STOCK PURCHASE AGREEMENT

                              UNITED GROCERS, INC.
                                       and
                            ORION CAPITAL CORPORATION

                                  May 13, 1998


<PAGE>


                            STOCK PURCHASE AGREEMENT

                              UNITED GROCERS, INC.
                                       and
                            ORION CAPITAL CORPORATION

                                  May 13, 1998


                                      Index

                                                                        Page
                                                                        ----

SECTION 1.  DEFINITIONS                                                    1

SECTION 2.  SALE AND TRANSFER OF SHARES; CLOSING                           6

SECTION 3.  REPRESENTATIONS AND WARRANTIES OF SELLER                       8

SECTION 4.  REPRESENTATIONS AND WARRANTIES OF BUYER                       20

SECTION 5.  COVENANTS OF SELLER                                           21

SECTION 6.  COVENANTS OF BUYER                                            23

SECTION 7.  CONDITIONS PRECEDENT TO BUYER'S OBLIGATION
            TO CLOSE                                                      24

SECTION 8.  CONDITIONS PRECEDENT TO SELLER'S OBLIGATION
            TO CLOSE                                                      24

SECTION 9.  TERMINATION                                                   25

SECTION 10. INDEMNIFICATION; REMEDIES                                     26

SECTION 11. TAX MATTERS                                                   28

SECTION 12. GENERAL PROVISIONS                                            33

<PAGE>
                            STOCK PURCHASE AGREEMENT

PARTIES:          UNITED GROCERS, INC.,                               ("Seller")
                  an Oregon corporation

                  ORION CAPITAL CORPORATION,                           ("Buyer")
                  a Delaware corporation

DATE:             May 13, 1998


                                    RECITAL:

         Seller  desires to sell,  and Buyer  desires to purchase,  1,000 shares
(the  "Shares")  of common stock of Grocers  Insurance  Group,  Inc.,  an Oregon
corporation (the "Company"), for the consideration and on the terms set forth in
this Agreement. The Shares represent all of the issued and outstanding shares of
capital stock of the Company.

                                   AGREEMENT:

The parties agree as follows:

1.       DEFINITIONS

         For purposes of this  Agreement,  the following terms have the meanings
specified or referred to in this Section 1:

         "ACCOUNTANTS"--as defined in Section 11.1.2.

         "ACQUIRED COMPANIES"--the Company and its Subsidiaries, collectively.

         "ACQUIRED COMPANIES SUBGROUP"--as defined in Section 11.3.3.

         "AG"--as defined in Section 2.5.1.

         "APPLICABLE  CONTRACT"--any  Contract of any Acquired Company providing
for (a) a current or future  obligation to pay $25,000 or more, (b) a current or
future  right  to  receive  payments  totalling  $25,000  or more or (c) a joint
venture or other agreement regarding cooperation among the Acquired Companies or
between the Acquired Companies and any Person.

         "APPOINTMENTS"--as defined in Section 3.23.

         "BALANCE SHEET"--as defined in Section 3.4.1.

         "BEST EFFORTS"--the efforts that a prudent Person desirous of achieving
a result would use in similar  circumstances to cause such result to be achieved
as expeditiously as possible.

                                     - 1 -
<PAGE>

         "BUYER"--as defined in the first paragraph of this Agreement.

         "CFIT"--as defined in Section 11.3.2.

         "CLOSING"--as defined in Section 2.3.

         "CLOSING  DATE"--the  date and time as of which  the  Closing  actually
takes place.

         "CLOSING TAXABLE YEAR"--as defined in Section 11.3.2.

         "COMPANY"--as defined in the Recitals to this Agreement.

         "CONFIDENTIALITY  AGREEMENT"--the Confidentiality Agreement between the
Company and Buyer dated November 20, 1997.

         "CONSENT"--any  approval,  consent,   ratification,   waiver  or  other
authorization (including any Governmental Authorization).

         "CONTEMPLATED  TRANSACTIONS"--all  of the transactions  contemplated by
this Agreement, including:

         (a)      the sale of the Shares by Seller to Buyer;

         (b)      the  performance  by Buyer  and  Seller  of  their  respective
                  covenants and obligations under this Agreement; and

         (c)      Buyer's  acquisition  and ownership of the Shares and exercise
                  of control over the Acquired Companies.

         "CONTRACT"--any agreement,  contract, obligation or undertaking that is
legally  binding,  excluding  any  policy of  insurance  issued by or through an
Acquired Company.

         "DCBS"--the Oregon Department of Consumer and Business Services.

         "DAMAGES"--as defined in Section 10.2.

         "DISCLOSURE LETTER"--the disclosure letter delivered by Seller to Buyer
prior to the execution and delivery of this Agreement.

         "EMPLOYEE LICENSES"--as defined in Section 3.22.

         "ENCUMBRANCE"--any charge, claim, condition,  equitable interest, lien,
option, pledge, security interest,  right of first refusal or restriction of any
kind, including any restriction on use, voting,  transfer,  receipt of income or
exercise of any other attribute of ownership.

         "ENVIRONMENTAL  LAW"--any Legal Requirement that requires or relates to
cleaning up pollutants that have been released, preventing the threat of release
or paying the costs of such clean up or prevention.

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         "ENVIRONMENTAL  LIABILITIES"--any  cost,  damage,  expense,  liability,
obligation or other  responsibility  arising from or under Environmental Law and
consisting of or relating to:

         (a)      any environmental matter or condition;

         (b)      fines, penalties,  judgments,  awards,  settlements,  legal or
                  administrative  proceedings,  damages, losses, claims, demands
                  and response, investigative,  remedial or inspection costs and
                  expenses arising under Environmental Law;

         (c)      financial  responsibility  under Environmental Law for cleanup
                  costs  or  corrective  action,  including  any  investigation,
                  cleanup, removal, containment or other remediation or response
                  actions required by applicable Environmental Law ; or

         (d)      any other  compliance,  corrective,  investigative or remedial
                  measures required under Environmental Law.

         The terms  "removal,"  "remedial," and "response  action,"  include the
types of  activities  covered by the United States  Comprehensive  Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., as amended
("CERCLA").  Environmental  Liabilities  do not  include any  obligation  of any
Acquired  Company  arising  from or under any policy of  insurance  issued by or
through  an  Acquired  Company,   all  of  which  policies  exclude  claims  for
environmental  matters in accordance  with customary  industry  practice for the
types  of  policies  involved  or  except  as set  forth in  Paragraph  1 of the
Disclosure Letter.

         "ERISA"--the  Employee  Retirement  Income  Security Act of 1974 or any
successor  law and  regulations  and rules  issued  pursuant  to that act or any
successor law.

         "ERISA AFFILIATE"--as defined in Section 3.10.

         "FACILITIES"--any  real property or leaseholds owned or operated by any
Acquired Company.

         "GAAP"--generally accepted United States accounting principles, applied
on a basis  consistent  with the basis on which the Balance  Sheet and the other
financial statements referred to in Section 3.4.1 were prepared.

         "GIA"--Grocers Insurance Agency, Inc., an Oregon corporation.

         "GIC"--Grocers   Insurance   Company,   an   Oregon   stock   insurance
corporation.

         "GIG OFFICE BUILDING"--as defined in Section 5.7.

         "GRS"--Grocers Risk Services, Inc., an Oregon corporation.

         "GOVERNMENTAL  AUTHORIZATION"--any  approval, consent, license, permit,
waiver or other authorization issued, granted, given or otherwise made available
by or under the  authority  of any  Governmental  Body or  pursuant to any Legal
Requirement.

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<PAGE>

         "GOVERNMENTAL BODY"--any:

         (a)      federal, state, local, municipal, foreign or other government;

         (b)      governmental  or  quasi-governmental  authority  of any nature
                  (including  any  governmental  agency,   branch,   department,
                  official or entity and any court or other tribunal); or

         (c)      body exercising,  or entitled to exercise, any administrative,
                  executive, judicial, legislative, police, regulatory or taxing
                  authority.

         "HAZARDOUS  MATERIALS"--any  waste or other  substance  that is listed,
defined,  designated or classified as, or otherwise determined to be, hazardous,
radioactive  or toxic or a pollutant or a  contaminant  under or pursuant to any
Environmental Law.

         "HOLDBACK"--as defined in Section 2.5.

         "HSR ACT"--the  Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
any successor law, and  regulations and rules issued pursuant to that Act or any
successor law.

         "INTERIM BALANCE SHEET"--as defined in Section 3.4.1.

         "IRC"--the  Internal  Revenue  Code of 1986  or any  successor  law and
regulations  issued by the IRS  pursuant  to the  Internal  Revenue  Code or any
successor law.

         "IRS"--the United States Internal Revenue Service.

         "JOINT   VENTURE"--means  any  joint  venture,   business  combination,
reorganization or change of control or similar transaction.

         "KNOWLEDGE"--an  individual  will be  deemed to have  "Knowledge"  of a
particular  fact or other matter if: (a) such  individual  is actually  aware of
such fact or other  matter;  or (b) a prudent  individual  could be  expected to
discover or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive  investigation concerning the existence of
such fact or other matter. A Person (other than an individual) will be deemed to
have  "Knowledge" of a particular  fact or other matter if any individual who is
serving as a director  or officer of such Person has  Knowledge  of such fact or
other matter.

         "LEGAL  REQUIREMENT"--any  federal,  state,  local,  municipal or other
administrative order, law, ordinance, regulation or statute.

         "LICENSES"--as defined in Section 3.21.

         "LIQUIDATED AMOUNTS"--as defined in Section 2.5.1.

         "MARKS"--business names, trade names, registered trademarks and service
marks.

         "ORDER"--any  award,  decision,  judgment,  order,  ruling  or  verdict
entered, issued, made, or rendered by any court,  administrative agency or other
Governmental Body.

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         "ORDINARY  COURSE OF  BUSINESS"--an  action  taken by a Person  will be
deemed to have been taken in the "Ordinary Course of Business" if:

         (a)      such  action is  consistent  with the past  practices  of such
                  Person  and is  taken in the  ordinary  course  of the  normal
                  day-to-day operations of such Person; and

         (b)      such action is similar in nature,  frequency  and magnitude to
                  actions customarily taken in the ordinary course of the normal
                  day-to-day  operations  of other  Persons that are in the same
                  line of business as such Person.

         "ORGANIZATIONAL  DOCUMENTS"--the  articles  of  incorporation  and  the
bylaws of a corporation and any amendment to such documents.

         "PERMANENT DIFFERENCE"--as defined in Section 11.4.2.1.

         "PERSON"--any individual,  corporation,  partnership, limited liability
company,  joint  venture,  estate,  trust,  association,  organization  or other
entity.

         "PROCEEDING"--any action, arbitration,  audit, hearing,  investigation,
litigation, or suit (whether civil, criminal,  administrative,  investigative or
informal),  excluding  any  proceeding  arising  from or  under  any  policy  of
insurance issued by or through an Acquired Company.

         "PURCHASE PRICE"--as defined in Section 2.2.

         "REGULATORY  FILINGS"--any  filing  required  to be  made  with a State
Insurance Department, other than DCBS, to provide notice or obtain approval of a
Contemplated Transaction.

         "REPRESENTATIVE"--with  respect to a particular  Person,  any director,
officer,  employee,  agent, consultant,  advisor or other representative of such
Person, including legal counsel, accountants and financial advisors.

         "SECURITIES  ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.

         "SELLER"--as defined in the first paragraph of this Agreement.

         "SELLER'S SUBGROUP"--as defined in Section 11.3.3.

         "SERVICE AGREEMENT"--the Service Agreement dated March 11, 1998, by and
between Seller and the Company.

         "SHARES"--as defined in the Recital to this Agreement.

         "STATE INSURANCE DEPARTMENT"--as defined in Section 3.21.

         "STATUTORY STATEMENTS"--as defined in Section 3.4.2.

         "STRADDLE PERIOD"--as defined in Section 11.2.3.

                                     - 5 -
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         "SUBMISSION"--as defined in Section 3.20.

         "SUBSIDIARIES"--GIA, GIC and GRS.

         "TAX" OR "TAXES"--any tax (including any income tax, capital gains tax,
premium tax, payroll tax,  value-added tax, sales tax, property tax, gift tax or
estate tax), levy,  assessment,  tariff, duty,  deficiency or other fee, and any
related charge,  credit or benefit, or amount imposed,  assessed or collected by
or under  the  authority  of any  Governmental  Body or  payable  or  receivable
pursuant to any  tax-sharing  agreement  or any other  Contract  relating to the
sharing or payment of any such tax, levy,  assessment,  tariff, duty, deficiency
or fee. For this purpose,  the Tax benefit of a net operating loss carry forward
from the  October  3, 1997 Tax year or from the  Closing  Taxable  Year shall be
measured at the rate of 34 percent.

         "TAX RETURN"--any  return (including any information  return),  report,
statement,  schedule,  notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any  Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.

         "THIRD PARTY CLAIMS"--as defined in Section 2.5.1.

         "THREATENED"--a  claim,  Proceeding,  dispute,  action, or other matter
will be deemed to have been  "Threatened"  if any demand or  statement  has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances  exist, that would
lead a  prudent  Person to  conclude  that  such a claim,  Proceeding,  dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.

         "TIMING DIFFERENCE"--as defined in Section 11.4.2.2.

2.       SALE AND TRANSFER OF SHARES; CLOSING

         2.1      SHARES

         Subject to the terms and conditions of this Agreement,  at the Closing,
Seller will sell and transfer the Shares to Buyer,  and Buyer will  purchase the
Shares from Seller.

         2.2      PURCHASE PRICE

         The  purchase  price (the  "Purchase  Price")  for the  Shares  will be
$36,250,000.

         2.3      CLOSING

         Subject to the  fulfillment  or waiver of the  conditions  set forth in
Sections 7 and 8, the  purchase  and sale (the  "Closing")  provided for in this
Agreement  will take place at the offices of Kennedy & Kennedy LLP,  Suite 1170,
888 SW Fifth Avenue,  Portland,  Oregon,  at 10:00 a.m. (local time) on the date
that  is five  business  days  following  the  receipt  of the  approval  of the

                                     - 6 -
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Contemplated  Transactions by the Director of DCBS and the Connecticut Insurance
Department and all such other required  prior  approvals,  or at such other time
and place as the  parties  may agree.  Subject to the  provisions  of Section 9,
failure to consummate  the purchase and sale  provided for in this  Agreement on
the date and time and at the place determined  pursuant to this Section 2.3 will
not result in the  termination  of this Agreement and will not relieve any party
of any obligation under this Agreement.

         2.4      CLOSING OBLIGATIONS

         At the Closing:

                  2.4.1    Seller will deliver to Buyer:

                  (a)      certificates  representing  the Shares duly  endorsed
                           (or accompanied by duly executed stock powers in form
                           satisfactory to Buyer) for transfer to Buyer;

                  (b)      a  certificate  executed by the  President  of Seller
                           dated on the  Closing  Date  certifying  that each of
                           Seller's   representations  and  warranties  in  this
                           Agreement was accurate in all respects as of the date
                           of this  Agreement and is accurate in all respects as
                           of the Closing  Date as if made on the  Closing  Date
                           (recognizing any supplements to the Disclosure Letter
                           that were  delivered  by Seller to Buyer prior to the
                           Closing Date);

                  (c)      an opinion of Seller's  counsel in form and substance
                           reasonably acceptable to Buyer and its counsel;

                  (d)      title  policies on all real  estate  owned by any of
                           the Acquired Companies; and

                  (e)      such other  certificates  and  documents as Buyer or
                           its counsel may reasonably request.

                  2.4.2    Buyer will deliver to Seller:

                  (a)      the sum of $32,250,000  (the Purchase Price minus the
                           Holdback) by wire transfer to an account specified by
                           Seller;

                  (b)      a  certificate  executed by the President or any Vice
                           President  of Buyer  certifying  that each of Buyer's
                           representations  and warranties in this Agreement was
                           accurate  in all  respects  as of the  date  of  this
                           Agreement  and is accurate in all  respects as of the
                           Closing Date as if made on the Closing Date; and

                  (c)      such other  certificates  and  documents as Seller or
                           its counsel may reasonably request.

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         2.5      HOLDBACK

                  2.5.1    Buyer shall retain  $4,000,000 of the Purchase  Price
(the  "Holdback") to secure the obligations of Seller and the Company under this
Agreement.  On the later of (i) three years from the Closing Date, (ii) the date
when the Company's  Federal income Tax  obligations for periods prior to October
4, 1997 are either a liquidated  amount or finally  resolved,  or (iii) the date
when claims by third parties against the Company or Buyer that would result in a
claim by Buyer for Damages under Section 10.2 ("Third Party  Claims")  commenced
within  three  years from the  Closing  Date are either a  liquidated  amount or
finally resolved,  Buyer shall remit to Seller the then remaining balance of the
Holdback  less an  amount  equal to the sum (the  "Liquidated  Amounts")  of the
liquidated  Federal income Tax obligation under (i), if any, plus the liquidated
claims under (ii), if any; provided,  however, that the Liquidated Amounts shall
be remitted by Buyer to Seller as such  obligations  or claims are resolved and,
if payment is necessary,  paid by Seller  without  resulting in a claim by Buyer
for Damages  under Section 10.2;  provided,  further,  that (a) if Seller enters
into a Joint Venture with  Associated  Grocers ("AG") or otherwise and the Joint
Venture agrees to honor the terms and conditions of the Service Agreement or (b)
it is determined  that no Joint Venture will occur between  Seller and AG and no
other Joint  Venture is agreed  upon  between  Seller and a third  party  during
calendar year 1998,  then (i) the sum of $2,000,000 of the Holdback will be paid
promptly to Seller after the closing of the AG or any other Joint Venture agreed
upon by Seller and the representation  contained in Section 3.24 shall be deemed
to be  satisfied,  or (ii) the sum of $2,000,000 of the Holdback will be paid to
Seller  on or  before  January  5, 1999 if no Joint  Venture  is agreed  upon by
December 31, 1998.  If the Joint  Venture does not take place and  $2,000,000 of
the  Holdback  is  released  to Seller,  then if,  during the  remainder  of the
three-year survival period for the  representations and warranties,  the Service
Agreement  is not honored or is  violated  by Seller or by a new Joint  Venture,
such  violation  shall  constitute a breach of the  representation  contained in
Section  3.24.  Buyer  shall pay  interest  on any  payment  to Seller  from the
Holdback at the rate of 6 1/2% per year compounded monthly from the Closing Date
through the date of any such payment.

                  2.5.2    With respect to any Third Party Claims,  Seller shall
have the right to assume the  defense  of the  Proceedings  relating  to a Third
Party Claim in accordance with the provisions of Section 10.7.2.

3.       REPRESENTATIONS AND WARRANTIES OF SELLER

         Seller represents and warrants to Buyer as follows:

         3.1      ORGANIZATION

                  3.1.1    Paragraph  3.1 of the  Disclosure  Letter  contains a
complete  and  accurate  list  for  each  Acquired  Company  of its name and the
jurisdictions  in which it is authorized  to do business or transact  insurance.
GIC is a stock  insurance  corporation  and each  other  Acquired  Company  is a
corporation duly organized and validly  existing under the laws of Oregon,  with
full  corporate  power and  authority to conduct its business as it is now being
conducted.  Each  Acquired  Company is duly  qualified  or licensed  and in good
standing or validly  existing,  as the case may be, under the laws of each state
or other  jurisdiction  in which the nature of the  activities  conducted  by it
requires such  qualification,  except in such jurisdictions where the 

                                     - 8 -
<PAGE>

failure to be so qualified or licensed will not have a material  adverse  effect
on the business, operations or financial condition of the Acquired Company.

                  3.1.2    Seller  has   delivered   to  Buyer   copies  of  the
Organizational Documents of each Acquired Company, as currently in effect.

         3.2      AUTHORITY; NO CONFLICT

                  3.2.1    This  Agreement  constitutes  the  legal,  valid  and
binding obligation of Seller,  enforceable against Seller in accordance with its
terms.  Seller has the right,  power and  authority  to execute and deliver this
Agreement and to perform its obligations under this Agreement.

                  3.2.2    Except  as  set  forth  in   Paragraph   3.2  of  the
Disclosure Letter,  neither the execution and delivery of this Agreement nor the
consummation  or  performance  of  any of the  Contemplated  Transactions  will,
directly or indirectly (with or without notice or lapse of time):

                  (a)      contravene, conflict with or result in a violation of
                           any  provision  of the  Organizational  Documents  of
                           Seller or any of the Acquired Companies;

                  (b)      contravene, conflict with or result in a violation of
                           any Legal Requirement or any Order to which Seller or
                           any Acquired  Company,  or any of the assets owned or
                           used by any  Acquired  Company,  may be  subject,  or
                           result in the imposition of any lien, claim or charge
                           against any Acquired Company or its property;

                  (c)      contravene, conflict with or result in a violation of
                           any of the terms or requirements of any  Governmental
                           Authorization that is held by any Acquired Company or
                           that otherwise  relates to the business of, or any of
                           the assets owned or used by, any Acquired Company; or

                  (d)      contravene, conflict with or result in a violation or
                           breach of any  provision  of, or give any  Person the
                           right to  declare a default  or  exercise  any remedy
                           under,  or to accelerate  the maturity or performance
                           of, or to cancel, terminate or modify, any Applicable
                           Contract.

         Except as  contemplated by Section 5.4 or as set forth in Paragraph 3.2
of the Disclosure Letter,  neither Seller nor any Acquired Company is or will be
required  to give any  notice  to or  obtain  any  Consent  from any  Person  in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions; provided that Seller and
GIC will use all commercially  reasonable  efforts to obtain,  prior to Closing,
waivers of any provisions in agency contracts  permitting their  cancellation in
the event of a change of control of any Acquired Company.

         3.3      CAPITALIZATION

         The authorized capital stock of the Company consists of 1,000 shares of
common stock,  no par value,  all of which shares are issued and outstanding and
constitute  the Shares.  There are 

                                     - 9 -
<PAGE>

no other equity securities of the Company.  Except as set forth in Paragraph 3.3
of the Disclosure  Letter, (a) Seller will be on the Closing Date the record and
beneficial  owner and holder of the Shares,  free and clear of all  Encumbrances
and (b) on the  Closing  Date all of the  outstanding  capital  stock  and other
securities of GIA, GIC and GRS will be owned of record and  beneficially  by one
of the other Acquired Companies, free and clear of all Encumbrances.  All of the
outstanding  capital stock or equity  securities  of each Acquired  Company have
been duly  authorized and validly  issued and are fully paid and  nonassessable.
There are no Contracts relating to the issuance, redemption, sale or transfer of
any capital stock or other equity securities of any Acquired Company.  Except as
set forth in Paragraph 3.3 of the Disclosure  Letter,  no Acquired Company owns,
or has any Contract to acquire,  any capital stock or other equity securities of
any Person (other than Acquired  Companies) or any direct or indirect  equity or
ownership interest in any other business.

         3.4      FINANCIAL STATEMENTS

                  3.4.1    GAAP Financial  Statements.   Seller  has  previously
delivered  to Buyer:  (a)  audited  balance  sheets  of GIC as at  approximately
September 30 in each of the years 1992 through 1996, and the related  statements
of income, changes in stockholders' equity and cash flows for each of the fiscal
years then  ended,  together  with the report  thereon of DeLap,  White & Raish,
independent  certified public  accountants,  (b) unaudited balance sheets of the
Company, GIA and GRS as at approximately  September 30 in each of the years 1992
through  1996  and the  related  unaudited  statements  of  income,  changes  in
stockholders  equity and cash flows for each of the fiscal years then ended, (c)
audited  balance sheet of GIC as at September  30, 1997  (including  notes,  the
"Balance Sheet"), and the related statements of income, changes in stockholders'
equity and cash flows for the fiscal year then ended,  together  with the report
thereon of Coopers & Lybrand,  independent  certified  public  accountants,  (d)
unaudited  consolidating  statements of the Company as at September 30, 1997 and
(e) unaudited  balance sheets of the Acquired  Companies as at December 31, 1997
("Interim Balance Sheet") and the related unaudited  statement of income for the
three  months then ended.  Seller shall also deliver to Buyer by the 30th day of
each month  beginning  April 30, 1998, (i) unaudited  balance sheets of GIG, GIA
and GRS and the related  unaudited  statement of income for the previous  month,
and (ii)  unaudited  premium  and loss  information  and  estimates  of  general
expenses,  reinsurance  costs,  investment income and IBNR of GIC. Except as set
forth in Paragraph 3.4.1 of the Disclosure Letter, such financial statements and
notes are, or will be when delivered,  true and correct in all material respects
and fairly  present  the  financial  condition  and the  results of  operations,
changes in stockholders'  equity and cash flows of the Acquired  Companies as at
the  respective  dates  of and for the  periods  referred  to in such  financial
statements,  all in  accordance  with  GAAP,  subject,  in the  case of  interim
financial  statements,  to normal recurring year-end  adjustments (the effect of
which will not be, individually or in the aggregate, materially adverse) and the
absence of notes (that,  if presented,  would not differ  materially  from those
included in the Balance Sheet).

                  3.4.2    Statutory Financial Statements. Seller has previously
delivered to Buyer the audited  statutory annual statements of GIC for the years
1992 through 1997  (collectively,  the  "Statutory  Statements").  The Statutory
Statements fairly present the statutory  financial  condition of GIC at December
31 of each of the years 1992  through  1997,  and the  statutory  results of its
operations  for each of the six  years  then  ended and have  been  prepared  in
accordance  with 

                                     - 10 -
<PAGE>

required or permitted Oregon  statutory  insurance  accounting  requirements and
practices.  Except as set forth in Paragraph 3.4.2 of the Disclosure Letter, GIC
has not received any notification or indication from DCBS that it regards any of
such Statutory Statements as deficient or inadequate.

         3.5      BOOKS AND RECORDS

         The minute books,  stock record books and other records of the Acquired
Companies  have been made  available to Buyer.  The minute books of the Acquired
Companies contain accurate and complete records of corporate action taken by the
stockholders,  the Boards of Directors and committees of the Boards of Directors
of the Acquired Companies.  The stock record books of the Acquired Companies are
true and complete. At the Closing, all of those books and records will be in the
possession of the Acquired Companies.

         3.6      TITLE TO PROPERTIES; ENCUMBRANCES

         Paragraph 3.6 of the Disclosure Letter contains a complete and accurate
list of all real property ever owned by,  leaseholds  owned by, lease agreements
with  tenants of  buildings  owned by, and fixed  assets owned or leased by, any
Acquired Company. No real property other than that set forth in Paragraph 3.6 of
the Disclosure Letter has ever been owned by an Acquired  Company.  The Acquired
Companies  own (with  good and  marketable  title in the case of real  property,
subject  only  to the  matters  permitted  by the  following  sentence)  all the
properties and assets (whether real,  personal or mixed and whether  tangible or
intangible) that they purport to own, including all of the properties and assets
reflected in the Balance Sheet and the Interim  Balance Sheet (except for assets
held under  capitalized  leases  disclosed  in Paragraph  3.6 of the  Disclosure
Letter and  personal  property  acquired  or sold since the date of the  Balance
Sheet and the Interim  Balance Sheet, as the case may be, in the Ordinary Course
of Business).  All material properties and assets reflected in the Balance Sheet
and the Interim  Balance  Sheet are free and clear of all  Encumbrances  except,
with  respect to all such  properties  and  assets,  (a)  mortgages  or security
interests  shown on the Balance  Sheet or the Interim  Balance Sheet as securing
specified liabilities or obligations, with respect to which no default (or event
that, with notice or lapse of time or both,  would  constitute a default) exists
and (b) liens for current Taxes not yet due.

         3.7      NO UNDISCLOSED LIABILITIES

         Except as set forth in  Paragraph  3.7 of the  Disclosure  Letter,  the
Acquired  Companies  have no material  liabilities  or obligations of any nature
(whether  known  or  unknown  and  whether  absolute,   accrued,  contingent  or
otherwise) except for liabilities or obligations  identified or reserved against
in the  Balance  Sheet or the  Interim  Balance  Sheet and  current  liabilities
incurred in the Ordinary  Course of Business since the  respective  dates of the
Balance Sheet or Interim Balance Sheet.

         3.8      TAXES

         Except as set forth in Paragraph 3.8 of the Disclosure  Letter,  Seller
has  prepared  and  filed or  caused  to be filed  true,  correct  and  complete
consolidated  Federal income Tax Returns with respect to Seller and the Acquired
Companies that are due as of the Closing Date, taking into account extensions of
time to file as permitted by law. The Acquired Companies have filed or caused to
be filed,  taking into account  extensions  of time to file as permitted by law,
all other 

                                     - 11 -
<PAGE>

Tax Returns  that are or were  required to be filed by or with respect to any of
them.  Seller has  delivered  to Buyer the Federal and state  income Tax Returns
filed for Tax Years 1994-1996.  Seller and the Acquired  Companies have paid, or
made  provision  for the  payment of, all Taxes that have or may have become due
with respect to the Acquired Companies, except such Taxes, if any, as are listed
in Paragraph 3.8 of the Disclosure  Letter and are being contested in good faith
and as to which  adequate  reserves  have been provided in the Balance Sheet and
the Interim Balance Sheet. The consolidated Federal income Tax Returns of Seller
have been  audited by the IRS for the 1991 Tax year,  and  Seller  has  received
notice from the IRS that the 1994-1996 Tax years will be audited.  Except as set
forth  in the  Disclosure  Letter,  Seller  and GIC are not  parties  to any Tax
allocation or sharing agreement, or agreements extending any applicable statutes
of limitations.

         3.9      NO MATERIAL ADVERSE CHANGE

         Except as set forth in Paragraph 3.9 of the  Disclosure  Letter,  since
the date of the Balance Sheet, there has not been any material adverse change in
the  business,  operations,  properties,  assets,  condition or prospects of the
Acquired Companies individually or as a whole.

         3.10     EMPLOYEE COMPENSATION AND BENEFIT PLANS

         Paragraph  3.10  of the  Disclosure  Letter  sets  forth  a list of all
pension,  retirement,   profit  sharing,  severance  pay,  stock  option,  stock
purchase,  bonus,  deferred  compensation,  and  fringe  benefit  plans  and all
employee  benefit  plans (as defined in Section  3(3) of ERISA),  including  all
welfare  plans  and  pension  plans  (as  defined  in  Section  3(1)  and  3(2),
respectively,  of ERISA)  sponsored,  maintained or contributed to by any of the
Acquired  Companies  or by any trade or business,  whether or not  incorporated,
that  together  with the Acquired  Companies  would be deemed a single  employer
within the meaning of Section 4001 of ERISA ("ERISA  Affiliate").  Each employee
benefit plan and any related  trust  agreements,  annuity  contracts,  insurance
contracts or other funding  instruments are in compliance with the  requirements
of ERISA and the IRC and all other applicable laws, rules and regulations, as to
the form,  operation and  administration of such plans. All related Tax Returns,
reports,  notices and applications  required by any Governmental  Body have been
timely  filed.  All  contributions  required to be made on or before the date of
this  Agreement  to each  employee  benefit  plan  under the terms of such plan,
ERISA,  the IRC or other  applicable  law have been timely made, no pension plan
has incurred an  "accumulated  funding  deficiency,"  as such term is defined in
Section 302 of ERISA or Section 412 of the IRC (whether or not waived), nor have
there been any  "reportable  events," as such term is defined in Section 4043 of
ERISA  with  respect to any  pension  plans  subject to Title IV of ERISA  which
required notice to the Pension Benefit Guaranty Corporation. No fiduciary of any
such employee  benefit plan has engaged in any transaction in violation of ERISA
or any "prohibited  transaction."  No Acquired  Company or ERISA Affiliate is or
has been within the past five years a party to, or obligated to contribute to, a
multiemployer  plan within the meaning of Section (3)(37)(A) of ERISA. As of the
Closing  Date,  the fair market  value of assets held by each  employee  benefit
pension plan, defined contribution plan and defined benefit plan or for which an
Acquired  Company or any ERISA  Affiliate could have liability under Title IV of
ERISA equals or exceeds the present value of accrued benefits (whether vested or
unvested)  under each such plan. No employee  benefit plan is under audit by the
IRS or the Department of Labor. With respect to the employees providing services
to the Acquired Companies,  the 

                                     - 12 -
<PAGE>

Acquired  Companies  have  complied  in  all  material  respects  with  all  the
requirements  of the  Consolidated  Omnibus Budget  Reconciliation  Act of 1985,
Sections 601 through 608 of ERISA and Sections 162 and 4980B of the IRC.

         With  respect  to  each  defined   benefit  plan  (both  qualified  and
non-qualified)  and 401(k) plan,  Seller: (i) acknowledges that Buyer assumes no
assets or  liabilities  of such plan for  active,  terminated  employees  with a
vested interest or retirees;  and (ii) Seller shall fully vest active  employees
in their accrued  benefits to the extent required by law. With respect to health
and welfare plans,  Seller  acknowledges that Buyer assumes no liability for (i)
incurred or incurred  but not  reported  claims by current or former  employees,
plan  participants  or vendors for payment or  benefits  arising  under any such
plan,  or (ii) actions  resulting  from claims of denial of payments or benefits
under any such plan.

         3.11     COMPLIANCE WITH LEGAL REQUIREMENTS

         Except as set forth in Paragraph  3.11 of the  Disclosure  Letter,  the
Acquired  Companies  have  complied  at all times  with all  Legal  Requirements
relating to the conduct of their respective businesses, except for any instances
of noncompliance  that would not have a material adverse effect on the business,
financial  condition  or results of  operations  or  prospects  of the  Acquired
Companies individually or as a whole.

         3.12     LEGAL PROCEEDINGS

         Except as set forth in  Paragraph  3.12 of the  Disclosure  Letter  and
except for Proceedings  relating to claims under any policy of insurance  issued
by or through an Acquired Company,  there is no pending Proceeding that has been
commenced by or against any Acquired Company or that otherwise relates to or may
affect  the  business  of, or any of the assets  owned or used by, any  Acquired
Company. Except as set forth in Paragraph 3.12 of the Disclosure Letter, no such
Proceeding has been  Threatened and, to the Knowledge of Seller and the Acquired
Companies,  no circumstance exists that may give rise to or serve as a basis for
the commencement of any such Proceeding. Seller has delivered to Buyer copies of
all pleadings,  correspondence  and other documents  relating to each Proceeding
listed in Paragraph 3.12 of the Disclosure Letter.

         3.13     ABSENCE OF CERTAIN CHANGES AND EVENTS

         Except as set forth in  Paragraph  3.13 of the  Disclosure  Letter  and
except for the increase in reserves for losses and loss  expense  adjustment  in
the amount of $2,500,000 to be effected before the Closing Date,  since the date
of the Balance Sheet,  the Acquired  Companies have conducted  their  businesses
only in the Ordinary Course of Business and there has not been any:

         (a)       purchase, redemption, retirement, or other acquisition by any
                   Acquired  Company  of any  shares of its  capital  stock;  or
                   declaration or payment of any dividend or other  distribution
                   or payment in respect of shares of capital stock;

         (b)       amendment  to the  Organizational  Documents  of any Acquired
                   Company;

                                     - 13 -
<PAGE>

         (c)       except  in  the  Ordinary  Course  of  Business,  payment  or
                   increase by any Acquired Company of any bonuses,  salaries or
                   other  compensation  to any director,  officer or employee or
                   entry into any employment, severance or similar Contract with
                   any director, officer or employee;

         (d)       adoption  of, or  increase  in the  payments  to or  benefits
                   under,  any profit  sharing,  bonus,  deferred  compensation,
                   savings,  insurance,  pension,  retirement or other  employee
                   benefit  plan  for or  with  any  employees  of any  Acquired
                   Company;

         (e)       damage to or destruction or loss of any tangible  property of
                   any Acquired  Company,  whether or not covered by  insurance,
                   materially and adversely affecting the properties,  business,
                   financial  condition or  prospects of the Acquired  Companies
                   individually or as a whole;

         (f)       sale,  lease or other  disposition  of any material  asset or
                   property  of any  Acquired  Company  or  mortgage,  pledge or
                   imposition of any lien or other  encumbrance  on any material
                   asset or property of any Acquired Company;

         (g)       change in the  accounting  methods or  practices  used by any
                   Acquired Company; or

         (h)       transaction  by any of the Acquired  Companies  except in the
                   Ordinary Course of Business as conducted during 1997;

         (i)       capital expenditure by any of the Acquired Companies,  either
                   individually or in the aggregate, exceeding $50,000;

         (j)       labor  trouble  or  claim  of  wrongful  discharge  or  other
                   unlawful  labor  practice  or  action  involving  any  of the
                   Acquired Companies;

         (k)       revaluation  by any of the  Acquired  Companies of any of its
                   assets other than normal depreciation;

         (l)       amendment or termination by any of the Acquired Companies, or
                   receipt of notice of termination, of any Contract, except any
                   such amendment or termination  that would not have a material
                   adverse effect;

         (m)       loan  by any of  the  Acquired  Companies  to any  person  or
                   entity,  or guaranty by any of the Acquired  Companies of any
                   such loan except in the Ordinary Course of Business;

         (n)       waiver or  release of any  material  right or claim of any of
                   the  Acquired  Companies,  including  any  write-off or other
                   compromise of any account receivable of such Acquired Company
                   except  for the  settlement,  waiver or  release of rights or
                   claims  under  any of the  insurance  policies  issued  by an
                   Acquired  Company or  reinsurance  agreements in the ordinary
                   course of business,  consistent with past practices,  and not
                   in excess of policy limits;

                                     - 14 -
<PAGE>

         (o)       the  commencement  or notice or, to the  Knowledge of Seller,
                   threat of commencement of any governmental proceeding against
                   or investigation  of Seller or any of the Acquired  Companies
                   or its affairs;

         (p)       issuance or sale by any of the  Acquired  Companies of any of
                   its shares or of any other of its securities;

         (q)       policy form or rate filings by any of the Acquired  Companies
                   except in the Ordinary Course of Business;

         (r)       cancellation,  appointment  or  termination  by  any  of  the
                   Acquired  Companies  of (i) any agent  except in the Ordinary
                   Course of Business or (ii) any line of business;

         (s)       borrowing,  assumption,  guarantee, or other liability of any
                   of the Acquired Companies for debt; or

         (t)       agreement,  whether oral or written,  by any Acquired Company
                   to do any of the foregoing.

         3.14      CONTRACTS; NO DEFAULTS

                   3.14.1   Paragraph 3.14.1 of the Disclosure Letter contains a
   complete and accurate list as of the date of this  Agreement,  and Seller has
   delivered or made available to Buyer true and complete copies, of:

                   (a)      each Applicable  Contract that involves  performance
                            of services by one or more Acquired Companies;

                   (b)      each Applicable  Contract that involves  performance
                            of services or delivery of goods or materials to one
                            or more Acquired Companies;

                   (c)      each Applicable Contract affecting the ownership of,
                            leasing  of,  title to, use of or any  leasehold  or
                            other  interest  in, any real or personal  property;
                            and

                   (d)      each   licensing   agreement  or  other   Applicable
                            Contract  with  respect to  trademarks,  copyrights,
                            software or other intellectual property.

                   3.14.2   Except  as set  forth  in  Paragraph  3.14.2  of the
Disclosure  Letter,  neither any Acquired  Company nor any officer,  director or
employee of any Acquired Company is bound by any Contract that purports to limit
the ability of any such Acquired  Company or officer,  director or employee,  to
engage in or continue any conduct, activity or practice relating to the business
of any Acquired Company.

                  3.14.3    Except as set  forth  in  Paragraph  3.14.3  of  the
Disclosure Letter:

                                     - 15 -
<PAGE>

                  (a)      each Applicable Contract is in full force and effect,
                           and is valid,  binding and  enforceable in accordance
                           with its terms in all material  respects,  subject to
                           applicable  bankruptcy,  insolvency,  reorganization,
                           moratorium  or similar laws  affecting  the rights of
                           creditors  generally  and  subject to general  equity
                           principles  and to  limitations  on  availability  of
                           equitable relief, including specific performance;

                  (b)      no event has  occurred  or  circumstance  exists that
                           (with  or  without  notice  or  lapse  of  time)  may
                           contravene,  conflict  with,  or result in a material
                           violation or breach of, or give any Acquired  Company
                           or other  Person  the right to  declare a default  or
                           exercise  any  remedy  under,  or to  accelerate  the
                           maturity or performance  of, or to cancel,  terminate
                           or modify, any Applicable Contract; and

                  (c)      no Acquired Company has given to or received from any
                           other  Person,  any  notice  or  other  communication
                           regarding  any actual or alleged  violation or breach
                           of, or default under, any Applicable Contract.

         3.15     INSURANCE

                  3.15.1   Seller  has  delivered  to Buyer  true  and  complete
copies of all policies of insurance currently maintained by any Acquired Company
for the benefit of any Acquired Company (other than policies of insurance issued
by or through an Acquired  Company) or any  director or officer of any  Acquired
Company, and all premiums due on such policies have been timely paid.

                  3.15.2   Except as  set  forth  in  Paragraph  3.15.2  of  the
Disclosure  Letter,  neither  Seller nor any Acquired  Company has received with
respect to the policies described in Section 3.15.1, (i) any refusal of coverage
or any notice that a defense will be afforded  with  reservation  of rights,  or
(ii) any  notice of  cancellation  or any other  indication  that any  insurance
policy is no longer in full  force or effect or will not be  renewed or that the
issuer  of any  policy  is not  willing  or  able  to  perform  its  obligations
thereunder.

         3.16     ENVIRONMENTAL MATTERS

         Except as set forth in Paragraph 3.16 of the Disclosure Letter:

         (a)      Each Acquired  Company is in material  compliance with, and is
                  not  in   material   violation   of  or  liable   under,   any
                  Environmental Law with respect to the Facilities.

         (b)      There are no pending or Threatened  claims  resulting from any
                  Environmental  Liabilities or arising under or pursuant to any
                  Environmental  Law with respect to the Facilities or any other
                  real property ever owned by any of the Acquired Companies.

                            - 16 -
<PAGE>

         (c)      Seller has no Knowledge of any conditions that would give rise
                  to  any  Environmental  Liability  for  any  of  the  Acquired
                  Companies  with  respect  to  the  Facilities.  There  are  no
                  Hazardous  Materials  (other than incidental  office supplies)
                  present  on or at  the  Facilities,  including  any  Hazardous
                  Materials contained in underground storage tanks. There are no
                  underground storage tanks on or under the Facilities.

         (d)      Seller has  delivered  to Buyer true and  complete  copies and
                  results of any reports  with respect to Seller or any Acquired
                  Company pertaining to Hazardous  Materials in, on or under the
                  Facilities.

         3.17     EMPLOYEES

                  3.17.1   Seller has previously provided  Buyer with a complete
and accurate  list of the  following  information  for each  employee  providing
services to an Acquired Company: employer; name; job title; current compensation
paid or payable; date of hire; date of birth; and social security number.

                  3.17.2   No employee of any Acquired Company is a party to, or
is  otherwise   bound  by,  any   agreement  or   arrangement,   including   any
confidentiality,  noncompetition or proprietary  rights agreement,  between such
employee  and  any  other  Person  that  in any way  adversely  affects  or will
adversely  affect  the  performance  of duties as an  employee  of the  Acquired
Companies. Except as set forth in the Disclosure Letter, the consummation of the
Contemplated  Transactions  will not result in any payment (whether of severance
pay or  otherwise)  becoming  due  from any  Acquired  Company  to any  officer,
employee,  former  employee  or  director,  or any benefit  becoming  payable or
vested.

         3.18     LABOR RELATIONS; OSHA

         Since  October 4, 1986,  no Acquired  Company has been or is a party to
any  collective  bargaining  or other  labor  Contract.  Except  as set forth in
Paragraph 3.18 of the Disclosure  Letter,  each of the Acquired  Companies is in
compliance  in all material  respects  with all  currently  applicable  laws and
regulations  respecting  employment,  discrimination  in  employment,  terms and
conditions of employment and wages and hours and occupational  safety and health
and employment practices, and is not engaged in any unfair labor practice.

         3.19     MARKS; PROPRIETARY RIGHTS

                  3.19.1   Paragraph 3.19.1 of the Disclosure  Letter contains a
complete and accurate  list and summary  description  of all Marks and any other
copyrighted,  patented or proprietary  intellectual property in which any of the
Acquired Companies has an interest. One or more of the Acquired Companies is the
owner of all  right,  title  and  interest  in and to each of the Marks and such
other intellectual  property,  free and clear of all liens,  security interests,
charges, encumbrances, equities and other adverse claims.

                  3.19.2   All Marks that have been  registered  with the United
States Patent and Trademark  Office are currently in compliance  with all formal
Legal Requirements (including the 

                                     - 17 -
<PAGE>

timely  post-registration  filing of affidavits of use and  incontestability and
renewal applications) and are valid and enforceable.

                  3.19.3   No  Mark  has  been  or  is  now   involved   in  any
opposition,  invalidation or cancellation  and no such action is Threatened with
respect to any of the Marks.

         3.20     REGULATORY SUBMISSIONS

         Seller  previously  has  furnished or made  available to Buyer true and
complete  copies  for the  following  filings  and  submissions  (excluding  the
Statutory  Statements,  the  "Submissions")  of  GIC  to  each  State  Insurance
Department made during the time period from 1992-1997:  triennial  examinations,
market  conduct  examinations,  in force and  pending  rate  filings and holding
company  registration  statement  Forms B and C (with the exception of Amendment
No. 16 to Form B dated on or about April,  1992).  All of the  Submissions  were
accurate and complete and were in material  compliance  with applicable laws and
regulations  when filed,  and no  deficiencies  have been  asserted by any State
Insurance  Department with respect to any Submission except as provided therein.
No  holding  company  registration  statement  Form D was filed  during the time
period from 1992-1997.

         3.21     LICENSES

         Paragraph  3.21 of the  Disclosure  Letter  sets  forth  all  licenses,
permits  or  authority  (collectively,  the  "Licenses")  issued  to  any of the
Acquired  Companies  by  any  state  insurance  department  or  other  insurance
regulatory body or agency (collectively,  a "State Insurance  Department").  The
Licenses set forth in Paragraph 3.21 of the Disclosure  Letter  constitute  each
license, permit or authority that it is necessary or appropriate for each of the
Acquired  Companies to obtain from a State Insurance  Department with respect to
the  transaction  of its business.  All of the Licenses are currently in effect.
None of the  Licenses  has at any  time  been  suspended,  revoked,  terminated,
limited or expired.  No notice of any violation has been received at any time by
any of the  Acquired  Companies  with  respect to any  License,  and there is no
Proceeding,  whether pending or Threatened, that could result in the suspension,
revocation, termination or limitation of any License.

         3.22     EMPLOYEE LICENSES

         Paragraph  3.22 of the  Disclosure  Letter  sets  forth  all  licenses,
permits or  authority  (the  "Employee  Licenses")  issued to any employee of an
Acquired Company by a State Insurance  Department.  All of the Employee Licenses
are currently in effect and constitute each license, permit or authority that it
is necessary or appropriate  for the employees of an Acquired  Company to obtain
from a State  Insurance  Department  with  respect to the  performance  of their
respective job responsibilities.

         3.23     APPOINTMENTS

         The insurance  companies  that have  appointed GIA and its employees as
agents are set forth in  Paragraph  3.23 of the  Disclosure  Letter.  All of the
appointments (the  "Appointments") set forth in Paragraph 3.23 of the Disclosure
Letter are  currently  in effect,  and GIA has not  received  any notice that an
Appointment has been terminated or limited in any manner.

                                     - 18 -
<PAGE>

         3.24     SERVICE AGREEMENT

         The Service  Agreement is in full force and effect and will continue in
full force and effect during the three years after the Closing  Date,  including
following any Joint Venture to which Seller is a party.

         3.25     CONDITION AND SUFFICIENCY OF ASSETS

         The  Facilities,  building  operating  systems  and  equipment  of  the
Acquired Companies are structurally  sound, are in good operating  condition and
repair,  and are  adequate for the uses to which they are being put, and none of
such  Facilities,  building  operating  systems  or  equipment  is  in  need  of
maintenance or repairs except for ordinary, routine maintenance and repairs that
are not material in nature or cost. The Facilities,  building  operating systems
and equipment of the Acquired Companies are sufficient for the continued conduct
of the Acquired  Companies'  businesses after the Closing in  substantially  the
same manner as conducted prior to the Closing.

         3.26     EMPLOYMENT AND AGENCY CONTRACTS

         Seller previously has provided Buyer with lists of all employees of the
Acquired  Companies  who are: (i)  actively  employed but absent due to illness,
injury,  maternity leave, military service,  family or medical leave, short-term
disability or long-term  disability (in each case specifying the reason for such
absence);  (ii) former employees who are receiving long-term disability benefits
under any Disability  Plan, (iii) former employees who are subject to COBRA; and
(iv)  former  employees  who have  previously  satisfied  the  requirements  for
retiree,  medical,  life  insurance  and/or  other  benefit  coverage  under any
Employee Plan (in each case  specifying the nature of coverage  provided to each
such former employee).

         3.27     RESERVES

         All statutory  reserves  reflected in the Statutory  Statements for the
year ended  December  31,  1997,  were  determined  in  accordance  with SAP and
generally  accepted  actuarial  assumptions  and  meet the  requirements  of the
insurance laws of each applicable jurisdiction, except where the failure to meet
such  requirements  would not have a material  adverse  effect on the  business,
operations  or prospects of any of the Acquired  Companies.  Buyer  acknowledges
that the adjustment to reserves  referred to in Section 3.13 shall not result in
any   additional  Tax  cost  or  liability  to  Seller  or  any  breach  of  any
representation or warranty by Seller under Sections 3, 10 or 11 or otherwise.

         3.28     PORTFOLIO INVESTMENTS

         Seller has previously  delivered to Buyer true and complete lists as of
December 31, 1997, of all assets held in the investment  portfolios of GIC. None
of the other Acquired Companies has an investment portfolio.

         3.29     OFFICERS AND DIRECTORS

         Paragraph  3.29  of the  Disclosure  Letter  contains  a  complete  and
accurate list of all officers and directors of each of the Acquired Companies.

                                     - 19 -
<PAGE>

         3.30     BROKERS

         All  negotiations  relative  to this  Agreement  and  the  transactions
contemplated  hereby have been carried out by Seller directly with Buyer without
the  intervention  of any  person on behalf of Seller in such  manner as to give
rise to any claim by any person  against  Buyer,  Seller or any of the  Acquired
Companies for a finder's fee, brokerage commission or similar payment; provided,
however,  Blanch Capital Markets,  Inc. has been retained by Seller with respect
to specific services for which a fee for service was paid.

         3.31     REPRESENTATIONS COMPLETE

         None of the  representations  or  warranties  made by  Seller,  nor any
statement made in any Schedule,  Exhibit or  certificate  furnished by Seller or
any of the  Acquired  Companies  pursuant  to this  Agreement,  contains or will
contain any untrue statement of a material fact at the Closing Date, or omits or
will omit at the Closing Date to state any material  fact  necessary in order to
make  the  statements   contained  herein  or  therein,  in  the  light  of  the
circumstances under which made, not misleading.

4.       REPRESENTATIONS AND WARRANTIES OF BUYER

         Buyer represents and warrants to Seller as follows:

         4.1      ORGANIZATION AND GOOD STANDING

         Buyer is a corporation  duly  organized and validly  existing under the
laws of the State of  Delaware,  with full  corporate  power  and  authority  to
conduct its business as it is now being conducted.

         4.2      AUTHORITY; NO CONFLICT

                  4.2.1    This  Agreement  constitutes  the  legal,  valid  and
binding  obligation of Buyer,  enforceable  against Buyer in accordance with its
terms.  Buyer has the right,  power and  authority  to execute and deliver  this
Agreement and to perform its obligations under this Agreement.

                  4.2.2    Except as set forth  in  Schedule  4.2,  neither  the
execution  and  delivery  of this  Agreement  by Buyer nor the  consummation  or
performance  of any of the  Contemplated  Transactions  by Buyer  will  give any
Person the right to  prevent,  delay,  or  otherwise  interfere  with any of the
Contemplated Transactions pursuant to:

                  (a)      any provision of Buyer's Organizational Documents;

                  (b)      any  resolution  adopted by the board of directors of
                           Buyer;

                  (c)      any Legal  Requirement or Order to which Buyer may be
                           subject; or

                  (d)      any  Contract  to which  Buyer is a party or by which
                           Buyer may be bound.

                                     - 20 -
<PAGE>

         The consent of the  shareholders of Buyer is not required in connection
with the  execution  and  delivery  of this  Agreement  or the  consummation  of
performance of any of the Contemplated  Transactions.  Except as contemplated by
Section  6.1 or as set  forth  in  Schedule  4.2,  Buyer  is not and will not be
required to obtain any Consent from any Person in connection  with the execution
and delivery of this Agreement or the  consummation or performance of any of the
Contemplated Transactions.

         4.3      INVESTMENT INTENT

         Buyer is  acquiring  the Shares for its own account and not with a view
to their distribution within the meaning of Section 2(11) of the Securities Act.

         4.4      CERTAIN PROCEEDINGS

         There is no pending  Proceeding  that has been commenced  against Buyer
and that  challenges,  or may have the effect of  preventing,  delaying,  making
illegal or otherwise interfering with, any of the Contemplated Transactions, and
no such Proceeding has been Threatened.

         4.5      REPRESENTATIONS COMPLETE

         None  of the  representations  or  warranties  made by  Buyer,  nor any
statement made in any Exhibit or certificate furnished by Buyer pursuant to this
Agreement,  contains or will contain any untrue  statement of a material fact at
the  Closing  Date,  or  omits or will  omit at the  Closing  Date to state  any
material  fact  necessary in order to make the  statements  contained  herein or
therein, in the light of the circumstances under which made, not misleading.

5.       COVENANTS OF SELLER

         5.1      ACCESS AND INVESTIGATION

         Between the date of this  Agreement and the Closing Date and subject to
the Confidentiality Agreement, Seller will, and will cause each Acquired Company
and its Representatives  to, (a) afford Buyer and its  representatives  full and
free access to each Acquired Company's personnel,  properties,  contracts, books
and  records  and  other  documents  and  data  and (b)  furnish  Buyer  and its
representatives  with such  additional  financial,  operating and other data and
information as Buyer may reasonably  request.  Buyer agrees that neither Seller,
the Acquired Companies nor any of their Representatives shall have any liability
to Buyer or to any of its Representatives  relating to or resulting from the use
of the materials reviewed by Buyer pursuant to this section,  except pursuant to
the express terms of this Agreement.

         5.2      OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES

                  5.2.1    Between  the date of this  Agreement  and the Closing
Date, Seller will, and will cause each Acquired Company to:

                  (a)      conduct the business of such  Acquired  Company only
                           in the Ordinary Course of Business; and

                                     - 21 -
<PAGE>

                  (b)      use their Best Efforts to preserve intact the current
                           business  organization of such Acquired  Company,  to
                           keep available the services of the current  officers,
                           employees and agents of such Acquired  Company and to
                           maintain the relations  and goodwill with  suppliers,
                           policyholders,   customers,   employees,  agents  and
                           others  having  business   relationships   with  such
                           Acquired Company.

                  5.2.2    On or before the Closing Date, Seller  will take such
steps as necessary to cause the intercompany account balances between Seller and
the Acquired  Companies to be brought current such that all amounts with respect
to periods more than 30 days before the Closing Date will be paid in full.

         5.3      NEGATIVE COVENANT

         Except as otherwise expressly permitted by this Agreement,  between the
date of this  Agreement  and the Closing  Date,  Seller will not, and will cause
each Acquired  Company not to, without the prior written consent of Buyer,  take
any  affirmative  action,  or fail to take  any  reasonable  action  within  its
control,  as a result of which any of the  changes  or events  listed in Section
3.13 is likely to occur.

         5.4      REQUIRED APPROVALS

         As promptly as  practicable  after the date of this  Agreement,  Seller
will,  and will cause each  Acquired  Company to,  make all filings  required by
Legal  Requirements  to be made by them in order to consummate the  Contemplated
Transactions (including all Regulatory Filings and, at the expense of Buyer, all
filings under the HSR Act).  Between the date of this  Agreement and the Closing
Date,  Seller will, and will cause each Acquired  Company to, (a) cooperate with
Buyer with  respect to all filings  that Buyer  elects to make or is required by
Legal  Requirements  to make in connection  with the  Contemplated  Transactions
(including  all filings  under the Oregon  Insurance  Code and other  Regulatory
Filings),  and (b) cooperate with Buyer in obtaining all consents  identified in
Schedule  4.2  (including  taking all actions  requested by Buyer to cause early
termination of any applicable waiting period under the HSR Act).

         5.5      DISCLOSURE LETTER SUPPLEMENTS

         From time to time prior to the  Closing,  and in any event  immediately
prior to the Closing, Seller will promptly supplement the Disclosure Letter with
respect to any matter arising which, if existing, occurring or known at the date
of this Agreement,  would have been required to be set forth or described in the
Disclosure  Letter or which is  necessary to correct any  information  which has
become inaccurate,  provided that delivery of such supplement will not be deemed
an amendment of this  Agreement  unless prior to or on the Closing  Date,  Buyer
acknowledges in writing  Buyer's  acceptance of any supplement to the Disclosure
Letter.  No  supplement to the  Disclosure  Letter shall have any effect for the
purpose  of  determining  satisfaction  of any of the  conditions  set  forth in
Sections 7 and 8 unless  Buyer  accepts any such  supplement  to the  Disclosure
Letter in writing prior to or on the Closing Date.

                                     - 22 -
<PAGE>

         5.6      BEST EFFORTS

         Between the date of this  Agreement and the Closing  Date,  Seller will
use  its  Best  Efforts  to  cause  the  conditions  in  Sections  7 and 8 to be
satisfied.

         5.7      ZONING CHANGE

         Seller will use its Best Efforts to cause the zoning designation of the
Facility  located  at 6605 SE Lake  Road,  Milwaukie,  Oregon  (the "GIG  Office
Building")  to  be   redesignated  as   "office-commercial"   from  its  current
designation   of  "I-3   (General   Industrial)".   In  the  event  such  zoning
redesignation is not achieved on or before the first  anniversary of the date of
this Agreement, or within 10 business days following any earlier date upon which
a final  determination  denying a zoning  redesignation  is made,  Seller  shall
purchase  the GIG Office  Building  from the  Company  for a  purchase  price of
$5,100,000  and pursuant to a form of purchase  agreement to be mutually  agreed
upon by Seller and Buyer prior to the Closing Date.

         5.8      NO NEGOTIATION

         Until such time, if any, as this  Agreement is  terminated  pursuant to
Section 9, Seller  will not,  and will cause each  Acquired  Company and each of
their  Representatives  not to,  directly or indirectly  solicit,  initiate,  or
encourage any inquiries or proposals from,  discuss or negotiate  with,  provide
any  non-public  information  to, or  consider  the  merits  of any  unsolicited
inquiries  or  proposals  from,  any Person  (other than Buyer)  relating to any
transaction  involving  the sale of the  business  or assets  (other than in the
Ordinary  Course of  Business) of any  Acquired  Company,  or any of the capital
stock  of  any  Acquired  Company,  or  any  merger,   consolidation,   business
combination, or similar transaction involving any Acquired Company.

6.       COVENANTS OF BUYER

         6.1      APPROVALS OF GOVERNMENTAL BODIES

         As promptly as practicable after the date of this Agreement, Buyer will
make  all  filings  required  by  Legal  Requirements  to be  made by  Buyer  to
consummate the Contemplated Transactions (including all filings under the Oregon
Insurance Code and the HSR Act and all other  Regulatory  Filings).  Between the
date of this  Agreement and the Closing Date,  Buyer will  cooperate with Seller
with  respect to all filings  that Seller is required by Legal  Requirements  to
make in connection with the Contemplated  Transactions (including all Regulatory
Filings) and (ii) cooperate with Seller in obtaining all consents  identified in
Paragraph 3.2 of the Disclosure Letter.

         6.2      BEST EFFORTS

         Between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.

                                     - 23 -
<PAGE>

         6.3      EMPLOYEE SERVICE CREDIT

         On the Closing Date,  the employees of the Acquired  Companies  will be
credited  with all years of service  with the  applicable  Acquired  Company for
purposes of crediting  years of service  with  respect to the  employee  benefit
plans of Buyer applicable or available to such employees.

7.       CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE

         Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction,  at
or prior to the Closing,  of each of the following  conditions (any of which may
be waived by Buyer in whole or in part):

         7.1      ACCURACY OF REPRESENTATIONS

         Each of Seller's  representations  and warranties in this Agreement (a)
must have been  accurate in all  respects as of the date of this  Agreement  and
must  be  accurate  in all  respects  as of the  Closing  Date as if made on the
Closing Date,  without giving effect to any supplement to the Disclosure  Letter
that is not approved by Buyer in  accordance  with this  Agreement or (b) if not
accurate in all respects as provided in Section 7.1(a), must be capable of being
corrected  and shall be  corrected  within 60 days  after  the  Closing  without
unreasonable effort or expense to Seller.

         7.2      SELLER'S PERFORMANCE

         All of the covenants and obligations that Seller is required to perform
or to comply with  pursuant to this  Agreement  at or prior to the Closing  must
have been duly performed and complied with in all material respects.

         7.3      CONSENTS

         Each of the Consents  identified  in subparts 1 - 6 of Paragraph 3.2 of
the Disclosure Letter and in Schedule 4.2 must have been obtained and must be in
full force and effect.

         7.4      ADDITIONAL DOCUMENTS

         (a)      an opinion of Miller Nash Wiener Hager & Carlsen  LLP,  dated
                  the Closing Date, in the form of Exhibit 7.4(a); and

         (b)      such other documents as Buyer may reasonable request.

8.       CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE

         Seller's  obligation  to sell the Shares and to take the other  actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing,  of each of the following  conditions (any of which may
be waived by Seller in whole or in part):

                                     - 24 -
<PAGE>

         8.1      ACCURACY OF REPRESENTATIONS

         Each of Buyer's  representations  and warranties in this Agreement must
have been accurate in all respects as of the date of this  Agreement and must be
accurate in all respects as of the Closing Date as if made on the Closing Date.

         8.2      BUYER'S PERFORMANCE

         All of the covenants and obligations  that Buyer is required to perform
or to comply with  pursuant to this  Agreement  at or prior to the Closing  must
have been performed and complied with in all material respects.

         8.3      CONSENTS

         Each of the Consents  identified  in subparts 1 - 6 of Paragraph 3.2 of
the Disclosure Letter and in Schedule 4.2 must have been obtained and must be in
full force and effect.

9.       TERMINATION

         9.1      TERMINATION EVENTS

         This  Agreement may be terminated (by notice given prior to the Closing
Date):

         (a)      by  either  Buyer  or  Seller  if a  material  breach  of  any
                  provision of this  Agreement  has been  committed by the other
                  party and such breach has not been waived;

         (b)      (i) by Buyer if any of the conditions in Section 7 has not
                  been  satisfied as of the Closing Date or if  satisfaction  of
                  such a condition is or becomes  impossible (other than through
                  the failure of Buyer to comply with its obligations under this
                  Agreement)  and  Buyer has not  waived  such  condition  on or
                  before the  Closing  Date;  or (ii) by  Seller,  if any of the
                  conditions  in  Section  8 has not  been  satisfied  as of the
                  Closing  Date or if  satisfaction  of such a  condition  is or
                  becomes  impossible  (other than through the failure of Seller
                  to comply  with its  obligations  under  this  Agreement)  and
                  Seller has not waived such  condition on or before the Closing
                  Date;

         (c)      by mutual consent of Buyer and Seller; or

         (d)      by  either  Buyer or Seller if the  Closing  has not  occurred
                  (other  than  through  the  failure  of any party  seeking  to
                  terminate this Agreement to comply fully with its  obligations
                  under this  Agreement) on or before November 16, 1998, or such
                  later date as the parties may agree upon.

         9.2      ELECTION

         If  prior  to  the   Closing,   Buyer  or  Seller   discovers   that  a
representation  or warranty made by the other party in this  Agreement is untrue
or  incorrect  in  any  material  respect,  the  party  for  whose  benefit  the
representation  or warranty has been given must elect (a) to waive the breach of

                                     - 25 -
<PAGE>

representation  or warranty and proceed with the Closing,  (b) to terminate this
Agreement,  or (c) if such  breach  is  capable  of being  cured  within 60 days
without  unreasonable  effort or expense to Seller, to require such breach to be
cured.

         9.3      EFFECT OF TERMINATION

         If  this  Agreement  is  terminated,   all  further   obligations   and
liabilities  of the  parties  under  this  Agreement  will  terminate  and  this
Agreement will have no further force or effect,  except that the  obligations in
Sections 12.1 and 12.2 will survive.

10.      INDEMNIFICATION; REMEDIES

         10.1     SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE

         All  representations,  warranties,  covenants and  obligations  in this
Agreement,  the Disclosure Letter, the supplements to the Disclosure Letter, the
certificate  delivered pursuant to Section 2.4.1(c) and any other certificate or
document delivered pursuant to this

         Agreement  will  survive  the  Closing.  The right to  indemnification,
payment of Damages or other  remedy based on such  representations,  warranties,
covenants and obligations will not be affected by any investigation conducted at
any time,  whether  before or after the execution and delivery of this Agreement
or the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant or obligation.

         10.2     INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER

         Seller  will  indemnify  and  hold  harmless  Buyer  and  the  Acquired
Companies and their officers,  directors,  employees,  agents and affiliates for
any loss,  liability,  claim, cause of action,  damage (excluding  consequential
damages),  obligation  or  reasonable  expense  (including  reasonable  costs of
investigation  and  defense  and  reasonable   attorneys'  fees)  (collectively,
"Damages"),  arising,  directly or  indirectly,  from or in connection  with any
breach,  falsity or  inaccuracy  (a) of any  representation  or warranty made by
Seller in this  Agreement  (giving  effect to any  supplement to the  Disclosure
Letter  accepted by Buyer pursuant to Section 5.5), the Disclosure  Letter,  the
supplements to the Disclosure  Letter  accepted by Buyer pursuant to Section 5.5
or any certificate  delivered by Seller pursuant to this Agreement or (b) of any
covenant of Seller in this Agreement.

         10.3     INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER

         Buyer  will  indemnify  and  hold  harmless  Seller  and its  officers,
directors, employees, agents and affiliates and will pay to Seller the amount of
any Damages (defined in Section 10.2) arising,  directly or indirectly,  from or
in connection with any breach,  falsity or inaccuracy (a) of any  representation
or warranty made by Buyer in this Agreement or in any  certificate  delivered by
Buyer  pursuant  to this  Agreement  or (b) of any  covenant  of  Buyer  in this
Agreement.

                                     - 26 -
<PAGE>

         10.4     TIME LIMITATIONS

         If  the   Closing   occurs,   Seller  will  have  no   liability   (for
indemnification  or otherwise) with respect to any  representation  or warranty,
other than those in Section 3.3, or any  covenant to be  performed  and complied
with prior to the  Closing  Date  unless,  within  three years after the Closing
Date, or prior to the expiration  date of the  applicable  statute of limitation
with respect to claims based on Section 3.8,  Buyer  notifies  Seller of a claim
specifying  the factual basis of that claim in  reasonable  detail to the extent
then known by Buyer.  If the Closing  occurs,  Buyer will have no liability (for
indemnification  or otherwise) with respect to any representation or warranty or
any  covenant to be  performed  and  complied  with prior to the  Closing  Date,
unless,  within three years after the Closing Date,  Seller  notifies Buyer of a
claim  specifying  the factual basis of that claim in  reasonable  detail to the
extent then known by Seller.

         10.5     LIMITATIONS ON AMOUNT--SELLER

         Seller will have no liability (for  indemnification  or otherwise) with
respect to the matters described in clause (a) or, to the extent relating to any
failure to perform or comply  prior to the Closing  Date,  clause (b) of Section
10.2 until the total of all Damages with respect to such matters exceeds $75,000
and then only for the amount by which such Damages exceed $75,000; provided that
the  limitations  in this section shall not apply to claims based on a breach of
Section 3.8.

         10.6     LIMITATIONS ON AMOUNT--BUYER

         Buyer will have no liability (for  indemnification  or otherwise)  with
respect to the matters described in clause (a) or, to the extent relating to any
failure to perform or comply  prior to the Closing  Date,  clause (b) of Section
10.3 until the total of all Damages with respect to such matters exceeds $75,000
but then only for the amount by which such Damages exceeds $75,000.

         10.7     PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS

                  10.7.1   Promptly after  receipt  by an  indemnified  party of
notice of the commencement of any Proceeding or of any Threatened  Proceeding or
claim, or other notification thereof against it, such indemnified party will, if
a claim  is to be  made  against  an  indemnifying  party,  give  notice  to the
indemnifying  party of the commencement of such claim, but the failure to notify
the indemnifying  party will not relieve the indemnifying party of any liability
that it may  have to any  indemnified  party,  except  to the  extent  that  the
indemnifying party demonstrates that the defense of such action is prejudiced by
the indemnified party's failure to give such notice.

                  10.7.2   The   indemnifying   party   will  be   entitled   to
participate in such  Proceeding  and, to the extent that it wishes to assume the
defense  of  such  Proceeding  with  counsel  reasonably   satisfactory  to  the
indemnified  party  and,  after  notice  from  the  indemnifying  party  to  the
indemnified party of its election to assume the defense of such Proceeding,  the
indemnifying party will not, as long as it diligently  conducts such defense, be
liable to the  indemnified  party  under  this  Section 10 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently  incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If 

                                     - 27 -
<PAGE>

the  indemnifying  party  assumes the defense of a Proceeding,  the  indemnified
party will have no liability  with respect to any  compromise  or  settlement of
such claims effected without its consent.  If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying party does not,
within 20 business  days after the  indemnified  party's  notice is given,  give
notice to the  indemnified  party of its  election to assume the defense of such
Proceeding,  the indemnifying  party will be bound by any determination  made in
such  Proceeding or any  compromise or  settlement  effected by the  indemnified
party.

                  10.7.3   Regardless  of the other  provisions of Section 10.7,
if an  indemnified  party  determines  in good faith that there is a  reasonable
probability  that a Proceeding may adversely  affect it or its affiliates  other
than as a  result  of  monetary  damages  for  which it  would  be  entitled  to
indemnification  under this Agreement,  the indemnified  party, by notice to the
indemnifying  party,  may assume the  exclusive  right to defend,  compromise or
settle  such  Proceeding,  but the  indemnifying  party will not be bound by any
determination  of a  Proceeding  so defended  or any  compromise  or  settlement
effected without its consent (which may not be unreasonably withheld).

         10.8     DUTY TO MITIGATE

         Each  party  shall at all times use its Best  Efforts to  minimize  the
Damages for which the other party may be liable  pursuant to this  Agreement (or
would be liable but for the  provisions  of Sections  10.5 or 10.6 above).  With
respect  to any  matter  for  which any  party  may be  liable  pursuant  to the
provisions  of  this  Agreement,   the  other  party  shall  diligently   pursue
(including,  without limitation, the commencement and pursuit of litigation) any
and all rights and remedies under agreements and contracts  (including,  without
limitation,  insurance  policies) with third parties pursuant to which the other
party has rights of recourse or is indemnified or the beneficiary of a guaranty.

         10.9     EXCLUSIVE REMEDY

         The parties  acknowledge  and agree that the  remedies  and  procedures
provided in this  Agreement for breach of any  representations,  warranties,  or
covenants  are  exclusive  of  all  other  remedies  which  would  otherwise  be
available,  at law or equity  except for any claim arising from fraud or willful
misconduct.

         10.10    LIMITATION ON INDEMNIFICATION OF SELLER

         Regardless  of the other  provisions  of this Section 10, the aggregate
liability of Seller for Damages relating to all breaches of the  representations
and  warranties  and all breaches of covenants or  agreements  of Seller in this
Agreement shall be limited to Thirty-Six  Million Two Hundred Fifty Thousand and
no/100 ($36,250,000).

11.      TAX MATTERS

         11.1     SECTION 338(H)(10) ELECTION

                  11.1.1   If requested by Buyer, Seller and Buyer shall join in
an  election  pursuant  to Section  338(h)(10)  of the Code and the  regulations
promulgated  thereunder,  and to take all 

                                     - 28 -
<PAGE>

necessary and appropriate  actions to effectuate the foregoing and to accurately
report to applicable  Governmental Entities consistent therewith. In particular,
and not by way of limitation, in order to effect such election, Seller and Buyer
shall jointly execute necessary copies of Internal Revenue Service Form 8023 and
all attachments  reasonably determined by the parties to be required to be filed
therewith pursuant to the Code within the required time period.

                  11.1.2   Buyer and Seller will  cooperate  with each other and
jointly  allocate the Purchase Price and any  post-closing  adjustments  thereto
among the assets of the Acquired  Companies.  Such  allocation  shall be made in
good faith and in accordance  with Section  338(h)(10)  of the Code.  Seller and
Buyer  shall be bound by the  allocation  determined  in  accordance  with  this
Section and shall prepare and file all Returns in  accordance  with Section 11.2
below. In the event Seller and Buyer cannot,  despite good faith efforts,  agree
on such allocation  within one hundred twenty (120) calendar days after Closing,
the matter shall be referred to KPMG-Peat Marwick (the "Accountants"), certified
public  accountants,  within  five (5)  business  days after the end of such one
hundred  twenty day period.  The fees and expenses of the  Accountants  shall be
paid one-half by Buyer and one-half by Seller.  The Accountants  shall determine
an appropriate allocation of the Purchase Price and any post-closing  adjustment
thereto  among  the  assets  of  the  Acquired  Companies  pursuant  to  Section
338(h)(10) of the Code. Such  determination  shall be made prior to the due date
for filing Form 8023 with the IRS. Buyer and Seller shall use their best efforts
to cause the Accountants to render its determination as soon as practicable, and
each shall cooperate with such firm and provide such firm with reasonable access
to its books and records and such other  information as such firm may require in
order to  render  its  determination.  Such  determination  shall be made by the
Accountants  within thirty (30) calendar  days,  shall be set forth in a written
statement  delivered  to Buyer  and  Seller,  and shall be  final,  binding  and
conclusive.

                  11.1.3   Seller and Buyer  covenant  and agree to report  this
transaction  for all domestic Tax  purposes,  where  permitted by the law of the
applicable  taxing  jurisdiction,  in  each  and  every  respect  in  a  fashion
consistent  with the  allocation  determined  pursuant  to  Sections  11.1.1 and
11.1.2.  If the  allocation  is  disputed  by any  taxing  authority,  the party
receiving  notice of such  dispute  shall  promptly  notify and consult with the
other party.  Seller and Buyer shall cooperate with each other in resolving such
dispute and shall not settle such dispute or make  filings or other  submissions
with such taxing  authority  without  obtaining the other party's consent to the
terms of such filings,  submissions  or  settlement,  which consent shall not be
unreasonably withheld.

         11.2     TAX RETURNS

                  11.2.1   Seller and Buyer  shall (i) each  provide  the other,
and Buyer shall cause each of the  Acquired  Companies to provide  Seller,  with
such assistance as may reasonably be requested by any of them in connection with
the  preparation  of any Tax  Return,  or the  conduct  of any  audit  or  other
examination by any taxing  authority or judicial or  administrative  proceedings
relating to  liability  for Taxes;  (ii) each retain and provide the other,  and
Buyer shall cause each of the Acquired  Companies  to retain and provide  Seller
with, any records or other  information that may be relevant to such Tax Return,
audit or examination,  proceeding or  determination;  and (iii) each provide the
other with any final determination of any such audit or examination,  proceeding
or determination  that affects any amount required to be shown on any Tax Return
of

                                     - 29 -
<PAGE>

the other for any period.  Without  limiting the  generality  of the  foregoing,
Buyer shall  retain,  and shall cause each of the Acquired  Companies to retain,
and Seller shall retain, until the applicable statute of limitations  (including
any  extensions)  have  expired,  copies  of all Tax  Returns,  supporting  work
schedules,  and other  records or  information  that may be relevant to such Tax
Returns for all Tax periods or portions  thereof  ending before or including the
Closing  Date and shall not  destroy or  otherwise  dispose of any such  records
without first providing the other party with a reasonable  opportunity to review
and copy the same at the cost of such other party.

                  11.2.2   Seller is responsible  for all Taxes for all  periods
ending on or before October 3, 1997, and Buyer is responsible  for all Taxes for
all periods commencing on or after October 4, 1997. Seller shall prepare all Tax
Returns  with  respect to the Acquired  Companies  for all periods  ending on or
before October 3, 1997.  Buyer shall prepare all Tax Returns with respect to the
Acquired  Companies  for all  periods  commencing  after  October 3,  1997.  Any
refunds, credits or overpayments of Taxes in respect of Tax Returns with respect
to the Acquired  Companies  filed for all periods ending on or before October 3,
1997,  shall be for the  account  of Seller  and if  received  by Buyer  will be
forwarded  to Seller  within  ten (10) days of  Buyer's  receipt.  Any  refunds,
credits or  overpayments  of Taxes in respect of such Tax Returns  filed for all
periods  commencing  after  October  3,  1997  shall be for the  account  of the
Acquired Companies.

                  11.2.3   Buyer is responsible for preparing and filing all Tax
Returns with respect to the Acquired Companies for any Tax period that begins on
or before and ends after  October 3, 1997 (a "Straddle  Period") the due date of
which,  with regard to  extensions  of time to file,  is on or after the Closing
Date.  Seller is  responsible  for  preparing  and filing all Tax  Returns  with
respect to the Acquired  Companies  for any  Straddle  Period Tax Return the due
date of which,  with regard to extensions of time to file, is before the Closing
Date.  Taxes of a Straddle  Period that are based upon income or gross  receipts
shall, if practicable, be allocated between Seller and the Acquired Companies on
the basis of income or gross receipts  derived before and after October 3, 1997.
If such  calculation  is not  practicable,  any such Tax shall be  allocated  in
accordance  with the following  provision.  Taxes not based upon income or gross
receipts  shall be  allocated  between  Seller  and the  Acquired  Companies  by
multiplying the Tax by a fraction,  the numerator of which is the number of days
preceding or following  October 3, 1997, as the case may be, and the denominator
of which is the  number of days in the Tax  period  reflected  in the Tax Return
which is the subject of this provision.

                  11.2.4   Each of Buyer and Seller shall  deliver to the other,
no later than thirty (30) days (or, in the case of premium Tax Returns, five (5)
days)  prior to the date on which the  applicable  Tax Return is  required to be
filed  (except  for any Tax Return for which an  extension  has been  granted as
permitted  hereunder),  such Tax Return for its review and filing. Each of Buyer
and Seller shall  provide  notice to the other within ten (10) business days (or
in the case of premium Tax Returns,  two business days) after receipt thereof of
any dispute  regarding  such Tax Return and the parties shall  cooperate in good
faith to resolve any such  dispute.  In the event of any dispute  regarding  any
item shown on any such Tax Return,  neither  Buyer nor Seller shall  without the
other's  consent  (which shall not be  unreasonably  withheld)  prepare such Tax
Return in a manner which is not reasonably satisfactory to the other.

                                     - 30 -
<PAGE>

                  11.2.5   Seller shall take any necessary action to correct the
net  operating  loss  carryovers  reflected in its Tax Return for the year ended
October 3, 1997 as they may  relate to the  Acquired  Companies  and to make any
required correlative adjustments to Tax reserves of the Acquired Companies as of
October 3, 1997.

         11.3     TAX SHARING AGREEMENTS; CODE SECTION 338(H)(10) ELECTIONS

                  11.3.1   All tax-sharing,   tax-allocation,   and  tax-expense
allocation  agreements or similar  agreements (other than the Service Agreement)
with respect to or by and between Seller and any of the Acquired Companies shall
be terminated effective as of October 3, 1997, subject to Buyer's consent to the
terms of such termination,  which consent shall not be unreasonably withheld. No
new  elections  with respect to Taxes or any changes in current  elections  with
respect to Taxes affecting any of the Acquired Companies shall be made after the
date of this  Agreement  without prior written  consent of Buyer,  which consent
shall not be unreasonably  withheld.  Seller shall not take any action, or cause
or permit any of the Acquired Companies to take any action, which could prohibit
the  making  of  a  valid  Section  338(h)(10)  election  with  respect  to  the
transaction contemplated herein.

                  11.3.2   Seller  and  Buyer  intend   that,   for  the  period
beginning  October 4, 1997 and ending on the Closing Date (the "Closing  Taxable
Year"),  the consolidated  Federal income Tax ("CFIT") allocated to the Acquired
Companies shall be equal to the CFIT the Acquired  Companies would have paid had
the Acquired Companies filed a separate  consolidated  Federal income Tax Return
for the Closing Taxable Year.

                  11.3.3   For   purposes  of  this  special   allocation,   the
affiliated group is divided into two subgroups and each subgroup is treated as a
separate  affiliated  group filing a separate  consolidated  Federal  income Tax
Return. The "Acquired  Companies  Subgroup" consists of the Acquired  Companies.
The  "Seller's  Subgroup"  consists of all the members of the  affiliated  group
other than the Acquired Companies.

                  11.3.4   The CFIT is allocated  between the Seller's  Subgroup
and the Acquired  Companies  Subgroup in  accordance  with  Treasury  Regulation
sections 1.1552-1(a)(1) and 1.1502-33(d)(3).

                  11.3.5   In the event the Acquired  Companies  generate  a net
operating loss that is not fully utilized in the consolidated Federal income Tax
Return  that  includes  the  Closing  Taxable  Year,  to the extent that the net
operating  loss may be carried  forward by Seller's  Subgroup to future  taxable
years,  an additional  Tax benefit equal to 34 percent of the net operating loss
carryforward shall be allocated to the Acquired Companies Subgroup.

                  11.3.6   This method of Tax  allocation  does not  replace  or
modify the  existing  method of Tax  allocation  elected by Seller's  affiliated
group for Federal income Tax purposes  pursuant to Treasury  Regulation  section
1.1552-1(c).

                  11.3.7   Buyer  shall  provide  to  Seller  within  60 days of
filing  the  consolidated  Tax Return an  Allocation  Schedule  calculating  the
allocation  of Tax  liability  or Tax  benefit  in  accordance  with the  method
described  above.  Seller  shall  provide to Buyer  within 60 days of filing the
consolidated  Tax Return a  calculation  of any amounts due  pursuant to Section
3.27. If,

                                     - 31 -
<PAGE>

within 90 days  following  the filing of the  consolidated  Tax Return,  neither
party has given notice of objection to such  calculations  (any such notice must
contain a statement of the basis of the  objection),  then the Tax  liability or
Tax benefit for the  Closing  Taxable  Year will be  allocated  to the  Acquired
Companies   Subgroup  in  accordance  with  the  Allocation   Schedule  and  the
calculation of any amounts due pursuant to Section 3.27 shall be regarded as the
final  determination.   If  either  party  gives  notice  of  objection  to  the
calculations and the parties cannot agree to a satisfactory resolution, then the
issues in dispute will be submitted to the Accountants  for  resolution.  If the
issues in dispute are  submitted to the  Accountants  for  resolution,  (a) each
party will furnish to the  Accountants  such work papers and other documents and
information  relating to the disputed  issues as the Accountants may request and
are  available  to that party or its  Subsidiaries  (or its  independent  public
accountants),   and  will  be  afforded  the   opportunity  to  present  to  the
Accountants; (b) the determination by the Accountants, as set forth in a written
notice  delivered  to both  parties  by the  Accountants,  will be  binding  and
conclusive on the parties; and (c) Buyer and Seller will each bear 50 percent of
the fees of the  Accountants for such  determination.  On the tenth business day
following the final determination, the Tax liability shall be paid. All payments
will  be made  together  with  interest  at  6-1/2  percent  compounded  monthly
beginning  on the date of the filing of the  fiscal  year  ending  approximately
September 30, 1998  consolidated  Federal income Tax Return of Seller and ending
on the date of payment. Payments must be made in immediately available funds, by
wire transfer to such bank account as the party entitled to receive payment will
specify.

         11.4     PARTICIPATION IN TAX EXAMINATIONS

                  11.4.1   Seller and Buyer shall  provide to each other  notice
within ten (10)  business  days of receipt of any notice of any audit or similar
investigation  or proceeding in which the IRS or any other  Governmental  Entity
makes or proposes to make a Tax adjustment to any Tax period ending on or before
the  Closing  Date.  At least ten days  prior to filing  any  response  or other
correspondence  with the IRS,  Seller shall provide  copies of such documents to
Buyer for its review.  Seller shall control any such  proceeding;  provided that
Buyer or its representative shall have the right, at its expense, to participate
in any such  audit or  similar  investigation.  Seller  agrees  that it will not
settle,  compromise or agree to any Tax adjustment  that will result in either a
Tax liability to Buyer or the  indemnification  of Seller by Buyer (as set forth
below in this Section 11.4) without the prior  written  consent of Buyer,  which
consent shall not be unreasonably withheld.

                  11.4.2   Definitions.

                           11.4.2.1 Permanent Difference. A Permanent Difference
         is any adjustment, whether by amended return or examination by a taxing
         authority, to any Tax Return that will not affect taxable income of any
         prior or subsequent Tax Return.

                           11.4.2.2 Timing  Difference.  A Timing  Difference is
         any  adjustment,  whether by amended  return or examination by a taxing
         authority, to any Tax Return that will reverse in a prior or subsequent
         Tax Return.

                  11.4.3   Seller shall be responsible for Taxes for Tax periods
ending on or before October 3, 1997.  Buyer shall be  responsible  for Taxes for
Tax periods beginning on or after 

                                     - 32 -
<PAGE>

October 4, 1997. However, Seller shall have no liability for Tax attributable to
Timing  Differences  where the reversal  results in a Tax benefit to Buyer,  and
Buyer shall be entitled to any Tax benefit  attributable  to Timing  Differences
where the reversal  results in a Tax  liability to Buyer.  However,  Buyer shall
have no responsibility  for Tax liabilities and no right to Tax benefits for Tax
attributable to Timing  Differences where the reversal affects any Tax to Seller
resulting  from  the  deemed  sale  of  assets  pursuant  to an  election  under
ss.338(h)(10).  Taxes for Tax  periods  beginning  prior to  October 3, 1997 and
ending after that date shall be prorated between Buyer and Seller,  as set forth
in  Section  11.2.3.   Notwithstanding  the  foregoing,   Buyer  shall  have  no
responsibility  for any Tax  that may  result  from the  deemed  sale of  assets
pursuant to an election under ss.338(h)(10) of the Internal Revenue Code.

                  11.4.4   If any  adjustment, as defined in Section 11.4.2.1 or
Section  11.4.2.2,  is made to any Tax Return,  amounts due  pursuant to Section
3.27 shall be recomputed as necessary. In the event that Seller or Buyer, as the
case may be, is required to hold  harmless  the other party  pursuant to Section
11.4 or to a  recalculation  pursuant  to  Section  3.27,  any  payment  that is
required  to be made to the other  party  shall be made not later  than ten days
after the Tax  adjustment  giving rise to such payment is finally agreed to with
the taxing authority.

12.      GENERAL PROVISIONS

         12.1     EXPENSES

         Each party to this Agreement will bear its respective expenses incurred
in connection with the  preparation,  negotiation,  execution and performance of
this  Agreement  and the  Contemplated  Transactions,  including  all  fees  and
expenses  of the  respective  Representatives  of the  parties.  In the event of
termination  of this  Agreement,  the  obligation  of each  party to pay its own
expenses  will be subject to any rights of such party  arising  from a breach of
this Agreement by the other party.

         12.2     CONFIDENTIALITY

         In  addition  to the  obligations  set  forth  in  the  Confidentiality
Agreement,  Buyer and Seller  will  maintain in  confidence,  and will cause the
directors,  officers,  employees,  agents, and advisors of Buyer, Seller and the
Acquired  Companies  to maintain in  confidence,  any  written,  oral,  or other
information  obtained in confidence from the other party or an Acquired  Company
in connection with this Agreement or the Contemplated  Transactions,  unless (a)
such information is already known to such party or to others not bound by a duty
of  confidentiality  or such information  becomes publicly  available through no
fault  of  such  party,  (b)  the  use of  such  information  is  necessary  and
appropriate  in making any filing or obtaining any consent or approval  required
for the consummation of the Contemplated Transactions,  or (c) the furnishing or
use of such  information is required by legal  proceedings.  If the Contemplated
Transactions are not consummated, each party will return or destroy such written
information.

         12.3     NOTICES

         All  notices,  consents,  waivers and other  communications  under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with  written  confirmation  of  receipt),  provided



                                     - 33 -
<PAGE>

that a copy is mailed by certified  mail,  return receipt  requested or (c) when
received by the addressee, if sent by a nationally recognized overnight delivery
service  (receipt  requested),  in each case to the  appropriate  addresses  and
telecopier  numbers set forth below (or to such other  addresses and  telecopier
numbers as a party may designate by notice to the other parties):

      If to Seller, to:         United Grocers, Inc.
                                     6433 SE Lake Road
                                     Portland, OR  97222-2198
                                     Attention: Chief Executive Officer
                                     Facsimile No.: 503-833-1008

               with a copy to:  Grocers Insurance Group, Inc.
                                     6605 SE Lake Road
                                     Portland, OR  97269
                                     Attention: Ross Dwinell
                                     Facsimile No.: 503-833-1753

               and with a copy to:   Kennedy & Kennedy LLP
                                     888 SW Fifth Avenue
                                     Suite 1170
                                     Portland, OR  97204
                                     Attention: Rhonda W. Kennedy
                                     Facsimile No.: 503-226-6466

               and with a copy to:   Miller Nash Wiener Hager & Carlsen LLP
                                     Suite 3500
                                     111 SW Fifth Avenue
                                     Portland, OR  97204
                                     Attention:  John A. Lusky
                                     Facsimile No.: 503-224-0155

      If to Buyer, to:          Orion Capital Corporation
                                     9 Farm Springs Road
                                     Farmington, CT 06032
                                     Attention:  General Counsel
                                     Facsimile No.: 860-674-6890

               with a copy to:       Ireland,Stapleton, Pryor & Pascoe, P.C.
                                     1675 Broadway, 26th Floor
                                     Denver, CO 80202
                                     Attention: Hardin Holmes, Esq.
                                     Facsimile No.: 303-623-2062

         12.4     MEDIATION; ARBITRATION

         If a dispute  arises  from or relates to this  Agreement  or the breach
thereof,  whether of law or fact,  of any nature  whatsoever,  and such  dispute
cannot be settled through direct  discussions  between the parties,  the parties
agree to endeavor,  within a reasonable time after it appears the 

                                     - 34 -
<PAGE>

dispute  cannot be settled  through  discussions,  to settle  the  dispute in an
amicable  manner by  mediation  administered  in  accordance  with the  American
Arbitration  Association  Commercial  Mediation  Rules, but not submitted to the
American Arbitration Association,  before resorting to arbitration.  The parties
agree that the  mediator  shall be a person who is an attorney  with at least 15
years of business law  experience.  Mediation  shall take place in the Portland,
Oregon metropolitan area. Thereafter, any unresolved dispute shall be settled by
binding  arbitration.  Notice of demand for  arbitration  shall be  provided  in
writing to the other parties. The arbitration shall be conducted before a single
arbitrator  and  procedurally  in  accordance  with the then current  Commercial
Arbitration  Rules of the  American  Arbitration  Association,  but shall not be
submitted to the American Arbitration Association. The arbitration shall be held
in Portland,  Oregon, if it is initiated by Buyer, or Denver, Colorado, if it is
initiated by Seller. The arbitrator shall be a person who is an attorney with at
least 15 years of business  law  experience.  If the parties  cannot agree on an
arbitrator within 30 days of the giving of the notice of demand for arbitration,
the  selection of the  arbitrator  shall be made by the  presiding  judge of the
Multnomah  County Circuit Court if the arbitration is to be in Portland,  or the
Denver District Court, if it is to be held in Denver. The parties agree that the
arbitrator  shall not render an award for punitive  damages (or any other amount
awarded for the purpose of imposing a penalty).  The parties  specifically waive
any claim for punitive  damages (or any other amount  awarded for the purpose of
imposing a penalty)  that  arises  out of or  relates to this  Agreement  or the
conduct of the parties in connection with this Agreement. The parties agree that
all facts and other information  relating to any arbitration  arising under this
Agreement shall be kept confidential to the fullest extent permitted by law. The
decision of the arbitrator  shall be binding on all parties,  and a judgment may
be entered in any court having jurisdiction.

         12.5     PUBLIC NOTICE

         Prior to the Closing Date,  neither Buyer nor Seller shall  directly or
indirectly make, or cause to be made, any press release for general circulation,
public  announcement,  or  disclosure  with  respect to any of the  Contemplated
Transactions without the prior written consent of the other party, which consent
shall not be unreasonably  withheld.  Notwithstanding the foregoing,  each party
may make such  disclosure  as may be  required by law or  necessary  to make any
filings  under  the HSR Act or to  obtain  any  Governmental  Authorizations  or
consents, and Seller and the Acquired Companies,  after consultation with Buyer,
may make such  communications  with the  employees of the Acquired  Companies as
they deem appropriate.

         12.6     FURTHER ASSURANCES

         The  parties  agree (a) to  furnish  upon  request  to each  other such
further  information,  (b) to  execute  and  deliver  to each  other  such other
documents  and (c) to do such other acts and things,  all as the other party may
reasonably  request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.

         12.7     WAIVER

         A  provision  of  this  Agreement  may  be  waived  only  by a  written
instrument executed by the party waiving compliance.  No waiver of any provision
of this Agreement shall constitute a waiver of any other  provision,  whether or
not similar,  nor shall any waiver constitute a 

                                     - 35 -
<PAGE>

continuing  waiver.  A failure to enforce any provision of this Agreement  shall
not operate as a waiver of such provision or any other provision.

         12.8     ENTIRE AGREEMENT AND MODIFICATION

         Except  as  provided  below,   this  Agreement   supersedes  all  prior
agreements between the parties with respect to its subject matter (including the
Letter of Intent between Buyer and Seller dated March 23, 1998) and  constitutes
(along  with  the  documents  referred  to in this  Agreement)  a  complete  and
exclusive  statement  of the terms of the  agreement  between the  parties  with
respect to its subject  matter.  Regardless  of the  provisions  of this Section
12.8, the Confidentiality  Agreement will remain in full force and effect and is
not superseded by this Agreement.  This Agreement may not be amended except by a
written agreement executed by each party.

         12.9     ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS

         Neither party may assign any of its rights under this Agreement without
the  prior  written  consent  of  the  other  parties,   which  consent  may  be
unreasonably  withheld in the party's sole  discretion;  provided that Buyer may
assign  its  rights  and  obligations  hereunder  to  any of  its  wholly  owned
subsidiaries.  Subject to the preceding sentence,  this Agreement will apply to,
be binding in all respects upon and inure to the benefit of the  successors  and
permitted  assigns of the  parties.  Nothing  expressed  or  referred to in this
Agreement  will be  construed  to give any Person other than the parties to this
Agreement any legal or equitable right, remedy or claim under or with respect to
this Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive  benefit of the parties
to this Agreement and their successors and assigns.

         12.10    SEVERABILITY

         If any provision of this Agreement is held invalid or  unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable  only in part will  remain in full  force and effect to the extent
not held invalid or unenforceable.

         12.11    TIME OF ESSENCE

         With  regard to all dates and time  periods set forth or referred to in
this Agreement, time is of the essence.

         12.12    GOVERNING LAW

         This  Agreement  will be  governed  by the laws of the  State of Oregon
without regard to conflicts of laws principles.

                                     - 36 -
<PAGE>

         12.13    COUNTERPARTS

         This  Agreement  may be executed in one or more  counterparts,  each of
which will be deemed to be an original of this Agreement and all of which,  when
taken together, will be deemed to constitute one and the same agreement.

SELLER:                                   BUYER:


UNITED GROCERS, INC.                      ORION CAPITAL CORPORATION

By: /s/ Charles E. Carlbom                By:  /s/ Michael L. Paulter   

Print Name: Charles E. Carlbom            Print Name: Michael L. Paulter

Title:  Pres. & CEO                       Title:    Vice President             


                                     - 37 -
<PAGE>

                                  May 13, 1998



Mr. Michael P. Maloney
Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032

         Re:      Stock Purchase Agreement Disclosure Letter

Dear Mr. Maloney:

         Pursuant to the Stock Purchase Agreement (the "Agreement") of even date
between United Grocers, Inc. ("Seller") and Orion Capital Corporation ("Buyer"),
the representations and warranties of Seller in the Agreement are subject to the
disclosures set forth in this letter (the "Disclosure Letter").  The capitalized
terms not specifically  defined in this Disclosure  Letter have the same meaning
as defined in the Agreement.  In addition,  the section numbers referenced below
are the section numbers set forth in the Agreement.

         The following matters are disclosed:

         SECTION 1.  DEFINITIONS.  Prior to 1988,  in  accordance  with industry
standards,  certain environmental matters were covered by the policies issued by
or  through  GIC.  One claim  arose and is  outstanding  under one such  policy.
Information  with  respect  to the claim,  including  a list of  reinsurers,  is
attached  as  Schedule  1. The  retained  liability  of GIC has been  paid,  the
reinsurance  liability of UGIC,  Ltd., a prior affiliate of GIC, was paid to GIC
on or  about  October  15,  1996  (commuting  the  liability  of UGIC,  Ltd.  in
preparation  of the  liquidation of UGIC,  Ltd.) and any remaining  liability is
reinsured.

         SECTION 3.1 ORGANIZATION.  With respect to each Acquired Company:

            COMPANY NAME                         AUTHORIZED JURISDICTIONS

            Grocers Insurance Group, Inc.        Oregon

            Grocers Insurance Agency, Inc.       Oregon, Washington, California,
                                                 Arkansas, Idaho, Nevada

            Grocers Risk Services, Inc.          Oregon, Washington, California

            Grocers Insurance Company            See Schedule 3.1

         SECTION 3.2   AUTHORITY; NO CONFLICT. Seller or an Acquired  Company is
required  to give  notice  or  obtain  consent  from the  following  persons  in
connection with the execution and 

                                     - 1 -
<PAGE>

Mr. Michael P. Maloney
May 13, 1998
Page 2

delivery of the Agreement or the consummation or performance of the Contemplated
Transactions:

         1.   The Director of the  Department of Consumer and Business  Services
with respect to the acquisition of control of GIC by Buyer.

         2.   The  bank  lenders  and  insurance  company  creditors  ("Seller's
Creditors")   with   respect   to   the   Intercreditor   Collateral   Agreement
("Intercreditor  Collateral  Agreement")  dated  September 19, 1997, as amended,
entered into by Seller, the Company, GIA, GRS and Seller's Creditors.

         3.   Seller's Creditors with respect to the Pledge  Agreement  ("Pledge
Agreement")  dated September 19, 1997, as amended,  entered into by the Company,
GIA and the collateral agent for Seller's Creditors.

         4.   Seller's Creditors  with  respect  to the  Pledge  Agreement  (the
"Additional  Pledge  Agreement")  dated September 19, 1997, as amended,  entered
into by the Seller and the collateral agent for Seller's Creditors.

         5 .  Seller's   Creditors  with  respect  to  the  Guaranty   Agreement
("Guaranty Agreement") dated September 15, 1997, as amended, entered into by the
Company, GIA, GRS and for the benefit of Seller's Creditors.

         6.   The Federal Trade Commission with respect to HSR Act compliance.

         7.   Certain  Agency  Agreements  between GIC, as insurer,  and a named
agency, as agent (see Schedule  3.14.1(A))  provide that the agent may terminate
the Agreement  without notice if GIC's  business is sold or transferred  without
the agent's  prior  written  consent to the  assignment  of the agreement to the
successor business.

         8.   Certain  of the  agreements  appointing  GIA as agent  for a named
insurer (see  Schedule  3.23)  contain  provisions  for the  termination  of the
Agreement by the insurer upon the sale of GIA.

         9.   An equipment lease agreement for certain fax machines  between the
Company,  as  lessee,  and  General  Electric  Capital  Corporation,  as lessor,
provides  that  the  lease  will  be  in  default  if  there  is a  transfer  of
substantially all of the stock of the Company.

         10.  The leases for commercial  office space (see Section  3.6(4)) with
respect to GIC and GRS, as tenants, require the consent of landlord with respect
to the transfer of control of the tenant.

<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 3


         SECTION 3.3 CAPITALIZATION.

              1.       The shares of GIA, GIC and GRS have been pledged pursuant
to the Pledge Agreement.

              2.       The  shares  of GIG have  been  pledged  pursuant  to the
Additional Pledge Agreement.

              3.       GIC is  the  owner  of  447  shares  in  Fremont  General
Corporation.  As of March 31,  1998,  the fair  market  value of such shares was
$26,373.

              4.       GIC has entered  into a Stock  Purchase  Agreement  dated
July 1, 1997 with  Grocers  Insurance  Services,  Inc.  and Guy Fogel,  the sole
shareholder of Grocers Insurance  Services,  Inc., which agreement  provides for
the  purchase  by GIC of Fogel's  shares of common  stock of  Grocers  Insurance
Services, Inc. on the death or disability of Fogel.

         SECTION 3.4   FINANCIAL STATEMENTS.

         3.4.1.  To the extent that the monthly financial information for GIC is
based on estimates, such estimates are believed to be substantially correct but,
to the extent they are inaccurate,  the monthly financial information may not be
true and correct in all material respects. The monthly financial information for
GIC and  unaudited  financial  statements  for the  Company,  GIA and  GRS,  the
unaudited consolidating statements for the Company and the Interim Balance Sheet
are substantially,  but not completely,  prepared in accordance with GAAP (e.g.,
deferred tax accruals,  deferred acquisition costs, bad debt write-offs and FASB
115 market value adjustment to investments are not reported according to GAAP).

         3.4.2.  The  triennial  exams  previously  provided  to  Buyer  include
analyses by DCBS of deficiencies with the Statutory Statements.

         SECTION 3.6   TITLE TO PROPERTY; ENCUMBRANCES.

              1.       On or  before  the  Closing  Date,  GIC  will  acquire  a
commercial office building located at 6605 SE Lake Road, Milwaukie,  Oregon (the
"GIG  Office  Building")  and  legally  described  as set forth on the  attached
Schedule 3.6.1.

              2.       GIC previously owned a commercial office building located
at 6566 S.E.  Lake Road,  Milwaukie,  Oregon  (the "GIA  Property")  and legally
described as set forth on the attached Schedule 3.6.2.

              3.       The list of fixed  assets  owned or leased by the Company
has been previously provided by Seller.

<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 4

              4.       The following leases have been entered into with

                       The Company as Tenant:
                       --------------------

                       (a)     Landlord:  United Grocers
                               Location:  6605 SE Lake Road, Milwaukie, OR
                               Term:      Will terminate on consummation of the 
                                          acquisition of the GIG Office Building
                                          by the Company

                       (b)     Landlord:  Fig Garden Village
                               Location:  790 W Shaw Avenue, Fresno, CA
                               Term:      In process of being renewed
                               Rent:      $5,520 annual

                       The Company as Subtenant:
                       ------------------------

                       Tenant:     Western Passage Express, Inc.(an affiliate of
                                   Seller)
                       Location:   1600 Tide Court, Woodland, CA
                       Term:       Needs to be established
                       Rent:       $11,244 annual

                       The Company as Landlord:
                       -----------------------
                       On consummation of the acquisition of the GIG Office
                       Building, the Company, as Landlord,  will enter into
                       a lease with Seller, as tenant,  with respect to one
                       floor of the GIG Office Building.

                       GIC as Tenant:
                       -------------

                       (a)     Landlord:  Highwoods/Tennessee Holdings, LP
                               Location:  Two Maryland Farms Building, 
                                          Brentwood, TN
                               Term:      Expires November 30, 2002
                               Rent:      $16,672 -- $18,235 annual

                       (b)     Landlord:  Pat G. Smaldino
                               Location:  999 Mission de Oro Drive, Redding, CA
                               Term:      Expires February 28, 1999
                               Rent:      $2,640 annual

                            GRS as Tenant:
                            -------------

                               Landlord:  1201 Associates
                               Location:  1500 NE Irving, Portland, OR
                               Term:      Expires on May 31, 2002
                               Rent:      $6,742.44 -- $7,177.56 annual

<PAGE>   
Mr. Michael P. Maloney
May 13, 1998
Page 5

         SECTION 3.7   NO UNDISCLOSED LIABILITIES. The post  retirement  benefit
liability required by the Oregon Insurance Code to be reflected on the statutory
statements of GIC is $297,205 as of December 31, 1997.

         SECTION 3.8   TAXES.

              1.       The  consolidated  federal  income tax  returns  filed by
Seller for the  fiscal  year ended  October  3, 1997 are not true,  correct  and
complete in that  approximately  $1,400,000 of audit  adjustments were made that
increased the taxable income of GIC and changes to the depreciation schedule may
be required.  Adjustments to such returns are anticipated as part of the IRS tax
audit of the 1994-1996 tax years that is about to be commenced.

              2.       No taxes are being contested.

              3.       Seller and GIC are parties to a Tax Allocation  Agreement
dated November 22, 1994, which agreement was previously provided to Buyer.

         SECTION 3.9   NO MATERIAL ADVERSE CHANGE.

              1.       The  prospects of the Acquired  Companies may be affected
by the Joint Venture.

              2.       The steps that may be taken to improve the  profitability
of the  Western  Grocers  Employee  Benefits  Trust may result in a decrease  in
earnings for GIC.

              3.       The Holiday Markets account with GIC was not renewed.

         SECTION 3.10 EMPLOYEE BENEFIT PLANS. The employee benefit plans related
to the employees  providing  services to the Acquired Companies are set forth on
Schedule 3.10.

         SECTION 3.12  LEGAL PROCEEDINGS.

              1.       GIA has filed a bankruptcy claim with the U.S. Bankruptcy
Court for the Northern District of Texas with respect to the Chapter 7 filing of
Affiliated Food Services, Inc.

              2.       A suit,  Case No.  98-02-00858,  was filed against Seller
and GIC alleging  discrimination  by Seller in  terminating  an employee who had
filed several workers'  compensation  claims.  Seller has assumed the defense of
GIC and will hold GIC harmless with respect to this litigation.

         SECTION 3.13  ABSENCE OF CERTAIN  CHANGES AND EVENTS. Since the date of
the Balance Sheet:

<PAGE>

Mr. Michael P. Maloney
May 13, 1998
Page 6

                  (a)   The following dividends were paid on December 30 or 31,
1997:
                                --       $850,000 by GIC to GIA
                                --       $225,000 by GRS to GIA
                                --       $1,486,250 by GIA to the Company

                  (c)  Retention  Agreements  effective  January  30,  1998 were
entered into with certain  directors,  officers and  employees of GIC.  Further,
Severance  Agreements  dated  January 30, 1998 were  entered  into with  certain
employees of GIC. Such Retention Agreements and Severance Agreements are, in all
material  respects  except for the amount of  payments,  in the same form as the
Retention Agreement and Severance Agreement previously provided to Buyer.

                  (d)  GIC instituted a bonus plan to enable  certain  employees
of GIC who satisfy specified requirements to earn bonus compensation.

                  (f)  GIC  transferred  the  GIA  Property  (the  "old"  office
building) to Seller.

                  (h)  GIC may  close its  Redding,  California  office.  If GIC
decides to close the Redding office, the closure will occur prior to the Closing
Date.

                  (i)  GIC is in the  process  of  updating  its  rating  system
software.  The  capital  expenditure  for  this  update  is  anticipated  to  be
approximately $140,000.

                  (o)  Seller  received  notice from the IRS that the  1994-1996
tax years would be audited. The triennial exam of GIC has commenced.

                  (p)  Shares of GIA were issued to the  Company in  replacement
of certain share  certificates  with respect to  outstanding  shares that either
were not  previously  issued or were lost.  Shares of GRS were  issued to GIA in
replacement of certain share  certificates  with respect to  outstanding  shares
that either were not previously issued or were lost.

                  (s)  The  Company  entered  into a contract to acquire the GIG
Office Building and to assume the existing note and deed of trust with United of
Omaha, as beneficiary.

         SECTION 3.14  CONTRACTS; NO DEFAULTS.

         3.14.1   The  Applicable  Contracts  described in Section 3.14.1 of the
Agreement are set forth on Schedule 3.14.1.

         3.14.2   No  Contract  limits  the  ability of an  Acquired  Company or
officer,  director or employee  of an  Acquired  Company to act  relating to the
business of an Acquired  Company  except for the  following  agency  agreements,
which  agreements  contain a covenant by GIC to sell insurance in certain states
only through the named agent:

                  1.   Agency  Agreement with Co-Op Agency,  Inc. dated June 25,
1997 with respect to Pennsylvania.

<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 7

                  2.   Agency  Agreement with  Retailers  Insurance  Group dated
February 28, 1998 with respect to Nebraska.

         3.14.3 (a)    Non-compete  agreements between GIC and certain employees
or agents may not be enforceable in whole or in part because of public policy.

                (b)    Events have occurred that may result in a material breach
of the following Applicable Contracts:

                            Intercreditor Collateral Agreement

                            Pledge Agreement

                            Additional Pledge Agreement

                            Guaranty Agreement

         SECTION 3.15  INSURANCE.

         3.15.2   Neither Seller nor any Acquired Company has received a refusal
of  coverage,  notice  of a  defense  with  reservation  of  rights or notice of
cancellation or nonrenewal with respect to the insurance policies referred to in
Section 3.15.1 of the Agreement.

         SECTION 3.17  EMPLOYEES.

         3.17.2   The consummation of the  Contemplated  Transaction will result
in payments  becoming due to certain  officers and employees under the Retention
Agreements  and benefits to employees  will be vested under the pension plan and
401(k) plan of Seller.

         SECTION 3.19  MARKS.

         3.19.1   The following is a list and summary  description  of all Marks
and any other copyrighted,  patented or proprietary intellectual property of any
Acquired Company:

                  1.   The  Company  has  registered as a service  mark with the
United States Patent & Trademark Office its logo, a copy of which is attached as
Schedule 3.19. This registration  occurred September 13, 1994 and will remain in
force for ten  years  thereafter  unless  sooner  canceled  or  terminated.  The
registration  will be  automatically  canceled unless an affidavit of continuing
use is filed between September 13, 1999 and September 13, 2000. The registration
may be renewed in ten-year  increments so long as the mark remains in continuous
use. An  application  for renewal  must be filed  within six months prior to the
date of  expiration  of the  registration  (i.e.,  between  March  13,  2004 and
September 13, 2004).

                  2.   GRS  has   registered   the   name   "Pacific   Northwest
Rehabilitation"  as an assumed  business name in the state of Oregon and a trade
name in the state of  Washington.  Some of the operations of GRS in those states
are conducted under that name. The Oregon

<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 8

registration  will expire  October 31,  1998,  unless  renewed;  the  Washington
registration  will expire unless  renewed in  connection  with the annual report
filed by GRS as a foreign corporation doing business in the state of Washington,
which report will be due November 30, 1998.

                  3.   The following materials have been copyrighted:

                  Handouts
                  --------

                  -    Preventing Slips, Trips and Falls

                  -    Preventing Cuts and Lacerations

                  -    Back Injury Prevention

                  -    Preventing Workplace Violence

                  -    Retail Crime Prevention

                  Order Form
                  ----------

                  -    Safety Committee Kit

                  Newsletter
                  ----------

                  -    Today's Coverage

                  Videos
                  ------

                  -    The introduction and tag with respect to the following
                       videos:

                            Preventing Back Injuries
                            Preventing Cuts and Lacerations
                            Preventing Slips, Trips and Falls

         SECTION 3.21  LICENSES.  The following  licenses,  permits or authority
have been issued to the Acquired Companies by a state insurance department:

         GIA:

         AGENCY LICENSES HAVE BEEN ISSUED BY: Oregon, Washington, California,
                                              Arkansas, Idaho and Nevada.
         GIC:

         CERTIFICATES OF AUTHORITY HAVE BEEN ISSUED BY:  See Schedule 3.1.

<PAGE>
Mr. Michael P. Maloney
May 13, 1998
Page 9

         SECTION 3.22 EMPLOYEE LICENSES. The licenses, permits or authority that
have been  issued to an  employee  of an  Acquired  Company  by state  insurance
department are set forth on Schedule 3.22.

         SECTION 3.23 APPOINTMENTS.  The insurance companies that have appointed
GIA and its employees as agents are set forth on Schedule 3.23.

         SECTION 3.29 OFFICERS AND DIRECTORS. The officers and directors of each
Acquired Company are set forth on Schedule 3.29.

                              Very truly yours,

                              UNITED GROCERS, INC.



                              Charles E. Carlbom
<PAGE>

                                DISCLOSURE LETTER
                                  SCHEDULE 3.1

GIC has certificates of authority to transact insurance in the following states:

Alabama
Alaska
Arizona
Arkansas
California
Colorado
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maryland
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Mexico
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin
Wyoming
<PAGE>

                                 SCHEDULE 3.14.1
                              APPLICABLE CONTRACTS

A.       AGENCY AGREEMENTS  BETWEEN GIC, AS INSURER,  AND NAMED AGENCY, AS AGENT
         (AND RELATED TYPES OF AGREEMENTS).

         1.   Agency Agreement dated February 27, 1998 with Retailers  Insurance
              Group.

         2.   Agency Agreement dated January 24, 1996 with Risk Planners, Inc.

         3.   Agency Agreement dated May 6, 1996 with Fairway  Insurance Agency,
              Inc.

         4.   Agency  Agreement dated October 10, 1996 and restated  October 10,
              1997 with Gateway  Insurance Agency,  Inc. and Fleming  Companies,
              Inc.;  related  Service  Agreement  dated October 10, 1996 between
              Fleming Companies, Inc., the Company, GIC and GIA.

         5.   Agency  Agreement dated October 11, 1996 with Insurance  Planners,
              Inc.

         6.   Agency  Agreement  dated  January  15,  1998 with  North  American
              Insurance Agency.

         7.   Agency Agreement with URM Insurance Agency,  Inc.  (formerly known
              as Merchants  Insurance  Agency,  Inc.) dated November 1, 1987, as
              amended by addendum effective July 15, 1997.

         8.   Agency Agreement dated June 25, 1997 with Co-Op Agency, Inc.

         9.   Billing  Services  Agreement  dated  December  30,  1996 with C.B.
              Ragland Company.

         10.  Agency  agreement  dated  April  14,  1995 with  Laurel  Insurance
              Agency, Inc., as amended December 6, 1997.

         11.  Agency Agreement dated December 20, 1990, with U G Insurance, Inc.
              (now known as GIA).

         12.  Agency  Agreement  dated  May  16,  1988  with  Grocers  Insurance
              Services, Inc.

         13.  Agency  Agreement  dated  June 1,  1988  with  Associated  Grocers
              Insurance Company.

         14.  Agreement dated April,  1998 with M & I General Agency, as amended
              by agreement  dated July 1, 1989 with M & I General Agency and its
              successors  AFS  Insurance   Services,   Inc.  and  AFS  Insurance
              Services, Inc. of Idaho.

         15.  Agency   Agreement   with   Embry  &   Company   (in   course   of
              negotiation-execution expected prior to May 1, 1998).

                                     - 1 -
<PAGE>

         16.  Agency  Agreement  dated May 20, 1992 with  Hardware and Implement
              Agency (not active).

B.       SERVICE AGREEMENTS.

         1.   Administrative Service Agreement dated January 1, 1994 between GIC
              and Western Grocers Employees Benefit Trust ("WGEBT").

         2.   Statement of Assurances and Conditions  dated June 3, 1997 between
              GRS and State of Oregon, Vocational Rehabilitation Division.

C.       AGENCY  AGREEMENTS  APPOINTING  GIA, AS AGENT.  See Schedule 3.23 for 
         list of agreements.

D.       REINSURANCE AGREEMENTS.

         1.   Property,  Casualty and Workers  Compensation  Reinsurance Program
              effective  October  1,  1997  between  GIC and  the  participating
              reinsurers listed on the attached Schedule 3.14.1-Exhibit A.

         2.   Reinsurance  Treaties  for prior  years may  provide GIC with more
              than $25,000 through tail payments.

E.       CORPORATE OPERATIONS AND EQUIPMENT AGREEMENTS.

         1.   Service  Agreement  dated  August 30, 1996 between the Company and
              HomeTech Incorporated (for transcription services).

         2.   Master  Lease  Agreement  dated May 12,  1997  between  GIC and GE
              Capital Fleet Services and related Maintenance Management Addendum
              dated July 11, 1997 and  Electronic  Full Card Addendum dated July
              11, 1997 (with respect to leases of vehicles).

         3.   Agreement  effective  November  27,  1995  between the Company and
              Cargni Cleaning (respect to janitorial services).

         4.   Software  License  Agreement dated August 27, 1992 between GIA and
              JP Sedlak  Associates and related  Technical  Services and Support
              Agreement  dated  November  24,  1997 (with  respect to  Insurance
              Solutions software).

         5.   Master Software  License  Agreement dated effective  September 15,
              1997  between GIC and  Insurance  Information  Technologies,  Inc.
              (with respect to computer software).

         6.   Affiliation  Agreement to be effective January 1, 1998 between GIC
              and National Council on Compensation  Insurance,  Inc.  (documents
              are in process of being executed by NCCI).

                                     - 2 -
<PAGE>

F.       CONSULTING AGREEMENTS.

         1.   Consulting Agreement dated June 1, 1992 between Maurice Lefore and
              the  Company,  United  Employers  Insurance  Company (now known as
              GIC), U G Insurance, Inc. (now known as GIA) and UGIC.

         2.   Consulting  Agreement  dated March 18, 1993,  as amended March 14,
              1996, between GIC and Earl C. True.

              Seller will use its Best Efforts to have the Consulting Agreements
              set forth above revised to delete all references to Seller.

G.       OTHER AGREEMENTS.

         1.   Stock  Purchase  Agreement  dated July 1, 1997 between GIC and Guy
              Fogel and Grocers Insurance Service, Inc. (see Section 3.3(3)).
<PAGE>

                                  SCHEDULE 3.29
                             OFFICERS AND DIRECTORS


THE COMPANY

Directors:        Charles E. Carlbom
                  Ross E. Dwinell
                  Bernard F. Croucher
                  Thomas C. Newton
                  William L. Dahl
                  David G. Edison
                  Myron J. Fleck

Officers:         Ross E. Dwinell, President
                  Thomas C. Newton, Vice President Marketing
                  William L. Dahl, Vice President Finance, Treasurer, Secretary
                  David G. Edison, Vice President Claims & Operations
                  Rick A. McEwen, Vice President Underwriting
                  Esther A. Camden, Vice President Administration

GIA

Directors:        Charles E. Carlbom
                  Ross E. Dwinell
                  Bernard F. Croucher
                  Thomas C. Newton
                  David G. Edison
                  Myron J. Fleck

Officers:         Ross E. Dwinell, President
                  Thomas C. Newton, Vice President Marketing
                  David G. Edison, Vice President Claims & Operations,
                  Treasurer, Secretary

GIC

Directors:        Charles E. Carlbom
                  Ross E. Dwinell
                  Bernard F. Croucher
                  Thomas C. Newton
                  Myron J. Fleck

                                      - 1 -
<PAGE>

Officers:         Ross E. Dwinell, President
                  Thomas C. Newton, Vice President Marketing
                  William L. Dahl, Vice President Finance
                  David G. Edison, Vice President Claims & Operations,
                  Treasurer, Secretary
                  Rick A. McEwen, Vice President Underwriting

GRS

Directors:        Charles E. Carlbom
                  Ross E. Dwinell
                  Myron J. Fleck
                  Esther A. Camden
                  David G. Edison
                  Thomas C. Newton

Officers:         Ross E. Dwinell, President
                  Esther A. Camden, Vice President
                  David G. Edison, Vice President, Treasurer, Secretary
                  Thomas C. Newton, Vice President
<PAGE>
                                 January 6, 1999



Mr. Thomas F.X. Hodson
Orion Capital Corporation
9 Farm Springs Road
Farmington, CT 06032

         Re:      Supplement to Stock Purchase Agreement Disclosure Letter

Dear Mr. Hodson:

         Pursuant to the Stock Purchase  Agreement (the  "Agreement")  dated May
13, 1998 between United Grocers,  Inc.  ("Seller") and Orion Capital Corporation
("Buyer"),  the  representations  and  warranties of Seller in the Agreement are
subject  to the  disclosures  set forth in the  letter  dated May 13,  1998 (the
"Disclosure  Letter").  Section 5.5 provides that the Seller may  supplement the
Disclosure Letter from time to time. Pursuant to this letter (the "Supplement to
Disclosure  Letter"),  Seller  supplements  the  Disclosure  Letter as set forth
below.

         The capitalized  terms not  specifically  defined in this Supplement to
Disclosure  Letter  have the same  meaning as defined  in the  Agreement  or the
Disclosure  Letter, as applicable.  In addition,  the section numbers referenced
below are the section numbers set forth in the Agreement.

         The following matters are disclosed:

         SECTION 3.1   ORGANIZATION. GIA is authorized  to transact  business in
Arizona,  not Arkansas (which was set forth in the Disclosure  Letter).  GRS was
involuntarily  dissolved by the State of Oregon on April 30, 1998 for failure to
file an annual  report with the  Corporation  Division;  GRS will be  reinstated
prior to the Closing Date.

         SECTION 3.4.2 STATUTORY FINANCIAL STATEMENTS. The 1997 Annual Statement
contained  erroneous  data with  respect  to the State  Pages,  Schedule  T, the
Insurance  Expense Exhibit and the Special Deposits  Schedule.  The cover letter
notifying DCBS of the error and submitting corrected information is attached.

         SECTION 3.12  LEGAL PROCEEDINGS. The triennial exam of GIC by the DCBS
commenced on or about May 11, 1998.

                                     - 1 -
<PAGE>

         SECTION 3.13  ABSENCE OF CERTAIN CHANGES AND EVENTS.  Since the date of
the Balance Sheet:

         (a)      As a result of the  transfer of the Old  Building  from GIC to
                  Seller,  a dividend  in the amount of  $308,500  was deemed to
                  have been made.

                                         Very truly yours,

                                         UNITED GROCERS, INC.



                                         Charles E. Carlbom

Attachment

The  information  provided  above
is  accepted by Buyer as a supplement
to the Disclosure Letter.

ORION CAPITAL CORPORATION


--------------------------
Thomas F.X. Hodson, Assistant Vice President