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 31, 1994
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 33-48862
HOMELAND HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-1311075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 N.E. 36th Street
Oklahoma City, Oklahoma 73105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (405) 557-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark 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. [X] (Not applicable to registrant)
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: There is no established public trading market for
the voting stock of Homeland Holding Corporation.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of April 14, 1995:
Homeland Holding Corporation
Class A Common Stock, including redeemable common stock: 34,288,200 shares
Class B Common Stock: None
Documents incorporated by reference: None.
<PAGE>
HOMELAND HOLDING CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS................................. 1
General.................................. 1
Background............................... 1
Business Strategy........................ 2
AWG Transaction.......................... 4
Homeland Supermarkets.................... 5
Merchandising Strategy and Pricing....... 6
Customer Service......................... 7
Advertising and Promotion................ 7
Product Selection........................ 8
Warehousing and Distribution............. 8
Transportation........................... 9
Supply of Dairy Products................. 10
Employees and Labor Relations............ 10
Computer and Management Information
Systems................................. 12
Competition.............................. 13
Trademarks, Trade Names and Licenses..... 14
Regulatory Matters....................... 14
ITEM 2. PROPERTIES............................... 14
ITEM 3. LEGAL PROCEEDINGS........................ 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS...................... 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.......... 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA..... 17
i
Page
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................ 19
Results of Operations.................... 19
Liquidity and Capital Resources.......... 26
Recently-Issued Accounting Standards..... 29
Inflation/Deflation...................... 30
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA....................... 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..................... 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT........................ 31
Changes in Management.................... 34
ITEM 11. EXECUTIVE COMPENSATION................... 35
Summary of Cash and Certain Other
Compensation............................ 35
Employment Agreements.................... 37
Management Incentive Plan................ 39
Retirement Plan.......................... 39
Compensation Committee Interlocks and
Insider Participation................... 40
Management Stock Purchases............... 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT......... 42
Ownership of Certain Holders............. 42
Registration and Participation
Agreements.............................. 43
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS..................... 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K........ 47
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(d) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.................. 47
ii
Page
SIGNATURES......................................... II-1
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES................................ F-1
EXHIBIT INDEX...................................... E-1
iii
HOMELAND HOLDING CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
ITEM 1. BUSINESS
General
Homeland Holding Corporation ("Holding"), through
its wholly-owned subsidiary, Homeland Stores, Inc.
("Homeland," and, together with Holding, the "Company"), is
the leading supermarket chain in the Oklahoma, southern Kansas
and Texas Panhandle region. As of April 14, 1995, the Company
operated 104 stores throughout these markets as well as a
659,000 square foot warehouse and distribution center in
Oklahoma City. On April 21, 1995, the Company sold 29 of its
stores and its warehouse and distribution center to Associated
Wholesale Grocers, Inc. ("AWG") pursuant to an Asset Purchase
Agreement dated as of February 6, 1995 (the "Purchase
Agreement") for a cash purchase price of approximately $75
million including inventory. At the closing, the Company and
AWG also entered into a seven-year supply agreement, whereby
the Company became a retail member of the AWG cooperative and
AWG became the Company's primary supplier. The transactions
between the Company and AWG are referred to herein as the "AWG
Transaction." See "Business--AWG Transaction."
The Company estimates that in 1994 it accounted for
approximately 27% of total supermarket sales over its entire
market region through the operation of 111 stores.
Approximately 58% of the Company's stores operated by the
Company after the AWG Transaction are located in its three
major metropolitan areas, Oklahoma City, Tulsa and Amarillo.
The Company's executive offices are located at 400
N.E. 36th Street, Oklahoma City, Oklahoma 73105, and its
telephone number is (405) 557-5500.
Background
The Company was organized in 1987 by a group of
investors led by Clayton, Dubilier & Rice, Inc. ("CD&R"), a
private investment firm specializing in leveraged acquisitions
with the participation of management, for the purpose of
acquiring substantially all of the assets and assuming
specified liabilities of the Oklahoma division (the "Oklahoma
Division") of Safeway Inc. ("Safeway") (the "Acquisition").
The stores changed their name to Homeland in order to
highlight the Company's regional identity. A majority of the
Company's current management (excluding store managers)
consists of key executives of the Oklahoma Division and
currently owns approximately 6.1% of the outstanding common
stock of Holding.
Prior to the Acquisition, the Company did not have
any significant assets or liabilities or engage in any
activities other than those incident to the Acquisition.
Holding owns all of the outstanding capital stock of Homeland
and has no other significant assets. The Clayton & Dubilier
Private Equity Fund III Limited Partnership ("C&D Fund III"),
a Connecticut limited partnership managed by CD&R, currently
owns 34.1% of Holding's outstanding Class A Common Stock, par
value $.01 per share (including redeemable Class A Common
Stock, the "Common Stock"). The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D Fund IV"), a
Connecticut limited partnership also managed by CD&R,
currently owns 38.4% of the Class A Common Stock.
On April 21, 1995, the Company made an offer to
repurchase shares of its Common Stock owned by certain
officers and employees of the Company at a cash purchase price
of $0.50 per share, plus a warrant equal to the number of
shares purchased with an exercise price of $0.50. However,
such repurchases shall not exceed $600,000 in the aggregate
(net of amounts to be repaid in respect of loans from the
Company) and individual repurchases shall not exceed any
outstanding loan balance that the officers or employees may
have related to their purchase of Common Stock.
Business Strategy
Following the Acquisition, Homeland adopted a
business strategy which was designed to maintain and improve
its market leadership in its operating area. The Company's
business strategy from 1987 through 1993 involved: (a)
substantial investment to upgrade and remodel the existing
store network and to build or acquire additional stores, which
could be serviced by Homeland's existing warehouse and
distribution center; and (b) adoption of a value-oriented
merchandising concept combining a flexible high-low pricing
structure (i.e., pricing of advertised or promotional items
below the store's regular price and at or below the price
offered by the store's competitors while allocating prime
shelf space to high margin items) with a wide selection of
products and an emphasis on quality and service. Increased
advertising and promotion were used to expand the Company's
customer base. The Company's decision to commit significant
financing and human resources to upgrade and remodel its
existing stores marked a sharp turn-around for the supermarket
business that had constituted Safeway's Oklahoma Division.
The Company's business has been adversely affected
in recent years by the entry of new competition into the
Company's key markets, which has resulted in a decline in the
Company's comparable store sales. The Company was unable to
effectively respond to this increased competition because (i)
the high labor costs associated with the Company's unionized
workforce made it difficult for the Company to price its goods
competitively with competitors (none of which has a unionized
workforce), and (ii) the high fixed overhead costs associated
with its warehouse operation made the closure of marginal and
unprofitable stores financially prohibitive.
In the fourth quarter of 1994, the Company
developed a plan to improve its financial position and to
address the operating problems discussed above. In December
1994, the Company hired James A. Demme to be the Company's new
President and Chief Executive Officer. Mr. Demme has over 35
years of experience in wholesale and retail food distribution,
most recently as Executive Vice President of Retail Operations
for Scrivner, Inc. Mr. Demme and his management team have
developed and have begun to implement a more effective
strategy for responding to competitive pressures in the
marketplace, including (i) exploiting the advantages the
Company has over its competitors, such as convenience of store
locations and variety of offerings, (ii) increasing the
offering of competitively-priced, private label products,
(iii) improving advertising and merchandising and coordinating
marketing efforts, (iv) increasing sales of perishables and
(v) reducing overhead and other costs in conjunction with the
AWG Transaction.
The AWG Transaction is an important step in the
Company's effort to complete an operational restructuring that
should allow the Company to reduce its debt burden and fixed
operating costs and improve its financial performance.
Furthermore, also in late 1994 the Company's new
management team developed a plan to close certain marginal and
unprofitable stores. Such a plan is now financially feasible
because of the sale of the warehouse and the elimination of
the high fixed costs associated with the warehouse operation.
The Company closed one store in 1994 and seven stores during
the first quarter of 1995 and expects to close an additional
eight stores by the end of 1995.
Also in connection with the AWG Transaction, the
Company became a member of the AWG cooperative. The Company
believes that its membership in the AWG cooperative will
benefit the Company in a number of ways: (i) the Company will
be able to increase its purchases of private label lines,
which will allow it to improve mix and gross profits; (ii) as
AWG's largest customer, the Company may receive special
product purchases and may participate in dedicated support
programs; and (iii) the Company will have access to AWG's
store systems, which will allow the Company to manage its
business strategically on a store-by-store and regional basis.
In addition, the Company will also receive the benefit of
membership rebate and patronage programs available to all AWG
members as well as certain quarterly cash payments from AWG.
See "Business--Warehousing and Distribution."
For additional information, see also "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
AWG Transaction
On February 6, 1995, the Company and AWG entered
into the Purchase Agreement, pursuant to which the Company
agreed to sell 29 of its stores (the "Purchased Stores") and
its warehouse and distribution center to AWG for a purchase
price of $45 million, plus the value of the inventory at the
Purchased Stores and the warehouse (estimated to be
approximately $30 million) subject to certain possible
purchase price adjustments. The closing of the sale occurred
on April 21, 1995.
AWG is a buying cooperative which sells groceries on
a wholesale basis to its retail member stores. AWG has 716
member stores located in a nine-state region and is the
nation's fifth largest wholesale distributor, with
approximately $2.6 billion in revenues in 1994.
The Purchase Agreement requires AWG to assume, or
provide certain undertakings with respect to, certain
contracts and lease obligations and pension liabilities of the
Company. The AWG sale was subject to the satisfaction of
certain conditions precedent, including, without limitation,
(i) the Company's receipt of the required consents under the
Senior Notes (as hereafter defined under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources") and (ii) the
execution and delivery of the supply agreement between the
Company and AWG described below (See "Business--Warehousing
and Distribution").
The Company estimates that net proceeds from the AWG
Transaction will be approximately $37.2 million, approximately
$25.0 million of which will be allocated to the Senior Notes
and approximately $12.2 million of which will be allocated to
indebtedness under the Revolving Credit Agreement (as
hereafter defined under "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity
and Capital Resources"). The remaining proceeds from the AWG
Transaction will be (i) used to pay certain costs, expenses
and liabilities required to be paid in connection with the AWG
Transaction or (ii) deposited into escrow pending reinvestment
by the Company or application against a subsequent offer to
redeem the Senior Notes. Under the Senior Note Indenture (as
hereafter defined under "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity
and Capital Resources"), the Company is required to apply the
net proceeds allocable to the Senior Notes to an offer to
redeem the Senior Notes on a pro rata basis. (See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".)
The purposes of the AWG Transaction are: (i) to
reduce the Company's borrowed money indebtedness in respect of
the Senior Notes and under the Revolving Credit Agreement by
approximately $37.2 million in the aggregate; (ii) to have AWG
assume, or provide certain undertakings with respect to,
certain contracts and leases and certain pension liabilities
of the Company; (iii) to sell the Company's warehouse and
distribution center, which will eliminate the high fixed
overhead costs associated with the operation of the warehouse
and distribution center and thereby permit the Company to
close marginal and unprofitable stores; and (iv) to obtain the
benefits of becoming a member of the AWG cooperative,
including increased purchases of private label products,
special product purchases, dedicated support programs and
access to AWG's store systems.
Homeland Supermarkets
The Company's current network of stores features
three basic store formats. Homeland's conventional stores
range from 12,000 to 35,000 total square feet and carry the
traditional mix of grocery, meat, produce and variety
products. These stores contain more than 20,000 stock keeping
units, including food and general merchandise. Sales volumes
of conventional stores range from $60,000 to $150,000 per
week. Homeland's superstores range in size from 35,000 to
50,000 total square feet and offer, in addition to the
traditional departments, two or more specialty departments.
Sales volumes of superstores range from $80,000 to $280,000
per week. Homeland's combo store format includes stores
larger than 50,000 total square feet and was designed to
enable the Company to expand shelf space devoted to general
merchandise. Sales volume of combo stores range from $130,000
to $345,000 per week. The Company's new stores and certain
remodeled locations have incorporated Homeland's new, larger
superstore and combo formats.
Of the 67 stores retained and operated by the
Company following the sale to AWG (excluding 16 stores which
the Company has closed in 1994 and 1995 or expects to close in
1995), 11 are conventional stores, 43 are superstores and 13
are combo stores.
The chart below summarizes Homeland's store
development over the last three years:
Fiscal Year Ended
12/31/94 01/01/94 01/02/93 *
Average sales per store
(in millions)............... $ 7.1 $ 7.2 $ 7.3
Average total square feet
per store................... 34,700 34,700 34,300
Average sales per
square foot................. $205 $208 $213
Number of stores:
Stores at start of period... 112 113 114
Stores remodeled............ 10 3 0
New stores opened........... 0 1 1
Stores acquired............. 0 0 0
Stores sold or closed....... 1 2 2
Stores at end of period..... 111 112 113
Size of stores:
Less than 25,000 sq. ft..... 24 24 26
25,000 to 35,000 sq. ft..... 38 39 40
35,000 sq. ft. or greater... 49 49 47
Store formats:
Conventional................ 29 29 28
SuperStore.................. 65 66 71
Combo....................... 17 17 14
* 53 week reporting period
Merchandising Strategy and Pricing
The Company's merchandising strategy emphasizes
competitive pricing through a high-low pricing structure, as
well as Homeland's leadership in quality product and service,
selection, convenience and specialty departments with a focus
on perishable products (i.e., meat, produce, bakery and
seafood). The Company's strategy is to price competitively
with each conventional supermarket operator in each market
area. In areas with discount store competition, the Company
attempts to be competitive on high-volume, price sensitive
items. The Company's in-store promotion strategy is to offer
all display items at a lower price than the store's regular
price and at or below the price offered by the store's
competitors. The Company also currently offers double
coupons, with some limitations, in all areas in which it
operates. In addition, Homeland's stores utilize a shelf
management scanner-driven program which allocates shelf space
based upon specific unit sales. This scanner program provides
adequate information to evaluate shelf stock to avoid
excessive inventories. The program allows allocation of
products that are the best sellers and the products that
contribute the greatest gross profit dollars, in each
commodity group, to prime eye level shelves.
Customer Service
Homeland stores provide friendly and efficient
customer services which emphasize, among other things, quick
check out services and many stores offer additional services
such as postal, pharmacy, video rental, check cashing and
money orders. Some of the stores also offer in-store banking
facilities and automated teller machines. Homeland helps to
attract and retain its customers by providing a high level of
customer service in clean, well-stocked stores with quality
products.
Advertising and Promotion
The Company's advertising strategy is designed to
enhance its value-oriented merchandising concept and emphasize
its reputation for fast, friendly service, variety and
quality. Accordingly, Homeland is focused on presenting
itself in the media as a competitively-priced, promotions
oriented operator that offers value to its customers and an
extensive selection of high quality merchandise in clean,
attractive stores. This strategy allows the Company to
accomplish its marketing goals of attracting new customers and
building loyalty with existing customers.
An element of the Company's plan to improve its
financial position includes improving its advertising and
merchandising and coordinating marketing efforts by
redesigning the advertising circulars to improve the
promotions of advertised specials and organizing the in-store
presentation of these items.
The Company currently utilizes a broad range of
print and broadcast advertising in the markets it serves,
including newspaper advertisements, advertising inserts and
circulars, television and radio commercials and promotional
campaigns that cover substantially all of the markets it
serves. Gross advertising expenses were $13.6 million in
fiscal 1994, $14.1 million in fiscal 1993 and $14.5 million in
fiscal 1992. Homeland receives co-op advertising
reimbursements from major vendors which reduces its gross
advertising expenses.
<PAGE>
Product Selection
The Company carries nationally advertised brands and
a wide selection of private label products. Part of the
Company's plan to improve its financial position involves
increasing its offering of competitively-priced private label
products and increasing sales of perishables. All stores
carry a full line of meat, dairy, produce, frozen food, health
and beauty aids and selected general merchandise. As of April
14, 1995, approximately 76% of the stores have service
delicatessens and/or bakeries and approximately 52% have in-
store pharmacies. In addition, some stores provide additional
specialty departments that offer ethnic food, fresh and frozen
seafood, floral services and salad bars.
Warehousing and Distribution
Until the consummation of the AWG Transaction, the
Company supplied approximately 75% of the products sold in its
supermarkets from its 659,000 square foot warehouse and
distribution facility, which included 241,000 square feet of
refrigerated space for storing produce and meats as well as a
large freezer section for vegetables, ice cream and other
frozen products. As part of the AWG Transaction, the Company
sold its warehouse and distribution center to AWG and entered
into a seven year supply agreement, pursuant to which the
Company became a retail member of the AWG cooperative and AWG
became the Company's primary supplier.
Pursuant to the supply agreement, AWG will supply
products to the Company at the lowest prices and on the best
terms available to AWG's retail members from time to time. In
addition, the Company will (i) be eligible to participate in
certain cost-savings programs available to AWG's other retail
members and (ii) be entitled to receive (a) certain member
rebates and refunds based on the dollar amount of the
Company's purchases from AWG's warehouse and (b) quarterly
cash payments from AWG, up to a maximum of approximately $1.3
million per fiscal quarter, based on the dollar amount of the
Company's purchases from AWG's warehouse during such fiscal
quarter.
The Company will purchase goods from AWG on an open
account basis. AWG requires that each member's account be
secured by a letter of credit or certain other collateral, in
an amount based on such member's estimated weekly purchases
through the AWG warehouse. The Company's open account with
AWG is secured by a $10 million letter of credit (the "Letter
of Credit") issued in favor of AWG by one of the banks party
to the Amended and Restated Revolving Credit Agreement (as
hereafter defined under "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity
and Capital Resources"). In addition, the Company's
obligations to AWG are secured by a first lien on all "AWG
Equity" owned from time to time by the Company, which
includes, among other things, AWG membership stock, the
Company's right to receive quarterly payments and certain
other rebates, refunds and other credits owed to the Company
by AWG (including members deposit certificates, patronage
refund certificates, members savings, direct patronage or
year-end patronage and concentrated purchase allowances).
The amount of the Letter of Credit may be decreased
on a biannual basis upon the request of the Company (i) based
on the Company's then-current average weekly volume of
purchases and (ii) by an amount equal to the face amount of
the Company's issued and outstanding AWG patronage refund
certificates. In the event that the Company's open account
with AWG exceeds the amount of the Letter of Credit plus any
other AWG Equity held as collateral for the Company's open
account, AWG is not required to accept orders from, or deliver
goods to, the Company until the amount of the Letter of Credit
has been increased to make up for any such deficiency.
Under the supply agreement, AWG has certain "Volume
Protection Rights," including (i) the right of first offer
(the "First Offer Rights") with respect to (a) proposed sales
of stores to be owned or operated by the Company after the
closing of the sale (the "Retained Stores") and, under certain
circumstances, certain other stores which the Company has
closed, or expects to close, during 1995 and (b) proposed
transfers of more than 50% of the outstanding stock of the
Company or Holding to an entity primarily engaged in the
retail or wholesale grocery business, (ii) the Company's
agreement not to compete with AWG as a wholesaler of grocery
products during the term of the supply agreement, and (iii)
the Company's agreement to dedicate the Retained Stores to the
exclusive use of a retail grocery facility owned by a retail
member of AWG (the "Use Restrictions"). The Company's
agreement not to compete and the Use Restrictions are
terminable with respect to a particular Retained Store upon
the occurrence of certain events, including the Company's
compliance with AWG's First Offer Rights with respect to
proposed sales of such store. In addition, the supply
agreement provides AWG with certain purchase rights in the
event the Company closes 90% or more of the Retained Stores.
Transportation
In March 1992, the Company entered into a
transportation agreement (the "Transportation Agreement")
with Drake Refrigerated Lines, Inc. ("Drake"). Pursuant to
the Transportation Agreement, the Company sold substantially
all of its trailers and certain non-material related equipment
at fair market value to Drake, which then provided all
transportation services for Homeland products through a
network of independent drivers. The Transportation Agreement
has a five-year term and is terminable by either party on six
months' notice and upon certain other conditions. In
conjunction with the AWG Transaction, the Company's
obligations under the Transportation Agreement were assumed by
AWG.
Supply of Dairy Products
The Company previously produced private-label milk,
water, juice and ice cream at two owned and managed facilities
located in Oklahoma City. In November 1993, the Company sold
certain of the Company's milk and ice cream processing
equipment and certain other assets and inventory relating to
its milk and ice cream plants to Borden, Inc. ("Borden"). In
connection with the sale, the Company entered into a seven-
year supply agreement with Borden under which Borden was to
supply all of the Company's requirements for most of its
dairy, juice and ice cream products and the Company agreed to
purchase minimum volumes of products. The Company recognized
a gain on the sale of such personal property in the amount of
$2.6 million in 1993 and received a $4 million payment in
connection with the Borden supply agreement which was to be
recognized over the seven-year term of the Supply Agreement.
In December 1994, the Company entered into a
settlement agreement with Borden whereby Borden ceased
supplying the Company in April 1995. As part of the
settlement agreement, the Company repaid $1.6 million plus
interest in December 1994 and $1.7 million plus interest in
April 1995.
The Company has made arrangements for Farm Fresh,
Inc. to begin supplying its dairy and ice cream requirements
in April 1995. Farm Fresh, Inc. is a cooperative and 1% of
the Company's purchases will be rebated to the Company at the
end of each year in the form of stock in Farm Fresh,Inc..
Employees and Labor Relations
At March 31, 1995, Homeland had a total of 5,938
employees, of whom 3,504 or approximately 59% were employed on
a part-time basis. Homeland employs 5,499 and 234 persons in
its supermarket operations and supply and distribution
operations, respectively. The remaining employees are
corporate and administrative personnel.
Homeland is the only unionized grocery chain in its
market areas and approximately 90% of the Company's employees
are unionized, represented primarily by the United Food and
Commercial Workers of North America ("UFCWNA"). In 1993, the
UFCWNA ratified a modified collective bargaining agreement
with the Company (the "Labor Agreement'). The term of the
Labor Agreement is from December 1993 through October 1996.
The Labor Agreement provides for average wages and benefits
for store employees of $9.25 per hour compared to the average
wages and benefits before modification of $10.47 per hour.
Management estimates that this wage reduction will result in
annualized savings of approximately $4.5 million less
anticipated bumping costs of $1.3 million for a net savings of
$3.2 million for the remaining 67 stores in each year of the
Labor Agreement through October 1996. Homeland's average
wages and benefits continue to exceed wages and benefits paid
by its competitors by an estimated average of $2.40 per hour.
This estimated average could increase by as much as 10%
following the AWG Transaction due to the effects of bumping.
Such higher labor costs is one of the reasons the Company has
not been able to remain competitive and entered into the AWG
Transaction.
In conjunction with the sale to AWG, three class
grievances have been filed by the UFCWNA and have been
submitted to binding arbitration under the terms of the Labor
Agreement. The grievances involve: (i) the question of
whether a special termination pay provision in the Labor
Agreement is triggered by the sale to AWG; (ii) the
application of the severance pay provision in the Labor
Agreement; and (iii) calculation of accrued but unused
vacation pay due employees at the time of termination. The
maximum aggregate amount being sought pursuant to the
grievances is $5.1 million. The arbitrations will be held
during May through July. The Company believes that its
position on these grievances will be upheld by the arbitrator
and that the disposition of these grievances through
arbitration will not have a material adverse effect on the
Company's financial position.
Warehouse personnel are members of the International
Brotherhood of Teamsters (the "Teamsters") and wages paid to
these employees are on parity with those paid by other similar
unionized warehouse operations in the area. In November 1992,
the Company signed a three and one-half year contract with the
Teamsters resulting in a 25 cent per hour wage increase
effective July 1994 and an increase in the pension
contribution per employee of $10 per week effective November
1992, an additional $4 per week effective November 1993, and
another $2 per week effective November 1994. Homeland
terminated the employment of all Teamsters on April 21, 1995.
Effective January 1, 1989, the Company implemented
a stock appreciation rights ("SAR") plan for certain of its
hourly union employees and its non-union hourly and salaried
employees. Effective as of November 4, 1989, the Company
implemented a similar SAR plan for its hourly Teamster
employees. A participant in the SAR plans is granted at
specified times "appreciation units" which, upon the
occurrence of certain triggering events, entitle the
participant to receive cash payments equal to the product of
the number of appreciation units then vested in such
participant multiplied by the increase in value of a share of
the Common Stock over $1.00 as determined in good faith by the
Board of Directors. Trigger events include the sale or
exchange of all or substantially all of the assets or stock of
Homeland or Holding, the liquidation or dissolution of
Homeland or Holding, the sale to the public of 20% or more of
the Common Stock or of the common equity of Homeland and the
sale, other than to Homeland or Holding, by C&D Fund III of
more than 2,925,000 shares of Common Stock. The sale to AWG
will not constitute a trigger event under any of the SAR
plans. Under the SAR plans, Homeland may grant up to 200
appreciation units per employee to part-time employees, 500
units to full-time employees, 750 units to supervisors and
1,000 units to managers (e.g., store managers); provided that
Homeland may not grant more than an aggregate of 1,939,500
appreciation units under all union and non-union SAR plans.
Assuming all units were vested under the SAR plans, such units
would represent approximately 5% of the equivalent equity in
the Company.
Computer and Management Information Systems
Effective October 1, 1991, the Company entered into
a ten-year agreement with K-C Computer Services, Inc. (a
subsidiary of Kimberly-Clark Company), providing for the
outsourcing of Homeland's management information system and
electronic data processing functions. Pursuant to the
outsourcing agreement, K-C Computer Services, Inc. assumed
substantially all of the Company's existing hardware and
software leases and related maintenance agreements. The
outsourcing agreement provides for minimum annual service
charges, increasing over the term of the agreement, as well as
other variable charges. Based on current estimates, future
minimum annual service charges under the ten-year outsourcing
agreement as of December 31, 1994 were in the aggregate amount
of $30.7 million. The agreement is cancelable by either party
subject to a penalty that declines over the term of the
agreement. In conjunction with the AWG Transaction, AWG has
undertaken approximately 52% of the annual service charges of
the outsourcing agreement incurred to June 1, 1997. The
Company will remain liable for any service charges incurred
after June 1, 1997. The Company and AWG have agreed to use
their best efforts to terminate the outsourcing agreement by
January 1, 1997, and arrange alternative service for the
Company. The Company can terminate the outsourcing agreement
at any time by payment to K-C Computer Services, Inc. of an
early termination penalty. If the outsourcing agreement is
terminated prior to June 1, 1997, AWG will be responsible for
payment of approximately 52% of the early termination penalty.
If the outsourcing agreement is terminated during 1997, the
Company's portion of the early termination penalty will be
$954,000.
The Company has installed laser-scanning checkout
systems in all of the 67 retained stores. The Company
utilizes the information collected through its scanner systems
to track product movement and inventory levels and to
coordinate purchasing. Coupon scanning software upgrades were
added in 1993 for all stores which have scanner systems.
This software reduces the expense related to coupons by
verifying that the coupon presented was for the product
purchased and reduces clerical errors. A new store labor
scheduling system was also installed in 1993 that determines
the required hours to be worked based on engineered standards
combined with sales projections and traffic patterns.
Competition
Although the supermarket business is highly
competitive, as the only statewide operator of supermarkets in
its entire market region, Homeland occupies a leading position
in substantially all of the markets it serves. The Company's
management believes that Homeland's principal competitive
advantages include significant economies of scale for
advertising, excellent store locations and continuity with
experienced store management. The market in which Homeland
competes is highly fragmented by many small independent
operators.
The Company's business has been adversely affected
in recent years by the entry of new competition into the
Company's key markets, which has resulted in a decline in the
Company's comparable store sales. For example, in 1994, there
were 14 competitive openings in the Company's market areas
(including 11 new Wal-Mart supercenters, 2 new Albertsons Inc.
stores and 1 new Mega Market store). The 1994 competitive
openings directly affected 28 of the Company's stores, where
average weekly sales decreased by 10.9% as compared to 1993,
including 19 of the 67 Retained Stores, where average weekly
sales decreased by 10.7% as compared to 1993. By contrast,
average weekly sales of the remaining 48 Retained Stores
increased in 1994 by 2.7% as compared to 1993. The Company
was unable to effectively respond to the competitive openings
because (i) the high labor costs associated with the Company's
unionized workforce made it difficult for the Company to price
its goods competitively with competitors (none of which has a
unionized workforce), and (ii) the high fixed overhead costs
associated with its warehouse operation made the closure of
marginal and unprofitable stores financially prohibitive.
Trademarks, Trade Names and Licenses
During the transition from "Safeway" to "Homeland"
the Company has been able to generate a substantial amount of
familiarity with the "Homeland" name. The Company continues
to build and enhance this name recognition through advertising
and annual birthday and anniversary promotional campaigns.
The "Homeland" name is considered material to the Company's
business and is registered for use as a service mark and
trademark. Homeland has received federal and state
registrations of the "Homeland" mark as a service mark and a
trademark for use on certain products. The Company also
received a federal registration of the service mark "A Good
Deal Better" in early 1994.
During 1990, Homeland began developing a private
label line of products which currently includes over 350
items. The line includes every major category in the
Company's stores, including dairy products, meat, frozen
foods, canned fruits and vegetables, eggs and plastic wrap.
As a result of the AWG Transaction, Homeland intends to
further improve the private label offerings.
Regulatory Matters
Homeland is subject to regulation by a variety of
local, state and federal governmental agencies, including the
United States Department of Agriculture, state and federal
pharmacy regulatory agencies and state and local alcoholic
beverage and health regulatory agencies. By virtue of this
regulation, Homeland is obligated to observe certain rules and
regulations, violation of which could result in suspension or
revocation of various licenses or permits held by Homeland.
In addition, most of Homeland's licenses and permits require
periodic renewals. Homeland has experienced no material
difficulties with respect to obtaining or renewing its
regulatory licenses and permits.
ITEM 2. PROPERTIES
Of the 111 supermarkets operated by Homeland at
December 31, 1994, 19 are owned and the balance are held under
leases which expire at various times between 1995 and 2017.
Most of the leases are subject to six five-year renewal
options. Out of 92 stores with leases, only eleven have terms
(including option periods) of fewer than 20 years remaining.
Most of the leases require the payment of taxes, insurance and
maintenance costs and many of the leases provide for
additional contingent rentals based on sales. The Company
also leases its executive offices and warehouse and
distribution center in Oklahoma City and owns the land and
buildings in Oklahoma City in which its milk and ice cream
plants were located. Substantially all of the Company's
facilities are subject to mortgages securing the Company's
Senior Notes (as hereinafter defined). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." No individual
store operated by Homeland is by itself material to the
financial performance or condition of Homeland as a whole.
The average rent per square foot under Homeland's existing
leases is $3.77 (without regard to amortization of beneficial
interest). Management believes that many of its existing
leases, depending on the location of the store, provide the
Company rents which are below the current market rate.
Of the 67 stores remaining after the AWG Transaction
and closing of certain stores, 11 are owned and 56 are leased.
Of those stores which are leased, eight have terms (including
option periods) of fewer than 20 years remaining. The average
rent per square foot for these 67 stores under Homeland's
existing leases is $3.90 (without regard to amortization of
beneficial interest).
On approximately June 12, 1995, the Company plans to
relocate its executive offices to 2601 Northwest Expressway,
Suite 1100 E, Oklahoma City, Oklahoma 73112. The Company will
be leasing the new executive offices.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various lawsuits and
proceedings in the ordinary course of its operations relating
to alleged personal injuries and other claims. None of the
proceedings pending against the Company or, to the knowledge
of management, threatened against the Company, is expected to
have a material effect on the Company's financial condition or
results of operations.
The Internal Revenue Service ("IRS") concluded in
December 1993 a field audit of the Company's income tax
returns for the fiscal years 1990, 1991 and 1992. On January
31, 1994, the IRS issued a Revenue Agent's Report for those
fiscal years proposing adjustments that would result in
additional taxes in the amount of $1.6 million (this amount is
net of any available operating loss carryforwards, which would
be eliminated under the proposed adjustment). The Company
filed its protest to the IRS Appeals Office on June 14, 1994.
The IRS Appeals Office is currently in the process of
reviewing the Company's protest. The major proposed
adjustment involves the allocation of the initial purchase
price of the Company to inventory. The Company believes that
it has meritorious legal defenses to the IRS adjustments and
intends to vigorously protest the assessment. Management has
analyzed all of these matters and has provided for, in
accordance with generally accepted accounting principles,
amounts which it currently believes are adequate.
In conjunction with the sale to AWG, three class
grievances have been filed by the UFCWNA and have been
submitted to binding arbitration under the terms of the Labor
Agreement. The grievances involve: (i) the question of
whether a special termination pay provision in the Labor
Agreement is triggered by the sale to AWG; (ii) the
application of the severance pay provision in the Labor
Agreement; and (iii) calculation of accrued but unused
vacation pay due employees at the time of termination. The
maximum aggregate amount being sought pursuant to the
grievances is $5.1 million. The arbitrations will be held
during May through July. The Company believes that its
position on these grievances will be upheld by the arbitrator
and that the disposition of these grievances through
arbitration will not have a material adverse effect on the
Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 1994, the
Company obtained a consent to a waiver from United States
Trust Company of New York, as trustee for the holders of the
Senior Notes, waiving compliance with certain financial
covenant requirements in effect as of fiscal year ended
December 31, 1994. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity
and Capital Resources" for information regarding the Company's
consent solicitation in April 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for
the Common Stock, the only class of common equity of Holding
currently issued and outstanding.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated
financial data of the Company which have been derived from
financial statements of the Company for the 52 weeks ended
December 31, 1994 and January 1, 1994, the 53 weeks ended
January 2, 1993, the 52 weeks ended December 28, 1991 and
December 29, 1990 respectively, which have been audited by
Coopers & Lybrand, L.L.P. See Notes to Selected Consolidated
Financial Data for additional information.
The selected consolidated financial data should be
read in conjunction with the respective consolidated financial
statements and notes thereto which are contained elsewhere
herein.
<PAGE>
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
52 weeks 52 weeks 53 weeks 52 weeks 52 weeks
ended ended ended ended ended
12/31/94 01/01/94 01/02/93 12/28/91 12/29/90
<S> <C> <C> <C> <C> <C>
Summary of Operations Date:
Sales, net. . . . . . . . . . . . . . . . $785,121 $810,967 $830,964 $786,785 $767,804
Cost of Sales . . . . . . . . . . . . . . 588,405 603,220 609,906 573,470 575,935
Gross profit. . . . . . . . . . . . . . . 196,716 207,747 221,058 213,315 191,869
Selling and administrative. . . . . . . . 193,643 190,483 199,547 187,312 168,800
Operational restructuring costs (1). . . 23,205 - - - -
Operating profit (loss) . . . . . . . . . (20,132) 17,264 21,511 26,003 23,069
Gain on sale of plants. . . . . . . . . . - 2,618 - - -
Interest expense. . . . . . . . . . . . . (18,067) (18,928) (24,346) (22,257) (23,784)
Income (loss) before income taxes and
extraordinary items. . . . . . . . . . . (38,199) 954 (2,835) 3,746 (715)
Income taxes. . . . . . . . . . . . . . . (2,446) 3,252 (982) (992) (1)
Income (loss) before extraordinary items. (40,645) 4,206 (3,817) 2,754 (716)
Extraordinary items (2) (3). . . . . . . - (3,924) (877) - -
Net Income (loss) . . . . . . . . . . . . (40,645) 282 (4,694) 2,754 (716)
(Accretion) Reduction in redemption value redeemable
common stock . . . . . . . . . . . . . . 7,284 - - (132) (3,841)
Net income (loss) available to common
stockholders . . . . . . . . . . . . . . $(33,361) $ 282 $ (4,694) $ 2,622 $ (4,557)
Net income (loss) per common share (4). . $ (.96) $ .01 $ (.13) $ .07 $ (.18)
Consolidated Balance Sheet Data: 12/31/94 01/01/94 01/02/93 12/28/91 12/29/90
Total assets. . . . . . . . . . . . . . . $239,134 $274,290 $305,644 $285,735 $266,523
Long-term obligations, including current
portion of long-term obligations . . . . $176,731 $172,600 $198,380 $179,680 $168,418
Redeemable common stock . . . . . . . . . $ 1,235 $ 8,853 $ 9,470 $ 10,616 $ 10,841
Stockholders' equity. . . . . . . . . . . $ 4,071 $ 36,860 $ 37,150 $ 41,844 $ 39,226
</TABLE>
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands)
(1) Operational restructuring costs during 1994 included the
estimated losses to be incurred on the AWG Transaction
and associated expenses and the estimated losses and
expenses in connection with the anticipated closing of
15 stores during 1995.
(2) Extraordinary items during 1993 included the payment of
approximately $2,776 in premiums on the redemption of
$47,750 in aggregate principal amount of the Company's
remaining 15-1/2% Subordinated Notes due November 1, 1997
(the "Subordinated Notes") at a purchase price of 105.8%
of the outstanding principal amount, and $1,148 in
unamortized financing costs related to the Subordinated
Notes so redeemed.
(3) Extraordinary items during 1992 included the payment of
approximately $1,225 in premiums on the repurchase of
$12,250 in aggregate principal amount of the Company's
Subordinated Notes at a purchase price of 110% of the
outstanding principal amount, $371 in unamortized
financing costs related to the Subordinated Notes so
purchased, and a credit representing the discount of $500
on the Company's prepayment of $1,500 on the $5,000 note
payable to Furr's issued in connection with the Company's
acquisition of certain stores from Furr's in September
1991. The extraordinary items have been shown net of
income taxes of $219.
(4) Common Stock held by management investors is presented as
redeemable common stock and excluded from stockholders'
equity since the Company has agreed to repurchase such
shares under certain defined conditions, such as death,
retirement or permanent disability. See "Management --
Management Stock Purchases." This presentation
represents a change from previously issued financial
statements. In addition, net income (loss) per common
share reflects the accretion in/reduction to redemption
value as a reduction/increase in income available to all
common stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The Company's net sales declined by 3.2% in fiscal
year 1994 to $785.1 million compared to fiscal year 1993. The
Company's net sales declined by .5% in fiscal year 1993 to
$811 million compared to a comparable 52 week year for fiscal
year 1992. The preceding two fiscal years showed a compound
annual growth rate of 3.0%, from $767.8 million in fiscal year
1990 to $815.3 million in fiscal year 1992 on a comparative 52
week basis. The decline in sales during 1994 was due to the
increased competition in the Company's market area resulting
primarily from additional store openings of Wal-Mart
supercenter stores (see "Business--Competition"). The 67
stores retained following the AWG Transaction comprised 67.7%
of the 1994 sales.
The following table sets forth selected items from
the Company's consolidated income statement as a percentage of
net sales for the periods indicated:
Percentage of Net Sales
Fiscal Year
1994 1993 1992
Net Sales........................ 100.00% 100.00% 100.00%
Cost of sales.................... 74.94 74.38 73.40
Gross profit................... 25.06 25.62 26.60
Selling and administrative....... 24.67 23.49 24.01
Operational restructuring costs 2.96 - -
Operating profit (loss)........ (2.57) 2.13 2.59
Gain on sale of plants........... - .32 -
Interest expense................. (2.30) (2.33) (2.93)
Income (loss) before income
taxes and extraordinary items.. (4.87) .12 (.34)
Provision for income taxes....... ( .31) .40 (.12)
Income (loss) before
extraordinary items............ (5.18) .52 (.46)
Extraordinary items.............. - (.48) (.11)
Net income (loss)................ (5.18) (.04) (.57)
Comparison of Fifty-Two Weeks Ended December 31,
1994 with Fifty-Two Weeks Ended January 1, 1994.
Sales. Net sales for 1994 decreased to $785.1
million, a 3.2% decrease over 1993 net sales. The decrease in
net sales for fiscal 1994 is primarily attributable to the
increased competition in the Company's market area resulting
primarily from additional store openings of Wal-Mart
supercenter stores during 1993 and 1994. There were 11 new
Wal-Mart supercenter stores opened in the Company's market
area during 1994. The Company's comparable store sales
decreased by 2.6% compared to the prior year due primarily to
competitors' store openings in the Company's market area.
The Company has developed and begun to implement a
more effective strategy for responding to competitive
pressures in the market place, including (i) exploiting the
advantages the Company has over its competitors, such as
convenience of store locations and variety of offerings, (ii)
increasing the offering of competitively-priced, private label
products, (iii) improving advertising and merchandising and
coordinating marketing efforts and (iv) increasing sales of
perishables.
Cost and Expenses. Gross profit as a percentage of
sales for fiscal 1994 decreased to 25.1% compared to 25.6% in
fiscal 1993. The decrease in the gross profit margin was
partially due to increased promotional pricing in response to
the increased competition in the Company's market area. The
decrease was also partially due to a decrease in the period of
time for amortizing video rental tapes. The decrease was
partially offset by a reduction in the inventory losses
accounted for in the Company's retail stores during 1994. The
retail store inventory losses were approximately $1.8 million
less than inventory losses in 1993, resulting principally from
a reduction in the losses in the meat department. The
improvement in the meat department losses was due to a change
in the procedures to process only the amount of product
anticipated to be sold and not processing excessive quantities
of fresh beef and pork to fill the display areas.
The decline in gross profit margin was also due in
part to an increase in warehouse and transportation expense as
a percent of sales in 1994 which was due to an increase in the
warehouse square footage and an increase in the number of
warehouse personnel resulting from converting the former ice
cream plant into additional frozen food warehouse space.
Selling and administrative expenses as a percentage
of sales increased in fiscal 1994 to 24.7% from 23.5% for
fiscal 1993. The increase in selling and administrative
expenses as a percentage of sales was due in large part to the
decrease in sales for 1994 as compared to the prior year.
However, the expenses also increased during 1994 due in part
to the contractual increase in the monthly fees in connection
with the Company's computer services agreement and a one-time
change in the administration of the vacation policy which
occurred during 1993 and did not recur in 1994. Expenses also
increased due to additional reserves recorded for estimated
bad debts on accounts receivable due from vendors and
wholesale customers which may not be collected in full as a
result of the AWG Transaction and the Company wrote down
certain fixed assets to fair market value. The Company also
recorded an increase of $5.7 million in the accrual for
workers' compensation claims in 1994 as compared to the prior
year due to an increase in the actuarially projected ultimate
costs of the self-insured plans reflecting increases in claims
and related settlements. These increases in expense were
partially offset by a reduction in retail wages and benefits
resulting from the modified collective bargaining agreement
entered into with the United Food and Commercial Workers of
North America in December 1993.
Following the AWG Transaction, the Company plans to
take steps to reduce its selling and administrative expenses
as well as improve its overall financial position. The Company
has developed a plan to close fifteen marginal and unprofit-
able stores during 1995 (seven of which have already been
closed in 1995). The Company also plans to reduce administra-
tive headcount by approximately 110 people by the end of 1996
following the AWG Transaction. In conjunction with fewer
stores and reduced headcount, the Company also plans to reduce
related administrative expenses including travel, phone, bank
service charges and computer services, among others.
Operational restructuring costs. Operational
restructuring costs for 1994 were $23.2 million which included
an estimate of the expenses to be incurred in connection with
the sale of the warehouse and 29 stores to AWG and the closing
of 15 stores during 1995. The accrual includes the fixed
costs of the closed stores from the time they are closed until
they can be sold or the lease expires.
Operating Loss. Operating loss was $20.1 million
for 1994 compared to operating profit of $17.3 million in
1993. The decrease in operating profit was due to the
decrease in sales, the decrease in gross profit margin, the
increase in selling and administrative expenses and the
operational restructuring costs recorded in 1994.
Gain on Sale of Plants. The Company recognized a
$2.6 million gain from the sale of equipment and related
assets associated with its milk and ice cream plants in 1993.
No similar gain was recognized in 1994.
Interest Expense. Interest expense for fiscal 1994
decreased to $18.1 million from $18.9 million in fiscal 1993
due primarily to the redemption of the Company's Subordinated
Notes. All remaining outstanding Subordinated Notes were
redeemed by the Company on March 1, 1993. See "Liquidity and
Capital Resources."
Income Tax Provision. The Company recognized
income tax expense of $2.4 million in 1994, compared to an
income tax benefit of $3.3 million in 1993. The expense in
1994 was the result of increasing the valuation allowance on
the Company's deferred tax asset from the prior year due to
the uncertainty of realizing the future tax benefits. The
expense was offset in part by the recognition of a tax benefit
for alternative minimum tax net operating losses that were
carried back to prior years. The income tax benefit for 1993
was the result of the reversal of the prior valuation
allowance on the Company's deferred tax asset due to the
proposed disposition of assets, net of the estimated amount
management believed the Company may be required to pay in
connection with the IRS audit (see below). At December 31,
1994, the Company had tax net operating loss carryforwards of
approximately $20.1 million.
The IRS concluded in December 1993 a field audit of
the Company's income tax returns for the fiscal years 1990,
1991 and 1992. On January 31, 1994, the IRS issued a Revenue
Agent's Report for those fiscal years proposing adjustments
that would result in additional taxes in the amount of $1.6
million (this amount is net of any available operating loss
carryforwards, which would be eliminated under the proposed
adjustment). The Company filed its protest with the IRS
Appeals Office on June 14, 1994. The IRS Appeals Office is
currently in the process of reviewing the Company's protest.
The major proposed adjustment involves the allocation of the
initial purchase price of the Company to inventory. The
Company believes that it has meritorious legal defenses to the
IRS adjustments and intends to vigorously protest the
assessment. Management has analyzed all of these matters and
has provided for, in accordance with generally accepted
accounting principles, amounts which it currently believes are
adequate.
Extraordinary Items. There were no extraordinary
items incurred during fiscal 1994. Extraordinary items in 1993
consisted of the payment of $2.776 million in premiums on the
redemption of $47.750 million in aggregate principal amount of
the Subordinated Notes at a purchase price of 105.8% of the
outstanding principal amount and $1.148 million in unamortized
financing costs related to the redemption of the Subordinated
Notes on March 1, 1993. See "Liquidity and Capital
Resources."
Income or Loss. The Company had net loss of $40.6
million during 1994 compared to net income of $282,000 in
1993. The net loss experienced in 1994 was due primarily to
the operational restructuring costs, reduction of sales and
gross profit margin, increase in selling and administrative
expenses and an increase in income tax expense.
Comparison of Fifty-Two Weeks Ended January 1, 1994
with Fifty-Three Weeks Ended January 2, 1993.
Sales. Net sales for 1993 decreased to $811.0
million, a 2.4% decrease over 1992 net sales. The decrease in
net sales for fiscal 1993 was primarily attributable to the 53
week year in fiscal 1992 as compared to a 52 week year in
fiscal 1993. Net sales for 1993 compared to an adjusted
comparable 52 week year for 1992 decreased 0.5%. Apart from
the effect of a 53 week year in fiscal 1992, the decrease in
net sales was primarily attributable to increased competition
including the opening of seven Wal-Mart supercenter stores and
Sam's Clubs in the Company's market area during 1993. The
decrease in net sales was also due to a reduction in wholesale
sales due to the loss of one wholesale customer and the
termination by the Company of four other wholesale customers.
Continuing store sales on a comparable 52 week basis decreased
by .5% compared to the prior year due primarily to
competitors' store openings in the Company's market area.
Cost and Expenses. Gross profit as a percentage of
sales for fiscal 1993 decreased to 25.6% compared to 26.6% in
fiscal 1992. The decrease in gross profit margin was
partially due to a reduction in prices and increased markdowns
in response to the increased competition in the Company's
market area. In addition, the decrease in gross profit margin
was partially attributable to inventory losses accounted for
in the Company's retail stores during the third and fourth
quarters of 1993. The retail store inventory losses were
approximately $2.2 million greater than inventory losses in
1992, resulting principally from above-normal losses in the
produce and meat departments. The produce department losses
were due to an isolated incidence of excess inventories in
connection with a one-time promotional sale in the third
quarter in response to increased competition. The meat
department losses were due to processing excessive quantities
of fresh beef and pork and taking earlier markdowns which
created larger distress losses. Procedures were implemented
in 1994 to process only the amount of product anticipated to
be sold. The decrease in gross profit margin for 1993 was
also due to lower vendor retail allowances than in 1992
because more nonrecurring vendor retail allowances were
received during 1992 compared to 1993. Retail allowances were
approximately $3.6 million less in 1993 compared to 1992.
Consistent with general industry trends, many of the Company's
major vendors have switched to a net pricing policy, which
lowers overall item prices to the Company, but also reduces
the retail allowances.
The decline in gross profit margin was partially
offset by a reduction in warehouse and transportation expense
in 1993 which was due to a reduction of hours worked in the
Company's warehouse and the outsourcing of the Company's
transportation operations in the second quarter of 1992. The
transportation charges incurred during fiscal 1993 were $7.4
million as compared to $8.6 million in 1992. Compared to
costs prior to the outsourcing, annual savings under the
Transportation Agreement are approximately $2.0 million.
Gross profit without regard to warehouse and
transportation costs as a percentage of sales decreased to
27.9% in fiscal 1993 compared to 29.1% in fiscal 1992. This
decrease was primarily due to the reduced prices and higher
markdowns as a result of the Company's response to increased
competition, the above-normal inventory losses experienced at
the Company's stores during the third and fourth quarters of
1993, and the reduction in vendor retail allowances.
Selling and administrative expenses as a percentage
of sales decreased for fiscal 1993 to 23.5% from 24.0% for
fiscal 1992 on a total sales decline of $20 million. The
decrease was partially due to management's cost reduction and
containment program, including the reduction of retail store
personnel hours, a staff reduction in the first quarter of
1993 and a reduction in management's salaries and non-union
employee benefits effective June 1993. The expense reduction
and control program is an on-going program, and the Company
continued its efforts to reduce expenses during fiscal 1994.
The decrease was also due to a smaller accrual for workers'
compensation and general liability claims in 1993 compared to
1992. A contractual provision in the Company's agreement for
computer services allowing for a reduction in the monthly fees
as a result of any point of sale invoices paid during the
month and a one-time change in the administration of the
vacation policy, both of which occurred in fiscal 1993, also
contributed significantly to the decreases in selling and
administrative expenses. The decrease was partially offset by
an increase in consulting expenses incurred to accelerate the
Company's profit improvement plan, an increase in the bonuses
paid under the Management Incentive Plan (as discussed in
"Executive Compensation -- Management Incentive Plan") and
expenses incurred in connection with the closing of two stores
during the third quarter of 1993 (the closing of these two
stores is not expected to have a material adverse effect on
the Company's on-going operations and profitability).
In the fourth quarter of 1993, the UFCWNA ratified
a modified collective bargaining agreement which provides for
average wages and benefits for store employees of $9.25 per
hour compared to the average wages and benefits before
modification of $10.47 per hour. Management estimates that
this wage and benefit reduction will result in annualized
savings of approximately $6.7 million in 1994 and each year
thereafter through October 1996 as compared to fiscal 1993.
Operating Profit. Operating profit was $17.3
million for 1993 compared with $21.5 million in 1992. The
decrease in operating profit was due to the decrease in sales
and the decrease in gross profit margin, offset in part by the
decrease in selling and administrative expenses.
Gain on Sale of Plants. The Company recognized a
$2.6 million gain from the sale of equipment and related
assets associated with its milk and ice cream plants in 1993.
Interest Expense. Interest expense for fiscal 1993
decreased to $18.9 million from $24.3 million in fiscal 1992
due primarily to the redemption of the Company's Subordinated
Notes. All remaining outstanding Subordinated Notes were
redeemed by the Company on March 1, 1993. As a result of this
redemption, the Company's average interest rate on its debt at
the end of fiscal 1993 was 9.3% compared to 11.5% at the end
of fiscal 1992. See "Liquidity and Capital Resources."
Income Tax Provision. The Company recognized an
income tax benefit of $3.3 million in 1993, compared to an
expense of $763,000 in 1992. The income tax benefit for 1993
is the result of the reversal of the prior valuation allowance
on the Company's deferred tax asset due to the proposed
disposition of assets discussed below (see "Liquidity and
Capital Resources"), net of the estimated amount management
believes the Company may be required to pay in connection with
the IRS audit (see below), while the expense for 1992 is
comprised of alternative minimum tax expense. At January 1,
1994, the Company had tax net operating loss carryforwards of
approximately $9.6 million, which might be affected by the
outcome of the IRS proposed adjustments described above.
Extraordinary Items. Extraordinary items in 1993
consist of the payment of $2.776 million in premiums on the
redemption of $47.750 million in aggregate principal amount of
the Subordinated Notes at a purchase price of 105.8% of the
outstanding principal amount and $1.148 million in unamortized
financing costs related to the redemption of the Subordinated
Notes on March 1, 1993. See "Liquidity and Capital
Resources."
Income or Loss. The Company had net income of
$282,000 during 1993 compared to a net loss of $4.7 million in
1992. The increase in net income was due primarily to the gain
on the sale of the milk and ice cream plants, lower selling
and administrative costs and interest expense and the tax
benefit from the reversal of the prior valuation allowance,
which was offset in part by a reduction of sales and gross
profit margin and the extraordinary items described above.
Liquidity and Capital Resources
Debt. The major sources of liquidity for the
Company's operations and expansion have been internally
generated funds and borrowings under revolving credit
facilities. In March 1992, the Company refinanced its
indebtedness by entering into an Indenture with United States
Trust Company of New York, as trustee (the "Senior Note
Indenture"), pursuant to which the Company issued $45 million
in aggregate principal amount of Series A Senior Secured
Floating Rate Notes Due 1997, bearing interest at a floating
rate of 3% over LIBOR (the "Old Floating Rate Notes"), and $75
million in aggregate principal amount of Series B Senior
Secured Fixed Rated Rate Notes due 1999, bearing interest at
11-3/4% per annum (the "Old Fixed Rate Notes," and together
with the old Floating Rate Notes, the "Old Notes"). The Old
Fixed Rate Notes are not redeemable by the Company until on or
after March 1, 1997.
In October and November 1992, the Company conducted
an offer to exchange its Series D Senior Secured Floating Rate
Notes Due 1997 (the "New Floating Rate Notes") for an equal
principal amount of its outstanding Old Floating Rate Notes,
and Series C Senior Secured Fixed Rate Notes Due 1999 (the
"New Fixed Rate Notes," and together with the New Floating
Rate Notes, the "New Notes") for an equal principal amount of
its Old Fixed Rate Notes. The Old Notes and the New Notes are
collectively referred to herein as the "Senior Notes;" the Old
Floating Rate Notes and the New Floating Rate Notes are
collectively referred to herein as the "Senior Floating Rate
Notes;" and the Old Fixed Rate Notes and the New Fixed Rate
Notes are collectively referred to herein as the "Senior Fixed
Rate Notes." The New Notes are substantially identical to the
Old Notes, except that the offering of the New Notes was
registered with the Securities and Exchange Commission.
Holders of the New Notes are not entitled to certain rights of
holders of the Old Notes, as described in the prospectus
relating to the exchange offer. The Company conducted the
exchange offer to satisfy its obligations under agreements
with the holders of the Senior Notes. At April 14, 1995, $75
million of New Fixed Rate Notes, $33 million of New Floating
Rate Notes and $12 million of Old Floating Rate Notes are
outstanding.
On April 13, 1995, the Company received consents for
certain amendments to the Senior Note Indenture from a
majority of the holders of Senior Notes. The amendments (a)
increased the interest rate on each series of Notes by one-
half of one percent (0.5%) per annum; (b) amended, added and
deleted certain financial covenants and related definitions
under the Senior Note Indenture (including modifying the
Consolidated Fixed Charge Coverage Ratio covenant, adding a
new Debt-to-EBITDA ratio and a new Capital Expenditures
covenant, deleting the Adjusted Consolidated Net Worth
covenant) to reflect the Company's size, operations and
financial position following the AWG Transaction; (c) amended
certain provisions of the Senior Note Indenture to permit the
Company to incur certain liens and indebtedness and to make an
investment in certain membership stock and receive or earn
patronage certificates or other equity in connection with the
supply agreement to be entered into with AWG; (d) amended
certain provisions of the security agreement to provide that
AWG will have a first lien on certain collateral to be
acquired by the Company in connection with the AWG supply
agreement; (e) amended certain other provisions of the Senior
Note Indenture to, among other things, limit the Company's
ability to incur certain future indebtedness and guarantees,
and to provide that a certain amount of net proceeds from
future asset sales must be applied to an offer to redeem the
Senior Notes; (f) made certain technical amendments to the
Senior Notes' Intercreditor Agreement; (g) and amended the
Senior Notes' Mortgage to provide that defaults under, or
modifications or terminations of, a certain lease related to
a store to be closed, will not constitute a default or event
of default under the Senior Notes' Mortgage. On April 21,
1995, the Company and United States Trust Company of New York,
as trustee for the holders of the Senior Notes, entered into
a supplemental indenture effecting these amendments.
Also in March 1992, the Company entered into a
Revolving Credit Agreement (the "Revolving Credit Agreement")
with Union Bank of Switzerland, New York Branch ("UBS"), as
agent and as lender, and any other lenders and other financial
institutions thereafter parties thereto. As a result of the
Company's redemption of the remaining outstanding Subordinated
Notes on March 1, 1993, and satisfying certain other
conditions, the Revolving Credit Agreement provided a
commitment of up to $50 million in secured revolving credit
loans, including a swing loan and certain letters of credit
(the "Revolving Credit Facility"). The Revolving Credit
Agreement by its terms permitted borrowings (a) for working
capital purposes and (b) subject to certain conditions, for
corporate acquisitions. Borrowings under the Revolving Credit
Agreement bore interest at the UBS Base Rate plus 1.5% or at
an adjusted Eurodollar Rate plus 2.5%, which rates were
subject to increase upon certain conditions. All borrowings
under the Revolving Credit Agreement were subject to a
borrowing base and mature no later than March 2, 1997. At
April 14, 1995, $21.1 million was outstanding under the
Revolving Credit Facility.
On April 21, 1995, the Company replaced its
Revolving Credit Agreement with a revised revolving facility
(the "Amended and Restated Revolving Credit Agreement"). The
Amended and Restated Revolving Credit Agreement is with
National Bank of Canada, ("NBC") as agent and as lender,
Heller Financial, Inc. and any other lenders thereafter
parties thereto. The Amended and Restated Revolving Credit
Agreement provides a commitment of up to $25 million in
secured revolving credit loans, including certain letters of
credit. The Amended and Restated Revolving Credit Agreement
permits borrowings (a) to refinance the existing Revolving
Credit Agreement, (b) for working capital needs and (c) issue
standby letters of credit and documentary letters of credit.
Borrowings under the Amended and Restated Revolving Credit
Agreement bear interest at the NBC Base Rate plus 1.5% for the
first year. Subsequent year's interest rates will be
dependent upon the Company's earnings but will not exceed the
NBC base rate plus 2.0%. All borrowings under the Amended and
Restated Revolving Credit Agreement are subject to a borrowing
base and mature no later than February 27, 1997, with the
possibility of extending the maturity date to March 31, 1998
if the Company's Series A Senior Secured Floating Rate Notes
due February 27, 1997, are extended or refinanced on terms
acceptable to NBC.
The obligations of the Company under the Senior
Notes are secured by a pledge of substantially all present and
future property, plant and equipment, trademarks, leaseholds
and other assets of the Company, other than inventory,
accounts and certain related collateral that is pledged to NBC
under the Amended and Restated Revolving Credit Agreement.
Holding has guaranteed the obligations of Homeland under the
Senior Notes, and such guarantee is secured by Holding's
pledge of 100% of the stock of Homeland. Commencing each year
on and after June 1, 1993, Homeland must apply 80% of its
Excess Cash Flow (as defined in the Senior Note Indenture),
after accounting for reductions in amounts outstanding under
the Amended and Restated Revolving Credit Agreement, to prepay
the Senior Floating Rate Notes. Additionally, Homeland must
apply net proceeds of asset dispositions (other than sales of
inventory and certain other property in the ordinary course
of business and certain other excepted dispositions) to prepay
indebtedness under the Senior Notes and/or the Amended and
Restated Revolving Credit Agreement.
Working Capital, Cash Flow and Capital Expenditures.
At December 31, 1994, the Company's working capital was $43.9
million or a current ratio of 1.65 to 1, compared to $53.6
million or 1.82 to 1 at January 1, 1994. The decrease in
working capital in 1994 was due to the decrease in cash, the
write off of certain inventory costs in connection with the
restructuring, and an increase in sales tax payable.
Cash flow from operations is used by the Company to
support working capital needs and to reduce its debt level.
The Company generated cash flow from operations of $.3 million
in fiscal 1994, $13.0 million in fiscal 1993 and $11.2 million
in fiscal 1992. The Company continues to review its cash flow
to identify areas where the cash flow can be increased. Areas
which are being reviewed include increasing inventory turnover
levels, improving the collection of accounts receivable, and
reducing the cash in the stores.
Homeland made total capital expenditures (including
capital leases) of approximately $6.9 million in fiscal 1994
compared to $10.4 million in fiscal 1993, $8.6 million in
fiscal 1992, $23.2 million in fiscal 1991, and $32.8 million
in fiscal 1990. Homeland expects to make total capital
expenditures (including capital leases) of approximately $6.0
million in fiscal 1995, primarily for store remodels. The
source of funds for the fiscal 1995 capital expenditures will
be reinvestment of net proceeds generated from the AWG
Transaction and the Amended and Restated Revolving Credit
Facility, if needed.
Other Liabilities. In fiscal 1994, the Company
added $5.0 million to its existing accruals, in addition to
its planned accrual of $4.7 million for 1994, for workers'
compensation and general liability claims based upon newly
available information and revised assumptions. The increase
in the workers compensation and the general liability accruals
is due to an increase in the actuarially projected ultimate
costs of the self-insured plans reflecting increases in claims
and related settlements.
Recently-Issued Accounting Standards
There are no recently issued accounting standards
that effect the Company.
<PAGE>
Inflation/Deflation
In recent years, deflation has not had a material
impact upon the Company's operating results. Although the
Company does not expect inflation or deflation to have a
material impact in the future, there can be no assurance that
the Company's business will not be affected by inflation or
deflation in future periods.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and
notes thereto are included in this report following the
signature pages.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, present
positions and years of service (in the case of members of
management) of the directors and management of Homeland:
<TABLE>
<CAPTION>
Years with the
Company and/or
Age Position Safeway
<S> <C> <S> <C>
B. Charles Ames * 69 Chairman of the Board --
John A. Shields * 51 Vice Chairman of the Board --
James A. Demme* 54 President, Chief 1
Executive Officer and
Director
Mark S. Sellers * 43 Executive Vice President - 3
Finance, Treasurer, Chief
Financial Officer and
Secretary
Jack M. Lotker 51 Senior Vice President - 7
Administration
Steven M. Mason 40 Vice President - Marketing 25
Mary Mikkelson * 33 Chief Accounting Officer, 3
Assistant Treasurer,
Assistant Secretary
Alfred F. Fideline, Sr. 57 Vice President - Retail 38
Operations
Prentess E. Alletag, Jr. 48 Vice President - Human 28
Resources
Chester R. Misialek 65 Vice President - Warehousing 47
and Transportation
Bernard S. Black 41 Director --
Richard C. Dresdale 39 Director --
Bernard Paroly 76 Director --
Andrall E. Pearson 69 Director --
Edward H. Meyer 68 Director --
Michael G. Babiarz 29 Director --
* Holding's Board of Directors is identical to that of Homeland. Mr.
Ames serves as Holding's Chairman of the Board, Mr. Shields serves
as Holding's Vice Chairman, Mr. Demme serves as Holding's President
and Chief Executive Officer, Mr. Sellers as Executive Vice President
- Finance, Treasurer, Chief Financial Officer and Secretary and Ms.
Mikkelson as Chief Accounting Officer, Assistant Treasurer and
Assistant Secretary.
B. Charles Ames was elected as Chairman of the Board
of Holding and Homeland in January 1991. Mr. Ames is a
principal of CD&R and has been a director of the Company since
January 1988. He is also a general partner of the general
partner of C&D Fund IV. He was a limited partner of the
general partner of C&D Fund III until October 1990, when he
assigned his limited partnership interest to B. Charles Ames
as Trustee of the trust created pursuant to a Declaration of
Trust, dated July 25, 1982. From October 1987 to December
1990, Mr. Ames was a consultant to CD&R. From January 1988 to
May 1990, Mr. Ames served as Chairman and Chief Executive
Officer of The Uniroyal Goodrich Tire Company, a major tire
manufacturer. From July 1983 to October 1987, Mr. Ames served
as Chairman of the Board and Chief Executive Officer of
Acme-Cleveland Corporation, a manufacturer of machine tools,
telecommunication equipment and electrical and electronic
controls, of which he was President and Chief Executive
Officer from 1981 to 1983. Mr. Ames is a director of Diamond
Shamrock R&M Inc., Warner Lambert Company, M.A. Hanna Company,
The Progressive Corporation, Lexmark International, Inc. and
its parent Lexmark Holding, Inc., and WESCO Distribution, Inc.
and its parent CDW Holding Corporation.
John A. Shields became a director of Homeland in May
1993 and in December 1993 he was elected Vice Chairman of the
Board of Holding and Homeland. He served as President, Chief
Executive Officer, Chief Operating Officer, and a member of
the Board of Directors of First National Supermarkets from
1983 to 1993. Mr. Shields is also a director of D.I.Y. Home
Warehouse, Inc., Shore Bank & Trust, and Shore Bank
Corporation.
James A. Demme became President, Chief Executive
Officer and a director of the Company as of November 30, 1994.
From 1992 to 1994, Mr. Demme served as Executive Vice
President of Retail Operations of Scrivner, Inc. He was
responsible for the operations of their 170 retail stores
which had a total volume exceeding $2 billion. From 1991 to
1992, Mr. Demme served as Senior Vice President of Marketing
of Scrivner, Inc. where he was responsible for restructuring
and refocusing the merchandising department to retail
orientation. From 1988 to 1991, Mr. Demme was President and
Chief Operating Officer of Shaws Supermarkets, which was the
fifteenth largest retail chain with sales of $1.7 billion.
Mark S. Sellers became Executive Vice President -
Finance, Chief Financial Officer, Treasurer and Secretary of
the Company as of September 1, 1992. From 1984 to 1987, Mr.
Sellers served as Senior Vice President and Chief Financial
Officer of Sanger Harris, a division of Federated Department
Stores. During this period, Sanger Harris merged with
Foley's, Inc. and in 1987, Mr. Sellers was named Senior Vice
President and Chief Financial Officer of Foley's, Inc. From
1988 to 1990, he was Executive Vice President, Chief Financial
Officer and Chief Operating Officer of Marshall's, Inc., a
division of Melville Corporation. From 1990 to 1992, he
served R.H. Macy & Company as President and Chief Operating
Officer of the Macy's South/Bullock's division and Vice
Chairman and Chief Operating Officer of Macy's Northeast
division and Vice Chairman and Chief Operating Officer of
Macy's East division.
Jack M. Lotker served as Vice President for
Personnel at the Oroweat Food Company, Inc. from October 1978
until March 1984. In April 1984, Mr. Lotker became Vice
President and Group Executive of Arnold Foods Company, Inc.
where he remained until December 1986. In December 1986, Mr.
Lotker became Vice President and General Manager of Best Foods
Baking Group (a division of CPC International). Mr. Lotker
left Best Foods in January 1988 and joined Homeland in
February 1988 as Senior Vice President - Supply Operations.
In 1993, he was appointed Senior Vice President -
Administration.
Steven M. Mason joined Safeway in 1970 and the
Oklahoma Division in 1986. At the time of the Acquisition, he
was serving as Special Projects Coordinator for the Oklahoma
Division. In November 1987, he joined Homeland and in October
1988, he was appointed to the position of Vice President -
Retail Operations. In October 1993, Mr. Mason was appointed
to the position of Vice President - Marketing.
Mary Mikkelson joined the Company in October 1992.
In February 1993, she was appointed Chief Accounting Officer,
Assistant Treasurer and Assistant Secretary. From 1988 to
1992, Ms. Mikkelson served as Audit Manager for Coopers &
Lybrand.
Alfred F. Fideline, Sr. joined Safeway in 1957. At
the time of the Acquisition, he was serving as a District
Manager of the Oklahoma Division. In November 1987, Mr.
Fideline joined Homeland as a District Manager and in May
1994, he was appointed to the position of Vice President -
Retail Operations.
Prentess E. Alletag, Jr. joined the Oklahoma
Division in October 1969, where, at the time of the
Acquisition, he was serving as Human Resources and Public
Affairs Manager. In November 1987, Mr. Alletag joined
Homeland as Vice President - Human Resources.
Chester R. Misialek joined the Oklahoma Division in
May 1948, where, at the time of the Acquisition, he was
serving as Distribution Center Manager. In November 1987, Mr.
Misialek joined Homeland as Vice President - Warehousing and
Transportation.
Bernard S. Black is a Professor of Law at the
Columbia Law School. He joined the Columbia law faculty in
July, 1988. Professor Black served as counsel to Commissioner
Joseph A. Grundfest of the Securities and Exchange Commission
from January, 1987 through July, 1988. From 1983 to 1987, he
practiced law in New York City, specializing in mergers and
acquisitions and corporate and securities law. In September
1989, Professor Black became a director of Homeland.
Richard C. Dresdale was designated a director of the
Company in November 1987. He was Assistant Secretary of the
Company from November 1987 until March 1994. He has been
President of Fenway Partners, Inc., a private investment firm,
since March 1, 1994. He was a professional employee of CD&R
from June 1985 until his withdrawal from the firm on March 1,
1994. Mr. Dresdale holds directorships in Remington Arms
Company, Inc., and its parent RACI Holding, Inc., Nu-kote
International, Inc. and its parent Nu-kote Holding, Inc. He
is a limited partner in the general partner of C&D Fund III.
He was a limited partner in the general partner of C&D Fund IV
until his withdrawal as a limited partner from such general
partner effective March 1, 1994.
Bernard Paroly served as Chairman and Chief
Executive Officer of Pathmark Supermarkets from mid-1981 to
July 1986. In November 1987, Mr. Paroly become a director of
Homeland.
Andrall E. Pearson is a director of the Company. He
is a principal of CD&R. He is a limited partner of the
general partner of C&D Fund IV. He was a Professor of
Business Administration at the Graduate School of Business at
Harvard University from 1985 until July 1993. From 1971
through 1985, Mr. Pearson was President and Chief Operating
Officer of PepsiCo., Inc., a major soft drink producer. Mr.
Pearson is a director of PepsiCo., Inc., May Department Stores
Company, and The Travelers, Inc. (formerly Primerica
Corporation).
Edward H. Meyer became a director of Homeland in
December 1992. He has served as Chairman, Chief Executive
Officer and President of Grey Advertising, Inc. since 1956.
Mr. Meyer is a director of May Department Stores Company,
Bowne & Co., Inc., Harman International Industries, Inc.,
Ethan Allen Interiors, Inc., and director and trustee of 31
investment companies advised by Merrill Lynch Asset
Management, Inc. or its affiliates.
Michael G. Babiarz became a director of Homeland in
January 1995. Mr. Babiarz has been a professional employee of
CD&R since 1990.
Changes in Management
In addition to the change in the Chief Executive Officer,
Mark Sellers, the Company's Chief Financial Officer will be
resigning effective May 7, 1995, and Mary Mikkelson, the
Company's Chief Accounting Officer will be resigning effective
May 3, 1995. Larry Kordisch will become the Executive Vice
President-Finance, Treasurer, Chief Financial Officer and
Secretary. Mr. Kordisch was the Executive Vice President of
Finance and Administration and the Chief Financial Officer of
Scrivner, Inc. from August 1978 through 1994. Terry
Marczewski will become the Chief Accounting Officer, Assistant
Treasurer and Assistant Secretary. Mr. Marczewski was the
Vice President and Controller of the Scrivner Group at Fleming
Companies from July 1994 to April 1995. From 1981 to July
1994, Mr. Marczewski was the Vice President and Controller of
Scrivner, Inc.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary
information concerning compensation paid or accrued by the
Company to or on behalf of the Company's Chief Executive
Officer and each of the four other most highly compensated
executive officers of the Company (hereinafter referred to as
the "Named Executive Officers") for the fiscal years ended
December 31, 1994, January 1, 1994, and January 2, 1993:
</TABLE>
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
<CAPTION>
Name and Other
Principal Annual All Other
Position Year Salary Bonus Compensation Compensation (4)(5)
<S> <C> <C> <C> <C> <C>
James A. Demme 1994 $ 11,538 (1) - - -
President and
Chief Executive
Officer of the
Company
Max E. Raydon 1994 $193,154 (2) $153,000 (3) $31,295
Former President 1993 188,462 180,000 (3) 4,960
and Chief 1992 203,846 (6) 107,136 (3) 4,364
Executive Officer
of the Company
Mark S. Sellers 1994 $153,000 $130,050 $114,474 (8) $43,447
Executive Vice 1993 160,192 153,000 80,852 (8) 34,604
Pres. Finance, 1992 55,577 (7) 56,667 49,781 (8) -
Treasurer, Chief
Financial Officer
and Secretary
Jack M. Lotker 1994 $130,500 $110,925 (3) $ 7,826
Senior V. Pres. 1993 136,356 130,500 (3) 6,574
Administration 1992 147,789 (6) 60,168 (3) -
Steven M. Mason 1994 $130,500 $110,925 (3) $ 8,963
Vice President - 1993 107,250 103,500 (3) 3,904
Marketing 1992 107,019 (6) 44,247 (3) 2,281
Chester R.Misialek 1994 $ 70,875 $ 64,883 (3) $ -
Vice President - 1993 74,207 54,221 (3) -
Warehousing and 1992 80,264 (6) 27,011 (3) -
Transportation
</TABLE>
(1) Mr. Demme joined the Company as President, Chief
Executive Officer and a director as of November 30, 1994.
(2) Mr. Raydon was President and Chief Executive Officer of
the Company until his resignation on November 30, 1994.
<PAGE>
(3) Personal benefits provided to the Named Executive Officer
under various Company programs do not exceed 10% of total
annual salary and bonus reported for the Named Executive
Officer.
(4) All other compensation includes contributions to the
Company's defined contribution plan on behalf of each of
the Named Executive Officers to match 1993 and 1992 pre-
tax elective deferral contributions (there was no match
for 1994) (included under Salary) made by each to such
plan, as follows: Max E. Raydon, $4,497; Jack M. Lotker,
$4,497; and Steven M. Mason, $2,956.
(5) The Company provides reimbursement for medical benefit
insurance premiums for the Named Executive Officers.
These persons obtain individual fully-insured private
medical benefit insurance policies with benefits
substantially equivalent to the medical benefits
currently provided under the Company's group plan. The
Company also provides for life insurance premiums for
executive officers, including the Named Executive
Officers and one other executive officer, who obtain
fully-insured private term life insurance policies with
benefits of $500,000 per person. Amounts paid during
1994 are as follows: Max E. Raydon, $31,295; Mark S.
Sellers, $38,972; Jack M. Lotker, $7,826; Steven M.
Mason, $8,963; and Prentess E. Alletag, Jr., $4,467.
(6) Salary in 1992 includes an extra week compared to fiscal
years 1993 and 1994 (53 weeks versus 52 weeks).
(7) Mr. Sellers joined the Company in September 1992.
(8) Includes reimbursement of relocation expenses in the
amount of $95,378 in 1994, $78,058 in 1993 and $49,781 in
1992.
Directors who are not employees of the Company or
otherwise affiliated with the Company (presently consisting of
Messrs. Black, Paroly, Meyer, Dresdale and Shields) are paid
annual retainers of $15,000 and meeting fees of $1,000 for
each meeting of the board or any committee attended. Mr. John
Bell, who was a director of the Company until his resignation
in January 1995, also served as a consultant to the Company
from time to time at the request of the Company. At such
times as he provided such consulting services, Mr. Bell
received $1,000 per day from the Company. During 1994, Mr.
Bell received $36,000 from the Company for consulting fees and
was also reimbursed for business expenses. Mr Shields also
serves as a consultant to the Company from time to time at the
request of CD&R. During 1994, Mr. Shields received $133,330
from CD&R for consulting fees for services provided to the
Company.
<PAGE>
Employment Agreements
In November 1994, the Company entered into an
employment agreement with James A. Demme, the Company's
President and Chief Executive Officer for an indefinite term.
The Agreement provides a base annual salary of not less than
$200,000 and entitles Mr. Demme to participate in the
Company's Management Incentive Plan with a maximum annual
bonus equal to 100% of base salary; provided that for calendar
year 1995 Mr. Demme will receive a minimum bonus of $100,000.
The agreement also provides for awards under a long term
incentive compensation plan which is to be established by the
Company and authorizes reimbursement for certain business-
related expenses. If the agreement is terminated by Homeland
for other than cause or disability prior to the third
anniversary of the agreement or is terminated by Mr. Demme
following the sale of at least 50% of the voting stock of the
Company, the Company will continue to pay Mr. Demme his base
salary for one year.
On January 30, 1995, Homeland entered into a revised
employment agreement with Mark S. Sellers, the Company's
Executive Vice President-Finance, Chief Financial Officer,
Treasurer and Secretary. The agreement is effective as of
January 1, 1995 and expires on the thirtieth day following the
closing of the AWG Transaction, unless terminated sooner due
to death or disability. The agreement provides a base annual
salary of not less than $170,000 and entitles Mr. Sellers to
participate in the Management Incentive Plan established by
Homeland including a pro rata bonus in 1995 based on the
Company's performance. The agreement provides for
reimbursement of all relocation expenses in connection with
Mr. Sellers' move to Oklahoma including reimbursement of any
loss incurred in connection with the sale of his previous home
based on the total investment and expenses he had in the house
not to exceed $271,613. The agreement provides for a
retention payment of $195,000 within 10 business days after
the date of expiration of the agreement. The agreement also
provides that the Company will reimburse Mr. Sellers up to a
maximum of $30,000 for all reasonable costs of moving his
household goods from Oklahoma City and costs of selling his
house in Oklahoma, subject to a reduction to the extent of any
reimbursement received from other employment.
In August 1994, the Company entered into a two-year
employment agreement with Jack M. Lotker, the Company's Senior
Vice President of Administration. The agreement provides a
base annual salary of not less than $130,500, subject to
increase from time to time at the discretion of the Board of
Directors and authorizes reimbursement for certain business-
related expenses. Under the agreement, Mr. Lotker is entitled
to participate in the Management Incentive Plan established by
Homeland. Mr. Lotker is also entitled to receive a special
one-time non-recurring cash bonus in an amount to be
determined pursuant to a formula based on the Company's stock
price at the time of a transaction if a Trigger Event occurs
on or prior to December 31, 1995 (or by February 28, 1996 if
a definitive agreement is in place at December 31, 1995). If
the agreement is terminated by Homeland for other than cause
prior to a change of control or is terminated by Mr. Lotker
for any reason prior to a change of control, Mr. Lotker is
entitled to continue to receive his compensation until the
first anniversary of such termination, subject to reduction to
the extent of any compensation received from other employment.
If the agreement is terminated, whether voluntary or
involuntary, within 180 days following a change of control or
a Trigger Event, Mr. Lotker is entitled to receive payment
equal to one year's salary, plus a pro rata amount of the
incentive compensation for the portion of the incentive year
that precedes the date of termination, plus any amount forgone
by Mr. Lotker under the 10% reduction in management salaries
effected in June 1993, and would not be subject to any offset
as a result or his receiving compensation from other
employment. Furthermore, if Mr. Lotker is entitled to receive
severance benefits as outlined or if his employment terminates
due to his death or disability (as defined), Homeland will pay
his relocation expenses from Oklahoma to any location in the
continental United States and will reimburse him for any loss
incurred on the sale of his current home following a
reasonable effort to obtain a good sales price, subject to
reduction to the extent of any compensation received from
other employment.
In August 1994, the Company entered into a two-year
employment agreement, with both Steve Mason, the Company's
Vice President of Marketing and Al Fideline, the Company's
Vice President of Retail Operations. The agreements provide
a base annual salary of not less than $130,500 and $80,000,
respectively, subject to increase from time to time at the
discretion of the Board of Directors and authorizes
reimbursement for certain business-related expenses. Under
the agreements, Messrs. Mason and Fideline are entitled to
participate in the Management Incentive Plan established by
Homeland. Messrs. Mason and Fideline are also entitled to
receive a special one-time non-recurring cash bonus in an
amount to be determined pursuant to a formula based on the
Company's stock price at the time of a transaction if a
Trigger Event occurs on or prior to December 31, 1995 (or by
February 28, 1996 if a definitive agreement is in place at
December 31, 1995). If the agreements are terminated by
Homeland for other than cause prior to a change of control,
Messrs. Mason and Fideline are each entitled to receive
severance benefits in accordance with Homeland's generally
applicable plans, policies or procedures, subject to any
offset as a result of receiving compensation from other
employment. If the agreements are terminated, whether
voluntary or involuntary, within 180 days following a change
of control or a Trigger Event, Messrs. Mason and Fideline are
each entitled to receive payment equal to one year's salary,
plus a pro rata amount of the incentive compensation for the
portion of the incentive year that precedes the date of
termination, plus any amount forgone by Messrs. Mason or
Fideline under the 10% reduction in management salaries
effected in June 1993, and would not be subject to any offset
as a result of them receiving compensation from other
employment.
In December 1994, the Company entered into a
settlement agreement with Max E. Raydon whereby his employment
with the Company was terminated. In connection with the
termination, Mr. Raydon received a lump sum amount of $600,000
and resigned as an officer and director of the Company. For
a period of thirty-six months, the Company will continue to
provide to Mr. Raydon the same medical, dental, vision, life
and disability insurance and other welfare benefits as it
provides to its executive officers. In March 1995, the
Company repurchased 455,000 shares of Class A Common Stock of
Holding from Mr. Raydon at $0.50 per share plus the issuance
of a warrant for the same number of shares with an exercise
price of $0.50.
Management Incentive Plan
Homeland maintains a Management Incentive Plan to
provide incentive bonuses for members of its management and
key employees. Bonuses are determined according to a formula
based on both corporate, store and individual performance and
accomplishments or other achievements and are paid only if
minimum performance and/or accomplishment targets are reached.
Minimum bonuses range from 0 to 100% of salary for officers
(as set forth in the plan), including the Chief Executive
Officer. Maximum bonus payouts range from 75% to 200% of
salary for officers and up to 200% of salary for the Chief
Executive Officer. Performance levels must significantly
exceed target levels before the maximum bonuses will be paid.
Under limited circumstances, individual bonus amounts can
exceed these levels if approved by the Compensation Committee
of the Board. Incentive bonuses paid to managers and
supervisors vary according to their reporting and
responsibility levels. The plan is administered by a
committee consisting, unless otherwise determined by the Board
of Directors, of members of the Board who are ineligible to
participate in the plan. Incentive bonuses earned for certain
highly compensated executive officers under the plan for
performance during fiscal year 1994 are included in the
Summary Compensation Table.
Retirement Plan
Homeland maintains a retirement plan in which all
non-union employees, including members of management,
participate. Under the plan, employees who retire at or after
age 65 after completing five years of vesting service (defined
as calendar years in which employees complete at least 1,000
hours of service) will be entitled to retirement benefits
equal to 1.50% of career average compensation (including
basic, overtime and incentive compensation) plus .50% of
career average compensation in excess of the social security
covered compensation, such sum multiplied by years of benefit
service (not to exceed 35 years). Service with Safeway prior
to the Acquisition is credited for vesting purposes under the
plan. Retirement benefits will also be payable upon early
retirement beginning at age 55, at rates actuarially reduced
from those payable at normal retirement. Benefits are paid in
annuity form over the life of the employee or the joint lives
of the employee and his or her spouse or other beneficiary.
Under the plan, estimated annual benefits payable to
the named executive officers of Homeland upon retirement at
age 65, assuming no changes in covered compensation or the
social security wage base, would be as follows: James A.
Demme, $27,226; Max E. Raydon, $26,535; Mark S. Sellers,
$62,026; Jack M. Lotker, $58,944; Steven M. Mason, $84,753;
and Chester R. Misialek, $14,644.
Compensation Committee Interlocks and Insider Participation
Messrs. Ames, Paroly and Shields served on the
Company's Compensation and Benefits Committee of the Board of
Directors for the 1994 fiscal year. Mr. Ames, Chairman of the
Board, is a principal of CD&R, the holder of an economic
interest in the general partner of C&D Fund III and a general
partner of the general partner of C&D Fund IV. See "Certain
Relationships and Related Transactions". Mr. Shields serves
as a consultant to the Company from time to time at the
request of CD&R. During 1994, Mr. Shields received $133,330
from CD&R for consulting fees for services provided to the
Company.
Management Stock Purchases
Shares of Common Stock purchased by members of
management, including Named Executive Officers Max E. Raydon,
Jack Lotker, Steven M. Mason, and Chester R. Misialek and key
employees, (the "Management Investors"), directly and
indirectly through an individual retirement account, are
subject to certain transfer restrictions (including successive
rights of first refusal on the part of Holding and C&D Fund
III or, with respect to certain shares, C&D Fund IV) and
repurchase rights (including successive rights by Holding and
C&D Fund III or with respect to certain shares, C&D Fund IV,
to purchase shares from Management Investors whose employment
with Homeland terminates). In addition, the Management
Investors have the right to require Holding to repurchase
their shares upon the occurrence of certain events, such as a
termination without "cause" (as defined) or death, retirement
or permanent disability, subject to (a) there being no default
under the Company's prior credit agreement with Manufacturers
Hanover Trust Company, as agent and certain other banks (the
"Prior Credit Agreement"), the Subordinated Note Indenture,
any other financing or security agreement or document
permitted under the Prior Credit Agreement or the Subordinated
Note Indenture (including the Senior Note Indenture and the
Revolving Credit Agreement), or certain other financing or
security agreements or documents, (b) the repurchase not
violating any such agreement or document or Holding's
certificate of incorporation and (c) Holding having sufficient
funds legally available for such repurchase under Delaware
law. Holding has also agreed to use its best efforts to
repurchase shares from any Management Investor who experiences
certain unforeseen personal hardships, subject to the
authorization of Holding's Board of Directors. During 1994,
the Company exercised its repurchase rights to repurchase an
aggregate of 106,000 shares of Common Stock at the fair market
value as determined by the Board from Management Investors.
The shares held by each Management Investor,
directly and indirectly through an individual retirement
account, are entitled to the benefits of and are bound by the
obligations set forth in certain registration and
participation agreements. See "Security Ownership of Certain
Beneficial Owners and Management -- Registration and
Participation Agreements." For information concerning the
holdings of Common Stock as of April 14, 1995 by certain
officers and directors, see "Security Ownership of Certain
Beneficial Owners and Management -- Ownership of Certain
Holders." The Common Stock sold to members of management and
key employees has been accounted for as redeemable Common
Stock. Homeland has made certain temporary loans which are
due July 21, 1995, to certain members of management and key
employees to enable such persons to make principal payments
under loans to finance such persons' purchase of redeemable
Common Stock. See "Certain Relationships and Related
Transactions."
On April 21, 1995, the Company made an offer to
repurchase shares of its Common Stock owned by certain
officers and employees of the Company at a cash purchase price
of $0.50 per share, plus a warrant equal to the number of
shares purchased with an exercise price of $0.50. However,
such repurchases shall not exceed $600,000 in the aggregate
(net of amounts to be repaid in respect of loans from the
Company) and individual repurchases shall not exceed any
outstanding loan balance that the officers or employees may
have related to their purchase of Common Stock.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Ownership of Certain Holders
Set forth below is information as of April 14, 1995,
concerning certain holders of the currently outstanding shares
of Common Stock (including Named Executive Officers, officers
and directors of the Company and holders of 5% or more of the
Common Stock).
Shares Percent of
Name of Beneficial Owner Beneficially Owned Class
The Clayton & Dubilier Private
Equity Fund III Limited
Partnership, 270 Greenwich
Avenue, Greenwich, CT 06830 11,700,000 34.1%
The Clayton & Dubilier Private
Equity Fund IV Limited
Partnership, 270 Greenwich
Avenue, Greenwich, CT 06830 13,153,089 38.4
B. Charles Ames (1)(2) 13,153,089 38.4
Joseph L. Rice, III (1)(3) 24,853,089 72.5
Alberto Cribiore (1)(3) 24,853,089 72.5
Donald J. Gogel (1) 13,153,089 38.4
Hubbard Howe (1) 13,153,089 38.4
James A. Demme -- --
Mark S. Sellers -- --
Jack M. Lotker 450,000 1.3
Steven M. Mason (4) 200,000 *
Chester Misialek 200,000 *
Alfred F. Fideline, Sr. 101,000 *
Bernard S. Black (5) 70,000 *
Bernard Paroly 50,000 *
Richard C. Dresdale -- --
Andrall E. Pearson (2) -- --
Edward H. Meyer -- --
John A. Shields -- --
Michael G. Babiarz -- --
Officers and directors as
a group (16 persons) (6)(7) 14,324,089 41.8
*Indicates less than 1%
(1) Messrs. Ames, Rice, Cribiore, Gogel and Howe may be
deemed to share beneficial ownership of the shares owned
of record by C&D Fund IV by virtue of their status as
general partners of the general partner of C&D Fund IV,
but Messrs. Ames, Rice, Cribiore, Gogel and Howe each
expressly disclaims such beneficial ownership of the
shares owned by C&D Fund IV. Messrs. Ames, Rice,
Cribiore, Gogel and Howe share investment and voting
power with respect to securities owned by C&D Fund IV.
The business address for Messrs. Ames, Rice, Cribiore,
Gogel and Howe is c/o Clayton, Dubilier & Rice, Inc., 126
East 56th Street, 25th Floor, New York, New York 10022.
(2) Mr. Ames was a limited partner in the general partner of
C&D Fund III until October 1990, when he assigned his
limited partnership interest to B. Charles Ames as
Trustee of the trust created pursuant to a Declaration of
Trust, dated July 25, 1982. Thus, he does not share
investment discretion with respect to securities held by
C&D Fund III. Mr. Pearson is a limited partner in the
general partner of C&D Fund IV, but does not share
investment discretion with respect to securities held by
C&D Fund IV.
(3) Messrs. Rice and Cribiore may be deemed to share
beneficial ownership of the shares owned of record by C&D
Fund III by virtue of their status as general partners of
the general partner of C&D Fund III, but Messrs. Rice and
Cribiore each expressly disclaims such beneficial
ownership of the shares owned by C&D Fund III. Messrs.
Rice and Cribiore share investment and voting power with
respect to securities owned by C&D Fund III.
(4) Includes 27,900 shares held in Mr. Mason's individual
retirement account. Shares held by officers in their
respective individual retirement accounts ("IRA") are
subject to a power of attorney authorizing Mr. Dresdale
to instruct the trustee of the IRA to take certain
actions with respect to the shares held in the IRA in
accordance with the stock subscription agreements
executed by such officers.
(5) Includes 13,000 shares held in Mr. Black's individual
retirement account. See note 4.
(6) Includes shares owned by C&D Fund IV, over which Mr.
Ames, a director of the Company, shares investment and
voting control. See notes 1 and 2.
(7) Includes 130,900 shares held by officers and directors
in their respective individual retirement accounts. See
note 4.
Registration and Participation Agreements
Holders of the 20,180,000 shares of Common Stock
outstanding prior to the August 1990 private offering, net of
85,000 shares repurchased by the Company from former key
employees (the "Existing Holders"), are entitled to the
benefits of and are bound by the obligations set forth in a
Registration and Participation Agreement, dated as of November
24, 1987 (the "1987 Registration and Participation
Agreement"), among Holding, C&D Fund III and the other initial
purchasers of Common Stock. Under the 1987 Registration and
Participation Agreement, the holders of specified percentages
of Common Stock may require the registration of such Common
Stock, subject to certain limitations. Any number of such
registrations may be requested, and Holding is required to
bear all expenses in connection with the first three requests
for registration. Prior to an initial public offering of
Holding Common Stock, a demand for such registration can be
made only by the holders of at least 40% of the Common Stock
subject to the 1987 Registration and Participation Agreement
(but not less than 3 million shares); thereafter, or at any
time after November 24, 1994, such a demand may be made by the
holders of at least 10% of the Common Stock subject to the
Agreement (but not less than l.2 million shares). Holders of
Common Stock also have the right to participate in any
registered offering initiated by Holding, subject to certain
conditions and limitations. In addition, the 1987
Registration and Participation Agreement entitles holders of
Common Stock to participate proportionately in certain
"qualifying sales" of Common Stock by C&D Fund III. Subject
to certain qualifications, "qualifying sales" are sales by C&D
Fund III of more than one million shares of Common Stock.
Under the 1987 Registration and Participation Agreement,
Holding must offer certain stockholders the right to purchase
their pro rata share of Common Stock in connection with any
proposed issuance of additional shares of Common Stock to C&D
Fund III or any of its affiliates (other than persons who may
be deemed affiliates solely by reason of being members of the
management of the Company).
Holders of the 15,000,000 shares of Common Stock
purchased in the August 1990 private offering are entitled to
the benefits of and are bound by the obligations set forth in
the Registration and Participation Agreement dated as of
August 13, 1990 (the "1990 Registration and Participation
Agreement") among Holding, C&D Fund IV and those purchasers
of such Common Stock (the "New Holders"). The registration
rights are, however, expressly subordinate in nearly all
respects to the registration rights granted to the Existing
Holders with respect to the Common Stock that is covered by
the 1987 Registration and Participation Agreement. The 1990
Registration and Participation Agreement provides, among other
things, that New Holders of specified percentages of
registrable Common Stock may initiate one or more
registrations at Holding's expense, provided that the Existing
Holders shall have the right to include their own shares of
Common Stock in any such registration on a pro rata basis. In
addition, if Holding proposes to register any equity
securities, and certain conditions are met, New Holders will
be entitled to include shares in the registration, provided
that the Existing Holders shall have been given the
opportunity to include all of their shares in such offering.
The 1990 Registration and Participation Agreement does not
entitle the New Holders to participate in sales of Common
Stock by C&D Fund IV, but does give each New Holder the right
to be offered additional shares of Common Stock if additional
shares are proposed to be issued to C&D Fund IV or its
affiliates.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's largest stockholders, C&D Fund III and
C&D Fund IV, are private investment funds managed by CD&R.
Amounts contributed to C&D Fund III and C&D Fund IV by the
limited partners thereof are invested at the discretion of the
general partner in the equity of corporations organized for
the purpose of carrying out leveraged acquisitions involving
the participation of management, or, in the case of C&D Fund
IV, in corporations where the infusion of capital coupled with
the provision of managerial assistance by CD&R can be expected
to generate returns on investments comparable to returns
historically achieved in leveraged buy-out transactions. The
general partner of C&D Fund III is Clayton & Dubilier
Associates III Limited Partnership, a Connecticut limited
partnership ("Associates III"). The general partner of C&D
Fund IV is Clayton & Dubilier Associates IV Limited
Partnership, a Connecticut limited partnership ("Associates
IV"). B. Charles Ames, a principal of CD&R, a holder of an
economic interest in Associates III and a general partner of
Associates IV, also serves as Chairman of the Board of the
Company. Andrall E. Pearson, a principal of CD&R and director
of the Company, is a limited partner of Associates IV.
Michael G. Babiarz, a director of the company, is a
professional employee of CD&R. Richard C. Dresdale, a
director of the Company, is a limited partner of Associates
III. He was a professional employee of CD&R and was a limited
partner of Associates IV until his withdrawal from CD&R and
Associates IV effective March 1, 1994. He retains an economic
interest in the investments in the Company by C&D Fund IV.
CD&R receives an annual fee for management and
financial consulting services provided to the Company and
reimbursement of certain expenses. The consulting fees paid
to CD&R were $150,000 in 1994 and $200,000 in each of the
years 1992 and 1993.
CD&R, C&D Fund III and the Company entered into an
Indemnification Agreement on August 14, 1990, pursuant to
which the Company agreed, subject to any applicable
restrictions in the Prior Credit Agreement and the
Subordinated Note Indenture, to indemnify CD&R, C&D Fund III,
Associates III and their respective directors, officers,
partners, employees, agents and controlling persons against
certain liabilities arising under the federal securities laws
and certain other claims and liabilities.
CD&R, C&D Fund III, C&D Fund IV and the Company
entered into a separate Indemnification Agreement, dated as of
March 4, 1992, pursuant to which the Company agreed, subject
to any applicable restrictions in the Senior Note Indenture,
the Revolving Credit Agreement, the Subordinated Note
Indenture, the 1987 Registration and Participation Agreement,
and the 1990 Registration and Participation Agreement, to
indemnify CD&R, C&D Fund III, C&D Fund IV, Associates III,
Associates IV and their respective directors, officers,
partners, employees, agents and controlling persons against
certain liabilities arising under the federal securities laws
and certain other claims and liabilities.
Homeland has made temporary loans in 1993 and 1994
to certain members of management, in a maximum principal
amount of $1,076,506, to enable such persons to make principal
payments under loans from a third-party financial institution,
which third-party loans were used solely to finance such
persons' purchase of redeemable Common Stock of Holding. Such
temporary loans are due July 21, 1995, and bear interest at a
variable rate equal to the Company's Base Rate as determined
by the Revolving Credit Agreement plus a margin of one percent
per annum, and in any event no less than 11.5%. At April 14,
1995, $731,554 in aggregate principal amount of such loans was
outstanding. In addition, the Company made a temporary loan
in the aggregate principal amount of $200,000 to Mark S.
Sellers, Executive Vice President-Finance, Treasurer, Chief
Financial Officer and Secretary of the Company in connection
with his relocation to Oklahoma and purchase of a new home.
The loan bears interest at 8.3% and is to be repaid with the
equity in his former home. At April 14, 1995, $23,446 of this
loan remains outstanding.
On April 21, 1995, the Company made an offer to
repurchase shares of its Common Stock owned by certain
officers and employees of the Company at a cash purchase price
of $0.50 per share, plus a warrant equal to the number of
shares purchased with an exercise price of $0.50. However,
such repurchases shall not exceed $600,000 in the aggregate
(net of amounts to be repaid in respect of loans from the
Company) and individual repurchases shall not exceed any
outstanding loan balance that the officers or employees may
have related to their purchase of Common Stock.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
The following documents are filed as part of this Report:
(a) Financial Statements and Financial Statement
Schedules.
1. Financial Statements. The Company's financial
statements are included in this report following
the signature pages. See Index to Financial
Statements and Financial Statement Schedules on
page F-1.
2. Financial Statement Schedules. The Company's
Financial Statement Schedules are included in
this report following the signature pages. See
Index to Financial Statements and Financial
Statement Schedules on page F-1.
3. Exhibits. See attached Exhibit Index on page
E-1.
(b) Reports on Form 8-K. A report on Form 8-K was
filed during the last quarter of the period covered
by this Report disclosing the Company entering into
a letter of intent with AWG to sell certain of its
assets. The Form 8-K was dated November 29, 1994.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The Company has previously furnished to the
Commission its proxy material in connection with the 1994
annual meeting of security holders. No separate annual report
was distributed to security holders covering the Company's
last fiscal year. The Company intends to furnish to its
security holders proxy material in connection with the 1995
annual meeting of security holders. The Company will furnish
copies of such material to the Commission when it is sent to
security holders.
<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.
HOMELAND HOLDING CORPORATION
Date: April 24, 1995 By: James A. Demme
James A. Demme, President
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 dates indicated.
Signature Title Date
B. Charles Ames Chairman of the Board April 21, 1995
B. Charles Ames
John A. Shields Vice Chairman of the Board April 21, 1995
John A. Shields
James A. Demme President, Chief Executive April 24, 1995
James A. Demme Officer and Director
(Principal Executive Officer)
Mark S. Sellers Executive Vice President/ April 24, 1995
Mark S. Sellers Finance, Treasurer, C.F.O.
and Secretary (Principal
Financial Officer)
Mary Mikkelson Chief Accounting Officer, April 24, 1995
Mary Mikkelson Assistant Treasurer and
Assistant Secretary
(Principal Accounting
Officer)
<PAGE>
Signature Title Date
Michael G. Babiarz Director April 21, 1995
Michael G. Babiarz
Director April , 1995
Bernard S. Black
Richard C. Dresdale Director April 20, 1995
Richard C. Dresdale
Bernard Paroly Director April 20, 1995
Bernard Paroly
Andrall E. Pearson Director April 19, 1995
Andrall E. Pearson
Edward H. Meyer Director April 20, 1995
Edward H. Meyer
<PAGE>
INDEX TO FINANCIAL STATEMENTS
HOMELAND HOLDING CORPORATION
Consolidated Financial Statements
Report of Independent Accountants . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1994
and January 1, 1994 . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the
52 weeks ended December 31, 1994 and January 1, 1994,
and the 53 weeks ended January 2, 1993 . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity for
the 52 weeks ended December 31, 1994 and January 1,
1994, and the 53 weeks ended January 2, 1993 . . . . . F-6
Consolidated Statements of Cash Flows for the
52 weeks ended December 31, 1994 and January 1,
1994, and the 53 weeks ended January 2, 1993 . . .. . . F-7
Notes to Consolidated Financial Statements . . . . . . . F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Homeland Holding Corporation
We have audited the accompanying consolidated financial
statements of Homeland Holding Corporation and Subsidiary
listed in the index on page F-1 of this Form 10-K. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the 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 statements
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 15, subsequent to the year ended December
31, 1994, the Company completed the sale of its warehouse and
distribution center and 29 retail stores to Associated
Wholesale Grocers, Inc. In connection with this transaction,
the Company executed a Supplemental Indenture, incorporating
certain amendments to its Senior Note Indenture, and replaced
its Revolving Credit Agreement.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Homeland Holding Corporation and
Subsidiary as of December 31, 1994 and January 1, 1994, and
the consolidated results of their operations and their cash
flows for the 52 weeks ended December 31, 1994 and January 1,
1994, and the 53 weeks ended January 2, 1993, in conformity
with generally accepted accounting principles.
Coopers & Lybrand
New York, New York
March 24, 1995, except as to the
information presented in Note 15,
for which the date is April 21, 1995
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS (Note 3)
<TABLE>
<CAPTION>
December 31, January 1,
1994 1994
------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Notes 2 and 4) $ 339 $ 2,194
Receivables, net of allowance for uncollectible
accounts of $2,690 and $2,034 12,235 15,828
Receivable for taxes (Note 5) 2,270 -
Inventories 89,850 93,145
Prepaid expenses and other current assets 6,384 3,697
Deferred tax assets (Note 5) - 3,997
-------- --------
Total current assets 111,078 118,861
Property, plant and equipment:
Land 10,997 12,486
Buildings 29,276 30,335
Fixtures and equipment 61,360 60,043
Land and leasehold improvements 32,410 31,045
Software 17,876 17,410
Leased assets under capital leases (Note 8) 46,015 51,321
Construction in progress 2,048 2,564
-------- --------
199,982 205,204
Less accumulated depreciation
and amortization 82,603 67,509
-------- --------
Net property, plant and equipment 117,379 137,695
Excess of purchase price over fair
value of net assets acquired, net
of amortization of $830 and $717 2,475 3,815
Other assets and deferred charges 8,202 13,919
-------- --------
Total assets $239,134 $274,290
======== ========
Continued
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, January 1,
1994 1994
------------ ----------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 30,317 $ 29,485
Salaries and wages 1,925 2,746
Taxes 6,492 4,724
Accrued interest payable 3,313 3,366
Other current liabilities 15,050 15,656
Current portion of long-term debt (Notes 3, 4 and 15) 2,250 6,000
Current portion of obligations under capital
leases (Note 8) 7,828 3,334
-------- --------
Total current liabilities 67,175 65,311
Long-term obligations:
Long-term debt (Notes 3, 4 and 15) 145,000 135,750
Obligations under capital leases (Note 8) 11,472 17,807
Other noncurrent liabilities 5,176 9,709
Noncurrent restructuring reserve (Note 14) 5,005 -
-------- --------
Total long-term obligations 166,653 163,266
Commitments and contingencies (Notes 7 and 11) - -
Redeemable common stock, Class A, $.01 par value,
3,864,211 shares at December 31, 1994 and 3,970,211
shares at January 1, 1994, at redemption value
(Notes 9 and 10) 1,235 8,853
Stockholders' equity:
Common stock (Note 9):
Class A, $.01 par value, authorized - 40,500,000
shares, issued - 31,604,989 shares at December 31,
1994 and 31,498,989 at January 1, 1994,
outstanding - 30,878,989 shares 316 315
Additional paid-in capital 53,896 46,358
Accumulated deficit (48,398) (7,753)
Minimum pension liability adjustment (Note 7) - (572)
Treasury stock, 726,000 shares at December 31, 1994
and 620,000 shares at January 1, 1994, at cost (1,743) (1,488)
-------- --------
Total stockholders' equity 4,071 36,860
-------- --------
Total liabilities and stockholders' equity $239,134 $274,290
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
52 weeks 52 weeks 53 weeks
ended ended ended
December 31, January 1, January 2,
1994 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
Sales, net $785,121 $810,967 $830,964
Cost of sales 588,405 603,220 609,906
-------- -------- --------
Gross profit 196,716 207,747 221,058
Selling and administrative expenses 193,643 190,483 199,547
Operational restructuring costs (Note 14) 23,205 - -
-------- -------- --------
Operating profit (loss) (20,132) 17,264 21,511
Gain on sale of plants - 2,618 -
Interest expense (18,067) (18,928) (24,346)
-------- -------- --------
Income (loss) before income tax benefit
(provision) and extraordinary items (38,199) 954 (2,835)
Income tax benefit (provision) (Note 5) (2,446) 3,252 (982)
-------- -------- --------
Income (loss) before extraordinary items (40,645) 4,206 (3,817)
Extraordinary items, net of applicable
income taxes of $0 and $219 (Note 3) - (3,924) (877)
-------- -------- --------
Net income (loss) (40,645) 282 (4,694)
Reduction in redemption value -
redeemable common stock 7,284 - -
-------- -------- --------
Net income (loss) available to
common stockholders $(33,361) $ 282 $ (4,694)
======== ======== ========
Income (loss) before extraordinary
items per common share $ (.96) $ .12 $ (.11)
Extraordinary items per common share - (.11) (.02)
-------- -------- --------
Net income (loss) per common share $ (.96) $ .01 $ (.13)
======== ======== ========
Weighted average shares outstanding 34,752,527 34,946,460 35,089,486
========== ========== ==========
<FN>
The accompanying notes are an integral part
of these consolidated financial statements.
</FN>
/TABLE
<PAGE>
<TABLE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<CAPTION>
Minimum
Class A Additional Pension Total
Common Stock Paid-in Accumulated Liability Treasury Stock Stockholders'
------------------ --------------
Shares Amount Capital Deficit Adjustment Shares Amount Equity
------ ------ --------- --------- ---------- ------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 28, 1991 31,063,989 $311 $45,314 $ (3,341) $ - 185,000 $ (440) $41,844
Purchase of treasury stock 301,000 3 722 - - 301,000 (725) -
Net loss - - - (4,694) - - - (4,694)
---------- ---- ------- -------- ----- ------- ------- -------
Balance, January 2, 1993 31,364,989 314 46,036 (8,035) - 486,000 (1,165) 37,150
Purchase of treasury stock 134,000 1 322 - - 134,000 (323) -
Adjustment to recognize
minimum liability - - - - (572) - - (572)
Net income - - - 282 - - - 282
---------- ---- ------- -------- ----- ------- ------- -------
Balance, January 1, 1994 31,498,989 315 46,358 (7,753) (572) 620,000 (1,488) 36,860
Purchase of treasury stock 106,000 1 254 - - 106,000 (255) -
Adjustment to eliminate
minimum liability - - - - 572 - - 572
Redeemable common stock
reduction in redemption
value - - 7,284 - - - - 7,284
Net loss - - - (40,645) - - - (40,645)
---------- ---- ------- -------- ----- ------- ------- -------
Balance, December 31, 199431,604,989 $316 $53,896 $(48,398) $ - 726,000 $(1,743) $ 4,071
========== ==== ======= ======== ===== ======= ======= =======
<FN>
The accompanying notes are an integral part
of these consolidated financial statements.
</FN>
/TABLE
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
52 weeks 52 weeks 53 weeks
ended ended ended
December 31, January 1, January 2,
1994 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(40,645) $ 282 $(4,694)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 17,458 16,797 16,135
Amortization of financing costs 1,443 1,484 1,858
(Gain) loss on disposal of assets 384 (2,284) 1,660
Amortization of beneficial interest in operating
leases 258 261 377
Impairment of assets 14,325 744 -
Discount on note payable - - (500)
Write-off of financing costs on long-term
debt retired - 1,148 371
(Increase) decrease in deferred tax assets 3,997 (3,997) -
Provision for losses on accounts receivable 1,213 75 1,331
Change in assets and liabilities:
(Increase) decrease in receivables 2,301 (1,131) (1,989)
(Increase) in receivable for taxes (2,270) - -
(Increase) decrease in inventories 2,097 1,236 (2,645)
(Increase) decrease in prepaid expenses and
other current assets (2,687) (862) 382
(Increase) decrease in other assets and deferred charges 103 (238) (10,510)
Increase (decrease) in accounts payable -trade 832 (5,464) 1,656
Decrease in salaries and wages (821) (1,994) (360)
Increase (decrease) in taxes 1,768 (3,629) 861
Increase (decrease) in accrued interest payable (53) (1,102) 1,538
Increase (decrease) in other current liabilities (34) 7,371 2,933
Increase in noncurrent restructuring reserve 5,005 - -
Increase (decrease) in other noncurrent liabilities (4,417) 4,301 2,830
------- ------- ------
Net cash provided by operating activities 257 12,998 11,234
------- ------- -------
Cash flows from investing activities:
Capital expenditures (5,386) (7,129) (4,987)
Cash received from sale of assets 1,363 3,991 1,756
------- ------- -------
Net cash used in investing activities (4,023) (3,138) (3,231)
------- ------ -------
Cash flows from financing activities:
Borrowings under senior secured floating
rate notes - - 45,000
Borrowings under senior secured fixed
rate notes - - 75,000
Payments on subordinated debt - (47,750) (12,250)
Payments on term notes - - (59,700)
Borrowings under revolving credit loans 66,000 100,000 4,000
Payments under revolving credit loans (56,000) (85,000) (34,500)
Net borrowings (payments) under swing loans (3,500) 5,000 -
Principal payments under notes payable (1,000) (1,250) (1,500)
Principal payments under capital lease obligations (3,334) (4,198) (2,519)
Payments to acquire treasury stock (255) (323) (725)
------- ------- -------
Net cash provided by (used in) financing activities 1,911 (33,521) 12,806
------- ------- -------
<FN>
Continued
</FN>
/TABLE
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
52 weeks 52 weeks 53 weeks
ended ended ended
December 31, January 1, January 2,
1994 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents $(1,855) $(23,661) $20,809
Cash and cash equivalents at beginning of period 2,194 25,855 5,046
-------- -------- -------
Cash and cash equivalents at end of period $ 339 $ 2,194 $25,855
======== ======== =======
Supplemental information:
Cash paid during the period for interest $ 16,642 $ 18,738 $20,411
======== ======== =======
Cash paid during the period for income taxes $ 236 $ 890 $ 1,439
======== ======== =======
Supplemental schedule of noncash investing activities:
Capital lease obligations assumed $ 1,493 $ 3,218 $ 3,594
======== ======== =======
Capital lease obligations retired $ - $ 31 $ 754
======== ======== =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. Organization and Basis of Presentation:
Homeland Holding Corporation, ("Holding"), a Delaware
corporation, was incorporated on November 6, 1987, but had no
operations prior to November 25, 1987. Effective November 25,
1987, Homeland Stores, Inc. ("Homeland"), a wholly-owned
subsidiary of Holding, acquired substantially all of the net
assets of the Oklahoma Division of Safeway Stores,
Incorporated. Holding and its consolidated subsidiary,
Homeland, are collectively referred to herein as the
"Company".
Holding has guaranteed substantially all of the debt issued by
Homeland. Holding is a holding company with no significant
operations other than its investment in Homeland. Separate
financial statements of Homeland are not presented herein
since they are identical to the consolidated financial
statements of Holding in all respects except for stockholder's
equity (which is equivalent to the aggregate of total
stockholders' equity and redeemable common stock of Holding)
which is as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1994 1994
------------ ----------
<S> <C> <C>
Homeland Stockholder's equity:
Common stock, $.01 par value,
authorized, issued and
outstanding 100 shares 1 1
Additional paid-in capital 53,713 54,047
Accumulated deficit (48,408) (7,763)
Minimum pension liability adjustment - (572)
------- -------
Total Homeland stockholder's equity $ 5,306 $45,713
======= =======
</TABLE>
2. Summary of Significant Accounting Policies:
Fiscal year - The Company has adopted a fiscal year which
ends on the Saturday nearest December 31.
Basis of consolidation - The consolidated financial
statements include the accounts of Homeland Holding Corporation
and its wholly owned subsidiary. All significant intercompany
balances and transactions have been eliminated in
consolidation.
<PAGE>
2. Summary of Significant Accounting Policies, continued:
Revenue recognition - The Company recognizes revenue when its
retail or wholesale divisions distribute groceries and related
items to its customers.
Concentrations of credit risk - Financial instruments which
potentially subject the Company to concentrations of credit
risk consist principally of temporary cash investments and
receivables. The Company places its temporary cash investments
with high quality financial institutions. Concentrations of
credit risk with respect to receivables are limited due to the
diverse nature of those receivables, including a large number
of retail and wholesale customers within the region and
receivables from vendors throughout the country.
Restricted Cash - At December 31, 1994, the Company had $467 of
cash in an escrow account at United States Trust Company of New
York. The cash is restricted for reinvestment in capital
expenditures within 180 days of being deposited in the account
or must be used to permanently pay down the Senior Notes (as
subsequently defined under Note 3).
Inventories - Inventories are stated at the lower of cost or
market. Cost is determined on a first-in first-out basis
primarily using the retail method.
Property, plant and equipment - Property, plant and equipment
obtained at acquisition are stated at appraised fair market
value as of that date; whereas all subsequently acquired
property, plant and equipment are stated at cost or, in the
case of leased assets under capital leases, at cost or the
present value of future lease payments. Depreciation and
amortization, including amortization of leased assets under
capital leases, are computed on a straight-line basis over
the lesser of the estimated useful life of the asset or the
remaining term of the lease.
Depreciation and amortization for financial purposes are
based on the following estimated lives:
Estimated lives
---------------
Buildings 10 - 40
Fixtures and equipment 5 - 12.5
Leasehold improvements 15
Transportation equipment 5 - 10
Software 5 - 10
2. Summary of Significant Accounting Policies, continued:
The costs of repairs and maintenance are expensed as incurred,
and the costs of renewals and betterments are capitalized and
depreciated at the appropriate rates. Upon sale or retirement,
the cost and related accumulated depreciation are eliminated
from the respective accounts and any resulting gain or loss is
included in the results of operations for that period.
Excess of purchase price over fair value of net assets
acquired - The excess of purchase price over fair value
of net assets acquired is being amortized on a straight-line
basis over 40 years. The net remaining balance of the excess
of purchase price over fair value of net assets acquired is
assessed periodically based on the estimated recoverable value
related to the assets acquired. Approximately $250 was written
off during 1994 as a result of this assessment. The net amount
of the excess of purchase price over fair value of net assets
acquired as of December 31, 1994, related to the 29 stores and
stores to be closed in 1995 has been written off in 1994 as
part of the operational restructuring costs (see Note 14).
Other assets and deferred charges - Other assets and deferred
charges consist primarily of financing costs amortized using
the effective interest rate method over the term of the related
debt and beneficial interests in operating leases amortized on
a straight-line basis over the remaining terms of the leases,
including all available renewal option periods.
Net income (loss) per common share - Net income (loss) per
common share is computed based on the weighted average number
of shares, including shares of redeemable common stock
outstanding during the period. Net income (loss) is reduced
(increased) by the accretion to (reduction in) redemption value
to determine the net income (loss) available to common
stockholders.
Cash and cash equivalents - For purposes of the statements of
cash flows, the Company considers all short-term investments
with an original maturity of three months or less when
purchased to be cash equivalents.
Capitalized interest - The Company capitalizes interest as a
part of the cost of acquiring and constructing certain assets.
Interest costs of $35, $44, and $195 were capitalized in 1994,
1993 and 1992, respectively.
2. Summary of Significant Accounting Policies, continued:
Pre-opening costs - Costs associated with the opening of new
stores are expensed in the year the stores are opened.
Advertising Costs - Costs of advertising are expensed as
incurred. Gross advertising costs for 1994, 1993 and 1992,
respectively, were $13,615, $14,100 and $14,531.
Income taxes - The Company accounts for income taxes on the
liability method as required by Statement of Financial
Accounting Standards No. 109. Accordingly, deferred income
taxes are recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable
income. Deferred taxes also are recognized for operating
losses that are available to offset future taxable income and
tax credits that are available to offset future Federal income
taxes. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and
liabilities, net of applicable valuation allowances.
Self-insurance reserves - The Company is self-insured for
property loss, general liability and automotive liability
coverage, and was self-insured for workers' compensation
coverage until June 30, 1994, subject to specific retention
levels. Estimated costs of these self-insurance programs are
accrued at their present value based on projected settlements
for claims using actuarially determined loss development
factors based on the Company's prior history with similar
claims. Any resulting adjustments to previously recorded
reserves are reflected in current operating results.
Impact of Recently Issued Accounting Pronouncement - The
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Accounting for
Postemployment Benefits" in November 1992. The adoption of
this new standard in 1994, as required, did not have a material
effect on the Company's consolidated results of operations or
financial position.
Reclassification - Certain reclassifications have been made to
the 1993 consolidated financial statements to conform with the
1994 presentations.
3. Long-term Debt:
Prior to a March 1992 refinancing, the Company's long-term debt
consisted of borrowings under a credit agreement ("Prior Credit
Agreement") from a group of banks that included term notes and
revolving credit loans (including a swing loan and certain
letters of credit), subordinated notes, and a note payable
issued as a result of an acquisition of certain stores.
In March 1992, the Company entered into an Indenture with
United States Trust Company of New York, as trustee, pursuant
to which the Company issued $45,000 in aggregate principal
amount of Series A Senior Secured Floating Rate Notes due 1997
(the "Old Floating Rate Notes") and $75,000 in aggregate
principal amount of Series B Senior Secured Fixed Rate Notes
due 1999 (the "Old Fixed Rate Notes", and collectively, the
"Old Notes"). Certain proceeds from this issuance were used to
repay all amounts outstanding under the Prior Credit Agreement,
to repurchase $12,250 in aggregate principal amount of the
subordinated notes at a purchase price of 110% of the principal
amount and to make a prepayment of $1,500 on the note payable.
In conjunction with the prepayment on the note payable, the
Company issued a new $3,000 note.
In October and November 1992, the Company exchanged a portion
of its Series D Senior Secured Floating Rate Notes due 1997 and
its Series C Senior Secured Fixed Rate Notes due 1999 (the "New
Notes") for equal principal amounts of the Old Notes. The New
Notes are substantially identical to the Old Notes, except that
the offering of the New Notes was registered with the
Securities and Exchange Commission. At the expiration of the
exchange offer in November 1992, $33,000 in principal amount of
the Old Floating Rate Notes and $75,000 in principal amount of
the Old Fixed Rate Notes had been tendered and accepted for
exchange and $12,000 of the Old Floating Rate Notes remain
outstanding.
Also in March 1992, the Company entered into a Revolving Credit
Agreement (the "Revolving Credit Agreement") with Union Bank of
Switzerland, New York Branch ("UBS"), as agent and as lender,
and any other lenders and other financial institutions
thereafter parties thereto. As a result of the Company's
redemption of the remaining outstanding Subordinated Notes on
March 1, 1993, and satisfying certain other conditions, the
Revolving Credit Agreement provides a commitment of up to
$50,000 in secured revolving credit loans, including a swing
loan and certain letters of credit.
3. Long-term Debt, continued:
On March 1, 1993, the Company redeemed all remaining
outstanding subordinated notes ($47,750 principal amount), at
the optional redemption price (including a premium of $2,776
or 5.8% of the outstanding principal amount) specified in the
subordinated notes, together with accrued interest. The
Company borrowed $32,000 under its Revolving Credit Agreement
and used $21,000 of the remaining net proceeds from the
issuance of the Old Notes to redeem the Subordinated Notes.
As a result of the March 1993 redemption and the March 1992
refinancing, the Company incurred the following extraordinary
gains and losses:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Premium on redemption/repurchase
of the Company's 15.5%
Subordinated Notes due
November 1, 1997 $(2,776) $(1,225)
Unamortized financing costs
relating to the redemption/
repurchase of the Company's
15.5% Subordinated Notes
due November 1, 1997 (1,148) (371)
Discount for prepayment of $1,500
on the $5,000 note payable - 500
------- -------
Extraordinary loss before
income tax effect (3,924) (1,096)
Applicable income tax - 219
------- -------
Net extraordinary loss $(3,924) $ (877)
======= =======
</TABLE>
<TABLE>
<CAPTION>
Long-term debt at year end consists of:
December 31, January 1,
1994 1994
------------ ----------
<S> <C> <C>
Notes payable* $ 750 $ 1,750
Senior Notes Series A** 12,000 12,000
Senior Notes Series D** 33,000 33,000
Senior Notes Series C** 75,000 75,000
Revolving credit loans*** 26,500 20,000
-------- --------
147,250 141,750
Less current portion 2,250 6,000
-------- --------
Long-term debt due after
one year $145,000 $135,750
======== ========
/TABLE
<PAGE>
3.Long-term Debt, continued:
* The Company executed a note payable in 1991 for the
purchase of fixed assets related to the acquisition of
five stores. The $3,000 note issued in connection with
the refinancing is due in annual installments and matures
on March 1, 1995. Interest payments are due quarterly at
an annual rate of 9%. The note is collateralized by the
assets purchased.
** The Series A and Series D Senior Secured Floating Rate
Notes mature on February 27, 1997. Interest payments are
due quarterly and bear interest at the applicable LIBOR
rate, as defined in the Indenture (9.0625% at December
31, 1994). The Series C Senior Secured Fixed Rate Notes
mature on March 1, 1999. Interest payments are due
semiannually at an annual rate of 11.75%. The notes are
collateralized by substantially all of the consolidated
assets of the Company except for accounts receivable and
inventories.
The notes, among other things, require the maintenance of
adjusted consolidated net worth and the maintenance of a
consolidated fixed charge coverage ratio, both as
defined, limit the incurrence of additional indebtedness,
provide for mandatory prepayment of the Senior Floating
Rate Notes in an amount equal to 80% of excess cash flow,
as defined, upon certain conditions and limit the payment
of dividends. At December 31, 1994, the Company was not
in compliance with the adjusted consolidated net worth
and the fixed charge coverage ratio covenants. The
Senior Noteholders waived compliance with these covenants
through June 30, 1995. See Note 15--Subsequent Events.
*** The Revolving Credit Agreement with UBS provides a
commitment up to $50,000 in revolving credit loans
(including a swing loan and certain letters of credit).
As of December 31, 1994, $26,500 was outstanding under
the agreement, including $1,500 borrowed under the swing
loan. Borrowings under the Revolving Credit Agreement
bear interest at the UBS Base Rate plus 1.5% or at an
adjusted Eurodollar Rate plus 2.5%, which rates are
subject to increase upon certain conditions. The rates
in effect at December 31, 1994 were 10.0% for borrowings
under the swing loan and 8.875% for Eurodollar
borrowings. Commitment fees paid in 1994 and 1993 for
the unused portion of the Revolving Credit Agreement were
$111 and $142, respectively. Eurodollar borrowings
3. Long-term Debt, continued:
outstanding at December 31, 1994 were $20,000. The
swing loan is due on demand and all borrowings under the
Revolving Credit Agreement mature no later than February
25, 1997. The Revolving Credit Agreement, among other
things, requires the maintenance of EBITDA, leverage
ratio, coverage ratio and net worth, all as defined, and
limits the Company's net capital expenditures and
incurrence of additional indebtedness and limits the
payment of dividends. The notes are collateralized by
accounts receivable and inventories of the Company. At
December 31, 1994, the Company was not in compliance with
the EBITDA, leverage ratio, coverage ratio and net worth
covenants. The lenders waived compliance with these
covenants through June 30, 1995. See Note 15--Subsequent
Events.
Aggregate maturities of long-term debt outstanding at December
31, 1994 are as follows:
1995 $ 2,250
1996 -
1997 70,000
1998 -
1999 75,000
--------
$147,250
========
4. Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the
requirements of Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial
Instruments". The estimated fair value amounts have been
determined by the Company using available market information
and appropriate valuation methodologies. However,
considerable judgment is necessarily required in interpreting
market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. The
carrying amount and fair value of financial instruments as of
December 31, 1994 and January 1, 1994 are as follows:
<PAGE>
4. Fair Value of Financial Instruments, continued:
<TABLE>
<CAPTION>
December 31, 1994 January 1, 1994
----------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ------ ------- ------
<S> <C> <C> <C> <C>
Assets:
Cash and Cash
Equivalents $339 $339 $2,194 $2,194
Liabilities:
Long-Term Debt 147,250 141,250 141,750 147,750
</TABLE>
Cash and cash equivalents - The carrying amounts of this item
is a reasonable estimate of its fair value due to its short-
term nature.
Long-term debt - The fair value of publicly traded debt (the
Senior Secured Notes) is valued based on quoted market values.
The amount reported in the balance sheet for the remaining
long term debt approximates fair value based on quoted market
prices of comparable instruments or by discounting expected
cash flows at rates currently available for debt of the same
remaining maturities.
5. Income Taxes:
The components of the income tax benefit (provision) for
fiscal 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal:
Current - AMT $ 1,551 $ (36) $(763)
Deferred (3,997) 3,288 -
------- ------ -----
Total income tax benefit
(provision) $(2,446) $3,252 $(763)
======= ====== =====
</TABLE>
A reconciliation of the income tax benefit (provision) at the
statutory Federal income tax rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory
rate $13,370 $1,010 $1,337
Net operating loss generated (13,234) (967) (1,289)
AMT in excess of regular tax - (36) (763)
AMT loss carryback 1,551 - -
(Increase) reversal of prior
valuation allowance (3,997) 3,288 -
Other - net (136) (43) (48)
------- ------ ------
Total income tax benefit
(provision) $(2,446) $3,252 $ (763)
======= ====== ======
/TABLE
<PAGE>
5. Income Taxes, continued:
The Company has an income tax receivable amounting to $1,551,
due to the recognition of a tax benefit from its year ended
December 31, 1994 for net alternative minimum tax operating
losses that were carried back to prior tax years.
The components of deferred tax assets and deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1994 1994
------------ ----------
<S> <C> <C>
Current assets (liabilities):
Allowance for uncollectible
receivables $ 942 $ 692
Termination of Borden supply
agreement 789 -
Operational restructuring reserve 5,918 -
Other (800) (501)
-------- -------
Net current deferred tax assets 6,849 191
-------- -------
Noncurrent assets (liabilities):
Property, plant and equipment (4,577) (4,635)
Gain on sale of plants - 1,327
Self-insurance reserves 3,183 3,667
Operational restructuring reserve 1,745 -
Net operating loss carryforward 7,048 1,581
AMT credit carryforwards 507 1,835
Other 1,320 31
-------- -------
Net noncurrent deferred tax
assets 9,226 3,806
-------- -------
Total net deferred assets 16,075 3,997
Valuation allowance (16,075) -
-------- -------
Net deferred tax assets $ - $ 3,997
======== =======
</TABLE>
A valuation allowance was established in the fourth quarter of
fiscal 1994 to entirely offset the net deferred tax assets due
to the uncertainty of realizing the future tax benefits, of
which $3,997 related to net deferred tax assets carried
forward from the prior year.
<PAGE>
5. Income Taxes, continued:
At December 31, 1994, the Company had the following operating
loss and tax credit carryforwards available for tax purposes:
<TABLE>
<CAPTION>
Expiration
Amount Dates
------ -----
<S> <C> <C>
Federal regular tax net
operating loss carryforwards $20,139 2002-2009
Federal AMT credit carryforwards
against regular tax $ 507 indefinite
Federal tax credit carryforwards
(Targeted Jobs Credit) $ 815 2003-2009
</TABLE>
The Internal Revenue Service ("IRS") concluded a field audit
of the Company's income tax returns for the fiscal years 1990,
1991 and 1992. On January 31, 1994, the IRS issued a Revenue
Agent's Report for those fiscal years proposing adjustments
that would result in additional taxes of $1,589 (this amount
is net of any available operating loss carryforwards which
would be eliminated under the proposed adjustment). The
Company filed its protest with the IRS Appeals Office on June
14, 1994. The IRS Appeals Office is currently in the process
of reviewing the Company's protest. The major proposed
adjustment involves the allocation of the initial purchase
price of the Company to inventory. The Company believes that
it has meritorious legal defenses to the proposed adjustments
and intends to vigorously protest the assessment. Management
has analyzed all of the matters and has provided for amounts
which it currently believes are adequate.
6. Incentive Compensation Plan:
The Company has bonus arrangements for store management and
other key management personnel. During 1994, 1993, and 1992,
approximately $1,939, $2,900, and $2,319, respectively, was
charged to costs and expenses for such bonuses.
7. Retirement Plans:
Effective January 1, 1988, the Company adopted a non-
contributory, defined benefit retirement plan for all
executive and administrative personnel. Benefits are based on
length of service and career average pay with the Company.
The Company's funding policy is to contribute an amount equal
to or greater than the minimum funding requirement of the
<PAGE>
7. Retirement Plans, continued:
Employee Retirement Income Security Act of 1974, but not in
excess of the maximum deductible limit. Assets were held in
short-term investment mutual funds during 1994 and 1993.
In accordance with the provisions of Statement of Financial
Accounting Standards No. 87 - "Employers' Accounting for
Pensions", the Company recorded an additional minimum
liability at January 1, 1994 representing the excess of the
accumulated benefit obligation over the fair value of plan
assets and accrued pension liability. The additional
liability was offset by intangible assets to the extent of
previously unrecognized prior service cost. Amounts in excess
of previously unrecognized prior service cost were recorded as
a $572 reduction of stockholders' equity in 1993. During
1994, additional contributions were made to the plan resulting
in the fair value of plan assets being in excess of the
accumulated benefit obligation. The entry made in 1993 to
stockholders' equity was reversed in 1994.
Net pension cost consists of the following:
1994 1993 1992
---- ---- ----
Service cost $709 $663 $659
Interest cost 366 293 222
Loss (return) on assets 63 (319) 17
Net amortization and deferral (419) 43 (230)
---- ---- ----
Net periodic pension cost $719 $680 $668
==== ==== ====
The funded status of the plan and the amounts recognized in
the Company's balance sheet at December 31, 1994 and January
1, 1994 consist of the following:
<TABLE>
<CAPTION>
1994 1993
----- ----
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $(4,499) $(4,102)
Non-vested benefits (151) (156)
------- -------
Accumulated benefit
obligations $(4,650) $(4,258)
======= =======
<PAGE>
7. Retirement Plans, continued:
1994 1993
---- -----
Projected benefit obligations $(5,441) $(5,159)
Plan assets at fair value 4,960 3,847
------- -------
Projected benefit obligations in
excess of plan assets (481) (1,312)
Unrecognized prior service cost (144) (90)
Unrecognized net loss from past
experience different from that
assumed and changes in actuarial
assumptions 1,340 1,564
Adjustment to recognize minimum
liability - (572)
------- -------
Net pension asset (liability)
recognized in statement of
financial position $ 715 $ (410)
======= =======
</TABLE>
For 1994, a discount rate of 7 1/2% was used for the
determination of net periodic pension cost and 9% for the
determination of plan disclosure at the end of the plan year.
For 1993, a discount rate of 7 1/2% was used. A long term
rate of return of 9% was used for both 1994 and 1993. For
1994, assumed annual rates of future compensation increases
ranging from 3 1/2% to 5 1/2% (graded by age) were used for
the determination of net periodic pension cost and rates
ranging from 5% to 7% (graded by age) were used for the plan
disclosures at the end of the plan year. For 1993, assumed
annual rates of future compensation increases ranging from 3
1/2% to 5 1/2% (graded by age) were used. The prior service
cost is being amortized on a straight-line basis over
approximately 13 years.
The Company also contributes to various union-sponsored,
multi-employer defined benefit plans in accordance with the
collective bargaining agreements. The Company could, under
certain circumstances, be liable for the Company's unfunded
vested benefits or other costs of these multi-employer plans.
The allocation to participating employers of the actuarial
present value of vested and nonvested accumulated benefits in
multi-employer plans as well as net assets available for
benefits is not available and, accordingly, is not presented.
The costs of these plans for 1994, 1993 and 1992 were $3,309,
$3,565, and $3,766, respectively.
7. Retirement Plans, continued:
Effective January 1, 1988, the Company adopted a defined
contribution plan covering substantially all non-union
employees of the Company. Prior to 1994, the Company
contributed a matching 50% for each one dollar the
participants contribute in pre-tax matched contributions.
Participants may contribute from 1% to 6% of their pre-tax
compensation which was matched by the Company. Participants
may make additional contributions of 1% to 6% of their pre-tax
compensation, but such contributions were not matched by the
Company. Effective January 2, 1994, the plan was amended to
allow a discretionary matching contribution formula based on
the Company's operating results. The cost of this plan for
1994, 1993, and 1992, was $0, $425, and $616, respectively.
8. Leases:
The Company leases substantially all of its retail store
properties under noncancellable agreements, the majority of
which range from 15 to 25 years. These leases, which include
both capital leases and operating leases, generally are
subject to six five-year renewal options. Most leases also
require the payment of taxes, insurance and maintenance costs
and many of the leases covering retail store properties
provide for additional contingent rentals based on sales.
Leased assets under capital leases consists of the following:
<TABLE>
<CAPTION>
December 31, January 1,
1994 1994
------------ ----------
<S> <C> <C>
Buildings $21,616 $24,438
Equipment 8,340 9,803
Beneficial interest
in capital leases 16,059 17,080
------- -------
46,015 51,321
Accumulated amortization 21,010 17,054
------- -------
Net leased assets $25,005 $34,267
======= =======
</TABLE>
Future minimum lease payments under capital leases and
noncancellable operating leases as of December 31, 1994 are as
follows:
<PAGE>
8. Leases, continued:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Leases Leases
------------- -------- ---------
<S> <C> <C>
1995 $ 9,084 $ 9,312
1996 4,134 8,833
1997 2,846 8,304
1998 2,136 5,829
1999 1,707 5,482
Thereafter 10,404 45,756
------- -------
Total minimum obligations 30,311 $83,516
=======
Less estimated interest 11,011
-------
Present value of net minimum
obligations 19,300
Less current portion 7,828
-------
Long-term obligations under
capital leases $11,472
=======
</TABLE>
<TABLE>
<CAPTION>
Rent expense is as follows:
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Minimum rents $12,560 $12,642 $12,788
Contingent rents 178 214 265
------- ------- -------
$12,738 $12,856 $13,053
======= ======= =======
</TABLE>
9. Common Stock:
Holding has agreed to repurchase shares of stock held by
management investors under certain conditions (as defined),
such as death, retirement, or permanent disability.
Pursuant to requirements of the Securities and Exchange
Commission, the shares of Class A common stock held by
management investors have been presented as redeemable common
stock and excluded from stockholders' equity.
The changes in the number of shares outstanding and the value
of the redeemable common stock is as follows:
<PAGE>
9. Common Stock, continued:
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Balance, December 28, 1991 4,405,211 $10,616
Repurchase of common stock (301,000) (725)
Management stock loans - (421)
--------- -------
Balance, January 2, 1993 4,104,211 9,470
Repurchase of common stock (134,000) (323)
Increase in management
stock loans (see note 10) - (294)
--------- -------
Balance, January 1, 1994 3,970,211 8,853
Repurchase of common stock (106,000) (255)
Reduction in redemption value - (7,284)
Increase in management stock - (79)
--------- -------
loans (see note 10)
Balance, December 31, 1994 3,864,211 $ 1,235
========= =======
</TABLE>
The shares of redeemable common stock are reported on the
balance sheets at redemption value, which is the estimated
fair market value of the stock. In 1994, the reduction in
redemption value has been reflected as an increase in
additional paid-in capital.
Holding also has 40,500,000 shares of Class B nonvoting common
stock authorized at December 31, 1994 and January 1, 1994 with
a $.01 par value. No shares were issued or outstanding at
either December 31, 1994 or January 1, 1994.
10. Related Party Transactions:
Clayton, Dubilier & Rice, Inc., a private investment firm of
which three directors of the Company are employees, received
$150 in 1994 and $200 annually during 1993 and 1992, for
financial advisory and consulting services.
The Company made loans during 1994 and 1993 to certain members
of management and key employees for principal payments on
their loans made by the credit union in connection with their
purchase of common stock. The loans bear interest at a
variable rate equal to the Company's prime lending rate plus
1.0%. Loans outstanding at December 31, 1994 and January 1,
1994 were $794 and $715, respectively, and are shown in the
consolidated balance sheet as a reduction in the redeemable
common stock. The loans mature in 1995.
<PAGE>
11. Commitments and Contingencies:
Effective January 1, 1989, the Company implemented stock
appreciation rights plans for certain of its hourly union and
non-union employees as well as salaried employees. Effective
as of November 4, 1989, the Company implemented a similar
stock appreciation rights plan for its Teamster union
employees. Participants in the plans are granted at
specified times "appreciation units" which, upon the
occurrence of certain triggering events, entitle them to
receive cash payments equal to the increase in value of a
share of the common stock from the date of the plan's
establishment. It is uncertain whether such triggering events
will occur.
Effective October 1, 1991, the Company entered into an
outsourcing agreement whereby an outside party provides
virtually all of the Company's EDP requirements and assumed
substantially all of the Company's existing hardware and
software leases and related maintenance agreements. The ten
year agreement calls for minimum annual service charges,
increasing over its term, as well as other variable charges.
Future minimum annual service charges under the agreement as
of December 31, 1994 aggregate $30,653. The agreement is
cancelable by either party subject to a penalty that declines
over the term of the agreement.
Effective May 26, 1992, the Company entered into an
outsourcing agreement whereby an outside party provides
transportation of grocery and other supermarket products from
the Company's distribution facilities to the Company's stores
and other locations designated by the Company. The agreement
is effective through March 1997. Payments under the agreement
are determined based on miles traveled in accordance with
predetermined rates. During 1994 and 1993, the Company paid
$6,473 and $7,367, respectively, for services received.
The Company has entered into employment contracts with certain
key executives providing for the payment of minimum salary and
bonus amounts in addition to certain other benefits in the
event of termination of the executives or change of control of
the Company.
In conjunction with the sale to AWG, three class grievances
have been filed by the United Food and Commercial Workers of
North America ("UFCWNA") and have been submitted to binding
arbitration under the terms of the Labor Agreement. The
grievances involve: (i) the question of whether a special
11. Commitments and Contingencies, continued:
termination pay provision in the Labor Agreement is triggered
by the sale to AWG; (ii) the application of the severance pay
provision in the Labor Agreement; and (iii) calculation of
accrued but unused vacation pay due employees at the time of
termination. The maximum aggregate amount being sought
pursuant to the grievances is $5.1 million. The arbitrations
will be held during May through July. The Company believes
that its position on these grievances will be upheld by the
arbitrator and that the disposition of these grievances
through arbitration will not have a material adverse effect on
the Company's financial position.
The Company is also a party to various lawsuits arising in the
normal course of business. Management believes that the
ultimate outcome of these matters will not have a material
effect on the Company's consolidated financial position,
results of operations and cash flows.
The Company has outstanding at December 31, 1994, $7,345 in
letters of credit which are not reflected in the accompanying
financial statements. The letters of credit are issued under
the Revolving Credit Agreement and the Company paid fees of
$195 and $97 in 1994 and 1993, respectively.
12. Sale of Plants:
In November 1993 the Company entered into an asset purchase
agreement with Borden, Inc. ("Borden") whereby certain of the
Company's milk and ice cream processing equipment and certain
other assets and inventory relating to its milk and ice cream
plants was sold. In connection with the sale, the Company
entered into a seven-year agreement with Borden under which
Borden would supply all of the Company's requirements for most
of its dairy, juice and ice cream products and the Company
agreed to purchase minimum volumes of products. The Company
recognized a gain on the sale of personal property in the
amount of $2,618. A $4,000 payment received in connection
with the supply agreement was deferred and was to be
recognized as earned over the term of the supply agreement.
In December 1994, the Company entered into a settlement
agreement with Borden whereby the seven-year supply agreement
entered into in November 1993 was terminated and a temporary
supply agreement for a maximum period of 120 days was entered
into. As part of the settlement agreement, the Company repaid
$1,650 plus interest in December 1994 and must make another<PAGE>
12. Sale of Plants, continued:
payment of $1,650 plus interest upon termination of the
temporary supply agreement. The Company has made arrangements
with another dairy supplier to begin supplying its dairy and
ice cream requirements in April 1995.
13. Fourth Quarter Adjustment:
In the fourth quarter of 1994, the Company made an adjustment
to increase its workers compensation accruals by $5,000. This
increase was due to an increase in the actuarially projected
ultimate costs of the self-insured plans, reflecting increases
in claims and related settlements.
14. Restructuring:
In accordance with a strategic plan approved by the Board of
Directors in December 1994, the Company entered into an
agreement with Associated Wholesale Grocers, Inc. ("AWG") on
February 6, 1995, pursuant to which the Company has agreed to
sell 29 of its stores and its warehouse and distribution
center to AWG for a purchase price of $45 million plus the
value of the inventory in the 29 stores and the warehouse,
subject to certain possible purchase price adjustments. In
connection with this agreement, the Company will enter into a
seven year supply agreement pursuant to which AWG will be the
Company's primary supplier for the remaining stores. The AWG
sale closed on April 21, 1995. The Company plans to use the
net proceeds from the transaction to reduce its indebtedness
under both the Senior Notes and the Revolving Credit
Agreement.
The Company also plans to close 15 under-performing stores
during 1995. The Company plans to sell certain stores or
lease some stores to other retailers and in some cases seek to
abandon certain leases and dispose of any equipment in the
most productive manner. The Company intends to buy-out
operating and capital leased equipment related to the closed
stores from current lessors and dispose of them in the same
manner. Five stores were closed in February 1995 and two in
March 1995.
In connection with the sale of 29 stores and the warehouse
facility to AWG and the closing of stores, the Company
recorded a $23,205 charge in the fourth quarter of fiscal
1994. The major components of the restructuring charge are
summarized as follows:<PAGE>
14. Restructuring, continued:
Write-down of inventory to
estimated realizable value $4,479
Write-down of prepaid expenses and
other current assets associated with
the AWG Transaction 898
Write-down of net property, plant and
equipment associated with closed stores,
net of estimated proceeds 7,402
Write-down of unamortized beneficial
leaseholds, transportation outsourcing
costs and other deferred charges 3,132
Write-down of unamortized excess of
purchase price over fair value of
net assets acquired associated with
the stores sold to AWG or closed 977
Expenses associated with the planned
store closings, primarily occupancy
costs from closing date to lease
termination or sublease date 8,319
Expenses associated with the AWG
Transaction, primarily service and
equipment contract cancellation fees 5,649
Estimated severance costs associated
with the AWG Transaction
(see below) 5,624
Legal and consulting fees associated
with the AWG Transaction 6,217
Net gain on sale of property, plant and
equipment to AWG (19,492)
--------
Total restructuring charges $ 23,205
========
The estimated severance costs accrued during the fourth
quarter are for approximately 165 non-union employees and
approximately 1,360 union employees whose employment will be<PAGE>
14. Restructuring, continued:
terminated in connection with the sale of 29 stores and the
warehouse facility to AWG. Approximately $1.0 million of
severance costs are expected to be incurred subsequent to
fiscal 1994 in connection with the planned store closings.
These severance costs have not been accrued in fiscal 1994
since the affected employees were not notified prior to
December 31, 1994.
Approximately $1,300 of bank fees, noteholder fees and premium
for early extinguishment of debt are expected to be incurred
subsequent to fiscal 1994 in connection with the restructuring
of debt discussed in Note 15. In addition, approximately
$1,400 of refinancing costs previously capitalized are
expected to be written off subsequent to fiscal 1994 when a
portion of the debt is extinguished early. These costs have
not been accrued in fiscal 1994 since the extinguishment of
debt has not yet occurred.
As of December 31, 1994, the Company had paid approximately
$1,312 of legal and consulting fees associated with the AWG
Transaction. The asset write-downs described above,
aggregating $16,888, have been reflected in their respective
balance sheet account classifications as of December 31, 1994.
The remaining charges, aggregating $5,005, have been included
in the consolidated balance sheet at December 31, 1994 under
the caption Noncurrent restructuring reserve.
In connection with the sale of 29 stores and the warehouse and
distribution center to AWG, $29,375 net book value of
property, plant and equipment is held for resale at December
31, 1994. In addition, $2,200 net book value of property,
plant and equipment related to the 15 stores to be closed in
1995 is held for resale at December 31, 1994.
The separately identifiable revenue and store contribution to
operating profit (loss) related to the stores being sold to
AWG or closed and expenses related to the warehouse facility
are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Sales, net $253,221 $262,440 $271,061
Store contribution to
operating profit (loss)
before allocation of administrative
and advertising expenses 7,795 9,854 12,170
Warehouse expenses 12,455 11,080 12,132
</TABLE>
<PAGE>
14. Restructuring, continued:
Under the AWG supply agreement, the ongoing costs of
warehousing will be built into the cost of goods purchased
from AWG.
15. Subsequent Events:
On April 13, 1995, the Company received consents for certain
amendments to the Senior Note Indenture from a majority of the
holders of Senior Notes. The amendments include, among other
things, (a) increasing the interest rate on each series of
Notes by one-half of one percent (0.5%) per annum; (b)
amending, adding and deleting certain financial covenants
and related definitions under the Senior Note Indenture
(including modifying the Consolidated Fixed Charge Coverage
Ratio covenant, adding a new Debt-to-EBITDA ratio and a new
Capital Expenditures covenant, deleting the Adjusted
Consolidated Net Worth covenant) to reflect the Company's
size, operations and financial position following the AWG
Transaction. Until the consent was approved, the Company had
obtained a waiver from the Senior Noteholders waiving
compliance with certain financial covenant requirements in
effect as of December 31, 1994 through June 30, 1995. On
April 21, 1995, the Company and United States Trust Company
of New York, as trustee for the holders of the Senior Notes,
entered into a supplemental indenture effecting these
amendments.
The Company replaced its current Revolving Credit Agreement
with a revised revolving facility (the "Amended and Restated
Revolving Credit Agreement") on April 21, 1995. The Amended
and Restated Revolving Credit Agreement is with National Bank
of Canada, ("NBC") as agent and as lender, Heller Financial,
Inc. and any other lenders thereafter parties thereto. The
Amended and Restated Revolving Credit Agreement provides a
commitment of up to $25 million in secured revolving credit
loans, including certain letters of credit. The Amended and
Restated Revolving Credit Agreement permits borrowings (a) to
refinance the previous Revolving Credit Agreement, (b) for
working capital needs and (c) to issue standby letters of
credit and documentary letters of credit. Borrowings under
the Amended and Restated Revolving Credit Agreement bear
interest at the NBC Base Rate plus 1.5% for the first year
(10.5% as of April 21, 1995). Subsequent year's interest
rates will be dependent upon the Company's earnings but will
not exceed NBC base rate plus 2.0%. All borrowings under the
amended and Restated Revolving Credit Agreement are subject
15. Subsequent Events, continued:
to a borrowing base and mature no later than February 27,
1997, with the possibility of extending the maturity date to
March 31, 1998 if the Company's Series A Senior Secured
Floating Rate Notes due February 27, 1997, are extended or
refinanced on terms acceptable to NBC. The Amended and
Restated Credit Agreement, among other things, requires the
maintenance of leverage and coverage ratios as defined, and
limits the Company's net capital expenditures and incurrence
of additional indebtedness and limits the payment of
dividends. The notes are collateralized by accounts
receivable and inventories of the Company.
The AWG sale described in Note 14 closed on April 21, 1995,
on the same basis as described within Note 14.
On April 21, 1995, the Company made an offer to repurchase
shares of its Common Stock owned by certain officers and
employees of the Company at a cash purchase price of $0.50 per
share, plus a warrant equal to the number of share purchased
with an exercise price of $0.50. However, such repurchases
shall not exceed $600,000 in the aggregate (net of amounts to
be repaid in respect of loans from the Company) and individual
repurchases shall not exceed any outstanding loan balance that
the officers or employees may have related to their purchase
of Common Stock.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3a Restated Certificate of Incorporation of Homeland
Holding Corporation ("Holding"), dated August 2,
1990. (Incorporated by reference to Exhibit 3a
to Form 10-Q for quarterly period ended September
8, 1990)
3b By-laws of Holding, as amended and restated on
November 14, 1989 and further amended on
September 23, 1992. (Incorporated by reference
to Exhibit 3b to Form 10-Q for quarterly period
ended June 19, 1993)
3c Restated Certificate of Incorporation of Homeland
Stores, Inc. ("Homeland"), dated March 2, 1989.
(Incorporated by reference to Exhibit 3c to Form
10-K for fiscal year ended December 31, 1988)
3d By-laws of Homeland, as amended and restated on
November 14, 1989 and further amended on
September 23, 1992. (Incorporated by reference
to Exhibit 3d to Form 10-Q for quarterly period
ended June 19, 1993)
4a Indenture, dated as of November 24, 1987, among
Homeland, The Connecticut National Bank ("CNB"),
as Trustee, and Holding, as Guarantor.
(Incorporated by reference to Exhibit 4a to Form
S-1 Registration Statement, Registration No.
33-22829)
4a.1 First Supplement to Indenture, dated as of August
15, 1988, among Homeland, CNB and Holding.
(Incorporated by reference to Exhibit 4a.1 to
Form S-1 Registration Statement, Registration No.
33-22829)
4b Purchase Agreement, dated November 24, 1987,
among Homeland, Holding and initial purchasers of
Subordinated Notes. (Incorporated by reference
to Exhibit 4b to Form S-1 Registration Statement,
Registration No. 33-22829)
4c Form of Registration Rights Agreement, dated as
of November 24, 1987, among Homeland, Holding and
initial purchasers of Subordinated Notes.
(Incorporated by reference to Exhibit 4c to Form
S-1 Registration Statement, Registration No.
33-22829)
4d Indenture, dated as of March 4, 1992, among
Homeland, United States Trust Company of New York
("U.S.Trust"), as Trustee, and Holding, as
Guarantor. (Incorporated by reference to Exhibit
4d to form 10-K for fiscal year ended December
28, 1991)
4d.1 First Supplement to Indenture, dated as of June
17, 1992, among Homeland, Holding and U.S. Trust.
(Incorporated by reference to Exhibit 4d.1 to
Form S-1 Registration Statement, Registration No.
33-48862)
4d.3 Partial Release of Collateral, dated as of May
22, 1992, by U.S. Trust, as Collateral Trustee,
in favor of Homeland. (Incorporated by reference
to Exhibit 4d.3 to Form S-1 Registration
Statement, Registration No. 33-48862)
4e Form of Purchase Agreement, dated as of March 4,
1992, among Homeland and initial purchasers of
Senior Notes. (Incorporated by reference to
Exhibit 4e to Form 10-K for fiscal year ended
December 28, 1991)
4f Form of Registration Rights Agreement, dated as
of March 4, 1992, among Homeland and the initial
purchasers of Senior Notes. (Incorporated by
reference to Exhibit 4f to Form 10-K for fiscal
year ended December 28, 1991)
10a Asset Purchase Agreement, dated as of September
15, 1987. (Incorporated by reference to Exhibit
10a to Form S-1 Registration Statement,
Registration No. 33-22829)
<PAGE>
10b First Amendment to Asset Purchase Agreement,
dated November 24, 1987. (Incorporated by
reference to Exhibit 10b to Form S-1 Registration
Statement, Registration No. 33-22829)
10c Stock Subscription Agreement, dated as of
November 24, 1987, between Holding and The
Clayton & Dubilier Private Equity Fund III
Limited Partnership. (Incorporated by reference
to Exhibit 10c to Form S-1 Registration
Statement, Registration No. 33-22829)
10e Purchase Agreement for Safeway Brand Products,
dated as of November 24, 1987, between Homeland
and Safeway. (Incorporated by reference to
Exhibit 10e to Form S-1 Registration Statement,
Registration No. 33-22829)
10f Manufacturing and Supply Agreement, dated as of
November 24, 1987, between Homeland and Safeway.
(Incorporated by reference to Exhibit 10f to Form
S-1 Registration Statement, Registration No.
33-22829)
10g Form of Common Stock Purchase Agreement, dated
November 24, 1987, between Holding and certain
institutional investors. (Incorporated by
reference to Exhibit 10g to Form S-1 Registration
Statement, Registration No. 33-22829)
10h (1) Form of Management Stock Subscription Agreement,
dated as of October 20, 1988, between Holding and
the purchasers named therein, involving purchase
of Holding common stock for cash. (Incorporated
by reference to Form 10-K for fiscal year ended
December 31, 1988)
10h.1 (1) Form of Management Stock Subscription Agreement,
dated as of October 20, 1988, between Holding and
the purchasers named therein, involving purchase
of Holding common stock using funds held under
purchasers' individual retirement accounts.
(Incorporated by reference to Form 10-K for
fiscal year ended December 31, 1988)
10h.2 (1) Form of Management Stock Subscription Agreement,
dated as of November 29, 1989, between Holding
and the purchasers named therein, involving
purchase of Holding common stock for cash.
(Incorporated by reference to Form 10-K for
fiscal year ended December 30, 1989)
10h.3 (1) Form of Management Stock Subscription Agreement,
dated as of November 29, 1989, between Holding
and the purchasers named therein, involving
purchase of Holding common stock using funds held
under purchasers' individual retirement accounts.
(Incorporated by reference to Form 10-K for
fiscal year ended December 30, 1989)
10h.4 (1) Form of Management Stock Subscription Agreement
dated as of August 14, 1990, between Holding and
the purchasers named therein, involving purchase
of Holding common stock for cash. (Incorporated
herein by reference to Exhibit 10h.4 to Form 10-K
for fiscal year ended December 29, 1990)
10h.5 (1) Form of Management Stock Subscription Agreement
dated as of August 14, 1990, between Holding and
the purchasers named therein, involving purchase
of Holding common stock using funds held under
purchasers' individual retirement accounts.
(Incorporated herein by reference to Exhibit
10h.5 to Form 10-K for fiscal year ended December
29, 1990)
10i.1 Form of Registration and Participation Agreement,
dated as of November 24, 1987, among Holding, The
Clayton & Dubilier Private Equity Fund III
Limited Partnership, and initial purchasers of
Common Stock. (Incorporated by reference to
Exhibit 10i to Form S-1 Registration Statement,
Registration No. 33-22829)
<PAGE>
10i.2 1990 Registration and Participation Agreement
dated as of August 13, 1990, among Homeland
Holding Corporation, Clayton & Dubilier Private
Equity Fund IV Limited Partnership and certain
stockholders of Homeland Holding Corporation.
(Incorporated by reference to Exhibit 10y to Form
10-Q for quarterly period ended September 8,
1990)
10i.3 Form of Store Managers Stock Purchase Agreement.
(Incorporated by reference to Exhibit 10z to Form
10-Q for quarterly period ended September 8,
1990)
10j Indenture, dated as of November 24, 1987.
(Incorporated by reference to Exhibit 10j to Form
S-1 Registration Statement, Registration No.
33-22829)
10j.1 First Supplement to Indenture, dated as of August
15, 1988. (Incorporated by reference to Exhibit
10j.1 to Form S-1 Registration Statement,
Registration No. 33-22829)
10k Form of Purchase Agreement, dated November 24,
1987, among Homeland, Holding and initial
purchasers of Subordinated Notes (Filed as
Exhibit 4b). (Incorporated by reference to
Exhibit 10k to Form S-1 Registration Statement,
Registration No. 33-22829)
10l Form of Registration Rights Agreement, dated as
of November 24, 1987, among Homeland, Holding and
initial purchasers of Subordinated Notes.
(Incorporated by reference to Exhibit 10l to Form
S-1 Registration Statement, Registration No.
33-22829)
10q (1) Homeland Profit Plus Plan, effective as of
January 1, 1988. (Incorporated by reference to
Exhibit 10q to Form S-1 Registration Statement,
Registration No. 33-22829)
<PAGE>
10q.1 (1) Homeland Profit Plus Plan, effective as of
January 1, 1989 (Incorporated by reference to
Exhibit 10q.1 to Form 10-K for the fiscal year
ended December 29, 1990)
10r Homeland Profit Plus Trust, dated March 8, 1988,
between Homeland and the individuals named
therein, as Trustees. (Incorporated by reference
to Exhibit 10r to Form S-1 Registration
Statement, Registration No. 33-22829)
10r.1 Homeland Profit Plus Trust, dated January 1,
1989, between Homeland and Bank of Oklahoma,
N.A., as Trustee (Incorporated by reference to
Exhibit 10r.1 to Form 10-K for the fiscal year
ended December 29, 1990)
10s (1) 1988 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s to Form
S-1 Registration Statement, Registration No.
33-22829)
10s.1 (1) 1989 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.1 to
Form 10-K for fiscal year ended December 31,
1988)
10s.2 (1) 1990 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.2 to
Form S-1 Registration Statement, Registration No.
33-48862)
10s.3 (1) 1991 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.3 to
Form S-1 Registration Statement, Registration No.
33-48862)
10s.4 (1) 1992 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.4 to
Form S-1 Registration Statement, Registration No.
33-48862)
10s.5 (1) 1993 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.5 to
Form 10-K for fiscal year ended January 1, 1994)
10s.6* (1) 1994 Homeland Management Incentive Plan.
10t (1) Form of Homeland Employees' Retirement Plan,
effective as of January 1, 1988. (Incorporated
by reference to Exhibit 10t to Form S-1
Registration Statement, Registration No.
33-22829)
10t.1 (1) Amendment No. 1 to Homeland Employees' Retirement
Plan effective January 1, 1989. (Incorporated
herein by reference to Form 10-K for fiscal year
ended December 30, 1989)
10t.2 (1) Amendment No. 2 to Homeland Employees' Retirement
Plan effective January 1, 1989. (Incorporated
herein by reference to Form 10-K for fiscal year
ended December 30, 1989)
10t.3 (1) Third Amendment to Homeland Employees' Retirement
Plan effective as of January 1, 1988.
(Incorporated herein by reference to Exhibit
10t.3 to Form 10-K for fiscal year ended December
29, 1990)
10t.4 (1) Fourth Amendment to Homeland Employees'
Retirement Plan effective as of January 1, 1989.
(Incorporated herein by reference to Exhibit
10t.4 to Form 10-K for the fiscal year ended
December 28, 1991)
10u (1) Employment Agreement, dated as of January 11,
1988, between Homeland and Jack M. Lotker.
(Incorporated by reference to Exhibit 10u to Form
S-1 Registration Statement, Registration No. 33-
22829)
10v UFCW Stock Appreciation Rights Plan of Homeland.
(Incorporated by reference to Exhibit 10v to Form
10-Q for quarterly period ended March 25, 1989)
<PAGE>
10v.1 Stock Appreciation Rights Plan of Homeland for
Non-Union Employees. (Incorporated by reference
to Exhibit 10v.1 to Form 10-Q for quarterly
period ended March 25, 1989)
10v.2 Teamsters Stock Appreciation Rights Plan of
Homeland. (Incorporated by reference to Exhibit
10v.2 to Form S-1 Registration Statement,
Registration No. 33-48862)
10v.3 BC&T Stock Appreciation Rights Plan of Homeland.
(Incorporated by reference to Exhibit 10v.3 to
Form S-1 Registration Statement, Registration No.
33-48862)
10w (1) Employment Agreement, dated as of September 26,
1989, between Homeland and Max E. Raydon.
(Incorporated by reference to Exhibit 10w to Form
10-Q for quarterly period ended September 9,
1989)
10x Indemnification Agreement, dated as of August 14,
1990, among Holding, Homeland, Clayton &
Dubilier, Inc. and The Clayton & Dubilier Private
Equity Fund III Limited Partnership.
(Incorporated by reference to Exhibit 10x to Form
10-Q for quarterly period ended September 8,
1990)
10y Indenture, dated as of March 4, 1992, among
Homeland, United States Trust Company of New
York, as Trustee, ("U.S. Trust") and Holding, as
Guarantor. (Filed as Exhibit 4d)
10y.1 First Supplement to Indenture, dated as of June
17, 1992, among Homeland, Holding and U.S. Trust.
(Filed as Exhibit 4d.1)
10z Form of Purchase Agreement, dated as of March 4,
1992, among Homeland, Holding and the initial
purchasers of Senior Notes. (Filed as Exhibit
4e).
<PAGE>
10aa Form of Registration Rights Agreement, dated as
of March 4, 1992, among Homeland and the initial
purchasers of Senior Notes. (Filed as Exhibit
4f).
10bb Form of Parent Pledge Agreement, dated as of
March 4, 1992, made by Holding in favor of U.S.
Trust, as collateral trustee for the holders of
the Senior Notes. (Incorporated by reference to
Exhibit 10bb to Form 10-K for the fiscal year
ended December 28, 1991)
10cc Revolving Credit Agreement, dated as of March 4,
1992, among Homeland, Holding, Union Bank of
Switzerland, New York Branch, as Agent and
lender, and any other lenders and other financial
institutions thereafter parties thereto.
(Incorporated by reference to Exhibit 10cc to
Form 10-K for the fiscal year ended December 28,
1991)
10cc.1 Letter Waiver (Truck Sale), dated as of May 19,
1992, among Homeland, Holding, UBS, as agent, and
the other lenders and financial institutions
parties to the Revolving Credit Agreement.
(Incorporated by reference to Exhibit 10cc.1 to
Form S-1 Registration Statement, Registration No.
33-48862)
10cc.2 Form of Amendment Agreement, dated as of June 15,
1992, among Homeland, Holding, UBS, as agent, and
the other lenders and financial institutions
parties to the Revolving Credit Agreement.
(Incorporated by reference to Exhibit 10cc.2 to
Form S-1 Registration Statement, Registration No.
33-48862)
10cc.3 Form of Second Amendment Agreement, dated as of
September 23, 1992, among Homeland, Holding, UBS,
as agent, and the other lenders and financial
institutions parties to the Revolving Credit
Agreement. (Incorporated by reference to Exhibit
10cc.3 to Form S-1 Registration Statement,
Registration No. 33-48862)
10cc.4 Third Amendment Agreement, dated as of February
10, 1993, among Homeland, Holding, UBS, as agent,
and the other lenders and financial institutions
parties to the Revolving Credit Agreement.
10cc.5 Fourth Amendment Agreement, dated as of June 8,
1993, among Homeland, Holding, UBS, as agent, and
the other lenders and financial institutions
parties to the Revolving Credit Agreement.
(Incorporated by reference to Exhibit 10cc.5 to
Form 10-Q for the quarterly period ended June 19,
1993)
10cc.6 Fifth Waiver and Amendment Agreement, dated as of
April 14, 1994, among Homeland, Holding, UBS, as
agent, and the other lenders and financial
institutions parties to the Revolving Credit
Agreement. (Incorporated by reference to Exhibit
10cc.6 to Form 10-K for the fiscal year ended
January 1, 1994)
10cc.7* Sixth Waiver and Amendment Agreement, dated as of
February 7, 1995, among Homeland, Holding, UBS,
as agent, and the other lenders and financial
institutions parties to the Revolving Credit
Agreement.
10dd Agreement for Systems Operations Services,
effective as of October 1, 1991, between Homeland
and K-C Computer Services, Inc. (Incorporated by
reference to Exhibit 10dd to Form 10-K for the
fiscal year ended December 28, 1991)
10dd.1 Amendment No. 1 to Agreement for Systems
Operations Services, dated as of September 10,
1993, between Homeland and K-C Computer Services,
Inc. (Incorporated by reference to Exhibit 10dd.1
to Form 10-K for the fiscal year ended January 1,
1994)
<PAGE>
10ee Form of Indemnification Agreement, dated as of
March 4, 1992, among Homeland, Holding, Clayton
& Dubilier, Inc., The Clayton & Dubilier Private
Partnership Equity Fund III Limited Partnership,
and The Clayton & Dubilier Private Equity Fund IV
Limited Partnership. (Incorporated by reference
to Exhibit 10ee to Form 10-K for the fiscal year
ended December 28, 1991)
10ff Product Transportation Agreement, dated as of
March 18, 1992, between Homeland and Drake
Refrigerated Lines, Inc. (Incorporated by
reference to Exhibit 10ff to Form 10-K for the
fiscal year ended December 28, 1991)
10gg Assignment and Pledge Agreement, dated March 5,
1992, made by Homeland in favor of Manufacturers
Hanover Trust Company. (Incorporated by
reference to Exhibit 10gg to Form 10-K for the
fiscal year ended December 28, 1991)
10hh Transportation Closure Agreement Summary, dated
May 28, 1992, between Homeland and the
International Brotherhood of Teamsters,
Chauffeurs, Warehousemen and Helpers of America.
(Incorporated by reference to Exhibit 10hh to
Form S-1 Registration Statement, Registration No.
33-48862)
10ii (1) Description of terms of employment with Mark S.
Sellers. (Incorporated by reference to Exhibit
10ii to Form 10-K for the fiscal year ended
January 2, 1993)
10jj (1) Settlement Agreement, dated as of July 26, 1993,
between Homeland and Donald R. Taylor.
(Incorporated by reference to Exhibit 10jj to
Form 10-K for the fiscal year ended January 1,
1994)
<PAGE>
10kk (1) Executive Officers Medical/Life Insurance Benefit
Plan effective as of December 9, 1993.
(Incorporated by reference to Exhibit 10kk to
Form 10-K for the fiscal year ended January 1,
1994)
10ll (1) Employment Agreement, dated as of August 11,
1994, between Homeland and Max E. Raydon.
(Incorporated by reference to Exhibit 10ll to
Form 10-Q for the quarterly period ended
September 10, 1994)
10mm (1) Employment Agreement, dated as of August 11,
1994, between Homeland and Jack M. Lotker.
(Incorporated by reference to Exhibit 10mm to
Form 10-Q for the quarterly period ended
September 10, 1994)
10nn (1) Employment Agreement, dated as of August 11,
1994, between Homeland and Steve Mason.
(Incorporated by reference to Exhibit 10nn to
Form 10-Q for the quarterly period ended
September 10, 1994)
10oo (1) Employment Agreement, dated as of August 11,
1994, between Homeland and Al Fideline.
(Incorporated by reference to Exhibit 10oo to
Form 10-Q for the quarterly period ended
September 10, 1994)
10pp Letter of Intent, executed on November 30, 1994,
between Homeland and Associated Wholesale
Grocers, Inc. (Incorporated by reference to
Exhibit 10pp to Form 8-K dated November 29, 1994)
10pp.1* Asset Purchase Agreement, dated as of February 6,
1995, between Homeland and Associated Wholesale
Grocers, Inc.
<PAGE>
10qq Solicitation Statement, dated April 4, 1995.
(Incorporated by reference to Exhibit 10qq to
Form 8-K dated April 4, 1995)
10rr* (1) Employment Agreement, dated as of November 22,
1994, between Homeland and James A. Demme.
10ss* (1) Settlement Agreement, dated as of December 31,
1994, between Homeland and Max E. Raydon.
10tt* (1) Employment Agreement, dated as of January 30,
1995, between Homeland and Mark S. Sellers.
22 Subsidiaries. (Incorporated by reference to
Exhibit 22 to Form S-1 Registration Statement,
Registration No. 33-22829)
24* Consent of Coopers & Lybrand, L.L.P.
27* Financial Data Schedule.
99a Press release issued by Homeland on November 30,
1994. (Incorporated by reference to Exhibit 99a
to Form 8-K dated November 29, 1994)
99b Unaudited Summary Financial Data for the 52 weeks
ended December 31, 1994. (Incorporated by
reference to Exhibit 99b to Form 8-K dated
November 29, 1994)
EXHIBIT 10s.6
HOMELAND STORES, INC.
1994 TOTAL COMPANY
FISCAL 1994 PERFORMANCE BONUS PLAN
AS OF 5-19-94
PAGE & SECTION
PACKAGE CONTENTS: NUMBER:
o General Assumptions for Fiscal 1994 1
Cash Bonus Plan Proposal.
o Total Company Fiscal 1994 Bonus Plan 2
Matrix: Cash Bonus and Minimum
Company Performance Levels Required.
o Cash Bonus Level Categories & "%" Payout 3-1 to 3-3
and Number of People Eligible (based on
performance of Company)
o Retail Stores Bonus Plan 4-1 to 4-2
(INDEX PAGE)
(LK-MATRIX4A/fw)
Homeland Stores, Inc.
Fiscal 1994 Performance Bonus Plan
as of 5-19-94
GENERAL ASSUMPTIONS/REQUIREMENTS:
o Anticipated minimum cash bonus payout is approximately $2.9m
for fiscal 1994: Store bonus of $1.450m and management
(Headquarters and Warehouse) of $1.450m at 1994 pre-bonus EBIT
of $22.8m.
o Incremental sharing of increased EBIT will be up to 40% of the
profit improvement until the original refinancing numbers are
achieved for fiscal 1994 (after Bonus EBIT of $31.4m).
o Only those employees who are still actively employed at the
time of payout for the cash awards based on fiscal 1994
results will receive the awards. No prorates to anyone who
leaves prior to award distribution except for those that have
received prior approval from the Compensation Committee of the
Board of Directors.
o In the event of a change of control (as defined in the Credit
Agreement and Senior Note Indenture), the annual cash bonus
will be awarded under the assumption that the annual plan is
met and particpants will be required to stay through the
Retention Period, as defined in the Retention Plan, in order
to receive any additional payments.
o Bonus, including any discretionary amount, will be paidout to
participants on a quarterly basis execpt in
the event of a change in control, any amount
due will be paid as soon as practical.
1
Homeland Stores, Inc.
Fiscal 1994 Performance Bonus Plan
as of 5-19-94
TOTAL COMPANY FISCAL 1994 BONUS PLAN MATRIX:
(A) (B) ($00 000)
FINANCIAL
AREA/CRITER
IA<PAGE>
BONUS $
BASE @
EBIT OF:<PAGE>
INCREMEN
TAL
BONUS
$'S
@ EBIT
OF:<PAGE>
INCREMEN
TAL
BONUS
$'S
@ EBIT
OF:<PAGE>
(52)
WEEKS
FISCAL
1993
ACTUAL<PAGE>
EBIT $
(PRE-BONUS)<PAGE>
22.8
<PAGE>
22.8
TO
36.8<PAGE>
36.8
UP
<PAGE>
22.8 EBITDA $
(PRE-BONUS)<PAGE>
38.1<PAGE>
38.1
TO
53.1<PAGE>
53.1
UP
<PAGE>
38.1 CASH
BONUS $'S<PAGE>
2.9<PAGE>
2.9
TO
5.4<PAGE>
5.4
UP
<PAGE>
2.9 EBIT $
(AFTER
BONUS)<PAGE>
19.9<PAGE>
19.9
TO
31.4<PAGE>
31.4
UP
<PAGE>
19.9 EBITDA $
(AFTER
BONUS)<PAGE>
35.2<PAGE>
35.2
TO
46.8<PAGE>
46.8
UP
<PAGE>
35.2 CASH BONUS
$'S AS A %
OF
PRE-BONUS
EBITDA<PAGE>
-<PAGE>
7.1%
TO
10.2%<PAGE>
10.3%
UP
<PAGE>
7.6% CASH BONUS
% "SHARING"
OF
INCREMENTAL
PRE-BONUS
EBITDA $<PAGE>
-0- UP TO
40%<PAGE>
UP TO
60%<PAGE>
N/A
2
Homeland Stores, Inc.
Fiscal 1994 Performance Bonus Plan
as of 5-19-94
CASH BONUS LEVEL CATEGORIES & " %" PAYOUT: "%" X SALARY
(A) (B)
BONUS
CATEGORY
(2):<PAGE>
# OF
PEOPLE
ELIGIBL
E<PAGE>
1994
PRE-
BONUS
EBIT<PAGE>
1994
PRE-
BONUS
EBIT <PAGE>
1993
TARGET
%
BONUS<PAGE>
Officers
(*)1<PAGE>
8 100/50<PAGE>
100/100<PAGE>
100/50
(A) (B)
BONUS
CATEGORY
(3):<PAGE>
# OF
PEOPLE
ELIGIBL
E<PAGE>
1994
PRE-
BONUS
EBIT<PAGE>
1994
PRE-
BONUS
EBIT <PAGE>
1993
TARGET
%
BONUS<PAGE>
.
Directors
(*)2<PAGE>
25 50/10 50/20 40
3-1
Homeland Stores, Inc.
Fiscal 1994 Performance Bonus Plan
as of 5-19-94
CASH BONUS LEVEL CATEGORIES & "%" PAYOUT: "%" X SALARY
(A) (B)
BONUS
CATEGORY
(4):<PAGE>
# OF
PEOPLE
ELIGIB
LE<PAGE>
1994
PRE-
BONUS
EBIT <PAGE>
1994
PRE-
BONUS
EBIT<PAGE>
1993
TARGET
%
BONUS<PAGE>
. HQ, Whse.
Managers<PAGE>
24 15 30 10
(A) (B)
BONUS
CATEGORY (5):<PAGE>
# OF
PEOPLE
ELIGIBL
E<PAGE>
1994
PRE-
BONUS
EBIT<PAGE>
1994
PRE-
BONUS
EBIT<PAGE>
1993
TARGET
%
BONUS<PAGE>
. Other HQ,
Whse
Supervisors
(*)3 <PAGE>
81 5 10 5
(A) (B)
BONUS
CATEGORY
OTHER (6):<PAGE>
# OF
PEOPLE
ELIGIB
LE<PAGE>
1994
PRE-
BONUS
EBIT<PAGE>
1994
PRE-
BONUS
EBIT<PAGE>
1993
TARGET
%
BONUS<PAGE>
. District
Managers<PAGE>
6 (SEE
DIST.MGR<PAGE>
SEPARAT
E<PAGE>
PLAN) . Store
Managers<PAGE>
112 (SEE
STORE<PAGE>
SEPARAT
E<PAGE>
PLAN) . Assistant
Store Managers
# 1<PAGE>
115 (SEE
STORE<PAGE>
SEPARAT
E<PAGE>
PLAN) . Assistant
Store
Managers # 2<PAGE>
44 (SEE
STORE<PAGE>
SEPARAT
E<PAGE>
PLAN) . Pharmacy
Managers<PAGE>
55 (SEE
PHARMACY
<PAGE>
SEPARAT
E<PAGE>
PLAN) . Assistant
Pharmacy
Mgrs.<PAGE>
40 (SEE
PHARMACY<PAGE>
SEPARAT
E<PAGE>
PLAN) . Other (*)5 1 50 50 50
3-2
<PAGE>
Homeland Stores, Inc.
Fiscal 1994 Performance Bonus Plan
as of 5-19-94
CASH BONUS LEVEL CATEGORIES & "%" PAYOUT: "%" X SALARY
(A) (B)
BONUS
CATEGORY
TOTAL:<PAGE>
# OF
PEOPLE
ELIGIB
LE<PAGE>
1994
PRE-
BONUS
EBIT<PAGE>
1994
PRE-
BONUS
EBIT<PAGE>
1993
TARGET
%
BONUS<PAGE>
TOTAL COMPANY CASH
BONUS $'S AVAILABLE<PAGE>
511 $2.9m
to
$5.4m<PAGE>
$5.4m up -
(*)1 Mary Mikkelson (Chief Accounting Officer, Asst. Secretary &
Treasurer), Prentess Alletag (Vice President, Human
Resources), Chester Misialek (Vice President, Distribution and
Transportation) and Al Fideline (Vice President, Retail
Operations).
(*)2 Directors at Headquarters and Warehouse.
(*)3 Headquarters and Warehouse Supervisors will be selected to
participate based on job responsibilities and quantifiable
goals.
(*)4 100/50 and 100/100, et al, means that 100% would be paid for
in the target in fiscal 1994. 50% or 100% would be paid for
incremental improvement for above-plan performance in 1994. In
the event of a change of control, the incremental incentive
would be paid out at that time based on actual vs plan and
using the same ratio for the full fiscal year.
(*)5 Don Taylor
(*)6 Incremental bonus level for 1993 at 100/50 and 100/100 is the
same as note (*)4 for 1994.
Note: Except for numbers of people eligible, EBITDA (in "m") and
those otherwise indicated, all other numbers are as a % of salary.
3-3
STORE MANAGERS, ASSISTANT STORE MANAGERS,
PHARMACY MANAGERS AND ASSISTANT PHARMACY MANAGERS
1994 PERFORMANCE INCENTIVE PLAN SUMMARY
AS OF 2-7-94
ELIGIBILITY:
All Store Managers, Assistant Store Managers, Pharmacy
Managers and Assistant Pharmacy Managers are eligible to
participate in the Plan. In order to receive a payout from the
Plan, each participant must be actively employed in the position at
the time of payment. However, no bonus will be paid unless the
total company achieves or is expected to achieve its after bonus
EBIT Plan for fiscal 1994.
PERFORMANCE INCENTIVE BONUS:
Individual stores are required to achieve not less than 97.0%
of its Store Controllable Profit target before the following
applies:
1. 0.4% of Store Controllable Profit.
II. If the store meets or exceeds its Store Controllable Profit
target, then an additional annual incentive will be earned
based on the average weekly sales volume of the store for the
period in which the bonus is paid.
AVERAGE ADDITIONAL
WEEKLY SALES ANNUAL INCENTIVE
Less than $100,000 $ 2,000
$100,000 to $159,999 $ 4,000
$160,000 to $199,999 $ 8,000
$200,000 $10,000
III. PERCENTAGE OF BASE SALARY
Wage, Benefit and Indirect 6.0%
Employee Cost Plan
Supplies and Returned Check Plan 1.0%
Total Markdown % Plan 1.5%
Workers Comp. and G/L Incident/
Dollar Plan 1.5%
Total: 10.0% of Base Salary
4-1
PERFORMANCE INCENTIVE AWARD PAYMENT:
The incentive (the sum of I, II, and III) will be paid out
quarterly based on actual results vs. plan with the final payment
made as soon as practical after the close of the fiscal year. Each
quarterly payment will have 10% withheld until the final year-end
payment is made.
NOTE: As in the past, First Assistant Store Managers will
receive 10% of the Store Manager's Bonus and Second Assistant
Store Managers will receive 5% of the Store Manager's Bonus.
TRANSFERS AND NEW HIRES:
Store Managers shall receive a pro-rata portion of bonus from
the previous store and a pro-rata portion from the new store based
on length of time assigned to each within the bonus period.
Assistant Store Manager's bonus is based on the store last assigned
to at the end of the bonus period. Newly eligible or new hires
will have their bonus pro-rated based on length of time in their
current position.
PHARMACY SALES BONUS:
Pharmacy management will be paid a bonus based on their sales
volume:
Pharmacy Managers: 0.60% of Sales
Assistant Pharmacy Managers: 0.45% of Sales
This incentive will be paid out on a quarterly basis, one
quarter in arrears, and is independent of the Corporate EBIT
performance.
4-2
EXHIBIT 10cc.7
SIXTH WAIVER AND AMENDMENT AGREEMENT
SIXTH WAIVER AND AMENDMENT AGREEMENT, dated as of
February 7, 1995 among Union Bank of Switzerland, New York Branch,
individually ("UBS") and in its capacity as agent under the
Revolving Credit Agreement referred to below (in such capacity, the
"Agent"), the other lenders and financial institutions parties
hereto (collectively, the "Lenders"), Homeland Stores, Inc., a
Delaware corporation ("Borrower") and Homeland Holding Corporation,
a Delaware corporation ("Parent").
Reference is hereby made to the U.S. $50,000,000
Revolving Credit Agreement, dated as of March 4, 1992 (as
heretofore or hereafter amended, supplemented or modified from time
to time in accordance with its terms, the "Credit Agreement"),
among the Agent, the Lenders, Borrower and Parent. Capitalized
terms used herein and not otherwise defined shall have the meanings
attributed to them in the Credit Agreement.
I. Amendments.
Subject to the conditions as to effectiveness set forth
below, the Credit Agreement is hereby amended as follows:
1. Section 1.1 of the Credit Agreement is amended as
follows:
(a) The definition of "Swing Line Commitment" is
amended by substituting the figure "$8,000,000" for the figure
"$5,000,000" appearing therein.
(b) The definition of "Swing Line Lender" is
amended and restated in its entirety as follows:
"Swing Line Lender" shall mean Union Bank of
Switzerland, New York Branch, in its individual capacity
as maker of the Swing Line Advances, and its successors
and assigns to the extent permitted hereunder."
2. Section 2.1(b) of the Credit Agreement is amended
and restated in its entirety as follows:
(b) Each Revolving Advance shall be in an amount
equal to $1,000,000 (the "Minimum Advance Amount") or an
integral multiple of $1,000,000 in excess thereof and
shall be made on the date specified in the Written Notice
or telephonic notice confirmed in writing as described in
Section 2.6; provided, that if Borrower shall be deemed
to request a Revolving Advance under Section 2.4(c) or
4.1(c) hereof no notice of a borrowing shall be
necessary; provided, further, that if Borrower shall be
deemed to request a Revolving Advance under
Section 4.1(c) hereof such Revolving Advance shall be in
an amount equal to the greater of (i) the reimbursement
obligation of Borrower for the drawing made under the
Letter of Credit for which such Revolving Advance is
deemed requested and (ii) the Minimum Advance Amount.
Each Revolving Advance shall be either a Base Rate
Advance or a Eurodollar Advance, or a combination
thereof, as Borrower shall request, subject to and in
accordance with the provisions of this Agreement.
3. Section 2.4(a) of the Credit Agreement is amended
and restated in its entirety as follows:
(a) The Swing Line Lender, in its individual
capacity, agrees to lend hereunder, subject to and upon
the terms and conditions herein set forth, at any time or
from time to time after the Closing Date and before the
Maturity Date, a swing line loan or loans (each a "Swing
Line Advance," and the outstanding principal balance of
all Swing Line Advances from time to time, the "Swing
Line Loan") to Borrower, which Swing Line Advances
(i) shall be Base Rate Advances, (ii) shall not exceed in
the aggregate at any time outstanding the Swing Line
Commitment and (iii) shall be payable on demand.
4. Section 2.4(b) of the Credit Agreement is amended
and restated in its entirety as follows:
(b) Except as provided in Section 2.4(f) hereof,
whenever Borrower desires to make a borrowing of a Swing
Line Advance, Borrower shall give the Swing Line Lender,
in its individual capacity, at its address set forth in
Section 14.4 hereof, not later than 11:30 a.m. (New York
time) on the proposed borrowing date, telephonic notice
from an Authorized Representative confirmed promptly in
writing (which notice shall be irrevocable) of its desire
to make a borrowing of a Swing Line Advance. Each notice
of borrowing of a Swing Line Advance under this
Section 2.4 shall be substantially in the form of Exhibit
2.4 hereto and shall specify the date on which Borrower
desires to make a borrowing of a Swing Line Advance
(which shall be a Business Day) and the amount of such
borrowing.
5. Section 2.4(c)(i) of the Credit Agreement is amended
and restated in its entirety as follows:
(i) On Thursday (or, in any week in which Thursday
is not a Business Day, Friday) of each week, and, in
addition, in the event that (A) any Swing Line Advance is
not repaid in full upon demand by the Swing Line Lender,
(B) the Swing Line Loan at any time exceeds the Swing
Line Commitment or (C) the Swing Line Lender furnishes a
Written Notice to Borrower and the Lenders requesting a
settlement of all or any portion of outstanding Swing
Line Advances, Borrower shall immediately borrow, and
each of the Lenders hereby unconditionally and
irrevocably agrees to immediately fund its pro rata share
of, a Revolving Advance (which Revolving Advance shall
initially be a Base Rate Advance) in the principal amount
of such overdue or outstanding Swing Line Advances or
excess Swing Line Loan, as the case may be, pursuant to
the terms of this Agreement relating to the borrowing of
Revolving Advances (regardless, however, of whether the
conditions precedent thereto set forth in Section 6, 7 or
8 hereof are then satisfied and whether or not Borrower
has provided a notice of borrowing under Section 2.6
hereof and whether or not the Revolving Credit Facility
Commitment is then in effect, any Default or Event of
Default exists or all or any of the Loans have been
accelerated, but subject to clause (ii) of this
subsection (c) and the final sentence of Section 2.2(a)
hereof), and the proceeds of such Revolving Advance shall
be immediately paid over to the Swing Line Lender for
application to such overdue or outstanding Swing Line
Advances or excess Swing Line Loan, as the case may be.
6. The following paragraph is hereby added as Section
2.4(f) of the Credit Agreement:
(f) Without limiting the rights of the Agent, the
Swing Line Lender or any other Lender under Section 12.1
hereof or under any provision of any other Loan Document,
but subject to Section 2.4(e) hereof, Borrower hereby
irrevocably authorizes and directs the Swing Line Lender
to charge Borrower's account for all amounts that may now
or hereafter be due and payable by Borrower hereunder or
under any other Loan Document, including, without
limitation, all amounts of principal and interest, fees
and expenses; provided, that no Swing Line Advance shall
be made by charging Borrower's account pursuant to this
Section 2.4(f) in the event that (i) such Swing Line
Advance would constitute an Unauthorized Advance or (ii)
such Swing Line Advance would cause the Swing Line Loan
to exceed the Swing Line Commitment; provided, further,
that nothing contained in this Section 2.4(f) shall or
shall be deemed to relieve Borrower from its obligation
to repay any Lender Debt when due. Any amount charged
against Borrower's account pursuant to this
Section 2.4(f) shall be deemed to constitute a Swing Line
Advance.
7. Section 2.17 of the Credit Agreement is amended and
restated in its entirety as follows:
2.17. PRO RATA TREATMENT AND PAYMENTS. (a) Except
as contemplated by Section 2.17(b) hereof and other
express provisions of this Agreement, including, without
limitation, Sections 2.7, 2.11, 2.12, 2.14, 3.5, 4, 14.1,
14.5, 14.13(h) and 14.14 hereof, each borrowing by
Borrower from the Lenders and each payment (including
each prepayment) on account of the principal of and
interest on Advances and fees described in this Agreement
shall be made pro rata to each Lender according to the
respective percentages of each Lender set forth opposite
its name on Schedule 1.1(A) hereto. The Agent will
distribute each payment to the Lenders promptly following
receipt thereof (and in any event on the same Business
Day as the date when received, if such payment is
received at or prior to 12:00 noon (New York time)).
(b) Pursuant to the Concentration Account
Agreement, Borrower has agreed that all amounts deposited
into the Concentration Account Agreement shall be
transferred to the Payment Office or as otherwise
directed by the Agent on a daily basis. Subject to
Section 12.5 hereof, all amounts so transferred shall be
applied to the Lender Debt as mandatory prepayments
thereof as follows: first, to the Swing Line Loan until
the Swing Line Loan is paid in full; second, to the
Revolving Loan (first, to Base Rate Advances until paid
in full and then to Eurodollar Advances) until the
Revolving Loan is paid in full; third, as cash collateral
in a cash collateral account established with the Agent
as security for outstanding Letters of Credit pursuant to
agreements in form, scope and substance satisfactory to
the Agent; and fourth, to the payment of all other Lender
Debt that is then due and payable until such Lender Debt
is paid in full. Any such amounts remaining after said
application shall be deposited by the Agent in an
operating account of Borrower with the Agent designated
by Borrower, or paid over to such other Person or Persons
as may be required by law.
8. Section 11.15(v)(y) of the Credit Agreement is amended
and restated in its entirety as follows:
(y) to the extent not required to be applied under
(x) above, the Concentration Account (to the extent
representing proceeds of Collateral); or
9. Exhibits 2.5 and 6.22(b) to the Credit Agreement
are amended and restated in the respective forms of Exhibit 2.5
and 6.22(b) attached hereto.
II. Waiver.
Section 10.14 of the Credit Agreement requires, among
other things, that Borrower cause its auditors to supervise and
review a physical inventory of Inventory and Pledged Accounts of
Borrower and its Subsidiaries twice during each Fiscal Year.
Borrower performed only one physical inventory during Fiscal Year
1994. The Agent and the Lenders hereby waive any Default or Event
of Default that may heretofore have occurred as a result of
Borrower's failure to have caused its auditors to supervise and
review a physical inventory of Inventory and Pledged Accounts of
Borrower and its Subsidiaries twice during Fiscal Year 1994 as
required under Section 10.14 of the Credit Agreement and the
attendant failure to have delivered the compliance letter referred
to in said Section in connection with each such physical inventory.
III. Miscellaneous.
1. This Sixth Waiver and Amendment Agreement is subject
to the provisions of Section 14.2 of the Credit Agreement.
2. On and after the effective date of this Sixth Waiver
and Amendment Agreement, each reference in each of the Loan
Documents (including the Credit Agreement) to "hereunder",
"hereof", or words of like import referring to the Credit
Agreement, or to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended by the Amendment
Agreement, dated June 15, 1992, the Second Amendment Agreement,
dated September 23, 1992, the Third Amendment Agreement, dated as
of February 10, 1993, the Fourth Amendment Agreement, dated as of
June 8, 1993, the Fifth Waiver and Amendment Agreement, dated as of
February 14, 1994 and this Sixth Waiver and Amendment Agreement.
3. This Sixth Waiver and Amendment Agreement shall
become effective upon the fulfillment of the following conditions:
(a) The Agent shall not have notified Borrower in
writing, prior to the Agent's receipt of fully executed
counterparts of this Sixth Waiver and Amendment Agreement as
contemplated by the immediately following clause (b), as to
the continuance of any unwaived event which constitutes a
Default or an Event of Default.
(b) The Agent shall have received fully executed
counterparts to this Sixth Waiver and Amendment Agreement
signed by the Majority Lenders, UBS and Caisse Nationale de
Credit Agricole in sufficient quantity for each Lender and
Borrower to receive a fully executed counterpart of this Sixth
Waiver and Amendment Agreement signed by the Agent and the
Majority Lenders, UBS and Caisse Nationale de Credit Agricole.
(c) UBS shall have received a duly executed Swing Line
Note in the form of Exhibit 2.5 attached hereto signed by
Borrower.
(d) The Agent shall have received fully executed
counterparts to a First Amended and Restated Concentration
Account Agreement substantially in the form of Exhibit 6.22(b)
attached hereto signed by Borrower, Bank of Oklahoma, N.A. and
the Agent.
4. Parent, by signing below, confirms in favor of the
Agent and the Lenders that it consents to the terms and conditions
of this Sixth Waiver and Amendment Agreement and agrees that it has
no defense, setoff or counterclaim with respect to any of its
obligations or liabilities under its Guaranty and that all terms of
its Guaranty shall continue in full force and effect.
5. Each of Parent and Borrower reaffirms and restates
(after giving effect to the amendments contained herein) the
representations and warranties set forth in Section 13 of the
Credit Agreement, and all such representations and warranties are
true and correct on the date hereof with the same force and effect
as if made on such date (except to the extent that they relate
expressly to an earlier date). In addition, each of Parent and
Borrower represents and warrants (which representations and
warranties shall survive the execution and delivery hereof) to the
Agent and the Lenders that:
(a) it has the power and authority to execute, deliver
and carry out the terms and provisions of this Sixth Waiver
and Amendment Agreement and the transactions contemplated
hereby and has taken or caused to be taken all necessary
actions to authorize the execution, delivery and performance
of this Sixth Waiver and Amendment Agreement and the
transactions contemplated hereby;
(b) no consent of any other person (including, without
limitation, shareholders or creditors of Parent or Borrower)
is required to be obtained by Borrower or Parent and no action
of, or filing with, any governmental or public body or
authority is required to be obtained by Borrower or Parent to
authorize, or is otherwise required in connection with the
execution, delivery and performance of this Sixth Waiver and
Amendment Agreement or the consummation of the transactions
contemplated hereby;
(c) this Sixth Waiver and Amendment Agreement has been
duly executed and delivered by or on behalf of it and
constitutes its legal, valid and binding obligation
enforceable in accordance with its terms, subject to
bankruptcy, reorganization, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights
generally and the exercise of judicial discretion in
accordance with general principles of equity;
(d) the execution, delivery and performance of this
Sixth Waiver and Amendment Agreement will not violate any law,
statute or regulation, or any order or decree of any court or
governmental instrumentality applicable to it, or conflict
with, or result in the breach of, or constitute a default
under any of its contractual obligations; and
(e) as of the date hereof (after giving effect to this
Sixth Waiver and Amendment Agreement) there exists no Default
or Event of Default.
6. Each of the Loan Documents (including the Credit
Agreement) is hereby ratified and confirmed in all respects, and
all of the representations, warranties, terms, covenants and
conditions of each of the Loan Documents shall remain unamended,
unwaived and in effect in accordance with their respective terms,
except to the extent previously waived or amended and except as
waived or amended hereby. The amendments and consents set forth
herein shall be limited precisely as provided for herein and shall
not be deemed to be amendments or consents to, or waivers or
modifications of, any term or provision of any of the Loan
Documents or any other document or instrument referred to herein or
therein or of any transaction or further or future action on the
part of any of the Credit Parties, except to the extent
specifically provided for herein.
7. This Sixth Waiver and Amendment Agreement may be
executed by the parties hereto individually or in combination, in
one or more counterparts, each of which shall be an original and
all of which shall constitute one and the same agreement.
8. THIS SIXTH WAIVER AND AMENDMENT AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
IN SAID STATE.
IN WITNESS WHEREOF, the parties have caused this Sixth
Waiver and Amendment Agreement to be executed and delivered by
their respective officers, hereunto duly authorized, as of the day
and year specified at the beginning hereof.
BORROWER: HOMELAND STORES, INC.
By: Mark S. Sellers
Name: Mark S. Sellers
Title: Chief Financial Officer
PARENT: HOMELAND HOLDING
CORPORATION
By: Mark S. Sellers
Name: Mark S. Sellers
Title: Chief Financial Officer
AGENT: UNION BANK OF SWITZERLAND,
NEW YORK BRANCH, as Agent
By: Justin S. Maccarone
Name: Justin S. Maccarone
Title: Managing Director
By: Jeanne L. Johnson
Name: Jeanne L. Johnson
Title:
LENDERS: UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By: Justin S. Maccarone
Name: Justin S. Maccarone
Title: Managing Director
By: Jeanne L. Johnson
Name: Jeanne L. Johnson
Title:
CAISSE NATIONALE DE
CREDIT AGRICOLE
By: Dean Balice
Name: Dean Balice
Title: Senior Vice President
Branch Manager
NATIONAL BANK OF CANADA
By: Larry L. Sears
Name: Larry L. Sears
Title: Group Vice President
By: David L. Schreiber
Name: David L. Schreiber
Title: Assistant Vice President
BANK OF OKLAHOMA, N.A.
By: Jeffrey R. Dunn
Name: Jeffrey R. Dunn
Title: Vice President
LIBERTY BANK AND TRUST
COMPANY OF OKLAHOMA CITY, N.A.
By:__________________________
Name:
Title:
EXHIBIT 10pp.1
ASSET PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of February 6, 1995,
is by and between HOMELAND STORES, INC., a Delaware corporation
("Seller"), and ASSOCIATED WHOLESALE GROCERS, INC., a Missouri
corporation ("Buyer").
The following Recitals are a material part of this Agreement
and are being relied upon by Buyer and Seller in connection with
the transaction contemplated hereby:
R E C I T A L S
A. Seller operates a chain of approximately one hundred
eleven (111) grocery stores.
B. Seller owns or leases certain assets which it uses in the
conduct of its retail grocery business.
C. Buyer desires to purchase from Seller, and Seller desires
to sell to Buyer, Seller's interest in certain assets identified
herein.
D. Buyer is a wholesaler of grocery and supermarket products
operating in a cooperative manner. In entering into this
Agreement, Buyer is seeking to enhance the interests of its retail
members by (i) increasing its volume of wholesale sales and (ii)
providing for the maintenance of such increase.
E. Seller owns and/or operates the retail grocery stores
listed on Exhibit "A", Schedule "2" attached hereto and
incorporated herein by reference. Until such stores are closed or
sold, Seller intends to continue to own and/or operate such stores
as retail grocery stores, together with such additional retail
grocery stores as may hereafter be acquired, operated or otherwise
controlled by Seller or its affiliates (within the meaning of
paragraph 7.a(i) of the Supply Agreement, as defined below)
(collectively while owned and operated by Seller, the "Supplied
Stores"). Subject to Buyer's Volume Protection Rights (as defined
below), Seller has the right, in its sole discretion, to decide
whether or not to sell or close Supplied Stores. For purposes (i)
hereof and (ii) the Supply Agreement contemplated hereby and set
forth on Exhibit "B", which is incorporated herein (the "Supply
Agreement"), until a store listed on Exhibit "A", Schedule "2" is
closed or sold by Seller in accordance with the terms of the Supply
Agreement, it will be a Supplied Store.
F. Based on its independent decision, Seller has informed
Buyer that, upon the sale of its Warehouse and Warehouse Inventory
(as such terms are defined below) to Buyer hereunder, Seller is
terminating its internal wholesale distribution operations and
network with which it has previously serviced the Supplied Stores.
Seller acknowledges that Buyer is assuming no risk or liability
with respect to this decision by Seller. The provisions of this
recital are not intended to diminish, in any way, Buyer's specific
assumption of liabilities as set forth in this Agreement or its
obligations under the Supply Agreement.
G. Seller has advised Buyer that Seller desires to become
one of Buyer's retail members and obtain from Buyer products
available from time to time from Buyer's warehouse in accordance
with the terms of the Supply Agreement.
H. Buyer is willing to supply its full line of available
products and services to Seller for the Supplied Stores based on
the terms, conditions and financial assurances contained herein and
in the Supply Agreement.
I. In addition to providing for a current purchaser of
certain assets and a future supplier of its wholesale needs, Seller
wishes to establish a potential market for the sale of certain of
its assets, including the Supplied Stores. Inasmuch as Seller's
desire to establish such market directly coincides with Buyer's
desire to preserve the volume of sales which will be achieved by
acquiring the Purchased Assets (as defined below) under this
Agreement, supplying the Supplied Stores under the Supply Agreement
and obtaining the Volume Protection Rights, Buyer is willing to
facilitate the potential acquisition of certain of Seller's assets
and/or Supplied Stores by one or more of Buyer's retail members all
within the terms and conditions set forth in the Supply Agreement.
J. The parties understand and acknowledge that in addition
to the consideration set forth specifically herein, each party will
be required to make a substantial and continuing commitment of its
resources in reliance upon the other's respective commitment to
provide and/or purchase products and services in the future, and
that neither party nor their respective owners, retail members
and/or affiliates will realize the full benefit of their
anticipated bargain hereunder unless each party materially fulfills
its obligations hereunder in accordance with the terms hereof.
K. Because a portion of the value to the Buyer of the
transactions provided for or referred to herein lies in Buyer's
ongoing ability to sell its products to all of the Supplied Stores
on a long term basis, Buyer is unwilling to enter into this
Agreement and the related agreements unless it obtains those rights
contemplated herein and set forth in the Supply Agreement
pertaining to (i) the purchase by Buyer of the Supplied Stores,
(ii) noncompetition and (iii) associated use restrictions (such
rights collectively referred to herein as the "Volume Protection
Rights"). Seller and Buyer agree that all such rights are an
integral and non-severable part of this Agreement.
L. Seller has requested and Buyer has agreed to commence
simultaneous supply of all Supplied Stores. Seller and Buyer
acknowledge that there are inherent difficulties in doing so. The
parties will use their best efforts to minimize any such
difficulties.
M. Seller represents to Buyer that Seller has used its best
efforts to obtain offers better than the transaction set forth
herein with Buyer, but Seller has been unable to obtain any better
offers. Seller has no knowledge of any facts which would indicate
that the consideration being paid to Seller in connection with the
transactions contemplated hereby is less than the fair market value
associated therewith.
NOW, THEREFORE, in consideration of the mutual covenants and
premises contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall
have the following meaning and the capitalized terms in the
Recitals and introductory paragraph shall have the same meaning as
defined therein:
"Adverse Environmental Conditions" shall mean Hazardous
Materials (as defined below) or conditions existing in, on,
under or in the vicinity (as covered by the environmental
reports described in Exhibit "F") of any Purchased Store with
respect to the air, soil, surface waters, ground waters or
stream sediments, which is reasonably likely to (i) pose a
threat to human health or to the environment and/or is
reasonably likely to require remedial action under applicable
Environmental Laws or (ii) constitute a violation of any
Environmental Laws (as defined below).
"ASC" shall mean those contracts described in Section
5.1(b) and set forth on Exhibit "P".
"Closing" shall mean the process and activities described
in Article XII hereof.
"Closing Date" shall mean April 21, 1995, or such other
date as provided for herein or as Buyer and Seller shall
mutually agree in writing.
"Environmental Laws" shall mean any federal, state or
local laws, statutes, ordinances, regulations or policies
relating to the environment, health and safety, any hazardous
materials (including, without limitation, the use, handling,
transportation, production, disposal, discharge or storage
thereof) or to industrial hygiene or the environmental
conditions applicable to the Purchased Assets, including,
without limitation, soil, subsurface and ground water
conditions.
"Equipment" shall mean all trade furniture, fixtures,
equipment, machinery, totes, supplies and outdoor signage,
complete with all additions, accessories and attachments
thereto owned or to be owned by Seller on or before the
Closing Date and located at the Purchased Stores and utilized
in connection with Seller's business at the Purchased Stores,
except supplies and sign faces which bear Seller's name or
logo shall be excluded. The Equipment shall consist of all
of the foregoing which are either (i) currently Owned
Equipment (as defined below) or (ii) in the case of Leased
Capital Equipment -Stores (as defined below), to be owned by
Seller on or prior to the Closing Date.
"Equipment Schedule" shall mean the schedule to be
assembled and delivered to Buyer as provided in Section 4.8.
When completed, the Equipment Schedule shall be affixed hereto
as Exhibit "H" and incorporated herein.
"ERISA Agreement" shall mean the Supplemental Agreement
Regarding Section 4204 of ERISA set forth in Exhibit "V".
"Excluded Assets" shall mean the following items which
are not to be acquired by Buyer hereunder:
(a) all rights to the "Homeland" name and
identifying logo and all other trademarks, trade names,
brand names and service marks owned by Seller, any
confusingly similar name or term and the faces of any
signage bearing the "Homeland" name; provided, however,
that the Warehouse Inventory includes Seller's private
label inventory, and except for "Homeland" and "Pride of
America" private label inventory (which shall be sold
exclusively to Seller), Buyer may resell such private
label inventory in the ordinary course of Buyer's
distribution business;
(b) all items of unsalable inventory (as described
on Exhibit "K") or consigned inventory wherever located;
(c) all claims, choses in action and rights to
action of Seller against third parties with respect to
events occurring prior to or after the Closing, other
than any claims, choses in action and rights to action
with respect to warranties applicable to any of the
Purchased Assets or with respect to any damage to or
diminution in value of any of the Purchased Assets;
(d) cash in the Purchased Stores, cash equivalents
such as coupons, food stamps, certificates, postage
stamps and other instruments representing a right to
receive cash from a third party, accounts, lock boxes
and other similar accounts that contain cash or cash
equivalents of the Purchased Stores;
(e) Seller's accounts receivable and rebates and
refunds arising from the operation of the Purchased
Stores prior to the Closing Date;
(f) the equipment described on Exhibit "S" relating
to Seller's corporate offices in Oklahoma City which
Seller will utilize in connection with its ongoing
business operations;
(g) the store equipment described on Exhibit "T"
that is currently stored in Seller's former milk plant
at the Warehouse;
(h) any inventory that is not located at the
Warehouse (except for items subject to open warehouse
purchase orders as contemplated in Section 5.4 hereof)
or Purchased Stores;
(i) in the event that Seller exercises its option
pursuant to Section 15.14 with respect to the Edmond
Store (as defined in Section 15.14), the Edmond Store
inventory; and
(j) assets relating to the Excluded Stores or
Supplied Stores.
"Excluded Stores" shall mean those stores listed on
Exhibit "A", Schedule "3".
"Exhibits" shall mean the following which shall be
attached hereto and incorporated herein:
Exhibit "A" - Schedule of Stores
Schedule "1" - Purchased Stores
Schedule "2" - Supplied Stores
Schedule "3" - Excluded Stores
Exhibit "B" - Supply Agreement
<PAGE>
Exhibit "C" - Store Leaseholds and Real Property
Schedule "1" - Leases
Schedule "2" - Legal Descriptions of
Owned Property
Exhibit "D" - List of Third Party Warranties and
Guaranties
Exhibit "E" - Schedule of Litigation
Exhibit "F" - Schedule of Violations
Schedule "1" - List of Environmental
Remediation Plans
Schedule "2" - Copies of Environmental
Remediation Plans
Exhibit "G" - Warehouse Facilities
Schedule "1" - Leases
Schedule "2" - Legal Descriptions of
Owned Property
Exhibit "H" - Equipment Schedule
Schedule "1" - Owned Equipment
Schedule "2" - Leased Capital Equipment -
Stores
Exhibit "I" - Schedule of Warehouse Inventory
Exhibit "J" - Schedule of Store Inventory
Exhibit "K" - Description of Unsalable Inventory Items
Exhibit "L" - List of Seller's Prepaid Expenses
Exhibit "M" - Documents Defining Percent Spread
Exhibit "N" - List of Existing Contracts
Schedule "1" - Assumed Contracts
Schedule "2" - Undertaking Contracts
Exhibit "O" - Form of Undertaking
Form of Assignment and Assumption
Agreement
Exhibit "P" - List of contracts described as ASC
Exhibit "Q" - Delivery Items
Exhibit "R" - Schedule of Warehouse Equipment
Schedule "1" - Owned Warehouse Equipment
Schedule "2" - Leased Capital Equipment -
Warehouse
Exhibit "S" - List of Seller's Office Equipment
Exhibit "T" - List of Seller's Store Equipment in
Storage at Milk Plant
Exhibit "U" - Seller's FIRPTA Certificate Form
Exhibit "V" - Form of Supplemental Agreement Regarding
Section 4204 of ERISA
Exhibit "W" - List of Consents and Approvals - Seller
Exhibit "X" - List of Litigation - Buyer
Exhibit "Y" - List of Consents and Approvals - Buyer
"Existing Contracts" shall mean those contracts described
in Section 5.1(a) and set forth on Exhibit "N" herein.
"Hazardous Materials" shall mean and include the
existence in any form of: (i) polychlorinated biphenyls; (ii)
asbestos or asbestos containing materials; (iii) urea
formaldehyde foam insulation; (iv) oil, gasoline or other
petroleum products (other than in vehicles operated in the
ordinary course of business); (v) pesticides and herbicides;
and (vi) any other chemical, material or substance (including,
without limitation, those materials defined as "Hazardous
Substances" in the Comprehensive Environmental Response
Compensation and Liability Act, as amended), to which exposure
is prohibited, limited or regulated by any Environmental Laws.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"HSR Filing" shall mean the filings required under the
Antitrust Improvements Act Notification and Report Form for
certain Mergers and Acquisitions pursuant to the HSR Act.
"Inventory" shall mean collectively the Store Inventory
and the Warehouse Inventory.
"Inventory Certificate" shall mean certificates executed
by Buyer and Seller prior to the end of Closing as
contemplated by Section 4.2. When completed, all Inventory
Certificates shall be affixed hereto and incorporated herein.
"Inventory Valuation" shall mean the procedure for
counting the Inventory and establishing its purchase price as
set forth in Sections 4.1, 4.2, 4.5 and 4.6.
"Leased Capital Equipment - Stores" shall mean that
Equipment set forth on Schedule "2" of Exhibit "H".
"Leased Capital Equipment - Warehouse" shall mean that
Warehouse Equipment set forth on Schedule "2" of Exhibit "R".
"Leases" shall mean, collectively, the Store Leases and
Warehouse Leases.
"Operating Assets" shall mean the (i) Purchased Stores
set forth on Exhibit "A" and Exhibit "C", (ii) Equipment,
(iii) Warehouse set forth on Exhibit "G" and (iv) Warehouse
Equipment.
"Owned Property" shall mean the real property owned in
fee simple by Seller and set forth on Exhibit "C", Schedule
"2" and Exhibit "G", Schedule "2".
"Owned Store Equipment" shall mean the Equipment set
forth on Schedule "1" of Exhibit "H".
"Owned Warehouse Equipment" shall mean that Warehouse
Equipment set forth on Schedule "1" of Exhibit "R".
"Permitted Exceptions" shall mean all exceptions to title
reasonably acceptable to Buyer contained in the title
commitments required hereby. Permitted Exceptions shall not
include those exceptions which materially adversely affect (i)
good, marketable and insurable title to or (ii) use of the
Purchased Assets.
"Purchase Price" shall mean the aggregate sum determined
pursuant to the provisions of Article III.
"Purchased Assets" shall mean the Operating Assets and
Inventory, collectively along with any goodwill associated
therewith.
"Purchased Stores" shall mean Store Leases and Owned
Property associated with the store locations currently owned
or leased and operated by Seller which are listed on Schedule
"1" of Exhibit "A" and Exhibit "C".
"Representative" shall mean any officer, director,
principal, attorney, agent, consultant, affiliate,
stockholder, employee or other representative of Seller or
Buyer.
"Store Inventory" shall mean all good and salable items
of merchandise located at the Purchased Stores which are
contemplated under Section 4.1. All items of Unsalable
Inventory (defined below) are expressly excluded. A complete
schedule of the Store Inventory shall be set forth on Exhibit
"J".
"Store Leases" shall mean those leases described on
Schedule "1" of Exhibit "C".
"System Cost" shall mean costing which is consistent with
Seller's past practice as set forth in Seller's Listing of
Warehouse Inventory dated September 20, 1994 heretofore
provided to Buyer, which includes certain off-invoice
allowances.
"Unsalable Inventory" shall mean those items of Store
Inventory or Warehouse Inventory which are described on
Exhibit "K".
"Violations" shall mean all material violations or
notices of material violations of law or governmental
ordinances, orders or requirements which exist or are noted
in or issued by any housing and building, fire, labor, health,
air resources, environmental, highways or any other Federal,
state, county or municipal department, agency, authority or
bureau having jurisdiction as to conditions affecting any of
the Purchased Assets.
"Warehouse" shall mean the Warehouse Leases and Owned
Property associated with the warehouse complex utilized by
Seller in connection with its current wholesale operation for
the distribution of goods and products and associated services
conducted at locations described on Exhibit "G".
"Warehouse Equipment" shall mean all furniture, fixtures,
equipment, machinery, totes, supplies and outdoor signage,
along with all additions, accessories and attachments thereto
owned or to be owned by Seller on or before the Closing Date
and located at the Warehouse and utilized in connection with
Seller's business, except (A) supplies and sign faces which
bear Seller's name or logo, (B) Seller's office equipment
located at Seller's corporate headquarters which is described
on Exhibit "S" and (C) Seller's store equipment described on
Exhibit "T" attached hereto that is in storage at Seller's
former milk plant at the Warehouse. The Warehouse Equipment
shall consist of all of the foregoing which are either (i)
currently Owned Warehouse Equipment or (ii) in the case of
Leased Capital Equipment - Warehouse, to be owned by Seller
on or prior to the Closing Date.
"Warehouse Equipment Schedule" shall mean the schedule
to be assembled and delivered to Buyer as provided in Section
4.9. When completed, the Warehouse Schedule shall be affixed
hereto as Exhibit "R" and incorporated herein.
"Warehouse Inventory" shall mean all good and saleable
items of merchandise located at the Warehouse which are
contemplated under Section 4.6 All items of Unsalable
Inventory are expressly excluded. A complete schedule of the
Warehouse Inventory shall be set forth on Exhibit "I".
"Warehouse Leases" shall mean those leases described on
Schedule "1" of Exhibit "G".
"Warranties and Guaranties" shall mean all assignable
third party warranties, guaranties or similar rights owned by
Seller or inuring to Seller's benefit in connection with the
Purchased Assets which are in Seller's possession. All
Warranties and Guaranties are set forth in Exhibit "D".
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
Subject to the terms and conditions set forth herein, Seller
hereby agrees to sell, and Buyer hereby agrees to purchase, on the
Closing Date, all of Seller's right, title and interest in and to
the Purchased Assets. The Purchased Assets shall not include the
Excluded Assets.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price. The Purchase Price for the Purchased
Assets shall (subject to any adjustment hereinafter provided) be
comprised of the following components:
(a) The purchase price for the Operating Assets shall
be the sum of Forty-Five Million Dollars ($45,000,000.00),
plus
(b) The purchase price to be paid by Buyer to Seller
for the Inventory shall be the purchase price determined by
the Inventory Valuation and as set forth on an Inventory
Certificate, plus
(c) The obligations, assumptions and/or undertakings
set forth in Article V below.
3.2 Payment of Purchase Price. The Purchase Price shall be
paid by wire transfer of immediately available funds to a bank
account designated by Seller on the Closing Date and shall total
the sum of $45,000,000 plus or minus (i) the prorations described
in Section 12.5, plus (ii) an amount equal to 90% of the estimated
value of the Inventory, as estimated two (2) days prior to the
Closing Date by Seller in good faith and on the basis of the most
current information available to Seller at that time. Such amount
shall be adjusted after the Closing to conform to the Inventory
Valuation. Any amounts owed by either party shall be paid as soon
as practicable after the Inventory Valuation is available in
immediately available funds by wire transfer to a bank account
designated by the party to whom such funds are owed. In addition,
following the Closing, Buyer or Seller, as the case may be, shall
pay to the other any adjustments to any estimated prorated amounts
in accordance with Section 12.5(f).
ARTICLE IV
INVENTORY AND EQUIPMENT
4.1 Count of Store Inventory. Seller shall close the
Purchased Stores (excluding any pharmacies) at 6:00 p.m. on the day
after the Closing Date. A physical count of the Store Inventory
(excluding Unsalable Inventory) shall be conducted commencing on
the day after the Closing Date by an inventory service company or
companies (the "Inventory Service") selected and retained by Buyer
and approved by Seller, which approval shall not be unreasonably
withheld. The cost of utilizing the Inventory Service shall be
borne equally by the parties by way of an appropriate adjustment at
Closing. Representatives of Seller and Buyer shall have the right
to be present during such physical count to verify the count, to
request recounts of any questionable items and to settle all
disputes as to Unsalable Inventory. Upon completion of such
physical count, except for mathematical errors, other agreed upon
changes and disputes regarding physical count or Unsalable
Inventory, the count of the Inventory Service shall be final and
binding on the parties for all purposes of this Agreement. The
parties shall use their best efforts in good faith to cooperate
toward the resolution of any disputes as to physical count or
Unsalable Inventory prior to the completion of Closing. Any
unresolved disputes not resolved by the completion of Closing shall
be separately listed and settled by the Chief Executive Officers of
the parties as expeditiously as practicable thereafter or, if the
parties cannot agree, by an independent third party mutually
acceptable to both parties ("Dispute Resolution Procedure"). Any
such determination of any dispute shall be final and binding on the
parties. All such physical counts shall be completed prior to the
completion of Closing, or as otherwise agreed by the parties, and
the final Inventory Valuation for the Store Inventory shall be
completed as soon thereafter as practicable.
4.2 Valuation for Store Inventory. The Store Inventory shall
be valued by applying the following methods to the count reported
by the Inventory Service:
<PAGE>
(a) Grocery and Variety Items. The purchase price for
the items identified by Seller as grocery and variety (except
greeting cards, gift wrap and videos) will be determined
pursuant to the calculation below:
Cost of Store Inventory at Retail X Inventory Factor.
For purposes herein, the Inventory Factor is calculated as
follows:
(Seller's Going-In Gross) + (W/T Expense/
Realized Sales) = Inventory Factor.
For purposes herein, Seller's Going-In Gross is defined as the
calculation described as "Percent Spread" on Exhibit "M"
attached hereto. "Warehouse Expenses", "Transportation
Expense" and "Realized Sales" will be defined as set forth on
Exhibit "M". The "W/T Expense" is defined as the Warehouse
Expenses, plus the Transportation Expense as set forth on
Exhibit "M".
When calculating the Going-In Gross, the parties will use the
average of the Going-In Gross from January 1, 1995 through
March 25, 1995.
(b) Backroom. The following items consisting of
unopened full cases shall be valued at System Cost:
1. Frozen Bakery (Bake off or items which need
further processing)
2. Frozen Meat (Product to be fabricated for sale
at retail)
3. Bakery Ingredients (Product to be processed for
resale)
4. Dry Produce
5. Lunch Meat and Smoked Meat with 30 days or more
shelf life
6. Non-Perishable Floral (consisting of items to
be processed for sale at retail; it being
understood that floral supplies are part of
Equipment).
(c) Greeting Cards and Gift Wrap. Greeting cards
and gift wrap shall be valued at 50% of retail.
(d) Videos. The amount to be paid by Buyer for all
video tapes in the Purchased Stores will be mutually agreed
upon by the parties on or before the Closing Date. In the
event that the parties cannot agree upon such amount prior to
the Closing Date (i) the video tapes shall be Excluded Assets
for all purposes of this Agreement and shall be removed from
the Purchased Stores or abandoned as provided in Section 4.3
herein and (ii) Seller may, at its option, designate as
Excluded Assets all display racks and equipment utilized in
connection with video sales and rentals in the Purchased
Stores, including computers, software, computer peripherals
and data bases, but excluding sales counters and other
fixtures attached to the permanent improvements (collectively,
"Video Equipment"). Upon any such designation, such Video
Equipment shall be treated as Excluded Assets for all purposes
of this Agreement and shall be removed from the Purchased
Stores or abandoned as provided in Section 4.3 herein.
(e) Inventory Certificates. Upon completion of the
Inventory Valuation of Store Inventory, which shall be
completed prior to the completion of Closing, the Buyer and
Seller shall execute an Inventory Certificate which shall
contain the Purchase Price for the Store Inventory at each
Purchased Store and shall have incorporated therein a complete
listing of the Store Inventory for each Purchased Store.
(f) Pharmacy. The Store Inventory consisting of
prescription pharmaceuticals ("Pharmacy Product"), which Buyer
is legally permitted to purchase, will be calculated at
Seller's acquisition cost less any rebates and allowances up
to an aggregate of 3.7%. Any Pharmacy Product with less than
a three-month shelf life will either be returned to the
supplier by Seller; or if return is restricted, the purchase
price for such Pharmacy Product will be Seller's acquisition
cost times 50%. Seller will also have the option to transfer
any Pharmacy Product with less than a three-month shelf life
to another of Seller's stores.
(g) Third Party Private Label. From the date
hereof to the Closing Date, Seller will use its best efforts
to deplete third party private label products, which shall
include Best Buy, Townhouse and Lucerne.
4.3 Removal of Excluded Items from Purchased Stores. Seller
shall have seven (7) business days from and after the Closing Date
to remove all items from the Purchased Stores which are not
included in the Purchased Assets. Thereafter, Buyer shall be free
at any time to remove and dispose of any such item at its own cost.
4.4 Consigned Items; Third-Party Items. Seller and Buyer
recognize that certain merchandise and equipment belonging to third
parties, including items held on consignment and equipment owned or
leased by persons permitted to sell their own merchandise in one or
more of the Purchased Stores, is located in the Purchased Stores or
Warehouse, including but not limited to, vending machines, vendor-
owned display racks, broadcasting equipment, ATM equipment,
electronic equipment, reverse vending machines, photo centers,
cigarette machines, copy machines and telephone systems. All such
items will be identified in the inventory count pursuant to Section
4.1. Seller shall notify all such third parties prior to Closing
that they must pick up their property prior to the Closing Date
unless Buyer, Seller and any such third party reach some mutually
agreeable arrangement prior to the Closing Date. To the extent
that any of the foregoing items are the subject of an Existing
Contract, the provisions of Article V shall supercede the foregoing
where applicable.
4.5 Count of Warehouse Inventory. Seller shall close the
Warehouse at 4:00 p.m. on the Closing Date. A physical count of
the Warehouse Inventory (excluding Unsalable Items) shall be
conducted commencing on the Closing Date by the parties.
Representatives of Seller and Buyer shall conduct and remain
present during such physical count to verify the count, to request
recounts of any questionable items and to settle all disputes as to
Unsalable Inventory. Upon completion of such physical count,
except for mathematical errors, other agreed upon changes and
disputes regarding physical count or Unsalable Inventory, the count
of the parties shall be final and binding on the parties for all
purposes of this Agreement. Any disputes as to the physical count
or Unsalable Inventory shall be resolved in accordance with the
Dispute Resolution Procedure. Any such determination of any
dispute shall be final and binding on the parties. All such
physical counts shall be completed prior to the completion of
Closing, or as otherwise agreed by the parties, and the Inventory
Valuation for the Warehouse Inventory shall be completed as soon
thereafter as practicable.
4.6 Inventory Valuation for Warehouse Inventory. The
Warehouse Inventory shall be valued by applying the following
methods to the count arrived at by the parties:
(a) The purchase price for the Warehouse Inventory
(other than perishable inventory) will be calculated at
Seller's last System Cost, excluding cash discounts.
(b) The purchase price for the Warehouse Inventory
consisting of perishables will be calculated at Seller's last
System Cost (which is Seller's acquisition cost), excluding
cash discounts.
(c) Seller will continue to employ System Cost in
connection with the Warehouse Inventory until Closing.
(d) Upon completion of the Inventory Valuation of
Warehouse Inventory, which shall be completed as soon as
practicable after the Closing Date, the Buyer and Seller shall
execute an Inventory Certificate which shall contain the
Purchase Price for the Warehouse Inventory and have
incorporated therein a complete listing of the Warehouse
Inventory.
4.7 Removal of Excluded Items from Warehouse. Seller shall
have thirty (30) business days from and after the Closing Date to
remove all items from the Warehouse which are not included in the
Purchased Assets. Notwithstanding the foregoing, in the event any
such items belonging to Seller unreasonably interfere with Buyer's
use of any Purchased Asset, Buyer shall be free at any time after
twenty-four (24) hours prior notice to Seller to remove and dispose
of any such item. After the expiration of such thirty (30) day
period, Buyer may dispose of such items at its own cost.
4.8 Equipment Schedule. Between the date hereof and the
Closing Date, Seller and Buyer shall cooperate to prepare and
deliver to Buyer the Equipment Schedule which shall set forth on a
per store basis every item of Equipment in each Purchased Store.
4.9 Warehouse Equipment Schedule. Between the date hereof
and the Closing Date, Seller and Buyer shall cooperate to prepare
and deliver to Buyer the Warehouse Equipment Schedule which shall
set forth on a location basis every item of Warehouse Equipment in
each of the locations of the Warehouse.
ARTICLE V
ADDITIONAL CONSIDERATION
5.1 Assumption/Undertakings Regarding Certain Existing
Contracts. On the Closing Date, Buyer shall undertake or assume
certain obligations in connection with certain specified existing
contracts:
(a) With respect to certain equipment, service,
supply or other contracts entered into by Seller prior to
November 30, 1994 ("Existing Contracts") which are listed on
Exhibit "N" attached hereto and incorporated herein, the
parties shall either (i) agree to an assumption of such
contract in the form set forth in Exhibit "O" attached hereto
and incorporated herein (the "Assignment and Assumption
Agreement"), or (ii) enter into an undertaking in the form set
forth in Exhibit "O" attached hereto and incorporated herein
("Undertaking"), whereby the burdens and benefits of such
agreement are apportioned between the parties in a manner
consistent with this Section 5.1 and the agreements to be
entered into in connection herewith. The contracts to be
assumed are listed on Schedule "1" of Exhibit "N", and the
contracts in connection with which an Undertaking shall be
executed are listed on Schedule "2" of Exhibit "N".
(b) For purposes hereof, it is agreed that the
contracts which affect some or all of the Purchased Stores and
some or all of the Supplied Stores ("ASC"), which are listed
on Schedule "2" of Exhibit "N" and separately on Exhibit "P",
attached hereto and incorporated herein, shall be subject to
the following apportionments:
(i) Except as set forth below, Buyer will undertake
to be responsible for up to twenty-five percent (25%) of
the obligations set forth in each ASC to the extent
necessary to prevent the triggering of an obligation to
repay, buy back or otherwise compensate ("Repayment")
the other party to an ASC pursuant to the terms of such
ASC or as a result of a default (as such term is defined
in each undertaking) under such ASC.
(ii) With respect to a Repayment:
A. If Buyer's actions or omissions (or the
actions or omissions of any Buyer member or
purchaser of any of the Purchased Stores) trigger a
Repayment, Buyer shall be responsible for all of
such Repayment.
B. If the Repayment is triggered by any event
not covered by subparagraphs A or C, Buyer shall be
responsible for twenty-five percent (25%) of the
Repayment and Seller shall be responsible for the
remainder.
C. If the Repayment is triggered by Seller in
connection with the eighty-two (82) remaining stores
or Supplied Stores, Seller shall be responsible for
all of such Repayment.
(iii) With respect to obligations to deal
exclusively, obligations to meet certain performance
levels and promotional obligations under an ASC, Buyer
will cause its retail members or any purchasers which
operate the Purchased Stores to carry the required
products and/or to otherwise comply with the required
performance levels and promotional obligations and Buyer
will be responsible for any breach.
(iv) Any benefits, monetary or otherwise, relating
to the ASC contracts received by Seller on an ongoing
basis after the Closing Date will be prorated in a
manner consistent with the allocation of obligations as
set forth above.
(c) Any contracts exclusively relating to the
Warehouse (other than collective bargaining agreements) will
be assumed by Buyer and all such contracts are listed on
Schedule "1" of Exhibit "N".
(d) With respect to any contracts which exclusively
relate to one or more of the Purchased Stores (other than
collective bargaining agreements), Buyer will cause the
applicable retail member or purchaser of such Store(s) to (i)
assume such contract or (ii) enter into an agreement whereby
such retailer agrees to be responsible for such liability and
Buyer will be responsible for any damages or liabilities
resulting from any breach, non-performance or non-assumption.
Such contracts are listed on Schedule "1" of Exhibit "N".
(e) The K-C Computer Services, Inc. ("K-CCS")
contract will be handled in the following manner:
(i) Prior to Closing, Seller shall analyze its
ongoing needs to operate the segment of its business
which is not being sold to Buyer at this time. Seller
shall advise Buyer of its requirements for services
under the K-CCS contract.
(ii) Buyer will undertake to satisfy and will be
responsible for all obligations (including any payments)
under the K-CCS contract which are above and beyond
Seller's ongoing requirements.
(iii) On or before the Closing Date the parties
will enter into a mutually agreeable agreement to
document such arrangement.
(f) The Drake Refrigerated Lines, Inc. ("Drake")
contract relating to Seller's fleet will be assumed by Buyer
pursuant to a mutually agreeable assumption agreement to be
entered into on or before the Closing Date.
(g) The parties agree to enter into a contract
which satisfies the requirements of Section 4204 of the
Employee Retirement Income Security Act of 1974, as amended,
with respect to the Seller's obligations relating to the
Purchased Assets to the Central States, Southeast and
Southwest Areas Pension Fund (the "Plan"). The form of such
agreement shall be attached hereto as Exhibit "V" and
incorporated herein. If any withdrawal liability to the Plan
("TPWL") is triggered by any of the transactions contemplated
hereby or otherwise subsequent to the Closing, Buyer will
reimburse Seller for such TPWL up to $3,471,000. If Seller
and Buyer agree to alternative arrangements for the avoidance
of TPWL, Buyer will reimburse Seller the costs associated with
such alternative arrangements, if any, up to $3,471,000.
(h) The parties acknowledge that Seller has entered
into other contracts not listed on Exhibit "N" ("Excluded
Contracts") and have both independently reviewed the Excluded
Contracts and have determined that Buyer's purchase of the
Purchased Stores shall not result in a default thereunder or
any resultant liabilities or damages to Seller, and that Buyer
does not undertake any liability or responsibility for the
Excluded Contracts.
(i) With respect to contracts Seller enters into
after November 30, 1994 relating to the Purchased Assets,
Seller and Buyer shall discuss such contracts in an effort to
reach mutual agreement as to whether and to what extent Buyer
may have any responsibility for such contracts or any portion
thereof.
5.2 Assumption of Leases. On the Closing Date, Buyer and
Seller shall execute such mutually agreeable documentation as may
be reasonably required to assume Seller's obligations under the
Leases.
5.3 Supply Agreement. On the Closing Date, Buyer and Seller
shall execute the Supply Agreement. As further inducement in
connection with all of the other provisions hereof relating to the
purchase of and transfer of title to the Warehouse, Warehouse
Inventory, Warehouse Equipment, and the goodwill associated
therewith and the undertakings and/or assumptions in connection
with contracts relating to the Warehouse and its operations, and as
an integral and non-severable part thereof, the Supply Agreement
shall contain the Volume Protection Rights.
5.4 Open Warehouse Purchase Orders. Commencing fifteen (15)
days prior to the Closing Date, Buyer and Seller will coordinate
all existing and future purchase orders for items to become
Warehouse Inventory. Buyer shall designate a representative to be
on site during such period. After the Closing Date all obligations
under outstanding purchase orders for Warehouse Inventory will
become part of Buyer's ongoing replenishment program, and Buyer
will assume Seller's obligations under such purchase orders.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER
In addition to any representations and warranties contained
elsewhere in this Agreement, Seller hereby makes the following
representations and warranties to and for the benefit of Buyer, its
successors and assigns, in connection with the Purchased Assets,
each of which warranties and representations (i) is material and
being relied upon by Buyer, and (ii) is true in all respects as of
the date hereof (or such other date as may be indicated), (iii) and
shall be true and correct in all material respects on the Closing
Date.
6.1 No Violations. Except as set forth on Exhibit "F",
Seller is not aware of any existing or threatened Violations with
respect to the Purchased Assets. Except as set forth on Exhibit
"F", Seller has received no written notification alleging any
existing material violation of any applicable statutes, rules,
regulations, ordinances, codes, orders, licenses, permits or
authorizations, as such now apply to the Purchased Assets,
including without limitation, any applicable business, building,
zoning, antipollution, occupational safety, health or other law,
ordinance or regulation.
6.2 Leases. Included on Exhibit "C" is a complete, true and
correct schedule (Schedule "1") of all documents comprising the
Store Leases. Included on Exhibit "G" is a complete, true and
correct schedule (Schedule "1") of all documents comprising the
Warehouse Leases. All of said Leases are now in full force and
effect.
6.3 Equipment Schedule. To the best of Seller's knowledge,
the Equipment Schedule (also referred to as Exhibit "H") is a
complete, true and correct schedule of the Equipment and its
location as of the Closing Date.
6.4 Warranties and Guaranties. To the best of Seller's
knowledge, Exhibit "D" includes a true and correct summary of all
Warranties and Guaranties concerning the Equipment and other
Purchased Assets.
6.5 Title. Seller has good, marketable and, where
applicable, insurable title to the Purchased Assets, and agrees to
convey free and clear (subject to any Permitted Exceptions), good,
marketable and, where applicable, insurable title to such assets as
provided for herein.
6.6 Taxes. All sales, excise, payroll, personal property,
license, transaction, privilege, rental and real property taxes due
and payable in connection with Seller's ownership or operation of
the Purchased Assets prior to the Closing have been, or at the
Closing will be paid in full. Any accrued but not yet payable
amounts shall be prorated between Buyer and Seller as set forth
herein.
6.7 Environmental Matters. Except as set forth on Exhibit
"F", to the best of Seller's knowledge, there are no Adverse
Environmental Conditions located in, on or under or existing in
connection with any Purchased Asset. A list of all remediation
plans existing in connection with Adverse Environmental Conditions
is attached as Schedule "1" of Exhibit "F". Copies of all such
remediation plans shall be attached as Schedule "2" of Exhibit "F".
6.8 Organization of Seller. Seller is duly organized,
validly existing and in good standing under the laws of the State
of Delaware. Seller is duly licensed and qualified to do business
as a foreign corporation and is in good standing in the States of
Oklahoma, Kansas and Texas.
6.9 Authorization. Seller has all necessary corporate power
and authority and has taken all corporate action necessary to enter
into this Agreement, to consummate the transactions contemplated
hereby and to perform its obligations hereunder, including approval
of its Board of Directors. This Agreement has been duly executed
and delivered by Seller and is a valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms.
6.10 Liens and Encumbrances. Seller shall convey all
Purchased Assets free and clear of all liens, claims and
encumbrances except for Permitted Exceptions. All obligations of
every kind, character or description which do or could constitute
a valid and perfected lien, claim or encumbrance on the Purchased
Assets and which are payable by Seller prior to the Closing Date
have been or will be paid or otherwise satisfied by Seller prior to
the Closing Date. Specifically, as of the Closing Date, there
shall be no mechanics', artisans' or other liens, contractors' or
subcontractors' claims, unpaid bills for material or labor
pertaining to the Purchased Assets or any other similar items which
might in each case adversely affect the Purchased Assets or
Seller's free and unencumbered title thereto.
6.11 Litigation, Proceedings and Applicable Law. Other than
as set forth in Exhibit "E" hereto, there are no actions, suits,
proceedings or investigations pending or, to the best knowledge of
Seller, threatened against Seller, either at law or in equity or
before or by any governmental authority or instrumentality or
before any arbitrator of any kind which would materially adversely
affect the Purchased Assets or the consummation or performance of
the transactions contemplated hereby and, to the best knowledge of
Seller, there is no valid basis for any such action, suit,
proceeding or investigation. Except as set forth in Exhibit "E"
hereto, to the best of Seller's knowledge, Seller is not in default
with respect to any judgment, order, writ, injunction or decree of
any court or governmental agency, and there are no unsatisfied
judgments against Seller which would materially adversely affect
the Purchased Assets or the consummation or performance of the
transactions contemplated hereby. There is not a reasonable
likelihood of an adverse determination in any pending proceeding
which would, individually or in the aggregate, have a material
adverse effect on the Purchased Assets or Seller's ability to
perform hereunder or under the Supply Agreement.
6.12 No Conflict or Violation. Except as set forth on
Exhibit "F", neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will
result in (a) a material violation of or a conflict with any
provision of the Certificate of Incorporation or Bylaws of Seller,
(b) a material breach of, or a material default under, any material
term or provision of any contract, agreement, lease, commitment,
license, franchise, permit, authorization or concession to which
Seller is a party or an event which, with notice, lapse of time, or
both, would result in any such breach or default, or (c) a material
violation by Seller of any statute, rule, regulation, ordinance,
code, order, judgment, writ, injunction, decree or award, or an
event which with notice, lapse of time, or both, would result in
any such violation, which breach, default or violation would in the
case of (a), (b) or (c) above have a material adverse effect on the
Purchased Assets or on Seller's ability to consummate or perform
the transactions contemplated hereby.
6.13 Consents and Approvals. The list attached hereto as
Exhibit "W", is a true, correct and complete list of all
individuals and/or entities from whom consent is required to
consummate or perform all or any part of the transactions
contemplated under this Agreement or the Supply Agreement. No
other consents and/or approvals are required.
No Physical Defects. Except as set forth on Exhibit
"F", to the best of Seller's knowledge, there are no material
physical or mechanical defects in the Purchased Assets and all of
the Inventory is fit for resale to the public.
6.15 Omissions. None of the representations and warranties
of Seller or other information contained in this Agreement or any
certificate furnished or to be furnished by Seller or any of its
representatives hereunder contains or will contain any untrue
statement of material fact or omits or will omit any material fact
necessary, in light of the circumstances under which it was made,
to make the statements made therein not misleading taken as a
whole.
6.16 Value of Assets. The consideration being received for
the Purchased Assets hereunder equals or exceeds the fair market
value of the Purchased Assets.
6.17 Brokerage Fees. Except for the commission owed to
Lazard Freres & Co., which shall be paid by Seller, Seller has not
engaged any other broker in connection with this transaction.
6.18 Existing Contracts and ASC. Included on Exhibit "N" is
a complete, true and correct schedule of all documents comprising
the Existing Contracts. Included on Exhibit "P" is a complete,
true and correct schedule of all documents comprising the contracts
referred to as ASC. All of the Existing Contracts and ASC
contracts are in full force and effect.
6.19 Warehouse Equipment Schedule. To the best of Seller's
knowledge, the Warehouse Equipment Schedule (also referred to as
"Exhibit "R") is a complete, true and correct schedule of the
Warehouse Equipment as of the Closing Date.
6.20 Supplied Stores. Schedule "2" of Exhibit "A" is a
complete, true and correct schedule of the Supplied Stores.
6.21 Financial Restructuring. Seller represents that its
current plans and intentions in connection with any financial
restructuring or sale of assets do not include any type of
bankruptcy proceeding. Prior to the Closing Date, Seller will keep
Buyer fully advised in connection with any financial restructuring
which would adversely affect Seller's ability to comply with the
terms hereof or under the Supply Agreement and shall deliver any
evidence of any such financial restructuring to Buyer. In addition
any sale of assets will be conducted in a manner which is
consistent with Buyer's Volume Protection Rights.
6.22 Insurance. The Purchased Assets are insured by Seller
for Seller's benefit and will be so insured until the Closing Date
in amounts and against risks deemed adequate by Seller. Seller has
not received any notice or request from any insurance company or
Board of Fire Underwriters or governmental agency, department,
bureau or other entity requiring or demanding the performance of
any work or alteration with respect to the Purchased Assets.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BUYER
In addition to any representations and warranties contained
elsewhere in this Agreement, Buyer hereby makes the following
representations and warranties to and for the benefit of Seller,
its successors and assigns, in connection with the Purchased
Assets, each of which warranties and representations (i) is
material and being relied upon by Seller, and (ii) is true in all
respects as of the date hereof (or such other date as may be
indicated), (iii) and shall be true and correct in all material
respects on the Closing Date.
7.1 Organization of Buyer. Buyer is duly organized, validly
existing and in good standing under the laws of the State of
Missouri and is qualified to do business in the States of Kansas,
Texas and Oklahoma.
7.2 Authorization. Buyer has all necessary corporate power
and authority and has taken all corporate action necessary to enter
into this Agreement, to consummate the transactions contemplated
hereby and to perform its obligations hereunder, including approval
of its Board of Directors. This Agreement has been duly executed
and delivered by Buyer and is a valid and binding obligation,
enforceable against it in accordance with its terms.
7.3 No Conflict or Violation. Neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will result in (a) a material violation of or
a conflict with any provision of the Articles of Incorporation or
Bylaws of Buyer, (b) a material breach of, or a default under, any
term or provision of any contract, agreement, lease, commitment,
license, franchise, permit, authorization or concession to which
Buyer is a party or an event which with notice, lapse of time, or
both, would result in any such breach or default, or (c) a material
violation by Buyer of any statute, rule, regulation, ordinance,
code, order, judgment, writ, injunction, decree, or award, or an
event which with notice, lapse of time, or both, would result in
any such violation, which breach, default or violation would in the
case of (a), (b) or (c) above, have a materially adverse effect on
Buyer or its ability to consummate or perform the transactions
contemplated hereby.
7.4 Litigation, Proceedings and Applicable Law. Other than
as set forth in Exhibit "X" hereto, there are no actions, suits,
proceedings or investigations pending or, to the best knowledge of
Buyer, threatened against Buyer, either at law or in equity or
before or by any governmental authority or instrumentality or
before any arbitrator of any kind which would materially adversely
affect the Purchased Assets or the consummation or performance of
the transactions contemplated hereby and, to the best knowledge of
Buyer, there is no valid basis for any such action, suit,
proceeding or investigation. Except as set forth in Exhibit "X"
hereto, to the best of Buyer's knowledge, Buyer is not in default
with respect to any judgment, order, writ, injunction or decree of
any court or governmental agency, and there are no unsatisfied
judgments against Buyer which would materially adversely affect the
Purchased Assets or the consummation or performance of the
transactions contemplated hereby. There is not a reasonable
likelihood of an adverse determination in any pending proceeding
which would, individually or in the aggregate, have a material
adverse effect on the Purchased Assets or Buyer's ability to
perform hereunder or under the Supply Agreement.
7.5 Consents and Approvals. The list attached hereto as
Exhibit "Y", is a true, correct and complete list of all
individuals and/or entities from whom consent is required to
consummate or perform all or any part of the transactions
contemplated under this Agreement or the Supply Agreement. No
other consents and/or approvals are required.
7.6 Omissions. None of the representations and warranties
of Buyer or other information contained in this Agreement or any
certificate furnished or to be furnished by Buyer or any of its
representatives hereunder contains or will contain any untrue
statement of material fact or omits or will omit any material fact
necessary, in light of the circumstances under which it was made,
to make the statements made therein not misleading.
7.7 Brokerage Fees. Buyer has not engaged any broker in
connection with this transaction.
ARTICLE VIII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transactions
provided for hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions:
8.1 Representations, Warranties and Covenants. All
representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects at and as of the
Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based
are expressly required or permitted to be changed by the terms
hereof, and Buyer shall have performed, in all material respects,
all agreements, covenants and obligations required hereby to be
performed prior to or at the Closing Date, including the execution
of all documents contemplated under Article XII.
8.2 Consents. Seller and Buyer shall have obtained all
consents, approvals and waivers from governmental authorities and
other parties necessary to permit Seller to transfer the Purchased
Assets to Buyer and to consummate the transactions contemplated
hereby.
8.3 No Governmental Proceedings or Litigation. No suit,
action, eminent domain proceeding or other legal or administrative
proceeding by any governmental authority shall have been instituted
or threatened which questions the validity or legality of the
transactions contemplated hereby and which could reasonably be
expected to materially damage Seller if the transactions
contemplated hereunder are consummated.
8.4 Corporate Documents. Prior to the execution hereof,
Seller shall have received from Buyer resolutions adopted by the
board of directors of Buyer approving this Agreement and the
transactions contemplated hereby, certified by Buyer's corporate
secretary and reasonably satisfactory to Seller. Prior to Closing,
Seller shall have received from Buyer a current certificate of good
standing and/or authorization to conduct business by a foreign
corporation from the offices of the Secretary of State of Missouri,
Kansas, Texas and Oklahoma.
8.5 Legal Compliance. Seller shall have received
satisfaction of all requirements, which in the reasonable opinion
of legal counsel, need to be satisfied relating to the HSR Act,
Department of Justice, Federal Trade Commission, Securities
Exchange Commission and any other approval by any applicable
regulatory authority required or requested to rule on this
transaction. In connection with the foregoing, Seller shall have
received a certificate from Buyer dated as of the Closing Date,
stating that the HSR Filings by Buyer in connection with this
Agreement have been properly filed with the appropriate agencies
and that the waiting periods with respect to the HSR Filings have
expired. This certificate shall also describe the date when the
HSR Filings were made, the date on which any request from the
Federal Trade Commission or Department of Justice for additional
information was received and the date on which such additional
information, if requested, was filed with the agency so requesting.
8.6 Buyer's Cooperation Regarding Legal Requirements. Buyer
shall provide evidence of Buyer's compliance with all laws,
ordinances, rules and regulations relating to the transfer of the
Purchased Assets (including those related to the transfer of
Inventory consisting of liquor and pharmaceuticals). For purposes
hereof, "evidence" shall mean copies of all documents needed to
reflect Buyer's ability to purchase the Purchased Assets.
8.7 Opinion of Counsel. Buyer shall have delivered to
Seller an opinion of Rose, Brouillette & Shapiro, P.C., counsel to
Buyer, dated as of the Closing Date, in form and substance
satisfactory to Seller, to the effect that:
(a) Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Missouri; Buyer is duly qualified to do business as
a foreign corporation in the States of Kansas, Texas and
Oklahoma;
(b) Buyer has the necessary corporate power and
authority to enter into this Agreement and the Supply
Agreement and consummate the transactions contemplated hereby
and thereby;
(c) All corporate action by Buyer required in order
to authorize the execution and delivery of this Agreement and
the Supply Agreement and the consummation of the transactions
contemplated hereby and thereby has been duly and validly
taken and no approval of the retail members of Buyer is
required in connection therewith or, if required, such
approval has been duly obtained;
(d) This Agreement and the Supply Agreement have
been duly executed and delivered by Buyer and are the valid
and binding obligations of Buyer, enforceable against Buyer
in accordance with their respective terms, except as limited
by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally or by
equitable principles (whether considered in an action at law
or in equity) or other customary limitations reasonably
satisfactory to Seller's counsel; and
(e) Neither the execution and delivery of this
Agreement or the Supply Agreement by Buyer nor the
consummation of the transactions contemplated by either this
Agreement or the Supply Agreement will (i) violate the
Articles of Incorporation or Bylaws of Buyer or (ii) to the
best knowledge without independent investigation of such
counsel, violate any judgment, decree, injunction, writ or
order applicable to Buyer.
In rendering such opinion, such counsel may rely as they deem
advisable (a) as to matters governed by the laws of jurisdictions
other than states in which they maintain offices, upon opinions of
local counsel satisfactory to such counsel, and (b) as to factual
matters, upon certificates and assurances of appropriate
governmental agencies, public officials and officers of Buyer.
8.8 Supply Agreement. Seller and Buyer shall have entered
into (i) a Supply Agreement in the form of Exhibit "B" attached
hereto and incorporated herein which contains the Volume Protection
Rights referred to in the recitals to this Agreement and (ii) all
the instruments referred to in Section 12.2 hereof.
8.9 Physical Inventories and Equipment Schedules. The
physical inventories and equipment schedules contemplated by
Article IV shall have been completed.
ARTICLE IX
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions
provided for hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions:
9.1 Representations, Warranties and Covenants. All
representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects at and
as of the Closing Date, except as and to the extent that the facts
and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the
terms hereof, and Seller shall have performed in all material
respects all agreements, covenants and obligations required hereby
to be performed by it prior to or on the Closing Date, including
the execution of all documents contemplated under Article XII.
9.2 Consents. Seller and Buyer shall have obtained all
consents, approvals and waivers from governmental authorities and
other parties necessary to permit Seller to transfer the Purchased
Assets to Buyer and to consummate the transactions contemplated
hereby.
9.3 No Governmental Proceedings or Litigation. No action
by any governmental authority shall have been instituted or
threatened which questions the validity or legality of the
transactions contemplated hereby and which could reasonably be
expected to materially and adversely affect the right or ability of
Buyer to purchase, own, operate or possess the Purchased Assets
after the Closing Date.
Corporate Documents. Prior to the execution hereof,
Buyer shall have received from Seller resolutions adopted by the
board of directors of Seller approving this Agreement and the
transactions contemplated hereby, certified by Seller's corporate
secretary and reasonably satisfactory to Buyer. Prior to Closing,
Buyer shall have received from Seller a current certificate of good
standing and/or authorization to conduct business by a foreign
corporation from the offices of the Secretary of State of Delaware,
Oklahoma, Texas and Kansas.
9.5 Physical Inventories and Equipment Schedules. The
physical inventories and equipment schedules contemplated by
Article IV shall have been completed.
9.6 Legal Requirements. Buyer shall have received the
following:
(a) Evidence of compliance with the Worker
Adjustment and Retraining Notification Act ("WARN") and all
related laws, regulations or ordinances in respect to plant
closing. For purposes hereof, "evidence" shall consist of
copies of all documentation posted and/or sent to third
parties.
(b) Evidence of compliance with all laws,
ordinances, rules and regulations relating to the transfer of
the Purchased Assets as contemplated hereby (including those
related to the transfer of Inventory consisting of liquor and
pharmaceuticals). For purposes hereof, "evidence" shall
consist of the required licenses and permits.
(c) Satisfaction of all requirements, which in the
reasonable opinion of legal counsel, need to be satisfied
relating to the HSR Act, Department of Justice, Federal Trade
Commission, Securities and Exchange Commission and any other
approval by any applicable regulatory authority required or
requested to rule on this transaction. In connection with the
foregoing, Buyer shall have received a certificate from Seller
dated as of the Closing Date, stating that all HSR Filings by
Seller in connection with this Agreement have been properly
filed with the appropriate agencies and that the waiting
periods with respect to the HSR Filings have expired. This
certificate shall also describe the date when the HSR Filings
were made, the date on which any request from the Federal
Trade Commission or Department of Justice for additional
information was received and the date on which such additional
information, if requested, was filed with the agency so
requesting.
(d) Evidence of compliance with laws, ordinances,
rules and regulations in connection with the Securities and
Exchange Commission. For purposes hereof, "evidence" shall
consist of copies of all documentation sent to and/or filed
with the Securities and Exchange Commission in connection with
this transaction from January 1, 1995 through the Closing
Date.
9.7 Supply Agreement. Seller and Buyer shall have entered
into a Supply Agreement in the form of Exhibit "B" attached hereto
and incorporated herein which contains the Volume Protection Rights
referred to in the recitals to this Agreement.
9.8 Owner of Purchased Assets. The Purchased Assets shall
be owned by Seller on or prior to the Closing Date.
9.9 Title. Prior to the Closing Date Buyer shall obtain,
at its expense, title commitments in connection with all of the
Purchased Assets consisting of Owned Property or interests therein
including, but not limited to leasehold estates, which commitments
shall contain no exceptions which materially adversely affect the
good, marketable and insurable title of such Purchased Assets. The
commitments may include the Permitted Exceptions. Such title
commitments (and the proper state of title being shown thereby)
shall be a condition precedent to Buyer's obligations hereunder,
but Seller shall not be obligated to cure any objectionable
exceptions.
9.10 U. C. C. Prior to the Closing Date, Buyer shall have
received, at its expense, UCC reports with respect to the Purchased
Assets; provided that if such reports show liens and encumbrances,
it shall be a condition precedent that Seller deliver the Purchased
Assets free and clear of such liens and encumbrances, except for
liens for accrued taxes which are not yet due and payable and
Permitted Exceptions.
9.11 Changes. The existence of no material
misrepresentations, material misstatements or material adverse
changes relating to the Purchased Assets or the consummation or
performance of the transactions contemplated hereby.
9.12 Intentionally Omitted.
9.13 Financial Statements. Receipt by Buyer of the most
recent year-end audited, consolidated financial statements of
Homeland Holding Corporation (which includes Homeland Stores, Inc.)
available from time to time through the Closing Date.
9.14 Liens and Encumbrances. Except for liens for accrued
taxes which are not yet due and payable and Permitted Exceptions,
Seller shall transfer the Purchased Assets free and clear of all
liens and encumbrances or cause such liens or encumbrances to be
deleted from Buyer's title policies.
9.15 Consent and Non-Disturbance. Receipt by Buyer of the
consents of the landlord/lessor of any leasehold interest in
connection with the assignment of any leasehold interests, if
required under the controlling document relating to such lease.
Receipt by Buyer of nondisturbance and attornment agreements from
any lienholder or mortgage holder with a superior position to
Seller with respect to any leasehold. Seller and Buyer will not be
required to give economic incentives in connection with obtaining
the foregoing. Receipt by Buyer of the consents from any
contracting party with Seller in connection with the assignment,
assumption or undertakings relating to the Existing Contracts, if
required under the controlling document relating to such lease.
9.16 Estoppel Certificates. Buyer's receipt of an estoppel
certificate acceptable to Buyer from all landlords and/or lessors
on any lease being assumed by Buyer, except where the failure to
obtain any such certificate or certificates would not have a
material adverse effect in connection with the Purchased Stores and
Warehouse taken as a whole. Buyer's receipt of an estoppel
certificate acceptable to Buyer from all third parties to any
material contract being assumed by Buyer, except where the failure
to obtain any such certificate or certificates would not have a
material adverse effect on the Purchased Assets taken as a whole.
Seller and Buyer will not be required to give economic incentives
in connection with obtaining the foregoing.
9.17 Survey. Buyer shall have received, prior to the Closing
Date surveys of the premises relating to the Leases and Owned
Property in connection with the Purchased Assets. Such activities
shall be conducted at Buyer's expense.
9.18 Environmental. At Buyer's expense, Buyer shall have
received an environmental audit and studies of the premises
relating to the Leases and Owned Property, and the results of
audits and studies shall meet the approval of Buyer. Buyer shall
promptly notify Seller of any material defects in the Purchased
Assets. Cure of any such material defects shall be a condition
precedent to Buyer's obligations hereunder; provided, however,
Seller and Buyer shall not have to pay third parties any amounts in
connection with any such material defect. Except as otherwise
required by Environmental Laws, the results of such environmental
audits and studies shall be held confidential by Buyer.
9.19 Lender Compliance. Seller providing to Buyer copies of
all consents identified on Exhibit "W" as executed by all required
parties. The form of consent to be obtained from the holders of
the Indenture dated as of March 4, 1992 (the "Indenture") and
lenders which are parties to the Revolving Credit Agreement dated
as of March 4, 1992 (the "Revolving Credit Agreement") (each as
further identified on Exhibit "W") shall be reasonably acceptable
to Buyer.
9.20 Fair Market Value Opinion. Receipt by Buyer of a
satisfactory fair market value opinion/appraisal of the Purchased
Assets, and an auditor's review report from the date of Seller's
last audited financial statements to the date closest to the
Closing Date which is practicable from mutually agreeable experts.
Seller shall engage experts reasonably acceptable to Buyer;
provided, however, such activities will be at Buyer's expense.
Such appraisal or report shall be reasonably satisfactory to Buyer
in all material respects. For purposes hereof, The Manufacturers
Appraisal Company will be an independent expert acceptable to
Buyer.
9.21 Solvency. Receipt by Buyer of a report regarding the
solvency of Seller (whether solvent or not) from an appropriate
expert. Seller will engage experts reasonably acceptable to Buyer;
provided however, such activities will be at Buyer's expense. For
purposes hereof, Corporate Financial Consultants will be an
independent expert acceptable to Buyer.
9.22 Opinion of Counsel. Seller shall have delivered to
Buyer opinions of Crowe & Dunlevy as to items (a), (b), (c), (d),
(e)(i) and (e)(ii), and Debevoise & Plimpton as to items (e)(iii)
and (f), counsel to Seller, dated as of the Closing Date, in form
and substance satisfactory to Buyer, to the effect that:
(a) Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware; Seller is duly qualified to do business as
a foreign corporation in the States of Kansas, Texas and
Oklahoma;
(b) Seller has the necessary corporate power and
authority to enter into this Agreement and the Supply
Agreement and consummate the transactions contemplated hereby
and thereby;
(c) All corporate action by Seller required in
order to authorize the execution and delivery of this
Agreement and the Supply Agreement and the consummation of the
transactions contemplated hereby and thereby has been duly and
validly taken and no approval of the stockholders of Seller
is required in connection therewith or, if required, such
approval has been duly obtained;
(d) This Agreement and the Supply Agreement have
been duly executed and delivered by Seller and are the valid
and binding obligations of Seller, enforceable against Seller
in accordance with their respective terms, except as limited
by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally or by
equitable principles (whether considered in an action at law
or in equity) or other customary limitations reasonably
satisfactory to Buyer's counsel;
(e) Neither the execution or delivery of this
Agreement or the Supply Agreement by Seller nor the
consummation of the transactions contemplated by either this
Agreement or the Supply Agreement will (i) violate the
Certificate of Incorporation or Bylaws of Seller, (ii) to the
best knowledge without independent investigation of such
counsel, violate any judgment, decree, injunction, writ or
order applicable to Seller or (iii) constitute a default under
the Indenture or Revolving Credit Agreement; and
(f) Payments by the issuing bank under the Letter
of Credit to Buyer will not be avoided as preferential
payments pursuant to Section 547 of the Bankruptcy Code if
Seller should become a debtor in a proceeding under the
Bankruptcy Code.
In rendering such opinion, such counsel may rely as they deem
advisable (a) as to matters governed by the laws of jurisdictions
other than states in which they maintain offices, upon opinions of
local counsel satisfactory to such counsel, and (b) as to factual
matters, upon certificates and assurances of appropriate
governmental agencies, public officials and officers of Seller.
9.23 Physical Inspection. Buyer conducting a physical
inspection of all Purchased Assets to be purchased and performing
all tests and acts deemed reasonably necessary by Buyer, including
without limitation, mechanical inspections, engineering and soil
borings, such activities to be conducted at Buyer's expense. The
foregoing is in addition to (and not in lieu of) a physical
inventory of all Equipment, as described herein. Buyer shall
promptly notify Seller of any material defects in the Purchased
Assets. Cure of any such material defects shall be a condition
precedent to Buyer's obligations hereunder. Seller may elect to
cure such defects or not at its sole discretion.
9.24 Violations. To the extent not specifically covered in
this Article IX, all Violations shall be cured prior to Closing.
ARTICLE X
AFFIRMATIVE COVENANTS
10.1 No Solicitation. Through June 1, 1995, Seller will not
solicit further offers for the Purchased Assets.
10.2 Additional Actions. Seller and Buyer each hereby
covenants that it shall (a) perform all respective acts or refrain
from performing all respective omissions contemplated herein during
the period from the signing of this Agreement through the Closing
Date or such later date as may be specifically set forth herein and
(b) proceed diligently to cause the satisfaction of all conditions
precedent contained herein as expeditiously as possible. The
foregoing shall not obligate either party to expend any
consideration in connection with such activities other than as
specifically contemplated hereby.
10.3 Estoppel Certificates. Buyer shall use its reasonable
best efforts to obtain the consents and nondisturbance and
attornment agreements described in Section 9.15 and the estoppel
certificates described in Section 9.16. Seller shall cooperate
with Buyer in obtaining such agreements, estoppel certificates and
consents to assignments/assumptions in form and substance
reasonably satisfactory to Buyer indicating, among other things,
all landlords' or lessors' acquiescence to the transactions
contemplated hereby. Neither party shall be required to give any
consideration in order to obtain any of the foregoing from third
parties.
10.4 Conduct of Business. Until the Warehouse and Purchased
Stores are delivered to Buyer in accordance with the provisions of
Article XII, unless otherwise agreed to in writing by Buyer, Seller
shall operate the Warehouse and Purchased Stores. Seller shall
cause all utilities and Equipment at all Purchased Stores and
Warehouse facilities to be kept on until each such location is
delivered to Buyer. As soon as the Warehouse and as soon as each
of the Purchased Stores is delivered to Buyer, Buyer shall commence
operation of such facility.
10.5 Access to Premises and Properties. Seller shall make
available and give full access during mutually agreeable hours (or,
failing agreement, during normal store or office hours) to Buyer,
its attorneys, accountants, employees, consultants and other
representatives to such of the premises, properties, records,
reports, contracts, agreements, financial and tax information and
any other data related to the Purchased Assets which is reasonably
requested by Buyer and is in the possession of Seller or obtainable
by Seller without cost. Buyer shall diligently pursue its review
of documents and all investigations, inspections and due diligence
and use its reasonable best efforts to complete all such due
diligence as soon as practicable prior to the Closing Date. In
addition, Buyer shall order the UCC search and surveys so that the
condition in Sections 9.10 and 9.17 can be satisfied prior to
Closing. It is specifically understood that Buyer shall have the
right at its own cost, peril and risk with no liability to Seller,
to enter upon the real property owned, leased or operated by Seller
for purposes of surveying, conducting physical inspections and
environmental audits and collecting such other data as Buyer deems
desirable; provided, however, (i) Buyer will not take any action
which may unreasonably interfere with the continued present use,
operation and occupancy of such property by Seller or materially
adversely affect such property, (ii) Buyer shall restore such
property to substantially the same condition as exists immediately
prior to the date of such activity and (iii) Buyer shall indemnify
and hold Seller harmless from any and all claims, costs, demands or
expenses resulting from or arising out of any such activities by
Buyer upon the property of Seller. Seller shall use its reasonable
best efforts to facilitate all of the foregoing due diligence on
the part of Buyer. Neither party shall be required to give any
consideration (other than fees negotiated for the performance of
tasks by third parties) to any third party in connection with the
performance by Buyer of its due diligence.
10.6 HSR Filings. Seller and Buyer shall each prepare and
submit, in a timely manner, all necessary filings for Seller and
Buyer in connection with this Agreement under the HSR Act and the
rules and regulations thereunder. Seller and Buyer shall request
expedited treatment of such filing by the Federal Trade Commission,
shall make promptly any appropriate or necessary subsequent or
supplemental filings, and shall furnish to each other copies of all
HSR Filings at the same time as they are filed with the government.
10.7 Maintenance of Purchased Assets. From the date hereof,
through and including the Closing Date, Seller will continue to
maintain the Purchased Assets in current condition and repair,
ordinary wear and tear and damage by fire or other casualty, or by
acts of God and the elements, excepted; and Seller shall perform
any and all of the obligations imposed upon it under the Leases.
10.8 Warranties and Guaranties. Seller shall convey to Buyer
at Closing all Warranties and Guaranties relating to any of the
Purchased Assets.
10.9 Changes. In the event either party becomes aware that
any changes occur as to any information, documents or Exhibits
referred to in this or the other sections in this Agreement, such
party will disclose the same to the other party as soon as
practicable. In the event either party discovers any information
in the course of its due diligence investigation that is contrary
to the information or representations and warranties of the other
party set forth herein or in any documents delivered to such party
pursuant hereto, such party shall inform the other of any such
discrepancy as soon as practicable.
10.10 Supply Agreement. Prior to or concurrent with
Closing, Buyer and Seller shall enter into (i) the Supply Agreement
relating to the Supplied Stores and (ii) all instruments referred
to in Section 12.2.
10.11 Pharmacy. Buyer shall cause the retailers which
acquire Purchased Stores with pharmacy operations to diligently
pursue the procurement of National Association Boards of Pharmacy
("NABP") numbers; however, Seller agrees that, to the extent
legally permissible, it will allow Buyer's retailers to use the
NABP number assigned to each store with pharmacy operations in
order to process prescription payments under third-party contracts,
until such time as such third party contracts are extended to the
retailers under its own NABP number. Furthermore, Buyer shall
cause the retailers which acquire stores with pharmacy operations
to diligently pursue the procurement of Drug Enforcement Agency
("DEA") numbers; however, Seller agrees that, to the extent legally
permissible, it will allow Buyer's retailers to use the DEA numbers
until the DEA assigns each such retailer its own DEA number.
10.12 Seller's Cooperation Relating to Closing. Seller
understands that Buyer intends to transfer certain of the
Purchased Assets to its retail members and that a contemporaneous
closing of all of these related transactions is imperative to Buyer
to insure continuity of operations, and Seller agrees to use its
best efforts to coordinate the timing of the Closing and other
Closing mechanics with Buyer so as to permit the transfer of such
Purchased Assets to its retail members.
10.13 Delivery Items. To the extent Seller has not
already done so and as soon as reasonably possible following the
execution of this Agreement, Seller shall provide to Buyer (i) the
documents described on Exhibit "Q" attached hereto and incorporated
herein, (ii) a complete list and complete, true and correct copies
of the Existing Contracts, (iii) Seller's proforma opening balance
sheet and profit and loss statement showing projections of Seller's
operation for Seller's fiscal years 1995 and 1996 and (iv) a
certified copy of the resolution by Seller's board of directors
approving this transaction. To the extent Buyer has not already
done so and as soon as reasonably possible following the execution
of this Agreement, Buyer shall provide to Seller a certified copy
of the resolution by Buyer's board of directors approving this
transaction.
10.14 Acquisition of Title to Leased Capital Equipment -
Stores and Leased Capital Equipment - Warehouse. On or before the
delivery to Buyer of the Leased Capital Equipment - Stores and the
Leased Capital Equipment - Warehouse, Seller shall obtain good,
marketable and unencumbered title to such Purchased Assets.
10.15 Location of Equipment. The Equipment located in the
Purchased Stores and the Warehouse Equipment shall remain in each
respective Purchased Store and the Warehouse. No Equipment or
Warehouse Equipment will be moved between and among the Warehouse,
Purchased Stores, Supplied Stores or any other store owned,
operated or closed by Seller, unless otherwise agreed to by Buyer.
ARTICLE XI
NEGATIVE COVENANTS
From the date hereof to and including the Closing Date, Seller
shall not take or permit to be taken any of the following actions,
except with the prior written consent of Buyer:
(a) Sale or Encumbrance of Purchased Assets. Sell,
transfer, mortgage, pledge or encumber any of the Purchased
Assets other than sales of Inventory;
(b) Material Transactions or Agreements. Enter
into any material transaction or material or long-term
agreement pertaining to the Purchased Assets or Supplied
Stores which would materially impair Seller's ability to
perform its obligations under the Supply Agreement; or
(c) Violation of Law. Take any action which would
knowingly cause a Violation or otherwise knowingly violate in
any material respect any law or regulation or impair in any
material respect the value of the Purchased Assets.
ARTICLE XII
CLOSING
12.1 Closing. The Closing of the transactions contemplated
herein shall be held at 10:00 a.m. central time on the Closing Date
at the offices of Buyer, unless the parties hereto otherwise agree.
12.2 Conveyances at Closing.
(a) Instruments. To effect the transfers referred
to herein, subject to the provisions of Section 12.6, Seller
will, on the Closing Date, execute and deliver to Buyer (or
Buyer's designee):
(i) One or more special warranty deeds conveying
in the aggregate all of the Purchased Assets which
constitute Owned Property;
(ii) One or more assignment and assumption
agreements conveying in the aggregate all of the
Purchased Assets which are Leases;
(iii) One or more bills of sale and/or assignments
conveying in the aggregate all of the Purchased Assets
which are personal property;
(iv) Assignments of all Warranties and Guaranties
relating to the Purchased Assets;
(v) Such other instruments as shall be reasonably
requested by Buyer or the Title Company to vest in Buyer
title to the Purchased Assets in accordance with the
provisions hereof.
(b) Form of Instruments. All of the foregoing
instruments shall be in form and substance, and shall be
executed and delivered in a manner, reasonably satisfactory
to Buyer and Seller. The parties shall agree upon the form
and content of the foregoing instruments prior to Closing.
12.3 Other Deliveries at Closing. In addition to the
foregoing matters, on the Closing Date (or such later date as set
forth herein):
(a) Purchase Price. Buyer shall deliver the required
cash portion of the adjusted Purchase Price for the Purchased
Assets by wire transfer of immediately available funds.
(b) Assumptions and Undertakings. The parties shall
execute, as required, the Undertakings pursuant to Section
5.1(a)(ii) and the Assignment and Assumption Agreements
pursuant to Section 5.1(a)(i).
(c) Certificates. Buyer and Seller shall deliver all
required certificates or other documents required on the
Closing Date as set forth below:
(i) Equipment Schedule
(ii) Warehouse Equipment Schedule
(iii) Inventory Certificates
(iv) Good Standing Certificates
(v) Buyer's Hart-Scott-Rodino Certificate
(vi) Seller's Hart-Scott-Rodino Certificate
(vii) Officer's Certificate that all
representations and warranties are still true
(viii) FIRPTA Certificates
(ix) Supplemental Agreement Regarding Section 4204
of ERISA
(x) Certificates, affidavits or other documents
required in connection with sales tax or
other transfer taxes.
(d) Possession. Seller shall deliver physical
possession of the Purchased Assets to Buyer in accordance with
the following:
(i) Each of the Purchased Stores and the Store
Inventory, Equipment and any other Purchased Assets
associated with each of the Purchased Stores will be
delivered by Seller to Buyer immediately after
completion of the physical inventory of each Purchased
Store.
(ii) The Warehouse, Warehouse Inventory, Warehouse
Equipment and all other Purchased Assets not covered in
subparagraph (i) above shall be delivered by Seller to
Buyer immediately after completion of the physical
inventory of the Warehouse.
(e) Closing Statements. Seller and Buyer shall each
execute mutually agreeable closing statements reflecting the
transaction.
(f) Consents. Each party shall deliver any consents
required to be obtained by it hereunder.
(g) Supply Agreement. Seller shall deliver to Buyer
the fully executed Supply Agreement along with the Letter of
Credit more fully described in the Supply Agreement.
(h) Leases. Seller shall deliver to Buyer all original
and other documentation comprising or relating to the Leases
in Seller's possession or control.
(i) Titles. Seller shall deliver to Buyer all
certificates of title reflecting ownership of the Purchased
Assets, if any.
(j) Environmental Reports. Buyer shall deliver to
Seller copies of any environmental reports concerning the
Purchased Assets which Buyer obtains prior to the Closing
Date.
(k) Further Documentation. Each party shall deliver
such other and further documentation and materials as may be
reasonably required to consummate the transactions
contemplated hereby.
12.4 Closing Costs; Transfer Taxes. Seller and Buyer shall
split evenly any documentary transfer taxes and any use or other
taxes imposed by reason of the transfer of the Purchased Assets and
any deficiency, interest or penalty asserted with respect thereto,
except as otherwise provided by law. Buyer shall pay sales tax to
Seller and Seller shall remit such tax as and when required by law.
Seller and Buyer shall make such other adjustments as may be
necessary or convenient in order to facilitate the Closing.
12.5 Prorations.
(a) Prorations of Rent under the Leases.
(i) Base Rent. Seller shall pay the base rents
under the Leases through the end of the rent period in
which the Closing occurs and the amount of such payments
shall be prorated through the Closing Date.
(ii) Percentage Rent. Seller shall pay any
percentage rent which is due and payable prior to the
Closing Date. Buyer shall pay percentage rent which is
due and payable after the Closing Date. With respect to
any percentage rent due on or after the Closing Date,
Seller shall be responsible for that portion of such
percentage rent from the commencement of the current
percentage rent year (or other applicable period)
through the Closing Date and Buyer shall be responsible
for that portion due under the Lease after the Closing
Date through the end of the percentage rent year (or
other applicable period). On the Closing Date, to the
extent that current percentage rent numbers are not
available, Seller's prorata share of the percentage rent
based on estimated amounts using the 1994 and 1995 gross
sales figures available through March 25, 1995 shall be
allocated to Seller on the closing statements, and a
credit will be given to Buyer on the closing statements
based on percentage rent calculations utilizing
estimated numbers. Within 45 days following the end of
any percentage rent year (or other applicable period) of
a Lease, any differences between the estimated and
actual amounts will be settled between the parties.
Buyer shall provide Seller with copies of calculations
which establish any such differences.
(b) Taxes Relating to Owned Property and the Leases.
Seller will pay in full all taxes and assessments that are
required to be paid on or before the Closing Date and Buyer
will pay all taxes and assessments that are not required to
be paid until after the Closing Date; provided, however, that
taxes and assessments for the tax period in which Closing
occurs shall be prorated as hereinafter provided. Seller
shall be responsible for that portion of the taxes or
assessments from the commencement of the current tax year
through the Closing Date and Buyer shall be responsible for
that portion due under the tax bill or assessment from the
Closing Date through the end of the tax year. In the event
taxes and assessments for the tax period in which Closing
occurs are not available at the Closing Date, then for
purposes of the closing statements, such taxes and assessments
will be estimated based on the last preceding tax period for
which the amount of taxes and assessments is known, adjusted
to reflect any changes in rates known to be in effect. Within
45 days following receipt of actual tax bill or assessment,
any differences between the estimated and actual amount will
be settled between the parties.
(c) Other Lease Reimbursements by Tenants. To the
extent Seller or any other tenant under the Leases or other
leases whereby expenses are shared have payment obligations
to the Landlord under the Leases which may be prorated, the
parties agree to prorate such payments as of the Closing Date,
which shall include without limitation: common area
maintenance charges, merchants association dues and insurance
payments.
(d) Machines. Monies due Seller from third parties in
connection with pay telephones, vending machines and video
games shall be prorated between Sellers and Buyer as of the
Closing Date.
(e) Utilities. Seller shall attempt to obtain final
meter readings at the Purchased Stores and Warehouse as of the
Closing Date and shall pay for all utilities to such date.
As to any utilities for which Seller cannot so obtain final
readings, such utilities shall be prorated between Seller and
Buyer as of the Closing Date based upon the best estimated
figures available to the parties. Within forty-five (45) days
after the actual figures are obtained, the parties shall
settle any differences.
(f) Adjustments. At the Closing, Buyer and Seller will
estimate the amounts to be prorated pursuant to this Section
12.5, and at such time as the actual amounts are determined,
any differences between estimated and actual amounts will be
settled between the parties.
(g) Prepaid Expenses. All prepaid expenses set forth
on Exhibit "L" shall be prorated or allocated between Buyer
and Seller as of the Closing Date.
(h) Miscellaneous. Any other items commonly subject to
proration shall be prorated between Seller and Buyer as of the
Closing Date.
12.6 Adjustments. Notwithstanding anything to the contrary
contained herein, in the event that Seller is unable to deliver one
or more components of the Purchased Assets in accordance with the
terms hereof, the parties agree to negotiate in good faith to reach
a mutually acceptable agreement to cause either:
(a) The Purchased Assets which are the subject matter
of the problem to be dropped from the transaction with
appropriate, mutually agreeable adjustments to the
consideration to be paid and received hereunder, or
(b) the Purchased Assets which are the subject matter
of the problem to be made subject to a mutually agreeable
escrow agreement which provides for (i) the segregation of
funds and transfer documents pending resolution of the problem
and (ii) a specific amount of time within which the problem
may be resolved, failing which the segregated funds and
documents will be returned to the party which placed such
funds or documents in escrow, or
(c) in the case of problems considered by the parties
to be minor or which are otherwise capable of being resolved
by way of a monetary adjustment, indemnity agreement or other
mutually agreeable mechanism (collectively "Adjustments") the
transaction to proceed with the Purchased Assets in question
included with appropriate Adjustments.
Nothing contained in this Section 12.6 shall in any way
operate to eliminate or diminish either party's rights or
obligations under this Agreement including, but not limited to, the
right to insist upon the satisfaction of all conditions precedent
to Closing. Seller and Buyer may make such other adjustments as
may be necessary or appropriate in order to facilitate the Closing.
12.7 Notices. Each party shall give such notice to third
parties advising them of this transaction as may be reasonably
requested by the other party.
12.8 Post Closing Deliveries. Subsequent to Closing, and in
accordance with the provisions hereof, the parties shall do,
prepare, execute and/or deliver the following:
(a) Payments required upon completion of final
Inventory Valuations.
(b) Amounts required to adjust estimated prorations.
(c) Remove items set forth in Section 4.3 and 4.7.
(d) Any amounts improperly paid to either party by third
parties.
(e) Confirmations of defense of indemnified matters, if
required.
(f) Further assurance as required pursuant to Section
14.3.
<PAGE>
ARTICLE XIII
RISK OF LOSS
13.1 Personal Property. Until possession of the various
components of the Purchased Assets are delivered to Buyer, all risk
of loss or damage to such Purchased Assets shall be borne by
Seller, and thereafter, as to each portion of the Purchased Assets
which has been delivered, shall be borne by Buyer. If any material
portion of the Purchased Assets is destroyed or damaged by fire or
any other cause prior to delivery to Buyer, Seller shall promptly
give notice to Buyer of such damage or destruction and the amount
of insurance, if any, covering the Purchased Assets. Any Purchased
Asset which is so destroyed shall be dealt with pursuant to the
provisions of Section 12.6.
ARTICLE XIV
ACTIONS BY SELLER AND BUYER AFTER THE CLOSING
14.1 Office Sharing. During a transition period while Seller
is relocating its headquarters and office space to service its
remaining stores, Buyer will lease space to Seller (at zero rental
cost) in the current corporate offices of Seller, which will be
reconfigured to accommodate Buyer's and Seller's respective needs.
The transition period will be the nine-month period after the
Closing Date. The term of the foregoing lease will be agreed upon
prior to the Closing Date by Buyer and Seller.
14.2 Indemnification.
(a) By Seller. Seller shall indemnify, save and hold
harmless Buyer, its affiliates and subsidiaries, and its and
their respective Representatives, from and against any and all
costs, losses (including, without limitation, diminution in
value), liabilities, damages, lawsuits, deficiencies, claims
and expenses (whether or not arising out of third-party
claims) including, without limitation, interest, penalties,
reasonable attorneys' fees and all amounts paid in
investigation, defense or settlement for any of the foregoing
(herein, the "Damages"), incurred in connection with or
arising out of or resulting from (i) any breach of any
covenant or warranty or the inaccuracy of any representation
made by Seller in or pursuant to this Agreement or other
transaction documents, or (ii) any liability, obligation or
commitment of any nature (absolute, accrued, contingent or
otherwise) of Seller which is due to or arises in connection
with Seller's acts or omissions prior to or after the Closing
Date and not specifically assumed by Buyer pursuant to this
Agreement. Seller shall not be liable for any matter which
is due to or arises in connection with Buyer's acts or
omissions. With respect to any claim for indemnification
pursuant to clause 14.2(a)(i) above, Seller shall not be
required to indemnify Buyer unless and until the aggregate
amount of all claims against Seller under such clause exceeds
$100,000 and then only to the extent such aggregate exceeds
$100,000.
(b) By Buyer. Buyer shall indemnify and save and hold
harmless Seller, its affiliates and subsidiaries, and its and
their respective Representatives from and against any and all
Damages incurred in connection with or arising out of or
resulting from (i) any breach of any covenant or warranty, or
the inaccuracy of any representation made by Buyer in or
pursuant to this Agreement or other transaction documents, or
(ii) any liability, obligation or commitment of any nature
(absolute, accrued, contingent or otherwise) of Buyer which
is due to or arises in connection with Buyer's acts or
omissions prior to or after the Closing Date, including any
claim, liability, or obligation which is specifically assumed
by Buyer pursuant to this Agreement. Buyer shall not be
liable for any matter which is due to or arises in connection
with Seller's acts or omissions. With respect to any claim
for indemnification pursuant to clause 14.2(b)(i) above, Buyer
shall not be required to indemnify Seller unless and until the
aggregate amount of all claims against Buyer under such clause
exceeds $100,000 and then only to the extent such aggregate
amount exceeds $100,000.
(c) Product and Warranty Liability. The provisions of
this Section 14.2 shall cover all obligations and liabilities
of whatsoever kind, nature or description relating, directly
or indirectly, to product liability, litigation or claims
against Buyer or Seller in connection with, arising out of,
or relating to the Purchased Assets.
(d) Defense of Claims. If any lawsuit or enforcement
action is filed against any party entitled to the benefit of
indemnity hereunder, written notice thereof shall be given to
the indemnifying party as promptly as practicable (and in any
event within fifteen (15) days after the service of the
citation or summons); provided, that the failure of any
indemnified party to give timely notice shall not affect
rights to indemnification hereunder except to the extent that
the indemnifying party demonstrates actual damage caused by
such failure. After such notice, if the indemnifying party
shall acknowledge in writing to the indemnified party that the
indemnifying party shall be obligated under the terms of its
indemnity hereunder in connection with such lawsuit or action,
then the indemnifying party shall be entitled, if it so
elects, to take control of the defense and investigation of
such lawsuit or action and to employ and engage attorneys of
its own choice to handle and defend the same, at the
indemnifying party's cost, risk and expense; and such
indemnified party shall cooperate in all reasonable respects
with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and
any appeal arising therefrom; provided, however, that the
indemnified party may, at its own cost, participate in the
investigation, trial and defense of such lawsuit or action and
any appeal arising therefrom. In the event the indemnifying
party elects not to assume the defense or investigation of a
lawsuit or an action, the indemnifying party shall not be
obligated to pay the fees and expenses of more than one
counsel or one firm of counsel for all parties indemnified by
the indemnifying party in respect of such lawsuit or action,
unless in the reasonable judgment of the indemnifying party
a conflict of interest may exist between such indemnified
party and any other of such indemnified parties in respect of
such lawsuit or action. Notwithstanding the foregoing, no
party may settle any matter in a manner which would have an
adverse effect on the other party without the affected party's
prior written consent.
(e) Brokers and Finders. Pursuant to the provisions of
this Section 14.2, Buyer and Seller shall indemnify, hold
harmless and defend each other from the payment of any and all
broker's and finder's expenses, commissions, fees or other
forms of compensation which may be due or payable from or by
the indemnifying party, or may have been earned by any third
party acting on behalf of the indemnifying party in connection
with the negotiation and execution hereof and the consummation
of the transactions contemplated hereby.
No Representative of any party shall be liable for any Damages
under the provisions contained in this Section 14.2. Nothing
herein shall relieve either party of any liability to make any
payment expressly required to be made by such party pursuant to
this Agreement.
14.3 Further Assurances. Both before and after the Closing
Date each party will cooperate in good faith with the other and
will take all appropriate action and execute any documents,
instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions
contemplated hereunder.
<PAGE>
ARTICLE XV
MISCELLANEOUS
15.1 Termination.
(a) Failure of Condition Precedent. If any condition
precedent to Seller's obligations hereunder is not satisfied
and such condition is not waived by Seller at or prior to the
Closing Date, or if any condition precedent to Buyer's
obligations hereunder is not satisfied and such condition is
not waived by Buyer at or prior to the Closing Date, Seller
or Buyer, as the case may be, may terminate this Agreement at
its option by written notice to the other party. In the event
of the termination of this Agreement by either party as above
provided, neither party shall have any liability hereunder of
any nature whatsoever (other than pursuant to Section 15.8 and
Section 15.11 below) to the other party, including any
liability for damages, unless either party is in default under
its obligations hereunder, in which event the party in default
shall be liable to the other party for such default. In the
event that a condition precedent to its obligations is not
satisfied, nothing contained herein shall be deemed to require
any party to terminate this Agreement, rather than to waive
such condition precedent and proceed with the Closing.
(b) Default By Buyer. If Buyer shall fail to perform
any material obligation hereunder, and Seller is ready,
willing and able to perform as required by the terms of this
Agreement, then Seller may pursue any remedies which it might
have at law or in equity. No remedies conferred upon or
reserved by a party is intended to be exclusive of any other
available remedy or remedies herein.
(c) Default By Seller. If Seller shall fail to perform
any material obligation hereunder, and Buyer is ready, willing
and able to perform as required by the terms of this
Agreement, then Buyer may pursue any remedies which it might
have at law or in equity. No remedies conferred upon or
reserved by a party are intended to be exclusive of any other
available remedy or remedies herein. Notwithstanding the
foregoing or anything else contained herein or in the Supply
Agreement and notwithstanding any default by Seller of its
obligations hereunder or thereunder, except as set forth in
paragraph 5(c) of the Supply Agreement in connection with the
K-CCS Contract and the Drake Contract, and except as
specifically provided in the Undertakings, the Assignment and
Assumption Agreements, the ERISA Agreement and the other
agreements to be entered into pursuant to Section 5.1 hereof,
Buyer shall not have the right to otherwise rescind,
terminate, modify or avoid its obligations with respect to the
Existing Contracts under Section 5.1 hereof, or as
specifically provided in the Undertakings, the Assignment and
Assumption Agreements, the ERISA Agreement and the other
agreements to be entered into pursuant to Section 5.1 hereof.
(d) Outside Termination. Notwithstanding anything to
the contrary contained herein, if the transactions
contemplated hereunder are not closed on or before June 1,
1995, this Agreement shall terminate at 5:00 p.m. on June 1,
1995 unless the parties agree otherwise. Thereafter, neither
party shall have any rights or obligations hereunder except
with respect to any provision relating to confidential
information and expenses.
15.2 Representations and Warranties as of the Closing Date.
All of the representations and warranties contained in this
Agreement and in any certificate delivered pursuant hereto shall be
true as of the Closing Date, and shall survive the Closing Date for
one year and one day after the Closing Date. Any claim for
indemnification made within such period of one year and one day
("Timely Claim") under the provisions of Section 14.2 shall
obligate the indemnitor to perform under the provisions of Section
14.2 with respect to each such Timely Claim until each such Timely
Claim has been resolved.
15.3 Assignment. Neither this Agreement nor any of the
rights or obligations hereunder may be assigned by either party
without the prior written consent of the other party; provided,
however, Buyer may cause conveyance hereunder to be made directly
to one or more retail members of Buyer; provided further however,
that except as specifically provided herein, such retail member
shall not be assigned and it shall not assume any of Buyer's other
rights and obligations hereunder. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, and no
other person shall have any right, benefit or obligation hereunder.
15.4 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by
either party to the other shall be in writing and (i) delivered
personally, (ii) sent by way of a recognized, national overnight
delivery service (to be effective on the date of receipt) or (iii)
mailed by certified mail, postage prepaid, return receipt requested
(such mailed notice to be effective on the date such receipt is
acknowledged or refused), as follows:
If to Seller, addressed to:
Homeland Stores, Inc.
400 N.E. 36th Street
Oklahoma City, Oklahoma 73105
Attention: James A. Demme, President
With copies to:
Crowe & Dunlevy
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
Attention: Kenni B. Merritt, Esq.
Clayton Dubilier & Rice, Inc.
126 East 56th Street
New York, New York 10022
Attention: Alberto Cribiore
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Steven R. Gross, Esq.
If to Buyer, addressed to:
Associated Wholesale Grocers, Inc.
P.O. Box 2932
5000 Kansas Avenue
Kansas City, Kansas 66110-2932
Attention: General Counsel
With a copy to:
Rose, Brouillette & Shapiro, P.C.
4900 Main, Eleventh Floor
Kansas City, Missouri 64112
Attention: C. Christian Kirley, Esq.
or such other place and with such other copies as either party may
designate as to itself by written notice to the others.
15.5 Choice of Law. This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance
with the laws of the State of Kansas (without reference to the
choice of law provisions of Kansas law) and provided further that
with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject
of this Agreement, and as to those matters, the law of the
jurisdiction under which the respective entity derives its powers
shall govern.
15.6 Entire Agreement; Amendments and Waivers. This
Agreement, together with all exhibits and schedules hereto,
constitutes the entire Agreement among the parties pertaining to
the subject matter hereof and, except for the Confidentiality
Agreement as defined in Section 15.11, which shall remain in
effect, this Agreement supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of
this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly
provided.
15.7 Multiple Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
15.8 Expense. Each party hereto shall pay its own legal,
accounting, out-of-pocket and other expenses incident to this
Agreement and to any action taken by such party in preparation for
carrying this Agreement into effect.
15.9 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument
referred to herein, shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then to the maximum extent
permitted by law, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other
such instrument and they shall be construed as if the invalid,
illegal or unenforceable provision had never been present.
However, none of the provisions hereof are severable for any
purpose (including attempts to avoid portions hereof in a
bankruptcy proceeding) other than to avoid invalidity, illegality
or unenforceability.
15.10 Titles. The titles, captions or headings of the
Articles and Sections herein are inserted for convenience of
reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
15.11 Confidential Information.
(a) The Confidentiality Agreement heretofore executed
by the parties on or about April 12, 1994, as modified by that
certain letter dated November 23, 1994 (collectively,
"Confidentiality Agreement") shall remain in full force and
effect. In addition, it is hereby agreed that operational
information supplied by any party shall be included as either
"Homeland Confidential Information" or "AWG Confidential
Information" as the case may be. To the extent that any party
believes that the terms of the Confidentiality Agreement need
to be further expanded (or further defined) to protect their
interests in proprietary information, all other parties shall
agree to such modifications as are commercially reasonable
under the circumstances.
(b) Notwithstanding the foregoing, Seller acknowledges
and agrees that Buyer does not operate retail grocery stores.
Consequently, it is recognized that the Purchased Stores will
be sold by Buyer to current or future retail members of Buyer
contemporaneously with the Closing of this Agreement. Toward
that end, Buyer has already (with the permission of Seller)
provided certain information to its retail members and third
parties interested in any of the Purchased Stores. In
addition, with Seller's prior written approval which shall not
be unreasonably withheld, Buyer may forward to its
shareholders and such third parties additional information
with respect to the Purchased Assets, including the location
and size of stores. If an approved Buyer shareholder or third
party requests additional information on one or more stores,
such information may be provided to said shareholder by Buyer
with Seller's prior written approval which shall not be
unreasonably withheld. Buyer shall obtain or have obtained
an executed confidentiality agreement by said shareholder or
third parties receiving such information containing
substantially the same terms and provisions as this Section
and the Confidentiality Agreement.
15.12 No Assumption of Liabilities. This Agreement
constitutes a sale of certain assets of Seller only and is not a
sale of any stock in any entity comprising Seller.
(a) By entering into this Agreement or performing any
act or agreement hereunder, except as expressly set forth in
Article V herein and the agreements to be entered into
pursuant thereto, Buyer does not assume any obligations or
liabilities of Seller and shall not be responsible for the
payment of any liabilities of or obligations of Seller
whatsoever, including, without limitation, the following:
(i) Claims by Seller's employees, former
employees or others under any private or collective
contract, agreement or the like or any state, Federal,
local or other laws, statutes, executive order,
regulations, ordinances, codes or the like including,
but not limited to, claims in connection with employee
wages, vacation pay, severance pay, holiday pay, sick
leave pay, other union claims, detrimental reliance
claims, implied contract claims, WARN notice claims,
worker's compensation claims, ERISA claims, COBRA
claims, Civil Rights Laws claims, claims under the Fair
Labor Standards Act or Labor Management Relations Act,
employment discrimination claims of all types, claims
regarding health and welfare benefits or premiums,
claims regarding union collective bargaining agreements
and/or supplemental agreements, sexual harassment
claims, disability claims, Family and Medical Leave Act
claims, except as provided otherwise in Section 5.1(h)
herein, pension fund liability (whether for current or
unfunded accrued liabilities), claims or other problems
arising under OSHA, claims in connection with
environmental problems, claims arising out of Seller's
agreements with Safeway Stores, Inc. or its affiliates
or any other obligations of any kind or character;
(ii) Demands, causes of action, obligations or
liabilities (including damages, costs and reasonable
attorneys fees) from any claim of any third party
including, but not limited to, those types of claims set
forth in Section 15.12(a)(i) above.
(b) There is no agency relationship between Seller and
Buyer; Buyer is not a successor or assign or alter ego to
Seller. Seller and Buyer are not involved in a joint venture;
Buyer is not required to continue operations at any of
Seller's former facilities; and Buyer, in its sole discretion,
shall determine the extent, method and manner of how any of
Seller's former facilities purchased or assigned to by Buyer,
if any, will be operated. Seller shall remove on or before
the Closing Date all of Seller's employees, supervisors,
managers, subcontractors and agents from all facilities which
are part of the Purchased Assets. If in its sole discretion,
Buyer hires former employees, managers or supervisors of
Seller, these individuals shall be employed as new employees
of Buyer. Buyer repudiates all of Seller's union collective
bargaining agreements, will not consider the seniority of
Seller's former employees in deciding whether to employ them,
and all individuals considered for employment by Buyer, if
any, will be hired on the basis of qualifications, as
determined by Buyer. Buyer shall not be bound by any
arbitration decision issued under any of the Seller's union
collective bargaining agreements and has no obligation to
arbitrate any dispute under any such bargaining agreements.
Buyer does not assume and is not responsible for any liability
Seller may have to retired persons or former employees.
Seller represents that it is stopping its distribution
operations and ceasing all the business connected with the
distribution operations. Seller further represents to Buyer
that it has, or will before the Closing Date, satisfy all of
its liabilities and/or obligations accruing prior to the
Closing Date under union collective bargaining agreements,
including obligations required by the National Labor Relations
Act, and that it has, or will before the Closing Date, satisfy
its liabilities and/or obligations accruing prior to the
Closing Date to all other persons who are affected by the
closing of Seller's distribution center operations; provided,
however, if such obligations are of a nature such that they
cannot be satisfied prior to the Closing Date, Seller shall
diligently cause the satisfaction of such obligations as soon
as practicable after the Closing Date.
(c) By entering into this Agreement or performing any
act or agreement hereunder, Seller does not assume any
obligations or liabilities of Buyer, except as specifically
provided herein in Section 5(c) of the Supply Agreement,
including, without limitation, the following:
(i) Claims by employees of Buyer, former
employees or others under any private or collective
contract, agreement or the like or any state, Federal,
local or other laws, statutes, executive order,
regulations, ordinances, codes or the like including,
but not limited to, claims in connection with employee
wages, vacation pay, severance pay, holiday pay, sick
leave pay, other union claims, detrimental reliance
claims, implied contract claims, WARN notice claims,
worker's compensation claims, ERISA claims, COBRA
claims, Civil Rights Laws claims, claims under the Fair
Labor Standards Act or Labor Management Relations Act,
employment discrimination claims of all types, claims
regarding health and welfare benefits or premiums,
claims regarding union collective bargaining agreements
and/or supplemental agreements, sexual harassment
claims, disability claims, Family and Medical Leave Act
claims, pension fund liability (whether for current or
unfunded accrued liabilities), claims or other problems
arising under OSHA, claims in connection with
environmental problems, or any other obligations of
Buyer of any kind or character;
(ii) Demands, causes of action, obligations or
liabilities (including damages, costs and reasonable
attorneys fees) from any claim of any third party
including, but not limited to, those types of claims set
forth above in Section 15.12(c)(i); and
(iii) Buyer shall be responsible for all of its
obligations to its employees.
15.13 Waiver. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
15.14 Edmond Store. Buyer hereby grants Seller an
option to sublease ("Edmond Sublease") that certain grocery store
located at 198 E. 33rd Street, Edmond, Oklahoma, ("Edmond Store"),
along with the furniture, fixtures and equipment relating to the
grocery operation at the Edmond Store ("Edmond Equipment"). The
option will be exercisable on the Closing Date. Seller shall
notify Buyer at least seven (7) business days prior to the Closing
Date as to whether Seller desires to exercise the Edmond Sublease.
If such option is exercised, the Edmond Sublease will commence on
the Closing Date. In the event Seller exercises its option to
sublease the Edmond Store, the Edmond Sublease shall: (i) be
subject to all of the terms and conditions contained in the
existing lease in connection with the Edmond Store ("Edmond
Lease"), (ii) be subject to receipt by Buyer of the consent of the
landlord thereunder, if required, (iii) provide that the Edmond
Equipment shall be leased to Seller at a rental rate of $9,235.50
per month, (iv) provide for the lease rate which is specified in
the Edmond Lease from time to time and (v) be for an initial term
commencing with the exercise of Seller's option, but in no event
sooner than the Closing Date, and expire on June 1, 1995. Upon
expiration of the initial term of the Edmond Sublease, Seller may,
at its election, sublease on a month-to-month term; provided,
however, such month-to-month tenancy shall expire on January 1,
1996.
(a) Edmond Inventory. Upon the termination or
expiration of the Edmond Sublease, a physical inventory will
be conducted pursuant to the procedures described in Article
IV herein relating to Store Inventory ("Edmond Inventory") and
Buyer will pay Seller for the Edmond Inventory at a price to
be calculated pursuant to the formula described in Article IV
herein for Store Inventory; provided, however, when
calculating the Going-In-Gross, the parties will use the
average of the Going-In-Gross for the twelve-month period
ending immediately prior to the termination or expiration of
the Edmond Lease.
(b) Supply of Edmond Store. In the event Seller elects
to exercise its option to enter into the Edmond Sublease, the
Edmond Store will be considered a Supplied Store during the
tenancy of the Edmond Sublease.
15.15 Failure of Retail Member to Close. In the event
that any member of Buyer fails to close with Buyer in connection
with the transfer of a Purchased Store during the week prior to the
Closing Date, Buyer shall notify Seller of such fact on or prior to
the Closing Date. Seller shall have the option to cause such
Purchased Store to become an Excluded Asset at Closing, and in the
event Seller exercises such option, the parties shall agree to a
mutually satisfactory reduction of the Purchase Price. If Seller
does not exercise such option, Buyer shall be required to purchase
such Purchased Store (or Purchased Stores) in question.
15.16 Disclaimer of Warranties. Seller and Buyer
acknowledge and agree that Buyer has made such inspections and/or
tests of the Purchased Assets as Buyer, in its discretion, deems
necessary and prudent. SELLER, NOT BEING THE MANUFACTURER,
SUPPLIER OR DEALER IN THE PURCHASED ASSETS OR ANY PARTS OR ITEMS
THEREOF, MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
TO ANYONE AS TO FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY,
DESIGN, CONDITION, CAPACITY, PERFORMANCE OR ANY OTHER ASPECT OF THE
PURCHASED ASSETS OR ANY PARTS OR ITEMS THEREOF, OR ITS OR THEIR
WORKMANSHIP OR MATERIALS, EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES EXPRESSLY SET FORTH HEREIN. AS TO SELLER, BUYER
PURCHASES AND TAKES ASSIGNMENT OF THE PURCHASED ASSETS "AS IS" AND
"WHERE IS", EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY
SET FORTH HEREIN.
15.17 Time of the Essence. Time is of the essence in
connection with the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their respective behalf, by their
respective officers thereunto duly authorized, in multiple
originals, all as of the day and year first above written.
ASSOCIATED WHOLESALE GROCERS, INC.
By: Mike DeFabis
Mike DeFabis, President
HOMELAND STORES, INC.
By: James A. Demme
James A. Demme, President
g:\wp50\docs\acquisit\homeland\docs\asset-p\draft.17
EXHIBIT "A"
to
Asset Purchase Agreement
SCHEDULE "1"
Purchased Stores
Homeland
Store # Address City State Status
1. 64 220 E. 13th Street Ada OK Leased
2. 104 4439 N. W. 50th Oklahoma City OK Leased
3. 130 702 Fir Street Perry OK Leased
4. 134 409 W. Main Watonga OK Owned
5. 144 1205 E. Lindsey Norman OK Leased
6. 147 5324 Cache Road Lawton OK Leased
7. 168 310 S. Main Blackwell OK Leased
8. 171 616 N. Summit Arkansas City KS Leased
9. 172 1116 N. Main Altus OK Leased
10. 185 1648 S. W. 89th Oklahoma City OK Leased
11. 194 616 N. W. Sheridan Lawton OK Leased
12. 198 4510 Lee Blvd., S.E. Lawton OK Leased
13. 199 600 W. Independence Shawnee OK Owned
14. 487 1424 S. Yale Tulsa OK Owned
15. 491 105 N. Scraper Vinita OK Leased
16. 504 420 E. 8th Okmulgee OK Leased
17. 506 305 S. Broadway Cleveland OK Owned
<PAGE>
EXHIBIT "A"
to
Asset Purchase Agreement
SCHEDULE "1"
Purchased Stores
Homeland
Store # Address City State Status
18. 508 1530 S. Lewis Tulsa OK Leased
19. 516 316 E. Main Pawhuska OK Leased
20. 524 814 E. Cherokee Sallisaw OK Leased
21. 530 1000 Hall Street Coffeyville KS Leased
22. 531 416 W. Myrtle Independence KS Owned
23. 532 108 S. Division Okemah OK Leased
24. 535 2110 Broadway Parsons KS Leased
25. 537 601 E. Wyandotte McAlester OK Leased
26. 544 1500 S.E. Washington Idabel OK Owned
27. 555 332 N. Lynn Riggs Claremore OK Leased
28. 562 800 E. Okmulgee Muskogee OK Leased
29. 777 198 E. 33rd Edmond OK Leased
<PAGE>
EXHIBIT "A"
to
Asset Purchase Agreement
SCHEDULE "2"
Supplied Stores
Homeland
Store # Address City State
1. 26 520 Minnesota Chichasha OK
2. 61 400 Sunset Drive El Reno OK
3. 101 1100 W. Main Norman OK
4. 102 8922 S. Memorial Tulsa OK
5. 105 1315 N. Eastern Ave. Moore OK
6. 106 200 Air Depot Midwest City OK
7. 112 2005 N. 14th Ponca City OK
8. 118 2757 S. Memorial Rd. Tulsa OK
9. 122 6473 N. MacArthur Oklahoma City OK
10. 123 6410 N. May Oklahoma City OK
11. 125 3828 W. Owen K. Garriott Enid OK
12. 127 759 Grand Ave. Chichasha OK
13. 141 1402 N. Main St. Guymon OK
14. 145 1800 Central Dodge City KS
15. 146 1701 N. Milt Phillips Seminole OK
16. 148 1212 Choctaw Clinton OK
<PAGE>
EXHIBIT "A"
to
Asset Purchase Agreement
SCHEDULE "2"
Supplied Stores
Homeland
Store # Address City State
17. 151 4909 W. 23rd St. Oklahoma City OK
18. 153 1108 N.W. 18th Oklahoma City OK
19. 154 2016 N.W. 39th St. Oklahoma City OK
20. 159 1201 N. Cornwell Yukon OK
21. 161 510 N. Commerce Ardmore OK
22. 163 4308 S.E. 44th Oklahoma City OK
23. 164 706 Flynn Alva OK
24. 167 1310 Oklahoma Ave. Woodward OK
25. 169 723 Petree Anadarko OK
26. 170 412 W. Third Elk City OK
27. 177 730 N. Kansas Ave. Liberal KS
28. 178 505 S. Chickasha Pauls Valley OK
29. 181 12508 N. May Ave. Oklahoma City OK
30. 182 1401 Beech Duncan OK
31. 183 3020 N.W. 16th St. Oklahoma City OK
32. 188 220 E. Cleveland Guthrie OK
<PAGE>
EXHIBIT "A"
to
Asset Purchase Agreement
SCHEDULE "2"
Supplied Stores
Homeland
Store # Address City State
33. 192 415 S.W. 59th Oklahoma City OK
34. 195 4301 S. May Ave. Oklahoma City OK
35. 200 1724 W. Lindsey Rd. Norman OK
36. 204 115 E. Hiway 152 Mustang OK
37. 206 11120 N. Rockwell Oklahoma City OK
38. 207 9320 N. Penn Oklahoma City OK
39. 208 2205 W. Edmond Rd Edmond OK
40. 457 3948 S. Peoria Tulsa OK
41. 463 4229 S.W. Blvd. Tulsa OK
42. 495 310 W. Trudgeon Henryetta OK
43. 502 2235 E. 61st Tulsa OK
44. 503 1110 S. Denver Tulsa OK
45. 515 915 S. Madison Bartlesville OK
46. 528 12011 S. Memorial Bixby OK
47. 529 3405 S. Georgia Amarillo TX
<PAGE>
EXHIBIT "A"
to
Asset Purchase Agreement
SCHEDULE "2"
Supplied Stores
Homeland
Store # Address City State
48. 533 1250 W. Main Durant OK
49. 538 504 E. Graham Pryor OK
50. 548 501 E. 2nd St. Owasso OK
51. 549 400 Plaza Ct. Sand Springs OK
52. 550 6402 E. Pine Tulsa OK
53. 553 575 N. 26th W. Ave. Tulsa OK
54. 561 708 S. Aspen Broken Arrow OK
55. 563 811 E. Frank Phillips Blvd. Bartlesville OK
56. 564 712 S. Main Sapulpa OK
57. 567 3139 S. Harvard Tulsa OK
58. 569 720 W. New Orleans Broken Arrow OK
59. 573 19302 E. Admiral Blvd. Tulsa OK
60. 574 2351 E. Kenosha Broken Arrow OK
61. 578 700 E. Cherokee Wagoner OK
62. 582 230 W. 1st Dumas TX
<PAGE>
EXHIBIT "A"
to
Asset Purchase Agreement
SCHEDULE "2"
Supplied Stores
Homeland
Store # Address City State
63. 587 101 W. 10th St. Borger TX
64. 590 2545 Perryton Pkwy. Pampa TX
65. 600 7302 S.W. 34th Amarillo TX
66. 601 4111 Plains Amarillo TX
67. 602 5800 Bell Amarillo TX
68. 603 3505 N.E. 24th Amarillo TX
69. 604 202 N. 23rd Canyon TX
70. 605 535 N. 25 Mile Ave. Hereford TX
71. 701 201 S. Jackson Pratt KS
72. 778 4001 S. 97 Highway Sand Springs OK
<PAGE>
EXHIBIT "A"
to
Asset Purchase Agreement
SCHEDULE "3"
Excluded Stores
Homeland
Store # Address City State
1. 174 24 E. Second Edmond OK
2. 184 7137 N.W. 10th Oklahoma City OK
3. 488 1520 N. Lewis Tulsa OK
4. 505 316 N. Main Stillwater OK
5. 512 203 E. Choctaw Tahlequah OK
6. 525 414 N.E. 11th St. Amarillo TX
7. 539 8281 S. Harvard Tulsa OK
8. 545 12572 E. 21st Tulsa OK
9. 598 401 S. Western Amarillo TX
10. 4089 7136 S. Memorial Dr. Tulsa OK
<PAGE>
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT ("Agreement") is made as of the __________
day of ____________________, 1995, by and between ASSOCIATED WHOLESALE
GROCERS, INC., a Missouri corporation ("AWG") and HOMELAND STORES, INC.,
a Delaware corporation ("Homeland").
RECITALS:
The following recitals are a material part of this Agreement and
are being relied upon by AWG and Homeland in connection with the
transaction contemplated hereby:
A. AWG and Homeland have consummated that certain Asset Purchase
Agreement ("APA") contemporaneously herewith. The execution
of this Agreement was a condition precedent for both parties
to the closing of the APA. Except as otherwise indicated or
defined herein, all capitalized, defined terms shall have the
same meanings as set forth in the APA which definitions are
incorporated herein by reference. For convenient reference,
a copy of the APA (without exhibits attached) is attached
hereto as Exhibit "A".
B. AWG is a wholesaler of grocery and supermarket products
operating in a cooperative manner. In entering into this
Agreement, AWG is seeking to enhance the interests of its
retail members by (i) increasing its volume of wholesale
sales, and (ii) providing for the maintenance of such
increase.
C. Homeland owns and/or operates the Supplied Stores listed on
Exhibit "B" at the locations legally described on Schedule "1"
of Exhibit "B", all of which are attached hereto and
incorporated herein by reference. Until the Supplied Stores
are closed or sold, Homeland intends to continue to own and/or
operate such stores as retail grocery stores. Subject to
AWG's Volume Protection Rights, Homeland has the right in its
sole discretion to decide whether or not to sell or close
Supplied Stores.
D. Based on its independent decision, Homeland has informed AWG
that, upon the sale of its Warehouse and Warehouse Inventory
to AWG under the APA, Homeland is terminating its internal
wholesale distribution operations and network with which it
has previously serviced the Supplied Stores and the Excluded
Stores. Homeland acknowledges that AWG is assuming no risk
or liability with respect to this decision by Homeland. The
provisions of this recital are not intended to diminish, in
any way, AWG's specific assumption of liabilities as set forth
in the APA or its obligations hereunder.
E. Homeland desires to arrange for a reliable supply of quality
food and grocery products and merchandise for distribution
through Homeland's retail stores.
F. To provide Homeland a reliable source of supply, AWG is
willing to sell certain food and grocery products and
merchandise to Homeland during the term of this Agreement and
subject to the terms and conditions of this Agreement.
G. Homeland has advised AWG that Homeland desires to become one
of AWG's retail members and obtain from AWG products available
from time to time from AWG's warehouse in accordance with the
terms hereof.
H. AWG is willing to supply its full line of available products
and services to Homeland for the Supplied Stores and Excluded
Stores based on the terms, conditions and financial assurances
contained herein.
I. In addition to providing for a current supplier of its
wholesale needs, Homeland wishes to establish a potential
market for the sale of certain of its assets, including the
Supplied Stores. Inasmuch as Homeland's desire to establish
such market directly coincides with AWG's desire to preserve
the volume of sales which will be achieved by supplying the
Supplied Stores hereunder and to give practical effect to the
Volume Protection Rights, AWG is willing to facilitate the
potential acquisition of certain Homeland assets and/or
Supplied Stores by one or more of AWG's retail members all
within the terms and conditions set forth herein.
J. The parties understand and acknowledge that in addition to the
consideration set forth specifically herein, each party will
be required to make a substantial and continuing commitment
of its resources in reliance upon the other's respective
commitment to provide and/or purchase products and services
in the future, and that neither party or their respective
owners, retail members and or affiliates will realize the full
benefit of their anticipated bargain hereunder unless each
party materially fulfills its obligations hereunder in
accordance with the terms hereof.
K. Because the value of this transaction to AWG lies in AWG's
ongoing ability to sell its products to all of the Supplied
Stores on a long term basis, AWG is unwilling to enter into
this Agreement unless it obtains the Volume Protection Rights
pertaining to (i) the purchase by AWG of the Supplied Stores
as set forth in paragraph 7 below, (ii) the noncompetition
agreement as set forth in paragraph 8 below and (iii) the use
restriction agreement set forth in paragraph 8 below.
Homeland agrees that all such rights are an integral and non-
severable part of this Agreement.
L. Homeland represents to AWG that Homeland has used its best
efforts to obtain offers better than the transaction set forth
in the APA, but Homeland has been unable to obtain any better
offers. Homeland has no knowledge of any facts which would
indicate that the consideration being paid to Homeland in
connection with the transactions contemplated hereby are less
than the fair market value associated therewith.
M. Homeland has requested and AWG has agreed to commence
simultaneous supply of all Supplied Stores and Excluded
Stores. Homeland and AWG acknowledge that there are inherent
difficulties in doing so. The parties will use their best
efforts to minimize any such difficulties.
N. AWG agrees to commit its resources, personnel, facilities and
equipment to perform its obligations hereunder.
NOW, THEREFORE, in consideration of the mutual covenants and
premises contained herein and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties
hereby agree as follows:
TERMS OF AGREEMENT:
1. Term. The term of this Agreement shall be for a period of
seven (7) years commencing on April 23, 1995 ("Commencement Date") and
ending on April 22, 2002. This Agreement shall be administered on the
basis of a Contract Year. The term "Contract Year" as used herein shall
mean a period of twelve (12) consecutive, full calendar months. The
first Contract Year shall begin on the Commencement Date and end on the
last day of the twelfth consecutive full calendar month thereafter.
Each succeeding Contract Year shall commence on the day following the
last day of the immediately preceding Contract Year.
2. Supply. Subject to the terms and conditions of this Agreement
and except as otherwise provided herein, the following obligations of
the parties shall begin on the Commencement Date and shall continue for
the full term hereof:
a. Products to be Supplied by AWG. AWG agrees to sell,
supply and deliver to Homeland's Supplied Stores and Excluded
Stores products available from time to time from AWG's warehouse,
(hereinafter "Available Products"). Subject to agreement by AWG as
to reasonable minimum volume and slotting requirements for each
category, AWG agrees to carry in its warehouse and include in
Available Products any products requested by Homeland.
b. Products to be Purchased by Homeland. To the extent
available within the category of Available Products and subject to
the exceptions set forth herein, Homeland shall utilize AWG as
Homeland's primary supplier (as such term is commonly used in the
grocery industry) for Homeland's Supplied Stores and Excluded
Stores and shall make purchases in a manner consistent with such
relationship. To the extent inconsistent with the foregoing
sentence, Homeland shall be allowed to make purchases pursuant to
the provisions of the Existing Contracts until the expiration of
the current terms of the respective Existing Contracts. The
merchandise purchased by Homeland from AWG shall be referred to
herein as the "Purchased Goods".
c. Cost of Goods. AWG will supply Available Products to
Homeland and Homeland shall pay for Purchased Goods at the lowest
prices and best terms as are available to AWG's other retail
members from time to time. Homeland shall have available to it all
cost saving mechanisms available to other AWG retail members,
including AWG's Concentrated Purchase Allowance Program ("CPA").
A schedule setting forth the terms of AWG's current CPA program is
attached as Exhibit "C". Homeland acknowledges that AWG's prices
of goods, terms and CPA (i) are affected by and/or are a direct
function of the volume of purchases by Homeland and (ii) are
amended periodically by AWG.
d. Certain Assurances to Homeland. Where applicable and as
appropriate for Homeland's level of purchases from AWG, AWG agrees
that: (i) AWG will pass-through promotional and advertising
allowances and rebates from manufacturers and vendors to Homeland
on the same basis as any other AWG member, (ii) Homeland will
receive seasonal, special promotions and advertising programs on
the best terms available to other AWG members and (iii) AWG shall
supply and offer to Homeland all advantages, opportunities and
services that AWG offers to other retail members. AWG further
agrees that: (i) Homeland will be given credit for unsalable
products and pricing adjustments on the best terms available to
other AWG members or retailers, (ii) the quality of the Purchased
Goods will be consistent with other wholesalers within Homeland's
market area, which shall include the area in which the Supplied
Stores are located, (iii) the activities of AWG will meet all
applicable legal and regulatory requirements, (iv) AWG will provide
to Homeland a service level commensurate with all other members,
(v) AWG will make timely deliveries (vi) AWG will provide quality
Purchased Goods within acceptable fresh code dating and in a clean
and healthy manner and (vii) AWG shall provide to Homeland from
time to time during the term of this Agreement, in the same manner
as provided to AWG's other retail members, information regarding
the availability of all promotional and advertising allowances and
rebates.
e. Conditions Precedent. In addition to the conditions set
forth in paragraph 13, AWG's obligation to supply Available
Products is expressly contingent upon delivery by Homeland of all
of the documents, consideration and security set forth in
paragraphs 4, 5(a) and 5(b).
3. Terms of Payment.
a. By Homeland to AWG. Subject to the provisions of
paragraph 6, Homeland shall pay for the Purchased Goods in
accordance with the following credit procedures: (i) weekly credit
will be extended to Homeland for purchases from AWG in an amount
not to exceed the Letter of Credit (and/or other collateral posted
in accordance with the provisions of paragraph 5 below), (ii)
invoices will be posted to a weekly statement which will be
prepared by AWG and delivered to Homeland by Friday of each week
or, if Friday is not a business day, Thursday of each week and
(iii) Homeland shall pay for its purchases by bank wire transfer
of funds to AWG which must be received (A) in the event Homeland
satisfies the Friday Wire Credit Requirements (as defined below),
by 11:00 a.m. central time on the following Friday (the "Friday
Wire Credit Arrangement") or (B) in the event Homeland satisfies
the Monday Wire Credit Requirements (as defined below), by 11:00
a.m. central time on the following Monday (the "Monday Wire Credit
Arrangement"). If the payment date is a holiday, the payment shall
be due on the next preceding business day. As of the Commencement
Date, the Monday Wire Credit Arrangement shall be in effect.
Thereafter, at Homeland's option, and upon written notice to AWG,
Homeland may pay for purchases hereunder in accordance with the
Monday Wire Credit Arrangement or the Friday Wire Credit
Arrangement provided that Homeland satisfies (i) in the case of the
Monday Wire Credit Arrangement, the Monday Wire Credit Requirement
and (ii) in the case of the Friday Wire Credit Arrangement, the
Friday Wire Credit Requirement.
b. By AWG to Homeland. Subject to the terms and conditions
hereof, AWG will pay to Homeland an amount calculated as follows
at the end of each AWG fiscal quarter ("Quarterly Payments") during
the term hereof:
Quarterly Payment = Target Payment X Operative Fraction.
(i) For purposes of the foregoing calculation, the
Target Payment amounts shall be as set forth on the quarterly
payment schedule ("QPS"), attached hereto as Exhibit "D" and
the Operative Fraction shall be a function of the Purchase
Percentage as set forth below. The Purchase Percentage shall
be determined from a fraction, the numerator of which is the
total amount of Warehouse Purchases (as defined below) through
AWG's warehouse by Homeland during the fiscal quarter in
question (or such shorter periods as may exist such as the
short period commencing on the Commencement Date and ending
on the last day of the fiscal quarter during which this
Agreement goes into effect) and the denominator of which is
$72,500,000 [$290,000,000/4] (it being understood that such
$72,500,000 figure is based on four (4) equal fiscal quarters
and that such figure shall be adjusted upwards or downwards
based on the actual length of fiscal quarters) . The
Operative Fraction to be utilized in conjunction with the
indicated level of Purchase Percentage is reflected in the
following table:
If the Purchase The Operative
Percentage is: Fraction shall be:
100 - 90.01% 100%
90 - 80.01% 90%
80 - 70.01% 80%
70 - 60.01% 70%
60 - 50.01% 60%
50 - 40.01% 50%
40 - 30.01% 40%
30% or below 0%
Quarterly Payments shall be made to Homeland within
three (3) weeks after the end of each fiscal quarter.
(ii) For purposes of the foregoing, "Warehouse
Purchases" by Homeland will include purchases that are billed
or sold through AWG warehouses in connection with products
which are carried in AWG's warehouses based on prices paid by
Homeland as contemplated under paragraph 2(c) hereof. For
purposes herein, the word "carried" includes products upon
which AWG is able to realize a gross margin in contrast to
products which may be handled on its docks for a handling fee
on a cost recovery basis. Included in the definition of
Warehouse Products are: SOLOS and continuities, as such terms
are commonly used in the grocery industry. Notwithstanding
the foregoing, qualifying purchases for purposes of
calculating year-end patronage and CPA shall be calculated
pursuant to AWG's policies then in effect during the term of
this Agreement and nothing contained herein shall be construed
to change AWG's policies in connection therewith.
(iii) For reference purposes, the QPS sets forth the
dollar amounts of the Quarterly Payments associated with the
foregoing Purchase Percentage and related Operative Fractions;
provided, however, the Quarterly Payments made for the first
three quarters of any fiscal year during the term of the
Supply Agreement shall be subject to a year-end adjustment
such that the Purchase Percentage and the Operative Fraction
shall be calculated on the basis of Homeland's cumulative
purchases at AWG's fiscal year-end.
(iv) In the event that Homeland sells any of the
Supplied Stores directly to AWG or through AWG as required
under paragraph 7 to one or more current or future AWG
members, the purchases by such AWG member shall be credited
to Homeland's benefit for purposes of the Operative Fraction
and Purchase Percentage; provided, however, that the amount
of such credit shall be equal to the purchases from AWG (and
Homeland if such sale occurs prior to one year from the date
hereof) by each such sold store for the four AWG fiscal
quarters immediately preceding such sale during which the sold
store was a Homeland store. Homeland shall not be entitled
to such credit if Homeland (i) sells to any third party which
is not an AWG member, (ii) sells directly to an AWG member
rather than going through AWG as required under paragraph 7,
or (iii) closes a store.
(v) None of the consideration to be paid to Homeland
pursuant to this subparagraph 3(b) shall be deemed under any
circumstances to be earned until calculated at the end of each
fiscal quarter. Until Quarterly Payments are earned and paid
to Homeland, Homeland shall not transfer, assign, pledge,
hypothecate or otherwise encumber such payments without the
prior written consent of AWG; provided, however, that Homeland
shall be permitted to grant junior liens on such collateral
subject to such acknowledgements of AWG's rights by such
junior lienholders (including a subordination by such junior
lienholder) and such other matters as may be reasonably
required by AWG.
4. Membership. AWG agrees to allow Homeland to become, and
Homeland agrees to become a retail member of AWG. As a retail member of
AWG, Homeland shall have the same rights and obligations as any other
retail member of AWG. Specifically, as a condition precedent to AWG's
obligations hereunder, Homeland agrees to do the following on or before
the Commencement Date:
a. To execute all documentation required of retail members
("Member Sign-Up Documents"). The Member Sign-Up Documents are
attached hereto and incorporated herein as Exhibit "E".
b. To acquire 15 shares of AWG Class A stock for actual
book value of such stock on the Closing Date.
c. Comply with AWG's credit requirements and provide the
required security set forth herein.
5. Credit Requirements and Security for Performance.
a. Letter of Credit. Contemporaneously with the execution
of this Agreement and subject to the Monday Wire Credit
Requirement, Homeland shall deliver to AWG an irrevocable and
unconditional (except as to drawing procedures and conditions)
standby letter of credit ("Letter of Credit") in the face amount
of Ten Million Dollars ($10,000,000). The term of the Letter of
Credit shall be for periods of not less than one year, and such
periods shall run concurrently with Contract Years. The Letter of
Credit shall be security for Homeland's obligations in connection
with Homeland's open account arrangement with AWG. The Letter of
Credit may be drawn upon to cure any payment default by Homeland
in connection with such open account. The Letter of Credit shall
be issued by a bank which is acceptable to AWG in its sole
discretion, and shall contain such terms and conditions as are
acceptable to AWG in its sole discretion. For purposes hereof, a
Letter of Credit in substantially the form of Exhibit "F" attached
hereto issued by an approved bank shall be acceptable to AWG. AWG
acknowledges and agrees that the Union Bank of Switzerland (New
York Branch) shall be an acceptable issuing bank.
(i) If Homeland is not in default under this
Agreement, upon the written consent of AWG (which consent will
not be unreasonably withheld or delayed), the Letter of Credit
(A) may be reduced dollar-for-dollar in an amount equal to the
face value of Homeland's issued and outstanding AWG patronage
refund certificates ("Patronage Refund Certificates") and (B)
may be reduced to reflect Homeland's then current average
weekly volume of purchases; provided, however, the combined
face amount of the Patronage Refund Certificates and the
Letter of Credit shall never be allowed to be less than either
the Monday Wire Credit Requirement if a Monday Wire Credit
Arrangement is in effect or the Friday Wire Credit Requirement
if a Friday Wire Credit Arrangement is in effect. Homeland
shall give AWG 30 days prior written notice of its request to
reduce the Letter of Credit along with (i) the amount of the
proposed reduction, and (ii) evidence that it has met the
above criteria for such a reduction. AWG shall respond to
Homeland's written notice within fifteen (15) days and shall
either (i) agree to the amount of the reduction requested by
Homeland, or (ii) set forth the amount of the reduction, if
any, to which AWG reasonably believes Homeland is entitled.
Promptly following such determination, AWG shall cooperate
with Homeland as appropriate to effect such reduction,
including, without limitation, delivering appropriate
instructions to the bank issuing the Letter of Credit and
informing such bank of the reduction. In no event shall the
Letter of Credit be reduced until said calculations are
reconciled. Homeland's requests for reductions of the Letter
of Credit shall be made no more than twice in any Contract
Year. AWG shall provide such notice of its consent to a
reduction of the Letter of Credit to the issuing bank as
Homeland may reasonably request.
(ii) For purposes of this Agreement (A) "Monday Wire
Credit Requirement" shall mean collateral (of a type
acceptable to AWG) in an amount equal to the product of the
average weekly purchases of Homeland from AWG for the prior
twelve months times one and six tenths (1.6), (B) "Friday Wire
Credit Requirement" shall mean collateral (of a type
acceptable to AWG) in an amount equal to the product of the
average weekly purchases of Homeland from AWG for the prior
twelve months times two (2) and (C) "Minimum Credit
Requirements" shall mean, collectively, the Monday Wire Credit
Requirement and the Friday Wire Credit Requirement; it being
understood that the Letter of Credit and AWG Equity shall be
collateral of a type satisfactory to AWG. In the event that
there are less than twelve (12) months of Homeland purchases
from AWG, for purposes of calculating the foregoing credit
requirements, Homeland's average weekly purchases shall be
calculated by the parties based on information available to
them at the time such calculation is made.
b. Pledge of AWG Equity. Homeland hereby grants AWG a
security interest in and pledges to AWG all AWG equity ("AWG
Equity") owned by Homeland. For purposes hereof, AWG Equity shall
be defined as all equity, deposits, credits, sums and indebtedness
of any kind or description, whatsoever, at any time owed by AWG to
Homeland or at any time standing in the name of or to the credit
of Homeland on the books and/or records of AWG, including without
limitation, Capital Stock of AWG, Members Deposit Certificates,
Patronage Refund Certificates, Members Savings, Direct Patronage
or Year-End Patronage, Concentrated Purchase Allowance, Quarterly
Payments and any other sums due from AWG to Homeland hereunder
(excluding any amounts due, if any, to Homeland by AWG pursuant to
Section 5.1 of the APA or the agreements to be entered into
pursuant thereto). The security under this subparagraph will be
security for the performance of all of Homeland's obligations to
AWG. Security shall be held in accordance with AWG's policies
which are applicable to all retail members. No third party shall
be given any security interest in any AWG Equity without the prior
written consent of AWG; provided, however, Homeland shall be
permitted to grant junior liens on the AWG Equity subject to such
acknowledgements by such junior lienholders of AWG's rights
(including a subordination by such junior lienholder) and such
other matters as may be reasonably required by AWG.
c. Drake and K-CCS. As a condition precedent to Homeland
entering into the APA, AWG was required to (i) assume
("Assumption") that certain Product Transportation Agreement dated
March 18, 1992 by and between Homeland and Drake Refrigerated
Lines, Inc. ("Drake Contract") and (ii) enter into an undertaking
("K-CCS Undertaking") whereby AWG agreed to reimburse Homeland in
connection with certain obligations under that certain Agreement
for Systems Operations Services dated effective as of October 1,
1991, as amended on September 10, 1993, by and between Homeland and
K-C Computer Services, Inc. ("K-CCS Contract"). In the event that
Homeland materially breaches its obligations under any of the
provisions of paragraphs 7 or 8 below within the first two Contract
Years, whether by act, omission or operation of law ("Trigger
Event"), all of AWG's obligations in connection with (i) the K-CCS
Undertaking shall immediately terminate and become null and void
and (ii) the Assumption shall revert to Homeland as its primary
obligation, and Homeland shall be liable to and hereby indemnifies
AWG for any cost or expense it may incur in connection with such
Assumption from and after the date of such default.
Notwithstanding anything else contained in this paragraph 5(c),
Homeland's liability under the Drake Contract shall in no event be
greater than Homeland's liability under the Drake Contract on the
Closing Date and AWG shall be responsible to Drake for any such
excess liability. The occurrence of a Trigger Event will not
change the obligations of the parties with respect to any other
Existing Contracts or other obligations described in Article V of
the APA and AWG's obligations in connection with the other Existing
Contracts or other obligations described in Article V of the APA
will continue notwithstanding such breach. In addition, breaches
of the Supply Agreement other than a Trigger Event will not change
the obligations of the parties with respect to any Existing
Contracts or other obligations described in Article V of the APA
and AWG's obligations in connection with the other Existing
Contracts or other obligations will continue notwithstanding such
other breaches. If following a Trigger Event terminating AWG's
obligations with respect to the Drake Contract and K-CCS Contract
under the Assumption and/or K-CCS Undertaking, AWG brings suit
against Homeland for damages resulting from such breach, AWG will
not seek and will not be entitled to receive damages in respect of
any liabilities under the Existing Contracts for which AWG's
responsibility has terminated. In addition, upon the execution
hereof, Homeland shall cooperate in obtaining the agreement of
Drake that it will (i) recognize Homeland as Drake's obligor to the
extent of Homeland's liability as of the Closing Date and (ii)
release AWG from such liability under the Drake Contract in the
event Drake receives a sworn affidavit executed by the President
of AWG stating that a Trigger Event has occurred.
6. Limitation on Obligation to Extend Credit. Homeland
acknowledges and agrees that under no circumstances shall AWG be
required to accept orders or deliver Purchased Goods to Homeland (i)
until the Letter of Credit is delivered, (ii) at any time that the
Letter of Credit is not in full force and effect for a period which
extends thirty (30) days beyond the end of the credit cycle in question,
or (iii) if the addition of such orders or deliveries would cause the
amount owed by Homeland to AWG for Purchased Goods and/or other items
charged by Homeland to Homeland's open account with AWG to exceed the
amount of Letter of Credit plus any Patronage Refund Certificates (or
other AWG Equity) held as collateral for the open account.
7. AWG's Purchase Rights Upon Homeland's Sale of Stores.
a. Supplied Stores. Subject to AWG's Volume Protection
Rights described in this paragraph 7 and in paragraph 8, Homeland
reserves the right, in its sole discretion, to close or sell any
or all of the Supplied Stores during the term of this Agreement.
AWG shall have the following purchase rights ("Purchase Rights")
in connection with the Supplied Stores. In the event that Homeland
wishes to sell (or otherwise transfer) any of the Supplied Stores,
whether individually or in groups, it shall first make a written
offer to sell (or otherwise transfer) such Supplied Store or group
of Supplied Stores to AWG (an offer made directly to an AWG member
shall not satisfy this requirement). The offer shall contain the
price and general terms upon which the Supplied Store and any
associated rights, equipment, inventory or related assets are being
offered for sale (or otherwise being offered for transfer). As
used in this paragraph 7, "terms" shall be required to include the
proposed closing schedule (if one has been set). AWG shall have
the right to accept or reject such offer by way of written notice
delivered within forty-five (45) days after receipt of the offer
and a definitive agreement regarding the subject matter of such
offer entered into within such 45-day period. To the extent AWG
has accepted such offer and the parties are engaged in good faith
negotiations regarding the definitive agreement, such 45-day period
shall be extended for one additional thirty (30) day period to
allow for the conclusion of such negotiations and the drafting of
the definitive agreement ("Acceptance Process"). If AWG elects to
reject such offer or fails to make a timely acceptance or timely
enter into a definitive agreement regarding the subject matter of
such offer, Homeland shall be free to sell (or otherwise transfer)
the Supplied Store(s) which is or are the subject of the offer to
any third party at a price which is no less than ninety percent
(90%) of the offer to AWG and on terms no more favorable in the
aggregate to such third party than those set forth in the original
offer to AWG. If Homeland is unable to consummate such a sale (or
other transfer), but receives a bona fide third party counteroffer
from a person who is not an AWG retail member and is at a price
less than ninety percent (90%) of the original offer price and/or
less favorable material terms, and Homeland is willing to sell in
accordance with the price and material terms set forth in such
counteroffer, Homeland shall provide AWG with a copy of such
counteroffer. AWG shall have fifteen (15) days from the receipt
of such counteroffer to either purchase the Supplied Store(s) in
accordance with the material terms of the counteroffer or reject
same. If AWG rejects same or fails to make a timely acceptance,
including the signing of a definitive agreement in accordance with
the Acceptance Process, Homeland shall be free to sell the Supplied
Store(s) to the third-party offeror in accordance with the material
terms and conditions of the counteroffer. Homeland acknowledges
that AWG has exercised the Purchase Rights, the assets subject to
the Purchase Rights shall be freely assignable by AWG in whole or
in part to one or more of AWG's retail members. Until notified in
writing by AWG of an assignment to an AWG member, Homeland shall
not deal directly with any AWG member.
(i) Sales to "affiliates" of Homeland shall not be
subject to the foregoing Purchase Rights; provided, however,
(A) affiliates shall include only entities which are wholly
owned by Homeland or Homeland Holding Corporation; (B) the
affiliate must agree in writing prior to such sale to use AWG
as the affiliate's wholesale supplier in accordance with the
terms of the Supply Agreement between the parties and such
other terms relating to the financial ability of such
affiliate as may be reasonably required by AWG (such other
terms shall be consistent with AWG policy regarding the
financial ability of AWG retail members which are similarly
situated to such affiliate), (C) the affiliate must agree in
writing that any subsequent sale by such affiliate is subject
to the Volume Protection Rights, (D) such sale to an affiliate
shall not be an event of default under any of Homeland's then
outstanding loans, indebtedness or other material contracts,
and (E) such transfer shall not result in the insolvency of
either Homeland or the affiliate.
b. Closure of Substantially All of the Supplied Stores; Sale
of Stock.
(i) Closure of Substantially All of the Supplied
Stores. In the event that Homeland wishes to close
substantially all (90% or more) of the Supplied Stores and
such closure is not done in contemplation of a sale of such
Supplied Stores, the closure of such Supplied Stores shall be
deemed to be an offer hereunder to sell all (but not less than
all) such Supplied Stores to AWG in consideration of AWG (A)
assuming or otherwise undertaking any of Homeland's
outstanding and/or ongoing lease obligations and property tax
obligations in connection with such Supplied Stores plus (B)
an amount equal to the fair market value of such Supplied
Stores, including, without limitation, the fair market value
of all Equipment, Inventory and interests in real property
associated with such Supplied Stores. Such fair market value
shall be determined by a nationally recognized appraisal firm
selected by Homeland and reasonably satisfactory to AWG. The
cost of such appraisal shall be paid for by Homeland;
provided, however, that in the event the sale contemplated by
such offer is consummated, the cost of such appraisal shall
be split by the parties. Homeland shall give AWG written
notice of Homeland's decision to close substantially all of
the Supplied Stores at least forty-five (45) days prior to the
implementation of such closure. AWG shall accept such offer
(and enter into a definitive agreement) or reject such offer
within such forty-five (45) day period. If AWG accepts, a
definitive agreement will be entered into in accordance with
the Acceptance Process. So long as Homeland complies with the
foregoing, such closure shall not create an Event of Default.
(ii) Sale of Stock. In the event that one or more of
the stockholders of Homeland or Homeland Holding Corporation
wish to sell shares of stock of Homeland or Homeland Holding
Corporation (as the case may be) in a manner which would
otherwise be in contravention of the provisions of paragraph
13.a(vii) hereof, if such stockholder(s) conduct the sale of
their stock in the manner set forth in paragraphs 7(a), 7(c),
7(d), 7(e) and 7(f) such that AWG has an opportunity to buy
all such stock in accordance with such sections, such sale
shall not create an Event of Default for purposes of paragraph
13.a(vii) hereof. Any such sale of stock shall be deemed to
be a sale of a "Supplied Store" for definitional purposes of
this paragraph 7.
c. Failure to Close the Sale of any Store. If, at any time,
Homeland fails to consummate an allowed sale to a third party
within the time frame set forth in the offer to AWG (such time
frame for such third party sale will be measured from the date that
AWG rejects or fails to timely accept the offer with respect to
such allowed sale pursuant to clause (a) of paragraph 7 hereof,
whichever is earlier), the provisions of this paragraph 7 shall
once again be applicable; provided, however, that in the event the
offer to AWG does not include a time frame within which to
consummate the allowed sale, the offer to such third party must be
accepted and a definitive agreement entered into between Homeland
and such third party within nine (9) months from the date on which
AWG rejects or fails to timely accept the offer with respect to
such allowed sale pursuant to clause (a) of paragraph 7, whichever
is earlier.
d. Confirmation of Sales. Homeland shall provide AWG with
confirmation of any sales (or other transfers) under this paragraph
in which AWG is not a party. AWG shall have the right to inspect
Homeland's books and records relating to such sale and receive
copies of any pertinent closing documents in connection with any
such sale. If such inspection would breach applicable
confidentiality agreements between Homeland and such party, the
Chief Financial Officer of Homeland or its President shall certify
to AWG that the sales (or other transfers) in question were in
compliance with the provisions of this paragraph 7 of this
Agreement. Notwithstanding the foregoing, Homeland shall reveal
its disclosure obligations under this paragraph to all potential
transferees and shall attempt to negotiate a confidentiality
agreement with such party which would permit or not prohibit the
disclosure contemplated hereby.
e. No Assumption. Unless excluded by the terms of the
offer, the provisions of paragraph 17 shall be applicable to any
purchase by AWG of a Supplied Store.
f. Public Notice. Homeland shall execute such documents in
recordable form as AWG may reasonably request from time to time in
order to give public notice of its Purchase Rights under this
paragraph 7. The form of such notice shall be as set forth on
Exhibit "G" - Schedule "1" attached hereto and incorporated herein.
Each recorded notice document shall be terminable in connection
with each Supplied Store on the earlier of (i) the expiration of
the term of this Agreement, (ii) compliance by Homeland with AWG's
Purchase Rights as set forth in this paragraph 7 with respect to
such Supplied Store, (iii) the date upon which any holder of a lien
placed of record before the date hereof takes title to Homeland's
interest in the described property whether by foreclosure or a deed
in lieu of foreclosure with a recital that it is a deed in lieu of
foreclosure, (iv) the date immediately preceding the expiration of
any cure period in respect of a continuing event of default under
a lease to which Homeland is a party, which default directly
relates to Homeland's filing of such recorded notice, provided that
(A) Homeland shall deliver prompt notice of such event of default
to AWG, (B) AWG shall be permitted to contact the landlord under
such lease for the purpose of obtaining a rescission or termination
of such event of default and (C) AWG shall indemnify Homeland for
any of its costs, liabilities and/or damages relating to or arising
in connection with the foregoing, or (v) the expiration or earlier
termination of Homeland's leasehold estate, if any. AWG agrees to
allow each document to be released upon the recordation of a sworn
affidavit by the President of Homeland stating that (i) the
Purchase Rights have been complied with as set forth in paragraph
7 as to the particular Supplied Store covered by the document which
is to be released or (ii) one of the events specified in clauses
(i), (iii), (iv) or (v) of the preceding sentence has occurred with
respect to the particular Supplied Store covered by the document
to be released.
g. Excluded Stores. During the term hereof, Homeland shall
not sell the Excluded Stores to any third party for retail grocery
use; provided, however, at Homeland's option, upon written notice
to AWG, Homeland may designate one or more Excluded Stores to be
Supplied Stores and, upon such designation, such Excluded Stores
shall thereafter be treated as Supplied Stores for all purposes of
this Agreement, including, without limitation, for purposes of the
Volume Protection Rights and paragraph 3(b)(iv) herein.
h. No Adequate Remedy. Subject to the limitations set forth
in paragraph 5(c), if either party shall breach any of the
foregoing agreements in this paragraph 7 by way of its actions,
omissions or operation of law, either party agrees that the other
will have no adequate remedy at law and that immediate injunctive
relief will be appropriate. Subject to the limitations set forth
in paragraph 5(c), in the event that a court of competent
jurisdiction refuses to grant a party injunctive relief, such party
shall be free to pursue any and all remedies, including remedies
at law, which may be available to such party.
8. Non-Competition and Use Restriction Agreement. Pursuant to
paragraph 5.3 of the APA, the parties agree as follows:
(a) Homeland will not during the term of this Agreement
compete directly or indirectly with AWG as a wholesaler of grocery
products, including Available Products, in or to any counties in
Oklahoma, Arkansas, Texas, Kansas or Missouri in which Supplied
Stores are located. A sale of any of the Supplied Stores to a
competitor of AWG in a manner which is not consistent with the
provisions of paragraph 7 shall be a violation of the non-
competition agreement.
(b) Homeland agrees that, to the extent of Homeland's
interest therein (including leasehold interests), the real estate
comprising the Supplied Stores and the improvements thereon shall
be dedicated to the exclusive use of a retail grocery facility
(including all activities which from time to time are commonly
associated with the operation of a grocery facility) which is owned
by a retail member of AWG. The foregoing use restriction agreement
shall be reflected by way of an appropriate document (in the form
of Exhibit "G" - Schedule "2", attached hereto and incorporated
herein) executed by Homeland and recorded in the official records
of each county in which a Supplied Store is located. Each recorded
notice document shall be terminable in connection with each
Supplied Store on the earlier of (i) the expiration of the term of
this Agreement, (ii) compliance by Homeland with AWG's Purchase
Rights as set forth in this paragraph 7 with respect to such
Supplied Store, (iii) the date upon which any holder of a lien
placed of record before the date hereof takes title to Homeland's
interest in the described property whether by foreclosure or a deed
in lieu of foreclosure with a recital that it is a deed in lieu of
foreclosure, (iv) the date immediately preceding the expiration of
any cure period in respect of a continuing event of default under
a lease to which Homeland is a party, which default directly
relates to Homeland's filing of such recorded notice, provided that
(A) Homeland shall deliver prompt notice of such event of default
to AWG, (B) AWG shall be permitted to contact the landlord under
such lease for the purpose of obtaining a rescission or termination
of such event of default and (C) AWG shall indemnify Homeland for
any of its costs, liabilities and/or damages relating to or arising
in connection with the foregoing, or (v) the expiration or earlier
termination of Homeland's leasehold estate, if any. AWG agrees to
allow each document to be released upon the recordation of a sworn
affidavit by the President of Homeland stating that (i) the
Purchase Rights have been complied with as set forth in paragraph
7 as to the particular Supplied Store covered by the document which
is to be released or (ii) one of the events specified in clauses
(i), (iii), (iv) or (v) of the preceding sentence has occurred with
respect to the particular Supplied Store covered by the document
to be released.
(c) If Homeland or AWG shall breach the foregoing agreements
in this paragraph 8 by way of its actions, omissions or operation
of law, each agrees that the other will have no adequate remedy at
law and that immediate injunctive relief will be appropriate. In
the event that a court of competent jurisdiction refuses to grant
a party injunctive relief, such party shall be free to pursue any
and all remedies, including remedies at law, which may be available
to such party.
9. Representations and Warranties of Homeland. In addition to
any representations and warranties contained elsewhere in this
Agreement, Homeland hereby makes the following representations and
warranties to and for the benefit of AWG, its successors and permitted
assigns, in connection with Homeland and/or the Supplied Stores, each of
which warranties and representations (i) is material and being relied
upon by AWG and (ii) is true in all respects as of the date hereof (or
such other date as may be indicated).
a. Organization of Homeland. Homeland is duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has full corporate power and authority to own,
lease and operate its business. Homeland is duly licensed and
qualified to do business as a foreign corporation and is in good
standing in the States of Oklahoma, Texas and Kansas.
b. Authorization. Homeland has all necessary corporate
power and authority and has taken all corporate action necessary
to enter into this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations hereunder
including approval of its Board of Directors. This Agreement has
been duly executed and delivered by Homeland and is a valid and
binding obligation of Homeland, enforceable against Homeland in
accordance with its terms.
c. Litigation, Proceedings and Applicable Law. Except as
set forth on Exhibit "H" hereto, there are no material actions,
suits or proceedings pending or, to the best knowledge of Homeland,
threatened against, at law or in equity or before or by any
governmental authority or instrumentality or before any arbitrator
of any kind which would have a material adverse effect on
Homeland's ability to perform its obligations hereunder and, to the
best knowledge of Homeland, there is no valid basis for any such
action, suit, proceeding or investigation. Except as set forth on
Exhibit "H", to the best of Homeland's knowledge, Homeland is not
in default with respect to any judgment, order, writ, injunction
or decree of any court or governmental agency, and there are no
unsatisfied judgments against Homeland or its business or
activities, in each case, which would materially adversely affect
Homeland's ability to perform hereunder. To the best of Homeland's
knowledge, there is not a reasonable likelihood of an adverse
determination of any pending proceeding which would, individually
or in the aggregate, have a material adverse effect on Homeland's
ability to perform its obligations hereunder.
d. No Violations and Compliance with Laws. Except as set
forth on Exhibit "I", there are no existing Violations with respect
to the Supplied Stores, and Homeland is not aware of any threatened
Violations or notices with respect to any Violations, which would
have a material adverse effect on the performance by either party
of its obligations hereunder. Except as set forth on Exhibit "I",
Homeland has received no written notification alleging any existing
material violation of any applicable statutes, rules, regulations,
ordinances, codes, orders, licenses, permits or authorizations, as
such now apply to the Supplied Stores, including without
limitation, any applicable business, building, zoning,
antipollution, occupational safety, health or other law, ordinance
or regulation, which would have a material adverse effect on the
performance by either party of its obligations hereunder.
e. No Conflict or Violation. Except as otherwise set forth
herein or in the exhibits hereto, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will result in (i) a violation of or a conflict
with any provision of the Certificate of Incorporation or Bylaws
of Homeland or Homeland Holding Corporation, (ii) a material breach
of, or a material default under, any material term or provision of
any material contract, agreement, lease, commitment, license,
franchise, permit, authorization or concession to which Homeland
is a party or an event which, with notice, lapse of time, or both,
would result in any such breach or default, or (iii) a material
violation by Homeland of any material statute, rule, regulation,
ordinance, code, order, judgment, writ, injunction, decree or
award, or an event which in the case of (i), (ii) or (iii) above,
with notice, lapse of time, or both, would result in any such
violation, which breach, default or violation would have a material
adverse effect on either party's ability to perform it obligations,
hereunder.
f. Consents and Approvals. The list attached hereto as
Exhibit "K", is a true, correct and complete list of all
individuals and/or entities from whom consent is required to
consummate or perform all or any part of the transactions
contemplated under this Agreement or the APA. No other consents
and/or approvals are required.
g. Financial Statements. Homeland has heretofore delivered
to AWG complete, true and accurate copies of the most recent
financial statements of Homeland and fully audited financial
statements for the year ending December 31, 1994. Except as
otherwise set forth therein, Homeland's financial statements have
been prepared in accordance with generally accepted accounting
principles, consistently applied, and fairly present the financial
condition and the results of operations of Homeland at the dates
and for the periods covered thereby.
h. Environmental Matters. Except as set forth on Exhibit
"J", to the best of Homeland's knowledge, there are no Adverse
Environmental Conditions, located in, on or under or existing in
connection with any of the Supplied Stores which materially
adversely affects either party's ability to perform its obligations
hereunder. A list of all remediation plans existing in connection
with Adverse Environmental Conditions is attached as Schedule "1"
of Exhibit "J". Copies of all such remediation plans shall be
attached as Schedule "2" of Exhibit "J".
i. Financial Restructuring. Homeland represents that its
current plans and intentions in connection with any financial
restructuring or sale of assets do not include any type of
bankruptcy proceeding. During the term hereof, Homeland will keep
AWG fully advised in connection with any financial restructuring
which would adversely affect Homeland's ability to comply with the
terms hereof and shall deliver any evidence of any such financial
restructuring to AWG. In addition, any sale of the Supplied Stores
will be conducted in a manner which is consistent with AWG's Volume
Protection Rights hereunder.
j. Supplied Stores. Exhibit "B" is a complete, true and
correct schedule of the Supplied Stores.
10. Representations and Warranties of AWG. In addition to any
representations and warranties contained elsewhere in this Agreement,
AWG hereby makes the following representations and warranties to and for
the benefit of Homeland, its successors and assigns, in connection with
AWG and/or the Supplied Stores, each of which warranties and
representations (i) is material and being relied upon by Homeland and
(ii) is true in all respects as of the date hereof (or such other date
as may be indicated).
a. Organization of AWG. AWG is duly organized, validly
existing and in good standing under the laws of the State of
Missouri and is qualified to do business in the States of Kansas,
Texas and Oklahoma.
b. Authorization. AWG has all necessary corporate power and
authority and has taken all corporate action necessary to enter
into this Agreement, to consummate the transactions contemplated
hereby and to perform its obligations hereunder, including approval
of its Board of Directors. This Agreement has been duly executed
and delivered by AWG and is a valid and binding obligation of AWG,
enforceable against AWG in accordance with its terms.
c. No Conflict or Violation. Neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will result in (i) a material violation of or
a conflict with any provision of the Articles of Incorporation or
Bylaws of AWG, (ii) a material breach of, or a default under, any
term or provision of any contract, agreement, lease, commitment,
license, franchise, permit, authorization or concession to which
AWG is a party or an event which with notice, lapse of time, or
both, would result in any such breach or default, or (iii) a
material violation by AWG of any statute, rule, regulation,
ordinance, code, order, judgment, writ, injunction, decree, or
award, or an event which in the case of (i), (ii) or (iii) above,
with notice, lapse of time, or both, would result in any such
violation, which breach, default or violation would have a
materially adverse effect on either party's ability to perform its
obligations hereunder.
d. Compliance with Law. To the best of AWG's knowledge, AWG
has received no written notification alleging any existing material
violation of any applicable statutes, rules, regulations,
ordinances, codes, orders, licenses, permits or authorizations
which would have a materially adverse impact on either party's
ability to perform its obligations hereunder.
e. Litigation, Proceedings and Applicable Law. Except as
set forth on Exhibit "L" hereto, there are no material actions,
suits or proceedings pending or, to the best knowledge of AWG,
threatened against, or materially adversely affecting AWG's ability
to perform its obligations hereunder, at law or in equity or before
or by any governmental authority or instrumentality or before any
arbitrator of any kind and, to the best knowledge of AWG, there is
no valid basis for any such action, suit, proceeding or
investigation. Except as set forth on Exhibit "L", to the best of
AWG's knowledge, AWG is not in default with respect to any
judgment, order, writ, injunction or decree of any court or
governmental agency, and there are no unsatisfied judgments against
AWG or its business or activities, in each case, which would have
a material adverse effect on AWG's ability to perform hereunder.
To the best of AWG's knowledge, there is not a reasonable
likelihood of an adverse determination of any pending proceeding
which would, individually or in the aggregate, have a material
adverse effect on AWG's ability to perform its obligations
hereunder.
11. Covenants of Homeland and AWG. Homeland and AWG each
covenant with the other as follows:
a. Consents and Best Efforts. As soon as practicable, AWG
and Homeland, as applicable, will commence and diligently pursue
all reasonable action required hereunder (i) to obtain all required
documents, consents, approvals and agreements, (ii) to give all
notices and make all filings with, any third parties as may be
necessary to authorize, approve or permit full and complete
compliance with the terms of the Agreement, (iii) to identify
and/or obtain all collateral required hereunder and (iv) to cause
all documentation contemplated hereunder to be executed and
delivered.
b. Providing Copies of Documents. Homeland covenants to
provide copies to AWG of all of Homeland's SEC filings and reports
within ten (10) days after filing with or other delivery to the
SEC. AWG covenants to make available to Homeland all information
and reports which are available to other members at a cost, if any,
equal to that charged to other members (Any such charge shall be
based on a cost recovery for AWG.)
c. Evidence of Insurance. During the term hereof, AWG shall
provide Homeland with current evidence of all product liability and
comprehensive insurance carried by AWG in connection with its
wholesale operation under this Agreement.
d. Material Changes to Representations and Warranties.
During the term hereof, each party hereby covenants that it will
provide the other with written notice of any change to their
respective representations and warranties contained herein which
materially adversely affects either party's ability to perform its
obligations hereunder.
e. Necessary Resources. After the Closing of the
transactions contemplated under the APA, AWG will have the
necessary resources, equipment and personnel to sell, supply and
deliver the Purchased Goods to the Supplied Stores and to otherwise
fulfill its obligations hereunder.
12. Conditions to Parties' Obligations. The Closing of the APA
shall be a condition precedent to Homeland's and AWG's obligations
hereunder.
13. Events of Default. The following shall be events of default
("Events of Default"):
a. Homeland Defaults. The following shall be Events of
Default by Homeland hereunder:
(i) Failure to Maintain Letter of Credit. Homeland's
failure to maintain the Letter of Credit as required herein
or to renew such Letter of Credit within thirty (30) days
prior to its expiration.
(ii) Transfer of Security. Homeland's transfer or
other failure to preserve any security pledged to AWG pursuant
to the terms of this Agreement, except to the extent provided
for in paragraphs 3b.(v) and 5b.
(iii) Non-Payment/Failure to Perform. Homeland's
failure to make any payment when due or failure to perform any
of the other agreements, terms, covenants, provisions or
conditions contained herein in any material respect; it being
understood that the events of defaults specified in this
paragraph 13.a(iii) are in addition to, but are not in
limitation of, the other events of defaults specified in this
paragraph 13.a.
(iv) Breach of Other Agreements. Breach, in any
material respect, by Homeland of the Member Sign-Up Documents;
provided, however, there will be no cross-default between the
Supply Agreement and the APA.
(v) Bankruptcy Matters. If Homeland:
(1) files a Petition under the Federal Bankruptcy
Code or any similar law, state or federal, whether now
or hereafter existing (hereinafter referred to as a
"Bankruptcy Proceeding"); or
(2) files any Answer admitting insolvency or
inability to pay its debts; or
(3) is the subject of any Petition of involuntary
bankruptcy which is not dismissed within thirty (30) days
after filing; or
(4) becomes the subject of an order for relief
against it in any bankruptcy proceeding; or
(5) has a custodian or trustee or receiver
appointed for it or has any court take jurisdiction of
its property, or the major part thereof, in any
involuntary proceeding for the purpose of reorganization,
arrangement, dissolution or liquidation; or
(6) makes an assignment for the benefit of
creditors;
(7) is generally not paying its debts as they
become due; or
(8) consents to an appointment of a custodian,
receiver or trustee of all its property, or the major
part thereof.
(vi) Volume Protection Rights. Any breach by Homeland of
its obligations and/or agreements contained in paragraphs 7
and/or 8 hereof.
(vii) Subject to paragraph 7(b)(ii), the transfer by
one or more stockholders of Homeland or Homeland Holding
Corporation of greater than fifty percent (50%) of the
outstanding stock of Homeland or Homeland Holding Corporation,
as the case may be, during the term hereof, to an entity
primarily engaged (including through a subsidiary or
otherwise) in the retail or wholesale grocery business.
b. AWG Defaults. The following shall be Events of Default
by AWG:
(i) Non-Payment/Failure to Perform. AWG's failure to
make any payment when due or failure to perform any of the
other agreements, terms, covenants, provisions or conditions
contained herein in any material respect; it being understood
that the events of defaults specified in this paragraph
13.b(i) are in addition to, but are not in limitation of, the
other events of defaults specified in this paragraph 13.b.
(ii) Breach of Other Agreements. There will be no cross-
defaults between the Supply Agreement and the APA.
(iii) Bankruptcy Matters. If AWG:
(1) files a Petition under the Federal Bankruptcy
Code or any similar law, state or federal, whether now or
hereafter existing (hereinafter referred to as a
"Bankruptcy Proceeding"); or
(2) files any Answer admitting insolvency or
inability to pay its debts; or
(3) is the subject of any Petition of involuntary
bankruptcy which is not dismissed within thirty (30) days
after filing; or
(4) becomes the subject of an order for relief
against it in any bankruptcy proceeding; or
(5) has a custodian or trustee or receiver
appointed for it or has any court take jurisdiction of
its property, or the major part thereof, in any
involuntary proceeding for the purpose of reorganization,
arrangement, dissolution or liquidation; or
(6) makes an assignment for the benefit of
creditors;
(7) is generally not paying its debts as they
become due; or
(8) consents to an appointment of a custodian,
receiver or trustee of all its property, or the major
part thereof.
(iv) Sale of AWG. The sale of ninety percent (90%) or
more of the stock or assets of AWG.
(v) Dissolution of AWG. The dissolution of AWG.
14. Remedies. With the exception of Homeland's obligations with
respect to the Letter of Credit, its obligations under its open account
arrangement with AWG and its obligations in paragraphs 7 and 8 hereof,
each of which must be performed exactly when required without any notice
or cure period, if any other Event of Default shall remain uncured for
five (5) business days (thirty (30) days in the case of an Event of
Default by Homeland in respect of its failure to deliver the documents
required to be delivered pursuant to paragraphs 11(b) and 16) after
written notice thereof has been given to the defaulting party, the non-
defaulting party may declare this Agreement to be in default. At any
time that Homeland materially breaches its obligations in connection
with the Letter of Credit, its open account arrangement with AWG or any
of AWG's Volume Protection Rights, AWG may immediately declare this
Agreement to be in default. In such event, the non-defaulting party may
exercise all remedies available to it at law or in equity including, but
not limited to, the rights set forth herein. At any time that Homeland
is in default hereunder, AWG shall be under no obligation to accept
orders for or ship Purchased Goods. No remedies conferred upon or
reserved by a party are intended to be exclusive of any other available
remedy or remedies herein. Notwithstanding the foregoing or anything
else contained herein or in the APA and notwithstanding any default by
Homeland of its obligations hereunder or thereunder, except as set forth
in paragraph 5(c) hereof in connection with the K-CCS Contract and the
Drake Contract, and except as specifically provided in the Undertakings,
the Assignment and Assumption Agreements, the ERISA Agreement and the
other agreements to be entered into pursuant to Section 5.1 of the APA,
AWG shall not have the right otherwise to rescind, terminate, modify or
otherwise avoid its obligations with respect to the Existing Contracts
under Section 5.1 of the Asset Purchase Agreement, or as specifically
provided in the Undertakings, the Assignment and Assumption Agreements,
the ERISA Agreement and the other agreements to be entered into pursuant
to Section 5.1.
15. Force Majeure. In the event either party hereto shall be
delayed or hindered in or prevented from the performance of any act
required under this Agreement by reason of strikes, lockouts, labor
troubles, inability to procure materials, failure of power, restrictive
governmental laws or regulations (this does not include proceedings
under any bankruptcy law), riots, insurrection, war or other reason of
a like nature not the fault of the party delayed in performing work or
doing acts required under the terms of this Agreement, then, upon
written notice of such force majeure event from the affected party to
the other party, performance of such act shall be excused for the period
of the delay, and the period for the performance of any such act shall
be extended for a period equivalent to the period of such delay. The
affected party shall resume performance as soon as practicable
thereafter. The mere inability to pay monetary amounts hereunder (no
matter how caused) shall not be considered a force majeure event
hereunder.
a. For purposes hereof, (i) if AWG does not or cannot supply
Homeland due to force majeure-type events or (ii) the levels for
out of stock products exceed 10% in the aggregate subsequent to
five (5) days notice by Homeland, and Homeland seeks alternative
suppliers until such condition is cured by AWG, such purchases from
alternative suppliers, shall be treated as Warehouse Purchases for
purposes of computing the Operative Fraction and Purchase
Percentage in paragraph 3 above ("Credit") and such purchases shall
not be deemed to breach paragraph 2(b) hereof; provided, however,
if the event described in clause 15.a(ii) results from Homeland's
failure to meet Homeland's applicable Minimum Credit Requirements,
Homeland shall not be entitled to the Credit and to the extent the
aforementioned purchases from alternative suppliers violate the
primary supplier provisions of paragraph 2(b) of this Agreement,
such purchases shall constitute a breach of this Agreement.
16. Financial Statements.
a. Proforma Statements. Homeland shall supply to AWG a
proforma opening balance sheet and profit and loss statement
showing projections of Homeland's operations during Homeland's
fiscal years 1995 and 1996.
b. Yearly. Homeland shall supply AWG with all audited,
consolidated financial statements of Homeland Holding Corporation
(which includes Homeland Stores, Inc.) within one hundred twenty
(120) days after the end of each fiscal year of Homeland and
unaudited consolidated quarterly financial statements of Homeland
Holding Corporation (which include Homeland Stores, Inc.) within
forty-five (45) days after the end of each of the first three (3)
fiscal quarters of Homeland.
c. General Notice. Each party shall give the other prompt
notice of any change in such party's financial condition which
would have a materially adverse effect on such party's ability to
perform its obligations hereunder.
17. No Assumption of Liabilities.
a. By entering into this Agreement or performing any act or
agreement hereunder, AWG does not assume or undertake any
obligations or liabilities of Homeland, except as specifically
provided in paragraph 5(c) of this Agreement and Article V of the
APA and the agreements to be entered into pursuant thereto,
including, without limitation, the following:
(i) Claims by Homeland employees, former employees or
others under any private or collective contract, agreement or
the like or any state, Federal, local or other laws, statutes,
executive order, regulations, ordinances, codes or the like
including, but not limited to, claims in connection with
employee wages, vacation pay, severance pay, holiday pay, sick
leave pay, other union claims, detrimental reliance claims,
implied contract claims, WARN notice claims, worker's
compensation claims, ERISA claims, COBRA claims, Civil Rights
Laws claims, claims under the Fair Labor Standards Act or
Labor Management Relations Act, employment discrimination
claims of all types, claims regarding health and welfare
benefits or premiums, claims regarding union collective
bargaining agreements and/or supplemental agreements, sexual
harassment claims, disability claims, Family and Medical Leave
Act claims, except as provided otherwise in Section 5.1(h) of
the APA, pension fund liability (whether for current or
unfunded accrued liabilities), claims or other problems
arising under OSHA, claims in connection with environmental
problems, claims arising out of Homeland's agreements with
Safeway Stores, Inc. or its affiliates or any other
obligations of Homeland of any kind or character;
(ii) Demands, causes of action, obligations or
liabilities (including damages, costs and reasonable attorneys
fees) from any claim of any third party including, but not
limited to, those types of claims set forth above in paragraph
17(a)(i).
b. Relationship. The relationship of AWG and Homeland under
this Agreement is that of wholesale supplier and retail customer.
This Agreement shall not be construed to create any other
relationship between AWG and Homeland. There is no agency
relationship between Homeland and AWG; AWG is not a successor or
assign or alter ego to Homeland. Homeland and AWG are not involved
in a joint venture or partnership; AWG is not required to continue
operations at any of Homeland's former facilities; and AWG, in its
sole discretion, shall determine the extent, method and manner of
how any of Homeland's former facilities purchased or leased by AWG,
if any, will be operated. Homeland shall remove on or before
Closing all of Homeland's employees, supervisors, managers,
subcontractors and agents from all facilities which are part of the
Purchased Assets. If, in its sole discretion, AWG hires former
employees, managers or supervisors of Homeland, these individuals
shall be employed as new employees of AWG. AWG repudiates all of
Homeland's union collective bargaining agreements, will not
consider the seniority of Homeland's former employees in deciding
whether to employ them, and all individuals considered for
employment by AWG will be hired on the basis of qualifications, as
determined by AWG. AWG shall not be bound by any arbitration
decision issued under any of the Homeland's union collective
bargaining agreements and has no obligation to arbitrate any
dispute under any such bargaining agreements. AWG does not assume
and is not responsible for any liability Homeland may have to
retired persons or former employees. Homeland represents that it
is stopping its distribution operations and ceasing all the
business connected with the distribution operations. Homeland
further represents to AWG that it has, or will before the Closing,
satisfy all of its liabilities and/or obligations accruing prior to
the Closing Date under union collective bargaining agreements,
including obligations required by the National Labor Relations Act,
and that it has, or will before the Closing, satisfy its
liabilities and/or obligations accruing prior to the Closing Date
to all other persons who are affected by Closing of Homeland's
distribution center operations; provided, however, if such
obligations are of a nature such that they cannot be satisfied
prior to the Closing Date, Homeland shall diligently cause the
satisfaction of such obligations as soon as practicable after the
Closing Date. After the Closing Date, Homeland shall be
responsible for Homeland's obligations to its employees.
c. By entering into this Agreement or performing any act or
agreement hereunder, Homeland does not assume or undertake any
obligations or liabilities of AWG, except as specifically provided
herein in paragraph 5(c) of this Agreement and Article V of the APA
and the agreements to be entered into pursuant thereto, including,
without limitation, the following:
(i) Claims by AWG employees, former employees or others
under any private or collective contract, agreement or the
like or any state, Federal, local or other laws, statutes,
executive order, regulations, ordinances, codes or the like
including, but not limited to, claims in connection with
employee wages, vacation pay, severance pay, holiday pay, sick
leave pay, other union claims, detrimental reliance claims,
implied contract claims, WARN notice claims, worker's
compensation claims, ERISA claims, COBRA claims, Civil Rights
Laws claims, claims under the Fair Labor Standards Act or
Labor Management Relations Act, employment discrimination
claims of all types, claims regarding health and welfare
benefits or premiums, claims regarding union collective
bargaining agreements and/or supplemental agreements, sexual
harassment claims, disability claims, Family and Medical Leave
Act claims, pension fund liability (whether for current or
unfunded accrued liabilities), claims or other problems
arising under OSHA, claims in connection with environmental
problems, or any other obligations of AWG of any kind or
character;
(ii) Demands, causes of action, obligations or
liabilities (including damages, costs and reasonable attorneys
fees) from any claim of any third party including, but not
limited to, those types of claims set forth above in paragraph
17(c)(i); and
(iii) AWG shall be responsible for AWG's obligations
to its employees.
<PAGE>
18. Governing Law, Venue. The laws of the State of Kansas shall
govern the interpretation, validity, performance and enforcement of this
Agreement. Any dispute or cause of action under this Agreement shall be
resolved in a court of competent jurisdiction in Johnson County, Kansas.
19. Counterparts. This Agreement may be executed in one or more
identical counterparts, each of which shall be deemed an original, but
all of which taken together shall constitute one and the same
instrument.
20. Headings; Construction. The headings which have been used
throughout this Agreement have been inserted for convenience of
reference only and do not constitute matters to be construed in
interpreting this Agreement. Words of any gender used in this Agreement
shall be held and construed to include any other gender and words in the
singular numbers shall be held to include the plural, and vice versa,
unless the context requires otherwise. The words "herein," "hereof,"
"hereunder" and other similar compounds of the word "here" when used in
this Agreement shall refer to the entire Agreement and not any
particular provision or section. If the last day of any time period
stated herein shall fall on a Saturday, Sunday or legal holiday, then
the duration of such time period shall be shortened so that it shall end
on the next preceding day which is not a Saturday, Sunday or legal
holiday.
21. Binding Agreement; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties named herein and to
the respective permitted successors. Except as provided herein, neither
this Agreement nor the rights or obligations hereunder may be assigned
or delegated by either party without the prior written consent of the
other party.
22. Invalidity. In the event any one or more of the provisions
contained in this Agreement, or any other instrument referred to herein,
shall for any reason be held invalid, illegal or unenforceable in any
respect, then, to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of
this Agreement or any such instrument, and this Agreement shall be
construed as if the invalid, illegal or unenforceable provision had
never been present. However, none of the provisions hereof are
severable for any purpose (including attempts to avoid portions hereof
in a bankruptcy proceeding) other than to avoid invalidity, illegality
or unenforceability.
23. Amendments. This Agreement, together with all exhibits
attached hereto, contains the entire agreement of the parties hereto
with respect to the subject matter hereof, and no representations,
inducements, promises or agreements, oral or otherwise, between the
parties not embodied herein shall be of any force or effect unless
contained in a written amendment. Any amendment to this Agreement shall
not be binding upon either of the parties hereto unless such amendment
is in writing and executed by the authorized representatives of all the
parties hereto.
24. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when presented personally or
upon being deposited in a regularly maintained receptacle for United
States postal service, postage prepaid, registered or certified, return
receipt requested, or sent by a national overnight courier service, and
addressed as set forth below or such other addresses as AWG or Homeland
may from time to time designate by written notice to the others as
required herein:
If to Homeland, addressed to:
Homeland Stores, Inc.
400 N.E. 36th Street
Oklahoma City, Oklahoma 73105
Attention: James A. Demme
With copies to:
Crowe & Dunlevy
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
Attention: Kenni B. Merritt, Esq.
Clayton Dubilier & Rice, Inc.
126 East 56th Street
New York, New York 10022
Attention: Alberto Cribiore
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Steven R. Gross, Esq.
If to AWG, addressed to:
Associated Wholesale Grocers, Inc.
P.O. Box 2932
5000 Kansas Avenue
Kansas City, Kansas 66110-2932
Attention: General Counsel
<PAGE>
With a copy to:
Rose, Brouillette & Shapiro, P.C.
4900 Main, Eleventh Floor
Kansas City, Missouri 64112
Attention: C. Christian Kirley, Esq.
or such other place and with such other copies as either party may
designate as to itself by written notice to the others.
25. Waiver. No waiver by either party of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
26. Confidential Information.
a. The parties acknowledge that the transaction described
herein is of a confidential nature and neither the transaction or
any information obtained as a result of this Agreement or the
underlying transaction shall be disclosed to anyone except to
Representatives or as required by law. Until such time as the
parties make a mutually agreeable public announcement regarding the
transactions, neither Homeland nor AWG shall make any public
disclosure of the specific terms of this Agreement without the
prior written consent of the other party hereto, except as required
by law.
b. In connection with the negotiation of this Agreement, the
preparation for the consummation of the transactions contemplated
hereby, and the performance of obligations hereunder, each party
acknowledges that it has had and will have access to confidential
information relating to the other party. Each party shall treat
such information as confidential, preserve the confidentiality
thereof and not (except (i) as required by applicable law, (ii)
with respect to Homeland's lenders and their authorized
representatives and (iii) as permitted herein) use, duplicate or
disclose such information in connection with the transactions and
activities contemplated hereby, except to representatives who also
agree to treat such information as confidential.
c. In the event of the termination of this Agreement for any
reason whatsoever, each party shall return to the other all
documents, work papers and other material (including all copies
thereof) obtained in connection with the transactions contemplated
hereby, will use all reasonable efforts, including instructing its
employees and others who have had access to such information,
unless such information is now, or is hereafter disclosed, through
no act or omission of such party, in any manner making it available
to the general public, and agrees not to use any such information
disclosed or learned.
27. Indemnification. In addition to any specific indemnifications
contained herein (and not in derogation thereof) the following
indemnifications shall be applicable:
a. By Homeland. Homeland shall indemnify, save and hold
harmless AWG, its affiliates and subsidiaries, and its and their
respective Representatives, from and against any and all costs,
losses (including, without limitation, diminution in value),
liabilities, damages, lawsuits, deficiencies, claims and expenses
(whether or not arising out of third-party claims) including,
without limitation, interest, penalties, reasonable attorneys' fees
and all amounts paid in investigation, defense or settlement for
any of the foregoing (herein, the "Damages"), incurred in
connection with or arising out of or resulting from (i) any breach
of any covenant or warranty or the inaccuracy of any representation
made by Homeland in or pursuant to this Agreement, or (ii) any
liability, obligation or commitment of any nature (absolute,
accrued, contingent or otherwise) of Homeland which is due to or
arises in connection with Homeland's acts or omissions prior to or
after the Closing Date and not specifically assumed by AWG pursuant
to this Agreement or the APA. Homeland shall not be liable for any
matter which is due to or arises in connection with AWG's acts or
omissions. Notwithstanding the foregoing or anything else
contained herein or in the APA and notwithstanding any default by
Homeland of its obligations hereunder or thereunder, except as set
forth in paragraph 5(c) hereof in connection with the K-CCS
Contract and the Drake Contract, and except as specifically
provided in the Undertakings, the Assignment and Assumption
Agreements, the ERISA Agreement and the other agreements to be
entered into pursuant to Section 5.1 of the APA, AWG shall not have
the right to otherwise rescind, terminate, modify or avoid its
obligations with respect to the Existing Contracts under Section
5.1 of the Asset Purchase Agreement, or as specifically provided in
the Undertakings, the Assignment and Assumption Agreements, the
ERISA Agreement and the other agreements to be entered into
pursuant to Section 5.1.
b. By AWG. AWG shall indemnify and save and hold harmless
Homeland, its affiliates and subsidiaries, and its and their
respective Representatives from and against any and all Damages
incurred in connection with or arising out of or resulting from (i)
any breach of any covenant or warranty, or the inaccuracy of any
representation made by AWG in or pursuant to this Agreement or (ii)
any liability, obligation or commitment of any nature (absolute,
accrued, contingent or otherwise) of AWG which is due to or arises
in connection with AWG's acts or omissions prior to or after the
Closing Date, including any other claim, liability, or obligation
which is specifically assumed by AWG pursuant to this Agreement or
the APA. Except as provided herein or in the APA, AWG shall not be
liable for any matter which is due to or arises in connection with
Homeland's acts or omissions.
c. Defense of Claims. If any lawsuit or enforcement action
is filed against any party entitled to the benefit of indemnity
under this Agreement, written notice thereof shall be given to the
indemnifying party as promptly as practicable (and in any event
within fifteen (15) days after the service of the citation or
summons); provided, that the failure of any indemnified party to
give timely notice shall not affect rights to indemnification
hereunder except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such
notice, if the indemnifying party shall acknowledge in writing to
the indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in connection
with such lawsuit or action, then the indemnifying party shall be
entitled, if it so elects, to take control of the defense and
investigation of such lawsuit or action and to employ and engage
attorneys of its own choice to handle and defend the same, at the
indemnifying party's cost, risk and expense; and such indemnified
party shall cooperate in all reasonable respects with the
indemnifying party and such attorneys in the investigation, trial
and defense of such lawsuit or action and any appeal arising
therefrom; provided, however, that the indemnified party may, at
its own cost, participate in the investigation, trial and defense
of such lawsuit or action and any appeal arising therefrom. In the
event the indemnifying party elects not to assume the defense or
investigation of a lawsuit or an action, the indemnifying party
shall not be obligated to pay the fees and expenses of more than
one counsel or one firm of counsel for all parties indemnified by
the indemnifying party in respect of such lawsuit or action, unless
in the reasonable judgment of the indemnifying party a conflict of
interest may exist between such indemnified party and any other of
such indemnified parties in respect of such lawsuit or action.
Notwithstanding the foregoing, no party may settle any matter in a
manner which would have an adverse effect on the other party
without the affected party's prior written consent.
d. Brokers and Finders. Pursuant to the provisions of this
paragraph, AWG and Homeland shall indemnify, hold harmless and
defend each other from the payment of any and all broker's and
finder's expenses, commissions, fees or other forms of compensation
which may be due or payable from or by the indemnifying party, or
may have been earned by any third party acting on behalf of the
indemnifying party in connection with the negotiation and execution
hereof and the consummation of the transactions contemplated
hereby.
No individual representative of any party shall be personally liable for
any Damages under the provisions contained in this paragraph. Nothing
herein shall relieve either party of any obligation to make any payment
expressly required to be made by such party pursuant to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year last above written.
ASSOCIATED WHOLESALE GROCERS, INC.
By:
Mike DeFabis, President
HOMELAND STORES, INC.
By:
James A. Demme, President
g:\wp50\docs\acquisit\homeland\docs\supply.agr\draft.18
2/3/95
EXHIBIT 10rr
November 22, 1994
Mr. James A. Demme
2608 Tahoe Drive
Edmond, OK 73013
Dear Jim:
We are pleased to confirm the terms of your proposed employment
with Homeland Stores, Inc. (the "Company").
1) Duties: You will become an employee of the Company on as soon
as practicable after the execution of this agreement (the
"Commencement Date"). Effective as of the Commencement Date,
you will be the Chief Executive Officer of the Company and a
member of the Board of Directors. You will devote all of your
skill, knowledge and full working time (reasonable vacation
time and absence for sickness or disability excepted) solely
and exclusively to the conscientious performance of your
duties hereunder.
2) Base Salary: As compensation for the duties to be performed
by you under the terms of this letter agreement, the Company
will pay you a base salary in the amount of $200,000 per
annum, payable at the same time as the Company pays salary to
its other executive employees. The Company will review your
base salary from time to time and, at the discretion of the
Board of Directors, may increase your base salary based upon
your performance and other relevant factors.
3) Incentive Bonus: While you are providing services pursuant to
this letter, you will be given the opportunity to receive an
annual bonus upon the attainment of such performance
objectives as the Board of Directors shall determine from time
to time after consulting with you. Your maximum annual bonus
opportunity will be equal to 100% of your Base Salary if all
performance objectives are satisfied; provided that, for
calendar year 1995 you will receive a minimum bonus of
$100,000. Any bonus payable to you will be paid to you at the
same time as bonuses are paid to other executives.
4) Long Term Incentive Plan: You shall be eligible to receive
awards under a long term incentive compensation plan to be
established by the Company at a level commensurate with your
position and responsibilities with the Company.
<PAGE>
-2-
5) Employee Benefits: While you are providing services pursuant
to this letter agreement, you will be eligible to participate
in the employee benefit plans and programs generally available
to the Company's employees (including, but not limited to,
coverage under the Company's medical, dental, life and
disability insurance plans and participation in the Company's
qualified plans) as in effect from time to time on the same
basis as the Company's other employees, subject to the terms
and provisions of such plans and programs.
6) Executive Perquisites: You will be eligible to receive the
perquisites and other personal benefits made available to the
Company's senior executives from time to time.
7) Expenses: The Company will reimburse you for all reasonable
expenses incurred by you in connection with your performance
of services under this letter agreement in accordance with the
Company's policies, practices and procedures.
8) Termination of Employment: If the Company terminates your
employment prior to the third anniversary of the Commencement
Date for any reason other than Cause or Disability or if you
shall terminate your employment following the sale of at least
50% of the voting securities of the Company or its parent, the
Company will continue to pay you your Base Salary (i) for one
year after the date of your termination of employment or (ii)
is terminated by the Company for Cause, you will only be
entitled to receive the compensation and benefits payable to
you under the Company's otherwise applicable employee benefit
plans or programs.
As used in the Agreement, "Cause" means (i) your willful
failure to perform substantially your duties as an officer and
employee of the Company (other than due to physical or mental
illness), (ii) your engaging in serious misconduct that is
injurious to the Company, (iii) your having been convicted of,
or entered a plea of nolo contendere to, a crime that
constitutes a felony, or (iv) your unauthorized disclosure of
confidential information (other than to the extent required by
an order of a court having competent jurisdiction or under
subpoena from a appropriate government agency) that has
resulted or is likely to result in material economic damage to
the Company. "Disability" means that, as a result of your
incapacity due to physical or mental illness, you have been
absent from your duties to the Company on a substantially
full-time basis for 180 days in any twelve-month period.
<PAGE>
-3-
9) Binding Effect: This letter agreement will inure to the
benefit of and be enforceable by your personal or legal
representatives, executors, administrators, heirs,
distributees, devisees and legatees. If you should die while
any amounts would still be payable to you under this letter
agreement if you had continued to live, all such amounts,
unless otherwise provided herein, will be paid in personal or
legal representatives, executors, administrators, heirs,
distributees, devisees, legatees or estate, as the case may
be.
10) Indemnification: The Company agrees to indemnify you to the
fullest extent permitted under its By-laws as in effect from
time to time.
11) General Provisions: No provisions of this letter agreement
may be modified, waived or discharged unless such
modification, waiver or discharge is approved by the Company's
Board of Directors and is agreed to in a writing signed by you
and such Company officer as may be specifically designated by
the Board.
No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this letter
agreement. The invalidity or unenforceability of any one or more
provision of this letter agreement will not affect the validity or
enforceability of any other provision of this letter agreement,
which will remain in full force and effect. This letter agreement
may be executed in one or more counterparts, each of which will be
deemed to be an original but all of which together will constitute
one and the same instrument.
All amounts payable to you hereunder will be paid net of any and
all applicable income or employment taxes required to be withheld
therefrom under applicable Federal, State or local laws or
regulations.
The validity, interpretation, construction and performance of this
letter agreement will be governed by the laws of the State of
Oklahoma, without giving effect to its conflict of laws provisions.
<PAGE>
-4-
If the foregoing accurately sets forth the terms of your employment
with the Company, please so indicate by signing below and returning
one signed copy of this letter agreement to me.
Sincerely,
HOMELAND STORES, INC.
B. Charles Ames
B. Charles Ames
ACCEPTED AND AGREED
as of this 23 th day
of November , 1994
James A. Demme
EXHIBIT 10ss
Settlement Agreement
Settlement Agreement between Max E. Raydon (here-
after referred to as "you") and Homeland Stores, Inc. (the
"Corporation"), dated as of December 31, 1994.
1. Severance Payments. In connection with the
termination of your employment by the Corporation, effective
as of December 31, 1994 (the "Termination Date"), the
Corporation agrees to pay you, in accordance with the terms
of the Employment Agreement between you and the Corporation,
dated as of August 11, 1994, a single lump sum amount equal
to $600,000 upon the execution and delivery of this
Settlement Agreement. This amount will not be subject to
any offset, mitigation or other reduction as a result of
your receiving salary or other compensation by reason of
your securing other employment.
2. Resignation of Offices. Effective upon the
Termination Date, you hereby voluntarily resign as President
and Chief Executive Officer and as a member of the Board of
Directors (the "Board"). Effective upon the date hereof, you
hereby also voluntarily resign from each other position,
whether as a director, officer or both, you hold on such
date with Homeland Holding Corporation (the "Parent") and
each of the Corporation's subsidiaries (the Parent and such
subsidiaries hereinafter referred to as the "Affiliates").
3. Employee Programs. For a period of thirty -
six months, the Corporation shall provide you with the same
medical, dental, vision, life and disability insurance and
other welfare benefits as it provides to its executive offi-
cers (the "Welfare Benefits Arrangements"). If the Corpora-
tion is unable to or chooses not to continue any such cover-
age for all or any portion of such period, it shall not be
obligated to provide such coverage and shall instead pay you
(within 15 days after such coverage is to cease) an amount
equal to (A) the remainder of (x) 36 minus (y) the number of
months that such coverage is so provided times (B) the
monthly amount it would have paid with respect to such
coverage under the applicable the Welfare Benefit Arrange-
ment.
4. Release. In consideration of the Corpora-
tion's payment to you of the amount described in paragraph 1
above and the benefits described in paragraph 3, you hereby
release and discharge the Corporation and each of its sub-
sidiaries, parents, officers, directors, employees, agents
and assigns from any and all claims, liabilities, demands or
causes of actions, known or unknown, arising out of or in
any way connected with or related to the termination of your
employment, including, without limitation, any claims: (i)
based on any local, state or Federal statute relating to
age, sex, race or other form of discrimination (including,
without limitation, the Age Discrimination in Employment Act
of 1967, as amended), (ii) of wrongful discharge, (iii)
related to any breach of any implied or express contract
(whether oral or written) and (iv) for intentional or negli-
gent infliction of emotional harm, defamation or any other
tort. However, expressly excluded from this Release are (i)
any and all claims for vested benefits under any employee
benefit plan maintained by the Corporation or any of its
subsidiaries, and (ii) any and all claims (even if referred
to above) arising from your incurrence of debt in connection
with your acquisition of stock in the Parent during your
employment.
The Corporation hereby releases you from any and
all claims, known or unknown, arising out of or relating to
your employment with the Corporation, provided that
expressly excluded from this Release are (i) any and all
claims (even if referred to above) arising out of or
relating to (A) any fraud against the Corporation or (B)
your intentional and wilful misconduct and (ii) any and all
claims (even if referred to above) arising out of or related
to your acquisition of stock in the Parent during your
employment.
5. Voluntary Action. You hereby acknowledge
that (i) you have read this Settlement Agreement (including,
without limitation, the release set forth in paragraph 4
hereof), (ii) you fully understand the terms of this
Settlement Agreement and (iii) you have executed this
Settlement Agreement voluntarily and without coercion,
whether express or implied.
6. No Derogatory Comments. You agree to refrain
from making any derogatory comment concerning the Corpora-
tion or any of its Affiliates, or any of the current or
former shareholders, officers, directors or employees of the
Corporation or its subsidiaries or from taking any other
action with respect to the Corporation which is reasonably
expected to result, or does result, in damage to the
business or reputation of the Corporation or any of its
Affiliates or any of the current or former shareholders,
officers, directors or employees of the Corporation or its
subsidiaries, but expressly excluding herefrom any comments
by you to enforce any rights or claims against the
Corporation which are not released by you in paragraph 4
above. The Corporation agrees to refrain from making any
derogatory comment about you, but expressly excluding
herefrom any comments by the Corporation to enforce any
rights or claims against you (or to defend any claims by
you) which are not released in paragraph 4 above.
7. Non-disclosure. Without the prior written
consent of the Corporation, except to the extent required by
an order of a court having competent jurisdiction or under
subpoena from an appropriate government agency, you shall
not disclose any trade secrets, customer lists, drawings,
designs, product development and related information,
marketing plans and related information, sales plans and
related information, manufacturing plans and related inform-
ation, management organization and related information
(including data and other information related to members of
the Board and management), operating policies and manuals,
business plans and related information, financial records
and related information, packaging design and related
information or other financial, commercial, business or
technical information related to the Corporation or its
Affiliates to any third person unless such information has
been previously disclosed to the public by the Corporation
or has become public knowledge other than by a breach of
this Agreement.
8. Return of Documents and Property. You agree
that upon your termination of employment you shall return to
the Corporation (i) any documents and materials containing
trade secrets and other confidential information relating to
the Corporation's business and affairs, and (ii) any other
documents, materials and other property belonging to the
Corporation or any of its subsidiaries that are in your
possession or control.
9. Indemnity. The Corporation or one of its
Affiliates, as appropriate, shall indemnify you for any
claim arising out of or in connection with Employee's serv-
ice as a member of the Corporation's board of directors, as
President or Chief Executive Officer of the Corporation and
as an officer, director or employee of any of the Corpora-
tion's Affiliates in the same manner and to the same extent
as the Company or such Affiliate, as the case may be, indem-
nifies its then current directors, officers or employees.
10. Entire Agreement. This Settlement Agreement
constitutes the entire agreement among you and the Corpora-
tion with respect to the subject matter hereof, and all
promises, representations, understandings, arrangements and
prior agreements relating to such subject matter (including,
without limitation, the Employment Agreement referred to in
paragraph 1) are merged herein and superseded hereby.
11. Binding Effect. This Settlement Agreement
shall be binding on and inure to the benefit of the Corpora-
tion and each of its successors and assigns. This Settle-
ment Agreement shall also be binding on and inure to the
benefit of and be enforceable by your personal or legal
representatives, executors, administrators, heirs, distribu-
tees, devisees and legatees.
12. Remedies. You acknowledge that a material
part of the inducement for the Corporation to enter into
this Agreement is your covenants set forth in Sections 6
through 8 hereof. You agree that if you shall breach any of
those covenants, the Corporation shall have no further obli-
gation to provide you any benefits otherwise payable here-
under (except as may otherwise be required at law) and shall
be entitled to such other legal and equitable relief as a
court shall reasonably determine.
13. Governing Law. The validity, interpretation,
construction and performance of this Separation Agreement
shall be governed by the laws of the State of Oklahoma,
without giving effect to its conflict of laws provisions.
HOMELAND STORES, INC.
Witnessed: Mark S. Sellers
Linda Kenney
MAX E. RAYDON
Witnessed: Max E. Raydon
Joe M. Hampton
EXHIBIT 10tt
January 30, 1995
Mr. Mark S. Sellers
Homeland Stores, Inc.
400 N.E. 36th Street
Oklahoma City, Oklahoma 73105
Dear Mark:
The purpose of this letter agreement (the
"Agreement") is to confirm, amend and restate the terms of
your employment with the Homeland Stores, Inc. (the
"Corporation"). This Agreement supersedes in all respects
all prior agreements and understandings, whether written or
oral, express or implied, between you and the Corporation
and any of its affiliates relating to your employment and
the termination thereof.
1. Duties. You will be employed as the Executive
Vice President - Finance and Chief Financial Officer of the
Corporation and, in addition, in such other executive capac-
ities for the Corporation and the Homeland Holding Corpora-
tion or any subsidiary of the Corporation (the "Affiliates")
as may be determined from time to time by or under the
authority of the Corporation's Board of Directors. You will
devote all of your skill, knowledge and full working time
(reasonable vacation time and absence for sickness or dis-
ability excepted) solely and exclusively to the conscien-
tious performance of such duties.
2. Term. This Agreement shall be effective as of
January 1, 1995 and expire on the thirtieth day (or such
later date as the parties may agree) following the closing
of the asset purchase contemplated in the Letter of Intent
between the Corporation and Associated Wholesale Grocers
Inc., dated as of November 23, 1994 (such thirtieth day
hereinafter referred to as the "Termination Date"), unless
sooner terminated by reason of your death or Disability (as
defined hereinafter) or in accordance with paragraph 10
hereof. For purposes of this Agreement, "Disability" is
defined to mean that, as a result of your incapacity due to
physical and mental illness, you shall have been absent from
your duties to the Corporation and its Affiliates on a sub-
stantially full-time basis for six consecutive months, and
within 30 days after the Corporation notifies you in writing
that it intends to replace you, you shall not have returned
to the performance of your duties on a full-time basis.
Notwithstanding the foregoing, if the Termination Date does
not occur on or before December 31, 1995, this Agreement
shall expire at the end of business on such date (in which
event, December 31, 1995 shall be deemed to be the
Termination Date for purposes of this Agreement), except
that (i) any incentive compensation payable to you under the
Corporation's annual incentive compensation program referred
to in paragraph 5 shall be paid to you at the time annual
incentive compensation is paid to other senior executives
and (ii) the Corporation shall pay you the retention payment
described in paragraph 6 below within 10 business days after
December 31, 1995.
3. Resignation of Offices. Effective upon the
Termination Date, you hereby voluntarily resign as Executive
Vice President - Finance and Chief Financial Officer and as
a member of the Board of Directors (the "Board"). Effective
upon the Termination Date, you hereby also voluntarily
resign from each position, whether as a director, officer or
both, you hold on such date with each of the Corporation's
Affiliates.
4. Base Salary. As compensation for the duties
to be performed by you through the Termination Date, the
Corporation shall pay you a base salary at the annual rate
of $170,000 per annum.
5. Incentive Bonus. If you are still employed by
the Corporation on the Termination Date and if the Corpora-
tion meets or exceeds the applicable performance objectives
under its generally applicable annual incentive compensation
program, you shall receive for your services in 1995 a bonus
equal to the product of (i) and (ii) below:
(i) the amount which would have been payable to you
under the Corporation's annual incentive compensa-
tion plan for its senior officers for calendar
year 1995, based on
(A) a target bonus opportunity of $170,000,
(B) the Corporation's actual performance through
the end of the fiscal month in which the
actual Termination Date occurs (the "End
Date") and
(C) the cumulative performance objectives and
thresholds established under the Corpora-
tion's annual incentive compensation plan
with respect to the period ending on the End
Date and
(ii) a fraction, the numerator of which is the number
of days in 1995 prior to and including the
Termination Date and the denominator of which is
365.
Any amount payable under this paragraph 5 shall be paid to
you within 10 business days after the Termination Date.
6. Retention Payments. If you are still
employed by the Corporation on the Termination Date, the
Corporation will pay you $195,000 in a single lump sum
within 10 business days after the Termination Date; provided
that, such amount shall be reduced by the amount of any
outstanding indebtedness you have to the Corporation (after
giving effect to the reduction therein described in para-
graph 9 below). The gross amount described in the preceding
sentence includes a payment in respect of the salary that
you agreed to forego as part of a general 10% reduction in
the base salaries payable to the Corporation's executive
officers.
7. Expenses. The Corporation will furnish,
insure and maintain for your use while you are employed by
the Corporation the automobile currently used by you. The
Corporation will reimburse you for reasonable travel, lodg-
ing, meal and other appropriate expenses incurred by you in
connection with your performance of services under this
letter agreement upon submission by you of evidence, satis-
factory to the Corporation, of the incurrence and purpose of
each such expense.
8. Employee Programs. During the period through
the Termination Date, you shall receive from the Corporation
the same employee benefits and perquisites as are provided
to you on the date hereof. For your service for the
Corporation during 1995, you shall accrue vacation days at
the rate of one and two-thirds days for each full month of
service (i.e., four weeks per annum). If you are still
employed by the Corporation on the Termination Date, the
Corporation shall pay you, at the end of each of the first
twelve months commencing after the Termination Date, an
amount equal to the monthly amount (the "Monthly Benefit
Costs") it paid to you immediately prior to the date hereof
in respect of the individual benefit arrangements that you
currently maintain in effect (the "Individual Arrangements")
in lieu of participating in the medical, dental, vision,
life and disability insurance and other welfare benefits
provided by the Corporation to its executive officers;
provided that if you obtain employment with an employer that
provides any similar benefits to its employees or senior
officers, the Corporation's obligation to continue to pay
for the related Individual Arrangements shall cease (with
prorata payments to be made through the date of such
cessation) as of the first date as of which you may receive
such benefits under the employer's generally applicable
plans, policies or arrangements. Effective as of the
Termination Date, your continued participation in, or rights
to receive compensation or other benefits under, any of the
Corporation's other employee benefit plans, programs or
arrangements shall be governed by the terms and conditions
of the applicable plan, program or arrangement.
9. Relocation. (a) As soon as practicable after
the execution hereof, the Corporation will apply for your
benefit an amount equal to $271,613. This amount will be
applied first to pay withholding taxes arising with respect
to such payment and then to reduce your outstanding indebt-
edness to the Corporation. This amount is in satisfaction
of your contractual right to be reimbursed in respect of (i)
costs and expenses that you incurred with respect to the
sale of your home in Atlanta, Georgia, (ii) costs and
expenses related to your relocation to Oklahoma in con-
nection with initially becoming an employee of the Corpora-
tion that have not previously been reimbursed and (iii)
taxes related to the costs and expenses described in clauses
(i) and (ii).
(b) If you are still employed by the Corporation
on the Termination Date, the Corporation shall also pay or
reimburse you, up to a maximum of $30,000, for (i) all
reasonable costs of moving your household goods between
Oklahoma and Kansas City and (ii) the reasonable legal fees,
closing costs and real estate commissions incurred by you in
connection with the sale of your home in Oklahoma; provided
that (x) the obligation of the Corporation to pay such
relocation expenses shall be reduced, on a dollar for dollar
basis, by any amount paid in respect of such relocation
expenses by any person with whom you accept employment and
(y) if the Corporation shall have paid any amount in respect
of such expenses which exceeds the amount it is required to
pay (after taking into account the adjustment described in
clause (x) above) you shall return such excess amount to the
Corporation within 10 days after such other employer pays or
reimburses you for such expenses. As a condition to your
receipt of the benefits payable under this Agreement, you
agree immediately to notify the Corporation of any job offer
you receive that may affect the Corporation's obligations
under this paragraph 9(b).
10. Termination Prior to the Termination Date.
Upon (a) the termination of your employment by the Corpora-
tion for other than Cause (as hereinafter defined) or (b)
the termination of your employment by you for Good Reason
(as hereinafter defined), the Corporation shall pay you the
amounts otherwise payable to you on the Termination Date
pursuant to paragraphs 5 and 6 and provide to you the post-
termination benefits otherwise to be provided to you follow-
ing the Termination Date pursuant to paragraph 8. The fore-
going amounts and benefits will be payable at the times
determined under each such preceding paragraph, assuming for
this purpose that the date your employment terminates is the
Termination Date. Except to the extent expressly provided in
paragraph 5 or 8, as incorporated herein, the amounts and
benefits payable under this paragraph 10 will not be subject
to any offset, mitigation or other reduction as a result of
your receiving salary or other compensation by reason of
your securing other employment.
For purposes of this Agreement, "Cause" is defined
to mean (a) your willful failure to substantially perform
your duties and continuance of such failure for more than 30
days after the Corporation notifies you in writing that you
are failing to substantially perform your duties, setting
forth in reasonable detail the manner in which you are fail-
ing so to perform your duties; (b) your engaging in serious
misconduct which is injurious to the Corporation; or (c)
your conviction in a court of proper jurisdiction of a crime
which constitutes a felony. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause
unless and until there is delivered to you a copy of a reso-
lution, duly adopted by the Corporation's Board of Direc-
tors, finding that the Corporation has "Cause" to terminate
you as contemplated in this paragraph. In the event that
the Corporation shall terminate your employment for Cause,
the Corporation shall only be obligated to pay you (a) your
base salary earned through the date of such termination, (b)
the amount payable in respect of the Individual Arrangements
through the date of such termination and, (c) the amount
necessary to reimburse you for expenses incurred prior to
the date of such termination for which the Corporation has
agreed to reimburse you as provided in this Agreement and,
to the extent provided under the Corporation's generally
applicable policies and procedures, any unused vacation
time, plus (d) if your employment terminates upon your death
or disability, incentive compensation for the portion of the
incentive year that precedes the date of such termination,
such incentive compensation to be a pro rata amount of the
incentive compensation payable for the entire incentive
year.
For purposes of this Agreement, a termination by
you shall be treated as having occurred for "Good Reason" if
it occurs within 30 days following the occurrence of any of
the following events without your prior written consent: (a)
your removal or any failure to reelect or redesignate you to
the position of Executive Vice President - Finance, Chief
Financial Officer of the Corporation, except in connection
with a termination of your employment by the Corporation for
Cause, (b) a change in your location of employment from
Oklahoma City or (c) a material reduction in your base
salary.
11. Release. In consideration of the Corpora-
tion's payment to you of the amount described in paragraphs
5, 6, 8 and 9 or paragraphs 9 and 10, as the case may be,
you hereby release and discharge the Corporation and each of
its Affiliates and each of their respective officers,
directors, employees, agents and assigns from any and all
claims, liabilities, demands or causes of actions, known or
unknown, arising out of or in any way connected with or
related to the termination of your employment, including,
without limitation, any claims: (i) based on any local,
state or Federal statute relating to age, sex, race or other
form of discrimination (including, without limitation, the
Age Discrimination in Employment Act of 1967, as amended),
(ii) of wrongful discharge, (iii) related to any breach of
any implied or express contract (whether oral or written)
and (iv) for intentional or negligent infliction of emo-
tional harm, defamation or any other tort, but expressly
excluding claims for vested benefits under the generally
applicable terms and conditions of any employee benefit plan
maintained by the Corporation or any of its Affiliates.
Effective as of the Termination Date, the Corpora-
tion shall release you from any and all claims, known or
unknown, arising out of or relating to your employment with
the Corporation, provided that expressly excluded from this
release are any and all claims (even if referred to above)
arising out of or relating to (i) any fraud against the
Corporation, (ii) your intentional or willful misconduct or
(iii) any breach of the terms of this Agreement.
12. Voluntary Action. You hereby acknowledge
that (i) you have read this Agreement (including, without
limitation, the release set forth in paragraph 11 hereof),
(ii) you fully understand the terms of this Agreement, (iii)
you have had the opportunity to review this Agreement with
your legal representative and (iv) you have executed this
Agreement voluntarily and without coercion, whether express
or implied. You have been advised by the Corporation that
he should consult with an attorney regarding the arrange-
ments set forth in this Agreement.
13. No Derogatory Comments. You agree to refrain
from making any derogatory comment concerning the Corpora-
tion or any of its Affiliates, or any of the current or
former shareholders, officers, directors or employees of the
Corporation or its Affiliates or from taking any other
action with respect to the Corporation which is reasonably
expected to result, or does result, in damage to the busi-
ness or reputation of the Corporation or any of its Affil-
iates or any of the current or former shareholders, offi-
cers, directors or employees of the Corporation or its
Affiliates, but expressly excluding herefrom any comments by
you to enforce any rights or claims against the Corporation
which are not released by you in paragraph 11 above. The
Corporation agrees to refrain from making any derogatory
comment about you, but expressly excluding herefrom any
comments by the Corporation to enforce any rights or claims
against you (or to defend any claims by you) which are not
released in paragraph 11 above.
14. Non-disclosure. Without the prior written
consent of the Corporation, except to the extent required by
an order of a court having competent jurisdiction or under
subpoena from an appropriate government agency, you shall
not disclose any trade secrets, customer lists, drawings,
designs, product development and related information,
marketing plans and related information, sales plans and
related information, manufacturing plans and related inform-
ation, management organization and related information
(including data and other information related to members of
the Board and management), operating policies and manuals,
business plans and related information, financial records
and related information, packaging design and related
information or other financial, commercial, business or
technical information related to the Corporation or its
Affiliates to any third person unless such information has
been previously disclosed to the public by the Corporation
or has become public knowledge other than by a breach of
this Agreement.
15. Return of Documents and Property. You agree
that upon the Termination Date or your earlier termination
of employment you shall return to the Corporation (i) any
documents and materials containing trade secrets and other
confidential information relating to the Corporation's busi-
ness and affairs, and (ii) any other documents, materials
and other property belonging to the Corporation or any of
its subsidiaries that are in your possession or control.
16. Indemnity. The Corporation or one of its
Affiliates, as appropriate, shall indemnify you for any
claim arising out of or in connection with Employee's serv-
ice as an officer of the Corporation or as a trustee or plan
administrator of any of the Corporation's employee benefit
plans and as an officer, director or employee of any of the
Corporation's Affiliates in the same manner and to the same
extent as the Company or such Affiliate, as the case may be,
indemnifies its then current directors, officers or employ-
ees.
17. Binding Effect. This Agreement shall be
binding on and inure to the benefit of the Corporation and
each of its successors and assigns. This Agreement shall
also be binding on and inure to the benefit of and be
enforceable by your personal or legal representatives, exec-
utors, administrators, heirs, distributees, devisees and
legatees. If you should die while any amounts are still
payable to you under this Agreement, the Corporation shall
pay such amounts, unless otherwise provided herein, in
accordance with the terms of this Agreement to your personal
or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees or estate, as the case may
be.
18. Remedies. You acknowledge that a material
part of the inducement for the Corporation to enter into
this Agreement is your covenants set forth in paragraphs 13
through 15 hereof. You agree that if you shall breach any
of those covenants, the Corporation shall have no further
obligation to provide you any benefits otherwise payable
hereunder (except as may otherwise be required at law) and
shall be entitled to such other legal and equitable relief
as a court shall reasonably determine.
19. Notices. All notices and other communica-
tions required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been given
if delivered personally or sent by certified express mail,
return receipt requested, postage prepaid, to you at Post
Office Box 37, Lawson, Missouri 64062-0037 and at 6004
Morning Dove Lane, Edmond, OK 73003-2521 or to the Corpora-
tion at 400 N.E. 36th Street, Oklahoma City, OK 73105,
Attention: President, with a copy to Clayton, Dubilier &
Rice, Inc., 126 East 56th Street, New York, NY 10022,
Attention: B. Charles Ames, or to such other address as
either party shall specify by notice to the other.
20. General Provisions. No provisions of this
Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is approved by the Corpor-
ation's Board of Directors and is agreed to in a writing
signed by you and the officer designated by the Board. No
waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or
otherwise, express or impled, with respect to the subject
matter hereof have been made by either party which are not
set forth expressly in this Agreement. The invalidity or
unenforceability of any one or more provisions of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in
full force and effect. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to
be an original but all of which together will constitute one
and the same instrument.
21. Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Oklahoma City,
Oklahoma, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association then in
effect.
<PAGE>
22. Governing Law. The validity, interpretation,
construction and performance of this Agreement shall be
governed by the laws of the State of Oklahoma, without giv-
ing effect to its conflict of laws provisions.
HOMELAND STORES, INC.
Witnessed: James A. Demme
Linda Kenney
MARK S. SELLERS
Witnessed: Mark S. Sellers
Linda Kenney
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Homeland Holding Corporation on Form S-8 (File No. 33-
37335) of our report dated March 24, 1995, except as to the
information presented in Note 15, for which the date is April 21,
1995, which includes an explanatory paragraph regarding the sale of
certain operations of Homeland Stores, Inc., a wholly owned
subsidiary of Homeland Holding Corporation, and the restructuring
of its debt, on our audits of the consolidated financial statements
of Homeland Holding Corporation and Subsidiary as of December 31,
1994 and January 1, 1994 and for the 52 weeks ended December 31,
1994 and January 1, 1994, and the 53 weeks ended January 2, 1993,
which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand
New York, New York
April 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Homeland Holding Corporation's Form 10-K for the year ended December 31,
1994 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 339
<SECURITIES> 0
<RECEIVABLES> 14,505
<ALLOWANCES> 2,690
<INVENTORY> 89,850
<CURRENT-ASSETS> 111,078
<PP&E> 199,982
<DEPRECIATION> 82,603
<TOTAL-ASSETS> 239,134
<CURRENT-LIABILITIES> 67,175
<BONDS> 145,000
<COMMON> 316
0
0
<OTHER-SE> 3,755
<TOTAL-LIABILITY-AND-EQUITY> 239,134
<SALES> 785,121
<TOTAL-REVENUES> 785,121
<CGS> 588,405
<TOTAL-COSTS> 588,405
<OTHER-EXPENSES> 216,848
<LOSS-PROVISION> 1,213
<INTEREST-EXPENSE> 18,067
<INCOME-PRETAX> (38,199)
<INCOME-TAX> 2,446
<INCOME-CONTINUING> (40,645)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,645)
<EPS-PRIMARY> (.96)
<EPS-DILUTED> (.96)
</TABLE>
