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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
Commission file number 0-9904
ARDEN GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-3163136
(State or other jurisdiction (I.R.S. Employer Identification No.)
of
incorporation or organization)
</TABLE>
<TABLE>
<S> <C>
2020 SOUTH CENTRAL AVENUE, COMPTON,
CALIFORNIA 90220
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (310) 638-2842
Securities registered pursuant to Section 12(b) of the Act:
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<S> <C>
TITLE OF EACH NAME OF EACH EXCHANGE ON WHICH
CLASS REGISTERED
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of such stock on March 7, 1997 was:
Class A Common Stock $32,823,725
The number of shares outstanding of the registrant's classes of common stock
as of March 7, 1997 was:
766,753 of Class A Common Stock
342,246 of Class B Common Stock
This report, including the Exhibits, contains a total of 83 pages. An index
to the Exhibits appears on pages 41 and 42, inclusive.
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PART I
ITEM 1. BUSINESS;
ITEM 2. PROPERTIES; AND
ITEM 3. LEGAL PROCEEDINGS
GENERAL
The Registrant, Arden Group, Inc. (sometimes hereinafter referred to as the
"Company"), is a holding company with certain real estate holdings and conducts
other operations through its wholly-owned subsidiary, Arden-Mayfair, Inc.
("Arden-Mayfair"). Arden-Mayfair's wholly-owned subsidiary, Gelson's Markets
("Gelson's"), operates supermarkets in the greater Los Angeles, California area.
Another wholly-owned subsidiary of Arden-Mayfair, AMG Holdings, Inc. ("AMG
Holdings"), distributed and serviced facsimile and other communications
equipment and parts prior to the sale of its operating assets and liabilities in
1993. See "Arbitration Proceedings" below and Note 14 of Notes to Financial
Statements.
Arden Group is headquartered at 2020 South Central Avenue, Compton,
California 90220 and its telephone number is (310) 638-2842.
BUSINESS AND PROPERTIES OF ARDEN-MAYFAIR AND GELSON'S
MARKET OPERATIONS
Gelson's currently operates 12 supermarkets in the greater Los Angeles,
California area; nine under the name "Gelson's" and three under the name
"Mayfair." Gelson's and Mayfair are self-service cash-and-carry markets and
offer a broad selection of local and national brands as well as a limited number
of private label items. The Gelson's supermarkets are a chain targeted at both
the discriminating and trend-conscious customer, while the Mayfair markets,
which are smaller in size, offer a more limited selection of goods. The Company
believes that all of the stores are distinguished by their superior customer
service and merchandise presentation, selection and quality.
STORE FORMATS AND BUSINESS STRATEGY
Gelson's business strategy is to offer a comfortable shopping experience
which is superior to its competitors in terms of customer service and
merchandise selection and presentation. The goal of this strategy is to continue
to develop and maintain Gelson's loyal and committed base of customers. Central
elements of this strategy are as follows:
MERCHANDISE. The merchandise offerings in the markets are tailored in
response to each store's customer profile, while seeking economic efficiencies
through centralized purchasing, marketing and accounting operations. Gelson's
stores, which range in size from approximately 29,000 to approximately 40,000
square feet, typically carry a wide range of items, including all of the
traditional grocery categories such as produce, dry groceries, meats, dairy,
wine and liquor, and health and beauty aids. Gelson's perishables are premium
products, which are rigorously maintained and culled as appropriate to assure
quality and freshness. Gelson's merchandising emphasizes specialty items such as
imported foods and unusual delicatessen items, and items found in service
departments such as seafood, sit-down coffee areas and bakeries.
The three Mayfair stores, which are smaller than Gelson's stores
(approximately 18,000 to approximately 26,000 square feet), offer a merchandise
selection which is less broad than at Gelson's. Produce and other perishables
are the same as those purchased for Gelson's and, therefore, are of high
quality.
SERVICE. Gelson's emphasizes customer service by operating a variety of
departments offering personal service including seafood, delicatessen and bakery
departments. Some Gelson's stores include additional service departments such as
fresh pizza and pasta preparation, flower departments, coffee bars
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and outside seating areas. Additionally, the store at Calabasas offers banking
and pharmacy services through third parties. Stores are staffed so that, even at
peak times, customer waiting in checkout lines is minimized. In addition to
checkers, there are personnel dedicated to bagging and carryout. All employees
are encouraged to know customers by name and assist them whenever possible. All
stores offer Company credit cards to qualified customers as well as allowing
customers the option of paying for their purchases with bank credit and debit
cards. Stores are typically open 12 hours to 18 hours per day, with hours of
operation determined by local code or lease provisions, or as appropriate for
the business characteristics of a specific area.
PRESENTATION. All stores are maintained in accordance with extremely high
standards. Personnel continuously fill and face shelves. Produce and other
perishables are aggressively trimmed and culled to maintain quality and
appearance.
PRICING. The pricing strategy at the stores is to be competitive within
their market niches on most products, ranging from the more traditional to the
more exotic, specialty or high-end items.
EXPANSION AND STORE DEVELOPMENT. Management regularly evaluates the
feasibility of opening new stores and remodeling existing stores in order to
maximize their appeal to consumers and their profit potential. Total capital
expenditures for 1996, including completing the development of the shopping
center and Gelson's Market in Calabasas, and costs of remodeling, new equipment
and leasehold improvements, were $12,841,000. The Company has entered into
leases for two new market locations subject to the Company's due diligence, the
developers fulfilling certain conditions and the Company attaining certain
entitlements.
ADVERTISING AND PROMOTION. Gelson's advertises in newspapers on a limited
basis. Direct advertising is limited (primarily newsletters and direct mail) and
is typically "event" rather than "price" oriented; emphasizing, for example,
special holiday selections, specialty items and services and new products.
COMPETITION
The retail grocery business is very competitive nationwide. It is especially
intense in the greater Los Angeles area. Competition in the supermarket business
is based primarily upon price, merchandise quality, service and location. The
number of stores, market share and availability of capital are also important
competitive factors. Gelson's is in direct competition with numerous local
outlets of regional and national supermarket chains (most of which have greater
resources and a larger market share than Gelson's), independent grocery stores,
convenience stores, specialty and gourmet markets and food departments in mass
merchandise stores. Competition also exists from many other types of retailers
with respect to particular products. Stores compete primarily by offering a
combination of high-quality products and superior customer service. The Company
also believes that Gelson's prime store locations and long-standing reputation
add to its competitive strength.
SEASONALITY
Gelson's business is somewhat seasonal, with sales tending to increase
during the last quarter of the year because of the holiday season.
SUPPORT AND OTHER SERVICES
Each store has an on-site stockroom, the size of which varies for each
store. In addition, Gelson's operates an 89,000 square foot warehouse in the
City of Commerce, California, which distributes fresh fruits and vegetables,
liquor, and a limited number of grocery, meat, delicatessen and supply items to
stores.
The bulk of all merchandise purchasing is accomplished through Gelson's
office in Encino, California. Approximately one third of the purchases are
executed through the central warehouse; the remainder are
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delivered directly to the stores from manufacturers or wholesalers. The central
purchasing and distribution operations are conducted based on electronic
in-store ordering systems. Stores place orders for merchandise an average of
five times per week, with perishable goods ordered more frequently.
The largest supplier for the stores is Certified Grocers, a cooperative
wholesaler which has been a supplier for over twenty years and which accounted
for approximately 21% of Gelson's purchases in 1996. No other supplier accounts
for a material percentage of Gelson's purchases. The Company believes that the
impact of a loss of Certified Grocers as a supplier for Gelson's likely would be
minimized by a combination of events, which could include: (i) purchasing
certain items for direct store delivery, thereby freeing warehouse capacity to
allow other items to be purchased through the warehouse, and (ii) purchasing
certain products through other wholesalers in the area. However, such a loss
could have a short-term adverse effect on the performance of Gelson's.
EMPLOYEES
Gelson's has approximately 943 full-time and 684 part-time employees. Most
store level, warehouse and distribution employees of Gelson's are covered by
collective bargaining agreements that require union membership and establish
rates of pay, hours of work, working conditions and procedures for the orderly
settlement of disputes. In general, these agreements have been negotiated on an
area-wide and industry-wide basis. The Company believes that employee relations
are good.
In addition, Arden-Mayfair has approximately 57 full-time employees at its
executive and headquarters offices, some of whom are covered by a collective
bargaining agreement.
GOVERNMENTAL REGULATION
Gelson's is subject to regulation by a variety of governmental agencies,
including the U.S. Food and Drug Administration, the California Department of
Alcoholic Beverage Control, and state and local health departments. The Company
believes that Gelson's and Mayfair store operations comply with all federal,
state and local health, environmental and other laws and regulations. Although
the Company cannot predict the effect of future laws or regulations on the
operations of Gelson's, expenditures for continued compliance with current laws
are not expected to have a material effect on capital expenditures, earnings or
Gelson's competitive position.
LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are involved in a number of
pending legal and/or administrative proceedings. Such proceedings, except as
described herein with respect to the arbitration proceedings, are not expected
individually or in the aggregate to have a material adverse effect upon either
the Company's consolidated financial position or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, the Company is involved in arbitration proceedings
related to the sale of its communication equipment business in fiscal 1993. See
"Arbitration Proceedings" and Note 14 of Notes to Financial Statements.
PROPERTIES
The Company currently owns three and leases nine of its supermarket
properties. Also leased is the warehouse and distribution facility which
services its markets. Supermarkets are leased for terms which may include
options of up to 20 years under leases which generally stipulate a minimum
rental against a percentage of gross sales. The average term remaining on the
supermarket leases, including renewal options, is approximately 18 years. The 12
markets range in size from approximately 18,000 to approximately 40,000 square
feet. Gelson's warehouse and distribution facility in the City of Commerce,
California, consists of approximately 89,000 square feet. The term of the lease
for this facility expires on September 30, 2005.
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In November 1993, the Company purchased a neighborhood shopping center in
Calabasas, California and developed a new shopping center on the site on which a
Gelson's store opened in January 1996. In January 1996, the Company purchased a
site for a potential Gelson's market in Santa Barbara, California. The Company
has leased the Santa Barbara property on a short term lease (18 months) to
maximize its return on the property on an interim basis while it analyzes its
ultimate use. In 1995 the Company entered into two long-term leases to open new
Gelson's markets. The opening of Gelson's markets in each of these sites is
subject to, among other things, the Company's due diligence, receipt of
necessary governmental entitlements and the developers fulfilling certain
conditions.
The Company owns its 30,000 square foot corporate headquarters office
building in Compton, California. In addition, AMG Holdings leases a 64,000
square foot building in Los Angeles consisting of office and warehouse space,
which is subleased until the lease on the property expires in 2012 (includes
renewal options).
ARBITRATION PROCEEDINGS
Pursuant to an Asset Purchase Agreement dated September 1, 1993 (the "Asset
Purchase Agreement"), by and among Telautograph, the Company and Danka
Industries, Inc. (the "Purchaser") and Danka Business Systems PLC ("Danka"), on
September 17, 1993 AMG Holdings sold its communication equipment business and
substantially all the operating assets and certain liabilities of such business
to the Purchaser, a wholly-owned indirect subsidiary of Danka, for a cash
purchase price of approximately $45,780,000 (which included $1,000,000 received
for a covenant not-to-compete), subject to certain post-closing adjustments. In
fiscal 1993, AMG Holdings booked a gain related to the sale of approximately
$620,000, net of income taxes of $424,000.
The purchase price and the gain are subject to adjustment after resolution
of disputes which have arisen between AMG Holdings and Purchaser concerning the
assets and liabilities transferred to the Purchaser. As a result of an
arbitration hearing, in April 1994 the Company was awarded $1,750,000 for parts
inventory which was purchased by Purchaser as part of the sale of the Company's
communication equipment business in 1993. The valuation of such inventory on the
balance sheet at the date of sale had been in dispute. No amount with respect to
this inventory had been included in the 1993 gain from the sale of such
business. Additionally, there is a second arbitration with regard to certain
items on the closing balance sheet of the communication equipment business which
are being disputed. The Company believes it is owed approximately $2,200,000
relating to the sale. The Purchaser claims there should be a reduction in the
purchase price of approximately $11,000,000. The recovery of each party's
related legal costs will also be determined in a later arbitration. No income or
expenses related to the first arbitration award and no expenses related to the
second arbitration have been recognized in the 1994 or 1995 statements of
operations of the Company. In 1996, arbitration costs which exceeded the first
arbitration award of $1,750,000, in the amount of $456,000, net of income tax
benefits of $305,000, were expensed as discontinued operations.
While the Company denies the Purchaser's claims, the ultimate outcome cannot
be presently determined. The final outcome may or may not have a material impact
on the statement of operations in the year in which a decision is rendered,
however, the Company does not believe adjustments resulting from this
arbitration, if any, will have a material positive or adverse impact on the
Company's financial position. It is expected that a final arbitration decision
will be rendered in the first or second quarter of 1997 and any award would be
reflected in the Company's financial statements as an adjustment to the purchase
price of the communication equipment business sold in 1993. This discussion of
the arbitration and that contained in Note 14 of Notes to Financial Statements,
contains forward-looking statements which could vary depending upon the outcome
of the arbitration proceedings.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Company's Class A Common Stock is traded over-the-counter in the NASDAQ
National Market System. During the past two years, the range of high and low
sales prices (not including markups, markdowns or commissions) for each
quarterly period was, according to NASDAQ, the following:
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<CAPTION>
1996 1995
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HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
1st Quarter................................................................ 66 56 1/2 46 42 1/2
2nd Quarter................................................................ 79 65 47 42 1/2
3rd Quarter................................................................ 67 1/2 58 52 1/2 45
4th Quarter................................................................ 62 54 65 1/2 50
</TABLE>
There is no established public trading market for the Company's Class B
Common Stock, which is subject to various restrictions on transfer.
(b) As of December 28, 1996, there were 1,690 holders of record of the Company's
Class A Common Stock, with aggregate holdings of 766,753 shares of Class A
Common Stock. This does not include 339,300 shares of the Company's Class A
Common Stock owned by AMG Holdings. As of the same date, there were 11
holders of record of the Company's Class B Common Stock, with aggregate
holdings of 342,246 shares of Class B Common Stock.
(c) No dividends have been paid on either Class A Common Stock or Class B Common
Stock during the past three years. Cash or property dividends on Class B
Common Stock are restricted to an amount equal to 90% of any dividend paid
on Class A Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA OF ARDEN GROUP, INC. (IN THOUSANDS, EXCEPT PER
SHARE DATA AND OTHER DATA)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Operations:
Sales............................................ $ 252,019 $ 242,962 $ 246,199 $ 246,912 $ 250,367
---------- ---------- ---------- ---------- ----------
Gross profit..................................... 99,167 95,053 95,021 94,150 93,794
---------- ---------- ---------- ---------- ----------
Operating income................................. 5,922 8,212 8,305 6,411 7,783
Other income (expense)........................... 679 3,560 (183) 50 (573)
Income tax expense............................... (2,622) (4,661) (3,273) (2,623) (2,936)
---------- ---------- ---------- ---------- ----------
Income from continuing operations, net of income
taxes.......................................... 3,979 7,111 4,849 3,838 4,274
Income (loss) from discontinued operations, net
of income taxes................................ (456) 2,836 615
---------- ---------- ---------- ---------- ----------
Income before extraordinary item................. 3,523 7,111 4,849 6,674 4,889
Extraordinary item, net of income taxes.......... (406)
---------- ---------- ---------- ---------- ----------
Net income....................................... $ 3,523 $ 7,111 $ 4,849 $ 6,674 $ 4,483
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Depreciation on continuing operations............ $ 4,642 $ 3,308 $ 3,576 $ 4,110 $ 4,076
Number of supermarkets at year-end............... 12 11 12 12 12
Financial Position:
Total assets..................................... $ 91,248 $ 89,478 $ 91,322 $ 112,471 $ 107,226
Working capital.................................. $ 23,142 $ 28,706 $ 36,506 $ 51,549 $ 20,589
Long-term debt................................... $ 6,663 $ 7,695 $ 6,465 $ 7,654 $ 13,161
Stockholders' equity............................. $ 55,737 $ 53,827 $ 57,836 $ 67,535 $ 60,873
Capital expenditures............................. $ 12,841 $ 10,731 $ 6,948 $ 6,406 $ 2,449
Cash dividends paid common stock................. None None None None None
Per Share Data:
Income from continuing operations................ $ 3.57 $ 5.47 $ 3.18 $ 2.38 $ 2.65
Income (loss) from discontinued operations....... (.41) 1.76 .38
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item.......... 3.16 5.47 3.18 4.14 3.03
Extraordinary item............................... (.25)
---------- ---------- ---------- ---------- ----------
Net income....................................... $ 3.16 $ 5.47 $ 3.18 $ 4.14 $ 2.78
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average common shares outstanding....... 1,115,227 1,299,002 1,527,128 1,612,724 1,612,724
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
All years are 52 weeks except 1992 which had 53 weeks.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company cautions readers that any forward-looking statements contained
in this Form 10-K or made by the management of the Company involve risks and
uncertainties, and are subject to change based on various important factors. The
following factors, among others, could affect the Company's financial results
and could cause the Company's financial performance to differ materially from
the expectations expressed in any forward-looking statement made by or on behalf
of the Company--the strength of U.S. economy; the effects of and changes in
fiscal policies and laws, inflation and competition from other supermarkets and
retailers with a food presentation.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
During 1996, the Company had net income of $3,523,000 compared to net income
of $7,111,000 during 1995. Pretax income from continuing operations was
$6,601,000 for 1996 compared to pretax income of $11,772,000 for 1995. As
described below, included in 1996 income is $151,000 of net unrealized losses
related to marketable securities as compared to net unrealized gains of
$1,430,000 in 1995.
During 1996, the Company's operating income from its supermarket operations
was $5,922,000 compared to operating income of $8,212,000 during 1995.
Sales from the Company's 12 supermarkets in the greater Los Angeles area
were $252,019,000 in 1996, an increase of 3.7% from 1995, when sales were
$242,962,000 (1995 included sales from a Mayfair Market in West Hollywood which
was closed in October 1995). Chain wide same store sales increased 1.1% in 1996
compared to the prior year, even though sales of certain stores have been
negatively impacted by competitors opening new stores in Gelson's trading areas.
In January 1996, the Company opened a shopping center it developed in Calabasas,
California which includes a Gelson's market and spaces for additional tenants.
Although sales of the Calabasas market have improved, they have not met
projections. The Company has entered into leases for most of the tenant spaces,
some of which were unoccupied at the end of the year. It is anticipated that
supermarket sales will improve as Gelson's and the other tenants become
established in the trading area. The foregoing statement is a forward looking
statement and actual future sales are dependent on a number of factors which may
or may not occur including, among others, the timing of the opening of the
vacant spaces, the success of the other tenants and competition from other
supermarkets and shopping centers.
The Company is continually searching for additional store locations and is
in varying stages of discussions on various new locations.
The Company's gross profit from supermarket operations as a percentage of
sales was 39.3% in 1996 compared to 39.1% in 1995 primarily due to a sales mix
in 1996 favoring higher gross margin categories.
Delivery, selling, general and administrative ("DSG&A") expenses as a
percentage of sales were 36.9% for 1996 compared to 35.7% for 1995. The increase
in 1996 is due, in part, to higher than anticipated operating costs at Calabasas
as well as preopening expenses associated with that market. Also, an increase in
real estate and remodel expenditures during the past year resulted in $1,334,000
higher depreciation expense in 1996 compared to 1995 offset partially by a
decrease in equipment rent. In 1996, the Company expensed $385,000 to settle a
claim against it for costs and damages relating to the alleged contamination of
real property previously owned by the Company. In 1995, the Company recognized
contractual credits of $966,000 against health and welfare payments due the
retail clerks and meat cutters unions. No such credits were received in 1996.
Included in 1996 DSG&A is a gain of $584,000 relating to the property sale of a
former Mayfair market located in West Hollywood, California.
Interest and dividend income was $1,728,000 in 1996 compared to $2,702,000
in 1995 due to decreased levels of investments and a decrease in earnings rates.
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Interest expense increased to $879,000 in 1996 from $559,000 in 1995
primarily due to an increase in average fixture financing debt levels in 1996
versus 1995 and interest resulting from a Federal income tax audit.
In 1996, the market value of the Company's aggregate holdings in marketable
securities decreased from the market value of such holdings at December 30,
1995. Pursuant to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", net
unrealized losses of $151,000 related to marketable securities were reflected in
income in 1996 compared to net unrealized gains of $1,430,000 in 1995.
For an analysis of the Company's provision for income taxes, see Note 10 of
Notes to Financial Statements.
In 1996, the Company recognized in discontinued operations $456,000 of
costs, net of income tax benefits of $305,000, associated with an arbitration of
disputed items relating to the sale of the communication equipment business in
1993. See Note 14 of Notes to Financial Statements. It is expected that a final
arbitration decision will be rendered in the first or second quarter of 1997 and
any award would be reflected in the Company's financial statements as an
adjustment to the purchase price of the communication equipment business sold in
1993. The final outcome may or may not have a material impact on the statement
of operations in the year a decision is made, however, the Company does not
believe adjustments resulting from this arbitration, if any, will have a
material adverse impact on the Company's financial position. This discussion of
the arbitration and that contained in Note 14 of Notes to Financial Statements,
contains forward-looking statements which could vary depending upon the outcome
of the arbitration proceedings.
Net income per share is based on the weighted average number of common
shares outstanding during the period.
1995 COMPARED TO 1994
During 1995, the Company had net income of $7,111,000 compared to $4,849,000
during 1994. Pretax income was $11,772,000 for 1995 compared to $8,122,000 for
1994. As described below, included in 1995 income are $1,430,000 of net
unrealized gains related to marketable securities compared to net unrealized
losses of $1,786,000 in 1994.
During 1995, the Company's operating income from its market operations was
$8,212,000 compared to $8,492,000 during 1994 representing a decrease of
approximately 3.3%. Sales from the Company's supermarkets were $242,962,000 in
1995, an increase of 0.6% from 1994 when sales were $241,587,000. Same store
sales increased 1.5% in 1995 compared to 1994. Sales have been negatively
impacted by competitors opening new stores in Gelson's trading areas.
In November 1993, the Company purchased a neighborhood shopping center in
Calabasas, California and developed a new shopping center on the site on which a
Gelson's store opened in January 1996. Additionally, there are spaces for
thirteen tenants in the center. In January 1996, the Company purchased a
potential site for a Gelson's Market in Santa Barbara. The Company has also
signed two long-term leases to open new Gelson's markets subject to the
Company's due diligence, receipt of necessary entitlements and the developer
fulfilling certain conditions. In October 1995, the Company closed a Mayfair
Market in West Hollywood, California.
The Company's gross profit from market operations as a percentage of sales
was 39.1% in 1995 compared to 38.9% in 1994.
Delivery, selling, general and administrative ("DSG&A") expenses for the
market operations were $86,841,000 in 1995 compared to $85,451,000 in 1994.
Expenses as a percentage of sales were 35.7% in 1995 compared to 35.4% in 1994.
As a result of negotiations for new collective bargaining agreements
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completed in 1993 covering retail clerks and meat cutters, Gelson's recognized
$966,000 and $2,500,000 in credits in 1995 and 1994, respectively, against
health and welfare payments otherwise payable. In 1994 the Company recognized
charges of $1,080,000 to terminate a vacant store lease and to reserve for the
remaining lease costs of two vacant stores located in Arizona. The closure of
the original Calabasas shopping center, the subsequent development of the new
shopping center and higher levels of real estate activity increased DSG&A
expense by approximately $580,000 in 1995 compared to 1994. Improved claims
history resulted in lower workers' compensation expense of approximately
$750,000 in 1995 compared to 1994.
The Company's interest and dividend income was $2,702,000 in 1995 compared
to $3,050,000 for the same period in 1994. This decrease in interest income was
the result of a decreased level of short-term investments and marketable
securities partially offset by an increase in earnings rates on investments.
Interest expense for the Company was $559,000 in 1995 compared to $946,000
for 1994. The Company retired approximately $5,310,000 in mortgage debt in 1994
and had lower average levels of capital lease and fixture debt in 1995 compared
to 1994.
In 1995, net unrealized gains of $1,430,000 related to marketable securities
were reflected in earnings compared to net unrealized losses of $1,786,000 in
1994. Net realized gains on the sale of securities were $31,000 in 1995 compared
to net realized losses of $663,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has an ongoing program to remodel existing supermarkets and to
add new stores. In 1996, the Company had capital expenditures of approximately
$12,840,000. At December 28, 1996, capital expenditure commitments were
approximately $600,000, with additional projects anticipated for commencement
during 1997.
In 1996, the Company purchased a site for a potential Gelson's Market in
Santa Barbara, California. The Company has leased the Santa Barbara property on
a short term lease (18 months) to maximize its return on the property on an
interim basis while it analyzes its ultimate use. In 1995, the Company entered
into long-term leases to open two new Gelson's markets. The opening of Gelson's
markets in each of these sites is subject to, among other things, the Company's
due diligence, receipt of necessary governmental approvals and the developers
fulfilling certain conditions.
The Company and its subsidiaries are subject to a myriad of environmental
laws and regulations regarding air, water and land use, and the use, storage and
disposal of hazardous materials. The Company believes it substantially complies,
and has in the past substantially complied, with federal, state, and local
environmental laws and regulations. However, a claim has been made against the
Company in connection with a real property previously leased by a subsidiary of
the Company by the current owner of such property. The Company has been asked to
pay for a portion of the cost of remediation of hazardous substances allegedly
existing on such properties. The Company cannot at this time estimate the
expenses it ultimately may incur in connection with the claim, however, it
believes such expense will not be of a material amount. Although unexpected
violations may occur in the future and although the Company cannot predict the
effect of future laws or regulations on the Company's operations, expenditures
for continued compliance with current laws are not expected to have a material
impact on its capital expenditures, earnings or competitive position.
The Company has a credit facility with a bank with a revolving line of
credit totaling $9,000,000 with a standby letter of credit subfacility in the
amount of $5,000,000, and a non-revolving term loan line of credit totaling
$10,000,000, and a revolving line of credit with another bank in the amount of
$3,000,000. The Company borrowed $2,750,000 against the term loan line of credit
at December 30, 1995 to finance store fixtures and equipment of which $2,200,000
is outstanding at December 28, 1996. There were no borrowings against either of
the revolving lines as of December 28, 1996. The Company's current cash
10
<PAGE>
position including marketable securities, the lines of credit and net cash
provided by operating activities (approximately $6,408,000 for 1996) are the
primary resources of funds available to maintain the Company's current liquidity
requirements. See Note 7 of Notes to Financial Statements for a description of
the Company's credit lines.
In 1996 the Company purchased 25,884 shares of Class A Common Stock for
approximately $1,613,000. In 1995, 179,229 shares were purchased for
$11,194,000.
The Company's total liabilities to equity ratio decreased to .64 at December
28, 1996 from .66 at December 30, 1995. The Company's current ratio was 1.96 at
December 28, 1996 compared to 2.21 at December 30, 1995. The Company's current
assets at the end of 1996 were approximately $5,200,000 less than at the end of
1995 primarily due to the use of funds for capital expenditures including real
estate and remodel expenditures incurred in 1996 and the purchase of stock.
The Company's cash position, including marketable securities, at the end of
1996 was $26,829,000 compared to $30,262,000 at the end of 1995. Cash not
required for the immediate needs of the Company has been temporarily invested in
marketable securities. See Note 1 of Notes to Financial Statements. The Company
is actively investigating opportunities for the use of these funds, including
the expansion of its supermarket operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements, Supporting Schedules and
Supplemental Data.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
Below is set forth certain information about each of the directors of the
Company as of March 7, 1997. Certain of this information has been supplied by
the persons shown.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION (1) DIRECTOR TERM
NAME AGE AND OTHER DIRECTORSHIPS SINCE EXPIRES
- --------------------------- --- ----------------------------------------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Bernard Briskin............ 72 Chairman of the Board of Directors, President and Chief 1970 1998
Executive Officer of the Company and Arden-Mayfair, Inc., a
subsidiary of the Company, and Chairman of the Board of AMG
Holdings, Inc. and Gelson's Markets, both subsidiaries of
Arden-Mayfair.
John G. Danhakl............ 40 Partner, Leonard Green & Partners since March 1995. 1995 1998
Managing Director of Donaldson Lufkin Jenrette Securities
Corporation from March 1990 to February 1995.
Robert A. Davidow.......... 54 Director of WHX Corporation since April 1991; private 1993 1999
investor.
Stuart A. Krieger.......... 79 Business Consultant. Director of American Rocket Co. 1978 1997
Daniel Lembark............. 72 Financial consultant and Certified Public Accountant. 1978 1998
Ben Winters................ 76 Business Consultant. 1978 1997
</TABLE>
- ------------------------
(1) Unless otherwise indicated, principal occupation or occupations shown have
been such for a period of at least five years in the aggregate.
(2) Date shown for term of service indicates commencement of service as a
director of the Company or Arden-Mayfair.
IDENTIFICATION OF EXECUTIVE OFFICERS
Below is set forth certain information about each of the executive officers
of the Company as of March 7, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------ --- ----------------------------------------------------------------------------------
<S> <C> <C>
Bernard Briskin......... 72 Chairman of the Board of Directors, President and Chief Executive Officer of the
Company and Arden-Mayfair, and Chairman of the Board of AMG Holdings and Gelson's
Markets.
Ernest T. Klinger....... 61 Vice President Finance and Administration and Chief Financial Officer of the
Company and Arden-Mayfair, and Secretary/Treasurer of AMG Holdings and Gelson's
Markets.
</TABLE>
Mr. Briskin served as Chairman of the Executive Committee of the Board of
Directors of Arden-Mayfair until August 1978, when he was elected President and
Chief Executive Officer of Arden-Mayfair. In November 1978, Mr. Briskin was
elected President and Chief Executive Officer of the Company and in June 1994 he
was elected Chairman of the Board of the Company. Mr. Briskin serves as Chairman
of the
12
<PAGE>
Board, President and Chief Executive Officer of the Company and Arden-Mayfair,
and Chairman of the Board and Chief Executive Officer of AMG Holdings and
Gelson's Markets, pursuant to an employment agreement which expires on January
1, 2001, although the term will be automatically extended for successive one
year periods unless certain termination notices are given by either Mr. Briskin
or the employers. See "Item 11. Executive Compensation".
Mr. Klinger has been Vice President Finance and Administration and Chief
Financial Officer of the Company since October 1986. Between January 1983 and
September 1986 he held the position of Vice President Finance and Treasurer and
Chief Financial Officer of the Company. In 1989, he was appointed
Secretary/Treasurer of Gelson's Markets and in 1993 was appointed
Secretary/Treasurer of AMG Holdings, Inc.
Except for Mr. Briskin, who has an employment agreement, all officers serve
at the pleasure of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
GENERAL
The following table sets forth the total annual and long-term compensation
paid or accrued by the Company and its subsidiaries in connection with all
businesses of the Company and its subsidiaries to or for the account of the
Chief Executive Officer of the Company and each other executive officer of the
Company whose total annual salary and bonus for the fiscal year ended December
28, 1996 exceeded in the aggregate $100,000.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
AWARDS
------------------------
SECURITIES-
ANNUAL COMPENSATION UNDERLYING PAYOUTS
OTHER ANNUAL RESTRICTED OPTIONS/ -----------
-------------------- COMPENSATION STOCK SARS LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(4) AWARD(S)(1) (#)(1) PAYOUTS(1)
- --------------------------------- --------- --------- --------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Bernard Briskin, 1996 450,177 191,632
Chief Executive 1995 444,400 407,624
Officer 1994 440,000 273,068
Ernest T. Klinger, 1996 190,000 40,000
CFO, VP Finance 1995 190,000 40,000
and Administration 1994 190,000 0
<CAPTION>
ALL OTHER
COMPEN-
SATION
NAME AND PRINCIPAL POSITION ($)(2)(3)
- --------------------------------- -----------
<S> <C>
Bernard Briskin, 9,000
Chief Executive 10,500
Officer 40,742
Ernest T. Klinger, 9,000
CFO, VP Finance 10,500
and Administration 10,500
</TABLE>
- ------------------------
(1) The Company did not grant to Mr. Briskin or Mr. Klinger any restricted
stock, stock options or stock appreciation rights ("SARs") and made no
payout to them on any long-term incentive plan in fiscal years 1996, 1995,
or 1994.
(2) Includes the Company contribution to the Arden Group, Inc. 401(k) Retirement
Savings Plan and the Arden Group, Inc. Stock Bonus Plan. In 1996, Messrs.
Briskin and Klinger were each allocated $6,000 to their 401(k) account and
$3,000 to their Stock Bonus Plan account. Mr. Briskin's 1994 balance
includes $30,242 for the purpose of purchasing life insurance.
(3) Does not include retirement benefits from the Telautograph Pension Plan
(terminated in December 1993).
(4) Perquisites and other personal benefits did not exceed the lesser of $50,000
or 10% of the compensation received by the named officers in any of the
years for which compensation information is reported.
13
<PAGE>
EMPLOYMENT AGREEMENT
The compensation of Mr. Bernard Briskin, the Chief Executive Officer of the
Company, is established under an Employment Agreement dated May 13, 1988 (the
"Employment Agreement") which was amended in April 1994, effective January 1,
1994 (the "Amended Employment Agreement"). The term of the Amended Employment
Agreement expires January 1, 2001. Pursuant to the terms of the Amended
Employment Agreement, Mr. Briskin's base salary was increased effective January
1, 1997 to $460,081 per year and will be increased on January 1 of each
succeeding year of the term of the Amended Employment Agreement based upon
increases in the Consumer Price Index subject, however, to a maximum annual
increase. His annual bonus will equal 2 1/2% of the Company's first $2,000,000
of Pre-Tax Profits (as defined in the Amended Employment Agreement) plus 3 1/2%
of Pre-Tax Profits in excess of $2,000,000. The Amended Agreement also provides
for certain expense reimbursement and personal benefits, including payment or
reimbursement for uninsured medical expenses of Mr. Briskin and his immediate
family up to a maximum of $100,000 during any calendar year. In addition, if he
becomes permanently disabled, dies or his employment is terminated prior to
January 1, 2001, the cumulative unpaid portion of two notes from Mr. Briskin to
the Company, in the amount of $295,000 as of March 7, 1997, will be forgiven
(see Item 13). In addition, the maturity dates of the two notes is December 31,
2000 with seven equal annual payments of principal plus interest at 6% per
annum.
REMUNERATION OF DIRECTORS
Non-employee directors are compensated for their services as directors at an
annual rate of $18,000, plus $1,000 for each Board meeting attended and $1,000
for attendance at each committee meeting. Non-employee directors who serve as
committee chairmen are entitled to an additional $4,200 per year. In 1996, the
Company awarded Frederick A. Schnell, who had served as a Director of the
Company through June 19, 1996, payment of $50,000 in recognition of his over 20
years of service as a Director of the Company. Such sum is payable in three
installments of $8,000, $24,000 and $18,000 on September 1996, January 1997 and
January 1998, respectively. Mr. Briskin is an employee of the Company and does
not receive the compensation otherwise payable to directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has a Compensation Committee. In 1996 the
Compensation Committee was comprised of the following directors:
John G. Danhakl, Chairman
Robert A. Davidow
Daniel Lembark
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
14
<PAGE>
The following table sets forth information as of March 7, 1997 relating to
the stockholdings of persons known to the Company to be the beneficial owner of
more than 5% of any class of the Company's voting securities: (1)
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP CLASS TOTAL VOTE
- -------------------------------------------------- --------------------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
City National Bank, as Trustee of the Company's Class A Common Stock 209,459 27.3% 5.0%
Stock Bonus Plan and Trust (the "Stock Bonus
Plan")
500 North Roxbury Drive
Suite 500
Beverly Hills, CA 90210
Bernard Briskin Class A Common Stock 169,516(2) 22.1% 4.0%
Arden Group, Inc.
9595 Wilshire Blvd.
Suite 411
Beverly Hills, CA 90212
Bernard Briskin Class B Common Stock 340,624 99.5% 81.3%
</TABLE>
- ------------------------
(1) Unless otherwise indicated to the contrary, all beneficial owners have sole
investment and voting power. For purposes of this table, 339,300 shares of
Company Class A Common Stock, which are held by AMG Holdings, are not deemed
to be outstanding.
(2) This amount includes the following shares: (i) 60,341 shares owned by Mr.
Briskin's wife; (ii) 46,524 shares held in trust (of which Mr. Briskin is a
trustee) for the benefit of Mr. Briskin, his children and his mother; and
(iii) 24,503 shares held in an Individual Retirement Account by Mr.
Briskin's wife. Mr. Briskin disclaims any beneficial ownership of the shares
set forth in clauses (i) and (iii) hereof. Mr. Briskin shares voting and
investment power with respect to the shares referred to in clause (ii),
shares voting power but denies that he has or shares investment power with
respect to the shares referred to in clauses (i) and (iii). Nothing herein
should be construed as an admission that Mr. Briskin is in fact the
beneficial owner of any of these shares.
If Mr. Briskin converted all of his Class B Common Stock to Class A Common
Stock (convertible on a share for share basis) his beneficial ownership of Class
A Common Stock would be increased to 510,140 shares or 46%.
(b) Security Ownership of Management
15
<PAGE>
The following table shows, as of March 7, 1997, the beneficial ownership of
the Company's equity securities by each director, executive officer and by all
directors and executive officers as a group: (1)
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP CLASS TOTAL VOTE
- -------------------------------------------------- --------------------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Bernard Briskin................................... Class A Common Stock 169,516(2) 22.1% 4.0%
Class B Common Stock....... 340,624 99.5% 80.9%
John G. Danhakl................................... Class A Common Stock 0
Robert A. Davidow................................. Class A Common Stock 0
Ernest T. Klinger................................. Class A Common Stock 342(3) (4) (5)
Stuart A. Krieger................................. Class A Common Stock 0
Daniel Lembark.................................... Class A Common Stock 0
Ben Winters....................................... Class A Common Stock 100 (4) (5)
All directors and executive officers as a group (7
persons)......................................... Class A Common Stock 169,958(3) 21.6% 4.0%
Class B Common Stock 340,624 99.5% 81.3%
</TABLE>
- ------------------------
(1) Unless otherwise indicated to the contrary, all beneficial owners have sole
investment and voting power. The number of outstanding shares of Company
Class A Common Stock on which the percentages shown in this table are based
does not include 339,300 shares of Company Class A Common Stock held by AMG
Holdings.
(2) See note (2) to the table under "Security Ownership of Certain Beneficial
Owners" set forth above.
(3) Includes shares held in the Company Stock Bonus Plan for their accounts.
(4) Did not exceed 1% of the outstanding shares of the class.
(5) Did not exceed 1% of the total vote.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the purchase by Mr. Briskin of shares of the Company's
Class A Common Stock in 1979 and 1980, the Company loaned Mr. Briskin $212,500
and $303,750, respectively. The notes mature on December 31, 2000 with
approximately equal annual payments of principal plus interest at 6% per annum.
The highest cumulative outstanding balance of the two loans was $368,750 during
1996 and was $295,000 as of March 7, 1997.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statements and Schedules
(1) Financial Statements
See Index to Consolidated Financial Statements, Supporting Schedules
and Supplementary Data
(2) Financial Statement Schedules
See Index to Consolidated Financial Statements, Supporting Schedules
and Supplementary Data
(3) Exhibits
See Index to Exhibits
(b) Reports on Form 8-K
None
(c) Exhibits
See Index to Exhibits
(d) Other Financial Schedules
See Index to Consolidated Financial Statements, Supporting Schedules and
Supplementary Data
17
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARDEN GROUP, INC.
<TABLE>
<CAPTION>
DATE
---------
<S> <C> <C>
By BERNARD BRISKIN
Bernard Briskin,
Chairman of the Board,
President and Chief Executive Officer 3/18/97
By ERNEST T. KLINGER
Ernest T. Klinger,
Vice President Finance and Administration and
Chief Financial Officer (Principal Financial
and Principal Accounting Officer) 3/18/97
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated. The undersigned have
also relied upon the reports of the registrant's independent accountants at page
21.
<TABLE>
<CAPTION>
DATE
---------
<S> <C>
BERNARD BRISKIN
-------------------------------------------- 3/18/97
Bernard Briskin, Director and Chairman of the Board
JOHN G. DANHAKL
-------------------------------------------- 3/18/97
John G. Danhakl, Director
ROBERT A. DAVIDOW
-------------------------------------------- 3/18/97
Robert A. Davidow, Director
STUART A. KRIEGER
-------------------------------------------- 3/18/97
Stuart A. Krieger, Director
DANIEL LEMBARK
-------------------------------------------- 3/18/97
Daniel Lembark, Director
BEN WINTERS
-------------------------------------------- 3/18/97
Ben Winters, Director
</TABLE>
19
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS, SUPPORTING SCHEDULES
AND SUPPLEMENTAL DATA
------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... 21
Financial Statements:
Balance Sheets, December 28, 1996 and December 30, 1995.................................................. 22
Statements of Operations for fiscal years 1996, 1995 and 1994............................................ 23
Statements of Stockholders' Equity for fiscal years 1996, 1995 and 1994.................................. 24
Statements of Cash Flows for fiscal years 1996, 1995 and 1994............................................ 25
Notes to Financial Statements............................................................................ 26
The financial statements include the Registrant's subsidiary (Arden-Mayfair, Inc.) and the subsidiaries
of Arden-Mayfair, Inc.
Selected Quarterly Financial Data.......................................................................... 39
Financial Statement Schedule:
VIII Valuation and Qualifying Accounts and Reserves for the fiscal years ended December 28, 1996,
December 30, 1995 and December 31, 1994................................................................ 40
</TABLE>
Schedules other than those listed above are omitted because of the absence
of the conditions under which they are required.
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Arden Group, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Arden Group, Inc. and its subsidiary listed in the index
on page 20 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Arden Group,
Inc. and its subsidiary at December 28, 1996 and December 30, 1995, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended December 28, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 14, 1997
21
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................................... $ 5,473 $ 10,102
Marketable securities.................................................... 21,356 20,160
Accounts and notes receivable, net....................................... 6,629 9,384
Inventories.............................................................. 10,728 10,172
Other current assets..................................................... 3,102 2,646
------- -------
Total current assets................................................... 47,288 52,464
Notes receivable........................................................... 82 57
Property for resale or sublease............................................ 1,440 1,461
Property, plant and equipment, at cost, less accumulated depreciation and
amortization............................................................. 39,875 33,458
Other assets............................................................... 2,563 2,038
------- -------
Total assets........................................................... $ 91,248 $ 89,478
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade.................................................. $ 11,357 $ 11,345
Other current liabilities................................................ 11,816 11,335
Current portion of long-term debt........................................ 973 1,078
------- -------
Total current liabilities.............................................. 24,146 23,758
Long-term debt............................................................. 6,663 7,695
Deferred income taxes...................................................... 2,160 1,583
Other liabilities.......................................................... 2,542 2,615
------- -------
Total liabilities...................................................... 35,511 35,651
------- -------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, Class A, $.25 par value; 1,106,053 and 1,130,937 shares
issued, respectively, including 339,300 treasury shares................ 276 283
Common stock, Class B, $.25 par value; 342,246 and 343,246 shares issued
and outstanding, respectively.......................................... 86 86
Capital surplus.......................................................... 5,617 5,718
Notes receivable from officer/director................................... (369) (369)
Retained earnings........................................................ 53,880 51,862
------- -------
59,490 57,580
Less, treasury stock; 339,000 shares at cost............................. 3,753 3,753
------- -------
Total stockholders' equity............................................. 55,737 53,827
------- -------
Total liabilities and stockholders' equity............................. $ 91,248 $ 89,478
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Sales...................................................................... $ 252,019 $ 242,962 $ 246,199
Cost of Sales.............................................................. 152,852 147,909 151,178
---------- ---------- ----------
Gross profit........................................................... 99,167 95,053 95,021
Delivery, selling, general and administrative expenses..................... 93,245 86,841 86,716
---------- ---------- ----------
Operating income....................................................... 5,922 8,212 8,305
Interest and dividend income............................................... 1,728 2,702 3,050
Other income (expense), net................................................ (19) (13) (501)
Interest expense........................................................... (879) (559) (946)
Net unrealized gain (loss) on marketable securities........................ (151) 1,430 (1,786)
---------- ---------- ----------
Income from continuing operations before income taxes.................. 6,601 11,772 8,122
Income tax provision....................................................... 2,622 4,661 3,273
---------- ---------- ----------
Income from continuing operations, net of income taxes................. 3,979 7,111 4,849
Loss from discontinued operations, net of income tax benefits of $305...... (456)
---------- ---------- ----------
Net income............................................................. $ 3,523 $ 7,111 $ 4,849
---------- ---------- ----------
---------- ---------- ----------
Net income per common share (computed on weighted average common shares
outstanding):
Income from continuing operations........................................ $ 3.57 $ 5.47 $ 3.18
Loss from discontinued operations........................................ (.41)
---------- ---------- ----------
Net income............................................................... $ 3.16 $ 5.47 $ 3.18
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding................................. 1,115,227 1,299,002 1,527,128
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT STOCK DATA)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Common stock, Class A:
Balance, beginning of year..................................................... $ 283 $ 327 $ 402
Purchase and retirement of stock (25,884, 179,229 and 298,612 shares,
respectively)................................................................ (7) (44) (75)
--------- --------- ---------
Balance, end of year......................................................... 276 283 327
--------- --------- ---------
Common stock, Class B:
Balance, beginning and end of year............................................. 86 86 86
--------- --------- ---------
Capital surplus:
Balance, beginning of year..................................................... 5,718 6,413 7,571
Purchase and retirement of common stock........................................ (101) (695) (1,158)
--------- --------- ---------
Balance, end of year......................................................... 5,617 5,718 6,413
--------- --------- ---------
Notes receivable from officer/director:
Balance, beginning of year..................................................... (369) (442) (1,502)
Principal paid................................................................. 73 1,074
Amortization of present value discount......................................... (14)
--------- --------- ---------
Balance, end of year......................................................... (369) (369) (442)
--------- --------- ---------
Retained earnings:
Balance, beginning of year..................................................... 51,862 55,205 64,731
Net income for the year........................................................ 3,523 7,111 4,849
Purchase and retirement of common stock........................................ (1,505) (10,454) (14,375)
--------- --------- ---------
Balance, end of year......................................................... 53,880 51,862 55,205
--------- --------- ---------
Stockholders' equity before treasury stock....................................... 59,490 57,580 61,589
Treasury stock, at cost.......................................................... (3,753) (3,753) (3,753)
--------- --------- ---------
Total stockholders' equity................................................... $ 55,737 $ 53,827 $ 57,836
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.................................................... $ 252,482 $ 243,589 $ 244,598
Cash paid to suppliers and employees............................................ (242,869) (231,614) (235,228)
Sales/maturities of marketable securities....................................... 28,751 13,017 41,646
Purchases of marketable securities.............................................. (30,062) (12,003) (40,766)
Interest and dividends received................................................. 1,678 2,784 3,166
Interest paid................................................................... (878) (701) (934)
Income taxes paid............................................................... (2,694) (4,085) (2,606)
--------- --------- ---------
Net cash provided by operating activities..................................... 6,408 10,987 9,876
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures............................................................ (12,841) (10,731) (6,948)
Deposits for property in escrow................................................. 2,664 (2,664)
Net cash from sale of GPS....................................................... 2,511 818
Proceeds from the sale of property, plant and equipment, liquor licenses and
leasehold interests........................................................... 2,338 241 55
Payments received on notes from the sale of property, plant and equipment and
liquor licenses............................................................... 3 3 20
--------- --------- ---------
Net cash (used) provided in investing activities.............................. (7,836) (10,640) (6,055)
--------- --------- ---------
Cash flows from financing activities:
Purchase and retirement of stock................................................ (1,613) (11,193) (15,608)
Principal payments on long-term debt............................................ (752) (199) (5,486)
Transfer to discontinued operations............................................. (456) (2,556)
Principal payments under capital lease obligations.............................. (325) (917) (1,530)
Loan payments from officer/director............................................. 73 1,074
Proceeds from equipment financing............................................... 2,750
Purchase of Company debentures.................................................. (55)
--------- --------- ---------
Net cash used in financing activities......................................... (3,201) (9,486) (24,106)
--------- --------- ---------
Net increase (decrease) in cash................................................... $ (4,629) $ (9,139) $ (20,285)
Cash at beginning of year......................................................... 10,102 19,241 39,526
--------- --------- ---------
Cash at end of year............................................................... $ 5,473 $ 10,102 $ 19,241
--------- --------- ---------
--------- --------- ---------
Reconciliation of net income to net cash provided by operating activities:
Net income........................................................................ $ 3,523 $ 7,111 $ 4,849
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations............................................... 456
Depreciation and amortization................................................... 4,686 3,480 3,659
Unrealized (gain) loss on marketable securities................................. 151 (1,430) 1,786
Provision for losses on accounts and notes receivable........................... 55 94 348
Net loss (gain) from the sale of property, plant and equipment, liquor licenses
and early lease terminations.................................................. (556) (33) 67
Gain on sale of GPS............................................................. (9)
Note receivable from officer/director........................................... (14)
Non-compete payment on sale of GPS.............................................. (86) (217)
Gain on purchase of 7% debentures............................................... (5)
Change in assets and liabilities net of effects from noncash investment and
financing activities:
(Increase) decrease in assets:
Accounts and notes receivable................................................. 8 647 (950)
Marketable securities......................................................... (1,347) 970 1,552
Inventories................................................................... (556) 493 (904)
Other current assets.......................................................... (456) (465) (1,244)
Other assets.................................................................. (548) (325) 222
Increase (decrease) in liabilities:
Accounts payable and other accrued expenses................................... 493 (507) 3,044
Deferred income taxes......................................................... 577 474 (972)
Other liabilities............................................................. (73) 564 (1,341)
--------- --------- ---------
Net cash provided by operating activities......................................... $ 6,408 $ 10,987 $ 9,876
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed in
the preparation of these financial statements.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Arden Group, Inc. (the "Company")
include the accounts of the Company and its direct and indirect subsidiaries.
The Company operates exclusively in the supermarket business.
FISCAL YEAR
The Company operates on a fiscal year ending on the Saturday closest to
December 31. Fiscal years for the financial statements included herein ended on
December 28, 1996, December 30, 1995, and December 31, 1994.
CASH AND CASH EQUIVALENTS
The Statements of Cash Flows classify changes in cash or cash equivalents
(short-term, highly liquid investments readily convertible into cash with an
original maturity at date of purchase of three months or less) according to
operating, investing or financing activities. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and temporary cash investments. At times, cash balances held
at financial institutions were in excess of FDIC insurance limits. The Company
places its temporary cash investments with high-credit, quality financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution. The Company believes no significant concentration of
credit risk exists with respect to these cash investments.
MARKETABLE SECURITIES
Marketable securities consist of mutual funds, fixed-income securities,
preferred stock, common stock, mortgage backed government securities and
collateralized mortgage obligations. Marketable securities are stated at market
value. By policy, the Company invests primarily in high-grade marketable
securities. All marketable securities are defined as trading securities under
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115)
and unrealized holding gains and losses are reflected in earnings.
The Company enters into various forward commitments, interest rate futures
and currency forwards in an effort to maximize its return on investments in
trading securities while managing risk. Interest rate futures and currency
forwards are carried at market value based on quotes from brokers. The risk of
loss to the Company in the event of nonperformance by any party under these
agreements is not significant. Gains and losses on foreign currency forwards
which serves as effective hedges of currency exposure on investments in foreign
debt are offset against gains and losses resulting from the underlying
transactions. Realized and unrealized gains and losses on interest rate futures
are recognized currently.
Market value is determined by the most recently traded price of the security
at the balance sheet date. Net realized gains or losses are determined on the
FIFO cost method.
26
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES: (CONTINUED)
ACCOUNTS RECEIVABLE
The Company closely monitors extensions of credit and has not experienced
significant losses related to its receivables. At December 28, 1996, the Company
did not have significant credit risk concentrations. No single group or customer
represents greater than 2% of total accounts and notes receivable. Issuance
costs related to Gelson's charge cards are not significant and are expensed as
incurred.
INVENTORIES
The cost of supermarket nonperishable inventories is determined by the
retail inventory method using the last-in, first-out (LIFO) method, which is
lower than market. Perishable supermarket and other inventories are valued at
the lower of cost (first-in/first-out, or average) or market.
PROPERTY FOR RESALE OR SUBLEASE
It is the Company's policy to make available for sale or sublease property
considered by management as excess and no longer necessary for the operations of
the Company. The aggregate carrying values of such owned property and property
under capital leases are periodically reviewed and adjusted downward to market,
when appropriate.
PROPERTY, PLANT AND EQUIPMENT
Owned property, plant and equipment is valued at cost. Depreciation is
provided on the straight-line method at rates based on the estimated useful
lives of individual assets or classes of assets. Improvements to leased
properties or fixtures are amortized over their estimated useful lives or lease
period, whichever is shorter.
Leased property meeting certain criteria is capitalized and the present
value of the related lease payments is recorded as a liability. Amortization of
capitalized leased assets is computed on the straight-line method over the term
of the lease.
Normal repairs and maintenance are expensed as incurred. Expenditures which
materially increase values, change capacities or extend useful lives are
capitalized. Replacements are capitalized and the property, plant and equipment
accounts are relieved of the items being replaced. The related costs and
accumulated depreciation of disposed assets are eliminated and any gain or loss
on disposition is included in income.
ENVIRONMENTAL COSTS
Costs incurred to investigate and remediate contaminated sites are expensed.
STORE OPENING COSTS
Noncapital expenditures incurred in opening a new store are expensed in the
year the store is opened.
ADVERTISING AND SALES PROMOTION COSTS
Advertising and sales promotion costs are expensed as incurred.
27
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
NET INCOME PER SHARE
Net income per share is based on the weighted average number of common
shares outstanding during the period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions for the reporting period and as of the financial statement date.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Actual results could differ from these estimates.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121), was adopted as of January 1, 1996. SFAS 121 standardized the
accounting practices for the recognition and measurement of impairment losses on
certain long-lived assets. The adoption of SFAS 121 had no impact on the
Company's results of operations or financial position.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
28
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. MARKETABLE SECURITIES:
Marketable securities are considered to be trading securities per SFAS 115
and are carried on the balance sheet at their market value.
<TABLE>
<CAPTION>
UNREALIZED
COST GAIN (LOSS) MARKET VALUE
--------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
As of December 28, 1996:
Mutual funds................................................... $ 10,997 $ 35 $ 11,032
Fixed income securities........................................ 7,707 (662) 7,045
Equity securities.............................................. 1,413 114 1,527
Mortgage-backed government securities.......................... 1,419 7 1,426
Collateralized mortgage obligations............................ 328 (2) 326
--------- ----- ------------
Total........................................................ $ 21,864 $ (508) $ 21,356
--------- ----- ------------
--------- ----- ------------
As of December 30, 1995:
Mutual funds................................................... $ 10,291 $ 216 $ 10,507
Fixed income securities........................................ 6,749 (458) 6,291
Equity securities.............................................. 2,538 (126) 2,412
Mortgage-backed government securities.......................... 823 12 835
Collateralized mortgage obligations............................ 115 115
--------- ----- ------------
Total........................................................ $ 20,516 $ (356) $ 20,160
--------- ----- ------------
--------- ----- ------------
</TABLE>
The Company enters into various forward commitments, interest rate futures
and currency forwards in an effort to maximize its return on investments in
trading securities. At December 28, 1996, the Company has outstanding forward
commitments to purchase mortgage securities in early 1997 in the amount of
$2,012,000 which it intends to fulfill with the proceeds of matured or sold
investment securities. In addition, the Company holds interest rate futures
relating to five year German bonds due March 10, 1997 with an aggregate notional
amount of $499,000 and ten year Canadian bonds due March 31, 1997 with an
aggregate notional amount of $172,000. The Company also holds currency forwards
for 560,000 German marks which expire in early 1997 and are intended to hedge
currency risk on a German government bond which is held by the Company at
December 28, 1996. The aggregate fair value of these interest rate futures and
currency forwards is nominal at December 28, 1996 and approximates cost.
3. ACCOUNTS AND NOTES RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable, trade....................................... $ 4,677 $ 4,503
Notes receivable................................................. 592 656
Other accounts receivable........................................ 2,070 4,936
------ -------
7,339 10,095
Less: Allowance for doubtful accounts and notes receivable....... (710) (711)
------ -------
$ 6,629 $ 9,384
------ -------
------ -------
</TABLE>
29
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS AND NOTES RECEIVABLE: (CONTINUED)
The provision for doubtful accounts and notes receivable in 1996, 1995, and
1994 was approximately $55,000, $94,000, and $348,000, respectively.
4. INVENTORIES:
Inventories valued by the LIFO method ($9,271,000 in 1996, $8,899,000 in
1995 and $9,461,000 in 1994) would have been $2,394,000, $2,282,000, and
$2,147,000 higher at December 28, 1996, December 30, 1995 and December 31, 1994,
respectively, if they had been stated at the lower of FIFO cost or market. The
LIFO effect on net income and income per share in 1996, 1995 and in 1994 was a
decrease of approximately $67,000 ($.06 per share), $81,000 ($.06 per share) and
$19,000 ($.02 per share), respectively.
5. PROPERTY, PLANT, EQUIPMENT AND ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................. $ 8,775 $ 8,273
Buildings and improvements....................................... 11,453 4,882
Store fixtures and office equipment.............................. 16,837 11,450
Delivery equipment............................................... 1,794 1,584
Machinery and equipment.......................................... 879 880
Leasehold improvements........................................... 21,973 20,880
Assets under capital leases...................................... 3,058 3,933
Assets under construction........................................ 773 5,974
------- -------
65,542 57,856
Accumulated depreciation and amortization........................ (25,667) (24,398)
------- -------
$ 39,875 $ 33,458
------- -------
------- -------
</TABLE>
As of December 28, 1996 approximately $8,000,000 of property, plant and
equipment (at cost) was fully depreciated.
In 1995, the Company developed a new shopping center in Calabasas,
California on which a Gelson's Market was opened in January 1996. The cost of
the shopping center is included in assets under construction at December 30,
1995.
6. OTHER CURRENT LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Compensated absences............................................. $ 2,830 $ 2,612
Taxes (including taxes collected from others of $351 and $947,
respectively)................................................... 2,991 3,245
Other............................................................ 5,995 5,478
------- -------
$ 11,816 $ 11,335
------- -------
------- -------
</TABLE>
30
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT
------------------------------ ----------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 28, DECEMBER 30,
1996 1995 1996 1995
--------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes and contracts payable.................. $ 768 $ 752 $ 1,832 $ 2,600
Obligations under capital leases............. 205 326 3,578 3,782
7% Subordinated income debentures due
September 1, 2014.......................... 1,253 1,313
----- ------ ------ ------
$ 973 $ 1,078 $ 6,663 $ 7,695
----- ------ ------ ------
----- ------ ------ ------
</TABLE>
At December 28, 1996, the approximate principal payments required on
long-term debt for each year are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 SUBSEQUENT
- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
$973...... $ 961 $ 807 $ 838 $ 323 $ 3,734
</TABLE>
The Company has a 15 month loan agreement for a credit facility with a bank
establishing a revolving line of credit in the amount of $9,000,000 with a
standby letter of credit subfacility in the amount of $5,000,000, and a
$10,000,000 non-revolving line of credit providing for term loans. Major
provisions of the agreement include interest on the revolving loan and on the
term loans at the bank's cost of funds rate plus .8% or at the LIBOR rate plus
.8%, and certain minimum requirements as to the Company's equity, working
capital and debt-to-equity relationships. The Company also has a one year
revolving line of credit with another bank in the amount of $3,000,000 with
interest at the bank's reference rate. At the end of 1996 and 1995 there were no
amounts borrowed under either of the revolving lines of credit.
Notes payable: In 1995, the Company borrowed $2,750,000 (at 6.2%) from its
$10,000,000 non-revolving line of credit to finance the purchase of supermarket
equipment. In 1993, the Company financed $1,021,000 (average interest rate 7.5%)
of supermarket equipment. All equipment financing borrowings are five year,
fully amortized notes. Only the obligations of the 1993 borrowings are
collateralized by the equipment. The aggregate balance of the equipment notes at
December 28, 1996 was $2,600,000.
Debentures: The indenture relating to the 7% (6% prior to November 7, 1978)
subordinated income debentures ("7% Debentures"), due September 1, 2014,
provides for interest payable semiannually on March 1 and September 1 to the
extent that current annual net income (consolidated net income before income
taxes and interest accrued on the 7% Debentures) is sufficient therefor, or at
the discretion of the Company, out of available retained earnings. No accrued
interest was in arrears as of December 28, 1996.
The aggregate fair market value of long term debt approximates its carrying
value.
8. CAPITAL STOCK:
Class A Common Stock: The Company is authorized to issue 5,000,000 shares of
Class A common stock, par value $.25 per share. At December 28, 1996 and
December 30, 1995, shares issued were 1,106,053 and 1,130,937, respectively,
including 339,300 treasury shares at the end of each year. On September 16, 1994
the Company completed a self-tender offer by purchasing 285,172 shares of its
Class A common stock at $52 per share in cash. Another 13,440 shares were
purchased at various prices, ranging from $48 to $52 per share, and retired
during the fourth quarter of 1994. In the fourth quarter of 1995, the
31
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK: (CONTINUED)
Company purchased 177,229 shares from two of its institutional holders for
$62.50 per share in cash. An additional 2,000 shares were purchased in the
fourth quarter of 1995 for $58.50 per share. In 1996, the Company purchased an
additional 25,884 shares at an average price of $62.29 per share. The Class A
common stock has one vote per share on all matters on which stockholders are
entitled to vote or consent.
Class B Common Stock: The Company is authorized to issue 500,000 shares of
Class B common stock, par value $.25 per share. At December 28, 1996 and
December 30, 1995 there were 342,246 and 343,246 shares, respectively, issued
and outstanding. The Class B common stock has ten votes per share on virtually
all matters on which shareholders are entitled to vote or consent. Transfer of
Class B common stock is restricted to other Class B stockholders and certain
other classes of transferees. Class B common stock is convertible, at the option
of the holder into Class A common stock on a share-for-share basis. The Class B
common stock is also automatically converted into Class A common stock under
certain circumstances, including upon the transfer of such stock to a transferee
other than another Class B stockholder and certain other classes of transferees.
The number of shares of Class B common stock converted to Class A common stock
were 70 shares in 1994 and 1,000 shares in 1996. No shares were converted in
1995. Cash or property dividends on Class B common stock are restricted to an
amount equal to 90% of any dividend paid on Class A common stock.
9. RETIREMENT PLANS:
The Company contributes to multi-employer union pension plans administered
by various trustees which may be deemed to be defined benefit plans.
Contributions to these plans are based upon negotiated wage contracts.
Information relating to accumulated benefits and fund assets as they may be
allocable to the participants at December 28, 1996 is not available. The
Company's total union pension expense for all plans for 1996, 1995 and 1994
amounted to $906,000, $891,000 and $1,208,000, respectively.
The Company has a noncontributory, trusteed stock bonus plan which is
qualified under Section 401 of the Internal Revenue Code of 1986, as amended.
All nonunion employees over 18 years of age who complete 1,000 hours of service
within the year ending on the anniversary date of employment are eligible to
become participating employees in the plan. Contributions to the plan for any
fiscal year, as determined by the Board of Directors, are discretionary, but in
no event will they exceed 15% of the annual aggregate salaries of those
employees eligible for participation in the plan. Contributions must be invested
in the Company's Class A common stock with excess cash being invested in certain
government backed securities. Contributions to the plan are allocated among
eligible participants in the proportions of their salaries to the salaries of
all participants. Contributions accrued for the plan in 1996, 1995 and 1994 were
$133,000, $130,000, and $328,000, respectively.
The Arden Group, Inc. 401(k) Retirement Savings Plan (the "Company Savings
Plan") covers all non-union employees of the Company and its subsidiaries who
have attained the age of 18 and have completed at least one year of service with
any of such companies. The Company Savings Plan provides that, with certain
limitations, a participating employee may elect to contribute up to 15% of such
employee's annual compensation to the Company Savings Plan on a tax-deferred
basis, subject to a limitation that the annual elective contribution may not
exceed an annual indexed dollar limit determined pursuant to the Internal
Revenue Code ($9,500 in 1996). Annual matching contributions are made by the
Company each year for those participants whose annualized gross earnings for the
previous year were $45,000 or less, and such matching contribution was $8,000 in
1996, $9,000 in 1995 and $10,000 in 1994. An additional discretionary
32
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. RETIREMENT PLANS: (CONTINUED)
amount of $263,000 was accrued in 1996 and contributed to the plan in early
1997. Similarly $317,000 was accrued in 1995 and contributed in early 1996 and
$130,000 was accrued in 1994 and contributed in early 1995.
10. INCOME TAXES:
Income (loss) before income taxes and the related income tax expense
(benefit) are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income tax:
Continuing operations................................................... $ 6,601 $ 11,772 $ 8,122
Discontinued operations................................................. (761)
--------- --------- ---------
Total................................................................. $ 5,840 $ 11,772 $ 8,122
--------- --------- ---------
--------- --------- ---------
Income tax expense (benefit):
Continuing operations................................................... $ 2,622 $ 4,661 $ 3,273
Discontinued operations................................................. (305)
--------- --------- ---------
Total................................................................. $ 2,317 $ 4,661 $ 3,273
--------- --------- ---------
--------- --------- ---------
</TABLE>
The composition of federal and state income tax expense (benefit) is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal................................................................. $ 1,222 $ 3,242 $ 3,167
State................................................................... 517 945 923
--------- --------- ---------
Total................................................................. 1,739 4,187 4,090
Deferred
Federal................................................................. 553 324 (669)
State................................................................... 25 150 (148)
--------- --------- ---------
Total................................................................. 578 474 (817)
--------- --------- ---------
Total income tax expense................................................ $ 2,317 $ 4,661 $ 3,273
--------- --------- ---------
--------- --------- ---------
</TABLE>
33
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES: (CONTINUED)
The Company's deferred income taxes assets (liabilities) were attributable
to the following:
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Debt under capital leases...................................... $ 1,653 $ 1,796
Book accruals not recognized for tax until paid................ 1,076 1,165
Unrealized loss on marketable securities....................... 224 154
Excess of book over tax depreciation........................... 520 879
State tax expense recognized in current period for books but in
following year for tax....................................... 175 315
Bad debt allowance not deductible for tax until year of
write-off.................................................... 307 306
Other.......................................................... 360 338
------- -------
Deferred tax assets............................................ $ 4,315 $ 4,953
Deferred tax liabilities
Deferred gain on debenture exchange.......................... $ (4,694) $ (4,861)
Deferred gain on sale of property............................ (253)
Property leased under capital leases, net of accumulated
depreciation................................................. (1,147) (1,276)
Other.......................................................... (381) (399)
------- -------
Deferred tax liabilities....................................... (6,475) (6,536)
------- -------
Deferred income taxes, net..................................... $ (2,160) $ (1,583)
------- -------
------- -------
</TABLE>
Reconciliation of the statutory federal rate and effective rate is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ----------- --------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Federal tax at statutory rate................. $ 1,986 34.0% $ 4,020 34.2% $ 2,761 34.0%
State income taxes, net of federal tax
benefits..................................... 354 6.0% 712 6.0% 512 6.3%
Federal dividend exclusion.................... (23) (0.4%) (71) (0.6%)
--------- --- --------- --- --------- ---
$ 2,317 39.7% $ 4,661 39.6% $ 3,273 40.3%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
The California Franchise Tax Board has rendered tax assessments against the
Company. The Company believes the assessments are without merit and has filed an
appeal. The Company believes that adequate reserves have been provided for all
years.
11. LEASES:
The principal kinds of property leased by the Company and its subsidiaries
are supermarket buildings, fixtures and delivery equipment. The most significant
obligations assumed under the lease terms, other than rental payments, are the
upkeep of the facilities, insurance and property taxes. Most supermarket
34
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. LEASES: (CONTINUED)
leases contain contingent rental provisions based on sales volume and have
renewal options. The exercise of renewal options is primarily dependent on the
level of business conducted at the location.
All leases and subleases with an initial term greater than one year are
accounted for under Statement of Financial Accounting Standards No. 13,
"Accounting for Leases". These leases are classified as either capital leases,
operating leases or subleases, as appropriate.
Assets Under Capital Leases: Assets under capital leases are capitalized
using interest rates appropriate at the inception of each lease. Contingent
rentals associated with capital leases in 1996, 1995 and 1994 were $110,000,
$109,000 and $143,000, respectively, and accordingly have been charged to
expense as incurred. Following is an analysis of assets under capital leases:
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Buildings.............................................. $ 3,058 $ 3,058
Equipment.............................................. 875
------- -------
3,058 3,933
Accumulated amortization............................... (1,844) (2,474)
------- -------
$ 1,214 $ 1,459
------- -------
------- -------
</TABLE>
Future minimum lease payments for the above assets under capital leases at
December 28, 1996 are as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1997........................................................................... $ 636
1998........................................................................... 638
1999........................................................................... 636
2000........................................................................... 638
2001........................................................................... 636
Remainder...................................................................... 3,395
------
Total minimum obligations...................................................... $ 6,579
Executory costs................................................................ (51)
------
Net minimum obligations........................................................ 6,528
Interest....................................................................... (2,745)
------
Present value of net minimum obligations....................................... 3,783
Current portions (205)
------
Long-term obligations at December 28, 1996..................................... $ 3,578
------
------
</TABLE>
Minimum capital lease obligations have not been reduced by related minimum
future sublease rentals of $2,861,000.
Executory costs include such items as property taxes and insurance.
35
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. LEASES: (CONTINUED)
Operating Leases and Subleases: Future minimum lease payments for all
noncancelable operating leases having a remaining term in excess of one year at
December 28, 1996 are as follows:
<TABLE>
<CAPTION>
DEDUCT
SUBLEASE NET RENTAL
COMMITMENTS RENTALS COMMITMENTS
------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
1997............................................................ $ 3,349 $ 449 $ 2,900
1998............................................................ 3,399 456 2,943
1999............................................................ 3,404 468 2,936
2000............................................................ 3,269 465 2,804
2001............................................................ 3,122 382 2,740
Remainder....................................................... 30,646 4,178 26,468
------------- ----------- -------------
$ 47,189 $ 6,398 $ 40,791
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
Rent expense under operating leases is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rent............................................................. $ 4,300 $ 4,484 $ 5,375
Contingent rent.......................................................... 972 1,103 1,063
--------- --------- ---------
5,272 5,587 6,438
Sublease rentals......................................................... (798) (1,450) (1,398)
--------- --------- ---------
$ 4,474 $ 4,137 $ 5,040
--------- --------- ---------
--------- --------- ---------
</TABLE>
12. RELATED PARTY TRANSACTIONS:
At December 28, 1996, the Company held two notes receivable with balances
totaling $369,000 from an officer/director of the Company. These notes arose
from transactions in 1979 and 1980 whereby the Company loaned the
officer/director money to purchase an aggregate of 200,000 shares of the
Company's Class A common stock at the then fair market value. These notes, which
bear interest at the rate of 6% per annum, mature on December 31, 2000 with
equal payments of principal due annually prior thereto. If the officer's
employment is terminated prior to January 1, 2001, the unpaid portion of the two
notes would be forgiven. A third loan for $1,000,000 made to the
officer/director in 1992 and related to his exercise in 1991 of 100,000 shares
of the Company's Class A common stock, which were granted to him under a stock
option, was repaid in 1994. The loans are collateralized by 180,000 shares of
Class B common stock. The receivable is shown on the balance sheets as a
reduction in equity.
36
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENT LIABILITIES:
The Company has an employment agreement with a key executive officer which
expires on January 1, 2001. In addition to a base salary, the agreement provides
for a bonus based on pre-tax earnings. No maximum compensation limit exists. The
compensation expensed in 1996, 1995 and 1994 was $673,000, $910,000 and
$730,000, respectively.
The Company is contingently liable as a guarantor of certain leases which it
has either assigned or subleased. Any liability arising as a result of these
guarantees would have no significant effect on either the Company's results of
operations or consolidated financial position of the Company.
The Company and its subsidiaries are subject to a myriad of environmental
laws and regulations regarding air, water and land use, and the use, storage and
disposal of hazardous materials. The Company believes it substantially complies,
and has in the past substantially complied, with federal, state, and local
environmental laws and regulations. However, a claim has been made against the
Company in connection with real property previously leased by a subsidiary of
the Company by the current owner of such property. The Company has been asked to
pay for a portion of the cost of remediation of hazardous substances allegedly
existing on such properties. The Company cannot at this time estimate the
expense it ultimately may incur in connection with the claim, however, it
believes such expense will not be of a material amount. Although unexpected
violations may occur in the future and although the Company cannot predict the
effect of future laws or regulations on the Company's operations, expenditures
for continued compliance with current laws are not expected to have a material
impact on its capital expenditures, earnings or competitive position.
The Company or its subsidiaries are defendants in a number of cases
currently in litigation, being vigorously defended, in which the complainants
pray for monetary damages. As of the date hereof, no estimate of potential
liability, if any, is possible. Based upon current information, management,
after consultation with legal counsel defending the Company's interests in the
cases, believes the ultimate disposition thereof will have no material effect
upon either the Company's results of operations or the consolidated financial
position.
14. ARBITRATION PROCEEDINGS:
Pursuant to an Asset Purchase Agreement dated September 1, 1993 (the "Asset
Purchase Agreement"), by and among Telautograph, the Company and Danka
Industries, Inc. (the "Purchaser") and Danka Business Systems PLC ("Danka"), on
September 17, 1993 AMG Holdings sold its communication equipment business and
substantially all the operating assets and certain liabilities of such business
to the Purchaser, a wholly-owned indirect subsidiary of Danka, for a cash
purchase price of approximately $45,780,000 (which includes $1,000,000 received
for a covenant not-to-compete), subject to certain post-closing adjustments. In
fiscal 1993, AMG Holdings booked a gain related to the sale of approximately
$620,000, net of income taxes of $424,000.
The purchase price and the gain are subject to adjustment after resolution
of disputes which have arisen between AMG Holdings and Purchaser concerning the
assets and liabilities transferred to the Purchaser. As a result of an
arbitration hearing, in April 1994 the Company was awarded $1,750,000 for parts
inventory which was purchased by Purchaser as part of the sale of the Company's
communication equipment business in 1993. The valuation of such inventory on the
balance sheet at the date of sale had been in dispute. No amount with respect to
this inventory had been included in the 1993 gain from the sale
37
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. ARBITRATION PROCEEDINGS: (CONTINUED)
of such business. Additionally, there is a second arbitration with regard to
certain items on the closing balance sheet of the communication equipment
business which are being disputed. The Company believes it is owed approximately
$2,200,000 relating to the sale. The Purchaser claims there should be a
reduction in the purchase price of approximately $11,000,000. The recovery of
each party's related legal costs will also be determined in a later arbitration.
No income or expenses related to the first arbitration award and no expenses
related to the second arbitration have been recognized in the 1994 or 1995
statements of operations of the Company. In 1996, arbitration costs which
exceeded the first arbitration award of $1,750,000, in the amount of $456,000,
net of income tax benefits of $305,000, were expensed as discontinued
operations.
While the Company denies the Purchaser's claims, the ultimate outcome cannot
be presently determined. The final outcome may or may not have a material impact
on the statement of operations in the year in which a decision is rendered,
however, the Company does not believe adjustments resulting from this
arbitration, if any, will have a material positive or adverse impact on the
Company's financial position. It is expected that a final arbitration decision
will be rendered in the first or second quarter of 1997 and any award would be
reflected in the Company's financial statements as an adjustment to the purchase
price of the communication equipment business sold in 1993.
38
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS
-------------------------------------------- ----------------------
GROSS INCOME PER LOSS PER NET NET INCOME
QUARTER SALES PROFIT INCOME SHARE LOSS SHARE INCOME PER SHARE
- --------------------------- --------- --------- --------- ----------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994
First.................... $ 63,151 $ 23,926 $ 547 $ .34 $ 547 $ .34
Second................... 61,625 23,790 1,667 1.03 1,667 1.03
Third.................... 59,702 23,374 1,254 .81 1,254 .81
Fourth................... 61,721 23,931 1,381 1.04 1,381 1.04
1995
First.................... $ 59,941 $ 23,209 $ 1,425 $ 1.08 $ 1,425 $ 1.08
Second................... 60,317 23,742 2,246 1.71 2,246 1.71
Third.................... 60,968 23,787 1,801 1.37 1,801 1.37
Fourth................... 61,736 24,315 1,639 1.31 1,639 1.31
1996
First.................... $ 60,616 $ 23,646 $ 134 $ .12 $ 134 $ .12
Second................... 62,864 24,649 895 .81 895 .81
Third.................... 62,891 24,855 1,485 1.34 $ (311) $ (.28) 1,174 1.06
Fourth................... 65,648 26,017 1,465 1.32 (145) (.13) 1,320 1.19
</TABLE>
Earnings per share is calculated on the weighted average outstanding shares
in the quarter. The outstanding shares were significantly reduced in the third
quarter of 1994 by the shares purchased by the Company pursuant to its
self-tender offer and in the fourth quarter of 1995 by the shares purchased from
two of its institutional holders.
The third quarter 1996 results have been restated from the Form 10-Q
previously filed to reclassify $520 in arbitration related expenses from
continuing operations to discontinued operations, in conformity with the fourth
quarter 1996 presentation.
39
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED TO
BEGINNING OF ------------------------------ BALANCE AT
DESCRIPTION YEAR EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF YEAR
- ------------------------------------------------------ ------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended December 28, 1996:
Allowance for doubtful notes and accounts
receivable(1)..................................... $ 711 $ 55 $ 56(2) $ 710
Fiscal Year Ended December 30, 1995:
Allowance for doubtful notes and accounts
receivable(1)..................................... $ 708 $ 94 $ 91(2) $ 711
Fiscal Year Ended December 31, 1994:
Allowance for doubtful notes and accounts
receivable(1)..................................... $ 639 $ 348 $ 138(2) $ 708
141(3)
</TABLE>
- ------------------------
(1) These reserves are deducted from the related items in the balance sheet.
(2) Specific items charged to qualifying accounts and reserves.
(3) Transferred to buyer upon sale of subsidiary.
40
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<S> <C>
2.1 Asset Purchase Agreement dated September 1, 1993 by and among Telautograph Corporation, Arden Group,
Inc., Danka Industries, Inc. and Danka Business Systems PLC filed as Exhibit 2.1 to the Form 8-K of
Arden Group, Inc. dated September 30, 1993 and incorporated herein by reference.
3.1 Restated Certificate of Incorporation of Arden Group, Inc. dated November 7, 1988 filed as Exhibit 3.1 to
the Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year ended December 31, 1988 and
incorporated herein by reference.
3.2 Amended and Restated By-Laws of Arden Group, Inc. (as amended and restated as of June 25, 1991) filed as
Exhibit 3.2 to the Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year ended January 2,
1993 and incorporated herein by reference.
4.1 Indenture dated as of September 1, 1964 between Arden Farms Co. and Security First National Bank, as
Trustee, pertaining to 6% Subordinated Income Debentures, due September 1, 2014, filed as Exhibit 4.2
to Registration Statement on Form S-1 of Arden Group, Inc. and Arden-Mayfair, Inc., Registration No.
2-58687, and incorporated herein by reference.
4.1.1 First Supplemental Indenture dated as of November 7, 1978, to Indenture which is Exhibit 4.1, filed as
Exhibit 7 to the Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year ended December 30,
1978 and incorporated herein by reference.
4.1.2 Second Supplemental Indenture dated as of November 7, 1978, to Indenture which is Exhibit 4.1, filed as
Exhibit 8 to the Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year ended December 30,
1978 and incorporated herein by reference.
4.1.3 Third Supplemental Indenture dated April 24, 1981, to Indenture which is Exhibit 4.1, filed as Exhibit
4.2.3 to the Quarterly Report on Form 10-Q of Arden Group, Inc. for the quarter ended April 4, 1981 and
incorporated herein by reference.
4.2 Loan Agreement dated December 23, 1993, as amended by a Second Amendment thereto dated December 20, 1995,
a Third Amendment thereto dated December 18, 1996 and a Fourth Amendment thereto dated January 13,
1997, between Arden Group, Inc. and Union Bank.
10.1* Employment Agreement dated May 13, 1988 by and among Arden Group, Inc., Arden-Mayfair, Inc., Telautograph
Corporation and Gelson's Markets and Bernard Briskin, filed as Exhibit 10 to the Quarterly Report on
Form 10-Q of Arden Group, Inc. for the quarter ended July 2, 1988 and incorporated herein by reference.
10.2* Amendment to Employment Agreement dated April 27, 1994 by and between Arden Group, Inc., Arden-Mayfair,
Inc., AMG Holdings, Inc. and Gelson's Markets and Bernard Briskin, filed as Exhibit 10.7 to the
Quarterly Report on Form 10-Q of Arden Group, Inc. for the quarter ended April 2, 1994 and incorporated
herein by reference.
10.3* Extension Agreement dated January 4, 1981 regarding promissory notes held by the Registrant between Arden
Group, Inc. and Bernard Briskin, filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q of Arden
Group, Inc. for the quarter ended July 4, 1981 and incorporated herein by reference.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- -----------
10.4* Extension Agreement dated January 1, 1984 regarding promissory notes held by the Registrant between Arden
Group, Inc. and Bernard Briskin filed as Exhibit 19.1 to the Quarterly Report on Form 10-Q of Arden
Group, Inc. for the quarter ended September 29, 1984 and incorporated herein by reference.
<S> <C>
10.5* Extension Agreement dated May 13, 1988 regarding promissory notes held by the Registrant between Arden
Group, Inc. and Bernard Briskin filed as Exhibit 10.11 to the Annual Report on Form 10-K of Arden
Group, Inc. for the fiscal year ended December 31, 1988 and incorporated herein by reference.
10.6* Modification and Fourth Extension Agreement dated as of January 1, 1994 regarding promissory notes held
by the Registrant between Arden Group, Inc. and Bernard Briskin, filed as Exhibit 10.8 to the Quarterly
Report on Form 10-Q of Arden Group, Inc. for the quarter ended April 2, 1994 and incorporated herein by
reference.
10.7 Form of Indemnification Agreement between the Registrant and the Directors and certain officers, filed as
Exhibit 10.13 to the Annual Report on Form 10-K of Arden Group, Inc. for the year ended December 29,
1990 and incorporated herein by reference.
10.8* Amended Loan and Stock Pledge Agreement dated November 4, 1993 regarding promissory notes held by the
Registrant between Arden Group, Inc. and Bernard Briskin, filed as Exhibit 10.6 to the Annual Report on
Form 10-K of Arden Group, Inc. for the year ended January 1, 1994 and incorporated herein by reference.
21. Subsidiaries of Registrant.
27. Financial Data Schedules.
</TABLE>
- ------------------------
* Indicates management contracts or compensatory plans or arrangements required
to be filed as an exhibit to this report.
42
<PAGE>
EXHIBIT 4.2
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") dated 12/23/93 is entered into by and
between ARDEN GROUP, INC., a Delaware Corporation ("Borrower"), and UNION BANK,
a California banking corporation ("Bank"), and sets forth the terms and
conditions upon which Bank will extend to Borrower the credit facilities
outlined below (collectively, the "Credit") in the aggregate principal amount of
Nine Million Dollars ($9,000,000) (the "Credit Commitment").
This Agreement supersedes all prior loan agreements previously entered into
between Borrower and Bank.
1. DEFINITIONS
As used herein, capitalized terms shall have the respective meanings set
forth below or set forth in the Section or Subsection defining such terms:
"AFFILIATE" means, with respect to any Person, (a) each Person that,
directly or indirectly, owns or controls, whether beneficially or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the stock having
ordinary voting power in the election or directors of such Person, (b) each
Person that controls, is controlled by is or under common control with such
Person or any Affiliate of such Person and (c) each of such Person's officers,
directors, joint ventures and partners; provided, however, that in no case shall
Bank be deemed to be an Affiliate of Borrower for purposes of this Agreement.
For the purpose of this definition, "control" of a Person means the ability,
directly or indirectly, to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
"BANKING DAY" shall mean a day other than a Saturday, a Sunday, or a day on
which commercial banks in the State of California are authorized or required by
law to close.
"BANK EXPENSES" shall mean all costs or expenses paid or advanced by Bank
which are required to be paid by Borrower under this Agreement or any of the
other Loan Documents; taxes and insurance premiums of every nature and kind
of Borrower paid by Bank; appraisal, filing, recording, documentation,
publication and search fees paid or incurred by Bank to correct any default
or enforce any provision of this Agreement or any other Loan Document, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
appraising, selling, preparing for sale and/or advertising to sell the
Collateral, whether or not a sale is consummated; costs and expenses of suit
or arbitration proceeding incurred by Bank in enforcing or defending this
Agreement or any other Loan Document, or any portion thereof, and reasonable
attorneys' fees and expenses incurred by Bank in advising, structuring,
drafting, reviewing, amending, terminating, enforcing, defending or
concerning this Agreement or any other Loan Document, or
50
<PAGE>
any portion thereof, whether or not suit is brought, such attorneys' fees to
include the reasonable estimate of the allocated costs and expenses of in-house
legal counsel and staff. All Bank Expenses paid or incurred by Bank shall be
considered to be, and shall become a part of the Credit and be secured by the
Collateral, are payable upon demand, and if not reimbursed, shall immediately
thereafter bear interest, together with all other amounts to be paid by Borrower
pursuant hereto at the Default Rate of Interest (as such term is defined in the
Notes). Notwithstanding the foregoing Borrower shall not be required to
reimburse Bank for any attorney's fees incurred in connection with the initial
structuring and documentation of this Agreement.
"BANK'S LENDING OFFICE" shall have the meaning set forth in Section 2.1A
hereof.
"CREDIT" and "CREDIT COMMITMENT" shall have the meaning set forth in the
introductory paragraph hereof.
"DEFAULT" shall have the meaning given to that term in Section 8 hereof.
"EVENT OF DEFAULT" shall mean a "Default".
"FINANCIAL STATEMENTS" shall mean, with respect to any accounting period of
any Person, statements of income and of changes in financial position of such
Person for such period, and balance sheets of such Person as of the end of such
period, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year or, if such period is a full
fiscal year, corresponding figures from the preceding annual audit, all prepared
in reasonable detail and in accordance with GAAP. "Financial Statements" shall
include the notes and schedules thereto.
"GAAP" shall have the meaning set forth in Section 9.1 hereof.
"GUARANTORS" and "GUARANTOR" shall mean, respectively, (a) Arden-Mayfair,
Gelson's Markets, and Telautograph and (b) any one of such Guarantors.
"GUARANTIES" shall mean those certain Continuing Guaranties dated as of
____________________________, executed by Guarantors, pursuant to which
Guarantors shall guarantee the payment by Borrower of the Obligations.
"INDEBTEDNESS" shall mean and include, with respect to any Person, all
items of indebtedness which, in accordance with GAAP, would be included in
determining liabilities as shown on the liability side of the Financial
Statement of such Person as of the date on which indebtedness is to be
determined and shall also include all indebtedness and liabilities or others
assumed or guaranteed by such Person or in respect of which such Person is
secondarily or contingently liable (other than by endorsement or instruments in
course of collection) whether by reason of any agreement to acquire indebtedness
or to supply or advance funds or otherwise.
51
<PAGE>
"INSOLVENCY PROCEEDING" shall mean and include any proceeding commended by
or against Borrower, or any other Person or entity, under any provision of the
federal Bankruptcy Code, as amended, or under any other applicable federal,
state or foreign bankruptcy, liquidation, conservatorship, insolvency,
reorganization, dissolution, arrangement, composition, readjustment or debt or
similar debtor relief laws from time to time in effect and affecting the rights
of creditors generally, including, but not limited to, assignments for the
benefit of creditors, moratoriums, compositions or extensions with some or all
creditors, or the appointment of a receiver, liquidator, custodian or trustee.
"LOAN DOCUMENTS" shall mean and include this Agreement, the Revolving Note,
the Guaranties, and all other documents, instruments and agreements delivered to
Bank in connection with this Agreement.
"LOANS" and "LOAN" shall mean, respectively (a) the loans and extensions of
credit to be made by Bank to Borrower pursuant to Section 2 hereof and (b) any
one such Loans.
"NOTES" and "NOTE" shall mean the Revolving Note.
"NOTICE OF SBLC APPLICATION" shall have the meaning set forth in Section
2.1.1.3 hereof.
"OBLIGATIONS" shall mean any and all indebtedness, liabilities and
obligations of the Borrower to Bank and to its successors and assigns,
previously, now or hereafter incurred, and howsoever evidenced, whether direct
or indirect, absolute or contingent, joint or several, liquidated or
unliquidated, voluntary or involuntary, due or not due, legal or equitable,
whether incurred before, during or after any Insolvency Proceeding, and whether
recovery thereof is or becomes barred by a statute of limitations or is or
becomes otherwise unenforceable or unallowable as claims in any Insolvency
Proceeding, together with all interest thereupon (including all interest
accruing during the pendency of an Insolvency Proceeding), and all Bank Expenses
(as defined above). The Obligations shall include, without limiting the
generality of the foregoing, all indebtedness evidenced by the Loan Documents.
"PERSON" shall mean any natural person, corporation, partnership, firm,
association, government, governmental agency, court or any other entity.
"POTENTIAL DEFAULT" shall mean any event, condition, act or occurrence
which with the giving of notice or the passage of time or both would constitute
a Default hereunder.
"REFERENCE RATE" shall mean the per annum rate publicly announced by Bank
from time to time at its corporate headquarters as its "reference Rate". The
Reference Rate is determined by Bank from time to time as a means of pricing
credit extensions to some customers and is neither directly tied to any external
rate of interest or index nor necesarily the lowest rate of interest charged by
Bank at any given time for any particular class of customers or credit
extensions.
52
<PAGE>
"REVOLVING TERMINATION DATE" "REVOLVING LOAN" "REVOLVING LOANS" "REVOLVING
NOTE" "REVOLVING COMMITMENT" shall have the meaning set forth in Section 2.1
hereof.
"SBLC" "SBLSs" "SBLC AGREEMENT" "SBLC SUBFACILITY" shall have the meaning
set forth in Section 2.1.1 hereof.
"SUBSIDIARY" shall mean any corporation, more than fifty percent (50%) of
the outstanding voting stock of which is directly or indirectly owned by
Borrower, or by one or more of its Subsidiaries, or by Borrower and one or more
of its Subsidiaries, and "SUBSIDIARIES" shall mean two or more of such
corporations.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
53
<PAGE>
2. THE CREDIT
2.1 REVOLVING COMMITMENT
A. TERMS. Subject to the terms and conditions hereof, between the
date of this Agreement and November 25, 1994, (the Revolving Termination Date"),
so long as no Default or Potential Default has occurred and is continuing, Bank
shall extend to Borrower such loans (each a "Revolving Loan" and collectively
the "Revolving Loans") as Borrower may request from time to time in an aggregate
unpaid principal amount not exceeding at any one time NINE MILLION DOLLARS
($9,000,000) (the "Revolving Commitment"). Within the limits of time and amount
set forth in this Section 2.1, Borrower may borrow, repay and reborrow all or
part of the Revolving Loans in integrals or not less than Fifty Thousand
Dollars ($50,000) upon, in the case of borrowing, giving Bank the notice set
forth below of the amount it intends to borrow. Borrower authorizes Bank to
make Revolving Loans based upon telephonic notice or upon such other
instructions as Bank receives from anyone purporting to be an authorized
representative of Borrower, received within the times stipulated in the
revolving Note. Such notice shall be given to any of Bank's commercial banking
officers at Bank's Long Beach Regional Office ("Bank's Lending Office") and
shall be irrevocable.
(1) The unpaid principal of and accrued interest of the Revolving Loans
shall become immediately due and payable in full on the Revolving Termination
Date.
(2) Unless otherwise directed by Borrower in the disbursement instructions
for a particular Revolving Loan, Bank will disburse all Revolving Loan proceeds
by crediting Borrower's general depository account number 29020-3056 (or
successor account) at Bank's Lending Office. Borrower agrees to use the
proceeds of the Revolving Loans only for short term working capital purposes.
B. REVOLVING NOTE. The Revolving Loans shall be evidenced by, bear
interest at the rate(s) provided for in, and be payable or prepayable, as the
case may be, in accordance with the terms of a promissory note in form and
substance satisfactory to, and issued by Borrower in favor of, Bank (the
"Revolving Note"). Borrower's obligations with respect to each Revolving Loan,
the interest rate(s) applicable to such Revolving Loan (and if a fixed rate, the
period for which the fixed rate is applicable), and the date such Revolving Loan
was made and payments thereon received by Bank shall be evidenced by entries
made by Bank in its books and records or on a schedule on the back of or affixed
to the Revolving Note, which entries shall constitute PRIMA FACIE evidence of
the matters noted. Bank's failure to make such entries, however, shall not
affect, impair or diminish Borrower's obligation to repay the Revolving Loans,
together with interest as provided for in the Revolving Note.
2.1.1 THE SBLC SUBFACILITY
2.1.1.1 AVAILABILITY. As a subfacility of the Revolving Loan
and upon the request of Borrower made at any time and from time to time during
the terms of this Agreement, and so long as no Event of Default or Unmatured
Event of Default has occurred and is
54
<PAGE>
continuing, Bank shall make available to Borrower a line of credit (the "SBLC
Subfacility") not to exceed in aggregate principal amount at any one time
outstanding the sum of FIVE MILLION DOLLARS ($5,000,000) for the issuance by
Bank of irrevocable standby letters of credit (individually, a "SBLC" and
collectively, the SBLCs").
2.1.1.2 TERMS FOR ISSUANCES OF SBLCs. SBLCs shall be issued
for the purpose of providing credit enhancement to Borrower's ordinary and
usual contractual obligations to third parties. NO SBLC SHALL EXPIRE BEYOND ONE
YEAR AFTER THE REVOLVING LOAN MATURITY DATE. Each SBLC issued hereunder shall
reduce, dollar for dollar, the total availability under the Revolving
Commitment. All SBLCs issued hereunder shall comply with the Bank's policies
and procedures for issuance of SBLCs, shall be issued on such terms and
conditions as are acceptable to Bank, and shall be documented on the Bank's
standard form of SBLC application and reimbursement agreement ("SBLC Agreement")
set forth in EXHIBIT "B" hereto. The terms and conditions of such SBLC
Agreement shall be supplemental to the terms and conditions hereof, except to
the controlling extent of any inconsistencies, in which case the terms and
conditions of such SBLC Agreement shall prevail. However, notwithstanding any
inconsistency with the terms of such SBLC Agreement, any SBLC drawing not
reimbursed by Borrower on or before the date such reimbursement is due (unless
financed pursuant to Paragraph 2.1.1.5 below) shall thereafter, at Bank's
option, bear interest at the Default Rate of Interest as stipulated in the
Revolving Note.
2.1.1.3 NOTICE OF SBLC APPLICATION. Borrower may request Bank
to issue a SBLC by an irrevocable written notice ("Notice of SBLC Application")
delivered to the Bank's Lending Office no later than one p.m. at least one (1)
Banking day before the date of the requested SBLC issuance.
2.1.1.4 FEES. As a condition precedent to the Bank's issuance
of a SBLC hereunder, Borrower shall pay to Bank, in immediately available funds,
a issuance fee equal to three quarter percentage points (75%), PER ANNUM, of the
face amount of such requested SBLC. Borrower shall also pay to Bank, if and
when the same would be payable under the Bank's standard operating procedures,
any amendment, cancellation or other similar fees which may be or become payable
with respect to, and shall reimburse the Bank on demand for all of its
out-of-pocket costs and expenses not otherwise identified in this Subparagraph
incurred in connection with, each SBLC. All such fees shall be computed and
paid at the Bank's rates therefore prevailing at the time such fees are
incurred. All SBLC fees may be charged when owed against any of Borrower's
deposit accounts with Bank.
2.1.1.5 REIMBURSEMENT. Borrower agrees that on the date the
same becomes due, or on such earlier date as may be required pursuant to other
provisions of this Agreement or of the applicable SBLC Agreement, it will
provide the Bank with funds to meet all disbursements and payments of any kind
and character, together with interest (if any), fees, commissions and charges,
which the Bank has or will pay, become liable for or become entitled under or in
relation to any given SBLC or the draft or drafts drawn thereunder; PROVIDED,
HOWEVER, that prior to the Revolving Loan Maturity Date, to the extent
availability shall exist under the Revolving Commitment and so long as no Event
of Default of Potential Default shall
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have occurred and be continuing, Borrower shall have the option to finance all
or any part of the reimbursement obligation arising in connection with any draft
drawn or demand made under a SBLC through a drawing under the Revolving
Commitment.
2.2 Prepayment of the Credit. The Credit may be prepaid in whole or in
part only in accordance with the terms of the Note evidencing the part of the
Credit to be prepaid. Bank's determination as to any amount (in addition to
principal prepaid plus accrued interest thereon as of the date of the
prepayment) which is required as a result of any such prepayment shall be
binding on Borrower. Principal sums prepaid will be applied to those
installments, if any, scheduled to repay the outstanding principal balance of
that portion of the Credit to be prepaid in inverse order of maturity, but shall
not postpone the due date or change the amount of any subsequent principal
installment unless Bank shall otherwise agree in writing.
2.3 Interest Calculation Factors. Any payment required hereunder to be
made on any day which is not a Banking Day shall fall due on the next succeeding
day which is a Banking Day, unless such payment date would fall into another
calendar month, in which case it shall fall due on the next preceding day which
is a Banking Day, and such extension or contraction shall be taken into account
in the computation of any interest, fees or other amounts due. All interest
calculations under this Agreement shall be based on actual days elapsed over a
360-day year.
2.4. Credit for Payments. Bank's receipt of any check or other payment on
the Credit, other than a check drawn on Bank itself, shall not be considered as
a payment received until the check is honored; and Bank may delay the crediting
of such payments according to its schedule of funds availability. All payments
on the Credit shall be made in United States Dollars.
2.5 Bank's Right to Charge Account. Borrower authorizes Bank (irrevocable
until the Credit is paid in full and Bank's commitment to extend Credit
hereunder is terminated) from time to time to charge against any deposit account
maintained by Borrower with Bank amounts due in respect of Borrower's
Obligations under this Agreement which are not secured by real property and
which are not promptly paid when due; provided that Bank shall not have any
obligation to charge past due payments against any such deposit account.
2.6 Intentially Deleted
3. CONDITIONS PRECEDENT
3.1 TO INITIAL EXTENSION OF CREDIT. Before the initial use of the Credit,
Bank must have received all of the following, each of which must be in form and
substance satisfactory to Bank:
A. NOTES. An original, duly executed Revolving Note required
pursuant to Section 2B prior to the initial funding of the part of the Credit
evidenced thereby.
B. EVIDENCE OF AUTHORITY. Evidence that the execution, delivery and
performance by Borrower of this Agreement and the execution, delivery and
performance by
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Borrower and any pledgor, guarantor or subordinating creditor or other Person
(who is not an individual) executing Loan Documents required in connection with
the Credit have been duly authorized, together with incumbency certificates for
such Persons.
C. ARTICLES OF INCORPORATION. A copy of the articles of
incorporation of Borrower (if a corporation), and of any corporate guarantor,
pledgor or subordinating creditor, certified as true, current, complete and
correct by the secretary of such corporation(s).
D. FICTITIOUS BUSINESS NAMES. Copies of any and all filings or
registrations regarding fictitious business names, dba's, trade styles or other
names under which Borrower may be doing business or holding title to real or
personal property.
E. CERTIFICATES OF GOOD STANDING. If Borrower is a corporation, a
certificate showing that Borrower is in good standing under the laws of the
state of its incorporation and certificates indicating that Borrower has
qualified to transact business and is in good standing in any other state in
which it conducts business and is required to be so qualified.
F. GUARANTIES. The Guaranties, duly executed by Guarantors. Each
Guaranty shall be in a form acceptable to Bank and in an amount equal to Nine
Million Dollars ($9,000,000).
G. BORROWER'S FINANCIAL STATEMENT. A copy of Borrower's (audited)
Financial Statement for the fiscal year ended January 3, 1993.
H. OTHER DOCUMENTS. The Loan documents and such additional
original, duly executed documentation which Bank shall reasonably consider
necessary or desirable in connection with the Credit.
I. NO ADVERSE CHANGE. If required by Bank, evidence that since the
submission to Bank of Borrower's most recent Financial Statement and the
Financial Statement of each Guarantor, there has been no adverse change in the
financial or business condition or operations of Borrower OR OF ANY GUARANTOR
sufficient to materially impair Borrower's ability to pay its Obligations to
Bank OR ANY GUARANTOR'S ABILITY TO HONOR ITS GUARANTY.
3.2 TO ALL SUBSEQUENT EXTENSIONS OF CREDIT. Before Bank is obligated to
permit use of the Credit subsequent to the initial use, each of the following
shall be true and correct:
A. REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Agreement shall be true, complete and accurate as
of the date made (or deemed made in the case of each request for any utilization
of the Credit hereunder).
B. NO DEFAULT. No Default or Potential Default shall have occurred
and be continuing, or shall exist after giving effect to such request for use of
the Credit.
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C. LOAN DOCUMENTS. Each of the Loan Documents shall remain
unrevoked and otherwise in full force and effect.
4. REPRESENTATIONS AND WARRANTIES
4.1 GENERAL REPRESENTATIONS. Borrower represents and warrants that, and
each request for use of the Credit shall be deemed Borrower's representation and
warranty made on the date of such request that:
A. DUE INCORPORATION, QUALIFICATION, ETC. Borrower and each of its
Subsidiaries (i) are corporations duly organized, validly existing and in good
standing under the laws of their respective states of incorporation; (ii) have
the power and authority to own their property and carry on their businesses as
now being conducted; and (iii) are duly qualified and in good standing as
foreign corporations in each jurisdiction where the failure to qualify would
have a material adverse effect on their condition or operations (financial or
otherwise).
B. AUTHORITY. The execution, delivery and performance by Borrower
of this Agreement and the other Loan Documents are within the corporate power of
Borrower, have been duly authorized by all necessary corporate action, do not
require any registration with, consent or approval of , license or permit from,
or notice to any Person, do not contravene any law, rule or regulation, any
order, writ, decree or judgment of any Person, or Borrower's articles of
incorporation or bylaws, do not violate or constitute a default under any
mortgage, indenture, lease, contract or other agreement or instrument binding
upon Borrower or any Subsidiary, and will not result in or require the creation
of any lien on the property, assets or revenue of Borrower or any Subsidiary
(except such liens as may be created in favor of Bank pursuant to this
Agreement).
C. ENFORCEABILITY. This Agreement and the other Loan Documents
executed by Borrower when executed will constitute legal, valid and binding
obligations of Borrower, enforceable against it in accordance with their terms
except, in each case, as limited by bankruptcy, insolvency or other laws of
general application relating to or affecting the enforcement of creditors'
rights and general principles of equity.
D. COMPLIANCE WITH LAWS, OTHER AGREEMENTS, ETC.. Neither Borrower
nor any Subsidiary is in violation or default with respect to any applicable
laws, rules, or regulations which materially affect the operations or condition
(financial or otherwise) of Borrower nor are they, or any of them, in violation
of or in default with respect to any order, writ, decree or judgment of any
Person or in violation of or default under (nor is there any waiver in effect
which, if not in effect, would result in a violation or default) any mortgage,
indenture, lease, contract or other agreement or instrument binding upon
Borrower or any Subsidiary, where such violation or default might have a
material adverse effect on the operations or condition (financial or otherwise)
of Borrower.
E. LITIGATION. Except as set forth (with estimates of the dollar
amounts involved) in a schedule previously furnished by Borrower to Bank, no
litigation (including,
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without limitation, derivative actions), arbitration proceedings or governmental
proceedings are pending, or, to the knowledge of Borrower, threatened against
Borrower or any Subsidiary which would, if adversely determined, have a material
adverse effect on the operations or condition (financial or otherwise) of
Borrower, or otherwise result in liability in excess of $750,000, whether
singularly or in the aggregate, excluding any ordinary course tort claims within
Borrower's insurance limits (including self insured retentions).
F. TITLE. Borrower and each Subsidiary have good and marketable fee
title to the assets and properties reflected in the Financial Statements (except
those assets and properties disposed of in the ordinary course of business since
the date of such Financial Statements) and all assets and properties acquired by
it since such date (except those dispose of in the ordinary course of business).
Such assets and properties are subject to no mortgage, pledge, encumbrance, lien
or charge of any kind, other than in favor of Bank.
G. FINANCIAL STATEMENTS. The audited Financial Statement of
Borrower as at January 3, 1993, and any subsequent Financial Statements which
have been furnished to Bank, have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis and accurately
present the financial condition of Borrower as at their respective dates and the
results of operations for the fiscal year period or portion thereof then ended.
Since the date of the most recent Financial Statement furnished to Bank, there
has been no material adverse change in the operations or condition (financial or
otherwise) of Borrower.
H. SUBSIDIARIES. Exhibit A hereto is a complete and accurate list
of all Subsidiaries, showing as of the date of this Agreement as to each such
Subsidiary the jurisdiction of its incorporation and the proportionate ownership
by Borrower, whether direct or indirect, of its voting stock. Except as therein
set forth, Borrower directly or indirectly owns, free and clear of all liens,
charges and encumbrances, all the outstanding shares of each such Subsidiary,
and all shares are validly issued, fully paid and nonassessable.
I. ERISA. Each pension, profit-sharing or other employee benefit
plan maintained by Borrower and each Subsidiary (individually, a "Plan") is in
material compliance with the Employee Retirement Income Security Act ("ERISA"),
the Internal Revenue code, and all applicable rules and regulations promulgated
thereunder, and Borrower has filed or caused to be filed all material reports
required to be filed by ERISA.
J. OTHER REGULATIONS. Neither Borrower nor any Subsidiary is
subject to regulation under the Investment Company Act of 1940, the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code or to any Federal or state statute
or regulation limiting its ability to incur Indebtedness.
K. PATENT AND OTHER RIGHTS. Borrower and each Subsidiary possess or
have the right to use all patents, licenses, trademarks, trade names, trade
secrets, service marks, copyrights and all rights with respect thereto, which
are required to conduct their businesses as now conducted, without known
conflict with the rights of others which would materially affect such
businesses.
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L. TAXES. Borrower has filed or caused to be filed all tax returns
which are required to be filed by it and each Subsidiary pursuant to the laws,
regulations and orders of each Person with taxing power over Borrower and such
subsidiary and the assets thereof. Borrower and each Subsidiary have paid, or
made provision for the payment of, all taxes, assessments, fees and other
governmental charges which have or may have become due pursuant to said returns,
or otherwise, or pursuant to any assessment received by Borrower or such
Subsidiary, except such taxes, if any, as are being contested in good faith and
as to which adequate reserves (determined in accordance with GAAP) have been
provided. Federal income tax returns of Borrower have been audited by and
settled with the Internal Revenue Service or the statute of limitations has
expired for all years to and including fiscal year ended January 3, 1993, and
the results of such settlement are properly reflected in the Financial Statement
referred to hereinabove.
M. MARGIN STOCK. Borrower is not engaged in the business of
extending credit for the purpose of, and no part of the Credit will be used for,
purchasing or carrying margin stock within the meaning of Federal Reserve Board
Regulation U, or to extend credit to others for the purpose of purchasing or
carrying any margin stock.
N. LABOR RELATIONS. Borrower is not a party to a collective
bargaining agreement or similar agreement, and Borrower is in compliance in all
material respects with all applicable state and federal laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours and other laws related to employment of its employees, and there are
no arrears in the payment of wages, withholding or social security taxes,
unemployment insurance premiums or other similar obligations of Borrower or for
which Borrower may be responsible other than in the ordinary course of business.
There is no strike, work stoppage or labor dispute with any union or group of
employees pending or overtly threatened involving Borrower that would have a
material adverse effect on its business, operations or condition (financial or
otherwise).
O. OTHER CREDITORS. Except for trade payables arising in the
ordinary course of Borrower's business and except as disclosed in the Financial
Statement, Borrower does not have (i) any obligation or liability (including,
without limitation, pending litigation) which would materially and adversely
affect its business operations or the Collateral, (ii) any Indebtedness other
than the Credit, a $3,000,000 Line of Credit with City National Bank and a
$1,200,000 Standby Letter of Credit Line with Sanwa Bank or (iii) any obligation
under any guaranty of any obligations of any other Person.
P. COMPLIANCE WITH ZONING ORDINANCES AND ENVIRONMENTAL LAWS.
Borrower and Borrower's business premises presently comply with, and will in the
future comply fully with, all applicable laws, and all permits and approvals
issued thereunder, affecting Borrower's business and business premises, the
operation of Borrower's business and business premises and the intended
occupancy, use and enjoyment of Borrower's business
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premises, including, but not limited to, all applicable subdivisions laws,
licenses and permits, building codes, zoning ordinances, environmental
protection laws, flood disaster laws, and all laws pertaining to industrial
hygiene and the environmental conditions on, under or about Borrower's business
premises, including but not limited to, soil and groundwater condition.
Borrower does not presently, and will not in the future, use, store,
manufacture, generate, transport to or from, or dispose of any toxic substances
hazardous materials, hazardous waste, radioactive materials, flammable
explosives or related materials on or in connection with Borrower's business
premises or the business of Borrower on its business premises, except such
materials as are presently used and as are ordinarily and customarily used in
the operation of: retail supermarkets, and then only in material compliance
with all applicable laws and permits. Borrower does not presently, and will not
in the future, permit any lessee or sublessee on its business premises to use,
store, manufacture, generate, transport to or from, or dispose of any toxic
substances, hazardous materials, hazardous waste, radioactive material,
flammable explosives or related materials on or in connection with Borrower's
business premises or the business of such lessee or sublessee on Borrower's
business premises, except such materials as are presently used and as are
ordinarily and customarily used in the operation of: retail supermarkets, and
then only in full and complete compliance with all applicable laws and permits.
(The terms "toxic substances," "hazardous materials" and hazardous waste" shall
include, but not be limited to, such substances, materials and waste which are
or become regulated under applicable laws or which are classified as hazardous
or toxic under applicable laws). Borrower shall not seek, make or consent to
any change in the zoning, conditions of use, or any other applicable land use
permits, approvals or regulations pertaining to Borrower's business premises, or
any portion thereof, which would constitute a violation of the representations
and warranties herein contained, or would change the nature of the use or
occupancy of Borrower's business premises.
Q. NO DEFAULT. There has not occurred and does not exist any
Default or Potential Default; nor would a Default or Potential Default exist
after giving effect to any request by Borrower for use of the Credit.
R. NO CONVICTIONS. None of the officers and/or directors of
Borrower has ever been convicted of a felony or other crime involving fraud or
moral turpitude.
S. FULL DISCLOSURE. There is no fact, occurrence or circumstance
which Borrower has not disclosed in writing to Bank which has, or could
reasonably be expected have, a material adverse effect on Borrower's ability to
perform under this Agreement or to pay any of its Obligations when due.
4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement and the other Loan Documents shall
survive the termination of this Agreement and Bank may rely thereon
notwithstanding any information possessed by Bank or any investigation made by
Bank or on behalf of Bank. Borrower acknowledges that its warranties in this
Agreement are material and are automatically deemed repeated with each request
for Credit hereunder, and shall be cumulative and in addition to any and all
other warranties of Borrower at any time made to Bank.
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5. AFFIRMATIVE COVENANTS
Until the Credit and all other sums payable under this Agreement and the
other Loan documents required by Bank in connection herewith have been paid in
full, and Bank shall have no obligation to permit further use of the Credit,
Borrower agrees to:
5.1 CURRENT RATIO. At all times maintain a ratio of Current Assets to
Current Liabilities of at least 1.0 to 1.0. "Current Assets" means cash and
other assets reasonably expected to be realized by Borrower in cash, within one
year OR DURING THE OPERATING CYCLE OF THE BUSINESS OF BORROWER, WHICHEVER IS
LONGER. "Current Liabilities" means Indebtedness of Borrower INCLUDING
OBLIGATIONS HEREUNDER the liquidation of which is reasonably expected to require
the use of existing resources classified as Current Assets, or the creation of
other Current Liabilities.
5.2 TANGIBLE NET WORTH. At all times maintain Tangible Net Worth of at
least Forty Seven Million Five Hundred Thousand Dollars ($47, 500,000).
"Tangible Net Worth" means Borrower's net worth increased by Debt subordinated
to Bank (in a manner Bank has approved in writing) and decreased by the
following: patents, licenses, trademarks, goodwill, other intangible assets,
organizational expenses, security deposits, prepaid costs and expenses, and
moneys due from officers, directors and/or shareholders.
5.3 DEBT TO NET WORTH. At all times maintain a ration of total
Indebtedness to Tangible Net Worth of not more than 1.75 to 1.0.
5.4 PROFITABILITY. At every six month period maintain a positive
operating profit and net profit.
5.5 NOTICE. Give prompt written notice to Bank within not more than five
days after the event of:
(A) Each litigation or other supervised proceeding affecting
Borrower, any Subsidiary or any Guarantor, where the amount involved
(singularly or in the aggregate) is Seven Hundred Fifty Thousand
Dollars ($750,000) or more, excluding any ordinary course tort claims
within Borrower's insurance limits (including self insured
retentions);
(B) Any material dispute, claim or other action which may exist
between Borrower or any Subsidiary and any governmental regulatory
body, environmental agency or law enforcement authority;
(C) Any Default or Potential Default;
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(D) Any other matter which has resulted or might result in a
material adverse change in Borrower's, any Subsidiary's or any
Guarantor's financial condition or assets;
(E) Any change in Borrower's name (including the adoption of a new
fictitious name) or principal place of business, or in the location of
any Collateral.
5.6 QUARTERLY FINANCIAL STATEMENT. Furnish to Bank, within 60 days after
the close of each of its fiscal quarters, its Consolidated Financial Statement
as of the close of such fiscal quarter prepared in accordance with GAAP and
certified by Borrower's chief financial officer.
5.7 ANNUAL FINANCIAL STATEMENT. Furnish to Bank, within 120 days after
the close of each fiscal year, a copy of its Consolidated Financial Statement
for such fiscal year prepared on an audited basis in accordance with GAAP, by an
independent certified public accountant selected by Borrower and reasonably
satisfactory to Bank.
5.8 NO DEFAULT CERTIFICATE. Furnish to bank, simultaneously with the
delivery of the Financial Statement required above, a certificate of Borrower's
president or chief financial officer certifying that Borrower has performed and
observed each covenant contained in this Agreement and in the other Loan
Documents to be performed by it, and that no Default or Potential Default has
occurred. In the event that such certification cannot be made, then Borrower's
president or chief financial officer shall deliver to Bank a report setting
forth the details of such Default or Potential Default and the action which
Borrower is taking or proposes to take with respect thereto, and also containing
a brief summary from the chief financial officer of the business and financial
condition of Borrower.
5.9 OTHER REPORTS. Furnish to Bank, upon its request, copies of such
other Financial Statements and reports of Borrower and any Subsidiary as Bank
nay deem desirable, including, without limitation, any audit reports submitted
to Borrower by its independent accountants, any proxy statements, financial
statements and reports as Borrower sends to its shareholders or partners, as the
case may be, and any reports filed with the Securities and Exchange Commission,
the Internal Revenue Service, or any other local, state or Federal government
office.
5.10 PAYMENT OF OBLIGATIONS. Pay and discharge when due all Indebtedness,
and all liens, charges, taxes, assessments, governmental charges or levies, and
any other lawful charges which, if unpaid, could become a lien upon any property
of Borrower, except such liens or taxes as may be contested in good faith and by
appropriate proceedings in such manner as not to cause any materially adverse
effect upon Borrower's financial condition or the loss of any right or
redemption from any sale of its assets, and with respect to which Borrower
maintains reserves in conformity with GAAP.
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The foregoing shall apply to each Subsidiary, and Borrower shall so ensure
compliance by each thereof.
5.11 COMPLIANCE WITH LAWS, ETC. At all times comply with, or cause to be
complied with, all laws, statutes, rules, regulations, orders and directions of
any governmental authority having jurisdiction over Borrower or its assets. The
foregoing shall apply to each Subsidiary, and Borrower shall so ensure
compliance by each thereof.
5.12 MAINTENANCE OF PHYSICAL ASSETS AND FRANCHISES. Maintain and preserve
all its rights, privileges and franchises now enjoyed; conduct its business in
an orderly, efficient and customary manner; keep all its properties, equipment
and facilities in good working order and condition, and from time to time make
all needed repairs, renewals or replacements so that the efficiency of its
properties shall be fully maintained and preserved and if Borrower is a
corporation or partnership, maintain its existence as such. The foregoing shall
apply to each Subsidiary, and Borrower shall so ensure compliance by each
thereof.
5.13 INSURANCE.
(a) Keep, at its expense, all of its insurable property insured by
responsible insurance companies approved by Bank at the appraised values of such
property against fire and such other hazards and risks, and with such loss
deductible amounts, as are customarily carried by businesses with similar
properties in Borrower's line of business; and maintain adequate public
liability, business interruption and worker's compensation insurance with
responsible insurance carriers as is maintained by such businesses.
5.14 RECORDS AND AUDITS. Maintain complete, true and correct books,
accounts and records and prepare all Financial Statements required hereunder in
accordance with GAAP, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over Borrower or its business and permit
employees or agents of Bank at any reasonable time to inspect Borrower's
properties, and to examine or audit Borrower's books, accounts and records and
make copies, extracts and memoranda thereof, and reimburse Bank for the
reasonable costs thereof. The foregoing shall apply to each Subsidiary, and
Borrower shall so ensure compliance by each thereof.
5.15 ERISA. Borrower will, and will cause each Subsidiary to (a) comply
with the minimum funding requirements of ERISA for each Plan, (b) file all
material reports with respect to each Plan required to be filed by ERISA, the
Internal Revenue Code and all applicable rules and regulations promulgated
thereunder, and (c) otherwise maintain each Plan in material compliance with
ERISA, the Internal Revenue Code, and such rules and regulations.
5.16 REPORTS FROM GUARANTORS. Cause each Guarantor to deliver to Bank, at
the time required to be filed with the Internal Revenue Service, (a) a complete
and correct
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copy of such Guarantor's federal and state income tax returns and (b) a copy of
such Guarantor's Financial Statement as at the end of the fiscal year covered by
such returns.
5.17 FURTHER ASSURANCES. Promptly upon demand by Bank, at Borrower's sole
expense, take such further action and execute and delivery such additional
agreements and instruments and other documents in connection with this Agreement
as Bank reasonably considers necessary for carrying out the intention of
facilitating the performance of the terms of this Agreement and the other Loan
Documents, or for assuring the validity of any security interest provided for
therein and promptly supply Bank with such other information concerning its
affairs as Bank may request from time to time.
5.18 COMPLIANCE WITH FICTITIOUS NAME STATUTES. At all times remain in
compliance, and cause each Subsidiary to remain in compliance, with the
requirements of California fictitious name statutes.
6. NEGATIVE COVENANTS
Until the Credit and all other sums payable under this Agreement and the
other Loan Documents required by Bank in connection herewith have been paid in
full, and Bank shall have no obligation to permit further use of the Credit
hereunder, Borrower agrees NOT to:
6.1 LOANS/ADVANCES/GUARANTIES. Except as herein provided, or in the
ordinary course of business as currently conducted, make any loans or advances,
become a guarantor or surety, pledge its credit or properties in any manner, or
otherwise extend credit or become directly or contingently liable for the
obligations of another, except for the endorsement of negotiable instrument for
deposits or collection in the ordinary and normal course of Borrower's business.
6.2 OTHER INDEBTEDNESS. Sell or discount any of its accounts or notes
receivable or other evidence of Indebtedness owed to it except to Bank; borrow
any money, incur, assume or permit to exist, directly or indirectly, any
liabilities for borrowed money, or prepay any existing Indebtedness owing to any
Person, except (a) Obligations to Bank, (b) obligations currently shown on
Borrower's Financial Statement referred to in Section 4.1 (G), (c) trade debt
incurred in the ordinary course of business, (d) a $3,000,000 Line of Credit
with City National Bank and a $1,200,000 Standby Letter of Credit Line with
Sanwa Bank, and (e) pursuant to written agreements made with and approved by
Bank.
6.3 CORPORATE NAME, LOCATION AND STRUCTURE. Without giving Bank thirty
(30) days' prior written notice, (a) change its name, taxpayer identification
number, identity or business structure or add any new fictitious name or (b)
relocate its chief executive office or principal place of business; with Bank's
prior written consent, make
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any change in its financial structure or in any of its business operations which
would adversely affect its ability to repay its obligations.
6.4 DISPOSAL OR RELOCATION OF ASSETS. Other than in the ordinary course
of Borrower's business, sell, assign, lease or otherwise dispose of , move,
relocate or transfer, whether by sale or otherwise, any of Borrower's assets.
6.5 LIQUIDATION OR MERGER. Without Bank's prior written consent,
liquidate, dissolve, enter into any consolidation, merger, reorganization,
recapitalization, partnership or other combination; or convey, sell or lease all
or any part of its assets or stock; or purchase or lease all or any part of the
assets or stock of another.
6.6 NONRELATED BUSINESS ACTIVITIES. Enter into any material contract,
lease, indenture or other agreement except in the ordinary course of its
business as presently conducted; or engage in any business activity or operation
substantially different from or unrelated to present business activities and
operations; or make any substantial change in the character or manner of conduct
of its business.
6.7 ACCOUNTING METHODS. Without thirty (30) days' prior written notice to
Bank, (a) modify its methods of accounting or (b) enter into, modify or
terminate any agreement presently existing, or at any time hereafter entered
into with any third party accounting firm or service bureau for the preparation
or storage of Borrower's accounting records without said accounting firm or
service bureau agreeing to provide Bank with information regarding the
Collateral or Borrower's financial condition.
6.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter into or
permit to exist any transaction (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service) with
any holder of five percent (5%) or more of any class of equity securities of
Borrower or with any Affiliate of Borrower on terms that are less favorable to
Borrower or its Affiliates, as the case may be, than those terms which might be
obtained at the time from third parties, or otherwise not obtained through good
faith negotiation on an arm's length basis.
7. EVENTS OF DEFAULT
The occurrence of any of the following events (each a "Default") shall
permit Bank, at its option, to exercise all rights available to it under this
Agreement and the other Loan Documents and under applicable law, including
without limitation to the right to (i) terminate any obligation of Bank to make
further Credit available hereunder; and (ii) declare all sums of interest and
principal outstanding under this Agreement and of each other Obligation of
Borrower to Bank immediately due and payable, without notice of default,
presentment or demand for payment, protest or notice of nonpayment of dishonor,
or other notices or demands of any kind or character, all of which Borrower
hereby waives. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, BANK
SHALL HAVE NO DUTY TO EXTEND ANY
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CREDIT TO BORROWER DURING ANY CURE PERIOD WHICH MAY BE PROVIDED FOR HEREUNDER.
7.1 PRINCIPAL AND INTEREST PAYMENT. Borrower shall default in the due and
punctual payment of the principal of, or interest on the Credit; or
7.2 MATURING OBLIGATIONS. Borrower shall default in the due and punctual
payment of any Obligations otherwise owed to Bank (whether of principal,
interest, fees, taxes, reimbursement of Bank Expenses or otherwise); or
7.3 DEFAULT UNDER OTHER AGREEMENTS. Borrower shall take or fail to take
any action in contravention of the terms of any Loan Document or any other
agreement, document or instrument at any time executed by Borrower which permits
the holder to accelerate any Indebtedness of Borrower; or
7.4 DEFAULT BY ANY GUARANTOR. Any Guarantor of Borrower's Obligations to
Bank shall take or fail to take action in contravention of the terms of any
agreement, document or instrument executed, or to be executed by such Guarantor
and concerning a financial obligation of such Guarantor, and such default shall
not have been cured within any applicable period of grace provided in such
agreement or instrument (provided that during any such grace period there shall
have been no acceleration of payment pursuant to such default); or
7.5 INTENTIONALLY DELETED.
7.6 ADVERSE REGULATORY ACTION. Any governmental regulatory authority or
environmental protection agency shall take or institute action which, in the
reasonable opinion of Bank, may materially and adversely affect Borrower's
condition, operations or ability to repay the Obligations; or
7.7 BREACH OF ANY REPRESENTATION OR WARRANTY. Any representation or
warranty made by Borrower in any Loan Document, or in any other instrument,
certificate, report or financial or other statement heretofore or hereafter
furnished by Borrower or its officers or any Guarantor shall prove to be in any
material respect untrue, incorrect, false, incomplete or misleading; or shall be
withdrawn; or
7.8 VIOLATION OF COVENANTS. Borrower shall fail or neglect to perform,
keep or observe any term, provision, condition, covenant, agreement, warranty or
representation contained in any of the Loan Documents; or
7.9 INSOLVENCY. Borrower or any Guarantor shall fail, be unable or be
unwilling to pay its debts generally as they come due; or there shall be filed
by Borrower or any Guarantor any petition under the bankruptcy, reorganization,
arrangement, insolvency or other debtor's relief laws, or there shall be filed
against Borrower or any Guarantor any such petition, and such filing shall not
be dismissed within ninety (90)
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days thereafter, or a receiver, trustee or liquidator shall be appointed for all
or a substantial part of Borrower's or any Guarantor's assets; or Borrower or
any Guarantor shall make a general assignment for the benefit of creditors; the
foregoing shall also apply to any Subsidiary; or
7.10 ATTACHMENTS AND JUDGMENTS. Any final judgment or order for the
payment or money against Borrower or any Guarantor for an amount in excess of
$100,000 shall be awarded by any court of competent jurisdiction, which shall
not be either discharged, vacated or stayed within a period of thirty (30) days
from its entry; or any notice of lien, levy or assessment, or any writ,
judgment, attachment, execution or other like process in an amount in excess of
$100,000 shall be issued or levied against any of Borrower's or any Guarantor's
property or assets, and such writ, judgment, attachment, execution or process
shall not be released, discharged, dismissed, bonded against or satisfied within
twenty (20) days thereafter; the foregoing shall also apply to any Subsidiary;
or
7.11 SEIZURE OF PROPERTY. All, or such as in the opinion of Bank
constitutes a substantial portion, of the property of Borrower or and Subsidiary
shall be condemned, seized or appropriated; or
7.12 SUSPENSION OF BUSINESS. Borrower or any Subsidiary shall suspend its
business; or
7.13 PENDING ACTION. Any action shall be pending against Borrower or any
Guarantor (other than an action fully covered by insurance) which, if adversely
determined, would substantially impair the ability of Borrower to perform any or
all of its Obligations hereunder or under any of the other Loan Documents, or
the ability of any Guarantor to perform its obligations under its Guaranty,
unless Borrower's or such Guarantor's counsel, as the case may be, furnishes to
Bank its opinion to the satisfaction of Bank and Bank's counsel that, in its
judgment, the action is essentially without merit; the foregoing shall also
apply to any Subsidiary; or
7.14 REVOCATION OF GUARANTY/SUBORDINATION AGREEMENT. Any Guaranty or the
Subordinating Agreement shall be breached or become ineffective, or any
Guarantor or Subordinating Creditor shall revoke, disavow or attempt to
terminate such Guaranty or Subordination Agreement, or any Guarantor (if an
individual) shall die; or
7.15 SALARIES AND WAGES. Borrower shall fail to pay salaries or wages when
due, or fail to make timely payment or deposit of all F.I.C.A. payments and
other withholding taxes required of it by applicable laws; or
7.16 MATERIAL ADVERSE CHANGE. Any other event or condition having a
material adverse effect on Borrower's, any Subsidiary's or any Guarantor's
financial condition shall occur, such that Bank reasonably believes that the
prospect of payment or
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performance by Borrower under this Agreement or any other Loan Document is
materially and adversely impaired.
8. INTERPRETATION
8.1 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles ("GAAP") and interpretations of the American Institute of Certified
Public Accountants or its successors, consistently applied, as in effect from
time to time, including, without limitation, applicable statements, bulletins
and interpretations issued by the Financial Accounting Standards Board and
bulletins, opinions, interpretations and statements issued by the American
Institute of Certified Public Accountants or its committees.
8.2 CONSTRUCTION. Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Bank or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meanings of the words used so as to fairly accomplish the purposes and
intentions of the parties hereto. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, the singular
includes the plural, the part includes the whole, "including" is not limiting,
and "or" has the inclusive meaning represented by the phrase "and/or." The
words "hereof," "herein," "hereby," "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of the Agreement. Article, Section, Subsection, exhibit and schedule references
are to this Agreement unless otherwise specified.
8.3 CAPTIONS. Paragraph headings, numbers and underscoring have been set
forth herein for convenience only, do not define or limit the provisions hereof,
and have no significance whatsoever. The order in which the paragraphs appear
in the Agreement has no significance whatsoever.
8.4 APPLICABLE LAW. The Credit and all Loan Documents required hereunder
shall be deemed to have been made in the State of California, and the validity
of each thereof and its construction, interpretation and enforcement shall be
determined under, governed by and construed in accordance with the laws of the
State of California (without reference to choice of law). Borrower consents to
service of process by any means authorized by California or Federal Law. In any
action brought under any or arising out of this Agreement, which is not
submitted to arbitration as provided and limited in Section 9.16 below, Borrower
hereby submits to the exclusive jurisdiction of any competent Federal or State
court within the State of California; provided, however, that any suit seeking
enforcement against any Collateral or other property may be brought, at the
Bank's option, in the courts or other jurisdiction where such Collateral or
other property may be found.
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9. MISCELLANEOUS
9.1 NONWAIVER. Bank's failure to exercise, or delay in exercising, any
right, remedy, power or privilege hereunder shall not operate as a waiver
thereof; nor shall any single or partial exercise by Bank of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege, and no waiver
whatever shall be valid unless in writing signed by Bank and then only to the
extent specifically set forth in such writing.
9.2 INUREMENT. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that Borrower shall not assign the Credit or any of its rights, duties or
obligations hereunder or under any other Loan Document without Bank's prior
written consent and any prohibited assignment shall be absolutely void. No
consent to an assignment shall release Borrower or any Guarantor from their
obligations to Bank. This Agreement shall not benefit or create any right or
cause of action in or on behalf of any Person other than the parties hereto.
9.3 BANK'S ASSIGNMENT/PARTICIPATIONS. Bank may at any time, without
Borrower's consent, sell, assign, grant participations in or otherwise transfer
to any other Person or Persons (each, a "Participant") all or part of the
Obligations of Borrower outstanding under this Agreement and the other Loan
Documents evidencing such Obligations, and may deliver such Loan Documents to,
and may exchange financial information about the Borrower with, such
Participant. Borrower hereby acknowledges and agrees that any such disposition
will give rise to a direct obligation of Borrower to such Participant. Borrower
hereby authorizes Bank and each Participant, upon the occurrence of a Default
hereunder, to proceed directly by right of setoff, banker's lien or otherwise,
against any assets of Borrower which may at the time of such default be under
Bank's or such Participant's control.
9.4 CUMULATIVE REMEDIES. Bank's rights, remedies, powers and privileges
under this Agreement and the other Loan Documents required hereunder shall be
cumulative. Bank shall have all other rights, remedies, power and privileges
not inconsistent herewith as provided by law or in equity. No single or partial
exercise by Bank of one such right, remedy, power or privilege shall be deemed
an election. Bank may exercise all such remedies in any order of priority.
9.5 AMENDMENTS. This Agreement may be amended only in writing signed by
the parties hereto.
9.6 SEVERABILITY. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the
legal enforceability of any specific provision.
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9.7 DOCUMENTATION. All loans made by Bank under the Credit shall be
evidenced by Bank's standard forms of documentation and the terms and conditions
of this Agreement are supplemental to such documentation. However, in the event
of any conflict between the terms of any of such documents and this Agreement,
the terms of such documents shall prevail.
9.8 MULTIPLE BORROWERS. If two or more Borrowers sign this Agreement,
each will be individually obligated to repay the Bank in full, and all Borrowers
will be obligated together.
9.9 APPLICATION OF PAYMENTS. Borrower waives the right to direct the
application of any and all payments at any time or times hereafter received by
Bank on account of the Credit or of any other Obligation owed by Borrower to
Bank, and Borrower agrees that Bank may apply an reapply such payments in any
manner as Bank may deem advisable.
9.10 SETOFF. Borrower hereby acknowledges and specifically grants Bank a
security interest in, banker's lien upon, and right to setoff respecting any and
all deposit or other accounts maintained by Borrower with Bank, whether held in
a general or special account or deposited for safekeeping or otherwise, and
regardless of how such account may be titled, and any other property of Borrower
held in the possession or custody of Bank or its agents with the exception of
any employee payroll accounts of Borrower held by Bank. Borrower further
acknowledges that the exercise of setoff, if any, shall require, and only be
deemed to occur upon, the affirmative action of Bank.
9.11 WAIVERS BY BORROWER. Borrower waives demand, notice, protest, notice
of acceptance of this Agreement, notice of loans made, credit extended,
collateral received, delivered or repossessed or other action taken in reliance
hereon, and all other demands and notices of any description. With respect to
both Obligations and Collateral, Borrower assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of Collateral, to the addition or release of
any Person primarily or secondarily liable, to the acceptance of partial
payments thereon and the settlement, compromising or adjusting of any thereof,
all in such manner and at such time or times as Bank may deem advisable.
Borrower waives the right to assert any confidential relationship it may have or
develop with any accounting firm or service bureau in connection with any
information requested by Bank pursuant to or in accordance with this Agreement,
and agrees that Bank may contact directly any such accounting firm or service
bureau in order to obtain such information.
9.12 NOTICES. Any notice or other communication provided for or allowed
hereunder shall be considered to have been validly given if delivered
personally, and evidenced by a receipt signed by an authorized agent or
addressee, or 72 hours after being deposited in the United States mail,
registered or certified, postage prepaid, return receipt requested, or 48 hours
after being sent by Federal Express or other courier service, or, in the case
of telecopied notice, when telecopied, receipt acknowledged, and addressed as
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provided below. Addresses to which notices or demands are to be given may be
changed from time to time by notice served as provided herein.
9.13 COUNTERPARTS. This Agreement may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement. This Agreement shall become effective upon the receipt by Bank and
Borrower of executed counterparts signed by each of them.
9.14 ENTIRE AGREEMENT. Except for Loan Documents specifically referenced
herein, this Agreement constitutes the entire agreement of the parties hereto
respecting the subject matter contained herein, and supersedes any prior or
contemporaneous oral or written agreements, understandings, representations,
warranties, negotiations, which are merged into this Agreement.
9.15 ACKNOWLEDGMENTS. Borrower hereby acknowledges that (a) it has been
advised by counsel of its own choosing, or has had the opportunity to consult
with counsel of its own choosing, in the negotiation, execution and delivery of
this Agreement and the other Loan Documents to which it is a party, (b) it has
made an independent and voluntary decision to enter into this Agreement and the
other Loan Documents to which it is a party, without reliance on any other
representation, warranty, covenant or undertaking by Bank, (c) it fully
understands and is fully satisfied with each and every term of this Agreement
and the other Loan Documents to which it is a party, (d) there are no
representations, warranties, covenants, undertakings or agreements by the
parties hereto as to this Agreement or the other Loan Documents except as
specifically provided herein and therein, (e) Bank has no fiduciary obligation
to Borrower with respect to any of the Loan Documents or the transactions
contemplated thereby, (f) the relationship between Bank and Borrower pursuant to
this Agreement and the other Loan Documents is and shall be solely that of
creditor and debtor, respectively, (g) Bank is not and shall not be construed to
be a partner, joint venturer, alter ego, trustee, fiduciary, manager,
controlling person, or other business associate or participant of any kind of
Borrower or any Guarantor, or any other Person, and (h) by entering into this
Agreement, Bank shall not be deemed responsible to perform nor participate in
acts, omissions or decisions of Borrower or any Guarantor.
9.16 DISPUTE RESOLUTION.
(a) MANDATORY ARBITRATION. Any controversy or claim between or among
the parties hereto arising out of or relating to (i) this Agreement or the other
Loan Documents ("Subject Documents"), (ii) any negotiations, correspondence or
communications, whether or not incorporated or integrated into the Subject
Documents, relating to the Subject Documents or any indebtedness evidenced
thereby. or (iii) the administration or management of the Subject Documents or
the Credit, and with respect to (i), (ii) and (iii) also including any such
controversy or claim based on or arising out of
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an alleged tort, shall be determined by arbitration in accordance with Title 9
of the U.S. Code and the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA") and the provisions of this Agreement;
PROVIDED, HOWEVER, that unless Bank and all parties to the Subject Documents
consent to such submission, this Section shall not apply to the extent that (i)
such claim or controversy involves enforcement of any Subject Documents with
respect to obligations which are incurred primarily for personal, family or
household use; or (ii) and Subject Documents or any other obligations to Bank
described in or covered by any of the Subject Documents are secured by real
property. All statutes of limitation and waivers which would otherwise be
applicable shall apply to any arbitration proceeding. Judgment upon the award
rendered may be entered in any court having jurisdiction.
(b) JUDICIAL REFERENCE. If the controversy or claim is not
submitted to arbitration as provided and limited in subparagraph (a), but
becomes the subject of a judicial action, then the parties hereby consent to the
jurisdiction of the Superior Court for the County of Los Angeles or the Federal
District Court for the Central District of California. IN CONNECTION WITH SUCH
JUDICIAL ACTION, THE PARTIES HEREBY EXPRESSLY, DELIBERATELY AND INTENTIONALLY
WAIVE ANY RIGHT THEN MAY OTHERWISE HAVE TO TRIAL BY JURY OF SUCH CLAIM OR
CONTROVERSY, UNLESS SUCH CLAIM OR CONTROVERSY INVOLVES THE ENFORCEMENT OF ANY
SUBJECT DOCUMENT WITH RESPECT TO OBLIGATIONS WHICH ARE INCURRED PRIMARILY FOR
PERSONAL, FAMILY OR HOUSEHOLD USE. In addition, any party may elect to have all
decisions of fact and law determined by a referee in accordance with applicable
state law. If such an election is made, the parties shall designate to the
court a referee or referees selected under the auspices of the AAA in the same
manner as arbitrators are selected in AAA-sponsored proceedings. The referee or
presiding referee of the panel shall be an experienced attorney actively engaged
in the practice of either commercial finance law or the collection of commercial
loans, or shall be retired judge. Judgment upon the award rendered shall be
entered in the court in which such proceeding was commenced.
(c) PROVISIONAL REMEDIES, SELF-HELP, AND FORECLOSURE. No provision
of, or the exercise of any rights shall limit the right of any party to exercise
self help remedies such as setoff, to foreclose against any real or personal
property collateral, or to obtain provisional or ancillary remedies, such as
injunctive relief or the appointment of a receiver from a court having
jurisdiction before, during, or after the pendency of any arbitration. At
Bank's option, foreclosure under a deed of trust or mortgage may be accomplished
either by exercise or power of sale under the deed of trust or mortgage, or by
judicial foreclosure. The institution and maintenance of an action for judicial
relief or pursuit of provisional or ancillary remedies or exercise or self help
remedies shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the controversy or claim to arbitration. The parties agree
that the submission of any controversy or claim to arbitration under
subparagraph (a), or the a referee under subparagraph (b), above, the granting
or entry of any award in connection with such
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submission or the exercise of any provisional or self help remedy, including
foreclosure of collateral, under this subparagraph (c) shall not be deemed to be
an "Action" under California code of Civil Procedure, Section 726, or any other
similar law or regulation.
(d) MISCELLANEOUS. Any arbitration question arising under this
Section 9.16 shall be governed in accordance with Title 9 of the U.S. Code. The
provisions of this Section 9.16 shall survive any termination, amendment, or
expiration of the Subject Documents, unless the Bank and other parties otherwise
expressly agree in writing. In the event of an dispute governed hereby, the
party the arbitrator or referee determines is the prevailing party shall be
entitled to have the other party or parties pay the expenses of the prevailing
party, but subject to the award of the arbitrator or referee each party shall
bear its own arbitrators' or referee's fees. In this regard the arbitrator or
referee shall have the power to award recovery to such prevailing party of all
costs and fees (including attorneys' fees and a reasonable allocation for the
costs of Bank's in-house counsel), administrative fees, arbitrators' or
referee's fees, and court costs, all as determined by the arbitrator hereunder
shall be conducted in Los Angeles. In any arbitration or other proceeding held
pursuant to this section, all oral or written communications between or among
the parties hereto shall be deemed privileged for all purposes as if the parties
had proceeded judicially.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
(Next page is signature page)
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WITNESS the due execution hereof on the date set forth hereinabove.
BORROWER:
ARDEN GROUP, INC.:
By:
----------------------------
Ernest T. Klinger
Title: Vice President
-----------------------
Address where notices to Borrower are to be sent:
ARDEN GROUP, INC.
2020 South Central Avenue
Compton, California 90220
Attention: Ernest T. Klinger
Chief Financial Officer
Telecopier: (310) 631-0950
----------------------
BANK:
UNION BANK,
a California banking corporation
By:
----------------------------
Title:
----------------------------
By:
----------------------------
Title:
----------------------------
Address where notices to Bank are to be sent:
Long Beach Regional Office #290
400 Oceangate Blvd.
Long Beach, California 90802
Attention: Gina Sweetman
Vice President
Attention:
----------------------
----------------------
Telecopier: ( )
----------------------
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SECOND AMENDMENT
TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Second Amendment") dated as
of December 20, 1995, is made and entered into by and between ARDEN GROUP, INC.
a Delaware corporation ("Borrower"), and UNION BANK, a California banking
corporation ("Bank").
RECITALS:
A. Borrower and Bank are parties to that certain Loan Agreement dated December
23, 1993, as amended by that certain First Amendment dated as of October 31,
1994 (as so amended, the "Agreement"), pursuant to which Bank agreed to extend
the credit facilities to Borrower outlined therein in the aggregate principal
amount at any one time outstanding not to exceed Nine Million Dollars
($9,000,000).
B. Borrower has requested that Bank agree (i) to extend the Revolving
Termination Date from November 25, 1995 (with effect from and after that date)
to November 29, 1996, (ii) to make available to Borrower a non-revolving line of
credit providing for term loans in the aggregate principal amount not to exceed
Ten Million Dollars ($10,000,000) and (iii) to amend the Agreement in certain
other respects.
C. Bank is willing to so amend the Agreement, but subject to the terms and
conditions of this Second amendment.
AGREEMENT:
In consideration of the above recitals and of the mutual covenants and
conditions contained herein, Borrower and Bank agree as follows:
1. DEFINED TERMS. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO SECTION 1 OF THE AGREEMENT.
(a) The introductory paragraph of the Agreement is hereby amended by
substituting the amount of "Nineteen Million Dollars ($19,000,000)" for the
amount "Nine Million Dollars ($9,000,000)" appearing in the seventh line
thereof.
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(b) The definition of "BANK EXPENSES" appearing in Section 1 of the
Agreement is hereby amended by (i) deleting the words ", or in gaining
possession of, maintaining, handling, preserving, storing, shipping, appraising,
selling, preparing for sale and/or advertising to sell the Collateral, whether
or not a sale is consummated" appearing in the seventh through eleventh lines
thereof and (ii) deleting the words "and be secured by the Collateral" in the
twenty-first and twenty-second lines thereof.
(c) The definition of "DEFAULT" appearing in Section 1 of the Agreement is
hereby amended by substituting the reference "Section 7" for the reference
"Section 8" appearing therein.
(d) Section 1 of the Agreement is hereby amended by adding the new terms
"EQUIPMENT LOAN COMMITMENT TERMINATION DATE", "EQUIPMENT LOAN", "EQUIPMENT
LOANS", "EQUIPMENT NOTE", "EQUIPMENT NOTES" and "EQUIPMENT LOAN COMMITMENT"
thereto in the appropriate alphabetical order, which new terms shall be defined
as follows:
" 'EQUIPMENT LOAN COMMITMENT TERMINATION DATE', 'EQUIPMENT LOAN',
'EQUIPMENT LOANS', 'EQUIPMENT NOTE', 'EQUIPMENT NOTES' and 'EQUIPMENT LOAN
COMMITMENT' shall have the meanings set forth in Section 2A.1 hereof."
(e) The definitions of "GUARANTIES" and "GUARANTY" appearing in Section
1 of the Agreement are hereby amended to read in full as follows:
" 'GUARANTIES' and 'GUARANTY' shall mean, respectively, (a) those
certain Continuing Guaranties dated as of the Second Amendment Effective
Date, executed by Guarantors, pursuant to which Guarantors shall guarantee
the payment by Borrower of the Obligations and (b) any one of such
Guaranties."
(f) The definition of "LOAN DOCUMENTS" appearing in Section 1 of the
Agreement is hereby amended to read in full as follows:
" 'LOAN DOCUMENTS' shall mean and include this Agreement, the Notes, the
Guaranties, and all other documents, instruments and agreements delivered to
Bank in connection with this Agreement."
(g) The definitions of "NOTES" and "NOTES" appearing in Section 1 of the
Agreement are hereby amended to read in full as follows:
"'NOTES' and 'NOTE' shall mean, respectively, (a) the Revolving Note and
the Equipment Notes and (b) any one of such Notes."
(h) Section 1 of the Agreement is hereby amended by adding the new terms
"SECOND AMENDMENT" and "SECOND AMENDMENT EFFECTIVE DATE" thereto in the
appropriate alphabetical order, which new terms shall be defined as follows:
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" 'SECOND AMENDMENT' shall mean that certain Second Amendment to this
Agreement, dated as of December 20, 1995, by and between Borrower and Bank."
" 'SECOND AMENDMENT EFFECTIVE DATE' shall mean the date by which each of the
conditions precedent set forth in Section 9 of the Fourth amendment has been
satisfied."
3. AMENDMENTS TO SECTION 2 OF THE AGREEMENT.
(a) Section 2.1A of the Agreement is hereby amended by substituting the
date "November 29, 1996" for the date "November 30, 1995" appearing in the
second line thereof.
(b) Section 2.1A of the Agreement is hereby further amended by
substituting the words "Commercial Portfolio Administration" for the words "Long
Beach Regional Office" appearing in the nineteenth line thereof.
(c) Section 2.1.1.1 of the Agreement is hereby amended by substituting the
word "Potential" for the word "Unmatured" in the fourth line thereof.
(d) Section 2 of the Agreement is hereby amended by adding a new Section
2A.1 after Section 2.1 thereof, which new Section 2A.1 shall read in full as
follows:
"2A.1 EQUIPMENT LOAN COMMITMENT"
A. TERMS. Subject to the terms and conditions hereof, between the
Second Amendment Effective Date and November 29, 1996 (the 'Equipment Loan
Commitment Termination Date'), so long as no Default or Potential Default has
occurred and is continuing, Bank shall extend to Borrower such loans (each,
an 'Equipment Loan' and collectively, the 'Equipment Loans') as Borrower may
request from time to time in an aggregate principal amount not exceeding Ten
Million Dollars ($10,000,000) (the 'Equipment Loan Commitment'). Within the
limits of time and amount set forth in this Section 2A.1, Borrower may borrow
and repay, but once repaid may not reborrow, Equipment Loans in amounts of
not less than One Million Dollars ($1,000,000) each upon, in the case of
borrowing, giving Bank notice as set forth below of the principal amount
Borrower intends to borrow. Borrower authorizes Bank to make Equipment Loans
based upon telephonic notice or upon such other instructions as Bank receives
from anyone purporting to be an authorized representative of Borrower,
received within the times stipulated in the applicable Equipment Note. Such
notice shall be given to any of Bank's commercial banking officer's at Bank's
Lending Office and shall be irrevocable. Unless otherwise directed by
Borrower in the disbursement instructions for a particular Equipment Loan,
Bank will disburse the proceeds of each Equipment Loan by crediting
borrower's general depository account number 290203056 (or successor account)
at Bank's Lending Office. Borrower agrees to use the proceeds of the
Equipment Loans only to acquire new fixtures and equipment for Borrower's
supermarkets.
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B. EQUIPMENT NOTES. Each Equipment Loan shall be evidenced by,
bear interest at the rate(s) provided for in, and be payable or prepayable,
as the case may be, in accordance with the terms of a promissory note in form
and substance satisfactory to, and issued by Borrower in favor of, Bank
(individually, an 'Equipment Note' and collectively, the 'Equipment Notes').
Borrower's obligations with respect to each Equipment Loan, the interest
rate(s) applicable to such Equipment Loan (and if a fixed rate, the period
for which the fixed rate is applicable), and the date such Equipment Loan was
made and payments thereon received by Bank shall be evidenced by entries made
by Bank in its books and records or on a schedule on the back of or affixed
to the Equipment Note evidencing such Equipment Loan, which entries shall
constitute PRIMA FACIE evidence of the matters noted. Bank's failure to make
such entries, however, shall not affect, impair or diminish Borrower's
obligation to repay the Equipment Loans, together with interest as provided
for in the corresponding Equipment Notes."
4. AMENDMENTS TO SECTION 3 OF THE AGREEMENT.
(a) Section 3.1A of the Agreement is hereby amended by substituting the
reference "Section 2.1B" for the reference "Section 2B" appearing in the
second line thereof.
(b) Section 3.1F of the Agreement is hereby amended by substituting the
amount "Twenty Million Dollars ($20,000, 000)" for the amount "Nine Million
Dollars ($9,000,000)" appearing in the third line thereof.
(c) Section 3 of the Agreement is hereby further amended by adding a new
Section 3A.1 thereto, which shall read in full as follows:
"3A.1 TO EACH EQUIPMENT LOAN. Before Bank is obligated to make any
Equipment Loan hereunder, Bank must have received all of the following, each of
which must be in form and substance satisfactory to Bank:
A. EQUIPMENT NOTE. An original, duly executed Equipment Note
required pursuant to Section 2A.1B;
B. AUTHORIZATION. An Authorization on Bank's form therefor, duly
executed by Borrower, authorizing Bank to disburse the proceeds of the Equipment
Loan as provided herein;
C. ARBITRATION AGREEMENT. An Arbitration Agreement on Bank's form
therefor and relating to the Equipment Note, duly executed by Borrower; and
D. OTHER DOCUMENTS. Such other documents, instruments or agreements
as Bank may reasonable deem necessary."
79
<PAGE>
5. AMENDMENT TO SECTION 4 OF THE AGREEMENT. Section 4.10 of the Agreement is
hereby amended to read in full as follows:
"O. OTHER CREDITORS. Except for trade payables arising in the ordinary
course of Borrower's business and except as disclosed in the Financial
Statement, Borrower does not have (i) any obligation or liability (including,
without limitation, pending litigation) which would materially and adversely
affect its business operations, (ii) any Indebtedness other than the Credit and
a $3,000,000 line of credit with City National Bank and (iii) any obligation
under any guaranty of any obligations or any other Person."
6. AMENDMENT TO SECTION 5 OF THE AGREEMENT. Section 5.2 of the Agreement is
hereby amended by substituting the amount "Thirty-Seven Million Five Hundred
Thousand Dollars ($37,500,000)" for the amount "Forty-Seven Million Five Hundred
Thousand Dollars ($47,500,000)" appearing in the second and third lines thereof.
7. AMENDMENT TO SECTION 5 OF THE AGREEMENT. Section 6.2 of the Agreement is
hereby amended to read in full as follows:
"6.2 OTHER INDEBTEDNESS. Sell or discount any of its accounts or notes
receivable or other evidence of Indebtedness owed to it except to Bank; borrow
any money, incur, assume or permit to exist, directly or indirectly, any
liabilities for borrowed money, or prepay any existing Indebtedness owing to any
Person, except (a) Obligations to Bank, (b) obligations currently shown on
Borrower's Financial Statement referred to in Section 4.1G hereof, (c) trade
debt incurred in the ordinary course of business (d) a $3,000,000 line of credit
with City National Bank and (e) pursuant to written agreements made with and
approved by Bank."
8. OTHER AMENDMENTS TO THE AGREEMENT. Bank's address for notices appearing on
the signature page of the Agreement is hereby amended to read in full as
follows:
"Union Bank
Commercial Portfolio Administration
445 South Figueroa Street, 16th Floor
Los Angeles, California 90071
Attention: Jesus Serrano
Vice President
Telecopier: (213) 236-7638
9. EFFECTIVENESS OF THIS SECOND AMENDMENT. This Second Amendment shall become
effective as of the date hereof when, and only when, Bank shall have received
all of the following, in form and substance satisfactory to Bank:
(a) A counterpart of this Second Amendment, duly executed by Borrower;
(b) A replacement Revolving Note, duly executed by Borrower;
80
<PAGE>
(c) An Authorization on Bank's form therefor, duly executed by Borrower,
authorizing Bank to disburse the proceeds of the Revolving Loan as provided for
in the Agreement;
(d) An Arbitration Agreement on Bank's form therefor and relating to the
replacement Revolving Note, duly executed by Borrower;
(e) The Guaranties, executed by Guarantors; and
(f) Such other documents, instruments or agreements as Bank may reasonably
deem necessary.
10. RATIFICATION.
(a) Except as specifically amended hereinabove, the Agreement shall remain
in full force and effect and is hereby ratified and confirmed; and
(b) Upon the effectiveness of this Second Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like
import referring to the Agreement shall mean and be a reference to the Agreement
as amended by this Second Amendment and each reference in the Agreement to the
"Revolving Note" or words of like import referring to the Revolving Note shall
mean and be a reference to the replacement Revolving Note issued pursuant to
this Second Amendment.
11. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
(a) Each of the representations and warranties contained in Section 4 of
the Agreement, as amended hereby, is hereby reaffirmed as of the date hereof,
each as if set forth herein;
(b) The execution, delivery and performance of this Second Amendment are
within Borrower's corporate powers, have been duly authorized by all necessary
corporate action, have received all necessary approvals, if any, and do not
contravene any law or any contractual restriction binding on Borrower.
(c) This Second Amendment is, and the replacement Revolving Note when
delivered for value received will be, the legal, valid and binding obligations
of Borrower, enforceable against Borrower in accordance with their terms; and
(d) No event has occurred and is continuing or would result from this
Second Amendment which constitutes an Event of Default under the Agreement, or
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
81
<PAGE>
12. GOVERNING LAW. This Second Amendment shall be deemed a contract under and
subject to, and shall be construed for all purposes and in accordance with, the
laws of the State of California.
13. COUNTERPARTS. This Second Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
ARDEN GROUP, INC.
By:
--------------------------------
Title:
-----------------------------
UNION BANK
By:
--------------------------------
Title:
-----------------------------
82
<PAGE>
THIRD AMENDMENT
TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Third Amendment") dated as
of December 18, 1996, is made and entered into by and between ARDEN GROUP, INC.
a Delaware corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A.
("Bank").
RECITALS:
A. Borrower and Bank are parties to that certain Loan Agreement dated December
23, 1993, as amended by that certain First Amendment dated as of October 31,
1994, Second Amendment dated as of December 20, 1995 (as so amended, the
"Agreement"), pursuant to which Bank agreed to extend the credit facilities to
Borrower outlined therein in the aggregate principal amount at any one time
outstanding not to exceed Nineteen Million Dollars ($19,000,000).
B. Borrower has requested that Bank agree (i) to extend the Revolving
Termination Date from November 29, 1996 (with effect from and after that date)
to January 15, 1997, (ii) to extend the Equipment Loan Commitment Termination
Date from November 29, 1996 (with effect from and after that date) to January
15, 1997 and (iii) to amend the Agreement in certain other respects.
C. Bank is willing to so amend the Agreement, but subject to the terms and
conditions of this Third amendment.
AGREEMENT:
In consideration of the above recitals and of the mutual covenants and
conditions contained herein, Borrower and Bank agree as follows:
1. DEFINED TERMS. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO SECTION 1 OF THE AGREEMENT.
(a) Section 1 of the Agreement is hereby amended by adding the new terms
"THIRD AMENDMENT" and "THIRD AMENDMENT EFFECTIVE DATE" thereto in the
appropriate alphabetical order, which new terms shall be defined as follows:
"'THIRD AMENDMENT' shall mean that certain Third Amendment to this
Agreement, dated as of December 18, 1996, by and between Borrower and Bank."
83
<PAGE>
"THIRD AMENDMENT EFFECTIVE DATE' shall mean the date by which each of the
conditions precedent set forth in Section 5 of the Third amendment has been
satisfied."
3. AMENDMENTS TO SECTION 2 OF THE AGREEMENT.
(a) Section 2.1A of the Agreement is hereby amended by substituting the
date "January 15, 1997" for the date "November 29, 1996" appearing in the second
line thereof.
(b) Section 2A.1 of the Agreement is hereby amended by substituting the
date "January 15, 1997" for the date "November 29, 1996" appearing in the second
line thereof.
4. AMENDMENTS TO SECTION 3 OF THE AGREEMENT.
(a) Section 3A.1 C. of the Agreement is hereby amended by substituting the
"Alternative Dispute Resolution Agreement" for the "Arbitration Agreement"
appearing therein.
5. EFFECTIVENESS OF THIS THIRD AMENDMENT. This Third Amendment shall become
effective as of the date hereof when, and only when, Bank shall have received
all of the following, in form and substance satisfactory to Bank:
(a) A counterpart of this Third Amendment, duly executed by Borrower;
(b) A replacement Revolving Note, duly executed by Borrower;
(c) An Authorization on Bank's form therefor, duly executed by Borrower,
authorizing Bank to disburse the proceeds of the Revolving Loan as provided for
in the Agreement;
(d) An Alternative Dispute Resolution Agreement on Bank's form therefor
and relating to the replacement Revolving Note, duly executed by Borrower;
(e) Such other documents, instruments or agreements as Bank may reasonably
deem necessary.
6. RATIFICATION.
(a) Except as specifically amended hereinabove, the Agreement shall remain
in full force and effect and is hereby ratified and confirmed; and
(b) Upon the effectiveness of this Third Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like
import referring to the Agreement shall mean and be a reference to the Agreement
as amended by this Third Amendment and each reference in the Agreement to the
"Revolving Note" or words of like import referring to the Revolving Note shall
mean and be a reference to the replacement Revolving Note issued pursuant to
this Third Amendment.
84
<PAGE>
7. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
(a) Each of the representations and warranties contained in Section 4 of
the Agreement, as amended hereby, is hereby reaffirmed as of the date hereof,
each as if set forth herein;
(b) The execution, delivery and performance of this Third Amendment are
within Borrower's corporate powers, have been duly authorized by all necessary
corporate action, have received all necessary approvals, if any, and do not
contravene any law or any contractual restriction binding on Borrower.
(c) This Third Amendment is, and the replacement Revolving Note when
delivered for value received will be, the legal, valid and binding obligations
of Borrower, enforceable against Borrower in accordance with their terms; and
(d) No event has occurred and is continuing or would result from this
Third Amendment which constitutes and Event of Default under the Agreement, or
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
8. GOVERNING LAW. This Third Amendment shall be deemed a contract under and
subject to, and shall be construed for all purposes and in accordance with, the
laws of the State of California.
9. COUNTERPARTS. This Third Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
ARDEN GROUP, INC.
By:
---------------------------
Title:
------------------------
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------
Title:
------------------------
85
<PAGE>
FOURTH AMENDMENT
TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this "Fourth Amendment") dated as
of January 13, 1997, is made and entered into by and between ARDEN GROUP, INC. a
Delaware corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A. ("Bank").
RECITALS:
A. Borrower and Bank are parties to that certain Loan Agreement dated December
23, 1993, as amended by that certain First Amendment dated as of October 31,
1994, Second Amendment dated as of December 20, 1995 and Third Amendment dated
December 18, 1996 (as so amended, the "Agreement"), pursuant to which Bank
agreed to extend the credit facilities to Borrower outlined therein in the
aggregate principal amount at any one time outstanding not to exceed Nineteen
Million Dollars ($19,000,000).
B. Borrower has requested that Bank agree (i) to extend the Revolving
Termination Date from January 15, 1997 (with effect from and after that date) to
April 30, 1998, (ii) to extend the Equipment Loan Commitment Termination Date
from January 15, 1997 (with effect from and after that date) to April 30, 1998
and (iii) to amend the Agreement in certain other respects.
C. Bank is willing to so amend the Agreement, but subject to the terms and
conditions of this Fourth amendment.
AGREEMENT:
In consideration of the above recitals and of the mutual covenants and
conditions contained herein, Borrower and Bank agree as follows:
1. DEFINED TERMS. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO SECTION 1 OF THE AGREEMENT.
(a) Section 1 of the Agreement is hereby amended by adding the new terms
"FOURTH AMENDMENT" and "FOURTH AMENDMENT EFFECTIVE DATE" thereto in the
appropriate alphabetical order, which new terms shall be defined as follows:
"'FOURTH AMENDMENT' shall mean that certain Fourth Amendment to this
Agreement, dated as of January 13, 1997, by and between Borrower and Bank."
86
<PAGE>
"FOURTH AMENDMENT EFFECTIVE DATE' shall mean the date by which each of the
conditions precedent set forth in Section 4 of the Fourth amendment has been
satisfied."
3. AMENDMENTS TO SECTION 2 OF THE AGREEMENT.
(a) Section 2.1A of the Agreement is hereby amended by substituting the
date "April 30, 1998" for the date "January 15, 1997" appearing in the second
line thereof.
(b) Section 2A.1 of the Agreement is hereby amended by substituting the
date "April 30, 1998" for the date "January 15, 1997" appearing in the second
line thereof.
4. EFFECTIVENESS OF THIS FOURTH AMENDMENT. This Fourth Amendment shall become
effective as of the date hereof when, and only when, Bank shall have received
all of the following, in form and substance satisfactory to Bank:
(a) A counterpart of this Fourth Amendment, duly executed by Borrower;
(b) A replacement Revolving Note, duly executed by Borrower;
(c) An Authorization on Bank's form therefor, duly executed by Borrower,
authorizing Bank to disburse the proceeds of the Revolving Loan as provided for
in the Agreement;
(d) An Alternative Dispute Resolution Agreement on Bank's form therefor
and relating to the replacement Revolving Note, duly executed by Borrower;
(e) Such other documents, instruments or agreements as Bank may reasonably
deem necessary.
5. RATIFICATION.
(a) Except as specifically amended hereinabove, the Agreement shall remain
in full force and effect and is hereby ratified and confirmed; and
(b) Upon the effectiveness of this Fourth Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like
import referring to the Agreement shall mean and be a reference to the Agreement
as amended by this Fourth Amendment and each reference in the Agreement to the
"Revolving Note" or words of like import referring to the Revolving Note shall
mean and be a reference to the replacement Revolving Note issued pursuant to
this Fourth Amendment.
87
<PAGE>
6. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
(a) Each of the representations and warranties contained in Section 4 of
the Agreement, as amended hereby, is hereby reaffirmed as of the date hereof,
each as if set forth herein;
(b) The execution, delivery and performance of this Fourth Amendment are
within Borrower's corporate powers, have been duly authorized by all necessary
corporate action, have received all necessary approvals, if any, and do not
contravene any law or any contractual restriction binding on Borrower.
(c) This Fourth Amendment is, and the replacement Revolving Note when
delivered for value received will be, the legal, valid and binding obligations
of Borrower, enforceable against Borrower in accordance with their terms; and
(d) No event has occurred and is continuing or would result from this
Fourth Amendment which constitutes and Event of Default under the Agreement, or
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
7. GOVERNING LAW. This Fourth Amendment shall be deemed a contract under and
subject to, and shall be construed for all purposes and in accordance with, the
laws of the State of California.
8. COUNTERPARTS. This Fourth Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
ARDEN GROUP, INC.
By:
---------------------------
Title:
------------------------
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------
Title:
------------------------
88
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The following are subsidiaries of the Registrant:
State or Province
of Incorporation
-------------------
Arden-Mayfair, Inc. Delaware
Gelson's Markets California
AMG Holdings, Inc.
(formerly Telautograph Corporation) Virginia
Arden-Mayfair, Inc. is a wholly-owned subsidiary of the Registrant. Gelson's
Markets and AMG Holdings, Inc. are wholly-owned subsidiaries of Arden-Mayfair,
Inc. All of the subsidiaries listed above are included in the consolidated
financial statements of the Registrant.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 5,473
<SECURITIES> 21,356
<RECEIVABLES> 7,339
<ALLOWANCES> 710
<INVENTORY> 10,728
<CURRENT-ASSETS> 47,288
<PP&E> 65,542
<DEPRECIATION> 25,667
<TOTAL-ASSETS> 91,248
<CURRENT-LIABILITIES> 24,146
<BONDS> 6,663
362
0
<COMMON> 0
<OTHER-SE> 55,375
<TOTAL-LIABILITY-AND-EQUITY> 91,248
<SALES> 252,019
<TOTAL-REVENUES> 252,019
<CGS> 152,852
<TOTAL-COSTS> 152,852
<OTHER-EXPENSES> 93,190
<LOSS-PROVISION> 55
<INTEREST-EXPENSE> 879
<INCOME-PRETAX> 6,601
<INCOME-TAX> 2,622
<INCOME-CONTINUING> 3,979
<DISCONTINUED> (456)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,523
<EPS-PRIMARY> 3.16
<EPS-DILUTED> 3.16
</TABLE>
