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 30, 1995
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.)
2601 N. W. Expressway
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 879-6600
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 No X
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 May 1, 1996:
Homeland Holding Corporation
Class A Common Stock, including redeemable common stock: 32,599,707 shares
Class B Common Stock: None
Documents incorporated by reference: None.
HOMELAND HOLDING CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS................................. 1
General.................................. 1
Restructuring............................ 1
Background............................... 2
Business Strategy........................ 3
AWG Transaction.......................... 4
Homeland Supermarkets.................... 5
Merchandising Strategy and Pricing....... 6
Customer Service......................... 7
Advertising and Promotion................ 7
Products................................. 8
Supply Arrangements...................... 8
Employees and Labor Relations............ 10
Computer and Management Information
Systems.................................. 11
Competition.............................. 12
Trademarks and Service Marks............. 12
Regulatory Matters....................... 13
ITEM 2. PROPERTIES............................... 13
ITEM 3. LEGAL PROCEEDINGS........................ 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS...................... 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.......... 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA..... 15
i
Page
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................ 18
Results of Operations.................... 18
Liquidity and Capital Resources.......... 23
Recently-Issued Accounting Standards..... 29
Inflation/Deflation...................... 29
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA....................... 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..................... 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT........................ 30
ITEM 11. EXECUTIVE COMPENSATION................... 32
Summary of Cash and Certain Other
Compensation............................ 32
Employment Agreements.................... 34
Management Incentive Plan................ 36
Retirement Plan.......................... 37
Compensation Committee Interlocks and
Insider Participation................... 37
Management Stock Purchases............... 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT......... 39
Ownership of Certain Holders............. 39
Registration and Participation
Agreements.............................. 40
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS..................... 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K........ 43
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.................. 43
ii
Page
SIGNATURES......................................... II-1
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS......... F-1
EXHIBIT INDEX...................................... E-1
iii
HOMELAND HOLDING CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
ITEM 1. BUSINESS
General
Homeland Holding Corporation ("Holding"), through
its wholly-owned subsidiary, Homeland Stores, Inc.
("Homeland," and, together with Holding, the "Company"), is a
leading supermarket chain in the Oklahoma, southern Kansas and
Texas Panhandle region. The Company operates in four distinct
market places Oklahoma City, Oklahoma, Tulsa, Oklahoma,
Amarillo, Texas and certain rural areas of Oklahoma, Kansas
and Texas. As of May 1, 1996, the Company operated 67 stores
throughout these markets.
The Company's executive offices are located at 2601
N.W. Expressway, Oklahoma City, Oklahoma 73112, and its
telephone number is (405) 879-6600.
Restructuring
On or about May 13, 1996, the Company anticipates
that it will file chapter 11 petitions with the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). Simultaneous with such filings, the Company will
submit a "pre-arranged" plan of reorganization and a
disclosure statement, which set forth the terms of a proposed
restructuring of the Company (the "Restructuring"). The
Restructuring is designed to reduce substantially the
Company's debt service obligations and labor costs and to
create a capital and cost structure that will allow the
Company to maintain and enhance the competitive position of
its business and operations. The Restructuring was negotiated
with, and is supported by, the lenders under the Company's
existing revolving credit facility, an ad hoc committee (the
"Committee") representing approximately 80% of the Company's
outstanding Senior Notes (as defined under "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations - Liquidity and Capital Resources") and the
Company's labor unions. The Company expects to complete the
Restructuring by mid-summer 1996.
Pursuant to the Restructuring, the $95 million of
the Company's Senior Notes currently outstanding (plus accrued
interest) will be canceled, and the noteholders will receive
(in the aggregate) $60 million face amount of new senior
subordinated notes of the reorganized Company and $1.5 million
in cash. The new senior subordinated notes will mature in
2003, bear interest semi-annually at a rate of 10% per annum
and will not be secured. In addition, the noteholders and the
Company's general unsecured creditors will receive
approximately 60% and 35%, respectively, of the equity of
reorganized Holding (assuming total unsecured claims of
approximately $63 million, including noteholder unsecured
claims). Holding's existing equity holders will receive the
remaining 5% of the new equity, together with five year
warrants to purchase an additional 5% of such equity.
An integral part of the Restructuring is the
Company's previously-announced deal with its labor unions to
modify certain elements of the Company's existing collective
bargaining agreements. These modifications will provide for,
among other things, wage and benefit modifications, the buyout
of certain employees and the issuance and purchase of new
equity to a trust acting on behalf of the unionized employees.
The modified collective bargaining agreements are conditioned
on, and will become effective upon, the consummation of the
Restructuring.
In order to facilitate the restructuring process,
the Company will enter into a DIP Facility (as defined under
"Management's Discussion and Analysis of Financial Conditions
and Results of Operations - Liquidity and Capital Resources")
with its existing bank group, which will provide the Company
with up to $27 million of working capital financing. On or
about May 13, 1996, the Company will file papers with the
Bankruptcy Court seeking interim and then final approval of
the DIP Facility. The Company believes that this facility
will provide it with the financing necessary to maintain its
normal business operations during the Restructuring period,
including the payment of the postpetition claims of trade
creditors and employees.
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.
Prior to the Acquisition, the Company did not have
any significant assets or liabilities or engage in any
activities other than those incidental 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 35.9% 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 40.4% of the Class A 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 turnaround 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 November
1994, the Company hired James A. Demme, a 35-year veteran of
the wholesale and retail food distribution business, to be the
Company's new President and Chief Executive Officer.
Following the completion of the AWG Transaction (as defined
under "Business -- AWG Transaction"), Mr. Demme and his new
management team began implementing the Company's new marketing
plan consisting of the following elements: (a) increasing
sales of specialty items and perishables; (b) distinguishing
the Company from its competitors by promoting and enhancing
the Company's reputation for good service and emphasizing the
Company's local identity; (c) increasing utilization of the
Company s high-low pricing approach; (d) upgrading the
Company's management information systems; (e) introducing the
Homeland Savings Card, a frequent-shopper card; and (f)
building customer loyalty and improving the Company s pricing
image through the Company s private label program.
As part of its strategic plan, the Company's
management team also implemented a program to close marginal
and unprofitable stores. The Company closed 14 stores in 1995
(seven prior to the AWG sale and seven after such sale) and
plans close two additional stores during 1996. The Company
sold its store in Ponca City, Oklahoma in April 1996.
For additional information, see also "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
AWG Transaction
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 "AWG Purchase
Agreement"), for a cash purchase price of approximately $72.9
million including inventory, and the assumption of certain
liabilities by AWG. 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."
AWG is a buying cooperative which sells groceries on
a wholesale basis to its retail member stores. AWG has 800
member stores located in a ten-state region and is the
nation's fourth largest grocery wholesaler, with approximately
$2.97 billion in revenues in 1995.
Of the proceeds from the AWG Transaction, $25.0
million was allocated to the Senior Notes and $12.2 million
was 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 were (i) used to pay certain costs,
expenses and liabilities required to be paid in connection
with the AWG Transaction and (ii) deposited into escrow
pending reinvestment by the Company. At December 30, 1995,
$1.7 million of the proceeds remained in escrow.
The AWG Transaction enabled the Company: (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 eliminated 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 and participation in the
membership rebate and patronage programs.
Homeland Supermarkets
The Company's current network of stores features
three basic store formats. Homeland's conventional stores are
primarily in the 25,000 total square feet range 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 $125,000 per
week. Homeland's superstores are in the 35,000 total square
feet range and offer, in addition to the traditional
departments, two or more specialty departments. Sales volumes
of superstores range from $95,000 to $265,000 per week.
Homeland's combo store format includes stores of approximately
45,000 total square feet and larger and was designed to enable
the Company to expand shelf space devoted to general
merchandise. Sales volume of combo stores range from $140,000
to $300,000 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 operated by the Company at May 1,
1996, 11 are conventional stores, 44 are superstores and 12
are combo stores.
The chart below summarizes Homeland's store
development over the last three years:
Fiscal Year Ended
12/30/95 12/31/94 01/01/94
Average sales per store
(in millions)............... $ 7.9 (1) $ 7.1 $ 7.2
Average total square feet
per store................... 38,204 (1) 34,700 34,700
Average sales per
square foot................. $207 (1) $205 $208
Number of stores:
Stores at start of period... 111 112 113
Stores remodeled............ 5 10 3
New stores opened........... 0 0 1
Stores sold or closed....... 43 1 2
Stores at end of period..... 68 111 112
Size of stores:
Less than 25,000 sq. ft..... 8 24 24
25,000 to 35,000 sq. ft..... 24 38 39
35,000 sq. ft. or greater... 36 49 49
Store formats:
Conventional................ 11 29 29
SuperStore.................. 44 65 66
Combo....................... 13 17 17
(1) Reflects the operations of 68 stores in 1995. The
Company's Ponca City store, which was sold in April 1996, was
a combo store.
The Company's network of stores is managed by
district managers on a geographical basis through four
districts. Each district manager oversees store operations
for approximately 17 stores. Store managers are responsible
for determining staffing levels, managing store inventories
(within the confines of certain parameters set by the
Company's corporate headquarters) and purchasing products.
Store managers have significant flexibility with respect to
the quantities of items carried, but not necessarily types of
products purchased. The Company's corporate headquarters is
directly responsible for merchandising, advertising, pricing
and capital expenditure decisions.
Merchandising Strategy and Pricing
The Company's merchandising strategy emphasizes
competitive pricing through a high-low pricing structure, as
well as the Company's leadership in quality products and ser-
vice, selection, convenient store locations, specialty
departments and perishable products (i.e., meat, produce,
bakery and seafood). The Company's strategy is to price com-
petitively 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.
Customer Service
The Company's stores provide a variety of customer
services including, among other things, carry-out services,
postal services, automated teller machines, pharmacies, video
rentals, check cashing and money orders. The Company believes
it is able to attract new customers and retain its existing
customers because of its high level of customer service.
Advertising and Promotion
All advertising and promotion decisions are made by
the Company's central merchandising and advertising staff.
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, the Company is focused on presenting itself 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. In May 1995, the Company introduced a new weekly
advertising layout that improved product presentation and
enhanced price perception. In addition, new signage was
implemented in the stores calling attention to various in-
store specials and creating a friendlier and more stimulating
shopping experience.
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 Company s
markets. The Company receives co-operative and performance
advertising reimbursements from vendors which reduce its
advertising costs.
In September 1995, the Company introduced a
frequent-shopper card called the Homeland Savings Card, in
its Amarillo, Texas stores. The Company believes that it is
the only supermarket chain that can capitalize on a frequent-
shopper card system because of the Company's advertising and
market share dominance. The Company expects to introduce the
Homeland Savings Card in its other stores in the third quarter
of 1996.
Products
The Company provides a wide selection of name-brand
and private label products to its customers. All stores carry
a full line of meat, dairy, produce, frozen food, health and
beauty aids and selected general merchandise. As of the close
of fiscal year 1995, approximately 82% of the Company's stores
had service delicatessens and/or bakeries and approximately
65% had in-store pharmacies. In addition, some stores provide
additional specialty departments that offer ethnic food, fresh
and frozen seafood, floral services and salad bars.
The Company's private label name is Pride of
America. The Company's private label program allows
customers to purchase high quality products at lower than
national brand retail prices. The Company's private label
products include over 400 items covering virtually every major
category in the Company's stores, including dairy products,
meat, frozen foods, canned fruits and vegetables, eggs, health
and beauty care products and plastic wrap.
As a result of the Company's supply relationship
with AWG, the Company's stores also offer certain AWG private
label goods, including Best Choice and Always Save .
Private label products generally represent quality
and value to customers and typically contribute to a higher
gross profit margin than national brands. The promotion of
private label products is an integral part of the Company's
merchandising philosophy of building customer loyalty as well
as improving the Company's pricing image.
Supply Arrangements
The Company is a party to the supply agreement with
AWG (the "Supply Agreement"), pursuant to which the Company
became a member of the AWG cooperative and AWG is the
Company's primary supplier. AWG currently supplies
approximately 70% of the goods sold in the Company's stores.
AWG is a buying cooperative which sells groceries on a
wholesale basis to its retail member stores. AWG has
approximately 800 member stores located in a ten-state region
and is the nation's fourth largest grocery wholesaler, with
approximately $2.97 billion in revenues in 1995.
Pursuant to the Supply Agreement, AWG is required to
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 is (1) eligible to participate
in certain cost-savings programs available to AWG's other
retail members and (2) is entitled to receive certain member
rebates and refunds based on the dollar amount of the
Company's purchases from AWG's distribution center and
periodic 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
distribution centers during such fiscal quarter.
The Company purchases 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 distribution center. The Company's open
account with AWG is currently secured by an $8.4 million
letter of credit (the AWG Letter of Credit ) issued in favor
of AWG by National Bank of Canada. 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 monthly payments and certain other
rebates, refunds and other credits owed to the Company by AWG
(including patronage refund certificates, direct patronage or
year-end patronage and concentrated purchase allowances).
The amount of the AWG Letter of Credit may be
decreased on a biannual basis upon the request of the Company
based on the Company's then-current average weekly volume of
purchases and 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 AWG 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 AWG Letter of
Credit has been increased to make up for any such deficiency.
Under the Supply Agreement, AWG has certain Volume
Protection Rights, including (1) the right of first offer
(the First Offer Rights ) with respect to any proposed sales
of stores supplied under the Supply Agreement (the Supplied
Stores ) and 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,
(2) the Company's agreement not to compete with AWG as a
wholesaler of grocery products during the term of the Supply
Agreement, and (3) the Company's agreement to dedicate the
Supplied 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 contained in the Supply Agreement are
terminable with respect to a Supplied Store upon the
occurrence of certain events, including the Company's com-
pliance with AWG's First Offer Rights with respect to any pro-
posed sale 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 Supplied Stores.
Employees and Labor Relations
At April 1, 1996, the Company had a total of 4,384
employees, of whom 2,762, or approximately 63%, were employed
on a part-time basis. The Company employs 4,267 in its super-
market operations. The remaining employees are corporate and
administrative personnel.
The Company is the only unionized grocery chain in
its market areas. Approximately 91% of the Company's
employees are union members, represented primarily by the
United Food and Commercial Workers of North America
( UFCWNA ). In 1993, the UFCWNA ratified the existing UFCWNA
labor agreement, implementing certain wage and benefit
concessions.
In March 1996, the Company and representatives of
the UFCWNA reached an agreement in principle regarding certain
modifications to the Company's existing collective bargaining
agreements. The Modified Union Agreement was ratified during
the week of March 11, 1996, by substantially all of each of
the UFCWNA local union chapters. In addition the local union
chapter of the Bakery, Confectionery and Tobacco Workers
International Union (the "BCT"), representing 30 of the
Company's in-store bakery employees, ratified modifications to
its union agreement on the same terms and conditions as the
modified union agreement with the UFCWNA (the modified union
agreements with the UFCWNA and the BCT are referred to
collectively as the "Modified Union Agreements").
The Modified Union Agreements have a term of five
years commencing on the Effective Date and are conditioned on
the consummation of the Restructuring. The Modified Union
Agreements consist of five basic elements: (a) wage rate and
benefit contribution reductions and work rule changes; (b) the
Employee Buyout Offer, pursuant to which the Company will make
up to $6.4 million available for the buyout of certain
unionized employees; (c) the establishment of an employee
stock option trust (acting on behalf of the Company's
unionized employees), which will receive, or be entitled to
purchase, up to 522,222 shares of New Common Stock, or 10% of
the New Common Stock, pursuant to the terms of the Modified
Union Agreements; (d) the UFCWNA's right to designate one
member of the Boards of Directors of Homeland and Holding
following the Restructuring; and (e) the elimination of
certain "snap back" provisions, incentive plans and
"maintenance of benefits" provisions.
The Company estimates that the Modified Union
Agreements will result in cost savings of approximately $7.2
million (assuming no employees accept the Employee Buyout
Offer) to $13.2 million (assuming the Employee Buyout Offer is
fully subscribed) during the first full contract year
following the Restructuring. There can be no assurance,
however, that such cost savings will actually be realized. In
addition, cost savings in future contract years may be offset
in part by certain wage and benefit increases.
Computer and Management Information Systems
During 1995, the Company installed new client/server
systems in order to enhance its information management
capabilities, improve its competitive position and enable the
Company to terminate the MIS Agreement (as defined below).
The new system includes the following features: time and
attendance, human resource, accounting and budget tracking,
and scan support and merchandising systems.
On October 1, 1991, the Company entered into an
agreement (the MIS Agreement ) with K-C Computer Services,
Inc. ( K-CCS ), providing for the outsourcing of the Company's
management information system and electronic data processing
functions. As a result of the installation of the new systems
described above, the Company terminated the MIS Agreement
effective as of March 31, 1996. The Company estimates that
the termination of the MIS Agreement will reduce the Company s
data processing and support costs by (net of replacement costs
and other expenses) by approximately $23.9 million over fiscal
years 1996 through 2001.
The MIS Agreement provides a schedule for the
payment of liquidated damages upon termination of the MIS
Agreement prior to its expiration in 2001. Pursuant to the
terms of the AWG Purchase Agreement, AWG is responsible for
52.3% of the payments under the MIS Agreement, including any
termination payment. According to the liquidated damage
schedule in the MIS Agreement, if the MIS Agreement is
terminated for convenience by Homeland during 1996, the
liquidated damage amount is $3 million. The same schedule
provides for $2 million in liquidated damages if the MIS
Agreement is terminated by the Company as a result of an
acquisition. The Company is unable to determine whether the
liquidated damage amounts under the MIS Agreement accurately
reflect the actual damages incurred by K-CCS as a result of
the termination of the MIS Agreement prior to its expiration
date. Pursuant to the AWG Purchase Agreement, the Company and
AWG are required to take all steps reasonably practicable to
achieve cost savings under the MIS Agreement.
The Company has installed laser-scanning checkout
systems in substantially all of its 67 stores. The Company
utilizes the information collected through its scanner systems
to track sales and to coordinate purchasing.
Competition
The supermarket business is highly competitive but
very fragmented and includes small independent operators. The
Company estimates that these operators represent over 40% of
its markets. The Company also competes with larger store
chains such as Albertson s and Wal-Mart, which operate 42
stores and 18 stores, respectively, in the Company's market
areas, price impact stores such as Mega-Market, large
independent store chains such as IGA, regional chains such as
United and discount warehouse stores.
The Company is a leading supermarket chain in
Oklahoma, southern Kansas and the Texas Panhandle region. The
Company attributes its leading market position to certain
advantages it has over certain of its competitors including
significant economies of scale for purchasing and advertising,
excellent store locations and a strong reputation within the
communities in which the Company operates.
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. In 1994, there were 14
competitive openings in the Company's market areas including
11 new Wal-Mart supercenters, 2 new Albertson s and 1 new Mega
Market. In 1995, there were 8 additional competitive openings
in the Company's market areas, including 3 new Albertson s and
1 new Wal-Mart. Based on information publicly available, the
Company expects that, in late 1996 or early 1997, Albertson's
will open 3 new stores, Reasor's will open 1 new store and
Crest will open 1 new store in the Company's market areas.
Trademarks and Service Marks
During the transition from Safeway to Homeland,
the Company was able to generate a substantial amount of
familiarity with the Homeland name. The Company continues
to build and enhance this name recognition through promotional
advertising campaigns. The Homeland name is considered
material to the Company's business and is registered for use
as a service mark and trademark. The Company 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.
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, the 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. To date, Homeland has experienced no
material difficulties in obtaining or renewing its regulatory
licenses and permits.
ITEM 2. PROPERTIES
Of the 67 supermarkets operated by the Company, 12
are owned and the balance are held under leases which expire
at various times between 1996 and 2013. Most of the leases
are subject to six five-year renewal options. Out of 55
leased stores, only eight 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. 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 $3.67 (without regard
to amortization of beneficial interest).
Substantially all of the Company's properties are
subject to mortgages securing the Company's Senior Notes. As
a result of the Restructuring, the Company anticipates that
such mortgages will be released. The Company, however,
expects the released properties to be subsequently secured
under the New Credit Agreement (see "Management's Discussion
and Analysis of Financial Conditions and Results of Operations
Liquidity and Capital Resources")
Although the Company believes that most of its
existing store leases are at or below the current market rate,
certain of the Company's stores are subject to burdensome
lease terms. As part of the Restructuring, the Company
intends to seek permission (pursuant to the Bankruptcy Code)
to reject up to seven store leases and may also reject store
leases on two underperforming stores to be closed during 1996.
On June 12, 1995, the Company relocated its
executive offices to a new leased facility located at 2601
Northwest Expressway, Suite 1100 E, Oklahoma City, Oklahoma
73112.
ITEM 3. LEGAL PROCEEDINGS
Routine Litigation
The Company is a party to ordinary routine litigation
incidental to its business.
Withdrawal Liability Dispute
The Company received a notice and demand for payment
dated June 22, 1995, from Central States, Southeast and
Southwest Areas Pension Fund (the Fund ) in the amount of
approximately $4.4 million. The Fund has asserted that the
Company incurred a withdrawal liability because the Fund
contends that the cessation of contributions to the Fund by
the Company was not solely because of the AWG Transaction.
The Company believes that no liability was incurred because
the AWG Sale was in compliance with an exemption from
withdrawal liability provided by Section 4204 of the Employee
Retirement Income Security Act of 1974, as amended ( ERISA ).
On September 29, 1995, the Fund filed a collection
action (the Illinois Action ) in the United States District
Court for the Northern District of Illinois, Eastern Division,
to compel the Company to make payments on the asserted
liability. On January 18, 1996, the Company initiated
arbitration of the withdrawal liability dispute by filing a
Demand for Arbitration with the American Arbitration
Association. No arbitration schedule had been set as of May
1, 1996.
Pursuant to the AWG Purchase Agreement, AWG is
obligated to reimburse the Company in an amount up to
approximately $3.4 million for any withdrawal liability
incurred with respect to covered operations resulting from
a failure to satisfy the requirements of ERISA Section 4204 in
respect of the covered operations. The Company has
requested that AWG make the withdrawal liability payments.
AWG has denied liability and has refused to reimburse the Com-
pany for any withdrawal liability or to make the withdrawal
liability payments to the Fund. On March 11, 1996, AWG filed
an action in the United States District Court for the District
of Kansas for a declaratory judgment as to the rights and
legal relations between the Company and AWG arising out of
AWG's agreement to reimburse the Company.
On March 14, 1996, the Company filed a Motion to
Implead AWG as a third party defendant in the Illinois Action.
On March 15, 1996, the Fund filed a Motion for Summary
Judgment for the entire withdrawal liability assessment of
approximately $4.4 million and for an unspecified amount of
liquidated damages, attorney's fees and costs. The Company
and the Fund have agreed to mediate the dispute and the Judge
has appointed a third party mediator. No mediation date had
been set as of May 1, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by Holding to a vote of
Holding's security holders during the quarter ended December
30, 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.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated
financial data of the Company which has been derived from
financial statements of the Company for the 52 weeks ended
December 30, 1995, December 31, 1994 and January 1, 1994, the
53 weeks ended January 2, 1993 and the 52 weeks ended December
28, 1991 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.
(In thousands, except per share amounts)
<TABLE>
<C> <C> <C> <C> <C>
52 weeks 52 weeks 52 weeks 53 weeks 52 weeks
ended ended ended ended ended
12/30/95 12/31/94 01/01/94 01/02/93 12/28/91
Summary of Operations Date:
Sales, net . . . . . . . $630,275 $785,121 $810,967 $830,964 $786,785
Cost of Sales. . . . . . . 479,119 588,405 603,220 609,906 573,470
Gross profit . . . . . . . 151,156 196,716 207,747 221,058 213,315
Selling and administrative . 151,985 193,643 190,483 199,547 187,312
Operational restructuring
costs (1) 12,639 23,205 - - -
Operating profit (loss). . (13,468) (20,132) 17,264 21,511 26,003
Gain on sale of plants . . . - - 2,618 - -
Interest expense . . . . (15,992) (18,067) (18,928) (24,346) (22,257)
Income (loss) before income taxes
and extraordinary items . (29,460) (38,199) 954 (2,835) 3,746
Income taxes . . . . . . - (2,446) 3,252 (982) (992)
Income (loss) before extraordinary
items. (29,460) (40,645) 4,206 (3,817) 2,754
Extraordinary items
(2) (3) (4). (2,330) - (3,924) (877) -
Net Income (loss). . . . (31,790) (40,645) 282 (4,694) 2,754
Reduction (Accretion) in redemption value of
redeemable common stock . . 940 7,284 - - (132)
Net income (loss) available to common
stockholders. . . . . . (30,850) $(33,361) $ 282 $(4,694) $ 2,622
Net income (loss) per common
share (5). . $ (.93) $ (.96) $ .01 $ (.13) $ .07
Consolidated Balance Sheet Data: 12/30/95 12/31/94 01/01/94 01/02/93 12/28/91
Total assets . . . . . . . $137,582 $239,134 $274,290 $305,644 $285,735
Long-term obligations, including
current portion of long-term
obligations . . $124,242 $176,731 $172,600 $198,380 $179,680
Redeemable common stock. . . $ 17 $ 1,235 $ 8,853 $ 9,470 $ 10,616
Stockholders' equity (deficit)$(28,106) $ 4,071 $ 36,860 $ 37,150 $ 41,844
</TABLE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands)
(1) Operational restructuring costs during 1995 included the
write-off of software no longer utilized by the Company,
the write-off of goodwill in connection with the
Restructuring and a termination charge resulting from the
cancellation of the Company's computer outsourcing
agreement. 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 1995 included the payment of
$906 in premiums and consent fees on the redemption of
$15,600 of the Company's Senior Notes and $1,424 in
unamortized financing costs related to the Senior Notes
so redeemed as well as the replacement of the prior
revolving credit facility.
(3) 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.
(4) 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 Furrs, Inc. issued in connection with the
Company's acquisition of certain stores from Furrs, Inc.
in September 1991. The extraordinary items have been
shown net of income taxes of $219.
(5) 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." 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 table below 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
<TABLE>
<C> <C> <C>
1995 1994 1993
Net Sales........................ 100.00% 100.00% 100.00%
Cost of sales.................... 76.02 74.94 74.38
Gross profit................... 23.98 25.06 25.62
Selling and administrative....... 24.11 24.67 23.49
Operational restructuring costs 2.01 2.96 -
Operating profit (loss)........ (2.14) (2.57) 2.13
Gain on sale of plants........... - - .32
Interest expense................. (2.53) (2.30) (2.33)
Income (loss) before income
taxes and extraordinary items.. (4.67) (4.87) .12
Income tax benefit (provision)....... - ( .31) .40
Income (loss) before
extraordinary items............ (4.67) (5.18) .52
Extraordinary items.............. (0.37) - (.48)
Net income (loss)................ (5.04) (5.18) .04
</TABLE>
Comparison of Fifty-Two Weeks Ended December 30,
1995 with Fifty-Two Weeks Ended December 31, 1994
Sales. Net sales for 1995 declined to $630.3
million, a 19.7% decrease from sales of $785.1 million in
1994. The decrease in net sales was due primarily to the sale
of 29 stores to AWG on April 21, 1995 and the closing of 14
underperforming stores over the course of 1995. These stores
were closed pursuant to the Company's plan to close certain
marginal and underperforming stores. Net sales were also
impacted by increased competition in the Company's market area
resulting from additional store openings of Wal-Mart
supercenter stores and Albertsons stores during 1994. There
was one new Wal-Mart supercenter store and three Albertson's
stores that opened in the Company's market area during 1995.
The Company's comparable stores sales for the 68
stores increased by 0.2% compared to the prior year, due
primarily to improved store conditions, a new advertising
program and increased promotional pricing.
Cost and Expenses. Gross profit as a percentage of
sales decreased to 24.0% in 1995 compared to 25.1% in 1994.
The continued erosion of the Company's gross margins was the
result of a number of factors including (a) the difficulties
in transforming the Company from a self-supplier to a member
of a purchasing cooperative and (b) additional competitive
openings (there were eight additional competitive openings in
the Company's market areas in 1995) and the aggressive pricing
practices of certain competitors.
Selling and administrative expenses as a percentage
of sales decreased in 1995 to 24.1% from 24.7% in 1994. The
Company was able to implement personnel and other cost
reductions at the corporate office as a result of the sale of
29 stores and its distribution center to AWG. This included
a reduction of headcount by approximately 50% at the corporate
office, lower travel, telephone, and service charges, computer
expenses and other related administrative expenses. The
decrease was also due to an additional workers compensation
accrual during 1994 that did not recur in 1995.
The Company is continuing its drive to contain and
reduce costs. New systems have recently been installed that
allowed the Company to terminate its expensive computer
outsourcing agreement, thereby reducing future computer and
information systems costs. Furthermore, the Company expects
to streamline numerous other processes that will benefit
expense reduction efforts.
Operational Restructuring Costs. Operational
restructuring costs for 1995 amounted to $12.6 million which
included the write-off of computer software no longer being
utilized by the Company, the write-off of goodwill in
connection with the Restructuring and a termination fee
associated with the cancellation of the Company's computer
outsourcing agreement.
Operating Loss. Operating loss was $13.5 million in
1995 compared to an operating loss of $20.1 million in 1994.
The lower operating loss was due primarily to lower
operational restructuring costs which declined from $23.2
million in 1994 to $12.6 million in 1995.
Interest Expense. Interest expense for 1995
decreased to $16.0 million from $18.1 million in 1994. The
lower interest expense was due primarily to the redemption of
$25.0 million of Senior Notes on June 1, 1995.
Income Tax Provision. The Company did not record
any provision for income taxes for 1995. At December 30,
1995, the Company had tax net operating loss carryforwards of
approximately $48.6 million.
Extraordinary Items. Extraordinary items for the
year consist of the payment of $600,000 in consent fees to the
holders of the Senior Notes (as defined in Liquidity and
Capital Resources of this section), $306,000 in premiums on
the redemption of $15.6 million of New Fixed Rate Notes (as
defined in Liquidity and Capital Resources of this section)
and $1.4 million in unamortized financing costs related to the
redemption of $25.0 million of Senior Notes and the
replacement of the prior revolving credit agreement.
Net Loss. The Company had a net loss of $31.8
million in 1995 compared to a net loss of $40.6 million in
1994. The lower net loss in 1995 was due primarily to a
reduction in operational restructuring costs from $23.2
million in 1994 to $12.6 million in 1995.
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.
Cost and Expenses. Gross profit as a percentage of
sales for 1994 decreased to 25.1% compared to 25.6% in 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 1994 to 24.7% from 23.5% for 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 UFCWNA in December 1993.
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 included the fixed
costs of the closed stores from the time they were expected to
be closed until they could be sold or the leases expire.
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.
Interest Expense. Interest expense for 1994
decreased to $18.1 million from $18.9 million in 1993 due
primarily to the redemption of the Company's Subordinated
notes which were redeemed by the Company on March 1, 1993.
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).
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. On June 28, 1995, the
Company reached a tentative agreement with the IRS Appeals
office to settle the above claims. Management has analyzed
the proposed settlement 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"
in this section.
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.
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.
On April 21, 1995, the Company and the Senior Note
Indenture trustee entered into a supplemental indenture
effecting certain amendments to the Senior Note Indenture.
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 June 1, 1995, the Company redeemed $15.6 million
of its New Fixed Rate Notes, $6.9 million of New Floating Rate
Notes and $2.5 million of Old Floating Rate Notes
(collectively the "Redeemed Notes"). The redemption price for
the Redeemed Notes was equal to 100% of the principal amount
and accrued interest of $695,000 plus, in the case of the New
Fixed Rate Notes, a premium of $306,000. At May 1, 1996,
$59.4 million of New Fixed Rate Notes, $26.1 million of New
Floating Rate Notes and $9.5 million of Old Floating Rate
Notes were outstanding.
On April 21, 1995, the Company entered into a
revolving credit agreement (the "Revolving Credit Agreement")
with National Bank of Canada, ("NBC") as agent and as lender,
Heller Financial, Inc. and any other lenders thereafter
parties thereto. The Revolving Credit Agreement provides a
commitment of up to $25 million in secured revolving credit
loans, including certain letters of credit. The Revolving
Credit Agreement permits borrowings for working capital needs
and for the issue of standby letters of credit and documentary
letters of credit. Borrowings under the 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 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.
At May 1, 1996, the net unused and available amount under the
Revolving Credit Facility was $6.8 million.
Despite the completion of the AWG Transaction and
the commencement of the Company's new marketing plan, the
Company continued to experience operating difficulties in
1995. As a result of the Company's operating difficulties,
the Company began experiencing significant liquidity problems
in the third quarter of 1995. The Company's liquidity
problems reached a critical point in late August immediately
prior to the scheduled September 1, 1995 interest payment on
the Senior Notes of approximately $4.5 million. Although the
Company made the September 1, 1995 interest payment on the
Senior Notes, this payment was funded in part from the
proceeds of certain accrued AWG receivables and benefits under
the Supply Agreement that the Company assigned to AWG.
The Company responded to its operating and liquidity
problems by (a) seeking ways to improve the Company's gross
margins, such as improving sales mix and reducing markdowns
and (b) addressing the AWG "transitional" issues by monitoring
store inventory levels and AWG billings. However, the Company
realized that a long-term solution, such as a restructuring of
the Company's indebtedness or the sale of the Company to a
third party was required for the Company to remain viable.
In November and December 1995, the Company retained
Alvarez & Marsal, Inc. ("A&M") to act as the Company's crisis
consultant and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), respectively, to act as the Company's
financial advisor. In addition, during this time, the
Committee was formed.
In late 1995 and early 1996, DLJ assisted the
Company in exploring certain strategic restructuring
alternatives, including the sale of the Company to a third
party. In connection with these efforts, DLJ contacted a
number of potential buyers and investors. Excluding
indications of interest to purchase individual stores or small
groups of stores, DLJ received only one offer to purchase the
Company as a whole. The Company and the Committee, together
with their respective advisors, concluded that this offer was
inadequate and should be rejected.
In December 1995, the Company informed the lenders
under the Revolving Credit Agreement and the trustee under the
Senior Note Indenture that it would be unable to comply with
certain year-end financial maintenance covenants (the
Consolidated Fixed Charge Coverage Ratio and the Debt-to-
EBITDA Ratio) contained in the Revolving Credit Agreement and
the Senior Note Indenture and requested a temporary waiver of
its obligations under such covenants in order to facilitate a
global restructuring of all of the Company's indebtedness.
The lenders under the Revolving Credit Agreement and the
trustee under the Senior Note Indenture (acting at the
direction of a majority in principal amount of the Old Notes
then outstanding) waived compliance by the Company with these
financial covenants through the earlier to occur of April 15,
1995 and the date on which the Company defaulted on any of its
payment obligations with respect to the Senior Notes.
On March 1, 1996, the Company failed to make the
scheduled interest payment on its Senior Notes in the amount
of approximately $4.5 million. This payment default resulted
in a termination of the December 1995 waiver under the Senior
Note Indenture. Notwithstanding such termination, the
Committee advised the Company that, so long as restructuring
negotiations between the Company and the Committee were
proceeding, the Committee would not exercise any contractual
or other remedies in response to the interest payment default.
Moreover, the lenders under the Revolving Credit Agreement
agreed that their waiver would continue to be effective
through May 20, 1996, notwithstanding such payment default.
On March 27, 1996, the Company entered into an
agreement in principle with the Committee with respect to the
Restructuring. The agreement in principle provides that, upon
completion of the Restructuring, the $95 million of Senior
Notes currently outstanding (together with accrued interest of
$6.6 million) will be canceled and the Noteholders will
receive $60 million in aggregate principal amount of new
senior subordinated notes, a majority of the new equity of the
reorganized Company and $1.5 million in cash. The new senior
subordinated notes, to be issued pursuant to a new indenture,
will mature in 2003, bear interest semi-annually at a rate of
10% per annum and will not be secured. In addition, the
noteholders and the Company's general unsecured creditors will
receive approximately 60% and 35%, respectively, of the equity
of reorganized Holding (assuming total unsecured claims of
approximately $63 million, including noteholder unsecured
claims). Holding's existing equity holders will receive the
remaining 5% of the new equity, together with five year
warrants to purchase an additional 5% of such equity.
An integral part of the Restructuring is the
Company's previously-announced deal with its labor unions to
modify certain elements of the Company's existing collective
bargaining agreements. These modifications will provide for,
among other things, wage and benefit modifications, the buyout
of certain employees and the issuance and purchase of new
equity to a trust acting on behalf of the unionized employees.
The modified collective bargaining agreements are conditioned
on, and will become effective upon, the consummation of the
Restructuring.
As a result of these changes to the Company's
capital structure and collective bargaining agreements, the
Company will significantly reduce its interest and labor cost.
The lenders under the Revolving Credit Agreement
have agreed to lend the Company (on a revolving basis) up to
$27 million (subject to borrowing base availability) for its
working capital and other general corporate purposes under a
debtor-in-possession facility (the "DIP Facility").
Under the DIP Facility, the Company is permitted to
borrow up to the lesser of $27 million and the "Borrowing
Base." The Borrowing Base is an amount equal to the sum of
(1) 65% of the net amount of "eligible inventory," (2) 40% of
the net amount of "eligible pharmaceutical inventory," (3) 85%
of the net amount of "eligible coupons;" and (4) 50% of net
amount of "eligible pharmaceutical receivables." Borrowings
under the DIP Facility bear interest at an interest rate equal
to (1) the prime rate announced publicly by National Bank of
Canada from time to time in New York, New York plus (2) two
percent. Interest is payable quarterly in arrears on the last
day of March, June, September and December, commencing on June
30, 1996. The DIP Facility will mature on the earlier of (1)
one year from the date of filing of the Company's voluntary
petition under Chapter 11 of the Bankruptcy Code, and (2) the
effective date of the Company's Plan of Reorganization (the
"Plan").
The DIP Facility provides that National Bank of
Canada, on behalf of itself and as agent for the lenders under
the DIP Facility, will have liens on, and security interests
in, all of the pre-petition and post-petition property of the
Company (other than the collateral under the Senior Note
Indenture), which liens and security interests will have
priority over substantially all other liens on, and security
interests in, the Company's property (other than properly
perfected liens and security interests which existed prior to
the date of filing of the Company's voluntary petition under
the Bankruptcy Code).
The DIP Facility includes certain customary
restrictive covenants, including restrictions on acquisitions,
asset dispositions, capital expenditures, consolidations and
mergers, distributions, divestitures, indebtedness, liens and
security interests and transactions with affiliates. The DIP
Facility also requires the Company to comply with certain
financial maintenance and other covenants.
On the effective date of the Plan (the "Effective
Date") the Company anticipates that it will enter into a new
bank credit agreement or an amendment and restatement of its
existing credit agreement (the "New Credit Agreement"), the
general terms of which must be approved by the Committee. As
of the date hereof, the Company is in discussions with a
number of banks potentially interested in providing this
credit facility, including the lenders under its existing
credit facility. There can be no assurance, however, that any
bank or group of banks will agree to provide a bank credit
facility on terms acceptable to the Company and the Committee.
The Company anticipates that the New Credit
Agreement will provide for up to $37.5 million in borrowings,
including approximately $27.5 million under a revolving credit
facility (subject to borrowing base requirements) and a $10
million term loan. Proceeds from the term loan will be used
primarily to fund certain obligations under the Modified Union
Agreements and to pay certain transaction expenses relating to
the Restructuring. The Company expects that its obligations
under the New Credit Agreement will be secured by a security
interest in, and liens on, substantially all of the Company's
assets and will be guaranteed by Holding.
Working Capital and Capital Expenditures. The
Company's primary sources of capital have been borrowing
availability under the Revolving Credit Agreement and cash
flow from operations, to the extent available. The Company
uses the available capital resources for working capital
needs, capital expenditures and repayment of debt obligations.
The Company suffered a negative cash flow from
operations of $8.0 million in 1995 compared to positive cash
flow of $0.3 million in 1994 and $13.0 million in 1993. The
cash flow deficit in 1995 is due to the Company incurring a
net cash outflow before working capital changes of $7.3
million, which is the net loss of $31.8 million offset by
$24.5 million of non-cash charges. The remainder of the cash
outflow from operations are from net working capital changes
that resulted primarily from the AWG Transaction.
The Company's investing activities provided net cash
of $65.1 million in 1995 and used net cash of $4.0 million and
$3.1 million in 1994 and 1993, respectively. The substantial
increase for cash provided by investing activities in 1995 was
the result of sale of the warehouse, 29 stores and associated
inventory to AWG. Capital expenditures were $4.7 million,
$5.4 million and $7.1 million in 1995, 1994 and 1993,
respectively. The Company expects to make total capital
expenditures of approximately $5.0 million in 1996, primarily
for store information systems and remodels. The funds
required for the 1996 capital expenditures would come from the
remaining escrow funds of approximately $0.7 million available
for reinvestment from the AWG Transaction, cash flow from
operations, the DIP Facility and the New Credit Agreement.
Financing activities of the Company used net cash of
$51.0 million in 1995, provided net cash of $1.9 million in
1994 and used net cash of $33.5 million in 1993. The net cash
usage in 1995 was primarily due to the paydown of $25.0
million in Senior Notes and $21.0 million of revolving credit
facility loans.
The Company's ability to continue to meet its
working capital needs, meet its debt and interest obligations
and capital expenditure requirements is dependent on its
future operating performance and the consummation of the
Restructuring. Management believes that the Restructuring
will have a favorable effect on the Company's future liquidity
by (i) reducing future interest cost, (ii) reducing labor
costs, (iii) extending the maturities of the Company's long-
term debt, (iv) reducing the Company's store lease obligations
by the rejection of at least seven store leases and (v)
permitting additional borrowings through the release of
collateral under the Senior Note Indenture. There can be no
assurance that future operating performance will provide
positive net cash or that the Restructuring will be
successful. If the Company is not able to generate positive
cash flow from its operations or if the Restructuring is not
successfully consummated, management believes that this could
have a material adverse effect on the Company's business and
the continuing viability of the Company.
Recently-Issued Accounting Standards
The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121,
("Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121")) in
March 1995 to establish accounting standards for the
impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held
and used. The Company has not yet adopted this accounting
standard, which becomes effective in 1996 for Homeland, nor
has it evaluated the potential impact of adoption in 1996.
The impact of SFAS no. 121 is not reasonably estimable at this
time due to certain factors discussed in Note 2 to the
consolidated financial statements. Although this standard may
affect reported earnings and the carrying values of long-lived
assets, there will be no impact on cash flows.
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.
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:
Years with the
Company and/or
Age Position Safeway
B. Charles Ames * 70 Chairman of the Board -
James A. Demme* 55 President, Chief 1
Executive Officer and
Director
Larry W. Kordisch* 48 Executive Vice President - 1
Finance, Treasurer, Chief
Financial Officer and
Secretary
Steven M. Mason 41 Vice President - Marketing 26
Terry M. Marczewski* 41 Chief Accounting Officer, 1
Assistant Treasurer,
Assistant Secretary
Alfred F. Fideline, Sr. 58 Vice President - Retail 39
Operations
Prentess E. Alletag, Jr. 49 Vice President - Human 29
Resources
John A. Shields 52 Director --
Bernard S. Black 42 Director --
Bernard Paroly 77 Director --
Andrall E. Pearson 70 Director --
Hubbard C. Howe 67 Director --
Michael G. Babiarz 30 Director --
* Holding's Board of Directors is identical to that of Homeland. Mr.
Ames serves as Holding's Chairman of the Board, Mr. Demme serves as
Holding's President and Chief Executive Officer, Mr. Kordisch as
Executive Vice President - Finance, Treasurer, Chief Financial
Officer and Secretary and Mr. Marczewski 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, Inc.
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
nation's fifteenth largest retail chain with sales of $1.7
billion.
Larry W. Kordisch joined the Company in February
1995 and became Executive Vice President - Finance, Treasurer,
Chief Financial Officer and Secretary as of May 1995. Prior
to joining Homeland, Mr. Kordisch served as Executive Vice
President - Finance and Administration, Chief Financial
Officer and member of the Board of Directors of Scrivner, Inc.
and was responsible for the Finance, Accounting, Risk
Management, Legal and Administrative functions.
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.
Terry M. Marczewski joined the Company in April 1995
and became the Chief Accounting Officer, Assistant Treasurer
and Assistant Secretary as of May 1995. From July 1994 to
April 1995, he was the controller at Fleming Companies, Inc.-
Scrivner Group. From 1990 to July 1994, Mr. Marczewski was
the Vice President and Controller at Scrivner, Inc., the
nation's third largest grocery wholesaler, prior to its
acquisition by Fleming Companies, Inc.
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.
John A. Shields became a director of Homeland in May
1993. Mr. Shields also served as Vice Chairman of the Board
of Holding and Homeland from December 1993 to December 1995.
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.
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.
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 January 1993. From 1971
through 1985, Mr. Pearson was President and Chief Operating
Officer of PepsiCo., Inc. Mr. Pearson is a director of
PepsiCo., Inc., May Department Stores Company, The Travelers,
Inc. (formerly Primerica Corporation), and Lexmark
International, Inc. and its parent Lexmark Holding, Inc.
Hubbard C. Howe became a director of Homeland in
August 1995. He has been a principal of CD&R since 1990. Mr.
Howe is also a director of Nukote Holdings and APS Holdings.
Michael G. Babiarz became a director of Homeland in
January 1995. Mr. Babiarz has been a professional employee of
CD&R since 1990.
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, each of the three other most highly compensated
executive officers of the Company and one former executive
officer (hereinafter referred to as the "Named Executive
Officers") for the fiscal years ended December 30, 1995,
December 31, 1994, and January 1, 1994:
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Other
Principal Annual All Other
Position Year Salary Bonus Compensation Compensation (3)(4)
James A. Demme (1) 1995 $200,000 $100,000 (2) $ 4,396
President and 1994 11,538 - (2) -
Chief Executive
Officer of the
Company
Mark S. Sellers (6) 1995 $ 81,922 $140,656 $271,613 (5) $208,207
Former Executive 1994 153,000 130,050 114,474 (5) 43,447
Vice Pres. Finance, 1993 160,192 153,000 80,852 (5) 34,604
Treasurer, Chief
Financial Officer
and Secretary
Larry W. Kordisch(7) 1995 $126,923 $100,000 (2) $ 3,907
Executive Vice
Pres. Finance,
Treasurer, Chief
Financial Officer
and Secretary
Steven M. Mason 1995 $130,500 $ 19,575 (2) $ 6,414
Vice President - 1994 130,500 110,925 (2) 8,963
Marketing 1993 107,250 103,500 (2) 3,904
Terry M. Marczewski(8) 1995 $ 69,32 $ 20,000 (2) $ 43
Chief Accounting
Officer, Assistant
Treasurer, Assistant
Secretary
(1) Mr. Demme joined the Company as President, Chief
Executive Officer and a director as of November 30, 1994.
(2) 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.
(3) All other compensation includes contributions to the
Company's defined contribution plan on behalf of each of
the Named Executive Officers to match 1993 pre-tax
elective deferral contributions (there was no match for
1994 and 1995) (included under Salary) made by each to
such plan, as follows: Steven M. Mason, $2,956.
(4) 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
1995 are as follows: James A. Demme, $1,547; Mark S.
Sellers, $11,069; Larry W. Kordisch, $2,073; Steven M.
Mason, $1,616; and Terry M. Marczewski, $43.
(5) Includes reimbursement of relocation expenses in the
amount of $271,613 in 1995, $95,378 in 1994 and $78,058
in 1993.
(6) Mr. Sellers was Executive Vice President-Finance and
Chief Financial Officer of the Company until his
resignation in May 1995.
(7) Mr. Kordisch joined the Company in February 1995 and was
appointed Executive Vice President-Finance, Chief
Financial Officer, Treasurer and Secretary of the Company
as of May 5, 1995.
(8) Mr. Marczewski joined the Company in April 1995 and was
appointed the Chief Accounting Officer and Controller of
the Company as of May 5, 1995.
Directors who are not employees of the Company or
otherwise affiliated with the Company (presently consisting of
Messrs. Black, Paroly 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 Shields also serves as a
consultant to the Company from time to time at the request of
CD&R. During 1995, Mr. Shields received $166,662 from CD&R
for consulting fees for services provided to the Company.
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 subject to increase from time to time at the
discretion of the Board of Directors. The agreement entitles
Mr. Demme to participate in the Company's Management Incentive
Plan with a maximum annual bonus equal to 100% of base salary.
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. The agreement was amended in April 1996, to
provide that, if the agreement is terminated by the Company
for other than cause or disability prior to December 31, 1997,
or is terminated by Mr. Demme following a change of control or
a trigger event (as defined), Mr. Demme is entitled to receive
(a) payment, which would not be subject to any offset as a
result of his receiving compensation from other employment,
equal to two years' salary, plus a pro rata amount of the
incentive compensation for the portion of the incentive year
that precedes the date of termination, and (b) continuation of
welfare benefit arrangements for a period of two years after
the date of termination. The Restructuring is a trigger event
under the agreement only if Mr. Demme terminates his
employment for good reason (as defined) or if, following the
Effective Date, a subsequent trigger event occurs, such as a
change of control or sale of assets.
On September 26, 1995, the Company entered an
employment agreement with Larry W. Kordisch, the Company's
Executive Vice President-Finance and Chief Financial Officer.
The agreement provides for a base annual salary of not less
than $150,000, subject to increase from time to time at the
discretion of the Board of Directors. Mr. Kordisch is also
entitled to participate in the Management Incentive Plan based
upon the attainment of performance objectives as the Board of
Directors shall determine from time to time. The agreement
was amended in April 1996, to provide that, if the agreement
is terminated by the Company for other than cause or
disability prior to December 31, 1997, or is terminated by Mr.
Kordisch following a change of control or a trigger event (as
defined), Mr. Kordisch is entitled to receive (a) payment,
which would not be subject to any offset as a result of his
receiving compensation from other employment, equal to two
years' salary, plus a pro rata amount of the incentive
compensation for the portion of the incentive year that
precedes the date of termination, and (b) continuation of
welfare benefit arrangements for a period of two years after
the date of termination. The Restructuring is a trigger
event under the agreement only if Mr. Kordisch terminates his
employment for good reason (as defined) or if, following the
Effective Date, a subsequent trigger event occurs, such as a
change of control or sale of assets.
On September 26, 1995, the Company entered into an
employment agreement with Terry M. Marczewski, the Company's
Controller and Chief Accounting Officer. The agreement, which
is for an indefinite term, provides for a base annual salary
of $90,000, subject to increase from time to time at the
discretion of the Board of Directors. Mr. Marczewski is also
entitled to participate in the Management Incentive Plan based
upon the attainment of performance objectives as the Board
shall determine from time to time. The agreement was amended
in April 1996, to provide that, in the event his employment is
terminated prior to December 31, 1997 for any reason other
than cause or disability, the Company will pay Mr. Marczewski
his annual salary for a period of one year after the
termination date or until December 31, 1997, whichever is
longer, plus a pro rata amount of the incentive compensation
for the portion of the incentive year that precedes the date
of terminations.
In April 1996, the Company entered into employment
agreements with Steve Mason, the Company's Vice President of
Marketing, and Alfred F. Fideline, Sr., the Company's Vice
President of Retail Operations. The agreements, which are for
an indefinite term, provide a base annual salary of $130,500
for Mr. Mason and $80,000 for Mr. Fideline, subject to
increase from time to time at the discretion of the Board of
Directors. In the event their employment is terminated prior
to December 31, 1997 for any reason other than cause or
disability, the Company will pay Mr. Mason and Mr. Fideline
their annual salaries for a period of one year after the
termination date or until December 31, 1997, whichever is
longer, plus a pro rata amount of the incentive compensation
for the portion of the incentive year that precedes the date
of termination
On January 30, 1995, the Company entered into an
agreement with Mark S. Sellers, the Company's former Executive
Vice President-Finance, Chief Financial Officer, Treasurer and
Secretary. Pursuant to such agreement, in May 1995, Mr.
Sellers was paid $348,139, which included $195,000 of
retention payment, $140,656 of pro rata bonus related to the
Management Incentive Plan and $12,483 of unpaid vacation and
retroactive pay adjustments.
The Company entered into a settlement agreement as
of August 31, 1995 with Jack M. Lotker, the Company's former
Senior Vice President-Administration, in connection with the
termination of his employment with the Company. In connection
with the settlement, the Company agreed to grant to Mr. Lotker
warrants to purchase 100,000 shares of Holding's Class A
Common Stock at an exercise price of $0.50 per share and at
Mr. Lotker's discretion, the Company agreed to either (a) pay
Mr. Lotker a single lump sum of $188,000 or (b) cause PHH Home
Equity to purchase Mr. Lotker's current principal residence at
a price equal to the appraised value but not less than
$575,000. In November 1995, Mr. Lotker elected for the
Company to pay him a single lump sum of $188,000. However,
due to the Company's liquidity constraints, the Company has
not been able to make this payment and accordingly the Company
is in default with respect to the settlement agreement. Mr.
Lotker has filed a suit against the Company, demanding
recovery under the settlement agreement, together with
penalties and interest.
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 1995 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 and 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 annual compensation
(including basic, overtime and incentive compensation) plus
.50% of career average annual 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 retirement 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, $27,280; Larry W. Kordisch, $44,375;
Steven M. Mason, $85,129; and Terry M. Marczewski, $35,372.
Compensation Committee Interlocks and Insider Participation
Messrs. Ames, Babiarz, Paroly and Shields served on
the Company's Compensation and Benefits Committee of the Board
of Directors for the 1995 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 1995 Mr. Shields received $166,662
from CD&R for consulting fees for services provided to the
Company.
Management Stock Purchases
Shares of Common Stock purchased by management 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.
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 May 1, 1996 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, 1996,
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. As a result
of this offer, the Company redeemed 1,688,493 shares of its
Common Stock and issued 1,550,493 warrants.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Ownership of Certain Holders
Set forth below is information as of May 1, 1996,
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 35.9%
The Clayton & Dubilier Private
Equity Fund IV Limited
Partnership, 270 Greenwich
Avenue, Greenwich, CT 06830 13,153,089 40.4
B. Charles Ames (1)(2) 13,153,089 40.4
Joseph L. Rice, III (1)(3) 24,853,089 76.3
Alberto Cribiore (1)(3) 24,853,089 76.3
Donald J. Gogel (1) 13,153,089 40.4
Leon J. Hendrix, Jr. (1) 13,153,089 40.4
William A. Barbe (1) 13,153,089 40.4
Andrall E. Pearson (1) 13,153,089 40.4
Hubbard C. Howe (1) 13,153,089 40.4
James A. Demme -- --
Larry W. Kordisch -- --
Terry M. Marczewski -- --
Steven M. Mason (4) 41,912 *
Alfred F. Fideline, Sr. 1,000 *
Bernard S. Black (5) 70,000 *
Bernard Paroly 50,000 *
John A. Shields -- --
Michael G. Babiarz -- --
Officers and directors as
a group (13 persons) (6)(7) 13,366,001 41.0
*Indicates less than 1%
(1) Messrs. Ames, Rice, Cribiore, Gogel, Hendrix, Barbe,
Pearson 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, Hendrix, Barbe, Pearson and Howe each expressly
disclaims such beneficial ownership of the shares owned
by C&D Fund IV. Messrs. Ames, Rice, Cribiore, Gogel,
Hendrix, Barbe, Pearson 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, Hendrix, Barbe, Pearson and Howe is c/o
Clayton, Dubilier & Rice, Inc., 375 Park Avenue, 18th
Floor, New York, NY 10152.
(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.
(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 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 90,900 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.
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 general partner of Associates IV.
Michael G. Babiarz, a director of the company, is a
professional employee of CD&R. Hubbard C. Howe, a principal
of CD&R and a director of the Company, is a general partner of
Associates 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 $125,000 in 1995, $150,000 in 1994 and $200,000
in 1993. CD&R has agreed to forgo the consulting fee after
October 1995, in view of the Company's financial position and
in order to facilitate the proposed Restructuring.
CD&R, C&D Fund III and the Company entered into an
Indemnification Agreement on August 14, 1990, pursuant to
which the Company agreed 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 to certain members
of management to enable such persons to make principal
payments under loans from third-party financial institutions.
As of May 1, 1996, $81,500 of such loans remains outstanding
and are currently due on July 21, 1996. The loans bear
interest at a variable rate equal to the rate applicable to
the Company's borrowings under the Revolving Credit Agreement
plus one percent.
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 Exhibits.
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. Exhibits. See attached Exhibit Index on page
E-1.
(b) Reports on Form 8-K. No reports on Form 8-K were
filed during the last quarter of the period covered
by this report.
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 1995
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 1996
annual meeting of security holders. The Company will furnish
copies of such material to the Commission when it is sent to
security holders.
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: May 13, 1996 By: /s/ 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
/s/ B. Charles Ames Chairman of the Board May 13, 1996
B. Charles Ames
/s/ James A. Demme President, Chief Executive May 13, 1996
Officer and Director
(Principal Executive Officer)
/s/ Larry A. Kordisch Executive Vice President/ May 13, 1996
Larry A. Kordisch Finance, Treasurer, C.F.O.
and Secretary (Principal
Financial Officer)
/s/ Terry M. Marczewski Chief Accounting Officer May 13, 1996
Terry M. Marczewski Assistant Treasurer and
Assistant Secretary
(Principal Accounting
Officer)
Signature Title Date
/s/ John A. Shields Director May 13, 1996
John A. Shields
/s/ Bernard S. Black Director May 13, 1996
Bernard S. Black
/s/ Bernard Paroly Director May 13, 1996
Bernard Paroly
/s/ Andrall E. Pearson Director May 13, 1996
Andrall E. Pearson
/s/ Hubbard C. Howe Director May 13, 1996
Hubbard C. Howe
/s/ Michael G. Babiarz Director May 13, 1996
Michael G. Babiarz
INDEX TO FINANCIAL STATEMENTS
HOMELAND HOLDING CORPORATION
Consolidated Financial Statements
Report of Independent Accountants . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 30, 1995
and December 31, 1994. . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the
52 weeks ended December 30, 1995, December 31, 1994
and January 1, 1994 . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the 52 weeks ended December 30, 1995,
December 31, 1994 and January 1, 1994 . . . . . . . F-6
Consolidated Statements of Cash Flows for the
52 weeks ended December 30, 1995, December 31, 1994
and January 1, 1994 . . .. . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . F-9
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 statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Homeland
Holding Corporation and Subsidiary as of December 30, 1995 and December
31, 1994, and the consolidated results of their operations and their cash
flows for the 52 weeks ended December 30, 1995, December 31, 1994 and
January 1, 1994, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has incurred recurring
losses from operations, negative cash flows from operations for the year
ended December 30, 1995, a stockholders' deficit as of December 30, 1995
and has been unable to comply with its debt covenants. In addition, on
March 27, 1996, the Company reached an agreement in principle with members
of an ad-hoc noteholders committee with respect to a financial
restructuring of the Company. The Company and the ad-hoc noteholders
committee have agreed to implement the financial restructuring under a
pre-arranged plan of reorganization to be filed under Chapter 11 of the
United States Federal Bankruptcy Code. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The
continuation of its business as a going concern is contingent upon, among
other things, the ability to (1) complete the pre-arranged plan of
reorganization and (2) sustain satisfactory levels of future earnings and
cash flows. Management's plans with regard to such financial
restructuring are set forth in Note 15 to the financial statements. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties or adjustments relating to the
establishment, settlement and classification of liabilities that may be
required in connection with the pre-arranged plan of reorganization of
Homeland Holding Corporation and Subsidiary under Chapter 11 of the United
States Federal Bankruptcy Code.
Coopers & Lybrand, L.L.P.
New York, New York
March 27, 1996
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS (Note 4)
December 30, December 31,
1995 1994
Current assets:
Cash and cash equivalents (Notes 3 and 5) $ 6,357 $ 339
Receivables, net of allowance for uncollectible
accounts of $2,661 and $2,690 8,051 12,235
Receivable for taxes (Note 6) - 2,270
Inventories 42,830 89,850
Prepaid expenses and other current assets 2,052 6,384
Total current assets 59,290 111,078
Property, plant and equipment:
Land 9,919 10,997
Buildings 22,101 29,276
Fixtures and equipment 44,616 61,360
Land and leasehold improvements 23,629 32,410
Software (Note 3) 1,991 17,876
Leased assets under capital leases (Note 9) 29,062 46,015
Construction in progress 4,201 2,048
135,519 199,982
Less, accumulated depreciation
and amortization 63,827 82,603
Net property, plant and equipment 71,692 117,379
Excess of purchase price over fair
value of net assets acquired, net
of amortization of $830 in fiscal 1994 (Note 3) - 2,475
Other assets and deferred charg es 6,600 8,202
Total assets $137,582 $239,134
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 30, December 31,
1995 1994
Current liabilities:
Accounts payable - trad $ 17,732 $ 30,317
Salaries and wages 1,609 1,925
Taxes 4,876 6,492
Accrued interest payable 2,891 3,313
Other current liabilities 14,321 15,050
Current portion of long-term debt (Notes 4, 5 and 15) - 2,250
Long-term obligations in default classified as current
(Notes 4, 5 and 15) 100,467 -
Current portion of obligations under capital
leases (Note 9) 2,746 7,828
Current portion of restructuring reserve (Note 14) 3,062 -
Total current liabilities 147,704 67,175
Long-term obligations:
Long-term debt (Notes 4, 5 and 15) - 145,000
Obligations under capital leases (Note 9) 9,026 11,472
Other noncurrent liabilities 6,133 5,176
Noncurrent restructuring reserve (Note 14) 2,808 5,005
Total long-term obligations 17,967 166,653
Commitments and contingencies (Notes 8, 9 and 12) - -
Redeemable common stock, Class A, $.01 par value,
1,720,718 shares at December 30, 1995 and 3,864,211
shares at December 31, 1994, at redemption value
(Notes 10 and 11) 17 1,235
Stockholders' equity (deficit):
Common stock (Note 10):
Class A, $.01 par value, authorized - 40,500,000
shares, issued - 33,748,482 shares at December 30,
1995 and 31,604,989 at December 31, 1994,
outstanding - 30,878,989 shares 337 316
Additional paid-in capital 55,886 53,896
Accumulated deficit (80,188) (48,398)
Minimum pension liability adjustment (Note 8) (1,327) -
Treasury stock, 2,869,493 shares at December 30, 1995
and 726,000 shares at December 31, 1994, at cost (2,814) (1,743)
Total stockholders' equity (deficit) (28,106) 4,071
Total liabilities and stockholders' equity(deficit) $137,582 $239,134
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<C> <C> <C>
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 31, January 1,
1995 1994 1994
Sales, net $630,275 $785,121 $810,967
Cost of sales 479,119 588,405 603,220
Gross profit 151,156 196,716 207,747
Selling and administrative expenses 151,985 193,643 190,483
Operational restructuring costs
(Note 14) 12,639 23,205 -
Operating profit (loss) (13,468) (20,132) 17,264
Gain on sale of plants - - 2,618
Interest expense (15,992 ) (18,067) (18,928)
Income (loss) before income tax benefit
(provision) and extraordinary items (29,460) (38,199) 954
Income tax benefit (provision) (Note 6) - (2,446) 3,252
Income (loss) before extraordinary
items (29,460) (40,645) 4,206
Extraordinary items (Note 4) (2,330) - (3,924)
Net income (loss) (31,790) (40,645) 282
Reduction in redemption value -
redeemable common stock 940 7,284 -
Net income (loss) available to
common stockholder $(30,850) $(33,361) $ 282
Income (loss) before extraordinary
items per common share $ (.86) $ (.96) $ .12
Extraordinary items per common share (.07) - (.11)
Net income (loss) per common share $ (.93) $ (.96) $ .01
Weighted average shares outstandin 33,223,675 34,752,527 34,946,460
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
<TABLE>
<C> <C> <C> <C> <C> <C>
Class A Additonal Pension Total
Common Stock Paid-in Accumulated Liability Treasury Stock Stockholder's
Shares Amount Capital Deficit Adjustment Stock Amount Equity (Deficit)
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 31,1994 31,604,989 316 53,896 (48,398) - 726,000 (1,743) 4,071
Purchase of treasury stock 2,143,493 21 1,050 - - 2,143,493 (1,071) -
Adjustment to recognize
minimum liability - - - - (1,327) - - (1,327)
Redeemable common stock
reduction in redemption
value - - 940 - - - - 940
Net loss - - - (31,790) - - - (31,790)
Balance, December 30,1995 33,748,482 $337 $55,886 $(80,188) $(1,327) 2,869,493 $(2,814) $(28,106)
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
<TABLE>
<C> <C> <C>
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 31, January 1,
1995 1994 1994
Cash flows from operating activities:
Net income (loss) $(31,790) $(40,645) $ 282
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 11,192 17,458 16,797
Amortization of financing costs 1,019 1,443 1,484
Write-off of financing costs on long-term
debt retired 1,424 - 1,148
(Gain) loss on disposal of assets 8,349 384 (2,284)
(Gain) on sale of sold stores (15,795) - -
Amortization of beneficial interest in
operating leases 181 258 261
Impairment of assets 2,360 14,325 744
(Increase) decrease in deferred tax assets - 3,997 (3,997)
Provision for losses on accounts receivable 1,750 1,213 75
Provision for write down of inventories 847 - -
Change in assets and liabilities:
(Increase) decrease in receivables 3,227 2,301 (1,131)
(Increase) decrease in receivables for
taxes 2,270 (2,270) -
Decrease in inventories 18,297 2,097 1,236
(Increase) decrease in prepaid expenses and
other current assets 5,542 (2,687) (862)
(Increase) decrease in other assets and deferred
charges (1,215) 103 (238)
Increase (decrease) in accounts payable-
trade (12,587) 832 (5,464)
Decrease in salaries and wages (316) (821) (1,994)
Increase (decrease) in taxes (1,616) 1,768 (3,629)
Decrease in accrued interest payable (422) (53) (1,102)
Increase (decrease) in other current
liabilities (3,264) (34) 7,371
Increase in restructuring reserve 1,356 5,005 -
Increase (decrease) in other noncurrent
liabilities 1,157 (4,417) 4,301
Net cash provided by (used in) operating
activities (8,034) 257 12,998
Cash flows from investing activities:
Capital expenditures (4,681) (5,386) (7,129)
Purchase of assets under capital leases (3,966) - -
Cash received from sale of assets 73,721 1,363 3,991
Net cash provided by (used in) investing
activities 65,074 (4,023) (3,138)
Cash flows from financing activities:
Payments under senior secured floating
rate notes (9,375) - -
Payments under senior secured fixed
rate notes (15,625) - -
Payments on subordinated debt - - (47,750)
Borrowings under revolving credit loans 104,087 66,000 100,000
Payments under revolving credit loans (123,620) (56,000) (85,000)
Net borrowings (payments) under swing loans (1,500) (3,500) 5,000
Principal payments under notes payable (750) (1,000) (1,250)
Principal payments under capital lease
obligations (3,166) (3,334) (4,198)
Payments to acquire treasury stock (1,073) (255) (323)
Net cash provided by (used in) financing
activities (51,022) 1,911 (33,521)
</TABLE>
Continued
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands, except share and per share amounts)
<TABLE>
<C> <C> <C>
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 30, January 1,
1995 1994 1994
Net increase (decrease) in cash and cash equivalents $ 6,018 $ (1,855) $ (23,661)
Cash and cash equivalents at beginning of period 339 2,194 25,855
Cash and cash equivalents at end of period $ 6,357 $ 339 $ 2,194
Supplemental information:
Cash paid during the period for interest $ 13,439 $ 16,642 $ 18,738
Cash paid during the period for income taxes $ - $ 236 $ 890
Supplemental schedule of noncash investing activities:
Capital lease obligations assumed $ - $ 1,493 $ 3,218
Capital lease obligations retired $ - $ - $ 31
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. Organization:
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 Inc. 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:
December 30, December
31,
1995 1994
Homeland stockholder's equity:
Common stock, $.01 par value,
authorized, issued and
outstanding 100 shares 1 1
Additional paid-in capital 53,435 53,713
Accumulated deficit (80,198) (48,408)
Minimum pension liability adju (1,327) -
Total Homeland stockholder's
equity (deficit) $(28,089) $ 5,306
2. Basis of Presentation:
The accompanying consolidated financial statements of Holding
have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the ordinary course of business. Accordingly,
the consolidated financial statements do not include any
adjustments relating to the recoverability or classification
of recorded asset amounts or the amount and classification of
liabilities that might be necessary should Holding be unable
to successfully complete the financial restructuring described
in Note 15 and continue as a going concern.
2. Basis of Presentation, continued:
As shown in the accompanying financial statements, the Company
incurred significant losses in 1995 and 1994 and, at December
30, 1995, had a stockholders' deficit of $28,106. As discussed
in Note 4, at December 30, 1995, as a consequence of
Homeland's financial position and the results of its
operations for the year ended December 30, 1995, the Company
was not in compliance with the Consolidated Fixed Charge
Coverage Ratio and Debt-to-Equity Ratio covenants under its
Senior Note Indenture and Revolving Credit Agreement; however,
waivers of such noncompliance through April 15, 1996 and May
20, 1996, respectively, have been received. In addition, the
Company failed to make a scheduled interest payment under its
Senior Note Indenture, due March 1, 1996, and the waiver under
such Senior Note Indenture thereby expired. Furthermore, as
discussed in Note 15, negotiations for the restructuring of
the Company's long-term debt and union agreements are being
conducted which, if unsuccessful, could have a material
adverse effect on the Company's financial condition.
3. 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.
Revenue recognition - The Company recognizes revenue at the
"point of sale", which occurs when groceries and related
merchandise are sold to its customers.
<PAGE>
3. Summary of Significant Accounting Policies, continued:
Concentrations of credit and business 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 customers
within the region and receivables from vendors throughout the
country. The Company purchases approximately 70% of its
products from Associated Wholesale Grocers, Inc. ("AWG").
Although there are similar wholesalers that could supply the
Company with merchandise, if AWG were to discontinue
shipments, this could have a material adverse effect on the
Company's financial condition.
Restricted Cash - The Company has two escrow accounts at
United States Trust Company of New York, one for reinvestment
in capital expenditures to which the Company is committed
("Capital Escrow") and one for the redemption of Senior Notes
(as subsequently defined in Note 4) ("Redemption Escrow"). As
of December 30, 1995, the Company has $1,729 deposited in the
Capital Escrow and $800 deposited in the Redemption Escrow.
The deposited funds in the Capital Escrow is restricted for
reinvestment in capital expenditures to which the Company is
committed or must be used to permanently pay down the Senior
Notes. The Redemption Escrow consisting of net proceeds from
asset sales occurring after the AWG Transaction (as
subsequently defined in Note 14) is restricted to permanently
pay down the Senior Notes when the aggregate amount reaches
$2,000.
Inventories - Inventories are stated at the lower of cost or
market, with cost being determined primarily using the retail
method.
3. Summary of Significant Accounting Policies, continued:
Property, plant and equipment - Property, plant and equipment
obtained at acquisition are stated at appraised fair market
value as of that date; all subsequently acquired property,
plant and equipment are stated at cost or, in the case of
assets under capital leases, at the lower of 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 reporting 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
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. In the fourth quarter of 1995, approximately $7.9
million of capitalized software costs, net of accumulated
depreciation, have been charged to operational restructuring
costs in the Statement of Operations as a result of
management's decision to replace such software as part of its
operational restructuring initiatives.
Excess of purchase price over fair value of net assets
acquired - As discussed in Notes 2 and 14, the Board of
Directors approved a strategic plan in December 1995 to
refocus the Company's restructuring efforts, which commenced
in 1994, to address continuing significant losses from
operations as well as evaluating various financial
restructuring alternatives in an effort to improve cash flows
from operations and reduce interest costs on the Company's
long-term debt. There is no assurance that such restructuring
efforts will be successful and, accordingly, the Company
determined during the fourth quarter of 1995 that the recovery
of any remaining unamortized excess of purchase price over
fair value of net assets acquired could not be assured from
future operating cash flows. Consequently, the unamortized
3. Summary of Significant Accounting Policies, continued:
balance of the excess of purchase price over fair value of net
assets acquired was charged to operational restructuring costs
in the statement of operations.
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.
No interest cost was capitalized in 1995. Interest costs of
$35 and $44 were capitalized in 1994 and 1993, respectively.
Advertising costs - Costs of advertising are expensed as
incurred. Gross advertising costs for 1995, 1994 and 1993,
respectively, were $10,700, $13,615 and $14,100.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. The most
significant assumptions and estimates relate to the reserve
for restructuring, the reserve for self-insurance programs,
the deferred income tax valuation allowance, the accumulated
benefit obligation relating to the employee retirement plan,
the allowance for bad debts and depreciation rates of property
and equipment. Actual results could differ from those
estimates.
3. Summary of Significant Accounting Policies, continued:
Income taxes - The Company provides for income taxes based on
enacted tax laws and statutory tax rates at which items of
income and expense are expected to be settled in the Company's
income tax return. Certain items of revenue and expense are
reported for Federal income tax purposes in different periods
than for financial reporting purposes, thereby resulting in
deferred income taxes. 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.
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. 121, " Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS No.121"), in March 1995 to establish
standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets
to be held and used. The Company has not yet adopted this
accounting standard, which becomes effective in 1996 for
Homeland, nor has it evaluated the potential impact of
adoption in 1996. The impact of SFAS No. 121 is not
reasonably estimable at this time due to certain factors
discussed in Note 2 to the consolidated financial statements;
although this standard may affect reported earnings and the
carrying values of long-lived assets, there will be no impact
on cash flows.
4. Current and long-term Debt:
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 outstanding amounts under the previous credit
agreement. In October and November 1992, the Company
exchanged a portion of its Series D Senior Secured Floating
Rate Notes due 1997 (the "New Floating Rate Notes") and its
Series C Senior Secured Fixed Rate Notes due 1999 (the "New
Fixed Rate Notes", and collectively, 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.
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% of the outstanding principal amount specified in the
subordinated note agreement, together with accrued interest.
On April 21, 1995, the Company and the Indenture trustee
entered into a supplemental indenture effecting certain
amendments to the Indenture. On June 1, 1995, the Company
redeemed $15,625 of its New Fixed Rate Notes, $6,874 of New
Floating Rate Notes and $2,501 of Old Floating Rate Notes.
Also on April 21, 1995, the Company entered into a revolving
credit agreement (the "Revolving Credit Agreement") with
National Bank of Canada ("NBC") as agent and lender, Heller
Financial, Inc. and any other lenders thereafter parties
thereto. The Revolving Credit Agreement provides a commitment
of up to $25 million in collateralized revolving credit loans,
including certain documentary and standby letters of credit.
<PAGE>
4. Current and long-term Debt, continued:
As a result of the 1995 and 1993 redemptions, the Company
incurred the following extraordinary losses:
1995 1993
Premium on redemption/repurchase
of the Company's 15.5%
subordinated notes due
November 1, 1997 $ - $(2,776)
Unamortized financing costs
relating to the redemption/
repurchase of the Company's
15.5% subordinated notes
due November 1, 1997 - (1,148)
Consent fee equal to $5,000
for each principal amount
of the $120.0 million Senior
Notes (600) -
Premium on redemption of $15.6
million of the Senior Secured
Fixed Rate Notes, due
March 1, 1999 (306) -
Unamortized financing costs
relating to the redemption of
$25.0 million of the Senior Notes
and the replacement of the prior
revolving credit agreement (1,424) -
Net extraordinary loss $(2,330) $(3,924)
4. Current and long-term Debt, continued:
Long-term debt at year end consists of:
December 30, December 31,
1995 1994
Note payable* $ - $ 750
Senior Notes Series A** 9,499 12,000
Senior Notes Series D** 26,126 33,000
Senior Notes Series C** 59,375 75,000
Revolving credit loans*** 5,467 26,500
100,467 147,250
Less current portion - 2,250
Less long-term debt obligation
in default classified as current 100,467 -
Long-term debt due after
one year $ - $145,000
* The Company issued a $3,000 note payable in 1992 for the
purchase of fixed assets related to the acquisition of
five stores. The note matured on March 1, 1995 and was
repaid.
** 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 (8.43% at December 30,
1995). The Series C Senior Secured Fixed Rate Notes
mature on March 1, 1999. Interest payments are due
semiannually at an annual rate of 12.25%. 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
a Debt-to-EBITDA and a consolidated fixed charge coverage
ratio, as defined, and a capital expenditure covenant, as
well as limiting the incurrence of additional
indebtedness, providing 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
limiting the payment of dividends. At December 30, 1995,
the Company was not in compliance with the Debt-to-EBITDA
and the fixed charge coverage ratio covenants.
4. Current and long-term Debt, continued:
Although a waiver was received by the Company for such
noncompliance through April 15, 1996, the Company failed
to make a scheduled interest payment on March 1, 1996
and, accordingly, such waiver expired. As the Company
may not be able to comply with these debt covenants in
1996, the aggregate principal amount of the outstanding
debt was classified as current obligations.
*** Borrowings under the Revolving Credit Agreement bear
interest at the NBC Base Rate plus 1.5% for the first
year, payable on a quarterly basis in arrears. At
December 30, 1995, the interest rate on borrowings under
the Revolving Credit Agreement was 10.0%. 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 Revolving Credit
Agreement are subject to a borrowing base, which was
$23.7 million as of December 30, 1995, 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 Revolving Credit Agreement, among other things,
requires the maintenance of a Debt-to-EBITDA ratio and
consolidated fixed charge coverage ratio, as defined, and
limits the Company's net capital expenditures, incurrence
of additional indebtedness and the payment of dividends.
The notes are collateralized by accounts receivable and
inventories of the Company. At December 30, 1995, the
Company was not in compliance with the Debt-to-EBITDA
coverage ratio and the consolidated fixed charge coverage
ratio. The lenders waived compliance of such default
through May 20, 1996. As the Company may not be able to
comply with existing covenants in 1996, the outstanding
borrowings have been classified as current obligations
(See Note 2 -Basis of Presentation and Note 15 -
Subsequent Events).
5. Fair Value of Financial Instruments:
The estimated fair value of financial instruments has 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 30, 1995 and December 31, 1994 are as follows:
December 30, 1995 December 31, 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash and Cash
Equivalents $6,357 $6,357 $339 $339
Liabilities:
Current and Long-Term
Obligations in
default classified
as current $100,467 $56,411 - -
Long-Term Debt - - $147,250 141,250
Cash and cash equivalents - The carrying amount of this item
is a reasonable estimate of its fair value due to its short-
term nature.
Current and long-term obligations in default classified as
current; 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 obligations in default classified as
current 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.
6. Income Taxes:
The components of the income tax benefit (provision) for
fiscal 1995, 1994 and 1993 were as follows:
1995 1994 1993
Federal:
Current - AMT $ - $ 1,551 $ (36)
Deferred - (3,997) 3,288
Total income tax benefit
(provision) $ - $(2,446) $3,252
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:
1995 1994 1993
Federal income tax at statutory
rate $11,127 $13,370 $1,010
AMT in excess of regular tax - - (36)
AMT loss carryback - 1,551 -
Change in valuation allowance (10,074) (16,075) 3,288
Other - net (1,053) (1,292) (1,010)
Total income tax benefit
(provision) $ - $(2,446) $3,252
During the year ended December 30, 1995, the Company received
an income tax refund amounting to $1,339, 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.
6. Income Taxes, continued:
The components of deferred tax assets and deferred tax
liabilities are as follows:
December 30, December
31,
1995 1994
Current assets (liabilities):
Allowance for uncollectible
receivables $ 1,090 $ 942
Termination of Borden supply
agreement - 789
Operational restructuring re 1,282 5,918
Other, net 406 (800)
Net current deferred tax assets 2,778 6,849
Noncurrent assets (liabilities):
Property, plant and equipment 251 (4,577)
Targeted job credit carryforward 815 815
Self-insurance reserves 2,150 3,183
Operational restructuring reserve 969 1,745
Net operating loss carryforwards 17,001 7,048
AMT credit carryforwards 630 507
Capital leases 1,111 600
Other, net 444 (95)
Net noncurrent deferred tax
assets 23,371 9,226
Total net deferred assets 26,149 16,075
Valuation allowance (26,149) (16,075)
Net deferred tax assets $ - $ -
Due to the uncertainty of realizing the future tax benefits,
the full valuation allowance established in fiscal 1994 was
increased to entirely offset the net deferred tax assets as of
December 30, 1995. At December 30, 1995, the Company had the
following operating loss and tax credit carryforwards
available for tax purposes:
6. Income Taxes, continued:
Expiration
Amount Dates
Federal regular tax net
operating loss carryforwards $48,575 2002-2010
Federal AMT credit carryforwards
against regular tax $ 630 indefinite
Federal tax credit carryforwards
(Targeted Jobs Credit) $ 815 2003-2009
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. On June 28, 1995, the Company reached a tentative
agreement with the IRS appeals office to settle the above
claim. Management has analyzed the proposed settlement and
has provided for amounts which it believes are adequate.
7. Incentive Compensation Plan:
The Company has bonus arrangements for store management and
other key management personnel. During 1995, 1994, and 1993,
approximately $934, $1,939, and $2,900, respectively, was
charged to costs and expenses for such bonuses.
8. 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
Employee Retirement Income Security Act of 1974, but not in
excess of the maximum deductible limit. (Assets were held in
investment mutual funds during 1995 and 1994.)
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 December 30, 1995 and January 1, 1994
representing the excess of the accumulated benefit obligation
over the fair value of plan assets and accrued pension
liability. The liabilities have been offset by intangible
assets to the extent of previously unrecognized prior service
cost. The accumulated benefit obligation for December 30,
1995 was determined using a 7.25% discount rate; if the
discount rate used had been at least 7.35%, the additional
minimum liability would not have been recorded.
Net pension cost consists of the following:
1995 1994 1993
Service cost $ 517 $709 $663
Interest cost 465 366 292
Loss (return) on assets (1,140) 63 (319)
Net amortization and deferral 690 (419) 43
Curtailment charge (37) - -
Net periodic pension cost $ 495 $719 $680
The funded status of the plan and the amounts recognized in
the Company's balance sheet at December 30, 1995 and December
31, 1994 consist of the following:
1995 1994
Actuarial present value of benefit
obligations:
Vested benefits $(6,928) $(4,499)
Non-vested benefits (88) (151)
Accumulated benefit
obligations $(7,016) $(4,650)
8. Retirement Plans, continued:
1995 1994
Projected benefit obligations $(7,693) $(5,441)
Plan assets at fair value 6,902 4,960
Projected benefit obligations in
excess of plan assets (791) (481)
Unrecognized prior service cost (95) (144)
Unrecognized net loss from past
experience different from that
assumed and changes in actuarial
assumptions 2,096 1,340
Adjustment to recognize minimum
liability (1,327) -
Net pension asset (liability)
recognized in statement of
financial position $ (117) $ 715
Actuarial assumptions used to determine year-end plan status
were as follows:
1995 1994
Assumed rate for determination of net
periodic pension cost 9.0% 7.5%
Assumed discount rate to determine
the year-end plan disclosures 7.25% 9.0%
Assumed long-term rate of return
on plan assets 9.0% 9.0%
Assumed range of rates of future
compensation increases
(graded by age) for net
periodic pension cost 5.0% to 7.0% 3.5% to 5.5%
Assumed range of rates of future
compensation increases
(graded by age) for year-end
plan disclosures 3.5% to 5.5% 5.0% to 7.0%
The prior service cost is being amortized on a straight line
basis over approximately 13 years.
8. Retirement Plans, continued:
As a result of the sale of the Company's warehouse and
distribution center and 29 stores to AWG, as well as the
closure of 14 under-performing stores during 1995 (See Note
14), a significant number of employees were terminated that
participated in the Company's non-contributory defined benefit
retirement plan. The effect of the curtailment resulting from
the terminations of such employees was not material to the
Statement of Operations for the year ended December 30, 1995.
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 1995, 1994, and 1993 were $2,110,
$3,309, and $3,565, respectively.
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
1995, 1994, and 1993, was $0, $0, and $425, respectively.
9. 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:
December 30, December 31,
1995 1994
Buildings $16,670 $21,616
Equipment 7,014 8,340
Beneficial interest
in capital s 5,378 16,059
29,062 46,015
Accumulated amortization 17,851 21,010
Net leased assets $11,211 $25,005
Future minimum lease payments under capital leases and
noncancellable operating leases as of December 30, 1995 are as
follows:
9. Leases, continued:
Capital Operating
Fiscal Year Leases Leases
1996 $ 4,035 $ 8,849
1997 2,754 8,239
1998 2,134 5,779
1999 1,707 5,448
2000 982 4,899
Thereafter 9,350 38,891
Total minimum obligations 20,962 $72,105
Less estimated interest 9,190
Present value of net minimum
obligations 11,772
Less current portion 2,746
Long-term obligations under
capital leases $ 9,026
Rent expense is as follows:
1995 1994 1993
Minimum rents $10,264 $12,560 $12,642
Contingent rents 107 178 214
$10,371 $12,738 $12,856
10. Common Stock and Warrants:
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:
10. Common Stock and Warrants, continued:
Shares Amount
Balance, January 2, 1993 4,104,211 $ 9,470
Repurchase of common stock (134,000) (323)
Increase in management
stock loans - (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
loans - (79)
Balance, December 31, 1994 3,864,211 1,235
Repurchase of common stock (2,143,493) (1,071)
Reduction in redemption value - (940)
Decrease in management stock loans - 793
Balance, December 30, 1995 1,720,718 $ 17
The shares of redeemable common stock are reported on the
balance sheets at redemption value (estimated fair value).
The reduction in redemption value has been reflected as an
increase in additional paid-in capital.
The shares of treasury stock are reported on the balance
sheets at cost.
Holding also has 40,500,000 shares of Class B nonvoting common
stock authorized at December 30, 1995 and December 31, 1994
with a $.01 par value. No shares were issued or outstanding
at either December 30, 1995 or December 31, 1994.
In 1995, Holding repurchased 2,143,493 shares of its Common
Stock from certain officers and employees of the Company at a
cash price of $0.50 per share plus, at the election of seller,
warrants up to the number of shares purchased. As a result of
the purchase, Holding issued 2,105,493 warrants to such
officers and employees of the Company. The warrant and the
shares issuable upon exercise, are subject to certain
restrictions on transferability, including certain first
refusal rights, as set forth in the warrant.
10. Common Stock and Warrants, continued:
The holders of the warrants may, at any time prior to the
expiration date (defined as five years after issuance date),
purchase from Holding the amount of Common Stock indicated on
such warrant, in whole or in part, at a purchase price of
$0.50 per share.
11. Related Party Transactions:
Clayton, Dubilier & Rice, Inc., a private investment firm of
which four directors of the Company are employees, received
$125 in 1995, $150 in 1994, and $200 in 1993, for financial
advisory and consulting services.
The Company made loans during 1995 and 1994 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 30, 1995 and December 31,
1994 were $82 and $794, respectively. The outstanding loans
mature in July 1996.
12. Commitments and Contingencies:
Effective January 1, 1989, the Company implemented stock
appreciation rights ("SAR's") plans for certain of its hourly
union and non-union employees as well as salaried 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 over
$1.00 from the date of the plan's establishment. The Company
expects the SAR's to be triggered as a result of the
restructuring, discussed in Note 14, at no liability to the
Company due to the continued decline in per share value below
$1.00.
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.
The Company terminated the outsourcing agreement as of March
31, 1996. Pursuant to the outsourcing agreement, there is a
12. Commitments and Contingencies, continued:
$3.0 million charge for the termination, of which AWG is
responsible for 52%. The Company has provided for amounts
in the financial statements that management believes to be
reasonable and adequate.
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.
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 30, 1995, $12,000 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 associated
fees of $335 and $195 in 1995 and 1994, respectively.
13. 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 $1,650 plus interest
in April 1995. Upon final settlement payment, the Company
13. Sale of Plants, continued:
recognized an additional gain of approximately $700 in 1995.
The Company has made arrangements with another dairy supplier
to begin supplying its dairy and ice cream requirements in
April 1995.
14. Restructuring:
In the fourth quarter of 1995, the Company refocused its
restructuring plan, which commenced in 1994. The intent of
the revised restructuring program and new business plan is to
further reduce the Company's indebtedness in respect of its
Senior Notes and its Revolving Credit Agreement, restructure
certain of its lease obligations and negotiate modifications
to certain of its union agreements in an effort to reduce
costs and improve profitability and cash flow.
In connection with the closing of stores following the sale of
29 stores and the warehouse facility to AWG, the Company
recognized charges aggregating $12,639 in 1995 and $23,205 in
1994. The major components of the restructuring charges in
1995 are summarized as follows:
Write-off of capitalized software costs
replaced as part of operational
restructuring initiatives $ 7,971
Write-off of unamortized balance of the
excess of purchase price over fair
value of net assets acquired due to
uncertainty of recovery from future
operating cash flows 2,360
Expense associated with the termination
of an EDP outsourcing agreement 1,410
Expenses associated with the remaining store
closings, primarily occupancy costs from
closing date to lease termination or
revised sublease date 898
Total restructuring charges $12,639
The asset write-offs described above, aggregating $10,331,
have been reflected in their respective balance sheet account
classifications, the EDP expense is included in Other current
liabilities and the expenses associated with the remaining
14. Restructuring, continued:
store closings are included in the Noncurrent restructuring
reserve as of December 30, 1995. In accordance with a
strategic plan approved by the Board of Directors in December
1994, the company entered into an aggreeent with Associated
Wholesale Grocers, Inc. ("AWG") on February 6, 1995, pursuant
to which the company sold 29 of its stores and its warehouse
and distribution center to AWG on April 21, 1995. In
connection with this strategic plan, the Company closed
fourteen under-performing stores during 1995 and expects to
close an additional store and sell one store by the second
quarter of 1996. During fiscal 1995, the Company incurred
expenses associated with the operational restructuring as
follows:
<TABLE>
<C> <C> <C>
Operational (Payments) proceeds Operational
restructuring applied against restructuring
reserve at restructuring reserve at
December 31, 1994 reserve in 1995 December 30, 1995
Expenses associated with the
planned store closings,
primarily occupancy costs
from closing date to lease
termination or sublease date $ 8,319 $ (3,459) (a) 4,860
Expenses associated with the AWG
transaction, primarily service
and equipment contract
cancellation fees 5,649 (5,591) 58
Estimated severance costs
associated with the AWG
transaction 5,624 (4,697) 927
Legal and consulting fees
associated with the AWG
transaction 4,905 (4,880) 25
Net gain on sale of
property, plant and
equipment to AWG (19,492) 19,492 -
Operational restructuring
reserve $ 5,005 865 5,870
</TABLE>
15. Subsequent Events:
On March 27, 1996, the Company entered into an agreement in
principle (the "Noteholder Agreement") with members of an ad-
hoc noteholders committee (the "Committee") with respect to a
financial restructuring of the Company. The Committee has
advised the Company that it represents approximately 80% of
the Company's outstanding Senior Notes. The Noteholder
Agreement provides for the filing by the Company of a
bankruptcy petition and simultaneously the submission of a
"pre-arranged" plan of reorganization and disclosure statement
under Chapter 11 of the United States Federal Bankruptcy Code.
(the "Restructuring"), all of which is expected to occur on or
about May 13, 1996. If approved by the United States
Bankruptcy Court (the "Bankruptcy Court"), the Company's
creditors and labor unions, the Restructuring will result in
a reduction of the Company's debt service obligations and
labor costs and a capital and cost structure that will allow
the Company to maintain and enhance the competitive position
of its business and operations.
15. Subsequent Events, continued:
Pursuant to the Noteholder Agreement, upon completion of the
Restructuring, the $95 million of Senior Notes currently
outstanding (together with accrued interest) will be canceled
and the noteholders will receive $60 million in aggregate
principal amount of new senior subordinated notes, a majority
of the new equity of the reorganized Company and approximately
$1.5 million in cash. The new senior subordinated notes will
mature in 2003, bear interest semi-annually at a rate of 10%
per annum and will not be secured.
In March 1996, the Company also reached agreements with
representatives of its unionized workforce regarding certain
modifications to the Company's existing collective bargaining
agreements. These modifications will provide for, among other
things, wage and benefit concessions, the severance of certain
employees and the issuance and purchase of new equity of the
reorganized Company to a trust acting on behalf of the
unionized employees. The modifications to the collective
bargaining agreements have been ratified by the union
membership and are conditioned on, and will be effective upon,
completion of the Restructuring.
In order to facilitate the Restructuring, as provided under
the Noteholder Agreement the Company intends to file papers
with the Bankruptcy Court seeking approval of a debtor-in-
possession financing facility. The Company anticipates that
such facility will provide it with the financing necessary to
maintain its normal business operations during its period of
operations under supervision of the Bankruptcy Court,
including the payment of postpetition claims of trade
creditors and salaries, wages and benefits of employees. The
Company anticipates that the Restructuring will be completed
by the third quarter of 1996.
<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)
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)
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)
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.
10s.7* (1) 1995 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)
10t.5 (1) Fifth Amendment to Homeland Employees' Retirement
Plan effective as of January 1, 1989
(Incorporated herein by reference to Form 10-Q
for the quarterly period ended September 9, 1995)
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)
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)
10y.2 Second Supplement to Indenture, dated as of April
21, 1995, among Homeland, Holding and United
States Trust Company of New York, as Trustee.
(Incorporated by reference to Exhibit 10y.2 to
Form 10-Q for the quarterly period ended March
25, 1995)
10y.3 Amendment No. 2 to the Company Security
Agreement, dated as of April 21, 1995, between
Homeland and United States Trust Company of New
York as Collateral Trustee. (Incorporated by
reference to Exhibit 10y.3 to Form 10-Q for the
quarterly period ended March 25, 1995)
10y.4 Amendment No. 1 to the Intercreditor Agreement,
dated as of April 21, 1995, among National Bank
of Canada, United States Trust Company of New
York and such other persons as may become parties
to the Intercreditor Agreement as provided
therein. (Incorporated by reference to Exhibit
10y.4 to Form 10-Q for the quarterly period ended
March 25, 1995)
10y.5 Amendment No. 1 to the Mortgage Security
Agreement and Financing Statement, dated as of
April 21, 1995, from Homeland to United States
Trust Company of New York as Collateral Trustee.
(Incorporated by reference to Exhibit 10y.5 to
Form 10-Q for the quarterly period ended March
25, 1995)
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)
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)
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)
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.
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.
10rr.1* (1) Amendment to Employment Agreement between
Homeland and James A. Demme, dated as of April
29, 1996
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.
10uu Amended and Restated Revolving Credit Agreement,
dated as of April 21, 1995, among Homeland,
Holding, National Bank of Canada, as Agent and
lender, Heller Financial, Inc. and any other
lenders thereafter parties thereto.
(Incorporated by reference to Exhibit 10uu to
Form 8-K dated March 14, 1996)
10uu.1 Waiver Agreement, dated as of December 29, 1995
among Homeland, Holding, National Bank of Canada
and Heller Financial, Inc. (Incorporated by
reference to Exhibit 10uu.1 to Form 8-K dated
March 14, 1996)
10uu.2 Second Waiver Agreement, dated as of March 1,
1996 among Homeland, Holding, National Bank of
Canada and Heller Financial, Inc. (Incorporated
by reference to Exhibit 10uu.2 to Form 8-K dated
March 14, 1996)
10vv (1) Employment Agreement dated as of July 10, 1995
and as amended September 26, 1995, between
Homeland and Larry W. Kordisch. (Incorporated by
reference to Exhibit 10pp to Form 10-K dated
September 9, 1995)
10vv.1* Amendment to Employment Agreement between
Homeland and Larry W. Kordisch, dated as of April
29, 1996
10ww* (1) Employment Agreement dated as of April 29, 1996,
between Homeland and Terry M. Marczewski.
10xx* (1) Settlement Agreement, dated as of August 31,
1995, between Homeland and Jack M. Lotker.
10yy* (1) Employment Agreement, dated as of April 29, 1996,
between Homeland and Steve M. Mason
10zz* (1) Employment Agreement, dated as of April 29, 1996,
between Homeland and Alfred Fideline
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)
99c Press Release issued by Homeland on April 13,
1995. (Incorporated by reference to Exhibit 99c
to Form 8-K/A dated April 21, 1995)
99d Press Release issued by Homeland on April 24,
1995. (Incorporated by reference to Exhibit 99d
to Form 8-K/A dated April 21, 1995)
99e Press Release issue by Homeland Stores, Inc. on
March 1, 1996. (Incorporated by reference to
Exhibit 99e to Form 8-K dated March 14, 1996)
99f* Press Release issued by Homeland Stores, Inc. on
March 27, 1996
April 29, 1996
Mr. James A. Demme
1305 West Irvine
Edmond, OK 73013
Dear Jim:
The purpose of this letter is to confirm the following amendments
to your employment agreement dated November 22, 1994 (the Agreement ) with
Homeland Stores, Inc. (the Company ).
1. Amendment to Agreement. Section 8 of the Agreement is hereby
amended to read in its entirety as follows:
If the Company terminates your employment for any reason other
than Cause or Disability prior to December 31, 1997, or if you shall terminate
your employment following
(i) the closing of a sale (a Stock Sale ) of at least 50%
of the voting securities of the Company or Homeland Holding Corporation
( Holding ),
(ii) the effective date of a merger (a Merger ) of Holding
with or into another corporation immediately following which the persons or
entities who were the shareholders of Holding immediately prior to the merger,
together with their affiliates, own, directly or indirectly, less than 50% of
the voting power of all voting securities of the surviving or resulting entity,
(iii) the sale of all or substantially all of the Company s
assets (an Asset Sale ), or
(iv) a Change of Control (as defined in the Amended and
Restated Revolving Credit Agreement dated as of April 21, 1995, among National
Bank of Canada, as agent, the Company and Holding) (a Stock Sale, a Merger, an
Asset Sale or a Change of Control being referred to herein as a Trigger
Event ),
the Company will pay you an amount equal to the sum of
(i) two times your Base Salary in effect immediately prior
to a Trigger Event, and
(ii) an amount equal to the product of (A) your target bonus
under the incentive bonus plan described in Section 3 of the Agreement for the
year in which your termination occurs and (B) a fraction, the numerator of which
is the number of days during such year prior to and including the date of your
termination of employment and the denominator of which is 365.
The Company will pay you the cash amounts in a lump sum payment no later
than 5 business days after the date your employment terminates or in 24
approximately equal monthly installments, as directed by you at your option.
Such amounts will not be subject to any offset, mitigation or other reduction
as a result of your receiving salary or other benefits by reason of your
securing other employment.
The Company will also continue your coverage under the medical,
dental, vision, life and disability insurance and other welfare benefits
provided to its other executive employees (the Welfare Benefit Arrangements)
for a period of two years after the date your employment terminates;
provided, however,that if the Company is unable to or chooses not to continue
any such coverage 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)
24 minus (y) the number of months that such coverage that is so provided
times (B) the monthly amount it would have paid with respect to such
coverage under the applicable Welfare Benefit Arrangement.
You will also have the option to purchase the automobile
furnished to you by the Company during your employment at its fair market
(wholesale) value.
For purposes of this letter agreement, a Stock Sale, a Merger,
an Asset Sale or a Change of Control involving the Company, Holding or the
Reorganized Issuer (as defined in the Senior Secured Note Restructuring Term
Sheet (the Term Sheet ) approved by the Company s Board of Directors at a
meeting held on March 20, 1996) shall be deemed to be a Trigger Event; provided,
however, that the Restructuring (as defined in the Term Sheet) shall be deemed
to be a Trigger Event only if you shall terminate your employment for
Good Reason following the Restructuring and prior to a Trigger Event
occurring subsequent to the Restructuring. For purposes of this letter
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: (i) your removal
or any failure to reelect or redesignate you to the position of President
and Chief Executive Officer of the Company, except in connection with a
termination of your employment by the Company for Cause;
(ii) a diminution in your responsibilities with the Company; (iii) a change in
your location of employment from Oklahoma City; or (iv) a material reduction in
your Base Salary or your incentive bonus opportunity.
If the Company terminates your employment for Cause or due to
your death or Disability, you will only be entitled to receive (i) your Base
Salary earned through the date of such termination, (ii) all benefits due and
owing through the date of such termination and (iii) the amount necessary to
reimburse you for expenses incurred prior to the date of such termination for
which the Company has agreed to reimburse you as provided in the Agreement and,
to the extent provided under the Company s generally applicable policies and
procedures, any unused vacation time, plus (iv) if your employment terminates
upon your death or Disability, your target bonus under the incentive bonus plan
described in Section 3 of the Agreement for the portion of the incentive year
that precedes the date of such termination, such target bonus to be a pro rata
amount of the target bonus payable for the entire incentive year. As used
herein, 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 an
appropriate governmental agency) that has resulted or is likely to result in
material economic damage to the Company. 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 resolution duly adopted by the Company s Board of
Directors, finding that the Company has Cause to terminate you as contemplated
in this paragraph. As used herein, 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 and within 30 days after the Company 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.
2. Continuation of Agreement. Except as amended herein, the
Agreement shall remain in full force and effect.
If the foregoing accurately sets forth the terms of the amendment
to the Agreement, please so indicate by signing below and returning one signed
copy of this letter agreement to me.
Sincerely,
HOMELAND STORES, INC.
______________________________
B. Charles Ames, Chairman of the
Board of Directors
ACCEPTED AND AGREED
as of this ___ day of April,
1996.
_________________________
James A. Demme
125372
Homeland Stores Inc.
P.O. Box 25008
Oklahoma City, Oklahoma 73125
April 29, 1996
Mr. Larry W. Kordisch
11324 Shady Glen Road
Oklahoma City, OK 73162
Dear Larry:
This letter amends and restates, and supersedes in its entirety the
September 26, 1995 letter regarding the terms of your employment with Homeland
Stores Inc. (the "Company").
1. Duties. You will serve as the Executive Vice President and
Chief Financial Officer of the Company and Homeland Holding Corporation
( Holding ). 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 $150,000 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. 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.
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 for any reason other than Cause or Disability prior to December 31,
1997, or if you shall terminate your employment following
(i) the closing of a sale (a Stock Sale ) of at least 50%
of the voting securities of the Company or Holding,
(ii) the effective date of a merger (a Merger ) of Holding
with or into another corporation immediately following which the persons or
entities who were the shareholders of Holding immediately prior to the merger,
together with their affiliates, own, directly or indirectly, less than 50% of
the voting power of all voting securities of the surviving or resulting entity,
(iii) the sale of all or substantially all of the Company s
assets (an Asset Sale ), or
(iv) a Change of Control (as defined in the Amended and
Restated Revolving Credit Agreement dated as of April 21, 1995, among National
Bank of Canada, as agent, the Company and Holding) (a Stock Sale, a Merger, an
Asset Sale or a Change of Control being referred to herein as a Trigger
Event),the Company will pay you an amount equal to the sum of
(i) two times your Base Salary in effect immediately prior
to a Trigger Event, and
(ii) an amount equal to the product of (A) your target bonus
under the incentive bonus plan described in Section 3 of this letter for the
year in which your termination occurs and (B) a fraction, the numerator of
which is the number of days during such year prior to and including the date
of your termination of employment and the denominator of which is 365.
The Company will pay you the cash amounts in a lump sum payment no later than 5
business days after the date your employment terminates or in 24 approximately
equal monthly installments, as directed by you at your option. Such amounts
will not be subject to any offset, mitigation or other reduction as a result
of your receiving salary or other benefits by reason of your securing other
employment.
The Company will also continue your coverage under the medical,
dental, vision, life and disability insurance and other welfare benefits
provided to its other executive employees (the Welfare Benefit Arrangements)
for a period of two years after the date your employment terminates; provided
however,that if the Company is unable to or chooses not to continue any such
coverage 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) 24 minus
(y) the number of months that such coverage that is so provided times (B)
the monthly amount it would have paid with respect to such coverage under
the applicable Welfare Benefit Arrangement.
You will also have the option to purchase the automobile furnished
to you by the Company during your employment at its fair market (wholesale)
value.
For purposes of this letter agreement, a Stock Sale, a Merger, an
Asset Sale or a Change of Control involving the Company, Holding or the
Reorganized Issuer (as defined in the Senior Secured Note Restructuring Term
Sheet (the Term Sheet ) approved by the Company s Board of Directors at a
meeting held on March 20, 1996) shall be deemed to be a Trigger Event;
provided, however, that the Restructuring (as defined in the Term Sheet)
shall be deemed to be a Trigger Event only if you shall terminate your
employment for Good Reason following the Restructuring and prior to a
Trigger Event occurring subsequent to the Restructuring. For purposes of
this letter 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: (i) your removal or any failure to reelect or redesignate
you to the position of Executive Vice President-Finance and Chief Financial
Officer of the Company, except in connection with a termination of your
employment by the Company for Cause; (ii) a diminution in your
responsibilities with the Company; (iii) a change in your location of
employment from Oklahoma City; or (iv) a material reduction in your Base
Salary or your incentive bonus opportunity.
If the Company terminates your employment for Cause or due to your
death or Disability, you will only be entitled to receive (i) your Base Salary
earned through the date of such termination, (ii) all benefits due and owing
through the date of such termination and (iii) the amount necessary to reimburse
you for expenses incurred prior to the date of such termination for which the
Company has agreed to reimburse you and, to the extent provided under the
Company s generally applicable policies and procedures, any unused vacation
time,plus (iv) if your employment terminates upon your death or Disability, your
target bonus under the incentive bonus plan described in Section 3 of this
letter for the portion of the incentive year that precedes the date of such
termination, such target bonus to be a pro rata amount of the target bonus
payable for the entire incentive year.
As used herein, 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 an appropriate governmental agency) that has resulted or
is likely to result in material economic damage to the Company.
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
resolution duly adopted by the Company's Board of Directors, finding that
the Company has Cause to terminate you as contemplated in this paragraph.
As used herein, 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 and within 30 days after the Company 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.
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 accordance with the terms of this letter
agreement to your 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 Bylaws 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 provisions 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.
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, Chairman of the Board
ACCEPTED AND AGREED as
of this ___ day of April, 1996
Larry W. Kordisch
129655
Homeland Stores Inc.
P.O. Box 25008
Oklahoma City, Oklahoma 73125
April 29, 1996
Mr. Terry M. Marczewski
1171 Shasta Lane
Oklahoma City, OK 73162
Dear Terry:
This letter amends and restates, and supersedes in its entirety
the September 26, 1995 letter regarding the terms of your employment with
Homeland Stores Inc. (the "Company").
1. Duties. You will serve as Controller and Chief Accounting
Officer of the Company. 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 $90,000 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. 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.
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 December 31, 1997 for any reason other than Cause or
Disability, the Company will (i) continue to pay you your Base Salary for one
year after the date of your termination of employment, or until December 31,
1997, whichever period is longer, and (ii) within 5 business days after your
employment terminates, pay you in a lump sum payment an amount equal to the
product of (A) your target bonus under the incentive bonus plan described in
Section 3 of this letter for the year in which your termination occurs and (B)
a fraction, the numerator of which is the number of days during such year
prior to and including the date of your termination of employment and the
denominator of which is 365.
In the event your employment terminates (i) due to your death or
Disability 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 this letter 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 an appropriate government
agency) that has resulted or is likely to result in material economic damage
to the Company.
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 accordance with the terms of this letter
agreement to your 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 Bylaws 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 provisions 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>
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.
James A. Demme, President and
Chief Executive Officer
ACCEPTED AND AGREED as
of this ____ day of April, 1996
Terry M. Marczewski
129812
Settlement Agreement
Settlement Agreement between Jack M. Lotker (here-
after referred to as you ) and Homeland Stores, Inc. (the
Company ), dated as of August 31, 1995.
1. Resignation of Offices. Effective upon
August 31, 1995 (the Termination Date ), you hereby
voluntarily resign as an officer and employee of the Company
and from each other position you hold with the Company or
any of its subsidiaries.
2. Salary Payments. The Company shall continue
to pay you your base salary on the same basis as it pays
salary to its senior officers through August 31, 1995.
3. Stock Warrants. Effective as of the
Termination Date, the Company hereby grants you warrants to
purchase 100,000 shares of the Company s Class A Common
Stock par value $0.01 per share, with an exercise price of
$0.50 per share (the Warrants ). The Warrants shall be
immediately exercisable by you, in accordance with their
terms, and shall remain outstanding until the earlier of (i)
the date they are exercised by you or (ii) August 31, 2000.
The remaining terms and conditions of the Warrants shall be
set forth in a separate warrant agreement (the Warrant
Agreement ) between you and the Company containing such
terms and conditions, not inconsistent with those set forth
above, as the Company shall determine. The Warrants and
Warrant Agreement shall be delivered to you on or about
October 23, 1995.
4. Principal Residence Payment or Purchase. In
addition to the separation payments described in paragraph 2
and the warrants described in paragraph 3, the Company shall
either, at your election:
(i) pay you a single lump sum amount equal to
$188,000 (the Cash Payment ), within five business
days after the date of your election of the Cash
Option; or
(ii) cause PHH Homequity ( PHH ) to purchase (the
Purchase Option ) your current principal residence as
recorded on the Company s books and records (the
Residence ) for a purchase price equal to the
appraised value of such Residence, at or about the time
of your election, as determined by PHH (the Appraised
Value ) and otherwise in accordance with the terms of
the Company s contract with PHH regarding such
Residence. If PHH purchases your Residence pursuant to
this paragraph 4 and the Appraised Value is less than
$575,000, then the Company shall also pay you a lump
sum amount equal to the difference between (x) the
Appraised Value and (y) $575,000, within five business
days after the date your Residence is purchased.
Your election between the Purchase Option and the Cash
Payment must be made in writing and delivered to the
Company s President not later than November 17,1995. If no
such election is timely made, the Company shall pay you the
Cash Payment as though you elected the Cash Payment on
November 17, 1995. If you elect the Purchase Option, the
Company shall have no obligation to pay you the Cash Amount;
if you elect to receive the Cash Amount (or you become
entitled to receive the Cash Amount due to your failure to
timely elect otherwise), the Company and PHH shall have no
further obligation to you in respect of your Residence.
5. Release. You hereby agree that, except as
otherwise expressly set forth below, the salary payments
made pursuant to paragraph 2, the grant to you of the
warrants described in paragraph 3 and the Company s
commitment pursuant to paragraph 4 (hereinafter collectively
called the Settlement Payments ), are in full and complete
satisfaction of all amounts due and owing to you from the
Company and its affiliates. In consideration of the
Settlement Payments, you hereby release and discharge the
Company each of its subsidiaries, parents, officers,
directors, directors, executives, trustees, 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 your
employment with the Company, the purchase by you from the
Company, and the sale by you to the Company of Common Stock,
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 emotional harm, defamation or any other tort.
However, expressly excluded from this Release are any and
all claims for vested benefits under any employee benefit
plan maintained by the Company.
6. Voluntary Action. You hereby acknowledge
that (i) you have read this Settlement Agreement (including,
without limitation, the release set forth in paragraph 5 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.
7. No Derogatory Comments. You agree to refrain
from making any derogatory comment concerning the Company or
any of its affiliates, or any of the current or former
shareholders, officers, directors, trustees, or employees of
the Company or from taking any other action with respect to
the Company which is reasonably expected to result, or does
result, in damage to the business or reputation of the
Company or any of the current or former shareholders,
officers, directors, trustees or employees of the Company.
The Company agrees to refrain from making any derogatory
comment about you, but expressly excluding herefrom any
comments by the Company to enforce any rights or claims
against you (or to defend any claims by you) which are not
released in paragraph 5 above.
8. Confidentiality. Without the prior written
consent of the Company, except to the extend required by an
order of a court having competent jurisdiction or under a
subpoena from an appropriate government agency, you shall
not disclose any trade secrets, customer lists, information
regarding product development, marketing plans, sales plans,
management organization information (including data and
other information related to members of the Board and
management), operating policies or manuals, business plans,
financial records, packaging design or other financial, com-
mercial, business or technical information relating to the
Company or any of its subsidiaries or information designated
as confidential or proprietary that the Company or any of
its subsidiaries may receive belonging to suppliers,
customers or others who do business with the Company or any
of it subsidiaries (collectively, Confidential
Information ) to any third person unless such Confidential
Information has been previously disclosed to the public by
the Company or is in the public domain (other than by reason
of breach of this Agreement).
9. Return of Company Property. You agree that
upon your termination of employment you shall return to the
Company all property of the Company, and all copies thereof
in your possession or under your control, provided that, you
may retain such documents as may assist you in the
performance of your duties with WESCO Distribution, Inc.
10. Entire Agreement. This Settlement Agreement
constitutes the entire agreement between you and the Company
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 between you and
the Company, dated as of August , 1994) are merged herein
and superseded hereby.
11. Binding Effect. This Settlement Agreement
shall be binding on and inure to the benefit of the Company
and each of its successors and assigns. This Settlement
Agreement shall also be binding on and inure to the benefit
of and be enforceable by your personal or legal representa-
tives, executors, administrators, heirs, distributees,
devisees and legatees.
12. Injunctive Relief with Respect to Covenants.
You acknowledge and agree that your covenants and
obligations with respect to nonsolicitation, confidentiality
and Company property relate to special, unique and
extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the
Company irreparable injury for which adequate remedies are
not available at law. Therefore, you agree that the Company
shall be entitled to an injunction, restraining order or
such other equitable relief (without the requirement to post
bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain you from committing any
violation of the covenants and obligations contained in
paragraph 7 through 9. These injunctive remedies are
cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity. In
connection with the foregoing provisions of paragraphs 7
through 9, you represent that your economic means and
circumstances are such that such provisions will not prevent
you from providing for yourself and your family on a basis
satisfactory to you.
13. Remedies. You acknowledge that a material
part of the inducement for the Company to enter into this
Agreement is your covenants set forth in Section 7 through 9
hereof. You agree that if you shall breach any of those
covenants, the Company 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.
14. Governing Law. The validity, interpretation,
construction and performance of this Separation Agreement
shall be governed by the laws of the State of New York,
without reference to principles of conflicts or choice of
law under which the law of any other jurisdiction would
apply.
15. Counterparts. This Separation Agreement may
be executed in any number of counterparts, each of which
shall be deemed an original, and said counterparts shall
constitute but one and the same instrument.
HOMELAND STORES, INC.
Witnessed: By: _________________________
________________
JACK M. LOTKER
Witnessed: ________________________________
________________
Homeland Stores Inc.
P.O. Box 25008
Oklahoma City, Oklahoma 73125
April 29, 1996
Mr. Steven M. Mason
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, OK 73125
Dear Steve:
This letter amends and restates, and supersedes in its entirety the
August 11, 1994 letter regarding the terms of your employment with Homeland
Stores Inc. (the "Company").
1. Duties. You will be employed in such executive capacities for
the Company as may be determined from time to time by or under the authority of
the Company s 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 $130,500 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.
Any bonus payable to you will be paid to you at the same time as bonuses are
paid to other executives.
4. 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.
5. 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.
6. 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.
7. Termination of Employment. If the Company terminates your
employment prior to December 31, 1997 for any reason other than Cause or
Disability, the Company will (i) continue to pay you your Base Salary for one
year after the date of your termination of employment, or until December 31,
1997, whichever period is longer, and (ii) within 5 business days after your
employment terminates, pay you in a lump sum payment an amount equal to the
product of (A) your target bonus under the incentive bonus plan described in
Section 3 of this letter for the year in which your termination occurs and (B)
a fraction, the numerator of which is the number of days during such year prior
to and including the date of your termination of employment and the denominator
of which is 365.
In the event your employment terminates (i) due to your death or
Disability 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 this letter 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 an appropriate government agency) that
has resulted or is likely to result in material economic damage to the Company.
8. 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 accordance with the terms of this letter
agreement to your personal or legal representatives, executors, administrators,
heirs, distributees, devisees, legatees or estate, as the case may be.
9. Indemnification. The Company agrees to indemnify you to the
fullest extent permitted under its Bylaws as in effect from time to time.
10. 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 provisions 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.
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.
James A. Demme, President and
Chief Executive Officer
ACCEPTED AND AGREED as
of this ___ day of April, 1996
Steven M. Mason
129718
Homeland Stores Inc.
P.O. Box 25008
Oklahoma City, Oklahoma 73125
April 29, 1996
Mr. Al Fideline
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, OK 73125
Dear Al:
This letter amends and restates, and supersedes in its entirety the
August 11, 1994 letter regarding the terms of your employment with Homeland
Stores Inc. (the "Company").
1. Duties. You will be employed in such executive capacities for
the Company as may be determined from time to time by or under the authority of
the Company s 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 $80,000 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. Any bonus
payable to you will be paid to you at the same time as bonuses are paid to
other executives.
4. 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.
5. 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.
6. 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.
7. Termination of Employment. If the Company terminates your
employment prior to December 31, 1997 for any reason other than Cause or
Disability, the Company will (i) continue to pay you your Base Salary for one
year after the date of your termination of employment, or until December 31,
1997, whichever period is longer, and (ii) within 5 business days after your
employment terminates, pay you in a lump sum payment an amount equal to the
product of (A) your target bonus under the incentive bonus plan described in
Section 3 of this letter for the year in which your termination occurs and (B)
a fraction, the numerator of which is the number of days during such year prior
to and including the date of your termination of employment and the denominator
of which is 365.
In the event your employment terminates (i) due to your death or
Disability 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 this letter 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 an appropriate government agency) that
has resulted or is likely to result in material economic damage to the
Company.
8. 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 accordance with the terms of this letter
agreement to your personal or legal representatives, executors, administrators,
heirs, distributees, devisees, legatees or estate, as the case may be.
9. Indemnification. The Company agrees to indemnify you to the
fullest extent permitted under its Bylaws as in effect from time to time.
10. 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 provisions 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.
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.
James A. Demme, President and
Chief Executive Officer
ACCEPTED AND AGREED as
of this ___ day of April, 1996
Al Fideline
HOMELAND STORES, INC.
1995 MANAGEMENT INCENTIVE PLAN
1995 MANAGEMENT INCENTIVE PLAN
MANAGEMENT INCENTIVE PLAN
I. Purpose of Plan
II. Definitions
III. Administration and Interpretation
IV. Eligible Employees
V. Amount Available for Annual Performance Bonus
VI. Bonus Elements
VII. Allocation of Annual Performance Bonus
VIII. Form and Settlement of Incentive Compensation Award
IX. Limitations
X. Amendment, Suspension or Termination of the Plan
XI. Exhibits
A. 1995 EBITDA Table
B. 1995 Bonus Sharing Pool
C. 1995 Maximum Potential Bonus
D. Retail Management Incentive Plan
E. Corporate Incentive Potential & Weighting Factors
F. Incremental Bonus Payout Schedule
G. Severance & Retention Plan
HOMELAND STORES,INC.
MANAGEMENT INCENTIVE PLAN
I. PURPOSE OF THE PLAN
The purpose of this Plan is to aid in obtaining and retaining qualified and
competent management personnel and to encourage significant contributions to
the success of Homeland Stores, Inc. by providing additional compensation to
those individuals who contribute to the successful and profitable operation
of the affairs of Homeland Stores, Inc.
II. DEFINITIONS
Unless as otherwise defined elsewhere in this Plan, these terms shall have
the following meanings.
A. Annual Performance Incentive Award (Bonus) shall mean an award of cash
which is made pursuant to this Plan;
B. Board of Directors shall mean the duly elected and serving Board of
Directors of the Company;
C. Committee shall mean the persons appointed to administer the Plan in
accordance with Section III;
D. Company shall mean Homeland Stores, Inc.;
E. EBITDA shall mean the consolidated net income (loss) as determined
by GAAP for any period adjusted to exclude (without duplication) the
following items that are included in calculating such consolidated net
income:
(i) consolidated interest expense;
(ii) provision for income taxes;
(iii) extraordinary gains or losses;
(iv) depreciation and amortization;
(v) any other non-cash charges;
(vi) EBITDA of the 28 stores scheduled to be sold and operated
by AWG for periods beginning on period 5, in the event the
AWG transaction is not consummated.
F. Participant shall mean an employee to whom the Committee makes an award
under the Plan;
G. Performance Period shall be any twelve consecutive month period
designated by the Board of Directors. Unless otherwise so specified,
such period shall commence on January 1 and expire on December 30
(fiscal 1995);
H. Plan shall mean this Management Incentive Plan;
I. ADMINISTRATION AND INTERPRETATION
The Plan shall be administered by a Committee which, unless otherwise
determined by the Board of Directors, shall be members of the Compensation
Committee of the Board of Directors who are not participants hereunder.
The membership of the Committee may be reduced, changed, or increased from
time to time at the absolute discretion of the Board of Directors. The
Committee shall have full power and authority to interpret and administer
the Plan and, subject to the provisions herein set forth, to prescribe,
amend and rescind rules and regulations and make all other determinations
necessary or desirable for the Plan's administration.
The decision of the Committee relating to any question concerning or
involving the interpretation or administration of the Plan shall be final
and conclusive, and nothing in the Plan shall be deemed to give any officer
or employee his legal representatives or assignees, any right to
participate in the Plan except to such extent, if any, as the Committee
may have determined or approved pursuant to the provisions of the Plan.
I. ELIGIBLE EMPLOYEES
Employees eligible to participate in the Plan shall be management or
executive-level employees and corporate officers. Also included are other
key employees recommended by senior management. Any such employee or
officer may be designated a participant by the Board of Directors and those
eligible to participate for any given performance year shall be as
determined by such Board and set forth in Exhibit 1 for that performance
year.
I. AMOUNT AVAILABLE FOR ANNUAL PERFORMANCE BONUS
The bonus amounts to be made available to participants will be determined
from time to time by the Board of Directors of the Company, and will be set
forth in the exhibits of the Plan for each performance year. These amounts
will be determined and they will be:
A. Target Bonus Potential - This is an amount expressed as a percentage of
each participant s base compensation determined at the beginning of the
performance year which is payable if the plan EBITDA goals as set forth
in the exhibit are met.
B. Maximum Opportunity Bonus Potential - This is the maximum amount of bonus
which will be payable to a participant and will be attained only if the
EBITDA plan goals are exceeded, as set forth in the exhibit.
A. Threshold Bonus Potential - This is the minimum acceptable level of
performance for awards to commence.
A. Newly Eligible or New Hires - Bonus paid is prorated, based on length of
time in current position.
Termination's - Not eligible to receive a bonus unless the individual was
employed at the end of the year unless otherwise provided for in any
severance agreement that has been approved by the Board of Directors.
Participants that are terminated resulting from the AWG transaction
(or other approved contractualagreements if applicable) for this fiscal
year will be provided the approved amount of pro rata bonus as
determined by the Severance and Retention Program (Exhibit H), if
applicable, based on the Company s performance as defined in Section VI.
Final determination, as in all cases, will be made by the Committee
of the Board of Directors.
I. BONUS ELEMENTS
The bonus structure shall be built around two separate individual elements
which together will determine the ultimate bonus to be paid. They are as
follows:
A. CORPORATE PERFORMANCE AWARD (CPA) - This bonus award will be
determined based upon the achievement of specific goals for the
corporation, as set forth for the applicable performance period in
Exhibit E. This amount will represent a fixed percentage of the total
award, as defined in the exhibit and will be different by level within
the organization.
B. INDIVIDUAL PERFORMANCE AWARD (IPA) - This bonus award will be
based upon the participant s performance of duties and achievement of
individual goals and objectives as determined by the President. This
bonus may be awarded or not awarded or awarded in any percentage as
determined by the President, based upon attainment of goals as set forth
below.
The balance or weighting between each element will be determined by the
Committee each year based upon recommendations made by the President. (The
IPA will only be payable if the CPA is payable).
The threshold for the plan to be activated would be at 90% of Target EBITDA
($17.0 million) net of bonus. The bonus amount for the various management
category at the different level of EBITDA is described in Exhibit F. At
100% attainment of goals for both corporate (EBITDA at $19.0 million) and
individual, a participant will receive the full incentive award. To
achieve the maximum bonus, the Company must reach an EBITDA of $23.0 million.
I. ALLOCATION OF ANNUAL PERFORMANCE BONUS
As soon as practical after the end of the Company s fiscal year and after
audit, the Committee will assess the financial performance of the Company
and specifically determine if the incentive Target EBITDA in force for the
fiscal year has been met. The Committee will request of the President his
assessment of individual performance levels of Plan participants and
recommendation for Individual Performance Award levels.
Based upon achievement of performance levels and individual award
recommendations made by the President, the Committee will then determine the
amount of each Annual Performance Bonus for each participant in accordance
with the provisions of the Plan and the specifics in force for the
performance period.
The Committee shall be under no compulsion to award the full amount of the
bonus pool if the corporate awards and individual awards together do not
exhaust the potential bonus pool. Any bonuses available but not awarded,
will cease to be bonuses and will revert to the Company. Amounts awarded
are not to be considered as compensation of any employee for the purpose of
calculating benefits, unless expressly provided for under the provision of
a specific plan.
VII. FORM AND SETTLEMENT OF INCENTIVE COMPENSATION
AWARDS
Awards shall be paid in cash. The Committee shall have complete and
absolute authority to determine the form and settlement of each individual
bonus.
The settlement of an award to any participant for any year will be handled
in the following manner except for any separate severance agreement
approved by the Board.
Cash - Cash payment will be paid as soon as possible in a lump sum at the
end of the fiscal year following the Committee s decision that is made
pursuant to Section IV.
If a participant dies before the payment of a bonus and without having
forfeited his right to the payment thereof pursuant to Section IX hereof,
such unpaid bonus shall be paid to his estate or legal representative
either as originally provided or otherwise as the Committee may determine
in each individual case.
I. LIMITATIONS
No participant or any other person shall have any interest in any fund or
in any specific asset or assets of the Company by reason of a bonus that
has been made but has not been paid or distributed to him. No participant
shall have the right to assign, pledge or otherwise dispose of any bonus
distributable to him in the future, nor shall such participant s contingent
interests in such unpaid installments be subject to garnishment, transfer
by operation of law or any legal process.
I.RETAIL MANAGEMENT INCENTIVE PLAN ( Retail Plan )
The Retail Plan as more fully described in Exhibit D is applicable for
retail stores management only. There are special payment terms in the
Retail Plan that may be different to Section VIII above. The special terms
are an added incentive for the retail management personnel.
I. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Board of Directors of the Company may at any time amend, suspend or
terminate the Plan, in whole or in part, except that no amendment,
suspension or termination shall reduce any benefits payable to a
participant or his estate or legal representative or shall reduce any
benefits awarded to a participant prior to the date of such amendment,
suspension or termination, except as provided for in Section IX.
1995 Incentive Plan
RETAIL OPERATIONS
DISTRICT MANAGERS
ELIGIBILITY
All District Managers are eligible to participate in the plan. The plan
will be paid semi- annually. Each participant in the plan must be actively
employed in the position at the time of payment. No bonus will be paid
unless the company achieves its hurdle rate of 90% of EBITDA plan. No bonus
will be paid unless the District hits a minimum of 90%
of its N.O.P. target.
INCENTIVE PLAN PAYMENT
The total maximum bonus for all District Managers will be 50% of their base
pay, with the exception of the Special Incentive paid to District Managers
who exceed their N.O.P.target. There will be no cap on the Special Incentive.
TRANSFERS AND NEW HIRES
District Managers will receive pro rata portion of bonus from the previous
District and pro rata portion from the new District based on the length of
time in each assignment during the bonus period.
BONUS ELEMENTS
The bonus plan will be broken down into four parts, excluding the Special
Incentive. Eligible participants will be paid on the following:
1. .7 Percent of all N.O.P. up to 50% of their eligible amount.
2. Up to 20% of their eligible amount for achievement of their sales target.
3. An additional 15% of eligible amount for attaining controllable
expense targets:
Wages 6%
Supplies 2%
Checks 3%
Cash 2%
Inventory Turns 2%
4. Up to 15% of their eligible amount based on achievement of the personal
objectives set by the District Manager and the Vice President of Retail
Operations.
AWARD PAYMENT
The incentive bonus will be paid out semi-annually. Payment will be made as
soon as practical after the close of each bonus period. Ten Percent of the
bonus payment will be held back from the first semi-annual payment. The
entire bonus will be paid after the close of the fiscal year.
BONUS CALCULATION (After Eligibility of 90% of N.O.P. Target)
1) NOP: After eligibility participants earn .7% of N.O.P. up to 50% of
bonus rate.
90 to 94% of Sales Target .175% of N.O.P.
95 to 99% of Sales Target .35% of N.O.P.
100% of Sales Target .7% of N.O.P.
2) SALES: (Maximum 20% of Bonus Rate) to be paid in the following manner:
90 to 94% of Sales Target 10%
95 to 99% of Sales Target 15%
100% of Sales Target 20%
3) CONTROLLABLES: (Maximum 15% of Bonus Rate)
Wages 6%
Supplies 2%
Checks 3%
Cash 2%
Inventory Turns 2%
4) Up to 15% of their eligible amount based on achievement of the
personal objectives set by the District Manager and the Vice President
of Retail Operations.
*SPECIAL INCENTIVE N.O.P.
Eligible participants will receive an additional .7% of all N.O.P. over their
N.O.P. target. This special incentive will have no cap on it.
1995 Incentive Plan
RETAIL OPERATIONS
ELIGIBILITY
All Store Managers, Assistant Store Managers, Pharmacy Managers and Assistant
Pharmacy Managers are eligible to participate in the plan. The plan will
be paid semi- annually. Each participant in the plan must be actively
employed in the position at the time of payment. No bonus will be paid
unless the company achieves its hurdle rate of 90% of EBITDA plan. No store
bonus will be paid unless store hits a minimum of 90% of its N.O.P. target.
INCENTIVE PLAN PAYMENT
The total maximum bonus for all Store Managers will be 30% of their base pay,
with the exception of the Special Incentive paid to Store Managers who exceed
their N.O.P. target. There will be no cap on the Special Incentive. First
Assistant Managers will be paid 10% of the Store Managers bonus and 5% will
be paid to Second Assistants.
TRANSFERS AND NEW HIRES
Store Managers will receive pro rata portion of bonus from the previous store
and a pro rata portion from the new store based on the length of time in each
assignment during the bonus period. Assistant Store Managers bonus will be
based on the store assigned to at the end of the bonus period. New hires or
newly eligible participants will have their bonus based on length in current
position.
BONUS ELEMENTS
The bonus plan will be broken down into three parts, excluding the Special
Incentive. Eligible participants will be paid on the following:
1. One Percent of all N.O.P. up to 50% of their eligible amount.
2. Up to 30% of their eligible amount for achievement of their sales
target.
3. An additional 20% of eligible amount for attaining controllable
expense target:
Wages 12%
Supplies 2%
Checks 2%
Cash 2%
Inventory Turns 2%
AWARD PAYMENT
The incentive bonus will be paid out semi-annually. Payment will be made as
soon as practical after the close of each bonus period. Ten Percent of the
bonus payment will be held back from the first semi-annual payment. The
entire bonus will be paid after the close of the fiscal year.
BONUS CALCULATION (After Eligibility of 90% of N.O.P. Target)
1) NOP: After eligibility participants earn 1% of N.O.P. up to 50% of
bonus rate.
90 to 94% of Sales Target .25% of N.O.P.
95 to 99% of Sales Target .5% of N.O.P.
100% of Sales Target 1% of N.O.P.
1) SALES: (Maximum 30% of Bonus Rate) to be paid in the following manner:
90 to 94% of Sales Target 10%
95 to 99% of Sales Target 20%
100% of Sales Target 30%
1) CONTROLLABLES: (Maximum 20% of Bonus Rate)
Wages 12%
Supplies 2%
Checks 2%
Cash 2%
Inventory Turns 2%
*SPECIAL INCENTIVE N.O.P.
Eligible participants will receive an additional 1% of all N.O.P. over their
N.O.P. target. This special incentive will have no cap on it.
PHARMACY INCENTIVE BONUS
Pharmacy Manager receives .6% of store pharmacy sales.
Assistant Pharmacy Manager receives .45% of store pharmacy sales.
This incentive will be paid out on a quarterly basis, one quarter in arrears,
and is independent of corporate EBITDA performance.
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 27, 1996, on our audits of the consolidated financial statements
of Homeland Holding Corporation and Subsidiary as of December 30, 1995 and
December 31, 1994 and for the 52 weeks ended December 30, 1995,
December 31, 1994 and January 1, 1994, which report is included in this
Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
New York, New York
May 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 6357
<SECURITIES> 0
<RECEIVABLES> 10712
<ALLOWANCES> 2661
<INVENTORY> 42830
<CURRENT-ASSETS> 59290
<PP&E> 135519
<DEPRECIATION> 63827
<TOTAL-ASSETS> 137582
<CURRENT-LIABILITIES> 147704
<BONDS> 0
<COMMON> 337
0
0
<OTHER-SE> (28443)
<TOTAL-LIABILITY-AND-EQUITY> 137582
<SALES> 630275
<TOTAL-REVENUES> 630275
<CGS> 479119
<TOTAL-COSTS> 479119
<OTHER-EXPENSES> 164624
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15992
<INCOME-PRETAX> (29460)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29460)
<DISCONTINUED> 0
<EXTRAORDINARY> (2330)
<CHANGES> 0
<NET-INCOME> (31790)
<EPS-PRIMARY> (93)
<EPS-DILUTED> (93)
</TABLE>
For Immediate Release
NEWS
Contact Thomas C. Franco
Rohit J. Menezes
(212) 229-2222
HOMELAND STORES REACHES ACCORD WITH BONDHOLDERS ON
RESTRUCTURING PLAN TO STRENGTHEN THE COMPANY S FINANCES
UNIONS OVERWHELMINGLY SUPPORT MODIFICATIONS
CEO SEES NEW BEGINNING FOR COMPANY
________________________________________________ __________
NEW YORK CITY, March 27, 1996 -- Homeland Stores, Inc. announced today that
it has reached an agreement in principle with members of Homeland s Ad Hoc
Bondholder's Committee, representing approximately 80% of Homeland s senior
secured bonds, with respect to a financial restructuring of Homeland.
The Bondholder agreement provides that, upon completion of the restructuring,
the $95 million of Homeland s senior secured bonds currently outstanding
(plus accrued interest) will be canceled and the Bondholders will receive
$60 million face amount of new senior subordinated notes, a majority of the
equity of the reorganized Homeland and approximately $1 to $2 million in cash
collateral. The new senior subordinated notes will mature in 2003, bear
interest semi-annually at a rate of 10% per annum and will not be secured.
As a result of these changes to the company s capital structure, Homeland will
greatly reduce its debt interest cost.
Homeland also announced today that it has reached an agreement with its
unionized employees, regarding certain wage and benefit modifications under
Homeland's collective bargaining agreements with such unions. Under the
union agreement, Homeland's unionized employees will receive, or will be
entitled to purchase, new equity of reorganized Homeland. The union
agreement has been ratified by an overwhelming majority of Homeland's
unionized employees and will be implemented upon completion of the
restructuring. The union agreement is expected to have a favorable impact
on Homeland's future profitability.
The company stated that it is hopeful that final details of the agreed upon
plan will be completed within the next few weeks.
We believe that the restructuring process we are going through represents a
new beginning for Homeland and will allow us to build on our recent momentum
and to maintain our market leadership. said James A. Demme, Homeland's chief
executive officer. We are delighted by the strong support for the
restructuring plan that we have received from creditors, employees, and
suppliers. This cooperative spirit will enable us to operate on a
business-as-usual basis.
Mr. Demme also said, We have been providing customers with superior levels
of service and quality products at good prices in this area for fifty years
and we plan to be here for at least another fifty doing exactly the same
thing.
Homeland, a private company, is the leading supermarket chain in Oklahoma,
southern Kansas, and the Texas panhandle region.
# # #
