such date, 39 and except for such failures to be true and correct which, in each case or in the aggregate would not have a material adverse effect on the ability of the Buyer Parties to consummate the Contemplated Transactions. 7.2 Performance. The Buyer Parties shall have performed in all material respects all obligations and agreements and complied in all material respects with all covenants required by this Agreement to be performed or complied with by the Buyer Parties prior to or at the Closing. 7.3 Additional Documents. Each of the following documents shall have been delivered to the Sellers: (a) Each document required to be delivered pursuant to Section 1.7(b); and (b) evidence, satisfactory to the Seller Parties in their reasonable discretion, that each of the Buyer Parties is in good standing in its state of organization and that each of the Buyer Parties has the requisite authority to enter into this Agreement and to consummate the transactions contemplated thereby. 7.4 No Injunction. There is not in effect any Legal Requirement or any injunction or other Order that prohibits the sale of the Assets by Sellers to Buyers. 7.5 Closing of Share Purchase Transaction. The closing of the transactions contemplated in the Share Purchase Agreement shall have occurred simultaneously with the Closing. 7.6 Consents. Each of the material Consents identified in Schedule 8.3 shall have been obtained. ARTICLE VIII CONDITIONS PRECEDENT TO THE BUYER PARTIES' OBLIGATION TO CLOSE Buyers' obligation to purchase the Assets and to take the other actions required to be taken by Buyers at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyers, in whole or in part): 8.1 Accuracy of Representations. The representations and warranties of the Seller Parties contained herein shall be true and correct at the date hereof and as of the Closing Date, except to the extent that such representations and warranties are made as of a specified date, in which case such representations and warranties shall be true and correct as of such date, and except for such failures to be true and correct which, in each case or in the aggregate would not have a Material Adverse Effect. 40 8.2 Performance. The Seller Parties shall have performed in all material respects all obligations and agreements and complied in all material respects with all covenants required by this Agreement to be performed or complied with by the Seller Parties prior to or at the Closing. 8.3 Consents. Each of the material Consents identified in Schedule 8.3 shall have been obtained. 8.4 Additional Documents. Each of the following documents shall have been delivered to Buyers: Each document required to be delivered pursuant to Section 1.7(a)(i), 1.7(a)(ii), 1.7(a)(iv), 1.7(a)(v), 1.7(a)(vi), 1.7(a)(vii), 1.7 (a)(viii), 1.7(a)(ix), 1.7(a)(x), 1.7(a)(xi), 1.7(a)(xii),1.7(a)(xiii), 1.7 (a)(xiv), 1.7(a)(xvi), 1.7(a)(xvii) and 1.7(a)(xviii). 8.5 No Injunction. There is not in effect any Legal Requirement or any injunction or other Order that prohibits the sale of the Assets by Sellers to Buyers. 8.6 No Proceedings. Since the date of this Agreement, there shall not have been commenced against either Buyers or Sellers any Proceeding involving any challenge to or seeking damages or other relief in connection with any of the Contemplated Transactions that would have a Material Adverse Effect. 8.7 No Claim Regarding Assets or Sale Proceeds. There shall not have been made by any Person any claim, which would have a Material Adverse Effect, asserting that such Person (a) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any of the Assets, or (b) is entitled to all or any portion of the Purchase Price payable for the Assets. 8.8 No Prohibition. Neither the consummation nor the performance of any of the Contemplated Transactions shall, (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, (a) any applicable Legal Requirement or Order, or (b) any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Body, and such contravention, conflict or violation would have a Material Adverse Effect. 8.9 Closing of Share Purchase Transaction. The closing of the transactions contemplated in the Share Purchase Agreement shall have occurred simultaneously with the Closing. 8.10 Execution and Closing of Real Estate Purchase Agreement. The Real Estate Purchase Agreement shall have been executed and delivered by all necessary parties thereto and the closing of the transactions contemplated thereby shall have occurred simultaneously with the Closing. 41 ARTICLE IX TERMINATION 9.1 Termination Events. This Agreement may, by notice given prior to or at the Closing, be terminated: (a) By either Seller Parties or Buyer Parties if a material breach of any provision of this Agreement has occurred or been committed by the other party and such breach has not been waived or cured within thirty (30) days of receipt of written notice of such breach by the other party and failure to cure such breach would have a Material Adverse Effect; or (b) By the mutual written consent of Buyer Parties and Seller Parties; or (c) By either Buyer Parties or Seller Parties if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before October 5, 2003 (the "Termination Date"), or at such later date as the parties may agree upon in writing; provided, however, that in the event either party provides a notice to terminate this Agreement pursuant to Section 9.1(a) the Termination Date will be extended, if necessary, to allow for the 30 day cure or waiver period set forth therein. 9.2 Effect of Termination. Each party's right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement or otherwise. Any exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the parties under this Agreement will terminate, except that the obligations of Sections 12.1 and 12.3 will survive; provided, however, that if this Agreement is terminated by a party because of a willful breach of the Agreement by the other party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's willful failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. ARTICLE X INDEMNIFICATION 10.1 Indemnity by the Seller Parties. (a) The Seller Parties shall, from and after the Closing, jointly and severally, indemnify the Buyer Parties and their respective Affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Buyer Indemnified Parties") against and hold each of them harmless from any and all Losses incurred or suffered by the Buyer Indemnified Parties (whether originally asserted against or imposed on the Buyer Indemnified Parties by a third party or originally incurred or suffered directly by the Buyer Indemnified Parties) arising directly out of (i) any 42 breach of any representation or warranty, covenant or agreement made or to be performed by any of the Seller Parties pursuant to this Agreement (ii) the failure by the Seller Parties to pay any of the Excluded Liabilities, (iii) except for the Assumed Liabilities, the operation of the Retail Store Business or the Meat Processing Business or the ownership or operation or use of the Assets on or prior to the Closing Date, (iv) subject to the terms set forth in Section 10.8, Indemnified Environmental Matters, and (v) the matters described in Schedule 10.1(a) (such breach or failure, a "Seller Breach"), which breach shall be determined giving effect to any and all amendments and supplements of the schedules of the Seller Parties to the extent permitted under Section 12.16. (b) The Seller Parties' obligations to indemnify the Buyer Indemnified Parties pursuant to Section 10.1 are subject to the following limitations: (A) No indemnification shall be made by the Seller Parties unless the amount of Losses under this Agreement, the Share Purchase Agreement, the Real Estate Purchase Agreement and the Real Estate Purchase Agreement for the Frozen Food Facility and Parking Lot (as such term is defined in the Share Purchase Agreement) exceed in the aggregate an amount equal to $560,000, it being understood that such amount shall be a "deductible" for the Seller Parties (the "Seller Deductible"); provided, however, that, the Seller Deductible shall be inapplicable to any Losses incurred or suffered by the Buyer Indemnified Parties as a result of (i) fraud by the Seller Parties (as determined by a court of law), (ii) the Sellers Parties' breach of the representation set forth in Section 2.28, (iii) the Seller Parties' failure to perform its covenant in Section 2.17, (iv) the Seller Parties' failure to pay the Excluded Liabilities, (v) the operation of the Retail Store Business or the Meat Processing Business on or prior to the Closing Date, (vi) the Seller Parties failure to perform their covenants set forth in Section 5.4 and Section 6.6, or (vii) liabilities and obligations arising in connection with the matters described in Schedule 10.1(a); and (B) in no event shall the Seller Parties' obligations to indemnify the Buyer Indemnified Parties under this Agreement, the Share Purchase Agreement, the Real Estate Purchase Agreement and the Real Estate Purchase Agreement for the Frozen Food Facility and Parking Lot exceed Fifty Million Dollars ($50,000,000) in the aggregate. 43 10.2 Indemnity by the Buyer Parties. (a) The Buyer Parties shall, from and after the Closing, jointly and severally indemnify the Seller Parties and their respective Affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Seller Indemnified Parties") against and hold each of them harmless from any and all Losses incurred or suffered by the Seller Indemnified Parties (whether originally asserted against or imposed on the Seller Indemnified Parties by a third party or originally incurred or suffered directly or indirectly by the Seller Indemnified Parties) arising directly out of (i) any breach of any representation, warranty, covenant or agreement made or to be performed by any of the Buyer Parties pursuant to this Agreement, (ii) the Buyer Parties' failure to pay any of the Assumed Liabilities and (iii), except for the Excluded Liabilities, the operation of the Retail Store Business or the Meat Processing Business or the ownership or operation or use of the Assets after the Closing Date (such breach, a "Buyer Breach"). (b) The Buyer Parties obligations to indemnify the Seller Indemnified Parties pursuant to Section 10.1 are subject to the following limitations: (A) No indemnification shall be made by the Buyer Parties unless the amount of Losses under this Agreement, the Share Purchase Agreement, the Real Estate Purchase Agreement and the Real Estate Purchase Agreement for the Frozen Food Facility and Parking Lot exceed in the aggregate an amount equal to $560,000, it being understood that such amount shall be a "deductible" for the Buyer Parties (the "Buyer Deductible"); provided, however, that the Buyer Deductible shall be inapplicable to any Losses incurred or suffered by the Seller Indemnified Parties as a result of (i) fraud by the Buyer Parties (as determined by a court of law), (ii) the Buyer's failure to pay any of the Assumed Liabilities or (iii) the operation of the Retail Store Business or the Meat Processing Business or the ownership or operation or use of the Assets after the Closing Date and (B) in no event shall the Buyer Parties' obligations to indemnify the Seller Indemnified Parties under this Agreement, the Share Purchase Agreement, the Real Estate Purchase Agreement and the Real Estate Purchase Agreement for the Frozen Food Facility and Parking Lot exceed Fifty Million Dollars ($50,000,000) in the aggregate. 10.3 Procedure and Payment. (a) The person seeking indemnification under Section 10.1, and 10.2 (the "Indemnified Party") agrees to give prompt notice to the Person against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding, in respect of which indemnity may be sought under such Section and will provide the Indemnifying Party such information with respect thereto as the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have materially and adversely prejudiced the Indemnifying Party. (b) The Indemnifying Party shall be entitled to defend any claim asserted by any third party ("Third Party Claim") with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying Party notifies the Indemnified Party in writing within fifteen (15) days after the Indemnified Party has given notice 44 of the Third Party Claim that it will indemnify the Indemnified Party from and against all Losses that the Indemnified Party may suffer resulting from, arising out of, relating to, or caused by the Third Party Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations under this Agreement, (iii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (iv) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party and (v) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (c) So long as the Indemnifying Party is conducting the defense of any Third Party Claim in accordance with the provisions of this Section 10.3, the Indemnified Party shall be entitled to participate in the defense of such Third Party Claim and to employ separate counsel of its choice for such purpose. The fees and expenses of such separate counsel shall be paid by the Indemnified Party. (d) Each party shall cooperate, and cause its Affiliates to cooperate, in the defense or prosecution of any Third Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested by any other party in connection therewith. 10.4 Calculation of Losses. (a) The amount of any Losses payable under Section 10.1 and 10.2 by the Indemnifying Party shall be net of any amounts recovered by the Indemnified Party under applicable insurance policies and the Indemnified Party shall use commercially reasonable efforts to collect any amounts available under such insurance policies. (b) If the Indemnified Party receives an amount under insurance coverage or from a third party with respect to Losses at any time subsequent to any indemnification provided by the Indemnifying Party pursuant to Section 10.1 and 10.2, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification up to such amount received by such Indemnified Party, but net of any expenses incurred by such Indemnified Party in collecting such amount. (c) In no event shall either the Buyer Parties or the Seller Parties be liable to the other party for any consequential damages unless such amounts are actually paid or awarded in connection with a Third Party Claim. (d) The parties hereto shall treat any indemnity payment made under this Agreement as an adjustment to the Purchase Price for all purposes, including Tax purposes, unless required by law to treat such payment as other than an adjustment to the Purchase Price. 45 (e) The parties shall take into account the time value of money (using a variable rate equal to the prime rate of interest as published in the Money Rates section of the Wall Street Journal) in determining Losses for purposes of this Article X beginning the day after notice of an indemnification claim is made. 10.5 Survival of Representations and Warranties of the Seller Parties. Absent fraud by the Seller Parties (as determined by a court of law) all representations and warranties made by the Seller Parties in this Agreement shall survive the Closing for a period of two (2) years after the Closing Date, except for (a) the representations and warranties contained in Sections 2.29 and 2.19 which shall survive for one (1) month after the maximum period permitted by law and (b) the representations and warranties contained in Section 2.28, which shall survive indefinitely; provided, however, that any representation, warranty, covenant or agreement pertaining to a claim for which Buyers shall have given written notice to the Seller Parties describing in reasonable detail the facts relating to such claim on or prior to the expiration of the applicable period specified above shall survive (solely for the purpose of resolving such claim) until the resolution of such claim. 10.6 Survival of Representations and Warranties of the Buyer Parties. Absent fraud by the Buyer Parties (as determined by a court of law), all representations and warranties made by the Buyer Parties in this Agreement shall survive the Closing for a period of two (2) years after the Closing Date; provided, however, that any representation, warranty, covenant or agreement pertaining to a claim for which the Seller Parties shall have given written notice to the Buyer Parties describing in reasonable detail the facts relating to such claim on or prior to the expiration of the period specified above shall survive (solely for the purpose of resolving such claim) until the resolution of such claim. 10.7 Escrow. Payments (under this Article X) to be made to the Buyer Indemnified Parties as a result of Losses arising out of the breaches of representations, warranties and covenants of the Seller Parties shall be made pursuant to the terms set forth in the Escrow Agreement. 10.8 Indemnified Environmental Matters. (a) (1) Seller Parties hereby agree to indemnify the Buyer Indemnified Parties in respect of any and all Losses incurred by the Buyer Indemnified Parties, including, without limitation, Losses relating to Remediation or for third party claims for property damage or personal injury, in connection with Hazardous Substances that were disposed of or released into soils, groundwater, surface water, sediments or similar environmental media, prior to the Closing Date, at any of the real property that is or has been owned, leased or operated by the Meat Processing Business or the Retail Store Business (the "Real Property"). (2) Seller Parties hereby agree to indemnify the Buyer Indemnified Parties with respect to any fines and penalties that may be asserted against Buyer Indemnified Parties with respect to any violation of applicable Environmental Law by the Meat Processing Business or the Retail Store Business. For purposes of clarification, the indemnity set forth herein does not include any costs or expenses associated with any corrective actions that may be required with respect to such violations or release of ammonia. 46 (3) The Matters described in Sections 10.8(a)(1) are the "Indemnified Environmental Matters." (b) Seller Parties' obligation to indemnify the Buyer Indemnified Parties with respect to the Indemnified Environmental Matters shall be subject to the provisions of Article X, including, without limitation, Section 10.1(b) and Section 10.8. Furthermore, any matter subject to indemnity pursuant to Section 10.1(a) which by its nature also falls within the scope of Section 10.8(a)(1) or 10.8(a)(2) also shall be governed by the provisions of Section 10.8 to the extent applicable. (c) (1) With respect to the matters identified in Section 10.8(a)(1) that relate to Remediation of Real Property, Seller Parties shall only be required to defend, indemnify and hold harmless Buyer Indemnified Parties with respect to such Indemnified Environmental Matters to the extent that: (A) the Remediation of the Hazardous Substances is required pursuant to an applicable Environmental Law that is in effect as of the Closing; (B) the Remediation Standards applicable to the Remediation are the least stringent Remediation Standards that would be applicable based on the use of the Real Property as of the Closing Date; and (C) the Remediation shall be conducted in a reasonable, cost effective manner consistent with applicable Environmental Law. Buyer Indemnified Parties agree that they shall accept appropriate engineering controls or institutional controls, including, if necessary, deed restrictions or limitations on the drilling and use of water wells, if such controls are needed in order for the parties to complete a Remediation consistent with the use of the least stringent Remediation Standards; provided, that Buyer Indemnified Parties shall not be obligated to accept engineering or institutional controls that unreasonably interfere with Buyer Indemnified Parties' operations on the Real Property if such operations are materially the same as the operations of the Seller Parties as of the Closing Date on said properties. (c) (2) Notwithstanding anything to the contrary herein, Seller Parties shall have no obligation to defend, indemnify and hold harmless the Buyer Indemnified Parties to the extent that any Remediation with respect to the Indemnified Environmental Matters results from the cessation of all or substantially all of the operations at the Real Property or a material change in the use of the Real Property. (d) Notwithstanding anything to the contrary herein, with respect to claims arising pursuant to Section 10.8, Seller Parties shall not be obligated to indemnify Buyer Indemnified Parties for any costs or expenses of Buyer Indemnified Parties related to the time spent on any indemnified matter by employees or management of Buyer Indemnified Parties. (e) If Buyer Indemnified Parties or any of their affiliates intend to sell, lease, sublease or otherwise convey the Real Property, Buyer Indemnified Parties or said affiliate shall include, as a condition of such sale, lease, sublease or other agreement terms and conditions that will ensure that any institutional or engineering controls that have been accepted with respect to the Real Property are not disturbed (or, if such controls will be disturbed, will be restored at the expense of the party causing the disturbance or, if additional Remediation is required as a result of the disturbance of such controls, that such additional Remediation will be performed at the sole cost and expense of the party causing the disturbance). 47 (f) For purposes of this Agreement: (1) the term "Remediation Standard" means a numerical or narrative standard (whether resulting from an enacted statute, promulgated regulation, guidance or policy document issued by a regulatory agency, or developed on a case-by-case basis through a risk assessment or other methodology authorized pursuant to an applicable Environmental Law) that defines the concentrations of Hazardous Substances that may be permitted to remain in any environmental media after an investigation, remediation or containment of a release of Hazardous Substances; and (2) the term "Remediation" means any action of any kind to investigate and/or clean up a release of Hazardous Substances into an environmental medium, including, but not limited to, the following activities: (A) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (B) obtaining any permits, consents, approvals or authorizations of any governmental authority necessary to conduct any such activity; (C) preparing and implementing any plans or studies for any such activity; and (D) obtaining a written notice from a Governmental Authority with jurisdiction over the site being investigated and/or cleaned up under Environmental Laws that no additional work is required by such Governmental Authority. (g) (1) Buyer Indemnified Parties, consistent with the provisions of this Section 10.8, shall be entitled to control Remediations with respect to the Indemnified Environmental Matters to the extent that such Remediations are necessary. Buyer Indemnified Parties shall promptly provide copies to Seller Parties of all notices, correspondence, draft reports, submissions, work plans, and final reports. Buyer Indemnified Parties shall provide Seller Parties a reasonable opportunity (at Seller Parties' own expense) to comment on any submissions Buyer Indemnified Parties intend to deliver or submit to the appropriate regulatory body prior to said submission. Further, Buyer Indemnified Parties and Seller Parties agree to work together in good faith to agree on the legal, regulatory, investigatory and remedial strategy and actions with respect to such Remediations. Seller Parties may, at their own expense, hire their own consultants, attorneys or other professionals to monitor the work performed by Buyer Indemnified Parties, including any field work undertaken by Purchaser. Notwithstanding the above, Seller Parties shall not take any actions that shall unreasonably interfere with Buyer Indemnified Parties. If Buyer Indemnified Parties' performance of any Remediation with respect to Indemnified Environmental Matters does not substantially conform with the requirements of this section, including, without limitation, Section 10.8(c), Seller Parties shall have no obligation to defend, indemnify and hold harmless Buyer Indemnified Parties with respect to the Indemnified Environmental Matters. (2) In addition to any other limitations on Buyer Indemnified Parties' right to indemnification with respect to the Indemnified Environmental Matters, Seller Parties' obligation to defend, indemnify and hold harmless Buyer Indemnified Parties with respect to the Indemnified Environmental Matters shall terminate at such time as a no further action letter or equivalent approval has been issued by the FDEP or other relevant Governmental Authority, whichever comes first. (h) Exclusive Remedy for Environmental Matters; Indemnification by Buyer. 48 Notwithstanding anything to the contrary in this Agreement, Buyer Indemnified Parties hereby agree that their sole and exclusive remedy against Seller Parties and their officers, managers, members, employees, Affiliates, successors and assigns) (collectively, the "Seller-Related Parties"), with respect to any and all matters arising under or related to Environmental Law or Hazardous Substances, in connection with the Real Property, shall be the indemnity set forth in this Section 10.8 and a claim for breach of representation pursuant to Section 10.1(a)(i). Except with respect to the remedy referred to in the preceding sentence, the Buyer Indemnified Parties hereby waive, to the fullest extent permitted under applicable law, and forever release the Seller-Related Parties, in connection with the Real Property, and indemnify and hold harmless the Seller-Related Parties against, any and all claims or Losses arising under or related to Environmental Laws, Hazardous Substances or the environment. ARTICLE XI DEFINITIONS For purposes of this Agreement, the following terms have the meaning set forth below: "AAA" is defined in Section 12.15(a) of this Agreement. "Accountants" is defined in Section 1.5(a) of this Agreement. "Accounts Receivable" means the trade receivables as reflected on the Final Closing Financial Statement with respect to the Meat Processing Business, the Retail Store Business and the Foodservice Business (as such term is defined in the Share Purchase Agreement). "AFD" is defined in the preamble of this Agreement. "Affiliate" means, with respect to any party, any Person directly or indirectly controlling, controlled by, or under common control with such party, and any officer, director or executive employee of such party. "Agreement" is defined in the preamble of this Agreement. "Agreement Disputes" is defined in Section 12.15 of this Agreement. "Assets" means as of the Closing Date, other than the Excluded Assets, all of the right, title and interest of the Seller Parties in and to all the assets and properties and rights that are used in the Retail Store Business and the Meat Processing Business and located in the state of Florida, other than the Excluded Assets, including but not limited to (a) real property, leaseholds and subleaseholds therein, improvements, fixtures, and fittings therein, and easements, rights-of-way, and other appurtenant rights thereto (such as appurtenant rights in and to public streets), (b) tangible personal property (such as machinery, equipment, inventories of raw materials and supplies, stock in trade, manufactured and purchased parts, goods in process and finished goods, 49 furniture, automobiles, trucks, tractors, trailers, tools, jigs, and dies), (c) intellectual property assets, goodwill associated therewith, licenses, sublicenses or uses (as the case may be) granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions, (d)leases, subleases, and rights thereunder, (e) agreements, Assumed Contracts, indentures, mortgages, instruments, security interests, guaranties, and other similar arrangements providing benefits to Seller Parties, and all rights thereunder, (f) Accounts Receivable, notes, and other receivables, (g) claims, deposits, prepayments, refunds, causes of action, chooses in action, rights of recovery and rights of setoff, (h) franchises, approvals, permits, licenses, orders, registrations, certificates, variances, and similar Governmental Authorizations obtained from governmental bodies), (i) books, records, ledgers, files, documents, correspondence, lists, plats, architectural plans, drawings and specifications, creative materials, advertising and promotional materials, studies and reports, (j) cash and cash equivalents, and (k) rights in and with respect to the assets associated with the Company Plans to the extent Buyers will be providing benefits to the Transferred Employees pursuant to such Company Plans. "Assumed Contract" means any Contract (a) under which any of the Seller Parties has or has the option to acquire any material rights relating to the Retail Store Business or the Meat Processing Business, (b) under which any of the Seller Parties has or is subject to any obligation or liability relating to the Retail Store Business or the Meat Processing Business, including real property leases, or (c) by which either of the Sellers (with respect to the Retail Store Business or the Meat Processing Business) or any of the Assets are bound. "Assumed Liabilities" means (i) any direct or indirect debt, obligation or liability of Sellers with respect to the Retail Store Business or the Meat Processing Business of any kind or nature, whether accrued or fixed, absolute or contingent, determined or determinable, matured or unmatured, and whether due or to become due, asserted or unasserted, or known or unknown, but only to the extent (a) set forth on the face of the Orlando Balance Sheets and the SF Stores Balance Sheet (rather than in the notes thereto), (b) set forth on the Final Closing Financial Statement, (c) reflected on Schedule 1.3(a) or (d) arising out of the Assumed Contracts and the other contracts included in the Assets, and (ii) all liabilities arising out of or relating to the operation of the Retail Store Business and/or the Meat Processing Business, which arise between the signing and the Closing Date that are incurred in the Ordinary Course of Business and are not required by GAAP to be shown on the Final Closing Financial Statement or in any notes thereto, none of which, individually or in the aggregate, would have a Material Adverse Effect. "Assumption Agreement" is defined in Section 1.7(a)(ii) of this Agreement. "Balance Sheet" is defined in Section 2.4 of this Agreement. "Balance Sheet Audit" is defined in Section 1.5(a) of this Agreement. "Buyer Breach" is defined in Section 10.2(a) of this Agreement. "Buyer Deductible" is defined in Section 10.2(b) of this Agreement. "Buyer Member" is defined in the preamble of this Agreement. 50 "Buyer Indemnified Parties" is defined in Section 10.1(a) of this Agreement. "Buyer Parties" is defined in the preamble of this Agreement. "Buyer 401(k) Plan" is defined in Section 4.9(e) of this Agreement. "Buyers" is defined in the preamble of this Agreement. "Buyers' Advisors" is defined in Section 4.1 of this Agreement. "Buyers' Other Agreements" is defined in Section 3.2 of this Agreement. "Closing" is defined in Section 1.6 of this Agreement. "Closing Date" is defined in Section 1.6 of this Agreement. "Closing Financial Statement" is defined in Section 1.5(a) of this Agreement. "Closing Payment" is defined in Section 1.2(a) of this Agreement. "COBRA" is defined in Section 4.9(e) of this Agreement. "COBRA Eligible Individual" is defined in Section 4.9(e) of this Agreement. "Confidentiality Agreement" is defined in Section 12.3 of this Agreement. "Consent" means any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). "Contemplated Transactions" means all of the transactions contemplated by this Agreement. "Contract" means any material written agreement, contract, obligations, promise, or undertaking that is legally binding. "Difference" is defined in Section 1.5(c) of this Agreement. "Dispute Notice" is defined in Section 12.15(a) of this Agreement. "Encumbrance" means any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership. "Environmental Laws" means all applicable federal, state and local laws, rules, regulations and ordinances relating to public health and safety, worker health and safety and pollution and protection of the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.(S)9601 et seq., the Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C.(S)6901 et seq., 51 the Emergency Planning and Community Right to Know Act ("Right-to-Know Act"), 42 U.S.C.(S)11001 et seq., the Clean Air Act ("CAA"), 42 U.S.C.(S)7401 et seq., the Federal Water Pollution Control Act ("Clean Water Act"), 33 U.S.C.(S)1251 et seq., the Toxic Substances Control Act ("TSCA"), 15 U.S.C.(S)2601 et seq., the Safe Drinking Water Act, 42 U.S.C.(S)300f et seq., the Occupational Safety and Health Act ("OSHA"), 42 U.S.C.(S)651 et seq., and the Hazardous Materials Transportation Act, 49 U.S.C.(S)1801, all as amended, and any regulations, rules or ordinances adopted promulgated pursuant thereto. "ERISA" means the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Escrow Agent" is defined in Section 1.2(b) of this Agreement. "Escrow Agreement" is defined in Section 1.2(b) of this Agreement. "Escrow Payment" is defined in Section 1.2(b) of this Agreement. "Excluded Assets" means (a) supplies and other tangible personal property consumed in the Ordinary Course of Business between the date of this Agreement and the Closing Date, (b) the corporate books and records of Sellers, (c) any Tax refunds or credits attributable to the Assets of the Retail Store Business and the Meat Processing Business, relating to any taxable period, or any portion thereof, ending on or prior to or which includes the Closing Date, (d) any insurance policies in respect of the Retail Store Business and the Meat Processing Business and the Assets, (e) all right, title and interest of the Seller Parties in and to all the assets and properties that are not used in the Retail Store Business and the Meat Processing Business and not located in the state of Florida, (f) all assets listed on Schedule 1.1(b) and (g) all rights in respect of the Excluded Assets and the Excluded Liabilities. "Excluded Liabilities" is defined in Section 1.3 of this Agreement. "Final Closing Financial Statement" is defined in Section 1.5(a) of this Agreement. "Final Net Working Capital" is defined in Section 1.5(a) of this Agreement. "Financial Statements" is defined in Section 2.3 of this Agreement. "Foodservice Business" is defined in the Preliminary Statement of this Agreement. "Fort Lauderdale Store" means the premises located at 2573 N. Federal Highway, Ft. Lauderdale, Florida, together with certain items of equipment located therein. "GAAP" means generally accepted United States accounting principles, applied consistent basis. "GFS Orlando" is defined in the preamble of this Agreement. 52 "GFS Stores" is defined in the preamble of this Agreement. "Governmental Authorization" means any material approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "Governmental Body" means any: (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign, or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (d) multi-national organization or body; or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. "Hazardous Substances" means any pollutant or contaminant (as that term is defined in 42 U.S.C. (S)9601(33)), toxic pollutant (as that term is defined in 33 U.S.C. (S)1362(13)), hazardous substance (as that term is defined in 42 U.S.C. (S)(S)9601 et seq. and the regulations promulgated thereunder), hazardous chemical (as that term is defined by 29 C.F.R. (S)1910.1200(c)), hazardous waste (as that term is defined in 42 U.S.C. (S)6202(2)), radioactive material, including without limitation any source, special nuclear or by-product material as defined in 42 U.S.C. (S)(S)2011 et seq., friable asbestos and asbestos containing material, regulated levels of polychlorinated biphenyls, petroleum and petroleum waste, including crude oil or any petroleum derived substance, waste or breakdown or decomposition product thereof, or any constituent of any such petroleum substance or waste, or any substance or material which because of its toxicity, corrosiveness, ignitability, reactivity or infectious characteristics may pose a threat to human health or the environment. "Henry Lee" is defined in the Preliminary Statement of this Agreement "Indemnified Environmental Matters" is defined in Section 10.8(a)(3) of this Agreement. "Indemnified Party" is defined in Section 10.3(a) of this Agreement. "Indemnifying Party" is defined in Section 10.3(a) of this Agreement. "IRC" means the Internal Revenue Code of 1986 or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. 53 "IRS" means the United States Internal Revenue Service or any successor agency, and to the extent relevant, the United States Department of the Treasury. "Knowledge" means (i) in the case of an individual, such individual's actual knowledge; or (ii) in the case of a Person (other than an individual or the Sellers) the actual knowledge of any executive officer of such Person. In addition to the foregoing, the Seller Parties will be deemed to have "Knowledge" of a particular fact or matter if any executive officer of Seller Shareholder, AFD, SF Stores or any of Bruce Samples, Joe Copeland, Steve Trocke, Dan McGruder or Mike Altif has actual knowledge of such fact or matter or should have known of such fact or matter after undertaking reasonable inquiry. "Legal Requirement" means any federal, state, local, municipal, foreign, international, or other administrative order, constitution, principle of common law, treaty, law, rule, ordinance, or regulation (including, but not limited to, building and zoning ordinances, occupational health and safety laws and regulations, and Environmental Laws, statutes, and ordinances). "Losses" means any and all liabilities, obligations, demands, claims, actions, causes of actions, losses (including diminution in value), assessments, costs, damages, fines or expenses, including, without limitation, interest, penalties, reasonable attorney fees and all amounts paid in investigation, defense or settlement of any of the foregoing. "Material Adverse Effect" means any condition, event, circumstance, change or effect that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the business, assets, properties, results of operation or financial condition or Prospects of the Retail Store Business, the Meat Processing Business and the Foodservice Business (as such term is defined in the Share Purchase Agreement), in the aggregate, it being understood that none of the following shall be deemed by itself or by themselves, either alone or in combination, to constitute a material adverse effect: (i) any changes resulting from the announcement of the transactions contemplated hereby or from any action taken by the terms hereof, (ii) any changes in general economic conditions in industries in which the Retail Store Business, the Meat Processing Business or the Foodservice Business operates, which conditions do not affect the Retail Store Business, the Meat Processing Business or the Foodservice Business (as applicable) disproportionately relative to other entities operating in such industries, (iii) any changes in the United States or global economy as a whole, (iv) any changes arising as a result of any action taken by the Buyer Parties and (v) the departure of any employee or employees involved primarily in the Foodservice Business, Meat Processing Business or the Retail Store Business as a result of any action taken by the Buyer Parties at any time prior to the Closing. "Meat Processing Business" is defined in the Preliminary Statement of this Agreement. "Net Working Capital" is defined in Section 1.4 of this Agreement. "Noncompetition Agreement" is defined in Section 1.7(a)(vii) of this Agreement. 54 "Order" means any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body. "Ordinary Course of Business" is defined such that an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: (a) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; (b) such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); (c) such action is substantially the same in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. "Organizational Documents" means, as applicable, (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) the articles or certificate of organization and the operating or limited liability company agreement of a limited liability company; (e) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (f) any amendment to any of the foregoing. "Orlando Balance Sheets" is defined in Section 2.3 of this Agreement. "Orlando P & L Statements" is defined in Section 2.3 of this Agreement. "Participation Agreement" means the agreement dated as of November 30, 2001 among Smart & Final, Inc., as lessee, the parties identified therein as "Guarantors," Wells Fargo BankNorthwest, National Association, not individually except as expressly stated therein but solely as the Owner Trustee under the S&F Trust 1998-1, the various parties identified therein as "Holders," the various parties identified therein as "Lenders, and Fleet Capital Corporation, as the agent for the Lenders and, in respect of the Security Documents (as defined therein), as agent for the Lenders and the Holders. "Participation Agreement Provisions" means Section 11 of the Participation Agreement (Indemnification). "Permitted Encumbrances" means (i) any statutory liens for current Taxes not yet due and payable and (ii) Encumbrances arising in the Ordinary Course of Business with respect to the Meat Processing Business and the Retail Store Business since the date of the most recent Financial Statement, none of which, individually or in the aggregate, would have a Material Adverse Effect. "Permitted Exceptions" is defined in Section 2.7(o) of this Agreement. 55 "Person" means any individual, sole proprietorship, partnership, limited partnership, joint venture, estate, trust, unincorporated association, organization, labor union, limited liability company, corporation or other entity or any Governmental Body. "Preliminary Net Working Capital" is defined in Section 1.2 of this Agreement. "Preliminary Purchase Price Statement" is defined in Section 1.2 of this Agreement. "Proceeding" means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before or otherwise involving any Governmental Body or arbitrator. "Proprietary Rights Agreement" is defined in Section 2.14(b) of this Agreement. "Prospects" means, to the Sellers' actual knowledge, the prospects as of the date of this Agreement of the Retail Store Business, the Meat Processing Business and the Foodservice Business (as such term is defined in the Share Purchase Agreement) in the aggregate. "Purchase Price" is defined in Section 1.2 of this Agreement. "Related Agreements" is defined in Section 2.2(a) of this Agreement. "Real Estate Purchase Agreement" is defined in Section 1.7(xiii) of this Agreement. "Real Property" is defined in Section 10.8(a)(1) of this Agreement. "Related Person" means with respect to a particular individual: (a) each other member of such individual's Family; (b) any Person that is directly or indirectly controlled by such individual; (c) any Person in which such individual or members of such individual's Family hold (individually or in the aggregate) a Material Interest; and (d) any Person with respect to which such individual or one or more members of such individual's Family serves as a director, officer, partner, executor, or trustee (or in a similar capacity). With respect to a specified Person other than an individual: 56 (a) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person; (b) any Person that holds a Material Interest in such specified Person; (c) each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a similar capacity); (d) any Person in which such specified Person holds a Material Interest; (e) any Person with respect to which such specified Person serves as a general partner or trustee (or in a similar capacity); and (f) any Related Person of any individual described in clause (b) or (c). For purposes of this definition, (a) the "Family" of an individual includes (i) the individual, (ii) the individual's spouse, (iii) any other natural person who resides permanently with such individual, and (b) "Material Interest" means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least 25% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 25% of the outstanding equity securities or equity interests in a Person. "Remediation" is defined in Section 10.8(f)(2) of this Agreement. "Remediation Standard" is defined in Section 10.8(f)(1) of this Agreement. "Representative" means with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "Retail Store Business" means the retail food store business engaged in by SF Stores in the state of Florida at the properties referenced in Items 1-9 of Schedule 2.17. "Schedule" means the disclosure schedules attached hereto, as amended and supplemented in accordance with Section 12.16. "Securities Act" means the Securities Act of 1933, or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Sellers" is defined in the first paragraph of this Agreement. "Seller Breach" is defined in Section 10.1(a) of this Agreement. "Seller Deductible" is defined in Section 10.1(b) of this Agreement. "Seller Indemnified Parties" is defined in Section 10.2(a) of this Agreement. 57 "Seller Shareholder" is defined in the preamble of this Agreement. "Seller Parties" is defined in the preamble of this Agreement. "Seller-Related Parties" is defined in Section 10.8(h) of this Agreement. "SF Stores" is defined in the preamble of this Agreement. "SF Stores Balance Sheet" is defined in Section 2.3 of this Agreement. "SF Stores P & L Statements" is defined in Section 2.3 of this Agreement. "SFI 401(k) Plan" is defined in Section 4.9(e) of this Agreement. "Share Purchase Agreement" is defined in the Preliminary Statement of this Agreement. "Software License and Support Agreement" is defined in Section 1.7(a)(viii) of this Agreement. "Synthetic Lease Agreement" means the Agreement, dated as of November 30, 2001 between Wells Fargo Bank Northwest, National Association, not individually but solely as the Owner Trustee under S&F Trust 1998-1, as lessor, and Smart & Final Inc., as lessee. "Synthetic Lease Provisions" means the following provisions of the Synthetic Lease Agreement: (i) Section 4.1 (Taxes; Utility Charges); (ii) paragraphs (a), (c) and (e) of Section 8.2 (Possession and Use of the Properties); (iii) Section 8.3 (Integrated Properties); (iv) Section 9.1 (Compliance with Legal Requirements, etc.); (v) Section 10.1 (Maintenance and Repair; Return); (vi) Section 11.1 (Modifications); (vii) Article XIII (Permitted Contests and Payment of Impositions, Utility Charges and other Matters); (viii) Article XIV (insurance); (ix) Section 28.2(a) (Compliance with Laws); (x) Section 28.2(b) (Payment of Taxes); (xi) Section 28.2(c) (Compliance with Environmental Laws); and (xii) Section 28.2(f) (Inspection Rights). "Tax" and "Taxes" means all taxes, charges, withholdings, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, real or personal property, tollgate, capital, net worth, sales, use, ad valorem, single business, transfer, franchise, profits, license, leasing, withholding, payroll, employment, social security, unemployment, excise, estimated, severance, stamp, occupation, services, property or other taxes, customs duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any federal, state, local or other taxing authority, domestic or foreign. "Tax Return" means any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. 58 "Termination Date" is defined in Section 9.1(d) of this Agreement. "Third Party Claim" is defined in Section 10.3(b) of this Agreement. "Tradename and Trademark License Agreement" is defined in Section 1.7(a)(ix) of this Agreement. "Transfer" is defined in Section 4.9(e) of this Agreement. "Transfer Taxes" is defined in Section 1.9 of this Agreement. "Transferred Account Balances" is defined in Section 4.9(e) of this Agreement. "Transferred Employees" is defined in Section 4.9(d) of this Agreement. "Vendor Agreements" means the agreements listed in Annex 2 of Schedule 2.11(a). ARTICLE XII GENERAL PROVISIONS 12.1 Expenses With Respect to Transaction. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel and accountants. 12.2 Public Announcements. Prior to the signing of this Agreement, the Seller Parties and the Buyer Parties shall prepare a mutually agreeable release announcing the Contemplated Transactions. Except for such press release, neither the Seller Parties nor the Buyer Parties shall, without the approval of the other, make any press release or other announcement concerning the existence of this Agreement or the terms of the Contemplated Transactions, except as and to the extent that any such party shall be so obligated by Legal Requirements, in which case the other party shall be advised and the parties shall use their reasonable best efforts to cause a mutually agreeable release or announcement to be issued; provided, however, that the foregoing shall not preclude communications or disclosures necessary to comply with accounting, stock exchange or federal securities law disclosure obligations. The Seller Parties and the Buyer Parties will consult with each other concerning the means by which the employees, customers, and suppliers of the Sellers and others having dealings with the Sellers will be informed of the Contemplated Transactions. 12.3 Confidentiality. The Buyer Parties and the Seller Parties shall abide by and comply with all of the terms and conditions of the Non-Disclosure Agreement entered into by and among the Seller Shareholder and Buyer Member and dated as of February 10, 2003, as amended (the "Confidentiality Agreement"). Notwithstanding the foregoing, if required by 59 Legal Requirements, the Seller Parties and the Buyer Parties (and each of their respective employees, representatives, or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and any facts that may be relevant to the tax structure of the Contemplated Transactions beginning on the earliest of (i) the date of the public announcement of discussions relating to the Contemplated Transactions, (ii) the date of public announcement of the Contemplated Transactions, or (iii) the date of the execution of an agreement (with or without conditions) to enter into the Contemplated Transactions; provided, however, that neither the Seller Parties nor the Buyer Parties (nor any of their respective Representatives) may disclose any other information that is not relevant to understanding the tax treatment and tax structure of the Contemplated Transactions (including the identity of any party and any information that could lead another to determine the identity of any party), or any other information to the extent that such disclosure could result in a violation of any federal or state securities law. 12.4 Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyer: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 60 With a copy to: Legal Department Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 And a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II 12.5 Jurisdiction. (a) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such courts, and agrees that, except as permitted pursuant to this Section 12.5, it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (b) In the event the state court specified in Section 12.5(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal 61 proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (c) In the event the state court specified in Section 12.5(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Seller Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (d) The parties hereby waive any right to a jury trial. 12.6 Further Assurances. From time to time after the Closing Date, at the request of the other party hereto and at the expense of the party so requesting (unless the requesting party is entitled to indemnification therefor under Article X), each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. 12.7 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in the Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of 62 such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 12.8 Entire Agreement and Modification. This Agreement (including all exhibits and schedules hereto) supersedes all prior agreements between the parties other than the Confidentiality Agreement with respect to its subject matter (including the Letter of Intent between Gordon Food Service, Inc. and the Seller Shareholder, dated May 29, 2003, as amended) and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. 12.9 Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights or obligations under this Agreement without the prior consent of the other parties except that Buyers may assign any of their rights or obligations under this Agreement to any Affiliate of Buyer Member. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 12.10 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 12.11 Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 12.12 Preamble; Preliminary Statement. The Preliminary Statement set forth in the Preamble hereto is hereby incorporated and made a part of this Agreement. 12.13 Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. 63 12.14 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. 12.15 Dispute Resolution. Except as hereinafter provided in this Section 12.15 and subject to the provisions set forth in Article X, from and after the Closing, all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (a) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 12.4 hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (b) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (c) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (d) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 12.5 without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. 12.16 Supplemental Disclosure. The Seller Parties shall have the right from time to time up to seven (7) days prior to the Closing to supplement or amend the disclosure schedules 64 with respect to any matter hereafter arising that, if existing or known at the date of this Agreement, would have been required to be set forth or described in such disclosure schedule. Any such supplemental or amended disclosure shall be deemed to have cured any breach of any representation or warranty made in this Agreement for purposes of Article X, but will not be deemed to have cured any such breach made in this Agreement or to have been disclosed as of the date of this Agreement for purposes of Article VIII. 12.17 Reliance. All covenants, warranties and representations made herein by any party (including the disclosures made on the Schedules) shall be deemed to be relied upon by the other party notwithstanding any investigation by or actual knowledge of such by the other party. 12.18 Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. [Remainder of page intentionally left blank] 65 IN WITNESS WHEREOF, the parties have each executed and delivered this Agreement as of the day and year first above written. SELLER PARTIES: SELLER SHAREHOLDER: SMART & FINAL INC. By /s/ Dennis Chiavelli -------------------------------- Its EVP ---------------------------- By /s/ Donald G. Alvarado -------------------------------- Its SVP ---------------------------- SF STORES: SMART & FINAL STORES CORPORATION By /s/ Dennis Chiavelli -------------------------------- Its EVP ---------------------------- By /s/ Donald G. Alvarado -------------------------------- Its SVP ---------------------------- AFD: AMERICAN FOODSERVICE DISTRIBUTORS By /s/ Dennis Chiavelli -------------------------------- Its EVP ---------------------------- By /s/ Donald G. Alvarado -------------------------------- Its SVP ---------------------------- 66 BUYER PARTIES: BUYER MEMBER: GFS HOLDING, INC. By /s/ Jeff Maddox -------------------------------- Its Authorized Agent ---------------------------- GFS ORLANDO: GFS ORLANDO, LLC By /s/ Jeff Maddox -------------------------------- Its Authorized Agent ---------------------------- GFS STORES: GFS STORES, LLC By /s/ Jeff Maddox -------------------------------- Its Authorized Agent ---------------------------- 67 ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Agreement") is entered into and effective as of August , 2003 (the "Effective Date"), by and between SMART & FINAL INC., -- a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"), and WELLS FARGO BANK, N.A., solely in its capacity as Escrow Agent as is set forth herein (the "Escrow Agent"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Share Purchase Agreement (as defined below). R E C I T A L S A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated of even date herewith, by and between SFI, AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding common shares of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated of even date herewith, by and among GFS Holding, GFS Orlando and GFS Stores, and Sellers, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD (collectively, the "Assets" and, together with Henry Lee, the "Companies"). B. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the Companies. C. The Asset Purchase Agreement requires that the Buyers deposit with the Escrow Agent the sum of Two Million Dollars ($2,000,000) and the Share Purchase Agreement requires that the Buyers deposit with the Escrow Agent the sum of One Million Dollars ($1,000,000), for an aggregate deposit of Three Million Dollars ($3,000,000) (the "Escrow Fund"). D. An aggregate amount equal to One Million Five Hundred Thousand Dollars ($1,500,000) (the "Purchase Price Escrow Deposit") of the Escrow Fund shall be a fund against which claims by the Buyers may be made with respect to adjustments to the Purchase Price pursuant to Sections 1.4 and 1.5 of the Asset Purchase Agreement and Sections 1.3 and 1.4 of the Share Purchase Agreement. E. An aggregate amount equal to One Million Five Hundred Thousand Dollars ($1,500,000) (the "Indemnity Escrow Deposit") of the Escrow Fund shall be a fund against which claims for indemnification against the Sellers may be made by the Buyers pursuant to Article X of the Asset Purchase Agreement and pursuant to Article X of the Share Purchase Agreement. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt of which is hereby acknowledged, the Buyers, the Sellers and the Escrow Agent agree as follows: 1. Appointment of Escrow Agent. (a) The Escrow Agent is hereby appointed escrow agent in accordance with the instructions set forth in this Agreement and hereby agrees to act as the Escrow Agent under this Agreement. The Escrow Agent shall have no duty to enforce any provision hereof requiring performance by any other party hereunder. (b) The Escrow Agent hereby acknowledges receipt of the Escrow Fund. (c) The Escrow Agent shall not have any interest in the Escrow Fund, but shall serve as escrow holder only and have only possession thereof. The Escrow Agent expressly waives any right to set off and appropriate any amounts under the Escrow Fund. 2. Distribution of Purchase Price Escrow Deposit. The Buyers and the Sellers shall, not more than five (5) business days after the final determination of the Final Closing Financial Statement and the adjustments to the Purchase Price, if any, pursuant to Sections 1.4 and 1.5 of the Asset Purchase Agreement and Sections 1.3 and 1.4 of the Share Purchase Agreement, provide the Escrow Agent with a written notice (the "Distribution Notice") with respect to the disposition of the Purchase Price Escrow Deposit. The Distribution Notice shall be signed by authorized officers of the Buyers and the Sellers, and shall describe the portions of the Purchase Price Escrow Deposit to be distributed to the Buyers or to the Sellers, as the case may be. Not more than five (5) business days after the delivery of the Distribution Notice, the Escrow Agent shall distribute the Purchase Price Escrow Deposit in the manner described in the Distribution Notice, together with any interest and income earned on the portion so distributed. The parties acknowledge that no distributions shall be made under this Section 2 until the Final Closing Financial Statement, and adjustments to the Purchase Price with respect to the determination of the Final Net Working Capital, if any, have been determined under both the Asset Purchase Agreement and the Share Purchase Agreement, and that any such distribution will be of the net amount under both the Asset Purchase Agreement and the Share Purchase Agreement. 3. Claim Certificates With Respect to the Indemnity Escrow Deposit. The Buyers, from time to time on or prior to the first anniversary of the Closing Date, may make an indemnification claim against the Indemnity Escrow Deposit under and pursuant to Article X of 2 the Asset Purchase Agreement and/or Article X of the Share Purchase Agreement (as applicable), on behalf of themselves or another Buyer Indemnified Party, for up to all of the Indemnity Escrow Deposit (a "Claim") by delivering to the Escrow Agent a certificate (a "Claim Certificate") signed by authorized officers of the Buyers stating: (a) That the Buyers or another Buyer Indemnified Party are entitled to be indemnified under Section 10.1 of the Asset Purchase Agreement and/or Section 10.1 of the Share Purchase Agreement (as applicable); (b) The reasons therefore, set forth in reasonable detail; (c) The amount of the Claim by the Buyers or such other Buyer Indemnified Party, provided, however, that where the amount of the Claim is not a liquidated sum, the amount of the Claim shall be the amount reasonably estimated by the Buyers in good faith; and (d) That the Buyers have delivered a copy of such Claim Certificate to the Sellers and their legal counsel and the date on which such copy was delivered. Whenever a Claim Certificate is delivered to the Escrow Agent, the Escrow Agent shall thereupon promptly deliver a copy to the Sellers and their legal counsel. 4. Disputed Claims With Respect to the Indemnity Escrow Deposit. The Sellers may dispute any Claim in whole or in part (hereinafter a "Disputed Claim"), by delivering to the Escrow Agent a written notice (an "Objection Notice") within twenty (20) days of receipt of the Claim Certificate from the Buyers stating: (a) That the Sellers dispute or object in good faith to such Claim in whole or in part; (b) A reasonably detailed description of the reasons for such good faith objection or dispute; (c) That the Sellers have delivered a copy of the Objection Notice to the Buyers and their legal counsel and the date on which such copy was delivered; (d) The portion of the Claim set forth in the Claim Certificate to which there is a good faith dispute or objection, including a reasonable estimate of the dollar amount of such portion of the Claim (the "Disputed Claims Amount"); and (e) The portion of the Claim set forth in the Claim Certificate, if any, to which there is no dispute or objection, including a reasonable estimate of the dollar amount of such portion of the Claim (hereinafter referred to as an "Undisputed Claim"). Whenever there shall be delivered to the Escrow Agent an Objection Notice, the Escrow Agent shall thereupon promptly deliver a copy to the Buyers and their legal counsel. 3 5. Payment of Claims With Respect to the Indemnity Escrow Deposit. (a) If the Escrow Agent does not receive an Objection Notice within twenty (20) days of the date that the Sellers receive a Claim Certificate from the Buyers, the Escrow Agent shall thereupon promptly pay to the Buyers from the Indemnity Escrow Deposit an amount equal to the amount of the Claim specified in the Claim Certificate plus interest on the amount so paid, computed from the date of the Claim Certificate. (b) If the Escrow Agent receives from the Sellers an Objection Notice which consents or agrees to all or part, or does not dispute a portion, of a Claim, the Escrow Agent shall thereupon promptly pay to the Buyers from the Indemnity Escrow Deposit an amount equal to the aggregate amount of such Undisputed Claim as specified in such notice from the Sellers plus interest on the amount so paid, computed from the date of the Claim Certificate. (c) If the Indemnity Escrow Deposit is not sufficient to pay in full any amounts payable to the Buyers under the preceding Section 5(a) or 5(b), the Escrow Agent shall pay to the Buyers the full amount of the Indemnity Escrow Deposit and all interest thereon and this escrow shall thereupon terminate. 6. Distribution of Indemnity Escrow Deposit. Except as provided in Section 5 hereof, the Escrow Agent shall not make any distribution of the Indemnity Escrow Deposit with respect to any Claim made by the Buyers hereunder until: (a) it receives the written consent or agreement from the Sellers with respect to such distribution; or (b) there is a Final Decision with respect to a Disputed Claim. As used herein, "Final Decision" means a resolution of the Disputed Claim by facilitative mediation pursuant to Section 12.15 of the Asset Purchase Agreement and/or Section 12.15 of the Share Purchase Agreement (as the case may be) or, if the Disputed Claim is not resolved by facilitative mediation, a final decision, order, judgment or decree of a court having jurisdiction which is either not subject to appeal or as to which notice of appeal has not been timely filed or served. 7. Administration of Escrow. (a) So long as the Escrow Fund is held in escrow, it shall be invested and reinvested by the Escrow Agent solely in Investments, pursuant to written instructions signed by the Buyers and the Sellers. Neither the Escrow Agent, the Buyers, nor the Sellers shall be liable or responsible for any loss resulting from any investment or reinvestment made pursuant to this Section 7(a). All investments of the Escrow Fund shall be held by, or registered in the name of, Escrow Agent or its nominee. As used herein "Investments" means: (i) direct obligations of, or obligations fully guaranteed by, the United States of America or any agency thereof with any residual amount being invested in the Federal Treasury Obligations Money Market Fund; 4 (ii) any taxable publicly traded money market fund; (iii) certificates of deposit whether negotiable or nonnegotiable, issued by any bank, trust company or national banking association, including the Escrow Agent, provided that such certificates of deposit shall (A) be issued by a bank, trust company or national banking association having a capital stock and surplus of more than Five Hundred Million Dollars ($500,000,000), (B) be fully insured by the Federal Deposit Insurance Corporation or (C) be fully and continuously secured by direct obligations of, or obligations unconditionally guaranteed by, the United States of America, which (1) shall have a market value (exclusive of accrued interest) at all times at least equal to the principal amount of such certificates of deposit, (2) shall be lodged with the Escrow Agent (or any correspondent bank or trust company designated by the Escrow Agent), as custodian, by the bank, trust company or national banking association issuing such certificate of deposit, and (3) the bank, trust company or national banking association issuing each certificate of deposit required to be so secured shall furnish the Escrow Agent with an undertaking satisfactory to it that the aggregate market value of such obligations securing each such certificate of deposit will at all times be an amount equal to the principal amount of each such certificate of deposit (and the Escrow Agent shall be entitled to rely on each such undertaking); or (iv) in the absence of written direction, the Escrow Fund may be invested in Wells Fargo 100% Treasury Money Market, a money market fund. (b) Maturities or unexpired terms of maturities of instruments in which the Escrow Fund is invested shall not exceed ninety (90) days. The Escrow Agent is authorized to sell any such Investments as may be required to make any payment required to be made under this Agreement, and the Escrow Agent shall not be liable for any loss due to early redemption. In the event that no written instructions are given by the Buyers and the Sellers as to any uninvested portion of the Escrow Fund, such portion shall be invested by the Escrow Agent in United States treasury bills for a thirty (30) day period; provided, however that if such period is not available, such portion shall be invested for the closest period of shorter duration. (c) Not less than ten (10) nor more than fifteen (15) business days prior to the termination of this Agreement, the Escrow Agent shall deliver to the Buyers and the Sellers a report outlining (i) the total amount of the Escrow Fund as of such date and the total amount of interest earned on the Escrow Fund prior thereto and not distributed pursuant to the terms of this Agreement and (ii) copies of or a description of all Claim Certificates pursuant to which payments from the Escrow Fund have been made and a description of all other payments made from the Escrow Fund during the preceding twenty-three (23) month period and all pending Claim Certificates as of such date. (d) At the prior written request of either the Buyers or the Sellers at any time, the Escrow Agent shall deliver to the Buyers and the Sellers such information as shall be 5 reasonably requested with respect to the Escrow Fund and any interest earned thereon or payments made therefrom. (e) Net profits resulting from, and interest and income produced by investments of, the Escrow Fund shall be deemed a part of the Escrow Fund and reinvested by Escrow Agent. 8. Reliance. Escrow Agent may act upon any instrument or other writing believed by it in good faith to be genuine and to be signed or presented by the proper person or persons and shall not be liable in connection with the performance by it of its duties pursuant to the provisions hereof, except for its own bad faith, fraud, willful misconduct or gross negligence. The Buyers on the one hand and the Sellers on the other shall indemnify and hold harmless the Escrow Agent for one half (1/2) of all losses, costs, and expenses which may be incurred by it without bad faith, fraud, gross negligence or willful misconduct on the part of the Escrow Agent, arising out of or in connection with its entering into this Agreement and carrying out its duties hereunder. Such indemnification provisions shall survive the termination of this Agreement or the removal or resignation of the Escrow Agent. 9. Distribution of Funds; Termination of Escrow. Unless earlier terminated pursuant to Section 5(c): On the first anniversary of the Closing Date, the Indemnity Escrow Deposit held by the Escrow Agent pursuant to the terms of this Agreement less (i) all amounts previously distributed pursuant to Section 5 hereof and (ii) an amount equal to One Hundred Percent (100%) of the Disputed Claims Amount (including, for purposes hereof, all Claims with respect to which the Sellers have not submitted an Objection Notice), shall be paid by the Escrow Agent to the Sellers for the benefit of the Sellers, together with any interest and income earned on the funds so distributed. Upon settlement of all Disputed Claims outstanding as of the first anniversary of the Closing Date, this escrow shall thereupon terminate, and the remainder of the Indemnity Escrow Deposit held by the Escrow Agent after any payment due to the Buyers shall be paid by the Escrow Agent to the Sellers for the benefit of the Sellers, together with any interest and income earned on the funds so distributed, in accordance with such settlement, written notice of which shall be delivered to the Escrow Agent. 10. Fees and Expenses. The Escrow Agent shall be entitled to compensation for its services as stated in the schedule attached as Annex I, which compensation shall be paid one-half (1/2) by the Sellers and one-half (1/2) by the Buyers. The fee agreed upon for the services rendered hereunder is intended as full compensation for the Escrow Agent's services as contemplated by this Agreement; provided, however, that in the event that the conditions for the disbursement of funds under this Agreement are not fulfilled, or the Escrow Agent tenders any material service not contemplated in this Agreement or there is any assignment of interest in the subject matter of this Agreement not contemplated herein, or any material modification hereof, or if any material controversy arises hereunder, or the Escrow Agent is made a party to any litigation pertaining to this Agreement, or the subject matter hereof, then the Escrow Agent shall 6 be reasonably compensated for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorney fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable one-half (1/2) from the Sellers and one-half (1/2) from the Buyers. 11. Liability of the Escrow Agent. (a) The Escrow Agent shall hold, invest and disburse the Escrow Fund and any interest, dividends, or other income accrued thereon only in accordance with (a) this Agreement or (b) written instructions accompanied by a certificate signed by the Buyers and the Sellers confirming that such written instructions are being given in conformity with this Agreement. The Escrow Agent shall not be bound in any way by, or be deemed to have knowledge of, the Asset Purchase Agreement and the Share Purchase Agreement or any other agreement between or among the parties hereto, other than this Agreement. The Escrow Agent shall have no duties other than those expressly imposed on it herein and shall not be liable with respect to any action taken by it, or any failure on its part to act, except to the extent that such actions constitute a breach of this Agreement, bad faith, fraud, gross negligence, or willful misconduct. (b) The Escrow Agent makes no representations and has no responsibility as to the validity, genuineness or sufficiency of any of the documents or instruments delivered to it hereunder. Subject to Section 11(a) hereof, the Escrow Agent (i) shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity of the service thereof and (ii) may act in reliance upon any instrument or signature reasonably believed by it to be genuine and may assume that any person purporting to give notice, receipt or advice or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. The Escrow Agent may act in reliance upon the written advice of counsel satisfactory to it in reference to any matter in connection with this Agreement and shall not incur any liability for any action taken in good faith in accordance with such written advice. (c) In the event of any disagreement between the other parties hereto resulting in adverse claims or demands being made in connection with the Escrow Fund, or in the event that the Escrow Agent in good faith is in doubt as to what action it should take hereunder, the Escrow Agent shall be entitled to refrain from acting until the Escrow Agent shall have received (i) a final nonappealable order of a court of competent jurisdiction directing delivery of the amount of the Escrow Fund in dispute or (ii) written instructions jointly executed by the Sellers and the Buyers directing delivery of the amount of the Escrow Fund in dispute, in which event the Escrow Agent shall deliver the amount of the Escrow Fund in dispute in accordance with such order or instructions. Any court order referred to in clause (i) above shall be accompanied by a legal opinion by counsel for the presenting party reasonably satisfactory to the Escrow Agent to the effect that said order or determination is final and nonappealable. The Escrow Agent shall act on such court order and legal opinion without further questions. 7 12. Resignation; Removal. (a) The Escrow Agent may resign upon thirty (30) days advance written notice to the parties. If a successor escrow agent is not appointed by the mutual agreement of the Buyers and the Sellers within the thirty (30) day period following such notice, the Escrow Agent may petition any court of competent jurisdiction to name a successor escrow agent or may tender into the registry or custody of any court of competent jurisdiction any part or all of the Escrow Fund, whereupon Escrow Agent's duties hereunder shall terminate. (b) The Escrow Agent shall be entitled to its compensation earned prior to its resignation hereunder. (c) The Buyers and the Sellers may, at any time substitute a new escrow agent by giving thirty (30) days notice thereof to the existing Escrow Agent and paying all fees and expenses of such Escrow Agent incurred to the date of the substitution. Upon the effective date of the substitution of a successor escrow agent, the Escrow Agent shall deposit all of the Escrow Fund with such successor. 13. Tax Reporting. (a) Any payments of income from the Escrow Fund shall be subject to withholding regulations then in force with respect to United States taxes. For federal and state income tax purposes, all interest earned on the Escrow Fund shall be considered the currently reportable income of the party who receives the distribution with respect thereto. The Escrow Agent shall file annually all information returns with the Internal Revenue Service and other governmental authorities documenting such interest income. (b) Prior to Closing, the Buyers and the Sellers shall provide the Escrow Agent with certified tax identification numbers by furnishing appropriate forms W-9 or W-8 and other forms and documents that the Escrow Agent may reasonably request. The Buyers and the Sellers understand that if such tax reporting documentation is not so certified to the Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code of 1986, as amended, to withhold a portion of any interest or other income earned on the investment of monies or other property held by the Escrow Agent pursuant to this Agreement. (c) To the extent that the Escrow Agent becomes liable for the payment of any taxes in respect of income derived from the investment of funds held or payments made hereunder, the Escrow Agent shall satisfy such liability to the extent possible from the Escrow Fund. The Buyers and the Sellers agree to indemnify and hold the Escrow Agent harmless from and against any taxes, additions for late payment, interest, penalties and other expenses that may be assessed against the Escrow Agent on or with respect to any payment or other activities under this Agreement unless any such tax addition for late payment, interest, penalties and other expenses shall arise out of or be caused by the actions of, or failure to act by, the Escrow Agent. 8 14. Miscellaneous Provisions. (a) Confidentiality. Each of Sellers and Buyers (as appropriate, the "Promisor") covenant and agree to and will cause their respective authorized agents, representatives, affiliates, employees, officers, directors, accountants, counsel and other designated representatives (collectively, "Representatives") to (i) treat and hold as confidential (and not disclose or provide access to any person to) all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") concerning the other party (the "Promisee") and the Escrow Fund in the Promisor's possession or furnished by the Promisee or its Representatives pursuant to this Agreement, (ii) in the event that Promisor or its Representatives become legally compelled to disclose any such Information, provide the Promisee with prompt written notice of such requirement so that the Promisee may seek a protective order or other remedy or waive compliance with this Section 14(a), and (iii) in the event that such protective order or other remedy is not obtained, or the Promisee waives compliance with this Section 14(a), furnish only that portion of such Information which is legally required to be provided and exercise Promisor's best efforts to obtain assurances that confidential treatment will be accorded such Information; provided, however, that this sentence shall not apply to any Information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by such party or its Representatives; and provided further, however, that the provisions of clauses (i) and (ii) above shall not preclude a party from disclosing Information to its Representatives (provided that each such Representative shall be advised of the confidential nature of such Information) or from disclosing Information to or filing Information with any governmental authority or agency with jurisdiction over such party. Each party agrees and acknowledges that remedies at law for any breach of its obligations under this Section 14(a) are inadequate and that in addition thereto the other party shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach, without the necessity of demonstrating the inadequacy of monetary damages. The provisions of this Section 14(a) shall not apply to the extent any such Information is required to be disclosed by applicable law. (b) Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 Telephone: (616) 717-4457 Facsimile: (616) 717-4660 9 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 Telephone: (231) 326-5563 Facsimile: (231) 326-6005 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead Telephone: (616) 831-1756 Facsimile: (616) 988-1756 If to Sellers: Dennis Chiavelli Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 Telephone: (323) 869-7736 Facsimile: (323) 869-6707 With a copy to: Donald G. Alvarado Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 Telephone: (323) 869-7697 Facsimile: (323) 869-7862 With a copy to: Sue Mullins Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 Telephone: (323) 869-7741 Facsimile: (323) 869-7871 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell Telephone: (212) 735-3380 Facsimile: (212) 735-3597 10 And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II Telephone: (310) 975-7726 Facsimile: (310) 557-8475 If to Escrow Agent: Wells Fargo Bank, N.A. Corporate Trust Services 707 Wilshire Blvd., 17th Floor Los Angeles, California 90017 Attention: Sandy Chan Telephone: (213) 614-5854 Facsimile: (213) 614-3355 (c) Jurisdiction. (1) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 14(c), it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (2) In the event the state court specified in Section 14(c)(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and 11 (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (3) In the event the state court specified in Section 14(c)(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Seller Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (4) The parties hereby waive any right to a jury trial. (d) Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting, each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. (e) Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent 12 permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. (f) Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. (g) Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights or obligations under this Agreement without the prior consent of the other parties, except that (i) GFS Holding may assign any of its rights under this Agreement to any Affiliate of GFS Holding, and (ii) any entity into which the Escrow Agent may be merged or converted or with which it may be consolidated, or entity resulting from any merger, conversion or consolidation to which the Escrow Agent shall be a party, or any entity succeeding to the business of the Escrow Agent shall be the successor of the Escrow Agent hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. (h) Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. (i) Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. (j) Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. 13 (k) Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. (l) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. (m) Dispute Resolution. Except as hereinafter provided in this Section 14(m) all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (1) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 14(b) hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (2) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (3) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (4) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 14(c) of Delaware without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights 14 or ability to seek such monetary award or relief in another action or proceeding. (n) Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. IN WITNESS WHEREOF, Sellers and Buyers and Escrow Agent have executed this Agreement as of the date set forth in the first paragraph hereof. SELLERS: SFI: SMART & FINAL INC. By: /s/ Donald G. Alvarado ------------------------------ Its: Donald G. Alvarado ----------------------------- Senior Vice President and Secretary SF STORES: SMART & FINAL STORES CORPORATION By: /s/ Donald G. Alvarado ------------------------------ Its: Donald G. Alvarado ----------------------------- Senior Vice President and Secretary AFD: AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Donald G. Alvarado ------------------------------ Its: Donald G. Alvarado ----------------------------- Senior Vice President and Secretary 15 BUYERS: GFS HOLDING: GFS HOLDING, INC. By: /s/ David L. Gray ------------------------------ Its: ----------------------------- GFS ORLANDO: GFS ORLANDO, LLC By: /s/ David L. Gray ------------------------------ Its: ----------------------------- GFS STORES: GFS STORES, LLC By: /s/ David L. Gray ------------------------------ Its: ----------------------------- ESCROW AGENT: WELLS FARGO BANK, N.A. By: /s/ Sandy Chan ------------------------------ Its: Sandy Chan ----------------------------- Vice President 16 ANNEX I Fee Schedule 1. Annual escrow fee $2,000 2. Reimbursement of expenses $1,000 advance ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made on September , 2003, by and between SMART & FINAL STORES CORPORATION, a --- California corporation (the "Seller"), and GFS STORES, LLC, a Delaware limited liability company (the "Buyer") "), and is joined in by SMART & FINAL INC., a Delaware corporation (the "Seller Shareholder" and, together with the Seller, the "Seller Parties"). The assignment and assumption accomplished by this Agreement is made in connection with a certain Asset Purchase Agreement dated as of August 6, 2003, by and among the Seller and the Buyer, among others (the "Asset Purchase Agreement"). The Seller Shareholder owns all of the issued and outstanding equity securities of the Seller and is a party to numerous contracts that benefit the Seller. The Seller Shareholder joins in this Agreement to assign to the Buyer any rights the Seller Shareholder may have under such contracts. Unless the context specifically indicates otherwise, capitalized terms used herein shall have the meanings assigned to such terms in the Asset Purchase Agreement. The Seller Parties hereby assign, transfer, and convey to the Buyer all of their right, title, and interest in and to the Assumed Contracts relating to the Retail Store Business, and the Buyer hereby assumes, accepts, and undertakes and agrees to fully assume, pay, perform, and discharge when due all of the Assumed Liabilities relating to the Retail Store Business. The Seller Parties, jointly and severally, represent and warrant to the Buyer that all material consents and approvals required for the assignment, transfer, and conveyance of the Assumed Contracts relating to the Retail Store Business have been obtained. Except for the Assumed Liabilities relating to the Retail Store Business, the Buyer does not assume and shall not be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of the Seller Parties of any kind, description, or character, whether accrued, absolute, contingent, or otherwise, or whether or not disclosed to the Buyer in the Asset Purchase Agreement, the Schedules to the Asset Purchase Agreement, or otherwise. Without limiting the generality of the foregoing, except for the Assumed Liabilities relating to the Retail Store Business, the Buyer does not assume and shall not be obligated to pay, perform, or discharge any of the liabilities or obligations of the Seller Parties, whether or not asserted before or after the Closing Date. This Agreement shall be governed by and interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to conflicts of law principles (whether of the State of Delaware or any other jurisdiction) that would result in the application of the laws of any jurisdiction other than the State of Delaware. [Remainder of page intentionally left blank] Signed as of the date first written above. SELLER: SMART & FINAL STORES CORPORATION By /s/ Donald G. Alvarado ------------------------------ Its Senior Vice President & -------------------------- Secretary SELLER SHAREHOLDER: SMART & FINAL INC. By /s/ Donald G. Alvarado ------------------------------ Its Senior Vice President & -------------------------- Secretary BUYER: GFS STORES, LLC By /s/ Jeff Maddox ------------------------------ Its Autorized Agent -------------------------- 2 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made on September , 2003, by and between AMERICAN FOODSERVICE DISTRIBUTORS, a --- California corporation (the "Seller"), and GFS ORLANDO, LLC, a Delaware limited liability company (the "Buyer"), and is joined in by SMART & FINAL INC., a Delaware corporation (the "Seller Shareholder" and, together with the Seller, the "Seller Parties"). The assignment and assumption accomplished by this Agreement is made in connection with a certain Asset Purchase Agreement dated as of August 6, 2003, by and among the Seller and the Buyer, among others (the "Asset Purchase Agreement"). The Seller Shareholder owns all of the issued and outstanding equity securities of the Seller and is a party to numerous contracts that benefit the Seller. The Seller Shareholder joins in this Agreement to assign to the Buyer any rights the Seller Shareholder may have under such contracts. Unless the context specifically indicates otherwise, capitalized terms used herein shall have the meanings assigned to such terms in the Asset Purchase Agreement. The Seller Parties hereby assign, transfer, and convey to the Buyer all of their right, title, and interest in and to the Assumed Contracts relating to the Meat Processing Business, and the Buyer hereby assumes, accepts, and undertakes and agrees to fully assume, pay, perform, and discharge when due all of the Assumed Liabilities relating to the Meat Processing Business. The Seller Parties, jointly and severally, represent and warrant to the Buyer that all material consents and approvals required for the assignment, transfer, and conveyance of the Assumed Contracts relating to the Meat Processing Business have been obtained. Except for the Assumed Liabilities relating to the Meat Processing Business, the Buyer does not assume and shall not be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of the Seller Parties of any kind, description, or character, whether accrued, absolute, contingent, or otherwise, or whether or not disclosed to the Buyer in the Asset Purchase Agreement, the Schedules to the Asset Purchase Agreement, or otherwise. Without limiting the generality of the foregoing, except for the Assumed Liabilities relating to the Meat Processing Business, the Buyer does not assume and shall not be obligated to pay, perform, or discharge any of the liabilities or obligations of the Seller Parties, whether or not asserted before or after the Closing Date. This Agreement shall be governed by and interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to conflicts of law principles (whether of the State of Delaware or any other jurisdiction) that would result in the application of the laws of any jurisdiction other than the State of Delaware. Signed as of the date first written above. SELLER: AMERICAN FOODSERVICE DISTRIBUTORS By /s/ Donald G. Alvarado ------------------------------ Its Secretary -------------------------- SELLER SHAREHOLDER: SMART & FINAL INC. By /s/ Donald G. Alvarado ------------------------------ Its Senior Vice President -------------------------- Secretary BUYER: GFS ORLANDO, LLC By /s/ Jeff Maddox ------------------------------ Its Autorized Agent -------------------------- 2 NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of September 7, by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), and GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS ORLANDO, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Share Purchase Agreement (as defined below). RECITALS A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI, AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated August 6, 2003, by and among Sellers and GFS Holding, GFS Stores and GFS Orlando, GFS Holding, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD ("OFS") (collectively, the "Assets"). B. Sellers are, directly or indirectly, respectively, the owners of all of the issued and outstanding equity securities of Henry Lee, and of the Assets. C. Henry Lee, SF Stores and OFS are engaged in the foodservice distribution, retail food store, and meat processing business in the State of Florida (collectively, the "Business"). D. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the Business. E. Buyers have required as a material condition to the closing of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement that Sellers agree to the restrictions and covenants contained in this Agreement. AGREEMENT In consideration of the recitals set forth above and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Non-Competition. (a) Definition of Competitor. As used in this Agreement, "Competitor" means any person, corporation, partnership, association, joint venture or other organization or entity that now or hereafter engages in or attempts to engage in any aspect of the Business in the states of Florida, Michigan, Illinois, Indiana and Ohio, or any aspect of the foodservice business in the Caribbean, Central America or South America (specifically excluding Mexico from this definition) (the "Territory"). (b) Covenant Not To Compete. The Sellers covenant and agree that they will not, during the Non-Competition Period (as defined below), directly or indirectly: (i) engage in, continue in, or carry on, invest in, own, manage, operate, finance or control, or participate in the ownership, management, operation, finance or control, of any business that competes in any aspect of the Business in the Territory, including, without limitation, owning or controlling any financial interest in any Competitor in the Territory; or (ii) be retained by, employed by, consult with, advise or assist in any way, whether or not for consideration, any Competitor in any aspect of the Business in the Territory; or (iii) neither for itself or any other Person, induce or attempt to induce any customer, supplier, licensee or business relation of Buyers or any entity controlled by or under common control with any Buyer entity that may subsequently operate the Business to cease doing business with Buyers with respect to the Business in the Territory or in any way interfere with the relationship between any customer, supplier, licensee or business relation of Buyers with respect to the Business in the Territory; (iv) neither for itself or any other Person, solicit the business of any Person known to be a customer of Buyers with respect to the Business in the Territory, whether or not Sellers had prior contact with such Person; or (v) engage in any practice the purpose of which is to evade the provisions of this covenant not to compete; provided, however, that the none of the foregoing shall prohibit the ownership of securities of a corporation that is listed on a national securities exchange or traded in the national over-the-counter market in an amount that does not exceed five percent (5%) of the outstanding shares of any such corporation. 2 2. Term. (a) The covenants stated in Section 1 (the "Covenants") shall be effective from the date of this Agreement to and including the second (2nd) anniversary of the Closing Date of the Share Purchase Agreement (the "Non-Competition Period"). (b) In the event of a material breach by Sellers of any covenant set forth above, the Noncompetition Period shall be extended by the amount of time during which such breach continues. 3. Remedies. All remedies, either under this Agreement or by law or otherwise afforded to Buyers and their respective successors and assigns, shall be cumulative and not alternative. Sellers acknowledge and agree that the provisions and restrictions contained in Sections 1 and 2 are not overbroad, are not overlong, and are reasonably necessary to protect the legitimate continuing business interests of Buyers, that any violation or breach of such provisions and restrictions will result in irreparable injury to Buyers for which a remedy at law would be inadequate and that, in addition to any relief for damages that may be available to Buyers for such violation or breach, and regardless of any other provision contained in this Agreement, Buyers shall be entitled to such injunctive and other equitable relief as a court may grant after considering the intent of Sections 1 and 2. 4. Enforceability. If any court determines that any of the Covenants, or any parts thereof, are invalid or unenforceable, the other Covenants and the remainder of any of the Covenants so impaired shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Covenants, or any parts thereof, are unenforceable because of the duration or geographic scope thereof, the parties agree that the duration or geographic scope of such Covenants, or any parts thereof, shall be the maximum duration or geographic scope, as the case may be, provided by law, of such Covenants, and, in such reduced form, such Covenants shall then be enforceable. 5. Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 3 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell and a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II 6. Jurisdiction. (a) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 6, it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (b) In the event the state court specified in Section 6(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; 4 (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (c) In the event the state court specified in Section 6(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Seller Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (d) In the event the state court specified in Section 6(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then in addition to the jurisdictions available to the parties under Sections 6(b) and 6(c) above, any party also may commence a proceeding for damages or equitable relief for alleged breach of this Agreement in any state or federal court of the jurisdiction where the alleged breach occurs. (e) The parties hereby waive any right to a jury trial. 5 7. Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting, each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. 8. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in the Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 9. Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. 10. Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights under this Agreement without the prior consent of the other parties except that Buyer may assign any of its rights under this Agreement to any Affiliate of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 11. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 12. Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or 6 Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 13. Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. 14. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. 15. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. 16. Dispute Resolution. Except as hereinafter provided in this Section 16, all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (a) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 5 hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (b) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (c) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (d) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable 7 relief in the state or federal courts pursuant to the procedures set forth in Section 6 without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. IN WITNESS WHEREOF, Sellers and Buyers have executed this Non-Competition Agreement as of the date set forth in the first paragraph hereof. "SFI" SMART & FINAL INC. a Delaware corporation By: /s/ Dennis Chiavelli --------------------------------- Its: -------------------------------- "AFD" AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By: /s/ Dennis Chiavelli --------------------------------- Its: -------------------------------- "SF Stores" SMART & FINAL STORES CORPORATION a California corporation By: /s/ Dennis Chiavelli --------------------------------- Its: -------------------------------- 8 "GFS Holding" GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray --------------------------------- Its: -------------------------------- "Henry Lee" HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray --------------------------------- Its: -------------------------------- "GFS Stores" GFS STORES, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray --------------------------------- Its: -------------------------------- 9 "GFS Orlando" GFS Orlando, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray --------------------------------- Its: -------------------------------- 10 SOFTWARE LICENSE, USE AND SUPPORT AGREEMENT THIS SOFTWARE LICENSE, USE AND SUPPORT AGREEMENT (this "Agreement"), effective as of the 7th day of September, 2003, is made by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, the "Licensors"), and GFS HOLDING, INC., a Delaware corporation ("GFSH"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS ORLANDO, LLC, a Delaware limited liability company ("GFS Orlando"), and GFS STORES, LLC, a Delaware limited liability company ("GFS Stores" and, together with GFSH, Henry Lee and GFS Orlando, the "Licensees"). RECITALS A. SFI is the record and beneficial owner of all of the issued and outstanding equity securities of AFD and SF Stores. SF Stores is engaged in the retail food store business in the State of Florida and operates from several locations within that state (the "Retail Store Business"). B. AFD is the record and beneficial owner of all of the issued and outstanding common shares of Henry Lee, through which AFD conducts a foodservice distribution business in the State of Florida (the "Foodservice Business"). C. In addition to the Foodservice Business, AFD also operates, among other things, a fresh meat processing business in the State of Florida under the name "Orlando Food Service" (the "Meat Processing Business" and, together with the Retail Store Business and the Foodservice Business, the "Florida Business"). D. Licensors have historically used both proprietary and commercially available computer software from their California operations in the conduct of the Florida Business. Licensors have also provided technical support to the Florida Business with respect to this software. E. Pursuant to a Share Purchase Agreement dated August 6, 2003 (the "Share Purchase Agreement"), GFSH is on the date of this Agreement acquiring from SFI and AFD all of the issued and outstanding equity securities of Henry Lee. F. In a separate related transaction, GFSH's wholly-owned subsidiaries, GFS Orlando and GFS Stores, will acquire from AFD and SF Stores, respectively, substantially all of the assets used or useful in the operation of the Meat Processing Business and the Retail Store Business pursuant to an Asset Purchase Agreement dated August 6, 2003 (the "Asset Purchase Agreement" and, together with the Share Purchase Agreement, the "Purchase Agreements"). G. One of the conditions to the closing of the transactions contemplated by each of the Purchase Agreements is the granting by Licensors to Licensees of a fee-free license to use the Smart & Final proprietary computer software identified on the attached Exhibit A (the "Licensor Proprietary Software"), as well as the right to use certain third-party computer operating systems (the "OEM Software" and, together with the Licensor Proprietary Software, the "Software") identified on the attached Exhibit A used in the conduct of the Florida Business, under Licensors' licenses with the third-party vendors, for a limited period of time. This Agreement does not operate to grant any license in the OEM Software. This Agreement is being entered into by the parties as required by the Purchase Agreements. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Licensors and Licensees agree as follows: 1. Grant of License for Licensor Proprietary Software. Licensors grant to Licensees, and Licensees accept, subject to the restrictions set forth in this Agreement, a non-transferable, non-exclusive license (the "License") to use the Licensor Proprietary Software and related Documentation as identified on the attached Exhibit A, including any updates or new releases related thereto that are developed by or at the request of the Licensors during the Term to ensure the reliability and continued functionality thereof. The scope and limitations of the License are set forth on Exhibit A. For purposes of this Agreement, the term "Documentation" shall mean all of the system specifications, help files (including online help materials accessible through the Licensor Proprietary Software), and technical manuals, and all other user instructions regarding the capabilities, operation, and use of the Licensor Proprietary Software. 2. Permission to Use OEM Software. Licensors grant to Licensees permission to use the OEM Software (hereinafter the "OEM Software"), for the Term and subject to all of the terms and conditions of Licensors' licenses with the third party manufacturers of the OEM Software that are applicable to Licensors. 3. License Restrictions. Neither Licensees nor their agents shall (i) reverse engineer, decompile, or disassemble the Software (except as may be reasonably necessary to provide compatibility with Licensees' software for use solely in the Florida Business); (ii) assign, sublicense, rent, timeshare, loan, lease or otherwise transfer the Software; or (iii) remove any proprietary notices (e.g., copyright and trademark notices) from the Software. Except as may be provided herein, Licensors reserve all right, title, and interest in and to the Licensor Proprietary Software and all derivative works. The vendors of the OEM Software reserve all right, title and interest in and to the OEM Software. 4. Technical Support. During the Term and subject to third party OEM vendors' approval (in the case of the OEM Software only), Licensors will provide Licensees with updates, modifications or changes to the Software which are developed by or at the request of Licensors or become available from applicable third party vendors during the Term and are reasonably necessary to correct errors, and ensure continued efficient operation of the Software. All such updates, enhancements, modifications or changes shall be included in the definitions of Software. In addition, Licensors shall provide or cause to be provided to Licensees reasonable technical support (which may be provided via e-mail, telephone, or other reasonable means of communication) in order to ensure the continued efficient operation of the Software. 2 5. Confidentiality 5.1 Definition. Each party agrees that all confidential or proprietary information supplied by one party and its affiliates and agents (collectively, the "Disclosing Party") to the other (the "Receiving Party") in connection with this Agreement, including, without limitation, (i) source and object code, prices, trade secrets, business processes, mask works, databases, hardware, software, designs and techniques, programs, engine protocols, models, displays and manuals, and the selection, coordination, and arrangement of the contents of such materials and (ii) any unpublished information concerning research activities and plans, customers, marketing or sales plans, sales forecasts or results of marketing efforts, pricing or pricing strategies, costs, operational techniques, strategic plans, customer information, and unpublished financial information, including information concerning revenues, profits and profit margins that does not relate to the Florida Business, will be deemed confidential and proprietary to the Disclosing Party, regardless of whether such information was disclosed intentionally or unintentionally or marked as "confidential" or "proprietary" ("Confidential Information"). Neither party shall have any obligation with respect to Confidential Information which: (i) is or becomes generally known to the public by any means other than a breach of the obligations of the Receiving Party; (ii) was previously known to the Receiving Party or rightly received by the Receiving Party from a third party; (iii) is independently developed by the Receiving Party; or (iv) is subject to disclosure under court order or other lawful process. 5.2 Obligations of Licensees. Licensees agree not to make Licensors' Confidential Information available in any form to any unauthorized third party or to use Licensors' Confidential Information for any purpose other than as specified in this Agreement. Licensees agree to take all reasonable steps to ensure that Confidential Information of Licensors is not disclosed or distributed by its employees, agents or contractors in violation of the provisions of this Agreement. Licensors' Confidential Information shall remain its sole and exclusive property. Licensees acknowledge that any use or disclosure of Licensors' Confidential Information other than as specifically provided for in this Agreement may result in irreparable injury and damage to the Licensors. Accordingly, Licensees hereby agree that, in the event of use or disclosure other than as specifically provided for in this Agreement, Licensors may be entitled to equitable relief as granted by any appropriate judicial body. 5.3 Obligations of Licensors. Licensors agree not to make Licensees' Confidential Information available in any form to any unauthorized third party or to use Licensees' Confidential Information for any purpose other than as specified in this Agreement. Licensors agree to take all reasonable steps to ensure that Confidential Information of Licensees is not disclosed or distributed by its employees, agents or contractors in violation of the provisions of this Agreement. Licensees' Confidential Information shall remain its sole and exclusive property. Licensors acknowledge that any use or disclosure of Licensees' Confidential Information other than as specifically provided for in this Agreement may result in irreparable injury and damage to the Licensees. Accordingly, Licensors hereby agree that, in the event of use or disclosure other than as specifically provided for in this Agreement, Licensees may be entitled to equitable relief as granted by any appropriate judicial body. 6. Term. The term of this Agreement (the "Term") shall commence on the date hereof and shall continue for a period not to exceed one hundred eighty (180) days, or until 3 terminated as provided in Section 7 herein, or by mutual written agreement of the parties. Upon termination or expiration of this Agreement, Licensees agree to immediately discontinue all use of, and deliver to Licensors, the Licensor Proprietary Software, Documentation, and the OEM Software, and acknowledge that all rights in the Licensor Proprietary Software, Documentation and OEM Software shall remain the property of Licensors, or the applicable third-party vendors. 7. Termination. If either party materially defaults in the performance of any of its obligations under this Agreement, which default is not substantially cured within thirty (30) days after written notice is given to the defaulting party specifying the default, the party not in default may, by giving written notice thereof to the defaulting party, terminate this Agreement and pursue all remedies for such breach available at law or in equity. 8. Licensors' Warranties. Licensors, jointly and severally, warrant to Licensees as follows: (a) Licensors warrant that they have the full power, capacity and authority to enter into and perform this Agreement and to make the grant of rights contained herein and that to the best of Licensors' knowledge, and provided that Licensees do not exceed the scope of the license and permissions granted hereunder, Licensees' use of the Software as permitted hereunder will not infringe the patent, copyright, trade mark, trade secret, or other proprietary rights of any third party, and further warrant that there is currently no actual or, to the best of their knowledge, threatened suit by any such third party based on an alleged violation of such right by Licensors. (b) Licensors warrant that during the Term, the Software shall materially conform to the requirements set forth in this Agreement and, to the extent not inconsistent with the foregoing, the Documentation (collectively, the "Specifications") and function in a manner consistently with its functionality prior to the date of this Agreement. 9. Licensors' Indemnification. Licensors shall indemnify, defend, and hold harmless Licensees and their shareholders, directors, officers, managers, members, agents, employees, members, subsidiaries and successors in interest from any claim, liability and expense, including reasonable attorneys' fees, arising out of any claim that Licensees' permitted use of the Software infringes the patent, copyright, trade mark, trade secret or other proprietary rights of a third party. In the event a claim of infringement is asserted, Licensors shall procure for Licensees the right to continue using the Software pursuant to this Agreement. Any costs associated with implementing either of the above alternatives will be borne by Licensors. 10. Licensees' Indemnification. Licensees shall indemnify, defend, and hold harmless Licensors and their directors, officers, agents, employees, members, subsidiaries and successors in interest from any claim, liability and expense, including reasonable attorneys' fees, arising out of Licensee's exceeding the scope of the License and the permissions granted hereunder with respect to Licensees' use of the OEM Software including, but not limited to, Licensees' continuing to use the OEM Software beyond the Term of this Agreement. 4 11. DISCLAIMER. (a) EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, LICENSORS MAKE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, QUIET ENJOYMENT, QUALITY OF INFORMATION, OR TITLE/NON-INFRINGEMENT AND ALL SUCH WARRANTIES ARE HEREBY SPECIFICALLY DISCLAIMED. (b) LICENSEE UNDERSTANDS AND ACKNOWLEDGES THAT THE SYSTEMS ARE NOT GTIN 2005 OR RSS COMPLIANT, AND LICENSOR WILL NOT PROVIDE UPDATES TO THE SYSTEMS AND HARDWARE TO ALLOW THEM TO MEET GTIN 2005 AND RSS REQUIREMENTS. IN ADDITION, THE ELECTRONIC PAYMENT SYSTEMS ARE NOT TRIPLE DES/DUKPT COMPLIANT, AND LICENSOR WILL NOT PROVIDE UPDATES TO THE SYSTEMS AND HARDWARE TO ALLOW THEM TO MEET TRIPLE DES/DUKPT REQUIREMENTS. 12. License Fees. Provided Licensees do not exceed the scope of the License and permissions granted under this Agreement, there shall be no license fees owed or payable to Licensors. 13. Notices. All notices, requests, demands or other communications required or permitted to be given under this Agreement shall be in writing and shall be effective when delivered if personally delivered or three (3) days after mailing if mailed by registered or certified mail with postage prepaid, return receipt requested, and addressed to the parties at the addresses set forth in Section 12.4 of each of the Purchase Agreements or at such other addresses as the parties may designate in writing by providing notice thereof in compliance with this paragraph. 14. Amendment. No provision of this Agreement may be modified except by a written document signed by a duly authorized representative of each of the parties. 15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and to their respective assigns. This Agreement cannot be assigned by any party except upon the express prior written consent of the other parties hereto, which shall not be unreasonably withheld, conditioned or delayed. 16. Severability. If any provisions of this Agreement shall be prohibited or unenforceable by any applicable law, the provision shall be ineffective only to the extent and for the duration of the prohibition of unenforceability, without invalidating any of the remaining provisions. 17. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. Any dispute arising out of this Agreement shall be resolved in accordance with the procedures set forth in Section 12.5 of each of the Purchase Agreements. 5 18. Entire Agreement. The terms and conditions of this Agreement, together with the terms and conditions of the attached Exhibits, constitute the entire agreement between Licensees and Licensors with respect to the subject matter of this Agreement and supersedes all earlier agreements and understandings, oral and written, between the parties. 19. Counterparts. This Agreement may be executed in counterparts, each of which, when so executed, shall be deemed to be an original and such counterparts shall together constitute one and the same instrument. 20. Construction. This Agreement shall be deemed to represent the mutual intent of the parties hereto and no rule of strict construction shall be applied against any party by virtue of having drafted this Agreement. 21. Survival. The following provisions shall survive any termination or expiration of this Agreement: Sections 5 (Confidentiality), 9 (Licensors' Indemnification), 10 (Licensees' Indemnification), 18 (Entire Agreement), 21 (Survival). Licensors and Licensees have caused this Agreement to be signed as of the day and year first above written. LICENSORS: SFI: SMART & FINAL INC. By: /s/ Donald G. Alvarado ------------------------------- Its: ------------------------- AFD: AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Donald G. Alvarado ------------------------------- Its: ------------------------- SF STORES: SMART & FINAL STORES CORPORATION By: /s/ Donald G. Alvarado ------------------------------- Its: ------------------------- [Signatures Continued On Next Page] 6 LICENSEES: GFSH: GFS HOLDING, INC. By: /s/ David L. Gray ------------------------------- Its: ------------------------- HENRY LEE: HENRY LEE COMPANY By: /s/ David L. Gray ------------------------------- Its: ------------------------- GFS ORLANDO: GFS ORLANDO, LLC By: /s/ David L. Gray ------------------------------- Its: ------------------------- GFS STORES: GFS STORES, LLC By: /s/ David L. Gray ------------------------------- Its: ------------------------- 7 EXHIBIT "A" Licensor Proprietary Software Cash Proof DSD POS End of Day Processing Inventory Adjustment Price Change System Host Price Verify shelf Tags Pricing Method Labels OEM Software DEX ACS 4.0 COPS Shelf Tag Audit TRADENAME AND TRADEMARK LICENSE AGREEMENT THIS TRADENAME AND TRADEMARK LICENSE AGREEMENT (this "Agreement") is entered into and effective as of September 7, 2003 (the "Effective Date"), by and between SMART & FINAL INC., a Delaware corporation ("SFI"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores"), and AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD" and, together with SFI and SF Stores, the "Licensors"), GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS ORLANDO, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, the "Licensees"). RECITALS A. Henry Lee, SF Stores and AFD (through a division operated under the name "Orlando Foodservice") are engaged in the foodservice distribution, retail food store, and meat processing businesses, respectively, in the State of Florida (the "Businesses"). B. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI and AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee. In a separate related transaction and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement") dated August 6, 2003, by and among GFS Holding, GFS Orlando and GFS Stores, and Licensors, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Licensors certain of the assets of SF Stores related to the retail food store business in the State of Florida and all of the assets of AFD used in the operation of the meat processing business in the State of Florida. C. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Licensees will operate the Businesses. D. Licensors are the owners of the trademarks (collectively, the "Trademarks") and the tradenames (collectively, the "Tradenames") described in Exhibit "A" attached hereto. E. Licensees desire to obtain a license to use the Trademarks and the Tradenames on the terms set forth below for a period of two (2) years after the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement. F. Licensees have required as a condition to the execution of the Share Purchase Agreement and the Asset Purchase Agreement that Licensors enter into this Agreement. NOW THEREFORE, in consideration of the premises set forth above, the representations and warranties set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Licensors and Licensees agree as follows: AGREEMENT 1. Grant of License. On the terms and subject to the conditions set forth herein, Licensors hereby grant to Licensees a limited, non-transferable (except as may be provided herein) license ("License") to Use (as defined in Section 11 below) the Trademarks and Tradenames solely for purposes of conducting the Businesses. Licensees shall not have any right to sublicense the right to use the Trademarks or Tradenames to any third party. 2. Exclusivity. Licensors grant to Licensees the exclusive right to Use the Trademarks and the Tradenames within the Territory (as defined in Section 11 below) during the term of this Agreement. Licensors covenant and agree not to use the Trademarks or the Tradenames, or any combination thereof, during the term of this Agreement within the Territory without the prior written consent of Licensees. The parties acknowledge that Licensor's use of the Internet, television and radio for advertising or other purposes in connection with its business outside the Territory shall not constitute a violation of the rights granted to Licensee hereunder. 3. Restrictions. Except as expressly provided for herein, nothing contained in this Agreement will be deemed to grant to Licensees any right, title or interest in or to the Trademarks and Tradenames. Subject only to the License, Licensors shall own all right, title and interest in and to the Trademarks and Tradenames, including all Intellectual Property Rights and goodwill therein and thereto. Licensees shall not use the Trademarks and/or Tradenames with any activity that (a) disparages, or may be reasonably expected to have a disparaging effect on, Licensors or any of their affiliates, or any products or services of Licensors or their affiliates; or (b) violates or infringes any Intellectual Property Rights of Licensors or any third party. Licensees will not challenge or contest Licensors' ownership in, or the validity or scope of, any of the Trademarks or Tradenames in any jurisdiction, nor the validity of any licenses to any of the Trademarks and Tradenames granted by Licensors to any third party in any jurisdiction, and will not do anything inconsistent with Licensors' title, right and interest in and to the Trademarks and Tradenames, including any attempted registration of any of them, or any use or any attempted registration of any other trademark or service mark that is confusingly similar to any of the Trademarks or Tradenames. 4. Form of Use. Licensees agree to use the Trademarks and the Tradenames in form and manner not materially inconsistent with Licensors' use immediately prior to the date hereof. Licensees further agree to use commercially reasonable efforts to maintain the quality of the products sold by each of them in connection with the Businesses at a level reasonably consistent with the level of quality typical of Licensors' products. 5. Term. The term of this Agreement and the License granted herein shall 2 commence on the Effective Date and shall continue for a period of two (2) years, unless sooner terminated as set forth in Section 6 or unless extended by mutual agreement by the parties. 6. Termination. In the event that either party breaches this Agreement, then the non-breaching party may provide written notice to the breaching party indicating: (a) the nature and basis of such default with reference to the applicable provisions of this Agreement; (b) instructions for cure; and (c) the non-defaulting party's intention to terminate this Agreement. In the event that such default is not cured within thirty (30) days after such notice (or such longer cure period as the parties may agree upon), the non-defaulting party may terminate this Agreement upon written notice effective immediately to the breaching party. 7. Effect of Termination. The terms and conditions of the following Sections will survive termination or expiration of this Agreement: Sections 3, 6, 8, 9, 12.1 through 12.3, and 13 through 21. In addition, the termination or expiration of this Agreement shall not relieve either party of any liability that accrued prior to such termination or expiration. Except as expressly provided in this Section 7, all other provisions of this Agreement shall terminate upon the expiration or termination hereof. Upon termination or expiration of this Agreement, Licensees' license and right to Use the Trademarks and Tradenames shall immediately and automatically terminate, all rights granted hereunder shall automatically revert to Licensors, Licensees shall immediately cease, completely and permanently, to Use the Trademarks and Tradenames and any name confusingly similar thereto in any manner or for any purpose, delete the same from their corporate or business name, and destroy all printed materials bearing the Trademarks and the Tradenames. Notwithstanding the foregoing, in the event of termination, Licensees shall have the right to Use the Trademarks and the Tradenames (a) to sell products that are on hand at the date of termination or expiration of this Agreement and with respect to those products that Licensees are obligated to purchase at such date, and (b) to carry out marketing projects to which Licensees have committed at the date of termination or expiration of this Agreement. 8. Royalty-Free. The License shall be royalty-free. The License is being granted in consideration of the transactions described in the Asset Purchase Agreement and the Share Purchase Agreement and no further consideration shall be payable. 9. Indemnification 9.1 Licensors shall defend Licensees and their affiliates, and their respective employees, officers, directors, managers, members, stockholders, consultants and other agents (collectively the "Licensees' Indemnified Parties") from any and all third-party Claims and Losses (as defined below) imposed on, incurred by or asserted against any of the Licensees' Indemnified Parties as a result of any alleged infringement by the Trademarks or Tradenames on any third party's legally enforceable Intellectual Property Rights. Licensors shall indemnify and hold the Licensees' Indemnified Parties harmless from any and all such Claims and Losses imposed on, incurred by or asserted against them. Licensors' obligation to defend and indemnify under this subsection shall be conditioned on 3 the following: (a) Licensees shall promptly notify Licensors in writing of the claim, action or allegation (but, in any event, in a time frame that does not prejudice the rights of Licensors); (b) Licensees shall provide all reasonable cooperation, at Licensors' expense, with Licensors in the defense thereof; and (c) Licensors shall have sole control of the defense and all related settlement negotiations, but shall apprise Licensees of the status of any proceedings or negotiations, provided, however, that no such settlement shall materially and adversely affect Licensees right to Use the Trademarks and Tradenames in the Territory during the term of this Agreement. 9.2 Licensors shall not have the obligation to defend, indemnify and hold the Licensees' Indemnified Parties harmless to the extent Claims and Losses imposed on, incurred by or asserted against the Licensees' Indemnified Parties as a result of (a) Licensees' gross negligence or willful tortious misconduct; or (b) any allegation of infringement to the extent such infringement is attributable to the fact that the Trademarks or Tradenames have not been Used in accordance with this Agreement. 9.3 Licensees shall defend Licensors and their affiliates, and their respective employees, officers, directors, consultants and other agents (collectively the "Licensors' Indemnified Parties") from any and all third-party Claims and Losses imposed on, incurred by or asserted against any of the Licensors' Indemnified Parties arising out of Licensees' Use of the Trademarks and Tradenames in violation of this Agreement. Notwithstanding any of the foregoing, Licensors shall have the right, at their option and expense, to participate in the defense and related settlement negotiations of any claim, action or allegation to the extent it relates to the Trademarks and Tradenames, provided, however, that Licensors shall not settle any claim or action without Licensees' prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed. If Licensors choose not to participate in the defense and related settlement negotiations as provided above, Licensees shall have the right to control the defense and related settlement negotiations, provided, however that Licensees shall not settle any claim or action without Licensors' prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed. In the event Licensors choose not to participate in the defense and related settlement negotiations pursuant to this Section 9.3, Licensors shall use their best efforts to cooperate with Licensees in the defense thereof and Licensees shall be liable to Licensors for Licensors' reasonable expenses incurred in providing such cooperation. 9.4 Unless otherwise stated herein, "Claims or Losses" means any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, judgments, and reasonable costs and expenses awarded to, or agreed to be paid to, a third party of whatever nature including, without limitation, (a) indirect, special, punitive, consequential or incidental loss or damage awarded to a third party 4 (including, without limitation, by way of settlement) against a party entitled to indemnification under this Section, and (b) reasonable administrative costs, litigation costs, and auditors' and attorneys' fees, both in-house and outside counsel, and related disbursements. 9.5 This Section 9 sets forth the entire liability of the Parties with respect to Claims or Losses arising out of or relating to any claims, actions, suits or other proceedings in connection with alleged infringement of Intellectual Property Rights by the Trademarks or Tradenames or the Use thereof by Licensees, and the exclusive remedy of the Licensees' Indemnified Parties and the Licensors' Indemnified Parties in connection with such Claims or Losses. 10. Maintenance and Enforcement of Registrations. Licensors shall have the right and obligation to undertake such actions, including making applicable registrations and filings with the appropriate authorities, as are reasonably necessary to establish and protect the Trademarks and Tradenames in the Territory or in any other jurisdiction in the world. Licensors shall pay all costs or fees associated with any such actions, and Licensee shall provide all reasonable cooperation to Licensors with respect to such actions. Moreover, Licensors shall have the right to defend or prosecute any trademark infringement actions as may be necessary to protect the Trademarks or Tradenames in the Territory. Licensors shall have sole control of any such actions and all related settlement negotiations. Licensees shall, at Licensors' expense, provide all reasonable cooperation to Licensors (a) in assisting Licensors with respect to such actions and any related settlement negotiations upon Licensors' request, and (b) in protecting Licensors' rights in the Trademarks and Tradenames by giving prompt notice to Licensors of any infringement that Licensee becomes aware of. 11. Certain Definitions. For purposes of this Agreement, the following capitalized terms shall have the meanings assigned to them below: 11.1 "Territory" shall mean the States of Florida, Michigan, Illinois, Indiana and Ohio, the Caribbean, Central America and South America (specifically excluding Mexico from this definition). 11.2 "Intellectual Property Rights" shall mean all intellectual property rights in any jurisdiction, including, without limitation, all common law rights, state registrations, and federal registrations in and to trademarks, service marks, brand names, certification marks, trade dress, trade names and other indications of origin. 11.3 "Use" means the use of the Trademarks and Tradenames within the Territory for the purpose of conducting the Businesses in accordance with the terms hereof and any trademark usage guidelines that may be provided by Licensors to licensees from time to time. 12. Disclaimers/Limitations of Liability. 5 12.1 EXCEPT FOR THE WARRANTIES EXPRESSLY STATED IN SECTION 13 BELOW NEITHER PARTY MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED OR STATUTORY (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES ARISING FROM TRADE USAGE, COURSE OF DEALING, OR COURSE OF PERFORMANCE, OR THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE), AND BOTH PARTIES HEREBY EXPRESSLY DISCLAIM ALL SUCH WARRANTIES. 12.2 EXCEPT FOR BOTH PARTIES' INDEMNIFICATION OBLIGATIONS UNDER SECTION 9, NEITHER PARTY NOR ANY OF EITHER PARTY'S AFFILIATES SHALL BE LIABLE TO THE OTHER PARTY OR TO ANY OTHER INDIVIDUAL OR ENTITY FOR ANY INDIRECT, SPECIAL, PUNITIVE, EXEMPLARY, CONSEQUENTIAL, OR INCIDENTAL LOSS OR DAMAGE OF ANY KIND OR NATURE, RELATING TO OR ARISING OUT OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO ANY LOSS OF REVENUES, ANTICIPATED PROFITS OR SAVINGS, LOSS BY REASON OF SHUTDOWN IN OPERATION OR FOR INCREASED EXPENSES OF OPERATION, EVEN IF THEY OR ANY OF THEIR AFFILIATES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES. 12.3 NO LIMITATION SET FORTH IN THIS SECTION 12 SHALL RELIEVE EITHER PARTY AND THEIR AFFILIATES FROM LIABILITY FOR DAMAGES THAT RESULT FROM (I) THEIR OWN GROSS NEGLIGENCE OR WILLFUL TORTIOUS MISCONDUCT; OR (II) PERSONAL INJURY OR WRONGFUL DEATH CLAIMS. 13. Representations and Warranties of Licensors. Licensors jointly and severally represent and warrant to Licensees as follows: 13.1 Licensors represent and warrant to Licensees that they own all right, title and interest in the Trademarks and Tradenames and have the absolute and unrestricted right, power, and authority to grant the rights hereunder. 13.2 Licensors represent and warrant to Licensees that they are authorized to enter into this Agreement and that their license of the Trademarks and Tradenames under the terms of this Agreement shall not violate any other agreements, or obligations of Licensors, or any Federal, state, local, or foreign laws, rules, or regulations relating to Licensors or Licensors' use of the Trademarks and Tradenames. 13.3 Exhibit A attached hereto constitutes a complete and accurate list and summary description of all U.S. and Puerto Rico registered trademarks and tradenames owned by Licensors and used by Licensors in the conduct of the Businesses. 6 13.4 Licensors do not own or use any patents, patent applications, or inventions or discoveries that may be patentable in connection with the Businesses. 13.5 Licensors do not own or use any registered copyrights in connection with the Businesses. 13.7 Licensors have taken reasonable precautions to protect the secrecy, confidentiality and value of any trade secrets which Licensors may own, and Licensors own such trade secrets and have the valid right to use same. To the best of Licensors' knowledge, the trade secrets are not part of the public knowledge or literature and have not been used, divulged or appropriated either for the benefit of any person (other than Licensors) or to the detriment of Licensors. To the best of Licensors' knowledge, no material trade secret is subject to any adverse claim or has been challenged or threatened in any way. For purposes of this Agreement, trade secrets are defined as all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blueprints used in the conduct of the Businesses. 13.8 Licensors are not a party to any contract or arrangement whereby royalties are paid or received by Licensors with respect to trademarks, tradenames, copyrights, rights in mask works, patents, or trade secrets. 13.9 None of the current employees of Licensors that are involved in the Businesses have executed written contracts with Licensors that assign to Licensors any rights to any inventions, improvements, discoveries or information relating to the Businesses. To the best of Licensors' knowledge, no employee of Licensors that is involved in any of the Businesses has entered into any contract that restricts or limits in any material way the scope or type of work in which the employee may be engaged, or requires the employee to transfer, assign or disclose information concerning his or her work to anyone other than Licensors. 14. Notices. All notices, requests, demands or other communications required or permitted to be given under this Agreement shall be in writing and shall be effective when delivered if personally delivered or three (3) days after mailing if mailed by registered or certified mail with postage prepaid, return receipt requested, and addressed to the parties at the addresses set forth in Section 12.4 of the Share Purchase Agreement or at such other addresses as the parties may designate in writing by providing notice thereof in compliance with this paragraph. 15. Amendment. No provision of this Agreement may be modified except by a written document signed by a duly authorized representative of each of the parties. 16. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and to their respective assigns. This Agreement cannot be assigned by any party except upon the express prior written consent of the other parties hereto, which shall not be unreasonably withheld, conditioned or delayed, provided, however, that Licensees may assign 7 their rights and obligations hereunder to any person controlled by or under common control with GFS Holding or any purchaser of any portion of the Businesses without first obtaining the consent of Licensors. Any assignee or transferee (voluntary or involuntary) of rights in the Trademarks and the Tradenames shall be subject to the terms of this Agreement. 17. Severability. If any provisions of this Agreement shall be prohibited or unenforceable by any applicable law, the provision shall be ineffective only to the extent and for the duration of the prohibition of unenforceability, without invalidating any of the remaining provisions. 18. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. Any dispute arising out of this Agreement shall be resolved in accordance with the procedures set forth in Section 12.5 of the Asset Purchase Agreement. 19. Entire Agreement. This Agreement constitutes the entire agreement between Licensees and Licensors with respect to the subject matter of this Agreement and supersedes all earlier agreements and understandings, oral and written, between the parties. 20. Counterparts. This Agreement may be executed in counterparts, each of which, when so executed, shall be deemed to be an original and such counterparts shall together constitute one and the same instrument. 21. Construction. This Agreement shall be deemed to represent the mutual intent of the parties hereto and no rule of strict construction shall be applied against any party by virtue of having drafted this Agreement. 8 IN WITNESS WHEREOF, Licensors and Licensees have caused this Agreement to be signed the day and year first above written. LICENSORS: SFI: SMART & FINAL INC. a Delaware corporation By:Donald G. Alvarado -------------------------------------- Its: AFD: AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By:Donald G. Alvarado -------------------------------------- Its: SF Stores: SMART & FINAL STORES CORPORATION a California corporation By:Donald G. Alvarado -------------------------------------- Its: 9 LICENSEES: GFS Holding: GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray -------------------------------------- Its: Henry Lee: HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray -------------------------------------- Its: GFS Stores: GFS STORES, LLC a Delaware limited liability company By:GFS HOLDING, INC. --------------------------------- Its:Manager --------------------------------- By: /s/ David L. Gray -------------------------------------- Its: 10 GFS Orlando: GFS Orlando, LLC a Delaware limited liability company By:GFS HOLDING, INC. --------------------------------- Its: Manager By: /s/ David L. Gray -------------------------------------- Its: 11 U.S. TRADE MARKS

U.S. TRADEMARKS

U.S. TRADE MARKS

U.S. TRADE MARKS

TRANSITIONAL SERVICES AGREEMENT THIS TRANSITIONAL SERVICES AGREEMENT (this "Agreement") is entered into and effective as of September 7, 2003 (the "Effective Date"), by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), and GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Share Purchase Agreement (as defined below). RECITALS A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI, AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated August 6, 2003, by and among GFS Holding, GFS Orlando and GFS Stores, and Sellers, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD (collectively, the "Assets"). B. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the businesses conducted by AFD, SF Stores and Henry Lee in the State of Florida (the "Business"). C. Buyers desire to engage the services of Sellers and its personnel to provide transitional support for a period of up to six (6) months after the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement. D. Buyers have required as a condition to the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement that Sellers enter into this Agreement. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Sellers and Buyers agree as follows: 1. Services for Stores. During the Term of this Agreement, Sellers will provide the transitional services described in this Section 1 for the benefit of the stores (the "Stores") being acquired by GFS Stores from SF Stores in the state of Florida. These transitional services will include the resources reasonably necessary to maintain continuous operation of the Stores in a manner substantially consistent with current practices and in the areas described below. Sellers represent and warrant to Buyers that nothing contained in any of the agreements to which Sellers are a party prohibits Sellers from providing the Services, Systems and Support to Buyers as provided in Section 1 of this Agreement. For purposes of Section 1 of this Agreement, "Systems" is defined as the hardware and software located in each Store or in SFI's Commerce facility reasonably necessary to support the transitional service process. "Services" is defined as providing substantially the same activities currently provided by SFI from its Commerce facility or by third parties that are necessary to continue the current business operations in the Stores. "Support" is defined as the materials, communications and intervention necessary to continue operations substantially as they are presently conducted in the Stores. All of the transitional services to be provided by Sellers pursuant to this Section 1 shall be provided consistent with historical practices at the Stores and at levels substantially the same as presently provided with no unique services or support required except as specifically set forth herein. Sellers' obligations under this Section 1 also are subject to compliance with all applicable laws and regulations, and with all confidentiality agreements or obligations. Buyers agree to cooperate with Sellers and use their commercially reasonable efforts to promptly respond to Sellers' requests for information and action that may be required in order to facilitate Sellers' provision of transitional services hereunder. The transitional services to be provided by Sellers pursuant to this Section 1 are the following: A. Business Process Systems, Service and Support. (1) Advertising: Sellers will provide GFS Stores the ability to influence Hot Sheet advertising direction, materials and activities during the transition period. This includes the continuation of mailed and inserted Hot Sheet promotional services, including logo and graphics materials. GFS Stores will define the product and pricing within the theme and format of Sellers' Hot Sheet promotional period and provide same to Sellers, who then will provide creative design, layout, SFI name and the processes to produce and deliver the materials. GFS Stores will identify the customer types for the mailed Hot Sheet, and Sellers will develop and deliver the pieces to those customers. 2 Sellers will provide copies of all template, logo and item art work that may be used in developing and delivering Hot Sheet promotional pieces during the time period from the 2003 Memorial Day promotion period until the termination of this Agreement. Such materials will be delivered to Buyers as soon as they are available. Sellers do not own or have rights to, and will not provide Buyers with, any radio jingles or other radio materials utilizing the SFI name. (2) Henry Lee support: Continue to provide the systems and data interfaces to support the existing Henry Lee/SFI Florida price/cost, credit authorization and A/R management, item maintenance, and DSR commissions, so long as Buyer conducts POS using ACS 4.0 and NCR POS equipment. (3) Pricing support for all items sold within the Stores including DSD, warehouse, and corporate brands, provided that Sellers retain the right to change inventory items consistent with product changes throughout all of Sellers' stores, and provided further that if requested by Buyers, a reasonably limited number of inventory items may be changed, bearing in mind the restraints on Sellers' Systems. Provide ability to influence direction, materials, and activities, including promotional pricing. (4) Category Management support for all product categories within the Stores, including procurement, vendor agreements, and logistics. (5) Loyalty card program: Subject to compliance with the existing program and applicable law, all processes and systems to support use of the Smart Advantage program in the Stores, including all card benefits (reseller tax management, tobacco sales management and control, charge on account privileges, e-discounts/couponing/promotional and quantity discounts). (6) Store tagging and in-store signage systems, services, and support. (7) Store space management systems, services and support. (8) Product information maintenance, systems, services and support, including item setup, modifications, deletions, and category support, all consistent with current practices. 3 (9) Product order entry systems, services, and support to maintain a continuous flow of product from existing vendors, although there can be no assurance of continued vendor participation. (10) Electronic communications capability to employees via e-mail, fax, voice systems, services, and support as necessary to operate the Stores, provided that Buyers' employees agree to and sign SFI's computing policy and Buyers agree to enforce those policies. (11) Existing-store financial reporting including intranet reports (a list of which is attached hereto as Exhibit "A"), used to manage the day-to-day operations of the Stores by Store managers and regional staff members. (12) Loss prevention systems, services, and support, including exception (XBR) reporting, camera systems, and access to camera systems. (13) Individual Store level income statement process, including a period by period, Store by Store, and general ledger download of each Store account. (14) Accounts payable systems, services, and support in the format currently utilized by Sellers. (15) Store accounts receivable systems, services, and support during normal East Coast business hours. (16) Fixed asset management systems, services, and support. (17) Vendor agreement systems, services, and support. (18) Check authorization systems, services, and support, including Telecheck. Buyers agrees to abide by SCAN reporting and check management processes. (19) Electronic payments, systems agreements, systems, services, and support, including Visa, MC, Discover, Debit, Gift Card, and Henry Lee charge, including customer dispute management of charged transactions. Buyers will absorb all transaction charge backs for Credit, Debit, A/R and check transactions and will be subject to the settlement fees as defined in Sellers' transaction agreements. Sellers and Buyers each will accept financial responsibility for any penalties assessed to the other party by reason of their actions or failure to act. 4 (20) Inventory management systems, services, and support, including RIMA. (21) Store receiving systems, services, and support to input, transmit, and maintain invoicing records from vendors, including the payment process. (22) Consumables and supplies necessary to operate equipment in the Stores, including all computer systems. (23) Armored car pickup/delivery service to Stores. B. Information. (1) Item master file information necessary for conversion to GFS Stores systems: An initial one (1) time download (file format specification to be provided by Buyers), then a daily update of changes until conversion to GFS Stores systems is complete. (2) Customer identification information necessary for conversion to GFS Stores systems: An initial one (1) time download (file format specification to be provided by Buyers), then a daily update of changes until conversion to GFS Stores systems is complete. Subject to compliance with the existing program and applicable law, a complete description of the customer number layout, any alias customer number relationships that exist for the Smart Advantage card program, and/or the Henry Lee customer number relationship. (3) Pricing master file information necessary for conversion to GFS Stores systems: An initial one (1) time download (file format specification to be provided by Buyers) that specifies store/item/price, and in the case of Henry Lee customer/item/price), then a daily update of changes until conversion to GFS Stores systems is complete. (4) Sales information: An initial one (1) time download (file format specification to be provided by Buyers) of the available historical sales transaction data extracted from the Florida POS systems (excluding credit card data) in a flat file readable format (non-TLOG format, assuming MATRA output), then a daily update of changes until conversion to the GFS Stores systems is complete. (5) Fixed assets: A one (1) time download of all asset data available, by Store, including the asset description, date 5 placed in service, acquisition cost, accumulated depreciation and net-book-value. (6) Store profile: A one (1) time download of all Store specific information for normal systems operations, including tax tables/rules and licensing information. (7) Vendors: A listing of all vendor information unique to Store operations, with a daily update of changes. (8) Henry Lee integration: A one (1) time download of all interfaces provided to/from Henry Lee, along with file format specifications. (9) Reseller Tax: A one (1) time download of customer/item reseller tax information. C. Computer Systems Hardware and Software and Support. (1) Provide temporary benefit of output from all systems necessary to continue Store operations as currently in existence. All maintenance and service agreements to be provided during this period, including all hardware, software licensing and support, third party services provided (AfterBot, ACI, Electronic payment systems, and telecommunications, both data and voice). (2) Computer Systems & Support (all consistent with current practice): a. Battery backup systems (UPS) b. Cashier balance, cash proof c. Copiers d. Daily sales audit and end-of-day processing e. Data warehouse reporting provided to Stores f. Digital receipt via AfterBot g. DSD receiving/reporting h. EPS ACI systems support - Debit, Credit, Check authorization, Gift card, In-house credit (Henry Lee) i. FAX j. Intranet, as needed to operate the Stores and subject to signed SFI computing policy agreement. k. Item/price maintenance - store/central l. Invoice processing m. Operating systems n. Order entry, including COPS o. PBX/in-store voice & communications systems 6 p. PCs q. POS systems and interfaces and peripherals r. POS XBR Loss prevention system exception reporting, client access only for LP rep. s. Price verification t. Product lookup u. Product management maintenance v. RF network and hand held devices w. Satellite communications infrastructure x. Scales y. Servers z. Signs/tags printing aa. Special order entry system bb. Store/regional manager financial reporting cc. Time and attendance dd. Timeclocks, time data capture ee. Virus protection software (3) Central Systems - Requiring continued support of applications (all consistent with current practice): a. General Ledger (GEAC) b. Financial Reporting (TM1) c. Reporting database (RIMA) d. Accounts Receivable (GEAC/Base 24) e. Inventory/Costing (RIMA) f. Inventory Ordering (COPS) g. Accounts Payable (GEAC) h. Cash Reconciliation (Daily cash proof) i. Fixed Assets (GEAC) j. Vendor Support (mainframe) k. Digital Receipt/Sales Tax (Afterbot). l. Property Tax (Fixed asset system) m. Credit Card Processing n. Resale licensing (Tandem) Subject to Florida stores completing signup process of resale customers 2. Services for Florida Food Service Operations. During the Term of this Agreement, Sellers will provide the transitional services described in this Section 2 for the benefit of the Henry Lee and/or Orlando Food Service Operations (collectively, the "Florida Food Service Operations"). These transitional services will include the resources reasonably necessary to maintain continuous operation of the Florida Food Service Operations in Florida in a manner substantially consistent with current practices. Sellers represent and warrant to Buyers that nothing contained in any of the agreements to which Sellers are a party prohibits Sellers from providing the Services, Systems and Support to Buyers as provided in Section 2 of this Agreement. For purposes of Section 2 of this Agreement, "Systems" is defined as the hardware and software located in Florida 7 or elsewhere necessary to support the transitional service process. "Services" is defined as providing substantially the same activities currently provided by SFI from its Commerce facility or by third parties that are necessary to continue the current business operations in the Florida Food Service Operations. "Support" is defined as the materials, communications and intervention necessary to continue operations substantially as they are presently conducted in the Florida Food Service Operations. All of the transitional services to be provided by Sellers pursuant to this Section 2 shall be provided consistent with historical practices in the Foodservice Operations and at levels substantially the same as presently provided with no unique services or support required except as specifically set forth herein. Sellers' obligations under this Section 2 also are subject to compliance with all applicable laws and regulations, and with all confidentiality agreements or obligations. Buyers agree to cooperate with Sellers and use their commercially reasonable efforts to promptly respond to Sellers' requests for information and action that may be required in order to facilitate Sellers' provision of transitional services hereunder. The transitional services to be provided by Sellers pursuant to this Section 2 are the following: A. Payroll Processing (1) ADP agreement feed through Commerce, California (Solely for start-up purposes and transition of payroll processing to Henry Lee Company) B. Network Support (1) Currently some network and infrastructure support services are being provided in Stockton, California for the Florida Food Service Operations. GFS Orlando will require this support to continue for up to six (6) months. C. E-mail Addresses (1) Systems, services and support required to provide continuous access to the e-mail addresses. Seller to provide e-mail addresses of Florida Stores, relevant personnel and transition staff. D. Wide Area Network (1) Support of the ordering process from the Stores to Henry Lee. These orders are processed in Commerce, California and sent to Henry Lee for fulfillment. E. Fixed Asset Accounting (1) Continued support of the fixed asset accounting system for up to six (6) months. 8 3. Personnel Cooperation. Commencing upon execution of this Agreement, and continuing for two (2) weeks thereafter, at no cost to Buyers, Sellers will provide Buyers with the use of an office at Sellers' Commerce, California facility for one (1) designated person ("Point Person"), together with related telephones, equipment and access (including remote access) to Sellers' systems that apply to the Stores and the Florida Food Service Operations. Sue Mullins is hereby designated as Sellers' initial contact with the Point Person, and the Point Person shall be afforded full access to all of Sellers' personnel and systems to assist in a smooth transition of the Stores and the Florida Food Service Operations to Buyers. After the expiration of the two (2) week period, the Point Person also shall be provided with remote access and access at the Commerce facility for one (1) day per week for follow-up issues, and Sellers' personnel will also be available by telephone to assist the Point Person in connection with transition matters. 4. Term. The Term of this Agreement shall commence upon the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement and, at Buyers' option, shall continue for up to six (6) months thereafter. The Term of this Agreement may be shortened upon written notice from Buyers to Sellers; provided, that, if this Agreement is shortened as to the provision of the Systems services provided hereunder, it must be shortened as to all Systems services concurrently. 5. Compensation for Services. In consideration of provision of the transitional services described in Sections 1, 2 and 3 above (the "Basic Services") to be provided by Sellers to Buyers in connection with the Stores and the Florida Food Service Operations, Buyers will reimburse Sellers for the actual out-of-pocket initial start-up and set-up costs incurred in connection with the e-mail conversion, but in no event shall such reimbursement exceed $50,000. Sellers shall receive no other compensation for the Basic Services. In the event Buyers request additional services not included in the Basic Services, the parties will meet to discuss same and the cost therefor, but Sellers shall be under no obligation to provide any additional services, except upon terms acceptable to Sellers. 6. Default; Termination. A. Sellers' Default. Sellers shall be in default under this Agreement if Sellers breach any material provision or condition of this Agreement (a "Sellers' Event of Default"). If a Sellers' Event of Default occurs (i) which event does not result in a material adverse effect on the provision of Basic Services, and is not cured by Sellers within thirty (30) days after receipt of written notice from Buyers to cure such breach, or (ii) which event results in a material adverse effect on the provision of Basic Services, and is not cured by Sellers within three (3) business days after receipt of written notice from Buyers to cure such breach, then, in such event, in addition to any other right or remedy Buyers may have under this Agreement, Buyers shall have the right to terminate this Agreement, so long as such Event of Default is not the result of the action or inaction of a third-party. 9 B. Buyers' Default. Buyers shall be in default under this Agreement if Buyers breach any material provision or condition of this Agreement (a "Buyers' Event of Default"). If a Buyers' Event of Default occurs (i) which event does not result in a material adverse effect on Sellers' operations or information systems, and is not cured by Buyers within thirty (30) days after receipt of written notice from Sellers to cure such breach, or (ii) which event results in a material adverse effect on Sellers' operations or information systems, and is not cured by Buyers within three (3) business days after receipt of written notice from Sellers to cure such breach, then, in such event, in addition to any other right or remedy Sellers may have under this Agreement, Sellers shall have the right to terminate this Agreement, so long as such Event of Default is not the result of the action or inaction of a third-party. C. Limitation on Damages; No Offset. In no event shall Sellers or Buyers be liable to the other party for any consequential damages or lost profits in excess of $750,000, and in no event shall either party be entitled to offset against any amounts due under this Agreement any amounts payable under the Share Purchase Agreement, the Asset Purchase Agreement, or any other agreement executed in connection therewith. 7. Indemnification. A. Indemnity by Sellers. Sellers shall, jointly and severally, indemnify Buyers and their affiliates, directors, officers, managers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Buyer Indemnified Parties") against and hold each of them harmless from any and all damage, loss, cost, penalty, liability and expense (including, without limitation, reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("Damages") incurred or suffered by the Buyer Indemnified Parties (whether originally asserted against or imposed on the Buyer Indemnified Parties by a third party or originally incurred or suffered directly by the Buyer Indemnified Parties) arising directly out of any breach of any representation or warranty, covenant or agreement made or to be performed by Sellers pursuant to this Agreement (such breach, a "Seller Breach"). B. Indemnity by Buyers. Buyers shall indemnify Sellers and their affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Seller Indemnified Parties") against and hold each of them harmless from any and all Damages incurred or suffered by the Seller Indemnified Parties (whether originally asserted against or imposed on the Seller Indemnified Parties by a third party or originally incurred or suffered directly by the Seller Indemnified Parties) arising directly out of any breach of any representation, warranty, covenant or agreement made or to be performed by Buyers pursuant to this Agreement, and from any and all liability or expenses, including fines by any governmental entities, incurred by reason of providing the Smart Advantage program 10 information to Buyers pursuant to Section 1.A(5) above (such breach, a "Buyer Breach"). C. Procedure and Payment. (1) The person seeking indemnification under Section 7.A, and 7.B (the "Indemnified Party") agrees to give prompt notice to the Person against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding, in respect of which indemnity may be sought under such Section and will provide the Indemnifying Party such information with respect thereto as the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have materially and adversely prejudiced the Indemnifying Party. (2) The Indemnifying Party shall be entitled to defend any claim asserted by any third party ("Third Party Claim") with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying Party notifies the Indemnified Party in writing within fifteen (15) days after the Indemnifying Party has given notice of the Third Party Claim that it will indemnify the Indemnified Party from and against all Damages that the Indemnified Party may suffer resulting from, arising out of, relating to, or caused by the Third Party Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations under this Agreement, (iii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, and (iv) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (3) So long as the Indemnifying Party is conducting the defense of any Third Party Claim in accordance with the provisions of this Section 7.C, the Indemnified Party shall be entitled to participate in the defense of such Third Party Claim and to employ separate counsel of its choice for such purpose. The fees and expenses of such separate counsel shall be paid by the Indemnified Party. 11 (4) Each party shall cooperate, and cause its Affiliates to cooperate, in the defense or prosecution of any Third Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested by any other party in connection therewith. D. Calculation of Damages. (1) The amount of any Damages payable under Section 7.A and 7.B by the Indemnifying Party shall be net of any amounts recovered by the Indemnified Party under applicable insurance policies and the Indemnified Party shall use commercially reasonable efforts to collect any amounts available under such insurance policies. (2) If the Indemnified Party receives an amount under insurance coverage or from a third party with respect to Damages at any time subsequent to any indemnification provided by the Indemnifying Party pursuant to Section 7.A and 7.B, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification up to such amount received by such Indemnified Party, but net of any expenses incurred by such Indemnified Party in collecting such amount. (3) In no event shall either Buyers or Sellers be liable to the other party for any consequential damages or lost profits in excess of $750,000. 8. Force Majeure. Neither Sellers nor Buyers shall be responsible to the other for any delay in or failure of performance of their obligations under this Agreement to the extent such delay or failure is attributable to any cause beyond their reasonable control, including, without limitation, any act of God, fire, accident, strike or other labor difficulties, war, embargo or other governmental act, or riot that, in the case of Sellers, prevents Sellers from providing services under this Agreement, or, in the case of Buyers, prevents Buyers from utilizing the services under this Agreement; provided that the party affected thereby gives the other party prompt notice of the occurrence of any event which has caused or is likely to cause any such delay or failure, setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; and provided further that said affected party shall use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance or utilization. 12 9. Miscellaneous Provisions. A. Confidentiality. Each of Sellers and Buyers (as appropriate, the "Promisor") covenant and agree to and will cause their respective authorized agents, representatives, affiliates, employees, officers, directors, accountants, counsel and other designated representatives (collectively, "Representatives") to (i) treat and hold as confidential (and not disclose or provide access to any person to) all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") concerning the other party (the "Promisee") in the Promisor's possession or furnished by the Promisee or its Representatives pursuant to this Agreement, (ii) in the event that Promisor or its Representatives become legally compelled to disclose any such Information, provide the Promisee with prompt written notice of such requirement so that the Promisee may seek a protective order or other remedy or waive compliance with this Section 9.A, and (iii) in the event that such protective order or other remedy is not obtained, or the Promisee waives compliance with this Section 9.A, furnish only that portion of such Information which is legally required to be provided and exercise Promisor's best efforts to obtain assurances that confidential treatment will be accorded such Information; provided, however, that this sentence shall not apply to any Information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by such party or its Representatives; and provided further, however, that the provisions of clauses (i) and (ii) above shall not preclude a party from disclosing Information to its Representatives (provided that each such Representative shall be advised of the confidential nature of such Information) or from disclosing Information to or filing Information with any governmental authority or agency with jurisdiction over such party. Each party agrees and acknowledges that remedies at law for any breach of its obligations under this Section 9.A are inadequate and that in addition thereto the other party shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach, without the necessity of demonstrating the inadequacy of monetary damages. The provisions of this Section 9.A shall not apply to the extent any such Information is required to be disclosed by applicable law. B. Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 13 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Donald G. Alvarado Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Sue Mullins Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II C. Jurisdiction. (1) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 9.C, it will not bring any action relating to this Agreement or any 14 of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (2) In the event the state court specified in Section 9.C(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (3) In the event the state court specified in Section 9.C(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Seller Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the 15 jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (4) The parties hereby waive any right to a jury trial. D. Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting (unless the requesting party is entitled to indemnification therefor under Section 7), each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. E. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. F. Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. G. Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights or obligations under this Agreement without the prior consent of the other parties, except that GFS Holding may assign any of its rights under this Agreement to any Affiliate of GFS Holding. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are 16 for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. H. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. I. Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. J. Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. K. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. L. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. M. Dispute Resolution. Except as hereinafter provided in this Section 9.M all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (1) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 9.B hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration 17 Association (the "AAA") in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (2) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (3) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (4) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 9.C without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. N. Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. O. Relationship of Parties. The relationship between Sellers and Buyers for purposes of this Agreement shall be that of an independent contractor and not of employment and, except to the extent required to enable Sellers to perform their duties hereunder, neither party is an agent of the other. By entering into this 18 Agreement, neither party to this Agreement is, in any way, assuming any liabilities, debts or obligations of the other party, whether now existing or hereafter created. IN WITNESS WHEREOF, Sellers and Buyers have executed this Agreement as of the date set forth in the first paragraph hereof. "SFI" SMART & FINAL INC. a Delaware corporation By: /s/ Dennis Chiavelli ----------------------------------------- Its: ---------------------------------------- "AFD" AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By: /s/ Dennis Chiavelli ----------------------------------------- Its: ---------------------------------------- "SF Stores" SMART & FINAL STORES CORPORATION a California corporation By: /s/ Dennis Chiavelli ----------------------------------------- Its: ---------------------------------------- "GFS Holding" GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray ----------------------------------------- Its: ---------------------------------------- 19 "Henry Lee" HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray ----------------------------------------- Its: ---------------------------------------- "GFS Stores" GFS STORES, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ----------------------------------------- Its: ---------------------------------------- "GFS Orlando" GFS Orlando, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray ----------------------------------------- Its: ---------------------------------------- 20 Exhibit "A"

_______________ [1] This line is interlineated in the original. A-1 EMPLOYEE LEASING AGREEMENT THIS EMPLOYEE LEASING AGREEMENT (this "Agreement") is entered into and effective as of September 7, 2003 (the "Effective Date"), by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), and GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando" and together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Share Purchase Agreement (as defined below). RECITALS A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI and AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated August 6, 2003, by and among GFS Holding, GFS Orlando, and GFS Stores, and Sellers, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD (collectively, the "Assets"). B. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the businesses operated by AFD, SF Stores and Henry Lee in the State of Florida (the "Business"). C. Buyers desire to lease from Sellers certain employees of Sellers who are knowledgeable about the certain aspects of the Business and for the purpose of performing such tasks as are beneficial to the transition and ownership of the Business. D. Buyers have required as a condition to the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement that Sellers enter into this Agreement. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Sellers and Buyers agree as follows: 1. Lease of Employees. 1.1 Leased Employees. During the period beginning 12:01 a.m. on the Effective Date and ending on 11:59 p.m. on the first anniversary of the Effective Date (the "Lease Period"), and subject to the provisions of this Agreement, Sellers shall furnish to Buyers the full- time services of the Leased Employees of Sellers listed on Exhibit "A" attached hereto (the "Leased Employees"). 1.2 Location. The location of work to be performed by of each Leased Employee shall be as set forth on Exhibit "A" attached hereto, unless otherwise consented to by Sellers. 1.3 Payment and Employment Policies. Sellers shall have sole responsibility for: (i) establishment and payment of all wages, salaries and other forms of compensation for the Leased Employees; (ii) payment of all payroll, social security and unemployment taxes related to the Leased Employees; (iii) establishing all personnel policies and employee benefit programs for the Leased Employees; and (iv) determination of work schedules for the Leased Employees. Buyers shall have full authority to direct the Leased Employees with respect to the performance by Leased Employees of their respective Services (as defined below) to Buyers. Sellers shall use their reasonable diligent efforts to ensure that the Leased Employees perform the Services (as defined below) in the best interests of Buyers. 1.4 Employment of Leased Employees. Sellers shall have full responsibility and authority for decisions regarding termination and reassignment of Leased Employees. In the event that Buyers provide reasonable evidence to Sellers that the performance of a Leased Employee is unsatisfactory or if Buyers notify Sellers that the services of a particular Leased Employee are no longer needed, then Sellers shall reassign the Leased Employee from Buyers, subject to and in accordance with the personnel policies of Sellers. In the event Buyers request the reassignment of the services of a Leased Employee, or in the event of the resignation, retirement or other termination of services by a Leased Employee for Buyers, such Leased Employee shall be reassigned to Sellers, who shall be responsible for taking any action with respect to such Leased Employee's employment by Sellers. Leased Employees who are reassigned from Buyers or are terminated during the Lease Period are referred to herein as "Former Leased Employees." Exhibit "A" shall be revised to exclude such Former Leased Employees from time to time, as appropriate. 1.5 Permanent Hire. Buyers may, in their discretion and at any time during the Lease Period, offer to permanently hire any of the Leased Employees without any additional compensation therefor payable to Sellers, other than for the payments provided pursuant to this Agreement. 2. Payment For Leased Employees. 2.1 Payment Terms. On or before the 25th day of each calendar month, Sellers shall issue an invoice to Buyers specifying the Reimbursable Amount (as defined in Section 2.2 below) for the immediately preceding calendar month. Buyers shall pay the Reimbursable Amount specified in each such invoice within ten (10) days after receipt of such invoice. 2.2 Reimbursable Amount. The term "Reimbursable Amount" is an amount equal to the costs paid and expenses accrued (as hereafter provided) by Sellers during such period, solely with respect to the Leased Employees that are providing services to Buyers hereunder, including, without limitation, the reasonable cost of: (i) salaries, wages and incentive, vacation, holiday and self-funded sick pay; (ii) Seller-paid social security taxes, medicare taxes -2- and other payroll taxes; (iii) premiums paid by Sellers on behalf of Leased Employees for coverage by any long-term disability insurance, insured short-term disability benefits, group term life insurance, accidental death and disability insurance, business travel accident insurance requested by Buyers, and insured group health, dental or vision plans; (iv) other employee welfare benefits, fringe benefits or perquisites, including, but not limited to, benefits under any employee welfare benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended), supplemental unemployment compensation plan benefits or any other fringe benefit arrangement which does not constitute an employee benefit plan, or Sellers' costs under any employment agreement not otherwise described in this Section which have been disclosed to Buyers; (v) Sellers' contributions to any tax-qualified defined contribution plan on behalf of Leased Employees (other than employee pretax deferral amounts included in (i) above, as wages); (vi) Sellers' provided benefits under any tax-qualified defined benefit pension plan; (vii) Sellers' provided self-funded group health, dental and vision benefits; (viii) Sellers' costs for administration of any benefit plan, program or arrangement provided to or for the benefit of the Leased Employees; (ix) any other government charges relating to the employment of the Leased Employees, including worker's compensation claims; (x) amounts paid for the insurance coverage required under Section 3 below, (xi) expenses of complying with and administering any collective bargaining agreement with respect to Leased Employees; and (xii) any amounts due Sellers pursuant to Section 4 below, in each case to the extent that such payments and benefits are generally provided to Sellers' employees as a group. 2.3 Late Payment. Any portion of the Reimbursable Amount that is not paid as and when due pursuant to the payment terms provided in this Section shall be considered a "Late Payment." Sellers shall notify Buyers of such Late Payment, in writing, and interest shall accrue on such Late Payment (or any portion thereof) from the date that such Late Payment was first invoiced to Buyers until the date such amount is fully paid to Sellers at the rate equal to the lesser of: (i) the maximum rate allowed by law, or (ii) the prime rate as announced from time to time by Wells Fargo Bank, N.A. plus five percentage (5%) points per annum. 2.4 Covenant of Sellers. Sellers covenant and agree not to increase the levels of compensation and benefits provided to any of the Leased Employees during the Lease Period, other than for normal increases in compensation and benefits to similarly-situated employees of Sellers, and in the ordinary course and operation of Sellers' business. 3. Sellers' Insurance Obligations. 3.1 Insurance. Sellers shall obtain and maintain at their own expense general liability, worker's compensation, disability and casualty and other similar employee benefit insurance, in amounts reasonably sufficient to meet state requirements, including insurance for any claims, losses, costs and expenses incurred in connection with the injury or death of a Leased Employee pursuant to this Agreement. 3.2 Additional Insurance. Sellers shall be required to purchase and maintain such insurance with limits described in Section 3.3 below and as approved by Buyers as will protect it from claims set forth below which may arise out of or result from the Leased Employee's provision of Services (as defined in Section 5.2 below) under this Agreement; provided, -3- however, that Sellers shall not be required to obtain errors and omissions insurance. Coverage shall include, but not be limited to, the following claims: (a) Claims under Workmen's Compensation; (b) Claims for damage because of bodily injury, occupational sickness or disease, or death of employees; (c) Claims for damages because of bodily injury, sickness or disease, or death of any person other than employees of Buyers; (d) Claims for damages insured by usual personal injury liability coverage which are sustained by any other person; (e) Claims for damages because of injury to or destruction of tangible property, including loss of use resulting therefrom; and (f) Claims for damages because of bodily injury or death of any person or property damage arising out of the use of any of Buyers' motor vehicles. 3.3 Insurance Amounts. Sellers' comprehensive General Liability Insurance shall be in an amount not less than $1,000,000 for property damage, injuries, including accidental death, to any one person and subject to the same limit for each person, and in an amount not less than $1,000,000 for one occurrence. Sellers shall also obtain and maintain Excess Umbrella Liability Insurance in an amount of at least $1,000,000 for each occurrence and aggregate. Sellers shall be required to maintain the above coverages for the period of time extending throughout the Lease Period. 4. Indemnification. 4.1 Indemnification of Sellers. Buyers shall indemnify and hold harmless Sellers and their Affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Seller Indemnified Parties") from and with respect to any and all Losses incurred by the Seller Indemnified Parties in connection with or arising out of (i) Buyers' or their Affiliates', or Buyers' or their Affiliates' employees', acts or omissions relating to the Leased Employees; (ii) the employment, the failure to employ or the termination of employment of any Leased Employee with respect to the Lease Period or in relation to Section 1.4 above taken by Buyers or their Affiliates or Buyers' or their Affiliates' employees, including, but not limited to, constructive termination, claims arising under any employment agreement, collective bargaining agreement, employment law or regulation, including without limitation Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act of 1967, as amended; the Internal Revenue Code of 1986, as amended; the Employee Retirement Income Security Act of 1974, as amended; the Worker Adjustment Retraining and Notification Act; or claims arising under any other federal, state, or local civil rights, employee benefit, labor, contract, tort, or common law; (iii) acts or omissions of Leased Employees taken at the direction of Buyers' or their Affiliates' employees; or (iv) the negligent acts or omissions or willful misconduct of the Leased Employees taken at the direction of Buyers' or their Affiliates' employees. Buyers' indemnification obligations -4- under this Section 4.1 shall not extend to any Losses incurred by any of the Seller Indemnified Parties as a result of the acts or omissions of the Seller Indemnified Parties relating to the Leased Employees. 4.2 Survival of Provisions. The indemnification obligations of the Buyers under this Agreement shall survive any termination of this Agreement for a period of one (1) year. 5. Services. 5.1 General. Leased Employees are Buyers' agents and will act as directed by and under the supervision of Buyers and their employees, and will confer with Buyers regarding the Leased Employee's Services (as defined in Section 5.2 below). 5.2 Services. Buyers and Sellers hereby covenant and agree that in return for the fee provided for in Section 2 above, Sellers shall cause the Leased Employees to devote their full time and efforts to the diligent and faithful performance of such tasks as are beneficial to the transition and ownership of the Business from Buyers to Sellers (the "Services"). 6. Maintenance of Records. 6.1 Buyers and Sellers shall each have the following rights and obligations with respect to the maintenance of records and the following rights with respect to the inspection of the records maintained by the other: (a) Buyers shall maintain accurate records of all hours worked by each Leased Employee in such form as Sellers shall reasonably request and, at such times as Sellers shall reasonably request, Buyers shall furnish such records to Sellers. (b) All business records and information relating to the business activities of either Buyers or Sellers shall be the property of that party. (c) Each of Buyers and Sellers shall safeguard all records maintained by it pursuant to this Agreement for a period of six years, or if longer, as required by applicable law. (d) The parties shall give each other and their respective counsel, auditors and other authorized representatives reasonable access to each other's books and records relating to Leased Employees and Former Leased Employees, including, without limitation, correspondence, accounting records, personnel files, and legal complaints, upon reasonable notice and during normal business hours, as may be necessary for the performance of the respective duties and obligation hereunder; provided, however, that any review of Sellers' books and records pursuant to this Section shall be conducted in a manner as not to interfere unreasonably with the conduct of the business of Sellers. 7. Force Majeure. 7.1 Neither Sellers nor Buyers shall be responsible to the other for any delay in or failure of performance of its obligations under this Agreement to the extent such delay or failure -5- is attributable to any cause beyond its reasonable control, including, without limitation, any act of God, fire, accident, strike or other labor difficulties, war, embargo or other governmental act, or riot that, in the case of Sellers, prevents Sellers from providing Leased Employees under this Agreement, or, in the case of Buyers, prevents Buyers from utilizing the services of Leased Employees under this Agreement; provided that the party affected thereby gives the other party prompt notice of the occurrence of any event which has caused or is likely to cause any such delay or failure, setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; and provided further that said affected party shall use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance or utilization. 8. Termination and Replacement. 8.1 Termination. This Agreement may be terminated: (a) By either Sellers or Buyers upon not less than fifteen (15) days' prior written notice to the other party in the event that such other party has materially breached its obligations under this Agreement and has failed or refused to remedy such breach within fifteen (15) days after written demand therefor is given by the aggrieved party to the other or in the event that such other party has materially breached the same obligation under this Agreement more than once (regardless of whether such breach is remedied); (b) By either Sellers or Buyers upon written notice to the other party, effective immediately, in the event the other party shall become the subject (voluntarily or involuntarily) of any proceeding relating to bankruptcy or insolvency, or make an assignment or other arrangement for the benefit of its creditors, or be dissolved or liquidated (except as a consequence of a merger, consolidation or other corporate reorganization not involving the insolvency of such dissolved or liquidated party); 8.2 Obligations Upon Termination. Upon termination or expiration of this Agreement, Buyers shall be liable to Sellers for all unpaid Reimbursable Amounts attributable to any period(s) prior to the termination of this Agreement. 9. Sellers Not Fiduciary. 9.1 Nothing set forth in this Agreement shall be deemed to constitute Sellers a fiduciary of Buyers, nor shall Sellers have any liability to Buyers with respect to the service of the Leased Employees provided under this Agreement other than as expressly set forth in Section 4 above. 10. Limited Warranty; Limitation of Liability; Compliance with Employment Laws. 10.1 Warranties of Compliance with Employment Laws. As an inducement to the parties to enter into this Agreement, Buyers and Sellers represent, warrant and covenant to each other that they each will comply in all material respects with all applicable federal, state and local laws, rules, regulations and ordinances applicable to the Leased Employees and their services hereunder, to the extent that such party exclusively controls a matter or supervises a Leased Employee with respect to a matter, including without limitation, those relating to -6- workers' compensation, labor and employment relations, employee health and safety, and employment discrimination. 10.2 Limitation of Warranty; Limitation of Liability. Except as expressly provided in Section 10.1, Leased Employees are provided under this Agreement without warranty of any kind whatsoever. For breaches of warranty and other breaches of contract with respect to this Agreement, Seller's liability shall in no event exceed the total amount paid by Buyers under this Agreement. Without limitation, Sellers SHALL NOT BE SUBJECT TO AND EXPRESSLY DISCLAIM: (A) ANY OTHER OBLIGATIONS OR LIABILITIES ARISING OUT OF BREACH OF CONTRACT OR WARRANTY; (B) ANY OBLIGATIONS OR LIABILITIES WHATSOEVER ARISING FROM TORT CLAIMS (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR ARISING UNDER OTHER THEORIES OF LAW WITH RESPECT TO THE UNDERTAKINGS, ACTS OR OMISSIONS OF LEASED EMPLOYEES HEREUNDER; AND (C) CONSEQUENTIAL, INCIDENTAL, INDIRECT OR CONTINGENT DAMAGES WHATSOEVER WITH RESPECT TO THIS AGREEMENT, OR ANY UNDERTAKINGS, ACTS OR OMISSIONS OF LEASED EMPLOYEES PROVIDED HEREUNDER. 11. Miscellaneous Provisions. 11.1 Confidentiality. Each of Sellers and Buyers (as appropriate, the "Promisor") covenant and agree to and will cause their respective authorized agents, representatives, affiliates, employees, officers, directors, accountants, counsel and other designated representatives (collectively, "Representatives") to (i) treat and hold as confidential (and not disclose or provide access to any person to) all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") concerning the other party (the "Promisee") or the Leased Employees in the Promisor's possession or furnished by the Promisee or its Representatives pursuant to this Agreement, (ii) in the event that Promisor or its Representatives become legally compelled to disclose any such Information, provide the Promisee with prompt written notice of such requirement so that the Promisee may seek a protective order or other remedy or waive compliance with this Section 11.1, and (iii) in the event that such protective order or other remedy is not obtained, or the Promisee waives compliance with this Section 11.1, furnish only that portion of such Information which is legally required to be provided and exercise Promisor's best efforts to obtain assurances that confidential treatment will be accorded such Information; provided, however, that this sentence shall not apply to any Information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by such party or its Representatives; and provided further, however, that the provisions of clauses (i) and (ii) above shall not preclude a party from disclosing Information to its Representatives (provided that each such Representative shall be advised of the confidential nature of such Information) or from disclosing Information to or filing Information with any governmental authority or agency with jurisdiction over such party. Each party agrees and acknowledges that remedies at law for any breach of its obligations under this Section 11.1 are inadequate and that in addition thereto the other party shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach, without the necessity of demonstrating the inadequacy of monetary damages. The provisions of this Section 11.1 shall not apply to the extent any such Information is required to be disclosed by applicable law. -7- 11.2 Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Donald G. Alvarado Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Sue Mullins Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II -8- 11.3 Jurisdiction. (a) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 11.3, it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (b) In the event the state court specified in Section 11.3(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (c) In the event the state court specified in Section 11.3(a) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Seller Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States -9- District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (d) The parties hereby waive any right to a jury trial. 11.4 Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting (unless the requesting party is entitled to indemnification therefor under Section 4), each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. 11.5 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 11.6 Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. 11.7 Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights or obligations under this Agreement without the prior consent of the -10- other parties, except that GFS Holding may assign any of its rights under this Agreement to any Affiliate of GFS Holding. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 11.8 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 11.9 Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 11.10 Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. 11.11 Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. 11.12 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. 11.13 Dispute Resolution. Except as hereinafter provided in this Section 11.13 all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (a) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 11.2 hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") -11- in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (b) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (c) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (d) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 11.3 without having to submit the matter or Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. 11.14 Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. IN WITNESS WHEREOF Sellers and Buyers have executed this Agreement as of the date set forth in the first paragraph hereof. "SFI" SMART & FINAL INC. a Delaware corporation By: /s/ Donald G. Alvarado -------------------------------------- Its: ------------------------------------- -12- "AFD" AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By: /s/ Donald G. Alvarado -------------------------------------- Its: ------------------------------------- "SF Stores" SMART & FINAL STORES CORPORATION a California corporation By: /s/ Donald G. Alvarado -------------------------------------- Its: ------------------------------------- "GFS Holding" GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray -------------------------------------- Its: ------------------------------------- "Henry Lee" HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray -------------------------------------- Its: ------------------------------------- -13- "GFS Stores" GFS STORES, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray -------------------------------------- Its: ------------------------------------- "GFS Orlando" GFS Orlando, LLC a Delaware limited liability company By: GFS HOLDING, INC. Its: Manager By: /s/ David L. Gray -------------------------------------- Its: ------------------------------------- -14- EXHIBIT "A" TO EMPLOYEE LEASING AGREEMENT LEASED EMPLOYEES LOCATION ---------------- -------- Dale Davidson Miami Michael Peters Miami A-1 FOLEY & LARDNER 2029 CENTURY PARK EAST, SUITE 3500 LOS ANGELES, CALIFORNIA 90067-3021 310.277.2223 TEL 310.557.8475 FAX www.foleylardner.com WRITER'S DIRECT LINE 310.277.2223 CLIENT/MATTER NUMBER 024041-0111 September 7, 2003 GFS Holding, Inc. c/o Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 Re: Asset Purchase Agreement Dated as of August 6, 2003 Ladies and Gentlemen: We have acted as counsel for Smart & Final Inc., a Delaware corporation ("Smart & Final"), Smart & Final Stores Corporation, a California corporation ("SF Stores") and American Foodservice Distributors, a California corporation ("American Foodservice" and, together with Smart & Final and SF Stores, the "Seller Parties"), in connection with the transactions pursuant to and referenced in the Asset Purchase Agreement (the "Asset Purchase Agreement") dated as of August 6, 2003 and executed by and among the Seller Parties and GFS Holding, Inc., a Delaware corporation ("GFS Holding"), GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando") and GFS Stores, LLC, a Delaware limited liability company ("GFS Stores" and, together with GFS Orlando and GFS Holding, the "Buyer Parties"). We are rendering this opinion to you pursuant to Section 1.9(a)(xii) of the Asset Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Asset Purchase Agreement. In our capacity as counsel to the Seller Parties, we have examined originals, or copies identified to our satisfaction as being true copies of such corporate records, agreements, instruments and other documents of the Seller Parties as in our judgment are necessary or appropriate to enable us to render the opinions set forth herein. These records, agreements, instruments and documents include, without limitation: a. The Asset Purchase Agreement, and the Schedules thereto; b. An Escrow Agreement (the "Escrow Agreement") dated September , --- 2003 and executed by and among the Seller Parties, the Buyer Parties, Henry Lee Company, a Florida corporation ("Henry Lee") and Wells Fargo Bank, N.A., as Escrow Agent; BRUSSELS DETROIT MILWAUKEE SAN DIEGO TAMPA CHICAGO JACKSONVILLE ORLANDO SAN DIEGO/DEL MAR TOKYO DENVER LOS ANGELES SACRAMENTO SAN FRANCISCO WASHINGTON, D.C. 015.594824.5 MADISON TALLAHASSEE WEST PALM BEACH

FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 2 c. An Assignment and Assumption Agreement (the "Assumption Agreement") dated as of September , 2003 and executed by and among Smart & Final, SF --- Stores and GFS Stores; d. A Noncompetition Agreement (the "Noncompetition Agreement") dated September , 2003 and executed by and among the Seller Parties, the Buyer --- Parties and Henry Lee; e. A Software License, Use and Support Agreement (the "Software License Agreement") dated as of September , 2003 and executed by and --- among the Seller Parties, the Buyer Parties and Henry Lee; f. A Tradename and Trademark License Agreement (the "Trademark License Agreement") dated as of September , 2003 and executed by and among the --- Seller Parties, the Buyer Parties and Henry Lee; g. A Transitional Services Agreement (the "Transitional Services Agreement") dated as of September , 2003 and executed by and among the --- Seller Parties, the Buyer Parties and Henry Lee; h. An Employee Leasing Agreement (the "Employee Leasing Agreement") dated as of September , 2003 and executed by and among the Seller --- Parties, the Buyer Parties and Henry Lee; i. A Real Estate Purchase Agreement (the "Real Estate Purchase Agreement") dated as of September , 2003 and executed by and between -- Smart & Final and GFS Marketplace Realty Four, LLC, a Delaware limited liability company, with respect to the Fort Lauderdale Store; j. A Vendor Contract Participation Agreement (the "Vendor Contract Participation Agreement") dated as of September , 2003 and executed and -- among the Seller Parties, the Buyer Parties and Henry Lee; k. Amendment No. 5 ("Amendment No. 5 to the Lease Agreement"), dated , 2003, to that certain Lease Agreement (and related documents) ----- --- dated as of November 30, 2001 between Wells Fargo Bank, NW, N.A., as the Owner Trustee and Lessor and Smart & Final Inc., as Lessee, as previously amended by amendments Nos. 1-4 thereto dated June 4, 2002, February 14, 2003, June 1, 2003 and July 11, 2003, respectively; l. Amendment No. 5 ("Amendment No. 5 to the Credit Agreement"), dated , 2003, to that certain Credit Agreement (and related documents), ------ --- dated as of November 30, 2001, among Smart & Final Inc., as Borrower, and various parties, as Lenders, BNP Paribas, as Administrative Agent and Lead Arranger, Harris Trust & Savings Bank, as Syndication Agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", as Documentation Agent, as previously amended by amendments Nos. 1-4 FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 3 thereto dated June 4, 2002, February 18, 2003, June 1, 2003 and July 11, 2003, respectively (referred to along with the Escrow Agreement, the Assumption Agreement, the Noncompetition Agreement, the Software License Agreement, the Trademark License Agreement, the Transitional Services Agreement, the Employee Leasing Agreement, the Real Estate Purchase Agreement, the Vendor Contract Participation Agreement, Amendment No. 5 to the Credit Agreement, and Amendment No. 5 to the Lease Agreement, collectively, as the "Related Agreements"); m. The Certificate of Incorporation of Smart & Final, certified on August 27, 2003 by the Delaware Secretary of State; n. The Articles of Incorporation of SF Stores, certified on August 29, 2003 by the California Secretary of State; o. The Articles of Incorporation of American Foodservice, certified on August 29, 2003 by the California Secretary of State; p. The Bylaws of Smart & Final, certified by the Secretary or Assistant Secretary of Smart & Final; q. The Bylaws of SF Stores, certified by the Secretary or Assistant Secretary of SF Stores; r. The Bylaws of American Foodservice, certified by the Secretary or Assistant Secretary of American Foodservice; s. A Certificate of Good Standing as to Smart & Final, certified on August 21, 2003 by the Delaware Secretary of State; t. A Certificate of Good Standing as to Smart & Final, certified on August 29, 2003 by the Florida Secretary of State; u. A Certificate of Status as to SF Stores, certified on August 23, 2003 by the California Secretary of State; v. A Certificate of Good Standing as to SF Stores, certified on August 29, 2003 by the Florida Secretary of State; w. A Certificate of Status as to American Foodservice, certified on September 2, 2003 by the California Secretary of State; x. A Certificate of Good Standing as to American Foodservice, certified on August 29, 2003 by the Florida Secretary of State; FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 4 y. The resolutions of the Board of Directors of Smart & Final with respect to the Asset Purchase Agreement and the Related Agreements, certified by the Secretary or Assistant Secretary of Smart & Final; z. The resolutions of the Board of Directors of SF Stores with respect to the Asset Purchase Agreement and the Related Agreements, certified by the Secretary or Assistant Secretary of SF Stores; aa. The resolutions of the Board of Directors of American Foodservice with respect to the Asset Purchase Agreement and the Related Agreements, certified by the Secretary or Assistant Secretary of American Foodservice; bb. The Officer's Certificate of Smart & Final delivered to us in connection with this opinion, a copy of which is attached hereto as Exhibit "A"; cc. The Officer's Certificate of SF Stores delivered to us in connection with this opinion, a copy of which is attached hereto as Exhibit "B"; and dd. The Officer's Certificate of American Foodservice delivered to us in connection with this opinion, a copy of which is attached hereto as Exhibit "C". For the purposes of our opinions, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as copies, and the authenticity of the originals of all documents submitted to us as copies. We have also assumed the genuineness of the signatures of persons signing all documents in connection with which these opinions are rendered. We have further assumed: (i) the authority of such persons signing all documents on behalf of the parties thereto other than the Seller Parties; (ii) the due authorization of all documents by the parties thereto other than the Seller Parties; (iii) the due execution and delivery of all documents by the parties thereto other than the Seller Parties; (iv) the absence of duress, fraud, undue influence, or mutual mistake of material fact on the part of the parties; (v) that the choice of law provisions in the Asset Purchase Agreement and the Related Agreements were not made with a view towards evading otherwise applicable law or the consequences thereof; and (vi) that the application of Delaware law to the Asset Purchase Agreement and the Related Agreements would not be contrary to a fundamental public policy of a jurisdiction that has a materially greater interest than the State of Delaware in the determination of a particular question at issue. As to any facts material to the opinions set forth herein, which we have not independently established or verified, we have relied solely upon the representations and warranties of the officers of the Seller Parties, the representations and warranties of the Seller Parties contained in the Asset Purchase Agreement and the Related Agreements, and upon the Officer's Certificates from each of the Seller Parties, but without any further independent investigation. In addition, we have obtained and relied upon such certificates from public officials as we have deemed necessary. We have assumed that such representations and warranties, and such certifications, are true, correct and complete. FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 5 As used in this opinion, the expression "to our knowledge" with reference to matters of fact: (i) means that, after an examination of documents made available to us by or on behalf of the Seller Parties and based on the representations and warranties of the officers of the Seller Parties, the representations and warranties of the Seller Parties contained in the Asset Purchase Agreement and the Related Agreements, and upon the Officer's Certificates from each of the Seller Parties, but without any further independent investigation, we find no reason to believe that the opinions set forth herein are factually incorrect; and (ii) refers to the current actual knowledge of the attorneys of this law firm who have worked on matters for the Seller Parties in connection with the consummation of the transactions contemplated by the Asset Purchase Agreement and the Related Agreements. Except to the extent expressly set forth hereinabove, we have not undertaken any independent investigation to determine the existence or absence of any fact, and no inference as to our knowledge of the existence or absence of any fact should be drawn from our representation of the Seller Parties or the rendering of the opinions set forth herein. In addition to the foregoing, in rendering the opinions set forth herein, we note that the Asset Purchase Agreement and the Related Agreements state that they are to be governed by Delaware law. We advise you that we are not admitted to practice in that state, although we are familiar with the corporate laws of that state. Based solely upon the foregoing, and subject to the qualifications and exceptions heretofore and hereinafter set forth, we are of the opinion that: 1. Smart & Final is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and is qualified to transact business and is in corporate good standing under the laws of the State of Florida, and has all corporate power required to carry on its business as now conducted and as proposed to be conducted and to execute, deliver and perform its obligations under the Asset Purchase Agreement and the Related Agreements. 2. SF Stores is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California, and is qualified to transact business and is in corporate good standing under the laws of the State of Florida, and has all corporate power required to carry on its business as now conducted and as proposed to be conducted and to execute, deliver and perform its obligations under the Asset Purchase Agreement and the Related Agreements. 3. American Foodservice is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California, and is qualified to transact business and is in corporate good standing under the laws of the State of Florida, and has all corporate power required to carry on its business as now conducted and as proposed to be conducted and to execute, deliver and perform its obligations under the Asset Purchase Agreement and the Related Agreements. 4. The execution, delivery and performance by the Seller Parties of the Asset Purchase Agreement and the Related Agreements have been duly authorized by all necessary corporate action, and do not violate or contravene the Certificate of Incorporation or Articles of Incorporation, as applicable, or the Bylaws of the Seller Parties. The Asset Purchase Agreement and the Related Agreements have been duly executed by and delivered on behalf of the Seller Parties. FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 6 5. The Asset Purchase Agreement and the Related Agreements have been duly executed and delivered and constitute the legally valid and binding obligation of the Seller Parties and, other than the Noncompetition Agreement, are enforceable against the Seller Parties in accordance with their terms, except as enforceability may be limited by any bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles affecting creditors' rights generally, and except as provided further below in this letter. 6. Except as disclosed in the Schedules to the Asset Purchase Agreement, the execution, delivery and performance by the Seller Parties of the Asset Purchase Agreement and the Related Agreements: (i) requires no approval, filing with, authorization, consent, adjudication or order of any governmental authority which has not been obtained; (ii) does not violate any current law or regulation of the States of California or Delaware, or the federal laws of the United States of America binding on the Seller Parties, which a lawyer, using customary professional diligence, would reasonably recognize as applicable to the Seller Parties and the transactions contemplated by the Asset Purchase Agreement and the Related Agreements; (iii) to the best of our knowledge, does not violate any order, writ, judgment, injunction, decree or award binding on the Seller Parties; and (iv) subject to the exceptions set forth below, does not violate or contravene or constitute a default under any material agreement binding upon the Seller Parties. The foregoing opinions are subject to the following additional exceptions assumptions and qualifications: 1. We express no opinion as to the applicability of, compliance with, or effect of: a. any principles of public policy which may limit enforceability of the Asset Purchase Agreement or any of the Related Agreements; b. the effect of bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other similar laws or judicially developed doctrine (such as substantive consolidation or equitable subordination) now or hereafter in effect relating to or affecting the rights and remedies of creditors generally; c. the effect of procedural due process, general principles of equity including, without limitation, principles of commercial reasonableness, good faith and fair dealing, whether such enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought, including the court's failure or refusal to enforce provisions of agreements or documents if enforcement thereof is based upon defaults or breaches which are immaterial to the ultimate performance contemplated thereby or for other reasons deemed equitable by the court; d. the availability of the remedy of specific performance, or of any other equitable remedy or relief to enforce any right under any agreement or document; and FOLEY & LARDNER ATTORNEYS AT LAW GFS Holding, Inc. September 7, 2003 Page 7 e. the enforceability, in any particular circumstance, of any provision of the Asset Purchase Agreement or the Related Agreements which provides for the severability of illegal or unenforceable provisions. For purposes of the opinions in paragraphs 1, 2 and 3 above, we have relied exclusively upon a certificate issued by a governmental authority in each relevant jurisdiction, and statements and representations of officers of the Seller Parties. Such opinions are not intended to provide any conclusion or assurance beyond that conveyed by such certificate. We have assumed without investigation that there has been no relevant change or development between the date of such certificate and the date of this letter. In addition, in rendering the opinions set forth above, we have assumed that the transactions described in or contemplated by the Asset Purchase Agreement have been or will be consummated consistent with the descriptions of such transactions as set forth in the Asset Purchase Agreement and the Related Agreements as provided to us, and in accordance with the operative documents relating to such transactions. The opinions set forth above are based on the laws of the States of California and Delaware only as they exist as of the date of this letter, and we assume no obligation to modify, supplement or update this letter to reflect any facts or circumstances which may hereafter come to our attention or on account of changes in such laws or court decisions which may hereafter occur. Furthermore, we advise you that we are not admitted to practice in the State of Delaware. As to matters of Delaware law set forth in this letter, we advise you that, with your permission, we have relied on the opinion of The Bayard Firm. This opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matter relating to the Seller Parties or to any investment therein, or under any other law. This opinion is solely for your benefit and, without our prior written consent, shall not be quoted in whole or in part, summarized or otherwise referred to, relied upon or filed with or supplied to any other person or entity. Very truly yours, FOLEY & LARDNER EXECUTION VERSION AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE THIS AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE (this "Agreement") is made this day of September 2003, between SMART & FINAL, INC., a ------ Delaware corporation, of 600 Citadel Drive, Commerce, California 90040 (the "Seller") and GFS MARKETPLACE REALTY FOUR, LLC, a Delaware limited liability company, of 333 - 50th Street, S.W., Grand Rapids, Michigan 49508 (the "Buyer"). RECITALS: A. Seller, Smart and Final Stores Corporation ("SF Stores"), and American Foodservice Distributors have heretofore entered into that certain Asset Purchase Agreement dated as of August 6, 2003 (the "APA") with GFS Holding, Inc., GFS Orlando, LLC, and GFS Stores, LLC ("GFS Stores"), pursuant to which, among other things, GFS Stores is acquiring certain assets used by SF Stores in the retail store business heretofore operated by SF Stores in the State of Florida, including, without limitation, the assets used at the store located at the Subject Property (as defined in Section 1(b) below). B. Seller currently leases the Subject Property from Wells Fargo Bank Northwest, National Association, not in its individual capacity but solely as owner trustee under the S&F Trust 1998-1 (the "Owner Trustee") pursuant to that certain Lease Agreement dated as of November 30, 2001 (as amended and supplemented to date, the "Synthetic Lease," and together with the Participation Agreement, the Trust Agreement, the Credit Agreement, and the Mortgage Instruments (as each such term is defined in Appendix A to the Participation Agreement) relating to the Subject Property, referred to herein collectively as the "Synthetic Lease Documents"). A copy of each of the Synthetic Lease Documents, redacted to preserve the confidentiality of the financial terms of the transaction contemplated thereby, has previously been provided by Seller to Buyer. C. This Agreement is being entered into pursuant to and in contemplation of the consummation of the transactions contemplated by the APA. D. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Subject Property, all on the terms and subject to the conditions set forth below. IN CONSIDERATION OF THE MUTUAL COVENANTS CONTAINED IN THIS AGREEMENT, THE PARTIES AGREE AS FOLLOWS: 1 1. Property Included in Purchase and Sale Agreement. (a) Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, subject to the terms of this Agreement, the real property, improvements, fixtures and appurtenances located at 2573 N. Federal Highway, Ft. Lauderdale, Florida, which property is more particularly described on attached Exhibit A (the "Real Property"). The legal description for the Real Property shall be subject to verification by Buyer prior to Closing (as defined in Section 13 of this Agreement) based on the survey and title commitment to be provided by Seller under this Agreement. (b) Also included in this sale at no additional cost to Buyer are the items of equipment and other personal property associated with the Real Property and leased to Seller pursuant to the Synthetic Lease (the "Personal Property"). For the avoidance of doubt, Seller and Buyer expressly acknowledge and agree that the Hughes satellite system currently installed at the Real Property is not leased to Seller pursuant to the Synthetic Lease and is not included within the Personal Property to be conveyed to Buyer pursuant to this Agreement. The Real Property and the Personal Property are collectively referred to in this Agreement as the "Subject Property." (c) For the avoidance of doubt, Seller and Buyer mutually acknowledge and agree that the Subject Property shall include all improvements located on the Real Property, all fixtures affixed to such improvements (including, without limitation, all shelving, racks and refrigeration units or equipment, but not including the Hughes satellite system referenced above), all beneficial easements, including, without limitation, easements relating to ingress and egress, all rights, permits, licenses and appurtenances pertaining to the Real Property, if any, and all of Seller's right, title and interest in all public ways adjoining the same. 2. Purchase Price. The purchase price for the Subject Property shall be the sum of Three Million One Hundred Thousand Dollars ($3,100,000.00) (the "Purchase Price"). 3. Payment of Purchase Price. The Purchase Price shall be paid by Buyer at Closing in the form of cashier's check or bank money order or by wire transfer of immediately available funds. 4. Taxes and Assessment; Utilities and Rents. (a) Seller shall assume and pay all real estate and personal property taxes ("Taxes") on the Subject Property which are billed or become due and payable on or before the Closing Date (as defined in Section 13 of this Agreement) and all outstanding special assessments, including any certified municipal or county special assessments, which have been levied or assessed or which are a lien against the Subject Property as of the Closing Date whether due or not. All Taxes coming due and payable during the calendar year in which the Closing occurs shall be prorated between Buyer and Seller as of the Closing Date with the Seller being responsible for that portion of such Taxes allocable to the period from January 1 of the year of Closing to the Closing Date 2 and the Buyer being responsible for the balance of such Taxes. If the precise amount of such Taxes is not known as of the Closing Date, such Taxes shall be estimated based upon the best available information. Notwithstanding the foregoing provisions of this Section 4(a), Seller and Buyer expressly acknowledge and agree that, as specified in Section 13, Buyer shall be solely responsible for paying any and all documentary stamps/transfer taxes and surtaxes which are payable upon the recording of the deed as to the conveyance to Buyer only. (b) All bills for utility services to the Subject Property shall be paid by Seller up to the Closing Date. Any prepaid rents and other amounts paid under any written and oral leases covering all or any portion of the Subject Property (the "Leases") shall be prorated to the Closing Date. All claims for unpaid rent shall be assigned to Buyer without additional consideration. 5. Conveyance of Title; Indemnity by Seller. (a) Fee simple title to the Subject Property shall be conveyed to Buyer at Closing pursuant to a deed direct from the Owner Trustee, which deed, Buyer hereby expressly acknowledges and agrees, may take the form of a quitclaim deed so long as such quitclaim deed is satisfactory to the Title Company (as defined in Section 6 below) for purposes of issuing the title insurance policy referenced therein. Seller hereby acknowledges and agrees that, if such quitclaim deed is not satisfactory to the Title Company for such purpose, then Seller shall either cause the Owner Trustee to convey title to Buyer pursuant to a Special Warranty Deed (as commonly known in Florida real estate transactions), or shall procure and obtain such other instruments and documents as may reasonably be required by the Title Company in order to issue the title insurance policy referenced in Section 6 on the basis of the quitclaim deed from the Owner Trustee. (b) Subject to and expressly conditioned upon the occurrence of the Closing, Seller hereby expressly represents and warrants to Buyer that title to the Subject Property conveyed by the Owner Trustee pursuant to any quitclaim deed delivered by the Owner Trustee to Buyer at the Closing will be free and clear of any and all liens, encumbrances, security interests, easements, restrictions and rights of third parties created by, through or under either Seller or the Owner Trustee, other than Permitted Encumbrances (as defined below), and Seller further undertakes and agrees to defend such title against all persons claiming by, through or under either Seller or the Owner Trustee. For purposes of this Section 5(b) and all other purposes of this Agreement, "Permitted Encumbrances" shall mean and include any and all liens, encumbrances, security interests, easements, restrictions and rights of third parties whatsoever that would not materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used, including without limitation, all such liens, encumbrances, security interests, easements, restrictions and rights of third parties which are specifically identified in this Agreement as constituting "Permitted Encumbrances." (c) Seller represents and warrants that no work or materials have been supplied to or incorporated into the Subject Property (other than routine maintenance and 3 repairs made in the ordinary course of business) which could give rise to a lien of any kind prior to the date of this Agreement, and that no such work or materials will be supplied to or incorporated into the Subject Property prior to surrender of possession to Buyer which have not been paid for in full or which will not be paid in the ordinary course of business. For the avoidance of doubt, Seller expressly acknowledges and agrees that it will pay in full all costs associated with any work performed on or with respect to the Subject Property prior to the Closing in the ordinary course of business (it being expressly understood by both parties that such payments may be made after the Closing). Seller shall provide the following affidavits to the Title Company that issues the commitment referenced in Section 6: (i) Seller's Affidavit. An affidavit from Seller attesting that: (a) no individual, entity or governmental authority (except as to work performed at the direction of the Buyer) has any claim against the Subject Property under applicable construction lien laws; (b) no individual, entity or governmental authority is either in possession of the Subject Property or has a possessory interest or claim in the Subject Property; and (c) no improvements to the Subject Property have been made (except as to work performed at the direction of Buyer) for which payment has not been made, and (d) containing information necessary to enable the Title Company to delete exceptions to the title commitment for matters appearing during the so-called "gap" period and for parties in possession and boundary disputes. (ii) FIRPTA. A Non-Foreign Transferor Affidavit in accordance with Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"). 6. Title Insurance. Seller shall furnish Buyer at Seller's expense an ALTA owner's title insurance policy issued by Chicago Title Insurance Company (the "Title Company") covering the Real Property in the amount of the Purchase Price and insuring good and marketable title to the Real Property and all beneficial easements, subject only to the Permitted Encumbrances. Such policy shall have the standard exceptions for gap period, the rights of parties in possession, matters discoverable by survey, and taxes and assessments other than for the year of the Closing and thereafter deleted. The commitment for such policy shall be delivered to Buyer as soon as reasonably practicable but in no event later than ten (10) days after the execution of this Agreement. Seller shall furnish Buyer with a "marked up" title insurance commitment conforming to the standards specified in this Section 6 and Section 8 below at the Closing. 7. Survey; Architectural and Engineering Drawings and Reports; Service Contracts. (a) As soon as reasonably possible and in no event later than fifteen (15) days after the execution of this Agreement, Seller shall provide to Buyer, at Seller's expense, with a survey of the Real Property showing the area, dimensions and location of the Real Property to the nearest monuments, streets, the location of all improvements and 4 encroachments, and the location of all recorded easements upon or appurtenant to the Real Property, which survey shall be subject to Buyer's approval and shall: (i) prepared by a Florida licensed surveyor. The survey must meet or exceed the minimum standards established under Chapter 61G17 of the Florida Administrative Code and must be certified by the surveyor to Buyer, Seller and the Title Company; (ii) show the size, location and type of any and all buildings, structures and improvements on the Real Property; (iii) show that there are no rights-of-way over or encroachments by any buildings, structures or improvements located on adjacent property onto or uses affecting, the Real Property or easement areas on the Real Property; and (iv) confirm that the legal description of the Real Property as set forth in the title commitment is exactly the same as the legal description set forth in the survey. (b) Buyer's obligation to close this transaction is contingent upon the Real Property being free from all encroachments and other survey defects that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used. As soon as reasonably practicable and in no event later than ten (10) days after the execution of this Agreement, Seller shall also provide Buyer with copies of: (i) all existing architectural and engineering drawings and reports concerning the Real Property currently in Seller's possession or under Seller's control; and (ii) all service contracts for all or any portion of the Subject Property, each of which is listed in Exhibit B attached hereto (the "Contracts"). 8. Correction of Title or Survey Defects. If the title insurance commitment or survey discloses any title or survey defects that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used, Buyer shall notify Seller of Buyer's objections to the defects within ten (10) days following Buyer's receipt of such title insurance commitment or survey, as the case may be, and Seller shall be obligated, as of the Closing, to discharge or obtain title insurance coverage over any such liens, encumbrances, or mortgages that may be discharged by the payment of money. If Seller is unable to cure any title or survey defects that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used, Buyer may, at its sole option, elect to: (a) terminate its obligation to purchase the Subject Property and have no further obligation or liability under this Agreement; or (b) waive any and all such defects and proceed to close this transaction. For the avoidance of doubt, Seller and Buyer expressly acknowledge and agree that (i) any title or survey defects that would not materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used shall be deemed "Permitted Encumbrances" for all purposes of this Agreement, (ii) Seller shall have no obligation whatsoever to cure any such Permitted Encumbrances (except that Seller 5 hereby agrees to cure such Permitted Encumbrances, if any, which may be cured at no cost whatsoever to Seller), and (iii) Buyer shall be obligated to purchase the Subject Property and consummate the Closing notwithstanding the occurrence or existence of any such Permitted Encumbrances. 9. Physical Inspection of Subject Property; Environmental Assessment. (a) For a period of twenty (20) days after the execution of the APA (the "Inspection Period"), Buyer shall have the right to further inspect the Subject Property, to determine its physical characteristics and suitability for its use by Buyer. For this purpose, such inspections, investigations, appraisals, tests and determinations of the Subject Property during the Inspection Period shall include, but shall not be limited to, inquiring as to the existence of utility services, public services and access; review of any Leases relating to the Subject Property; review of the blueprints and "as built" for the improvements on the Subject Property; insuring compliance as to applicable zoning ordinances, use regulations and business codes; conducting soil tests of the Real Property, borings and other engineering and architectural tests; the environmental conditions which exist at the Real Property (including, if desired by Buyer, a Phase I and Phase II environmental assessment and a baseline environmental assessment) and the Real Property's compliance with all applicable state and federal environmental laws and regulations; and determining the availability of any governmental approvals or permits. Buyer's obligation to close this transaction is contingent upon Buyer's satisfaction with its inspection findings. (b) Buyer shall provide reasonable prior notice to Seller of any proposed inspection or testing by Buyer or any Representative (as defined in the APA) of Buyer pursuant to this Section 9 and shall schedule such inspection or testing so as to not disrupt the normal business operations of Seller at the Real Property. Seller and its agents and employees shall fully cooperate with Buyer and shall provide Buyer with such information and records as Buyer may reasonably request concerning the Real Property. Costs and expenses incurred in connection with Buyer's inspection and testing of the Real Property shall be paid by Buyer. Upon completion of its inspections, Buyer shall repair and restore any damage to the Subject Property caused by such inspections and testing. (c) Buyer hereby expressly agrees to indemnify and hold Seller harmless for any and all Losses (as defined in Section 17(a) below) arising out of any damage to property or any personal injury or death suffered by any person (including, but not limited to, Buyer or any Representative (as defined in the APA) of Buyer) resulting from or arising out of the negligence of Buyer or any Representative of Buyer in connection with any of the activities contemplated by this Section 9. 10. Representations and Warranties of Seller. In addition to any other representations and warranties contained in this Agreement, Seller makes the following representations and warranties, each of which is expressly qualified by and subject to any and all disclosures made by Seller pursuant to the APA, and each of which, 6 as so qualified and except as otherwise specified below, shall be true both as of the date of this Agreement and as of the Closing Date, and each of which shall survive for two years following the Closing (except that the representations in subsections (a), (b) and (c) (but solely to the extent relating to notice of any public health or environmental law or regulation) below shall survive for one month after the maximum period permitted by law): (a) To Seller's Knowledge (as defined in Section 29 of this Agreement), or except as would not be reasonably likely to have a material adverse effect on the value or the use of the Subject Property by Buyer for the purposes for which the Subject Property is currently being used, or except as set forth on Schedule 2.19 to the APA, none of the Seller Parties (as defined in the APA) has released any Hazardous Substances in, under or upon the Subject Property except in compliance with all applicable Environmental Laws (as defined in the APA). (b) To Seller's Knowledge or except as set forth on Schedule 2.19 to the APA, there are no underground storage tanks on the Real Property, and, to Seller's Knowledge, or except as would not be reasonably likely to have a material adverse effect on the value or the use of the Subject Property by Buyer for the purposes for which the Subject Property is currently being used, or except as set forth on Schedule 2.19 to the APA, no friable asbestos is present on or in the Subject Property. (c) Except as set forth on Schedules 2.6 and 2.19 to the APA and except for any non-compliance that would not be reasonably likely to have a material adverse effect on the value or the use of the Subject Property by Buyer for the purposes for which the Subject Property is currently being used, Seller has not received any written notice or communication, and to Seller's Knowledge, Seller has not received any other notice or communication, from any Governmental Body (as defined in the APA) asserting that the Subject Property is not in compliance with any applicable zoning, building, public health or environmental law or regulation, or any other law or regulation of any Governmental Body having jurisdiction over the Subject Property, with the exception of notices of violation or alleged liability that have been fully resolved with no future obligations on the Retail Store Business (as defined in the APA), Buyer, Seller or SF Stores. (d) To Seller's Knowledge, there are no pending or proposed special assessments or condemnation proceedings affecting or which may affect the Subject Property or any part of the Subject Property. (e) Except as provided pursuant to the terms of the Synthetic Lease Documents and that certain Credit Agreement dated as of November 30, 2001 among Seller, as borrower, BNP Paribas as administrative agent and lead arranger, and certain other parties as defined therein (the "Revolving Credit Agreement," and together with all Loan Documents as defined therein, the "Revolving Credit Documents"), there are no agreements of sale, options or other rights of third parties to acquire the Subject Property, other than this Agreement. To Seller's Knowledge, there are no unrecorded easements, leases, claims, restrictions, covenants, agreements, or encumbrances affecting all or any 7 portion of the Subject Property (except the Leases) or any other agreements which would otherwise affect the Subject Property. (f) Subject to the prior receipt of all consents required pursuant to the terms of the Synthetic Lease Documents and the Revolving Credit Documents, Seller has the sole power to execute, deliver and carry out the terms and provisions of this Agreement, and has taken all necessary action to authorize the execution, delivery, and performance of this Agreement, and this Agreement constitutes the legal, valid and binding obligation of Seller enforceable in accordance with its terms. (g) There are no actions, suits or proceedings which have been instituted, or to Seller's Knowledge threatened, against or which affect the Subject Property, at law or in equity, or before any federal, state or municipal governmental commissions, board, bureau, agency, or instrumentality which may affect the value, occupancy, or use of the Subject Property. Seller will give Buyer prompt written notice of any such action, suit or proceeding of which it obtains Knowledge subsequent to the date of this Agreement and prior to the Closing, to the extent Seller acquires such Knowledge. (h) Except as provided in Section 15 below, Seller shall not make or allow to occur any material change to, or deterioration of, the physical condition of the Subject Property, or any part thereof, which has not been corrected as of the date of Closing. (i) Seller shall pay all debts, charges, taxes and all other obligations, liabilities, costs and expenses related to Seller's ownership, use and occupancy of the Subject Property in the ordinary course of business, and shall timely file all tax returns required to be filed by Seller by any federal, state or local governmental unit or agency. (j) Seller shall promptly comply with all governmental laws, statutes, ordinances and regulations applicable to Seller in connection with this transaction. (k) To Seller's Knowledge, except as to items listed in Exhibit C attached, the improvements located on the Real Property and all fixtures and equipment, plumbing, well, septic system, heating and electrical systems, are in good condition and repair, ordinary wear and tear excepted, and the Subject Property is served by electricity, gas, city water and sewer service sufficient to operate the Subject Property as of the Closing in the same manner as presently operated. (l) Seller is not a "foreign person" as that term is defined in Section 7701 of the Code, and Seller will provide an affidavit at Closing attesting to this and including Seller's tax identification number. 11. Buyer's Conditions Precedent. Buyer shall not be obligated to close the transaction contemplated hereunder unless the following conditions precedent shall each have been satisfied prior to the Closing: (a) Environmental Matters. Buyer shall have received results from its environmental investigation which are reasonably satisfactory to Buyer. 8 (b) No Litigation. There shall be no actions, proceedings or investigations involving Seller or Buyer which would materially interfere with Seller's or Buyer's performance of their respective obligations hereunder or Buyer's intended use of the Subject Property. (c) Compliance with Laws. There shall be no material uncured violations, including, without limitation, environmental violations, of any laws, ordinances, orders, regulations, rules or requirements of any governmental authority having jurisdiction over the Subject Property. (d) Good Title and Survey. Except as otherwise provided herein, the title insurance commitment referred to in Section 6 shall disclose good and marketable title to the Real Property vested in the Owner Trustee, free and clear of all title exceptions that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used, and the survey shall not disclose any encroachments or other defects that would materially and significantly impair Buyer's functional use of the Subject Property for the purposes for which it is currently being used. (e) Authorizations. Buyer shall have received all such instruments and documents as Buyer's counsel shall reasonably require (i) to establish the power and authority of Seller to accept this offer and to carry out Seller's obligations hereunder, and (ii) to eliminate any title exceptions that are not permitted hereby in the title commitment. (f) Inspection Reports. Buyer shall have completed the inspections set forth above, or the Inspection Period shall have expired. (g) Closing of Related Transactions. The closing of the transactions contemplated by (i) the APA, (ii) a certain Share Purchase Agreement between Seller and certain other parties dated August 6, 2003 (the "SPA"), and (iii) a certain Real Estate Purchase Agreement dated the date hereof between Seller and Henry Lee Properties, LLC with respect to the freezer facility located in the City of Miami, Florida shall occur simultaneously with the Closing. (h) Representations. All Seller representations and warranties are true and correct as of the Closing (i) Consent of Seller's Lenders and Related Matters. All consents required pursuant to the terms of the Synthetic Lease Documents and the Revolving Credit Documents shall have been obtained, including, in each instance, such waivers or amendments of any of the terms thereof as may be required to permit the consummation of the transactions contemplated by this Agreement and the transactions contemplated by the other agreements described in Section 11(g) and the documents referenced therein. As Buyer shall determine that each of the conditions set forth above have been satisfied prior to the Closing, Buyer shall so notify Seller in writing. Buyer may, at its option, terminate this Agreement without liability to either party, in the absence of such notice as to any condition prior to the Closing. 9 12. Seller's Conditions Precedent. Seller shall not be obligated to close the transaction contemplated hereunder unless the conditions precedent specified in Section 11(g) and 11(i) above shall each have been satisfied prior to the Closing 13. Closing and Possession; Transfer of Property. The closing of the transactions contemplated by this Agreement (the "Closing") shall occur within three (3) days after all of the conditions precedent specified in Section 11 above (other than such conditions which are to occur simultaneously with the Closing hereunder) have been satisfied or waived and Buyer gives Seller notice of its intent to close; provided, however, that the Closing shall not occur later than the earlier of September 7, 2003 or such later date (but no later than October 5, 2003) as the date on which the closing of the transactions described in Section 11(g) occurs. The date of Closing is referred to in this Agreement as the "Closing Date". The Closing shall occur at the time and place specified in the APA for the closing of the transaction contemplated by the APA or at such other place as the parties shall mutually agree. Seller shall surrender possession of the Subject Property to Buyer at Closing. However, prior to Closing, Buyer and its agents, employees, contractors and consultants shall have reasonable access to the Subject Property for purposes of the inspections permitted under Section 9 above. At the Closing, Seller shall deliver to Buyer each of the following: (a) A deed (which, subject to the terms and conditions specified in Section 5(a) above, may be a quitclaim deed) duly executed and in recordable form, conveying the Real Property to Buyer. (b) A bill of sale (which may be a quitclaim bill of sale from the Owner Trustee, but which shall include Seller's warranty as to title consistent with the provisions of Section 5(b) above) duly executed conveying the Personal Property to Buyer. (c) An assignment, in a form satisfactory to Buyer, assigning to Buyer all rights and obligations Seller may have under any assignable Contracts that Buyer desires to assume. All Contracts not assumed by Buyer shall be terminated by Seller as of the Closing Date. (d) All books, records and other financial information concerning the Subject Property which are in Seller's possession or under Seller's control (the "Books and Records"). In addition, the parties shall execute and deliver to each other at Closing a closing statement showing the computation of the funds payable to the Seller pursuant to this Agreement, all of which funds each of Seller and Buyer expressly acknowledges and agrees shall be released directly to the Owner Trustee at the Closing. Buyer shall pay all of the documentary stamps/transfer taxes and surtaxes which are payable upon the recording of the deed as to the conveyance to Buyer only. 14. Synthetic Lease. At or prior to Closing, Seller shall procure or obtain such documents or instruments as may be required in order to terminate the 10 Synthetic Lease with respect to the Subject Property and to release the Subject Property from all liens and encumbrances created pursuant to the Synthetic Lease Documents and the Revolving Credit Documents. Any such instruments of termination or release, as the case may be, with respect to the Real Property shall be in such form as the Title Company may reasonably require to be recordable in the real property records of the county in which the Real Property is located. 15. Condition of Subject Property. (a) In the event the Subject Property should be damaged by fire or other casualty or become subject to condemnation proceedings prior to the Closing, Buyer shall nonetheless proceed to close this transaction, and Seller shall, subject to the immediately following sentence, assign to Buyer, effective as of the Closing, all of Seller's rights to any insurance or condemnation proceeds and to cause the Owner Trustee and the Agent (as defined in the Synthetic Lease Documents) to assign to Buyer all of their respective rights, if any, to any such insurance or condemnation proceeds. For the avoidance of doubt, Seller and Buyer hereby acknowledge and agree that, in the event of any such casualty or condemnation, (i) Seller shall use any insurance or condemnation proceeds actually received by Seller (to the extent that Seller is not required by the terms of the Synthetic Lease to turn over such proceeds to the Owner Trustee or to the Agent) to repair (or commence repair) of damage to the Subject Property caused by such casualty or condemnation, and (ii) Seller shall deliver, or cause to be delivered, to Buyer at the Closing the remaining, unused balance, if any, of such proceeds (including that portion, if any, of such proceeds paid to the Owner Trustee or to the Agent pursuant to the terms of the Synthetic Lease Documents). (b) Each of Seller and Buyer hereby expressly acknowledges and agrees that, notwithstanding anything to the contrary set forth in Section 15(a) above, in the event that all of the following conditions shall occur: (i) any casualty damage to or condemnation of the Subject Property occurs prior to the Closing; (ii) any insurance proceeds or condemnation awards are actually paid to the Owner Trustee or the Agent pursuant to the Synthetic Lease Documents prior to the Closing (all such proceeds being referred to herein collectively as the "Actual Proceeds"); (iii) Buyer has provided written notice of the satisfaction of all conditions precedent specified in Section 11 (other than those which are to occur simultaneously with the Closing) and Buyer has deposited, in escrow with instructions for release upon the Closing, the full amount of the Purchase Price in the form of a cashier's check or wired funds to the Title Company or such other person as Buyer and Seller may agree in writing to act as escrow agent for purposes of effecting the closing of the transaction contemplated by this Agreement (in either case, the "Escrow Agent"); and 11 (iv) either the Owner Trustee or the Agent, or both of them, shall fail to either (x) deposit with the Escrow Agent the full amount of the Actual Proceeds received by the Owner Trustee or the Agent, as the case may be, together with written instructions to release the same to Buyer upon the Closing, or else (y) issue written instructions to the Escrow Agent authorizing the Escrow Agent to credit the full amount of the Actual Proceeds against the Purchase Price, to disburse to the Owner Trustee or the Agent, as the case may be, at Closing only the net amount of the Purchase Price after giving effect to such credit (and to release any and all instruments deposited into escrow by the Owner Trustee and/or the Agent against the disbursement of such amount to the Owner Trustee or the Agent, as the case may be), and to disburse to Buyer the portion of the funds deposited by Buyer equal to the amount of the Actual Proceeds at Closing; then Buyer shall have the right, by written notice to Seller and to the Escrow Agent, to cancel the proposed purchase of the Subject Property and terminate this Agreement, and upon such termination, neither party shall have any further liability to the other hereunder or in connection with the transactions contemplated hereby. 16. Insurance; Risk of Loss. Until the Closing, Seller shall maintain in full force and effect all fire and public liability insurance covering the Subject Property maintained by Seller in the ordinary course of business, and such insurance with respect to casualty damage shall be for the replacement value of the Subject Property. The risk of loss shall remain with Seller until Closing, subject to Buyer's rights under Section 15, above. 17. Seller's Indemnities. (a) Seller shall indemnify and hold Buyer harmless from any and all liabilities, obligations, losses (including diminution in value), damages, claims, charges, costs and expenses, including reasonable actual attorney's fees (collectively, "Losses") to the extent, if any, such Losses are incurred as the result of any of the following: (i) the failure of any of the representations and warranties contained in this Agreement to be true and accurate in all respects (which, for the avoidance of doubt, shall not include any Losses arising out of or in connection with exceptions to such representations and warranties expressly disclosed to Buyer pursuant to this Agreement or the APA); (ii) the failure of Seller to perform any of its obligations under this Agreement; (iii) any act or event occurring on or in connection with the Subject Property prior to the date of Closing or otherwise attributable (but solely to the extent so attributable) to the use or operation of the Subject Property prior to Closing, including, but not limited to, liabilities for environmental contamination caused by the release of Hazardous Substances in, on or under the Subject Property prior to Closing; or (iv) the failure of Seller to pay any of its debts, charges, taxes, liabilities or other obligations, whether accrued, absolute, contingent, known or unknown as of the date of Closing. The terms of this Section 17 shall survive for two years following the Closing (except that, with respect to any matters relating to the representations set forth in subsections (a), (b) and (c) (to the extent specified in the introductory paragraph of Section 10) of Section 10 above and any matters relating to environmental contamination covered by subclause (iii) above, the 12 provisions of this Section 17 shall survive for one month after the maximum period permitted by law. (b) Seller's liability under the indemnity set forth above shall be subject to all of the terms, conditions and limitations set forth in Section 10 of the APA, including, without limitation, the application of the Seller Deductible (as defined in Section 10.1 thereof). In addition, and without limiting the generality of the immediately preceding sentence, Buyer expressly acknowledges and agrees that Seller shall have no liability to indemnify Buyer for any Losses under Section 17(a) above to the extent such Losses arise from or are attributable to (i) the gross negligence or willful misconduct of any Buyer Party (as defined in the APA), or (ii) any act or event occurring on or in connection with the Subject Property following the Closing. (c) For the avoidance of doubt, Seller and Buyer hereby acknowledge and agree that, Sections 17(a)(iii) and 17(b)(ii) above shall be read together so that, in the event that Buyer incurs any Losses in connection with or as a result of any release of Hazardous Substances in, on or under the Subject Property following the Closing, Seller shall indemnify Buyer solely for the incremental increase, if any, in such Losses incurred by Buyer that is attributable to any prior record of the release of Hazardous Substances in, on or under the Subject Property prior to Closing. 18. Seller's Default. In the event of any material default by Seller under this Agreement (which, for the avoidance of doubt, shall consist of any default or defaults, which, if uncured, individually or in the aggregate, would materially and significantly impair Buyer's functional use and/or ownership of the Subject Property for the purposes for which it is currently used), Buyer shall have the right to terminate this Agreement by written notice to Seller if such material default is not cured within thirty (30) days following Seller's receipt of written notice of such material default from Seller. In addition, Buyer shall have all such rights and remedies as may be available to it under applicable law or in equity, including, but not limited to, the right to recover such damages as it may be entitled to as a result of such material default by Seller (including costs and attorney's fees), or to specifically enforce Seller's obligations under this Agreement. For the avoidance of doubt, Buyer acknowledges and agrees that Buyer shall not have the right to terminate this Agreement in the event of any default by Seller that is not material, but may still pursue damage remedies, if any, for such a default. 19. Buyer's Default. In the event of any material default by Buyer under this Agreement, Seller shall have the right to terminate this Agreement by written notice to Buyer if such material default is not cured within thirty (30) days following Buyer's receipt of written notice of such material default from Seller. In addition, Seller shall have all such rights and remedies as may be available to it under applicable law or in equity, including, but not limited to, the right to recover such damages as it may be entitled to as a result of such material default by Buyer (including costs and attorney's fees). For the avoidance of doubt, Seller acknowledges and agrees that Seller shall not have the right to terminate this Agreement in the event of any default by Buyer that is not material, but may still pursue damage remedies, if any, for such a default. 13 20. Survival of Representations and Warranties. All representations and warranties made in this Agreement shall survive for two years following the Closing (except that the representations set forth in subsections (a), (b) and (c) (to the extent specified in the introductory paragraph of Section 10) of Section 10 above shall survive for one month after the maximum period permitted by law. 21. Enforceability. Except as otherwise expressly provided, this Agreement shall inure to the benefit of, be binding upon, and be specifically enforceable by Seller and Buyer, and their respective successors and assigns. 22. Entire Agreement. This Agreement, together with the APA, contains all of the representations and statements by each party to the other and expresses the entire understanding between the parties with respect to its subject matter. All prior communications concerning this transaction are merged in and replaced by this Agreement. 23. Commission. Seller and Buyer each represent to the other that neither party has engaged the services of a real estate broker or salesperson and that no other person is entitled to a fee or commission as a result of the transaction contemplated in this Agreement. 24. Notices. All notices required or given under this Agreement shall be in writing and either delivered personally by reputable courier or mailed by regular, first class U.S. mail (postage prepaid) addressed to the parties at their addresses specified above or such other address as a party may specify by providing notice thereof in accordance with this Section. Notices delivered personally or by courier shall be effective upon receipt, and notices mailed by first class U.S. mail shall be effective three days following deposit in the mail, postage prepaid. 25. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 26. Construction. This Agreement shall be construed under the laws of the State of Florida, and shall not be construed against either party as draftsman. 27. Radon Gas. Section 404.056(7) Florida Statutes requires the following disclosure in any contract for sale of real estate: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. 28. Dispute Resolution. All Agreement Disputes (as defined in the APA) shall be dealt with as set forth in the APA. 14 29. Definition of "Knowledge". The term "Knowledge" as applied to Seller in this Agreement means that the particular fact or matter is actually known by any executive officer of Seller or SF Stores, or Dan Magruder, or any of the foregoing officers or individuals should have known of such fact or matter after undertaking reasonable inquiry. 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. SMART & FINAL, INC. By: /s/ Richard N. Phegley ------------------------------------- Its: Richard N. Phegley -------------------------------- Senior Vice President & Chief Financial Officer SELLER GFS MARKETPLACE REALTY FOUR, LLC By: Robert R. Stead ------------------------------------ Its: Manager ------------------------------- BUYER 16 EXHIBIT A DESCRIPTION OF REAL PROPERTY All of Parcel A of THE MATT PLAT, according to the plat thereof, as recorded in Plat Book 163, page 18, of the public records of Broward County, Florida. EXHIBIT B SERVICE AGREEMENTS Monthly Maintenance Service Agreement dated effective as of December 1, 2001 between R.K.O. Mechanical, Inc. and Smart & Final Stores Corporation, for the provision of air conditioning and refrigeration systems maintenance. Security system agreement between Integrated Security Systems and Smart & Final for Store # 511. Service Agreement/Contract Amendment between Smart & Final Stores Corporation and A-1 Fire Equipment dated June 26, 2002. EXHIBIT C EXCEPTIONS TO REPRESENTATION IN SECTION 10(K) None. VENDOR CONTRACT PARTICIPATION AGREEMENT THIS VENDOR CONTRACT PARTICIPATION AGREEMENT (this "Agreement") is entered into and effective as of September 7, 2003 (the "Effective Date"), by and between SMART & FINAL INC., a Delaware corporation ("SFI"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation ("AFD"), SMART & FINAL STORES CORPORATION, a California corporation ("SF Stores" and, together with SFI and AFD, collectively, the "Sellers"), and GFS HOLDING, INC., a Delaware corporation ("GFS Holding"), HENRY LEE COMPANY, a Florida corporation ("Henry Lee"), GFS STORES, LLC, a Delaware limited liability company ("GFS Stores"), and GFS Orlando, LLC, a Delaware limited liability company ("GFS Orlando" and, together with GFS Holding, Henry Lee and GFS Stores, collectively, the "Buyers"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Share Purchase Agreement (as defined below). RECITALS A. Pursuant to that certain Share Purchase Agreement (the "Share Purchase Agreement"), dated August 6, 2003, by and between SFI, AFD and GFS Holding, GFS Holding will purchase all of the issued and outstanding equity securities of Henry Lee; and pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated August 6, 2003, by and among GFS Holding, GFS Orlando and GFS Stores, and Sellers, GFS Stores and GFS Orlando will, directly or indirectly, acquire from Sellers certain of the assets of SF Stores and all of the assets of the Orlando Foodservice division of AFD (collectively, the "Assets"). B. Following the consummation of the transactions contemplated by the Share Purchase Agreement and the Asset Purchase Agreement, Buyers will continue to operate the businesses conducted by AFD, SF Stores and Henry Lee in the State of Florida (the "Business"). C. Sellers are parties to various vendor contracts (the "Vendor Contracts") described in the Schedules to the Share Purchase Agreement and the Asset Purchase Agreement and to be assigned to or utilized by Buyers after the Closing. Many of the Vendor Contracts are multiple party contracts ("Multiple Party Vendor Contracts") which contain provisions unrelated to the Business, and therefore Sellers have provided Buyers with summaries of the portions of the Multiple Party Vendor Contracts which relate to the Business instead of disclosing the entire contract. Buyers have requested, and Sellers have agreed, to cooperate with Buyers in the use and operation of the Vendor Contracts, including the Multiple Party Vendor Contracts, on the terms set forth below. D. Buyers have required as a condition to the consummation of the transactions contemplated by of the Share Purchase Agreement and the Asset Purchase Agreement that Sellers enter into this Agreement. AGREEMENT In consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Sellers and Buyers agree as follows: 1. Term. The term of this Agreement shall commence upon the Closing of the Share Purchase Agreement and the Asset Purchase Agreement and shall continue until expiration of the last of the Vendor Contracts to expire. Buyers expressly acknowledge that Sellers are under no obligation to renew or extend any of the Vendor Contracts beyond their stated terms. 2. Cooperation. From time to time after the Closing Date, Sellers shall cooperate with Buyers in arranging for purchases within the State of Florida pursuant to the Vendor Contracts. Sellers also shall permit Buyers to contact the vendors under each of the Vendor Contracts so that Buyers may establish new relationships with those vendors if Buyers so desire. Sellers also shall provide Buyers with all correspondence, information and invoices related to performance of the Vendor Contracts in the State of Florida to enable Buyers to deal with such vendors on an effective basis. 3. Contract Performance. Buyers may elect to purchase products under the Vendor Contracts, and if and to the extent that Buyers elect to do so, Sellers and Buyers each agree to honor the terms of all of the Vendor Contracts, and to conduct their respective purchases under the Multiple Party Vendor Contracts in such a manner as to not disrupt the purchasing rights and obligations of the other parties to the Multiple Party Vendor Contracts. In particular, Sellers and Buyers each agree to honor any payment terms of the Vendor Contracts (subject to good faith disputes with such vendors). 4. Indemnification. A. Indemnity by Sellers. Sellers shall, jointly and severally, indemnify Buyers and their affiliates, directors, officers, employees, controlling persons, agents and representatives and their successors and assigns (collectively, the "Buyer Indemnified Parties") against and hold each of them harmless from any and all damage, loss, cost, penalty, liability and expense (including, without limitation, reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("Damages") incurred or suffered by the Buyer Indemnified Parties (whether originally asserted against or imposed on the Buyer Indemnified Parties by a third party or originally incurred or suffered directly by the Buyer Indemnified Parties) arising directly out of any breach of any representation or warranty, covenant or agreement made or to be performed by Sellers pursuant to this Agreement, or arising directly out of any liability or obligations under the Multiple Party Vendor Contracts to the extent such liability or obligations have not been disclosed to Buyers in the summaries of the Multiple Party Vendor Contracts (such breach, a "Seller Breach"). B. Indemnity by Buyers. Buyers shall indemnify Sellers and their affiliates, directors, officers, employees, controlling persons, agents and representatives and their 2 successors and assigns (collectively, the "Seller Indemnified Parties") against and hold each of them harmless from any and all Damages incurred or suffered by the Seller Indemnified Parties (whether originally asserted against or imposed on the Seller Indemnified Parties by a third party or originally incurred or suffered directly by the Seller Indemnified Parties) arising directly out of any breach of any representation, warranty, covenant or agreement made or to be performed by Buyers pursuant to this Agreement (such breach, a "Buyer Breach"). C. Procedure and Payment. (1) The person seeking indemnification under Section 4.A, and 4.B (the "Indemnified Party") agrees to give prompt notice to the Person against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding, in respect of which indemnity may be sought under such Section and will provide the Indemnifying Party such information with respect thereto as the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have materially and adversely prejudiced the Indemnifying Party. (2) The Indemnifying Party shall be entitled to defend any claim asserted by any third party ("Third Party Claim") with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying Party notifies the Indemnified Party in writing within fifteen (15) days after the Indemnified Party has given notice of the Third Party Claim that it will indemnify the Indemnified Party from and against all Damages that the Indemnified Party may suffer resulting from, arising out of, relating to, or caused by the Third Party Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations under this Agreement, (iii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, and (iv) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (3) So long as the Indemnifying Party is conducting the defense of any Third Party Claim in accordance with the provisions of this Section 4.C, the Indemnified Party shall be entitled to participate in the defense of such Third Party Claim and to employ separate counsel of its choice for such purpose. The fees and expenses of such separate counsel shall be paid by the Indemnified Party. (4) Each party shall cooperate, and cause its Affiliates to cooperate, in the defense or prosecution of any Third Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested by any other party in connection therewith. 3 D. Calculation of Damages. (1) The amount of any Damages payable under Section 4.A and 4.B by the Indemnifying Party shall be net of any amounts recovered by the Indemnified Party under applicable insurance policies and the Indemnified Party shall use commercially reasonable efforts to collect any amounts available under such insurance policies. (2) If the Indemnified Party receives an amount under insurance coverage or from a third party with respect to Damages at any time subsequent to any indemnification provided by the Indemnifying Party pursuant to Section 4.A and 4.B, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification up to such amount received by such Indemnified Party, but net of any expenses incurred by such Indemnified Party in collecting such amount. 5. Force Majeure. Neither Sellers nor Buyers shall be responsible to the other for any delay in or failure of performance of their obligations under this Agreement to the extent such delay or failure is attributable to any cause beyond their reasonable control, including, without limitation, any act of God, fire, accident, strike or other labor difficulties, war, embargo or other governmental act, or riot; provided that the party affected thereby gives the other party prompt notice of the occurrence of any event which has caused or is likely to cause any such delay or failure, setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; and provided further that said affected party shall use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance or utilization. 6. Miscellaneous Provisions. A. Confidentiality. Each of Sellers and Buyers (as appropriate, the "Promisor") covenant and agree to and will cause their respective authorized agents, representatives, affiliates, employees, officers, directors, accountants, counsel and other designated representatives (collectively, "Representatives") to (i) treat and hold as confidential (and not disclose or provide access to any person to) all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") concerning the other party (the "Promisee") and the Vendor Contracts in the Promisor's possession or furnished by the Promisee or its Representatives pursuant to this Agreement, (ii) in the event that Promisor or its Representatives become legally compelled to disclose any such Information, provide the Promisee with prompt written notice of such requirement so that the Promisee may seek a protective order or other remedy or waive compliance with this Section 6.A, and (iii) in the event that such protective order or other remedy is not obtained, or the Promisee waives compliance with this Section 6.A, furnish only that portion of such Information which is legally required to be provided and exercise Promisor's best efforts to obtain assurances that confidential treatment will be accorded such Information; provided, however, that this sentence shall not apply to any Information that, at the time of disclosure, is available publicly and was not disclosed in 4 breach of this Agreement by such party or its Representatives; and provided further, however, that the provisions of clauses (i) and (ii) above shall not preclude a party from disclosing Information to its Representatives (provided that each such Representative shall be advised of the confidential nature of such Information) or from disclosing Information to or filing Information with any governmental authority or agency with jurisdiction over such party. Each party agrees and acknowledges that remedies at law for any breach of its obligations under this Section 6.A are inadequate and that in addition thereto the other party shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach, without the necessity of demonstrating the inadequacy of monetary damages. The provisions of this Section 6.A shall not apply to the extent any such Information is required to be disclosed by applicable law. B. Notices. All necessary notices, demands, requests and other communications required or permitted to be given hereunder shall in every case be in writing and shall be deemed duly given (a) when delivered personally, (b) upon receipt or refusal of receipt, if sent by registered or certified mail, in all such cases with postage prepaid, return receipt requested, or (c) the next business day if delivered by a recognized overnight courier service, airbill prepaid, designated for next business day delivery, to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing: If to Buyers: Steve Plakmeyer Gordon Food Service, Inc. P.O. Box 2172 Grand Rapids, Michigan 49501 and to: David L. Gray 11092 Lake Michigan Drive P.O. Box 276 Empire, Michigan 49630-0276 With a copy to: Miller, Johnson, Snell & Cummiskey, P.L.C. 250 Monroe Avenue, N.W., Suite 800 Grand Rapids, Michigan 49503-2250 Attention: Robert R. Stead If to Sellers: Dennis Chiavelli Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Donald G. Alvarado Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 5 With a copy to: Sue Mullins Smart & Final Inc. 600 Citadel Drive Commerce, California 90040 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II C. Jurisdiction. (1) In the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, each of the parties hereto consents to submit itself to the personal jurisdiction of any federal court in the state of Delaware and, in case such court refuses jurisdiction then each of the parties consents to submit itself to the personal jurisdiction of any state court in the state of Delaware. Each of the parties further agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from such court, and agrees that, except as permitted pursuant to this Section 6.C, it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any other court other than a federal court in the state of Delaware. (2) In the event the state court specified in Section 6.C(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Seller Parties against any of the Buyer Parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Western District of Michigan (and each appellate court thereof) or any state court in the state of Michigan; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan shall be deemed to be a convenient forum; and 6 (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Western District of Michigan or any state court in the state of Michigan, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (3) In the event the state court specified in Section 6.C(1) refuses to exercise jurisdiction over the parties hereto or the subject matter at issue, then with respect to any legal action or proceeding brought by any of the Buyer Parties against any of the Sellers arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of any federal court within the jurisdiction of the United States District Court for the Central District of California (and each appellate court thereof) or any state court in the state of California; (ii) agrees that any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any federal court within the jurisdiction of the United States District Court for the Central District of California or any state court in the state of California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, or that the venue of such proceeding is improper. (4) The parties hereby waive any right to a jury trial. D. Further Assurances. From time to time, at the request of the other party hereto and at the expense of the party so requesting (unless the requesting party is entitled to indemnification therefor under Section 4), each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. E. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred 7 to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. F. Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the parties to be charged with the amendment. G. Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights or obligations under this Agreement without the prior consent of the other parties, except that GFS Holding may assign any of its rights under this Agreement to any Affiliate of GFS Holding. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. H. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. I. Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. J. Preamble; Recitals. The Recitals set forth in the Preamble hereto are hereby incorporated and made a part of this Agreement. 8 K. Governing Law. This Agreement will be governed by the internal laws of the State of Delaware without regard to conflicts of laws principles. L. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto by virtue of having drafted this Agreement or otherwise. M. Dispute Resolution. Except as hereinafter provided in this Section 6.M all claims, controversies, differences, or disputes between or among any of the parties hereto arising from or relating to this Agreement, including claims by one party that another party or parties hereto have failed to perform any of their obligations hereunder (collectively, "Agreement Disputes"), shall be resolved as follows: (1) Facilitative Mediation. The parties to an Agreement Dispute shall first attempt to resolve such Agreement Dispute by means of a mediation conducted in the following manner. A party desiring mediation of any Agreement Dispute shall give or shall have given a written notice, in the manner set forth in Section 6.B hereof (a "Dispute Notice"), to the other party or parties setting forth the nature of the dispute and the relief intended to be sought and shall submit such Agreement Dispute for resolution by facilitative mediation in Chicago, Illinois, under the Commercial Mediation Rules (but not otherwise under the auspices) of the American Arbitration Association (the "AAA") in effect on the date of this Agreement, unless the parties have agreed, in writing, to resolve any such dispute by other means. Each party agrees that it will submit to and shall not challenge or object to the jurisdiction (either personal or subject matter) or the venue of such mediation in Chicago, Illinois. (2) Legal Proceedings. If any Agreement Dispute has not been resolved by mediation as provided above within sixty (60) days after submission thereof, then either party may commence a suit or legal action or an action at equity to enforce its rights or the other party's obligations or recover any damages arising from the other party's breach or such other relief as may be appropriate under the circumstances. (3) Attorney Fees and Other Costs. The prevailing party in any mediation or any action or legal or other proceeding brought with respect to an Agreement Dispute shall be entitled to recover the reasonable fees and disbursements of its attorneys, accountants, and expert witnesses in connection with any such mediation or any action or legal or other proceeding brought in accordance with the provisions hereof. (4) Exceptions for Equitable Relief. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Agreement, a party may bring a proceeding against any other party hereto for specific performance or injunctive or other forms or equitable relief in the state or federal courts pursuant to the procedures set forth in Section 6.C without having to submit the matter or 9 Agreement Dispute in question to mediation as hereinabove set forth, provided, however, that such party shall not seek any monetary award or relief in such action or proceeding unless its failure to do so would prejudice such party's rights or ability to seek such monetary award or relief in another action or proceeding. N. Counterparts. This Agreement may be executed in two or more counterparts, each or which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. O. Relationship of Parties. The relationship between Sellers and Buyers for purposes of this Agreement shall be that of an independent contractor and not of employment and, except to the extent required to enable Sellers to perform their duties hereunder, neither party is an agent of the other. By entering into this Agreement, neither party to this Agreement is, in any way, assuming any liabilities, debts or obligations of the other party, whether now existing or hereafter created. IN WITNESS WHEREOF, Sellers and Buyers have executed this Agreement as of the date set forth in the first paragraph hereof. "SFI" SMART & FINAL INC. a Delaware corporation By: /s/ Dennis Chiavelli -------------------------------------- Its: ------------------------------------- "AFD" AMERICAN FOODSERVICE DISTRIBUTORS a California corporation By: /s/ Dennis Chiavelli -------------------------------------- Its: ------------------------------------- "SF Stores" SMART & FINAL STORES CORPORATION a California corporation By: /s/ Dennis Chiavelli -------------------------------------- Its: ------------------------------------- 10 "GFS Holding" GFS HOLDING, INC. a Delaware corporation By: /s/ David L. Gray -------------------------------------- Its: ------------------------------------- "Henry Lee" HENRY LEE COMPANY a Florida corporation By: /s/ David L. Gray -------------------------------------- Its: ------------------------------------- "GFS Stores" GFS STORES, LLC a Delaware limited liability company By: GFS HOLDINGS, INC. Its: Manager By: /s/ David L. Gray -------------------------------------- Its: ------------------------------------- "GFS Orlando" GFS Orlando, LLC a Delaware limited liability company By: GFS HOLDINGS, INC. Its: Manager By: /s/ David L. Gray -------------------------------------- Its: ------------------------------------- 11 EX-10.34 8 dex1034.txt ASSET PURCHASE AGREEMENT DATED AS OF AUGUST 18, 2003 Exh 10.34 ASSET PURCHASE AGREEMENT Dated as of August 18, 2003 by and among PORT STOCKTON FOOD DISTRIBUTORS, INC., a California Corporation and AMERICAN FOODSERVICE DISTRIBUTORS, a California Corporation and SMART & FINAL INC., a Delaware Corporation and SYSCO CORPORATION, a Delaware Corporation TABLE OF CONTENTS ARTICLE I PURCHASE AND SALE OF PURCHASED ASSETS...........................2 1.1 Purchased Assets................................................2 1.2 Excluded Assets.................................................2 1.3 No Liens or Encumbrances........................................4 ARTICLE II PURCHASE PRICE; ASSUMPTION OF LIABILITIES.......................4 2.1 Purchase Price..................................................4 2.2 Assumed Liabilities.............................................4 2.3 Closing.........................................................6 2.4 Estimated Purchase Price and Purchase Price True-Up.............6 ARTICLE III OTHER COVENANTS AND AGREEMENTS..................................8 3.1 Employee Matters................................................8 3.2 Consents.......................................................10 3.3 Business Information...........................................11 3.4 Noncompetition/Non-Solicitation Agreements.....................11 3.5 Conduct of Business by Seller Pending the Closing..............11 3.6 No Negotiations................................................12 3.7 Expenses.......................................................12 3.8 Notification of Certain Matters................................13 3.9 Confidentiality and Public Announcements.......................13 3.10 Tax Matters....................................................14 3.11 Collection of Accounts Receivables.............................15 3.12 Purchase Price Allocation......................................15 3.13 Transition Services Agreement..................................16 3.14 Vendor Receivables.............................................16 3.15 Preservation of Minute Books and Corporate Records.............16 3.16 Bulk Sales.....................................................16 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES...............16 4.1 Organization and Authority of Seller...........................17 4.2 Corporate Power and Authority; Due Authorization...............17 4.3 Title to Purchased Assets......................................17 4.4 No Conflict; Required Consents.................................17 4.5 Ownership of Stock.............................................18 4.6 Compliance with Law............................................18 4.7 Accounts Receivable............................................18 4.8 Taxes..........................................................18 4.9 Inventory......................................................19 4.10 Assumed Contracts..............................................20 4.11 Litigation; Judgments..........................................20 i 4.12 Insurance......................................................21 4.13 Employees; Union; Labor........................................21 4.14 Brokers Fees and Expenses......................................21 4.15 Absence of Material Changes....................................21 4.16 Liens..........................................................22 4.17 Cost-Plus Contract Claims; Most Favored Nation.................22 4.18 Certain Transfers; Preferences.................................22 ARTICLE V REPRESENTATIONS AND WARRANTIES OF..............................23 5.1 Organization of Purchaser......................................23 5.2 Corporate Power and Authority; Due Authorization...............23 5.3 No Conflict; Consents..........................................23 ARTICLE VI INDEMNIFICATION................................................24 6.1 Indemnification by Seller and the Shareholders.................24 6.2 Indemnification by Purchaser...................................24 6.3 Provisions Regarding Indemnification...........................25 6.4 Survival.......................................................25 6.5 Limitations....................................................25 ARTICLE VII CONDITIONS TO OBLIGATIONS OF PURCHASER TO CLOSE................26 7.1 Representations and Warranties True............................26 7.2 Obligations Performed..........................................26 7.3 Consents.......................................................26 7.4 Closing Deliveries.............................................26 7.5 No Investigations..............................................27 7.6 No Material Adverse Effect.....................................27 7.7 Revised Schedules..............................................27 7.8 Regulatory Matters.............................................27 7.9 Marketing Associates...........................................27 7.10 Payment of Retention Bonuses...................................28 7.11 No Challenge...................................................28 7.12 Legality.......................................................28 ARTICLE VIII CONDITIONS TO SELLER'S AND SHAREHOLDERS' OBLIGATIONS...........28 8.1 Representations and Warranties True............................28 8.2 Obligations Performed..........................................28 8.3 Closing Deliveries.............................................28 8.4 No Challenge...................................................29 8.5 Regulatory Matters.............................................29 8.6 Legality.......................................................29 ARTICLE IX TERMINATION....................................................30 9.1 Termination....................................................30 ii 9.2 Effects of Termination.........................................30 ARTICLE X DEFINITIONS....................................................30 ARTICLE XI MISCELLANEOUS PROVISIONS.......................................31 11.1 Risk of Loss...................................................31 11.2 Severability...................................................31 11.3 Modification and Waiver........................................31 11.4 Assignment, Survival and Binding Agreement.....................31 11.5 Counterparts...................................................31 11.6 Notices........................................................32 11.7 Entire Agreement; No Third Party Beneficiaries.................33 11.8 Further Assurances.............................................33 11.9 Construction...................................................33 11.10 Choice of Law..................................................33 11.11 Dispute Resolution.............................................33 11.12 Definition of Days.............................................34 11.13 Schedules, Revised Schedules and Exhibits......................34 11.14 Time of Essence................................................34 iii SCHEDULES Schedule 1.1(b) C&H Common Customers Schedule 1.1(d) Assumed Contracts Schedule 1.2 Selected Excluded Assets Schedule 3.1(h) Absent Employees Schedule 3.11 Account Receivable Practices Schedule 3.12 Allocation Schedule 4.1 Qualified to do Business Schedule 4.4 Consents; No Conflicts Schedule 4.8 Taxes Schedule 4.9 Methodology for Determining "Obsolete" Inventory Schedule 4.11 Litigation Schedule 4.13 Employee Matters Schedule 4.15 Absence of Material Changes Schedule 4.17 Cost-Plus Contract Claims Schedule 5.3 Purchaser Consents; No Conflicts Schedule 7.9(a) Certain Marketing Associates Schedule 7.9(b) Certain Marketing Associates and Sales Management iv EXHIBITS Exhibit 2.1(b) Holdback Escrow Agreement Exhibit 3.1(f)(i) MA Retention Bonus Plan Exhibit 3.1(f)(ii) Non-MA Retention Bonus Plan Exhibit 3.1(g) Marketing Associate Non-Solicitation Agreement Exhibit 3.4 Noncompetition/Non-solicitation Agreement Exhibit 3.13 Transition Services Agreement Exhibit 7.4(a)(i) Bill of Sale Exhibit 7.4(a)(ii) Assumption Agreement v ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT ("Agreement") is dated as of August 18, 2003, by and among PORT STOCKTON FOOD DISTRIBUTORS, INC., a California corporation d/b/a "Smart & Final Foodservice Distributors" ("Seller"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation and the sole shareholder of Seller ("AFD"), SMART & FINAL INC., a Delaware corporation and the sole shareholder of AFD ("S&F", together with AFD, referred to as the "Shareholders" and, together with AFD and Seller, the "Seller Parties" ), and SYSCO CORPORATION, a Delaware corporation ("Purchaser"). Capitalized terms used but not otherwise defined herein, shall have the meanings set forth in Article X hereof. W I T N E S S E T H: WHEREAS, S&F is in the business of selling food, foodservice products and professional quality culinary equipment through warehouse stores, wholesale stores and broadline foodservice distribution businesses (the "S&F Business"); WHEREAS, AFD, through various subsidiaries and divisions, operates the broadline foodservice distribution business in northern California and Florida (the "Foodservice Segment") of the S&F Business; WHEREAS, Seller operates the Foodservice Segment within northern California (the "California Foodservice Business"); WHEREAS, Seller is also engaged in the business of produce processing through its "Davis Lay" division (the "Produce Processing Division") and meat processing through its "Craig and Hamilton" division (the "Meat Processing Division"); and WHEREAS, Purchaser desires to purchase from Seller and Seller desires to sell to Purchaser, all right, title and interest in and to certain of the assets of Seller used solely in connection with the California Foodservice Business and certain of the assets of Seller used solely in connection with the Meat Processing Division (together, the California Foodservice Business and the Meat Processing Division are referred to herein as the "Purchased Business"); and WHEREAS, Purchaser is willing to assume, and Seller desires to assign to Purchaser, all of the Assumed Liabilities. NOW, THEREFORE, in consideration of the mutual representations, warranties and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I. PURCHASE AND SALE OF PURCHASED ASSETS 1.1 Purchased Assets. Subject to and upon the terms and conditions set forth herein, Seller agrees to sell to Purchaser and Purchaser agrees to purchase from Seller at the Closing (as hereinafter defined), all right, title and interest in and to the following tangible and intangible assets of Seller used or held for use solely in the Purchased Business, excluding the Excluded Assets (defined in Section 1.2 below) (collectively, the "Purchased Assets"): (a) Inventory. All Salable (as defined in Section 4.9 below) inventory held for sale in the Purchased Business as of the Closing (the "Inventory"); (b) Accounts Receivable. Subject to Sections 2.4 and 3.11 hereof, all trade accounts receivable with respect to (i) the California Foodservice Business and (ii) those customers of the Meat Processing Division that are listed on Schedule 1.1(b) attached hereto ("Common Customers"), all of which are customers of both the California Foodservice Business and the Meat Processing Division, both as reflected on the Final Accounts Receivable Statement (excluding all intercompany receivables, and all receivables from Seller's employees or the Shareholders or other affiliates of Seller) ("Accounts Receivable") as of the Closing; (c) Books and Records. Originals or true and correct duplicate copies of all written financial, accounting and operating data and records of Seller with respect to the Purchased Business, including without limitation all books, records, sales and sales promotional data, advertising materials, pricing information, customer and supplier lists, projections, reference catalogs, payroll and personnel records and other similar property, rights and information with respect to the Purchased Business (collectively, the "Books and Records"); (d) Assumed Contracts. All employee confidentiality and non-competition agreements, and other agreements which are set forth on Schedule 1.1(d) (collectively, the "Assumed Contracts"); and (e) Customer Lists and Related Goodwill. Seller's customer lists with respect to the Purchased Business and the goodwill related thereto. 1.2 Excluded Assets. Notwithstanding anything to the contrary contained in Section 1.1 hereof, the Purchased Assets shall exclude the following (the "Excluded Assets"): (a) Minute Books. The corporate minute books and records and stock ledgers of Seller; (b) Employee Benefit Plans. Any interest or right to any assets held under any pension, profit sharing or other Employee Benefit Plan (as defined in Section 2.2); (c) Stock of Subsidiaries. Any capital stock of any subsidiaries of Seller or equity or other interest in any other entities, including those listed on Schedule 4.1 attached hereto; -2- (d) Certain Contract Rights. Any rights, claims or causes of action arising solely in respect of contracts that are not Assumed Contracts, including without limitation, that certain agreement between Smart & Final Foodservice Distributors and Food Distributors Employees Association, dated June 5, 2002 (the "Association Agreement"); (e) Produce Processing Division. Any assets that are used primarily or held for use by any of the Seller Parties in the operation of the Produce Processing Division; (f) Florida Foodservice Segment. Any assets that are used primarily or held for use by any of the Seller Parties in the operation of the Foodservice Segment operated in the state of Florida; (g) Facilities. Any interest (owned, leased or otherwise) in respect of any real property facility in which the California Foodservice Business or the Meat Processing Division is conducted (collectively, the "Facilities"); (h) Fixed Assets. Any furniture, fixtures, warehouse and other equipment, machinery, appliances, computer hardware and software, tools, supplies, leasehold improvements, and construction in progress in respect of the Purchased Business (the "Fixed Assets"); (i) Cash. Seller's cash and cash equivalents in respect of the Purchased Business; (j) Ordinary Course Usage. Supplies and other tangible personal property consumed by any of the Seller Parties with respect to the Purchased Business in the ordinary course of business between the date of this Agreement and the Closing Date; (k) Tax Refunds. Any Tax refunds or credits attributable to the Assets or the Purchased Business, relating to any taxable period, or any portion thereof, ending on or prior to the Closing Date. Notwithstanding the foregoing, any refund of Taxes which are Assumed Liabilities and relate to any taxable period, or portion thereof, beginning after the Closing Date shall belong to the Purchaser; (l) Insurance Policies. Any insurance policies in respect of the Purchased Business and the Assets; (m) Unrelated Assets. All right, title and interest of any of the Seller Parties in and to all the assets and properties that are not used primarily in the operation of the Meat Processing Division or the California Foodservice Business; (n) Excluded Assets and Liabilities. All rights in respect of the Excluded Assets, unless otherwise specifically provided for herein, and the Excluded Liabilities; (o) Truck Leases. Any truck lease with Penske, Ryder or any other lessor; -3- (p) Certain Meat Processing Division Receivables. All of Seller's trade accounts receivable with respect to the Meat Processing Division other than trade accounts receivable with respect to Common Customers; (q) Tax Records. All of Seller's Tax (as defined below) records; and (r) Selected Items. Those assets set forth on Schedule 1.2. 1.3 No Liens or Encumbrances. Seller Parties hereby covenant and agree with Purchaser that the Purchased Assets will be transferred and conveyed to Purchaser at Closing free and clear of all Encumbrances, other than Permitted Encumbrances, and Encumbrances arising solely for reasons associated with ownership by Purchaser. ARTICLE II PURCHASE PRICE; ASSUMPTION OF LIABILITIES 2.1 Purchase Price. The aggregate purchase price (the "Purchase Price") for the Purchased Assets shall be the sum of (i) the Final Accounts Receivable Amount (as defined in Section 2.4 hereof), up to a maximum amount of Twenty Two Million Five Hundred Thousand Dollars ($22,500,000) plus (ii) the Final Inventory Amount (as defined in Section 2.4 hereof), up to a maximum amount of Twelve Million Five Hundred Thousand Dollars ($12,500,000) plus (iii) Eight Million Seven Hundred Fifty Thousand Dollars ($8,750,000) (the "Fixed Amount"). The Purchase Price shall be paid by Purchaser to Seller as follows: (a) Cash. At the Closing, Purchaser shall pay to Seller ninety-five percent (95%) of the Estimated Purchase Price determined pursuant to Section 2.4 hereof, by wire transfer of immediately available funds to an account that has been designated by Seller at least two days prior to the Closing Date (the "Cash at Closing"). (b) Holdback Escrow. At the Closing, Purchaser shall wire to Wells Fargo (the "Escrow Agent") five percent (5%) of the Estimated Purchase Price determined pursuant to Section 2.4 hereof (the "Holdback Escrow Amount") which amount will be held in escrow (the "Holdback Escrow") by the Escrow Agent pursuant to an escrow agreement substantially in the form of Exhibit 2.1(b) attached hereto (the "Holdback Escrow Agreement"), and either paid to Seller or Purchaser by Escrow Agent as provided in Section 2.4 below. 2.2 Assumed Liabilities. (a) Assumption of Certain Liabilities. At the Closing, Purchaser shall assume and become responsible for any and all of the Assumed Liabilities. Purchaser shall not assume or have any responsibility, however, with respect to any other obligation or liability of any of the Seller Parties not included within the Assumed Liabilities, including the Excluded Liabilities, as defined in Section 2.2(b). (b) Excluded Liabilities. Except for the Assumed Liabilities, it is expressly understood and agreed that notwithstanding anything to the contrary contained herein, Purchaser will not assume or have any liability with respect to any obligation or liability of the Seller Parties -4- (the "Excluded Liabilities"). Without in any way limiting the immediately preceding sentence, it is understood and agreed that any losses, costs, expenses or liabilities arising from the following shall constitute an Excluded Liability: (i) all obligations or liabilities whatsoever arising from, incurred in, or with respect to the Facilities (including the leases thereof), the Fixed Assets, and all other Excluded Assets; (ii) all trade payables of the Purchased Business outstanding as of Closing; (iii) all liabilities of the Seller relating to any indebtedness for borrowed money; (iv) all obligations or liabilities whatsoever arising from, incurred in, or with respect to, all periods through the Closing in respect of severance, vacation pay, sick pay, WARN Act (as defined in Section 3.1 hereof), income tax withholding, payroll and/or unemployment tax, workers' compensation, pension, profit-sharing, health insurance, COBRA (as defined in Section 3.1 hereof) or any other employee or other benefit liabilities in respect of any Current Employees (as defined in Section 3.1 hereof) or in respect of any Employee Benefit Plans, including, without limitation any contribution, tax, lien, penalty, cost, interest, claim, loss, action, suit, damage, cost assessment, withdrawal liability, liability to the Pension Benefit Guaranty Corporation (the "PBGC"), liability under Section 412 of the Code (as defined in Section 3.1 hereof) or Section 302(a)(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or other similar liability or expense of Seller or any ERISA Affiliate; (v) all liabilities related to failure to comply with the Immigration Reform and Control Act of 1986, as amended, and all regulations promulgated thereunder (collectively, "IRCA"); (vi) any obligations or liabilities for Taxes (as defined in Section 3.10) arising out of the operation of the Purchased Business or the ownership of the Purchased Assets prior to Closing other than personal property taxes and other similar taxes relating to the Purchased Assets in respect of taxable periods that begin before and end after the Closing Date, the liability for which shall be prorated pursuant to Section 3.10(c); and (vii) any liability of Seller for Income Taxes and any liability of Seller for the unpaid taxes of any Person under Treas. Reg. (S)1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. As used in this Agreement, "Income Taxes" shall mean any federal, state, local, or foreign income tax, including any interest, penalty, or addition thereto, whether disputed or not. As used in this Agreement "Employee Benefit Plan" means each "employee benefit plan" (as defined by Section 3(3) of ERISA), and any other bonus, profit sharing, pension, compensation, deferred compensation, stock option, stock purchase, fringe benefit, severance, post-retirement, scholarship, disability, sick leave, vacation, individual employment, commission, -5- bonus, payroll practice, retention, or other plan, agreement, policy, trust fund or arrangement that is currently in effect, was maintained since December 31, 1996 or that has been approved before the date hereof but is not yet effective, for the benefit of: (i) directors or employees of Seller working in the Purchased Business, or any other persons performing services for Seller in the Purchased Business; (ii) former directors or employees of Seller working in the Purchased Business, or any other persons formerly performing services for Seller in the Purchased Business; and/or (iii) beneficiaries of anyone described in (i) or (ii) (collectively, "Purchased Business Employees") or with respect to which Seller or any ERISA Affiliate has or has had any obligation on behalf of any Purchased Business Employee. ("ERISA Affiliate" is hereby defined to include any trade or business, whether or not incorporated, other than Seller, which has employees who are or have been at any date of determination occurring within the preceding six (6) years, treated pursuant to Section 4001(a)(14) of ERISA and/or Section 414 of the Code as employees of a single employer that includes Seller.) 2.3 Closing. The closing of the transactions contemplated herein (the "Closing") shall take place as soon as practicable, but no later than five (5) business days, following the satisfaction or waiver of the conditions to Closing set forth in Articles VII and VIII (with September 15, 2003 being the currently anticipated date) or on such business day as is mutually agreed to by the parties hereto ("Closing Date"), at the offices of Foley & Lardner, 2029 Century Park East, Suite 3500, Los Angeles, California 90067-3021. All computations, adjustments, and transfers for the purposes hereof shall be effective as of 12:01 a.m. Pacific Daylight Savings Time on the Closing Date. 2.4 Estimated Purchase Price and Purchase Price True-Up. (a) Preliminary Accounts Receivable and Preliminary Inventory. Promptly following the close of business of the business day immediately preceding the Closing Date, Seller shall prepare and deliver to Purchaser: (i) a schedule setting forth Seller's reasonable good faith calculation of all Accounts Receivable as of the Closing Date, showing the customer name and a reasonable good faith estimate of the face amount of each Accounts Receivable, which are outstanding as of such date, net of a reasonable reserve for doubtful accounts, determined in accordance with generally accepted accounting principles ("GAAP") and the methodology described on Schedule 3.11 attached hereto, consistently applied (the total net Accounts Receivable amount that is reflected on the Accounts Receivable schedule is referred to herein as the "Preliminary Accounts Receivable Amount"); and (ii) perpetual and other inventory reports that contain Seller's reasonable good faith calculation of the type and number of each Inventory item on hand as of the Closing Date and a reasonable good faith estimate of net book value of each Inventory item, -6- determined in accordance with GAAP, consistently applied (the total Inventory amount that is reflected on such perpetual and other inventory reports, net of a reserve for slow-moving and obsolete inventory, determined consistent with Seller's past practice in respect of the Purchased Business, is referred to herein as the "Preliminary Inventory Amount"). "Estimated Purchase Price" means the sum of the Preliminary Accounts Receivable Amount (up to a maximum of $22,500,000), the Preliminary Inventory Amount (up to a maximum of $12,500,000) plus the Fixed Amount. (b) Final Accounts Receivable and Final Inventory. Within ninety (90) days after the Closing Date, Purchaser and/or its agents shall complete a review of the Preliminary Accounts Receivable Amount and the Preliminary Inventory Amount, which review shall include, but not be limited to a physical count. (i) Seller shall provide Purchaser with a detailed listing of the final Inventory as of the Closing Date that will include, but not be limited to, detail of the reserve for slow-moving and obsolete Inventory. The Inventory and the reserve for slow-moving and obsolete Inventory shall be determined on a basis consistent with that utilized in determining the Preliminary Inventory Amount. Seller shall provide Purchaser with reasonable access to Seller's books and records to facilitate Purchaser's review of the costs and methods used to value the Inventory and the reserve for slow-moving and obsolete Inventory. (ii) Purchaser will provide Seller with the most recent weekly aged listing of the Preliminary Accounts Receivable Amount still outstanding. An allowance for doubtful accounts will be calculated, using a method consistent with that used to determine the Preliminary Accounts Receivable Amount (the "Final Allowance for Doubtful Accounts"). Purchaser shall provide Seller with reasonable access to Purchaser's books and records to facilitate Seller's review of the accounts and the methods used to determine the Final Allowance for Doubtful Accounts. The Final Accounts Receivable Amount shall be the total of the Preliminary Accounts Receivable Amount, as adjusted for the Final Allowance for Doubtful Accounts. (iii) After Purchaser's review, if Seller and Purchaser reach agreement on the Preliminary Accounts Receivable Amount and the Preliminary Inventory Amount, such amounts shall, respectively, be the "Final Accounts Receivable Amount" and the "Final Inventory Amount" and any amounts due shall be distributed in accordance with the terms of Section 2.4(c) below, as appropriate, within one calendar week of the parties reaching such agreement. If, however, Seller and Purchaser are unable to reach agreement on the Preliminary Accounts Receivable Amount and/or the Preliminary Inventory Amount within thirty (30) days after the completion of Purchaser's review, then the parties shall submit the matter to PricewaterhouseCoopers, LLP, or such other nationally recognized public accounting firm mutually acceptable to the parties hereto (the "Accountants") for resolution. Such resolution by the Accountants shall be set forth in a written report ("Accountants Report") delivered by the Accountants to the parties hereto within fifteen (15) days following the submission of such dispute to the Accountants and shall be the "Final Accounts Receivable Amount" and/or the "Final Inventory Amount", as the case may be, and shall be final and binding upon the parties -7- hereto and any amounts due shall be distributed in accordance with the terms of Section 2.4(c) below, as appropriate, within one calendar week following the delivery of the Accountants Report to the parties hereto. The fees charged by the Accountants shall be paid 50% by the Seller and 50% by Purchaser. Promptly following determination of the Final Accounts Receivable Amount and the Final Inventory Amount, the parties shall send to the Escrow Agent the disbursement notice described in the Holdback Escrow Agreement. (c) True-Up. (i) If the Purchase Price is less than the Estimated Purchase Price, the amount of such deficiency (the "Shortfall"), shall be paid to Purchaser by the Escrow Agent from the Holdback Escrow. The amount of any Shortfall in excess of the Holdback Escrow Amount shall be paid, with interest earned thereon, by Seller to Purchaser within one calendar week following the determination of the Final Accounts Receivable Amount and the Final Inventory Amount, as provided for herein. Any Holdback Escrow Amount remaining after retention by Purchaser as provided for herein shall be released to Seller by the Escrow Agent, with accrued interest, within one calendar week of such determination. (ii) If the Purchase Price is equal to or greater than the Estimated Purchase Price (the "Excess Amount"), then Seller shall have the right to receive the entire Holdback Amount and the Escrow Agent shall pay to Seller such amount, with accrued interest, within one calendar week following the determination of the Final Accounts Receivable Amount and the Final Inventory Amount, as provided for herein. If the Excess Amount is greater than the Holdback Escrow Amount, such difference shall be paid, with interest earned thereon, by Purchaser to Seller within one calendar week following the determination of the Final Accounts Receivable Amount and the Final Inventory Amount, as provided for herein. ARTICLE III OTHER COVENANTS AND AGREEMENTS 3.1 Employee Matters. (a) Offer of Employment. As of the Closing, Purchaser will be entitled, but shall not be obligated, to offer employment to employees of Seller who provide, as of Closing, services to the Purchased Business ("Current Employees") and who satisfy Purchaser's requirements for new employees including Purchaser's pre-employment screening process, subject to the following conditions: (i) nothing contained herein shall preclude Purchaser from revising conditions of employment after the Closing or effecting the termination of any Current Employees after the Closing; and (ii) Purchaser shall have no liability or obligation in respect of any Current Employees of the Seller who reject Purchaser's offer of employment. Seller shall not make any offers of employment to any Current Employees. Notwithstanding Section 3.1(c), Purchaser may interview for employment Present Employees (as defined in Section 3.5). If Purchaser decides not to offer employment to a Marketing Associate (and such Marketing Associate is otherwise willing and able to be employed by Purchaser), for purposes of the condition described in Section 7.9, such Marketing Associate shall be deemed to have been continuously employed by Seller from the date hereof through the Closing. -8- (b) COBRA. Seller shall provide at its sole cost and expense "Continuation Coverage" (within the meaning of Section 4980B of the Internal Revenue Code of 1986, as amended (the "Code") and Part 6 of Subtitle B of Title I of ERISA) (such statutory provisions are referred to herein collectively as "COBRA") to all Purchased Business Employees and their covered dependents who (i) have experienced a "Qualifying Event" (within the meaning of COBRA) prior to the Closing Date and for whom the period of Continuation Coverage required by COBRA has not, as of the Closing Date, expired, or (ii) are covered under a "group health plan" (as defined in Code Section 5000(b)(1)) of the Seller as of the Closing Date and experience a Qualifying Event as a result of the transactions contemplated by this Agreement (and regardless of whether a Purchased Business Employee becomes an employee of Purchaser). In addition, Seller shall provide group health coverage to Purchased Business Employees (and their eligible dependents) who are, as of the Closing Date, on a leave of absence governed by the Family and Medical Leave Act of 1993, as amended ("FMLA"), in accordance with the requirements of FMLA and COBRA. Seller shall provide, or cause to be provided by an ERISA Affiliate, all applicable notifications of any conversion rights or privileges available under any of Seller's Employee Benefit Plans. (c) Nonsolicitation of Marketing Associates. Subject to Section 3.1(a), Purchaser agrees that from and after the date hereof through Closing, neither Purchaser nor any of its affiliates will solicit for hire any Marketing Associates (defined in Section 3.1(f)); provided, however, if any Marketing Associates are hired by Purchaser or any of its affiliates prior to Closing, for purposes of the condition described in Section 7.9, such Marketing Associates shall be deemed to have been continuously employed by Seller from the date hereof through the Closing. (d) Notice to Employees. Seller shall be responsible for providing, and shall be entitled to provide at anytime, all notices and other communications to employees which may be required on or prior to Closing under the Worker Adjustment and Retraining Act or any similar state statute (collectively, the "WARN Act"), and in no event shall Purchaser be liable for claims arising prior to employment by Purchaser. (e) Form I-9. Seller shall obtain Forms I-9 (defined below) from all of its Current Employees prior to Closing, and shall use its commercially reasonable efforts to ensure that, to the knowledge of each of the Seller Parties, the information reflected thereon shall be true and correct. Seller shall prepare all required Forms W-2 for filing with the United States Internal Revenue Service for the Purchased Business Employees as of the Closing Date. (f) Retention Bonuses. In addition to any severance or other benefits that Seller may provide to Current Employees, Seller agrees that it shall provide retention bonuses to certain of its employees, in accordance with the following: (i) Seller shall pay a retention bonus to (A) each of its employees who is a marketing associate for the California Foodservice Business ("Marketing Associates") and (B) Tammy Andrews, Bob Bartman, John Bateman, Gary Bockman, Alec Napolitano, Charley Phillips, Gary Smith, Debbi Mickelson, David Riccio, Dennis Barone, and Mickey Biggs (collectively "Sales Management"), if such employees are continuously employed by Seller from -9- the date hereof until the Closing. Such retention bonuses shall be paid substantially at Closing and the balance thereof shall be paid within ninety (90) days of the Closing by Seller in accordance with the plan attached hereto as Exhibit 3.1(f)(i) (the "MA Retention Bonus Plan"). The aggregate amount of such retention bonuses made available by Seller to the Marketing Associates and the Sales Management shall not be less than $500,000 and the average amount of such retention bonuses with respect to the Marketing Associates and Sales Management made available shall not be less than $1,000. Seller shall provide Purchaser with reasonably detailed information relating to the MA Retention Bonus Plan upon receiving a written request from Purchaser. (ii) Seller shall pay a retention bonus to each of its California Foodservice Business employees who is neither a Marketing Associate nor part of Sales Management (each, a "Non-Marketing Employee"), and that is continuously employed by Seller from the date hereof until the Closing. Such retention bonuses shall be paid substantially at Closing and the balance thereof shall be paid within ninety (90) days of the Closing by Seller in accordance with the plan that is attached hereto as Exhibit 3.1(f)(ii) (the "Non-MA Retention Bonus Plan"), and the average retention bonus paid to Non-Marketing Employees shall be not less than $1,000. Seller shall provide Purchaser with reasonably detailed information relating to the Non-MA Retention Bonus Plan upon receiving a written request from Purchaser. (iii) The Retention Bonus Plan and the Non-MA Retention Bonus Plan shall be implemented by Seller as soon as practicable following the Initial Public Announcement (defined in Section 3.9 hereof) and Seller shall coordinate the Retention Bonus Plan and the Non-MA Retention Bonus Plan with Purchaser's post-Closing incentive plan described in Section 3.1(g) hereof. (g) Bonus Pool for Marketing Associates. At Closing, Purchaser shall adopt a bonus pool, which in the aggregate shall be not less than $500,000 and the participants of which shall be each Marketing Associate that is offered employment by, and accepts employment with, Purchaser. Such bonus pool shall be paid by Purchaser after the Closing Date to each Marketing Associate who meets the terms and conditions established by Purchaser, which shall include, but not be limited to, the execution and delivery by the Marketing Associate of a Nondisclosure Nonsolicitation Agreement that shall be entered into prior to the Closing Date, the form of which is attached hereto as Exhibit 3.1(g) (the "Marketing Associate Nonsolicitation Agreement"). Purchaser shall provide S&F with reasonably detailed information relating to such bonus pool upon receiving a written request from S&F. (h) Employees on Leave. Schedule 3.1(h) attached hereto lists the name of each Purchased Business Employee who is on a leave of absence whether pursuant to FMLA, workers compensation or otherwise. 3.2 Consents. Promptly after execution of this Agreement, Seller will apply for or otherwise seek, and use its commercially reasonable efforts to obtain, all consents and approvals required with respect to Seller Parties in order to consummate the transactions contemplated hereby, including without limitation, those consents listed in Schedule 4.4 hereof and consents in respect of the Assumed Contracts. Any charges imposed by the other parties in respect of such -10- consents shall be borne by Seller. Purchaser shall provide Seller with such information as may reasonably requested by Seller in connection with obtaining such consents. 3.3 Business Information. Subject to the Confidentiality Agreement (as defined in Section 3.9), Seller, its employees, agents and representatives shall provide Purchaser, its respective employees, agents, counsel, accountants and financial consultants access to all suppliers and employees of the Purchased Business and reasonable access during normal business hours, to the offices, properties, records, files and other documents and information of or relating to the Purchased Business and the Purchased Assets as Purchaser, their respective employees, agents, counsel, accountants or financial consultants may request; provided that access to the personnel records of any of Seller's employees shall only be allowed if such employee has consented to such access. (a) No Waiver. Purchaser's due diligence review and any inspections pursuant hereto shall not waive or release the Seller Parties from any of their representations, warranties or covenants under this Agreement. 3.4 Noncompetition/Non-Solicitation Agreements. Concurrently with the Closing, Seller and the Seller Parties shall enter into a Noncompetition/Non-Solicitation Agreement with Purchaser for a term ending on the second (2nd) anniversary of the Closing Date in substantially the form attached as Exhibit 3.4 (the "Noncompetition/Non-Solicitation Agreement"). 3.5 Conduct of Business by Seller Pending the Closing. The Seller Parties covenant and agree that, unless Purchaser shall otherwise consent in writing and except as otherwise set forth herein, between the date hereof and the Closing, the Purchased Business shall be conducted only in, and Seller shall not take any action except in, the ordinary course of business and in a manner consistent with past practice or as otherwise required by this Agreement or with respect to the transactions contemplated herein; and Seller will use its commercially reasonable efforts to preserve substantially intact the business organization and the Purchased Business, to keep available the services of the present employees and consultants who provide any services to the Purchased Business (collectively, the "Present Employees") and to preserve the present relationships of Seller with customers, suppliers and other persons with which Seller has significant business relations in respect of the Purchased Business. (a) Certain Actions. By way of amplification and not limitation, except as expressly provided for in this Agreement, Seller Parties shall not, between the date hereof and the Closing, directly or indirectly, do any of the following in respect of Seller or the Purchased Business, as applicable, without the prior written consent of Purchaser: (i) (A) merge or consolidate with or into another company; (B) except in the ordinary course of business and in a manner consistent with past practices, sell, pledge, dispose of, or encumber or authorize or propose the sale, pledge, disposition or encumbrance of any material assets of Seller used or held for use by the Purchased Business; (C) enter into any material contract or agreement, except in the ordinary course of the Purchased Business; or (D) enter into or amend any material contract, agreement, commitment or arrangement with respect to any of the matters set forth in this Section 3.5(a)(i); -11- (ii) take any material action except in the ordinary course of business and in a manner consistent with past practice or as otherwise required by this Agreement or with respect to the transactions contemplated herein, or make any material change in, its methods of management, purchasing, distribution, marketing, accounting or operating (or practices relating to payment of trade accounts or to other payments); or (iii) do any act or omit to do any material act that would cause a breach of any contract, commitment or obligation of Seller that is an Assumed Liability hereunder. (b) Maintenance of Inventory. Seller shall, between the date hereof and the Closing Date (i) maintain the Inventory in amounts which will permit the California Foodservice Business to be operated in its ordinary course; (ii) not purchase any material amount of Inventory at a cost exceeding market prices prevailing at the time of purchase; and (iii) coordinate with a merchandiser designated by Purchaser prior to purchasing Inventory for the Meat Processing Division and, to the extent practicable, Seller will purchase Inventory for the Meat Processing Division from Purchaser. (c) Collection of Accounts Receivable. Seller shall, between the date hereof and the Closing Date, in the ordinary course of business and in a manner consistent with past practice, continue efforts to collect its Accounts Receivable. 3.6 No Negotiations. Seller Parties covenant and agree that, from and after the date hereof until the Closing (or the earlier termination of this Agreement pursuant to Article IX), neither Seller nor its officers or directors nor anyone acting on behalf of Seller or such persons, nor any Shareholder shall, directly or indirectly, solicit, engage in discussions or negotiations with, or provide any information to, any person, firm or other entity or group (other than Purchaser or its representatives) concerning any merger, sale of substantial assets, purchase or sale of shares of capital stock or similar transaction involving the Purchased Business and/or the Purchased Assets ("Acquisition Proposal"). The Seller Parties agree to notify Purchaser immediately if Seller or any of Seller's shareholders, directors, officers, employees, or agents receive any indication of interest, request for information or offers in connection with an Acquisition Proposal. 3.7 Expenses. (a) Expenses of Purchaser. All of the expenses incurred by Purchaser in connection with the authorization, negotiation, preparation, execution and performance of this Agreement and other agreements referred to herein, including, without limitation, all fees and expenses of agents, representatives, brokers, counsel and accountants for Purchaser, shall be paid by Purchaser. (b) Expenses of Seller and Shareholders. All expenses incurred by the Seller Parties in connection with the authorization, negotiation, preparation, execution and performance of this Agreement and the other agreements referred to herein, including without limitation, all fees and expenses of agents, representatives, brokers, counsel and accountants for the Seller Parties shall be paid by the Seller Parties. -12- 3.8 Notification of Certain Matters. Seller shall give prompt notice to Purchaser of the following: (a) Material Adverse Effect. The occurrence or nonoccurrence of any event whose occurrence or nonoccurrence would be reasonably likely to cause either (A) any representation or warranty of Seller Parties contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing, or (B) any Material Adverse Effect. The term "Material Adverse Effect" means any change in or effect on the Purchased Business or the Purchased Assets, whether discovered by Purchaser or disclosed hereunder to Purchaser, that is or may reasonably be expected to be materially adverse to the operations, properties (including intangible properties), condition (financial or otherwise), assets, liabilities or regulatory status of Seller, the Purchased Business or the Purchased Assets; provided, however, for purposes of this Agreement, that in determining whether a Material Adverse Effect has occurred, any event, change or development attributable to the following shall not be considered: any adverse event, change or development arising from or relating to (1) general business or economic conditions or (2) the taking of any action contemplated by this Agreement and the other agreements contemplated hereby, including any public announcement in connection herewith. (b) Material Non-Compliance. Any material failure of any of the Seller Parties, or any officer, director, employee or agent of any of the Seller Parties, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder. Notwithstanding the foregoing, the delivery of any notice pursuant to this Section 3.10 shall not limit or otherwise affect the remedies available hereunder to Purchaser upon receiving such notice. 3.9 Confidentiality and Public Announcements. The parties hereto agree to announce the execution of this Agreement (the "Initial Public Announcement") and the consummation of the transaction contemplated by this Agreement simultaneously at mutually agreeable times. The content of all announcements and publicity relating to the subject matter of this Agreement will be subject to the mutual approval of Seller and Purchaser (except as otherwise required by law). The parties hereto shall, and shall cause their representatives to, maintain the confidentiality of all non-public information concerning the other parties hereto (other than such information which becomes generally available to the public other than as a result of disclosure by the other party) which becomes known by a party hereto or such representatives solely as a result of the negotiation or consummation of the transactions contemplated by this Agreement, and shall promptly return and cause its agents and representatives to return to the other party all written materials containing such information in the event that the Closing does not occur within the time limit herein provided for. That certain Confidentiality Agreement, dated June 4, 2003, between Seller and Purchaser shall survive the execution of this Agreement and remain in full force and effect in accordance with its terms. Notwithstanding the foregoing, the Seller Parties and Purchaser (and each of their respective employees, representatives, or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and any facts that may be relevant to the tax structure of the transactions contemplated by this Agreement beginning on the earliest of (i) the date of the public announcement of discussions -13- relating to the transactions contemplated by this Agreement, (ii) the date of public announcement of the transactions contemplated by this Agreement, or (iii) the date of the execution of an agreement (with or without conditions) to enter into the transactions contemplated by this Agreement; provided, however, that neither the Seller Parties nor Purchaser (nor any of their respective representatives) may disclose any other information that is not relevant to understanding the tax treatment and tax structure of the transactions contemplated by this Agreement (including the identity of any party and any information that could lead another to determine the identity of any party), or any other information to the extent that such disclosure could result in a violation of any federal or state securities law. 3.10 Tax Matters. (a) Definitions. As used in this Agreement, the following terms have the specified meanings: (i) "Affiliated Group" shall mean any affiliated group within the meaning of Section 1504(a) of the Code or any similar group defined under a similar provision of state, local, or foreign law. (ii) "Tax Authority" shall mean any U.S. federal, foreign, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising tax regulatory authority. (iii) "Tax Return" shall mean any return, report, statement, form or other documentation (including any additional or supporting material and any amendments or supplements) filed or maintained, or required to be filed or maintained, with respect to or in connection with the calculation, determination, assessment, collection or administration of any Taxes. (iv) "Tax" or "Taxes" shall mean (A) any and all taxes, fees, assessment, levies, duties, tariffs, imposts and other charges of any kind, imposed by any Tax Authority, including, without limitation, taxes or other charges on, measured by, or with respect to income, franchise, windfall, or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes; license, registration and documentation fees; and custom's duties, tariffs and similar charges; (B) any liability for the payment of any amounts of the type described in (A) as a result of being a member of an Affiliated Group for any taxable period; (C) any liability for the payment of any amounts of the type described in (A) as a result of being a person required by law to withhold or collect taxes imposed on another person; (D) any liability for the payment of amounts of the type described in (A), (B) or (C) as a result of being a transferee of, or a successor in interest to, any person or as a result of an express or implied obligation to indemnify any person; and (E) any and all interest, penalties, additions to tax and additional amounts imposed in connection with or with respect to any amounts described in (A), (B), (C), or (D). -14- (v) "Transfer Taxes" shall mean all foreign, federal, state and local sales, use, transfer, stamp, documentary, registration, and similar Taxes (including any penalties or interest) arising in connection with the consummation of the transactions contemplated hereby. (b) Transfer Taxes. Seller shall properly and timely file all necessary Tax Returns with respect to all Transfer Taxes and shall pay all Transfer Taxes. (c) Proration of Certain Taxes. Seller and Purchaser agree that all personal property Taxes and other similar Taxes relating to the Purchased Assets that cover periods both before and after the Closing Date will be prorated. Purchaser will reimburse Seller for the post-Closing portion of any such Taxes that have been pre-paid by Seller to the extent that Purchaser will receive the benefit of such prepayment after the Closing. Seller and the Stockholders will reimburse Purchaser for the pre-Closing portion of any such Taxes that are to be paid by Purchaser on or after the Closing Date. For purposes of this Section 3.10(c), (i) the pre-Closing portion of any Tax shall be deemed to be an amount of such Tax for the number of days in the entire taxable period multiplied by a fraction, the numerator of which is the number of days in the taxable period ending on the Closing Date, and the denominator is the number of days in the entire taxable period; and (ii) the post-Closing portion of any Tax shall be deemed to be an amount of such Tax for the number of days in the entire taxable period multiplied by a fraction, the numerator of which is the number of days in the taxable period beginning after the Closing Date, and the denominator is the number of days in the entire taxable period. 3.11 Collection of Accounts Receivables. After Closing, Purchaser shall have the sole right to collect the Accounts Receivable. All amounts which are collected from an account debtor after the Closing Date shall be first applied against the oldest outstanding balance on such account, unless said account debtor expressly directs otherwise in writing. Subject to the immediately preceding sentence, with respect to Seller's customers acquired pursuant hereto, for the initial 90 days after Closing or, with respect to a customer, until such customer's Accounts Receivable have been fully collected, whichever is shorter, Purchaser shall substantially adhere to Seller's practices and procedures regarding collections, write-offs and servicing of accounts, as such practices and procedures are described on Schedule 3.11 attached hereto. If Seller or the Shareholders receive payment from customers of any amounts in respect of any Accounts Receivable, Seller, or Shareholders, as the case may be, will remit such payments to Purchaser within five (5) business days of receipt thereof. If requested by Purchaser in writing, Seller will provide reasonable assistance in connection with the collection of Accounts Receivable. 3.12 Purchase Price Allocation. The parties agree that Purchase Price and Assumed Liabilities (plus other relevant items) will be allocated to the assets of the Purchased Business in the manner described in Schedule 3.12. The parties agree that such allocation was arrived at by arms-length negotiation and in the judgment of the parties properly reflects the fair market value of the Purchased Assets. The parties further agree to (i) be bound by the Purchase Price Allocation, (ii) act in accordance with the Purchase Price Allocation in the preparation and filing of all Tax Returns and in the course of any Tax audit or Tax litigation relating thereto, and (iii) take no position inconsistent with the Purchase Price Allocation for any Tax purpose, except, in each case, to the extent that there has been a "determination" within the meaning of Section 1313 of the Code contrary to such position. If any Tax Authority disputes any allocation made -15- pursuant to Schedule 3.12, the party receiving notice of the dispute will promptly inform the other party concerning the resolution of the dispute. 3.13 Transition Services Agreement. At Closing, Purchaser and Seller shall enter into a Transition Services Agreement in substantially the form of Exhibit 3.13 attached hereto (the "Transition Services Agreement"), pursuant to which Purchaser will have sixty (60) days following Closing to remove the Inventory from the Facilities and during such sixty (60) day period Seller will continue to maintain the Facilities in the ordinary course of business consistent with its past practice, including without limitation, the maintenance of commercially reasonable security over and insurance on the Inventory located at the Facilities. In addition, Seller Parties will cooperate with Purchaser in the transition of customers of the Purchased Business from Seller to Purchaser and shall, for a six month period following Closing, subject to such renewal terms as may be agreed upon by the parties, grant a royalty free license to Purchaser to sell any proprietary inventory of Seller that Purchaser acquires pursuant hereto. Upon expiration of such license, the parties will cooperate to dispose of any such unsold proprietary inventory. Purchaser shall reimburse Seller for the reasonable costs incurred by Seller to provide the foregoing services as set forth in the Transition Services Agreement during such specified period. 3.14 Vendor Receivables. Purchaser shall remit to S&F any monies that it receives after the Closing Date relating to trade accounts receivable, other than the trade accounts receivable set forth on the Final Accounts Receivable Statement, within five (5) business days of the receipt of such monies. 3.15 Preservation of Minute Books and Corporate Records. Seller agrees to preserve all of its (i) minute books and stock and corporate records (other than Tax records) until the first (1st) anniversary of the Closing Date, and (ii) relevant Tax records until the end of the applicable statute of limitations for Tax claims related to the Purchased Assets, and, until such times, to make them available during normal business hours, to Purchaser, its counsel, accountants and others authorized by it for inspection and the making of photocopied extracts therefrom at Purchaser's sole expense. 3.16 Bulk Sales. Purchaser hereby waives compliance by the Seller Parties with the provisions of any applicable state bulk transfer statutes. The Seller Parties hereby, jointly and severally, covenant and agree to indemnify and hold Purchaser harmless from and against any and all claims of Seller's creditors or others asserted against Purchaser resulting from such non-compliance. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES In order to induce Purchaser to enter into this Agreement and consummate the transactions contemplated hereby, Seller Parties, jointly and severally, hereby make the following representations and warranties, as qualified herein (including by virtue of any applicable schedule or Revised Schedule), to Purchaser. -16- 4.1 Organization and Authority of Seller. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Seller is duly qualified as a foreign corporation in all jurisdictions in which the conduct of Seller's business or the ownership of the Purchased Assets requires such qualification and Schedule 4.1 lists all the states where Seller is so qualified. Seller has all necessary corporate power and authority to own, lease and operate its properties and conduct its business with respect to the Purchased Assets as it is currently being conducted. Except as disclosed on Schedule 4.1, Seller does not own, directly or indirectly, any interest in any corporation, partnership, joint venture or other entity. 4.2 Corporate Power and Authority; Due Authorization. Each of the Seller Parties has full power, capacity and authority, to execute and deliver this Agreement and each of the Transaction Documents to which such Seller Party is or will be a party and to consummate the transactions contemplated hereby and thereby. "Transaction Documents" means each of the agreements, documents and instruments referenced in this Agreement to be executed and delivered by any of the Seller Parties. The board of directors of Seller and AFD (the sole shareholder of Seller), have duly approved and authorized the execution and delivery of this Agreement and each of the Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and no other corporate proceedings on behalf of Seller are necessary. The board of directors of AFD and S&F (in its capacity as the sole shareholder of AFD), have duly approved and authorized the execution and delivery of this Agreement and each of the Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and no other corporate proceedings on behalf of AFD are necessary. The board of directors of S&F have duly approved and authorized the execution and delivery of this Agreement and each of the Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and no other corporate proceedings on behalf of S&F are necessary. Assuming that this Agreement and each of the Transaction Documents which are also Purchaser Transaction Documents (as defined below) constitutes a valid and binding agreement of Purchaser, this Agreement and each of the Transaction Documents to which the Seller and/or any Seller Party, as the case may be, is a party constitutes, or will constitute when executed and delivered, a valid and binding agreement of Seller and/or any Seller Party, as the case may be, in each case enforceable by Purchaser in accordance with its terms, subject to laws of general application in effect affecting creditors' rights and subject to the exercise of judicial discretion in accordance with general equity principles. 4.3 Title to Purchased Assets. Seller has, good and valid marketable title to all of the Purchased Assets (and a valid and enforceable leasehold interest in the leased personal property), free and clear of all Encumbrances, other than Permitted Encumbrances. At the Closing, Seller will transfer to Purchaser good and valid marketable title to all of its Purchased Assets (and a valid and enforceable leasehold interest in the leased personal property), free and clear of all Encumbrances, other than Permitted Encumbrances. 4.4 No Conflict; Required Consents. Except for the consents, approvals, authorizations and other actions listed on Schedule 4.4 attached hereto, which shall have been obtained or taken prior to Closing, the execution and delivery by Seller Parties of this Agreement and the Transaction Documents and the consummation by Seller Parties of the transactions contemplated hereby and thereby do not and will not (a) require the consent, approval or action -17- of, or any filing or notice to, any corporation, firm, person or other entity or any public, governmental or judicial authority; (b) violate the terms of any instrument, document or agreement to which any of the Seller Parties is a party, or by which any of the Seller Parties or the property of any of the Seller Parties (including the Purchased Assets) is bound, or be in conflict with, result in a breach of or constitute (upon the giving of notice or lapse of time or both) a default under any such instrument, document or agreement, or result in the creation of any lien upon any of the property or assets of any of the Seller Parties (including the Purchased Assets); (c) violate any order, writ, injunction, decree, judgment, ruling, law, rule or regulation of any federal, state, county, municipal, or foreign court or governmental authority applicable to any of the Seller Parties or relating to the Purchased Assets or to the Purchased Business; or (d) violate the Articles of Incorporation or Bylaws of Seller. Neither Seller nor the Purchased Assets are subject to, or a party to, any mortgage, lien, lease, agreement, contract, instrument, order, judgment or decree or other restriction of any kind or character which would prevent or hinder the continued operation of the Purchased Business by Purchaser after the Closing on substantially the same basis as theretofore operated. 4.5 Ownership of Stock. AFD is the sole record and beneficial owner of all of the issued and outstanding capital stock of Seller. No person or entity other than AFD has, or has any right to obtain, any beneficial or record interest in the capital stock of Seller or any interest convertible thereto. S&F is the sole record and beneficial owner of all of the issued and outstanding capital stock of AFD. No person or entity other than S&F has, or has any right to obtain, any beneficial or record interest in the capital stock of AFD or any interest convertible thereto. 4.6 Compliance with Law. Seller, with respect to the Purchased Assets is in material compliance with all applicable laws, orders, rules and regulations of all governmental bodies and agencies. None of the Seller Parties has received written notice of, and neither Mickey Biggs, Bob Schofield, nor Dave Riccio has knowledge of, any noncompliance with the foregoing or of any notice thereof. 4.7 Accounts Receivable. On the date hereof Seller delivered to Purchaser a true, correct and complete schedule of all Accounts Receivable as of August 10, 2003 of Seller in respect of the Purchased Business outstanding as of the date hereof showing the ageing thereof, and all such accounts receivable listed thereon are bona fide, arose in the ordinary course of business, and are not subject to any disputes or offsets except such disputes or offsets that arise in the ordinary course of business. None of the Accounts Receivable is intercompany receivables, nor are any of the Accounts Receivable due from any of Seller's affiliates, including the Shareholders and the employees of Seller. 4.8 Taxes. (a) Tax Returns and Payments. Except as otherwise disclosed in Schedule 4.8 attached hereto: (i) all income and other material Tax Returns relating to the Purchased Assets and the Purchased Business required to be filed by or on behalf of Seller or any Affiliated Group of which the Seller is a member have been properly prepared and duly and timely filed with the appropriate Tax Authorities in all jurisdictions in which such Tax Returns are required to be filed -18- (after giving effect to any valid extensions of time in which to make such filings), all such Tax Returns were true, complete and correct in all material respects and all Taxes reflected as due thereon have been paid in full; and (ii) no agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitation), has been executed or filed with the IRS or any other Tax Authority by or on behalf of Seller and no power of attorney with respect to any Tax matter is currently in force. (b) Withholding Taxes. Seller has complied in all respects with respect to the Purchased Assets and the Purchased Business with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has duly and timely withheld from employee salaries, wages and other compensation and has paid over to the appropriate Tax Authorities all amounts required to be so withheld and paid over for all periods under all applicable laws. (c) Tax Liens. There are no liens as a result of any unpaid Taxes upon any Purchased Assets of the Purchased Business except for Taxes not yet due and payable. (d) Examinations. Except as set forth on Schedule 4.8, all deficiencies asserted or assessments made as a result of any examinations by the IRS or any other Tax Authority of the Tax Returns relating to the Purchased Assets and the Purchased Business have been fully paid, and there are no other audits or investigations by any Tax Authority in progress, nor has Seller received any notice from any Tax Authority that it intends to conduct such an audit or investigation. No issue has been raised by a Tax Authority in any prior examination which, by application of the same or similar principles, could reasonably be expected to result in a proposed deficiency for any subsequent taxable period. (e) U.S. Person. Seller is not a foreign person within the meaning of Section 1445 of the Code. (f) Tax Rulings. Seller is not subject to any private letter ruling of the IRS or comparable rulings of other taxing authorities. 4.9 Inventory. The inventory held for sale in the Purchased Business, net of reasonable (in accordance with past practices of Seller and industry standards) reserves, consists only of Salable inventory of a quality and quantity generally maintained and sold in the ordinary course of the Purchased Business. For purposes hereof, inventory is "Salable" only if it (including its packaging) is in the physical condition to be sold to customers in the ordinary course of the Purchased Business and in accordance with industry standards and applicable government regulations; provided, however, that "Salable" inventory does not include (i) any item whose supplier notifies any of the parties hereto prior to the Closing that such item may not be distributed following Closing; (ii) any items which are private label products for customers who immediately prior to the Closing are no longer customers of Seller; -19- (iii) items which are, pursuant to industry or government standards, including, without limitation, United States Department of Agriculture standards, out-of-date (or perishable product in excess, in days supply, of the normal shelf life of such product); (iv) items of obsolete Inventory (determined pursuant to the report and methodology attached hereto as Schedule 4.9); or (v) any item that is not owned by Seller, including goods already sold. As of Closing, there will be on hand Inventory levels in amounts consistent with Seller's ordinary business practices and at levels sufficient for Purchaser to operate the Purchased Business consistent with Seller's operation thereof prior to Closing. In addition, the schedule of Inventory that will be delivered pursuant to Section 2.4(a) hereof shall only consist of inventory that is Salable and that is valued at the lower of cost or market on a first in first out, first out basis, consistent with past practices. 4.10 Assumed Contracts. Prior to execution of this Agreement, Seller has provided to Purchaser true, correct and complete copies of the Assumed Contracts, including any and all amendments thereto. The Assumed Contracts are valid, legally binding and enforceable against the Seller and the other parties thereto, subject to laws of general application in effect affecting creditors' rights and subject to the exercise of judicial discretion in accordance with general equitable principles. Neither Seller nor, to the knowledge of any of the Seller Parties, any other party to any of the Assumed Contracts is in breach of, or in default under, any of the Assumed Contracts and no event has occurred which, with the notice or lapse of time, or both, would constitute a default by Seller or, to the knowledge of any of the Seller Parties, any other party to any of the Assumed Contracts. The assignment of any of the Assumed Contracts to Purchaser in accordance with this Agreement will not constitute a breach or violation of such Assumed Contract. There are no negotiations pending or, to the knowledge of any of the Seller Parties, threatened or requested, nor any outstanding rights to renegotiate, any Assumed Contracts. 4.11 Litigation; Judgments. Except as disclosed on Schedule 4.11, there is no action, proceeding or, to the knowledge of Seller Parties, investigation, pending, or to Seller's knowledge, threatened against or involving Seller, any Seller Party, the Purchased Assets or the operation of the Purchased Business, nor is there any action or proceeding pending or, to the knowledge of any of the Seller Parties, threatened before any court, tribunal or governmental body seeking to restrain or prohibit or to obtain damages or other relief in connection with the consummation of transactions contemplated by this Agreement, or which would be reasonably likely to adversely affect the Purchased Business or Purchased Assets, or any Seller Party's ability to consummate the transactions contemplated by this Agreement and the Transaction Documents, nor any event or circumstance that is reasonably likely to constitute the basis of any such action or proceeding referenced above. None of the Seller Parties is subject to any judgment, order or decree entered in any lawsuit or proceeding relating to the Purchased Assets or the operation of the Purchased Business. -20- 4.12 Insurance. Seller will keep its property, fire, casualty, workman's compensation, general liability insurance and other forms of insurance maintained by it on the date hereof with respect to the Purchased Assets and the operation of the Purchased Business in full force and effect up until sixty (60) days after the Closing Date. 4.13 Employees; Union; Labor. Except for the Association Agreement, Seller is not a party to any collective bargaining agreement or any other contract, written or oral, with any trade or labor union, employees' association or similar organization. There are no strikes or labor disputes pending or, to the knowledge of any of the Seller Parties, threatened, or to the knowledge of any Seller Parties, any attempts at union organization of the employees of Seller. All Current Employees of Seller in respect of the Purchased Business are employees-at-will except as disclosed on Schedule 4.13. To Seller's knowledge, all salaries and wages paid and withheld by Seller are and have been in compliance with all applicable federal, state and local laws. Schedule 4.13 lists each Current Employee of Seller and the current title and compensation of each such employee. 4.14 Brokers Fees and Expenses. No agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement. 4.15 Absence of Material Changes. Except as set forth in Schedule 4.15 attached hereto, from July 13, 2003 to the date of this Agreement: (a) there has not been any Material Adverse Effect in respect of the Purchased Assets or Purchased Business and no event has occurred or circumstance exists that may result in such a Material Adverse Effect; (b) the Purchased Business has not lost (or received written notice that it may lose) any distributors, customers or suppliers with which the Seller has material business relations; (c) the Seller has operated the Purchased Business in the ordinary course and has not sold, assigned, or transferred any of its assets, except in the ordinary course of business consistent with past practice; (d) Seller has not mortgaged, pledged or subjected to any lien, pledge, mortgage, security interest, conditional sales contract, or other encumbrance of any nature whatsoever, any material portion of the Purchased Assets, except in the ordinary course of business; (e) there has been no amendment, termination, or waiver of any right of the Seller under any contract, governmental license or permit that may have a Material Adverse Effect on the Purchased Assets or the Purchased Business; (f) The Seller has not: -21- (i) paid any judgment resulting from any suit, proceeding, arbitration, claim or counterclaim in respect of Purchased Assets or the Purchased Business; (ii) made any such payment to any party in settlement of any such suit, proceeding, arbitration, claim or counterclaim; (iii) written down or failed to write down, or written up the value of any inventory or assets of the Purchased Business except in accordance with GAAP; (iv) made any material changes in the customary methods of operation of the Purchased Business, including practices and policies relating to accounting, purchasing, marketing, selling or payment of trade creditors; (v) except in respect of ordinary trade payables incurred any indebtedness or guaranteed any indebtedness, except for borrowings under existing loans or lines of credit in the ordinary course of business consistent with past practice; (vi) taken any action other than in the ordinary course of Seller's business and in a manner consistent with past practices (none of which actions has been unreasonable or unusual) or as a result of entering into this Agreement or the transactions contemplated herein with respect to increasing the compensation of any employee of Seller in the Purchased Business or with respect to the grant or increase of any severance or termination pay to any such person (otherwise than as disclosed to Purchaser in writing prior to the date hereof); or (vii) agreed, whether in writing or otherwise, to take any of the actions specified in this Section 4.15. 4.16 Liens. No labor has been performed or material furnished for or on behalf of Seller with respect to the Purchased Assets which has not heretofore been fully paid, or for which any mechanics' or materialmen's lien or liens, or any other lien, can be claimed by any person, party or entity, except in the ordinary course of business consistent with past practice. 4.17 Cost-Plus Contract Claims; Most Favored Nation. Schedule 4.17 identifies all agreements with customers pursuant to which the price of products sold to such customers are in any manner determined based upon Seller's cost ("Cost-Plus Contract"). Except as set forth on Schedule 4.17, there is not, with respect to any Cost-Plus Contract, any action or proceeding pending or, to the knowledge of any of the Seller Parties, threatened, related to a claim by the customer with respect to how the cost of products is calculated thereunder or with respect to the pricing of products sold to such customer thereunder ("Cost-Plus Contract Claims"). Seller is not a party to any agreement or arrangement with any customer of the Purchased Business which provides that such customer shall be sold products or services at the lowest price Seller charges its customers for any such products or services or which contains any other 'most favored nation' or similar clause. 4.18 Certain Transfers; Preferences. To the knowledge of Seller and Seller Parties, neither Seller nor any subsidiary or affiliate thereof (a) has received any transfer which would constitute a fraudulent transfer or fraudulent conveyance under applicable federal or state law or -22- (b) has received a preference under applicable federal law which it has an obligation to repay in whole or in part. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER In order to induce the Seller Parties to enter into this Agreement and consummate the transactions contemplated hereby, Purchaser hereby makes the following representations and warranties, as qualified herein (including by virtue of any applicable schedule or Revised Schedule), to the Seller Parties: 5.1 Organization of Purchaser. Purchaser is a corporation duly organized and validly existing under the laws of the State of Delaware and has the corporate power and authority to own its property and to carry on its business as now being conducted by it. At Closing, Purchaser will be duly qualified to transact business as a foreign corporation in the State of California. 5.2 Corporate Power and Authority; Due Authorization. Purchaser has full corporate power and authority to execute and deliver this Agreement and each of the agreements, documents and instruments referenced in this Agreement to which Purchaser is or will be a party (the "Purchaser Transaction Documents") and to consummate the transactions contemplated hereby and thereby. The Board of Directors of Purchaser has duly approved and authorized the execution and delivery of this Agreement and each of the Purchaser Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and no other corporate proceedings on the part of Purchaser are necessary to approve and authorize the execution and delivery of this Agreement and such Purchaser Transaction Documents and the consummation of the transactions contemplated hereby and thereby. Assuming that this Agreement and each of the Purchaser Transaction Documents constitutes a valid and binding agreement of Seller and/or Shareholders, as the case may be, this Agreement and each of the Purchaser Transaction Documents constitute, or will constitute when executed and delivered, a valid and binding agreement of Purchaser, in each case enforceable against Purchaser in accordance with its terms, subject to laws of general application in effect affecting creditors' rights and subject to the exercise of judicial discretion in accordance with general equitable principles. 5.3 No Conflict; Consents. Other than the actions listed on Schedule 5.3, the execution and delivery by Purchaser of this Agreement, the Purchaser Transaction Documents and the consummation by Purchaser of the transactions contemplated hereby and thereby do not and will not (a) require the consent, approval or action of, or any filing or notice to, any corporation, firm, person or other entity or any public, governmental or judicial authority; (b) violate the terms of any instrument, document or agreement to which Purchaser is a party, or by which Purchaser or the property of Purchaser is bound, or be in conflict with, result in a breach of or constitute (upon the giving of notice or lapse of time, or both) a default under any such instrument, document or agreement; (c) violate Purchaser's Certificate of Incorporation or bylaws; or (d) violate any order, writ, injunction, decree, judgment, ruling, law or regulation of any federal, state, county, municipal, or foreign court or governmental authority applicable to Purchaser, or the business or assets of Purchaser, and relating to the purchase of the Purchased Assets other -23- than, in the case of immediately preceding clause (a), (b) or (d), any such breaches, conflicts, violations or restrictions that, individually or in the aggregate, would not have Material Adverse Effect on Purchaser, as applicable. 5.4 Brokers Fees and Expenses. No agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement. 5.5 Sufficiency of Funds. Purchaser has and at Closing will have sufficient immediately available funds to pay the Purchase Price and perform its other obligations under this Agreement. ARTICLE VI INDEMNIFICATION 6.1 Indemnification by Seller and the Shareholders. Each of the Seller Parties hereby, jointly and severally, agrees to indemnify Purchaser and its agents, employees, owners, officers, directors, successors and assigns and hold them harmless from and against all claims, liabilities, damages, losses, costs and expenses (including reasonable attorneys' fees) incurred or suffered by any of them and arising out of any of the following: (i) any breach of any representation, warranty or covenant of any of the Seller Parties contained herein or in any Exhibit, schedule or Revised Schedule hereto or any instrument or document entered into pursuant hereto, which breach shall be determined giving effect to any and all amendments and supplements of the schedules by the Seller Parties pursuant to and in accordance with Section 7.7; and (ii) any Excluded Liability, including without limitation, any loss, cost or expense arising out of: (A) failure by Seller to fulfill its obligations under the MA Retention Bonus Plan or the Non-MA Retention Plan or under those certain retention incentive memoranda dated June 11, 2003 sent to each of the Sales Management; (B) the sales tax audit described on Schedule 4.8; (C) any of the litigation matters described on Schedule 4.11; or (D) the Association Agreement; (collectively, with all other indemnification obligations of the Seller Parties under any other provisions hereof or pursuant hereto, the "Section 6.1 Indemnified Claims"). 6.2 Indemnification by Purchaser. Purchaser hereby agrees to indemnify the Seller Parties and their agents, employees, officers, directors, successors and assigns and hold them harmless from and against all claims, liabilities, damages, losses, costs and expenses (including reasonable attorneys' fees) incurred or suffered by any of them and arising out of any of the following: (i) any breach of any representation, warranty or covenant of Purchaser contained herein or in any Exhibit, schedule or Revised Schedule hereto or any instrument or document entered into pursuant hereto, which breach shall be determined giving -24- effect to any and all amendments and supplements of the schedules by the Purchaser pursuant to and in accordance with Section 7.7; and (ii) any Assumed Liabilities. 6.3 Provisions Regarding Indemnification. The indemnified party (or parties) shall promptly notify the indemnifying party (or parties) of any claim, demand, action or proceeding for which indemnification will or may be sought under this Agreement and, if such claim, demand, action or proceeding is a third party claim, demand, action or proceeding, the indemnifying party will have the right, at its expense, to assume the defense thereof using counsel reasonably acceptable to the indemnified party. The indemnified party shall have the right to participate in at its own expense, but not control, the defense of any such third party claim, demand, action or proceeding. In connection with any such third party claim, demand, action or proceeding, The Seller Parties and Purchaser shall cooperate with each other. No such third party claim, demand, action or proceeding shall be settled without the prior written consent of the indemnified party; provided, however, that if a firm, written offer is made to settle any such third party claim, demand, action or proceeding and the indemnifying party proposes to accept such settlement and the indemnified party refuses to consent to such settlement, then the indemnifying party shall be excused from, and the indemnified party shall be solely responsible for, all further defense of such third party claim, demand, action or proceeding; and the maximum liability of the indemnifying party relating to such third party claim, demand, action or proceeding shall be the amount of the proposed settlement if the amount thereafter recovered from the indemnified party on such third party claim, demand, action or proceeding is greater than the amount of the proposed settlement. 6.4 Survival. The representations and warranties contained in this Agreement and in the Transaction Documents delivered at the Closing shall survive the Closing through the first (1st) anniversary of the Closing Date (provided that the warranties and representations set forth in Section 4.8 hereof shall survive until the expiration of any statute of limitations applicable to the underlying claim, as the same may be extended), and the warranties and representations in Sections 4.1 through 4.5, inclusive, shall survive the Closing without limitation. All indemnification obligations of either party herein shall expressly survive the Closing. 6.5 Limitations. (a) Base Amount. Notwithstanding anything to the contrary contained herein, other than claims in respect of Sections 3.10 and 3.11, Sections 4.1 through 4.5, Sections 4.7 through 4.9 and Section 4.17 or for claims for indemnification under Sections 6.1(ii), Purchaser will not assert a claim against Seller or the Seller Parties under this Article VI until such time that the total of all Section 6.1 Indemnified Claims equals or exceeds in the aggregate One Million Dollars ($1,000,000) (the "Threshold Amount"), from and after which time the full extent of all Section 6.1 Indemnified Claims, shall be indemnifiable at the first dollar of losses in excess of the Threshold Amount, subject to (S)6.5(b). (b) Cap. The aggregate limit of joint and several liability of the Seller Parties on the one hand, and Purchaser on the other hand, under this Article VI shall be one-half of (i) the Purchase Price plus (ii) Assumed Liabilities. -25- ARTICLE VII CONDITIONS TO OBLIGATIONS OF PURCHASER TO CLOSE The obligations of Purchaser to consummate the transaction contemplated hereby shall be subject to the fulfillment or waiver, to the extent permitted by applicable law, on or prior to the Closing, of each of the following conditions: 7.1 Representations and Warranties True. The representations and warranties made by each of the Seller Parties in or pursuant to this Agreement shall be true and correct on and as of the signing of this Agreement and shall be true and correct on and as of the Closing Date, with the same effect as though such representations and warranties had been made or given on and as of the Closing Date, except to the extent that such representations and warranties are made as of a specified date, in which case such representations and warranties shall be true and correct as of such date, and except as would not have a Material Adverse Effect. 7.2 Obligations Performed. Each of the Seller Parties shall have performed and complied with all agreements, conditions and obligations required by this Agreement to be performed or complied with by them prior to or at the Closing, except as would not have a Material Adverse Effect. 7.3 Consents. Seller shall have obtained and delivered to Purchaser written consents of all persons or entities whose consent is required to consummate the transactions contemplated herein, if any, and all of such consents shall remain in full force and effect at and as of the Closing including, without limitation, those listed on Schedule 4.4. 7.4 Closing Deliveries. The Seller Parties shall have executed (where applicable) and delivered to Purchaser each of the following, together with any additional items that Purchaser may reasonably request to effect the transactions contemplated herein: (a) the Transaction Documents, including, without limitation, a Bill of Sale, in substantially the same form as attached hereto as Exhibit 7.4(a)(i), an Assignment and Assumption Agreement, in substantially the same form as attached hereto as Exhibit 7.4(a)(ii), and such additional instruments of sale, transfer, conveyance, and assignment duly executed by the Seller as of the Closing Date as reasonably requested by Purchaser to consummate the transactions described herein; (b) a certified copy of the corporate resolutions of the Board of Directors of Seller and of the Shareholders authorizing the transactions contemplated hereby and the execution, delivery and performance by Seller of this Agreement and the Transaction Documents and an incumbency certificate with respect to officers of the Seller Parties executing documents or instruments on behalf of Seller Parties; (c) a certificate of a duly authorized officer of each of the Seller Parties certifying as to the matters set forth in Sections 7.1 and 7.2 hereof; (d) the Holdback Escrow Agreement duly executed by Seller; -26- (e) the Transition Services Agreement and Noncompetition/Non-Solicitation Agreement, each duly executed by the Seller Parties, as applicable; (f) an opinion of counsel to Seller Parties as to due authorization of the transactions contemplated hereby; (g) releases and termination statements in respect of all Encumbrance with respect to the Purchased Assets other than Permitted Encumbrances, in form and substance satisfactory to Purchaser; (h) a good standing certificate issued by the Secretary of State for the State of California for Seller; and (i) a closing statement, duly executed by each of the Seller Parties, setting forth in reasonable detail the financial transaction contemplated by this Agreement. 7.5 Investigations. As of the Closing Date, there shall be no, and none of the Seller Parties shall have any knowledge of any material pending or threatened, investigation by any municipal, state or federal government agency or regulatory body with respect to the Purchased Assets or the Purchased Business, except as would not have a Material Adverse Effect. 7.6 No Material Adverse Effect. Since the date of this Agreement, there shall have been no Material Adverse Effect in the Purchased Business and/or the Purchased Assets (without giving effect to the consequences of the transactions contemplated by this Agreement). 7.7 Revised Schedules. The Seller Parties shall have tendered to Purchaser revised Schedules dated as of the Closing Date (the "Revised Schedules"), with all changes through such date duly noted thereon, provided that if the Revised Schedules contain any disclosures which should have been but were not disclosed on the Schedules attached hereto at the date hereof or set forth changes which, individually or in the aggregate, are material to any representation and warranty contained herein then the condition contained in this Section 7.7 shall be deemed unsatisfied unless such disclosures are approved in writing by Purchaser and such Revised Schedules are attached hereto by Seller and Purchaser. 7.8 Regulatory Matters. All filings shall have been made and all approvals shall have been obtained as may be legally required pursuant to federal and state laws prior to the consummation of the transactions contemplated by this Agreement, including, without limitation, all actions by or in respect of, or filings with, any governmental body, agency or official or any other person required to permit the consummation of the transactions contemplated by this Agreement so that the Purchaser shall be able to continue to carry on the Purchased Business substantially in the manner now conducted by Seller. 7.9 Marketing Associates. Subject to Section 3.1(c), no less than 75% of the Marketing Associates that are listed on Schedule 7.9(a) attached hereto shall have been continuously employed in their current position by Seller from the date hereof through Closing and no less than 70% of the Marketing Associates and Sales Management that are listed on -27- Schedule 7.9(b) shall have been continuously employed in their current position by Seller from the date hereof through Closing. 7.10 Payment of Retention Bonuses. Seller shall have provided evidence reasonably satisfactory to Purchaser that Seller has paid substantially all of the retention bonuses described in and pursuant to Section 3.1(f) hereof. 7.11 No Challenge. There shall not be pending or threatened any action, proceeding or investigation before any court or administrative agency by any government agency, or be any pending action by any other person, in which it is sought to restrain or prohibit (through injunction or otherwise) or obtain material damages in connection with, the sale by Seller or the acquisition by Purchaser of the Purchased Assets pursuant to the transactions contemplated by this Agreement or the ability of Purchaser or any of its affiliates to own and operate the Purchased Assets or otherwise materially adversely affecting the prospects, financial condition or results of operations of the Purchased Business, which action or proceeding has a reasonable likelihood of success. In the event of such an action or proceeding, the parties agree to use commercially reasonable efforts to defend against such action or proceeding. 7.12 Legality. No federal or state statute, rule, regulation, executive order, decree or injunction shall have been enacted, entered, promulgated or enforced by any court or governmental authority which is in effect and has the effect of making the transactions contemplated hereby illegal or otherwise prohibiting the consummation of the transactions contemplated hereby. ARTICLE III CONDITIONS TO SELLER'S AND SHAREHOLDERS' OBLIGATIONS The obligations of the Seller Parties under this Agreement to be performed on or prior to the Closing shall be subject to the fulfillment, or waiver, to the extent permitted by applicable law, on or prior to the Closing, of each of the following conditions: 8.1 Representations and Warranties True. The representations and warranties made by Purchaser in or pursuant to this Agreement or given on its behalf hereunder shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date, except to the extent that such representations and warranties are made as of a specified date, in which case such representations and warranties shall be true and correct as of such date, and except as would not have a material adverse effect in the ability of Purchaser to consummate the transactions contemplated herein. 8.2 Obligations Performed. Purchaser shall have performed and complied with all of the agreements, conditions and obligations required by this Agreement which are to be performed or complied with by it prior to or at the Closing. 8.3 Closing Deliveries. Purchaser shall have delivered to Seller, each of the following, together with any additional items that Seller may reasonably request to effect the transactions contemplated herein: -28- (a) the Cash at Closing, less the Holdback Escrow Amount (which shall be delivered to the Escrow Agent); (b) the Transition Service Agreement and the Holdback Escrow Agreement duly executed by Purchaser; (c) certified copies of the corporate resolutions of the Board of Directors of Purchaser or an authorized committee thereof authorizing the execution, delivery and performance of this Agreement and the Purchaser Transaction Documents by Purchaser, and incumbency certificates with respect to the officers of Purchaser executing documents or instruments on behalf of Purchaser; (d) a certificate of a duly authorized officer of Purchaser certifying as to the matters set forth in Sections 8.1 and 8.2 hereof; (e) the Assignment and Assumption Agreement duly executed by Purchaser and such additional instruments as counsel to Purchaser and counsel to Seller shall mutually deem necessary or appropriate; (f) an opinion of counsel to Purchaser as to due authorization of the transactions contemplated hereby; (g) valid resale certificate signed by Purchaser with respect to the Inventory and other Purchased Assets intended for resale by Purchaser in the state of California or elsewhere; and (h) any other documents or agreements contemplated hereby and/or necessary or appropriate to consummate the transactions contemplated hereby. 8.4 No Challenge. There shall not be pending any action, proceeding or investigation before any court or administrative agency by any government agency or, be any pending action by any other person, in which it is sought to restrain or prohibit (through injunction or otherwise), or obtain material damages in connection with, the acquisition by Purchaser of the Purchased Assets pursuant to this Agreement, which action or proceeding has a reasonable likelihood of success. In the event of such an action or proceeding, the parties agree to use commercially reasonable efforts to defend against such action or proceeding. 8.5 Regulatory Matters. All filings shall have been made and all approvals shall have been obtained as may be legally required pursuant to federal and state laws prior to the consummation of the transactions contemplated by this Agreement, including, without limitation, all actions by or in respect of, or filings with, any governmental body, agency or official or any other person required to permit the consummation of the transactions contemplated by this Agreement. 8.6 Legality. No federal or state statute, rule, regulation, executive order, decree or injunction shall have been enacted, entered, promulgated or enforced by any court or governmental authority which is in effect and has the effect of making the transactions -29- contemplated herein illegal or otherwise prohibiting the consummation of the transactions contemplated herein. ARTICLE IX TERMINATION 9.1 Termination. This Agreement may be terminated at any time before the Closing Date: (a) by mutual written consent of Purchaser and Seller; (b) by Purchaser if there occurs in respect of the Seller a Material Adverse Effect; (c) by any nonbreaching party hereto if there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of any nonterminating party hereto; or (d) by either Purchaser or Seller if the Closing is not consummated on or before September 30, 2003 (or if an injunction seeking to prohibit this transaction has been obtained, October 15, 2003), through no fault of the terminating party. 9.2 Effects of Termination. In the event this Agreement is terminated pursuant to Section 9.1(a) or (b), no party shall have any further obligations to the others hereunder, except that the terms and provisions of Sections 3.7 and 3.9 shall survive any such termination. In the event of a termination of this Agreement pursuant to Sections 9.1(c) above, the terminating party shall retain all of its rights and remedies under this Agreement and those available at law or in equity. In the event of a termination of this Agreement pursuant to Sections 9.1(d) above, the terminating party shall retain all of its rights and remedies under this Agreement and those available at law or in equity provided the terminating party is not in breach or in violation of the terms of this Agreement. ARTICLE X DEFINITIONS "Assumed Contract" means any contract set forth on Schedule 1.1(d). "Assumed Liabilities" means, any direct or indirect debt, obligation or liability of any nature or kind, other than the Excluded Liabilities, whether based in common law or statute or arising under written contract or otherwise, known or unknown, fixed or contingent, accrued or unaccrued, liquidated or unliquidated, related directly to the Purchased Assets and arising out of acts, omissions, occurrences or conditions existing solely in respect of time periods commencing after the Closing. "Encumbrances" means any claim, lien, encumbrance, condition, easement, restriction, security interest and similar interest of any kind or nature. -30- "Permitted Encumbrances" means (i) any statutory liens for current Taxes not yet due and payable and (ii) only in respect of time periods prior to Closing, any Encumbrances on the Accounts Receivable or the Inventory that secures any debt for borrowed money. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1 Risk of Loss. The risk of loss prior to the Closing shall be with Seller. In the event that a Material Adverse Effect occurs between the date hereof and Closing, then Purchaser shall have the option of either (i) proceeding to close the transactions contemplated by this Agreement with an assignment of any insurance proceeds which may be paid to reflect such loss or damage, or (ii) terminating this Agreement without further liability to Seller. 11.2 Severability. If any provision of this Agreement is prohibited by the laws of any jurisdiction as those laws apply to this Agreement, that provision shall be ineffective to the extent of such prohibition and/or shall be modified to conform with such laws, without invalidating the remaining provisions hereof. 11.3 Modification and Waiver. This Agreement may not be changed or modified except in writing specifically referring to this Agreement and signed by Purchaser and the Seller Parties. No attempted waiver of any provision hereof shall be binding on the other parties unless reduced to writing and signed the waiving party. Unless specifically provided otherwise herein or agreed to by Purchaser and the Seller Parties in writing, no modification, waiver, termination, rescission, discharge or cancellation of this Agreement shall affect the right of the parties hereto to enforce any claim, whether or not liquidated, which accrued prior to the date of such modification, waiver, termination, rescission, discharge, or cancellation of this Agreement, and no waiver of any provision or of any default under this Agreement shall affect the right of any party to enforce such provision or to exercise any right or remedy in the event of any other default, whether or not similar. 11.4 Assignment, Survival and Binding Agreement. This Agreement, the Transaction Documents and the Purchaser Transaction Documents may not be assigned by any party hereto without the prior written consent of the other parties, provided that Purchaser may assign this Agreement and the Purchaser Transaction Documents in whole or in part to one or more wholly-owned subsidiaries of Purchaser without the consent of Seller or Shareholders. The terms and conditions hereof shall survive the Closing as provided in Section 6.4 hereof and shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. 11.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, with the same effect as if the signatures thereto were in the same instrument. This Agreement shall be effective and binding on all parties when all parties have executed and delivered a counterpart of this Agreement. -31- 11.6 Notices. All notices, requests, demands, claims or other communications hereunder will be in writing and shall be deemed duly given if personally delivered, sent by telefax, or sent by a recognized overnight delivery service which guarantees next day delivery ("Overnight Delivery") or mailed registered or certified mail, return receipt requested, postage prepaid, transmitted or addressed to the intended recipient as set forth below: If to Seller or Shareholders: Dennis Chiavelli Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 Telefax: With a copy to: Legal Department Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 Telefax: And a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell Telefax: 212-735-2000 And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II If to the Purchaser: Sysco Corporation 1390 Enclave Parkway Houston, TX 77077-2099 Attn: General Counsel Telefax: (281) 584-2510 with a copy to: Robert P. Finch, Esq. Arnall Golden Gregory LLP 1201 West Peachtree Street 2800 One Atlantic Center Atlanta, GA 30309-3450 Telefax: (404) 873-8617 or at such other address as any party hereto notifies the other parties hereof in writing. The parties hereto agree that notices or other communications that are sent in accordance herewith (i) by personal delivery or telefax, will be deemed received on the day sent or on the first business -32- day thereafter if not sent on a business day, (ii) by Overnight Delivery, will be deemed received on the first business day immediately following the date sent, and (ii) by U.S. mail, will be deemed received upon receipt. 11.7 Entire Agreement; No Third Party Beneficiaries. This Agreement, together with the Exhibits, schedules and Revised Schedules attached hereto, constitute the entire agreement and supersede any and all other prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof and, except as otherwise expressly provided herein, is not intended to confer upon any person other than Purchaser and the Seller Parties, any rights or remedies hereunder. 11.8 Further Assurances. The parties to this Agreement agree to execute and/or deliver, both before and after Closing, any additional information, documents or agreements contemplated hereby and/or necessary or appropriate to effect and consummate the transactions contemplated hereby. Subject to the Confidentiality Agreement, Seller Parties agree to provide to Purchaser, both before and after the Closing, such information as Purchaser may reasonably request in order to consummate the transactions contemplated hereby and to effect an orderly transition of the Purchased Business following Closing. 11.9 Construction. Within this Agreement the singular shall include the plural and the plural shall include the singular and any gender shall include all other genders, all as the meaning and context of this Agreement shall require. In connection with any action or event which by the terms hereof requires consent of a party hereto, such consent shall not be unreasonably withheld or delayed. For purposes hereof, the knowledge of Seller and the Shareholders shall consist of the actual knowledge of the Shareholders together with such information as any of them, in light of their positions as shareholders and the capacities in which they serve Seller, should have known. The section headings as herein used are for convenience only and shall not be deemed to vary the content of this Agreement or limit the scope of any provision hereof. Unless otherwise specified, a reference herein to a schedule or an exhibit refers to a schedule or exhibit hereof. 11.10 Choice of Law. This Agreement and all documents executed in connection therewith shall be governed by, and construed in accordance with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof. 11.11 Dispute Resolution. All disputes, controversies or claims arising out of or relating to this Agreement and the transactions contemplated hereby (other than disputes to be resolved in accordance with Section 2.4(b) hereof) shall be resolved by agreement among the parties, or, if not so resolved within forty-five (45) days following written notice of dispute given by either party hereto to the other, and if written notice of desire to arbitrate is given by either of the parties as provided below and the matter is not then otherwise resolved by the parties hereto, by resort to arbitration in accordance with Title 9 of the United States Code (the United States Arbitration Act), the Commercial Arbitration Rules, and the Optional Rules for Emergency Measures of Protection, all as amended from time to time (the "Rules") of the American Arbitration Association and the provisions of this Section; provided, however, that the provisions of this Section shall prevail in the event of any conflict with such Rules. The parties agree that -33- they shall use their reasonable efforts to cause the matter to be presented to a panel of three arbitrators (at least one of whom shall have at least ten years of industry experience relating to the subject matter of the dispute) within thirty (30) days after the establishment of such panel. Such selection of arbitrators shall be made in accordance with the Rules. There shall be no discovery. Pending the arbitration hearing, any provisional remedy that would be available to a party from a court of law shall be available from the arbitration panel. The decision of a majority of the arbitration panel with respect to the matters referred to them pursuant hereto shall be final and binding upon the parties to the dispute, and confirmation and enforcement thereof may be rendered thereon by any court having jurisdiction upon application of any person who is a party to the arbitration proceeding. The costs and expenses incurred in the course of such arbitration shall be borne by the party or parties against whose favor the decisions and conclusions of the arbitration panel are rendered; provided, however, that if the arbitration panel determines that its decisions are not rendered wholly against the favor of one party or parties or the other, the arbitration panel shall be authorized to apportion such costs and expenses in the manner that it deems fair and just in light of the merits of the dispute and its resolution. The arbitration panel shall have no power or authority under this Agreement or otherwise to award or provide for the award of punitive or consequential damages against any party. 11.12 Definition of Days. For purposes of this Agreement, a "business day" is a day on which Purchaser is open for business but shall not include a Saturday or Sunday or legal holiday. Notwithstanding anything to the contrary in this Agreement, no action shall be required of the parties hereto except on a business day and in the event an action is required on a day which is not a business day, such action shall be required to be performed on the next succeeding day which is a business day. All references to "day" or "days" shall mean calendar days unless specified as a "business day." 11.13 Schedules, Revised Schedules and Exhibits. All schedules, Revised Schedules and Exhibits referenced in this Agreement, whether attached hereto on or after the date hereof or not, shall be deemed to be incorporated herein, and this Agreement shall be construed in accordance therewith. 11.14 Time of Essence. TIME IS OF THE ESSENCE OF THIS AGREEMENT. -34- IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement under seal as of the date first written above. SELLER: PORT STOCKTON FOOD DISTRIBUTORS, INC. By: /s/ Dennis Chiavelli --------------------------------- Its: EVP By: /s/ Donald G. Alvarado --------------------------------- Its: SVP SELLER PARTIES: AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Dennis Chiavelli --------------------------------- Its: EVP By: /s/ Donald G. Alvarado --------------------------------- Its: SVP SMART & FINAL INC. By: /s/ Dennis Chiavelli --------------------------------- Its: EVP By: /s/ Donald G. Alvarado --------------------------------- Its: SVP PURCHASER: SYSCO CORPORATION By: /s/ Michael C. Nichols --------------------------------- Its: V.P. & Gen Counsel -35- Exhibit 2.1(b) ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Agreement") is dated as of September , -- 2003 (the "Effective Date"), by and between PORT STOCKTON FOOD DISTRIBUTORS, INC., a California corporation, (the "Seller"), SYSCO CORPORATION, a Delaware corporation (the "Purchaser"), and WELLS FARGO BANK, N.A., solely in its capacity as Escrow Agent as is set forth herein (the "Escrow Agent"). Capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Asset Purchase Agreement (as defined below). R E C I T A L S A. WHEREAS, pursuant to that certain Asset Purchase Agreement (the "Asset Purchase Agreement") dated as of August 18, 2003, by and among Seller, Purchaser and others, Purchaser will, directly or indirectly, acquire from Seller certain assets of Seller; and B. WHEREAS, Section 2.1(b) of the Asset Purchase Agreement requires that Purchaser deposit with the Escrow Agent an amount equal to $ ------------- (the "Escrow Fund"), to be held by Escrow Agreement and distributed as provided in the Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, the receipt of which is hereby acknowledged, the Purchaser, the Seller and the Escrow Agent agree as follows: 1. Appointment of Escrow Agent. (a) The Escrow Agent is hereby appointed escrow agent in accordance with the instructions set forth in this Agreement and hereby agrees to act as the Escrow Agent under this Agreement. The Escrow Agent shall have no duty to enforce any provision hereof requiring performance by any other party hereunder. (b) The Escrow Agent hereby acknowledges receipt of the Escrow Fund. (c) The Escrow Agent shall not have any interest in the Escrow Fund, but shall serve as escrow holder only and have only possession thereof. The Escrow Agent expressly waives any right to set off and appropriate any amounts under the Escrow Fund. 2. Distribution of Escrow Fund. The Purchaser and the Seller shall, not more than one (1) calendar week after the final determination of the Final Accounts Receivable Amount and the Final Inventory Amount, as agreed to by the parties or as set forth in the Accountants Report pursuant to Section 2.4(b) of the Asset Purchase Agreement, provide the Escrow Agent with a written notice (the "Distribution Notice") with respect to the disposition of the Escrow Fund. The Distribution Notice shall be signed by authorized officers of the Purchaser and the Seller, and shall describe the portions of the Escrow Fund to be distributed to the Purchaser or to 1 the Seller, as the case may be. Not more than one (1) calendar week after the delivery of the Distribution Notice, the Escrow Agent shall distribute the Escrow Fund in the manner described in the Distribution Notice, together with any interest and income earned on the portion so distributed. 3. Administration of Escrow. (a) So long as the Escrow Fund is held in escrow, it shall be invested and reinvested by the Escrow Agent solely in Investments, pursuant to written instructions signed by the Purchaser and the Seller. Neither the Escrow Agent, the Purchaser, nor the Seller shall be liable or responsible for any loss resulting from any investment or reinvestment made pursuant to this Section 3(a). All investments of the Escrow Fund shall be held by, or registered in the name of, Escrow Agent or its nominee. As used herein "Investments" means: (i) direct obligations of, or obligations fully guaranteed by, the United States of America or any agency thereof with any residual amount being invested in the Federal Treasury Obligations Money Market Fund; (ii) any taxable publicly traded money market fund; or (iii) certificates of deposit whether negotiable or nonnegotiable, issued by any bank, trust company or national banking association, including the Escrow Agent, provided that such certificates of deposit shall (A) be issued by a bank, trust company or national banking association having a capital stock and surplus of more than Five Hundred Million Dollars ($500,000,000), (B) be fully insured by the Federal Deposit Insurance Corporation or (C) be fully and continuously secured by direct obligations of, or obligations unconditionally guaranteed by, the United States of America, which (1) shall have a market value (exclusive of accrued interest) at all times at least equal to the principal amount of such certificates of deposit, (2) shall be lodged with the Escrow Agent (or any correspondent bank or trust company designated by the Escrow Agent), as custodian, by the bank, trust company or national banking association issuing such certificate of deposit, and (3) the bank, trust company or national banking association issuing each certificate of deposit required to be so secured shall furnish the Escrow Agent with an undertaking satisfactory to it that the aggregate market value of such obligations securing each such certificate of deposit will at all times be an amount equal to the principal amount of each such certificate of deposit (and the Escrow Agent shall be entitled to rely on each such undertaking). (b) Maturities or unexpired terms of maturities of instruments in which the Escrow Fund is invested shall not exceed sixty (60) days. The Escrow Agent is authorized to sell any such Investments as may be required to make any payment required to be made under this Agreement, and the Escrow Agent shall not be liable for any loss due to early redemption. In the event that no written instructions are given by the Purchaser and the Seller as to any uninvested portion of the Escrow Fund, such portion shall be invested by the Escrow Agent in United States 2 treasury bills for a thirty (30) day period; provided, however, that, if such period is not available, such portion shall be invested for the closest period of shorter duration. (c) Not less than ten (10) nor more than fifteen (15) business days prior to the termination of this Agreement, the Escrow Agent shall deliver to the Purchaser and the Seller a report outlining the total amount of the Escrow Fund as of such date and the total amount of interest earned on the Escrow Fund prior thereto and not distributed pursuant to the terms of this Agreement. (d) At the prior written request of either the Purchaser or the Seller at any time, the Escrow Agent shall deliver to the Purchaser and the Seller such information as shall be reasonably requested with respect to the Escrow Fund and any interest earned thereon or payments made therefrom. (e) Net profits resulting from, and interest and income produced by investments of, the Escrow Fund shall be deemed a part of the Escrow Fund and reinvested by Escrow Agent. 4. Reliance. Escrow Agent may act upon any instrument or other writing believed by it in good faith to be genuine and to be signed or presented by the proper person or persons and shall not be liable in connection with the performance by it of its duties pursuant to the provisions hereof, except for its own bad faith, fraud, willful misconduct or gross negligence. The Purchaser, on the one hand, and the Seller, on the other hand, shall indemnify and hold harmless the Escrow Agent for one half (1/2) of all losses, costs and expenses which may be incurred by it without bad faith, fraud, gross negligence or willful misconduct on the part of the Escrow Agent, arising out of or in connection with its entering into this Agreement and carrying out its duties hereunder. Such indemnification provisions shall survive the termination of this Agreement or the removal or resignation of the Escrow Agent. 5. Fees and Expenses. The Escrow Agent shall be entitled to compensation for its services as stated in the schedule attached as Annex I, which compensation shall be by the Seller. The fee agreed upon for the services rendered hereunder is intended as full compensation for the Escrow Agent's services as contemplated by this Agreement; provided, however, that, in the event that the conditions for the disbursement of funds under this Agreement are not fulfilled, or the Escrow Agent tenders any material service not contemplated in this Agreement or there is any assignment of interest in the subject matter of this Agreement not contemplated herein, or any material modification hereof, or if any material controversy arises hereunder, or the Escrow Agent is made a party to any litigation pertaining to this Agreement, or the subject matter hereof, then the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorneys' fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable one-half (1/2) from the Seller and one-half (1/2) from the Purchaser. 6. Liability of the Escrow Agent. (a) The Escrow Agent shall hold, invest and disburse the Escrow Fund and any interest, dividends, or other income accrued thereon only in accordance with (i) this 3 Agreement or (ii) written instructions accompanied by a certificate signed by the Purchaser and the Seller confirming that such written instructions are being given in conformity with this Agreement. The Escrow Agent shall not be bound in any way by, or be deemed to have knowledge of, the Asset Purchase Agreement or any other agreement between or among the parties hereto, other than this Agreement. The Escrow Agent shall have no duties other than those expressly imposed on it herein and shall not be liable with respect to any action taken by it, or any failure on its part to act, except to the extent that such actions constitute a breach of this Agreement, bad faith, fraud, gross negligence or willful misconduct. (b) The Escrow Agent makes no representations and has no responsibility as to the validity, genuineness or sufficiency of any of the documents or instruments delivered to it hereunder. Subject to Section 6(a) hereof, the Escrow Agent (i) shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity of the service thereof and (ii) may act in reliance upon any instrument or signature reasonably believed by it to be genuine and may assume that any person purporting to give notice, receipt or advice or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. The Escrow Agent may act in reliance upon the written advice of counsel satisfactory to it in reference to any matter in connection with this Agreement and shall not incur any liability for any action taken in good faith in accordance with such written advice. (c) In the event of any disagreement between the other parties hereto resulting in adverse claims or demands being made in connection with the Escrow Fund, or in the event that the Escrow Agent in good faith is in doubt as to what action it should take hereunder, the Escrow Agent shall be entitled to refrain from acting until the Escrow Agent shall have received (i) a final nonappealable order of a court of competent jurisdiction directing delivery of the amount of the Escrow Fund in dispute or (ii) written instructions jointly executed by the Seller and the Purchaser directing delivery of the amount of the Escrow Fund in dispute, in which event the Escrow Agent shall deliver the amount of the Escrow Fund in dispute in accordance with such order or instructions. Any court order referred to in clause (i) above shall be accompanied by a legal opinion by counsel for the presenting party reasonably satisfactory to the Escrow Agent to the effect that said order or determination is final and nonappealable. The Escrow Agent shall act on such court order and legal opinion without further questions. 7. Resignation; Removal. (a) The Escrow Agent may resign upon thirty (30) days advance written notice to the parties. If a successor escrow agent is not appointed by the mutual agreement of the Purchaser and the Seller within the thirty (30) day period following such notice, the Escrow Agent may tender into the registry or custody of any court of competent jurisdiction any part or all of the Escrow Fund. (b) The Escrow Agent shall be entitled to its compensation earned prior to its resignation hereunder. 4 (c) The Purchaser and the Seller may, at any time substitute a new escrow agent by giving thirty (30) days notice thereof to the existing Escrow Agent and paying all fees and expenses of such Escrow Agent incurred to the date of the substitution. Upon the effective date of the substitution of a successor escrow agent, the Escrow Agent shall deposit all of the Escrow Fund with such successor. 8. Tax Reporting. Any payments of income from the Escrow Fund shall be subject to withholding regulations then in force with respect to United States taxes. For federal and state income tax purposes, all interest earned on the Escrow Fund shall be considered the currently reportable income of the party who receives the distribution with respect thereto. The Escrow Agent shall file annually all information returns with the Internal Revenue Service and other governmental authorities documenting such interest income. 9. Miscellaneous Provisions. (a) Severability. If any provision of this Agreement is prohibited by the laws of any jurisdiction as those laws apply to this Agreement, that provision shall be ineffective to the extent of such prohibition and/or shall be modified to conform with such laws, without invalidating the remaining provisions hereof. (b) Modification and Waiver. This Agreement may not be changed or modified except in writing specifically referring to this Agreement and signed by Purchaser, Seller and the Escrow Agent. No attempted waiver of any provision hereof shall be binding on the other parties unless reduced to writing and signed by the waiving party. Unless specifically provided otherwise herein or agreed to by Purchaser, Seller and the Escrow Agent in writing, no modification, waiver, termination, rescission, discharge or cancellation of this Agreement shall affect the right of the parties hereto to enforce any claim, whether or not liquidated, which accrued prior to the date of such modification, waiver, termination, rescission, discharge, or cancellation of this Agreement, and no waiver of any provision or of any default under this Agreement shall affect the right of any party to enforce such provision or to exercise any right or remedy in the event of any other default, whether or not similar. (c) Assignment, Survival and Binding Agreement. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties, provided that Purchaser may assign this Agreement in whole or in part to one or more wholly-owned subsidiaries of Purchaser without the consent of Seller. The terms and conditions hereof shall survive the Closing of the Asset Purchase Agreement and shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. (d) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, with the same effect as if the signatures thereto were in the same instrument. This Agreement shall be effective and binding on all parties when all parties have executed and delivered a counterpart of this Agreement. 5 (e) Notices. All notices, requests, demands, claims or other communications hereunder will be in writing and shall be deemed duly given if delivered personally, if sent by telefax, or sent by a recognized overnight delivery service, which guarantees next day delivery ("Overnight Delivery") or mailed registered or certified mail, return receipt requested, postage prepaid, transmitted or addressed to the intended recipient as set forth below: If to Purchaser: Sysco Corporation 1390 Enclave Parkway Houston, TX 77077-2099 Attn: General Counsel Telefax: (281) 584-2510 With a copy to: Robert P. Finch, Esq. Arnall Golden Company LLP 1201 West Peachtree Street 2800 One Atlantic Center Atlanta, GA 30309-3450 Telefax: (404) 873-8617 If to Seller: Dennis Chiavelli Smart & Final Inc. 600 Citadel Drive Commerce, CA 90040 Telefax: (323) 869-7871 With a copy to: Legal Department Smart & Final Inc. 600 Citadel Drive Commerce, CA 90040 Telefax: (323) 869-7862 With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 Attention: Jeffrey W. Tindell Telefax: (212) 735-2000 And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, CA 90067-3021 Attention: Richard W. Lasater II Telefax: (310) 557-8475 or such other address as any party hereto notifies the other parties hereof in writing. The parties hereto agree that notices or other communications that are sent in accordance herewith (i) by personal delivery or telefax, will be deemed received on the day sent or on the first business day 6 thereafter if not sent on a business day, (ii) by Overnight Delivery, will be deemed received on the first business day immediately following the date sent, and (iii) by U.S. mail, will be deemed received upon receipt. (f) Entire Agreement; No Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersede any and all other prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof and, except as otherwise expressly provided herein, is not intended to confer upon any person other than Purchaser and Seller any rights or remedies hereunder. (g) Construction. Within this Agreement the singular shall include the plural and the plural shall include the singular and any gender shall include all other genders, all as the meaning and context of this Agreement shall require. In connection with any action or event which by the terms hereof requires consent of a party hereto, such consent shall not be unreasonably withheld or delayed. The section headings as herein used are for convenience only and shall not be deemed to vary the content of this Agreement or limit the scope of any provision hereof. Unless otherwise specified, a reference herein to a schedule, an annex or an exhibit refers to a schedule, annex or exhibit hereof. (h) Choice of Law. This Agreement and all documents executed in connection herewith shall be governed by, and construed in accordance with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof. (i) Dispute Resolution. All disputes, controversies or claims arising out of or relating to this Agreement shall be resolved by agreement among the parties, or, if not so resolved within forty-five (45) days following written notice of dispute given by either party hereto to the other, and if written notice of desire to arbitrate is given by either of the parties as provided below and the matter is not then otherwise resolved by the parties hereto, by resort to arbitration in accordance with Title 9 of the United States Code (the United States Arbitration Act), the Commercial Arbitration Rules, and the Optional Rules for Emergency Measures of Protection, all as amended from time to time (the "Rules") of the American Arbitration Association and the provisions of this Section; provided, however, that the provisions of this Section shall prevail in the event of any conflict with such Rules. The parties agree that they shall use their reasonable efforts to cause the matter to be presented to a panel of three arbitrators (at least one of whom shall have at least ten (10) years of industry experience relating to the subject matter of the dispute) within thirty (30) days after the establishment of such panel. Such selection of arbitrators shall be made in accordance with the Rules. There shall be no discovery. Pending the arbitration hearing, any provisional remedy that would be available to a party from a court of law shall be available from the arbitration panel. The decision of a majority of the arbitration panel with respect to the matters referred to them pursuant hereto shall be final and binding upon the parties to the dispute, and confirmation and enforcement thereof may be rendered thereon by any court having jurisdiction upon application of any person who is a party to the arbitration proceeding. The costs and expenses incurred in the course of such arbitration shall be borne by the party or parties against whose favor the decisions and conclusions of the arbitration panel are rendered; provided, however, that if the arbitration panel determines that its decisions are not rendered wholly against the favor of one party or parties or the other, the 7 arbitration panel shall be authorized to apportion such costs and expenses in the manner that it deems fair and just in light of the merits of the dispute and its resolution. The arbitration panel shall have no power or authority under this Agreement or otherwise to award or provide for the award of punitive or consequential damages against any party. IN WITNESS WHEREOF, the Seller, the Purchaser, and the Escrow Agent have executed and delivered this Agreement as of the date first written above. SELLER: PORT STOCKTON FOOD DISTRIBUTORS, INC. By: /s/ Donald G. Alvarado --------------------------------- Its: SVP -------------------------------- PURCHASER: SYSCO CORPORATION By: /s/ Michael C. Nichols --------------------------------- Its: V.P & Gen Counsel -------------------------------- ESCROW AGENT: WELLS FARGO BANK, N.A. By: /s/ [Signature Illegible] --------------------------------- Its: Vice President -------------------------------- 8 ANNEX I FEE SCHEDULE 1. Annual escrow fee $2,000 2. Reimbursement of expenses $1,000 advance A-1 Exhibit 3.1(f)(i) SELLER'S RETENTION BONUSES FOR MARKETING ASSOCIATES AND SALES MANAGEMENT AMOUNT OF BONUS --------------------------- ASSOC. AT 60 DAYS & MGRS. CLOSING AFTER TOTAL ------- ------- ------- ------- Chairman's Club 5 55,000 25,000 80,000 President's Club 18 90,000 18,000 108,000 Executive Vice Presidents 15 30,000 7,500 37,500 Vice Presidents 28 56,000 14,000 70,000 Unallocated 35,000 35,000 --- ------- ------- ------- Total Marketing Associates 66 266,000 64,500 330,500 --- ------- ------- ------- District Sales Managers 7 52,500 17,500 70,000 Other Sales Managers 3 30,000 70,000 100,000 --- ------- ------- ------- Total Sales Management 10 82,500 87,500 170,000 --- ------- ------- ------- Total 76 348,500 152,000 500,500 === ======= ======= ======= Average per Associate/Manager 6,586 ======= Exhibit 3.1(f)(ii) SELLER'S RETENTION BONUSES FOR NON-MARKETING EMPLOYEES AMOUNT OF BONUS --------------------------- 30-60 ASSOC- AT DAYS IATES CLOSING AFTER TOTAL ------ ------- ------- ------- Warehouse Associates 53 118,631 118,631 Transportation Associates 102 200,032 200,032 General and Administrative Associates 62 17,000 460,673 477,673 --- ------ ------- ------- 217 17,000 779,336 796,336 === ====== ======= ======= Average per associate 3,670 ======= Exhibit 3.1(g) CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT This Confidentiality And Non-Disclosure Agreement (the "Agreement") is between ("Employee") and Sysco Food Services of , Inc. ---------- ----------- (the "Company" or "Sysco"), effective as of September 15, 2003. 1. Purpose of the Agreement. The Company is purchasing the assets, including the customers and goodwill of Port Stockton's foodservice operations located in Stockton, California ("Port Stockton"), and considers it essential to the operation of the Company that its existing employees and customer base be retained through certain potential transactions and for a reasonable period of time thereafter. The purpose of the Agreement is to provide a stable workforce and customer base through the Performances provided in Schedule A to Employee to continue in the service of the Company. 2. At-Will Employment. The employment of Employee shall continue to be at-will, as defined under applicable law, and such Employee's employment with the Company may be terminated by either party at any time for any or no reason, subject to the notice provisions set forth in paragraph . If Employee's --- employment terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, award or compensation other than as provided under the Agreement, or as may otherwise be available in accordance with the terms of the Company's established employee plans and written policies at the time of termination. The termination of employment shall not release Employee from the obligations respecting the subject matter of any invention, trade secrets, and other confidential business information. 3. Performance Bonus and Compensation. Employee shall be eligible to receive a performance bonus (the "Performance Bonus") in the amount set forth in Schedule A ("Performance Bonus Amount") based upon achieving the goals set forth in Schedule A. In addition, Employee will be compensated in accordance with Schedule B (the "W-2 Match") 4. Eligibility to Receive Performance Bonus. Employee shall be eligible to receive a Performance Bonus under this Agreement, under the following conditions: (a) Employee must execute this Agreement, and abide by its terms. (b) Employee must be employed by Sysco on the date the Performance Bonus is determined. 5. Payment of Performance Bonus. The Performance Bonus payments shall be paid with the next regularly scheduled payroll process following the date the Employee meets the requirements of Schedule A. 6. Confidential Information and Goodwill. This intent of this Agreement is to facilitate the purchase of Port Stockton's Stockton operations by Sysco, and the transfer of Confidential Information (defined below) and customer goodwill from Port Stockton to Sysco. Employee has helped develop and has been entrusted with customer goodwill and Confidential Information regarding customers that are an important part of the value of the business being sold. In order to avoid any dispute over ownership of Confidential Information and goodwill with Covered Customers (defined as customers that Employee handled Confidential Information about or had business-related contact within the last two years of employment with Port Stockton, and any customers that Employee handled Confidential Information about or had business-related contact with during Employee's employment with Sysco), Employee is eligible to receive the Performance Bonus as set forth in Schedule A and the W-2 Match described on Schedule B. In return, Employee (a) agrees that all ownership rights regarding the Confidential Information and goodwill with Covered Customers that Employee handled or developed while associated with Port Stockton are transferred and are now the exclusive property of Sysco and an asset being purchased by Sysco and (b) waives any claim to the contrary. During employment with the Company, and one year thereafter (the "Protection Period"), Employee will not participate in any efforts to divert any Covered Customers away from Sysco. This commitment and the commitments set forth in section 7 below are protections for the Confidential Information and goodwill purchased by Sysco or its affiliates. 7. Protection of Confidential Information. The parties agree that Employee has been and will be provided authorization to access Confidential Information of the Company and/or will be provided authority to assist in the development of goodwill for the benefit of the Company. This access is not contingent upon continued employment for any particular length of time but is contingent upon Employee's complete compliance with the restrictions provided for in this agreement. Employee agrees and acknowledges that during the performance of his or her duties with the Company, Employee will receive and have access to confidential, proprietary and/or trade secret information concerning the Company, and therefore agrees as follows: (a) Confidential Information shall include but is not limited to the following Company information: (i) the names, lists, buying habits and practices of Covered Customers, or vendors, (ii) relationships between Covered Customers and the persons and entities with whom they have contracted and other customer goodwill developed through the customer relationship, (iii) Company marketing plans and related information, (iv) services, products, developments, improvements and methods of operation, (v) profit, performance and financial requirements, (vi) business plans and the information contained therein, and (vii) all other confidential information of, about or concerning the Company or Covered Customers, and other confidential data of any kind, nature or description relating to the Company or the business with Covered Customers (collectively the "Confidential Information"). (b) During Employee's employment and after the termination of employment, Employee shall not, without written consent of the Company, publish or use or disclose to anyone other than authorized Company personnel any Confidential Information. Employee agrees to abide by the policies and regulations for the protection of Confidential Information and understands and agrees that the unauthorized disclosure or misuse of such confidential, proprietary or trade secret information could irreparably damage the Company and/or third parties dealing with the Company -2- (c) Employee agrees that the Company has invested substantial time, effort and expense in compiling its Confidential Information and in assembling its present staff of personnel, and that the Confidential Information is a substantial asset being purchased by Sysco. In order to protect against the disclosure and misappropriation of the Company's Confidential Information, Employee agrees that, during his or her employment with the Company and for one year thereafter, Employee shall not do the following: (1) approach, solicit business from, or contact or otherwise communicate in any way with any Covered Customer of the Company with the use or assistance of Confidential Information of the Company that Employee obtained during his or her employment for the purpose of engaging in or assisting others in engaging in Competition (as defined herein); (2) approach, counsel or attempt to induce any person who is then employed to leave the employ of the Company; or (3) aid, assist or counsel any other person, firm or corporation to do any of the above. For the purpose of this Agreement, a person or business is in Competition with the business of the Company if the business provides the same or substantially similar products or services that are being provided by Sysco to Covered Customers. 8. Return Of Company Property. All correspondence, memoranda, notes, records, databases, reports, plans, documents, equipment, digitally-stored information or other property received or made by Employee in connection with employment with either Port Stockton and/or Sysco, shall be the exclusive property of Sysco and must not be removed from Company premises, except as required in the course of employment. Employee agrees to return promptly and deliver all copies thereof to the Company on the termination of employment or upon request. 9. Assignment of Inventions. Employee agrees that any and all inventions, discoveries or improvements that Employee has conceived or may conceive or make during his or her employment relating to or in any way pertaining to or connected with the products or services sold by Company shall be the sole and exclusive property of the Company to the extent permitted by California Labor Code section 2870. The Company shall be the sole owner of all intellectual property rights in connection with such Inventions. Employee hereby assigns to the Company any rights Employee may have or acquire in such Inventions, and shall assign, and hereby does assign to the Company all rights, title and interest in and to all such inventions, discoveries or improvements as well as any modifications or improvements thereto that may be made, to the maximum extent allowed by California Labor Code section 2870. Employee will promptly disclose in writing to any persons designated by the Company, all "Inventions," which includes all improvements, inventions, formulas, ideas, processes, techniques, know-how and data, whether or not patentable, made or conceived or reduced to practice or developed by me, either alone or jointly with others during the term of Employee's employment. -3- 10. Notice Period. Employee's employment may be terminated by either the Employee or the Company at any time so long as the Company and/or Employee provides fourteen days (14) days' advance notice ("Notice Period") in writing. During the Notice Period, Employee will remain employed by the Company and have a continuing duty of loyalty and shall be available to consult with the Company concerning any and all pending matters and aid in the transition of information concerning customers, trade secrets, business plans and other Confidential Information. This Notice Period is intended to help the Company protect its business interests, preserve customer good will, give the Company time to find a replacement, facilitate the transfer of Confidential Information that is necessary for the Company to maintain its customer base. During this Notice Period, Employee shall provide to Sysco a full accounting of all actual or potential transactions with Covered Customers, all Confidential Information concerning Covered Customers, all Inventions that he or she may have developed, and aid Sysco in the transition of Covered Customers to Employee's replacement. Termination of Employment will be effective at the end of the Notice Period. Employee acknowledges that the duties under the Notice Period are vital to the Company, and that it shall be entitled to specific enforcement of such duties and /or injunctive relief to prevent interference with the performance of such duties. 11. Successors. Any successor to the Company to all or substantially all of the Company's business and/or assets shall assume all obligations and rights of the Company under this Agreement, and shall be the direct beneficiary of the terms of this Agreement. Employee agrees expressly to perform the obligations under this Agreement for any successor in the same manner and to the same extent as Employee would be required to perform such obligations in the absence of a succession. The terms of this Agreement and of each Employee's rights hereunder shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 12. Governing Law. The validity, interpretation, construction and performance of this Plan shall be governed by the laws of the State of California, without regard to its or any other jurisdiction's conflicts of laws principles. 13. Severability And Waiver Should any provision of this Agreement be declared or be determined by any court of competent jurisdiction to be wholly or partially illegal, invalid, or unenforceable, the legality, validity, and enforceability of the remaining parts, terms, or provisions shall not be affected thereby, and said illegal, unenforceable, or invalid part, term, or provision shall be deemed not to be a part of this Agreement. 14. Entire Agreement. This Agreement represents Employee's entire understanding with the Company with respect to the subject matter of this Agreement and supersedes all previous understandings, written or oral. This Agreement may be amended or modified only by an agreement in writing signed by both Employee and the Company. No oral waiver, amendment or modification shall be effective under any circumstances whatsoever. Employee acknowledges and agrees that Employee has reviewed all aspects of this Agreement, has carefully read and fully understands all the provisions of this Agreement, and am voluntarily entering into this Agreement. -4- EMPLOYEE Dated: - ------------------------------------------ ------------------------- [NAME] Sysco Food Services of , Inc. Dated: --------------- ------------------------- By: ---------------------------------- Its: --------------------------------- -5- Exhibit 3.4 NONCOMPETITION NONSOLICITATION AGREEMENT (SELLER FORM) THIS NONCOMPETITION NONSOLICITATION AGREEMENT ("Agreement"), dated this day of September, 2003, is made by and between SYSCO CORPORATION, a - ---- Delaware corporation, together with its affiliates, successors and assigns ("Purchaser") and PORT STOCKTON FOOD DISTRIBUTORS, INC., a California corporation ("Seller"). W I T N E S S E T H: WHEREAS, Seller is engaged in the business of (i) selling food and foodservice products to foodservice industry customers (the "Foodservice Business"); (ii) produce processing; and (iii) meat processing (the "Meat Processing Business" and, together the Meat Processing Business and the Foodservice Business are referred to herein as the "Purchased Business"); WHEREAS, Purchaser, pursuant to that certain Asset Purchase Agreement ("Purchase Agreement") dated August 18, 2003, among Seller, the sole shareholder of Seller, the Purchaser and Smart & Final Inc., the parent of Seller's sole shareholder, as of the date hereof, acquired (the "Acquisition") from Seller, certain of the assets of Seller used solely in connection with the Purchased Business, including among other assets, customers lists and goodwill related thereto; WHEREAS, the business connections, customers, products, techniques, goodwill and other aspects of the Purchased Business are maintained at great expense, are of great value to Purchaser and provide it with a substantial competitive advantage; WHEREAS, in order to induce Purchaser to enter into the Purchase Agreement and to consummate the Acquisition, which Seller hereby acknowledges will benefit Seller, Seller has agreed to accept certain restrictions as set forth herein; and WHEREAS, this Agreement is ancillary to and an integral part of the Purchase Agreement and the transactions contemplated therein. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. For the purposes of this Agreement, the following definitions shall apply: (a) "Competing Business" shall mean any person, concern or entity which is engaged in or conducts a business in the Territory substantially the same as the Purchased Business as of the date hereof. (b) "Confidential Information" shall mean business information (other than business information that is a Trade Secret) of Purchaser, not generally known or available to the public or competitors in the trade and that Purchaser keeps confidential. (c) "Noncompetition Period" means the period beginning on the Closing Date (as defined in the Purchase Agreement) and expiring on the second (2nd) anniversary of the Closing Date. (d) "Territory" shall mean the State of California, which the parties acknowledge is the market in which Seller conducts the Purchased Business prior to the date hereof. (e) "Trade Secrets" shall mean information not generally known about the Purchased Business or Purchaser which is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality and from which Purchaser derives economic value from the fact that the information is not generally known to other persons who can obtain economic value from its disclosure or use. Trade Secrets include, but are not limited to, technical or non-technical data, compilations, programs and methods, techniques, drawings, processes, financial data, research, pricing, information as to sales representatives and suppliers, lists of actual and potential customers, customer route books, cards or lists containing the names, addresses, buying habits and business locations of past, present and prospective customers, sales reports, service reports, price lists, product formulae and methods and procedures relating to services, in each case to the extent not generally known or available to the public, persons who can obtain economic value from its disclosure or use, or competitors in the trade. 2. Covenants of Seller. The covenants in this Section 2 are a material inducement to Purchaser to enter into the Purchase Agreement, and certain of the amounts payable to Seller under the Purchase Agreement are in consideration for the covenants in this Section 2. The parties hereto acknowledge that: (i) the assets being purchased by Purchaser are the principal assets of the Purchased Business; (ii) the restrictions imposed in this Section 2 are fair and reasonable; and (iii) the time, scope, geographic area, and other provisions of this Section 2 have been specifically negotiated by sophisticated commercial parties, represented by legal counsel. (a) Nondisclosure of Trade Secrets and Confidential Information. (i) Seller will not at any time communicate or disclose to any person, firm or business entity, other than Purchaser, directly or indirectly, any Trade Secrets or Confidential Information; provided, however, that Seller may disclose such information (A) as has become generally available to the public or known by or available to competitors in the trade (other than by virtue of any disclosure by Seller in violation of this Agreement), (B) as may be required in any report, statement or testimony submitted to any municipal, state, federal or other governmental regulatory body, (C) as may be required to enforce rights of Seller under the Purchase Agreement or any agreement entered into in connection with the Purchase Agreement, (D) as may be required in response to any summons or subpoena or in connection with any litigation, or any administrative or other legal proceeding, or (E) as may be required in order to comply with any law, order, regulation or ruling applicable to Seller or Purchaser; provided that Seller shall give Purchaser reasonable prior notice of any disclosure under the immediately -2- preceding clauses (D) and (E) in order to permit Purchaser to seek an appropriate protective order. (ii) Subject to the provision set forth in the immediately preceding subsection (ii), the disclosure of Trade Secrets by Seller is prohibited until such information loses its character as a Trade Secret through no fault or action of Seller. (b) Noncompetition. Seller covenants and agrees that Seller shall not, during the Noncompetition Period, either directly or indirectly, within the Territory (i) for itself, (ii) as a consultant, manager, owner, partner, joint venturer, investor, or lender, or (iii) as an independent contractor for, or while acting in any other capacity, own, engage in, conduct, manage, operate or participate in or in any other way provide services to a Competing Business. (c) Nonsolicitation of Customers. Seller covenants and agrees that Seller shall not, during the Noncompetition Period, either directly or indirectly, on its own behalf or in the service or on behalf of any Competing Business, solicit or attempt to divert any customer of Purchaser to whom Seller sold or provided any products or services through the Purchased Business at any time within the twelve (12) month period prior to the date hereof. (d) Nonsolicitation of Employees. Seller covenants and agrees that Seller shall not, during the Noncompetition Period, directly or indirectly, solicit, divert or recruit any employee of Purchaser who was employed by Seller prior to Closing, to leave such employment, whether or not such employment is pursuant to a written contract with Purchaser or at will. 3. Reformation by Court. In the event any court of competent jurisdiction should determine that any of the terms of this Agreement are unreasonable or unenforceable in scope, Seller and Purchaser consent to the exercise by such court of its equitable jurisdiction to reform such terms in accordance with applicable law. 4. Severability. If any provision of this Agreement is prohibited by the laws of any jurisdiction as those laws apply to this Agreement, that provision shall be ineffective to the extent of such prohibition and/or shall be modified to conform with such laws, without invalidating the remaining provisions hereof. 5. Injunctive Relief. Both Seller and Purchaser expressly recognize that the subject matter of this Agreement is unique, and that any breach of Seller's obligations under this Agreement is likely to result in irreparable injury to Purchaser which cannot be adequately or solely measured or compensated by the rules of law and legal remedies. Therefore, in the event of a breach of this Agreement by Seller, Purchaser shall be entitled to obtain specific performance of this Agreement through injunctive relief and such ancillary remedies of an equitable nature as a court may deem appropriate. Such equitable relief shall be in addition to, and the availability of such equitable relief shall not serve to preclude, any legal remedies which might be available to Purchaser. 6. Governing Law; Jurisdiction. This Agreement is governed by and subject to the laws of the State of California (without giving effect to its conflict of law provisions) irrespective of the fact that a party hereto may be a resident of another state or jurisdiction. Each of the -3- parties hereby irrevocably submits in any suit, action or proceeding arising out of or related to this Agreement to the exclusive jurisdiction of the courts of the State of California and waives any and all objections to jurisdiction that it may have under the laws of California or the United States. 7. Modification. This Agreement may not be changed or modified except in writing specifically referring to this Agreement and signed by Purchaser and the Seller. No attempted waiver of any provision hereof shall be binding on the other parties unless reduced to writing and signed the waiving party. Unless specifically provided otherwise herein or agreed to by Purchaser and the Seller in writing, no modification, waiver, termination, rescission, discharge or cancellation of this Agreement shall affect the right of the parties hereto to enforce any claim, whether or not liquidated, which accrued prior to the date of such modification, waiver, termination, rescission, discharge, or cancellation of this Agreement, and no waiver of any provision or of any default under this Agreement shall affect the right of any party to enforce such provision or to exercise any right or remedy in the event of any other default, whether or not similar. 8. Benefit; Assignment. This Agreement shall be binding upon and inure to the benefit of and shall be enforceable by Purchaser, the Seller and their respective successors and assigns. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties, provided that Purchaser may assign this Agreement, in whole or in part, to one or more wholly-owned subsidiaries of Purchaser without the consent of the Seller. 9. Time of Essence. The parties agree that time is of the essence with respect to each provision of this Agreement. 10. Headings. The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 11. Notices. Any notice to be given hereunder shall be deemed given and sufficient if in writing and delivered personally or sent for next day delivery by a recognized overnight delivery service (e.g. Federal Express) which guarantees next day delivery ("Overnight Delivery") or by telefax with confirmation of receipt (with a copy sent by registered or certified mail, return receipt requested, postage prepaid or Overnight Delivery), If to Seller: Dennis Chiavelli Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 Telefax: (323) 869-7871 -4- With a copy to: Legal Department Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 Telefax: (323) 869-7862 And a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell Telefax: (212) 735-2000 And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II Telefax: (310) 557-8475 If to the Purchaser: Sysco Corporation 1390 Enclave Parkway Houston, TX 77077-2099 Attn: General Counsel Telefax: (281) 584-2510 with a copy to: Robert P. Finch, Esq. Arnall Golden Gregory LLP 1201 West Peachtree Street 2800 One Atlantic Center Atlanta, GA 30309-3450 Telefax: (404) 873-8617 or such address as shall be furnished by such notice to the other parties hereto. 12. Expenses of Enforcement. The non-prevailing party shall be liable to, and will pay the prevailing party, for all costs and expenses, including, but not limited to, reasonable attorneys' fees incurred by the prevailing party in the enforcement, defense or interpretation in any respect of any of its rights under this Agreement, whether in litigation or otherwise. The existence of any claim, demand, action, or cause of action of Seller against Purchaser shall not operate as an offset against any liability of Seller hereunder, nor shall it preclude Purchaser from pursuing any remedy hereunder. -5- IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have executed and delivered this Agreement as of the day and year first above written. PURCHASER: SYSCO CORPORATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- SELLER: PORT STOCKTON FOOD DISTRIBUTORS, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- -6- Exhibit 3.4 NONCOMPETITION NONSOLICITATION AGREEMENT (SHAREHOLDERS' FORM) THIS NONCOMPETITION NONSOLICITATION AGREEMENT ("Agreement"), dated this day of September, 2003, is made by and among SYSCO CORPORATION, a Delaware - ---- corporation, together with its affiliates, successors and assigns ("Purchaser"), AMERCIAN FOODSERVICE DISTRIBUTORS, INC., a California corporation ("AFD"), and SMART & FINAL INC., a Delaware corporation ("S&F", together with AFD, the "Shareholders"). W I T N E S S E T H: WHEREAS, S&F is the sole shareholder of AFD; WHEREAS, AFD is the sole shareholder of Port Stockton Food Distributors, Inc., a California corporation ("Seller"), and whereas Seller is engaged in the business of (i) selling food and foodservice products to foodservice industry customers (the "Foodservice Business"); (ii) produce processing; and (iii) meat processing (the "Meat Processing Business" and, together, the Meat Processing Business and the Foodservice Business are referred to herein as the "Purchased Business"); WHEREAS, Purchaser, pursuant to that certain Asset Purchase Agreement (the "Purchase Agreement") dated August 18, 2003, among Seller, Purchaser, AFD and S&F, as of the date hereof, acquired (the "Acquisition") from Seller, certain of the assets of Seller used solely in connection with the Purchased Business, including among other assets, customer lists and goodwill related thereto; WHEREAS, the business connections, customers, products, techniques, goodwill and other aspects of the Purchased Business are maintained at great expense, are of great value to Purchaser and provide it with a substantial competitive advantage; WHEREAS, each of the Shareholders has been entrusted with the knowledge and possession of Trade Secrets (defined below) and Confidential Information (defined below); WHEREAS, in order to induce Purchaser to enter into the Purchase Agreement and to consummate the Acquisition, which each of the Shareholders hereby acknowledges will benefit them, each of the Shareholders has agreed to accept certain restrictions as set forth herein; and WHEREAS, this Agreement is ancillary to and an integral part of the Purchase Agreement and the transactions contemplated therein. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. For the purposes of this Agreement, the following definitions shall apply: (a) "Competing Business" shall mean any person, concern or entity, which is engaged in or conducts a business in the Territory substantially the same as the Purchased Business as of the date hereof. (b) "Confidential Information" shall mean business information (other than business information that is a Trade Secret) of Purchaser, not generally known or available to the public or competitors in the trade and that Purchaser keeps confidential. (c) "Noncompetition Period" means the period beginning on the Closing Date (as defined in the Purchase Agreement) and expiring on the second (2nd) anniversary of the Closing Date. (d) "Territory" shall mean the State of California, which the parties acknowledge is the market in which Seller conducts the Purchased Business prior to the date hereof. (e) "Trade Secrets" shall mean information not generally known about the Purchased Business or Purchaser that is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality and from which Purchaser derives economic value from the fact that the information is not generally known to other persons who can obtain economic value from its disclosure or use. Trade Secrets include, but are not limited to, technical or non-technical data, compilations, programs and methods, techniques, drawings, processes, financial data, research, pricing, information as to sales representatives and suppliers, lists of actual and potential customers, customer route books, cards or lists containing the names, addresses, buying habits and business locations of past, present and prospective customers, sales reports, service reports, price lists, product formulae and methods and procedures relating to services, in each case to the extent not generally known or available to the public, persons who can obtain economic value from its disclosure or use, or competitors in the trade. 2. Covenants of the Shareholders. The covenants in this Section 2 are a material inducement to Purchaser to enter into the Purchase Agreement, and certain of the amounts payable to Seller under the Purchase Agreement are in consideration for the covenants in this Section 2. The parties hereto acknowledge that: (i) the assets being purchased by Purchaser are the principal assets of the Purchased Business; (ii) the restrictions imposed in this Section 2 are fair and reasonable; and (iii) the time, scope, geographic area and other provisions of this Section 2 have been specifically negotiated by sophisticated commercial parties, represented by legal counsel. (a) Nondisclosure of Trade Secrets and Confidential Information. (i) Neither of the Shareholders will at any time communicate or disclose to any person, firm or business entity, other than Purchaser, directly or indirectly, any Trade Secrets or Confidential Information; provided, however, that each of the Shareholders may disclose such information (A) as has become generally available to the public or known by or -2- available to competitors in the trade (other than by virtue of any disclosure by either of the Shareholders in violation of this Agreement), (B) as may be required in any report, statement or testimony submitted to any municipal, state, federal or other governmental regulatory body, (C) as may be required to enforce rights of either Shareholder under the Purchase Agreement or any agreement entered into in connection with the Purchase Agreement, (D) as may be required in response to any summons or subpoena or in connection with any litigation, or any administrative or other legal proceeding, or (E) as may be required in order to comply with any law, order, regulation or ruling applicable to the Shareholders or Purchaser; provided, that, each of the Shareholders shall give Purchaser reasonable prior notice of any disclosure under the immediately preceding clauses (D) and (E) in order to permit Purchaser to seek an appropriate protective order. (ii) Subject to the provision set forth in the immediately preceding subsection (i), the disclosure of Trade Secrets by each of the Shareholders is prohibited until such information loses its character as a Trade Secret through no fault or action of either of the Shareholders. (b) Noncompetition. Each of the Shareholders covenants and agrees that it shall not, during the Noncompetition Period, either directly or indirectly, within the Territory (i) for itself, (ii) as a consultant, manager, owner, partner, joint venturer, investor or lender, or (iii) as an independent contractor for, or while acting in any other capacity, own, engage in, conduct, manage, operate or participate in or in any other way provide services to a Competing Business; provided, however, that nothing in this Agreement shall be deemed to affect or in any way restrict S&F from conducting its retail store operations. (c) Nonsolicitation of Customers. Each of the Shareholders covenants and agrees that it shall not, during the Noncompetition Period, either directly or indirectly, on its own behalf or in the service or on behalf of any Competing Business, solicit or attempt to divert any customer of Purchaser to whom Seller sold or provided any products or services through the Purchased Business at any time within the twelve (12) month period prior to the date hereof; provided, however, that nothing in this Agreement shall be deemed to affect or in any way restrict S&F from conducting its retail store operations. (d) Nonsolicitation of Employees. Each of the Shareholders covenants and agrees that it shall not, during the Noncompetition Period, directly or indirectly, solicit, divert or recruit any employee of Purchaser who was employed by Seller prior to Closing, to leave such employment, whether or not such employment is pursuant to a written contract with Purchaser or at-will. 3. Reformation by Court. In the event any court of competent jurisdiction should determine that any of the terms of this Agreement are unreasonable or unenforceable in scope, each of the Shareholders and Purchaser consent to the exercise by such court of its equitable jurisdiction to reform such terms in accordance with applicable law. 4. Severability. If any provision of this Agreement is prohibited by the laws of any jurisdiction as those laws apply to this Agreement, that provision shall be ineffective to the -3- extent of such prohibition and/or shall be modified to conform with such laws, without invalidating the remaining provisions hereof. 5. Injunctive Relief. Each of the Shareholders and Purchaser expressly recognize that the subject matter of this Agreement is unique, and that any breach of the Shareholders' obligations under this Agreement is likely to result in irreparable injury to Purchaser, which cannot be adequately or solely measured or compensated by the rules of law and legal remedies. Therefore, in the event of a breach of this Agreement by either of the Shareholders, Purchaser shall be entitled to obtain specific performance of this Agreement through injunctive relief and such ancillary remedies of an equitable nature as a court may deem appropriate. Such equitable relief shall be in addition to, and the availability of such equitable relief shall not serve to preclude, any legal remedies that might be available to Purchaser. 6. Governing Law; Jurisdiction. This Agreement is governed by and subject to the laws of the State of California (without giving effect to its conflict of law provisions) irrespective of the fact that a party hereto may be a resident of another state or jurisdiction. Each of the parties hereby irrevocably submits in any suit, action or proceeding arising out of or related to this Agreement to the exclusive jurisdiction of the courts of the State of California and waives any and all objections to jurisdiction that it may have under the laws of California or the United States. 7. Modification and Waiver. This Agreement may not be changed or modified except in writing specifically referring to this Agreement and signed by Purchaser and the Shareholders. No attempted waiver of any provision hereof shall be binding on the other parties unless reduced to writing and signed the waiving party. Unless specifically provided otherwise herein or agreed to by Purchaser and the Shareholders in writing, no modification, waiver, termination, rescission, discharge or cancellation of this Agreement shall affect the right of the parties hereto to enforce any claim, whether or not liquidated, which accrued prior to the date of such modification, waiver, termination, rescission, discharge, or cancellation of this Agreement, and no waiver of any provision or of any default under this Agreement shall affect the right of any party to enforce such provision or to exercise any right or remedy in the event of any other default, whether or not similar. 8. Benefit; Assignment. This Agreement shall be binding upon and inure to the benefit of and shall be enforceable by Purchaser, the Shareholders and their respective successors and assigns. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties, provided that Purchaser may assign this Agreement, in whole or in part, to one or more wholly-owned subsidiaries of Purchaser without the consent of the Shareholders. 9. Time of Essence. The parties agree that time is of the essence with respect to each provision of this Agreement. 10. Headings. The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. -4- 11. Notices. Any notice to be given hereunder shall be deemed given and sufficient if in writing and delivered personally or sent for next day delivery by a recognized overnight delivery service (e.g. Federal Express) which guarantees next day delivery ("Overnight Delivery") or by telefax with confirmation of receipt (with a copy sent by registered or certified mail, return receipt requested, postage prepaid or Overnight Delivery), If to Shareholders: Dennis Chiavelli Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 Telefax: (323) 869-7871 With a copy to: Legal Department Smart & Final, Inc. 600 Citadel Drive Commerce, California 90040 Telefax: (323) 869-7862 And a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jeffrey W. Tindell Telefax: (212) 735-2000 And a copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, California 90067-3021 Attention: Richard W. Lasater II Telefax: (310) 557-8475 If to the Purchaser: Sysco Corporation 1390 Enclave Parkway Houston, TX 77077-2099 Attn: General Counsel Telefax: (281) 584-2510 with a copy to: Robert P. Finch, Esq. Arnall Golden Gregory LLP 1201 West Peachtree Street 2800 One Atlantic Center Atlanta, GA 30309-3450 Telefax: (404) 873-8617 or such address as shall be furnished by such notice to the other parties hereto. 12. Expenses of Enforcement; Enforcement. The non-prevailing party shall be liable to, and will pay the prevailing party, for all costs and expenses, including, but not limited to, -5- reasonable attorneys' fees incurred by the prevailing party in the enforcement, defense or interpretation in any respect of any of its rights under this Agreement, whether in litigation or otherwise. The existence of any claim, demand, action, or cause of action of either of the Shareholders against Purchaser shall not operate as an offset against any liability of the Shareholders hereunder, nor shall it preclude Purchaser from pursuing any remedy hereunder. -6- IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have executed and delivered this Agreement as of the day and year first above written. PURCHASER: SYSCO CORPORATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- SHAREHOLDERS: AMERICAN FOODSERVICE DISTRIBUTORS, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- SMART & FINAL INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- -7- Exhibit 3.13 TRANSITION SERVICES AGREEMENT THIS TRANSITION SERVICES AGREEMENT (the "Agreement") is entered this --- day of , 2003, by and among PORT STOCKTON FOOD DISTRIBUTORS, --------------- INC., a California corporation ("Seller"), AMERICAN FOODSERVICE DISTRIBUTORS, a California corporation and the sole shareholder of Seller ("AFD"), SMART & FINAL INC., a Delaware corporation and the sole shareholder of AFD ("S&F", collectively, with AFD, referred to as "Shareholders"), and SYSCO CORPORATION, a Delaware corporation ("Purchaser"). W I T N E S S E T H : WHEREAS, Seller is engaged in the business of (i) selling food and foodservice products to foodservice industry customers (the "Foodservice Business"); (ii) produce processing; and (iii) meat processing (the "Meat Processing Business") (together the Meat Processing Business and the Foodservice Business are referred to as the "Purchased Business"); WHEREAS, Purchaser, pursuant to that certain Asset Purchase Agreement ("Asset Purchase Agreement") dated August 18, 2003, among Seller, AFD, S&F and Purchaser, as of the date hereof, acquired (the "Acquisition") from Seller, certain of the assets of Seller used solely in connection with the Purchased Business; and WHEREAS, this Agreement is executed and delivered by the parties hereto pursuant to Section 3.13 of the Asset Purchase Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined herein, capitalized terms used herein have the following meaning: "Facilities" has the meaning given to such term in the Asset Purchase Agreement. "Inventory" has the meaning given to such term in the Asset Purchase Agreement. "Transition Period" means the period beginning on the date hereof and ending at the earlier of: (i) the mutual agreement of Purchaser and Seller; (ii) the date upon which the last item of Inventory has been removed by Purchaser from Seller's Facilities; or (iii) the date that is sixty (60) days following the date hereof. 2. Transition Services. Upon and subject to the terms and conditions of this Agreement, during the Transition Period the Seller and the Shareholders hereby agree that: 1 (a) employees of Seller or the Shareholders shall, as reasonably requested by Purchaser, assist Purchaser with the smooth transition and integration of the customers of the Purchased Business into Purchaser's business; (b) Seller shall continue to maintain the Facilities in the ordinary course of business consistent with its past practice, including without limitation, the maintenance of reasonable security over and insurance on the Inventory located at the Facilities; and (c) At the request of Purchaser, Seller's employees will assist Purchaser in moving the Inventory to the dock at the Facilities and loading the Inventory on Purchaser's trucks. All risk of loss with respect to the Inventory shall pass to Purchaser as soon as the Inventory has been loaded on Purchaser's trucks and until such time shall remain with Seller. 3. Access to Facilities. During the Transition Period, Seller shall provide Purchaser and its employees with reasonable access (when and as requested by Purchaser) to the Facilities and Purchaser shall be entitled to have its employees conduct, at the facilities, loading, unloading and other warehousing activities with respect to the Inventory and Purchaser shall indemnify Seller for any loss, cost or expense incurred by Seller in connection with such activities of Purchaser's employees. 4. License. Seller hereby grants to Purchaser a royalty-free license to sell any Inventory that is proprietary to Seller and any Inventory that is contained in packaging with any proprietary marks of Seller (collectively "Proprietary Inventory"). 5. Term. The term of this Agreement ("Term") shall be for the Transition Period, except for the term of the license granted in Section 4 hereof which shall not terminate or be revoked until all Proprietary Inventory has been sold by Purchaser or six months following the date hereof, whichever occurs first. 6. Expenses. Purchaser shall, within thirty days following receipt of an invoice and related supporting documentation from Seller, reimburse Seller for the reasonable, actual, direct, out-of-pocket costs and expenses incurred by Seller during the Term (i) for utilities at the Facilities, (ii) to maintain security over the Inventory, (iii) to maintain insurance on the Inventory, and (iv) for payroll costs of employees used solely for warehousing activities related to the Inventory. In addition, during the Term, Purchaser shall reimburse Seller for one-half of the monthly rental on the Facilities, such reimbursement not to exceed $61,816 per month. The foregoing costs and expenses shall be appropriately pro-rated to the extent that any part of such costs and expenses relate to time periods that are both during the Term and either before or after the Term. 7. Independent Contractors. Nothing contained in this Agreement is intended to create nor shall it be deemed or construed to create any partnership or joint venture relationship between Purchaser and Seller. The relationship of Purchaser to Seller shall be that of an independent contractor. 8. Cooperation; Dispute Resolution. Purchaser and Seller agree to cooperate in good faith in connection with the provision of the transition services, and matters relating thereto or otherwise arising hereunder. In addition, the parties will cooperate to dispose of Proprietary Inventory that has not been sold by Purchaser within six months following the date hereof. Any dispute, claim 2 or controversy in respect of this Agreement shall be subject to the dispute resolution procedures set forth in Section 10.11 of the Asset Purchase Agreement. 9. Miscellaneous. (a) Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed in writing) or sent by overnight courier (providing proof of delivery) to the parties at the addresses specified in the Asset Purchase Agreement. (b) Counterparts. This Agreement may be executed in two or more counterparts, all of which taken together shall be deemed one original. (c) Entire Agreement. This Agreement contains the entire agreement among the parties hereto and thereto with respect to the subject matter hereof. This Agreement may not be amended or supplemented, and no provision hereof may be waived, except by an instrument in writing signed by all of the parties hereto. No waiver of any provision hereof by any party shall be deemed a continuing waiver of any matter by such party. (d) Amendment. No amendment or modification to this Agreement shall be effective unless it is in writing and signed by both Purchaser and Seller. (e) Assignment. The rights and obligations of each party under this Agreement may not be assigned without the prior written consent of the other party, provided that Purchaser may assign this Agreement in whole or in part to one or more wholly-owned subsidiaries of Purchaser without the consent of Seller or Shareholders. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. (f) Rights Cumulative. The rights, powers and remedies given to each party by this Agreement shall be in addition to all rights, powers and remedies given to such party by virtue of any statute or rule of law and all such rights, powers and remedies are cumulative and not alternative, and may be exercised and enforced successively or concurrently. Any forbearance or failure or delay by a party in exercising any right, power or remedy hereunder shall not be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of any right, power or remedy hereunder shall not preclude the further exercise thereof; and every right, power and remedy of a party hereunder shall continue in full force and effect until such right, power or remedy is specifically waived by an instrument in writing executed by such party. (g) Governing Law. This Agreement shall be governed by and construed under the laws of the State of California, without regard to principles of conflict of laws. (h) Further Assurances. The parties to this Agreement agree to execute and deliver any additional information, documents or agreements contemplated hereby and/or necessary or appropriate to effect and perform the actions contemplated hereby. (i) Time of Essence. The parties agree that time is of the essence with respect to each provision of this Agreement. 3 (j) Headings. The headings set forth in this Agreement are for convenience only and will not control or affect the meaning or construction of the provisions of this Agreement. (k) Survival. Section 8 shall survive the termination of this Agreement. 4 IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement under seal on the date first hereinabove set forth. SELLER: PORT STOCKTON FOOD DISTRIBUTORS, INC. By: /s/ Donald G. Alvarado ------------------------------------ Its: SVP ----------------------------------- SHAREHOLDERS: AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Donald G. Alvarado ------------------------------------ Its: SVP ----------------------------------- SMART & FINAL INC. By: /s/ Donald G. Alvarado ------------------------------------ Its: SVP ----------------------------------- PURCHASER: SYSCO CORPORATION By: /s/ Michael C. Nichols ------------------------------------ Its: VP & Gen Counsel ----------------------------------- 5 Exhibit 7.4(a)(i) BILL OF SALE KNOW ALL MEN BY THESE PRESENTS that Port Stockton Food Distributors, Inc., a California corporation ("Seller"), in accordance with the terms of that certain Asset Purchase Agreement dated as of August , 2003 (the "Agreement"), --- by and among Seller, American Food Distributors, a California corporation and the sole shareholder of Seller ("AFD"), Smart & Final Inc., a Delaware corporation and the sole shareholder of AFD, and SYSCO Corporation, a Delaware corporation ("Purchaser"), for good and valuable consideration, hereby sells, transfers, assigns, conveys, grants, delivers, alienates, and sets over to Purchaser, and its successors and assigns, forever, all legal, beneficial and other rights, title and interest in and to the Purchased Assets (as defined in the Agreement), free and clear of all claims, liens, encumbrances, conditions, easements, restrictions, leases, security interests, or similar interests of any kind or nature whatsoever, to have and to hold the same unto Purchaser and its successors and assigns, for its or their use forever. Seller agrees it will, at any time and from time to time from the date hereof, upon the request of Purchaser, do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged or delivered, all such further acts, deeds, assignments, transfers, conveyances and assurances as may be reasonably required for the better assigning, transferring, granting, conveying, assuring and confirming to Purchaser or for aiding in assigning and reducing to the possession of Purchaser, title to and possession of any and all of such Purchased Assets transferred and assigned hereby. Nothing in this Bill of Sale, express or implied, is intended or shall be construed to confer upon or give to any person, firm or corporation other than Purchaser and its successors and permitted assigns, any remedy or claim under or by reason of this Bill of Sale or any term hereof, and all the terms, promises and agreements contained in this Bill of Sale shall be for the sole and exclusive benefit of Purchaser and its successors and permitted assigns. This Bill of Sale does not, nor shall it be deemed to, supersede, extinguish or merge any of the representations, warranties, indemnities and limitations set forth in the Agreement, including, without limitation, all representations, warranties, indemnities and limitations therein made with respect to the Purchased Assets, all of which are incorporated herein by reference and which provisions shall remain in full force and effect as provided therein. IN WITNESS WHEREOF, Seller has caused this instrument to be executed by its duly authorized corporate representative as of the day of September, 2003. ----- PORT STOCKTON FOOD DISTRIBUTORS, INC. By: /s/ Donald G. Alvarado ------------------------------------ Name: Donald G. Alvarado ---------------------------------- Its: SVP ----------------------------------- Exhibit 7.4(a)(ii) ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is made and entered into as of the day of , 2003, by and between SYSCO ---- ----------- CORPORATION, a Delaware corporation ("Assignee") and PORT STOCKTON FOOD DISTRIBUTORS, INC., a California corporation ("Assignor"). W I T N E S S E T H: WHEREAS, Assignor, Assignee, American Foodservice Distributors, the parent of Assignor ("AFD"), and Smart & Final Inc., the parent of AFD ("S&F"), have entered into that certain Asset Purchase Agreement dated as of August , 2003 -- ("Asset Purchase Agreement"), pursuant to which Assignee agreed to purchase certain assets of Assignor and to assume certain contracts of Assignor; WHEREAS, this Agreement is being entered into pursuant to Sections 7.4(b)(ii) and 8.3(e) of the Asset Purchase Agreement. NOW, THEREFORE, in consideration of the premises, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Capitalized Terms. Capitalized terms not otherwise defined herein have the meaning ascribed to them in the Asset Purchase Agreement. 2. Assignment and Assumption of the Assigned Contracts. Assignor hereby transfers and assigns to Assignee, and Assignee hereby accepts, assumes and agrees to pay when due, perform and discharge in accordance with the terms thereof, all of Assignor's duties and obligations under the Assigned Contracts arising from and after the date hereof, subject to and in accordance with the terms and provisions of the Asset Purchase Agreement. 3. Further Assurances. Each of Assignor and Assignee shall execute such additional documents and instruments and take such further action as may be reasonably required or desirable to carry out the provisions hereof. 4. Integration with Asset Purchase Agreement Provisions. Nothing contained in this Agreement shall expand, reduce, modify or waive any rights or obligations of the parties under the Asset Purchase Agreement, including, without limitation, the rights and obligations of the parties under Article 6 thereof. In the event that any of the provisions of this Agreement are determined to conflict with the terms of the Asset Purchase Agreement, the terms of the Asset Purchase Agreement shall control. -1- 5. Multiple Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to the choice of law provisions thereof. 7. Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 8. Headings. The section headings herein have been inserted for convenience or reference only, and are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 9. Amendments. This Agreement may be amended, extended, superseded, canceled, renewed, or the terms hereof may be waived, only by a written instrument signed by the parties, or, in the case of a waiver, by the party waiving compliance. IN WITNESS WHEREOF, the parties hereto have executed this Assignment and Assumption Agreement as of the date first above written. "Assignee" SYSCO CORPORATION By: /s/ Michael C. Nichols ------------------------------------ Name: Michael C. Nichols ---------------------------------- Title: VP & Gen Counsel --------------------------------- "Assignor" PORT STOCKTON FOOD DISTRIBUTORS, INC. By: /s/ Donald G. Alvarado ------------------------------------ Name: Donald G. Alvarado ---------------------------------- Title: SVP --------------------------------- -2- EX-10.35 9 dex1035.txt CONSENT, WAIVER, COLLATERAL RELEASE AND AMENDMENT AGREEMENT NO. 5A Exh. 10.35 EXECUTION VERSION CONSENT, WAIVER, COLLATERAL RELEASE AND AMENDMENT AGREEMENT NO. 5A This Consent, Waiver, Collateral Release and Amendment Agreement No. 5A, dated as of September 3, 2003 (this "Agreement"), is among the Persons that have executed this Agreement (the "Parties"). Capitalized terms used, but not defined, in this Agreement are used as defined in the Lease Agreement, dated as of November 30, 2001, between Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1, as lessor, and Smart & Final Inc., as lessee, as amended by Waiver and Amendment Agreement No. 1, dated as of June 4, 2002, by Waiver and Amendment Agreement No. 2, dated as of February 14, 2003, by Amendment Agreement No. 3, dated as of June 1, 2003, and by Waiver and Amendment Agreement No. 4, dated as of July 11, 2003 (the "Lease"). RECITALS A. The Lessee has informed the Agent that it intends to sell its Florida broadline foodservice operations and nine Smart & Final stores located in Florida (the "Florida Stores") to GFS Holding Inc., a Michigan corporation ("GFS"), and certain of GFS's subsidiaries for a total purchase price of approximately $28 million in cash and the assumption of approximately $30 million of lease liabilities with respect to eight of the nine Florida Stores. The transaction will be structured as a sale of the stock of Henry Lee Company and a sale or sublease, as applicable, of the Florida Stores and the assets comprising the Orlando, Florida foodservice unit, and will also include the sale of the two Properties located in Florida (the "Florida Properties") for approximately $14,340,000 (the transactions described in this Recital, collectively, the "Sale Transaction"). The assets to be sold in the Sale Transaction (the "Sale Assets") are set forth on Annex A (attached to and incorporated into this Agreement). B. The Lessee has further informed the Agent that the stock of Okun Produce International, Inc., Henry Lee Export Corporation and HL Holding Corporation, each a Subsidiary of Henry Lee Company, will be transferred to American Foodservice Distributors before the Sale Transaction is consummated. C. The Lessee has also informed the Agent that on August 16, 2003, it closed the other five of its 14 stores located in Florida and two additional non-operating properties located in Florida (collectively, the "Closed Florida Stores"), all of which are identified on Annex B (attached to and incorporated into this Agreement). The Lessee intends to find replacement tenants to assume the leases with respect to the Closed Florida Stores or otherwise dispose of the Closed Florida Stores on an indeterminate date. D. Lessee has informed the Agent that it intends to replace the Florida Properties Lease with one or more unidentified Replacement Properties on a later date in accordance with Section 11.2 of the Lease. Lessee's right to invoke a substitution is subject to the consent of the Majority Secured Parties and several other conditions and requirements, including a limit on the value of the Properties being replaced of $5 million aggregate over the Term, a time limit of 60 days after the date the Properties being replaced are sold for Lessee to close the purchase of Replacement Properties, delivery of notice 90 days in advance accompanied by an Officer's Certificate stating appropriate reasons for the transfer and for the Replacement Closing Date to occur after the date the Properties being replaced are sold. E. Lessee has also informed the Agent that it has not identified any proposed Replacement Properties and that it needs 180 days to replace the Florida Properties. Section 11.2 requires that the Majority Secured Parties must consent to the substitution of any Replacement Property, sets forth numerous conditions precedent and requirements for any Replacement Property, and provides that if the Replacement Closing Date does not occur by the date specified by Lessee (which must be within the applicable time limit), Lessor may either (i) apply the funds from the sale of the Properties that were to have been replaced, plus any applicable Termination Value and Prepayment Fees, to pay down the Loan and the Holder Advance or (ii) hold the funds as security for Lessee's obligations under the Lease. F. Section 28.3(d) of the Lease prohibits sales of assets by the Credit Parties except under certain circumstances. Under Section 28.3(d)(iii), the Credit Parties may sell assets if the purchase price for the assets being sold is paid solely in cash (the "Cash Requirement") and the aggregate purchase price paid to all Credit Parties for all assets sold by the Credit Parties during the same Fiscal Year does not exceed $7.5 million and $15 million during the Term (the "Proceeds Limitation"). The Sale Transaction would violate Section 28.3(d) and the disposition of the Closed Florida Stores may violate Section 28.3(d). G. The Lessee has requested that the applicable Financing Parties, and, subject to the terms and conditions of this Agreement, the applicable Financing Parties desire to, (i) consent to the Sale Transaction, including the sale of the Florida Properties, and the release of Henry Lee Company from all of its obligations under the Operative Agreements, (ii) consent to the stock transfers described in Recital B, (iii) consent to the disposition of the Closed Florida Stores, (iv) extend the 60-day limit for acquiring Replacement Properties to replace the Florida Properties to 180 days, (v) waive, with respect to the sale of the Florida Properties, (A) the 90-day advance notice requirement, (B) receipt of an Officer's Certificate setting forth the important business considerations requiring the sale of the Florida Properties and the reasons why the Replacement Properties will not be purchased at the same time, and (C) the $5 million limit set forth in Section 11.2, (vi) waive the Cash Requirement and the Proceeds Limitation of Section 28.3(d) in connection with the Sale Transaction and the disposition of the Closed Florida Stores, and (vii) release the Liens granted to the Agent under the Security Documents with respect to the Sale Assets (including the Mortgages on the Florida Properties). NOW, THEREFORE, for good and valuable consideration received, the Parties agree as follows. 1. Section References. Unless otherwise expressly stated, all section references in this Agreement refer to sections of the Lease. 2. Consents. The Lenders and the Holder consent to: (a) the Sale Transaction, including the sale of the Florida Properties for the purpose of substituting for them Replacement Properties at a later date not more than 180 days following the closing date of the Sale Transaction; (b) the release of Henry Lee Company from its obligations under the Operative Agreements; (c) the transfer of the stock of Okun Produce International, Inc., Henry Lee Export Corporation and HL Holding Corporation, each a Subsidiary of Henry Lee Company, to American Foodservice Distributors; (d) the disposition of the Closed Florida Stores; and (e) the release of all Liens on the Sale Assets in accordance with Section 5 of this Agreement. 3. Waivers. The A-2 Lenders, the B Lenders and the Holder waive: (a) the 60-day limit under Section 11.2(a) for the Replacement Closing Date to occur and extend the limit by another 120 days, so Lessee now has until the 180th day after the date on which sale of the Florida Properties occurs to close its purchase of Replacement Properties under Section 11.2; (b) the 90-day advance notice requirement and the $5 million limit set forth in Section 11.2(a), in each case only as to the sale and replacement of the Florida Properties; (c) with respect to the sale of the Florida Properties, receipt of an Officer's Certificate setting forth the important business considerations requiring the sale of the Florida Properties and the reasons why the Replacement Properties will not be purchased at the same time; and (d) the Cash Requirement and the Proceeds Limitation of Section 28.3(d) in connection with the Sale Transaction and the disposition of the Closed Florida Stores. 4. Lessee's Agreements and Acknowledgments. Lessee acknowledges and agrees to all matters approved or waived by the Lenders and the Holder, as applicable, in Sections 2 and 3 of this Agreement and further acknowledges that the foregoing consents and waivers do not address any consent rights, conditions or requirements related to any property that Lessee may propose to substitute for the Florida Properties. 5. Release of Collateral. On the date that the later of the following two events occurs: (i) consummation of the Sale Transaction and (ii) satisfaction of the conditions precedent set forth in Section 6 of this Agreement (the "Release Date"), Agent shall release its Liens on the Sale Assets. On the Release Date, the Agent shall, at the expense of the Lessee, promptly return to the Lessee any instruments, certificates and other documents only to the extent that they evidence a Lien on the Sale Assets and not on any other assets. In addition, effective on the Release Date, the Agent authorizes the Lessee and its agents or representatives to file such documents or instruments, including terminations of the UCC Financing Statements filed against Henry Lee Company, as the Lessee considers necessary to evidence, effect or confirm the release and termination of all Liens created under the Security Documents only with respect to the Sale Assets. 6. Conditions Precedent. The effectiveness of this Agreement is subject to the satisfaction of each of the following conditions precedent. (a) Certain Documents. The Agent shall have received all of the following, in form and substance satisfactory to the Agent: (i) Amendment Documents. This Agreement, duly executed by Lessee and each Guarantor and any other instrument, document or certificate required by the Agent to be executed or delivered by Lessee or any other Person in connection with this Agreement, duly executed by them (collectively, the "Amendment Documents"); (ii) Copies of Sale Documents. True and correct copies of the stock and asset purchase agreements and any other agreements, documents or instruments executed in connection with the Sale Transaction; (iii) Consent of Required Secured Parties. Each Lender and the Holder shall have executed and delivered this Agreement with respect to the release of Henry Lee Company described in Section 2(b) of this Agreement, and the Majority Secured Parties shall have executed and delivered this Agreement for all other purposes; (iv) Amendment to Lessee Credit Agreement. Evidence to the Agent's satisfaction that the Sale Transaction has been approved by, and that appropriate waivers and releases have been obtained from, the lenders and the administrative agent under the Lessee Credit Agreement; and (v) Additional Information. Such additional documents, instruments and information as the Agent may reasonably request to effect the transactions contemplated hereby. (b) Sale Proceeds. The proceeds from the sale of the Florida Properties and any other amounts required by Section 11.2(d) to be held as collateral for the obligations of the Lessee under the Lease and used to purchase Replacement Properties shall have been deposited with the Owner Trustee. (c) Fees. In consideration of the waiver granted under Section 3(a) of this Agreement, (i) each A-2 Lender and each B Lender who executes and delivers this Agreement by 5:00 p.m. (EDT) on September 3, 2003 shall have received an amendment fee of 0.10% of its Commitment, and (ii) the Holder shall have received an amendment fee of 0.10% of its Holder Commitment if it executes and delivers this Agreement by the same time. (d) Representations and Warranties. The representations and warranties contained in this Agreement and in the Lease shall be true and correct as of, and as if made on, the date hereof (except for those that by their terms specifically refer to an earlier date, in which case such representations and warranties shall be true and correct as of the earlier date). (e) Corporate Proceedings Satisfactory. All corporate proceedings taken in connection with the transactions contemplated by this Agreement and all other agreements, documents and instruments executed or delivered pursuant to it, and all legal matters incident thereto, shall be satisfactory to the Agent. (f) No Lease Default or Lease Event of Default. No Lease Default or Lease Event of Default shall have occurred and be continuing after giving effect to this Agreement. 7. Representations and Warranties. Each Credit Party represents and warrants to the Agent and the Secured Parties that, as of the date of and after giving effect to this Agreement, (a) the execution, delivery and performance of this Agreement and all other Amendment Documents executed or delivered in connection herewith have been authorized by all requisite corporate action on the part of each Credit Party and will not violate any Credit Party's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Lease and in any other Operative Agreement are true and correct as if made again on and as of such date (except those, if any, that by their terms specifically relate only to an earlier date, in which case such representations and warranties are true and correct as of the earlier date), (c) no Lease Default or Lease Event of Default has occurred and is continuing, and (d) the Lease (as amended by this Agreement) and all other Operative Agreements are and remain legal, valid, binding and enforceable obligations in accordance with their terms. 8. Survival of Representations and Warranties. All representations and warranties made by any Credit Party in this Agreement or any other Operative Agreement shall survive the execution and delivery of this Agreement and the other Operative Agreements, and no investigation by the Agent or the Secured Parties, or any closing, shall affect the representations and warranties or the right of the Agent and the Secured Parties to rely upon them. 9. Costs and Expenses. The Lessee shall pay on demand all reasonable costs and expenses of the Agent (including the reasonable fees, costs and expenses of counsel to the Agent) incurred in connection with the preparation, execution and delivery of this Agreement. 10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT-OF-LAWS PRINCIPLES. 11. Execution. This Agreement may be executed in any number of counterparts and by different Parties on separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. A Party's delivery of an executed counterpart of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 12. Limited Effect. This Agreement relates only to the specific matters it covers, shall not be considered to be a waiver of any other rights any Secured Party may have under the Operative Agreements, and shall not be considered to create a course of dealing or to otherwise obligate any Secured Party to grant similar waivers or execute any amendments under the same or similar circumstances in the future. 13. Ratification By Guarantors. Each Guarantor consents to this Agreement, and each Guarantor (other than Henry Lee Company) acknowledges that its guaranty remains in full force and effect without any modification. 14. Certain Waivers. Each Credit Party agrees that none of the Financing Parties shall be liable under a claim of, and waives any claim against any Financing Party based upon, lender liability (including, but not limited to, liability for breach of the implied covenant of good faith and fair dealing, fraud, negligence, conversion, misrepresentation, duress, control and interference, infliction of emotional distress, defamation and breach of fiduciary duty) as a result of any discussions or actions taken or not taken by any Financing Party on or before the date hereof, the discussions conducted pursuant hereto, or any course of action taken by any Financing Party in response thereto or arising therefrom. This Section 14 shall survive the execution and delivery of this Agreement and the expiration or termination of the Lease. [Signature Pages Follow] LESSOR: Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1 By: /s/ Val T. Orton ----------------------------------- Name: Val T. Orton Title: Vice President LESSEE: Smart & Final Inc. By: /s/ Richard N. Phegley By: ----------------------------------- ----------------------------------- Name: Richard N. Phegley Name: Title: Senior Vice President & --------------------------------- Chief Financial Officer Title: -------------------------------- [Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] A-2 LENDER, B LENDER AND AGENT: Fleet Capital Corporation By: /s/ Renay McLeish ----------------------------------- Name: Renay McLeish Title: Vice President A-2 LENDER: GMAC Commercial Finance, LLC, successor by merger to GMAC Business Credit, LLC By: /s/ David W. Berry ----------------------------------- Name: David W. Berry Title: Vice President A-2 LENDER: Cooperative Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland," New York Branch By: /s/ Ian Reece By: /s/ Jessalyn Peters ----------------------------------- ----------------------------------- Name: Ian Reece Name: Jessalyn Peters Title: Managing Director Title: Executive Director A-2 LENDER: Natexis Banques Populaires By: /s/ Nicolas Regent By: /s/ Pieter J. van Tulder ----------------------------------- ----------------------------------- Name: Nicolas Regent Name: Pieter J. van Tulder Title: Vice President Multinational Title: Vice President And Manager Multinational Group A-2 LENDER: BNP Paribas By: /s/ Sean T. Conlon By: /s/ Tjalling Terpstra ----------------------------------- ----------------------------------- Name: Sean T. Conlon Name: Tjalling Terpstra Title: Managing Director Title: Director [Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] B LENDER: Transamerica Equipment Financial Services Corporation By: /s/ James R. Bates ----------------------------------- Name: James R. Bates Title: Vice President [Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] HOLDER: Casino USA, Inc. By: /s/ Etienne Snollaerts ----------------------------------- Name: Etienne Snollaerts Title: Director [Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] GUARANTOR: American Foodservice Distributors By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Smart & Final Stores Corporation By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Smart & Final Oregon, Inc. By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Port Stockton Food Distributors, Inc. By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance GUARANTOR: Henry Lee Company By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance [Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] GUARANTOR: Amerifoods Trading Company By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Casino Frozen Foods, Inc. By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: FoodServiceSpecialists.Com, Inc. By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Okun Produce International, Inc. By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: HL Holding Corporation By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer [Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] ANNEX A SALE ASSETS 1. Residual collateral interest in two Properties: (i) a freezer facility located at 2850 N.W. 120th Terrace, Miami, FL (which includes the 1.38 acre parking lot located at N.W. 125th Street and 3rd Avenue); and (ii) a store property located at 2573 North Federal Highway, Ft. Lauderdale, FL. 2. Common stock of Henry Lee Company and all of its assets and liabilities, including accounts receivable, inventory, fixtures and equipment, and operating leases. There is no owned real estate. The principal leased real estate is located at: (i) 3301 N.W. 125th Street, Miami, FL, Lots 158 through 176; (ii) 3305 N.W. 125th Street, Miami, FL, Lots 177 through 179; and (iii) 11150 N.W. 32nd Avenue, Miami, FL. 3. Assets and liabilities of the Orlando, Florida foodservice business including accounts receivable, inventory, fixtures and equipment, tradenames, and operating leases. There is no owned real estate. The principal leased real estate is located at 2450 Shrader Avenue, Orlando, FL. 4. Assets and liabilities of nine operating Smart & Final stores in Florida including accounts receivable, inventory, fixtures and equipment, and operating leases. There is no owned real estate. The principal leased real estate is located at: (i) 8000 N.E. 5th Avenue, Miami, FL; (ii) 101 South State Road 7, Hollywood, FL; (iii) 3333 North State Road 7, Lauderdale Lakes, FL; (iv) 2299 S.W. 8th Street, Miami, FL; (v) 1661 Gulf-to-Bay Boulevard, Clearwater, FL; (vi) 3131 Fourth Street, St. Petersburg, FL; (vii) 5600 West Flagler Street, Miami, FL; (viii) 2508 North Roosevelt Boulevard, Key West, FL; and (ix) 2573 North Federal Highway, Ft. Lauderdale, FL (which is also a Property identified in item no. 1 above). ANNEX B CLOSED FLORIDA STORES 1. Assets and liabilities of seven non-operating Smart & Final store properties in Florida including any residual accounts receivable, inventory, fixtures and equipment, and operating leases. There is no owned real estate. The leased real estate is located at: (i) 18351 NW 27th Avenue, Carol City, FL; (ii) 775 West 49th Street, Hialeah, FL; (iii) 7500 West Commercial Blvd., Lauderhill, FL; (iv) 8746 Bird Road, Miami, FL; (v) 12955 Kendall Drive, Miami, FL; (vi) 11350 Pines Boulevard, Pembroke Pines; and (vii) 2020 66th Street North, St. Petersburg, FL. EX-10.36 10 dex1036.txt FIFTH AMENDMENT, WAIVER AND COLLATERAL RELEASE Exh. 10.36 FIFTH AMENDMENT, WAIVER AND COLLATERAL RELEASE This Fifth Amendment, Waiver and Collateral Release (this "Waiver") is entered into as of September 3, 2003, by and among SMART & FINAL INC., a Delaware corporation (the "Borrower"), the Guarantors listed on the signature pages hereof, the financial institutions and other entities party hereto (the "Lenders") and BNP PARIBAS, as Administrative Agent for the Lenders (the "Administrative Agent"). RECITALS A. The Borrower, the Lenders, the Administrative Agent, Harris Trust & Savings Bank, as syndication agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as documentation agent, are parties to that certain Credit Agreement dated as of November 30, 2001 (as amended to date, the "Credit Agreement"). Capitalized terms used herein without definition have the meanings ascribed to such terms in the Credit Agreement. B. The Borrower has informed the Administrative Agent that it intends to sell its Florida broadline foodservice operations and nine of the fourteen Smart & Final stores located in Florida (such nine stores, the "Florida Stores") to GFS Holding Inc., a Michigan corporation ("GFS"), and certain of GFS's subsidiaries for a total purchase price of approximately $28 million in cash and the assumption of approximately $30 million of lease liabilities with respect to eight of the Florida Stores. The transaction will be structured as a sale of the stock of Henry Lee Company and a sale or sublease, as applicable, of the Florida Stores and the assets comprising the Orlando, Florida foodservice unit, and will also include the sale of three Synthetic Lease Properties for a total purchase price of approximately $14,340,000 (collectively, the "Sale Transaction"). The assets to be sold in the Sale Transaction are set forth on Annex A hereto (such assets, the "Sale Assets"). C. The Borrower has further informed the Administrative Agent that the Subsidiaries of Henry Lee Company will be transferred to American Foodservice Distributors prior to the consummation of the Sale Transaction. Such transfer will violate the provisions of Section 4.1(b)(viii) of the Pledge Agreement. D. The Borrower has also informed the Administrative Agent that on August 16, 2003, it closed the remaining five of the fourteen stores located in Florida and two additional non-operating properties located in Florida, all of which are identified on Annex B hereto (such stores, the "Closed FL Stores"). The Borrower intends to find replacement tenants to assume the leases with respect to the Closed FL Stores or otherwise dispose of the Closed FL Stores at an indeterminate date. E. Section 6.02(d) of the Credit Agreement prohibits sales of assets by the Loan Parties except under certain circumstances. Under Section 6.02(d)(iii), the Loan Parties may sell assets if the purchase price for the asset being sold is paid solely in cash (the "Cash Requirement") and the aggregate purchase price paid to all of the Loan Parties for such asset and all other assets sold by the Loan Parties during the same Fiscal Year pursuant to Section 6.02(d)(iii) does not exceed $7,500,000 in any Fiscal Year and $15,000,000 during the term of the Credit Agreement (the "Proceeds Limitation"). In addition, Section 6.02(d)(v) permits sales of Synthetic Lease Properties so long as the purchase price thereof does not exceed $5,000,000 (the "Five Million Dollar Limitation"). The Sale Transaction does not, and the disposition of the Closed FL Stores may not, meet the requirements of Section 6.02(d)(iii) and 6.02(d)(v). F. In connection with the Sale Transaction, the Borrower intends to amend the Synthetic Lease Documents to provide that (i) the period for acquiring replacement properties shall be increased from 60 days to 180 days and (ii) the failure to acquire a replacement property within that time period shall not constitute an event of default under the Synthetic Lease Documents so long as the cash proceeds from the sale of any Synthetic Lease Properties are held as collateral for the obligations under the Synthetic Lease Documents. Such an amendment may violate Section 6.02(j)(iv) of the Credit Agreement, which prohibits amendments of the Synthetic Lease Documents in any manner which is materially adverse to the Lenders. G. The Borrower has requested that the Lenders and the Administrative Agent (i) consent to the transfer of the three Subsidiaries of Henry Lee Company to American Foodservice Distributors, (ii) consent to the Sale Transaction and the release of Henry Lee Company from all of its obligations under the Loan Documents, (iii) consent to the disposition of the Closed FL Stores, (iv) agree to waive the Cash Requirement and the Proceeds Limitation of Section 6.02(d)(iii) and the Five Million Dollar Limitation of Section 6.02(d)(v) in connection with the Sale Transaction and the disposition of the Closed FL Stores, (v) consent to the amendment of the Synthetic Lease Documents to (A) increase the period for acquiring replacement properties from 60 days to 180 days and (B) provide that the failure to acquire a replacement property within that time period shall not constitute an event of default under the Synthetic Lease Documents so long as the cash proceeds from the sale of any Synthetic Lease Properties are held as collateral for the obligations under the Synthetic Lease Documents and (vi) release the Lien granted to the Administrative Agent under the Collateral Documents, the Second Mortgages and the Subordinate Security Agreement with respect to the Sale Assets. H. The Administrative Agent and the Lenders have agreed to (i) consent to the transfer of the three Subsidiaries of Henry Lee Company to American Foodservice Distributors, (ii) consent to the Sale Transaction and the release of Henry Lee Company from all of its obligations under the Loan Documents, (iii) consent to the disposition of the Closed FL Stores, (iv) waive the Cash Requirement and the Proceeds Limitation of Section 6.02(d)(iii) and the Five Million Dollar Limitation of Section 6.02(d)(v) in connection with the Sale Transaction and the disposition of the Closed FL Stores, (v) consent to the amendment of the Synthetic Lease Documents to (A) increase the period for acquiring replacement properties from 60 days to 180 days and (B) provide that the failure to acquire a replacement property within that time period shall not constitute an event of default under the Synthetic Lease Documents so long as the cash 2 proceeds from the sale of any Synthetic Lease Properties are held as collateral for the obligations under the Synthetic Lease Documents and (vi) release the Lien granted to the Administrative Agent under the Collateral Documents, the Second Mortgages and the Subordinate Security Agreement with respect to the Sale Assets, all as provided hereinbelow. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: Section 1. Section References. Unless otherwise expressly stated herein, all Section references herein shall refer to Sections of the Credit Agreement. Section 2. Consents. The Administrative Agent and the Lenders hereby consent to: (a) the transfer of the three Subsidiaries of Henry Lee Company to American Foodservice Distributors; (b) the Sale Transaction; (c) the release of Henry Lee Company from all of its obligations under the Loan Documents; (d) the disposition of the Closed FL Stores; and (e) the amendment of the Synthetic Lease Documents to (A) increase the period for acquiring replacement properties from 60 days to 180 days and (B) provide that the failure to acquire a replacement property within that time period shall not constitute an event of default under the Synthetic Lease Documents so long as the cash proceeds from the sale of any Synthetic Lease Properties are held as collateral for the obligations under the Synthetic Lease Documents. Section 3. Amendment of Loan Documents. All Loan Documents to which Henry Lee Company is a party are hereby amended to remove Henry Lee Company as a party. Section 4. Waiver of Section 6.02(d)(iii) and Section 6.02(d)(v). In connection with the Sale Transaction and the disposition of the Closed FL Stores, the Lenders hereby waive the Cash Requirement and the Proceeds Limitation of Section 6.02(d)(iii) and the Five Million Dollar Limitation of Section 6.02(d)(v); provided, that the Net Cash Proceeds from (i) the Sale Transaction (excluding any Net Cash Proceeds received from the sale of any Synthetic Lease Properties to GFS or any of its affiliates which are held as collateral for the obligations of the Borrower under the Synthetic Lease Documents and not used to purchase replacement Synthetic Lease Properties) and (ii) the disposition of the Closed FL Stores shall be applied in accordance with Section 2.05(b)(iii), and the Revolving Facility shall be permanently reduced in accordance with Section 2.04(b). 3 Section 5. Release of Collateral. Upon the later to occur of (i) consummation of the Sale Transaction and (ii) satisfaction of the conditions precedent set forth in Section 6 hereof (such date, the "Release Date"), the Lenders authorize the Administrative Agent to release its Lien on the Sale Assets. On the Release Date, the Administrative Agent shall, at the expense of the Borrower, promptly return to the Borrower (i) all stock certificates representing the shares of stock of Henry Lee Company pledged to the Administrative Agent pursuant to the Collateral Documents and the executed stock powers related thereto and (ii) any and all instruments, certificates and other documents evidencing any lien, charge or encumbrance on the Sale Assets. In addition, effective on the Release Date, the Administrative Agent authorizes the Borrower and its agents or representatives to file such documents or instruments, including UCC termination statements to terminate the UCC-1 Financing Statements filed against Henry Lee Company, as the Borrower may deem necessary to evidence, effect or confirm the release and termination of any and all Liens created under the Collateral Documents, the Second Mortgages and the Subordinate Security Agreement with respect to the Sale Assets. Section 6. Conditions Precedent. The effectiveness of this Waiver is subject to the satisfaction of each of the following conditions precedent: (a) The Administrative Agent shall have received all of the following, in form and substance satisfactory to the Administrative Agent: (i) Waiver Documents. This Waiver, a Borrowing Base Certificate (modified as necessary from the form attached as Exhibit K to the Credit Agreement to give pro forma effect to the Sale Transaction), a Pledge Supplement with respect to the transfer of the stock of the three Subsidiaries of Henry Lee Company to American Foodservice Distributors, together with new stock certificates and stock powers executed in blank with respect to the stock of such Subsidiaries, and any other instrument, document or certificate required by the Administrative Agent to be executed or delivered by the Borrower or any other Person in connection with this Waiver, duly executed by such Persons (the "Waiver Documents"); (ii) Copies of Sale Documents. True and correct copies of the stock and asset purchase agreements and any other agreements, documents or instruments executed in connection with the Sale Transaction; (iii) Consent of Required Lenders. The written consent of the Required Lenders to this Waiver; (iv) Amendment, Waiver and Release in connection with Synthetic Lease Documents. (A) Copies of the amendment, waiver and release documents with respect to the Synthetic Lease Documents, pursuant to which (1) the period for acquiring 4 replacement properties shall be increased from 60 days to 180 days, (2) the failure to acquire a replacement property within that time period shall not constitute an event of default under the Synthetic Lease Documents so long as the cash proceeds from the sale of any Synthetic Lease Properties are held as collateral for the obligations under the Synthetic Lease Documents, (3) the asset sale covenant in the Synthetic Lease Documents will be amended or waived to permit the Sale Transaction, (4) the Liens on the Sale Assets created by the Synthetic Lease Documents will be released and (5) any other conforming changes to the Synthetic Lease Documents reasonably requested by the Administrative Agent will be made and (B) evidence that such amendment, waiver and release documents have been executed and are in full force and effect; (v) Additional Information. Such additional documents, instruments and information as the Administrative Agent may reasonably request to effect the transactions contemplated hereby. (b) The Administrative Agent shall have received the Net Cash Proceeds of the Sale Transaction on the date of receipt thereof by the Borrower or any of its Subsidiaries. (c) The representations and warranties contained herein and in the Credit Agreement shall be true and correct as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date). (d) All corporate proceedings taken in connection with the transactions contemplated by this Waiver and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Administrative Agent. (e) No Default or Event of Default shall have occurred and be continuing, after giving effect to this Waiver. Section 7. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that, as of the date of and after giving effect to this Waiver, (a) the execution, delivery and performance of this Waiver and any and all other Waiver Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Borrower and will not violate the Borrower's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Credit Agreement and in any other Loan Document are true and correct as if made again on and as of such date (except those, if any, which by their terms specifically relate only to an earlier date, in which case such representations and warranties are true and correct as of such earlier date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Credit Agreement (after giving effect to this Waiver), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof. 5 Section 8. Survival of Representations and Warranties. All representations and warranties made in this Waiver or any other Loan Document shall survive the execution and delivery of this Waiver and the other Loan Documents, and no investigation by the Administrative Agent or the Lenders, or any closing, shall affect the representations and warranties or the right of the Administrative Agent and the Lenders to rely upon them. Section 9. Certain Waivers. The Borrower and each Guarantor hereby agrees that neither the Administrative Agent nor any Lender shall be liable under a claim of, and hereby waives any claim against the Administrative Agent and the Lenders based upon, lender liability (including, but not limited to, liability for breach of the implied covenant of good faith and fair dealing, fraud, negligence, conversion, misrepresentation, duress, control and interference, infliction of emotional distress and defamation and breach of fiduciary duties) as a result of any discussions or actions taken or not taken by the Administrative Agent or the Lenders on or before the date hereof or the discussions conducted pursuant hereto, or any course of action taken by the Administrative Agent or any Lender in response thereto or arising therefrom. This Section 9 shall survive the execution and delivery of this Waiver and the other Loan Documents and the termination of the Credit Agreement. Section 10. Reference to Agreement. Each of the Loan Documents, including the Credit Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Credit Agreement, whether direct or indirect, shall mean a reference to the Credit Agreement as amended hereby. Section 11. Costs and Expenses. The Borrower shall pay on demand all reasonable costs and expenses of the Administrative Agent (including the reasonable fees, costs and expenses of counsel to the Administrative Agent) incurred in connection with the preparation, execution and delivery of this Waiver. Section 12. Governing Law. THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. Section 13. Execution. This Waiver may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Waiver by telecopier shall be effective as delivery of a manually executed counterpart of this Waiver. Section 14. Limited Effect. This Waiver relates only to the specific matters covered herein, shall not be considered to be a waiver of any rights any Lender may have under the Credit Agreement (other than as expressly set forth herein), and shall not be considered to create a course of dealing or to otherwise obligate any Lender to 6 execute similar amendments or grant any waivers under the same or similar circumstances in the future. Section 15. Ratification By Guarantors and Henry Lee Company. Each of Henry Lee Company and the other Guarantors hereby agrees to this Waiver, and each of the Guarantors (other than Henry Lee Company) acknowledges that such Guarantor's Guaranty shall remain in full force and effect without modification thereto. 7 IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed by their respective officers thereunto duly authorized, as of the date first above written. SMART & FINAL INC., as Borrower By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer SMART & FINAL STORES CORPORATION By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer SMART & FINAL OREGON, INC. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer PORT STOCKTON FOOD DISTRIBUTORS, INC. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance HENRY LEE COMPANY By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance AMERIFOODS TRADING COMPANY By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer CASINO FROZEN FOODS, INC. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer FOODSERVICESPECIALISTS.COM, INC. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer OKUN PRODUCE INTERNATIONAL, INC. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer HL HOLDING CORPORATION By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer BNP PARIBAS, as Administrative Agent and a Lender By: /s/ Sean T. Conlon ----------------------------------------- Name: Sean T. Conlon Title: Managing Director By: /s/ Janice S. H. Ho ----------------------------------------- Name: Janice S. H. Ho Title: Director HARRIS TRUST & SAVINGS BANK By: ----------------------------------------- Name: Title: COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ Ian Reece ----------------------------------------- Name: Ian Reece Title: Managing Director By: /s/ Jessalyn Peters ----------------------------------------- Name: Jessalyn Peters Title: Executive Director CREDIT INDUSTRIEL ET COMMERCIAL By: /s/ Albert M. Calo ----------------------------------------- Name: Albert M. Calo Title: Vice President By: /s/ Frederic Landriot ----------------------------------------- Name: Frederic Landriot Title: Assistant Vice President COBANK, ACB By: /s/ S. Richard Dill ----------------------------------------- Name: S. Richard Dill Title: Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ Peter Thompson ----------------------------------------- Name: Peter Thompson Title: Vice President U.S. BANK NATIONAL ASSOCIATION By: /s/ Janet E.Jordan ----------------------------------------- Name: Janet E. Jordan Title: Vice President NATEXIS BANQUE POPULAIRES By: /s/ Nicolas Regent ----------------------------------------- Name: Nicolas Regent Title: Vice President Multinational By: /s/ Pieter J. van Tulder ----------------------------------------- Name: Pieter J. van Tulder Title: Vice President And Manager Multinational Group TRANSAMERICA BUSINESS CAPITAL CORPORATION By: ----------------------------------------- Name: Title: CITY NATIONAL BANK By: /s/ Robert Louk ----------------------------------------- Name: Robert Louk Title: Vice President RZB FINANCE LLC By: ----------------------------------------- Name: Title: By: ----------------------------------------- Name: Title: BANK OF THE WEST By: /s/ Danny Flores ----------------------------------------- Name: Danny Flores Title: Syndications Officer PREFERRED BANK By: /s/ Walt Duchanin ----------------------------------------- Name: Walt Duchanin Title: Executive Vice President BANK LEUMI USA By: /s/ Jacques V. Delvoye ----------------------------------------- Name: Jacques V. Delvoye Title: Vice President ANNEX A SALE ASSETS 1. Common stock of Henry Lee Company and all of its assets and liabilities, including accounts receivable, inventory, fixtures and equipment, and operating leases. There is no owned real estate. The principal leased real estate is located at: (i) 3301 N.W. 125th Street, Miami, FL, Lots 158 through 172 and lots 173 through 176; (ii) 3305 N.W. 125th Street, Miami, FL, Lots 177 through 179; and (iii) 11150 N.W. 32nd Avenue, Miami, FL. 2. Assets and liabilities of Orlando Foodservice business including accounts receivable, inventory, fixtures and equipment, tradenames, and operating leases. There is no owned real estate. The principal leased real estate is located at 2450 Shrader Avenue, Orlando, FL. 3. Assets and liabilities of nine operating Smart & Final stores in Florida including accounts receivable, inventory, fixtures and equipment, and operating leases. There is no owned real estate. The principal leased real estate is located at: (i) 8000 N.E. 5th Avenue, Miami, FL; (ii) 101 South State Road 7, Hollywood, FL; (iii) 3333 North State Road 7, Lauderdale Lakes, FL; (iv) 2299 S.W. 8th Street, Miami, FL; (v) 1661 Gulf-to-Bay Boulevard, Clearwater, FL; (vi) 3131 Fourth Street, St. Petersburg, FL; (vii) 5600 West Flagler Street, Miami, FL; (viii) 2508 North Roosevelt Boulevard, Key West, FL; and (ix) 2535 North Federal Highway, Ft. Lauderdale, FL (which is also a synthetic lease property). 4. Residual collateral interest in three synthetic lease properties: (i) a freezer facility located at 2850 NW 120th Terrace, Miami, FL; (ii) a 1.38 acre parking lot located at N.W. 125th Street and 32nd Avenue, Miami, FL; and (iii) a store property located at 2535 North Federal Highway, Ft. Lauderdale, FL. ANNEX B CLOSED FLORIDA STORES 1. Assets and liabilities of seven non-operating Smart & Final store properties in Florida including any residual accounts receivable, inventory, fixtures and equipment, and operating leases. There is no owned real estate. The leased real estate is located at: (i) 18351 NW 27th Avenue, Carol City, FL; (ii) 775 West 49th Street, Hialeah, FL; (iii) 7500 West Commercial Blvd., Lauderhill, FL; (iv) 8746 Bird Road, Miami, FL; (v) 12955 Kendall Drive, Miami, FL; (vi) 11350 Pines Boulevard, Pembroke Pines; and (vii) 2020 66th Street North, St. Petersburg, FL. EX-10.37 11 dex1037.txt FIRST SUPPLEMENT TO CONSENT, WAIVER, COLLATERAL RELEASE & AMENDMENT AGREEMENT Exh. 10.37 EXECUTION VERSION FIRST SUPPLEMENT TO CONSENT, WAIVER, COLLATERAL RELEASE AND AMENDMENT AGREEMENT NO. 5A This First Supplement to Consent, Waiver, Collateral Release and Amendment Agreement No. 5A, dated as of September 5, 2003 (this "Supplement"), is among the Persons that have executed this Supplement (the "Parties"), and supplements that certain Consent, Waiver, Collateral Release and Amendment Agreement No. 5A, dated as of September 3, 2003 (the "Agreement") among the Parties. Capitalized terms used, but not defined, in this Supplement are used as defined in the Agreement. RECITALS A. In connection with the Lessee's sale of the Sale Assets to GFS and certain of its subsidiaries, Section 11.2(d) of the Lease requires the Lessee to deposit with the Owner Trustee the greater of (i) the net cash proceeds from the sale of the Florida Properties, which would equal approximately $13 million, or (ii) the portion of the Termination Value attributable to the Florida Properties, plus the Prepayment Fee attributable to the Florida Properties, which would equal approximately $16-17 million. B. The Lessee has requested that the Lenders and the Holder grant a waiver allowing the Lessee to deposit the gross sale proceeds, which equal $14,340,000, in lieu of the amount described in clause (ii) of Recital A, and the Majority Secured Parties desire to grant such a waiver, subject to the terms and conditions of this Supplement. NOW, THEREFORE, for good and valuable consideration received, the Parties agree as follows. 1. Waivers. The Majority Secured Parties waive, in connection with the sale of the Florida Properties only, the requirement in Section 11.2(d) of the Lease that the Lessee deposit with the Owner Trustee the greater of (i) the net cash proceeds from the transfer of the Florida Properties or (ii) the portion of the Termination Value attributable to the Property, plus the Prepayment Fee attributable to the Florida Properties and allow the Lessee instead to deposit with the Owner Trustee $14,340,000, which is the gross purchase price Lessee will receive from the sale of the Florida Properties; 2. Lessee's Agreements and Acknowledgments. Lessee acknowledges and agrees to all matters approved or waived by the Majority Secured Parties in Section 1 of this Supplement and further acknowledges that the foregoing consents and waivers do not constitute a waiver of the Prepayment Fee that may be due if the Florida Properties are not replaced within the time period specified in the Agreement and that the amount to be deposited with the Trustee under this Supplement does not include any fees payable to the Secured Parties under the Agreement or this Supplement. 3. Conditions Precedent. The effectiveness of this Supplement is subject to the satisfaction of each of the following conditions precedent. (a) Certain Documents. The Agent shall have received all of the following, in form and substance satisfactory to the Agent: (i) Consent of Required Secured Parties. The Majority Secured Parties shall have executed and delivered this Supplement; and (ii) Additional Information. Such additional documents, instruments and information as the Agent may reasonably request to effect the transactions contemplated hereby. (b) Fees. In consideration of the waiver granted under this Supplement, (i) each A-2 Lender and each B Lender who executes and delivers this Agreement by 5:00 p.m. (EDT) on September [8], 2003 shall have received an amendment fee of 0.05% of its Commitment, and (ii) the Holder shall have received an amendment fee of 0.05% of its Holder Commitment if it executes and delivers this Agreement by the same time. (c) Representations and Warranties. The representations and warranties contained in this Supplement and in the Lease shall be true and correct as of, and as if made on, the date hereof (except for those that by their terms specifically refer to an earlier date, in which case such representations and warranties shall be true and correct as of the earlier date). (d) Corporate Proceedings Satisfactory. All corporate proceedings taken in connection with the transactions contemplated by this Supplement and all other agreements, documents and instruments executed or delivered pursuant to it, and all legal matters incident thereto, shall be satisfactory to the Agent. (e) No Lease Default or Lease Event of Default. No Lease Default or Lease Event of Default shall have occurred and be continuing after giving effect to this Supplement. 4. Representations and Warranties. Each Credit Party represents and warrants to the Agent and the Secured Parties that, as of the date of and after giving effect to this Agreement, (a) the execution, delivery and performance of this Supplement and all other documents executed or delivered in connection herewith have been authorized by all requisite corporate action on the part of each Credit Party and will not violate any Credit Party's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Lease and in any other Operative Agreement are true and correct as if made again on and as of such date (except those, if any, that by their terms specifically relate only to an earlier date, in which case such representations and warranties are true and correct as of the earlier date), (c) no Lease Default or Lease Event of Default has occurred and is continuing, and (d) the Lease (as amended by the Agreement and this Supplement) and all other Operative Agreements are and remain legal, valid, binding and enforceable obligations in accordance with their terms. 5. Survival of Representations and Warranties. All representations and warranties made by any Credit Party in this Supplement or any other Operative Agreement shall survive the execution and delivery of this Supplement and the other Operative Agreements, and no investigation by the Agent or the Secured Parties, or any closing, shall affect the representations and warranties or the right of the Agent and the Secured Parties to rely upon them. 2 6. Costs and Expenses. The Lessee shall pay on demand all reasonable costs and expenses of the Agent (including the reasonable fees, costs and expenses of counsel to the Agent) incurred in connection with the preparation, execution and delivery of this Supplement. 7. Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT-OF-LAWS PRINCIPLES. 8. Execution. This Supplement may be executed in any number of counterparts and by different Parties on separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. A Party's delivery of an executed counterpart of this Supplement by telecopier shall be effective as delivery of a manually executed counterpart of this Supplement. 9. Limited Effect. This Supplement relates only to the specific matters it covers, shall not be considered to be a waiver of any other rights any Secured Party may have under the Operative Agreements, and shall not be considered to create a course of dealing or to otherwise obligate any Secured Party to grant similar waivers or execute any amendments under the same or similar circumstances in the future. 10. Ratification By Guarantors. Each Guarantor consents to this Supplement, and each Guarantor (other than Henry Lee Company) acknowledges that its guaranty remains in full force and effect without any modification. 11. Certain Waivers. Each Credit Party agrees that none of the Financing Parties shall be liable under a claim of, and waives any claim against any Financing Party based upon, lender liability (including, but not limited to, liability for breach of the implied covenant of good faith and fair dealing, fraud, negligence, conversion, misrepresentation, duress, control and interference, infliction of emotional distress, defamation and breach of fiduciary duty) as a result of any discussions or actions taken or not taken by any Financing Party on or before the date hereof, the discussions conducted pursuant hereto, or any course of action taken by any Financing Party in response thereto or arising therefrom. This Section 14 shall survive the execution and delivery of this Agreement and the expiration or termination of the Lease. [Signature Pages Follow] 3 LESSOR: Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1 By: /s/ Val T. Orton ---------------------------------- Name: Val T. Orton Title: Vice President LESSEE: Smart & Final Inc. By: /s/ Richard N. Phegley By: ---------------------------------- ----------------------------------- Name: Richard N. Phegley Name: Title: Senior Vice President & --------------------------------- Chief Financial Officer Title: -------------------------------- [First Supplement to Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] A-2 LENDER, B LENDER AND AGENT: Fleet Capital Corporation By: /s/ Renay McLeish ---------------------------------- Name: Renay McLeish Title: Vice President A-2 LENDER: GMAC Commercial Finance, LLC, successor by merger to GMAC Business Credit, LLC By: /s/ David W. Berry ---------------------------------- Name: David W. Berry Title: Vice President A-2 LENDER: Cooperative Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland," New York Branch By: /s/ Bradford F. Scott By: /s/ Edward J. Peyser ---------------------------------- ----------------------------------- Name: Bradford F. Scott Name: Edward J. Peyser Title: Executive Director Title: Managing Director A-2 LENDER: Natexis Banques Populaires By: /s/ Pieter J. van Tulder By: /s/ Nicolas Regent ---------------------------------- ----------------------------------- Name: Pieter J. van Tulder Name: Nicolas Regent Title: Vice President And Manager Title: Vice President Multinational Multinational Group A-2 LENDER: BNP Paribas By: /s/ Sean T. Conlon By: /s/ Mitchell M. Ozawa ---------------------------------- ----------------------------------- Name: Sean T. Conlon Name: Mitchell M. Ozawa Title: Managing Director Title: Managing Director [First Supplement to Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] B LENDER: Transamerica Equipment Financial Services Corporation By: /s/ James R. Bates ---------------------------------- Name: James R. Bates Title: Vice President [First Supplement to Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] HOLDER: Casino USA, Inc. By: /s/ Etienne Snollaerts ---------------------------------- Name: Etienne Snollaerts Title: Director [First Supplement to Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] GUARANTOR: American Foodservice Distributors By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Smart & Final Stores Corporation By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Smart & Final Oregon, Inc. By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Port Stockton Food Distributors, Inc. By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance GUARANTOR: Henry Lee Company By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance [First Supplement to Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] GUARANTOR: Amerifoods Trading Company By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Casino Frozen Foods, Inc. By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: FoodServiceSpecialists.Com, Inc. By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Okun Produce International, Inc. By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: HL Holding Corporation By: /s/ Richard N. Phegley ---------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer [First Supplement to Consent, Waiver, Collateral Release and Amendment Agreement No. 5A] EX-10.38 12 dex1038.txt ASSET PURCHASE AGREEMENT DATED AS OF SEPTEMBER 11, 2003 Exh. 10.38 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "Agreement") is executed as of September 11, 2003, by and among PORT STOCKTON FOOD DISTRIBUTORS, INC., a California corporation, doing business as Craig & Hamilton ("Seller"), SMART AND FINAL STORES CORPORATION, a California corporation, who joins in this Agreement solely for the purpose of providing the representations and warranties contained in Article 4, the covenants in Sections 6.10 and 6.11, and the indemnity contained in Article 9 ("Stores") and PACIFIC FRESH SEA FOOD COMPANY, a California corporation ("Buyer"). RECITALS A. Seller is engaged in the meat processing business under the name Craig & Hamilton (the "Business") at 640, 721 and 729 North Union Street, Stockton, California (the "Premises"); and B. Seller desires to sell to Buyer, and Buyer desire to purchase from Seller, substantially all of the assets used solely in connection with the Business, all on the terms and subject to the conditions set forth herein. NOW THEREFORE, in consideration of the mutual representations, warranties, covenants, agreements and conditions hereinafter set forth, Seller and Buyer (collectively the "Parties" or individually each a "Party") agree as follows: AGREEMENT 1. PURCHASE AND SALE OF ASSETS 1.1. Purchase and Sale of Assets. Subject to the terms and conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller at the Closing (as defined in Section 3.2), all right, title and interest of Seller in and to the tangible and intangible property, other than the "Excluded Assets" identified in Section 1.2 hereof, used in connection with the Business, including, but not limited to, the following (collectively, the "Assets"): (a) All packaging/shipping inventory and supplies, including, but not limited to, the items set forth on Schedule 1.1(a) attached hereto; (b) All equipment, and all computer hardware and software systems, and other assets useful or desirable to the operation of the Business and located at the Premises, including, but not limited to, the items set forth on Schedule 1.1(b) attached hereto; (c) All of Seller's customer lists, accounts and all business intangibles, including the name "Craig & Hamilton," including, but not limited to, the items set forth on Schedule 1.1(c) attached hereto; (d) All accounts receivable of Seller existing as of the Closing Date that are not inactive or currently in collection (the "Accounts Receivable"). The accounts receivable existing as of August 10, 2003 are set forth on Schedule 1.1(d) attached hereto; (e) The items of inventory of Seller existing as of the Closing Date. The items of inventory existing as of August 10, 2003 are set forth on the Schedule 1.1(e) attached hereto; and (f) All building and leasehold improvements owned by Seller and located at the Premises as set forth in Schedule 1.1(f) attached hereto. 1.2. Excluded Assets. Notwithstanding anything herein to the contrary, the following assets of Seller shall not be regarded as assets being purchased and sold pursuant to this Agreement and shall be excluded from the definition of "Assets" (such excluded assets shall be defined as the "Excluded Assets"): (a) Cash and cash equivalents on hand at the Closing; (b) Seller's business and financial records not relating to the operation of the Business and Seller's tax returns; (c) Rights to tax refunds or claims under or proceeds of insurance policies related to Seller's ownership or operation of the Business or the Assets prior to the Closing Date; (d) Deposits and prepaid expenses, other than any security deposit and/or prepaid rent under any Leases; and (e) The security video system at the Premises. 1.3. No Assumption of Liabilities. Buyer does not assume nor shall be deemed to have assumed and shall not be responsible for any liability of Seller, and Seller shall remain fully liable therefore. 2. PURCHASE PRICE - PAYMENT 2.1. Purchase Price. Subject to the terms and conditions hereof, and as consideration for the purchase and sale of the Assets as herein contemplated, Buyer shall pay for the Assets as follows: (a) Buyer will purchase the packaging/shipping inventory and supplies purchased pursuant to Section 1.1(a) at Seller's cost, which is estimated to be Eighteen Thousand One Hundred Forty Eight Dollars ($18,148), subject to Section 3.5 below; (b) Buyer shall pay One Hundred Fifty Thousand Dollars ($150,000), in cash, for all equipment, computer hardware and software systems and other assets, and for the building and leasehold improvements, purchased pursuant to Sections 1.1(b) and 1.1(f); 2 (c) Buyer shall pay One Thousand Dollars ($1,000) for Seller's customer lists, accounts and business intangibles, including the name "Craig & Hamilton" purchased pursuant to Section 1.1(c); (d) Buyer will purchase the Accounts Receivable purchased pursuant to Section 1.1(d) at their full value as of the Closing, subject to Section 3.5 below; and (e) Buyer will purchase the inventory purchased pursuant to Section 1.1(e) at Seller's cost, less all rebates, shelters and vendor allowances, all as determined in accordance with GAAP, and subject to Section 3.5 below. 2.2. Payment of Purchase Price. The purchase price shall be payable by wire transfer of immediately available funds pursuant to Seller's written instructions which shall be delivered at least twenty-four (24) hours prior to the Closing, or at least twenty-four (24) hours prior to the dates for post-Closing payments as described in Section 3.5. 2.3. Assumed Obligations. As of the Closing Date, Buyer shall assume the following leases pursuant to the form of Assignment and Assumption of Lease to be executed at Closing (collectively, the "Assumed Obligations"): (a) The lease (the "Premises Lease") with Patrick D. Craig, as landlord, for the Premises together with the month to month oral lease for the "Foremost Building;" and (b) The lease (the "Ryder Lease") with Ryder Truck Rental, Inc. ("Ryder") for all trucks currently used in Seller's operations. 2.4. Allocation of Purchase Price. The purchase price shall be allocated among the various assets acquired by Buyer as set forth in Section 2.1 above. Such allocation shall be conclusive and binding on the parties for all purposes, including, but not limited to, reporting and disclosure requirements under section 1060 of the Internal Code, and any other federal, state, local or foreign tax and other provisions. The parties agree to prepare and timely file a US Treasury form 8594 reflecting the allocation of the Purchase Price in accordance with such allocation. 2.5. Transfer Taxes. Seller and Buyer each shall be liable for and will pay one-half (1/2) of all conveyance, sales, use and other similar taxes, charges and fees which become payable in connection with the sale of the Assets, and Seller shall timely file all tax returns in respect thereof. Notwithstanding the foregoing, Buyer's liability under this Section 2.5 shall not exceed $10,000. 3. ESCROW, CLOSING 3.1. Opening of Escrow. Within one (1) business day after the execution of this Agreement, the parties shall open an escrow (the "Escrow") with Commerce Escrow Company (the "Escrow Holder"), at 1545 Wilshire Blvd., Suite 600, Los Angeles, California 90017. The Escrow shall be deemed opened when the parties have given Escrow Holder an executed copy of this Agreement. This Agreement shall serve as escrow instructions to Escrow Holder, and the parties shall execute such additional instructions as Escrow Holder may reasonably require, 3 provided that such instructions do not change the terms of this Agreement but merely offer protection for Escrow Holder. Any additional instructions shall provide that this Agreement shall prevail in case of any inconsistency between it and the additional instructions. 3.2. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Foley & Lardner, 2029 Century Park East, Suite 3500, Los Angeles, California 90067 on Monday, September 15, 2003, but in any event no later than September 19, 2003 (the "Closing Date"). 3.3. Pre-Closing Deliveries. On or before September 11, 2003, the Parties shall deposit the funds and documents described below into Escrow. All funds to be deposited in Escrow shall be by wire transfer or cashier's check drawn on and payable through a California bank. All documents shall be duly executed by authorized signatories and, when customary or necessary for recordation, properly acknowledged. (a) Seller. Seller shall deposit the following ("Seller's Closing Materials"), all in form acceptable to Buyer: (1) A bill of sale (the "Bill of Sale") executed by Seller transferring title to the Assets to Buyer; (2) A general assignment (the "General Assignment") executed by Seller assigning to Buyer all rights in connection with the Assets conveyed hereby, including but not limited to the name "Craig & Hamilton;" (3) An assignment of lease (the "Premises Assignment") executed by Seller, assigning to Buyer all of Seller's right, title and interest under the Premises Lease; (4) An assignment of lease (the "Ryder Assignment") executed by Seller assigning to Buyer all of Seller's right, title and interest under the Ryder Lease; (5) An estoppel certificate from the landlord under the Premises Lease; (6) A non-foreign certification executed by Seller under penalty of perjury, certifying that Seller is not a "foreign person" under Section 1445 of the Internal Revenue Code of 1986, as amended, and any regulation thereunder; (7) Any other documents which require Seller's signature; and (8) A resolution or other appropriate documentation authorizing the sale of the Assets. (b) Buyer. Buyer shall deposit the following ("Buyer's Closing Materials"), all in form acceptable to Seller: (1) Funds in the amount of $1,909,633.24, representing the amounts payable to Seller pursuant to Sections 2.1(a), (b) and (c), seventy-five percent (75%) of the 4 accounts receivable amounts listed on Schedule 1.1(d), and sixty-five percent (65%) of the inventory amounts listed on Schedule 1.1(e), together with additional funds in the amount necessary to pay Buyer's share of closing costs and prorations; (2) Assumptions of the General Assignment, the Premises Assignment and the Ryder Assignment; (3) Any other documents which require Buyer's signature; and (4) A resolution or other appropriate documentation authorizing the purchase of the Assets. 3.4. Close of Escrow. (a) Except as provided in Section 3.5, Escrow shall close on or before the Closing Date. When all documents and funds have been deposited with Escrow Holder, Escrow Holder shall immediately close Escrow as provided for below. The failure of Seller or Buyer to be in a position to close Escrow by the Closing Date for any reason other than the failure of a condition precedent set forth in Articles 7 or 8 shall constitute a default hereunder. If Escrow Holder is not in a position to close Escrow on the Closing Date, it shall close as soon thereafter as possible unless, prior to Closing, it receives notice from either Party directing it not to close. Notwithstanding the foregoing, if Escrow has not closed on or before September 30, 2003, then this Agreement and the Escrow automatically shall terminate and Escrow Holder is directed, without any further notice from the Parties, to return to each of the Parties the funds and documents previously deposited in Escrow by such Parties. The Closing shall occur when Escrow Holder performs all of the acts listed in the following subsection. (b) Procedure. Escrow Holder shall close Escrow as follows: (1) Pay the purchase price to Seller (except for the amounts payable pursuant to Section 3.5 below), reduced by Seller's share of closing costs and prorations; (2) Deliver the Bill of Sale, the General Assignment, the Premises Assignment, and the Ryder Assignment to Seller and Buyer; (3) Deliver the remainder of Seller's Closing Materials to Buyer; (4) Forward to Seller and Buyer an accounting of all funds received and disbursed for each party and copies of all executed and recorded or filed documents, with the recording or filing date shown thereon. (c) Prorations. Buyer and Seller shall pay their own attorneys' fees in connection with this transaction, and each shall pay one-half (1/2) of all Escrow fees. Rent, taxes, assessments and utility charges shall be prorated as of the Closing Date pursuant to instructions given by Seller and Buyer to Escrow Holder. Buyer shall obtain its own insurance for the Assets and Seller's insurance premiums shall not be prorated. In the event of default, the defaulting party shall pay all escrow cancellation fees. 5 3.5. Post-Closing Distributions. (a) As soon as practicable after the Closing Date, the Parties will determine the value of the inventory as of the Closing Date based on a physical inventory priced at cost. On or before September 29, 2003, Buyer shall deposit in Escrow an amount (provided it is a positive amount) equal to the difference of (i) the value of the inventory as of the Closing, determined as described above, over (ii) sixty-five percent (65%) of the value of the inventory as of August 10, 2003. The additional amount (provided it is a positive amount) determined pursuant to this Section 3.5(a) promptly will be distributed to Seller by Escrow Holder. If the amount determined pursuant to this Section 3.5(a) is a negative amount, then Seller shall pay same to Buyer. (b) As soon as practicable after the Closing Date, the Parties will determine the value of the packing/shipping inventory and supplies described in Section 1.1(a) as of the Closing Date on the basis of Seller's cost. On or before September 29, 2003, Buyer shall deposit in Escrow an amount (provided it is a positive amount) equal to the difference of (i) the value of the packing/shipping inventory and supplies as of the Closing, determined as described above, over (ii) Eighteen Thousand One Hundred Forty Eight Dollars ($18,148). The additional amount (provided it is a positive amount) determined pursuant to this Section 3.5(b) promptly will be distributed to Seller by Escrow Holder. If the amount determined pursuant to this Section 3.5(b) is a negative amount, then Seller shall pay same to Buyer. (c) As soon as practicable after the Closing Date, the Parties will determine the value of the accounts receivable as of the Closing Date on a basis consistent with that utilized in determining accounts receivable amounts for Schedule 1.1(d). Provided that contrary instructions are not received from the customer, Buyer agrees that all collections will be applied to the oldest invoices first in all instances. On or before September 29, 2003, Buyer shall deposit in Escrow an amount (provided it is a positive amount) equal to the difference of (x) ninety-five percent (95%) of the value of the accounts receivable as of the Closing, determined as described above, over (y) seventy-five percent (75%) of the value of the accounts receivable as of August 10, 2003. The additional amount determined pursuant to this Section 3.5(c) promptly will be distributed to Seller by Escrow Holder. If the amount determined pursuant to this Section 3.5(c) is a negative amount, then Seller shall pay same to Buyer. The balance of the accounts receivable, if any, will be paid to Seller as provided in Section 3.5(d) below. (d) Ninety (90) days after the Closing Date, the Parties will review the accounts receivable which existed as of the Closing Date. If by that date Buyer has collected an amount greater than ninety-five percent (95%) of the accounts receivable that existed at the Closing Date, then the amount by which such collections exceeds such ninety-five percent (95%) amount shall be paid to Seller by Buyer. Buyer also agrees to provide service and collection efforts consistent with those efforts historically provided by Buyer. 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND STORES Seller and Stores, jointly and severally, make the following representations and warranties to Buyer, each of which shall be true and correct at the execution of this Agreement and as of the Closing and all of which shall survive the Closing: 6 4.1. Corporate. (a) Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Seller is duly qualified to do business as a foreign corporation in all jurisdictions where necessary for the conduct of its business, except where the failure to be so qualified would not have a material adverse effect on the financial condition or operations of Seller (a "Material Adverse Effect"). (b) Corporate Power. Seller has all requisite corporate power and authority to enter into this Agreement and the other documents and instruments to be executed and delivered by Seller, and to carry out the transactions contemplated hereby and thereby. 4.2. Authority. The execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by Seller pursuant hereto and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the Board of Directors of Seller. No other corporate act or proceeding on the part of Seller, its shareholders, or any of Seller's affiliates is necessary to authorize this Agreement or the other documents and instruments to be executed and delivered by Seller pursuant hereto or the consummation of the transactions contemplated hereby and thereby. This Agreement constitutes, and when executed and delivered, the other documents and instruments to be executed and delivered by Seller pursuant hereto will constitute, valid and binding agreements of Seller, enforceable in accordance with their respective terms. Except as disclosed in Schedule 4.2, the execution, delivery, and performance of this Agreement by Seller, and the consummation of the transactions contemplated hereby, does not require any action by, consent, waiver, approval, authorization, exemption or permit of, or notification to, any third party, including any governmental or regulatory authority, body, agency, commission, department or instrumentality of any type, whether federal, state or otherwise (together, "Governmental Entity"), which has not been previously obtained or made. 4.3. No Conflict. Except as disclosed in Schedule 4.3, the execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated herein, does not conflict with or violate any provision of, result in any breach or default of, or give rise to any right of termination, cancellation or acceleration under: (i) any judgment, writ, order, injunction, decree, or Laws applicable to Seller; (ii) the Articles of Incorporation or Bylaws of Seller; or (iii) any note, mortgage, lien, indenture, any evidence of indebtedness or security therefore, lease, contract, license, purchase or other commitment or any other agreement to which Seller is a party or by which Seller is bound, and has not resulted in and, to Seller's knowledge, will not result in the creation or imposition of any lien, claim, or encumbrance of any kind whatsoever in favor of any third party on any of Seller's assets. 4.4. Title. Except as set forth in Schedule 4.4 Seller has good and valid title to its property and assets, and good title to all of its leasehold interests, in each case subject to no lien, other than the lien of current property taxes not yet due and payable. 4.5. Compliance With Laws. Except as disclosed in Schedule 4.5, to Seller's knowledge, during all relevant times, Seller has complied with, and Seller is in compliance with, all material federal, state, and local laws, ordinances, orders, rules and regulations (collectively 7 "Laws") applicable to Seller or the Business. To Seller's knowledge, Seller has not received notice of any past or continuing violation or alleged violation of any Laws by Seller. To Seller's knowledge, all applicable reports, returns, and other filings required by Law to be filed by Seller with any Governmental Entity in connection with the Business have been filed, were in compliance with all material Laws, and were accurate and complete when filed. To Seller's knowledge, Seller has at all times had all material licenses, permits, approvals, appointments, authorizations and consents of all Governmental Entities and any other third party required for the conduct of the Business. 4.6. Recent Events. Except as disclosed in Schedule 4.6 or as required by other provisions of this Agreement, since January 1, 2003, Seller has not: (a) made any material change in its business policies and practices; (b) become subject to any order by a Governmental Entity imposing restrictions on its activities or requiring the posting of any additional deposits or otherwise; (c) incurred or sustained any debt, damage, destruction or loss which has had a Material Adverse Effect; (d) amended, modified, canceled or terminated any contract, agreement or license to which Seller is a party, which action would result in or have a Material Adverse Effect; (e) made any waiver of any rights of material value or any cancellation of any material claims, debts or accounts receivable owing to Seller; (f) reduced or deferred making any of its usual efforts to maintain the Business; or (g) otherwise suffered or incurred any Material Adverse Effect or any change, which would result in or have a Material Adverse Effect on Seller taken as a whole. 4.7. Tax Matters. All federal, state, county, local and other tax returns or reports of any kind required to be filed by or on behalf of Seller have been timely filed and when filed were, to Seller's knowledge, true and correct in all respects, and the taxes shown as due thereon were paid or adequately accrued. Seller has duly withheld and paid all taxes which it is required to withhold and pay relating to salaries and other compensation heretofore paid to employees of Seller. To Seller's knowledge, Seller has not received from the Internal Revenue Service or from the tax authorities of any state, county, local or other jurisdiction any notice of underpayment of taxes or other deficiency related to Seller, which has not been paid, nor any objection to any return or report filed by or on behalf of Seller, nor has any taxing authority filed a lien against the Shares or any assets of Seller. 4.8. Insurance. Seller has been continuously covered since such time as the Assets were acquired by Seller by insurance in scope and amount customary and reasonable for the Business. All such coverage has been and is provided by reputable insurers, all premiums due under such policies have been paid, and all such policies providing coverage to Seller are in full force and effect and provide coverage on an "occurrence basis." 8 4.9. No Litigation. Except as disclosed in Schedule 4.9, there is no action, suit, arbitration, proceeding, investigation or inquiry pending or, to Seller's knowledge, threatened, (whether civil, criminal or administrative) against Seller, its directors or officers (in such capacity), its Business or any of its Assets, nor does Seller know, or have grounds to know, of any basis for any such proceedings, investigations or inquiries. 4.10. Other Sale Arrangement. Except for the pending transaction with Sysco Corporation, Seller is not obligated, contingently or otherwise, to sell all or substantially all of its assets or any shares of capital stock of Seller to any person(s) or entity(ies), except to Buyer pursuant to this Agreement. 4.11. No Brokers or Finders. Neither Seller nor any directors, officers, employees, or agents of Seller have retained, employed or used any broker or finder in connection with the transactions provided for herein or in connection with the negotiation thereof. 4.12. Leases. Schedule 4.12 sets forth a complete and accurate list of all real property Leases to which Seller is a party. Schedule 4.12 lists the location of all of the leased premises (the "Leased Premises"), the dates of the Leases and any and all amendments thereto, and sets forth the address of the property, name of the landlord, term of the lease, monthly rent and a description of any adjustment methodology and the times applicable, the number and length of any options to extend or renew, and whether there is an option to purchase and the purchase price therefore with respect to any lease. Each of the Leases is valid, binding and enforceable against Seller in accordance with its terms and is in full force and effect; there are no existing defaults on the part of Seller or any other party under any Lease; and each such Lease will, subject to obtaining any consent listed in Schedule 4.12, continue to be in full force and effect on the same terms and conditions immediately after the Closing without the need for any action on the part of Buyer. Seller's interest in each of the Leases is free and clear of all liens. Seller has not granted to any Person any right to the possession, use, occupancy or enjoyment of the Leased Premises; and Seller lawfully maintains actual and exclusive possession of all portions of the Leased Premises. To the best knowledge of Seller, there is not now pending or contemplated any reassessment on real estate taxes or otherwise of any parcel included in the Leased Premises which would result in an increase of the rent, additional rent or other sums and charges payable by Seller under any Lease or pertaining to any Leased Premises. Seller has not received notice of any breach or violation of any covenant, condition, restriction, right of way or easement, or any condemnation or eminent domain proceeding affecting the Leased Premises or any part thereof. To the best knowledge of Seller, all buildings, structures and other improvements included within the Leased Premises, including but not limited to the roofs and structural elements thereof and the heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer, waste water, storm water, paving and parking equipment, systems and facilities included therein, are in good working order and repair for their type and age, normal wear and tear excepted. To the best knowledge of Seller, the water, gas, electrical, steam, compressed air, telecommunication, sanitary and storm sewage lines and systems and other similar systems serving the Leased Premises are sufficient to enable the Leased Premises to continue to be used and operated in the manner currently being used and operated. 9 4.13 Contracts and Other Documents. Schedule 4.13 sets forth a list of all contracts to which Seller is a party (other than real property Leases, which are described in Schedule 4.12) which include: (i) contracts providing for payment or receipt of more than $5,000; (ii) contracts granting, or consenting to the existence of, any Lien on or in any of the Assets in favor of any Person; (iii) contracts relating to the borrowing of money or the incurrence of any indebtedness for borrowed money, or the issuance of any letter of credit, or the guaranty of another person's indebtedness, or contracts of suretyship or relating to the repurchase of any goods or assets of any other person; (iv) contracts granting to any person a right of first refusal, first offer, option or similar preferential right to purchase or acquire any of its properties, assets or securities; (v) contracts limiting, restricting or prohibiting Seller from conducting any business anywhere in the United States of America or elsewhere in the world; (vi) joint venture or partnership agreements or other similar contracts; (vii) contracts of employment or for the retention of consultants or advisors or the furnishing of similar services by any third party; (viii) contracts which indemnify any other person or which are in the nature of a severance agreement or which would otherwise entitle any person not a party to this Agreement to receive a payment based upon the consummation of the transactions contemplated hereby; or (ix) any other contract which is material to the operation of Seller or any of the Assets (the foregoing contracts referred to as "Material Contracts"). No default by Seller or any other party exists, or has been claimed or alleged by any Person, with respect to any Material Contract, and to the best knowledge of Seller, no event has occurred that, with notice or lapse of time or both, would constitute a default under any Material Contract. No consent, approval, claim, authorization or waiver from, or notice to, any Governmental Entity or other person is required in order to maintain in full force and effect any of the Material Contracts to which Seller is a party. Consents for assignment of all Material Contracts have been obtained, or by the Closing Date shall have been obtained, by Seller, and copies thereof will be delivered to Buyer at the Closing. 4.14 Labor Difficulties. Except as set forth in Schedule 4.9, (i) Seller is not a party to any contract with any labor organization or other representative of its employees; (ii) there is no unfair labor practice charge or complaint pending or, to the knowledge of Seller, threatened against Seller; (iii) Seller has not experienced any labor strike, slowdown, work stoppage or similar labor controversy within the past five years and, to the knowledge of Seller, no such labor strike, slow down, work stoppage or similar labor controversy is threatened; (iv) no representation question has been raised respecting any of Seller's employees, nor are there any organizing activities or campaigns being conducted to solicit authorization from Seller's employees to be represented by any labor organization and no such activity or campaign is threatened; (v) no claim before any Governmental Authority brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of employees or any Governmental Authority is pending or, to the knowledge of Seller, threatened against Seller; (vi) Seller is not a party to, or otherwise bound by, any judgment, decree, injunction, rule or order relating to its employees or employment practices; (vii) except with respect to ongoing disputes of a routine nature involving immaterial amounts, Seller has paid in full to all of its employees all wages, salaries, commissions, bonuses, benefits and other compensation due and payable to such employees; and (viii) Seller is in compliance with all material Laws affecting employment and employment practices. 4.15 Employees. Schedule 4.15 contains a true and complete list, by category, of all full-time employees, part-time employees and other employees and consultants of Seller, 10 including any contracts or agreements relating thereto, and a description of the rate and nature of all compensation payable by Seller to, and the amount of vacation, sick days, personal days and other leave accrued by, each such employee. Buyer has been provided with access to true and complete (i) copies of all standard forms of employee trade secret, non-compete, non-disclosure and invention assignment agreements, together with a list of all agreements that deviate therefrom and a description of such deviation, and (ii) descriptions of all existing severance, accrued vacation or other leave policies or retiree benefits of any such employee or consultant. The employment or consulting arrangement of all such persons is, subject to applicable Laws involving the wrongful termination of employees, terminable at will (without the imposition of penalties or damages) by Seller. No current or former employee of Seller is (i) absent on a military leave of absence and/or eligible for rehire under the terms of the Uniformed Services Employment and Reemployment Rights Act, or (ii) absent on a leave of absence under the Family and Medical Leave Act. There are no bonuses, profit sharing, incentives, commissions or other compensation of any kind, including, without limitation, severance benefits, and accrued vacation time or pay, due to or expected by present or former employees of Seller in excess of $50,000 in the aggregate. 4.16 Licenses and Permits. Seller has obtained, has fully paid for, and has, in full force and effect, all Licenses and Permits, which Licenses and Permits are set forth in Schedule 4.16. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in the revocation, cancellation, suspension, modification, or limitation of any such Licenses and Permits and will not give to any person any right to revoke, cancel, suspend, modify, or limit any such Licenses and Permits. To the best knowledge of Seller, there is no fact or event which is likely to prevent the renewal of any of the Licenses and Permits under existing Law or which, with the passage of time or the giving of notice or both, is likely to constitute a violation of the terms of any of the Licenses and Permits or of any applications or agreements made in connection therewith. 4.17 Accounts Receivable. All of the accounts receivable of Seller described in Section 1.1(d) and all accounts receivable to be transferred to Buyer at the Closing arose from bona fide transactions in the ordinary course of business of Seller, have not been discounted, are fully collectible as and when due (subject to any reserve with respect to such accounts receivable), and no counterclaim or right of set-off has been asserted with respect thereto. Schedule 1.1(d) accurately sets forth the amounts of such accounts receivable in existence as of the date(s) mentioned. 4.18 Inventory. All of the inventory of Seller described in Section 1.1(e) and all inventory to be transferred to Buyer at the Closing arose from bona fide transactions in the ordinary course of business of Seller. All such inventory is in good condition and suitable for its intended use. 4.19 Absence of Undisclosed Liabilities. Except as disclosed in Schedule 4.19, since January 1, 2003, Seller has incurred no liabilities other than those incurred in the ordinary course of business and consistent with past practice, and there is no liability (individually or in the aggregate) of Seller which could have a Material Adverse Effect that Seller has not disclosed in writing to Buyer. 11 4.20 Transferred Assets; Ownership of Assets and Rights. The portion of the Assets constituting tangible or fixed property or assets, taken as a whole, or individually, as to any piece of equipment currently valued at more than $1,000, are in good working order and repair for equipment of like type and age, reasonable wear and tear excepted. No capital expenditures in excess of $5,000 are contemplated by Seller for the current fiscal quarter ending September 30, 2003. To the best knowledge of the Seller, there are no facts which would prevent Buyer after the Closing from using the Sellers' assets to carry on the Business in substantially the same manner as the Sellers have prior to the Closing Date; provided, however, that this representation shall not extend to any fact relating to the status, business, condition or identity of Buyer. 4.21 Delivery of Documents. Seller has heretofore delivered or made available to Buyer or its advisors true, correct and complete copies of all documents, instruments, agreements and records which are referred to in this Article 4. 4.22 Compliance with Environmental Laws. To the best knowledge of Seller, the Premises are not, and as of the Closing shall not be, in violation of any Environmental Law, as defined below, and do not contain Hazardous Materials, as defined below. During the time in which Seller leased the Premises, neither Seller nor, to the best knowledge of Seller, any third party, used, generated, stored, or disposed of, on, under or about the Premises, or transported to or from it, any Hazardous Materials. Except as provided in Schedule 4.22, Seller has received no notice from any Governmental Entity of any investigation or proceeding by such agency concerning the presence or alleged presence of Hazardous Materials on the Premises. The term "Environmental Law" shall include any federal, state or local law, ordinance or regulation pertaining to health, industrial hygiene, waste disposal or the environment, including, without limitation: the Comprehensive Environmental Response, Compensation and Liability Act of 1986, the Resource Conservation and Recovery Act of 1976, the Federal Clean Air Act, the Federal Water Pollution Control Act and Federal Clean Water Act of 1977, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal Pesticide Act of 1978, the Federal Toxic Substances Control Act, the Federal Safe Drinking Water Act, the Hazardous Materials Transportation Act, the California health and safety statutes, and regulations adopted and publications promulgated pursuant to such laws. The term "Hazardous Materials" shall include oil and petroleum products, asbestos, polychlorinated biphenyls and urea formaldehyde, and any other materials classified as hazardous or toxic under any Environmental Law, including without limitation, any materials defined as "Hazardous Substances," "Hazardous Materials," "Toxic Substances," "Hazardous Waste," or "Solid Waste," thereunder, or any materials not specifically so classified or defined, but which constitute a material which gives rise to the requirement under any Environmental Law that notice be given to parties regarding its presence or that removal, clean up or other remedial action be taken with respect to its presence. 5. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 5.1. Organization and Good Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of California. 12 5.2. Authority; No Violation. Buyer has the requisite right, power and authority to execute, deliver, and perform Buyer's obligations under this Agreement. Upon the execution and delivery by Buyer of this Agreement, this Agreement will constitute the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Neither the execution, delivery, and performance by Buyer of this Agreement, nor the consummation of the transactions contemplated by this Agreement will: (i) violate any of Buyer's organizational documents; (ii) violate, conflict with, result in any breach of, constitute a default under, result in the termination or acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any contract, license, or permit to which Buyer is a party or by which it is bound; (iii) require any authorization, consent, approval, exemption or other action by or notice to any court, other Governmental Entity, or other person or entity under, the provisions of any legal requirement or any contract or permit to which it is subject, bound, or affected; or (iv) violate or require any consent or notice under any legal requirement or other restriction of any Governmental Entity to which it is subject, bound, or affected. 5.3. Certain Proceedings. There is no pending proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, this Agreement. To Buyer's knowledge, no such proceeding has been threatened. 5.4. No Brokers or Finders. Neither Buyer nor any directors, officers, employees, or agents of Buyer have retained, employed or used any broker or finder in connection with the transactions provided for herein or in connection with the negotiation thereof. 6. ADDITIONAL AGREEMENTS/COVENANTS 6.1. Access to Information. Between the date hereof and the earlier of the Closing Date or any date of termination of this Agreement, to the extent permitted by law, Seller shall afford to the officers and authorized employees, representatives and agents of Buyer full and reasonable access to and the right to perform customary due diligence and inspect the properties, books and records of Seller relating to the Assets, the Assumed Obligations and the Business. Buyer's right of access and inspection shall be exercised in such a manner as not to unreasonably interfere with the operation of Seller's Business. 6.2. Affirmative Covenants. From the date hereof until the earlier of the Closing Date or the date of termination of this Agreement, Seller covenants and agrees that it shall: (a) operate the Business only in the usual and ordinary course of business; (b) use reasonable commercial efforts to preserve intact the Business and the Assets, except for normal depreciation and wear and tear; (c) maintain the inventory at usual and customary levels; (d) use reasonable commercial efforts to perform in all material respects all obligations under existing contracts; 13 (e) keep in full force and effect present insurance policies or other comparable insurance coverage relating to the Business; (f) keep intact the current business organization of the Business; and (g) notify the Buyer of any known event or circumstance which Seller believes is reasonably likely to have a Material Adverse Effect on the Business or the Assets or would cause or constitute a breach of any Parties' representations, warranties or covenants contained herein. 6.3. Negative Covenants. From the date hereof, until the earlier of the Closing Date or the termination date of this Agreement, Seller covenants and agrees that it will not do or agree to do any of the following: (a) take any action which would have a Material Adverse Effect on the ability of any Party hereto to perform its covenants and agreements under this Agreement; (b) sell, purchase or acquire any assets or properties, whether real or personal, tangible or intangible, or sell, dispose of, encumber, or hypothecate any assets or properties, whether real or personal, tangible or intangible, related to the Business, other than in the ordinary course of business and other than the pending transaction with Sysco Corporation (which Seller and Parent covenant will not in any way interfere with or impair the transactions contemplated under this Agreement or Buyer's quiet enjoyment of the Assets); (c) grant any increase in compensation, bonuses, or benefits to any employees; (d) modify, amend or terminate any existing contract; (e) enter into any new contract or commitment which has a value in excess of Five Thousand Dollars ($5,000), other than in the ordinary course of business; or (f) hire any additional employees. 6.4. Cooperation of the Parties. Seller shall maintain phone lines, existing contracts and other services in full force and effect until these services can be transferred to Buyer, and in exchange therefore Buyer shall reimburse Seller for Seller's actual costs incurred in connection with maintaining such phone lines, contracts and services. Seller also agrees to make the information contained in Seller's business and financial records available to Buyer, at reasonable times and upon reasonable advance notice, for any reasonable purpose related to the Assets and the operation of the Business. Buyer and Seller will take any and all reasonable action, before and after Closing, necessary to effectuate the sale of the Assets to Buyer. 6.5 Further Assurance. After the Closing, each of the parties hereto shall execute such documents and other instruments and perform such further acts as may be required or reasonably requested by any other party hereto to carry out the provisions hereof and the transactions contemplated hereby including, without limitation, vesting in Buyer good and marketable title to the Assets free and clear of any and all liens. Seller also shall provide Buyer 14 with access to Seller's AS400 Server in Stockton, California from the Closing Date up to and including November 30, 2003 at no charge for the sole purpose of providing Buyer with a data link for the Aspen Software System. Buyer will provide Seller access to Buyer's systems for the purpose of monitoring accounts receivable during the ninety (90) day period set forth in Section 3.5(d). After the Closing, Seller shall promptly advise Buyer in writing of the commencement or threat (of which any of them has knowledge) against Seller of any claim, action, suit or other proceeding that relates to or might reasonably be expected to affect Buyer, Seller or the Assets. 6.6 Obtaining Consents. The parties hereto recognize that nothing in this Agreement shall be construed as an attempt to assign to Buyer any Asset that, as a matter of law or by the terms of the applicable contract (if such Asset is rights in a contract), is not assignable without the consent of a third party, and unless and until assigned to Buyer, any such Asset shall be held by Seller in trust for the benefit of Buyer as of the Closing Date. Seller shall, at the request and under the direction of Buyer, take all commercially reasonable actions and do or cause to be done all commercially reasonable things as are necessary or proper in order that the obligations of Seller relating to any such Asset may be performed by Buyer in a manner that would enable Buyer to preserve and benefit from the value of such Asset. 6.7 Payments Received. Seller and Stores, jointly and severally, will hold for the benefit of Buyer and will promptly transfer and deliver to Buyer, from time to time as and when received by any of them, any cash, checks with appropriate endorsements (using their best efforts not to convert such checks into cash) or other property that they may receive on or after the Closing which relates to any of the Assets prior to the Closing including, without limitation, any accounts receivable. From and after the Closing, Buyer shall have the right and authority to endorse without recourse the name of Seller on any check or any other evidence of indebtedness received by Buyer on account of the Assets or the operations of Seller prior to the Closing and Seller hereby designates and appoints (which designation and appointment is irrevocable and coupled with an interest) Buyer as its attorney-in-fact, in the name, place and stead of Seller, for such purposes. 6.8 Agreements Relating to Leased Real Property. Seller shall cooperate with Buyer and take all reasonable actions necessary to obtain and deliver to Buyer at the Closing a current estoppel certificate from the landlord under each Lease ("Landlord Estoppel Certificate") in form and content reasonably acceptable to Seller and Buyer. 6.9 Employees. Seller shall terminate the employment of all of its employees in the Business listed on Schedule 4.15 on or before the Closing Date. 6.10 Covenant Not to Compete. In order to induce Buyer to enter into and perform this Agreement, Seller and Stores agree that with respect to Seller and Stores, for a period of two (2) years beginning on the Closing Date (in each case, the "Restricted Period"), they shall not, without the prior written consent of Buyer, for their own account or jointly or in combination with another person, directly or indirectly, for or on behalf of any person, as principal, agent or otherwise: (i) engage in the meat or seafood processing or foodservice distribution businesses in northern California; (ii) solicit or induce, or in any manner attempt to solicit or induce, any individual who is employed by Seller at the Closing Date to leave such employment, whether or 15 not such employment is pursuant to a written contract or otherwise, or (iii) induce or influence any customer, supplier or any other person or entity who had a business relationship with Seller prior to the Closing, or that has a business relationship with Buyer, or any of their respective subsidiaries or affiliates, whether before or after the Closing Date, to terminate such relationship or to discontinue or reduce the extent of its relationship with Buyer, or any of their respective subsidiaries or affiliates. Nothing contained in this Section 6.10 shall affect Stores' right and ability to operate its retail stores in the manner in which it historically has operated such stores. 6.11 Bulk Sales. Buyer hereby waives compliance by the Seller with the provisions of any applicable state bulk transfer statutes. Seller and Stores hereby, jointly and severally, covenant and agree to indemnify and hold Buyer harmless from and against any and all claims of Seller's creditors or others asserted against Buyer resulting from such noncompliance. 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS Buyer's obligation to close the transactions contemplated in this Agreement shall be subject to the satisfaction by Seller or waiver by Buyer prior to or at Closing of each of the following conditions: 7.1. Compliance With Agreement. Seller shall have in all material respects performed and complied with all of its covenants, agreements, and obligations under this Agreement which are to be performed or complied with by it prior to or on Closing, including the delivery of Closing documents specified in Section 3.3(a). 7.2. Consents and Approvals. Any approvals, consents, and waivers necessary to effect the transactions contemplated under this Agreement shall have been received, and executed counterparts thereof shall have been delivered to Buyer at Closing, and such approvals shall: (i) be in full force and effect and (ii) not modify the terms and conditions of this Agreement in any material respect or have a Material Adverse Effect on Buyer or Seller or the ability of any of the Parties to consummate the transactions contemplated under this Agreement. 7.3 No Litigation/No Changes. There is no pending or threatened litigation against or affecting any of the Parties or their respective assets, properties or businesses which would have a Material Adverse Effect on the ability of the affected Party to consummate the transactions contemplated under this Agreement or which would have a Material Adverse Effect on any of the Parties if such transactions are consummated. With the exception of any changes which may be caused by the transaction with Sysco Corporation, there shall have been no change in the Business that would have a Material Adverse Effect on the business, operations, financial condition or assets of Seller between the date of this Agreement and the Closing Date. 7.4 No Injunction. There is not in effect any legal requirement or any injunction or other order that prohibits the purchase of the Assets by Buyer from Seller. 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS Seller's obligation to close the transactions contemplated by this Agreement shall be subject to the satisfaction by Buyer or waiver by Seller prior to or at Closing of the following conditions: 16 8.1. Compliance With Agreement. Buyer shall have in all material respects performed and complied with all of its covenants, agreements, and obligations under this Agreement which are to be performed or complied with by Buyer prior to or on Closing, including the delivery of Closing documents specified in Section 3.3(b) and payment of the purchase price. 8.2. Consents and Approvals. Any approvals, consents, and waivers necessary to effect the transactions contemplated under this Agreement shall have been received, and executed counterparts thereof shall have been delivered to Seller at Closing, and such approvals shall: (i) be in full force and effect, and (ii) not modify the terms and conditions of this Agreement in any material respect or have a Material Adverse Effect on Seller or the ability of any of the Parties to consummate the transactions contemplated under this Agreement. 8.3. No Litigation. There is no pending or threatened litigation against or affecting any of the Parties or their respective assets, properties or businesses which would have a Material Adverse Effect on the ability of the affected Party to consummate the transactions contemplated under this Agreement or which would have a Material Adverse Effect on any of the Parties if such transactions are consummated. 8.4. No Injunction. There is not in effect any legal requirement or any injunction or other order that prohibits the sale of the Assets from Seller to Buyer. 9. INDEMNIFICATION 9.1. Indemnification of Seller. Subject to the terms and conditions of this Article 9, Buyer shall, upon demand by Seller, indemnify, defend, and hold Seller, Stores and their respective directors, officers, employees and agents (collectively, "Seller's Indemnitees") harmless against and in respect of any and all claims, demands, actions, proceedings, liabilities, losses, damages, fines and penalties, costs or expenses, including attorneys' fees, disbursements and court costs (collectively, "Reimbursable Liabilities"), made or instituted against or incurred by any of Seller's Indemnitees and which arise, either directly or indirectly, out of or are related to: (i) any failure to comply with or breach of any of the covenants, obligations or agreements of Buyer set forth in this Agreement or (ii) the inaccuracy, misrepresentation or omission of any representation or warranty made by Buyer in or pursuant to this Agreement. 9.2. Indemnification of Buyer. Subject to the terms and conditions of this Article 9, Seller and Stores, jointly and severally, hereby indemnify, defend, and hold Buyer and its affiliates, and their respective directors, officers, employees, and agents (collectively, "Buyer's Indemnitees") harmless against and in respect of any Reimbursable Liabilities, made or instituted against or incurred by any of Buyer's Indemnitees and which arise, either directly or indirectly, out of or are related to: (i) any failure to comply with or breach of any of the covenants, obligations or agreements of Seller or Stores set forth in this Agreement, or (ii) the inaccuracy, misrepresentation or omission of any representation or warranty made by Seller or Stores in or pursuant to this Agreement, (iii) any liability (other than for rent while Buyer occupies the premises) under the oral lease for the Foremost Building as described in Section 2.3(a), (iv) any liability, as successor employer or otherwise, with respect to any claims made, under ERISA, the Internal Revenue Code, or otherwise, in connection with any disability, relocation, child care, educational assistance, deferred compensation, pension, retirement, profit sharing, 401(k), thrift, 17 savings, stock ownership, stock bonus, restricted stock, health, dental, medical, life, hospitalization, stock purchase, stock option, incentive, bonus, sabbatical leave, vacation, severance, cafeteria or other contribution, benefit or plan of any kind whatsoever, or (v) any liability with respect to the claims set forth on Schedule 4.9. 9.3. Limitations on Indemnification. (a) Time Limitation. The indemnification obligations of Buyer, Seller and Stores under this Article 9 for breach of a representation or warranty shall survive the Closing until the second anniversary of the Closing Date ("Termination Date"), and shall immediately thereafter terminate and expire, except with respect to any indemnification obligation that arises under or relates to any indemnification demand made in writing prior to the Termination Date, or with respect to any indemnification obligation arising as a result of the breach of any representation, warranty or covenant contained in Sections 4.7, 4.22, 9.2(iv) or 9.2(v) hereof, as to which any indemnification obligation shall survive until expiration of any statutes of limitation applicable to such claims. (b) Amount Limitations. The indemnification obligations of Buyer and Seller under this Article 9 for breach of a representation or warranty shall be effective only after the aggregate of Reimbursable Liabilities to Seller's Indemnitees or Buyer's Indemnitees, respectively, exceeds Ten Thousand Dollars and no/100s ($10,000.00) (computed without regard to any materiality qualifier), in which case the full amount of such Reimbursable Liabilities in excess thereof shall be payable up to and including Two Hundred Fifty Thousand Dollars ($250,000); provided, however, that there shall be no maximum limit of Reimbursable Liabilities arising as a result of the breach of any representation, warranty or covenant contained in Sections 4.1, 4.2, 4.3, 4.4, 4.7, 4.9, 4.22, 6.10, 6.11, 9.2(iv) and 9.2(v) hereof, or with respect to the claims set forth on Schedule 4.9. 10. MISCELLANEOUS 10.1. Assignment; Parties in Interest. (a) Assignment. The rights and obligations of either Party hereunder may not be assigned, transferred or encumbered without the prior written consent of the other Party. (b) Parties in Interest. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the respective successors and permitted assigns of the Parties. Nothing contained herein shall be deemed to confer upon any other person any right or remedy under or by reason of this Agreement. 10.2. Law Governing Agreement/Consent to Jurisdiction. This Agreement will be governed by and construed in accordance with the Laws of the State of California (without giving effect to principles of conflicts of laws) applicable to a contract to be performed in such state. Any action arising, directly or indirectly, out of or related to this Agreement shall only be brought in state or federal court in the State of California and the Parties hereby consent to personal jurisdiction over them in such court, and each Party agrees to comply with all requirements necessary to give such court jurisdiction. 18 10.3. Amendment and Modification. This Agreement shall not be amended, modified or supplemented except pursuant to a written instrument signed by the Parties. 10.4. Notice. All notices, requests, demands and other communications hereunder shall be given in writing and shall be: (i) personally delivered; (ii) sent by facsimile transmission or other electronic means of transmitting written documents; or (iii) sent to the Parties at their respective addresses indicated herein by registered or certified U.S. mail, return receipt requested and postage prepaid, or by private overnight mail courier service. The respective addresses to be used for all such notices, demands or requests are as follows: (a) If to Seller: Port Stockton Food Distributors, Inc. 600 Citadel Drive Commerce, CA 90040 Attn: Donald G. Alvarado Telephone: (323) 869-7697 Facsimile: (323) 869-7862 With copy to: Foley & Lardner 2029 Century Park East, Suite 3500 Los Angeles, CA 90067 Attn: Richard W. Lasater II Telephone: (310) 975-7791 Facsimile: (310) 557-8475 or to such other person or address as Seller shall furnish to Buyer in writing. (b) If to Buyer: Pacific Fresh Sea Food Company 16797 130th Street S.E. Clackamas, OR 97015 Attn: James Adamson Telephone: (503) 905-4500 Facsimile: (503) 905-4241 With copy to: Elliott, Ostrander & Preston 707 S.W. Washington St., Suite 1500 Portland, OR 97205 Attn: Robert Preston Telephone: (503) 224-7112 Facsimile: (503) 224-7819 19 or to such other person or address as Buyer shall furnish to Seller in writing. If personally delivered, such communication shall be deemed delivered upon actual receipt; if electronically transmitted pursuant to this Section, such communication shall be deemed delivered the next business day after transmission (and sender shall bear the burden of proof of delivery); if sent by overnight courier pursuant to this Section, such communication shall be deemed delivered upon receipt; and if sent by U.S. mail pursuant to this Section, such communication shall be deemed delivered as of the date of delivery indicated on the receipt issued by the relevant postal service, or, if the addressee fails or refuses to accept delivery, as of the date of such failure or refusal. Any Party to this Agreement may change its address for the purposes of this Agreement by giving notice thereof in accordance with this Section. 10.5. Expenses. Regardless of whether or not the transactions contemplated hereby are consummated, except as set forth in Article 9, each of the Parties shall bear its own expenses and the fees and expenses of its counsel and other agents, brokers and finders, in connection with the transactions contemplated hereby. 10.6. Entire Agreement. This Agreement, together with the Schedules hereto, constitutes the entire agreement between the Parties with respect to the transactions contemplated herein, and there are no agreements, representations or warranties between the parties other than those set forth or provided for herein. This Agreement supercedes all prior understandings or agreements between the Parties on the subject matter hereof. 10.7. Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future Law, and if the rights or obligations of any party under this Agreement will not be materially and adversely affected thereby: (i) such provision will be fully severable; (ii) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom; and (iv) in lieu of such illegal, invalid, or unenforceable provision, there will be added automatically as a part of this Agreement, a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible. 10.8. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.9. Headings. The headings in this Agreement are inserted for convenience only and shall not constitute a part hereof. 10.10. Attorneys' Fees. In the event of the brining of any action by either party hereto against the other party arising out of this Agreement, the party who is determined to be the prevailing party shall be entitled to recover from the other party all costs and expenses of suit, including reasonable attorneys' fees. 10.11. Publicity. No public release or announcement concerning the transactions contemplated under this Agreement shall be issued by any Party hereto without the advance 20 consent of the other Party hereto, except as such release or announcement may be required by law, in which case the Party making the release or announcement shall show such release or announcement as soon in advance as is possible to the other Party hereto. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above. PORT STOCKTON FOOD DISTRIBUTORS, INC., a California corporation ("Seller") By: /s/ Dennis Chiavelli --------------------------------------- Its: EVP -------------------------------- By: /S/ Donald G. Alvarado --------------------------------------- Its: SVP & Secretary -------------------------------- SMART AND FINAL STORES CORPORATION, a California corporation ("Stores") By: /s/ Dennis Chiavelli --------------------------------------- Its: EVP -------------------------------- By: /S/ Donald G. Alvarado --------------------------------------- Its: SVP & Secretary -------------------------------- PACIFIC FRESH SEA FOOD COMPANY, a California corporation ("Buyer") By: /s/ James Adamson --------------------------------------- Its: Chief Financial Officer -------------------------------- 21 EX-10.39 13 dex1039.txt SIXTH AMENDMENT AND WAIVER TO LEASE AGREEMENT DATED AS OF SEPTEMBER 12, 2003 Exh 10.39 EXECUTION VERSION SIXTH AMENDMENT AND WAIVER TO LEASE AGREEMENT This Sixth Amendment and Waiver to Lease Agreement, dated as of September , 2003 (this "Agreement"), is among the Persons that have executed this - -- Agreement (the "Parties"). Capitalized terms used, but not defined, in this Agreement are used as defined in the Lease Agreement, dated as of November 30, 2001, between Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1, as lessor, and Smart & Final Inc., as lessee, as amended by Waiver and Amendment Agreement No. 1, dated as of June 4, 2002, by Waiver and Amendment Agreement No. 2, dated as of February 14, 2003, by Amendment Agreement No. 3, dated as of June 1, 2003, by Waiver and Amendment Agreement No. 4, dated as of July 11, 2003 and by Consent, Waiver, Collateral Release and Amendment Agreement No. 5A, dated as of September 3, 2003 (the "Lease"). Capitalized terms used herein without definition have the meanings ascribed to such terms in the Lease. RECITALS A. The Lessee has informed the Agent that it intends to sell (i) its northern California broadline foodservice operations (other than the Craig & Hamilton meat processing business) to Sysco Corp., a Delaware corporation, and (ii) its Craig & Hamilton meat processing business to Pacific Fresh, Inc., a California corporation, for a total purchase price for both transactions of approximately $27.5 million in cash. The transactions will be structured as a sale of most of the accounts receivable and inventories of Port Stockton Food Distributors, Inc. (including its meat processing business under the tradename Craig & Hamilton) and the assumption of a lease in connection with the meat processing business (the "Sale Transactions"). The assets to be sold in the Sale Transactions are set forth on Annex A hereto (such assets, the "Sale Assets"). B. The Lessee has also informed the Agent that it intends to cease operations at, and eventually cause to be sold, the Port Stockton dry grocery warehouse (the "Dry Grocery Warehouse") and eventually sell certain other assets with respect to the northern California broadline foodservice operations, all of which are more particularly described on Annex B hereto (such assets and the Dry Grocery Warehouse, collectively, the "Retained Assets"). C. The Lessee has informed the Agent that it intends to replace the Dry Grocery Warehouse with one or more unidentified Replacement Properties on a later date in accordance with Section 11.2 of the Lease. D. Section 28.3(d) of the Lease prohibits sales of assets by the Credit Parties except under certain circumstances. The Sale Transactions would violate Section 28.3(d) and the planned disposition of that portion of the Retained Assets exclusive of the Dry Grocery Warehouse may violate Section 28.3(d). The Lessee's ceasing of operations at the Dry Grocery Warehouse would violate Section 8.2 of the Lease. E. The Lessee has requested that the applicable Financing Parties, and, subject to the terms and conditions of this Agreement, the applicable Financing Parties desire to, (i) consent to the Sale Transactions, (ii) consent to the planned disposition of that portion of the Retained Assets exclusive of the Dry Grocery Warehouse and the ceasing of operations at the Dry Grocery Warehouse, (iii) waive the limitations of Section 28.3(d) of the Lease in connection with the Sale Transactions and the planned disposition of that portion of the Retained Assets exclusive of the Dry Grocery Warehouse, and (iv) release the Liens granted to the Agent under the Security Documents with respect to the Sale Assets and, when sold, that portion of the Retained Assets exclusive of the Dry Grocery Warehouse. NOW, THEREFORE, for good and valuable consideration received, the Parties agree as follows. 1. Section References. Unless otherwise expressly stated, all section references in this Agreement refer to sections of the Lease. 2. Consents. The Lenders and the Holder consent to: (a) the Sale Transactions; (b) the planned disposition of that portion of the Retained Assets exclusive of the Dry Grocery Warehouse; and (c) the release of all Liens on the Sale Assets and, when sold, that portion of the Retained Assets exclusive of the Dry Grocery Warehouse, in accordance with Section 5 of this Agreement. 3. Waivers. The A-2 Lenders, the B Lenders and the Holder waive: (a) the requirements of Section 28.3(d) of the Lease in connection with the Sale Transactions and the planned disposition of the Retained Assets exclusive of the Dry Grocery Warehouse; and (b) the requirements of Section 8.2 of the Lease in connection with the ceasing of operations at the Dry Grocery Warehouse. 4. Lessee's Agreements and Acknowledgments. Lessee acknowledges and agrees to all matters approved or waived by the Lenders and the Holder, as applicable, in Sections 2 and 3 of this Agreement. 5. Release of Collateral. (a) On the date that the later of the following two events occurs: (i) consummation of the Sale Transactions and (ii) satisfaction of the conditions precedent set forth in Section 6 of this Agreement (the "Release Date"), the Agent shall release its Liens on the Sale Assets. On the Release Date, the Agent shall, at the expense of the Lessee, promptly return to the Lessee any instruments, certificates and other documents evidencing solely any Lien on the Sale Assets. In addition, effective on the Release Date, the Agent authorizes the Lessee and its agents or representatives to file such documents or instruments, including terminations of the UCC Financing Statements filed as the Lessee considers necessary to evidence, effect or confirm the release and termination of all Liens created under the Security Documents only with respect to the Sale Assets. 2 (b) Upon the later to occur of (i) consummation of the disposition of any of the Retained Assets and (ii) satisfaction of the conditions precedent set forth in Section 6 hereof (any such date, a "Retained Asset Release Date"), the Agent shall release its Lien on the Retained Assets being disposed of. On any Retained Asset Release Date, the Agent shall, at the expense of the Lessee, promptly return to the Lessee any and all instruments, certificates and other documents evidencing solely any lien, charge or encumbrance on the Retained Assets being disposed of. Effective on any Retained Asset Release Date, the Agent authorizes the Lessee and its agents or representatives to file such documents or instruments as the Lessee may deem necessary, in form and substance satisfactory to the Agent, to evidence, effect or confirm the release and termination of any and all Liens created under the Security Documents with respect to the Retained Assets being disposed of. 6. Conditions Precedent. The effectiveness of this Agreement is subject to the satisfaction of each of the following conditions precedent. (a) Certain Documents. The Agent shall have received all of the following, in form and substance satisfactory to the Agent: (i) Amendment Documents. This Agreement, duly executed by Lessee and each Guarantor and any other instrument, document or certificate required by the Agent to be executed or delivered by Lessee or any other Person in connection with this Agreement, duly executed by them (collectively, the "Amendment Documents"); (ii) Copies of Sale Documents. Upon request by the Agent, true and correct copies of the stock and asset purchase agreements and any other agreements, documents or instruments executed in connection with the (A) Sale Transactions or (B) sale of the Retained Assets; (iii) Consent of Required Secured Parties. The Majority Secured Parties shall have executed and delivered this Agreement; (iv) Amendment to Lessee Credit Agreement. Evidence to the Agent's satisfaction that the Sale Transactions have been approved by, and that appropriate waivers and releases have been obtained from, the lenders and the administrative agent under the Lessee Credit Agreement; and (v) Additional Information. Such additional documents, instruments and information as the Agent may reasonably request to effect the transactions contemplated hereby. (b) [not used] (c) [not used] (d) Representations and Warranties. The representations and warranties contained in this Agreement and in the Lease shall be true and correct as of, and as if made on, the date hereof (except for those that by their terms specifically refer to an earlier date, in which case such representations and warranties shall be true and correct as of the earlier date). 3 (e) Corporate Proceedings Satisfactory. All corporate proceedings taken in connection with the transactions contemplated by this Agreement and all other agreements, documents and instruments executed or delivered pursuant to it, and all legal matters incident thereto, shall be satisfactory to the Agent. (f) No Lease Default or Lease Event of Default. No Lease Default or Lease Event of Default shall have occurred and be continuing after giving effect to this Agreement. 7. Representations and Warranties. Each Credit Party represents and warrants to the Agent and the Secured Parties that, as of the date of and after giving effect to this Agreement, (a) the execution, delivery and performance of this Agreement and all other Amendment Documents executed or delivered in connection herewith have been authorized by all requisite corporate action on the part of each Credit Party and will not violate any Credit Party's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Lease and in any other Operative Agreement are true and correct as if made again on and as of such date (except those, if any, that by their terms specifically relate only to an earlier date, in which case such representations and warranties are true and correct as of the earlier date), (c) no Lease Default or Lease Event of Default has occurred and is continuing, and (d) the Lease (as amended by this Agreement) and all other Operative Agreements are and remain legal, valid, binding and enforceable obligations in accordance with their terms. 8. Survival of Representations and Warranties. All representations and warranties made by any Credit Party in this Agreement or any other Operative Agreement shall survive the execution and delivery of this Agreement and the other Operative Agreements, and no investigation by the Agent or the Secured Parties, or any closing, shall affect the representations and warranties or the right of the Agent and the Secured Parties to rely upon them. 9. Costs and Expenses. The Lessee shall pay on demand all reasonable costs and expenses of the Agent (including the reasonable fees, costs and expenses of counsel to the Agent) incurred in connection with the preparation, execution and delivery of this Agreement. 10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT-OF-LAWS PRINCIPLES. 11. Execution. This Agreement may be executed in any number of counterparts and by different Parties on separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. A Party's delivery of an executed counterpart of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 12. Limited Effect. This Agreement relates only to the specific matters it covers, shall not be considered to be a waiver of any other rights any Secured Party may have under the Operative Agreements, and shall not be considered to create a course of dealing or to otherwise obligate any Secured Party to grant similar waivers or execute any amendments under the same or similar circumstances in the future. 4 13. Ratification By Guarantors. Each Guarantor consents to this Agreement, and each Guarantor acknowledges that its guaranty remains in full force and effect without any modification. 14. Certain Waivers. Each Credit Party agrees that none of the Financing Parties shall be liable under a claim of, and waives any claim against any Financing Party based upon, lender liability (including, but not limited to, liability for breach of the implied covenant of good faith and fair dealing, fraud, negligence, conversion, misrepresentation, duress, control and interference, infliction of emotional distress, defamation and breach of fiduciary duty) as a result of any discussions or actions taken or not taken by any Financing Party on or before the date hereof, the discussions conducted pursuant hereto, or any course of action taken by any Financing Party in response thereto or arising therefrom. This Section 14 shall survive the execution and delivery of this Agreement and the expiration or termination of the Lease. [Signature Pages Follow] 5 EXECUTION VERSION LESSOR: Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1 By: /s/ Val T. Orton ------------------------------- Name: Val T. Orton Title: Vice President LESSEE: Smart & Final Inc. By: /s/ Richard N. Phegley By: ------------------------------- ------------------------------- Name: Richard N. Phegley Name: Title: Senior Vice President & ----------------------------- Chief Financial Officer Title: ---------------------------- A-2 LENDER, B LENDER AND AGENT: Fleet Capital Corporation By: /s/ Renay McLeish ------------------------------- Name: Renay McLeish Title: Vice President A-2 LENDER: GMAC Commercial Finance, LLC, successor by merger to GMAC Business Credit, LLC By: /s/ David W. Berry ------------------------------- Name: David W. Berry Title: Vice President A-2 LENDER: Cooperative Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland," New York Branch By: /s/ Bradford F. Scott By: /s/ Ian Reece ------------------------------- ------------------------------- Name: Bradford F. Scott Name: Ian Reece Title: Executive Director Title: Managing Director A-2 LENDER: Natexis Banques Populaires By: /s/ Nicolas Regent By: /s/ Pieter J. van Tulder ------------------------------- ------------------------------- Name: Nicolas Regent Name: Pieter J. van Tulder Title: Vice President Multinational Title: Vice President And Manager Multinational Group A-2 LENDER: BNP Paribas By: /s/ Sean T. Conlon By: /s/ Tjalling Terpstra ------------------------------- ------------------------------- Name: Sean T. Conlon Name: Tjalling Terpstra Title: Managing Director Title: Director 2 B LENDER: Transamerica Equipment Financial Services Corporation By: /s/ James R. Bates ------------------------------- Name: James R. Bates Title: Vice President 3 HOLDER: Casino USA, Inc. By: /s/ Etienne Snollaerts ------------------------------- Name: Etienne Snollaerts Title: Director 4 GUARANTOR: American Foodservice Distributors By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Smart & Final Stores Corporation By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Smart & Final Oregon, Inc. By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Port Stockton Food Distributors, Inc. By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance 5 GUARANTOR: Amerifoods Trading Company By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Casino Frozen Foods, Inc. By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: FoodServiceSpecialists.Com, Inc. By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: Okun Produce International, Inc. By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer GUARANTOR: HL Holding Corporation By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer 6 ANNEX A SALE ASSETS 1. Certain assets of Port Stockton Food Distributors, Inc. including trade accounts receivable and inventory, as proposed to be sold in bulk transfers to third parties, leased facilities located at: (i) 640 Union Street, Stockton, CA; (ii) 721 Union Street, Stockton, CA; and (iii) 729 Union Street, Stockton, CA (Craig & Hamilton facilities), and certain tradenames, all together comprising the Sysco Corporation transaction for the principal Port Stockton business and the Pacific Seafood transaction for the Craig & Hamilton meat processing unit. 7 EXECUTION VERSION ANNEX B RETAINED ASSETS 1. Residual collateral interest in one synthetic lease property located at 4343 East Fremont Street, Stockton, CA. 2. Residual assets and liabilities of Port Stockton Food Distributors, Inc., including but not limited to vendor accounts receivable, inventory not transferred in the bulk sales, fixtures and equipment, other fixed assets, residual tradenames, and operating leases (including vehicle fleet leases and freezer facility usage agreements). One real property is owned and will be held for sale: 2001 East Fremont Street, Stockton, CA (freezer facility currently sub-leased to third party). The residual principal leased real estate is located at: (i) 2040 East Fremont Street, Stockton, CA; (ii) 1910 East Miner Avenue, Stockton, CA; and (iii) 1950 East Miner Avenue, Stockton, CA. EX-10.40 14 dex1040.txt SIXTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT Exh. 10.40 SIXTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT This Sixth Amendment and Waiver to Credit Agreement (this "Amendment") is entered into as of September 12, 2003, by and among SMART & FINAL INC., a Delaware corporation (the "Borrower"), the Guarantors listed on the signature pages hereof, the financial institutions and other entities party hereto (the "Lenders") and BNP PARIBAS, as Administrative Agent for the Lenders (the "Administrative Agent"). RECITALS A. The Borrower, the Lenders, the Administrative Agent, Harris Trust & Savings Bank, as syndication agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as documentation agent, are parties to that certain Credit Agreement dated as of November 30, 2001 (as amended to date, the "Credit Agreement"). Capitalized terms used herein without definition have the meanings ascribed to such terms in the Credit Agreement. B. The Borrower has informed the Administrative Agent that it intends to sell (i) its northern California broadline foodservice operations (other than the Craig & Hamilton meat processing business) to Sysco Corp., a Delaware corporation ("Sysco"), and (ii) its Craig & Hamilton meat processing business to Pacific Fresh, Inc., a California corporation ("Pacific Fresh"), for a total purchase price for both transactions of approximately $27.5 million in cash. The transactions will be structured as a sale of most of the accounts receivable and inventories of Port Stockton Food Distributors, Inc. (including its meat processing business under the tradename Craig & Hamilton) and the assumption of a lease in connection with the meat processing business (the "Sale Transactions"). The assets to be sold in the Sale Transactions are set forth on Annex A hereto (such assets, the "Sale Assets"). C. The Borrower has also informed the Administrative Agent that it intends to cease operations and eventually sell the Port Stockton dry grocery warehouse, a Synthetic Lease Property (the "Dry Grocery Warehouse"), and certain other assets with respect to the northern California broadline foodservice operations, all of which are more particularly described on Annex B hereto (such assets and the Dry Grocery Warehouse, collectively, the "Retained Assets"). D. Section 6.02(d) of the Credit Agreement prohibits sales of assets by the Loan Parties except under certain circumstances. Under Section 6.02(d)(iii), the Loan Parties may sell assets if, among other things, the aggregate purchase price paid to all of the Loan Parties for such asset and all other assets sold by the Loan Parties during the same Fiscal Year pursuant to Section 6.02(d)(iii) does not exceed $7,500,000 in any Fiscal Year and $15,000,000 during the term of the Credit Agreement (the "Proceeds Limitation"). In addition, Section 6.02(d)(v) permits sales of Synthetic Lease Properties so long as the purchase price thereof does not exceed $5,000,000 (the "Five Million Dollar Limitation"). The Sale Transactions do not, and the disposition of the Retained Assets may not, meet the requirements of Section 6.02(d)(iii) and 6.02(d)(v). E. As a result of the Sale Transactions and the recent sale of the Borrower's Florida broadline foodservice operations and nine of the fourteen Smart & Final stores located in Florida (the "Florida Sale") to GFS Holding Inc., a Michigan corporation ("GFS"), and certain of GFS's subsidiaries, the Borrower will not be in compliance with the Borrowing Base Amount and certain of the financial covenants. F. The Borrower has requested that the Lenders and the Administrative Agent (i) consent to the Sale Transactions, (ii) consent to the disposition of the Retained Assets, (iii) agree to waive the Proceeds Limitation of Section 6.02(d)(iii) and the Five Million Dollar Limitation of Section 6.02(d)(v) in connection with the Sale Transactions and the disposition of the Retained Assets, (iv) release the Lien granted to the Administrative Agent under the Collateral Documents, the Second Mortgages and the Subordinate Security Agreement with respect to the Sale Assets and, when sold, the Retained Assets and (v) amend the definition of the Borrowing Base Amount and certain definitions related thereto. G. The Administrative Agent and the Lenders have agreed to (i) consent to the Sale Transactions, (ii) consent to the disposition of the Retained Assets, (iii) waive the Proceeds Limitation of Section 6.02(d)(iii) and the Five Million Dollar Limitation of Section 6.02(d)(v) in connection with the Sale Transactions and the disposition of the Retained Assets, (iv) release the Lien granted to the Administrative Agent under the Collateral Documents, the Second Mortgages and the Subordinate Security Agreement with respect to the Sale Assets and, when sold, the Retained Assets and (v) amend the definition of the Borrowing Base Amount and certain definitions related thereto. H. The Administrative Agent and the Lenders desire to acknowledge and agree that (i) pursuant to the Fifth Amendment, Waiver and Collateral Release (the "Fifth Amendment"), dated as of September 3, 2003, by and among the Borrower, the guarantors listed on the signature pages thereto, the financial institutions and other entities party thereto and the Administrative Agent, (a) the Administrative Agent and the Lenders consented to the license (the "License") by the Borrower and certain of its subsidiaries of certain tradenames and trademarks for a period not to exceed two years pursuant to the Tradename and Trademark License Agreement, dated September , 2003, by and between the --- Borrower, Smart & Final Stores Corporation, a California corporation, American Foodservice Distributors, a California corporation, GFS, Henry Lee Company, a Florida corporation, GFS Stores, LLC, a Delaware limited liability company, and GFS Orlando, LLC, a Delaware limited liability company, (b) the Administrative Agent and the Lenders waived any breach of Section 6.02(a) of the Credit Agreement and/or Section 4.1(b)(i) of the Security Agreement that would otherwise result from the License, and (c) the Administrative Agent and the Lenders waived any breach of Section 4.1(b)(viii) of the Pledge Agreement that would otherwise result from the transfer of the Subsidiaries of Henry Lee Company to American Foodservice 2 Distributors, (ii) proceeds from the sale of Synthetic Lease Properties may be applied as provided in Section 11.2 of the Synthetic Lease, and (iii) the condition precedent specified in Section 6(a)(iv) of the Fifth Amendment was satisfied notwithstanding the fact that the amendment, waiver and release documents to the Synthetic Lease Documents contemplated thereby did not effect any amendment corresponding to the amendment described in subclause (2) thereof. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: Section 1. Section References. Unless otherwise expressly stated herein, all Section references herein shall refer to Sections of the Credit Agreement. Section 2. Consents. The Administrative Agent and the Lenders hereby consent to: (a) the Sale Transactions; and (b) the disposition of the Retained Assets. Section 3. Waiver of Section 6.02(d)(iii) and Section 6.02(d)(v). In connection with the Sale Transactions and the disposition of the Retained Assets, the Lenders hereby waive the Proceeds Limitation of Section 6.02(d)(iii) and the Five Million Dollar Limitation of Section 6.02(d)(v); provided, that the Net Cash Proceeds from (i) the Sale Transactions and (ii) the disposition of the Retained Assets (excluding any Net Cash Proceeds received from the sale of the Dry Grocery Warehouse which are used to purchase replacement Synthetic Lease Properties or which are applied in accordance with Section 11.2 of the Synthetic Lease) shall be applied in accordance with Section 2.05(b)(iii), and the Revolving Facility shall be permanently reduced in accordance with Section 2.04(b). Section 4. Release of Collateral; Licenses. (a) Upon the later to occur of (i) consummation of the Sale Transactions and (ii) satisfaction of the conditions precedent set forth in Section 6 hereof (such date, the "Release Date"), the Lenders authorize the Administrative Agent to release its Lien on the Sale Assets and to execute and deliver any documents and instruments deemed appropriate by the Administrative Agent to effect the same, including, without limitation, any release of the owned real property described in Annex A hereto at such time as Borrower may request. On the Release Date, the Administrative Agent shall, at the expense of the Borrower, promptly return to the Borrower any and all instruments, certificates and other documents evidencing any lien, charge or encumbrance on the Sale Assets. Effective on the Release Date, the Administrative Agent authorizes the Borrower and its agents or representatives to file such documents or instruments as the Borrower may deem necessary, in form and substance satisfactory to the Administrative Agent, to evidence, effect or confirm the release and termination of any and all Liens created under the Collateral Documents, the Second Mortgages and the 3 Subordinate Security Agreement with respect to the Sale Assets. In addition, upon the Release Date, the Lenders authorize the Borrower (and any applicable subsidiaries) to enter into license agreements with Sysco and/or Pacific Fresh, in form and substance satisfactory to the Administrative Agent, in connection with the Sale Transactions, and the Lenders hereby waive any breach of Section 6.02(a) of the Credit Agreement and/or Section 4.1(b)(i) of the Security Agreement that would otherwise result from any such license. (b) Upon the later to occur of (i) consummation of the disposition of any of the Retained Assets and (ii) satisfaction of the conditions precedent set forth in Section 6 hereof (any such date, a "Retained Asset Release Date"), the Lenders authorize the Administrative Agent to release its Lien on the Retained Assets being disposed of and to execute and deliver any documents and instruments deemed appropriate by the Administrative Agent to effect the same. On any Retained Asset Release Date, the Administrative Agent shall, at the expense of the Borrower, promptly return to the Borrower any and all instruments, certificates and other documents evidencing any lien, charge or encumbrance on the Retained Assets being disposed of. Effective on any Retained Asset Release Date, the Administrative Agent authorizes the Borrower and its agents or representatives to file such documents or instruments as the Borrower may deem necessary, in form and substance satisfactory to the Administrative Agent, to evidence, effect or confirm the release and termination of any and all Liens created under the Collateral Documents, the Second Mortgages and the Subordinate Security Agreement with respect to the Retained Assets being disposed of. In addition, upon any Retained Asset Release Date, the Lenders authorize the Borrower (and any applicable subsidiaries) to enter into license agreements with any purchaser of the Retained Assets being disposed of, in form and substance satisfactory to the Administrative Agent. Section 5. Amendment to Section 1.01 (Certain Defined Terms). (a) The definition of "Applicable Margin" set forth in Section 1.01 is hereby amended by deleting clause (iii) of the proviso thereto and replacing it with the following: (iii) during the period commencing on September 15, 2003 until March 15, 2004, the Applicable Margin shall equal 3.00% per annum with respect to Eurodollar Rate Advances and 2.00% per annum with respect to Base Rate Advances. (b) The definition of "Borrowing Base Amount" set forth in Section 1.01 is hereby amended by deleting such definition in its entirety and replacing it with the following: "Borrowing Base Amount" means, at any time of determination, the lesser of (i) the aggregate Revolving Commitments in effect at such time, and (ii) the sum of the following amounts for each category of Eligible Collateral (as reflected in the then most recently delivered Borrowing Base Certificate): 4 (a) with respect to Eligible Inventory, 60% of the value thereof, (b) with respect to Eligible Accounts Receivable, 80% of the value thereof; and (c) with respect to Eligible Real Property, 50% of the value thereof; provided, however, that in the event a Default has occurred and is continuing based on the Borrower's failure to deliver any financial statement, compliance certificate or Borrowing Base Certificate as and when required pursuant to Sections 6.03(a), 6.03(c), or 6.03(d), as applicable, the Borrowing Base Amount shall be such amount as may be determined from time to time by the Administrative Agent and the Required Lenders in their sole discretion. (c) The definition of "Eligible Collateral" set forth in Section 1.01 is hereby amended by deleting such definition in its entirety and replacing it with the following: "Eligible Collateral" means, collectively, Eligible Inventory, Eligible Accounts Receivable and Eligible Real Property. (d) Section 1.01 is hereby amended by inserting a new definition of "Eligible Real Property" after the definition of "Eligible Inventory", which definition shall read in its entirety as follows: "Eligible Real Property" means all real property owned by the Borrower and its Domestic Subsidiaries which is (i) a retail grocery and restaurant supply store or a food and restaurant supply distribution facility, in each case of the type and size customarily used and operated by the Borrower or any of its Domestic Subsidiaries in the ordinary course of its business as of the Closing Date, (ii) owner-occupied, (iii) covered by insurance as required by Section 6.01(d), and (iv) located in a region in which the Borrower and/or any of its Domestic Subsidiaries conducts business materially in the nature of the business conducted by such Person as of the Closing Date. The value of such real property shall be the appraised value of such real property as determined by Cushman & Wakefield or, if Cushman & Wakefield is unable or unwilling to perform the requested services, another independent appraiser acceptable to the Administrative Agent, using methodology acceptable to the Administrative Agent; provided, however, that prior to the earlier of (x) the completion of such appraisals and (y) December 1, 2003, the value of such real property shall be the net depreciated book value of such property determined in accordance with GAAP as reflected on the most recent Borrowing Base Certificate received by the Administrative Agent pursuant to Section 4.02(a)(iii) or Section 6.03(a); provided, further, that regardless of whether the appraised value or the net depreciated book value of the property is used, the value of all Eligible Real Property shall in no case exceed $55 million. Notwithstanding the foregoing, Eligible Real Property shall not include (A) any real property in respect of which a Mortgage creating a valid and perfected first 5 priority Lien in favor of the Administrative Agent and the Lender Parties securing the Secured Obligations has not been recorded or (B) any fixtures or equipment or leasehold improvements. Section 6. Borrowing Base Covenants. (a) Procedure Review. As soon as practicable, but in no event later than October 31, 2003, the Borrower shall cause Ernst & Young LLP ("E&Y") or, if E&Y is unable or unwilling to perform the requested services, another professional services firm selected by the Administrative Agent, to perform and complete a review of the Borrowing Base (including, without limitation, aging analysis, valuation, spot field assesment and review of internal procedures for reserves, collection and tracking of receivables and inventory), using agreed-upon methodology satisfactory to the Administrative Agent, the results of which shall be satisfactory to the Administrative Agent. Failure to deliver such review by October 31, 2003 shall constitute an Event of Default. (b) Borrowing Base Certificate. As soon as practicable, but in no event later than 5 days following the closing of the Sale Transactions, the Borrower shall deliver to the Administrative Agent a Borrowing Base Certificate (modified as necessary from the form attached as Exhibit K to the Credit Agreement to give pro forma effect to the Sale Transactions and the Florida Sale). Failure to deliver a Borrowing Base Certificate within 5 days following the closing of the Sale Transactions shall constitute an Event of Default. Section 7. Acknowledgment and Agreement. The Administrative Agent and the Lenders hereby acknowledge and agree that (a) pursuant to the Fifth Amendment, (i) the Administrative Agent and the Lenders consented to the License, (ii) the Administrative Agent and the Lenders waived any breach of Section 6.02(a) of the Credit Agreement and/or Section 4.1(b)(i) of the Security Agreement that would otherwise result from the License, and (iii) the Administrative Agent and the Lenders waived any breach of Section 4.1(b)(viii) of the Pledge Agreement that would otherwise result from the transfer of the Subsidiaries of Henry Lee Company to American Foodservice Distributors, (b) proceeds from the sale of Synthetic Lease Properties may be applied as provided in Section 11.2 of the Synthetic Lease, and (c) the condition precedent specified in Section 6(a)(iv) of the Fifth Amendment was satisfied notwithstanding the fact that the amendment, waiver and release documents to the Synthetic Lease Documents contemplated thereby did not effect any amendment corresponding to the amendment described in subclause (2) thereof. Section 8. Amendments to Synthetic Lease Documents. Upon the execution of the Synthetic Lease Documents Amendments required under Section 9(a)(iv) below, the Required Lenders shall, by notice from the Administrative Agent to the Borrower at any time within 90 days after receipt by the Lenders of the Synthetic Lease Documents Amendments, be entitled to amend the Credit Agreement to reflect any changes to the provisions of the Synthetic Lease Documents that the Required Lenders consider more favorable than the corresponding provisions in the Credit Agreement. 6 Section 9. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: (a) The Administrative Agent shall have received all of the following, in form and substance satisfactory to the Administrative Agent: (i) Amendment Documents. This Amendment and any other instrument, document or certificate required by the Administrative Agent to be executed or delivered by the Borrower or any other Person in connection with this Amendment, duly executed by such Persons (the "Amendment Documents"); (ii) Copies of Sale Documents. Upon request by the Administrative Agent, true and correct copies of the asset purchase agreements and any other agreements, documents or instruments executed in connection with the Sale Transactions; (iii) Consent of Supermajority Lenders. The written consent of the Supermajority Lenders to this Amendment; (iv) Amendment and Waiver connection with Synthetic Lease Documents. (A) Copies of the amendment and waiver documents with respect to the Synthetic Lease Documents (the "Synthetic Lease Documents Amendments"), pursuant to which (1) the asset sale covenant in the Synthetic Lease Documents will be amended or waived to permit the Sale Transactions and the disposition of the Retained Assets (other than the Dry Grocery Warehouse), (2) the Liens on the Sale Assets and, when sold, the Retained Assets (other than the Dry Grocery Warehouse) created by the Synthetic Lease Documents will be released and (3) any other conforming changes to the Synthetic Lease Documents reasonably requested by the Administrative Agent will be made and (B) evidence that such amendment, waiver and release documents have been executed and are in full force and effect; (v) Diligence Materials. All diligence materials, in form and substance satisfactory to the Administrative Agent, requested by the Administrative Agent, including, without limitation, (A) a financial forecast for the remaining term of the Credit Agreement, (B) a comprehensive statement of "sources and uses" for the Sale Transactions, the sale of the Florida broadline foodservice business and the Florida stores and for post-closing expenses related to the foregoing, and (C) a presentation of the owned, mortgaged real estate on a property-by-property basis detailing original cost and net book value for the land and buildings, exclusive of furnishings, equipment and fixtures; and 7 (vi) Additional Information. Such additional documents, instruments and information as the Administrative Agent may reasonably request to effect the transactions contemplated hereby. (b) Each of the Lenders consenting to this Amendment on or prior to 5:00 p.m. (PST) on September 12, 2003 shall have received an amendment fee of 0.375% of its Commitment (as reduced pursuant to Section 2.04(b) of the Credit Agreement after giving effect to the Sale Transactions). (c) The Administrative Agent shall have received the Net Cash Proceeds of the Sale Transactions on the date of receipt thereof by the Borrower or any of its Subsidiaries. (d) The representations and warranties contained herein and in the Credit Agreement shall be true and correct as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date). (e) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Administrative Agent. (f) No Default or Event of Default shall have occurred and be continuing, after giving effect to this Amendment. Section 10. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that, as of the date of and after giving effect to this Amendment, (a) the execution, delivery and performance of this Amendment and any and all other Amendment Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Borrower and will not violate the Borrower's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Credit Agreement and in any other Loan Document are true and correct as if made again on and as of such date (except those, if any, which by their terms specifically relate only to an earlier date, in which case such representations and warranties are true and correct as of such earlier date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Credit Agreement (after giving effect to this Amendment), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof. Section 11. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Administrative Agent or the Lenders, or any closing, shall affect the representations and warranties or the right of the Administrative Agent and the Lenders to rely upon them. 8 Section 12. Certain Waivers. The Borrower and each Guarantor hereby agrees that neither the Administrative Agent nor any Lender shall be liable under a claim of, and hereby waives any claim against the Administrative Agent and the Lenders based upon, lender liability (including, but not limited to, liability for breach of the implied covenant of good faith and fair dealing, fraud, negligence, conversion, misrepresentation, duress, control and interference, infliction of emotional distress and defamation and breach of fiduciary duties) as a result of any discussions or actions taken or not taken by the Administrative Agent or the Lenders on or before the date hereof or the discussions conducted pursuant hereto, or any course of action taken by the Administrative Agent or any Lender in response thereto or arising therefrom. This Section 12 shall survive the execution and delivery of this Amendment and the other Loan Documents and the termination of the Credit Agreement. Section 13. Reference to Agreement. Each of the Loan Documents, including the Credit Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Credit Agreement, whether direct or indirect, shall mean a reference to the Credit Agreement as amended hereby. Section 14. Costs and Expenses. The Borrower shall pay on demand all reasonable costs and expenses of the Administrative Agent (including the reasonable fees, costs and expenses of counsel to the Administrative Agent) incurred in connection with the preparation, execution and delivery of this Amendment. Section 15. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. Section 16. Execution. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. Section 17. Limited Effect. This Amendment relates only to the specific matters covered herein, shall not be considered to be a waiver of any rights any Lender may have under the Credit Agreement (other than as expressly set forth herein), and shall not be considered to create a course of dealing or to otherwise obligate any Lender to execute similar amendments or grant any waivers under the same or similar circumstances in the future. Section 18. Ratification By Guarantors. Each of the Guarantors hereby agrees to this Amendment, and each of the Guarantors acknowledges that such Guarantor's Guaranty shall remain in full force and effect without modification thereto. 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. SMART & FINAL INC., as Borrower By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer SMART & FINAL STORES CORPORATION By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer SMART & FINAL OREGON, INC. By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer PORT STOCKTON FOOD DISTRIBUTORS, INC. By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President - Finance AMERIFOODS TRADING COMPANY By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer CASINO FROZEN FOODS, INC. By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer FOODSERVICESPECIALISTS.COM, INC. By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer OKUN PRODUCE INTERNATIONAL, INC. By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer HL HOLDING CORPORATION By: /s/ Richard N. Phegley ------------------------------------ Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer BNP PARIBAS, as Administrative Agent and a Lender By: /s/ Sean T. Conlon ------------------------------------ Name: Sean T. Conlon Title: Managing Director By: /s/ Tjalling Terpstra ------------------------------------ Name: Tjalling Terpstra Title: Director HARRIS TRUST & SAVINGS BANK By: /s/ C. Scott Place ------------------------------------ Name: C. Scott Place Title: Vice President COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ Bradford F. Scott ------------------------------------ Name: Bradford F. Scott Title: Executive Director By: /s/ Ian Reece ------------------------------------ Name: Ian Reece Title: Managing Director CREDIT INDUSTRIEL ET COMMERCIAL By: /s/ Eric Dulot ------------------------------------ Name: Eric Dulot Title: Vice President By: /s/ Albert M. Calo ------------------------------------ Name: Albert M. Calo Title: Vice President COBANK, ACB By: /s/ S. Richard Dill ------------------------------------ Name: S. Richard Dill Title: Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ Peter Thompson ------------------------------------ Name: Peter Thompson Title: Vice President U.S. BANK NATIONAL ASSOCIATION By: /s/ Janet E. Jordan ------------------------------------ Name: Janet E. Jordan Title: Vice President NATEXIS BANQUE-POPULAIRES By: /s/ Nicolas Regent ------------------------------------ Name: Nicolas Regent Title: Vice President Multinational By: /s/ Pieter J. van Tulder ------------------------------------ Name: Pieter J. van Tulder Title: Vice President And Manager Multinational Group TRANSAMERICA BUSINESS CAPITAL CORPORATION By: /s/ Steve Goetschius ------------------------------------ Name: Steve Goetschius Title: Senior Vice President CITY NATIONAL BANK By: /s/ Robert Louk ------------------------------------ Name: Robert Louk Title: Vice President RZB FINANCE LLC By: /s/ John A. Valiska ------------------------------------ Name: John A. Valiska Title: Group Vice President By: /s/ Christoph Hoedl ------------------------------------ Name: Christoph Hoedl Title: Vice President BANK OF THE WEST By: /s/ Danny Flores ------------------------------------ Name: Danny Flores Title: Syndications Officer PREFERRED BANK By: /s/ Walt Duchanin ------------------------------------ Name: Walt Duchanin Title: Executive Vice President BANK LEUMI USA By: /s/ Robert Kosof ------------------------------------ Name: Robert Kosof Title: Senior Vice President ANNEX A SALE ASSETS 1. Certain assets of Port Stockton Food Distributors, Inc. including trade accounts receivable and inventory, as proposed to be sold in bulk transfers to third parties, leased facilities located at: (i) 640 Union Street, Stockton, CA; (ii) 721 Union Street, Stockton, CA; and (iii) 729 Union Street, Stockton, CA (Craig & Hamilton facilities), and certain tradenames, all together comprising the Sysco Corporation transaction for the principal Port Stockton business and the Pacific Seafood transaction for the Craig & Hamilton meat processing unit. ANNEX B RETAINED ASSETS 1. Residual collateral interest in one synthetic lease property located at 4343 East Fremont Street, Stockton, CA. 2. Residual assets and liabilities of Port Stockton Food Distributors, Inc., including but not limited to vendor accounts receivable, inventory not transferred in the bulk sales, fixtures and equipment, other fixed assets, residual tradenames, and operating leases (including vehicle fleet leases and freezer facility usage agreements). One real property is owned and will be held for sale: 2001 East Fremont Street, Stockton, CA (freezer facility currently sub-leased to third party). The residual principal leased real estate is located at: (i) 2040 East Fremont Street, Stockton, CA; (ii) 1910 East Miner Avenue, Stockton, CA; and (iii) 1950 East Miner Avenue, Stockton, CA. EX-10.41 15 dex1041.txt CONSENT, WAIVER AND AMENDMENT AGREEMENT NO. 5B Exh. 10.41 EXECUTION VERSION CONSENT, WAIVER AND AMENDMENT AGREEMENT NO. 5B This Consent, Waiver and Amendment Agreement No. 5B, dated as of September 26, 2003 (this "Agreement"), is among the Persons that have executed this Agreement (the "Parties"). Capitalized terms used, but not defined, in this Agreement are used as defined in the Lease Agreement, dated as of November 30, 2001, between Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1, as lessor, and Smart & Final Inc., as lessee, as amended by Waiver and Amendment Agreement No. 1, dated as of June 4, 2002, by Waiver and Amendment Agreement No. 2, dated as of February 14, 2003, by Amendment Agreement No. 3, dated as of June 1, 2003, by Waiver and Amendment Agreement No. 4, dated as of July 11, 2003, and by Consent, Waiver Collateral Release and Amendment Agreement No. 5A, dated as of September 3, 2003 (the "Lease"). RECITALS A. Fleet Capital Corporation ("Fleet") has given notice under Section 7.9 that it intends to resign as Agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch ("Rabobank") has agreed to replace Fleet as the Agent and to perform the duties of the Agent under the Operative Agreements. B. Fleet and Casino USA, Inc. ("Casino") have agreed in principle to an assignment of the entire interest in Fleet's portion of the Loan to Casino under Section 9.8 of the Credit Agreement, which allows Lenders to assign their rights and obligations under the Operative Agreements to any number of "Eligible Assignees," the definition of which excludes Casino and all other Affiliates of the Lessee. C. The Lessee, Fleet and Casino have requested that the Majority Secured Parties, and, subject to the terms and conditions of this Agreement, the applicable Majority Secured Parties desire to, (i) accept Fleet's resignation and appoint Rabobank as Agent, and (ii) waive, in connection with Fleet's assignment of its portion of the Loan to Casino, the requirement that an "Eligible Assignee" not be an Affiliate of the Lessee. NOW, THEREFORE, for good and valuable consideration received, the Parties agree as follows. 1. Consent and Waiver. The Majority Secured Parties waive, in connection with Fleet's assignment of the entire interest in Fleet's portion of the Loan to Casino under Section 9.8 of the Credit Agreement, the requirement that the "Eligible Assignee" not be an Affiliate of Lessee and consent to that assignment. The Parties acknowledge that the assignment will not be effective until the Agent accepts the assignment in accordance with the terms of Section 9.8(b) of the Credit Agreement and that the Agent will accept the assignment when Fleet or Casino delivers it an Assignment and Acceptance, substantially in the form attached to this Agreement as Exhibit A, together with Fleet's Notes and a processing fee of $3,500. 2. Appointment of Rabobank As Agent. Effective the date of this Agreement, the A-2 Lenders, the B Lenders and the Holder accept Fleet's resignation and appoint Rabobank as the Agent for all purposes under the Operative Agreements. Owner Trustee, in its capacity as Borrower under the Credit Agreement, Lessee and the A-1 Lender approve the foregoing appointment of Rabobank as the Agent, and Rabobank accepts its foregoing appointment as Agent under the Operative Agreements. 3. Condition Precedent. The effectiveness of this Agreement is subject to the Agent's receipt of the Majority Secured Parties' and Lessee's written consent to this Agreement. 4. Costs and Expenses. The Lessee shall pay on demand all reasonable costs and expenses of the Agent (including the reasonable fees, costs and expenses of counsel to the Agent but excluding the $3500 assignment processing fee described in Section 1 of this Agreement) incurred in connection with the preparation, execution and delivery of this Agreement. 5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT-OF-LAWS PRINCIPLES. 6. Execution. This Agreement may be executed in any number of counterparts and by different Parties on separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. A Party's delivery of an executed counterpart of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 7. Limited Effect. This Agreement relates only to the specific matters it covers, shall not be considered to be a waiver of any other rights any Secured Party may have under the Operative Agreements, and shall not be considered to create a course of dealing or to otherwise obligate any Secured Party to grant similar waivers or execute consents under the same or similar circumstances in the future. [Signature Pages Follow] LESSOR: Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1 By: /s/ Val T. Orton ---------------------------------- Name: Val T. Orton Title: Vice President LESSEE: Smart & Final Inc. By: /s/ Richard N. Phegley By: ---------------------------------- ----------------------------------- Name: Richard N. Phegley Name: Title: Senior Vice President & --------------------------------- Chief Financial Officer Title: -------------------------------- [Consent, Waiver and Amendment Agreement No. 5B] A-2 LENDER, B LENDER AND RESIGNING AGENT: Fleet Capital Corporation By: /s/ Renay McLeish ---------------------------------- Name: Renay McLeish Title: Vice President A-2 LENDER: GMAC Commercial Finance, LLC, successor by merger to GMAC Business Credit, LLC By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- A-2 LENDER AND SUCCESSOR AGENT: Cooperative Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland," New York Branch By: /s/ Bradford F. Scott By: /s/ Ian Reece ---------------------------------- ----------------------------------- Name: Bradford F. Scott Name: Ian Reece Title: Executive Director Title: Managing Director A-2 LENDER: Natexis Banques Populaires By: /s/ Nicolas Regent By: /s/ Pieter J. van Tulder ---------------------------------- ----------------------------------- Name: Nicolas Regent Name: Pieter J. van Tulder Title: Vice President Multinational Title: Vice President And Manager Multinational Group A-2 LENDER: BNP Paribas By: /s/ Sean T. Conlon By: /s/ Tjalling Terpstra ---------------------------------- ----------------------------------- Name: Sean T. Conlon Name: Tjalling Terpstra Title: Managing Director Title: Director [Consent, Waiver and Amendment Agreement No. 5B] B LENDER: Transamerica Equipment Financial Services Corporation By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- [Consent, Waiver and Amendment Agreement No. 5B] HOLDER AND A-1 LENDER: Casino USA, Inc. By: /s/ Etienne Snollaerts ---------------------------------- Name: Etienne Snollaerts Title: Director [Consent, Waiver and Amendment Agreement No. 5B] EXHIBIT A FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT A ASSIGNMENT AND ACCEPTANCE This Assignment and Acceptance (this "Assignment"), dated September , -- 2003, is between Fleet Capital Corporation (the "Assignor"), and Casino USA, Inc. (the "Assignee"). Reference is made to the Credit Agreement, dated as of November 30, 2001 (the "Credit Agreement"), among Wells Fargo Bank Northwest, National Association, not in its individual capacity, but solely as the Owner Trustee under the S&F Trust 1998-1 (the "Owner Trustee" or the "Borrower"), the Lenders named therein, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch ("Rabobank"), as the successor Agent. Unless otherwise defined in this Assignment, capitalized terms used in this Agreement are used as defined in or pursuant to the Credit Agreement. The Assignor and the Assignee agree as follows: 1. The Assignor irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), the entire interest of Assignor (the "Assigned Interest") in and to the Assignor's rights and obligations under the Credit Agreement with respect to the credit facility contained in the Credit Agreement as set forth on Schedule 1 hereto (the "Assigned Facility"), in a principal amount for the Assigned Facility as set forth on Schedule 1. 2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Operative Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Operative Agreement or any other instrument or document furnished pursuant to any Operative Agreement, other than that it is the legal and beneficial owner of the interest being assigned and has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, or any other obligor or the performance or observance by the Borrower, or any other obligor of any of their obligations under any Operative Agreement or any other instrument or document furnished pursuant to this Assignment or any Operative Agreement; and (c) attaches the Notes held by it evidencing the Assigned Facility and requests that the Agent exchange those Notes for new Notes payable to the Assignee. 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment; (b) confirms that it has received copies of the Operative Agreements and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment; (c) agrees that it will, independently and without reliance upon the Assignor, the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Operative Agreements or any other instrument or document 1 furnished pursuant to this Assignment or the Operative Agreements; (d) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Operative Agreements or any other instrument or document furnished pursuant to this Assignment or the Operative Agreements as are delegated to the Agent by their terms, together with all powers that are incidental thereto; and (e) agrees that it will be bound by the provisions of the Operative Agreements to which Assignee is a party and will perform all the obligations that by the terms of the Operative Agreements to which Assignee is a party are required to be performed by it as a Lender. 4. The effective date of this Assignment is September [ ], 2003 (the ---- "Effective Date"). Following the execution of this Assignment, it will be delivered to the Agent for its acceptance and recording in accordance with Section 9.8 of the Credit Agreement, effective as of the Effective Date. 5. From the Effective Date, the Agent shall make all payments in respect of the Assigned Interest (including without limitation payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued before the Effective Date or accrue after the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Agent for periods before the Effective Date or with respect to the making of this assignment directly between themselves. 6. From the Effective Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment, have the rights and obligations of a Lender under, and shall be bound by the provisions of, the Operative Agreements and (b) the Assignor shall, to the extent provided in this Assignment, relinquish its rights and be released from its obligations under the Operative Agreements. 7. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ANY CONFLICT-OF-LAWS PRINCIPLES. 2 IN WITNESS WHEREOF, each party has caused this Assignment and Acceptance to be executed as of the Effective Date by a duly authorized officer. Fleet Capital Corporation By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- Casino USA, Inc. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- Wells Fargo Bank Northwest, National Association, not individually, but solely as the Owner Trustee under the S&F Trust 1998-1 By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- Consented To: Cooperative Centrale Raiffeisen- Boerenleenbank B.A. "Rabobank Nederland," New York Branch, as the Agent By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- [Assignment and Acceptance] SCHEDULE 1 to Assignment and Acceptance Name of Assignor: Fleet Capital Corporation Name of Assignee: Casino USA, Inc. Effective Date of Assignment: , 2003 --------------- - -------------------------------------------------------------------------------- Principal Amount Commitment Percentage Credit Facility Assigned Assigned Assigned (Commitment Amount under Credit Agreement) (Loan only) - -------------------------------------------------------------------------------- Tranche A-2 $ 12.6% ------------ - -------------------------------------------------------------------------------- Tranche B $2,700,000.00 3.3% - -------------------------------------------------------------------------------- Fleet Capital Corporation By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- Casino USA, Inc. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- [Schedule 1 to Assignment and Acceptance] EX-10.42 16 dex1042.txt FIRST AMENDMENT TO SEVERANCE AND CONSULTING SERVICES AGREEMENT-CHIAVELLI Exhibit 10.42 FIRST AMENDMENT TO SEVERANCE AND CONSULTING AND SERVICES AGREEMENT This First Amendment to Severance and Consulting Services Agreement ("Amendment") by and between Smart & Final Inc. and its subsidiaries and affiliates (collectively "S&F") and Dennis L. Chiavelli ("Chiavelli") hereby amends the Severance and Consulting Services Agreement ("Agreement") executed between the parties on or about May 14, 2003. WHEREAS, 1. S&F desires to extend Chiavelli's employment with S&F to facilitate the orderly consummation of the sales of S&F's foodservice businesses and the Company's exit from the Florida store market (collectively "the Transactions"); and 2. The Transactions and post-closing transition periods are expected to extend through the end of December 2003, which is after Chiavelli's current resignation date of July 1, 2003; NOW, THEREFORE, the parties agree as follows, in consideration of the mutual promises and representations contained herein: 3. The Effective Date in paragraph 6 of the Agreement is hereby changed from July 1, 2003 to December 31, 2003. 4. The incentive compensation payment for fiscal 2003 ("2003 Bonus"), referenced in paragraph 7 is hereby changed from $88,920.00 to $177,840.00. All other terms of the Agreement shall remain unchanged. SMART & FINAL INC. DENNIS L. CHIAVELLI /s/ Ross E. Roeder /s/ Dennis Chiavelli - ------------------------------------- ------------------------------------- By: Ross E. Roeder Title: Chairman & CEO 11/12/03 11/8/03 - ------------------------------------- ------------------------------------- Date Date EX-10.43 17 dex1043.txt SEVENTH AMENDMENT TO CREDIT AGREEMENT Exhibit 10.43 SEVENTH AMENDMENT TO CREDIT AGREEMENT This Seventh Amendment to Credit Agreement (this "Amendment") is entered into as of October 14, 2003, by and among SMART & FINAL INC., a Delaware corporation (the "Borrower"), the Guarantors listed on the signature pages hereof, the financial institutions and other entities party hereto (the "Lenders") and BNP PARIBAS, as Administrative Agent for the Lenders (the "Administrative Agent"). RECITALS A. The Borrower, the Lenders, the Administrative Agent, Harris Trust & Savings Bank, as syndication agent, and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, as documentation agent, are parties to that certain Credit Agreement dated as of November 30, 2001 (as amended to date, the "Credit Agreement"). Capitalized terms used herein without definition have the meanings ascribed to such terms in the Credit Agreement. B. As a result of the recent sale of the Borrower's northern California broadline foodservice operations to Sysco Corp., a Delaware corporation, and Pacific Fresh Seafood Company, a California corporation, the Borrower's Florida broadline foodservice operations and nine of the fourteen Smart & Final stores located in Florida to GFS Holding Inc., a Michigan corporation ("GFS"), and certain of GFS's subsidiaries, and the pending sale of the Port Stockton dry grocery warehouse (collectively, the "Sale Transactions"), the Borrower will not be in compliance with certain of the financial covenants set forth in the Credit Agreement. C. The Borrower has requested that the Lenders and the Administrative Agent amend certain of the financial covenants and the definitions related thereto. D. The Administrative Agent and the Lenders have agreed to amend certain of the financial covenants and the definitions related thereto, all as provided hereinbelow. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: Section 1. Section References. Unless otherwise expressly stated herein, all Section references herein shall refer to Sections of the Credit Agreement. Section 2. Amendment to Section 1.01 (Certain Defined Terms). (a) The definition of "Adjusted EBITDA" set forth in Section 1.01 is hereby amended by deleting such definition in its entirety and replacing it with the following: "Adjusted EBITDA" means, for any period, determined for the Borrower and its Subsidiaries on a Consolidated basis, EBITDA plus, with respect to any fiscal quarter of the Borrower up to and including the second fiscal quarter of Fiscal Year 2003, the interest component of all amounts paid as rent under the Synthetic Lease. (b) The definition of "Adjusted Leverage Ratio" set forth in Section 1.01 is hereby amended by deleting such definition in its entirety and replacing it with the following: "Adjusted Leverage Ratio" means, as of any date of determination, the ratio of (i) the sum of (A) Consolidated Total Debt as of the end of the most recently ended fiscal quarter of the Borrower plus (B) the product of (1) rent expense for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower multiplied by (2) 8 to (ii) the sum of (A) EBITDA for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower plus, (B) rent expense for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower; provided, that for purposes of determining the Adjusted Leverage Ratio, "rent expense" shall be deemed to be (i) $6,900,000 for the fourth fiscal quarter of Fiscal Year 2002, (ii) $6,900,000 for the first fiscal quarter of Fiscal Year 2003 and (iii) $7,100,000 for the second fiscal quarter of Fiscal Year 2003. (c) The definition of "Applicable Margin" set forth in Section 1.01 is hereby amended by deleting such definition in its entirety and replacing it with the following: "Applicable Margin" means, for any fiscal quarter for each Interest Type of Advance set forth below, the applicable rate per annum set forth in the table below opposite the Senior Leverage Ratio determined as of the last day of the immediately preceding fiscal quarter and beneath such Interest Type of Advance: -------------------------------------------------------------------------- Applicable Margin for Applicable Margin Senior Leverage Eurodollar Rate for Base Rate Tier Ratio Advances Advances -------------------------------------------------------------------------- I ****2.75 3.50% 2.50% -------------------------------------------------------------------------- II ****2.50 but *2.75 3.25% 2.25% -------------------------------------------------------------------------- III ****2.25 but *2.50 3.00% 2.00% -------------------------------------------------------------------------- IV ****2.00 but *2.25 2.75% 1.75% -------------------------------------------------------------------------- *2.00 2.50% 1.50% -------------------------------------------------------------------------- provided, however, that, notwithstanding the foregoing, (i) on the Closing Date and until the six month anniversary thereof, the Applicable Margin shall be 2.5% for Eurodollar Rate Advances and 1.5% for Base Rate Advances, (ii) for purposes of determining the Applicable Margin at any time following the six month anniversary of the Closing Date, the Senior Leverage Ratio shall be deemed to be * denotes less than **** denotes greater than or equal to 2 greater than or equal to 2.75 to 1.0 at all times when a Default has occurred and is continuing based on the Borrower's failure to deliver any financial statement, compliance certificate or Borrowing Base Certificate as and when required pursuant to Sections 6.03(a), 6.03(c) or 6.03(d), as applicable, and (iii) during the period commencing on September 15, 2003 until March 15, 2004, the Applicable Margin shall equal 3.00% per annum with respect to Eurodollar Rate Advances and 2.00% per annum with respect to Base Rate Advances. For purposes of this Agreement, any change in the Applicable Margin based on a change in the Senior Leverage Ratio shall be effective three Business Days after the date of receipt by the Administrative Agent of the financial statements, compliance certificate and Borrowing Base Certificate required by Sections 6.03(a), 6.03(c) and 6.03(d), as applicable, reflecting such change. (d) The definition of "Commitment Fee Percentage" set forth in Section 1.01 is hereby amended by deleting such definition in its entirety and replacing it with the following: "Commitment Fee Percentage" means a fee on the undrawn amount of the Facility equal to 0.50% per annum payable quarterly in arrears (and on the Commitment Termination Date) following the Closing. (e) The definition of "Consolidated Total Debt" set forth in Section 1.01 is hereby amended by deleting the proviso thereto in its entirety and replacing it with the following: provided, that with respect to (i) fiscal quarters up to and including the second fiscal quarter of Fiscal Year 2003, Consolidated Total Debt for such periods shall not include any indebtedness in respect of the Synthetic Lease and (ii) any periods after the second fiscal quarter of Fiscal Year 2003, Consolidated Total Debt for such periods shall include indebtedness in respect of the Synthetic Lease. (f) The definition of "EBITDA" set forth in Section 1.01 is hereby amended by deleting such definition in its entirety and replacing it with the following: "EBITDA" means, for any period, net income (or net loss) excluding all non-cash extraordinary items of gain or loss, plus, to the extent deducted in determining such net income (or net loss), the sum of (a) interest expense, (b) income tax expense, (c) depreciation expense, (d) amortization expense, (e) all other non-cash charges (including impairment charges with respect to assets and goodwill) and (f) for the third fiscal quarter of Fiscal Year 2003, up to $13,300,000 of after-tax charges for discontinued operations, in each case determined in accordance with GAAP for such period (to the extent not already included in clause (e) above); provided, that EBITDA shall be calculated using the quarterly amounts of (i) $20,500,000 for the fourth fiscal quarter of Fiscal Year 2002, (ii) $16,200,000 for the first fiscal quarter of Fiscal Year 2003 and (iii) $20,200,000 for the second fiscal quarter of Fiscal Year 2003. 3 (g) The definition of "Fixed Charge Coverage Ratio" set forth in Section 1.01 is hereby amended by deleting such definition in its entirety and replacing it with the following: "Fixed Charge Coverage Ratio" means, as of any date of determination, determined for the period of four consecutive fiscal quarters ending as of the last day of each fiscal quarter of the Borrower, the ratio of (a) the sum of (i) Consolidated EBITDA of the Borrower and its Subsidiaries and (ii) rent expense for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower to (b) the sum of (i) Consolidated Interest Expense of the Borrower and its Subsidiaries and (ii) rent expense for the Borrower and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Borrower; provided, that for purposes of determining the Fixed Charge Coverage Ratio, (i) the quarterly amounts of "rent expense" shall be deemed to be (A) $6,900,000 for the fourth fiscal quarter of Fiscal Year 2002, (B) $6,900,000 for the first fiscal quarter of Fiscal Year 2003 and (C) $7,100,000 for the second fiscal quarter of Fiscal Year 2003 and (ii) the quarterly amounts of Consolidated Interest Expense shall be deemed to be (A) $4,400,000 for the fourth fiscal quarter of Fiscal Year 2002, (B) $4,600,000 for the first fiscal quarter of Fiscal Year 2003 and (C) $4,500,000 for the second fiscal quarter of Fiscal Year 2003. Section 3. Amendment to Section 6.04 (Financial Covenants). Section 6.04 is hereby amended to read in its entirety as follows: Section 6.04. Financial Covenants. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Borrower will: (a) Net Worth. Maintain at all times a Consolidated Net Worth of not less than the sum of (i) $195,000,000, plus (ii) 50% of positive cumulative Consolidated Net Income for any fiscal quarter of the Borrower ending after the fiscal quarter ended October 5, 2003 (but without any deduction for any period in which Consolidated Net Income is a negative number) plus (iii) 100% of the amount of all cash proceeds of any equity issuances by the Borrower or any of its Subsidiaries after the date hereof; provided, however, that changes in other comprehensive income after October 5, 2003 shall be disregarded in calculating Consolidated Net Worth. (b) Senior Leverage Ratio. Not permit the Senior Leverage Ratio at the end of the fiscal quarters of the Borrower set forth below to exceed the correlative ratio indicated: ----------------------------------------------------------------- Fiscal Quarter Senior Leverage Ratio ----------------------------------------------------------------- Fourth Quarter 2001 3.25 to 1.0 ----------------------------------------------------------------- First Quarter 2002 3.25 to 1.0 ----------------------------------------------------------------- 4 ------------------------------------------------------- Second Quarter 2002 3.50 to 1.0 ------------------------------------------------------- Third Quarter 2002 3.50 to 1.0 ------------------------------------------------------- Fourth Quarter 2002 3.25 to 1.0 ------------------------------------------------------- First Quarter 2003 3.55 to 1.0 ------------------------------------------------------- Second Quarter 2003 3.00 to 1.0 ------------------------------------------------------- Third Quarter 2003 2.75 to 1.0 ------------------------------------------------------- Fourth Quarter 2003 2.75 to 1.0 ------------------------------------------------------- First Quarter 2004 2.75 to 1.0 ------------------------------------------------------- Second Quarter 2004 2.75 to 1.0 ------------------------------------------------------- Third Quarter 2004 2.75 to 1.0 ------------------------------------------------------- (c) Adjusted Leverage Ratio. Not permit the Adjusted Leverage Ratio at the end of the fiscal quarters of the Borrower set forth below to exceed the correlative ratio indicated: ------------------------------------------------------- Fiscal Quarter Leverage Ratio ------------------------------------------------------- Fourth Quarter 2001 4.50 to 1.0 ------------------------------------------------------- First Quarter 2002 4.60 to 1.0 ------------------------------------------------------- Second Quarter 2002 4.80 to 1.0 ------------------------------------------------------- Third Quarter 2002 4.75 to 1.0 ------------------------------------------------------- Fourth Quarter 2002 4.70 to 1.0 ------------------------------------------------------- First Quarter 2003 5.00 to 1.0 ------------------------------------------------------- Second Quarter 2003 4.50 to 1.0 ------------------------------------------------------- Third Quarter 2003 4.50 to 1.0 ------------------------------------------------------- Fourth Quarter 2003 4.50 to 1.0 ------------------------------------------------------- First Quarter 2004 4.50 to 1.0 ------------------------------------------------------- Second Quarter 2004 4.50 to 1.0 ------------------------------------------------------- Third Quarter 2004 4.50 to 1.0 ------------------------------------------------------- (d) Fixed Charge Coverage Ratio. Not permit the Fixed Charge Coverage Ratio at the end of the fiscal quarters of the Borrower set forth below to be less than the correlative ratio indicated: ------------------------------------------------------- Fiscal Quarter Fixed Charge Coverage Ratio ------------------------------------------------------- Fourth Quarter 2001 2.00 to 1.0 ------------------------------------------------------- First Quarter 2002 1.85 to 1.0 ------------------------------------------------------- Second Quarter 2002 1.85 to 1.0 ------------------------------------------------------- Third Quarter 2002 1.85 to 1.0 ------------------------------------------------------- Fourth Quarter 2002 1.85 to 1.0 ------------------------------------------------------- First Quarter 2003 1.75 to 1.0 ------------------------------------------------------- Second Quarter 2003 1.95 to 1.0 ------------------------------------------------------- Third Quarter 2003 2.0 to 1.0 ------------------------------------------------------- Fourth Quarter 2003 2.0 to 1.0 ------------------------------------------------------- First Quarter 2004 2.0 to 1.0 ------------------------------------------------------- Second Quarter 2004 2.0 to 1.0 ------------------------------------------------------- 5 ---------------------------------------------------------------------- Third Quarter 2004 2.0 to 1.0 ---------------------------------------------------------------------- (e) Capital Expenditures. (i) Not make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate of all such Capital Expenditures made by the Borrower and its Subsidiaries to exceed $50,000,000 during the Fiscal Year ended December 29, 2002 and $40,000,000 during each Fiscal Year thereafter. (ii) Not make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate of all such Capital Expenditures made by the Borrower and its Subsidiaries to exceed $12,500,000 during any fiscal quarter of the Borrower commencing with the fiscal quarter of the Borrower ending March 23, 2003. Section 4. Amendments to Synthetic Lease Documents. Upon the execution of the Synthetic Lease Documents Amendments required under Section 5(a)(iii) below, the Required Lenders shall, by notice from the Administrative Agent to the Borrower at any time within 90 days after receipt by the Lenders of the Synthetic Lease Documents Amendments, be entitled to amend the Credit Agreement to reflect any changes to the provisions of the Synthetic Lease Documents that the Required Lenders consider more favorable than the corresponding provisions in the Credit Agreement. Section 5. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: (a) The Administrative Agent shall have received all of the following, in form and substance satisfactory to the Administrative Agent: (i) Amendment Documents. This Amendment and any other instrument, document or certificate required by the Administrative Agent to be executed or delivered by the Borrower or any other Person in connection with this Amendment, duly executed by such Persons (the "Amendment Documents"); (ii) Consent of Required Lenders. The written consent of the Required Lenders to this Amendment; (iii) Amendment and Waiver connection with Synthetic Lease Documents. (A) Copies of the amendment and waiver documents with respect to the Synthetic Lease Documents (the "Synthetic Lease Documents Amendments"), pursuant to which (1) the financial covenants and related definitions contained in the Synthetic Lease Documents will be amended in the same manner as set forth in this Amendment and (2) any other conforming changes to the Synthetic Lease Documents reasonably requested by the Administrative Agent will be 6 made and (B) evidence that such amendment, waiver and release documents have been executed and are in full force and effect; (iv) Diligence Materials. All diligence materials, in form and substance satisfactory to the Administrative Agent, requested by the Administrative Agent; and (v) Additional Information. Such additional documents, instruments and information as the Administrative Agent may reasonably request to effect the transactions contemplated hereby. (b) Each of the Lenders consenting to this Amendment on or prior to 5:00 p.m. (EST) on October 14, 2003 shall have received an amendment fee of 0.125% of its Commitment. (c) The representations and warranties contained herein and in the Credit Agreement shall be true and correct as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date). (d) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Administrative Agent. (e) No Default or Event of Default shall have occurred and be continuing, after giving effect to this Amendment. Section 6. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that, as of the date of and after giving effect to this Amendment, (a) the execution, delivery and performance of this Amendment and any and all other Amendment Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Borrower and will not violate the Borrower's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Credit Agreement and in any other Loan Document are true and correct as if made again on and as of such date (except those, if any, which by their terms specifically relate only to an earlier date, in which case such representations and warranties are true and correct as of such earlier date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Credit Agreement (after giving effect to this Amendment), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof. Section 7. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Administrative Agent or the Lenders, or any 7 closing, shall affect the representations and warranties or the right of the Administrative Agent and the Lenders to rely upon them. Section 8. Certain Waivers. The Borrower and each Guarantor hereby agrees that neither the Administrative Agent nor any Lender shall be liable under a claim of, and hereby waives any claim against the Administrative Agent and the Lenders based upon, lender liability (including, but not limited to, liability for breach of the implied covenant of good faith and fair dealing, fraud, negligence, conversion, misrepresentation, duress, control and interference, infliction of emotional distress and defamation and breach of fiduciary duties) as a result of any discussions or actions taken or not taken by the Administrative Agent or the Lenders on or before the date hereof or the discussions conducted pursuant hereto, or any course of action taken by the Administrative Agent or any Lender in response thereto or arising therefrom. This Section 8 shall survive the execution and delivery of this Amendment and the other Loan Documents and the termination of the Credit Agreement. Section 9. Reference to Agreement. Each of the Loan Documents, including the Credit Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Credit Agreement, whether direct or indirect, shall mean a reference to the Credit Agreement as amended hereby. Section 10. Costs and Expenses. The Borrower shall pay on demand all reasonable costs and expenses of the Administrative Agent (including the reasonable fees, costs and expenses of counsel to the Administrative Agent) incurred in connection with the preparation, execution and delivery of this Amendment. Section 11. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. Section 12. Execution. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. Section 13. Limited Effect. This Amendment relates only to the specific matters covered herein, shall not be considered to be a waiver of any rights any Lender may have under the Credit Agreement (other than as expressly set forth herein), and shall not be considered to create a course of dealing or to otherwise obligate any Lender to execute similar amendments or grant any waivers under the same or similar circumstances in the future. 8 Section 14. Ratification By Guarantors. Each of the Guarantors hereby agrees to this Amendment, and each of the Guarantors acknowledges that such Guarantor's Guaranty shall remain in full force and effect without modification thereto. 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. SMART & FINAL INC., as Borrower By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer AMERICAN FOODSERVICE DISTRIBUTORS By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer SMART & FINAL STORES CORPORATION By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer SMART & FINAL OREGON, INC. By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer PORT STOCKTON FOOD DISTRIBUTORS, INC. By: /s/ Richard N. Phegley ------------------------------- Name: Richard N. Phegley Title: Senior Vice President - Finance AMERIFOODS TRADING COMPANY By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer CASINO FROZEN FOODS, INC. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer FOODSERVICESPECIALISTS.COM, INC. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer OKUN PRODUCE INTERNATIONAL, INC. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer HL HOLDING CORPORATION By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley Title: Senior Vice President & Chief Financial Officer BNP PARIBAS, as Administrative Agent and a Lender By: /s/ Sean T. Conlon --------------------------------------- Name: Sean T. Conlon Title: Managing Director By: /s/ Frederique Merhaut --------------------------------------- Name: Frederique Merhaut Title: Director HARRIS TRUST & SAVINGS BANK By: /s/ C. Scott Place ----------------------------------- Name: C. Scott Place Title: Vice President COOPERATIVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ Bradford F. Scott --------------------------------- Name: Bradford F. Scott Title: Executive Director By: /s/ Edward J. Peyser --------------------------------- Name: Edward J. Peyser Title: Managing Director CREDIT INDUSTRIEL ET COMMERCIAL By: /s/ Eric Dulot ------------------------------ Name: Eric Dulot Title: Vice President By: /s/ Eric Longuet ------------------------------ Name: Eric Longuet Title: Vice President COBANK, ACB By: /s/ S. Richard Dill ----------------------------------- Name: S. Richard Dill Title: Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ Peter Thompson ----------------------------------- Name: Peter Thompson Title: Vice President U.S. BANK NATIONAL ASSOCIATION By: /s/ Janet Jordan ----------------------------------- Name: Janet Jordan Title: Vice President NATEXIS BANQUE-BFCE By: /s/ Anne Ulrich ---------------------------------------- Name: Anne Ulrich Title: Vice President By: /s/ Pieter J. van Tulder ---------------------------------------- Name: Pieter J. van Tulder Title: Vice President And Manager Multinational Group TRANSAMERICA BUSINESS CAPITAL CORPORATION By: /s/ Stephen K. Goetschlus -------------------------------------- Name: Stephen K. Goetschlus Title: Senior Vice President CITY NATIONAL BANK By: /s/ Robert Louk ----------------------------------- Name: Robert Louk Title: Vice President RZB FINANCE LLC By: /s/ John A. Valiska --------------------------------------- Name: John A. Valiska Title: Group Vice President By: /s/ Christoph Hoedl --------------------------------------- Name: Christoph Hoedl Title: Vice President BANK OF THE WEST By: /s/ Danny Flores --------------------------------------- Name: Danny Flores Title: Syndications Officer PREFERRED BANK By: /s/ Walt Duchanin ---------------------------------------- Name: Walt Duchanin Title: Executive Vice President BANK LEUMI USA By: /s/ Jacques V. Delvoye -------------------------------------- Name: Jacques V. Delvoye Title: Vice President EX-10.44 18 dex1044.txt AMENDMENT AGREEMENT NO. 7 DATED AS OF OCTOBER 21, 2003 Exhibit 10.44 AMENDMENT AGREEMENT NO. 7 This Amendment Agreement No. 7 (this "Agreement"), dated as of October 21, 2003, is among is among the Persons that have executed this Agreement (the "Parties"). Capitalized terms used, but not defined, in this Agreement are used as defined in the Lease Agreement, dated as of November 30, 2001, between Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1, as lessor, and Smart & Final Inc., as lessee, as amended by Waiver and Amendment Agreement No. 1, dated as of June 4, 2002, by Waiver and Amendment Agreement No. 2, dated as of February 14, 2003, by Amendment Agreement No. 3, dated as of June 1, 2003, by Waiver and Amendment Agreement No. 4, dated as of July 11, 2003 and by Consent, Waiver, Collateral Release and Amendment Agreement No. 5A, dated as of September 3, 2003, and Sixth Amendment and Waiver to Lease Agreement, dated as of September 12, 2003 (the "Lease"). Capitalized terms used herein without definition have the meanings ascribed to them in the Lease. RECITALS A. As a result of the recent sale of the Lessee's northern California broadline foodservice operations to Sysco Corp. and Pacific Fresh Seafood Company, the Lessee's Florida broadline foodservice operations and nine of the fourteen Smart & Final stores located in Florida to GFS Holding Inc. ("GFS") and certain of GFS's subsidiaries, and the pending sale of the Port Stockton dry grocery warehouse (collectively, the "Sale Transactions"), the Lessee will not be in compliance with certain of the financial covenants set forth in the Lease. B. The Lessee has requested that the Lenders, the Holder and the Agent amend certain of the financial covenants contained in the Lease and the definitions related thereto. C. The Agent, the Holder and the Lenders have agreed to amend certain of the financial covenants and the definitions related thereto, all as provided herein. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Parties agree as follows: Section 1. Section References. Unless otherwise expressly stated herein, all section references herein refer to sections of the Lease, and all references to "Appendix A" refer to Appendix A to the Participation Agreement. Section 2. Amendment to Appendix A (Rules of Usage and Definitions). (a) The definition of "Adjusted EBITDA" set forth in Appendix A is amended by deleting it in its entirety and replacing it with the following: "Adjusted EBITDA" means, for any period, determined for the Lessee and its Subsidiaries on a Consolidated basis, EBITDA plus, with respect to any fiscal quarter of the Lessee up to and including the second fiscal quarter of Fiscal Year 2003, the interest component of all amounts paid as rent under the Lease. (b) The definition of "Adjusted Leverage Ratio" set forth in Appendix A is amended by deleting it in its entirety and replacing it with the following: "Adjusted Leverage Ratio" means, as of any date of determination, the ratio of (i) the sum of (A) Consolidated Indebtedness (excluding for all periods up to and including the second fiscal quarter of Lessee's fiscal year 2003 Indebtedness under the Lease and the other Operative Agreements) as of the end of the most recently ended fiscal quarter of the Lessee plus (B) the product of (1) rent expense (including amounts paid as rent under the Lease) for the Lessee and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Lessee multiplied by (2) 8 to (ii) the sum of (A) EBITDA for the Lessee and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Lessee plus (B) rent expense (including amounts paid as rent under the Lease) for the Lessee and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Lessee; provided, that for purposes of determining the Adjusted Leverage Ratio, "rent expense" shall be deemed to be (i) $6,900,000 for the fourth fiscal quarter of Lessee's fiscal year 2002, (ii) $6,900,000 for the first fiscal quarter of Lessee's fiscal year 2003 and (iii) $7,100,000 for the second fiscal quarter of Lessee's fiscal year 2003. (c) The definition of "EBITDA" set forth in Appendix A is amended by deleting it in its entirety and replacing it with the following: "EBITDA" means, for any period, net income (or net loss) excluding all non-cash extraordinary items of gain or loss, plus, to the extent deducted in determining such net income (or net loss), the sum of (a) interest expense, (b) income tax expense, (c) depreciation expense, (d) amortization expense, (e) all other non-cash charges (including impairment charges with respect to assets and goodwill) and (f) for the third fiscal quarter of Lessee's fiscal year 2003, up to $13,300,000 of after-tax charges for discontinued operations, in each case determined in accordance with GAAP for such period (to the extent not already included in clause (e) above); provided, that EBITDA shall be calculated using the quarterly amounts of (i) $20,500,000 for the fourth fiscal quarter of Lessee's fiscal year 2002, (ii) $16,200,000 for the first fiscal quarter of Lessee's fiscal year 2003 and (iii) $20,200,000 for the second fiscal quarter of Lessee's fiscal year 2003. (d) The definition of "Fixed Charge Coverage Ratio" set forth in Appendix A is amended by deleting it in its entirety and replacing it with the following: "Fixed Charge Coverage Ratio" means, as of any date of determination, determined for the period of four consecutive fiscal quarters ending as of the last day of each fiscal quarter of the Lessee, the ratio of (a) the sum of (i) Consolidated EBITDA of the Lessee and its Subsidiaries and (ii) rent expense (not including amounts paid as rent under the Lease) for the Lessee and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Lessee to (b) the sum of (i) Consolidated Interest Expense of the 2 Lessee and its Subsidiaries and (ii) rent expense for the Lessee and its Subsidiaries on a Consolidated basis for the four most recently completed fiscal quarters of the Lessee; provided, that for purposes of determining the Fixed Charge Coverage Ratio, (i) the quarterly amounts of "rent expense" shall be deemed to be (A) $6,900,000 for the fourth fiscal quarter of Lessee's fiscal year 2002, (B) $6,900,000 for the first fiscal quarter of Lessee's fiscal year 2003 and (C) $7,100,000 for the second fiscal quarter of Lessee's fiscal year 2003 and (ii) the quarterly amounts of Consolidated Interest Expense shall be deemed to be (A) $4,400,000 for the fourth fiscal quarter of Lessee's fiscal year 2002, (B) $4,600,000 for the first fiscal quarter of Lessee's fiscal year 2003 and (C) $4,500,000 for the second fiscal quarter of Lessee's fiscal year 2003. Section 3. Amendment to Section 28.5 (Financial Covenants). Section 28.5 is amended to read in its entirety as follows: Section 28.5. Financial Covenants. So long as the Advance or any other Obligation of any Credit Party under any Operative Agreements remains unpaid, the Lessee shall: (a) Net Worth. Maintain at all times a Consolidated Net Worth of not less than the sum of (i) $195,000,000, plus (ii) 50% of positive cumulative Consolidated Net Income for any fiscal quarter of the Lessee ending after the fiscal quarter ending October 21, 2003 (but without any deduction for any period in which Consolidated Net Income is a negative number) plus (iii) 100% of the amount of all cash proceeds of any equity issuances by the Lessee or any of its Subsidiaries after November 30, 2001; provided, however, that changes in other comprehensive income after October 21, 2003 shall be disregarded in calculating Consolidated Net Worth. (b) Senior Leverage Ratio. Not permit the Senior Leverage Ratio at the end of the fiscal quarters of the Lessee set forth below to exceed the correlative ratio indicated: ------------------------------------------------------------ Fiscal Quarter Senior Leverage Ratio -------------- --------------------- ------------------------------------------------------------ Fourth Quarter 2001 3.25 to 1.0 ------------------------------------------------------------ First Quarter 2002 3.25 to 1.0 ------------------------------------------------------------ Second Quarter 2002 3.50 to 1.0 ------------------------------------------------------------ Third Quarter 2002 3.50 to 1.0 ------------------------------------------------------------ Fourth Quarter 2002 3.25 to 1.0 ------------------------------------------------------------ First Quarter 2003 3.55 to 1.0 ------------------------------------------------------------ Second Quarter 2003 3.00 to 1.0 ------------------------------------------------------------ Third Quarter 2003 2.75 to 1.0 ------------------------------------------------------------ Fourth Quarter 2003 2.75 to 1.0 ------------------------------------------------------------ First Quarter 2004 2.75 to 1.0 ------------------------------------------------------------ Second Quarter 2004 2.75 to 1.0 ------------------------------------------------------------ Third Quarter 2004 2.75 to 1.0 ------------------------------------------------------------ Fourth Quarter 2004 2.75 to 1.0 ------------------------------------------------------------ 3 ------------------------------------------------- First Quarter 2005 2.75 to 1.0 ------------------------------------------------- Second Quarter 2005 2.75 to 1.0 ------------------------------------------------- Third Quarter 2005 2.75 to 1.0 ------------------------------------------------- Fourth Quarter 2005 2.75 to 1.0 ------------------------------------------------- First Quarter 2006 2.75 to 1.0 ------------------------------------------------- Second Quarter 2006 2.75 to 1.0 ------------------------------------------------- Third Quarter 2006 2.75 to 1.0 ------------------------------------------------- (c) Adjusted Leverage Ratio. Not permit the Adjusted Leverage Ratio at the end of the fiscal quarters of the Lessee set forth below to exceed the correlative ratio indicated: ------------------------------------------------------------- Fiscal Quarter Adjusted Leverage Ratio -------------- ----------------------- ------------------------------------------------------------- Fourth Quarter 2001 4.50 to 1.0 ------------------------------------------------------------- First Quarter 2002 4.60 to 1.0 ------------------------------------------------------------- Second Quarter 2002 4.80 to 1.0 ------------------------------------------------------------- Third Quarter 2002 4.75 to 1.0 ------------------------------------------------------------- Fourth Quarter 2002 4.70 to 1.0 ------------------------------------------------------------- First Quarter 2003 5.00 to 1.0 ------------------------------------------------------------- Second Quarter 2003 4.50 to 1.0 ------------------------------------------------------------- Third Quarter 2003 4.50 to 1.0 ------------------------------------------------------------- Fourth Quarter 2003 4.50 to 1.0 ------------------------------------------------------------- First Quarter 2004 4.50 to 1.0 ------------------------------------------------------------- Second Quarter 2004 4.50 to 1.0 ------------------------------------------------------------- Third Quarter 2004 4.50 to 1.0 ------------------------------------------------------------- Fourth Quarter 2004 4.25 to 1.0 ------------------------------------------------------------- First Quarter 2005 4.25 to 1.0 ------------------------------------------------------------- Second Quarter 2005 4.25 to 1.0 ------------------------------------------------------------- Third Quarter 2005 4.25 to 1.0 ------------------------------------------------------------- Fourth Quarter 2005 4.25 to 1.0 ------------------------------------------------------------- First Quarter 2006 4.25 to 1.0 ------------------------------------------------------------- Second Quarter 2006 4.25 to 1.0 ------------------------------------------------------------- Third Quarter 2006 4.25 to 1.0 ------------------------------------------------------------- (d) Fixed Charge Coverage Ratio. Not permit the Fixed Charge Coverage Ratio at the end of the fiscal quarters of the Lessee set forth below to be less than the correlative ratio indicated: ------------------------------------------------------------------ Fiscal Quarter Fixed Charge Coverage Ratio -------------- --------------------------- ------------------------------------------------------------------ Fourth Quarter 2001 2.00 to 1.0 ------------------------------------------------------------------ First Quarter 2002 1.85 to 1.0 ------------------------------------------------------------------ Second Quarter 2002 1.85 to 1.0 ------------------------------------------------------------------ Third Quarter 2002 1.85 to 1.0 ------------------------------------------------------------------ Fourth Quarter 2002 1.85 to 1.0 ------------------------------------------------------------------ 4 ----------------------------------------------------------------------- First Quarter 2003 1.75 to 1.0 ----------------------------------------------------------------------- Second Quarter 2003 1.95 to 1.0 ----------------------------------------------------------------------- Third Quarter 2003 2.0 to 1.0 ----------------------------------------------------------------------- Fourth Quarter 2003 2.0 to 1.0 ----------------------------------------------------------------------- First Quarter 2004 2.0 to 1.0 ----------------------------------------------------------------------- Second Quarter 2004 2.0 to 1.0 ----------------------------------------------------------------------- Third Quarter 2004 2.0 to 1.0 ----------------------------------------------------------------------- Fourth Quarter 2004 2.0 to 1.0 ----------------------------------------------------------------------- First Quarter 2005 2.0 to 1.0 ----------------------------------------------------------------------- Second Quarter 2005 2.0 to 1.0 ----------------------------------------------------------------------- Third Quarter 2005 2.0 to 1.0 ----------------------------------------------------------------------- Fourth Quarter 2005 2.0 to 1.0 ----------------------------------------------------------------------- First Quarter 2006 2.0 to 1.0 ----------------------------------------------------------------------- Second Quarter 2006 2.0 to 1.0 ----------------------------------------------------------------------- Third Quarter 2006 2.0 to 1.0 ----------------------------------------------------------------------- (e) Capital Expenditures. (i) Not make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate of all such Capital Expenditures made by the Lessee and its Subsidiaries to exceed $50,000,000 during the Fiscal Year ending December 29, 2002 and $40,000,000 during each Fiscal Year thereafter; and (ii) Not make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate of all such Capital Expenditures made by the Lessee and its Subsidiaries to exceed $12,500,000 during any fiscal quarter of the Lessee commencing with the fiscal quarter of the Lessee ending March 23, 2003. Section 4. Conditions Precedent. The effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent: (a) The Agent shall have received all of the following, in form and substance satisfactory to the Agent: (i) Amendment Documents. This Agreement and any other instrument, document or certificate required by the Agent to be executed or delivered by the Lessee or any other Person in connection with this Agreement (the "Amendment Documents"), duly executed by each party hereto and thereto; (ii) Consent of Majority Secured Parties. The written consent of the Majority Secured Parties to this Agreement; (iii) Amendment to and Waiver in connection with Lessee Credit Agreement. (A) Copies of the amendment and waiver documents with respect to the Lessee 5 Credit Agreement (the "Lessee Credit Agreement Amendments"), pursuant to which (1) the financial covenants and related definitions contained in the Lessee Credit Agreement are amended in the same manner as set forth in this Agreement and (2) any other conforming changes to the Lessee Credit Agreement reasonably requested by the Agent are made and (B) evidence that the Lessee Credit Agreement Amendments have been executed and are in full force and effect; (iv) Diligence Materials. All diligence materials requested by the Agent; and (v) Additional Information. Such additional documents, instruments and information as the Agent may reasonably request to effect the transactions contemplated hereby. (b) Each Secured Party (other than the A-1 Lender) consenting to this Agreement by 5:00 p.m. (EDT) on October 21, 2003 shall have received an amendment fee of 0.125% of its Commitment. (c) Each Credit Party's representations and warranties contained herein and in the Operative Agreements shall be true and correct as of the date hereof as if made on the date hereof (except for those that by their terms specifically refer to an earlier date, which shall have been true and correct as of such earlier date). (d) All corporate proceedings taken in connection with the transactions contemplated by this Agreement and all other agreements, documents and instruments executed or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Agent. (e) No Default or Event of Default shall have occurred and be continuing, after giving effect to this Agreement. Section 5. Representations and Warranties. The Lessee hereby represents and warrants to the Agent, the Holder and the Lenders that, as of the date of and after giving effect to this Agreement, (a) the execution, delivery and performance of this Agreement and any other Amendment Documents executed or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Lessee and will not violate the Lessee's certificate of incorporation or bylaws, (b) all representations and warranties set forth in the Lease and in any other Operative Agreement are true and correct as if made again on and as of such date (except those, if any, that by their terms specifically relate only to an earlier date, which were true and correct as of such earlier date), (c) no Default or Event of Default has occurred and is continuing, and (d) the Lease (after giving effect to this Agreement) and all other Operative Agreements are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof. Section 6. Survival of Representations and Warranties. All representations and warranties made in this Agreement or any other Operative Agreement shall survive the execution and delivery of this Agreement and the other Operative Agreements, and no investigation by the 6 Agent, the Holder or the Lenders, or any closing, shall affect the representations and warranties or the right of the Agent, the Holder and the Lenders to rely upon them. Section 7. Certain Waivers. None of the Agent, the Holder and any Lender shall be liable under a claim of, and each Credit Party waives any claim against the Agent, the Holder and the Lenders based upon, lender liability (including, but not limited to, liability for breach of the implied covenant of good faith and fair dealing, fraud, negligence, conversion, misrepresentation, duress, control and interference, infliction of emotional distress and defamation and breach of fiduciary duties) as a result of any discussions or actions taken or not taken by the Agent, the Holder or the Lenders on or before the date hereof or the discussions conducted pursuant hereto, or any course of action taken by the Agent, the Holder or any Lender in response thereto or arising therefrom. This Section 7 shall survive the execution and delivery of this Agreement and the other Operative Agreements and the termination of the Lease. Section 8. Reference to Agreement. Each Operative Agreement and any other agreements, documents or instruments now or hereafter executed or delivered pursuant to the terms hereof or pursuant to the terms of the Lease as amended hereby, are hereby amended so that any reference in the Operative Agreements to the Lease or Appendix A, as applicable, whether direct or indirect, is a reference to the Lease or Appendix A, as applicable, as amended hereby. Section 9. Costs and Expenses. The Lessee shall pay on demand all reasonable costs and expenses of the Agent (including the reasonable fees, costs and expenses of counsel to the Agent) incurred in connection with the preparation, execution and delivery of this Agreement. Section 10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT-OF-LAWS PRINCIPLES. Section 11. Execution. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. Section 12. Limited Effect. This Agreement relates only to the specific matters covered herein, shall not be considered to be a waiver of any rights the Holder or any Lender may have under the Lease (other than as expressly set forth herein), and shall not be considered to create a course of dealing or to otherwise obligate the Holder or any Lender to execute similar amendments or grant any waivers under the same or similar circumstances in the future. Section 13. Ratification By Guarantors. Each Guarantor hereby agrees to this Agreement and acknowledges that its Guaranty remains in full force and effect without modification thereto. [Signature Pages Follow] 7 EXECUTION VERSION IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. LESSOR: Wells Fargo Bank Northwest, National Association, as Owner Trustee under S&F Trust 1998-1 By: /s/ Val T. Orton ----------------------------------- Name: Val T. Orton --------------------------------- Title: Vice President -------------------------------- LESSEE: Smart & Final Inc. By: /s/ Richard N. Phegley ----------------------------------- Name: Richard N. Phegley --------------------------------- Title: Senior Vice President & -------------------------------- Chief Financial Officer - -------------------------------------- [Amendment Agreement No. 7] A-2 LENDER, B LENDER AND HOLDER: Casino USA, Inc. By: /s/ Andre Delolmo ----------------------------------- Name: Andre Delolmo --------------------------------- Title: President -------------------------------- A-2 LENDER: GMAC Commercial Finance, LLC, successor by merger to GMAC Business Credit, LLC By: /s/ David W. Berry ----------------------------------- Name: David W. Berry --------------------------------- Title: Vice President -------------------------------- A-2 LENDER: Natexis Banques Populaires By: /s/ Anne Ulrich By: /s/ Pieter J. van Tulder ----------------------------------- ----------------------------------- Name: Anne Ulrich Name: Pieter J. van Tulder --------------------------------- --------------------------------- Title: Vice President Title: Vice President And Manager -------------------------------- -------------------------------- Multinational Group -------------------------------- A-2 LENDER: BNP Paribas By: /s/ Sean T. Conlon By: /s/ Mitchell M. Ozawa ----------------------------------- ----------------------------------- Name: Sean T. Conlon Name: Mitchell M. Ozawa --------------------------------- --------------------------------- Title: Managing Director Title: Managing Director -------------------------------- -------------------------------- A-2 LENDER AND AGENT: Cooperative Centrale Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland," New York Branch By: /s/ Bradford F. Scott By: /s/ Ian Reece ----------------------------------- ----------------------------------- Name: Bradford F. Scott Name: Ian Reece --------------------------------- --------------------------------- Title: Executive Director Title: Managing Director -------------------------------- -------------------------------- [Amendment Agreement No. 7] B LENDER: Transamerica Equipment Financial Services Corporation By: /s/ James R. Bates ----------------------------------- Name: James R. Bates --------------------------------- Title: Vice President -------------------------------- [Amendment Agreement No. 7] GUARANTOR: American Foodservice Distributors By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley --------------------------------------- Title: Senior Vice President & -------------------------------------- Chief Financial Officer - -------------------------------------------- GUARANTOR: Smart & Final Stores Corporation By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley --------------------------------------- Title: Senior Vice President & -------------------------------------- Chief Financial Officer - -------------------------------------------- GUARANTOR: Smart & Final Oregon, Inc. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley --------------------------------------- Title: Senior Vice President & -------------------------------------- Chief Financial Officer - -------------------------------------------- GUARANTOR: Port Stockton Food Distributors, Inc. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley --------------------------------------- Title: Senior Vice President - Finance -------------------------------------- GUARANTOR: Amerifoods Trading Company By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley --------------------------------------- Title: Senior Vice President & -------------------------------------- Chief Financial Officer - -------------------------------------------- [Amendment Agreement No. 7] GUARANTOR: Casino Frozen Foods, Inc. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley --------------------------------------- Title: Senior Vice President & -------------------------------------- Chief Financial Officer - -------------------------------------------- GUARANTOR: FoodServiceSpecialists.Com, Inc. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley --------------------------------------- Title: Senior Vice President & -------------------------------------- Chief Financial Officer - -------------------------------------------- GUARANTOR: Okun Produce International, Inc. By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley --------------------------------------- Title: Senior Vice President & -------------------------------------- Chief Financial Officer - -------------------------------------------- GUARANTOR: HL Holding Corporation By: /s/ Richard N. Phegley ----------------------------------------- Name: Richard N. Phegley --------------------------------------- Title: Senior Vice President & -------------------------------------- Chief Financial Officer - -------------------------------------------- [Amendment Agreement No. 7] EX-31.1 19 dex311.txt SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION I, Ross E. Roeder, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Smart & Final Inc. for the quarter ended October 5, 2003; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 17, 2003 /s/ Ross E. Roeder --------------------------------- Ross E. Roeder Chairman of the Board and Chief Executive Officer EX-31.2 20 dex312.txt SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION I, Richard N. Phegley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Smart & Final Inc. for the quarter ended October 5, 2003; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 17, 2003 /s/ Richard N. Phegley -------------------------------- Richard N. Phegley Senior Vice President and Chief Financial Officer EX-32.1 21 dex321.txt SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. (S) 1350, AS ADOPTED PURSUANT TO (S) 906 OF THE SARBANES-OXLEY ACT OF 2002 Solely for the purposes of complying with 18 U.S.C. (S)1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Chairman of the Board and Chief Executive Officer of Smart & Final Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended October 5, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 17, 2003 /s/ Ross E. Roeder -------------------------------------- Ross E. Roeder Chairman of the Board and Chief Executive Officer EX-32.2 22 dex322.txt SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. (S) 1350, AS ADOPTED PURSUANT TO (S) 906 OF THE SARBANES-OXLEY ACT OF 2002 Solely for the purposes of complying with 18 U.S.C. (S)1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Senior Vice President and Chief Financial Officer of Smart & Final Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended October 5, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 17, 2003 /s/ Richard N. Phegley ------------------------------------ Richard N. Phegley Senior Vice President and Chief Financial Officer ~~-----END PRIVACY-ENHANCED MESSAGE-----~~

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