SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
May 31, 1996 (May 13, 1996)
HOMELAND HOLDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 33-48862 73-1311075
(State or Other Jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2601 N. W. Expressway
Oklahoma City, OK 73112
(Address of Principal Executive Offices) (Zip Code)
(405) 879-6600
(Registrant's Telephone Number, Including Area Code)
<PAGE>
Item 3. Bankruptcy or Receivership
On May 13, 1996, Homeland Holding Corporation ("Holding") and
its wholly-owned subsidiary, Homeland Stores, Inc. ("Homeland",
and, together with Holding, the "Company") filed chapter 11
petitions with the United States Bankruptcy Court for the District
of Delaware (the "Bankruptcy Court"). Simultaneous with the filing
of the petitions, the Company filed a "pre-arranged" plan of
reorganization and a disclosure statement, which set forth the
terms of a proposed restructuring of the Company. 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 representing approximately 80% of the Company's
outstanding senior secured notes and the Company's labor unions.
As part of the restructuring, the $95 million of Homeland's
outstanding senior secured notes plus accrued interest of
approximately $6.6 million will be canceled, and such noteholders
will receive (in the aggregate) $60 million face amount of new
senior subordinated notes 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. Additionally,
the noteholders and the Company's general unsecured creditors will
receive approximately 60% and 35%, respectively, of the equity of
the reorganized Holding (assuming total unsecured claims of
approximately $63 million, including noteholders' unsecured
claims). Holding's existing equity holders will receive 5% of the
new equity, plus five-year warrants to purchase an additional 5% of
such equity.
The Company has also entered into a debtor-in-possession
lending facility with its existing lending banks to provide up to
$27 million of working capital financing. This facility has been
approved by the Bankruptcy Court on an interim basis with a final
approval hearing scheduled on June 7, 1996.
The disclosure statement also describes the related agreed
modifications to the Company's existing collective bargaining
agreements. The modified collective bargaining agreements which
are conditioned on, and will become effective upon, the
consummation of the financial restructuring, 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.
<PAGE>
Item 7. Financial Statements and Exhibits
(c) Exhibits filed as a part of this Report:
Exhibit No. Description
2a Disclosure Statement for Joint
Plan of Reorganization of
Homeland Stores, Inc. and
Homeland Holding Corporation
filed with the United States
Bankruptcy Court for the District
of Delaware on May 13, 1996
99g Press Release issued by Homeland
Stores, Inc. on May 13, 1996
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
HOMELAND HOLDING CORPORATION
By: /s/ Larry W. Kordisch
Larry W. Kordisch, Executive
Vice President/Finance,
Treasurer, Chief Financial
Officer and Secretary
Dated: May 31, 1996
166075.v1
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: )
)
HOMELAND STORES, INC., ) Case No. ______________
) Chapter 11
Debtor. )
)
)
IN RE: )
)
HOMELAND HOLDING CORPORATION, ) Case No. ______________
) Chapter 11
Debtor. ) Jointly Administered
DISCLOSURE STATEMENT FOR
JOINT PLAN OF REORGANIZATION OF
HOMELAND STORES, INC. AND HOMELAND HOLDING CORPORATION
Homeland Stores, Inc., a Delaware corporation (the
"Company"), and Homeland Holding Corporation, a Delaware
corporation ("Holding" and, together with the Company, the
"Debtors"), hereby submit this Disclosure Statement for Joint
Plan of Reorganization of Homeland Stores, Inc. and Homeland
Holding Corporation (the "Disclosure Statement") pursuant to
Section 1125 of the United States Bankruptcy Code, as amended
(the "Bankruptcy Code"), in connection with (a) the solicitation
of votes on the Joint Plan of Reorganization of Homeland Stores,
Inc. and Homeland Holding Corporation (the "Plan") filed with the
United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court") on May 13, 1996, and (b) the hearing on
confirmation of the Plan (the "Confirmation Hearing") before the
Bankruptcy Court scheduled for _______, 1996. A copy of the Plan
is set forth in Appendix A to this Disclosure Statement.
Capitalized terms used herein and not otherwise defined herein
have the respective meanings assigned to them in the Plan.
On , 1996, after notice and a
hearing, the Bankruptcy Court approved this Disclosure Statement
as containing "adequate information" within the meaning of
Section 1125(d) of the Bankruptcy Code to permit holders of
Claims against, and Interests in, the Debtors who are entitled to
vote on the Plan to make an informed judgment about the Plan.
THE APPROVAL BY THE BANKRUPTCY COURT OF THIS DISCLOSURE STATEMENT
DOES NOT CONSTITUTE A RECOMMENDATION BY THE BANKRUPTCY COURT
EITHER FOR OR AGAINST THE PLAN.
A description of the various Classes of Claims and
Interests is contained in this Disclosure Statement under
"SUMMARY OF THE PLAN" and a description of the persons entitled
to vote on the Plan, voting procedures and requirements for
confirmation is contained in this Disclosure Statement under
"CONFIRMATION AND CONSUMMATION PROCEDURE." If you hold a Claim
in Class 2, Class 3 or Class 5 or an Interest in Class 7, you are
entitled to vote on the Plan and a ballot is enclosed. Before
voting, you are urged to read and carefully consider the Plan and
this entire Disclosure Statement.
To be counted for voting purposes, ballots must be
received no later than 5:00 p.m., New York City time, on
, 1996, at the following address:
BY MAIL, HAND OR OVERNIGHT COURIER:
HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
C/O MORROW & CO., INC.
909 THIRD AVENUE
NEW YORK, NEW YORK 10022
In voting for or against the Plan, please use only the ballot
sent to you with this Disclosure Statement. General unsecured
creditors in Class 5 who hold Claims that are contingent,
disputed or unliquidated will not be entitled to vote on the Plan
unless, upon timely motion of such creditor, the Bankruptcy Court
has estimated such Claim for voting purposes pursuant to
Bankruptcy Rule 3018.
The Bankruptcy Court will hold the Confirmation Hearing
on , 1996, at : .m., Wilmington,
Delaware time, at the United States Courthouse, 844 King Street,
Wilmington, Delaware 19801-3577. The hearing may be adjourned
from time to time without further notice. Any objection to the
confirmation of the Plan must be in writing and must be filed
with the Clerk of the Bankruptcy Court and served on counsel for
the Debtors and each of the other persons listed on Schedule A no
later than : .m., New York City time, on
, 1996. Any such objection must comply with all requirements of
the Order and Notice accompanying this Disclosure Statement.
NO REPRESENTATIONS WITH RESPECT TO THE DEBTORS, THEIR
ASSETS, FUTURE BUSINESS OPERATIONS, RESULTS OF OPERATIONS OR
FINANCIAL CONDITION HAVE BEEN AUTHORIZED BY THE DEBTORS OTHER
THAN REPRESENTATIONS CONTAINED HEREIN. THIS DISCLOSURE STATEMENT
HAS BEEN PREPARED BY THE DEBTORS FROM INFORMATION CONTAINED IN
THEIR BOOKS AND RECORDS OR OBTAINED FROM OTHER SOURCES BELIEVED
BY THE DEBTORS TO BE ACCURATE. UNLESS OTHERWISE INDICATED, NONE
OF THE INFORMATION CONTAINED HEREIN HAS BEEN SUBJECTED TO AN
AUDIT.
THE SUMMARIES OF THE PLAN AND THE OTHER DOCUMENTS
CONTAINED HEREIN ARE QUALIFIED BY REFERENCE TO THE PLAN AND THE
OTHER DOCUMENTS THEMSELVES. ALL SCHEDULES AND APPENDICES TO THE
PLAN NOT INCLUDED HEREWITH WILL BE FILED WITH THE BANKRUPTCY
COURT AND AVAILABLE FOR INSPECTION IN THE OFFICE OF THE CLERK OF
THE BANKRUPTCY COURT DURING NORMAL COURT HOURS, NOT FEWER THAN
TEN DAYS PRIOR TO THE CONFIRMATION HEARING OR SUCH SHORTER PERIOD
AS THE BANKRUPTCY COURT MAY ALLOW.
THE STATEMENTS CONTAINED HEREIN ARE MADE AS OF THE DATE
HEREOF, UNLESS ANOTHER TIME IS SPECIFIED HEREIN. THE DELIVERY OF
THIS DISCLOSURE STATEMENT DOES NOT IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE FACTS SET FORTH HEREIN SINCE THE DATE OF THIS
DISCLOSURE STATEMENT AND/OR THE DATE THAT THE MATERIALS RELIED
UPON IN PREPARATION OF THIS DISCLOSURE STATEMENT WERE COMPILED.
ANY ESTIMATES OF CLAIMS AND INTERESTS SET FORTH IN THIS
DISCLOSURE STATEMENT MAY VARY FROM THE FINAL AMOUNTS OF CLAIMS OR
INTERESTS ALLOWED BY THE BANKRUPTCY COURT.
THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON FOR
ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON THE PLAN. AS
TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER PENDING OR
THREATENED ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT BE
CONSTRUED AS AN ADMISSION OR STIPULATION, BUT RATHER AS
STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS GOVERNED BY RULE 408
OF THE FEDERAL RULES OF EVIDENCE AND ANY OTHER STATUTE OR RULE OF
SIMILAR IMPORT.
THIS DISCLOSURE STATEMENT SHALL NEITHER BE ADMISSIBLE
IN ANY PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY NOR BE
CONSTRUED TO BE ADVICE ON THE TAX, SECURITIES OR OTHER LEGAL
EFFECTS OF THE PLAN. EACH CREDITOR SHOULD, THEREFORE, CONSULT
WITH ITS OWN LEGAL, BUSINESS, FINANCIAL AND TAX ADVISORS AS TO
ANY SUCH MATTERS CONCERNING THE SOLICITATION, THE PLAN OR THE
TRANSACTIONS CONTEMPLATED THEREBY.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES AGENCY NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES AGENCY PASSED UPON THE
ACCURACY OR THE ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
TABLE OF CONTENTS
Page
I. INTRODUCTION AND SUMMARY 1
A. General 1
B. Principal Elements of the Restructuring 1
1. New Bank Financing 2
2. Senior Secured Note Exchange 2
3. Trade Claims 3
4. General Unsecured Claims 4
5. Equity Recapitalization 5
6. Tradeability of New Securities 6
7. Charter Amendments 7
8. Modified Union Agreements 8
9. Rejection of Certain Closed Store Leases 8
10. Management Stock Option Plan 9
11. Releases 9
12. Boards of Directors 10
II. THE RESTRUCTURING 10
A. Background 10
1. 1992 Refinancing 10
2. Increased Competition and Lower Margins 11
3. AWG Transactions 11
4. Restructuring of Old Notes and Refinancing of
1992 Credit Agreement 12
5. New Management Team 12
6. Post-AWG Sale Operating Results 13
B. Restructuring Discussions 13
1. Retention of Restructuring Professionals;
Formation of Committee 13
2. Strategic Sale Efforts 14
3. Waivers of Certain Events of Default 14
4. 1996 Union Contract Modifications 15
5. Agreement in Principle with the Committee 15
6. Sale of Ponca City Store 16
C. Summary of Classification and Treatment of Claims 16
D. Conditions to Consummation of the Restructuring 17
E. Certain Significant Effects of the Restructuring 18
F. Business Plan 19
G. 1996 Budget 20
H. Capitalization 22
III. THE CHAPTER 11 CASES 23
A. Retention of Professionals 23
B. DIP Facility 23
C. Payment of Certain Pre-Petition Claims 24
D. Continuation of Certain Consumer Practices 25
E. Other First Day Orders 25
IV. RISK FACTORS 25
A. Business Risks 25
1. Continuing Leverage; Financial Covenant
Restrictions 25
2. Competition 26
3. AWG Supply Relationship 27
4. Projections 27
5. Unions 27
B. Bankruptcy Risks 28
1. Disruption of Operations 28
2. Certain Risks of Non-Acceptance 28
3. Certain Risks of Non-Confirmation 29
4. Certain Risks Regarding Classification of
Claims and Interests 30
C. Risks Relating to the New Securities 30
1. Potential Illiquidity of the New Securities 30
2. Restrictions on Transfer 30
3. Dilution 31
4. No Dividends 33
5. Subordination of the New Notes 33
6. New Note Guarantee; Holding Company Structure 34
D. Certain Federal Income Tax Consequences 34
V. FINANCIAL INFORMATION 35
A. Selected Financial Information 35
B. Projected and Pro Forma Financial Information 36
1. Pro Forma Projected Balance Sheets 38
2. Pro Forma Projected Capitalization 42
3. Pro Forma Projected Statements of Operations 43
4. Projected Balance Sheets 50
5. Projected Statements of Cash Flow 51
VI. THE COMPANY 52
A. General 52
B. AWG Supply Agreement 52
C. The Company's Supermarkets 53
D. Merchandising Strategy and Pricing 55
E. Customer Service 55
F. Advertising and Promotion 55
G. Products 56
H. Employees and Labor Relations 56
I. Computer and Management Information Systems 56
J. Competition 57
K. Trademarks and Service Marks 58
L. Regulatory Matters 58
M. Properties 58
N. Legal Proceedings 59
1. Routine Litigation 59
2. Withdrawal Liability Dispute 59
VII. BOARDS OF DIRECTORS 60
A. Current Members 60
B. Proposed Members 60
C. Biographical Information 61
VIII. MANAGEMENT 62
A. Management 62
B. Biographical Information 63
C. Executive Compensation 63
D. Employment Agreements 65
E. Management Incentive Plan 66
F. Retirement Plan 67
IX. STOCK OWNERSHIP 67
X. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 69
XI. SUMMARY OF THE PLAN 70
A. Classification and Treatment of Claims and Interests 71
1. General 71
2. Treatment of Unclassified Claims 71
a. Administrative Claims 71
b. Priority Tax Claims 72
3. Classification and Treatment of Classified
Claims and Interests 73
a. Class 1 Claims_Allowed Priority Claims 73
b. Class 2 Claims_Allowed Claims of the Old
Banks 73
c. Class 3_Allowed Secured Noteholder Claims 73
d. Class 4_Allowed Miscellaneous Secured
Claims 74
e. Class 5_General Unsecured Claims 75
f. Class 6_Allowed Interests of Holding as
Sole Shareholder of the Company 76
g. Class 7_Allowed Interests of Holders of
Old Common Stock 76
h. Class 8_Allowed Interests of Holders of
Old Warrants 76
B. Means for Implementation of the Plan 77
1. Issuance of New Securities 77
2. Listing of New Common Stock; 1934 Act Filing 77
3. Effectiveness of Agreements 77
4. Charter Amendments 77
5. Management 77
7. Surrender and Cancellation of Instruments 78
8. Retiree Benefits 78
9. Workers' Compensation Claims under Prior Self-
Insurance Program 79
C. Other Provisions of the Plan 79
1. Executory Contracts and Unexpired Leases 79
2. Disputed Claims 80
3. Distributions 81
4. Bar Dates 83
5. Conditions to Consummation 84
6. Amendments to or Modification of the Plan 84
7. Revocation of the Plan 85
8. Releases 85
D. Effects of Plan Confirmation 85
1. Vesting of Assets; Reservation of Claims 85
2. Discharge 86
3. Injunction 86
4. Retention of Jurisdiction 86
XII. CONFIRMATION AND CONSUMMATION PROCEDURE 87
A. Solicitation of Votes 87
1. Who May Vote 87
2. Ballots 88
B. Confirmation Hearing 89
C. Confirmation 89
1. Acceptance by Impaired Classes 89
2. Confirmation Without Acceptance by All
Impaired Classes 90
a. Fair and Equitable 90
b. Unfair Discrimination 91
3. Best Interests 91
4. Feasibility 92
D. Consummation 92
XIII. ALTERNATIVES TO THE PLAN 92
A. Alternative Plan of Reorganization 92
B. Liquidation Under Chapter 7 93
XIV. DESCRIPTION OF MODIFIED UNION AGREEMENTS 94
A. General 94
B. Wage Rate, Benefit Contribution Reductions and Work
Rule Changes 94
C. Employee Buyout Offer 95
D. Stock Issuances to, and Purchases by, the ESOT 95
E. Board Representation 96
XV. SECURITIES LAW CONSIDERATIONS 96
A. Original Issuance of Securities 96
B. Subsequent Transfers of Securities 97
XVI. DESCRIPTION OF NEW NOTES 99
A. General 99
B. Maturity, Interest and Principal 99
C. Optional Redemption 99
D. Subordination 101
E. Certain Covenants 102
F. Merger, Sale of Assets, Etc. 108
G. Events of Default 109
H. Defeasance or Covenant Defeasance of New Indenture 112
I. Satisfaction and Discharge 114
J. Amendments and Waivers 115
K. Governing Law 115
L. The New Trustee 115
M. Certain Definitions 116
XVII. DESCRIPTION OF NEW COMMON STOCK 130
A. General 131
B. Registration Rights Agreements 131
1. General 131
2. Equity Registration Rights Agreement 132
3. Noteholder Registration Rights Agreement 133
XVIII. DESCRIPTION OF NEW WARRANTS 134
A. General 134
B. Exercise of New Warrants 134
C. Adjustments 135
D. Limitation on Right to Vote or Receive Dividends 137
XIX. DESCRIPTION OF THE NEW CREDIT AGREEMENT 137
XX. ACCOUNTING TREATMENT 137
XXI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES 138
A. Certain Federal Income Tax Consequences of the
Plan to Holders of Old Notes, to Holders of General
Unsecured Claims and to Holders of Old Common Stock 140
1. Exchange of Old Notes 140
2. Exchange of General Unsecured Claims 141
3. Exchange of Old Common Stock 141
4. Accrued but Unpaid Interest 142
5. Accrued Market Discount 142
B. Certain Federal Income Tax Consequences of
Ownership and Disposition of New Notes, New
Common Stock and New Warrants 142
1. Ownership and Disposition of New Notes 142
2. Ownership and Disposition of New Common Stock 145
3. Disposition, Exercise, Expiration and
Adjustment of New Warrants 145
4. Backup Withholding 146
C. Certain Federal Income Tax Consequences of
the Restructuring to the Debtors 146
XXII. FINANCIAL ADVISORS 147
XXIII. CONCLUSION 149
APPENDICES
Appendix A Form of Joint Plan of Reorganization of Homeland
Stores, Inc. and Homeland Holding Corporation
Appendix B Consolidated Financial Statements of Homeland
Holding Corporation
Appendix C Liquidation Analysis of the Debtors
I. INTRODUCTION AND SUMMARY
A. General
On May 13, 1996 (the "Filing Date"), each of the
Debtors filed a voluntary petition under Chapter 11 of the
Bankruptcy Code. Simultaneously with the filing of their
petitions, the Debtors filed the Plan and this Disclosure
Statement, which set forth the terms of a proposed financial
restructuring of the Debtors (the "Restructuring"). The
Restructuring, and the related modifications to the Company's
existing collective bargaining agreements (which have been agreed
to by the Company's unions and are described herein) are 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 (the "Old
Banks") under the Company's existing revolving credit facility
(the "1995 Credit Agreement") and the ad hoc committee
representing approximately 80% of the Company's outstanding
Senior Secured Notes (the "Committee").
The Company is a leading supermarket chain in
Oklahoma, southern Kansas and the Texas Panhandle region,
operating a total of 67 stores as of the Filing Date. The
Company expects that, as of the effective date of the Plan (the
"Effective Date"), it will operate 65 stores. See " _ Rejection
of Certain Closed Store Leases." The Company operates in four
distinct marketplaces: Oklahoma City, Oklahoma; Tulsa, Oklahoma;
Amarillo, Texas; and certain rural areas of Oklahoma, Kansas and
Texas.
The Company and Holding (its holding company) were
organized in 1987 by a group of investors led by Clayton,
Dubilier & Rice, Inc. ("CD&R") for the purpose of acquiring
substantially all of the assets of the Oklahoma Division of
Safeway, Inc. (the "Acquisition"). The acquired stores changed
their name to "Homeland" in order to highlight the Company's
regional identity.
Prior to April 1995, the Company supplied its
stores with goods from a Company-owned distribution center. As a
result of the significant overhead costs associated with
operating the Company's distribution center, in 1995 the Company
discontinued its distribution operation and became a member of a
buying cooperative. See "THE RESTRUCTURING _ Background _ AWG
Transactions."
B. Principal Elements of the Restructuring
The principal elements of the Restructuring and
the principal effects of its consummation pursuant to the Plan
are summarized below.
1. New Bank Financing
On the Effective Date, the Company will enter into
a new bank credit agreement or an amendment and restatement of
the 1995 Credit Agreement (the "New Credit Agreement"), the
general terms of which must be approved by the Committee. As of
the date of this Disclosure Statement, the Company is in
discussions with a number of banks potentially interested in
providing this credit facility, including the Old Banks. 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. In the event the Company is
unable to enter into the New Credit Agreement, the Company will
not have sufficient financing to consummate the Restructuring and
may be forced to pursue an orderly liquidation of its assets.
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 Company's
modified collective bargaining agreements (see "INTRODUCTION AND
SUMMARY _ Modified Union Agreements") and to pay certain
transaction expenses relating to the Restructuring. The Company
expects that its obligations under the New Bank 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.
2. Senior Secured Note Exchange
Under the Plan, holders of the Company's
outstanding Series A Senior Secured Floating Rate Notes Due 1997
(the "Series A Notes"), Series C Senior Secured Fixed Rate Notes
Due 1999 (the "Series C Notes") and Series D Senior Secured
Floating Rate Notes Due 1997 (the "Series D Notes" and, together
with the Series A Notes and Series C Notes, the "Old Notes") will
be deemed to have two Claims: (a) an aggregate Secured Claim of
$61.5 million (which represents a consensual reduction of the Old
Noteholders' actual aggregate Secured Claim of approximately
$65.0 million); and (b) an aggregate Unsecured Claim of
approximately $40.1 million. In exchange for their Secured
Claims in respect of the Old Notes, the holders of the Old Notes
will receive (i) $60.0 million aggregate principal amount of
newly-issued 10% Senior Subordinated Notes Due 2003 of the
Company (the "New Notes") and (ii) $1,500,000 of cash (the "Cash
Amount"). In exchange for their Unsecured Claims in respect of
the Old Notes, the holders of the Old Notes will receive their
ratable portion of 4,450,000 shares of newly-issued common stock,
par value $.01 per share, of Holding (the "New Common Stock"),
sharing ratably with other allowed general unsecured claims
against the Debtors (the "General Unsecured Claims "). The
Debtors estimate that total General Unsecured Claims will be
approximately $63.1 million, consisting of approximately $40.1
million in General Unsecured Claims in respect of the Old Notes
and approximately $23.0 million of other General Unsecured
Claims. Based on such estimate, holders of the Old Notes will
receive (in the aggregate) approximately 2,827,922 shares of New
Common Stock, representing approximately 60.2% of the New Common
Stock to be outstanding upon consummation of the Restructuring.
See "SUMMARY OF THE PLAN _ Classification and Treatment of
Classified Claims and Interests" and "RISK FACTORS _ Risks
Relating to the New Securities _ Dilution."
Upon consummation of the Restructuring, each
holder of the Old Notes will receive the following (assuming
total General Unsecured Claims of $63.1 million):
For each: The holder will receive:
$1,000 claim amount $590.56 principal
(including Secured and amount of New Notes, 27.83
Unsecured Claims) shares of the New Common
Stock and $14.76 in cash
The New Notes will bear interest at the rate of
10% per annum (beginning on the Effective Date), payable
semiannually on February 1 and August 1 of each year commencing
on February 1, 1997. The New Notes will mature on __________,
2003, and will not be subject to any sinking fund requirements.
The New Notes will be redeemable at the option of the Company, in
whole or in part, (a) at any time on or after August 1, 1999, and
(b) upon the occurrence of a "Change of Control" (as defined
below under "DESCRIPTION OF NEW NOTES _ Certain Definitions"), in
each case at the redemption prices set forth below under
"DESCRIPTION OF NEW NOTES _ Optional Redemption." If the Company
fails to redeem all the New Notes upon the occurrence of a Change
of Control, the Company will be required to make an offer to
purchase all outstanding New Notes at the redemption price and
subject to the conditions described below under "DESCRIPTION OF
NEW NOTES _ Certain Covenants". Unlike the Old Notes, the New
Notes will be unsecured obligations of the Company and will be
subordinated to certain "Senior Indebtedness" (as defined below
under "DESCRIPTION OF NEW NOTES _ Certain Definitions")
comprising indebtedness under the New Credit Agreement and
refinancings thereof.
The New Notes will be issued pursuant to an
indenture (the "New Indenture") among the Company, as issuer,
Holding, as guarantor, and Fleet Bank, as trustee (the "New
Trustee"). A copy of the New Indenture, substantially in the
form to be executed by the Company and the New Trustee, is set
forth in the Plan Supplement filed with the Bankruptcy Court (the
"Plan Supplement").
For further information regarding the New Notes
see "DESCRIPTION OF NEW NOTES" and the form of New Indenture set
forth in the Plan Supplement.
3. Trade Claims
SINCE THE COMMENCEMENT OF THE DEBTORS' BANKRUPTCY
CASES, THE COMPANY HAS REMAINED IN POSSESSION OF, AND CONTINUES
TO OPERATE, ITS BUSINESS IN THE ORDINARY COURSE OF BUSINESS AND
TO PAY ALL POST-PETITION CLAIMS OF TRADE CREDITORS ON A TIMELY
BASIS. THE BANKRUPTCY COURT HAS ENTERED AN ORDER (THE "TRADE
CREDITOR ORDER") AUTHORIZING (BUT NOT OBLIGATING) THE COMPANY TO
PAY IN THE ORDINARY COURSE THE PRE-PETITION CLAIMS OF ITS TRADE
CREDITORS. PURSUANT TO THE TRADE CREDITOR ORDER, THE COMPANY
EXPECTS TO PAY MANY (BUT NOT ALL) OF ITS PRE-PETITION TRADE
CLAIMS. THE COMPANY WILL PAY, HOWEVER, THE PRE-PETITION TRADE
CLAIMS OF ALL TRADE CREDITORS THE COMPANY DEEMS TO BE ESSENTIAL,
SUBJECT TO SUCH TRADE CREDITORS' AGREEMENT TO CONTINUE TO SUPPLY
IN ACCORDANCE WITH CUSTOMARY PRE-PETITION TRADE TERMS.
PAYMENTS PURSUANT TO THE TRADE CREDITOR ORDER ARE
CONTINGENT ON A TRADE CREDITOR'S AGREEMENT TO CONTINUE TO SUPPLY
PRODUCTS OR SERVICES TO THE COMPANY IN ACCORDANCE WITH CUSTOMARY
PRE-PETITION TRADE TERMS (INCLUDING PRIOR ALLOWANCES AND
PRACTICES). IF A TRADE CREDITOR REFUSES TO SUPPLY PRODUCTS OR
SERVICES IN ACCORDANCE WITH SUCH CUSTOMARY PRE-PETITION TRADE
TERMS, ANY PAYMENTS BY THE COMPANY TO SUCH TRADE CREDITOR IN
RESPECT OF ANY PRE-PETITION CLAIMS WILL BE DEEMED TO HAVE BEEN
MADE IN PAYMENT OF THEN OUTSTANDING POST-PETITION OBLIGATIONS
OWED TO SUCH TRADE CREDITOR AND SUCH TRADE CREDITOR WILL
IMMEDIATELY REPAY TO THE COMPANY ANY PAYMENTS MADE TO SUCH TRADE
CREDITOR ON ACCOUNT OF PRE-PETITION CLAIMS TO THE EXTENT THE
AGGREGATE AMOUNT OF SUCH PAYMENT EXCEEDS THE POST-PETITION
OBLIGATIONS THEN OUTSTANDING (WITHOUT ANY SETOFFS, CLAIMS,
PROVISIONS FOR PAYMENT OF RECLAMATION OR TRUST FUND CLAIMS OR
OTHER REDUCTIONS BY SUCH TRADE CREDITOR). SEE "THE CHAPTER 11
CASES _ PAYMENT OF CERTAIN PRE-PETITION CLAIMS."
THE COMPANY BELIEVES IT WILL HAVE SUFFICIENT FUNDS
FROM OPERATIONS AND ITS DIP FACILITY (AS DEFINED BELOW UNDER "THE
CHAPTER 11 CASES _ DIP FACILITY") FOR THE TIMELY PAYMENT OF THE
POST-PETITION CLAIMS OF ITS TRADE CREDITORS IN THE ORDINARY
COURSE OF BUSINESS THROUGH THE CONCLUSION OF THE BANKRUPTCY
CASES.
4. General Unsecured Claims
Under the Plan, each holder of a General Unsecured
Claim will receive its ratable portion of 4,450,000 shares of New
Common Stock, based on the amount of such holder's claim relative
to all General Unsecured Claims. The Debtors estimate that the
total amount of General Unsecured Claims will be approximately
$63.1 million, consisting of approximately $40.1 million in
General Unsecured Claims in respect of the Old Notes and
approximately $23.0 million of other General Unsecured Claims.
Based on such estimate, holders of General Unsecured Claims
(other than the holders of Old Notes) will receive (in the
aggregate) approximately 1,622,078 shares of New Common Stock,
representing approximately 70.53 shares of New Common Stock for
each $1,000 of Claims held by such holders. The holders of
General Unsecured Claims (including the holders of the Old Notes)
will own approximately 94.7% of the New Common Stock to be
outstanding upon consummation of the Restructuring. For further
information regarding the treatment of General Unsecured Claims
under the Plan, see "SUMMARY OF THE PLAN _ Classification and
Treatment of Classified Claims and Interests" and "RISK FACTORS _
Risks Relating to the New Securities _ Dilution."
5. Equity Recapitalization
a. Old Common Stock
Under the Plan, all of Holding's issued and
outstanding Class A Common Stock, par value $.01 per share (the
"Old Common Stock"), will be exchanged for (1) an aggregate of
250,000 shares of New Common Stock, representing approximately
5.3% of the New Common Stock to be outstanding upon consummation
of the Restructuring, and (2) warrants to purchase (in the
aggregate) up to 263,158 shares of New Common Stock (the "New
Warrants") at an exercise price of $11.85 per share. Upon
consummation of the Restructuring, each holder of the Old Common
Stock will receive 7.67 shares of New Common Stock and 8.07 New
Warrants for each 1,000 shares of Old Common Stock held by such
holders. See "SUMMARY OF THE PLAN _ Classification and Treatment
of Classified Claims and Interests" and "RISK FACTORS _ Risks
Relating to the New Securities _ Dilution."
The New Warrants are exercisable for a five-year
period commencing on the Effective Date. A copy of the agreement
governing the New Warrants (the "New Warrant Agreement"),
substantially in the form to be executed by Holding, is set forth
in the Plan Supplement.
For further information regarding the New Common
Stock and the terms of the New Warrants, see "DESCRIPTION OF NEW
COMMON STOCK," "DESCRIPTION OF NEW WARRANTS" and the form of New
Warrant Agreement set forth in the Plan Supplement.
b. Homeland Common Stock
As of the Filing Date, Holding was the sole holder
of 100% of the issued and outstanding shares of Common Stock, par
value $.01 per share, of the Company (the "Homeland Common
Stock"). Under the Plan, Holding will continue to be the sole
holder of the Homeland Common Stock and Holding's interest in the
Homeland Common Stock will not be impaired.
c. Old Warrants
The Plan provides that Holding's existing warrants
to purchase (in the aggregate) up to 2,105,493 shares of Old
Common Stock (the "Old Warrants"), held by certain current and
former members of the Company's management, will not be impaired.
The Old Warrants are scheduled to expire in 2000, and are
exercisable at an exercise price of $0.50 per share, or an
aggregate exercise price of $1,052,746.50 for all Old Warrants.
Based on the aggregate exercise price of the Old Warrants
($1,052,746.50) and the aggregate number of shares of New Common
Stock to be received upon exercise of the Old Warrants
(approximately 15,167 shares, representing the warrantholders
ratable share of the Class 7 distribution under the Plan had they
exercised their Old Warrants prior to the Effective Date), the
effective exercise price per share of New Common Stock to be
received upon exercise of the Old Warrants is approximately
$69.41. See "RISK FACTORS _ Risks Relating to the New Securities
_ Dilution."
6. Tradeability of New Securities
Any person who receives New Notes, New Common
Stock or New Warrants (collectively, the "New Securities")
pursuant to the Plan will be able to resell such New Securities
without registration under federal and state securities laws,
unless such holder is an "underwriter" as defined in Section
1145(b) of the Bankruptcy Code, which may include certain
affiliates of the Debtors. See "RISK FACTORS _ Risks Relating to
the New Securities _ Restrictions on Transfer" and "SECURITIES
LAW CONSIDERATIONS."
Holding will file a Form 10 registration statement
with respect to the New Common Stock under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), within 60 days
following the Effective Date and will use its best efforts to
cause such registration statement to become effective as soon as
practicable thereafter. Holding will keep such registration
effective until the earlier of (a) the seventh anniversary of the
Effective Date and (b) the first date on which less than 10% of
the outstanding New Common Stock is publicly held. For so long
as such registration remains effective, Holding will be required
to comply with the reporting requirements under the 1934 Act. In
addition, so long as the New Notes are outstanding, the New
Indenture will require the Company to comply with the periodic
reporting requirements under the 1934 Act, regardless of whether
it is otherwise subject thereto, as contemplated by the Trust
Indenture Act of 1939. See "SECURITIES LAW CONSIDERATIONS."
Under the Plan, Holding has undertaken to use its
best efforts to secure the listing of the New Common Stock on the
NASDAQ National Market System (or, in the event Holding fails to
meet the listing requirements of the NASDAQ National Market
System, on such other exchange or system on which the New Common
Stock may be listed) as soon as practicable following the
Effective Date. There can be no assurance, however, that the New
Common Stock will be listed on the NASDAQ National Market System
or on such other exchange or system.
Holding will enter into a registration rights
agreement (the "Equity Registration Rights Agreement") for the
benefit of the holders of the Old Common Stock who will receive
New Common Stock and New Warrants under the Plan. The Equity
Registration Rights Agreement will provide such holders, under
certain conditions, with registration rights under the Securities
Act of 1933, as amended (the "Securities Act"), for the New
Securities to be issued to such holders under the Plan. In
addition, Holding and the Company will enter into a separate
registration rights agreement (the "Noteholder Registration
Rights Agreement" and, together with the Equity Registration
Rights Agreement, the "Registration Rights Agreements"), for the
benefit of the holders of the Old Notes who will receive New
Notes and New Common Stock under the Plan. The Noteholder
Registration Rights Agreement will provide such holders, under
certain conditions, with registration rights under the
Securities Act for the New Securities to be issued to such
holders under the Plan.
Copies of the Equity Registration Rights Agreement
and the Noteholder Registration Rights Agreement, substantially
in the forms to be executed by Holding, are set forth in the Plan
Supplement. For further information regarding the Registration
Rights Agreements, see "DESCRIPTION OF NEW COMMON STOCK _
Registration Rights Agreements" and the forms of Registration
Rights Agreements set forth in the Plan Supplement.
7. Charter Amendments
As of the date hereof, Holding's certificate of
incorporation authorizes the issuance of 81,000,000 shares of
capital stock, consisting of 40,500,000 shares of Old Common
Stock and 40,500,000 shares of Class B Common Stock, par value
$.01 per share (the "Old Class B Common Stock"). As of the
Filing Date, 32,599,707 shares of Old Common Stock and no shares
of Old Class B Common Stock were issued and outstanding.
The Plan provides for the filing with the
Secretary of State of the State of Delaware (the "Delaware
Secretary of State") of an Amended and Restated Certificate of
Incorporation of Holding (the "Amended Holding Charter") which,
among other things, will amend and restate Article FOURTH of
Holding's current certificate of incorporation to delete all
provisions relating to the Old Common Stock and the Old Class B
Common Stock and to authorize 7,500,000 shares of New Common
Stock, par value $.01 per share. If the Amended Holding Charter
becomes effective, all powers, privileges, voting and other
special or relative rights and qualifications of the Old Common
Stock and the Old Class B Common Stock existing on the Effective
Date will be terminated and all currently issued and outstanding
shares of Old Common Stock will be canceled. See "DESCRIPTION OF
NEW COMMON STOCK." In addition, the Amended Holding Charter will
prohibit the issuance of nonvoting stock as required under the
Bankruptcy Code.
The proposed Amended Holding Charter,
substantially in the form to be filed with the Delaware Secretary
of State, is set forth in the Plan Supplement. The Amended
Holding Charter is subject to the approval of the Bankruptcy
Court in the Confirmation Order and will not take effect until
the Effective Date.
In accepting the Plan, the holders of the Old
Common Stock will be consenting to the adoption of the amendments
to Holding's current certificate of incorporation contained in
the Amended Holding Charter which, if the Plan is confirmed by
the Bankruptcy Court, will become effective on the Effective
Date. The adoption of such amendments is necessary to, and an
integral part of, the Restructuring.
The Plan also provides for the filing with the
Delaware Secretary of State of an Amended and Restated
Certificate of Incorporation of the Company (the "Amended Company
Charter"), which will amend and restate the Company's current
certificate of incorporation to prohibit the issuance of
nonvoting stock as required under the Bankruptcy Code. The
proposed Amended Company Charter, substantially in the form to be
filed with the Delaware Secretary of State, is set forth in the
Plan Supplement. The amendments to be implemented thereby are
subject to the approval of the Bankruptcy Court in the
Confirmation Order and will not take effect until the Effective
Date.
8. Modified Union Agreements
On March 8, 1996, the Company and representatives
of the United Food and Commercial Workers Union of North America
(the "UFCW"), which represents approximately 90% of the Company's
employees (including substantially all of its hourly employees),
reached an agreement in principle regarding certain modifications
to the Company's existing collective bargaining agreements with
the UFCW (the "Modified UFCW Agreements"). The terms of the
Modified UFCW Agreements were ratified during the week of March
11, 1996, by overwhelming majorities of each of the local union
chapters of the UFCW.
In April 1996, 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 collective bargaining
agreement with the Company on the same terms and conditions as
the Modified UFCW Agreement (the " Modified BCT Agreement" and,
together with the Modified UFCW Agreements, the "Modified Union
Agreements").
The Modified Union Agreements will have a term of
five years commencing on the Effective Date and will be
conditioned on the consummation of the Restructuring. The
Modified Union Agreements will consist of five basic elements:
(a) wage rate and benefit contribution reductions and work rule
changes; (b) an employee buyout offer, pursuant to which the
Company will make up to $6.4 million available for the buyout of
certain unionized employees (the "Employee Buyout Offer"); (c)
the establishment of an employee stock ownership trust (the
"ESOT") 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 pursuant to the Modified Union
Agreements; (d) the UFCW's right to designate one member of the
Boards of Directors of the Company and Holding; and (e) the
elimination of certain "snap back" provisions (provisions
relating to the reinstatement of previously reduced wage
amounts), incentive plans and "maintenance of benefits"
provisions. See "DESCRIPTION OF MODIFIED UNION AGREEMENTS."
The Company estimates that the Modified Union
Agreements will result in annual cost savings in the first full
contract year 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). There
can be no assurance, however, that such cost savings will
actually be realized. In addition, the amount of such cost
savings may be offset in part in subsequent contract years as a
result of certain wage and benefit increases under the Modified
Union Agreements.
For a more detailed description of the Modified
Union Agreements, see "DESCRIPTION OF MODIFIED UNION AGREEMENTS."
9. Rejection of Certain Closed Store Leases
The Company closed 14 under-performing stores
during 1995 and, as of the Filing Date, was the "lessee" under
certain real property leases relating to seven of such closed
stores (certain of which leases may have been terminated pre-
petition by virtue of the Company's surrender of the leased
property). The Company anticipates that, as part of the
Restructuring, it will reject (pursuant to Section 365 of the
Bankruptcy Code) five of these store leases (resulting in annual
cash savings of approximately $1.0 million in the aggregate) and
may reject two additional store leases in the event the Company
is unable to assign or sublease such leases on acceptable terms.
In addition, after the Filing Date, the Company expects to close
two additional under-performing stores and reject the real
property leases associated with such stores (resulting in annual
cash savings of $0.6 million in the aggregate). As a result of
these additional store closures, the Company expects that, on the
Effective Date, it will own and operate 65 stores, as compared to
67 stores as of the Filing Date.
10. Management Stock Option Plan
The Plan contemplates that 263,158 shares of New
Common Stock will be reserved for issuance under a new management
stock option plan (the "Management Stock Option Plan") to be
established by the Board of Directors of Holding following the
consummation of the Restructuring. See "BOARDS OF DIRECTORS _
Proposed Members." The Board of Directors of Holding will
determine the terms and conditions of the Management Stock Option
Plan (including the identity of the participants and the number
of options to be granted).
11. Releases
On the Effective Date, each Debtor and each holder
of a Claim or an Interest (a) who has accepted the Plan, (b)
whose Claim is in a class that has accepted the Plan or is
deemed, pursuant to Section 1126(f) of the Bankruptcy Code, to
have accepted the Plan, or (c) who may be entitled to receive a
distribution of property pursuant to the Plan, will release or
will be deemed to have released unconditionally (i) each officer,
director, shareholder, affiliate, employee, consultant, attorney,
accountant, agent and other representative of the Debtors
(collectively, the "Affiliated Released Parties") and (ii) (A)
any Statutory Committee and, solely in their capacity as members
or representatives of any Statutory Committee, each member,
consultant, attorney, accountant or other representative of such
Statutory Committee, (B) the Committee and, solely in their
capacity as members or representatives of the Committee, each
member, consultant, attorney, accountant or other representative
of the Committee, (C) the Old Banks and each consultant,
attorney, accountant or other representative of the Old Banks and
(D) the Old Trustee and each consultant, attorney or other
representative of the Old Trustee (collectively, the "Other
Released Parties" and, together with the Affiliated Released
Parties, the "Released Parties") from any and all Claims,
obligations, rights, causes of action and liabilities, whether
known or unknown, foreseen or unforeseen, existing or hereafter
arising, in law, equity or otherwise, based in whole or in part
upon any act or omission, transaction or other occurrence taking
place on or prior to the Effective Date in any way relating to
the Released Parties, the Debtors, the Debtors' bankruptcy cases
or the Plan. The Debtors' release of the Affiliated Released
Parties does not include a release of any "Excluded Claims,"
which include all Claims, obligations, rights, causes of action
or liabilities (a) relating to any indebtedness for borrowed
money owed by an Affiliated Released Party to either Debtor, (b)
any setoff or counterclaim the Debtors may have or assert against
an Affiliated Released Party, provided that the aggregate amount
thereof shall not exceed the aggregate amount of Claims held or
asserted by such Affiliated Released Party against the Debtors,
(c) the uncollected amount of any Claim asserted by the Debtors
prior to the Effective Date (whether in a filed pleading, by
letter or otherwise in writing) against an Affiliated Released
Party, and not adjudicated to a Final Order of the Bankruptcy
Court, settled or compromised and (d) Claims arising from fraud,
willful misconduct or gross negligence of an Affiliated Released
Party.
Notwithstanding the foregoing, if and to the
extent that the Bankruptcy Court concludes that the Plan cannot
be confirmed with any portion of the foregoing releases, then the
Plan may be confirmed with that portion excised so as to give
effect as much as possible to the foregoing releases without
precluding confirmation of the Plan. See "SUMMARY OF THE PLAN _
Other Provisions of the Plan."
12. Boards of Directors
In connection with the Restructuring, the Boards
of Directors of the Company and of Holding will be reconstituted
to include seven members. The initial Board of Directors of each
of the Company and Holding will consist of James A. Demme, John
A. Shields, four directors selected by the Committee and one
director selected by the See "BOARD OF DIRECTORS _ Proposed
Members".
II. THE RESTRUCTURING
A. Background
1. 1992 Refinancing
In March 1992, the Company refinanced (the "1992
Refinancing") its Acquisition-related indebtedness and certain
other indebtedness by (a) issuing and selling $45 million
aggregate principal amount of its Series A Notes and $75 million
aggregate principal amount of its Series B Senior Secured Fixed
Rate Notes Due 1999 (the "Series B Notes") and (b) making certain
borrowings under a revolving credit agreement ("1992 Credit
Agreement"). Later in 1992, the Company completed an exchange
offer pursuant to which (a) $33 million aggregate principal
amount of the Series A Notes were exchanged for an equal
principal amount of its registered Series D Notes, leaving $12
million aggregate principal amount of Series A Notes outstanding,
and (b) $75 million aggregate principal amount of the Series B
Notes were exchanged for an equal principal amount of its
registered Series C Notes. The Old Notes were issued pursuant to
an Indenture dated as of March 4, 1992, as supplemented (the "Old
Indenture"), among the Debtors and United States Trust Company of
New York, as trustee (the "Old Trustee"). Following the exchange
offer, there were $120 million aggregate principal amount of Old
Notes outstanding, consisting of $12 million of Series A Notes,
$33 million aggregate principal amount of Series C Notes and $75
million aggregate principal amount of Series D Notes.
2. Increased Competition and Lower Margins
Beginning in 1993, the Company was confronted with
increased competition in its market areas consisting mainly of
competitive store openings by retail supermarket and general
merchandising chains such as Wal-Mart and Albertson's and
aggressive pricing practices by competitors. 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), directly affecting 28 of the Company's stores, where
average weekly sales in 1994 decreased by 10.9% as compared to
1993.
Largely as a result of these competitive
pressures, the Company's gross margins (as a percentage of sales)
declined in 1993 to 25.6%, compared to 26.6% in 1992. The
Company's gross margins declined still further in 1994 to 25.1%.
The Company was unable to respond effectively to these
competitive pressures because (a) the high labor costs associated
with the Company's unionized workforce made it difficult for the
Company to price its goods competitively, (b) the high fixed
overhead costs associated with the Company's distribution center
operations made the closure of marginal and unprofitable stores
financially prohibitive and (c) the Company's highly-leveraged
financial condition and the restrictive covenants contained in
the 1992 Credit Agreement and the Old Indenture made it
difficult for the Company to fund the capital improvements
necessary to maintain the Company's competitive position.
In response to competitive pressures, the Company
entered into negotiations with the UFCW regarding certain wage
and benefit reductions. In late 1993, the UFCW ratified
modifications to its collective bargaining agreement which
implemented these wage and benefit reductions. Notwithstanding
these modifications, the average wages and benefits paid to the
Company's unionized employees remained significantly higher than
those paid by the Company's competitors.
3. AWG Transactions
After exploring a number of strategic responses to
the Company's competitive pressures and declining gross margins,
in April 1995, the Company sold 29 stores and the Company's
distribution center to Associated Wholesale Grocers, Inc. ("AWG")
for approximately $73 million and the assumption of certain
liabilities by AWG (the "AWG Sale"). In connection with the AWG
Sale, the Company became a member of the AWG buying cooperative
under a seven-year supply agreement with AWG (the "Supply
Agreement" and, collectively with the AWG Sale, the "AWG
Transactions").
The purposes of the AWG Transactions were
threefold: (a) to reduce the Company's borrowed money
indebtedness by applying the net proceeds from the AWG Sale to
indebtedness in respect of the 1992 Credit Agreement and the Old
Notes; (b) to sell the Company's distribution center and to move
from a self-supply operation to an operation supplied through the
AWG retail buying cooperative, thereby eliminating the high fixed
costs associated with the distribution center operation and
permitting the Company to close marginal and unprofitable stores;
and (c) to obtain the benefits of membership in the AWG
cooperative, including increased purchases of private label
products, special product purchases, dedicated support programs
and access to AWG's store systems.
The AWG Sale generated approximately $37.2 in net
proceeds, approximately $24.8 million of which (together with
approximately $0.2 million of certain borrowings) were used to
partially redeem the Old Notes (leaving $95 million aggregate
principal amount in Old Notes outstanding) and approximately
$12.4 million of which was applied against indebtedness under the
1992 Credit Agreement. Concurrently with the closing of the AWG
Sale, the Company and AWG entered into the Supply Agreement
pursuant to which the Company became a member of the AWG
cooperative and AWG became the Company's primary supplier. See
"THE COMPANY _ AWG Supply Agreement."
4. Restructuring of Old Notes and Refinancing of 1992
Credit Agreement
Concurrently with the closing of the AWG
Transactions, the Company also completed a restructuring of the
1992 Credit Agreement and the Old Notes (the "April 1995
Restructuring"). In connection with the restructuring of Old
Notes, the Old Indenture was amended to add, modify and/or delete
certain covenants and related definitions to (a) take account of
the Company's size, operations and financial position following
the AWG Transactions and (b) permit the Company to satisfy its
other obligations under the Supply Agreement (including, without
limitation, the granting of certain liens to AWG). See "THE
COMPANY _ AWG Supply Agreement." In addition, the Old Indenture
was also amended to effect a 0.50% per annum increase in the
interest rate on each series of the Old Notes. Holders of Old
Notes who voted in favor of these amendments received a consent
fee of $5.00 for each $1,000 principal amount of Old Notes voted
by such holders. Each holder of the Old Notes also received its
pro rata portion of the $25 million redemption amount.
The restructuring of the 1992 Credit Agreement
consisted of two separate but related transactions: (a) the
closing of the 1995 Credit Agreement, which amended and restated
the 1992 Credit Agreement and provided for a $25 million
revolving credit facility; and (b) the refinancing in full of
borrowings under the 1992 Credit Agreement from the proceeds of
certain borrowings under the 1995 Credit Agreement and
approximately $12.4 million in net proceeds from the AWG Sale.
5. New Management Team
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
Transactions, 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. See "THE RESTRUCTURING _ Background _ Business Plan."
As part of its strategic plan, the Company's
management team also devised 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 to
close two additional stores during 1996. See "INTRODUCTION AND
SUMMARY _ Principal Elements of the Restructuring _ Rejection of
Certain Closed Store Leases."
6. Post-AWG Sale Operating Results
Despite the completion of the AWG Transactions and
the commencement of the Company's new marketing plan, the
Company's gross margins (as a percentage of sales) continued to
decline during 1995, declining to 23.7% in the third quarter of
1995 and 23.6% in the fourth quarter of 1995. 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.
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 Old Notes of approximately $4.5 million. Although
the Company made the September 1, 1995 interest payment on the
Old Notes, it had to assign certain receivables and other
benefits under the Supply Agreement to AWG in order to fund this
payment.
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. Due to the
Company's efforts, the Company's gross margins improved to 24.3%
in the first quarter of 1996. This improvement was, however,
lower than projected in the 1996 Budget (as defined below under
"_ 1996 Budget").
B. Restructuring Discussions
1. Retention of Restructuring Professionals; Formation of
Committee
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") to act as the Company's financial advisor.
In addition, during this time, the Committee, representing
approximately 80% of the outstanding Old Notes, was formed. The
Committee selected Houlihan, Lokey, Howard & Zukin ("Houlihan
Lokey") as the Committee's financial advisor and Paul, Weiss,
Rifkind, Wharton & Garrison as the Committee's legal advisor
(collectively, the "Noteholder Advisors"). The Company agreed to
pay the reasonable fees and expenses of the Noteholder Advisors.
See "FINANCIAL ADVISORS."
2. Strategic Sale Efforts
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.
The Company believes that the lack of greater
interest in a purchase of the Company's stores probably resulted
from (a) the perceived difficulty in structuring a transaction
given the Company's difficult financial position, (b) the high
labor costs associated with the Company's unionized work force,
combined with the Company being the only unionized supermarket
chain in its market areas, and (c) the perception that an
extensive capital expenditure program would be required to
modernize many of the Company's stores.
3. Waivers of Certain Events of Default
In December 1995, the Company informed the Old
Banks and the Old Trustee that it would be unable to comply with
certain year-end financial covenants contained in the 1995 Credit
Agreement and the Old Indenture (including the Consolidated Fixed
Charge Coverage ratio and the Debt-to-EBITDA ratio) and requested
a temporary waiver of its obligations under such covenants in
order to facilitate a restructuring of the Company's indebtedness
or the sale of the Company to a third party. The Old Banks and
the Old Trustee (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 of April 15, 1996, and the date on which the Company
defaulted on any of its payment obligations with respect to the
Old Notes.
On March 1, 1996, the Company failed to make the
scheduled interest payment on the Old Notes in the amount of
approximately $4.4 million. This payment default resulted in a
termination of the December 1995 waiver under the Old 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 Old Banks agreed that
their waiver would continue to be effective, and that they would
continue to fund, through April 15, 1996, notwithstanding such
payment default. The Old Banks subsequently agreed to extend the
waiver and their commitment to fund through May 20, 1996.
4. 1996 Union Contract Modifications
In evaluating the Company's strategic
alternatives, the Company came to the conclusion that a
successful restructuring, including a possible sale of the
Company to a third party, depended in part on a reduction in the
Company's labor costs, which meant negotiating modifications to
the Company's existing collective bargaining agreements with the
UFCW (the "Existing UFCW Agreements"). Accordingly, in early
1996, the Company commenced preliminary negotiations with
representatives of the UFCW regarding certain proposed
modifications to the Existing UFCW Agreements. On March 8, 1996,
the Company and representatives of the UFCW reached an agreement
in principle relating to the Modified UFCW Agreements. The terms
of the Modified UFCW Agreements were ratified during the week of
March 11, 1996, by overwhelming majorities of each of the local
union chapters of the UFCW.
In April 1996, the local chapter of the BCT
ratified modifications to its existing collective bargaining
agreement with the Company (the "Existing BCT Agreement" and,
together with the Existing UFCW Agreements, the "Existing Union
Agreements") on the same terms and conditions as the Modified
UFCW Agreements.
The Modified Union Agreements will have a term of
five years commencing on the Effective Date and will be
conditioned on the consummation of the Restructuring. The
Modified Union Agreements will 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 ESOT
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 pursuant to the terms of the Modified Union
Agreements; (d) the UFCW's right to designate one member of the
Boards of Directors of the Company and Holding; and (e) the
elimination of certain "snap back" provisions (provisions
relating to the reinstatement of previously reduced wage
amounts), incentive plans and "maintenance of benefits"
provisions.
The Company estimates that the Modified Union
Agreements will result in annual cost savings in the first full
contract year 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). There
can be no assurance, however, that such cost savings will
actually be realized. In addition, the amount of such cost
savings may be offset in part in subsequent contract years as a
result of certain wage and benefit increases under the Modified
Union Agreements.
For a more complete description of the terms of
Modified Union Agreements, see "DESCRIPTION OF MODIFIED UNION
AGREEMENTS."
5. Agreement in Principle with the Committee
On March 27, 1996, the Company and the Committee
reached an agreement in principle relating to the terms of a
restructuring of the Old Notes, which terms are reflected in the
Plan and this Disclosure Statement. The agreement in principle
provides that, among other things, the holders of the Old Notes
will receive (in the aggregate) $60.0 million aggregate principal
amount of New Notes, approximately 2,827,922 shares of New Common
Stock, representing approximately 60.2% of the New Common Stock
to be issued under the Plan (based on estimated total General
Unsecured Claims of $63.1 million), and $1.5 million of cash.
THE COMMITTEE SUPPORTS THE PLAN AND RECOMMENDS
THAT HOLDERS OF THE OLD NOTES VOTE IN FAVOR OF THE PLAN.
6. Sale of Ponca City Store
On April 29, 1996, the Company sold its Ponca
City, Oklahoma store, including certain property constituting
collateral under the Old Indenture (the "Old Indenture
Collateral"), to Albertson's. The net proceeds from this sale of
Old Indenture Collateral, together with the net proceeds of other
Old Indenture Collateral sold following the AWG Transactions,
will be used to fund the Cash Amount to be paid to holders of the
Old Notes under the Plan.
C. Summary of Classification and Treatment of Claims
The following table summarizes the classification
and treatment of Claims and Interests under the Plan. For a more
detailed description of the terms and provisions of the Plan, see
"SUMMARY OF THE PLAN."
Class Description Treatment under the Plan
Administrative Claims. Costs Paid in full, in cash,
and expenses of bankruptcy within 30 days after the later
cases, including post-expenses of the Effective Date and the
petition expenses professional and date when such Claim becomes
fees. allowed.
Priority Tax Claims. Tax At the option of the
Claims entitled to priority Debtors, (a) paid in full, in
under Section 507(a)(8) of cash, on the later of the
the Bankruptcy Code. Effective Date and the date on
which such Claim becomes
allowed, or (b) paid in deferred
cash payments over a period not
exceeding six years after the
date of assessment, including an
interest component as required
under Section 1129(a)(9)(c) of
the Bankruptcy Code.
Class 1. Claims given Unimpaired. Paid in full,
priority under the Bankruptcy in cash, on the later of the
Code, including employee Effective Date and the date on
claims for wages and certain which such Claim becomes
benefits. allowed.
Class 2. Claims of the Old Impaired. Either (a) paid
Banks under the 1995 Credit in cash in full or (b) satisfied
Agreement. by the execution and delivery of
the New Credit Agreement by,
among other persons, the Old
Banks and the modification of
the 1995 Credit Agreement in
accordance with the terms of the
New Credit Agreement.
Class 3. Secured Claims of Impaired. Each Holder of a
Holders of Old Notes. Class 3 Claim will receive its
ratable share of (a) the New
Notes and (b) the Cash Amount.
Class 4. Miscellaneous Unimpaired. At the option
Secured Claims. of the Debtors, (a) the legal,
equitable and contractual rights
of each holder of a Class 4
Claim will not be altered by the
Plan or (b) such Claims will be
treated in any other manner that
will result in such Claims being
unimpaired under Section 1124 of
the Bankruptcy Code.
Class 5. General Unsecured Impaired. Each holder of a
Claims, including 40.1 Class 5 Claim will receive its
million of General Unsecured ratable share of 4,450,000
Claims in respect of the Old shares of New Common Stock.
Notes and an estimated $23.0
million in other General
Unsecured Claims.
Class 6. Interests of Unimpaired. The legal,
Holding as sole holder of equitable and contractual rights
Homeland Common Stock. of Holding will not be altered
by the Plan.
Class 7. Interests of Impaired. Each holder will
holders of Old Common Stock. receive its ratable share of
250,000 shares of New Common
Stock and New Warrants to
purchase 263,158 shares of New
Common Stock.
Class 8. Interests of Unimpaired. The legal,
holders of Old Warrants. equitable and contractual rights
of each holder will not be
altered by the Plan.
D. Conditions to Consummation of the Restructuring
The following conditions must be satisfied in
order for the Restructuring to be consummated: (1) the Plan
shall have been confirmed by the Bankruptcy Court and the
Confirmation Order shall have become final; (2) the New Credit
Agreement shall have been entered into and all conditions to the
effectiveness thereof shall have been satisfied or waived by the
New Banks as required thereunder; and (3) all other agreements
contemplated by, or entered into pursuant to, the Plan shall have
been duly and validly executed and delivered by the parties
thereto and all conditions to their effectiveness shall have been
duly satisfied or waived.
For a discussion of the conditions to the
effectiveness of the Plan, see "SUMMARY OF THE PLAN _ Other
Provisions of the Plan _ Conditions to Consummation."
E. Certain Significant Effects of the Restructuring
Implementation of the Restructuring will have
certain significant effects on the Company, its creditors and
equity security holders, including the following:
(1) The exchange of (a) $95 million aggregate
principal amount of Old Notes (plus an additional $6.6 million in
accrued interest as of the Filing Date) due in 1997 and 1999 and
bearing interest at a blended rate of 10.8% per annum, for (b)
$60 million aggregate principal amount of New Notes due in 2003
and bearing interest at 10% per annum will result in a reduction
of the Company's total leverage, a reduction of its annual debt
service obligations by approximately $4 million per year (taking
into account certain increased borrowings expected to be made
under the New Credit Agreement) and the postponement of
maturities on the Company's outstanding borrowed money
indebtedness.
(2) The release of the Old Indenture Collateral
will permit the Company to pledge such collateral to the lenders
under the New Credit Agreement as security for additional
borrowings.
(3) The Company projects that the Modified Union
Agreements will result in a reduction in annual labor costs in
the first full contract year 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)
although such costs savings will be subject to offset in
subsequent contract years as a result of certain wage and benefit
increases under the Modified Union Agreements.
(4) The rejection of at least seven store leases
relating to stores closed or to be closed, with a resulting
annual cash savings of approximately $1.6 million in the
aggregate.
(5) The Company's ability to make capital
expenditures, and thereby maintain and enhance its competitive
position, will be improved by the reduction in the Company's debt
service obligations and labor and other costs.
The implementation of the Restructuring will also
result in a substantial dilution of the ownership interest in
Holding held by the holders of the Old Common Stock of Holding.
Under the Plan, the holders of Old Common Stock will receive (in
the aggregate) (a) 250,000 shares of New Common Stock,
representing approximately 5.3% of the New Common Stock to be
outstanding upon consummation of the Restructuring, and (b) New
Warrants to purchase 263,158 shares of New Common Stock. Upon
exercise of the New Warrants, the holders of the Old Common Stock
will own approximately 8.9% of the New Common Stock on a fully
diluted basis (assuming the maximum amount of New Common Stock
issuable under the New Warrants, the Old Warrants, the Management
Stock Option Plan and the Modified Union Agreements has been
issued), approximately 4.3% of which relates to New Common Stock
to be issued under the Plan and approximately 4.6% of which
relates to New Common Stock to be issued upon exercise of the New
Warrants. See "RISK FACTORS _ Risks Relating to the New
Securities _ Dilution."
F. Business Plan
In May 1995, the Company began implementing a new
business strategy (the "Business Plan") to improve the Company's
financial performance and competitive position. During and after
the Restructuring, the Company will continue to implement the
Business Plan, as well as explore other strategies for
maintaining and enhancing the Company's competitive position.
The key elements of the Business Plan include: (1) increasing
sales of specialty items and perishables; (2) differentiating the
Company from its competitors by promoting and enhancing the
Company's reputation for good service and emphasizing the
Company's local identity; (3) increasing utilization of the
Company's "high-low" pricing approach; (4) upgrading the
Company's management information systems; (5) introducing the
"Homeland Savings Card," a frequent-shopper card; and (6)
building customer loyalty and improving the Company's "pricing
image" through the Company's private label program.
Sales of Perishables and Specialty Departments.
The Company believes that its broad range of specialty
departments (bakery, deli, floral and pharmacy) and its
consistent supply of varied, quality perishable goods (meat,
produce, baked goods and seafood) give it an advantage over its
competitors. The Company intends to exploit this advantage by
seeking to increase sales of specialty items and perishables in
the future. The Company believes that this emphasis on specialty
items and perishables will improve the Company's sales mix and
increase gross profits because specialty items and perishables
have higher gross margins than dry groceries.
Reputation for Good Service; Local Identity. The
Company intends to enhance and promote its reputation for good
service by, among other things, improving the appearance of its
stores (including better lighting, replacing floor tiles,
upgrading shelving and installing new refrigerated cases),
improving "front-end" service (bagging and carry-out service) and
expanding specialty departments. The Company believes that by
emphasizing good service, it will be able to distinguish itself
from its competitors and improve sales.
The Company also intends to continue its tradition
of community involvement, such as its participation in the
"Apples for Students" and "Easter Seals" programs. The Company
believes that its tradition of community involvement, together
with its excellent "neighborhood" store locations, give it a
strong local identity, which contributes to customer loyalty and
differentiates the Company from its national and regional
competitors.
High-Low Pricing. The Company plans to emphasize
its "high-low" pricing approach whereby it combines "higher"
everyday prices to enhance gross profits and advertised "low"
promotional prices to increase sales. The Company's use of so-
called "double coupons," which are very popular with consumers
and contribute to increased store traffic, is one aspect of this
"high-low" pricing approach. The Company believes it is better
positioned than its competitors to employ such a pricing strategy
because independent operators lack the resources and customer
base to advertise on the same scale as the Company and "everyday
low-price stores" like Wal-Mart typically do not advertise much.
Upgrading of Management Information Systems. The
Company intends to continue its program of upgrading the
Company's management information systems. In 1995, the Company
installed a new retail hosting system, which links "point of
sale" scanners with a central monitoring system. The Company
believes that this system, coupled with certain other
technological improvements to be implemented in 1996, will
facilitate store-by-store pricing, improve shelf space allocation
and permit more accurate monitoring of direct store deliveries.
In addition, the Company believes that these improvements will
reduce costly errors in billing, ensure that the Company receives
correct promotional credit and provide automatic invoicing for
allowances.
Homeland Savings Card. The Company plans to
introduce the Homeland Savings Card in all of the Company's
stores in the third quarter of 1996, after a successful test-
marketing program in the Company's Amarillo, Texas stores. The
card offers customers special promotional prices on certain
advertised items. The Company believes the card will be an
important tool in maintaining and building customer loyalty and
distinguishing the Company from its competitors (none of which
offers such a program). In future years, the Company plans to
use the card to identify customer purchasing frequency, which
will allow the Company to focus its promotional dollars on its
most loyal customers. In addition, the Company intends to use
the card to collect shopping pattern information, which will
allow the Company to target promotional offers to certain
customers.
Private Label Program. The Company intends to
continue the promotion of its private label products, including
the Company's "Pride of America" private label products as well
as AWG's private label products. 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 while improving the Company's "pricing image."
G. 1996 Budget
In January 1996, the Company completed its
financial projections for the 52 weeks ending December 28, 1996
(the "1996 Budget"). The 1996 Budget represented the Company's
estimate of the most likely results of the Company's operations
in fiscal 1996 and was based on certain assumptions regarding the
Company and its business, including the successful implementation
of the Business Plan, an ongoing store base of 67 stores and the
Company's operating on a "business as usual" basis, (i.e.,
without giving effect to the Restructuring).
The 1996 Budget included a sales and store expense
plan which was developed on a store-by-store basis. Budgets were
generated by each store manager, and reviewed by the district
managers and senior management of the Company. In developing
store sales budgets, recent sales trends, local economic factors,
competitive activity, store improvements and other factors were
taken into account. The 1996 Budget also included a corporate
overhead budget, balance sheet and cash flow projections, all of
which were developed by the Company's financial management team
based on recent trends and anticipated future changes.
The 1996 Budget was presented to and approved by
the Company's Board of Directors and was provided to the
Committee, the Old Banks and the UFCW. The 1996 Budget confirmed
that a restructuring of the Company's outstanding indebtedness as
well as its collective bargaining agreements was required in
order for the Company to remain viable. The 1996 Budget formed
the basis for discussions with the Committee, the Old Banks and
the UFCW with respect to the Restructuring.
The 1996 Budget also provided the basis for the
development of the Plan and the Projections for the three fiscal
years ending December 28, 1996, through December 26, 1998. See
"FINANCIAL INFORMATION _ Projected and Pro Forma Financial
Information."
H. Capitalization
The following table sets forth the projected
consolidated capitalization of the Debtors as of July 13, 1996,
and such capitalization on a pro forma basis after giving effect
to the Restructuring as if it occurred on July 13, 1996. This
information should be read in conjunction with the accompanying
notes and with Holding's consolidated financial statements and
the notes thereto included elsewhere in this Disclosure
Statement, as well as with the financial and other information
set forth below under "FINANCIAL INFORMATION." The unaudited pro
forma information presented below has been prepared in accordance
with the principles of "fresh-start" accounting. See "ACCOUNTING
TREATMENT." Such unaudited pro forma information has been
derived from, and should be read in conjunction with, the pro
forma unaudited consolidated financial information included
elsewhere in this Disclosure Statement. See "FINANCIAL
INFORMATION _ Projected and Pro Forma Financial Information."
Pro Forma Projected Capitalization
(In thousands)
Pro Forma
Projected Projected
Pre- Post-
Effective Effective
Date Date
July 13,1996 July 13,1996
Current maturities of long-term debt $ 2,786 $ 1,631
and capital lease obligations
Long-term debt and capital lease
obligations:
Priority tax claims 2,659 2,659
DIP Facility 3,779 -
New Revolving Credit Facility - 2,000
Term Loan - 10,000
Capital lease obligations 7,963 5,149
Old Notes - principal 95,000 -
Old Notes - interest 6,520 -
New Notes - 60,000
Total long-term debt and capital 115,921 79,808
lease obligations
Redeemable common stock 17 -
Stockholders' equity (deficit):
Common stock 337 47
Additional paid-in capital 55,886 56,014
Accumulated deficit (87,955) -
Minimum pension liability adjustment (1,327) -
Treasury stock (2,814) -
Total stockholders' equity (35,873) 56,061
(deficit)
Total Capitalization $ 82,851 $ 137,500
III. THE CHAPTER 11 CASES
On the Filing Date, each of the Debtors filed a
voluntary petition under Chapter 11 of the Bankruptcy Code. The
Debtors' bankruptcy cases were procedurally consolidated by order
of the Bankruptcy Court. Since the Filing Date, the Debtors have
continued to operate their businesses and to manage their
properties as debtors-in-possession pursuant to Section 1107 and
Section 1108 of the Bankruptcy Code.
A. Retention of Professionals
With the approval of the Bankruptcy Court, the
Debtors have retained various professionals, including the
following: (1) Crowe & Dunlevy, A Professional Corporation,
Oklahoma City, Oklahoma, as general bankruptcy counsel; (2)
Young, Conaway, Stargatt & Taylor, Wilmington, Delaware, as local
bankruptcy counsel; (3) A&M, New York, New York, as consultants
(crisis management and other services); and (4) Coopers &
Lybrand, L.L.P., New York, New York, as accountants.
B. DIP Facility
On the Filing Date, the Bankruptcy Court approved,
on an interim basis, the Company's debtor-in-possession facility
(the "DIP Facility"), pursuant to which the Old Banks 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. The interim approval
authorized the Company to borrow up to $__________ under the DIP
Facility. The Bankruptcy Court entered a Final Order approving
the DIP Facility on May ___, 1996.
Under the DIP Facility, the Debtors are 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
Filing Date, and (2) the Effective Date.
Pursuant to the terms of the DIP Facility, the
Debtors are required to pay the Old Banks (1) a closing fee of
$270,000 (plus an additional $135,000 payable in six monthly
payments of $22,500 each if the Effective Date has not occurred
within 180 days of the Filing Date), (2) a commitment fee equal
to one-half of one percent per annum on the unused portion of the
loan commitment of $27 million and (3) a quarterly letter of
credit fee equal to 3.25% of the average face amount of
outstanding letters of credit (in addition to certain standard
letter of credit fees charged by such issuing bank). The Debtors
are also required to pay National Bank of Canada, as Agent (the
"DIP Agent") for itself and the Old Banks, a monthly agency fee
of $5,000.
The DIP Facility provides that the DIP Agent (on
behalf of itself and the Old Banks) will have liens on, and
security interests in, all of the pre-petition and post-petition
property (including certain avoidance claims, if any) of the
Debtors (other than the Old Indenture Collateral), which liens
and security interests will have priority over substantially all
other liens on, and security interests in, the Debtors' property
(other than properly perfected liens and security interests which
existed prior to the Filing Date).
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 Debtors to comply with certain
financial maintenance and other covenants.
C. Payment of Certain Pre-Petition Claims
On the Filing Date, the Bankruptcy Court
authorized the Company to pay certain pre-petition Claims in
order to maintain the Company's normal business operations.
These pre-petition Claims include: (1) the pre-petition trade
Claims of AWG against the Company under the Supply Agreement; (2)
pre-petition Claims against the Company arising under the
Perishable Agricultural Commodities Act, as amended; (3) certain
pre-petition Claims of the Company's employees, including Claims
with respect to salaries and wages, benefit plans and expense
reimbursements; and (4) certain pre-petition tax Claims against,
and withholding obligations of, the Company.
In addition, on the Filing Date, the Bankruptcy
Court approved the Trade Creditor Order, pursuant to which the
pre-petition Claims of the Company's trade creditors (other than
AWG, whose Claims will be paid pursuant to a separate Bankruptcy
Court order) will be paid to the extent such trade creditor
supplies goods or provides services which the Company deems to be
essential to its business. Pursuant to the Trade Creditor
Order, the Company expects to pay the pre-petition trade Claims
of many, but not all, of its trade creditors. The Company will
pay, however, the pre-petition trade Claims of all trade
creditors the Company deems to be essential.
Payments pursuant to the Trade Creditor Order are
contingent on a trade creditor's agreement to continue to provide
goods or services in accordance with customary pre-petition trade
terms (including prior allowances and practices). If a creditor
receives a payment pursuant to the Trade Creditor Order and then
later refuses to continue to provide goods or services in
accordance with such customary pre-petition trade terms, then any
payments by the Company to such trade creditor in respect of any
pre-petition Claims will be deemed to have been made in payment
of then outstanding post-petition obligations owed to such trade
creditor and such trade creditor will immediately repay to the
Company any payments made to such trade creditor on account of
pre-petition Claims to the extent the aggregate amount of such
payment exceeds the post-petition obligations then outstanding
(without any setoff, claims, provisions for payment of
reclamation or trust fund claims or other reduction by such trade
creditor).
D. Continuation of Certain Consumer Practices
On the Filing Date, the Bankruptcy Court
authorized the Company to continue certain consumer practices in
order to maintain the Company's normal business operations,
including its return, refund and exchange policy, its gift
certificate program, its community support programs, its coupon
program, its video coupon program and money orders and money
transfers.
E. Other First Day Orders
On the Filing Date, the Bankruptcy Court also
entered a number of other so-called "first day orders,"
including: (1) an order authorizing the Debtors to maintain
their pre-petition bank accounts, continue use of existing
business forms and cash management system and waiving compliance
with investment guidelines on certain accounts; (2) an order
establishing administrative procedures for interim compensation
to professionals; (3) an order regarding adequate assurance to
utilities; and (4) an order authorizing the Debtors to mail
initial notices.
IV. RISK FACTORS
A. Business Risks
1. Continuing Leverage; Financial Covenant Restrictions
The Company is highly leveraged and, although
completion of the Restructuring will significantly reduce the
Company's debt obligations, the Company will remain highly
leveraged after the Restructuring. The Company's high leverage,
and the restrictions that will be placed on the Company under the
New Credit Agreement and the New Indenture, pose substantial
risks to the holders of the Company's debt and equity securities.
First, although the Company believes that it will
be able to generate sufficient operating cash flow to pay
interest on all of its outstanding debt as those payments become
due; there can be no assurance it will be able to do so. The
Company's ability to meet its ongoing debt service obligations
will depend on a number of factors, including its ability to
implement the Business Plan.
Second, there can be no assurance that the Company
will generate sufficient operating cash flow to repay, when due,
the principal amounts outstanding under the New Credit Agreement
at final maturity (which is expected to be in 1999) and the
principal amount of the New Notes due in 2003. The Company
expects that it will be required to refinance such amounts as
they become due and payable; however, there can be no assurance
that any such refinancing will be consummated, or if consummated,
will be in an amount sufficient to repay such obligations. If
the Company is unable to refinance all or any significant portion
of such indebtedness, it may be required to sell assets of, or
equity interests in, the Company and there can be no assurance
that such sales will be consummated or, if consummated, will be
in an amount sufficient to repay such obligations in full.
Third, the New Credit Agreement and the New
Indenture will contain restrictive financial and operating
covenants, including provisions which will limit the Company's
ability to make capital expenditures. Although the Company
believes that it will have sufficient resources and flexibility
under the New Credit Agreement and the New Indenture to make the
capital expenditures necessary to maintain its competitive
position, there can be no assurance that the Company will be able
to make such necessary capital expenditures. If the Company is
unable to make such necessary capital expenditures as a result of
these covenants, the Company's competitive position could be
adversely affected.
Fourth, the ability of the Company to comply with
the financial covenants to be contained in the New Credit
Agreement and the New Indenture will be dependent on the
Company's future performance, which will be subject to prevailing
economic conditions and other factors beyond the control of the
Company. The Company's failure to comply with such covenants
could result in a default or an event of default, permitting the
lenders to accelerate the maturity of indebtedness under such
agreements and, in the case of the lenders under the New Credit
Agreement, to foreclose upon any collateral securing such
indebtedness. Any such default, event of default or acceleration
could also result in the acceleration of other indebtedness of
the Company to the extent the documents governing such other
indebtedness contain cross-default or cross-acceleration
provisions.
2. Competition
The food retailing business is highly competitive.
The Company competes with several national, regional and local
supermarket chains, particularly Wal-Mart and Albertson's. The
Company also competes with convenience stores, stores owned and
operated or otherwise affiliated with large food wholesalers,
unaffiliated independent food stores, warehouse/merchandise
clubs, discount drugstore chains and discount general merchandise
chains. Most of the Company's principal competitors have greater
financial resources than the Company and have used those
resources to take steps which have already adversely affected and
could in the future adversely affect the Company's competitive
position and financial performance, including the opening of
competitive stores with better physical facilities. See "THE
RESTRUCTURING _ Background _ Increased Competition and Lower
Margins."
The future competitive position of the Company may
suffer because (a) the Company, unlike all of its competitors,
has a unionized workforce, which will likely result in the
Company having higher labor costs than its competitors and (b)
the Company's ability to maintain and to remodel its existing
stores and to open new stores may be limited as a result of the
Company's high leverage and the restrictive financial and
operating covenants contained in the New Credit Agreement and the
New Indenture. Although the Company believes that the Modified
Union Agreements will result in lower, more competitive labor
costs, there can be no assurance that such lower labor costs will
be realized or, even if they are realized, that they will be
sufficient to respond to competitive pressures. See "DESCRIPTION
OF MODIFIED UNION AGREEMENTS." In addition, although the Company
believes that it will have sufficient resources and flexibility
under the New Credit Agreement and the New Indenture to make the
capital expenditures necessary to maintain its competitive
position, there can be no assurance that the Company will be able
to make such necessary capital expenditures.
3. AWG Supply Relationship
AWG is the Company's primary supplier, supplying
approximately 70% of the goods that the Company sells. The
Supply Agreement between AWG and the Company is scheduled to
expire in April 2002. Under the Supply Agreement, the Company is
entitled to receive certain benefits from AWG, including certain
periodic payments (up to a maximum of approximately $1.3 million
per quarter) based on the volume of the Company's purchases and
certain membership rebates, credits and refunds. In the event
that the Supply Agreement were to be terminated for any reason,
the Company would be forced to find another supplier. Although
the Company believes that it would be able to secure a substitute
supplier on satisfactory terms, there can be no assurance that a
substitute supplier could be secured in a timely enough fashion
so as to avoid a disruption in the Company's operations or that
the supply relationship with such substitute supplier would be on
terms as favorable to the Company as the terms currently
available with AWG. See "THE COMPANY _ AWG Supply Agreement."
4. Projections
The financial projections included in this
Disclosure Statement represent the Debtor's best estimate of the
most likely results of the Company's operations following the
Restructuring and are dependent on, among other things, the
successful implementation of the Business Plan. See "FINANCIAL
INFORMATION _ Projected and Pro Forma Financial Information."
These projections reflect numerous assumptions, including
confirmation and consummation of the Plan in accordance with its
terms, the successful implementation of the Business Plan, the
anticipated future performance of the Company, industry
performance, general business and economic conditions and other
matters, most of which are beyond the control of the Company and
some of which may not materialize. In addition, unanticipated
events and circumstances occurring after the preparation of the
projections may affect the actual financial results of the
Company. Therefore, the actual results achieved throughout the
periods covered by the projections may vary significantly from
the projected results.
5. Unions
The Modified Union Agreements will have a term of
five years, commencing on the Effective Date. Although the
Company believes that it will be able to negotiate new
agreements, or extensions of the Modified Union Agreements, with
the UFCW and the BCT prior to the termination of the Modified
Union Agreements, there can be no assurance that such agreements
will be reached or extended or that they will be on terms as
favorable to the Company as those currently provided under the
Modified Union Agreements. In the event that the Company is
unable to negotiate new union agreements, or extensions of the
Modified Union Agreements, on satisfactory terms, the Company's
business could be adversely affected.
B. Bankruptcy Risks
1. Disruption of Operations
Perceived difficulties from the Company's
bankruptcy case could adversely affect the Company's relationship
with its suppliers, customers and employees. The Company
believes that such risks will be minimized because (a) the
"prearranged" nature of the Plan should result in an expedited
bankruptcy case and (b) pursuant to certain "first day" orders
entered by the Bankruptcy Court, the Company will pay all of its
employees and all of its essential trade creditors in the
ordinary course of business. See "THE CHAPTER 11 CASE _ Payment
of Certain Pre-Petition Claims." If the Plan is not consummated
on an expedited basis, however, the Company's bankruptcy case
could adversely affect the Company's relationship with its
suppliers, customers and employees, resulting in a material
adverse effect on the Company's business. Furthermore, even an
expedited bankruptcy case could have a detrimental effect on
future sales and patronage because it may create a negative image
of the Company in the eyes of its customers.
2. Certain Risks of Non-Acceptance
If the Plan is not accepted by each class of
impaired Claims and Interests thereunder, the Debtors would be
forced to evaluate the options then available to them. One such
option would be to negotiate a revised plan of reorganization
with the Debtors' creditor and shareholder groups. There can be
no assurance, however, that any such revised plan would be as
favorable to the holders of the Old Notes, the holders of General
Unsecured Claims and the holders of Old Common Stock as the Plan.
In addition, if the Debtors were unable to negotiate a revised
plan of reorganization on an expedited basis, (a) the Company's
relationship with its suppliers, customers and employees could be
adversely affected, which could result in a material adverse
effect on the Company's business, and (b) the Company could be
placed at a distinct competitive disadvantage because the
effectiveness of the Modified Union Agreements _ and the lower,
more competitive, labor cost structure provided for thereunder _
is conditioned on the Company's consummation of a plan of
reorganization. As a result of these factors, the Debtors might
be forced to abandon the reorganization process and pursue
instead an orderly liquidation of the Company's assets. If a
liquidation were to occur, the Debtors believe that the holders
of the Old Notes, the holders of General Unsecured Claims and the
holders of Old Common Stock would receive substantially less than
they would under the Plan. See "ALTERNATIVES TO THE PLAN _
Liquidation under Chapter 7."
Another option available to the Debtors in the
event of non-acceptance by any impaired class, would be to pursue
a so-called "cram-down" plan of reorganization pursuant to Sec
tion 1129(b) of the Bankruptcy Code. Section 1129(b) of the
Bankruptcy Code provides that, if certain conditions are met, the
Plan may be confirmed even if the Plan is not accepted by each
impaired class of Claims and Interests. Section 1129(b) provides
that, so long as at least one impaired class of Claims or
Interests has accepted the Plan (without counting the votes of
insiders in such class), the Plan may be confirmed if it does not
"discriminate unfairly" and is "fair and equitable" with respect
to each of the nonaccepting classes. It is generally accepted
that a plan of reorganization does not "discriminate unfairly" if
it does not violate the relative priorities among unsecured
creditors and equity holders. In general terms, a plan is "fair
and equitable" with respect to (a) a nonaccepting class of
Secured Claims if either (i) provision is made under the plan for
the holders of such Claims to retain the liens securing such
Claims to the extent of their allowed amount and to receive
deferred cash payments totalling at least the allowed amount of
such Claims, having a present value at least equal to the value
of such holders' interests in the estate's interest in the
collateral or (ii) the plan provides such holders' with the
"indubitable equivalent" of their Claims (which may be satisfied
by returning the collateral securing such Claims to such
holders), (b) a nonaccepting class of Unsecured Claims if the
plan provides that either (i) such holders receive or retain
property having a value, as of the effective date of the plan,
equal to the allowed amount of such holders' Claims or (ii) the
holders of Claims and Interests that are junior to any such
nonaccepting class do not receive or retain any property under
the plan and (iii) a nonaccepting class of equity interests if
the holders of any Interest that is junior to such class do not
receive or retain any property under the plan. This means that
it is possible for a plan to be confirmed by a bankruptcy court
notwithstanding the nonacceptance of a class of Claims or
Interests under such plan and the holders of such Claims and
Interests must accept whatever distribution, if any, is provided
for them under such plan, so long as the requirements of Section
1129(b) are met. See "CONFIRMATION AND CONSUMMATION PROCEDURE _
Confirmation _ Confirmation Without Acceptance by All Impaired
Classes." Although the Debtors reserve the right to modify the
terms of the Plan as may be necessary for the confirmation of the
Plan under Section 1129(b) of the Bankruptcy Code, in the event
that any impaired class fails to accept the Plan, the Debtors'
current intention is that they will not pursue a "cram-down" plan
of reorganization.
3. Certain Risks of Non-Confirmation
Even if all classes of Claims and Interests that
are entitled to vote accept the Plan, the Plan might not be
confirmed by the Bankruptcy Court. Section 1129 of the
Bankruptcy Code sets forth the requirements for confirmation and
requires, among other things, a finding by the Bankruptcy Court
that the confirmation of the Plan not be followed by a need for
further financial reorganization or liquidation, and that the
value of the distributions to classes of impaired creditors and
equity security holders not be less than the value of
distributions such creditors and such equity security holders
would receive if the Debtors were liquidated under Chapter 7 of
the Bankruptcy Code. See "CONFIRMATION AND CONSUMMATION
PROCEDURE _ Confirmation." The Debtors believe that the
requirements for confirmation will be satisfied. However, there
can be no assurance that the Bankruptcy Court will conclude that
these requirements have been satisfied.
The consummation of the Plan is also subject to
the satisfaction of certain conditions. See "SUMMARY OF THE PLAN
_ Other Provisions of the Plan _ Conditions to Consummation." No
assurance can be given that these conditions will be satisfied
or, if not satisfied, that the Debtors would waive such
conditions.
4. Certain Risks Regarding Classification of Claims and
Interests
Section 1122 of the Bankruptcy Code provides that
a plan of reorganization may place a Claim or an Interest in a
particular class only if such Claim or Interest is substantially
similar to the other Claims or the other Interests in such class.
The Debtors believe that the classifications of Claims and
Interests under the Plan comply with the requirements of the
Bankruptcy Code. There can be no assurance, however, that the
Bankruptcy Court will conclude that such requirements have been
satisfied.
C. Risks Relating to the New Securities
1. Potential Illiquidity of the New Securities
The New Notes and the New Warrants will not be
listed on any exchange. There can be no assurance that an active
trading market for the New Notes or the New Warrants will
develop. Accordingly, there can be no assurance that a holder of
New Notes or New Warrants will be able to sell such New
Securities in the future or as to the price at which such New
Securities might trade. The liquidity of the market for such New
Securities and the prices at which such New Securities trade will
depend upon the number of holders thereof, the interest of
securities dealers in maintaining a market in such New Securities
and other factors beyond the Debtors' control.
Under the Plan, Holding has undertaken to use its
best efforts to secure the listing of the New Common Stock on the
NASDAQ National Market System (or, in the event Holding fails to
meet the listing requirements of the NASDAQ National Market
System, on such other exchange or system on which the New Common
Stock may be listed) as soon as practicable following the
Effective Date. There can be no assurance, however, that the New
Common Stock will be listed on the NASDAQ National Market System
or on such other exchange or system. Accordingly, there can be
no assurance that a holder of the New Common Stock will be able
to sell New Common Stock in the future or as to the price at
which the New Common Stock might trade.
2. Restrictions on Transfer
Holders of New Securities who are deemed to be
"underwriters" as defined in Section 1145(b) of the Bankruptcy
Code, including holders who are deemed to be "affiliates" or
"control persons" of the Debtors within the meaning of the
Securities Act, will be unable freely to transfer or to sell
their securities except pursuant to (a) "ordinary trading
transactions" by an entity that is not an "issuer" within the
meaning of Section 1145(b), (b) an effective registration of such
securities under the Securities Act and under equivalent state
securities or "blue sky" laws or (c) an available exemption from
such registration requirements. See "SECURITIES LAW
CONSIDERATIONS."
In connection with the Restructuring, certain
registration rights will be granted to holders of the Old Notes
and Old Common Stock, with respect to the New Securities to be
received by such holders under the Plan. In addition, Holding
will file a Form 10 registration statement with respect to the
New Common Stock under the 1934 Act within 60 days following the
Effective Date and will use its best efforts to cause such
registration statement to become effective as soon as practicable
thereafter. Holding must keep such registration effective until
the earlier of (a) the seventh anniversary of the Effective Date
and (b) the first date on which less than 10% of the outstanding
New Common Stock is publicly held. For so long as such
registration remains effective, Holding will be required to
comply with the reporting requirements under the 1934 Act. In
addition, so long as the New Notes are outstanding, the New
Indenture requires the Company to comply with the periodic
reporting requirements under the 1934 Act, regardless of whether
it is otherwise subject thereto, as contemplated by the Trust
Indenture Act. See "SECURITIES LAW CONSIDERATIONS" and
"DESCRIPTION OF NEW COMMON STOCK _ Registration Rights."
Under the Supply Agreement, there are certain
restrictions with respect to the transfer of more than 50% of New
Common Stock to an entity primarily engaged in the retail or
wholesale grocery business. See "THE COMPANY _ AWG Supply
Agreement."
3. Dilution
If the Restructuring is consummated, the existing
equity interests of the holders of the Old Common Stock will be
canceled and such holders will receive (in the aggregate) (a)
250,000 shares of New Common Stock, or approximately 5.3% of the
New Common Stock to be issued under the Plan (without giving
effect to the New Warrants, any options granted under the
Management Stock Option Plan, the Old Warrants or the issuance or
purchase of any New Common Stock pursuant to the Modified Union
Agreements), and (b) New Warrants, which will be exercisable for
263,158 shares of New Common Stock. The exercise of the Old
Warrants and the vesting and the exercise of any options granted
under the Management Stock Option Plan will have a further
dilutive effect on the ownership interests of the holders of the
Old Common Stock to the extent the exercise prices for such
securities are less than the fair market value of the New Common
Stock at the time of exercise. In addition, the issuance and the
purchase of New Common Stock under the Modified Union Agreements
(to the extent any such purchase is at less than fair market of
the New Common Stock at the time of such purchase) also will have
a dilutive effect on such equity ownership interests. See
"DESCRIPTION OF NEW WARRANTS," "INTRODUCTION AND SUMMARY _
Principal Elements of the Restructuring _ Management Stock Option
Plan" and "DESCRIPTION OF MODIFIED UNION AGREEMENTS."
Assuming that (a) all the New Warrants that will
be outstanding following the Restructuring have been exercised,
(b) all the Old Warrants that will be outstanding following the
Restructuring have been exercised, (c) management stock options
covering all the New Common Stock reserved under the Management
Stock Option Plan have been granted and exercised and (d) all the
New Common Stock that may be issued pursuant to the Modified
Union Agreements has been issued, holders of General Unsecured
Claims (including Unsecured Claims in respect of the Old Notes)
would own approximately 77.2% of the New Common Stock and holders
of the Old Common Stock would own approximately 8.9% of the New
Common Stock (approximately 4.3% of which relates to New Common
Stock to be issued under the Plan and approximately 4.6% of which
relates to stock to be issued upon exercise of the New Warrants).
The chart set forth below describes the dilutive effects
(including the cumulative dilutive effect) of stock issuances
under, or in connection with, the New Warrants, the Management
Stock Option Plan, the Old Warrants and the Modified Union
Agreements.
Shares of New Common Stock
Post-Restructuring
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
After After
After Giving Giving After
Upon Giving Effect Effect Giving
Holders Con Effect to Management to Modified Effect Fully
summation to New Stock Op Union Agree- to Old Diluted
Warrants(1) tions(2) ments(3) Warrants(4)
General Un 4,450,000(5) 4,450,000(5) 4,450,000(5) 4,450,000(5) 4,450,000(5) 4,450,000(5)
secured Claims
Old Common 250,000 250,000 250,000 250,000 250,000 250,000 0
Stock
New Warrants 0 263,158 0 0 0 263,158
Management 0 0 263,158 0 0
ESOT 0 0 0 522,222 0 522,222
Old
Warrants(6) 0 0 0 0 15,167 15,167
4,700,000 4,963,158 4,963,158 5,222,222 4,715,167 5,763,705
</TABLE>
Percentage of New Common Stock
Post-Restructuring
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
After Giving After Giving
After Giving Effect to Effect to Mod After Giving
Upon Con Effect to New Management fied Union Effect to Fully Old
Holders summation Warrants(1) Stock Options(2) Agrrements(3) Warrants(4) Dilluted
General 94.7%(5) 89.7% 89.7% 85.2% 94.4% 77.2%(5)
Unsecured
Claims
Old Common 5.3 5.0 5.0 4.8 5.3 4.3
Stock
New 0.0 5.3 0.0 0.0 0.0 4.6
Warrants
Management 0.0 0.0 5.3 0.0 0.0 4.6
ESOT 0.0 0.0 0.0 10.0 0.0 9.0
Old
Warrants(6) 0.0 0.0 0.0 0.0 0.3 0.3
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
(1) Assumes all New Warrants are exercised. See
"DESCRIPTION OF NEW WARRANTS."
(2) Assumes (a) options to purchase 263,158 shares of New
Common Stock have been granted pursuant to the Management Stock
Option Plan and (b) such options are vested and have been
exercised. See "INTRODUCTION AND SUMMARY _ Principal Elements of
the Restructuring _ Management Stock Option Plan."
(3) Assumes 522,222 shares of New Common Stock have been
issued to, or purchased by, the ESOT in accordance with the
Modified Union Agreements. See "DESCRIPTION OF MODIFIED UNION
AGREEMENTS."
(4) The Old Warrants entitle the holders thereof to
purchase (in the aggregate) 2,105,493 shares of Old Common Stock,
at an exercise price of $.50 per share, or an aggregate exercise
for all Old Warrants of $1,052,746.50. Pursuant to the documents
governing the Old Warrants, upon a reorganization of Holding, the
holder of each Old Warrant is entitled to receive the securities
of Holding that such holder would have been entitled to receive
had such holder exercised the Old Warrant prior to the
consummation of the reorganization. Assuming all Old Warrants
had been exercised immediately prior to the Filing Date, the
holders of the Old Warrants would own 2,105,493 shares of Old
Common Stock and, upon consummation of the Restructuring, would
be entitled to receive an aggregate of approximately 15,167
shares of New Common Stock under the Plan (their ratable share of
the Class 7 distribution). Based on the aggregate exercise price
of the Old Warrants ($1,052,746.50) and the aggregate number of
shares of New Common Stock to be received upon exercise of the
Old Warrants (approximately 15,167 shares), the effective
exercise price for each share of New Common Stock to be received
upon exercise of the Old Warrants is approximately $69.41.
(5) Assuming aggregate General Unsecured Claims of $40.1
million in respect of the Old Notes and $23.0 million of other
General Unsecured Claims, the holders of the Old Notes would
receive approximately 2,827,922 shares of New Common Stock
(representing approximately 60.2% of the New Common Stock to be
outstanding upon consummation of the Restructuring, or
approximately 49.1% on a fully-diluted basis) and the holders of
all other General Unsecured Claims would receive approximately
1,622,078 shares of New Common Stock (representing approximately
34.5% of the New Common Stock to be outstanding upon consummation
of the Restructuring, or approximately 28.1% on a fully-diluted
basis). See "INTRODUCTION AND SUMMARY _ Principal Elements of
the Restructuring _ Senior Secured Note Exchange" and " _
General Unsecured Claims."
(6) The Old Warrants are held by 18 current and former
members of the Company's management. See "INTRODUCTION AND
SUMMARY _ Principal Elements of the Restructuring _ Equity
Recapitalization."
4. No Dividends
Under the New Credit Agreement and the New
Indenture, Holding will be prohibited from paying dividends on
the New Common Stock, subject to certain exceptions. For a
description of the restrictions on dividends to be contained in
the New Indenture, see "DESCRIPTION OF NEW NOTES _ Certain
Covenants."
5. Subordination of the New Notes
The payment of principal and interest with respect
to the New Notes will be subordinated to Senior Indebtedness (as
defined in the New Indenture), comprising all existing and future
borrowings under the New Credit Agreement and refinancings
thereof. Because of the subordination of the New Notes, in the
event of the Company's future insolvency, liquidation,
reorganization, dissolution or other winding-up after
consummation of the Restructuring, or upon acceleration of, or
certain defaults under any Senior Indebtedness, the holders of
any such Senior Indebtedness must be paid in full before the
holders of New Notes may be paid. See "DESCRIPTION OF NEW NOTES
_ Subordination."
6. New Note Guarantee; Holding Company Structure
Holding will guarantee the Company's obligations
with respect to the New Notes. Holding is a holding company
with no independent operations, and its only significant asset is
its investment in the capital stock of Homeland. Holding
therefore is dependent upon receipt of dividends or other
distributions from the Company to fund any obligations that it
incurs, including obligations under its guarantees of the New
Notes. However, the New Credit Agreement and the New Indenture
will not permit Homeland to pay dividends or make other
distributions to Holding, other than for certain specified
purposes. See " _ No Dividends." Accordingly, if the Company at
any time were unable to make interest or principal payments on
the New Notes, it is highly unlikely that, even if funds were
available, it would be permitted to distribute to Holding the
funds necessary to enable Holding to met its obligations under
its guarantees of the New Notes. Moreover, the obligations of
Holding under its guarantee of the New Notes will be subordinated
to the obligations of Holding as guarantor of the Company's
obligations under the New Credit Agreement and any refinancings
thereof. See "DESCRIPTION OF NEW NOTES _ Subordination."
D. Certain Federal Income Tax Consequences
The Debtors expect that they will have substantial
consolidated net operating loss carryforwards (the "NOL
carryforwards") from their taxable year ended December 30, 1995
and prior taxable years, but that, as a result of the
Restructuring, such NOL carryforwards will be reduced
substantially and the use of the remaining NOL carryforwards will
be limited. The extent to which the Debtors' NOL carryforwards
will be reduced and their use limited will depend upon a number
of variables that are difficult to estimate at this time. The
reduction of and limitations on the Debtors' NOL carryforwards
may substantially increase the amount of tax payable by the
Debtors following consummation of the Plan as compared with the
amount of tax that would be payable if no such reduction and
limitations were required. For a further discussion of the
federal income tax consequences of the Plan, see "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES."
V. FINANCIAL INFORMATION
A. Selected Financial Information
The following table sets forth selected
consolidated financial data of the Debtors which has been derived
from financial statements of the Debtors for the 52 weeks ended
December 28, 1991, the 53 weeks ended January 2, 1993 and the 52
weeks ended January 1, 1994, December 31, 1994, and December 30,
1995, respectively, which have been audited by Coopers & Lybrand
L.L.P. The audited financial statements for the 52 weeks ended
December 30, 1995, and the 52 weeks ended December 31, 1994, are
set forth in Appendix B hereto. The selected consolidated
financial data should be read in conjunction with the respective
consolidated financial statements and notes thereto which are
contained elsewhere herein.
Selected Consolidated Financial Data
(In thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C> <C> <C>
52 53 52 52 52
weeks weeks weeks weeks weeks
ended ended ended ended ended
12/28/91 01/02/93 01/01/94 12/31/94 12/30/95
Summary of Operations
Data:
Sales, net $ 786,785 $ 830,964 $ 810,967 $ 785,121 $ 630,275
Cost of sales 573,470 609,906 603,220 588,405 479,119
Gross profit 213,315 221,058 207,747 196,716 151,156
Selling and 187,312 199,547 190,483 193,643 151,985
administrative
Operational
restructuring costs - - - 23,205 12,639
Operating profit 26,003 21,511 17,264 (20,132) (13,468)
(loss)
Gain on sale of plants - - 2,618 - -
Interest expense (22,257) (24,346) (18,928) (18,067) (15,992)
Income (loss) before 3,746 (2,835) 954 (38,199) (29,460)
income taxes and
extraordinary items
Income taxes benefit (992) (982) 3,252 (2,446) -
(provision)
Income (loss) before 2,754 (3,817) 4,206 (40,645) (29,460)
extraordinary items
Extraordinary items - (877) (3,924) - (2,330)
Net income (loss) 2,754 (4,694) 282 (40,645) (31,790)
Reduction (accretion)
in redemption value
redeemable common stock (132) - - 7,284 940
Net income (loss) $ 2,622 $ (4,694) $ 282 $ (33,361) $ (30,850)
available to common
stockholders
Net income (loss) per $ .07 $ (.13) $ .01 $ (.96) $ (.93)
common share
12/28/91 01/02/93 01/01/94 12/31/94 12/30/95
Consolidated Balance
Sheet Data:
Total assets $ 285,735 $ 305,644 $ 274,290 $ 239,134 $ 137,582
Long-term obligations,
including current
portion of long-term
obligations $ 179,680 $ 198,380 $ 172,600 $ 176,731 $ 124,242
Redeemable common
stock $ 10,616 $ 9,470 $ 8,853 $ 1,235 $ 17
Stockholders' equity
(deficit) $ 41,844 $ 37,150 $ 36,860 $ 4,071 $ (28,106)
Operating Data:
Stores at end of period 114 113 112 111 68
</TABLE>
B. Projected and Pro Forma Financial Information
As a condition to confirmation of a plan of
reorganization, Section 1129 of the Bankruptcy Code requires,
among other things, that the bankruptcy court determine that
confirmation is not likely to be followed by a liquidation or a
need for further financial reorganization of the debtor. In
connection with the development of the Plan, and for the purposes
of determining whether the Plan satisfies this feasibility
standard, the Debtors have analyzed the ability of the Company to
meet its obligations under the Plan with sufficient liquidity and
capital resources to conduct its business. In this regard, the
Debtors have prepared certain unaudited projections of the
Company's results of operations, cash flow and related balance
sheets (the "Projections") for the three fiscal years ending
December 28, 1996, through December 26, 1998 (the "Projection
Period"). The Projections were developed from the 1996 Budget.
See "THE RESTRUCTURING _ 1996 Budget." This financial
information reflects the Debtors' judgment as to the information
that is significant under the circumstances. See "RISK FACTORS"
for a discussion of certain factors that may affect the future
financial performance of the Company and of various risks
associated with the New Securities. The Projections should be
read in conjunction with the assumptions, qualifications and
explanations set forth herein.
The Company does not generally publish its
strategies or make external projections or forecasts of its
anticipated financial positions, results of operations or cash
flow. Accordingly, the Debtors do not anticipate that they will,
and disclaim any obligation to, furnish updated Projections to
holders of Claims or Interests prior to the Effective Date, or to
holders of the New Securities after the Effective Date, or to
include such information in documents required to be filed with
the Securities and Exchange Commission ("Commission"), or
otherwise make such information public in the future (other than
as required under applicable securities laws). The Projections
should not be relied upon for any purpose other than in
considering whether to accept or reject the Plan.
The independent auditors of the Debtors have not
examined or compiled the Projections presented herein, and,
accordingly, assume no responsibility for them.
The Projections are based on and assume the
successful implementation of the Business Plan, and reflect
numerous assumptions, including assumptions with respect to the
future performance of the Company, the performance of the
industry, general business and economic conditions and other
matters, most of which are beyond the control of the Debtors.
Therefore, while the Projections are necessarily presented with
numerical specificity, the actual results achieved during the
Projection Period will vary from the projected results, and may
vary substantially. No representations can be or are being made
with respect to the accuracy of the Projections or the ability of
the Debtors to achieve the projected results. While the Debtors
believe that the assumptions which underlie the Projections are
reasonable in light of current circumstances and in light of the
information available to the Debtors, in deciding whether to vote
to accept the Plan, holders of claims must make their own
determinations as to the reasonableness of the assumptions and
the reliability of the Projections. The Projections assume that
the Plan will be confirmed in accordance with its terms, and that
all transactions contemplated by the Plan will be consummated by
the Effective Date, which for purposes of these Projections is
assumed to be July 13, 1996. Any significant delay in the
Effective Date of the Plan could have a significant unfavorable
impact on projected EBITDA (defined as the Debtors' earnings
before interest expense, income tax provision, depreciation and
amortization, Restructuring expense and extraordinary items) for
the 52 weeks ended December 28, 1996, and could result in
additional reorganization expenses.
The Projections were prepared assuming the
economic conditions in the markets served by the Debtors do not
differ markedly over the next three years from current economic
conditions. Inflation in revenues and costs is assumed to remain
relatively low.
1. Pro Forma Projected Balance Sheets
The following table summarizes (a) the balance
sheet of the Company as of December 30, 1995, and projected as of
July 13, 1996, respectively, before giving effect to the
transactions contemplated by the Plan, (b) the pro forma
adjustments to the Company's balance sheet that would result from
the transactions contemplated by the Plan and (c) the pro forma
projected balance sheet of the Company as of July 13, 1996, as
adjusted to give effect to the transactions contemplated by the
Plan.
Balance Sheets
December 30, 1995 and July 13,1996
(Unaudited)
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Actual Projected Pro Forma
Required Plan Fresh Start Projected
December 30, July 13, financing Consumation Adjustment Resh Start
1995 1996 (Note a) (Note b) (Note c) July 13,1996
ASSETS
Current assets:
Excess cash $ - $ - $ 6,101 $ 689 $ - $ 6,790
Store cash 3,828 3,047 - - - 3,047
Restricted Cash-
US Trust escrow 2,529 2,189 - (2,189) - -
Receivables 7,903 8,379 - - - 8,379
Inventories 42,830 38,623 - - - 38,623
Prepaids and
other current
assets 2,052 2,733 - - - 2,733
Total current
assets 59,142 54,971 6,101 (1,500) - 59,572
Property, net 71,692 70,087 - - - 70,087
Reorganization
value in excess
of amounts
allocable in
identifiable
assets - - - - 32,771 32,771
AWG patronage
certificates 1,643 1,643 - - - 1,643
Other assets 5,105 4,812 120 - (1,619 3,313
$ 137,582 $ 131,513 $ 6,221 $ (1,500) $ 31,152 $ 167,386
LIABILITIES AND
STOCKHOLDERS'
EQUITY
(DEFICIT)
Current
liabilities:
Obligations
under revoling
credit facility 5,467 3,779 (3,779) - - -
Current portion
of obligations
under capital
leases 2,746 - - 1,631 - 1,631
Professional
fees and other
Restructuring
expenses - 2,000 - - - 2,000
Union contract
liabilities - - - 4,990 - 4,990
Accounts payable
and accrued
liabilities 47,299 24,736 - - - 24,736
Total current
liabilities 55,512 30,515 (3,779) 6,621 - 33,357
Priority tax
claims - - - 2,659 - 2,659
Term Loan - - 10,000 - - 10,000
Obligations
under capital
leases 9,026 - - 5,149 - 5,149
Old Notes 95,000 - - - - -
New Notes - - - 60,000 - 60,000
Other noncurrent
liabilities 6,133 160 - - - 160
Liabilities
subject to
compromise - 136,694 - (136,694) - -
Redeemable stock 17 17 - (17) - -
Stockholders'
equity
(deficit):
Common stock 337 337 - (290) - 47
Additional paid-
in capital 55,886 55,886 - 128 - 56,014
Accumulated gain
(deficit) (80,188) (87,955) - 56,803 31,152 -
Minimum pension
liability
adjustment (1,327) (1,327) - 1,327 - -
Treasury stock (2,814) (2,814) - 2,814 - -
Total
stockholders'
equity
(deficit) (28,106) (35,873) - 60,782 31,152 56,061
$ 137,582 $ 131,513 $ 6,221 $ (1,500) $ 31,152 $ 167,386
</TABLE>
July 13,1996 Liabilities Liabilities
compromised Assumed
Liabilities subject to compromise
(Note d)
Accounts payable and accrued $ 14,350 $ (11,691) $ 2,659
liabilities
Interest payable 6,520 (6,520) -
Long-term debt 95,000 (35,000) 60,000
Obligations under capital leases 10,749 (3,969) 6,780
Other noncurrent liabilities 10,075 (10,075) -
Total liabilities subject to
compromise $ 136,694 $ (67,255) $ 69,439
Notes to Pro Forma Projected Balance Sheets
(In thousands)
(a) Required Financing.The pro forma projected balance sheets
reflect the Term Loan (as defined under "DESCRIPTION OF THE
NEW CREDIT AGREEMENT-General") of $10,000 to be funded on
the Effective Date. Proceeds of the Term Loan will be applied as
follows: (i) $120 to pay loan commitment fees for the Credit Facilities
(as defined below under "DESCRIPTION OF THE NEW CREDIT AGREEMENT _ General");
(ii) $3,779 to reduce the Revolving Credit Facility under the New
Credit Agreement projected to be outstanding on the Effective
Date; (iii) up to $6,400 to fund the Employee Buyout Offer (the
Projections assume funding of $3,600); (iv) $750 to establish the
Health and Welfare Benefit Plan (as defined below under
"DESCRIPTION OF MODIFIED UNION AGREEMENTS _ Wage Rate, Benefit
Contribution Deductions and Work Rule Changes"); and (v) $1,350
to pay projected accrued professional fees relating to the
Restructuring. Any remaining proceeds would be available to fund
the Company's working capital needs and thereby reduce the need
for borrowings under the New Credit Agreement.
(b) Plan Consummation. Plan consummation reflects (i)
the elimination of Liabilities Subject to Compromise (as defined
below in Note d) in the amount of $136,694, (ii) the reinstatement
of capital leases in the aggregate amount of $6,780 (including
current portion of $1,631 and long-term portion of $5,149), (iii)
the reinstatement of priority tax claims to be paid over 6 years
in the aggregate amount of $2,659, (iv) the assumption of
union contract liabilities in the aggregate amount of $4,990, including
funding the Employee Buyout Offer at an estimated $3,600 and the Health
and Welfare Benefit Plan at an estimated $750, and assuming
vacation liability of $640, (v) the release of escrowed cash
proceeds from the sale of Old Indenture Collateral of $2,189 and
the distribution of escrowed cash in the amount of $1,500 to the
holders of the Old Notes, (vi) the distribution of the New Notes
in the aggregate principal amount of $60,000 and (vii) the
distribution of the New Common Stock at $56,061.
(c) Fresh Start
Adjustments. Pursuant to SOP 90-7, the Company has determined
the reorganization value of the Company as of July 13, 1996, at
approximately $137,500. The total reorganization value includes
a value attributed to New Common Stock of $56,061 (par - $47,
additional paid in capital - $56,014), and the long-term
indebtedness contemplated by the Plan. In accordance with fresh
start accounting principles, this reorganization value has been
allocated, based on estimated fair market values, to specific
tangible or identifiable intangible assets. The Company has
recorded an intangible asset in the amount of $32,771, which
equals the Company's reorganization value in excess of amounts
allocable to identifiable assets. The Debtor will continue to
assess the fair market values of its assets, and consequently the
value of those assets and the reorganization value in excess of
amounts allocable to identifiable assets are subject to change.
The Projections assume that the reorganization value in excess of
amounts allocable to identifiable assets will be amortized over
three years.
(d) Liabilities Subject
to Compromise. As of the Filing Date, the Projections classify
all liabilities which may be subject to compromise pursuant to
the Plan as "Liabilities Subject to Compromise." Liabilities
Subject to Compromise are in the aggregate amount of $136,694,
including liabilities to the holders of the Old Notes in the
amount of $101,520 (which includes accrued interest), liabilities
on capital lease obligations in the amount of $10,749,
Restructuring reserve of $5,095, accrued workers' compensation
and general liability of $4,280, union maintenance of benefit
liability of $1,880, priority tax liabilities of $2,659, accounts
payable of $3,500 and accrued expenses of $7,011.
2. Pro Forma Projected Capitalization
The following table summarizes (a) the projected
consolidated capitalization of the Company as of July 13, 1996,
before giving effect to the transactions contemplated by the
Plan, and (b) the pro forma projected consolidated capitalization
of the Company as of July 13, 1996, as adjusted to give effect to
the transactions contemplated by the Plan.
Pro Forma Projected Capitalization
(In thousands)
Projected Pro Forma
Projected
Pre-
Effective Post-
Date Effective
July 13, Date
1996 July 13,
1996
Current maturities of long-term debt $ 2,786 $ 1,631
and capital lease obligations
Long-term debt and capital lease
obligations:
Priority tax claims 2,659 2,659
DIP Facility 3,779 -
New Revolving Credit Facility - 2,000
Term Loan - 10,000
Capital lease obligations 7,963 5,149
Old Notes - principal 95,000 -
Old Notes - interest 6,520 -
New Notes - 60,000
Total long-term debt and capital
lease obligations 115,921 79,808
Redeemable common stock 17 -
Stockholders' equity (deficit):
Common stock 337 47
Additional paid-in capital 55,886 56,014
Accumulated deficit (87,955) -
Minimum pension liability adjustment (1,327) -
Treasury stock (2,814) -
Total stockholders' equity (35,873) 56,061
(deficit)
Total Capitalization $ 82,851 $ 137,500
3. Pro Forma Projected Statements of Operations
The Company has prepared the following unaudited
pro forma projected statements of operations to reflect the
Company's historical and projected operating results for the
periods indicated, as well as the Company's estimated operating
results (for the 65 stores expected to be operated as of the
Effective Date) for the first quarter of 1996 compared to results
projected for such period in the Projections for fiscal 1996.
The 1995 Actual and 1996 Pro Forma Projected
Statements of Operations present the Company's actual operating
results for fiscal 1995 and projected for fiscal 1996 in the
Projections. The Projections for fiscal 1996 assume (a)
confirmation and consummation of the Plan as of July 13, 1996,
(b) reduction in interest expense as a result of the
Restructuring, (c) the labor savings under the Modified Union
Agreements, (d) a 25% acceptance level under the Employee Buyout
Offer and (e) implementation of the other provisions of the Plan.
The 1996 First Quarter Results Compared to the
Projections reflect the extent to which the Company is tracking
its Projections for fiscal 1996, comparing the Company's
estimated statement of operations for the 12 weeks ended March
23, 1996, to the Projections for such 12-week period, and
providing management's discussion and analysis as to the
significant variances from the Projections for such 12-week
period.
The 1995 - 1998 Pro Forma and Pro Forma Projected
Statements of Operations present a trend line for the Company's
historical and projected operations for fiscal 1995 through 1998
reflecting the same pro forma adjustments for the periods
presented. The pro forma adjustments assume (a) operation of 65
stores, (b) confirmation and consummation of the Plan effective
as of January 1, 1995, (c) reduction in interest expense as a
result of the Restructuring, (d) the labor savings under the
Modified Union Agreements, (e) a 25% acceptance level under the
Employee Buyout Offer and (f) implementation of the other
provisions of the Plan.
a. 1995 Actual and 1996 Pro Forma Projected Statements of Operations
The following table sets forth statements of
operations (1) actual for the Company for the fiscal year ended
December 30, 1995, (2) projected for the Company for the period
from December 31, 1995, through July 13, 1996, and (3) pro forma
projected for the Company for the period from July 14, 1996,
through December 28, 1996, after giving effect to the
transactions contemplated by the Plan.
1995 Actual and 1996 Pro Forma Projected Statements of Operations
Fiscal Years Ended December 30, 1995 and December 28, 1996
(Unaudited)
(In thousands)
Actual Pro Pro
Projected Forma Forma
Projected Projected
52 28 24 52
Weeks Weeks Weeks Weeks
Ending Ending Ending Ending
December 30, July 13, December 28, Deecmber 28,
1995 1996 1996 1996
Sales (a) $ 630,275 $ 279,866 $ 243,516 $ 523,382
Cost of sales (479,119) (209,665 (181,211) (390,876)
Gross profit (b) 151,156) 70,201 62,305 132,506
Percent of sales 23.98% 25.08% 25.59% 25.32%
Operating and administrative
expense(c) (140,612) (64,989) (50,470) (115,459)
Percent of sales 22.31% 23.22% 20.73% 22.06%
EBITDA 10,544 5,212 11,835 17,047
Percent of sales 1.67% 1.86% 4.86% 3.26%
Depreciation and
amoritzation(d) (11,373) (4,096) (8,552) (12,648)
Operational restructuring (12,639) - - -
Interest expense (e) (15,992) (5,735) (3,928) (9,663)
Income (loss) before
reorganization items,
income tax provision and
extraordinary items (29,460) (4,619) (645) (5,264)
Reorganization items
Professional fees - (3,150) (450) (3,600)
Fresh start adjustment(f) - 31,152 - 31,152
Income tax provision - - - -
Income (loss) before (29,460) 23,383 (1,095) 22,288
extraordinary items
Extraordinary item (2,330) - - -
Extraordinary gain on - 56,803 - 56,803
debt discharge (g)
Net income (loss) $ (31,790) $ 80,186 $ (1,095) $ 79,091
Notes to 1995 Actual and 1996 Pro Forma Projected Statements of Operations
(In thousands)
(a) Sales. Sales for
fiscal 1996 reflect the operation of 65 stores, while sales for
fiscal 1995 reflect the operation of 111 stores at the beginning
of 1995, subsequently reduced to 68 stores at the end of 1995.
See Note (a) under 1995 - 1998 Pro Forma and Pro Forma Projected
Statements of Operations for the Company's analysis of the sales
trend.
(b) Gross Profit. Gross
profit for fiscal 1996 as a percentage of sales is projected to
be at 25.32%, which reflects an improvement of 1.34% over the
gross profit realized by the Company in fiscal 1995. During
1995, the Company sold its distribution center operations and
moved from a self-supply operation to an operation supplied
through the AWG retail buying cooperative. Also during 1995, the
Company sold 29 of its stores and closed 14 other stores. The
Company liquidated the inventory from the 14 closed stores
through its other operating stores, thereby negatively impacting
gross profit. See Note (b) under 1995 - 1998 Pro Forma and Pro
Forma Projected Statements of Operations for the Company's
analysis of the gross profit trend.
(c) Operating and
Administrative Expense. Operating and administrative expense for
fiscal 1996 as a percentage of sales is projected to be at
22.06%, which reflects a 0.25% improvement over fiscal 1995. The
improvement is primarily due to projected labor savings under the
Modified Union Agreements, offset in part by projected increases
in other operating and administrative expense. The Projections
assume that the Modified Union Agreements will become effective,
and the Employee Buyout Offer will be completed, on July 13,
1996, and will thereby be in effect for six fiscal periods in
1996, yielding projected savings of $4,707. See Note (c) under
1995 - 1998 Pro Forma and Pro Forma Projected Statements of
Operations for the Company's analysis of the operating and
administrative expense trend.
(d) Depreciation and
Amortization. The Projections assume that the Company's
reorganization value in excess of amount allocable to
identifiable assets will be amortized over three years, beginning
on July 13, 1996.
(e) Interest Expense.
The Projections reflect a reduction in interest expense as a
result of lower interest rates and lower levels of indebtedness
as contemplated under the Plan, beginning on July 13, 1996.
(f) Fresh Start
Adjustment. Pursuant to SOP 90-7, the Company determined that
its reorganization value as of July 13, 1996 will be
approximately $137,500. A corresponding adjustment has been made
to the Company's equity account to reflect the reorganization
value of $56,061 attributed to the New Common Stock.
(g) Extraordinary Gain
on Discharge of Indebtedness. An adjustment has been made to the
Company's equity account to reflect consummation of the Plan
effective as of July 13, 1996.
.
b. 1996 First Quarter Results Compared to Projections
The following table compares the Company's
estimated operating results (for the 65 stores expected to be
operated as of the Effective Date) to its Projections for the
twelve weeks ended March 23, 1996.
Summary Results for First Quarter 1996
Estimated Projection Better/(Worse)
Sales $ 119,454 $ 120,199 $(745)
Gross Profit 29,067 29,969 (902)
Percent of sales 24.33% 24.93% (0.60%)
Operating Expense 25,195 26,716 1,521
Percent of sales 21.09% 22.23% 1.14%
EBITDA $ 3,872 $ 3,253 $ 619
Percent of sales 3.24% 2.71% 0.53%
(EBITDA)
Sales for the first quarter of 1996 were $745, or
0.6%, less than projected in the Projections for the first
quarter of 1996, primarily due to a decrease in sales in the
health and beauty care/general merchandise category ("HBC/GM").
HBC/GM sales were lower than projected in the Projections due to
transitional difficulties experienced by the Company as a result
of its November 1995 conversion from being supplied by a rack
jobber to supply by Value Merchandising Company, a subsidiary of
AWG, for its HBC/GM goods. The Projections assume that the
HBC/GM transitional difficulties will be resolved during 1996.
Gross margin in the first quarter of 1996 was
0.60% below that projected in the Projections, yielding $902
fewer gross profit dollars than expected. This shortfall was
primarily due to lower HBC/GM sales, lower HBC/GM margin and
higher promotional spending than projected in the Projections,
offset somewhat by higher vendor income and higher contribution
from the grocery category than projected in the Projections.
The shortfall in gross profit margin in the first
quarter of 1996 was offset by operating expenses which were
$1,521 better than projected in the Projections, primarily due
to a lower union benefit contribution rate, lower advertising
expense and lower corporate administrative expenses than
projected in the Projections.
.
c. 1995-1998 Statements of Operations
The following table sets forth the Company's
statements of operations for the periods indicated assuming (a)
operation of 65 stores, (b) confirmation and consummation of the
Plan effective as of January 1, 1995, (c) reduction in interest
expense as a result of the Restructuring, (d) the labor savings
under the Modified Union Agreements, (e) a 25% acceptance level
under the Employee Buyout Offer and (f) implementation of the
other provisions of the Plan.
Statements of Operations
Fiscal Years Ended 1995 through 1998
(In thousands)
Pro Pro Forma Projected
Forma Projected
Projected
Actual
52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ending Ending Ending Ending
December 30, December 28, December 27, December 26,
1995 1996 1997 1998
Sales (a) $ 517,191 $ 523,382 $ 525,999 $ 536,519
Cost of sales (392,434) (390,876) (392,830) (400,687)
Gross profit 124,757 132,506 133,169 135,832
(b)
Percent of 24.12% 25.32% 25.32% 25.32%
sales
Operating and administrative
expense(c) (105,324) (109,147) (108,154) (109,318)
Percent of sales 20.36% 20.85% 20.56% 20.38%
EBITDA 19,433 23,359 25,015 26,514
Percent of sales 3.76% 4.46% 4.76% 4.94%
Depreciation and amortization(d) (19,209) (20,182)
EBIT 5,806 6,322
Interest expense (8,674) (8,458)
Loss before taxes (2,868) (2,126)
Income tax provision(e) (1,818) (1,754)
Loss $ (4,686) $(3,880)
Notes to 1995-1998 Statements of Operations
(In thousands)
(a) Sales. Sales
increases are projected at 1.2% in fiscal 1996, 0.5% in fiscal
1997 and 2.0% in fiscal 1998. Food price inflation is projected
at 2.0% per annum for 1996 through 1998. The Projections assume
real sales decline of 0.8% for 1996, and 1.5% for 1997. Real
sales are projected to remain flat in 1998. The real sales
declines in 1996 and 1997 reflect the impact of the recent and
anticipated future entry of new competition in the Company's
market areas. In late 1996 or early 1997, the Company expects 3
Albertson's, 1 Crest, 1 Reasor's to open in the Company's market
areas. 1998 real sales are expected to be flat as the impact of
competitive entries should be offset by the opening of one new
Homeland store in late 1997.
(b) Gross Profit. The
Projections assume that margins will stabilize and continue to
improve in fiscal 1996 over fiscal 1995. Gross margins are then
projected to remain flat in fiscal 1997 and fiscal 1998. As
discussed under "FINANCIAL INFORMATION _ Projected and Pro Forma
Financial Information _ First Quarter Results Compared to
Projections," the Company has experienced continuing difficulties
in achieving projected margins, particularly in the health and
beauty care/general merchandise category. To the extent the
margins are lower than those contained in the Projections, the
Company believes that it will still be able to meet its projected
EBITDA by continuing to perform favorably with respect to its
projected operating expenses.
(c) Operating and
Administrative Expense. Pro forma operating and administrative
expense as a percentage of sales is projected to be 20.85% in
1996, 20.56% in 1997 and 20.38% in 1998, reflecting labor savings
and other projected expense reductions. The Projections assume
that the Modified Union Agreements will be in effect and the
Employee Buyout Offer will be completed for full fiscal years
1996, 1997 and 1998. Combined pro forma projected savings, net
of union wage and health and welfare benefit cost increases
pursuant to the Modified Union Agreements, are reflected at
$10,200 in 1996, $9,437 in 1997 and $8,343 in 1998. The
Projections also give effect to the anticipated cost savings
expected to result from the termination of the MIS Agreement.
See "THE COMPANY _ Computer and Management Information Systems."
(d) Fresh Start
Accounting. Pursuant to SOP 90-7, the Company has determined the
reorganization value of the Company. This reorganization value
has been allocated, based on estimated fair market values, to
specific tangible or identifiable intangible assets. The Company
has recorded an intangible asset equal to the reorganization
value in excess of amounts allocable to identifiable assets. The
Company will continue to assess the fair market values of its
assets, and consequently the value of those assets and the
reorganization value in excess of amounts allocable to
identifiable assets is subject to change. The Projections assume
that the reorganization value in excess of amounts allocable to
identifiable assets will be amortized over three years. See
"ACCOUNTING TREATMENT."
(e) Income Taxes. The
Projections assume that the Company's annual limitation under
Code Section 382(1)(6) will equal $2,900, computed assuming
(among other things) that the value of the Company as of the
Effective Date will equal the assumed reorganization value. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES." The future benefits
from NOL carryforwards represent the Company's estimate only and
there can be no assurance that such NOL carryforwards will
result in a reduction in the amount of federal income taxes
payable by the Company.
4. Projected Balance Sheets
The following table summarizes the projected
balance sheets of the Company as of December 28, 1996, December
27, 1997 and December 26, 1998.
Projected Balance Sheets
As of Fiscal Years Ending 1996 through 1998
(In thousands)
December 28, December 27, December 26,
1996 1997 1998
ASSETS
Current assets:
Excess cash $ 431 $ _ $ _
Store cash 3,500 3,500 3,500
Receivables 11,450 11,679 11,818
Inventories 40,770 42,386 43,234
Prepaids and other current assets 2,816 3,500 3,500
Total current assets 58,967 61,065 62,051
Property, net 73,707 79,502 84,302
Reorganization value in excess
of amounts allocable
to identifiable assets 27,729 15,108 3,052
AWG patronage certificates 1,643 3,897 6,196
Other assets 3,180 2,891 2,603
$165,227 $ 162,464 $158,204
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Obligations under revolving
credit faciltiy $ - $ 3,944 $ 6,159
Current portion of
obligations under capital leases 1,631 1,108 927
Union contract liabilities 640 640 640
Accounts payable and accrued
liabilities 31,154 32,060 32,777
Total current liabilities 33,425 37,752 40,503
Priority tax claims 2,423 1,891 1,359
Term Loan 10,000 9,168 7,504
Obligations under capital leases 4,303 3,368 2,441
New Notes 60,000 60,000 60,000
Other noncurrent liabilities 112 8 -
Stockholders' equity:
Common stock 47 47 47
Additional paid-in capital 56,014 56,014 56,014
Accumulated deficit (1,098) (5,784) (9,664)
Total stockholders' equity 54,963 50,277 46,397
$165,227 $ 162,464 $ 58,204
5. Projected Statements of Cash Flow
The following table summarizes the projected statements of cash
flow for the 24 weeks ending December 28, 1996, the 52 weeks
ending December 27, 1997, and the 52 weeks ending December 26,
1998.
Projected Statements of Cash Flow
(In thousands)
24 Weeks 52 Weeks 52 Weeks
Ending Ending Ending
December December December
28, 1996 27, 1997 26, 1998
Operating activities:
Net loss $(1,095) $(4,686) $(3,880)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and amortization 8,479 21,415 21,844
AWG Patronage 0 (2,254) (2,299)
Certificates
Receivables (3,071) (229) (139)
Inventories (2,147) (1,615) (848)
Store Cash (453) 0 0
Other current assets (86) (684) 0
Accounts payable and
accrued liabilities 4,133 269 178
Other accrued expenses (4,350) 0 0
Net cash from operating
activities 1,410 12,215 14,857
Investing activities:
Capital expenditures (6,924) (15,000) (15,000)
Proceeds from sale of
assets 0 700 700
Net cash used in
investing activities (6,924) (14,300) (14,300)
Financing activities:
Revolver borrowings 0 3,944 2,215
Principal payments on
capital leases (846) (1,458) (1,108)
Term Loan payments 0 (832) (1,664)
Net cash from (used in)
financing activities (846) 1,654 (557)
Net decrease in cash (6,360) (431) 0
Excess cash at beginning
of period 6,791 431 0
Excess cash at end of
period $ 431 $ 0 $ 0
.
VI. THE COMPANY
A. General
The Company is a leading supermarket chain in
Oklahoma, southern Kansas and the Texas Panhandle region,
operating a total of 67 stores as of the Filing Date. The
Company operates in four distinct marketplaces: Oklahoma City,
Oklahoma; Tulsa, Oklahoma; Amarillo, Texas; and certain rural
areas of Oklahoma, Kansas and Texas. The Company expects that,
as of the Effective Date, it will operate 65 stores. See
"INTRODUCTION AND SUMMARY _ Principal Elements of the
Restructuring _ Rejection of Certain Closed Store Leases."
The Company and Holding (its holding company) were
organized in 1987 by a group of investors led by CD&R for the
purpose of acquiring substantially all of the assets of the
Oklahoma division of Safeway, Inc. The acquired stores changed
their name to "Homeland" in order to highlight the Company's
regional identity.
B. AWG Supply Agreement
The Company is a party to the Supply Agreement with
AWG, pursuant to which the Company is 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 center 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 one of the Old
Banks. 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 periodic 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 compliance with AWG's First Offer Rights with
respect to proposed sales of such store. In addition, the Supply
Agreement provides AWG with certain purchase rights in the event
the Company closes 90% or more of the Supplied Stores.
C. The Company's Supermarkets
The Company's current network of stores features three
basic store formats. The Company's conventional stores are
primarily in the 25,000 square foot range and carry the
traditional mix of grocery, meat, produce and variety products.
These stores contain more than 20,000 stock keeping units
("sku's"), including food and general merchandise. Sales volumes
of conventional stores range from $60,000 to $125,000 per week.
The Company's superstores are in the 35,000 square foot 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. The Company's combo store format
includes stores of 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 ranges from
$140,000 to $300,000 per week. The Company's new stores and
certain remodeled locations have incorporated the Company's new,
larger superstore and combo formats. Of the 67 stores operated
by the Company as of the Filing Date, 11 are conventional stores,
44 are superstores and 12 are combo stores.
The chart below summarizes the Company's store profile over
the last three years:
Fiscal Year Ended
01/01/94 12/31/94 12/30/95(1)
Average sales per store(in millions) $ 7.2 $ 7.1 $ 7.9
Average total square feet per store 34,700 34,700 38,204(1)
Average sales per square foot $ 208 $ 205 $ 207
Number of stores:
Stores at start of period 113 112 111
Stores remodeled 3 10 5
New stores opened 1 0 0
Stores sold or closed 2 1 43
Stores at end of period 112 111 68
Size of stores:
Less than 25,000 sq. ft. 24 24 8
25,000 to 35,000 sq. ft. 39 38 24
35,000 sq. ft. or greater 49 49 36
Store formats:
Conventional 29 29 11
Superstore 66 65 44
Combo 17 17 13
(1) Reflects the operation of 68 stores in 1995. The Company's
Ponca City store, which was sold in April 1996, was a combo
store. See "THE RESTRUCTURING _ Restructuring Discussions _
Sale of Ponca City Store."
The Company's network of 67 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.
D. 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, service,
selection, convenient store locations, specialty departments and
perishable products (i.e., meat, produce, bakery and seafood).
The Company's strategy is to price competitively with each
conventional supermarket operator in each market area. In areas
with discount store competition, the Company attempts to be
competitive on high-volume, price sensitive items. The Company's
in-store promotion strategy is to offer all display items at a
lower price than the store's regular price and at or below the
price offered by the store's competitors. The Company also
currently offers double coupons, with some limitations, in all
areas in which it operates.
E. 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.
F. 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-op 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 in its market areas 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.
G. 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 close of fiscal
year 1995, approximately 82% of the Company's stores had
delicatessens and/or bakeries and approximately 65% had in-store
pharmacies. In addition, some stores have additional specialty
departments offering 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 of goods 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 AWG
private label goods, including Best Choicer and Always Saver.
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."
H. Employees and Labor Relations
At March 31, 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 supermarket
operations. The remaining employees are corporate and
administrative personnel.
The Company is the only unionized grocery chain in its
market areas. Approximately 90% of the Company's employees are
union members, represented primarily by the UFCW. In 1993, the
UFCW ratified the Existing UFCW Agreements, implementing certain
wage and benefit concessions. In March 1996, the local chapters
of the UFCW ratified certain modifications to the Existing UFCW
Agreements, which will become effective upon consummation of the
Restructuring. In April 1996, the local union chapter of the
BCT, representing 30 of the Company's in-store bakery employees,
ratified modifications to its collective bargaining agreement
with the Company on the same terms and conditions as the Modified
UFCW Agreements. For a description of the Modified Union
Agreements, see "DESCRIPTION OF MODIFIED UNION AGREEMENTS."
I. 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 systems include 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 (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
April 1995 purchase agreement between the Company and AWG (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.
J. 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.
K. 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.
L. Regulatory Matters
The Company 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, the Company 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 the Company.
In addition, most of the Company's licenses and permits require
periodic renewals. To date, the Company has experienced no
material difficulties in obtaining or renewing its regulatory
licenses and permits.
M. Properties
Of the 67 supermarkets currently operated by the Company,
12 are owned facilities and the remainder are leased facilities
(with remaining lease terms ranging from several months to 17
years). Most of the leased facilities are subject to renewal
options. Out of 55 leased stores, only eight have remaining
terms (including option periods) of less than 20 years. The
average rent per square foot under the Company's existing leases
is $3.67 (without regard to amortization of beneficial interest).
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.
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 (including certain stores closed
prior to the Filing Date and certain stores to be closed after
the Filing Date) are subject to burdensome lease terms. The
Company intends to seek permission to reject (pursuant to Section
365 of the Bankruptcy Code) certain real property leases relating
to stores closed prior to the Filing Date (certain of which may
have been terminated pre-petition by virtue of the Company's
surrender of the leased property) or to be closed after the
Filing Date. See "INTRODUCTION AND SUMMARY _ Principal Elements
of the Restructuring _ Rejection of Certain Closed Store Leases."
No individual store operated by the Company is by
itself material to the financial performance or condition of the
Company as a whole. Substantially all of the Company's properties
are currently subject to certain mortgages securing the Old Notes
and, upon consummation of the Restructuring, will be subject to
certain mortgages securing the New Credit Agreement.
On June 12, 1995, the Company relocated its executive
offices to a newly-leased facility located at 2601 Northwest
Expressway, Suite 1100 E, Oklahoma City, Oklahoma 73112.
N. Legal Proceedings
1. Routine Litigation
The Company is a party to ordinary and routine
litigation incidental to its business. On the Filing Date, all
pre-petition litigation was stayed pursuant to Section 362 of the
Bankruptcy Code. See "SUMMARY OF THE PLAN _ Classification and
Treatment of Claims and Interests _ Class 5 _ General Unsecured
Claims."
2. 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 Sale. 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"). To the Company's knowledge, the action
commenced by the Fund was neither requested by, nor done in
consultation with, the UFCW or the BCT.
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 the Filing Date.
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 Company 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 court has appointed a third party
mediator. No mediation date had been set as of the Filing Date.
On the Filing Date, this action was stayed pursuant to
Section 362 of the Bankruptcy Code. For purposes of the Plan,
the Fund's claim constitutes a Disputed Class 5 Claim. The
Company intends to resolve this matter either pursuant to the
Bankruptcy Court's normal claims resolution process or by filing
an adversary proceeding in the Bankruptcy Court or the United
States District Court for the District of Delaware.
VII. BOARDS OF DIRECTORS
A. Current Members
The names and ages of the current members of the Board
of Directors of the Company are set forth in the following table.
Holding's Board of Directors is identical to that of the Company.
Biographical information for these individuals is set forth under
"Biographical Information."
Name Age
B. Charles Ames 70
James A. Demme 55
John A. Shields 52
Bernard S. Black 42
Bernard Paroly 77
Andrall S. Pearson 70
Hubbard C. Howe 67
Michael G. Babiarz 30
B. Proposed Members
In connection with the Restructuring, the Boards of
Directors of the Company and Holding will be reconstituted to
include seven members. Upon consummation of the Restructuring,
the initial Board of Directors of each of the Company and Holding
will consist of James A. Demme, John A. Shields, four directors
selected by the Committee and one director selected by the UFCW.
C. Biographical Information
B. Charles Ames was elected as Chairman of the Board
of the Company and Holding in January 1991. Mr. Ames is a
principal of CD&R and has been a director of the Company since
1988. He is also a general partner of the general partner of
Clayton & Dubilier Private Equity Fund IV Limited Partnership
("C&D Fund IV"). He was a limited partner of the general partner
of Clayton & Dubilier Private Equity Fund III Limited Partnership
("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
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 and Holding 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 170 retail stores which had a
total sales 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 then the fifteenth largest retail
supermarket chain in the United States with sales of $1.7
billion.
John A. Shields became a director of the Company and
Holding in May 1993. 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 the Company and Holding.
Bernard Paroly served as Chairman and Chief Executive
Officer of Pathmark Supermarkets from mid-1981 to July 1986. In
November 1987, Mr. Paroly became a director of the Company and
Holding.
Andrall E. Pearson is a director of the Company. He
is a principal of CD&R and 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 the Company and
Holding 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 the Company
and Holding in January 1995. Mr. Babiarz has been employed by
CD&R since 1990.
VII. MANAGEMENT
A. Management
The following table sets forth the name, age and
position(s) which held by each of the persons who serves as an
executive officer of the Company:
Name Position(s)
Age
James A. Demme 55 President, Chief Executive
Officer and Director
Larry W. Kordisch 48 Executive Vice
President_Finance, Chief Financial
Officer, Treasurer Secretary
Steven M. Mason 41 Vice President_Marketing
Terry M. Marczewski 41 Chief Accounting Officer,
Assistant Treasurer and Assistant
Secretary
Alfred F. Fideline,Sr. 58 Vice President_Retail Operations
Prentess E. Alletag,Jr. 49 Vice President_Human Resources
In addition, Messrs. Demme, Kordisch and Marczewski
hold the same positions with Holding as they hold with the
Company.
All of the executive officers identified above will
continue in their present positions with the Company and Holding
after the Restructuring.
B. Biographical Information
Set forth below is a description of recent business
positions held by the Company's executive officers listed above.
(For biographical information with respect to Mr. Demme, see
"BOARDS OF DIRECTORS _ Biographical Information.")
Larry W. Kordisch joined the Company in February 1995
and became Executive Vice President_Finance, Chief Financial
Officer, Treasurer and Secretary of the Company and Holding in
May 1995. Prior to joining the Company, Mr. Kordisch was
employed by Scrivner, Inc., serving as Executive Vice
President_Finance and Administration and a director. As Executive
Vice President_Finance and Administration, Mr. Kordisch was
responsible for the accounting, administrative, finance, legal
and risk management functions.
Steven W. Mason became Vice President_Marketing of
the Company in October 1993. Mr. Mason joined Safeway in 1970
and the Oklahoma Division of Safeway in 1986. At the time of the
Acquisition, he was serving as Special Projects Coordinator for
the Oklahoma Division. He joined the Company in November 1987,
and served as Vice President_Retail Operations from October
1988, to October 1993.
Terry M. Marczewski joined the Company in April 1995
and became Chief Accounting Officer, Assistant Treasurer and
Assistant Secretary of the Company and Holding in May 1995.
Prior to joining the Company, Mr. Marczewski served as Controller
of Fleming Companies, Inc.-Scrivner Group from July 1994, to
April 1995. From 1990 to July 1994, Mr. Marczewski served as
Vice President and Controller of Scrivner, Inc., then the third
largest grocery wholesaler, prior to its acquisition by Fleming
Companies, Inc.
Alfred F. Fideline, Sr. became Vice President_Retail
Operations in May 1994. Mr. Fideline joined Safeway in 1957 and,
at the time of the Acquisition, was serving as a District Manager
of Oklahoma Division. In November 1987, he joined the Company as
a District Manager.
Prentess E. Alletag, Jr. became Vice President_Human
Resources of the Company in November 1987. He joined the
Oklahoma Division of Safeway in October 1969, and, at the time of
the Acquisition, was serving as Human Resources and Public
Affairs Manager. He joined the Company in November 1987.
C. Executive 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 (collectively, the "Named Executive Officers") for the
fiscal years ended December 30, 1995, December 31, 1994, and
January 1, 1994 (Holding did not pay compensation during these
periods):
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Salary Bonus Other Annual All Other
Principal Year Compensation Compensation(3)(4)
Position
James A.Demme(1) 1995 $ 200,000 $100,000 (2) $ 4,396
President and 1994 11,538 - (2) -
Chief Execuitve
Officer
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 Office
and Secretary
Larry W. 1995 $ 126,923 $100,000 (2) $3,907
Kordisch(7)
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. 1995 $ 69,326 $ 20,000 (2) $ 43
Marczewski(8) 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 (included under Salary) made by each to such plan,
as follows: Steven M. Mason, $2,956. There were no matching
contributions in 1994 and 1995.
(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 Chief Accounting Officer and Controller in May 1995.
Directors who are not employees of the Company or
otherwise affiliated with the Company (presently consisting of
Messrs. Black, Paroly and Shields) are currently paid annual
retainers of $15,000 and meeting fees of $1,000 for each meeting
of the Board of Directors or any committee attended.
D. 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 thereafter 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
thereafter 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 termination.
In April 1996, the Company entered into employment
agreements with Steven M. 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.
In April 1996, the Company entered into an
agreement with Francis T. Wong, the Company's Director of
Finance, which provides 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. Wong 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 termination.
The Company intends to assume all of these
employment agreements pursuant to the Plan.
E. Management Incentive Plan
The Company 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 Management Incentive 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 of
Directors (the "Compensation Committee"). Incentive bonuses paid
to managers and supervisors vary according to their reporting and
responsibility levels. Unless otherwise determined by the Board
of Directors, the Compensation Committee consists of members of
the Board who are ineligible to participate in the Management
Incentive Plan. Incentive bonuses earned for certain highly
compensated executive officers under the Management Incentive
Plan for performance during fiscal year 1995 are included in the
Summary Compensation Table set forth above.
F. Retirement Plan
The Company maintains a retirement plan in which
all non-union employees, including members of management,
participate. Under the retirement plan, employees who retire at
or after age 65 after completing five years of vesting service
(defined as calendar years in which employees complete at least
1,000 hours of service) will be entitled to retirement benefits
equal to 1.50% of career average compensation (including basic,
overtime and incentive compensation) plus .50% of career average
compensation in excess of the social security covered
compensation, such sum multiplied by years of benefit service
(not to exceed 35 years). 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 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.
IX. STOCK OWNERSHIP
Set forth below is
certain information as of March 31, 1996, concerning certain
holders of the currently outstanding shares of Old Common Stock
(including officers and directors of the Company and holders of
5% or more of the Old Common Stock).
Name of Beneficial Owner Shares Percent of
Beneficially Owned Class
The Clayton & Dubilier Private 11,700,000 35.9%
Equity Fund III Limited
Partnership, 270 Greenwich
Avenue, Greenwich, CT 06830
The Clayton & Dubilier Private 13,153,089 40.4
Equity Fund IV Limited
Partnership, 270 Greenwich
Avenue, Greenwich, CT 06830
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
William A. Barbe (1) 13,153,089 40.4
Donald J. Gogel (1) 13,153,089 40.4
Leon J. Hendrix, Jr. (1) 13,153,089 40.4
Hubbard C. Howe (1) 13,153,089 40.4
Andrall E. Pearson (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 13,366,001 41.0
a group (13 persons) (6)(7)
*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 disclaim 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 disclaim 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 IRA. 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.
As a result of the equity recapitalization and the
issuance of the shares of New Common Stock to the holders of
General Unsecured Claims pursuant to the Plan, the persons who,
on the Effective Date, will own at least five percent of the
shares of New Common Stock may be significantly different than
the persons who currently own at least five percent of the shares
of Old Common Stock. The Debtors are unable to determine at this
time the identity of the persons who will own at least five
percent of the New Common Stock to be outstanding upon
consummation of the Restructuring because, among other reasons, a
significant amount of the Old Notes are currently held in nominee
name, the Old Notes may be transferred or acquired prior to the
Effective Date and the actual amount of General Unsecured Claims
(other than General Unsecured Claims in respect of the Old Notes)
has not been finally determined.
X. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
C&D Fund III, a private
investment fund managed by CD&R, owns approximately 35.9% of the
Old Common Stock outstanding as of the Filing Date, and C&D Fund
IV, another private investment fund managed by CD&R, owns
approximately 40.4% of the Old Common Stock outstanding as of the
Filing Date. 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.
The Company paid CD&R
annual fees of $200,000 in 1993, $150,000 in 1994 and $125,000 in
1995 for management and financial consulting services. CD&R
agreed to forgo any such fees after November 1995, in view of the
Company's financial position and in order to facilitate the
Restructuring.
CD&R, C&D Fund III and
the Company entered into an Indemnification Agreement dated as of
August 14, 1990 (the "1990 Indemnification Agreement"), pursuant
to which the Company agreed, subject to certain applicable
restrictions, 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 (the "1992 Indemnification
Agreement"), pursuant to which the Company agreed, subject to any
applicable restrictions in the Old Indenture, the 1992 Credit
Agreement and certain other agreements, to indemnify CD&R, C&D
Fund III, and 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.
The Company has made
temporary loans to certain members of the Company's management to
enable such persons to make principal payments under loans from
third-party financial institutions. Such loans bear interest at
a variable rate equal to the rate applicable to the Company's
borrowings under the 1995 Credit Agreement plus one percent and
are scheduled to mature on July 21, 1996. As of March 31, 1996,
the aggregate principal amount of such loans outstanding was
$81,500.
XI. SUMMARY OF THE PLAN
The provisions of the
Plan are summarized in this Article XI. THE SUMMARY IS ONLY A
GENERAL DESCRIPTION OF THE PLAN AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE PLAN, A COPY OF WHICH IS SET FORTH IN
APPENDIX A.
A. Classification and Treatment of Claims and Interests
1. General
Under Section 1122 of the Bankruptcy Code, the Debtors
are required to classify the Claims against, and Interests in,
the Debtors into Classes which contain Claims or Interests that
are substantially similar to the other Claims or the other
Interests in such class. The Plan designates five classes of
Claims and three Classes of Interests and provides separately for
the treatment of each class. The classification and the
treatment of the Claims and the Interests take into account
their differing nature and priority under the Bankruptcy Code and
other applicable laws. A Claim or an Interest is classified in a
class only to the extent that Claim or that Interest falls within
the description of that class and is classified in another class
to the extent that Claim or that Interest falls within the
description of the other class.
While the Debtors believe that they have
classified all Claims and Interests in compliance with the
provisions of Section 1122 of the Bankruptcy Code, it is possible
that a party in interest may challenge such classification of
Claims or Interests and the Bankruptcy Court may find that a
different classification is required in order for the Plan to be
confirmed. In such event, it is the present intention of the
Debtors to modify the Plan to provide for whatever reasonable
classification might be required by the Bankruptcy Court for
confirmation of the Plan. See "RISK FACTORS _ Bankruptcy Risks _
Certain Risks Regarding Classification of Claims and Interests."
Holders of Claims against, and Interests in, the
Debtors are entitled to receive a distribution under the Plan
only on account of Allowed Claims and Allowed Interests. An
"Allowed Claim" or "Allowed Interest" is a Claim or Interest
which (a) either is (i) listed by the Debtors in their respective
schedules filed with the Bankruptcy Court pursuant to Section 521
of the Bankruptcy Code as liquidated in amount, not disputed and
not contingent or (ii) the subject of a proof of Claim or proof
of Interest filed with the Bankruptcy Court, and (b) has not been
objected to by the Debtors or any other party in interest. If an
objection is made, the validity and amount of the Claim or
Interest will be determined by order of the Bankruptcy Court or
the District Court. See " _ Other Provisions of the Plan _
Disputed Claims."
2. Treatment of Unclassified Claims
Administrative Claims and Priority Tax Claims have
not been classified under the Plan.
a. Administrative Claims
Administrative Claims are Claims for
administrative expenses allowed under Section 503(b) of the
Bankruptcy Code, including (i) the actual and necessary costs and
expenses of preserving and operating the business of the Debtors'
estates, (ii) taxes incurred by the Debtors' Estates other than
taxes of a kind specified in Section 507(a)(8) of the Bankruptcy
Code, (iii) any compensation for legal and other professional
services and reimbursement of expenses awarded under Section 330
of the Bankruptcy Code and (iv) fees due to the United States
Trustee under Section 1930, Chapter 123, Title 28, United States
Code.
Pursuant to the Plan, unless otherwise agreed by a
holder of an Allowed Administrative Claim, each such holder will
be paid in full, in cash, on the later of the Effective Date and
the date on which such Claim becomes an Allowed Claim; provided,
however, that fees due to the United States Trustee will be paid
in accordance with applicable law and that Administrative Claims
representing liabilities incurred in the ordinary course of
business by the Debtors (including amounts owed to suppliers that
have sold products of furnished goods and services to the Debtors
after the Filing Date) will be paid by the Debtors in accordance
with the terms and conditions of the particular transactions and
any agreements relating thereto.
The reasonable fees and expenses incurred on or
after the Filing Date by the Noteholder Advisors with respect to
the Debtors' bankruptcy cases will be paid (without application
by or on behalf of any such professionals to the Bankruptcy
Court, and without notice and a hearing, unless specifically
ordered by the Bankruptcy Court upon request of a party in
interest) by the Debtors as an Administrative Expense under the
Plan (unless such advisor is retained by a Statutory Committee
pursuant to Sections 327 or 1103 of the Bankruptcy Code). If the
Debtors and any Noteholder Advisor cannot agree on the amount of
fees and expenses to be paid to such Noteholder Advisor, the
amount of such fees and expenses will be determined by the
Bankruptcy Court.
Assuming that (i) no significant litigation is
commenced and no significant objections are filed with respect to
the Plan, (ii) the Bankruptcy Court approves the Company's motion
for payment of interim compensation and reimbursement of expenses
of professionals and (iii) the Plan is confirmed in July 1996,
the Debtors estimate that the aggregate amount of unpaid
Administrative Claims as of the Effective Date (excluding
expenses incurred by the Company in the ordinary course of
business) will not exceed $0.5 million.
b. Priority Tax Claims
Priority Tax Claims are Claims entitled to
priority pursuant to Section 507(a)(8) of the Bankruptcy Code.
Pursuant to the Plan, unless otherwise agreed by a
holder of an Allowed Priority Tax Claim, each such holder will
(at the option of the Debtors) (i) be paid in full, in cash, on
the later of the Effective Date and the date on which such Claim
becomes on Allowed Claim or (ii) be paid deferred cash payments
in an amount equal to (in the aggregate) the amount of such
Claim, over a period not exceeding six years after the date of
assessment of such Claim, including an interest component as
required by the provisions of Section 1129(a)(9)(c) of the
Bankruptcy Code. In fixing such interest component, the Debtors
intend to use the federal judgement rate in effect on the
Confirmation Date, unless the Bankruptcy Court determines
otherwise. To the extent that the Debtors elect to make deferred
cash payments on any Allowed Priority Tax Claim, the Debtors may
prepay the remaining amount of such Allowed Priority Tax Claim at
any time, without penalty or premium.
Assuming the Plan is confirmed in July 1996, the
Debtors estimate that the aggregate amount of unpaid Priority Tax
Claims as of the Effective Date will not exceed $2.7 million.
3. Classification and Treatment of Classified Claims and Interests
a. Class 1 Claims_Allowed Priority Claims
Class 1 consists of all Claims which are entitled
to priority under Section 507(a) of the Bankruptcy Code (other
than Administrative Claims and Priority Tax Claims).
Pursuant to the Plan, unless otherwise agreed by a
holder of a Class 1 Claim, each Class 1 Claim will be paid in
full, in cash, on the later of the Effective Date and the date
on which such Claim becomes an Allowed Claim.
Assuming that the Bankruptcy Court approves the
Company's motion for payment of certain pre-petition Claims of
the Company's employees, the Debtors estimate that an aggregate
amount of Class 1 Claims as of the Effective Date will not exceed
$0.5 million.
Class 1 is not impaired and the holders of Class 1
Claims are conclusively presumed, under Section 1126(f) of the
Bankruptcy Code, to have accepted the Plan.
b. Class 2 Claims_Allowed Claims of the Old Banks
Class 2 consists of the Allowed Claims of the Old
Banks under the 1995 Credit Agreement. As of May 10, 1996,
approximately $6.5 million of loans were outstanding under the
1995 Credit Agreement. In addition, as of such date,
approximately $10.4 million of letters of credit were issued and
outstanding, including $8.4 million in respect of the AWG Letter
of Credit.
Pursuant to the Plan, Class 2 Claims will be (i)
paid in full, in cash, or (ii) satisfied by the execution and
delivery of the New Credit Agreement by, among other persons, the
Old Banks, and the modification of the 1995 Credit Agreement in
accordance with the terms of the New Credit Agreement (in which
case, the Class 2 Claims, as so modified, will continue to have
the benefit of the collateral securing such Claims as of the
Filing Date pursuant to the original security documents and
certain additional collateral). See "DESCRIPTION OF NEW CREDIT
AGREEMENT."
Class 2 is impaired and the holders of Class 2
Claims are entitled to vote on the Plan.
c. Class 3-Allowed Secured Noteholder Claims
Class 3 consists of the Allowed Secured Claims in
respect of the Old Notes.
The aggregate amount of Allowed Claims in respect
of the Old Notes is $101.6 million (the "Allowed Noteholder
Claims"), consisting of $95.0 million in aggregate principal
amount of Old Notes outstanding as of the Filing Date and $6.6
million in accrued and unpaid interest on the Old Notes as of the
Filing Date. The Allowed Noteholder Claims are Secured Claims to
the extent of the value of the Old Indenture Collateral. In
March 1996, the Debtors and the Committee estimated that, based
on a going concern valuation of the Company's assets, the value
of the Old Indenture Collateral was approximately $65.0 million.
Based on this estimated value of the Old Indenture Collateral,
the aggregate amount of Allowed Secured Claims in Class 3 would
be not less than $65.0 million. Notwithstanding such collateral
value, the Committee and the Debtors agreed that, solely for
purposes of facilitating the confirmation of the Plan, the
aggregate amount of Allowed Secured Claims in Class 3 would be
reduced to, and would be deemed (for purposes of the Plan) to be
$61.5 million (the "Allowed Secured Noteholder Claims").
The excess of the Allowed Noteholder Claims over
the Allowed Secured Noteholder Claims is $40.1 million (the
"Allowed Unsecured Noteholder Claims"). Pursuant to the Plan,
the Allowed Unsecured Noteholder Claims will be treated as Class
5 Claims and will be deemed to be allowed in full.
Pursuant to the Plan, unless otherwise agreed by a
holder of a Class 3 Claim, each such holder will receive its
Ratable Share of (i) $60 million principal amount of New Notes
and (ii) the Cash Amount. For further information regarding the
New Notes, see "DESCRIPTION OF NEW NOTES" and the form of New
Indenture set forth in the Plan Supplement.
Class 3 is impaired and the holders of Class 3
Claims are entitled to vote on the Plan.
d. Class 4_Allowed Miscellaneous Secured Claims
Class 4 consists of Allowed Secured Claims (other
than Class 2 Claims and Class 3 Claims). Class 4 Claims include,
but are not limited to, Claims secured by equipment in connection
with equipment financings and Claims secured by mechanic's,
materialmen's and artisan's liens on miscellaneous personal
property. Under the Plan, each Class 4 Claim will be treated for
all purposes of the Plan and the Bankruptcy Code as a separate
subclass.
Pursuant to the Plan, at the option of the
Company, Class 4 Claims will (i) be unaltered as to the legal,
equitable and contractual rights to which such Class 4 Claim
entitles the holder thereof or (ii) be treated in any another
manner that will not result in the impairment of such Claim under
Section 1124 of the Bankruptcy Code. The Plan does not alter the
rights of any holder of a Class 4 Claim in any collateral
securing the Class 4 Claim as of the Filing Date, and the liens
thereunder shall be ratified and affirmed.
The Debtors estimate that the aggregate amount of
Class 4 Claims as of the Effective Date will be approximately
$1.5 million.
Class 4 is not impaired and the holders of Class 4
Claims are conclusively presumed, under Section 1126(f) of the
Bankruptcy Code, to have accepted the Plan.
e. Class 5-General Unsecured Claims
Class 5 consists of all Allowed Claims other than
Claims in any other class and other than Administrative Claims
and Priority Tax Claims. Class 5 Claims generally consist of
Claims of trade creditors for products and services provided to
the Debtors prior to the Filing Date (which Claims either have
not been paid pursuant to the Trade Creditor Order or have been
paid but have been later reinstated as a result of such trade
creditor's failure to comply with the terms of such order), and
other contract and damage Claims, including Claims, if any, for
damages arising from the rejection of executory contracts and
unexpired leases subsequent to the Filing Date. Class 5 Claims
also include Allowed Unsecured Noteholder Claims of approximately
$40.1 million.
The Debtors dispute certain of the Claims included
in Class 5, and certain of such Claims are the subject of
litigation. Following the Filing Date, additional disputed Class
5 Claims may from time to time be designated by the Debtors, and
the Debtors may become defendants in additional legal proceedings
arising in the ordinary course of business. Disputed Claims will
be treated in the manner described below under "SUMMARY OF THE
PLAN-Other Provisions of the Plan _ Disputed Claims."
Certain of the litigation Claims in Class 5 are
covered by insurance maintained by the Debtors. To the extent
any Class 5 Claims are covered by insurance, the covered portion
of such Claims would be paid by the insurance carrier of the
relevant Debtor. The Debtors reserve the right to (i) consent to
the modification of the automatic stay provision of Section
362(a) of the Bankruptcy Code so as to permit the prosecution of
Claims covered by insurance solely to the extent of such
coverage, or (ii) utilize any other Claims resolution procedure
approved by the Bankruptcy Court.
The Debtors estimate that, after all objections to
Claims are resolved, the ultimate amount of Claims included in
Class 5 will aggregate approximately $63.1 million, including
Allowed Unsecured Noteholder Claims of approximately $40.1
million. THIS IS AN ESTIMATE REFLECTING THE COSTS AND
UNCERTAINTIES OF LITIGATION AND DOES NOT ADMIT THAT EITHER DEBTOR
IS LIABLE IN ANY AMOUNT WITH RESPECT TO ANY DISPUTED CLAIM. IN
ADDITION, THERE IS NO ASSURANCE THAT SUCH ESTIMATE IS CORRECT
AND, ACCORDINGLY, THERE IS A RISK THAT THE AGGREGATE AMOUNT OF
CLASS 5 CLAIMS WILL BE GREATER THAN THE AMOUNT ESTIMATED BY THE
DEBTORS.
Pursuant to the Plan, unless otherwise agreed to
by a holder of a Class 5 Claim, each such holder will receive
such holder's Ratable Share of 4,450,000 shares of New Common
Stock. For further information regarding the New Common Stock,
see "DESCRIPTION OF NEW COMMON STOCK."
Class 5 is impaired and the holders of Class 5
Claims are entitled to vote on the Plan.
f. Class 6_Allowed Interests of Holding as Sole
Shareholder of the Company
Class 6 consists of the Allowed Interests of
Holding as the sole holder of the issued and outstanding shares
of Homeland Common Stock.
Pursuant to the Plan, the legal, equitable and
contractual rights of the holder of Class 6 Interests will not be
altered.
Class 6 is not impaired and the holder of the
Class 6 Interest is conclusively presumed, under Section 1126(f)
of the Bankruptcy Code, to have accepted the Plan.
g. Class 7_Allowed Interests of Holders of Old Common Stock
Class 7 consists of the Allowed Interests of
holders of Old Common Stock.
Pursuant to the Plan, unless otherwise agreed to
by a holder of a Class 7 Interest, each such holder will receive
such holder's Ratable Share of (i) 250,000 shares of New Common
Stock and (ii) the New Warrants to purchase (in the aggregate)
263,158 shares of New Common Stock. For further information
regarding the New Common Stock and the New Warrants, see
"DESCRIPTION OF NEW COMMON STOCK" and "DESCRIPTION OF NEW
WARRANTS" and the form of New Warrant Agreement set forth in
Appendix E hereto.
Class 7 is impaired and the holders of Class 7
Interests are entitled to vote on the Plan.
h. Class 8_Allowed Interests of Holders of Old Warrants
Class 8 consists of the Allowed Interests of the
holders of Old Warrants.
Pursuant to the Plan, the legal, equitable and
contractual rights of the holder of Class 8 Interests will not be
impaired.
Class 8 is not impaired and holders of Class 8
Interests are conclusively presumed, under Section 1126(f) of the
Bankruptcy Code, to have accepted the Plan.
B. Means for Implementation of the Plan
1. Issuance of New Securities
Holding will be deemed to have authorized and, on
the Effective Date, will be deemed to issue the requisite shares
of New Common Stock and the requisite New Warrants, regardless of
the date on which distributions are effected. The Company will
be deemed to have authorized and, on the Effective Date, will be
deemed to issue the New Notes, regardless of the date on which
distributions are effected. See "DESCRIPTION OF NEW COMMON
STOCK," "DESCRIPTION OF NEW WARRANTS" and "DESCRIPTION OF NEW
NOTES."
2. Listing of New Common Stock; 1934 Act Filing
Holding will use its best efforts to (a) cause, as
promptly as practicable after the Effective Date, the shares of
New Common Stock to be listed on the NASDAQ National Market
System (or, in the event Holding fails to meet the listing
requirements of the NASDAQ National Market System, on such other
exchange or system on which the New Common Stock may be listed)
and (b) file, within 60 days of the Effective Date, a Form 10
registration statement with respect to the New Common Stock under
the 1934 Act.
3. Effectiveness of Agreements
On the Effective Date, the following agreements
shall become effective: (a) the New Credit Agreement; (b) the New
Indenture; (c) the New Warrant Agreement; (d) the Registration
Rights Agreements; and (e) the Modified Union Agreements.
4. Charter Amendments
On the Effective Date, Holding will file the
Amended Holding Charter with the Delaware Secretary of State and
the Company will file the Amended Company Charter with the
Delaware Secretary of State.
5. Management/Board of Directors
The Plan provides for the officers of the Company
and Holding immediately before consummation of the Plan to
continue to serve in their respective capacities after
confirmation of the Plan. On the Effective Date, the Boards of
Directors of the Company and Holding will consist of (a) James
A. Demme, (b) John A. Shields, (c) one person designated by UFCW
and (d) four persons designated by the Committee. Prior to
confirmation of the Plan in accordance with Section 1129(a)(5) of
the Bankruptcy Code, the Company and Holding will disclose (a)
the identity of and affiliations of any individual proposed to
serve, after confirmation of the Plan, as a director of the
Company or Holding, as the case may be, and (b) the identity of
any "insider" (as such term is defined in Section 101(31) of the
Bankruptcy Code) that will be employed and retained by the
Company, and the nature of any compensation for such insider. On
and after the Effective Date, each officer and director will hold
his or her office on the terms and subject to the conditions set
forth in the Amended Holding Charter, the Amended Company Charter
and the amended and restated bylaws of the applicable Debtor.
For certain information regarding the current executive officers
and directors of the Company and Holding, including a description
of their employment agreements and compensation, see
"MANAGEMENT."
6. Management Stock Option Plan
On the Effective Date, 263,158 shares of New
Common Stock will be reserved for issuance under the Management
Stock Option Plan. The terms and the conditions of the
Management Stock Option Plan (including the identity of the
participants and the number of options to be granted) will be
determined by the Board of Directors of Holding on or after the
Effective Date. See "INTRODUCTION AND SUMMARY _ Principal
Elements of the Restructuring _ Management Stock Option Plan."
7. Surrender and Cancellation of Instruments
As a condition to receiving any distribution
pursuant to the Plan, each holder of an Old Note, share
certificate, or other instrument evidencing a Claim or Interest
(other than an Old Warrant) as of the record date established for
distribution under the Plan must surrender such Old Note, share
certificate or other instrument to the Company or the entity
selected by the Debtors as its distribution agent (the
"Distribution Agent") or deliver to the Debtors or the
Distribution Agent, as the case may be, an affidavit of loss and
indemnity (in form and substance satisfactory to the Debtors), in
all cases, in proper form for transfer. In accordance with the
provisions of Section 1143 of the Bankruptcy Code, any holders of
such Claim or Interest as of such record date that fail to
surrender such Old Notes, share certificates or other instruments
within five years from the Confirmation Date will be deemed to
have forfeited all rights, Claims and Interests and will not
participate in any distribution under the Plan.
On the Effective Date (a) all such Old Notes,
share certificates or other instruments will be canceled and (b)
the Company's obligations under the such Old Notes, share
certificates and such other instruments will be discharged
(together with, in the case of the Old Notes, the Old Indenture
and any other agreements governing such Old Notes).
On the Effective Date, the liens and security
interests of the Old Trustee in the Old Indenture Collateral will
be released and the Old Trustee will be authorized and directed
to take such actions as may be requested by the Company to
evidence the release of such liens and the security interests,
including, without limitation, the execution, the delivery and
the filing and/or the recording of such releases as may be
requested by the Debtors.
8. Retiree Benefits
On and after the Effective Date, to the extent
required by Section 1129(a)(13) of the Bankruptcy Code, the
Debtors will continue to pay all "retiree benefits" (as such term
is defined in Section 1114(a) of the Bankruptcy Code) if any,
maintained or established by the Debtors prior to the
Confirmation Date.
9. Workers' Compensation Claims under Prior Self-Insurance
Program
The Company's obligations with respect to its
self-insurance program in existence prior to July 1994 for
Oklahoma workers' compensation purposes are secured by a $2
million letter of credit payable to the Oklahoma Workers'
Compensation Court. Such letter of credit, at the option of the
Company, will remain in place after the Effective Date or will be
replaced by another letter of credit. In the event the Company
fails to make any payment to a person who holds an Oklahoma
workers' compensation claim with respect to the period that the
Company maintained such self-insurance program, the Oklahoma
Workers' Compensation Court may draw on such letter of credit to
make the payment. To the extent the funds available under such
letter of credit are insufficient to pay all Oklahoma workers'
compensation claims with respect to the period that the Company
maintained such self-insurance program, such excess claims shall
be classified and treated as Class 5 Claims. In the event that,
upon the liquidation and payment of all of the Oklahoma workers'
compensation claims with respect to the period that the Company
maintained a self-insurance program, there are any funds then
remaining available under such letter of credit, the Company will
either direct the Oklahoma Workers' Compensation Court to (a)
draw down the letter of credit and pay the proceeds from such
draw to the Company in accordance with instructions provided by
the Company or (b) take the actions necessary to cause the letter
of credit to be released.
C. Other Provisions of the Plan
1. Executory Contracts and Unexpired Leases
Subject to the approval of the Bankruptcy Court,
the Bankruptcy Code gives the Debtors the power to assume or
reject executory contracts and unexpired leases. Generally, an
"executory contract" is a contract under which material
performance (other than payment of money) is still due by each
party. The Plan provides for the assumption by the Debtors of
all executory contracts and unexpired leases that are not
expressly rejected or subject to a motion to reject filed by the
Debtors on or before the Confirmation Date. The Company
anticipates that, in connection with its restructuring efforts,
it may reject certain executory contracts or unexpired leases,
including certain leases relating to stores closed or to be
closed. See "INTRODUCTION AND SUMMARY _ Principal Elements of
the Restructuring _ Rejection of Certain Closed Store Leases."
If any executory contract or unexpired lease is rejected, the
other party to the agreement may file a proof of claim with
respect to a Claim for damages by reason of the rejection. The
Plan provides that a proof of claim with respect to any such
Claim must be filed within 30 days of the approval of the
Bankruptcy Court of the rejection of the relevant executory
contract or unexpired lease. Each Claim shall constitute a Class
4 Claim, if secured, or a Class 5 Claim if unsecured, to the
extent such Claim is finally treated as an Allowed Claim as
described above under " _ Classification and Treatment of Claims
and Interests _ General." To the extent that either Debtor
rejects an unexpired lease of non-residential real property, the
Claim for damages resulting from such rejection will be limited
to the amount allowed under Section 502(b)(6) of the Bankruptcy
Code.
The obligation of each Debtor to indemnify (a) its
present and former directors and officers pursuant to their
respective certificates of incorporation and by-laws, applicable
state law or by contract (or any combination of the foregoing)
and (b) the indemnitees under the 1990 Indemnification Agreement
and the 1992 Indemnification Agreement, shall survive the
confirmation of the Plan, remain unaffected thereby, and not be
discharged, irrespective of whether such indemnification is owed
in connection with an event occurring before, on or after the
Filing Date.
2. Disputed Claims
a. Objection Deadline and Procedure
After the Effective Date, the Debtors shall have
the sole authority (1) to object to Claims against, and Interests
in, such Debtor and (2) to litigate any Claim or Interest to
Final Order, to settle or compromise any Claim or Interest or
withdraw any objection to any Claim or Interest (other than a
Claim or Interest that is deemed allowed pursuant to the Plan or
any Claim or Interest allowed pursuant to a Final Order). Unless
another date is established by the Bankruptcy Court or the Plan,
any objection to a Claim or Interest must be filed with the
Bankruptcy Court within 90 days after the later of the Effective
Date and the date that a proof of Claim with respect to such
Claim is filed or deemed to have been filed with the Bankruptcy
Court. Any objection to a Fee Claim (as defined below) shall be
filed with the Bankruptcy Court within the later of 60 days after
the Effective Date and 30 days after the date on which an
application is filed with respect to such Fee Claim. If no
objection has been filed to a Claim or Interest (other than a Fee
Claim, which shall be allowed only by order of the Bankruptcy
Court) within the applicable period, such Claim or Interest will
be treated as an Allowed Claim or an Allowed Interest, as the
case may be, to the extent such Claim or Interest has not been
previously allowed or disallowed by the Bankruptcy Court.
b. No Distributions Pending Allowance
If any portion of a Claim is a Disputed Claim, no
payment or distribution provided under the Plan will be made on
account of the portion of such Claim that is a Disputed Claim
unless and until such Disputed Claim becomes an Allowed Claim but
the payment or distribution provided for under the Plan shall be
made on account of the portion of such Claim that is an Allowed
Claim.
c. Disputed Class 5 Claims Reserve
On the Effective Date, the Debtors will reserve for the
account of each creditor holding a Disputed Class 5 Claim the New
Common Stock that would otherwise be distributable to such
creditor on the Effective Date in accordance with the Plan if
such Disputed Class 5 Claim was an Allowed Claim (the "Disputed
Class 5 Claims Reserve"). No interest or other amounts will
accrue on the New Common Stock held in the Disputed Class 5
Claims Reserve. In calculating the amount to be held in the
Disputed Class 5 Claims Reserve, the Debtors will (i) treat all
liquidated Disputed Class 5 Claims as if allowed in full and (ii)
make a good faith estimate of the amounts, if any, likely to be
allowed in respect of contingent or unliquidated Class 5 Claims.
If, and to the extent, any such Disputed Class 5 Claim became an
Allowed Claim, the property so reserved for the creditor holding
such Claim will be distributed to such creditor within thirty
days of the date that such Disputed Class 5 Claim becomes an
Allowed Claim. If, and to the extent, any such Disputed Class 5
Claim is disallowed by a Final Order of the Bankruptcy Court,
then the property reserved for the disallowed portion of such
Disputed Class 5 Claim will be distributed in the manner
described below under "_ Disputed Claims _ Distributions."
d. Other Disputed Claims
Under the Plan, the Debtors will not be required
to establish a reserve with respect to any class of Disputed
Claims or Disputed Interests other than a Disputed Class 5 Claim.
e. Personal Injury and Wrongful Death Claims Procedure
The Plan also sets forth specific dispute
resolution procedures with respect to personal injury and
wrongful death claims. Holders of Class 5 Claims of this type
are urged to review Article VII of the Plan for a discussion of
such procedures.
3. Distributions
a. General
All property to be distributed pursuant to the
Plan (other than property held in the Disputed Class 5 Claims
Reserve) will be distributed by the Distribution Agent on the
Effective Date, or as soon as practicable thereafter. Except
with respect to distributions from the Disputed Class 5 Claims
Reserve, any distribution required to be made on the Effective
Date or the date on which a Claim becomes an Allowed Claim shall
be deemed to be made on such date if made as soon as practicable
after such date, and in any event, within 30 days after such
date.
b. Distributions from Disputed Class 5 Claims Reserve
In the event that, after the Effective Date, a
Disputed Claim is disallowed in whole or in part, the Debtors
will distribute (or cause the Distribution Agent to distribute)
the property held in reserve for the disallowed portion of such
Disputed Class 5 Claim as follows: (i) such property will be
distributed to holders of Allowed Class 5 Claims; (ii) such
distribution will be based on the applicable Ratable Share of
each such Allowed Claim holder, as adjusted to take into account
the disallowance or allowance of all Disputed Claims since the
Effective Date; and (iii) such distribution will be made on
December 31, 1996 and on June 30 and December 31 of each
following year (each such date, a "Distribution Date"), to the
extent a Disputed Class 5 Claim has been disallowed in whole or
in part since the Effective Date or the last Distribution Date,
as the case may be, until the earlier of (a) the date on which
all Disputed Class 5 Claims have been resolved and (b) less than
5000 shares of New Common Stock are on deposit in the Disputed
Class 5 Claims Reserve. If at any time after the Effective Date,
the number of shares of New Common Stock in the Disputed Claims
Reserve is less than 5,000, the remaining shares of New Common
Stock held in such reserve may, at the option of the Debtors, be
cancelled or treated as treasury shares.
c. Fractional Amounts
No fractional shares of New Common Stock will be
issued under the Plan. Each holder otherwise entitled to an
amount of the New Common Stock that includes fractional amounts
will receive either no share (if such fraction is less than one-
half) or one whole share (if such fraction is equal to or greater
than one-half) in lieu of fractional amounts.
No New Warrants to purchase fractional shares of
New Common Stock will be issued under the Plan. Each holder
otherwise entitled to a New Warrant that includes fractional
amounts of New Common Stock will receive a New Warrant that has
been rounded down to the next whole number of shares (if such
fraction is less than one-half) or rounded up to the next whole
number of shares (if such fraction is equal to or greater than
one-half).
d. Compliance with Tax Requirements
The Debtors will comply with all withholding and
reporting requirements imposed by federal, state or local taxing
authorities in connection with making distributions pursuant to
the Plan.
In connection with each distribution with respect
to which the filing of an information return (such as an Internal
Revenue Service Form 1099 or 1042) and/or withholding is
required, the Debtors will file such information return with the
Internal Revenue Service and provide any required statements in
connection therewith to the recipients of such distribution,
and/or effect any such withholding and deposit all moneys so
withheld to the extent required by law. With respect to any
entity from whom a tax identification number, certified tax
identification number or other tax information required by law to
avoid withholding has not been received by the Debtors (or the
Distribution Agent), the Debtors may, at their sole option,
withhold the amount required and distribute the balance to such
entity or decline to make such distribution until the information
is received; provided, however, the Debtors will not be obligated
to liquidate New Securities to perform such withholding.
e. Allocation Between Principal and Accrued Interest
The consideration paid to holders of Old Notes
pursuant to the Plan will be allocated first to accrued but
unpaid interest on the Old Notes and next to principal on the Old
Notes.
f. Distribution of Unclaimed Property
If any person entitled to receive cash or New
Securities pursuant to the Plan does not present itself on the
Effective Date, such cash or securities will be set aside and (in
the case of cash) held in a segregated, interest-bearing account
to be maintained by the Distribution Agent. If such person
presents itself within five years following the Confirmation
Date, such cash or New Securities, together with any interest or
dividends earned thereon, will be paid or distributed to such
person. If such person does not present itself within five years
following the Confirmation Date, any such cash or New Securities
and accrued interest or dividends thereon will become the
property of and shall be released to the Debtors. Nothing
contained in the Plan shall require the Debtors to attempt to
locate such person.
g. Set-Offs
The Debtors may, but will not be required to, set
off against any Claim and the payment to be made pursuant to the
Plan in respect of such Claim, any Claims of any nature
whatsoever which the Debtors may have against the holder of such
Claim. Under the Plan, neither the failure to exercise any
setoff right nor the allowance of any Claim will constitute a
waiver or release of any Claim that the Debtors may have against
the holder of a Claim.
h. Manner of Payment
At the option of the Debtors, payments provided under
the Plan may be made in cash, by wire transfer or by check drawn
on any money market center bank. Distributions of New Securities
will be made by the issuance, and (in the case of the New Notes)
the authentication, of such New Securities.
4. Bar Dates
a. Bar Dates for Claims and Interests Generally
Each holder of a Claim (other than an
Administrative Claim) or Interest must file proof of Claim or
proof of Interest, as the case may be, with the Bankruptcy Court
(i) no later than the bar date applicable to such Claim or
Interest previously established by the Bankruptcy Court or (ii)
to the extent any such holder is not subject to such bar date,
within 30 days after the Effective Date or by such later date as
may be established by the Bankruptcy Court. Any such holder who
does not file a proof of Claim or proof of Interest, as the case
may be, within the applicable time period will be forever barred
from asserting its Claim or Interest unless, and to the extent,
such Claim is listed by the Debtors in their respective schedules
filed with the Bankruptcy Court pursuant to Section 521 of the
Bankruptcy Code as liquidated in amount, not disputed and not
contingent.
b. Fee Claims
Each person retained or requesting compensation in
the Debtors' bankruptcy cases pursuant to Sections 327, 328, 330,
331, 503(b) or 1103 of the Bankruptcy Code (collectively, the
"Fee Claims") will be entitled to file an application for
allowance of final compensation and reimbursement of expenses for
services rendered on or before the Effective Date. All
applications in respect of such Fee Claims must be filed not
later than 45 days after the Effective Date. Any holder of a Fee
Claim that does not file an application within such 45-day period
will be forever barred from asserting its Fee Claim.
c. Other Administrative Claims
All requests for payment of Administrative Claims
other than Fee Claims must be filed with the Bankruptcy Court
within 30 days after the Effective Date. Any holder of such a
Claim that does not file a request for payment within such 30-day
period shall be forever barred from asserting its Claim.
5. Conditions to Consummation
The following are conditions precedent to the
consummation of the Plan: (a) the Plan shall have been confirmed
by the Bankruptcy Court and the Confirmation Order shall have
become a Final Order; (b) the New Credit Agreement shall have
been entered into and all conditions to the effectiveness thereof
shall have been satisfied or waived by the New Banks as required
thereunder; and (c) all other agreements contemplated by or
entered into pursuant to the Plan shall have been duly and
validly executed and delivered by the parties thereto and all
conditions to their effectiveness shall have been satisfied or
waived.
The Debtors may waive at any time, without notice,
without leave or order of the Bankruptcy Court, and without any
formal action other than proceeding to consummate the Plan, any
condition precedent to consummation of the Plan; provided,
however, that the Debtors may not waive the condition precedent
specified in clause 5(c) above insofar as it relates to the
execution, delivery and effectiveness of the New Indenture and
the Noteholder Registration Rights Agreement without the consent
of the Committee.
6. Amendments to or Modification of the Plan
Section 1127 of the Bankruptcy Code allows the
Debtors to amend the Plan at any time prior to its confirmation.
If the Debtors file a modification of the Plan with the
Bankruptcy Court, the Plan as modified shall become the Plan. If
circumstances so warrant, the Debtors may modify the Plan after
the confirmation but prior to substantial consummation of the
Plan (subject to compliance with the applicable provisions of the
Bankruptcy Code and the Bankruptcy Rules). However, the
Bankruptcy Court, after notice and hearing, would then have to
confirm the Plan as modified. The Debtors reserve the right to
amend or modify the terms of the Plan in accordance with the
provisions of Section 1127 of the Bankruptcy Code and Article XII
of the Plan, if and to the extent the Debtors determine that such
amendments or modification are necessary or desirable in order to
complete the Restructuring. Under the Bankruptcy Rules, any
amendments or modifications of the Plan may be approved by the
Bankruptcy Court at confirmation without resolicitation of the
votes of the members of any class whose treatment is not
adversely affected by such amendment or modification.
After the Confirmation Date, the Debtors may
institute proceedings in the Bankruptcy Court or remedy any
defects or omissions or reconcile any inconsistencies in the Plan
or the Confirmation Order in such manner as may be necessary to
carry out the purposes and intent of the Plan so long as the
holders of Claims and Interests are not adversely affected and
prior notice of such proceeding is served in accordance with
Bankruptcy Rules 2002 and 9014.
7. Revocation of the Plan
The Debtors may revoke or withdraw the Plan at any
time prior to the Confirmation Date. If the Debtors revoke or
withdraw the Plan prior to the Confirmation Date or if
confirmation of the Plan does not occur, the Plan will be null
and void and nothing contained in the Plan will (a) constitute a
waiver or release of any Claims by or against, or any Interests
in, the Debtors or (b) prejudice in any manner the rights of the
Debtors in any further proceedings involving the Debtors.
8. Releases
On the Effective Date, each Debtor will release
unconditionally (the "Estate Release") each Released Party from
any and all claims, obligations, rights, causes of action and
liabilities, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, based
in whole or in part upon any act or omission, transaction or
other occurrence taking place on or prior to the Effective Date
in any way relating to such Released Party, the Debtors, the
Debtors' bankruptcy cases or the Plan, other than (in the case of
Affiliated Released Parties) the Excluded Claims.
On the Effective Date, each holder of a Claim or
Interest (a) who has accepted the Plan, (b) whose Claim or
Interest is in a class that has accepted or is deemed, pursuant
to section 1126(f) of the Bankruptcy Code, to have accepted the
Plan, or (c) who may be entitled to receive a distribution of
property pursuant to the Plan, will be deemed to have released
unconditionally the Released Parties from any and all claims,
obligations, rights, causes of action and liabilities, whether
known or unknown, foreseen or unforeseen, existing or hereafter
arising, based in whole or in part upon any act or omission,
transaction or other occurrence taking place on or prior to the
Effective Date in any way relating to such Released Party, the
Debtors, the Debtors' bankruptcy cases or the Plan.
Notwithstanding the foregoing, if and to the
extent that the Bankruptcy Court concludes that the Plan cannot
be confirmed with any portion of the foregoing releases, then the
Plan may be confirmed with that portion excised so as to give
effect as much as possible to the foregoing releases without
precluding confirmation of the Plan.
D. Effects of Plan Confirmation
1. Vesting of Assets; Reservation of Claims
Except as expressly provided in, and subject to,
the Plan, on the Effective Date, all assets of the respective
bankruptcy estates of the Debtors will vest in the relevant
Debtor as reorganized pursuant to the Plan, free and clear of all
Claims, liens, encumbrances, charges and Interests. Except as
provided in the Estate Release, all causes of action arising
under Chapter 5 of the Bankruptcy Code (other than fraudulent
conveyance and preference Claims of the Debtors against the Old
Banks and the holders of the Old Notes), all Claims against third
parties, and all other causes of action belonging to or in favor
of the Debtors are hereby preserved and retained for assertion
and enforcement solely and exclusively by and in the discretion
of the Debtors and shall revest in the relevant Debtor as
reorganized on the Effective Date.
2. Discharge
Except as otherwise expressly provided in, and
subject to, the Plan and, provided that the Effective Date shall
have occurred, the confirmation of the Plan will (a) bind all
holders of Claims and Interests and (b) discharge the Debtors and
their respective estates from all Claims and Interests, to the
fullest extent authorized or provided for by the Bankruptcy Code,
including, without limitation, to the extent authorized or
provided for by Sections 524 and 1141 thereof.
3. Injunction
Except as otherwise expressly provided in, and
subject to, the Plan, the entry of the Confirmation Order will,
provided that the Effective Date shall have occurred, permanently
enjoin all persons that have held, currently hold or may hold a
Claim or other debt or liability that is discharged pursuant to
the Plan or who have held, currently hold or may hold an Interest
that is terminated pursuant to the Plan, from taking any of the
following actions in respect of such discharged Claim, debt or
liability or such terminated Interest: (a) commencing, conducting
or continuing in any manner, directly or indirectly, any suit,
action or other proceeding of any kind against the Debtors or any
property of the Debtors; (b) enforcing, levying, attaching,
collecting or recovering in any manner or by any means, whether
directly or indirectly, any judgment, award, decree or order
against the Debtors or the property of the Debtors; (iii)
creating, perfecting or enforcing in any manner, directly or
indirectly, any lien or any security interest of any kind against
the Debtors or the property of the Debtors; (iv) asserting a
setoff, right of subrogation or recoupment of any kind, directly
or indirectly, against any debt, liability or obligation due to
the Debtors or the property of the Debtors; or (v) commencing or
continuing any action in any manner or in any place that does not
comply with, or is inconsistent with, the Plan.
4. Retention of Jurisdiction
Notwithstanding entry of the Confirmation Order or the
Effective Date having occurred, the Plan provides for the
retention of jurisdiction by the Bankruptcy Court over Debtors'
bankruptcy cases for the purposes of: (a) hearing and determining
any pending applications for the rejection of executory contracts
or unexpired leases, and the allowance of Claims resulting
therefrom; (b) determining any adversary proceedings,
applications, contested matters and other litigated matters
pending on the Effective Date or that may be commenced thereafter
as provided in the Plan; (c) ensuring that distributions to
holders of Allowed Claims and all other provisions of the Plan
are accomplished as provided in the Plan; (d) hearing and
determining objections to or requests for estimation of Claims,
including any objections to the classification of any Claim, and
to allow, disallow and/or estimate any Claim, in whole or in
part; (e) entering and implementing such orders as may be
appropriate in the event the Confirmation Order is for any reason
stayed, revoked, modified or vacated; (f) issuing any appropriate
orders in aid of execution of the Plan or to enforce the
Confirmation Order and/or the discharge, or the effect of such
discharge, provided to the Company; (g) hearing and determining
any applications to modify the Plan, to cure any defect or
omission or to reconcile any inconsistency in the Plan or in any
order of the Bankruptcy Court, including, without limitation, the
Confirmation Order; (h) hearing and determining all applications
for compensation, and reimbursement of expenses of professionals
or members of any Statutory Committee (and, if applicable, the
Committee), under Sections 330, 331, 503(b), 1103 and/or
1129(a)(4) of the Bankruptcy Code; (i) hearing and determining
disputes arising in connection with the interpretation,
implementation or enforcement of the Plan; (j) hearing and
determining other issues presented by, arising under or related
to the Plan and not inconsistent with Chapter 11 of the
Bankruptcy Code; (k) entering a final decree closing the Debtor's
bankruptcy cases; (l) recovering all assets of the Company,
wherever located; (m) hearing and determining any motions or
contested matters involving taxes, tax refunds, tax attributes
and tax benefits and similar or related matters with respect to
the Company arising prior to the Effective Date or relating to
the period of administration of the Debtors' bankruptcy cases,
including, without limitation, matters concerning state, local
and federal taxes in accordance with Sections 346, 505 and 1146
of the Bankruptcy Code; and (n) hearing any other matter not
inconsistent with the Bankruptcy Code.
XII. CONFIRMATION AND CONSUMMATION PROCEDURE
Under the Bankruptcy
Code, the following steps are required in connection with the
confirmation and the consummation of the Plan:
A. Solicitation of Votes
The Debtors must solicit votes from the holders of
Claims against, and Interests in, the Debtors who are entitled to
vote on the Plan.
1. Who May Vote
Under Section 1126 of the Bankruptcy Code, each
Class of impaired Claims or impaired Interests is entitled to
vote on the Plan. Holders of Claims and Interests that are not
impaired under the Plan are conclusively presumed, pursuant to
Section 1126(f) of the Bankruptcy Code, to have accepted the
Plan.
Under Section 1124 of the Bankruptcy Code, a class
is "impaired" under a plan of reorganization unless, with respect
to each Claim or each Interest in such class, the plan of
reorganization (a) leaves unaltered the legal, equitable and
contractual rights to which such Claim or such Interest entitles
the holder; or (b), notwithstanding any applicable law or any
contractual provision that entitles the holder to receive
accelerated payment of such Claim or such Interest after the
occurrence of a default, (i) cures any such default that occurred
before or after the commencement of the case under the Bankruptcy
Code, other than a default of a kind specified in Section
365(b)(2) of the Bankruptcy Code, (ii) reinstates the maturity of
such Claim or such Interest as such maturity existed before the
default, (iii) compensates the holder for any damages incurred as
a result of any reasonable reliance by such holder on such
applicable law or such contractual provision, and (iv) does not
otherwise alter the legal, equitable or contractual rights to
which such claim or such interest entitles the holder.
CLASS 1, CLASS 4, CLASS 6 AND CLASS 8 ARE NOT
IMPAIRED, ARE DEEMED TO HAVE ACCEPTED THE PLAN AND, ACCORDINGLY,
ARE NOT ENTITLED TO VOTE ON THE PLAN.
CLASS 2, CLASS 3, CLASS 5 AND CLASS 7 ARE IMPAIRED
AND ARE ENTITLED TO VOTE ON THE PLAN.
2. Ballots
Ballots are provided herewith to persons holding
Claims in Classes 2, 3 and 5 and Interests in Class 7. A vote to
accept or reject the Plan can only be made by proper submission
of a duly completed and executed ballot. PLEASE FOLLOW CAREFULLY
THE DIRECTIONS CONTAINED ON EACH ENCLOSED BALLOT.
ANY CREDITOR HOLDING CLAIMS IN TWO OR MORE CLASSES
(INCLUDING THE HOLDERS OF THE OLD NOTES WHO, AT A MINIMUM, HOLD
CLAIMS IN CLASSES 3 AND 5) IS REQUIRED TO VOTE SEPARATELY WITH
RESPECT TO EACH CLASS.
If you submit more than one ballot with respect to
the same Claim, only the first ballot received will be counted.
If you wish to change or withdraw your vote with respect to a
Claim after submission of a ballot, Bankruptcy Rule 3018(a)
requires that you provide notice and show cause at a hearing
before the Bankruptcy Court prior to , 1996.
ANY BALLOT RECEIVED WHICH DOES NOT INDICATE EITHER
AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE VOID
FOR PURPOSES OF DETERMINING ACCEPTANCE OR REJECTION OF THE PLAN.
If you did not receive or have lost the proper
ballot, you may obtain a ballot by contacting: the balloting
agent, Morrow & Co., Inc., (212) 754-8600. Further, if you have
any questions concerning these voting procedures, you should
contact: the balloting agent, Morrow & Co., Inc. (212) 754-8600.
3. Voting Deadline; Delivery Instructions
To be counted, your ballot must be received by
5:00 p.m., New York City time, on , 1996.
BALLOTS RECEIVED AFTER SUCH TIME WILL NOT BE COUNTED.
Deliveries of ballots by mail, hand delivery or
overnight courier should be to:
HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
C/O MORROW & CO., INC.
909 THIRD AVENUE
NEW YORK, NEW YORK 10022
B. Confirmation Hearing
The Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold the Confirmation Hearing to determine
whether the Plan meets the requirements for confirmation set
forth in the Bankruptcy Code.
The Confirmation Hearing is scheduled for
, 1996, at : .m., Wilmington, Delaware time, at the
United States Courthouse, 844 King Street, Wilmington, Delaware
19801-3577. This hearing may be adjourned from time to time by
the Bankruptcy Court without further notice other than an
announcement made at the hearing.
Section 1128 of the Bankruptcy Code provides that
any party in interest, whether or not entitled to vote on the
Plan, may object to the confirmation of the Plan. Any objection
to confirmation of the Plan must be filed with the Clerk of the
Bankruptcy Court and must be served on counsel for the Debtors
and on each of the other persons listed on Schedule A no later
than 5:00 p.m., Wilmington, Delaware time, on ________, 1996.
Any such objection must comply with all of the requirements of
the order and the notice accompanying this Disclosure Statement.
C. Confirmation
The Bankruptcy Court will confirm the Plan at the
Confirmation Hearing only if the requirements set forth in the
Bankruptcy Code are satisfied. These requirements include, among
other requirements, that: (i) the Plan (a) has been accepted by
each impaired class of Claims and Interests or (b) is determined
to be "fair and equitable" and not to "discriminate unfairly"
with respect to any impaired class which has not accepted the
Plan; (ii) the Plan is in the "best interests" of the holders of
the impaired Claims and the impaired Interests; and (iii) the
Plan is feasible.
1. Acceptance by Impaired Classes
As a condition to confirmation of the Plan, the
Plan must be accepted by each impaired class of Claims or
Interests, except as otherwise described herein. See
"Confirmation and Consummation Procedure _ Confirmation _
Confirmation without Acceptance by all Impaired Classes." Class
2, Class 3 and Class 5 Claims and Class 7 Interests are impaired
under the Plan.
The Debtors are soliciting the acceptance of
holders of Class 2, Class 3 and Class 5 Claims and Class 7
Interests. Section 1126 of the Bankruptcy Code generally defines
acceptance of a plan of reorganization (a) in the case of a
class of Claims, as acceptance by holders of two-thirds in dollar
amount and a majority in number of Allowed Claims of that class
with respect to which ballots have been submitted and (b) in the
case of a class of Interests, as acceptance by two-thirds in
amount of the Allowed Interests of that class with respect to
which ballots have been submitted.
2. Confirmation Without Acceptance by All Impaired Classes
The Bankruptcy Court may confirm the Plan without
acceptance by all of the impaired classes of Claims and Interests
if (a) the Plan otherwise satisfies the requirements for
confirmation, (b) at least one impaired class of Claims or
Interests has accepted the Plan (without counting acceptances by
insiders in such class) and (c) the Plan is "fair and equitable"
and does not "discriminate unfairly" as to any impaired class
that has not accepted the Plan.
Article IX of the Plan expressly permits the
Debtors to modify the terms of the Plan to permit the
confirmation of the Plan pursuant to Section 1129(b) of the
Bankruptcy Code and to request the Bankruptcy Court to confirm
the Plan pursuant to Section 1129(b) of the Bankruptcy Code.
Although the Debtors reserve the right to modify the terms of the
Plan as may be necessary for confirmation of the Plan under
Section 1129 of the Bankruptcy Code, the current intention of the
Debtors is not to pursue a "cram-down" plan of reorganization in
the event any impaired class of Claims or Interests fails to
accept the Plan.
a. Fair and Equitable
The Bankruptcy Code establishes different "fair
and equitable" tests for secured creditors, unsecured creditors
and equity holders. The respective tests in relevant part are:
Secured Creditors. The Plan is "fair and
equitable" to a class of Secured Claims if it provides that (i)
the Secured Creditors retain the liens securing such creditor's
Claims and receives deferred cash payments of at least the
allowed amount of such Claims (of a value, as of the Effective
Date, of at least such secured creditor's interest in the
estate's interest in such property); or (ii) such secured
creditors receive the indubitable equivalent of their Claim
(which may be satisfied by returning the collateral securing such
creditor's Claim to such creditor).
Unsecured Creditors. The Plan is "fair and
equitable" with respect to a class of Unsecured Claims if such
creditor's (i) each impaired unsecured creditor receives or
retains property of a value equal to the amount of its Allowed
Claim or (ii) the holder of any Claim or Interest that is junior
to the Claims of the dissenting class do not receive or retain
any property under the Plan.
Equity Holders. The Plan is "fair and equitable"
with respect to a class of Interests if (i) each holder of an
Interest of such class receives or retains property of a equal to
the value of such holder's Interest or (ii) the holder of any
Interest which is junior to the interests of such class will not
receive or retain any property under the Plan.
If all of the applicable requirements for
confirmation of the Plan are met as set forth in Section 1129(a)
of the Bankruptcy Code, except that any impaired class rejects
the Plan, the Debtors may choose to amend the Plan as necessary
to request the Bankruptcy Court to confirm the Plan pursuant to
the "cram-down" provisions of Section 1129(b) of the Bankruptcy
Code, on the basis that the Plan, as so amended, is fair and
equitable and does not discriminate unfairly with respect to such
rejecting class.
b. Unfair Discrimination
A plan of reorganization does not "discriminate
unfairly" if a dissenting class is treated substantially equally
with respect to other classes similarly situated and no class
receives more than it is legally entitled to received for its
Claims or Interests. The Debtors do not believe that the Plan
discriminates unfairly against any impaired class of Claims or
Interests.
3. Best Interests
As a condition to confirmation of the Plan, the
Plan must be in the best interests of the holders of Claims
against, and Interests in, the Debtors. To satisfy the "best
interests" test, each holder of an impaired Claim or an impaired
Interest that has not accepted the Plan must receive or retain on
account of such Claim or such Interest, property that has a value
at least equal to the value of the distribution which the holder
would receive if the Debtors were liquidated under Chapter 7.
To determine what the holders of Claims and
Interests in each impaired class would receive if the Debtors
were liquidated, the Bankruptcy Court must determine the dollar
amount that would be generated from a liquidation of the assets
of the Debtors in the context of a hypothetical liquidation under
Chapter 7. Such determination must take into account the fact
that Secured Claims, the costs and expenses of the liquidation
case, and any costs and expenses resulting from the original
reorganization case would have been paid in full from the
liquidation proceeds before the balance of those proceeds were
made available to pay the pre-petition Unsecured Claims and
Interests. See the Liquidation Analysis attached hereto as
Appendix C.
To determine if the Plan is in the best interests
of each impaired class, the present value of the distributions
from the proceeds of the hypothetical liquidation of the assets
(after subtracting the amounts attributable to Secured Claims and
costs and expenses of the bankruptcy case) must be compared with
the present value of the consideration offered to such classes
under the Plan.
After consideration of the effect that a Chapter 7
liquidation would have on the ultimate proceeds available for
distribution to creditors and equity holders of the Debtors,
including (a) increased cost and expenses of liquidation under
Chapter 7 arising from fees payable to the bankruptcy trustee and
attorneys and other professional advisors to such trustee, (b)
additional expenses and claims, some of which would be entitled
to priority, which would be generated during the liquidation and
from the rejection of unexpired leases and executory contracts in
connection with the cessation of the operations of the Debtors,
(c) the erosion of the value of the Company's assets in the
context of an expedited liquidation required under Chapter 7 and
the "fire sale" atmosphere that would prevail, (d) the adverse
effects on the salability of portions of the business that could
result from the possible departure of key employees and the loss
of customers and vendors, (e) the cost and the expense
attributable to the time value of money resulting from what is
likely to be a more protracted proceeding and (f) the application
of the rule of absolute priority to distributions in a Chapter 7
liquidation, the Debtors have determined that confirmation of the
Plan will provide each holder of a Claim in an impaired class
with a greater recovery than such holder would receive pursuant
to a Chapter 7 liquidation of the Debtors.
The Liquidation Analysis for the Debtors is set
forth in Appendix C hereto. The analysis set forth in the
consolidated Liquidation Analysis of the estimated recoveries in
a liquidation of the Company's operating businesses was prepared
by the Debtors. A description of the procedures followed and the
assumptions and qualifications made by the Debtors in connection
with such analysis is set forth in the Notes to the consolidated
Liquidation Analysis.
4. Feasibility
The Bankruptcy Code requires that confirmation of
a plan not be likely to be followed by liquidation or need for
further financial reorganization of the debtor. For purposes of
determining whether the Plan meets this requirement, the Debtors
have analyzed the Company's ability to meet its obligations under
the Plan. As part of this analysis, management has prepared
projections of the Company's financial performance for the period
from 1996 through 1998. See "FINANCIAL INFORMATION _ Projected
and Pro Forma Financial Information." Although these projections
do not reflect all possible effects of the Restructuring, the
Debtors believe that the Plan provides a feasible means of
reorganization and operation, through which it can be reasonably
expected that, subject to the risks disclosed herein, the
Company, as reorganized under the Plan, will be able to satisfy
its obligations on and after the Effective Date. For a
description of the assumptions underlying the projections, as
well as the related qualifications, see "FINANCIAL INFORMATION _
Projected and Pro Forma Financial Information."
C. Consummation
The Plan will be consummated on the Effective
Date. The Effective Date is the first business day on which the
conditions to consummation have been satisfied or waived by the
Debtors. See "SUMMARY OF PLAN _ Other Provisions of the Plan _
Conditions to Consummation."
XIII. ALTERNATIVES TO THE PLAN
A. Alternative Plan of Reorganization
If the Plan is not confirmed, the Debtors or any
other party in interest could attempt to formulate a different
plan of reorganization. Such a different plan of reorganization
might contemplate either a reorganization and continuation of all
or part of the Company's business or an orderly liquidation of
all of the assets of the Debtors.
With respect to an alternative plan, the Debtors
have explored various alternatives in connection with the
formulation and development of the Plan and believe that the Plan
enables the creditors to realize greater value under the
circumstances than under other available alternatives. See "THE
RESTRUCTURING _ Background and Restructuring Discussions." In a
liquidation under Chapter 11, the assets of the Company would be
sold in a more orderly fashion and over a more extended period of
time than in a liquidation under Chapter 7, probably resulting in
somewhat greater recoveries. Further, a trustee is not required
in a Chapter 11 case, and, accordingly, the expenses for
professional fees most likely would be lower than in a Chapter 7
case. The Debtors believe that, although preferable to a Chapter
7 liquidation, a liquidation under Chapter 11 would still not
realize the full going concern value of its business and, as it
would be more protracted than the Restructuring contemplated by
the Plan, would involve greater administrative expenses than the
Plan. Consequently, the Debtors believe that a liquidation under
Chapter 11 is a much less attractive alternative to holders of
impaired Claims and Interests than the Plan because the Plan
provides for a greater return to such holders than would likely
be realized in a Chapter 11 liquidation.
B. Liquidation Under Chapter 7
If a plan of reorganization is not confirmed, the
Debtors' bankruptcy cases may be converted to cases under Chapter
7 of the Bankruptcy Code, in which a bankruptcy trustee would be
appointed to liquidate the assets of the Debtors for distribution
to the holders of Claims against, and Interests in, the Debtors
in accordance with priorities established by the Bankruptcy Code.
A discussion of the effect that a Chapter 7 liquidation would
have on the recovery of the holders of Claims and Interests is
set forth under "SUMMARY OF THE PLAN _ Confirmation of the Plan
_ Best Interests." The Debtors believe that a liquidation under
Chapter 7 would result in smaller distribution to such holders
than those provided for in the Plan because of (1) increased
costs and expenses arising from fees payable to a bankruptcy
trustee and attorneys and other professional advisors to such
trustee, (2) additional expenses and claims, some of which would
be entitled to priority, which would be generated during the
liquidation and from the rejection of unexpired leases and
executory contracts in connection with the cessation of the
operations of the Company, (3) the erosion of the value of the
Company's assets in the context of an expedited liquidation
required under Chapter 7 and the "fire sale" atmosphere that
would prevail, (4) the adverse effects on the salability of
portions of the business that could result from the possible
departure of key employees and the loss of customers and vendors,
and (5) the cost attributable to the time value of money
resulting from what is likely to be a more protracted proceeding.
For more details, see the Liquidation Analysis set forth in
Appendix C hereto.
XIV. DESCRIPTION OF MODIFIED UNION AGREEMENTS
A. General
On March 8, 1996, the Company and representatives
of the UFCW reached an agreement in principle relating to the
Modified UFCW Agreements. The terms of the Modified UFCW
Agreements were ratified during the week of March 11, 1996, by
overwhelming majorities of each of the UFCW local union chapters.
The Modified BCT Agreement was ratified in April 1996, by the BCT
local union chapter.
The Modified Union Agreements will have a term of
five years commencing on the Effective Date and will be
conditioned on the consummation of Restructuring. The Modified
Union Agreements will 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 ESOT (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 UFCW's right to designate
one member of the Boards of Directors of the Company and Holding
following the Restructuring; and (e) the elimination of certain
"snap back" provisions (provisions relating to the reinstatement
of previously reduced wage amounts), incentive plans and
"maintenance of benefits" provisions.
The Company estimates that the Modified Union
Agreements will result in annual 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) of cost savings per year 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.
B. Wage Rate, Benefit Contribution Reductions and Work
Rule Changes
The wage rate and benefit contribution reductions
and the work rule changes include changes in wage schedules, a
modification of the full-time/part-time work ratio and the
elimination of Sunday pay premiums. The Modified Union
Agreements also contemplate other benefit changes, including (1)
the establishment by the Company of a new health and welfare
benefit plan (the "Health and Welfare Benefit Plan") within 90
days of the Effective Date and the Company's contribution of
$750,000 to the Health and Welfare Benefit Plan within 60 days of
the Effective Date (additional future contributions by the
Company will be based on a formula set forth in the Modified
Union Agreements); and (b) the establishment of certain
performance-based wage and benefit payments based on the Company
reaching certain EBITDA levels set forth in the Modified Union
Agreements.
C. Employee Buyout Offer
Pursuant to the Employee Buyout Offer, the Company
will offer to pay certain of the Company's employees a "buyout
price" ranging from $4,500 to $11,000 per employee (depending on
job classification, date of hire and full- or part-time status)
in exchange for such employee's agreement to resign from the
Company. The maximum aggregate amount to be funded by the
Company under the Employee Buyout Offer is $6.4 million. The
Company will fund the Employee Buyout Offer by making certain
borrowings under the New Credit Agreement. As a result of the
Employee Buyout Offer, the Company will be able to replace higher-
salaried employees with lower-salaried employees, which should
result in substantial long-term cost savings for the Company.
Assuming the Employee Buyout Offer is fully subscribed, the
Company expects to recoup its $6.4 million payment under the plan
within fifteen months following the completion of the Employee
Buyout Offer.
D. Stock Issuances to, and Purchases by, the ESOT
The stock issuances and purchases contemplated by
the Modified Union Agreements consist of three separate elements:
(1) the initial issuance of 174,074 shares of New Common Stock to
certain of the Company's unionized employees ("Initial
Issuance"); (2) the purchase of up to 174,074 shares of New
Common Stock by the Company and Participants in the ESOT ("ESOT
Purchase"); and (3) the grant of up to 174,074 shares of New
Common Stock upon the Company's satisfaction of certain
escalating EBITDA-based performance goals ("Performance-Based
Issuances").
The Initial Issuance of New Common Stock will
occur upon completion of the Employee Buyout Offer and will be
made to the ESOT on behalf of the Company's remaining unionized
employees. The New Common Stock so issued will vest in equal
portions over the first three years of the Modified Union
Agreements. In the event a departing employee has fully vested
New Common Stock which is not readily tradable on an established
securities market, the employee will have the right to "put" to
the Company the stock allocated to such employee's ESOT account
to the Company at a put price equal to the appraised value of the
New Common Stock.
Under the terms of the ESOT Purchase,
approximately 58,025 shares of New Common Stock may be purchased
on a pre-tax basis for ESOT participants' accounts on each of the
first, second and third anniversaries of the Modified Union
Agreements (or up to 174,074 shares of New Common Stock in the
aggregate). The purchase price for such shares purchased by the
participants will be equal to the appraised value of the New
Common Stock. For each three shares of New Common Stock that a
participant purchases, the Company will purchase one share on
behalf of such participant (resulting in an "effective" purchase
price equal to 75% of the appraised value of the New Common
Stock). The purchased stock will be held in the ESOT.
The Performance-Based Issuances will be made over
the course of the first three years of the Modified Union
Agreements. The ESOT will be entitled to receive (on behalf of
the Company's unionized employees) approximately 58,025 shares of
New Common Stock on the first, second and third anniversaries of
the Modified Union Agreements (or up to 174,074 shares of New
Common Stock in the aggregate), if, during the year ending on
such anniversary dates, the Company's EBITDA (as defined in the
New Credit Agreement) equals at least $25 million, $27.5 million
and $30.25 million, respectively. Only union employees who are
employed by the Company on the applicable anniversary date will
be entitled to have any such stock allocated to their ESOT
account.
E. Board Representation
Upon consummation of the Restructuring, the Board
of Directors of the Company and of Holding will consist of seven
members. So long as the Modified Union Agreements are in effect,
the UFCW will have the right to designate one director of each
Board of Directors.
F. Other Modifications
The Modified Union Agreements will also eliminate
the Company's obligations with respect to any "snap back"
provisions (provisions relating to the reinstatement of
previously reduced wage amounts), incentive plans and
"maintenance of benefits" provisions contained in the Existing
Union Agreements.
XV. SECURITIES LAW CONSIDERATIONS
A. Original Issuance of Securities
Section 1145(a)(1) of the Bankruptcy Code exempts
the original issuance of certain securities under a plan of
reorganization from the registration requirements of the
Securities Act and state law. Under Section 1145, the offer and
the sale of securities is exempt if (1) the securities are
issued by the debtor, a successor to the debtor under the plan of
reorganization or an affiliate of the debtor participating in a
Plan of reorganization with the debtor, (2) the recipients hold a
Claim (including a Claim for an administrative expense) against,
or Interest in, the debtor or such affiliate and (3) the
securities are issued principally in exchange for the recipient's
Claim against, or Interest in, the debtor or such affiliate or
principally in such exchange and partly for cash or property.
The Debtors believe the offer and the sale of the New Securities
under the Plan are exempt under Section 1145(a)(1).
Under Section 1145(a)(2), the offer of a security
through a warrant exempt under Section 1145(a)(1) and the sale of
a security upon the exercise of such warrant are also exempt from
the registration requirements of the Securities Act and state
law. The Debtors believe that the offer of the shares of New
Common Stock underlying the New Warrants and the sale of such
shares upon the exercise of the New Warrants will be exempt under
Section 1145(a)(2). Holding intends to rely, to the extent that
Section 1145(a) does not so exempt the sale of any New Common
Stock upon exercise of the New Warrants, upon Section 4(2) of the
Securities Act and similar state law provisions, and, to the
extent applicable, Regulation D and similar state law provisions,
to exempt such sales from such registration requirements.
B. Subsequent Transfers of Securities
Under Section 4(1) of the Securities Act, the New
Securities may generally be resold by the holders without
registration under the Securities Act, unless the holder is an
"underwriter" (as defined in the Securities Act) with respect to
such securities. In addition, the New Securities may generally
be resold without qualification or registration under state
securities laws under exemptions contained therein.
Section 1145(b) defines four types of
"underwriters:"
(1) persons who purchase a Claim against, or an
Interest in, the debtor with a view to distributing the security
received in exchange for such Claim or such Interest;
(2) persons who offer to sell securities offered
or sold under a plan of reorganization for holders of such
securities;
(3) persons who offer to buy securities offered
or sold under the plan of reorganization from the holders of
such securities if the offer to buy is (i) with a view to
distribution of such securities or (ii) made under a distribution
agreement; and
(4) a person who is an "issuer" (as defined in
Section 2(11) of the Securities Act) with respect to the
securities.
Under Section 2(11) of the Securities Act, the
term "issuer" includes any person directly or indirectly
controlling, controlled by, or under common control with, the
issuer. Under Rule 405 promulgated under the Securities Act, the
term "control" means the power to direct or to cause the
direction of the policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
Accordingly, an officer or director of a reorganized debtor (or
its affiliate or successor) under a plan of reorganization may be
deemed to "control" such debtor (and therefore be an underwriter
for purposes of Section 1145), particularly if such management
position is coupled with the ownership of a significant
percentage of a debtor's (or affiliate's or successor's) voting
securities.
To the extent that a person is deemed to be an
"underwriter," such person may make public offers and sales of
the New Securities only in accordance with the registration
requirements of the Securities Act or an exemption therefrom,
such as the exemptions afforded by Rule 144 and Rule 144A
promulgated under the Securities Act or the exemption for
"ordinary trading transactions" (within the meaning of Section
1145(b)(1) of the Securities Act).
Rule 144A, promulgated under the Securities Act,
provides a non-exclusive safe harbor exemption from the
registration requirements of the Securities Act for resales to
certain "qualified institutional buyers" of securities which are
"restricted securities" within the meaning of the Securities Act,
irrespective of whether the seller of such securities purchased
the securities with a view towards reselling such securities
under Rule 144A. Under Rule 144A, a "qualified institutional
buyer" is defined to include, among other persons, any entity
which purchases securities for its own account or for the account
of another qualified institutional buyer and which (in the
aggregate) owns and invests on a discretionary basis at least
$100 million in the securities of unaffiliated issuers (e.g.,
"dealers" registered as such pursuant to Section 15 of the
Exchange Act and "banks" as defined in Section 2(a)(2) of the
Securities Act). Subject to certain qualifications, Rule 144A
does not exempt the offer or sale of securities which, at the
time of their issuance, were securities of the same class of
securities then listed on a national securities exchange
(registered as such under Section 6 of the Exchange Act), or
quoted in a U.S. automated interdealer quotation system (i.e.,
NASDAQ). Given that none of the New Notes or the shares of the
New Common Stock to be issued on the Effective Date will be
securities of a class then listed or quoted as described above,
holders of such securities who are deemed to be "underwriters"
within the meaning of Section 1145(b)(1) of the Bankruptcy Code
or who may otherwise be deemed to be "affiliates" of, or to
exercise "control" over, the Company or Holding within the
meaning of Rule 405 of Regulation C under the Securities Act
should, assuming that all other conditions of Rule 144A are met,
be entitled to avail themselves of the safe harbor resale
provisions thereof.
To the extent that Rule 144A is unavailable,
holders may, under certain circumstances, be able to sell their
securities pursuant to the safe harbor resale provisions of Rule
144 under the Securities Act. Generally, Rule 144 provides that
if certain conditions are met (e.g., two-year holding period with
respect to "restricted securities," volume limitations, manner of
sale, availability of current information about the issuer),
specified persons who (1) resell "restricted securities" or (2)
resell securities which are not restricted but who are
"affiliates" of the issuer of the securities sought to be resold,
will not be deemed to be "underwriters" as defined in Section
2(11) of the Securities Act. Under Rule 144(k), those conditions
to resale will no longer apply to restricted securities sold for
the account of a holder who is not an affiliate of the Company or
Holding at the time of such resale and has not been an affiliate
such during the three-month period next preceding such resale, so
long as a period of a least three years have elapsed since the
later of (1) the Effective Date and (2) the date on which such
holder acquired his or its securities from an affiliate of the
Company or Holding.
In connection with the Restructuring, certain
registration rights will be granted to holders of the Old Common
Stock and Old Notes, with respect to the New Securities received
by such holders under the Plan. In addition, Holding will file a
Form 10 registration statement with respect to the New Common
Stock under the 1934 Act within 60 days following the Effective
Date and will use its best efforts to cause such registration
statement to become and remain effective until the earlier of (1)
the seventh anniversary of the Effective Date and (2) the first
date on which less than 10% of the outstanding New Common Stock
is publicly held. For so long as such registration statement
remains effective, Holding will be required to comply with the
reporting requirements under the 1934 Act. Such filing, together
with Holding's timely compliance with such reporting
requirements, will enable holders of the New Common Stock to
utilize the safe harbor provisions of Rule 144, as described
above.
Given the complex, subjective nature of the
determination whether a person is an "underwriter," the Debtors
make no representation concerning the right of any holder to
resell the New Securities. Holders are urged to consult with
their own counsel to determine whether they may resell such
securities under the Securities Act and state securities laws.
XVI. DESCRIPTION OF NEW NOTES
The New Notes will be issued under the New
Indenture to be dated as of the Effective Date, between the
Company and the New Trustee. The following summary of the
material provisions of the New Indenture does not purport to be
complete and is subject to, and qualified in its entirety by
reference to, the provisions of the New Indenture, including
definitions of certain terms contained therein and those terms
made part of the New Indenture by reference to the Trust
Indenture Act of 1939, as amended, as in effect on the date of
the New Note Indenture. The definitions of certain capitalized
terms used in the following summary are set forth below under
" _ Certain Definitions."
A. General
The New Notes will be unsecured senior sub
ordinated obligations of the Company limited to $60,000,000
aggregate principal amount. The New Notes will be issued only in
registered form without coupons, in denominations of $1,000 and
integral multiples thereof. (Section 3.2) Principal of,
premium, if any, and interest on the New Notes will be payable,
and the New Notes will be transferable, at the corporate trust
office or agency of the New Trustee in The City of New York
maintained for such purposes at .
(Section 3.5) In addition, interest may be paid at the option
of the Company by check mailed to the person entitled thereto as
shown on the security register. (Section 3.7) No service charge
will be made for any registration of transfer or exchange or
redemption of New Notes, except in certain circumstances for any
documentary, tax or other governmental charge that may be imposed
in connection therewith. (Section 3.5)
B. Maturity, Interest and Principal
The New Notes will mature on ,
2003. Interest on the New Notes will accrue at the rate of 10%
per annum and will be payable on February 1, 1997 and semi-
annually thereafter on each February 1 and August 1, in each
year, to the holders of record of the New Notes at the close of
business on the January 15 and July 15 (whether or not a Business
Day), as the case may be, next preceding such interest payment
date. Interest on the New Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been
paid, from the original date of issuance (the "Issue Date").
Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The New Notes are not subject
to the benefit of any mandatory sinking fund.
C. Optional Redemption
Optional Redemption. The New Notes are subject to
redemption upon not less than 30 nor more than 60 days' notice,
in amounts of $1,000 or an integral multiple of $1,000, at any
time on or after , 1999, as a whole or in
part, at the election of the Company, at the redemption price
equal to the percentage of the principal amount redeemed, as set
forth in the table below, together in the case of any such
redemption with accrued interest to the redemption date (subject
to the right of holders of record on relevant regular record
dates to receive interest due on an interest payment date).
Year Redemption
Price
1999 105.00%
2000 103.33%
2001 101.67%
2002 100.00%
In addition, upon the occurrence of a Change of
Control prior to , 1999, the New Notes are subject to
redemption, upon not less than 30 or more than 60 days' notice,
in amounts of $1,000, or an integral multiple of $1,000, as a
whole or in part, at the election of the Company, at the
redemption price equal to the percentage of the principal amount
redeemed, as set forth in the table below, together in the case
of any such redemption with accrued interest to the redemption
date (subject to the right of holders of record on relevant
record dates to receive interest due on an interest payment
date):
Year Redemption
Price
1996 108.00%
1997 107.00%
1998 106.00%
Notwithstanding the foregoing, in either case, if
the aggregate principal amount of the Outstanding New Notes would
be less than $20 million after such redemption, then the Company
shall be required to redeem all Outstanding New Notes.
Selection and Notice. In the event that less than
all of the New Notes are to be redeemed at any time, selection of
such New Notes for redemption will be made by the New Trustee, on
a pro rata basis, by lot or by such method as the New Trustee
shall deem fair and appropriate and which may provide for the
selection for redemption of portions of the principal of New
Notes; provided, however, that no such partial redemption shall
reduce the portion of the principal amount of a New Note not
redeemed to less than $1,000. Notice of redemption shall be
mailed by first-class mail at least 30 but not more than 60 days
before the redemption date to each holder of New Notes to be
redeemed at its registered address. If any New Note is to be
redeemed in part only, the notice of redemption that relates to
such New Note shall state the portion of the principal amount
thereof to be redeemed. A New Note or New Notes, of any
authorized denomination as requested by such holder in aggregate
principal amount equal to and in exchange for the unredeemed
portion of the principal of the New Note so surrendered, will be
issued in the name of the holder thereof upon surrender for
cancellation of the original New Note. On and after the redemp
tion date, interest will cease to accrue on New Notes or portions
thereof called for redemption. If any New Note called for
redemption is not so paid upon surrender thereof for redemption,
the principal thereof (and premium, if any, thereon) shall, until
paid, bear interest from the redemption date at the default rate
thereon. (Sections 11.4, 11.5, 11.7 and 11.8)
D. Subordination
The indebtedness represented by the New Notes and
the payment of the principal of, premium, if any, and interest on
the New Notes will be subordinated, to the extent set forth in
the New Indenture, in right of payment to the prior payment in
full of all existing and future Senior Indebtedness of the
Company, which comprises all obligations under the New Credit
Agreement and refinancing thereof. (Section 12.1) See "RISK
FACTORS _ Risks Related to the New Securities _ Subordination of
the New Notes."
The New Indenture provides that in the event of
(a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, relative to the Company or
its assets, (b) any liquidation, dissolution or other winding-up
of the Company, whether voluntary or involuntary and whether or
not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or other marshaling of assets or
liabilities of the Company (except a distribution in connection
with a consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or
dissolution of the Company following conveyance, transfer or
lease of its properties and assets substantially as an entirety
to another corporation upon the terms and conditions described
below under " _ Merger, Sale of Assets, Etc."), holders of Senior
Indebtedness of the Company shall be entitled to receive payment
in full of all amounts due or to become due on or in respect of
all Senior Indebtedness before the holders of the New Notes are
entitled to receive any payment on account of the principal of,
premium, if any, and interest on the New Notes; and any payment
or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, by set-off or
otherwise, to which the holders of the New Notes or the New
Trustee would be entitled but for the provisions of the New
Indenture relating to subordination (excluding certain unsecured
subordinated securities) will be paid by the liquidating trustee
or agent or other Person making such payment or distribution
directly to the holders of Senior Indebtedness ratably according
to the aggregate amounts remaining unpaid on account of the
Senior Indebtedness to the extent necessary to make payment in
full of all Senior Indebtedness remaining unpaid. In the event
that, notwithstanding the foregoing, after an event described in
clause (a), (b) or (c), the New Trustee or any holder of the New
Notes shall have received payment or distribution of assets of
the Company of any kind or character (excluding certain permitted
equity or subordinated debt securities or as authorized by a
bankruptcy court) before all Senior Indebtedness is paid in full,
then such payment or distribution will be paid over or delivered
to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making payment or
distribution of assets of the company for application to the
payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full. (Section 12.2)
In the event of and during the continuance of any
default in the payment of principal, premium, if any, or interest
on any Senior Indebtedness beyond any applicable grace period
with respect thereto, or in the event that any other event of
default with respect to any Senior Indebtedness shall have
occurred and be continuing that permits the holders of such
Senior Indebtedness (or a trustee on behalf of such holders) to
declare such Senior Indebtedness due and payable prior to the
date on which it would otherwise have become due and payable
either without further notice or upon the expiration of any grace
period applicable to such event of default, and written notice
thereof shall have been given to each of the Company and the New
Trustee by the agent bank under the Credit Agreement, then no
payment shall be made by the Company on account of the principal
of (or premium, if any) or interest on the New Notes or on
account of the purchase or redemption or other acquisition of New
Notes unless and until such payment of default shall have been
cured or waived or shall have ceased to exist or the holders of
such Senior Indebtedness or their agents have waived the benefits
of such subordination.
If the Company fails to make any payment on the
New Notes when due or within any applicable grace period, whether
or not on account of the payment blockage provisions referred to
above, such failure would constitute an Event of Default under
the New Indenture and would enable the holders of the New Notes
to accelerate the maturity thereof. See " _ Events of Default."
By reason of such subordination, in the event of
liquidation, receivership, reorganization or insolvency,
creditors of the Company who are holders of Senior Indebtedness
may recover more, ratably, than the holders of the New Notes, and
the funds which would be otherwise payable to the holders of the
New Notes will be paid to the holders of the Senior Indebtedness
to the extent necessary to pay the Senior Indebtedness in full,
and the Company may be unable to meet its obligations in full
with respect to the New Notes.
E. Certain Covenants
The New Indenture will contain the following
covenants, among others:
Limitation on Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to, Incur any
Indebtedness (including any Acquired Indebtedness, but excluding
Permitted Indebtedness) unless, at the time of the Incurrence
thereof and after giving effect thereto on a pro forma basis, the
Company's Consolidated Interest Coverage Ratio for the four full
fiscal quarters for which financial information in respect
thereof is available immediately preceding such Incurrence, taken
as one period and calculated on the assumption that such
Indebtedness had been Incurred on the first day of such four-
quarter period and, in the case of Acquired Indebtedness, on the
assumption that the related acquisition (whether by means of
purchase, merger or otherwise) also had occurred on such date
with the appropriate adjustments with respect to such acquisition
being included in such pro forma calculation, would have exceeded
2.0 to 1.0. (Section 10.8)
Limitation on Restricted Payments. (a) The
Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, (i) declare or pay any dividend on, or
make any other distribution to holders (in their capacities as
such) of, any shares of the Company's Capital Stock (other than
dividends or distributions payable in shares of its Capital Stock
or in options, warrants or other rights to purchase such Capital
Stock, but excluding dividends or distributions payable in
Redeemable Capital Stock or in options, warrants or other rights
to purchase Redeemable Capital Stock), (ii) purchase, redeem or
acquire or retire for value any Capital Stock of the Company or
any Subsidiary or any options, warrants or other rights to
acquire such Capital Stock (other than any such Capital Stock
owed by a Wholly Owned Subsidiary of the Company), (iii) declare
or pay any dividend or distribution on any Capital Stock of any
Subsidiary to any Person (other than the Company or any of its
Wholly Owned Subsidiaries), (iv) Incur any Indebtedness of any
Affiliate (other than with respect to (a) guarantees of
Indebtedness of any Wholly Owned Subsidiaries by the Company or
by another Wholly Owned Subsidiary or (b) guarantees of
Indebtedness of the Company by any Wholly Owned Subsidiary, or
(v) make any Investment (other than any Permitted Investment) in
any Person other than in the Company, a Wholly Owned Subsidiary
of the Company or a Person that becomes a Wholly Owned Subsidiary
of the Company as a result of such Investment (such payments or
other actions described in the foregoing clauses (i) through (v)
are collectively referred to as "Restricted Payments") unless at
the time of and after giving effect to the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than
cash, shall be as determined by the Board of Directors of the
Company, whose determination shall be based on the Fair Market
Value thereof and shall be conclusive), (1) no Default or Event
of Default shall have occurred and be continuing or shall occur
as a result of such Restricted Payment, (2) the Consolidated
Interest Coverage Ratio of the Company for the Company's four
most recently completed fiscal quarters shall be at least 2.0 to
1.0, and (3) the aggregate amount of all Restricted Payments
declared or made after the Issue Date shall not exceed the sum
of: (A) 50% of the aggregate cumulative Consolidated Net Income
of the Company (which shall be treated as one accounting period)
during the period beginning on the last day of the first full
fiscal quarter occurring after the Issue Date and ending on the
last day of the Company's last fiscal quarter ending prior to the
date of the declaration or making of such proposed Restricted
Payment (or, if such aggregate cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss), plus (B) the aggregate
net proceeds, including the Fair Market Value of property other
than cash (as determined by the Company's Board of Directors,
whose determination shall be conclusive), received after the
Issue Date by the Company from the issuance or sale (other than
to any of its Subsidiaries) of shares of Capital Stock of the
Company (other than Redeemable Capital Stock) or warrants,
options or rights to purchase such shares of Capital Stock of the
Company (other than Redeemable Capital Stock), plus (C) the
aggregate net proceeds, including the Fair Market Value of
property other than cash (as determined by the Board of Directors
of the Company, whose determination shall be conclusive) received
after the Issue Date by the Company (other than from any of its
Subsidiaries) upon the exercise of options, warrants or rights to
purchase shares of Capital Stock of the Company (other than
Redeemable Capital Stock), plus (D) the aggregate net proceeds,
including the Fair Market Value of property other than cash (as
determined by the Board of Directors of the Company, whose
determination shall be conclusive) received after the Issue Date
by the Company from the issue or sale of debt securities or
Redeemable Capital Stock that have been converted into or
exchanged for Capital Stock of the Company (other than Redeemable
Capital Stock), plus the aggregate amount of cash received by the
Company at the time of such conversion or exchange, plus (E) the
aggregate net proceeds, including the Fair Market Value of
property other than cash (as determined by the Board of Directors
of the Company, whose determination shall be conclusive) received
after the Issue Date by the Company in disposition of any
Investment (or portion thereof) made after the Issue Date which
was a Restricted Payment. The foregoing provision will not be
violated by reason of (i) the payment of any dividend within
60 days after the date of declaration thereof, if at such
declaration date such declaration complied with the foregoing
provision (in which event such dividend shall be deemed to have
been paid on such date of declaration thereof for purposes of the
foregoing provision), (ii) a Restricted Payment by a Subsidiary
solely to the Company or a Wholly Owned Subsidiary of the
Company, or (iii) the retirement redemption, repurchase or other
acquisition of any shares of Capital Stock or Indebtedness that
is expressly subordinated in right of payment to the New Notes,
in exchange for (including any such exchange pursuant to a
conversion right or privilege in connection with which cash is
paid in lieu of fractional shares or scrip), or out of the
proceeds of the substantially concurrent sale for cash (other
than to a Subsidiary of the Company) of, shares of Capital Stock
(other than Redeemable Capital Stock) of the Company.
(b) In computing Consolidated Net Income of the
Company under the preceding clause (a), (1) the Company will use
audited financial statements for the portions of the relevant
period for which audited financial statements are available on
the date of determination and unaudited financial statements and
other current financial data based on the books and records of
the Company for the remaining portion of such period and (2) the
Company will be permitted to rely in good faith on the financial
statements and other financial data derived from the books and
records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which,
at the time of the making of such Restricted Payment would in the
good faith determination of the Company be permitted under the
applicable provisions of this covenant, such Restricted Payment
will be deemed to have been made in compliance with such
provisions notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements affecting
Consolidated Net Income of the Company for any period. (Section
10.9)
Limitation on Liens. The Company will not, and
will not permit any of its Subsidiaries to, Incur any Lien of any
kind (other than Permitted Liens) upon any property or assets of
the Company or of any such Subsidiary or with respect to any
Indebtedness of any such Subsidiary. (Section 10.11)
Purchase of New Notes upon Change of Control.
Upon the occurrence of a Change of Control, the Company will be
obligated to make an offer to purchase (a "Change of Control
Offer") and will, subject to the provisions described below,
purchase, on a Business Day (the "Change of Control Purchase
Date") that is not earlier than 30 days nor later than 60 days
following the occurrence of a Change of Control or such later
date as may be necessary for the Company to comply with
requirements under the 1934 Act, all of the then Outstanding New
Notes at a purchase price payable in cash equal to 101% of the
principal amount of such New Notes, plus accrued and unpaid
interest (including any Defaulted Interest), if any, to the
Change of Control Purchase Date (the "Change of Control Purchase
Price"); provided, however, that notwithstanding the occurrence
of a Change of Control, the Company will not be obligated to make
a Change of Control Offer in the event that it has exercised its
rights to redeem all of the New Notes as described in the
redemption provisions of the New Indenture (as described above
under " _ Optional Redemption") within 30 days after the
occurrence of such Change of Control.
In order to effect such Change of Control Offer,
the Company will, not later than the 30th day after the Change of
Control, mail to each holder of New Notes notice of the Change of
Control Offer, which notice will govern the terms of the Change
of Control Offer and shall state, among other things, the
procedures that holders of New Notes must follow to accept the
Change of Control Offer.
If a Change of Control Offer is made, there can be
no assurance that the Company will have available funds
sufficient to pay the Change of Control Purchase Price for all of
the New Notes that might be delivered by holders of New Notes
seeking to accept the Change of Control Offer. The Company shall
not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the
requirements applicable to a Change of Control Offer made by the
Company and purchases all New Notes validly tendered and not
withdrawn under such Change of Control Offer.
The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are
applicable, in the event that a Change of Control occurs and the
Company is required to purchase New Notes as described above.
The obligation of the Company to make a Change of Control Offer
may deter a third party from acquiring the Company in a
transaction which constitutes a Change of Control. (Section
10.15)
The use of the term "all or substantially all" in
New Indenture provisions such as clause (v) of the definition of
"Change of Control" and under " _ Merger, Sale of Assets, Etc."
has no clearly established meaning under New York law (which
governs the New Indenture) and has been the subject of limited
judicial interpretation in few jurisdictions. Accordingly, there
may be a degree of uncertainty in ascertaining whether a
particular transaction would involve a disposition of "all or
substantially all" of the assets of a person, which uncertainty
should be considered by prospective purchasers of the New Notes.
Limitation on Asset Sales. The Company will not,
and will not permit any of its Subsidiaries to, in one
transaction or a series of related transactions, other than in
the ordinary course of business, convey, sell, transfer, assign
or otherwise dispose of, directly or indirectly, any of its
property, businesses or assets, including by merger or
consolidation and including any sale or other transfer or
issuance of any Capital Stock of any Subsidiary of the Company,
whether by the Company or by such Subsidiary (any of the
foregoing, an "Asset Sale"), unless (a) the Company or the
applicable Subsidiary receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the assets
sold or otherwise disposed of (as determined in good faith by the
Board of Directors of the Company, as evidenced by a Board
Resolution), (b) at least (i) 50% of the first $5 million of
consideration received by the Company or the Subsidiary, as the
case may be, from such Asset Sale and (ii) 75% of such
consideration in excess of $5 million, shall be cash or Cash
Equivalents and is received at the time of such disposition, and
(c) the Company delivers an Officers' Certificate to the New
Trustee certifying that such Asset Sale complies with the
foregoing clauses (a) and (b); provided that (A) subject to the
other provisions of the New Indenture, the Company, together with
its Subsidiaries, may make any Asset Sale that is governed by the
covenant described under " _ Merger, Sale of Assets, Etc." and
(B) the first $3 million of Net Cash Proceeds from Asset Sales in
any fiscal year will not be subject to the restrictions set forth
in the foregoing clauses (a) and (b). The Net Cash Proceeds of
any Asset Sale shall be applied by the Company or a Subsidiary
(1) to pay and permanently reduce any Senior Indebtedness, (2) to
reinvest in Additional Assets; or (3) to redeem New Notes in
accordance with this covenant. To the extent that such Net Cash
Proceeds are not applied as provided in clause (1) of the
preceding sentence, the Company or a Subsidiary, as the case may
be, may apply the Net Cash Proceeds from such Asset Sale, within
360 days of such Asset Sale, to an investment in Additional
Assets so long as the Company or such Subsidiary has notified the
New Trustee in writing within 270 days of such Asset Sale that it
has determined to apply the Net Cash Proceeds from such Asset
Sale to an Investment in such Additional Assets; provided,
however, that not more than $15 million of Net Cash Proceeds may
be reinvested in Additional Assets during any rolling 18-month
period. Any Net Cash Proceeds from any Asset Sale not applied as
provided in clause (i) or (ii) of the first sentence of clause
(b) above within 360 days of such Asset Sale constitute "Excess
Proceeds" subject to disposition as provided below.
When the aggregate amount of Excess Proceeds
exceeds $5 million (the "Asset Sale Trigger Date"), the Company
shall make an offer (an "Asset Sale Offer") to purchase, from all
holders, an aggregate principal amount of New Notes equal to such
Excess Proceeds, on a Business Day that is not less than 30 days
nor more than 60 days thereafter or such later date as may be
necessary for the Company to comply with the requirements of the
1934 Act, at a price payable in cash equal to 100% of the
outstanding principal amount of such New Notes, plus accrued and
unpaid interest (including any Defaulted Interest), if any, to
the purchase date. To the extent that the aggregate principal
amount of New Notes tendered pursuant to an offer to purchase is
less than the Excess Proceeds, the Company may use such
deficiency for general corporate purposes. If the aggregate
principal amount of New Notes validly tendered by holders thereof
exceeds the Excess Proceeds, New Notes to be purchased will be
purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset to zero.
In order to effect such Asset Sale Offer, the
Company will, not later than the Asset Sale Trigger Date, mail to
each holder of New Notes notice of the Asset Sale Offer, which
notice shall state, among other things, the procedures that
holders of the New Notes must follow to accept the Asset Sale
Offer.
The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are
applicable, in connection with any Asset Sale Offer.
In the event that, following an Asset Sale Offer,
the aggregate principal amount of New Notes would be less than
$20 million (assuming 100% acceptance of the Asset Sale Offer),
then the Company will be obligated to redeem all Outstanding New
Notes. (Section 10.16)
Transactions with Affiliates. The Company will
not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any
Affiliate of the Company (other than a Wholly Owned Subsidiary
thereof) unless (i) such transaction or series of transactions is
or are on terms that are no less favorable to the Company or such
Subsidiary, as the case may be, than could have been obtained at
the time of such transaction or transactions in a comparable
transaction in arm's-length dealings with Persons who are not
Affiliates and (ii) with respect to any transaction or series of
transactions involving aggregate consideration in excess of
$5 million, the Company delivers an officers' certificate to the
New Trustee certifying that such transaction or series of
transactions complies with clause (i) above and that such
transaction or series of transactions has received the approval
of a majority of the disinterested directors of the Board of
Directors of the Company; provided, however, that the foregoing
restriction shall not apply to transactions pursuant to
agreements in effect at or entered into on the Issue Date (and
not otherwise in violation of this New Indenture); provided that
any renewal or modification of the terms of any such agreement
after the date of this New Indenture shall comply with the
provisions of this covenant. For purposes of this covenant, any
transaction or series of related transactions between the Company
or any of its Subsidiaries and any Affiliate of the Company that
is approved as being on the terms required by clause (i) above by
a majority of the disinterested directors of the Board of
Directors of the Company shall be deemed to be on terms as
favorable as those that might be obtained at the time of such
transaction or series of transactions in a comparable transaction
in arm's-length dealings with an unaffiliated third party, and
thus shall be permitted under this covenant. This covenant will
not restrict the Company or any of its Subsidiaries from
(i) paying reasonable and customary directors fees, executive
compensation and severance amounts, (ii) making loans and
advances to officers and employees in respect of travel, moving
and entertainment expenses Incurred, or to be Incurred, by such
officers, directors and employees or (iii) entering into
guarantees in respect of Indebtedness incurred by officers or
employees in the ordinary course of business and payments in
discharge thereof in an amount and not to exceed the excess of
(x) $500,000 at any time outstanding and (y) the aggregate
amount, if any, paid after the Issue Date in respect of such
guarantees. (Section 10.10)
Restriction on Issuance of Stock of Subsidiaries.
The Company will not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or a Wholly Owned
Subsidiary of the Company) or permit any Person (other than the
Company or a Wholly Owned Subsidiary of the Company) to own or
hold an interest in any Preferred Stock of any such Subsidiary,
except (i) replacements of then outstanding Preferred Stock or
(ii) stock splits, stock dividends and similar issuances which do
not decrease the percentage ownership of the Company or any of
its Subsidiaries in such Subsidiary. (Section 10.13)
Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries. The Company will not, and
will not permit any Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual Payment
Restriction except (i) any Payment Restriction pursuant to the
Credit Agreement or any other agreement in effect at or entered
into on the Issue Date; (ii) any Payment Restriction with respect
to a Subsidiary that is not a Subsidiary of the Company on the
Issue Date, in existence at the time such Person becomes a
Subsidiary of the Company or created on the date it becomes a
Subsidiary; and (iii) any Payment Restriction pursuant to any
agreement that extends, refinances, renews or replaces any
agreement containing any of the restrictions described in the
foregoing clauses (i) and (ii); provided that the terms and
conditions of any such restrictions are not materially less
favorable to the holders of the New Notes than those under or
pursuant to the agreement so extended, refinanced, renewed or
replaced. (Section 10.14)
Subsidiary Guarantees. The Company will not
permit any of its Subsidiaries to guarantee the payment of any
Indebtedness of the Company or any Subsidiary of the Company
unless such Subsidiary (i) is, or, concurrently with such
guarantee will become, a Subsidiary Guarantor under this New
Indenture in the manner set forth in the New Indenture and
(ii) the Company shall concurrently comply with the requirements
set forth in the New Indenture. (Section 10.18)
Limitation on Other Senior Subordinated
Indebtedness. The Company will not Incur any Indebtedness (other
than the New Notes) that is subordinate in right of payment to
any Senior Indebtedness unless such Indebtedness is also pari
passu with or subordinate in right of payment to the New Notes,
pursuant to subordination provisions substantially similar to
those described under " _ Subordination" above. (Section 10.12)
SEC Reports. Notwithstanding that the Company may
not be required to remain subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, to the extent
permitted by the Exchange Act, the Company will file with the SEC
and, in any event, will provide, within 15 days after the Company
is (or would be) required to file the same with the SEC, the New
Trustee and holders and prospective holders (upon request) with
the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the
Exchange Act. In the event that the Company is not permitted to
file such reports, documents and information with the SEC, the
Company will provide substantially similar information to the New
Trustee, the holders and prospective holders (upon request) as if
the Company were subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act. The Company will be deemed to
have satisfied such requirements if Holding files and provides
reports, documents and information of the types otherwise so
required, in each case within the applicable time periods, and
the Company is not required to file such reports, documents and
information separately under applicable rules and regulations of
the SEC (after giving effect to any exemptive relief) because of
the filings by Holding. The Company also will comply with the
other provisions of Section 314(a) of the Trust New Indenture
Act. (Section 10.4)
F. Merger, Sale of Assets, Etc.
The New Indenture provides that the Company will
not, in any transaction or series of transactions, consolidate
with or merge with or into any other person, or sell, assign,
convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets substantially as
an entirety to any person or group of affiliated persons, unless
at the time and after giving effect thereto (i) either (A) the
Company shall be the continuing or surviving corporation or (B)
the person (if other than the Company) formed by such
consolidation or merger or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made, (any such surviving person or transferee person being the
"Surviving Entity") shall be a corporation organized and existing
under the laws of the United States of America, any state thereof
or the District of Columbia and shall, in either case, expressly
assume by a supplemental New Indenture executed and delivered to
the New Trustee, in form satisfactory to the New Trustee, all the
obligation of the Company under the New Notes and the New
Indenture; (ii) immediately before and immediately after giving
effect to such transaction, no Default or Event of Default shall
exist; (iii) immediately after giving effect to such transaction
on a pro forma basis, the Consolidated Net Worth of the Company
(or the Surviving Entity if the Company is not the continuing
obligor under the New Indenture) shall be equal to or greater
than the Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting adjustments
resulting from the transaction) of the Company immediately prior
to such transaction; (iv) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Interest
Coverage Ratio of the Company (or the Surviving Entity if the
Company is not the continuing obligor under this New Indenture)
for the Company's (or the Surviving Entity's, as the case may be)
four most recently completed full fiscal quarters is at least 2.0
to 1.0; and (v) the Company shall deliver to the New Trustee, in
form and substance reasonably satisfactory to the New Trustee, an
officer's certificate and an opinion of counsel, each stating
that such consolidation, merger or sale, assignment, transfer,
lease, conveyance or other disposition, and the supplemental
indenture, if required, in respect thereof comply with the
requirements under the New Indenture; provided that a Wholly
Owned Subsidiary may consolidate with, or merge with or into, or
convey, transfer or lease all or substantially all of its assets
to the Company or another Wholly Owned Subsidiary. (Section 8.1)
Upon any consolidation or merger or any sale,
assignment, transfer, lease or conveyance or other disposition of
all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the
continuing corporation, the successor corporation formed by such
a consolidation or into which the Company is merged or to which
such transfer is made, shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the
New Indenture with the same effect as if such successor
corporation had been named as the Company therein. (Section 8.2)
G. Events of Default
The following will be "Events of Default" under
the New Indenture:
(a) the Company defaults in the payment of
interest on any New Note when the same becomes due and payable
and such default continues for a period of 30 days, whether or
not such payment shall be prohibited by the subordination
provisions of the New Indenture; or
(b) the Company defaults in the payment of the
principal of (or premium, if any, on) any New Note at its
Maturity, whether or not such payment shall be prohibited by the
subordination provisions of the New Indenture; or
(c) the Company defaults in the performance of,
or breaches, any covenant or warranty of the Company under the
New Indenture (other than a default specified in clause (a) or
(b) above or clause (g) below), and continuance of such default
or breach for a period of 30 days after a written notice
specifying such default or breach and stating that such notice is
a "Notice of Default" under the New Indenture has been given, by
registered or certified mail, to (x) the Company by the New
Trustee or (y) to the Company and the New Trustee by the holders
of at least 25% in principal amount of the Outstanding New Notes;
or
(d) an event of default as defined in any
mortgage, bond, indenture, loan agreement or other evidence of
Indebtedness under which the Company or any Subsidiary then has
outstanding Indebtedness in excess of $5 million in the
aggregate, shall occur and such default (i) is caused by a
failure to pay principal of or premium, if any, or interest on
such Indebtedness within the applicable grace period, if any, of
such Indebtedness or (ii) results in such Indebtedness becoming
or being declared due and payable prior to the date on which it
would otherwise become due and payable (if not already matured at
its final maturity in accordance with its terms); or
(e) final judgments or orders are rendered
against the Company, the Guarantor or any Subsidiary which
require the payment in money, either individually or in an
aggregate amount, that is more than $5 million and such judgment
or order shall not have been discharged or fully bonded, and
there shall have been a period of 60 days after the date on which
any period for appeal has expired and during which a stay of
enforcement of such judgment, order or decree shall not be in
effect; or
(f) certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Subsidiary
shall have occurred; or
(g) a default in the performance or breach of any
of the provisions of the New Indenture relating to consolidation,
merger, conveyance, transfer or lease.
If an Event of Default (other than an Event of
Default specified in clause (f) above) occurs and is continuing,
the New Trustee or the holders of at least 25% of the principal
amount of the New Notes then Outstanding, by written notice to
the Company (and to the New Trustee if such notice is given by
the holders), may, and the New Trustee at the request of such
holders shall, declare all unpaid principal of, premium, if any,
and accrued interest on all the New Notes to be due and payable
immediately, and upon any such declaration such principal,
premium and accrued interest shall become immediately due and
payable. If an Event of Default specified in clause (f) above
occurs and is continuing, then the principal of, premium, if any,
on and accrued and unpaid interest, if any, on all of the
Outstanding New Notes and all other amounts owing under the New
Indenture shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the
New Trustee or any holder. (Section 5.2)
At any time after a declaration of acceleration
has been made, but before a judgment or decree for payment of the
money due has been obtained by the New Trustee, the holders of a
majority in aggregate principal amount of the Outstanding New
Notes, by written notice to the Company and the New Trustee, may
rescind and annul such declaration and its consequences if
(a) the Company has paid or deposited with the New Trustee a sum
sufficient to pay (i) all sums paid or advanced by the New
Trustee under this New Indenture and the reasonable compensation,
expenses, disbursements and advances of the New Trustee, its
agents and counsel, (ii) all overdue interest on all New Notes,
(iii) all unpaid principal of and premium, if any, on any
Outstanding New Notes which have become due otherwise than by
such declaration of acceleration and interest thereon at the
Default Rate, and (iv) to the extent that payment of such
interest is lawful, interest upon overdue interest at the rate
provided in the New Notes; (b) all Events of Default, other than
the non-payment of principal of the New Notes which have become
due solely by the declaration of acceleration, have been cured or
waived; and (c) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. (Section
5.2)
Notwithstanding the preceding paragraph, in the
event a declaration of acceleration in respect of the New Notes
because of an Event of Default specified in clause (d) above
shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged
or the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness, and written notice
of such discharge or rescission, as the case may be, shall have
been given to the New Trustee by the Company and countersigned by
the holders of such Indebtedness or a trustee, fiduciary or agent
for such holders, within 30 days after such declaration of
acceleration in respect of the New Notes, and no other Event of
Default shall have occurred during such 30-day period which has
not been cured or waived during such period.
The holders of not less than a majority in
principal amount of the Outstanding New Notes may on behalf of
the holders of all the New Notes waive any past Default or Event
of Default under the New Indenture and its consequences, except a
Default or Event of Default in respect of the payment of the
principal of, premium, if any, or interest on any New Note at its
maturity, or in respect of a covenant or provision which under
the New Indenture cannot be modified or amended without the
consent of the holder of each Outstanding New Note affected
thereby. (Section 5.13)
No holder of any of the New Notes has any right to
institute any proceeding with respect to the New Indenture or any
remedy under the New Indenture, unless such holder has previously
given written notice to the New Trustee of a continuing Event of
Default, the holders of not less than 25% in principal amount of
the Outstanding New Notes have made written request, and offered
reasonable indemnity, to the New Trustee to institute such
proceeding and the New Trustee, within 60 days after receipt of
such notice, has failed to institute any such proceeding and has
not received directions inconsistent with such written request by
holders of a majority in aggregate principal amount of the
Outstanding New Notes during such 60-day period. Such
limitations do not apply, however, to a suit instituted by a
holder of a New Note for the enforcement of the payment of the
principal of, premium, if any, or interest on, such New Note on
or after the respective due dates expressed in such New Note.
(Sections 5.7 and 5.8)
Subject to the provisions of the New Indenture
relating to the duties of the New Trustee, whether or not an
Event of Default shall occur and be continuing, the New Trustee
under the New Indenture is not under any obligation to exercise
any of its rights or powers under the New Indenture at the
request or direction of any of the holders of the New Notes,
unless such holders shall have offered to the New Trustee
reasonable security or indemnity. Subject to certain provisions
concerning the rights of the New Trustee, the holders of a
majority in principal amount of the outstanding New Notes have
the right to direct the time, method and place of conducting any
proceeding for any remedy available to the New Trustee, or
exercising any trust or power conferred on the New Trustee under
the New Indenture. (Sections 6.2 and 5.12)
Within 30 days after the occurrence of any Default
that is known to the New Trustee, the New Trustee shall transmit
by mail to all holders, as their names and addresses appear in
the security register, notice of such Default, unless such
Default shall have been cured or waived; provided, however, that,
except in the case of a default in the payment of the principal
of (or premium, if any) or interest on any New Notes, the New
Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a
trust committee of directors and/or responsible officers of the
New Trustee in good faith determines that the withholding of such
notice is in the interest of the holders.
(Section 6.1)
The Company is required to furnish to the New
Trustee an annual statement as to the performance by the Company
of its obligations under the New Indenture and as to any default
in such performance. The Company is also required to deliver to
the New Trustee as soon as possible following an officer of the
Company becoming aware of a Default or Event of Default, an
officers' certificate specifying such Default or Event of Default
and what action the Company is taking or proposes to take with
respect thereto. (Section 10.17)
H. Defeasance or Covenant Defeasance of New Indenture
The Company may, at its option by resolution of
its Board of Directors, at any time, terminate the obligations of
the Company and any Guarantor with respect to all outstanding New
Notes (hereinafter "defeasance"), on the date the conditions set
forth in the next paragraph are satisfied. Such defeasance means
that the Company shall be deemed to have paid and discharged the
entire indebtedness represented by the Outstanding New Notes, and
to have satisfied all its obligations under such New Notes and
the New Indenture, except for the following which will survive
until otherwise terminated or discharged under the New Indenture:
(i) the rights of holders of Outstanding New Notes to receive
payment in respect of the principal of, premium, if any, and
interest on such New Notes when such payments are due, (ii) the
Company's obligations to issue temporary New Notes, register the
transfer or exchange of any New Notes, replace mutilated,
destroyed, lost or stolen New Notes, maintain an office or agency
for receipt of payments in respect of the New Notes, and the
Company's obligation to segregate and hold in trust money for the
payment of principal, premium, if any or interest, (iii) the
rights, powers, trusts, duties and immunities of the New Trustee,
and (iv) the defeasance provisions of the New Indenture. In addi
tion, the Company may, at its option and at any time, elect to
terminate its obligations with respect to certain covenants that
are set forth in the New Indenture, some of which are described
under " _ Certain Covenants" above, on and after the date the
conditions set forth in the next paragraph are satisfied and any
subsequent failure to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the
New Notes (hereinafter, "covenant defeasance"). Such covenant
defeasance means that, with respect to the Outstanding New Notes,
the Company and any Guarantor may omit to comply with and shall
have no liability in respect of any term, condition or limitation
set forth in any such covenant, whether directly or indirectly,
by reason of any reference in the New Indenture to any such
covenant or by reason of any reference in any such covenant to
any other provision in the New Indenture or in any other document
and such omission to comply shall not constitute Defaults or
Events of Defaults under paragraphs (c) or (f) of " _ Events of
Default" above, but, except as specified above, the remainder of
the New Indenture and the New Notes shall be unaffected.
(Sections 13.1, 13.2 and 13.3)
In order to exercise either defeasance or covenant
defeasance, (i) the Company shall irrevocably deposit or cause to
be deposited with the New Trustee, as trust funds in trust for
the benefit of the holders of the New Notes, cash in United
States dollars, U.S. Government Obligations (as defined in the
New Indenture), or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the
principal of, premium, if any, and interest on the outstanding
New Notes to redemption or maturity (except lost, stolen or
destroyed New Notes which have been replaced or repaid) (provided
that before such a deposit, the Company may give the New Trustee
a notice of its election to redeem all of the Outstanding New
Notes at a future date in accordance with the redemption
provisions of the New Indenture, which notice shall be
irrevocable), (ii) the Company shall have delivered to the New
Trustee an opinion of counsel to the effect that (x) the Company
has received from, or there has been published by, the Internal
Revenue Service a ruling or (y) since the date of the New
Indenture there has been a change in the applicable federal
income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that the holders of the
outstanding New Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant
defeasance had not occurred, (iii) no Default or Event of Default
shall have occurred and be continuing on the date of such
deposit, (iv) such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default
under, the New Indenture or any material agreement or instrument
to which the Company is a party or by which the Company is bound,
(v) the Company shall have delivered to the New Trustee an
opinion of counsel to the effect that (x) the irrevocable deposit
of the trust funds with the New Trustee, as described in clause
(i) above, will not constitute a transfer of property of the
Company or such other depositor voidable as a fraudulent transfer
or conveyance under Sections 544(b) and 548 of the Bankruptcy
Code, or any successor to such Sections, or under Sections 273,
274, 275 and 276 of the New York Debtor and Creditor Law or any
successor to such Sections; (y) the irrevocable deposit of the
trust funds with the New Trustee, as described in clause (i)
above, will not constitute a transfer of property of the Company
or such other depositor voidable as a preference under Section
547 of the Bankruptcy Code, or any successor to such Section, in
the event that after the passage of a period 93 days following
such deposit a voluntary or involuntary case under the Bankruptcy
Code is commenced by or against the Company or such other
depositor; and (z) for so long as the trust funds are held in
trust by the New Trustee, as described in clause (i) above, for
the benefit of the holders, the trust funds will not be
considered assets of the Company or such other depositor which
may be used to satisfy claims of creditors of the Company or such
other depositor in the event that a voluntary or involuntary case
under the Bankruptcy Code is commenced by or against the Company
or such other depositor after the passage of a period of 93 days
following the irrevocable deposit by the Company or such other
depositor of the trust funds with the New Trustee, (vi) the
Company shall have delivered to the New Trustee an officers'
certificate and an opinion of counsel, each stating that all
conditions precedent under the New Indenture to either defeasance
or covenant defeasance, as the case may be, have been complied
with and (vii) if the Credit Agreement is in effect, the Company
shall have delivered to the New Trustee any required consent of
the lenders under the Credit Agreement to such defeasance or
covenant defeasance, as the case may be. (Section 13.4)
I. Satisfaction and Discharge
The New Indenture will be discharged and will
cease to be of further effect (except as to surviving rights of
registration of transfer or exchange of the New Notes, as
expressly provided for in the New Indenture) as to all outstand
ing New Notes when (i) either (a) all the New Notes theretofore
authenticated and delivered (except (x) lost, stolen or destroyed
New Notes which have been replaced or paid and (y) New Notes for
which payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid
to the Company or discharged from such trust) have been delivered
to the New Trustee for cancellation or (b) all New Notes not
theretofore delivered (except lost, stolen or destroyed New Notes
which have been replaced or repaid) to the New Trustee for
cancellation (x) have become due and payable or (y) will become
due and payable at their Stated Maturity within one year or (z)
are to be called for redemption within one year under
arrangements satisfactory to the New Trustee for the giving of
notice of redemption by the New Trustee in the name, and at the
expense of the Company, and the Company has, in the case of (x),
(y) or (z), irrevocably deposited or caused to be deposited with
the New Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire Indebtedness on such
New Notes (except lost, stolen or destroyed New Notes which have
been replaced or repaid) not theretofore delivered to the New
Trustee for cancellation, for principal of, premium, if any, and
interest on the New Notes to the date of deposit together with
irrevocable instructions from the Company directing the New
Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be, (ii) the Company has paid all
other sums payable under the New Indenture by the Company, and
(iii) the Company has delivered to the New Trustee an officers'
certificate and an opinion of counsel stating that all conditions
precedent under the New Indenture relating to the satisfaction
and discharge of the New Indenture have been complied with.
(Section 4.1)
J. Amendments and Waivers
The Company, when authorized by a resolution of
its Board of Directors, and the New Trustee, at any time and from
time to time, may, without the consent of the holders of any
Outstanding New Notes, enter into one or more indentures
supplemental to the New Indenture for certain specified purposes,
including, among other things, (i) curing ambiguities, defects or
inconsistencies, (ii) qualifying, or maintaining the
qualification of, the New Indenture under the Trust Indenture Act
of 1939, (iii) adding any Subsidiary of the Company as a
Guarantor or (iv) making any other change that does not adversely
affect the rights of any holder. Other amendments and
modifications of the New Indenture for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of the New Indenture or of waiving or modifying in any
manner the rights of the holders under the New Indenture may be
made by the Company, when authorized by a resolution of its Board
of Directors, and the New Trustee with the consent of the holders
of not less than a majority of the aggregate principal amount of
the Outstanding New Notes; provided, however, that no such
supplemental indenture, amendment or waiver may, without the
consent of the holder of each Outstanding New Note affected
thereby, (i) change the stated maturity of the principal of, or
any installment of interest on, any New Note or reduce the
principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or change the coin
or currency in which the principal of any New Note or any premium
or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the
stated maturity thereof (or, in the case of redemption, on or
after the redemption date) or modify the obligation of the
Company to purchase New Notes upon a Change of Control; (ii)
reduce the percentage in principal amount of the Outstanding New
Notes, the consent of whose holders is required for any such
supplemental indenture or the consent of whose holders is
required for any waiver of compliance with certain provisions of
the New Indenture or certain defaults under the New Indenture and
their consequences provided for in the New Indenture; (iii)
modify any of the provisions of the New Indenture sections
relating to (x) supplemental indentures with the consent of
holders, (y) the waiver of past defaults, or (z) the waiver of
certain covenants, except to increase any such percentage or to
provide that certain other provisions of the New Indenture cannot
be modified or waived without the consent of the holder of each
New Note affected thereby; or (iv) modify any of the provisions
of the New Indenture with respect to subordination in a manner
adverse to the holders of the New Notes. (Sections 9.1 and 9.2)
K. Governing Law
The New Indenture, the New Notes and any Guarantee
will be governed by the laws of the State of New York, without
regard to the principles of conflicts of law. (Section 1.13)
L. The New Trustee
Fleet Bank will be the New Trustee under the New
Indenture.
M. Certain Definitions
"Acquired Indebtedness" means Indebtedness of a
Person (i) existing at the time such Person becomes a Subsidiary
of any other Person (or is merged with any other Person) or
(ii) assumed in connection with the acquisition of assets from a
Person, other than Indebtedness Incurred in connection with, or
in contemplation of, such Person becoming a Subsidiary of such
other Person or such merger or acquisition, as the case may be.
"Affiliate" means, with respect to any specified
Person, (i) any other Person directly or indirectly controlling
or controlled by or under direct or indirect common control with
such specified Person, (ii) any spouse, immediate family member
or other relative who has the same principal residence of any
Person described in (i) above, (iii) any trust in which any such
Person described in clause or (i) or (ii) above has a beneficial
interest and (iv) any corporation of which any such Person
described in clause (i), (ii) or (iii) above collectively owns
more than 50% of the equity of such entity. For purposes of this
definition, "beneficial ownership" (as defined in Rule 13d-3
under the Exchange Act) of 10% or more of the Voting Stock of a
Person shall be deemed to be control of such Person.
"Average Life to Stated Maturity" means, as of the
date of determination, with respect to any Indebtedness, the
quotient obtained by dividing (i) the sum of the products of
(a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of
such Indebtedness multiplied by (b) the amount of each such
principal payment by (ii) the sum of all such principal payments.
"AWG" means Associated Wholesale Grocers, Inc., a
Missouri corporation.
"AWG Equity" means all equity, deposits, credits,
sums and indebtedness of any kind or description whatsoever, at
any time owed by AWG to the Company or at any time standing in
the name of or to the credit of the Company on the books and/or
records of AWG, including, without limitation, AWG Membership
Stock, members' deposit certificates, patronage refund
certificates, members' savings, direct patronage or year-end
patronage, concentrated purchase allowance, quarterly payments
and any other amounts due from AWG to the Company under the AWG
Supply Agreement.
"AWG First Offer Rights" means (i) AWG's right of
first offer with respect to the stores owned or operated by the
Company listed on Exhibit B to the AWG Supply Agreement and
(ii) any public recordation of such first offer rights, provided
that any such public recordation shall be terminable from time to
time as set forth in Section 7(f) of the AWG Supply Agreement.
"AWG Liens" means (i) Liens on AWG Equity owned or
hereafter acquired by the Company to secure the Company's
obligations to AWG under the AWG Supply Agreement and the AWG
Membership Documents, (ii) Liens consisting of the AWG Use
Restrictions and (iii) Liens consisting of the AWG First Offer
Rights.
"AWG Membership Documents" means (i) the
Application for Membership by Homeland Stores, Inc., between the
Company and AWG and (ii) the Stock Power of Attorney granted to
AWG by the Company with respect to the AWG Membership Stock owned
by the Company.
"AWG Membership Stock" means the Class A Common
Stock, par value $100 per share, of AWG.
"AWG Supply Agreement" means the Supply Agreement,
dated as of April 21, 1995, between the Company and AWG, as such
agreement may be amended, amended and restated, supplemented or
otherwise modified from time to time.
"AWG Use Restrictions" means (i) the Company's
agreement under Sections 7(g) and 8(b) of the AWG Supply
Agreement to dedicate (to the extent of its interest therein
(including leasehold interests)) certain real property and the
improvements thereon to the exclusive use of a retail grocery
facility (including all activities which from time to time are
commonly associated with the operation of a grocery facility)
which is owned by a retail member of AWG and (ii) any public
recordation of such agreement, provided that any such public
recordation shall be terminable from time to time as set forth in
Section 8(b) of the Supply Agreement.
"Capital Lease Obligation" of any Person means any
obligations of such Person and its Subsidiaries on a consolidated
basis under any capital lease that, in accordance with GAAP, is
required to be recorded as a capitalized lease obligation; and
for purposes of the New Indenture, the amount of such obligations
at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Capital Stock" of any Person means any and all
shares, interests, participations, or other equivalents (however
designated) of such Person's capital stock (including any
Preferred Stock) whether now outstanding or issued after the
Issue Date.
"Cash Equivalents" means (i) securities issued
directly or fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having
maturities of not more than six months from the date of
acquisition, (ii) certificates of deposit and Eurodollar time
deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding
six months and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of
$500 million and a Thomson Watch Rating of "B" or better, (iii)
repurchase obligations and reverse repurchase obligations of the
types described in clauses (i) and (ii) entered into with any
financial institution meeting the qualifications specified in
clause (ii) above, in each case maturing within six months from
the date of acquisition and (iv) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or
Standard & Poor's Corporation and in each case maturing within
six months after the date of acquisition.
_ a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act) (other than any
Permitted Holders) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the 1934 Act; provided that a
"person" or "group" shall be deemed to be a "beneficial owner"
for purposes of this definition even if its right to acquire
beneficial ownership of Voting Stock arises after a 60-day
period) of more than fifty percent (50%) of the total voting
power of the then outstanding Voting Stock of the Company or
Holding; (ii) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act) (other than any
Permitted Holders) has the ability to designate a majority of the
Board of Directors of the Company or Holding; (iii) the Company
or Holding liquidates or dissolves or adopts a plan of
liquidation; (iv) Holding shall cease to own and control,
beneficially and of record, 100% of the Capital Stock of the
Company; (v) the Company or Holding sells, assigns, transfers or
otherwise disposes of all or substantially all of its assets, in
one transaction or a series of related transactions, to any
Person other than a Wholly Owned Subsidiary of the Company; (vi)
during any 24 month period, individuals who at the beginning of
such period constituted the Board of Directors of the Company or
Holding (together with any new directors whose election by such
Board or whose nomination for election by the stockholders of the
Company or Holding was approved by a vote of a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for
election was previously so approved) ceases for any reason to
constitute a majority of the Board of Directors of the Company or
Holding then in office; provided, however, that this clause (vi)
shall not be applicable if the continuing directors do not
constitute at least a majority of the Board of Directors of the
Company or Holding, as the case may be, as a result of directors
nominated by any Permitted Holder constituting a majority of the
Board of Directors of the Company or Holding); or (vii) the
Company or Holding consolidates with or merges with or into
another Person pursuant to a transaction in which the outstanding
Voting Stock of the Company or Holding is changed into or
exchanged for cash, Cash Equivalents, securities or other
property, other than any transaction in which (a) no Redeemable
Capital Stock is issued and (b) holders of Voting Stock of the
Company or Holding, as the case may be, immediately prior to such
transaction "beneficially own" (as defined in Rule 13d-3 under
the 1934 Act) not less than 70% of the Voting Stock of the
surviving corporation of such merger or consolidation outstanding
immediately after such transaction.
"Consolidated Depreciation and Amortization
Expense" means, with respect to any Person for any period for
which the determination thereof is to be made, the aggregate
depreciation and amortization expense (including, without
limitation, amortization of goodwill, other intangibles, debt
discount and debt issue costs) reducing Consolidated Net Income
of such Person and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" means, with respect to any
Person for any period for which the determination thereof is to
be made, the sum (without duplication) for such period of (i)
Consolidated Net Income plus, to the extent deducted in
determining Consolidated Net Income, each of (ii) Consolidated
Income Tax Expense, (iii) Consolidated Depreciation and
Amortization Expense, (iv) Consolidated Fixed Charges, (v)
Consolidated Post Retirement Benefits Other Than Pensions and
(vi) non-cash extraordinary charges under GAAP.
"Consolidated Fixed Charges" means, with respect
to any Person for any period for which the determination thereof
is to be made, the sum (without duplication) of (i) the aggregate
amount of interest, whether expensed or capitalized, paid,
accrued or scheduled to be paid or accrued during such period
(including, without limitation, any non-cash interest payments or
accruals, the interest portion of Capital Lease Obligations, all
amortization of original issue discount, net cash costs pursuant
to Interest Swap Obligations and Currency Agreements (including
amortization of fees) and the interest component of any deferred
payment obligation) of such Person and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, and
(ii) dividends required to be made in respect of Preferred Stock
and Redeemable Capital Stock.
"Consolidated Income Tax Expense" means, with
respect to any Person for any period for which the determination
thereof is to be made, the aggregate of the income tax expense of
such Person and its Subsidiaries, for such period, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Interest Coverage Ratio" with
respect to any period for which the determination thereof is to
be made means the ratio of (i) the aggregate of Consolidated
EBITDA for such period (taken as one accounting period) to
(ii) the aggregate of Consolidated Fixed Charges; provided that
(x) in making such computation, the Consolidated Fixed Charges
attributable to interest on any Indebtedness computed on a pro
forma basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period and (B) bearing,
at the option of the obligor thereon, a fixed or floating rate of
interest, shall be computed by applying, at the option of the
Company, either the fixed or floating rate and (y) there shall be
excluded from the determination of Consolidated Fixed Charges any
dividends required to be made in respect of Preferred Stock or
Redeemable Capital Stock of the Company or of a Wholly Owned
Subsidiary of the Company for the applicable period.
"Consolidated Net Income" means, with respect to
any Person for any period for which the determination thereof is
to be made, the consolidated net income (or loss) of such Person
and its Subsidiaries for such period as determined in accordance
with GAAP, adjusted, to the extent included in calculating such
net income (or loss), by excluding (i) the non-recurring
cumulative effect of accounting changes, (ii) the portion of net
income (or loss) of such Person and its Subsidiaries allocable to
minority interests in unconsolidated Persons to the extent that
cash dividends or distributions have not actually been received
by such Person or one of its Subsidiaries, (iii) net income (or
loss) of any Person combined with such Person or any of its
Subsidiaries in a "pooling of interests" basis attributable to
any period prior to the date of combination, and (iv) the net
income of any Subsidiary to the extent that the declaration of
dividends or similar distributions by that Subsidiary of that
income is subject to a Payment Restriction.
"Consolidated Net Worth" means, with respect to
any Person as of any date, the sum of (i) the consolidated equity
of the common stockholders of such Person and its consolidated
Subsidiaries as of such date plus (ii) the respective amounts
reported on such Person's balance sheet as of such date with
respect to any series of Preferred Stock (other than Redeemable
Capital Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only
out of net earnings in respect of the year of such declaration
and payment, but only to the extent of any cash received by such
Person upon issuance of such Preferred Stock, less (x) all write-
ups (other than write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such
business) subsequent to the Issue Date in the book value of any
asset owned by such Person or a consolidated Subsidiary of such
Person, (y) all Investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, Permitted Investments), and (z) all unamortized debt
discount and expense and unamortized deferred charges as of such
date, all of the foregoing determined in accordance with GAAP.
"Consolidated Post Retirement Benefits Other Than
Pensions" means the noncash portion of retirement benefits other
than pensions as defined in FASB Statements 88, 106 and 112,
determined in accordance with GAAP.
"Credit Agreement" means (i) the New Credit
Agreement, together with all amendments, documents and
instruments from time to time delivered in connection with the
New Credit Agreement (including, without limitation, any guaranty
agreements and security documents), as in effect on the date of
the New Indenture and, subject to the proviso to the next
succeeding sentence, as the New Credit Agreement and such other
agreements, documents and instruments may be further amended,
amended and restated, renewed, extended, restructured,
supplemented or otherwise modified from time to time, and
(ii) any credit agreement, loan agreement, note purchase
agreement, indenture or other agreement, document or instrument
refinancing, refunding or otherwise replacing the New Credit
Agreement or any other agreement deemed a Credit Agreement under
clause (i) or (ii) hereof, whether or not with the same agent,
trustee, representative, lenders or holders, and, subject to the
proviso to the next succeeding sentence, irrespective of any
changes in the terms and conditions thereof. Without limiting
the generality of the foregoing, the term "Credit Agreement"
shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to any
Credit Agreement, including any agreement (x) extending the
maturity of any Indebtedness incurred thereunder or contemplated
thereby, (y) adding or deleting borrowers or guarantors
thereunder, so long as borrowers and issuers include only the
Company and its Subsidiaries and their respective successors and
assigns or (z) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder, provided that
on the date thereof such Indebtedness would be Permitted
Indebtedness under clause (i) or (viii) of the definition of
Permitted Indebtedness.
"Currency Agreement" means any foreign exchange
contract, currency swap agreement or other similar agreement or
arrangement designed to protect the Company or any Subsidiary
against fluctuations in currency values.
"Default" means any event that is, or after notice
or passage of time or both would be, an Event of Default.
"Default Rate" means a rate of interest per annum
equal to the rate per annum of interest provided in the New Notes
plus 200 basis points.
"Event of Default" means the events described
above under " _ Events of Default."
"Fair Market Value" means, with respect to any
asset or property, the sale value that would be obtained in an
arm's length transaction between an informed and willing seller
under no compulsion to sell and an informed and willing buyer
under no compulsion to buy. "Fair Market Value" shall be
determined by the Board of Directors of the Company acting in
good faith and shall be evidenced by a duly and properly adopted
resolution of the Board of Directors set forth in an officers'
certificate delivered to the New Trustee.
"GAAP" means generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in
effect as of the Issue Date.
"Guarantee" means, collectively, the Parent
Guarantee and any Subsidiary Guarantee.
"Guarantor" means, collectively, (i) Holding,
(ii) any Subsidiary Guarantor and (iii) any successor or assign
of a Guarantor.
"Guaranty" means, as applied to any obligation or
liability, (i) a guaranty (other than by endorsement of
negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner, of any part or all
of such obligation, liability or Indebtedness of another Person
and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation, liability
or Indebtedness of another Person, including, without limiting
the foregoing, the payment of amounts drawn down by letters of
credit, and the terms "guarantees" and "guaranteed" shall have
correlative meanings. Notwithstanding anything herein to the
contrary, a guaranty shall not include any agreement solely
because such agreement creates a Lien on the assets of any
person.
"Incur" means, with respect to any Indebtedness or
other obligation of any Person, to create, issue, incur (by
conversion, exchange or otherwise), assume, guaranty (including
the guaranty of Indebtedness of a Subsidiary or other Affiliate
of such Person) or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required
pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence,"
"Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided that the accrual of
interest (whether such interest is payable in cash or in kind)
and the accretion of original issue discount shall not be deemed
an Incurrence of Indebtedness; provided, further that (a) any
Indebtedness or Redeemable Capital Stock of a Person existing at
the time such Person becomes (after the date of the New
Indenture) a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) of the Company shall be deemed to be
Incurred for purposes of the New Indenture covenant with respect
to limitations on indebtedness (see " _ Certain Covenants" above)
by such Subsidiary at the time it becomes a Subsidiary of the
Company and (b) any amendment, modification or waiver of any
document pursuant to which Indebtedness was previously incurred
shall be deemed to be an Incurrence of Indebtedness unless such
amendment, modification or waiver does not (i) increase the
principal or premium thereof or interest rate thereon (including
by way of original issue discount), (ii) change to an earlier
date the stated maturity thereof or the date of any scheduled or
required principal payment thereon or the time or circumstances
under which such Indebtedness may or shall be redeemed or the
Average Life to Stated Maturity thereof, (iii) if such
Indebtedness is subordinated to the Securities, modify or affect,
in any manner adverse to the holders, such subordination, (iv) if
the Company is the obligor thereon, provide that a Subsidiary of
the Company not already an obligor thereon shall be an obligor
thereon or (v) violate, or cause the Indebtedness to violate, the
provisions of the New Indenture covenant with respect to
limitation on dividends and other payment restrictions affecting
Subsidiaries, as described above under " _ Certain Covenants."
"Indebtedness" means, with respect to any Person,
without duplication, (i) all liabilities, contingent or
otherwise, of such Person (a) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (b) evidenced by bonds,
notes, debentures or similar instruments or representing the
balance deferred and unpaid of the purchase price of any property
or (c) for the payment of money relating to a Capital Lease
Obligation; (ii) obligations of such Person in respect of letters
of credit (including reimbursement obligations with respect
thereto); (iii) Interest Swap Obligations of such Person or
obligations of such Person with respect to the Currency
Agreements; (iv) all liabilities of others of the kind described
in the preceding clause (i), (ii), (iii) that (a) such Person has
guaranteed, (b) have been Incurred by a partnership in which it
is a general partner (to the extent such Person is liable,
contingently or otherwise therefor) or (c) are otherwise its
legal liability (other than endorsements for collection in the
ordinary course of business); and (v) all obligations of others
secured by a Lien to which any of the properties or assets
(including, without limitation, leasehold interests and any other
tangible or intangible property rights) of such Person are
subject, whether or not the obligations secured thereby shall
have been assumed by such Person or shall otherwise be such
Persons's legal liability; provided, however, that
notwithstanding anything in the forgoing that may be deemed to be
to the contrary, Indebtedness shall not include (i) any Trade
Payables and any other accrued current liabilities Incurred in
the ordinary course of business as the deferred purchase price of
property acquired in the ordinary course of business; (ii)
liabilities arising from guarantees to suppliers, lessors,
contractors, franchisees or customers Incurred in the ordinary
course of business (exclusive of obligations for the payment of
money borrowed); and (iii) liabilities from the draft or similar
instrument drawn against insufficient funds in the ordinary
course of business; provided that such liabilities are
extinguished within five Business Days of their Incurrence and
(iv) prepayments of, or loans and advances with respect to, any
receivables owing to the Company or any Subsidiary under the AWG
Supply Agreement. The amount of Indebtedness of any Person at
any date shall be, without duplication, (i) the outstanding
balance at such date of all unconditional obligations as
described above and the maximum liability of any such contingent
obligations at such date and (ii) in the case of Indebtedness of
others secured by a Lien to which the property or assets owned or
held by such Person is subject but which is otherwise nonrecourse
to such Person, the lesser of the Fair Market Value at such date
of any assets subject to a Lien securing the Indebtedness of
others and the amount of the Indebtedness secured.
"Interest Swap Obligations" means the obligations
of any Person pursuant to any arrangement with any other Person
whereby, directly or indirectly, such person is entitled to
receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated
notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or floating rate of
interest on the same notional amount and shall include any
interest rate protection agreement, interest rate future,
interest rate option or other interest rate hedge arrangement.
"Investment" means, directly or indirectly, (i)
any advance, loan or other extension of credit or capital
contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for
the account or use of others), (ii) any purchase or acquisition
by such Person of any stock, bonds, notes, debentures or other
debt or equity interests or other securities issued or owned by
any other Person or (iii) any purchase or acquisition by such
Person of any group of assets constituting a business.
Investments shall not include extensions of trade credit on
commercially reasonable terms in accordance with normal trade
practices of the Company and its Subsidiaries.
"Lien" means any mortgage, charge, pledge, lien,
privilege, security interest or encumbrance of any kind
(including any conditional sale or other title retention
agreement).
"Material Adverse Effect" means, with respect to
the Company, any circumstance, change, event, transaction, loss,
failure or other occurrence of a business, economic, financial or
other operational nature, any development involving compensation
of or relations with employees and any determination in any
litigation, arbitration or governmental investigation or
proceeding, having, in any such case, a material adverse effect
on (a) the business, assets, properties, revenues, financial
condition or operations of the Company and its Subsidiaries,
taken as a whole, or (b) the ability of the Company to perform
any of its obligations under the New Indenture.
"Net Cash Proceeds" means, with respect to any
Asset Sale, the proceeds in the form of cash or Cash Equivalents
(including payments in respect of deferred payment obligations
when received in the form of cash or Cash Equivalents) received
by the Company or any of its Subsidiaries from such Asset Sale,
net of (i) reasonable out-of-pocket expenses and fees (including,
without limitation, brokerage commissions and fees and expenses
of legal counsel and investment bankers) relating to such Asset
Sale, (ii) taxes paid or payable as a result of such Asset Sale
(including, without limitation, income taxes reasonably estimated
to be actually payable as a result of any disposition of property
within two years of the date of such disposition and after taking
into account any reduction in tax liability due to available tax
credits or deductions and any tax sharing arrangements),
(iii) repayment of Indebtedness that is required to be repaid in
connection with such Asset Sale and (iv) appropriate amounts to
be provided by the Company or any Subsidiary of the Company, as
the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and
retained by the Company or any Subsidiary of the Company, as the
case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate
delivered to the New Trustee; provided, however, that the amount
of any such reserve shall constitute Net Cash Proceeds if and
when it no longer is required to be maintained in accordance with
GAAP but only to the extent that the amount originally reserved
was not utilized for its specified purpose.
"New Credit Agreement" means the Credit Agreement,
dated as of , 1996, among the Company, Holding, as
guarantor, the lenders named therein and , as agent for
such lenders.
"Other Permitted Liens" means (i) Liens for taxes,
assessments, governmental charges or claims which are not yet
delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets
subject to such Lien, and for which a reserve or other
appropriate provision, if any, as shall be required in conformity
with GAAP shall have been made; (ii) statutory Liens of
landlords, vendors and laborers and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's, or other like
Liens arising in the ordinary course of business and with respect
to amounts which are not yet delinquent or which are being
contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale
of the property or assets subject to such Lien, and for which a
reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made; (iii) Liens Incurred or
deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other
types of social security or other insurance-related obligations
(including, without limitation, in respect of deductibles, self-
insured retention amounts and premiums and adjustments thereto);
(iv) Liens Incurred or deposits made to secure the performance of
tenders, bids, leases, public or statutory obligations, surety
and appeal bonds, government contracts, progress payments,
performance and return-of-money bonds and other obligations of a
like nature Incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(v) zoning restrictions, licenses, covenants, reservations,
easements, rights-of-way, restrictions, minor defects or
irregularities in title (and with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances Incurred or
permitted to exist and arising by, through or under a landlord or
owner of the leased property, with or without consent of the
lessee) and other similar charges or encumbrances not interfering
in any material respect with the business of the Company or any
Subsidiary Incurred in the ordinary course of business; and
(vi) Liens Incurred in the ordinary course of business securing
reimbursement obligations with respect to commercial letters of
credit permitted under the New Indenture which encumber documents
and other property relating to such letters of credit or products
and proceeds thereof.
_ New Notes theretofore canceled by the New
Trustee or delivered to the New Trustee for cancellation; New
Notes, or portions thereof, for whose payment, redemption or
purchase money in the necessary amount has been theretofore
deposited with the New Trustee or any Paying Agent (other than
the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for
the holders of such New Notes, and the New Trustee or such Paying
Agent is not prohibited from paying such money to the holders on
that date pursuant to the terms of the subordination provisions
of the New Indenture (see " _ Subordination" above; provided
that, if such New Notes are to be redeemed, notice of such
redemption has been duly given pursuant to the New Indenture or
provision therefor satisfactory to the New Trustee has been made;
New Notes, except to the extent provided in the defeasance
provisions of the New Indenture, with respect to which the
Company has effected defeasance as provided in the defeasance
provisions of the New Indenture; and New Notes in exchange for
or in lieu of which other New Notes have been authenticated and
delivered pursuant to the New Indenture, other than any such New
Notes in respect of which there shall have been presented to the
New Trustee proof satisfactory to it that such New Notes are held
by a bona fide purchaser in whose hands the New Notes are valid
obligations of the Company; provided, however, that, in
determining whether the holders of the requisite principal amount
of Outstanding New Notes have given any request, demand,
direction, consent or waiver under the New Indenture, New Notes
owned by the Company, any Guarantor, or any other obligor upon
the New Notes, or any Affiliate of the Company or such other
obligor, shall be disregarded and deemed not to be outstanding,
except that, in determining whether the New Trustee shall be
protected in relying upon any such request, demand, direction,
consent or waiver, only New Notes which the New Trustee knows to
be so owned shall be so disregarded. New Notes so owned which
have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the New Trustee
the pledgee's right so to act with respect to such New Notes and
that the pledgee is not the Company, any Guarantor, or any other
obligor upon the New Notes or any Affiliate of the Company or
such other obligor.
_
"Parent Guarantee" means the Guarantee of Holding
incorporated in the guarantee provisions of the New Indenture and
made a part of the New Notes.
"Payment Restriction" means with respect to a
Subsidiary of any Person, any encumbrance, restriction or
limitation, whether by operation of the terms of its charter or
by reason of any agreement, instrument, judgment, decree or
order, on the ability of (i) such Subsidiary to (a) pay dividends
or make other distributions on its Capital Stock or make payments
on any obligation, liability or Indebtedness owed to such Person
or any other Subsidiary of such Person, (b) make loans or
advances to such Person or any other Subsidiary of such Person,
or (c) transfer any of its properties or assets to such Person or
any other Subsidiary of such Person, or (ii) such Person or any
other Subsidiary of such Person to receive or retain any such (a)
dividends, distributions or payments, (b) loans or advances, or
(c) transfer of properties or assets.
"Permitted Holder" means any "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the 1934
Act) that "beneficially owns" (as defined in Rule 13d-3 under the
1934 Act, provided that a "person" or "group" shall be deemed to
be a "beneficial owner" for purposes of this definition even if
its right to acquire beneficial ownership of Voting Stock arises
after a 60-day period) more than five percent (5%) of the Voting
Stock of Holding as of the Issue Date. Notwithstanding the
foregoing, "Permitted Holder" shall not include any Person who,
together with its Affiliates, "beneficially owns" more than 50%
of the Voting Stock of the Company or Holding as of any date
after the Issue Date, excluding from the calculation of such
Person's "beneficial ownership" any Voting Stock that such Person
and its Affiliates would be deemed to "beneficially own" solely
by reason of its (or their) membership in a "group."
"Permitted Indebtedness" means any of the
following Indebtedness of the Company or any Subsidiary, as the
case may be: (i) Indebtedness of the Company under the Credit
Agreement in an aggregate principal amount at any time
outstanding not to exceed the greater of (x) $37,500,000, less
(1) the amount of any scheduled principal payments actually made
(excluding, without limitation, any prepayments required to be
made based upon the Company's excess cash flow) or the amount of
any other prepayments which are applied or credited against
scheduled principal payments on the date such scheduled principal
payments would otherwise have been made (except to the extent
refinanced under a replacement Credit Agreement at the time of
the respective repayment) by the Company or any Guarantor in
respect of any term loans under the Credit Agreement and (2) the
amount by which the aggregate commitment under any revolving
credit facility under the Credit Agreement at any time has been
permanently reduced to the extent, if any, that any repayments
required to be made in connection with effecting such permanent
reduction have been made (it being understood that to the extent
a reduction in commitments under any revolving credit facility
under the Credit Agreement arises solely in connection with a
refinancing of outstanding amounts under such revolving credit
facility with borrows under a replacement Credit Agreement and
the commitments under the Credit Agreement are thereby replaced
with commitments under such replacement Credit Agreement such a
permanent reduction shall not have occurred); and (y) the amount
equal to the sum of (1) 75% of the net book value of accounts
receivable not more than 90 days old, as determined in accordance
with GAAP (2) 50% of the net book value of inventory (determined
on a first-in-first-out basis) of the Company and its
Subsidiaries on a consolidated basis at the time such
Indebtedness is Incurred, as determined in accordance with GAAP,
and (3) $10 million; (ii) Indebtedness of the Company under the
New Notes; (iii) Indebtedness of the Company or any of its
Subsidiaries consisting of Capital Lease Obligations and Purchase
Money Obligations so long as the aggregate amount of such
Indebtedness Incurred during any fiscal year does not exceed
$10 million; (iv) Indebtedness of a Subsidiary to the Company or
to a Wholly Owned Subsidiary; (v) Indebtedness of the Company to
a Wholly Owned Subsidiary of the Company which is unsecured and,
unless owing to a Guarantor, subordinated in right of payment to
the payment and performance of the Company's obligations under
the New Indenture and the New Notes; provided, however, that any
subsequent issuance or transfer of Capital Stock that results in
such Wholly Owned Subsidiary ceasing to be such, or any
subsequent transfer of such Indebtedness (other than to the
Company or a Wholly Owned Subsidiary) will be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the
Company or of such Indebtedness by such Wholly Owned Subsidiary;
(vi) Indebtedness which represents the assumption by the Company
of Indebtedness of any Wholly Owned Subsidiary; (vii)
Indebtedness under Currency Agreements, Interest Swap Obligations
and other agreements between the Company or a Subsidiary and one
or more financial institutions providing for "swap," "cap,"
"collar" or other interest rate protection on other Permitted
Indebtedness; (viii) Indebtedness not to exceed an aggregate
principal amount of $5 million at any one time outstanding in
addition to the Indebtedness otherwise permitted by the New
Indenture, which Indebtedness may be incurred under the New
Credit Agreement; (ix) Indebtedness Incurred in respect of
performance bonds and surety bonds; (x) Indebtedness represented
by letters of credit issued in the ordinary course of business
for the account of the Company or any Subsidiary not exceeding an
aggregate amount of $2.5 million at any one time outstanding (in
addition to any letters of credit issued under the Credit
Agreement); (xi) Indebtedness represented by the obligations of
the Company, as they may exist from time to time, to repurchase
from any employee or director, or former employee or director, of
the Company or a Subsidiary, Capital Stock of the Company, or
options, warrants or rights therefor, issued pursuant to any
compensatory plan of the Company; (xii) Indebtedness consisting
of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with the acquisition or
disposition of assets permitted under the New Indenture;
(xiii) Guarantees in respect of Indebtedness Incurred by officers
or employees of the Company or any Subsidiary in the ordinary
course of business and payments in discharge thereof in an amount
not to exceed the excess of (x) $500,000 at any time outstanding
over (y) the aggregate amount, if any, paid after the Issue Date
in respect of such guarantees; and (xiv) Permitted Refinancing
Indebtedness the proceeds of which are used to refinance
outstanding Permitted Indebtedness of the Company or any
Subsidiary.
Any calculation of the amount of outstanding
Indebtedness under any of the foregoing clauses, shall take into
account: (A) the principal amount then outstanding that was
originally Incurred pursuant to such clause; (B) any outstanding
Indebtedness Incurred pursuant to clause (xiv) to refinance or
refund Indebtedness originally Incurred pursuant to such clause;
and (C) any subsequent refinancings or refundings thereof.
"Permitted Investment" means any of the following:
(i) Investments in Subsidiaries outstanding as of the Issue Date
and additional Investments in such Subsidiaries or other Persons
so long as, immediately after such Investment, such Subsidiary or
other Person will be a Wholly Owned Subsidiary (including,
without limitation, Investments in the Capital Stock of such
Subsidiary or other Person but excluding Investments in any other
Person that would constitute the acquisition of a business, which
is subject to clause (xiv) below); (ii) Investments by Wholly
Owned Subsidiaries in the Company; (iii) (a) Investments in
commercial paper rated P-1 by Moody's Investors Service, Inc. or
A-1 by Standard & Poor's Corporation on the date of acquisition,
(b) certificates of deposit of United States commercial banks
(having a combined capital and surplus in excess of
$100,000,000), (c) obligations of, or guaranteed by, the United
States government or any agency thereof, (d) money market funds
organized under the laws of the United States or any state
thereof that invest substantially all their assets in any of the
types of investments described in subclause (a), (b) or (c) of
this clause (iii), or (e) to the extent not comprehended by
subclauses (a) through (d) of this clause (iii), Cash
Equivalents; (iv) Investments in, or consisting of, negotiable
instruments held for collection; outstanding travel,
entertainment, moving and other like loans and advances to
officers, employees and consultants; lease, utility and other
similar deposits; or stock, obligations or securities received in
settlement of claims owing to the Company or a Subsidiary as a
result of a composition or readjustment of debt or a
reorganization of any debtor, in each of the foregoing cases in
the ordinary course of business of the Company or a Subsidiary,
as the case may be; (v) Investments consisting of accounts
receivable owing to the Company or any Subsidiary created in the
ordinary course of business; (vi) Investments in (a) AWG
Membership Stock and (b) AWG members deposit certificates,
patronage refund certificates or similar types of AWG Equity
received or earned by the Company from time to time based on the
Company's gross purchases from AWG pursuant to the AWG Supply
Agreement or in lieu of receiving cash rebates or refunds from
AWG; (vii) Investments in (a) the capital stock of other retail
purchasing cooperatives in connection with becoming a member of
such cooperatives and (b) additional capital stock of such
cooperatives which is received or earned by the Company based on
the Company's gross purchases from such cooperatives or in lieu
of receiving cash rebates or refunds from such cooperatives,
provided that in each case, such stock is purchased, received or
earned in connection with a supply agreement or arrangement
between the Company and such cooperative which is on terms at
least as favorable to the Company as the terms that could be
obtained by the Company in a comparable transaction made on an
arm's length basis with another cooperative, wholesaler or
supplier; (viii) Investments consisting of non-cash consideration
from any Asset Sale made pursuant to and in compliance with the
asset sale provisions of the New Indenture (see " _ Certain
Covenants _ Limitations on Asset Sales;" (ix) Investments
consisting of loans, advances, dividends or distributions by the
Company to Holding not to exceed an amount necessary to permit
Holding to pay (a) its costs (including all professional fees and
expenses) Incurred to comply with its reporting requirement
provisions of the New Indenture (see " _ Certain Covenants _ SEC
Reports") and (b) its other operational expenses (other than
taxes) incurred in the ordinary course of business and not
exceeding $250,000 in the aggregate any fiscal year; (x)
Investments consisting of Indebtedness permitted under item (vii)
of the definition of Permitted Indebtedness; (xi) Investments in
any of the New Notes; (xii) Investments consisting of guarantees
in respect of Indebtedness Incurred by officers or employees in
the ordinary course of business and payments in discharge thereof
in an amount not to exceed the excess of (x) $500,000 at any time
outstanding over (y) the aggregate amount, if any, paid after the
Issue Date in respect of such guarantees; (xiii) Investments
consisting of loans or advances to officers, directors or
employees incurred prior to the Issue Date and any extensions,
renewals, refundings or refinancings thereof, provided that the
aggregate amount of such loans and advances shall not exceed
$150,000 at any time outstanding; (xiv) Investments in any group
of assets constituting a business in an amount not to exceed $5
million in the aggregate in any fiscal year; (xv) Investments in
joint ventures formed for the purpose of purchasing and operating
of grocery stores in the aggregate amount of $3 million at any
time outstanding; and (xvi) Investments in the aggregate amount
of $5,000,000 at any time outstanding.
"Permitted Liens" means (i) Liens existing as of
the Issue Date; (ii) Liens securing Indebtedness outstanding
under the Credit Agreement (whether or not existing on the Issue
Date); (iii) Liens as of the date of the New Indenture or
thereafter securing any obligations with respect to Interest Swap
Obligations, Currency Agreements and other agreements between the
Company or a Subsidiary and one or more financial institutions
providing for "swap," "cap," "collar" or other interest rate
protection on other Permitted Indebtedness; (iv) Liens securing
Acquired Indebtedness created prior to (and not in connection
with or in contemplation of) the Incurrence of such Indebtedness
by the Company or any Subsidiary; (v) Purchase Money Liens and
Liens to secure Capital Lease Obligations permitted under the New
Indenture covering only the property acquired with such
Indebtedness; (vi) Liens securing Permitted Refinancing
Indebtedness; provided that such Liens extend to or cover only
the property or assets then securing the Indebtedness being
refinanced; (vii) any Liens which may be granted to secure the
Securities or any Guarantees; (viii) Liens in favor of the
Company or any Subsidiary of the Company (other than Liens in
favor of the Company or any Subsidiary); (ix) Liens securing
Indebtedness permitted to be incurred under clause (x) of the
definition of Permitted Indebtedness; (xi) the AWG Liens; and
(xii) Other Permitted Liens.
"Permitted Refinancing Indebtedness" means any
Indebtedness of the Company or any of its Subsidiaries issued in
exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness
of the Company or any of its Subsidiaries; provided that (i) the
principal amount of such Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith), (ii) with
respect to Indebtedness that is not Senior Indebtedness (a) such
Indebtedness has an Average Life to Stated Maturity equal to or
greater than and a final maturity no earlier than the Average
Life to Stated Maturity and final maturity of the Indebtedness
being extended, refinanced, renewed, replaced, defeased or
refunded, and (b) such Indebtedness is subordinated in right of
payment pursuant to terms at least as favorable to the holders of
Securities as those, if any, contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded and (iii) no such Indebtedness
Incurred by the Company is extended, refinanced, renewed,
replaced, defeased or refunded with Indebtedness Incurred by a
Subsidiary.
"Preferred Stock" means, with respect to any
Person, any and all shares, interests, participations or other
equivalents (however designated) of such Person's preferred or
preference stock whether now outstanding or issued after the date
of the New Indenture, and includes, without limitation, all
classes and series of preferred or preference stock.
"Purchase Money Liens" means Liens to secure or
securing Purchase Money Obligations permitted to be Incurred
under the New Indenture.
"Purchase Money Obligations" means Indebtedness
representing, or Incurred to finance, the cost (a) of acquiring
any assets and (b) of construction or improvement of property, in
each case for use in the business of the Company and its
Subsidiaries (including Purchase Money Obligations of any other
Person at the time such other Person is merged with or is
otherwise acquired by the Company or a Subsidiary); provided that
(i) the principal amount of such Indebtedness does not exceed
100% of such cost, including construction or improvement costs,
(ii) any Lien securing such Indebtedness does not extend to or
cover any other asset or property other than the asset or
property being so acquired, constructed or improved and
(iii) such Indebtedness is Incurred, and any Liens with respect
thereto are granted, within 180 days of the acquisition of such
property or asset.
"Redeemable Capital Stock" means Capital Stock
that either by its terms, by the terms of any security into which
it is convertible or exchangeable or otherwise, is or upon the
happening of an event or passage of time would be required to be
redeemed prior to the Stated Maturity of the principal of the New
Notes or is redeemable at the option of the holder thereof at any
time prior to the Stated Maturity of the principal of the New
Notes, or is convertible into or exchangeable for debt securities
at any time prior to such Stated Maturity.
"Senior Indebtedness" means the principal of,
premium, if any, and accrued and unpaid interest on (including,
without limitation, interest at the contract rate subsequent to
the commencement of any bankruptcy, insolvency or similar
proceeding with respect to the Company and with respect to the
Credit Agreement only, such interest whether or not a claim
therefor is allowed in such proceeding) and any reasonable fees
and reasonable expenses payable under or in respect of
Indebtedness of the Company under the Credit Agreement.
"Subsidiary" means, with respect to any Person,
(i) a corporation a majority of whose Voting Stock is at the
time, directly or indirectly, owned by such Person, by one or
more Subsidiaries of such Person or by such Person and one or
more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, one or more Subsidiaries
thereof or such Person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof has
at least a majority ownership interest. Unless the context
indicates otherwise, the term "Subsidiary" shall mean a
Subsidiary of the Company or one or more Subsidiaries of the
Company.
"Subsidiary Guarantees" means the Guarantees of
the Subsidiary Guarantors, substantially in the form attached as
an exhibit to the New Indenture, as such Guarantee may be
amended, modified or supplemented from time to time.
"Subsidiary Guarantor" means any Subsidiary that
executes a Subsidiary Guarantee and any successor or assign of
such Subsidiary Guarantor.
"Trade Payables" means any accounts payable or any
other indebtedness or monetary obligation to trade creditors
created, assumed or guaranteed by a Person arising in the
ordinary course of business of such Person in connection with the
acquisition of goods and services.
"Voting Stock" means, with respect to any Person,
(i) one or more classes of the Capital Stock of such Person
having general voting power to elect at least a majority of the
board of directors, managers or trustees of such Person
(irrespective of whether or not at the time Capital Stock of any
other class or classes have or might have voting power by reason
of the happening of any contingency) and (ii) any Capital Stock
of such Person convertible or exchangeable without restriction at
the option of the holder thereof into Capital Stock of such
Person described in clause (i) above.
"Wholly Owned Subsidiary" means, with respect to
any Person, a Subsidiary of such Person all of the outstanding
Capital Stock of which shall at the time be owned by such Person
or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such
Person.
XVII. DESCRIPTION OF NEW COMMON STOCK
A. General
On the Effective Date, Holding will be authorized
to issue 7,500,000 shares of New Common Stock, of which 4,700,000
million shares will be issued under the Plan, 263,158 shares will
be reserved for issuance under the New Warrants, 263,158 shares
will be reserved for issuance under the Management Stock Option
Plan and 522,222 shares will be reserved for issuance under the
Modified Union Agreements. All of the shares to be issued under
the Plan will be validly issued, fully paid and non-assessable.
Each holder of New Common Stock will be entitled
to one vote for each share held of record on each matter
submitted to the shareholders. Cumulative voting for the
election of directors will not be permitted.
Holders of New Common Stock will be entitled to
receive dividends to the extent that Holding's Board of Directors
declares such dividends out of the funds legally available for
the payment of dividends. The Debtors expect that the New Credit
Agreement and the New Indenture will restrict the ability of
Holding to pay dividends on the New Common Stock. See "RISK
FACTORS _ Risks Relating to the New Securities _ No Dividends."
Upon the dissolution of Holding, each holder of
New Common Stock will participate, pro rata, in any distribution
of the assets of Holding after payment of, or provision for, all
of the other obligations of Holding.
Holders of New Common Stock will have no
conversion, preemptive or redemption rights.
Under the Plan, Holding has undertaken to use its
best efforts to secure the listing of the New Common Stock on the
NASDAQ National Market System (or, in the event Holding fails to
meet the listing requirements of the NASDAQ National Market
System, on such other exchange or system on which the New Common
Stock may be listed) as soon as practicable following the
Effective Date. There can be no assurance, however, that the New
Common Stock will be listed on the NASDAQ National Market System
or such other exchange or system.
B. Registration Rights Agreements
1. General
In connection with the Restructuring, Holding will
grant certain registration rights under the Equity Registration
Rights Agreement to the holders of the Old Common Stock (Class 7
Interests) who receive New Common Stock and New Warrants pursuant
to the Plan.
Pursuant to the Noteholder Registration Rights
Agreement, Holding and/or the Company (as applicable) also will
grant certain registration rights to those holders of the Old
Notes (Class 5 Claims) who receive New Common Stock and New Notes
pursuant to the Plan.
2. Equity Registration Rights Agreement
Pursuant to the Equity Registration Rights
Agreement, Holding will grant certain registration rights to
those holders of Old Common Stock who receive New Securities
pursuant to the Plan and continue to hold such New Securities as
of the date of a registration request (the "Remaining Class 7
Holders").
The Equity Registration Rights Agreement will
provide that following the second anniversary of the Effective
Date, Remaining Class 7 Holders holding at least 50% of the New
Equity Securities issued to holders of Class 7 Interests pursuant
to the Plan (the "Requisite Class 7 Percentage") will have the
right to initiate one demand that Holding register under the
Securities Act all or any portion of the New Securities acquired
by them pursuant to the Plan or the shares of New Common Stock
issuable upon exercise of the New Warrants (the "Registrable
Class 7 Securities"). After receipt of a registration demand,
Holding will notify all other Remaining Class 7 Holders (who have
previously identified themselves to Holding as Remaining Class 7
Holders) of the registration demand. Such other Remaining Class
7 Holders will be entitled to request that some or all of their
Registrable Class 7 Securities be included in such registration.
Such Registrable Class 7 Securities will be included in such
registration subject to certain priority cutbacks.
Following receipt of a proper demand, Holding
and/or the Company will be required to file a registration
statement under the Securities Act for all Registrable Class 7
Securities requested to be included in such registration.
Holding will pay all expenses in connection with such
registration, including expenses of one counsel representing the
selling security holders. No registration request may be made
sooner than six months after the termination of effectiveness of
Holding's most recent registration statement under the Securities
Act for New Common Stock or New Warrants. Holding is entitled to
postpone, once in any 360-day period, any demand registration for
a period not to exceed 180 days if Holding's Board of Directors
determine that such registration would interfere with any
proposed financing, acquisition or other extraordinary corporate
action or would otherwise have a material adverse effect on
Holding.
Holding will not grant any piggyback registration
rights to any other person with respect to the registration
covered by the Equity Registration Rights Agreement. In
addition, except as described above, the Remaining Class 7
Holders will not have any piggyback registration rights with
respect to any registration of Holding's equity securities under
the Securities Act. The registration rights contained in the
Equity Registration Rights Agreement are not transferable and may
be exercised only by the Remaining Class 7 Holders with respect
to the New Securities issued to them pursuant to the Plan in
exchange for their Old Common Stock. The Remaining Class 7
Holders will agree not to sell their New Securities for seven
days prior to, and 180 days after, the effectiveness of any
registration of shares of New Securities, other than pursuant to
such registration.
The Equity Registration Rights Agreement will
terminate with respect to the registration of the Registrable
Class 7 Securities on the earlier of (a) the seventh anniversary
of the Effective Date and (b) such time as the Registrable Class
7 Securities no longer represent the Requisite Class 7
Percentage.
3. Noteholder Registration Rights Agreement
Pursuant to the Noteholder Registration Rights
Agreement, Holding and/or the Company (as applicable) will grant
certain registration rights to those holders of Old Notes who
will receive New Securities pursuant to the Plan and continue to
hold such New Securities (the "Remaining Class 5 Holders").
The Noteholder Registration Rights Agreement will
provide that following the second anniversary of the Effective
Date, Remaining Class 5 Holders holding at least 10% of the then
shares of New Common Stock issued pursuant to the Plan (the
"Requisite Class 5 Percentage") will have the right to initiate
one demand that Holding and/or the Company (as applicable)
register under the Securities Act all or any portion of the
shares of New Securities acquired by them pursuant to the Plan
(the "Registrable Class 5 Securities"). After receipt of a
registration demand, Holding and/or the Company (as applicable)
will notify all other Remaining Class 5 Holders (who have
previously identified themselves to Holding and/or the Company
(as applicable) as Remaining Class 5 Holders) of the registration
demand. Such other Remaining Class 5 Holders will be entitled to
request that some or all of their Registrable Class 5 Securities
be included in such registration. Such Registrable Class 5
Securities will be included in such registration subject to
certain priority cutbacks.
Following receipt of a proper demand, Holding
and/or the Company (as applicable) will be required to file a
registration statement under the Securities Act for all
Registrable Class 5 Securities requested to be included in such
registration. Holding and/or the Company (as applicable) also
will pay all expenses in connection with such registration,
including expenses of one counsel representing the selling
securityholders. No registration request may be made sooner than
six months after the termination of effectiveness of Holding's
most recent registration statement under the Securities Act for
New Common Stock or New Warrants. Holding is entitled to
postpone, once in any 360-day period, any demand registration for
a period not to exceed 180 days if the Board of Directors of
Holding and/or the Company (as applicable) determines that such
registration would interfere with any proposed financing,
acquisition or other extraordinary corporate action or would
otherwise have a material adverse effect on Holding and/or the
Company (as applicable).
Holding and the Company will not grant any
piggyback registration rights to any other person with respect to
the registration covered by the Noteholder Registration Rights
Agreement. In addition, except as described above, the Remaining
Class 5 Holders will not have any piggyback registration rights
with respect to any registration of Holding's equity securities
under the Securities Act. The registration rights contained in
the Noteholder Registration Rights Agreement are not transferable
and may be exercised only by the Remaining Class 5 Holders with
respect to the shares of New Securities issued to them pursuant
to the Plan in exchange for their Old Notes. The Remaining Class
5 Holders will agree not sell their New Securities for seven days
prior to, and 180 days after, the effectiveness of any other
registration of shares of New Securities, other than pursuant to
such registration.
The Noteholder Registration Rights Agreement will
terminate with respect to the registration of shares of
Registrable Class 5 Securities, on the earlier of (a) the seventh
anniversary of the Effective Date and (b) such time as the
Registrable Class 5 Securities no longer represent the Requisite
Class 5 Percentage.
XVIII. DESCRIPTION OF NEW WARRANTS
A. General
In connection with the Restructuring, New
Warrants will be issued to the holders of the Old Common Stock
pursuant to a new warrant agreement (the "New Warrant
Agreement") between Holding and a financial institution selected
by Holding, as warrant agent (the "Warrant Agent"). The New
Warrants will be transferable and evidenced by warrant
certificates issued in registered form. Holding will not issue
any New Warrants that are exercisable for fractional shares of
New Common Stock. Instead, the number of shares of New Common
Stock originally issuable upon exercise of any such New Warrant
will be rounded up to the nearest whole number.
Holders of New Warrants will be entitled to
benefits under the Equity Registration Rights Agreement with
respect to their New Warrants. See "DESCRIPTION OF NEW COMMON
STOCK _ Registration Rights Agreements."
B. Exercise of New Warrants
Upon issuance, each New Warrant will entitle the
holder thereof to purchase, at any time prior to the fifth
anniversary of the Effective Date (the "New Warrant Expiration
Date"), a specified number of shares of New Common Stock at an
exercise price per share ("Exercise Price") initially equal to
$11.85, subject to adjustment upon the occurrence of certain
events. See "DESCRIPTION OF NEW WARRANTS _Adjustments."
The New Warrants may be exercised upon surrender
of a warrant certificate on or prior to the New Warrant
Expiration Date, accompanied by payment of the applicable
Exercise Price for the number of shares of New Common Stock with
respect to which the New Warrants are being exercised. To the
extent the holder of a warrant certificate does not exercise all
of the New Warrants represented by such warrant certificate, such
holder shall receive a new warrant certificate representing the
New Warrants not yet exercised.
C. Adjustments
The respective Exercise Prices and the number of
shares of New Common Stock issuable upon the exercise of the New
Warrants are subject to adjustment upon the issuance or sale by
Holding, without consideration or at a price per share less than
the Current Market Price (as defined below) per share of New
Common Stock, of (a) any additional shares of New Common Stock or
(b) any indebtedness or security convertible into, or
exchangeable for, shares of New Common Stock or of any right,
option or warrant to acquire shares of New Common Stock or any
security convertible into or exchangeable for shares of New
Common Stock.
If Holding declares or pays any dividend on the
New Common Stock payable in additional shares of New Common Stock
or subdivides the outstanding shares of New Common Stock into a
greater number of shares of New Common Stock or combines the
outstanding shares of New Common Stock into a lesser number of
shares of New Common Stock, the current Exercise Price and the
number of shares of New Common Stock issuable upon exercise of
the New Warrants will be proportionally adjusted.
If Holding declares or makes an extraordinary
dividend or other distribution on the New Common Stock
(including, without limitation, any distribution of other or
additional stock or other securities or property or options by
way of dividend or spin-off, reclassification, recapitalization
or similar corporate rearrangement) other than a regular periodic
dividend payable out of Holding's earned surplus, or a dividend
payable in shares of New Common Stock for which adjustment is
provided pursuant to the preceding paragraph, then, and in each
case, the current Exercise Price of the New Warrants will be
reduced by multiplying such current Exercise Price by a fraction
(1) the numerator of which will be the Current Market Price (as
defined below) of the New Common Stock in effect on the date of
determination less the value of such dividend or distribution (as
determined in good faith by the Board of Directors of Holding)
applicable to one share of New Common Stock, and (2) the
denominator of which will be such Current Market Price. For
purposes of the Warrant Agreement, (1) "Current Market Price"
means, with respect to the New Common Stock or voting common
stock of an acquiring person or its parent, the average daily
Market Price during the period of the most recent 20 consecutive
business days ending on the date of determination or, if shares
of New Common Stock are not then listed or admitted to trading on
any national securities exchange and if the closing bid and asked
prices thereof are not then quoted or published in the over-the-
counter market, the Market Price on such date and (2) "Market
Price" means, with respect to the New Common Stock or voting
common stock of an acquiring person or its parent, (a) the last
sale price of shares of New Common Stock, regular way, on such
date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each
case as officially reported on the principal national securities
exchange on which the New Common Stock is then listed or admitted
to trading, or (b) if the New Common Stock is not then listed or
admitted to trading on any national securities exchange but the
New Common Stock is designated as a national market system
security by the NASD, the last trading price of the New Common
Stock on such date, or if the New Common Stock is not so
designated, the average of the reported closing bid and asked
prices thereof on such date as shown by the NASD automated
quotation system or, if no shares thereof are then quoted in such
system, as published by the National Quotation Bureau,
Incorporated or any successor organization, and in either case as
reported by any member firm of the New York Stock Exchange
selected by Holding, or (c) if the New Common Stock is not then
listed or admitted to trading on any national exchange or
designated as a national market system security and if no closing
bid and asked prices thereof are then so quoted or published in
the over-the-counter market, the higher of (i) the book value
thereof as determined by agreement between Holding and a
majority of the holders of the New Warrants, or if Holding and
such holders fail to agree, by any firm of independent public
accountants of recognized national standing selected by the Board
of Directors of Holding, as of the last day of any month ending
within 60 days preceding the date as of which the determination
is to be made and (ii) the fair value thereof (as determined by
Holding and a majority of the holders of the New Warrants or, if
Holding and such holders fail to agree, by two or more
independent investment banking firms in the manner provided in
the New Warrant Agreement). See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES _ Federal Income Tax Consequences of Ownership and
Disposition of New Notes, New Common Stock, and New Warrants _
Disposition, Exercise, Expiration and Adjustment of New
Warrants."
In the event of any capital reorganization or
reclassification or any merger or consolidation of Holding or any
sale by Holding of substantially all of its assets, each holder
of a New Warrant will be entitled to receive, upon payment of the
aggregate Exercise Price then in effect, either of the following
(as such holder may elect by written notice to Holding on or
before the date immediately preceding the date of the
consummation of such transaction): either (a) the securities,
cash or other property, if any, that would have been
distributable in respect of the shares of New Common Stock
issuable under such New Warrants if exercised immediately prior
to such transaction (provided that if a purchase, tender or
exchange offer shall have been made to and accepted by the
holders of New Common Stock under circumstances in which, upon
completion of such purchase, tender or exchange offer, the maker
thereof and certain of its affiliates own beneficially more than
50% of the outstanding shares of New Common Stock, such holder
will be entitled to receive the securities, cash or other
property that would have been distributable in respect of the
shares of New Common Stock issuable under such holders New
Warrant if (i) such holder had exercised its New Warrant prior to
the expiration of such purchase, tender or exchange offer, (ii)
such holder had accepted such offer and (iii) all of the New
Common Stock held by such holder had been purchased pursuant to
such purchase, tender or exchange offer); or (b) if the
consideration that would have been distributable to such holder
is stock of the acquiring person, the number of shares of such
stock (or equivalent equity interests) of such acquiring person
equal to (i) the product of (1) the number of shares of New
Common Stock to which such holder would have been entitled had
such holder exercised its New Warrant immediately prior to the
consummation of such time transaction, times (2) the greater of
the acquisition price and the Exercise Price in effect on the
date immediately preceding the date of such consummation, divided
by (ii) the Current Market Price per share of such stock (or
equivalent equity interests) of such acquiring person.
No adjustment of the Exercise Price of the New
Warrants will be required to be made until cumulative adjustments
amount to 0.1% or more of such Exercise Price as last adjusted;
provided that, upon exercise of New Warrants, all adjustments
carried forward and not therefor made up to and including the
date of such exercise will be made to the nearest one-hundredth
of a cent. Upon the expiration of any rights, options, warrants
or conversion or exchange privileges that previously caused an
adjustment to the Exercise Price for the New Warrants, such
Exercise Price will be subject to certain readjustments.
Whenever the number of shares of New Common Stock purchasable
upon exercise of the New Warrants or the Exercise Price are
adjusted, the Warrant Agent will promptly notify each holder of
New Warrants of such adjustment or adjustments to such holder's
New Warrants.
D. Limitation on Right to Vote or Receive Dividends
No holder of New Warrants, as such, will be
entitled to any rights as a stockholder of Holding, including the
right to vote or to receive dividends or other distributions with
respect to the shares of New Common Stock, until such holder has
properly exercised the New Warrants in accordance with the terms
of the New Warrant Agreement.
XIX. DESCRIPTION OF THE NEW CREDIT AGREEMENT
On the Effective Date, the Company will enter into
the New Credit Agreement, the general terms of which must be
approved by the Committee. As of the date of this Disclosure
Statement, the Company is in discussions with a number of banks
potentially interested in providing this credit facility,
including the Old Banks. 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. In the event the Company is unable to enter into the
New Credit Agreement, the Company will not have sufficient
financing to consummate the Restructuring and may be forced to
pursue an orderly liquidation of its assets.
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 Company's modified
collective bargaining agreements (see "DESCRIPTION OF THE
MODIFIED UNION AGREEMENTS") and to pay certain transaction
expenses relating to the Restructuring. The Company expects that
its obligations under the New Bank 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.
While the covenants and events of default under the New Bank
Credit Agreement are expected to be similar to those contained in
the 1995 Credit Agreement, the specific nature of these covenants
is subject to discussion and will reflect, among other things,
the anticipated results of Company's operations and the Company's
revised capital structure following the completion of the
Restructuring.
XX. ACCOUNTING TREATMENT
The Debtors propose to
account for the Restructuring using the principles of "fresh-
start" accounting as required by SOP No. 90-7. Pursuant to such
principles, the Company's assets and liabilities will be revalued
as of the Effective Date. The assets will be stated at their
reorganized value ("Reorganization Value"), which is defined as
the value of the Company on a going-concern basis following the
Restructuring.
The restatement of the
Company's assets and liabilities, referred to as "fresh-start"
reporting, applies the following principles:
(A) The Company's
Reorganization Value is allocated to its assets as though the
Company had been acquired in a transaction reported using the
purchase method, under which specific tangible assets and
identified intangible assets of the Company are adjusted to their
fair market values. If any portion of the Reorganization Value
cannot be attributed to specific tangible or identified
intangible assets, such portion is reported as an intangible
asset identified as "reorganization value in excess of
identifiable assets," and such excess would then be amortized in
accordance with applicable financial reporting procedures.
(B) Each liability
existing on the Confirmation Date, other than deferred taxes, is
stated at the present value of the future amounts to be paid
thereon as determined by discounting such payments at an
appropriate current interest rate, if material.
(C) Deferred taxes are
reported in conformity with generally accepted accounting
principles. When realized, benefits from pre-confirmation net
operating loss carryforwards reduce the reorganization value in
excess of identifiable assets and other intangibles until such
excess is exhausted and thereafter are reported as a direct
addition to paid-in capital.
(D) Changes in
accounting principles that will be required in the Company's
financial statements within the twelve months following the
adoption of fresh-start reporting should be adopted at the time
the fresh-start reporting is adopted.
Adopting fresh-start
reporting in essence results in a new reporting entity with no
beginning retained earnings or deficit. The unaudited pro forma
financial statements set forth under "FINANCIAL INFORMATION _
Projected and Pro Forma Financial Information" and the projected
pro forma financial information set forth in "FINANCIAL
INFORMATION _ Projected and Pro Forma Financial Information"
reflect the adoption of fresh-start reporting on the bases
described herein.
XXI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of (A)
certain federal income tax consequences of the Restructuring to
holders of Old Notes, to holders of General Unsecured Claims, and
to holders of Old Common Stock, (B) certain federal income tax
consequences of the ownership and disposition of New Notes, New
Common Stock and New Warrants and (C) certain federal income tax
consequences of the Restructuring to the Debtors.
This discussion is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), final,
temporary and proposed Treasury regulations thereunder (the
"Treasury Regulations"), and administrative and judicial
interpretations thereof, all as in effect as of the date hereof
and all of which are subject to change (possibly on a retroactive
basis). The statements of law and legal conclusions set forth
below reflect the Debtors' view, based on the advice of their tax
counsel, of the appropriate interpretation of those provisions.
There can be no assurance that the Internal Revenue Service (the
"IRS") will not take a contrary view as to the federal income tax
consequences discussed below. No ruling from the IRS has been or
will be sought on any of the issues discussed below.
This discussion provides general information only
and does not purport to address all of the federal income tax
consequences that may be applicable to any particular holder
subject to special treatment under federal income tax law or to
any particular holder in light of such holder's particular facts
and circumstances. Certain holders, including broker-dealers,
tax-exempt entities, insurance companies, foreign persons, and
persons who acquired Old Notes or Old Common Stock in connection
with the performance of services, may be subject to special rules
not discussed below.
This discussion assumes that Old Notes and New
Notes each constitute debt rather than equity for federal income
tax purposes, and that holders hold Old Notes and Old Common
Stock, and will hold New Notes, New Common Stock, and New
Warrants, as capital assets within the meaning of Code section
1221. This discussion also assumes that holders (including
holders of General Unsecured Claims) compute their federal income
tax liability under the accrual method of accounting.
This discussion further assumes that the Old Notes
and the General Unsecured Claims do not constitute "securities"
within the meaning of the provisions of the Code governing
reorganizations. In general, a debt instrument constitutes a
"security" if it represents a participating, continuing interest
in the issuer, rather than merely the right to a cash payment.
Under present law, debt instruments with a five-year term or less
are generally not treated as securities. The change in interest
rate of the Old Notes on April 21, 1995, caused the Old Notes to
be treated as newly issued for federal income tax purposes.
Because the maturity date of the Old Notes is less than five
years from April 21, 1995, the Debtors believe that the Old Notes
do not constitute "securities" for federal income tax purposes.
However, this conclusion is not entirely free from doubt and it
is possible that the IRS could take a different view. In that
event, the federal income tax consequences to holders of Old
Notes would be different from those described below. In
particular, in that event holders of Old Notes might not be able
to recognize for federal income tax purposes any loss realized as
a result of the exchange, and the application of the original
issue discount and market discount rules could differ from what
is described below.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
AND OF THE OWNERSHIP AND THE DISPOSITION OF THE NEW NOTES, THE
NEW COMMON STOCK AND THE NEW WARRANTS ARE COMPLEX. ALL HOLDERS
OF OLD NOTES, GENERAL UNSECURED CLAIMS OR OLD COMMON STOCK
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MATTERS DISCUSSED HEREIN, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX
LAWS.
A. Certain Federal Income Tax Consequences of the Plan to
Holders of Old Notes, to Holders of General Unsecured Claims and
to Holders of Old Common Stock
1. Exchange of Old Notes
The following is a summary of what the Debtors
believe, based on the advice of their tax counsel, are the likely
federal income tax consequences to holders of Old Notes as a
result of the exchange of Old Notes for cash, New Notes, and New
Common Stock:
(a) Subject to the discussion below as to accrued
but unpaid interest, a holder will recognize gain or loss on the
exchange in an amount equal to the difference between (i) the sum
of the cash received, the aggregate issue price (as defined
below) of the New Notes received, and the fair market value of
the New Common Stock received as of the Effective Date and (ii)
such holder's adjusted tax basis in its Old Notes.
(b) Subject to the discussion below as to accrued
market discount, any such gain or loss will be capital gain or
loss, and such gain or loss will be long-term capital gain or
loss if such holder held the Old Notes for more than one year as
of the Effective Date.
(c) A holder's tax basis in the New Notes will be
equal to the issue price of such New Notes, and a holder's
holding period of the New Notes will begin on the day immediately
following the Effective Date.
(d) A holder's tax basis in the New Common Stock
will be equal to the fair market value of the New Common Stock as
of the Effective Date, and a holder's holding period of the New
Common Stock will begin on the day immediately following the
Effective Date.
Holders who may realize a gain as a result of the
exchange should discuss with their tax advisors the possible
application of the installment sale rules of the Code to any such
gain.
As described above, it is possible that the IRS
could take a different view regarding the tax consequences of the
exchange, and, in particular, could attempt to deny to holders
the recognition of any loss realized on the exchange. In that
event, the federal income tax basis and holding period of any
property received in the exchange would be determined by
reference to the holder's tax basis and holding period for the
Old Notes.
2. Exchange of General Unsecured Claims
The following is a summary of what the Debtors
believe, based on the advice of their tax counsel, are the likely
federal income tax consequences to holders of General Unsecured
Claims (other than claims in respect of Old Notes which are
treated under the Plan as General Unsecured Claims) as a result
of the exchange of such General Unsecured Claims for New Common
Stock:
(a) A holder will recognize gain or loss on the
exchange in an amount equal to the difference between (i) the
fair market value of the New Common Stock received as of the
Effective Date and (ii) such holder's adjusted tax basis in its
General Unsecured Claim.
(b) Such gain or loss will generally constitute
ordinary income or loss.
(c) A holder's tax basis in the New Common Stock
will be equal to the fair market value of the New Common Stock as
of the Effective Date, and a holder's holding period of the New
Common Stock will begin on the day immediately following the
Effective Date.
It is possible that the IRS could take a different
view regarding the tax consequences of the exchange, and, in
particular, could attempt to deny to holders the recognition of
any loss realized on the exchange. In that event, the federal
income tax basis and holding period of any property received in
the exchange would be determined by reference to the holders' tax
basis and holding period for the General Unsecured Claim.
3. Exchange of Old Common Stock
The exchange of shares of Old Common Stock for
shares of New Common Stock and New Warrants should be treated as
an exchange constituting a recapitalization within the meaning of
Code section 368(a)(1)(E). If the exchange is treated in that
manner, the federal income tax consequences to a holder of Old
Common Stock should be as follows:
(a) A holder of Old Common Stock will not
recognize any loss realized on the exchange, but will recognize
any gain realized on the exchange to the extent of the lesser of
(i) the amount of gain realized and (ii) the fair market value of
the New Warrants received as of the Effective Date. The amount
of gain realized will be equal to the excess (if any) of (A) the
fair market value of the New Common Stock and the New Warrants
received as of the Effective Date over (B) the holder's tax basis
in the Old Common Stock.
(b) The tax basis of the New Common Stock
received by a holder of Old Common Stock will equal the tax basis
of the Old Common Stock exchanged therefor, decreased by the fair
market value of the New Warrants received as of the Effective
Date and increased by the amount of gain (if any) recognized by
such holder on the exchange. A holder's holding period of the
New Common Stock will include the holding period of the Old
Common Stock exchanged therefor.
(c) A holder's tax basis in the New Warrants will
equal their fair market value as of the Effective Date, and the
holder's holding period for the New Warrants will commence on the
day following the Effective Date.
4. Accrued but Unpaid Interest
The Plan provides that the consideration paid to
holders of Old Notes pursuant to the Plan will be allocated first
to accrued but unpaid interest on the Old Notes and next to the
principal on the Old Notes. The consideration for the Old Notes
will be equal to the sum of the cash, the aggregate issue price
of the New Notes, and the fair market value of the New Common
Stock as of the Effective Date received in exchange for the Old
Notes. The Debtors intend to prepare their own tax returns, and
report interest paid to holders in the information returns and
reports sent to holders and to the IRS in a manner consistent
with the above allocation. The IRS, however, could challenge
such allocation and contend that some other allocation is
required (for example, a pro rata allocation between accrued but
unpaid interest and principal). Each holder of Old Notes should
consult its own tax advisor regarding the allocation of the
consideration received.
A holder of Old Notes should recognize interest
income as a result of the exchange if and to the extent the
consideration it is deemed to have received in payment of accrued
but unpaid interest exceeds the amount the holder has included in
income as accrued but unpaid interest during the period that the
holder held such Old Notes. A holder of Old Notes should
recognize an ordinary loss as a result of the exchange if and to
the extent the amount of the accrued but unpaid interest
previously included in income with respect to the Old Notes
exceeds the consideration it is deemed to have received in
payment of accrued but unpaid interest (which would only occur if
an allocation different from the one described in the preceding
paragraph were determined to be correct).
5. Accrued Market Discount
A holder that acquired Old Notes subsequent to
their original issuance with more than a "de minimis" amount of
"market discount" will be subject to the market discount rules of
the Code. Under those rules, assuming that no election to
include market discount in income on a current basis has been
made by the holder with respect to any market discount
instrument, any gain recognized on the exchange of the Old Notes
would be characterized as ordinary income to the extent of the
accrued market discount as of the Effective Date. Because
Treasury Regulations with respect to the market discount rules
have not yet been issued, all holders of Old Notes that may have
been acquired with market discount are particularly urged to
consult their own tax advisors.
B. Certain Federal Income Tax Consequences of Ownership and Dis
position of New Notes, New Common Stock and New Warrants
1. Ownership and Disposition of New Notes
Original Issue Discount. A New Note generally
will have original issue discount ("OID") for federal income tax
purposes if its "stated redemption price at maturity" exceeds its
"issue price." Under a "de minimis" rule provided in the Code,
however, the amount of OID will be considered to be zero if the
amount of such excess is less than the product of (a) an amount
equal to 0.25 percent of the stated redemption price at maturity
and (b) the number of complete years to maturity of the debt
instrument.
The determination of the "issue price" of a New
Note depends, in part, on whether the Old Notes or the New Notes
are publicly traded. In general, the Old Notes or the New Notes
will be treated as publicly traded if, at any time during the 60-
day period ending 30 days after the issue date of the New Notes,
the Old Notes or the New Notes are traded on an established
market. Subject to certain exceptions, a debt instrument is
treated as traded on an established market if (a) it is listed on
certain securities exchanges, interdealer quotation systems, or
certain foreign exchanges or boards of trade, (b) it is traded
either on certain boards of trade that are designated as a
contract market or on an interbank market or (c) it appears on a
system of general circulation that provides a reasonable basis to
determine fair market value by disseminating either recent price
quotations of identified brokers, dealers or traders or actual
prices of recent sales transactions. In addition, a debt
instrument is treated as traded on an established securities
market if price quotations are readily available from brokers,
dealers or traders but only if, among other things, another debt
instrument of the issuer satisfies requirements set forth in
clause (a), (b) or (c) of the preceding sentence.
The issue price of a debt instrument that is
traded on an established market, or that is issued for another
debt instrument that is so traded, is equal to the fair market
value of such debt instrument or such other debt instrument, as
the case may be, on the issue date.
The issue price of a debt instrument that (a) is
not traded on an established market and is not issued in exchange
for another debt instrument that is so traded and (b) bears
"adequate stated interest", is equal to its stated principal
amount. It is expected that the interest payable under the New
Notes will constitute "adequate stated interest" within the
meaning of the Code.
The Debtors cannot predict whether the Old Notes
or the New Notes will be traded on an established market during
the 60-day period ending 30 days after the issue date of the New
Notes. If, based on the facts at the relevant time, the Old
Notes or the New Notes are ultimately determined to be traded on
an established market, (a) the New Notes may have an issue price
less than their stated redemption price at maturity and therefore
may have OID, (b) the New Notes could become subject to the
applicable high yield discount obligation provisions of Code
section 163(e)(5), resulting in adverse tax consequences to the
Company with respect to, among other things, the timing and
amount of interest deductions, and (c) the amount of cancellation
of indebtedness income realized by the Company could be
significantly increased.
In general, the "stated redemption price at matu
rity" of a New Note will be equal to all amounts payable under
the New Note, other than amounts payable as qualified stated
interest. "Qualified stated interest" is generally stated
interest that is unconditionally payable in cash or in property
at least annually at a single fixed rate. The New Notes provide
for semiannual payments of interest in cash at a fixed rate. All
of the Company's payments of interest on the New Notes will
therefore constitute qualified stated interest payments, and thus
the stated redemption price at maturity of the New Notes will be
their stated principal amount.
If the stated redemption price at maturity of the
New Notes exceeds their issue price by more than the applicable
"de minimis" amount, the New Notes will have OID. Accordingly, a
holder of a New Note would be required to include any OID in
income in accordance with the rules described below, and would
include cash interest payments in income in accordance with the
holder's method of tax accounting. The amount of OID includible
in income by the initial holder of the New Note would be the sum
of the "daily portions" of OID with respect to the New Note for
each day during the taxable year or portion of the taxable year
in which such holder held such New Note ("accrued OID"). The
daily portion would be determined by allocating to each day in
any "accrual period" a pro rata portion of the OID allocable to
that accrual period. The amount of OID allocable to any accrual
period with respect to a New Note would be an amount equal to the
excess, if any, of (a) the product of the "adjusted issue price"
of the New Note at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the
close of each accrual period and properly adjusted for the length
of the accrual period) and (b) the amount of qualified stated
interest allocable to the accrual period. The "adjusted issue
price" of the New Note at the start of any accrual period would
be equal to its issue price increased by the accrued OID for each
prior accrual period and reduced by any prior payments with
respect to such New Note that were not qualified stated interest
payments. A holder's tax basis in a New Note would be increased
by the amounts of any OID included in income by the holder and
would be decreased by the any payments (other than qualified
stated interest payments) received in respect to such New Note.
Amortizable Bond Premium. If the tax basis of an
exchanging holder's New Note exceeds the "amount payable at
maturity" of such New Note, then such excess may be deductible by
the holder as "amortizable bond premium" under Code section 171
on a constant interest rate basis over the term of such security.
Such deductions are available only if the holder makes (or has
made) a timely election under Code section 171.
If a holder of New Notes makes an election to
amortize bond premium, the amortization deductions may be subject
to certain limitations, including possibly the investment
interest limitations of Code section 163(d) or the overall
limitation on itemized deductions under Code section 68. In
addition, the tax basis of such holder's New Notes must be
reduced by the amount of the aggregate amortization deductions
allowable for the bond premium. Finally, any such election would
apply to all debt instruments held or subsequently acquired by
the electing holder and cannot be revoked without permission from
the IRS.
Disposition of New Notes. Generally, any sale or
redemption of a New Note will result in taxable gain or loss
equal to the difference between the amount of any cash and fair
market value of any property received in exchange therefor and
such holder's tax basis in the obligation. Such gain or loss
will be capital gain or loss (except as noted above with respect
to the OID provisions).
2. Ownership and Disposition of New Common Stock
Dividends, if any, paid on the New Common Stock
will be taxed as ordinary income. A dividends received deduction
(generally at a 70% rate) may be available with respect to such
dividends to the holders of the New Common Stock that are
corporations, subject to limitations such as those relating to
holding periods or indebtedness used to acquire or carry such
stock. The term "dividend" means a distribution made out of
current or accumulated earnings and profits as determined for
federal income tax purposes. To the extent that a distribution
exceeds current and accumulated earnings and profits, it is
treated as a nontaxable recovery of the holder's adjusted tax
basis to the extent thereof, and any remaining amount is taxable
as if received in a disposition of the New Common Stock. A
holder of New Common Stock will generally recognize capital gain
or loss upon a sale or other taxable disposition of the New
Common Stock. However, under Code section 108 (e) (7), gain on
the disposition of New Common Stock received in exchange for a
General Unsecured Claim (other than a claim in respect of an Old
Note which is treated under the Plan as a General Unsecured
Claim) will generally be treated as ordinary income to the extent
that the holder was allowed an ordinary loss (i) on such exchange
or (ii) under Code section 166 (a) or (b) (by reason of the
worthlessness or partial worthlessness of such General Unsecured
Claim).
3. Disposition, Exercise, Expiration and Adjustment of New
Warrants
The sale of a New Warrant will generally result in
the recognition of gain or loss to the holder in an amount equal
to the difference between the amount realized from the sale and
the holder's tax basis in the New Warrant, and such gain or loss
generally will be a capital gain or loss.
As a general rule, no gain or loss will be recog
nized by a holder of a New Warrant on the exercise of a New
Warrant for New Common Stock. The tax basis of New Common Stock
so received will generally be equal to the sum of the holder's
tax basis in the exercised New Warrant plus the amount of cash
tendered. The holding period of such stock will not include the
holding period of such New Warrant.
If a New Warrant is permitted to expire without
being exercised, a holder will recognize a loss equal to such
holder's tax basis in the New Warrant, and such loss will
generally be a capital loss.
An adjustment to the exercise price of a New
Warrant, an adjustment to the number of shares of New Common
Stock that may be purchased upon the exercise of a New Warrant,
or a failure to make such an adjustment may, under certain
circumstances, result in a constructive distribution to either
the holders of New Warrants or the holders of New Common Stock
that could be taxable as a dividend under Section 301 and Section
305 of the Code.
4. Backup Withholding
A holder of New Notes and New Common Stock may,
under certain circumstances, be subject to "backup withholding"
at the rate of 31% with respect to cash payments in respect of
interest or original issue discount (if any) accrued with respect
to the New Notes; dividends paid on New Common Stock; or the
proceeds of a sale, exchange or redemption of such New Notes or
New Common Stock unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demon
strates this fact or (b) provides a correct taxpayer iden
tification number, certifies that such holder is not subject to
backup withholding and otherwise complies with applicable
requirements of the backup withholding provisions.
C. Certain Federal Income Tax Consequences of the Restructuring
to the Debtors
A taxpayer generally realizes cancellation of debt
("COD") income for federal income tax purposes equal to the
amount of any indebtedness that is discharged or canceled during
the taxable year. If the discharge is granted by a court in a
Title 11 proceeding or is pursuant to a plan approved by such a
court, however, such income is excluded from the taxpayer's
taxable income under Code Section 108(a). Under Code Section
108(b), the debtor is required to reduce certain of its federal
income tax attributes, including any net operating loss for the
taxable year of the debt discharge and any net operating loss
carryforwards, by the amount of the COD income excluded by reason
of the Code Section 108(a).
The Company will recognize COD income to the
extent that the consideration received by its creditors pursuant
to the Plan is less than the amount of their Claims. For this
purpose, the amount of the consideration paid to creditors is
equal to the sum of the cash, the aggregate issue price of the
New Notes (determined as described above) and the fair market
value of the New Common Stock issued to creditors in respect of
their Claims.
The amount of COD income that will be realized by
the Company will depend upon a number of variables that cannot be
predicted at this time, including the fair market value of the
New Common Stock and the issue price of the New Notes (which, as
described above, will depend in part upon whether the Old Notes
or New Notes are traded on an established securities market
during the 60-day period ending 30 days after the issue date of
the New Notes).
The Debtors expect to have substantial
consolidated NOL carryforwards from their taxable year ended
December 30, 1995, and prior taxable years. The Debtors further
expect that the amount of such NOL carryforwards will be reduced
substantially, and any net operating loss arising in the taxable
year of the Restructuring will be eliminated, by the COD income
realized by the Company as a result of the Restructuring (which,
for the reason discussed above, is difficult to estimate at this
time). In addition, as a result of the Restructuring, the
Company will undergo an "ownership change" within the meaning of
Code Section 382. Consequently, the ability of the Debtors to
use any remaining NOL carryforwards, as well as any remaining net
operating loss arising in the taxable period ending on the
Effective Date of the Restructuring, in taxable periods after the
Restructuring will become subject to an annual limitation under
Code Section 382. See "FINANCIAL INFORMATION _ Projected and Pro
Forma Financial Information _ Projected and Pro Forma Statements
of Operations _ Notes to 1995_1998 Statements of Operations _
Note (e)." The reduction of and limitations on the Debtors' NOLs
may substantially increase the amount of tax payable by the
Debtors following consummation of the Joint Plan as compared with
the amount of tax that would be payable if no such reduction and
limitations were required.
The Company presently intends to elect not to have
the provisions of Code Section 382(l)(5) apply to the Re
structuring. Rather, the Company intends to take the position
that it is entitled to determine the Section 382 limitation under
the special exception provided in Code Section 382(l)(6) for loss
corporations that exchange stock for debt and undergo an
ownership change in a Title 11 proceeding. Under this position,
the amount of income that may be offset by the NOLs in any
taxable year ending after the Restructuring (subject to a
proration rule for the taxable year in which the Restructuring
occurs) generally will be limited to an amount equal to the
product of (a) the fair market value of the Company's stock,
determined immediately prior to the Restructuring but taking into
account the increase in value resulting from the cancellation of
creditors' claims in the Restructuring and (b) the "long-term tax-
exempt rate" prescribed the IRS.
If the Company has a "net unrealized built-in
loss" as of the date of the ownership change, subject to certain
limitations, any "built-in loss" recognized during the five-year
period beginning with the date of the ownership change will be
treated as a pre-change loss and will be subject to the general
Section 382 limitation described above.
XXII. FINANCIAL ADVISORS
In December 1995, the Company retained DLJ to act
as the Company's financial advisor. DLJ has assisted the Company
in exploring certain strategic alternatives, including the sale
of the Company to a third party, and in formulating various
aspects of the Restructuring. Also in December 1995, the
Committee selected Houlihan Lokey to act as its financial advisor
in connection with the Restructuring. The Company has agreed to
pay the fees and expenses of Houlihan Lokey as described below.
See "THE RESTRUCTURING _ Restructuring Discussions _ Retention of
Restructuring Professionals; Formation of Committee."
Pursuant to the letter agreement between the
Company and DLJ, DLJ received a $250,000 fee upon execution of
the agreement (which amount was funded by CD&R). In addition, in
order to facilitate the Restructuring, CD&R intends to satisfy
the Company's other payment obligations under the DLJ letter
agreement, including the payment to DLJ of an additional
$500,000 upon acceptance and consummation of the Plan and the
reimbursement of DLJ's out-of-pocket expenses incurred in
connection with the Restructuring. In addition, pursuant to the
letter agreement between the Company and Houlihan Lokey, the
Company has agreed to pay Houlihan Lokey a monthly advisory fee
of $80,000 through the Effective Date, and to reimburse it for
reasonable out-of-pocket expenses arising from its work in
connection with the Restructuring. Pursuant to the Plan, the
Company will assume its agreement with Houlihan Lokey.
The reasonable fees and expenses incurred on or
after the Filing Date by Houlihan Lokey and the other Noteholder
Advisor with respect to the Debtors' bankruptcy cases will be
paid (without application by or on behalf of such professionals
to the Bankruptcy Court, and without notice and a hearing, unless
specifically ordered by the Bankruptcy Court upon request of a
party in interest) by the Debtors as an Administrative Expense
under the Plan (unless any such advisor is retained by a
Statutory Committee pursuant to Sections 327 or 1103 of the
Bankruptcy Code). If the Debtors and any Noteholder Advisor
cannot agree on the amount of such fees and expenses to be paid
to such Noteholder Advisor, the amount of such fees and expenses
will be determined by the Bankruptcy Court. See "SUMMARY OF THE
PLAN _ Treatment of Unclassified Claims."
XXIII. CONCLUSION
In the view of the
Debtors, the Plan presents the holders of Claims against, and
Interests in the Debtors, their best opportunity for an early
recovery. The Debtors urge all holders of Claims against, and
Interests in, the Debtors who are entitled to vote on the Plan to
vote to accept the Plan.
Dated: May 13, 1996.
HOMELAND STORES, INC.
By:
James A. Demme
President and Chief Executive Officer
HOMELAND HOLDING CORPORATION
By:
James A. Demme
President and Chief Executive Officer
CROWE & DUNLEVY, A PROFESSIONAL
CORPORATION
By:
Judy Hamilton Morse, OBA #6450
Kenni B. Merritt, OBA #6147
Roger A. Stong, OBA #11710
William H. Hoch, OBA # 15788
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
(405) 235-7700
COUNSEL TO HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
YOUNG,CONAWAY, STARGATT & TAYLOR
By:
James L. Patton, Jr.
Rodney Square North, 11th Floor
Wilmington, Delaware 19899
(302) 571-6600
LOCAL COUNSEL TO HOMELAND STORES, INC.
AND HOMELAND HOLDING CORPORATION
Note: Format Change incl. Header A UNITED STATES
BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE:
)
)
HOMELAND STORES, INC., ) Case No.
) Chapter 11
Debtor. )
)
)
IN RE: )
)
HOMELAND HOLDING CORPORATION, ) Case No.
) Chapter 11
Debtor. Jointly Administered
DISCLOSURE STATEMENT FOR
JOINT PLAN OF REORGANIZATION OF
HOMELAND STORES, INC. AND HOMELAND HOLDING CORPORATION
CROWE & DUNLEVY, A PROFESSIONAL CORPORATION
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
(405) 235-7700
and
YOUNG, CONAWAY, STARGATT & TAYLOR
Rodney Square North, 11th Floor
Wilmington, Delaware 19899
(302) 571-6600
ATTORNEYS FOR HOMELAND STORES, INC. AND HOMELAND HOLDING
CORPORATION
Appendix A
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: )
)
HOMELAND STORES, INC., ) Case No.
) Chapter 11
Debtor. )
IN RE: )
)
HOMELAND HOLDING CORPORATION, ) Case No.
) Chapter 11
Debtor. ) Jointly Administered
JOINT PLAN OF REORGANIZATION OF
HOMELAND STORES, INC. AND HOMELAND HOLDING CORPORATION
Homeland Stores, Inc., a Delaware corporation
("Company"), and Homeland Holding Corporation, a Delaware
corporation ("Holding" and, together with the Company, the
"Debtors"), hereby propose this Joint Plan of Reorganization of
Homeland Stores, Inc. and Homeland Holding Corporation ("Plan")
to resolve claims against, and interests in, the Company and
Holding. The Debtors are the proponents of the Plan within the
meaning of Section 1129 of the United States Bankruptcy Code, as
amended ("Bankruptcy Code").
The Disclosure Statement for Plan of Reorganization of
Homeland Stores, Inc. and Homeland Holding Corporation
("Disclosure Statement") provides certain information with
respect to the Debtors and the Plan.
Nothing in the Plan should be construed as constituting
a solicitation of acceptances of the Plan unless and until the
Disclosure Statement has been approved and distributed to all
holders of claims and interests to the extent required by Section
1125 of the Bankruptcy Code.
All holders are encouraged to read the Disclosure
Statement and the Plan in their entirety before voting to accept
or to reject the Plan.
ARTICLE I
DEFINED TERMS AND RULES OF INTERPRETATION
A. Defined Terms. The following terms used in the Plan
shall have the respective meanings specified.
1. Administrative Claim. The term "Administrative
Claim" means a Claim for administrative expenses allowed under
Section 503(b) of the Bankruptcy Code and entitled to priority in
payment under Section 507(a)(1) of the Bankruptcy Code,
including, without limitation, any actual and necessary costs and
expenses of preserving the respective Estates and operating the
businesses of the Debtors during the Cases, any indebtedness or
obligations incurred by either Debtor during the pendency of the
Cases in connection with the conduct of the business of, the
acquisition or the lease of property by, or the rendition of
services to, such Debtor, all allowances of compensation for
legal and other professional services and reimbursement of
expenses to the extent allowed under Section 330 or 503 of the
Bankruptcy Code and all Statutory Fees.
2. Affiliated Released Party. The term "Affiliated
Released Party" means each officer, director, shareholder,
affiliate, employee, consultant, attorney, accountant, agent and
other representative of the Debtors.
3. Allowed Claim. The term "Allowed Claim" means any
Claim against either Debtor, proof of which has been filed with
the Bankruptcy Court, or, if no proof of Claim is filed, which
Claim has been or hereafter is listed by such Debtor in its
Schedules as liquidated in amount, not disputed and not
contingent, and in all cases, as to which no objection to the
allowance thereof, or motion for estimation thereof, has been
interposed within the applicable period of limitation fixed by
the Plan, the Bankruptcy Code, the Bankruptcy Rules or the
Bankruptcy Court, or as to which an objection or motion for
estimation has been interposed, following which such Claim has
been allowed in whole or in part by a Final Order or otherwise
settled as provided in Article VII.
4. Allowed . . . Claim. The term "Allowed . . .
Claim" means an Allowed Claim of the type described or in the
Class described, as the case may be.
5. Allowed Interest. The term "Allowed Interest"
means any Interest in either Debtor, proof of which has been
filed with the Bankruptcy Court, or, if no proof of Interest is
filed, which Interest has been or hereafter is listed by such
Debtor in its Schedules as liquidated in amount and not disputed
and not contingent and in all cases, as to which no objection to
the allowance thereof, or motion for estimation thereof, has been
interposed within the applicable period of limitation fixed by
the Plan, the Bankruptcy Code, the Bankruptcy Rules or the
Bankruptcy Court, or as to which an objection has been
interposed, following which such Interest has been allowed in
whole or in part by a Final Order or otherwise settled as
provided in Article VII.
6. Allowed . . . Interest. The term "Allowed . . .
Interest" means an Allowed Interest of the type described or in
the Class described, as the case may be.
7. Amended Holding Charter. The term "Amended
Holding Charter" means the amended and restated certificate of
incorporation of the Company containing substantially the terms
summarized in the Disclosure Statement and substantially in the
form set forth in Appendix G to the Disclosure Statement and
contained in the Plan Supplement.
8. Amended Homeland Charter. The term "Amended
Homeland Charter" means the amended and restated certificate of
incorporation of the Company containing substantially the terms
summarized in the Disclosure Statement and substantially in the
form set forth in Appendix H to the Disclosure Statement and
contained in the Plan Supplement.
9. Bankruptcy Code. The term "Bankruptcy Code" means
the Bankruptcy Reform Act of 1978, as amended, as set forth in
Title 11 of the United States Code.
10. Bankruptcy Court. The term "Bankruptcy Court"
means the United States Bankruptcy Court for the District of
Delaware or, if the United States Bankruptcy Court for the
District of Delaware ceases to exercise jurisdiction over the
Cases, the court that exercises jurisdiction over the Cases in
lieu of the United States Bankruptcy Court for the District of
Delaware.
11. Bankruptcy Rules. The term "Bankruptcy Rules"
means, collectively, the Federal Rules of Bankruptcy Procedure,
as amended, and the Local Bankruptcy Rules for the United States
Bankruptcy Court for the District of Delaware, as amended.
12. Business Day. The term "Business Day" means any
day, other than a Saturday, a Sunday or a "legal holiday," as
defined in Rule 9006(a) of the Bankruptcy Rules.
13. Case. The term "Case" means the Homeland Case or
the Holding Case.
14. Cash Amount. The term "Cash Amount" means the
cash sum of $1,500,000.
15. Claim. The term "Claim" means any right to
payment from either Debtor arising before the Effective Date,
whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured; or any right
arising or incurred before the Effective Date of the Plan to an
equitable remedy for breach of performance if such breach gives
rise to a right to payment from either Debtor, whether or not
such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured or
unsecured.
16. Class. The term "Class" means a class of Claims
against, or Interests in, a Debtor as defined in Article II of
the Plan.
17. Committee. The term "Committee" means the ad hoc
committee representing certain holders of Old Notes.
18. Company. The term "Company" means Homeland
Stores, Inc., a Delaware corporation.
19. Confirmation. The term "Confirmation" means the
entry of the Confirmation Order entered by the Bankruptcy Court
with respect to the Plan pursuant to Section 1129 of the
Bankruptcy Code.
20. Confirmation Date. The term "Confirmation Date"
means the date on which the Bankruptcy Court enters the
Confirmation Order on its docket.
21. Confirmation Hearing. The term "Confirmation
Hearing" means the hearing before the Bankruptcy Court on the
confirmation of the Plan pursuant to Section 1129 of the
Bankruptcy Code.
22. Confirmation Order. The term "Confirmation Order"
means the order of the Bankruptcy Court confirming the Plan
pursuant to Section 1129 of the Bankruptcy Code.
23. Debtor. The term "Debtor" means either Homeland
Stores, Inc., a Delaware corporation, or Homeland Holding
Corporation, a Delaware corporation, in their respective
individual corporate or other capacity and in their respective
capacity as debtor and debtor-in-possession under Chapter 11 of
the Bankruptcy Code.
24. Disclosure Statement. The term "Disclosure
Statement" means the Disclosure Statement for Joint Plan of
Reorganization of Homeland Stores, Inc. and Homeland Holding
Corporation relating to the Plan, as such statement is amended,
supplemented or modified from time to time, that is prepared and
distributed pursuant to Sections 1125, 1126(b) and 1145 of the
Bankruptcy Code and Bankruptcy Rule 3018.
25. Disputed Claim. The term "Disputed Claim" means
any Claim against either Debtor (a) listed on the schedules of
either Debtor as unliquidated, disputed or contingent, or (b) as
to which either Debtor or any other party in interest has
interposed a timely objection or request for estimation in
accordance with the Bankruptcy Code and the Bankruptcy Rules,
which objection or request has not been withdrawn or determined
by a Final Order or otherwise settled as provided in Article VII.
26. Disputed Class 5 Claims Reserve. The term
"Disputed Class 5 Claims Reserve" means the reserve established
by the Debtors on the Effective Date for the account of each a
holder of a Disputed Claim which, if allowed, would be a Class 5
Claim.
27. Disputed Interest. The term "Disputed Interest"
means any Interest in either Debtor (a) listed on the schedules
of either Debtor as unliquidated, disputed or contingent, or (b)
as to which either Debtor or any other party in interest has
interposed a timely objection in accordance with the Bankruptcy
Code and the Bankruptcy Rules, which objection or request has not
been withdrawn or determined by a Final Order or otherwise
settled as provided in Article VII.
28. Distribution Agent. The term "Distribution Agent"
means the Person selected by the Reorganized Debtors to make
distributions pursuant to the Plan, which Person may be a
Reorganized Debtor and shall be employed on such terms as may be
determined by the Reorganized Debtors, in their sole discretion.
29. District Court. The term "District Court" means
the United States District Court for the District of Delaware.
30. Effective Date. The term "Effective Date" means
the first Business Day on which all of the conditions to the
Effective Date set forth in Article VIII have been satisfied or
waived as provided in Article VIII.
31. Equity Registration Rights Agreement. The term
"Equity Registration Rights Agreement" means the Equity
Registration Rights Agreement, dated as of the Effective Date,
executed by Reorganized Holding in favor of the holders of the
Old Common Stock containing substantially the terms summarized in
the Disclosure Statement and in the form set forth in Appendix F-
1 to the Disclosure Statement and contained in the Plan
Supplement.
32. Estate. The term "Estate" means the Homeland
Estate or the Holding Estate.
33. Estate Release. The term "Estate Release" means
the release of the Debtors referred to in Article IV(J).
34. Excluded Claims. The term "Excluded Claims" means
any Claim, obligation, right, cause of action or liability
relating to: (a) any indebtedness of any Affiliated Released
Party or any such entity for money borrowed; (b) any set-off or
any counterclaim which the Debtors, or either of them, may have
or assert against an Affiliated Released Party, provided that the
aggregate amount thereof shall not exceed the aggregate amount of
any Claims held or asserted by such Affiliated Released Party
against the Debtors; (c) the uncollected amount of any Claim made
by the Debtors, or either of them, (whether in a filed pleading,
by letter or otherwise) prior to the Effective Date against an
Affiliated Released Party, which Claim has not been adjudicated
to Final Order, settled or compromised; or (d) any Claim arising
from the fraud, willful misconduct or gross negligence of an
Affiliated Released Party.
35. Fee Claim. The term "Fee Claim" means any Claim
asserted by a Person retained or requesting compensation in the
Cases pursuant to Section 327, Section 328, Section 330, Section
331, Section 503(b), Section 1103 or Section 1129(a)(4) of the
Bankruptcy Code.
36. Filing Date. The term "Filing Date" means May
13, 1996, the date on which the petitions for relief under
Chapter 11 of the Bankruptcy Code with respect to the Debtors
were filed.
37. Final Order. The term "Final Order" means an
order of the Bankruptcy Court, as entered by the clerk of the
Bankruptcy Court on a docket in, or related to, the Cases, or an
order of another court of competent jurisdiction that the
Bankruptcy Court has specifically permitted to proceed to enter
such order, as entered by the clerk of such court on the
appropriate docket, as to which the time to appeal or to seek
certiorari has expired and no appeal or petition for certiorari
has been timely taken or as to which any appeal that has been or
may be taken or any petition for certiorari that has been or may
be filed has been resolved by the highest court to which the
order was appealed or from which certiorari was sought and the
time to appeal or any extension thereof or to seek certiorari of
such appellate order has expired.
38. Financing Order. The term "Financing Orders"
means (a) the Joint Stipulation and Agreed Order Authorizing
Interim Financing, Granting Senior Liens and Providing
Administrative Expense Status, Providing for Adequate Protection,
Modifying the Automatic Stay, and Authorizing Debtors to Enter
into Agreements with Lender and Agent or (b) the Joint
Stipulation and Agreed Order Authorizing Final Financing,
Granting Senior Liens and Providing Administrative Expense
Status, Providing for Adequate Protection, Modifying the
Automatic Stay, and Authorizing Debtors to Enter into Agreements
with Lender and Agent.
39. Holding. The term "Holding" means Homeland
Holding Corporation, a Delaware corporation.
40. Holding Case. The term "Holding Case" means the
case styled In re Homeland Holding Corporation, Debtor, Case No.
, pending before the Bankruptcy Court.
41. Holding Charter. The term "Holding Charter" means
the certificate of incorporation of Holding as in effect on the
Filing Date.
42. Holding Estate. The term "Holding Estate" means
the estate created for Holding pursuant to Section 541 of the
Bankruptcy Code upon commencement of the Holding Case.
43. Homeland Case. The term "Homeland Case" means the
case styled In re Homeland Stores, Inc., Debtor, Case No.
, pending before the Bankruptcy Court.
44. Homeland Charter. The term "Homeland Charter"
means the certificate of incorporation of the Company as in
effect on the Filing Date.
45. Homeland Common Stock. The term "Homeland Common
Stock" means the shares of Common Stock, par value $.01 per
share, of the Company issued and outstanding on the Filing Date.
46. Homeland Estate. The term "Homeland Estate" means
the estate created for the Company pursuant to Section 541 of the
Bankruptcy Code upon commencement of the Homeland Case.
47. Indemnification Agreements. The term
"Indemnification Agreements" means, collectively, (a) the
Indemnification Agreement, dated as of August 14, 1990, by and
among Holding, the Company, Clayton & Dubilier, Inc. and The
Clayton & Dubilier Private Equity Fund III Limited Partnership
and (b) the Indemnification Agreement, dated as of March 4, 1992,
by and among Holding, the Company, Clayton & Dubilier, Inc., The
Clayton & Dubilier Private Equity Fund III Limited Partnership
and The Clayton & Dubilier Private Equity Fund IV Limited
Partnership.
48. Indemnitees. The term "Indemnitees" means those
Persons named as "Indemnitees" in the Indemnification Agreements.
49. Insured Claim. The term "Insured Claim" means any
Claim arising from an incident or an occurrence that is covered,
in whole or in part, under a contract of insurance between the
Debtor and an Insurer.
50. Insurer. The term "Insurer" means any Person that
provides insurance to a Debtor pursuant to a contract of
insurance.
51. Interest. The term "Interest" means any right or
equity interest in either Debtor represented by the Homeland
Common Stock, the Old Common Stock or the Old Warrants.
52. Management Stock Option Plan. The term
"Management Stock Option Plan" means the management stock option
plan of Reorganized Holding.
53. Modified Union Agreements. The term "Modified
Union Agreements" means the separate collective bargaining
agreements, dated no later than the Effective Date, described in
the Disclosure Statement under "DESCRIPTION OF MODIFIED UNION
AGREEMENTS" and containing terms substantially similar to the
terms summarized therein.
54. New Common Stock. The term "New Common Stock"
means the shares of Common Stock, par value $.01 per share, of
Reorganized Holding to be issued by Reorganized Holding pursuant
to the Plan and the Amended Holding Charter.
55. New Credit Agreement. The term "New Credit
Agreement" means an agreement, dated as of the Effective Date,
among the Reorganized Debtors and certain financial institutions,
pursuant to which the Reorganized Debtors shall have, among other
things, credit availability from and after the Effective Date.
Such agreement may be an amendment and restatement of the Old
Credit Agreement.
56. New Indenture. The term "New Indenture" means the
Indenture, dated as of the Effective Date, among the Reorganized
Company, as issuer, Reorganized Holding, as guarantor, and the
New Trustee containing substantially the terms summarized in the
Disclosure Statement and substantially in the form set forth in
Appendix D to the Disclosure Statement and contained in the Plan
Supplement.
57. New Notes. The term "New Notes" means the 10%
Senior Subordinated Notes due 2003 to be issued in an aggregate
principal amount of $60,000,000 by the Reorganized Company
pursuant to the Plan and the New Indenture.
58. New Securities. The term "New Securities" means,
collectively, the New Notes, the New Common Stock and the New
Warrants.
59. New Trustee. The term "New Trustee" means the
indenture trustee with respect to the New Notes.
60. New Warrant Agent. The term "New Warrant Agent"
means the warrant agent with respect to the New Warrants.
61. New Warrant Agreement. The term "New Warrant
Agreement" means the Warrant Agreement, dated as of the
Effective Date, by and between Reorganized Holding and the New
Warrant Agent containing substantially the terms summarized in
the Disclosure Statement and substantially in the form set forth
in Appendix E to the Disclosure Statement and contained in the
Plan Supplement.
62. New Warrants. The term "New Warrants" means the
Warrants to purchase up to 263,150 shares of New Common Stock to
be issued by Reorganized Holding pursuant to the Plan and the New
Warrant Agreement.
63. Noteholder Advisor. The term "Noteholder Advisor"
means Paul, Weiss, Rifkind, Wharton & Garrison, Houlihan, Lokey,
Howard & Zukin and Potter, Anderson.& Corroon.
64. Noteholder Registration Rights Agreement. The
term "Noteholder Registration Rights Agreement" means the
Noteholder Registration Rights Agreement, dated as of the
Effective Date, executed by the Reorganized Debtors in favor of
the holders of Class 5 Claims who were the holders of the Old
Notes, containing substantially the terms summarized in the
Disclosure Statement and substantially in the form set forth in
Appendix F-2 to the Disclosure Statement and contained in the
Plan Supplement.
65. Old Agent. The term "Old Agent means National
Bank of Canada, in its capacity as agent under the Old Credit
Agreement.
66. Old Banks. The term "Old Banks" means Heller
Financial, Inc. and National Bank of Canada, in their capacity as
lenders, under the Old Credit Agreement.
67. Old Class B Common Stock. The term "Old Class B
Common Stock" means Holding's Class B Common Stock, par value
$.01 per share.
68. Old Common Stock. The term "Old Common Stock"
means the shares of Class A Common Stock, par value $.01 per
share, of Holding issued and outstanding as of the Filing Date.
69. Old Credit Agreement. The term "Old Credit
Agreement" means the Amended and Restated Revolving Credit
Agreement, dated as of April 21, 1995, as amended, by and among
the Reorganized Debtors, the Old Banks and the Old Agent.
70. Old Indenture. The term "Old Indenture" means the
Indenture, dated as of March 4, 1992, as supplemented, among the
Company, as issuer, Holding, as guarantor, and the Old Trustee.
71. Old Notes. The term "Old Notes" means the Series
A Senior Secured Floating Rate Notes due 1997, the Series C
Senior Secured Fixed Rate Notes due 1999 and the Series D Senior
Secured Floating Rate Notes due 1997, in each case issued by the
Company pursuant to the Old Indenture.
72. Old Trustee. The term "Old Trustee" means United
States Trust Company of New York, in its capacity as trustee and
collateral trustee under the Old Indenture.
73. Old Warrants. The term "Old Warrants" means the
warrants to purchase Old Common Stock issued and outstanding as
of the Filing Date.
74. Other Released Party. The term "Other Released
Party" means, collectively, (a) any Statutory Committee and,
solely in their capacity as members or representatives of such
Statutory Committee, each member, consultant, attorney,
accountant or other representative of such Statutory Committee,
(b) the Committee and, solely in their capacity as members or
representatives of the Committee, each member, consultant,
attorney, accountant or other representative of the Committee,
(c) the Old Banks and each consultant, attorney, accountant or
other representative of the Old Banks and (d) the Old Trustee and
each consultant, attorney, accountant or other representative of
the Old Trustee.
75. Person. The term "Person" means an individual, a
corporation, a partnership, an association, a joint stock
company, a joint venture, a limited liability company, an estate,
a trust, an unincorporated organization, a government or any
public subdivision thereof or other entity.
76. Plan. The term "Plan" means the Joint Plan of
Reorganization of Homeland Stores, Inc. and Homeland Holding
Corporation as set forth herein, as the same may be amended or
modified by the Debtors from time to time pursuant to the Plan,
the Bankruptcy Code or the Bankruptcy Rules.
77. Plan Documents. The term "Plan Documents" means
the New Indenture, the New Warrant Agreement and the Registration
Rights Agreements, substantially in the form contained in the
Plan Supplement.
78. Plan Supplement. The term "Plan Supplement" means
the supplement which shall be filed as soon as practicable after
the Filing Date with the clerk of the Bankruptcy Court,
containing the Plan Documents.
79. Priority Tax Claim. The term "Priority Tax Claim"
means a Claim entitled to priority pursuant to Section 507(a)(8)
of the Bankruptcy Code, but only to the extent such Claim is
entitled to such priority.
80. Ratable Share. The term "Ratable Share" means a
number (expressed as a percentage) equal to the proportion that
an Allowed Claim or an Allowed Interest, as the case may be, in a
particular Class bears to the aggregate amount of all Allowed
Claims or all Allowed Interests, as the case may be, in such
Class as of the date of determination.
81. Record Date. The term "Record Date" means the
date established by the Bankruptcy Court for determining the
Claims and the Interests entitled to receive distributions
pursuant to Article VI of the Plan.
82. Registration Rights Agreements. The term
"Registration Rights Agreements" means, collectively, the Equity
Registration Rights Agreement and the Noteholder Registration
Rights Agreement.
83. Released Parties. The term "Released Parties"
means , collectively, (a) the Affiliated Released Parties and (b)
the Other Released Parties.
84. Reorganized Company. The term "Reorganized
Company" means the Company on and after the Effective Date.
85. Reorganized Debtor. The term "Reorganized Debtor"
means the Reorganized Company or Reorganized Holding.
86. Reorganized Holding. The term "Reorganized
Holding" means Holding on and after the Effective Date.
87. Schedules. The term "Schedules" means the
respective statements of assets and liabilities and statements of
financial affairs filed by the Debtors with the Bankruptcy Court
pursuant to Section 521 of the Bankruptcy Code and Bankruptcy
Rule 1007.
88. Secured Claim. The term "Secured Claim" means a
Claim that is secured by a lien on, or a security interest in,
property in which an Estate has an interest or that is subject to
setoff under Section 553 of the Bankruptcy Code to the extent of
the value of the holder's interest in the interest of such Estate
in such property or to the extent of the amount subject to
setoff, as the case may be, as determined pursuant to Section
506(a) of the Bankruptcy Code.
89. Secured Noteholder Claims. The term "Secured
Noteholder Claims" means the Secured Claims of the holders of the
Old Notes against either Debtor, arising from, under, or in
connection with, the issuance or the ownership of the Old Notes
or any guarantee thereof.
90. Statutory Committee. The term "Statutory
Committee" means any official committee appointed in the Cases
pursuant to Section 1102 of the Bankruptcy Code.
92. Statutory Fees. The term "Statutory Fees" means
all of the fees payable to the United States Trustee pursuant to
28 U.S.C. 1930.
93. Unsecured Claim. The term "Unsecured Claim" means
any Claim that is not an Administrative Claim, a Priority Tax
Claim or a Secured Claim.
94. Unsecured Noteholder Claims. The term "Unsecured
Noteholder Claims" means the Unsecured Claims of the holders of
the Old Notes against either Debtor, arising from, under, or in
connection with, the issuance or the ownership of, the Old Notes
or any guarantee thereof.
B. Rules of Interpretation. The following rules shall be
used in construing and interpreting the Plan:
1. Application of Section 102 of the Bankruptcy Code.
The rules of construction contained in Section 102 of the
Bankruptcy Code apply to the construction and the interpretation
of the Plan.
2. Article and Section References. Unless otherwise
expressly stated in the Plan, all references to Articles and
Sections shall refer to the Articles and the Sections of the
Plan.
3. Calculation of Time. Any period of time under the
Plan shall be computed in accordance with Rule 9006(a) of the
Bankruptcy Rules.
4. Singular and Plural Terms. Whenever the context
is appropriate, each term, whether stated in the singular or the
plural, shall include both the singular and the plural.
5. Use of Article and Section Headings. Headings for
Articles and Sections have been inserted in the Plan solely for
convenience of reference and are not intended to be a part of, or
to affect the construction or the interpretation of, the Plan.
C. Plan Supplement. Forms of the New Indenture, the New
Warrant Agreement, the Registration Rights Agreements, the
Amended Holding Charter and the Amended Homeland Charter shall be
contained in a separate Plan Supplement which shall be filed with
the Bankruptcy Court as soon as practicable after the Filing
Date. The Plan Supplement may be inspected after such filing in
the office of the clerk of the Bankruptcy Court during normal
office hours of the clerk of the Bankruptcy Court. Holders of
Claims and Interests may obtain a copy of the Plan Supplement
upon written request to the Debtors. The Plan Supplement is
incorporated into, and is a part of the Plan, as if set forth in
full herein, and all references herein to the Plan shall refer to
the Plan together with the Plan Supplement.
ARTICLE II
CLASSES OF CLAIMS AND INTERESTS
A. Classification of Claims and Interests in the Debtors.
All Claims against, and Interests in, the Debtors (other than
Administrative Claims and Priority Tax Claims) are classified in
the following Classes:
1. Class 1 - Allowed Priority Claims. Class 1
consists of Allowed Claims which are entitled to priority under
Section 507(a) of the Bankruptcy Code (other than Administrative
Claims and Priority Tax Claims).
2. Class 2 - Allowed Secured Claims of the Old Banks.
Class 2 consists of the Allowed Secured Claims of the Old Banks
under the Old Credit Agreement.
3. Class 3 - Allowed Secured Noteholder Claims.
Class 3 consists of the Allowed Secured Noteholder Claims. The
aggregate amount of the Allowed Secured Noteholder Claims shall
be equal to $61,500,000.
4. Class 4 - Allowed Miscellaneous Secured Claims.
Class 4 consists of Allowed Secured Claims (other than Class 2
Claims and Class 3 Claims). Class 4 Claims include, without
limitation, Claims secured by equipment in connection with
equipment financings and Claims secured by mechanic's,
materialmen's and artisan's liens on miscellaneous personal
and/or real property. Each Class 4 Claim is treated for all
purposes under the Bankruptcy Code and the Plan as a separate sub-
Class.
5. Class 5 - General Unsecured Claims. Class 5
consists of all Allowed Unsecured Claims (other than
Administrative Claims, Priority Tax Claims and Claims otherwise
classified). Class 5 Claims shall include, without limitation,
Allowed Unsecured Noteholder Claims. The aggregate amount of
Allowed Unsecured Noteholder Claims shall be equal to
$40,100,000.
6. Class 6 - Allowed Interests of Holding as Sole
Shareholder of Homeland Common Stock. Class 6 consists of the
Allowed Interests of Holding as the sole holder of the Homeland
Common Stock.
7. Class 7 - Allowed Interests of Holders of Old
Common Stock. Class 7 consists of the Allowed Interests of
holders of the Old Common Stock.
8. Class 8 - Allowed Interests of Holders of Old
Warrants. Class 8 consists of the Allowed Interests of holders of
the Old Warrants.
A Claim or an Interest is classified in a Class only to
the extent that Claim or that Interest falls within the
description of that Class and is classified in another Class to
the extent that Claim or that Interest falls within the
description of the other Class. For purposes of receiving a
distribution under the Plan, a Claim or an Interest is classified
in a Class only to the extent that the Claim or the Interest is
an Allowed Claim or an Allowed Interest in that Class and only to
the extent the Claim or the Interest has not been otherwise
satisfied prior to the date on which any distribution is to be
made under the Plan.
B. Unclassified Claims. Administrative Claims and
Priority Tax Claims against the Company and Holding are not
classified under the Plan.
ARTICLE III
TREATMENT OF CLAIMS AND INTERESTS
A. Treatment of Administrative Claims. Unless otherwise
agreed to by a holder of an Allowed Administrative Claim, each
such holder shall be paid in full, in cash, in an amount equal to
such holder's Allowed Administrative Claim on the later of (1)
the Effective Date and (2) the date on which such Claim becomes
an Allowed Claim; provided, however, that (a) all Statutory Fees
shall be paid in accordance with applicable law and (b)
Administrative Claims which represent liabilities incurred by a
Debtor in the ordinary course of business (including, without
limitation, Administrative Claims owed to suppliers that have
sold products or furnished goods or services to either Debtor
after the Filing Date) shall be paid by the relevant Debtor when
due in accordance with the terms of the particular transaction
and agreements relating thereto.
The Reorganized Debtors shall pay the reasonable fees
and expenses incurred on or after the Effective Date by the
Noteholder Advisors (without application by, or on behalf of, any
such Noteholder Advisor to the Bankruptcy Court and without
notice and a hearing, unless specifically ordered by the
Bankruptcy Court upon request of a party in interest) as an
Administrative Claim (unless any such Noteholder Advisor has been
retained by a Statutory Committee pursuant to Sections 327 or
1103 of the Bankruptcy Code). If the Reorganized Debtors and any
Noteholder Advisor cannot agree on the amount of fees and
expenses to be paid to such Noteholder Advisor, the amount of
such fees and expenses shall be determined by the Bankruptcy
Court.
Notwithstanding anything else contained in the Plan and
notwithstanding the confirmation of the Plan, the secured
Administrative Claims held by the Old Banks in connection with
post-petition advances and other financial accommodations given
by the Old Banks under the Financing Orders shall be entitled to
all of the liens, protections, benefits and priorities granted
them in the Financing Orders All such liens, protections,
benefits and priorities granted to the Old Banks in such orders
shall continue until their Administrative Claims are indefeasibly
paid in full, which Administrative Claims, by reason of the
Financing Orders, (1) are allowed and payable in their entirety,
(2) include unpaid principal and accrued but unpaid interest
through the date of full payment of the Administrative Claims of
the Old Banks and (3) are secured by the reason of the first,
valid, prior and perfected liens and security interests granted
under, or in connection with the Old Credit Agreement and
confirmed by the Financing Orders. The Old Banks' secured
Administrative Claims shall be paid in full on the Effective Date
through advances made under the New Credit Agreement.
B. Priority Tax Claims. Unless otherwise agreed to by a
holder of an Allowed Priority Tax Claim, each such holder shall
(at the option of the Reorganized Debtors), (1) be paid in full,
in cash, on the later of (a) the Effective Date and (b) the date
on which such Allowed Priority Tax Claim becomes an Allowed Claim
or (2) be paid deferred cash payments over a period not exceeding
six years after the date of assessment equal to (in the
aggregate) the amount of the Allowed Priority Tax Claim,
including an interest component as required by Section
1129(a)(9)(c). In fixing such interest component, the Debtors
shall use the federal judgment rate in effect on the Confirmation
Date, unless the Bankruptcy Court determines otherwise. If a
Reorganized Debtor elects to make deferred cash payments, the
Reorganized Debtor shall make six equal annual principal
payments, with accrued interest, commencing on the later of (1)
the Effective Date and (2) the date on which such Allowed
Priority Tax Claim becomes an Allowed Claim.
To the extent that a Reorganized Debtor elects to make
deferred cash payments on any Allowed Priority Tax Claim, the
Reorganized Debtor may prepay the remaining amount of such
Allowed Priority Tax Claim at any time, without penalty or
premium.
C. Treatment of Unimpaired Classes. Claims in Class 1,
Class 4, Class 6 and Class 8 are not impaired under the Plan.
Therefore, pursuant to Section 1126(f) of the Bankruptcy Code,
the holders of Claims and Interests in such Classes are
conclusively presumed to have accepted the Plan. The unimpaired
Claims against, and Interests in, the Debtors will be treated in
the following manner under the Plan:
1. Class 1 - Allowed Priority Claims. Unless
otherwise agreed to by a holder of a Class 1 Claim, each such
holder shall be paid in full, in cash, in an amount equal to such
holder's Class 1 Claim on the later of (a) the Effective Date and
(b) the date on which such Class 1 Claim becomes an Allowed
Claim.
2. Class 4 - Allowed Miscellaneous Secured Claims.
At the option of the relevant Debtor, each Allowed Claim in any
subclass of Class 4 shall (unless the holder of any such Class 4
Claim agrees to a different treatment) (a) be unaltered as to
the legal, equitable and contractual rights to which such Class 4
Claim entitles the holder thereof or (b) be treated in another
manner that will not result in the impairment of such Class 4
Claim under Section 1124 of the Bankruptcy Code. Each Class 4
Claim shall be treated for all purposes of the Plan and the
Bankruptcy Code as a separate subclass. The Plan does not alter
the rights of any holder of a Class 4 Claim in any collateral
securing the Class 4 Claim as of the Filing Date and the liens
and the security interests securing each Class 4 Claim are
ratified and affirmed.
3. Class 6 - Allowed Interests of Holding as Sole
Holder of Homeland Common Stock. The legal, equitable and
contractual rights of the holder of Class 6 Interests shall not
be altered by the Plan.
4. Class 8 - Allowed Interests of the Holders of the
Old Warrants. The legal, equitable and contractual rights of
each holder of a Class 8 Interest shall not be altered by the
Plan.
D. Treatment of Impaired Classes. Claims and Interests in
Class 2, Class 3, Class 5 and Class 7 are impaired. Therefore,
the holders of Claims and Interests in such Classes are entitled
to vote to accept or to reject the Plan. The impaired Classes of
Claims against, and Interests in, the Debtors will be treated in
the following manner under the Plan:
1. Class 2 - Allowed Claims of the Old Banks. Each
Class 2 Claim shall be (a) paid in full, in cash, or (b)
satisfied by the execution and the delivery of the New Credit
Agreement by, among other Persons, the Old Banks and the
modification of the Old Credit Agreement in accordance with the
terms of the New Credit Agreement (in which case, the Class 2
Claims, as so modified, shall continue to be secured by the
collateral which secured the Class 2 Claims on the Filing Date
and shall also be secured by certain additional collateral
described in the Disclosure Statement).
Notwithstanding anything else contained in the Plan and
notwithstanding the confirmation of the Plan, the Old Banks
holding Class 2 Claims shall be entitled to all of the liens, the
protections, the benefits and the priorities granted them in, or
confirmed by, the Financing Orders. All such liens, protections,
benefits and priorities granted to the Old Banks in such orders
shall continue until their Class 2 Claims are indefeasibly paid
in full, which Class 2 Claims, by reason of the Financing Orders,
(a) are allowed and payable in their entirety, (b) include unpaid
principal and accrued but unpaid interest through the date of
full payment of the Class 2 Claims of the Old Banks and (iii) are
secured by the reason of the first, valid, prior and perfected
liens and security interests granted under, or in connection
with, the Old Credit Agreement and confirmed by the Financing
Orders. Moreover, the contingent Class 2 Claims of the Old
Banks, to the extent that they become non-contingent, shall be
paid in full on the earlier of May 12, 1997, or the Effective
Date.
2. Class 3 - Allowed Secured Noteholder Claims.
Unless otherwise agreed to by a holder of a Class 3 Claim, each
such holder shall receive its Ratable Share of (a) the New Notes
and (b) the Cash Amount.
3. Class 5 - General Unsecured Claims. Unless
otherwise agreed to by a holder of a Class 5 Claim, each such
holder shall receive its Ratable Share of 4,450,000 shares of New
Common Stock on the later of (a) the Effective Date and (b) the
date on which such Claim becomes an Allowed Claim.
Any covered portion of any Class 5 Claim which is an
Insured Claim shall be paid by the applicable Insurer to the
extent of such coverage. The Debtors reserve the right to consent
to the modification of the automatic stay imposed by Section 362
of the Bankruptcy Court so as to permit the prosecution of
Insured Claims solely to the extent of such coverage.
4. Class 7 - Allowed Interests of Holders of Old
Common Stock. Unless otherwise agreed to by a holder of a Class
7 Interest, each such holder shall receive its Ratable Share of
(a) 250,000 shares of New Common Stock and (b) the New Warrants.
ARTICLE IV
MEANS FOR IMPLEMENTATION OF THE PLAN
. Operation as Debtor-in-Possession Until the Effective
Date. Until the Effective Date, the Debtors shall to operate
their respective businesses as debtors-in-possession pursuant to
Section 1107 and Section 1108 of the Bankruptcy Code. After the
Effective Date, the Reorganized Debtors shall operate their
businesses and may buy, use, acquire and dispose of their assets
free of any restrictions contained in the Bankruptcy Code or
imposed by the Bankruptcy Court, except as provided in the the
Plan, the Plan Supplement and the Confirmation Order.
B. Issuance of New Securities. Reorganized Holding
shall be deemed to have authorized and, on the Effective Date,
shall issue the requisite shares of New Common Stock and the
requisite New Warrants. The Reorganized Company shall be deemed
to have authorized and, on the Effective Date, shall issue the
New Notes.
C. Listing of New Common Stock; Exchange Act Filing.
Reorganized Holding shall use its best efforts to (1) cause, as
promptly as practicable after the Effective Date, the shares of
New Common Stock to be listed on the NASDAQ National Market
System (or, in the event Reorganized Holding fails to meet the
listing requirements of the NASDAQ National Market System, on
such other exchange or system on which the New Common Stock may
be listed) and (2) file, within 60 days of the Effective Date, a
Form 10 registration statement with respect to the New Common
Stock under the Securities Act of 1934, as amended.
D. Effectiveness of Agreements. On the Effective
Date, the following agreements shall become effective: (1) the
New Credit Agreement; (2) the New Indenture; (3) the New Warrant
Agreement; (4) the Registration Rights Agreements; and (5) the
Modified Union Agreements.
E. Charter Amendments. On the Effective Date, (1)
the Holding Charter shall be amended and restated to eliminate
the Old Common Stock and the Old Class B Common Stock, to
authorize the issuance of the New Common Stock and to include a
provision that prohibits the issuance of nonvoting securities to
the extent required by Section 1123(a)(6) of the Bankruptcy Code
and (2) the Homeland Charter shall be amended and restated to
include a provision that prohibits the issuance of nonvoting
securities to the extent required by Section 1123(a)(6) of the
Bankruptcy Code.
F. Management/Boards of Directors. The executive
officers of the Company and Holding immediately before
confirmation of the Plan shall continue to serve in their
respective capacities after confirmation of the Plan. On the
Effective Date, the Board of Directors of each Reorganized Debtor
shall consist of (1) James A. Demme, (2) John A. Shields, (3) one
Person designated by the United Food and Commercial Workers Union
of North America and (4) four Persons designated by the
Committee. Prior to confirmation of the Plan, in accordance with
Section 1129(a)(5) of the Bankruptcy Code, the Company and
Holding shall disclose (a) the identity and affiliations of any
individual proposed to serve, after confirmation of the Plan, as
a director of the Company or Holding, as the case may be, and (b)
the identity of any "insider" (as such term is defined in Section
101(31) of the Bankruptcy Code) who shall be employed and
retained by the Company or Holding, and the nature of any
compensation for such insider. On and after the Effective Date,
each officer and director shall hold his or her office on the
terms, and subject to the conditions, set forth in the Amended
Homeland Charter, the Amended Holding Charter and the amended and
restated bylaws of the relevant Reorganized Debtor.
G. Management Stock Option Plan. On the Effective
Date, 263,158 shares of New Common Stock shall be reserved for
issuance under the Management Stock Option Plan. The terms and
the conditions of the Management Stock Option Plan (including the
identity of the participants and the number of options to be
granted) shall be determined by the Board of Directors of
Reorganized Holding.
H. Retiree Benefits. From and after the Effective
Date, to the extent required by Section 1129(a)(13) of the
Bankruptcy Code, the Reorganized Debtors shall continue to pay
all retiree benefits (as defined in Section 1114 of the
Bankruptcy Code), if any, established or maintained by the
Debtors prior to the Effective Date.
I. Prior Workers' Compensation Benefits. The
Company's obligations with respect to its self-insurance program
in existence prior to July 1994, for Oklahoma workers'
compensation purposes are secured by a $2 million letter of
credit payable to the Oklahoma Workers' Compensation Court,
which, at the option of the Reorganized Debtors, shall remain in
place after the Effective Date or shall be replaced by another
letter of credit. In the event the Company fails to make any
payment to a Person who holds an Oklahoma workers' compensation
claim with respect to the period that the Company maintained such
self-insurance program, the Oklahoma Workers' Compensation Court
may draw on such letter of credit to make the payment. To the
extent the funds available under such letter of credit are
insufficient to pay all Oklahoma workers' compensation claims
with respect to the period that the Company maintained such self-
insurance program, such excess claims shall be classified and
treated as Class 5 Claims. In addition, to the extent that, upon
the liquidation and the payment of all of the Oklahoma workers'
compensation claims with respect to the period that the Company
maintained a self-insurance program, there are any funds then
remaining available under such letter of credit, the Company
shall either (a) direct the Oklahoma Workers' Compensation Court
to draw immediately any such remaining funds and pay such funds
to the Reorganized Company in accordance with any instructions
provided by the Reorganized Company or (b) direct the Oklahoma
Workers' Compensation Court to take the actions necessary to
cause the letter of credit to be released.
J. Releases. On the Effective Date, each Reorganized
Debtor shall release unconditionally each Released Party from any
and all Claims, obligations, rights, causes of action and
liabilities, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, based
in whole or in part upon any act or omission, transaction or
other occurrence taking place on or prior to the Effective Date
in any way relating to such Released Party, the Debtors, the
Cases and the Plan other than, in the case of an Affiliated
Released Party, any Excluded Claims.
On the Effective Date, each holder of a Claim or
an Interest who (1) has accepted the Plan, (2) whose Claim or
Interest is in a Class that has accepted or been deemed to have
accepted the Plan, or (3) who may be entitled to receive a
distribution of property pursuant to the Plan, shall be deemed to
have released unconditionally each Released Party from any and
all Claims, obligations, rights, causes of action and
liabilities, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, based
in whole or in part upon any act or omission, transaction or
other occurrence taking place on or prior to the Effective Date
in any way relating to such Released Party, the Debtors, the
Cases or the Plan.
Notwithstanding the foregoing, if and to the
extent that the Bankruptcy Court concludes that the Plan cannot
be confirmed with any portion of the foregoing releases, then the
Plan may be confirmed with that portion excised so as to give
effect as much as possible to the foregoing releases without
precluding confirmation of the Plan.
K. Final Order. Any requirement of the Plan for a
Final Order may be waived in the sole and absolute discretion of
the Debtors upon written notice to the Bankruptcy Court;
provided, however that nothing contained herein or elsewhere in
the Plan shall prejudice the right of any party in interest to
seek a stay pending appeal with respect to such Final Order.
L. Term of Injunction or Stays. Unless otherwise
provided, all injunctions or stays provided for in the Cases
pursuant to Section 105 and Section 362 of the Bankruptcy Code or
otherwise and in effect on the Confirmation Date shall remain in
full force and effect until the Effective Date. The Confirmation
Order shall provide that the distributions and transfers of
property to be made pursuant to the terms of the Plan are made
free and clear of all Claims (except as otherwise provided in,
and governed by, the Plan) and that upon the confirmation of the
Plan (except as otherwise provided in, and governed by, the Plan)
all holders of Claims and Interests shall be permanently enjoined
from, and restrained against, commencing or continuing any suit,
action or proceeding or asserting against either Reorganized
Debtor or its assets any Claim, interest or cause of action based
upon any Claim or Interest that arose or existed before the
Confirmation Date.
M. Waiver and Rescissions. Except as otherwise
provided in, , and governed by, the Plan or in the Confirmation
Order, the entry of the Confirmation Order by the Bankruptcy
Court shall operate as a waiver of all defaults and events of
default and any accelerations that have been declared or occurred
with respect to any such events of default through the Effective
Date.
N. Corporate Action. On the Effective Date, all
actions contemplated by the Plan shall be authorized and approved
in all respects (subject to the provisions of the Plan),
including, without limitation, the following: (1) the adoption
and the filing with the Secretary of State of the State of
Delaware of the Amended Holding Charter and the Amended Homeland
Charter; (2) the issuance by Reorganized Holding of the New
Common Stock and New Warrants; (3) the issuance by the
Reorganized Company of the New Notes; and (4) the execution, the
delivery and the performance of the New Credit Agreement, the New
Indenture, the New Warrant Agreement, the Registration Rights
Agreements, the Modified Union Agreements and all documents and
agreements relating to any of the foregoing. All matters
provided for under the Plan involving the corporate structure of
the Debtors and/or the Reorganized Debtors in connection with the
Plan and any corporate action required by the Debtors and/or the
Reorganized Debtors in connection with the Plan shall be deemed
to have occurred and shall be in effect pursuant to Section 303
of the Delaware General Corporation Law and the Bankruptcy Code,
without any requirement of further action by the shareholders or
the directors of the Debtors and/or the Reorganized Debtor. On
the Effective Date, the appropriate officers of the relevant
Reorganized Debtors are authorized and directed to execute and to
deliver the agreements, documents and instruments contemplated by
the Plan, the Plan Supplement and the Disclosure Statement in the
name and on behalf of such Reorganized Debtor.
O. Further Actions. The Debtors and the Reorganized
Debtors may make and may cause their respective officers to make
such other filings, to execute and to deliver such other
documents and instruments and take such other actions as may be
appropriate or advisable in connection with the Plan and the
transactions contemplated by the Plan and as are not inconsistent
with the Plan.
ARTICLE V
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. Assumption. All executory contracts and unexpired
leases shall be deemed assumed by the relevant Debtor pursuant to
Section 1123(b)(2) of the Bankruptcy Code unless expressly
rejected or subject to a motion by such Debtor to reject them
filed on or prior to the Confirmation Date. All cure payments
that may be required under Section 365(b)(1) of the Bankruptcy
Code in connection with such assumption shall be made on the
Effective Date.
In the event of a dispute concerning (1) the
amount of any cure payment, (2) the ability of the relevant
Debtor to provide "adequate assurance of future performance"
(within the meaning of Section 365 of the Bankruptcy Code) under
the executory contract or the unexpired lease to be assumed or
(3) any other matter pertaining to the assumption of an executory
contract or an unexpired lease, such Debtor shall make such cure
payment or provide such assurance, as required, in accordance
with Final Orders of the Bankruptcy Court.
B. Rejection. An Allowed Claim under an executory
contract or an unexpired lease that has been rejected, if any,
shall constitute a Class 4 Claim, if secured, or a Class 5 Claim,
if unsecured. Any proof of Claim with respect to Claims arising
from the rejection of an executory contract or an unexpired lease
must be filed with the Bankruptcy Court within 30 days after the
rejection by the relevant Debtor of such contract or such lease.
C. Indemnification Obligations. The obligations of the
Debtors to indemnify (1) their respective present and former
directors and officers against any obligations pursuant to their
certificate of incorporation, by-laws, applicable state law,
specific agreements or any combination of the foregoing and (2)
the Indemnitees under the Indemnification Agreements, shall
survive Confirmation, remain unaffected thereby, and not be
discharged, irrespective of whether indemnification is owed in
connection with an event occurring before, on or after the Filing
Date.
ARTICLE VI
DISTRIBUTIONS
A. Distributions. The Distribution Agent shall be
responsible for making all of the distributions required to be
made by the Reorganized Debtors under the Plan. All costs and
expenses in connection with such distributions, including,
without limitation, the fees and the expenses, if any, of the
Distribution Agent, shall be borne by the Reorganized Debtor
required to make such distributions.
Neither a Reorganized Debtor nor the Distribution Agent
shall be required to provide any bond in connection with the
making of any distributions pursuant to the Plan.
B. Date of Distribution. The Distribution Agent shall
make each required distribution by the date stated in the Plan
with respect to such distribution. Any distribution required to
be made on the Effective Date or the date on which a Claim
becomes an Allowed Claim shall be deemed to be made on such date
if made as soon as practicable after such date and, in any event,
within 30 days after such date.
C. Undeliverable Distributions. If a distribution is
returned to the Distribution Agent as undeliverable, the
Distribution Agent shall hold such distribution and shall not be
required to take any further action with respect to the delivery
of the distribution unless and until the earlier of (1) the date
on which the Distribution Agent is notified in writing of the
then current address of the holder entitled to receive the
distribution and (2) the date on which the distribution reverts
to a Reorganized Debtor in accordance with the Plan. If the
Distribution Agent is notified in writing of the then current
address of the holder prior to date on which the distribution
reverts to a Reorganized Debtor, the Distribution Agent shall
promptly make the distribution required by the Plan to the holder
at the then current address.
The Distribution Agent shall not be entitled to vote
any securities which the Distribution Agent holds as
undeliverable.
D. Surrender and Cancellation of Instruments. As a
condition to receiving any distribution pursuant to the Plan,
each holder of an Old Note, share certificate, or other
instrument evidencing a Claim or Interest (other than the
Homeland Common Stock or an Old Warrant) as of the Record Date
must surrender such Old Note, share certificate or other
instrument to the Distribution Agent or deliver to the
Reorganized Debtors or the Distribution Agent, as the case may
be, an affidavit of loss and indemnity (in form and substance
satisfactory to the Reorganized Debtors), in all cases, in proper
form for transfer. In accordance with the provisions of Section
1143 of the Bankruptcy Code, any holders of such Claims or
Interests as of such Record Date that fail to surrender such Old
Notes, share certificates or other instruments within five years
from the Confirmation shall be deemed to have forfeited all
rights, Claims and Interests and shall not participate in any
distribution under the Plan.
On the Effective Date, (1) all such Old Notes, share
certificates or other instruments shall be canceled and (2) the
Company's obligations under such Old Notes, share certificates
and other instruments (together with, in the case of the Old
Notes, the Old Indenture and the other agreements governing such
Old Notes) shall be discharged.
On the Effective Date, the lien and the security
interest of the Old Trustee under the Old Indenture shall be
released and the Old Trustee shall be authorized and directed to
take such actions as may be requested by the Company to evidence
the release of such liens and the security interests, including,
without limitation, the execution, the delivery and the filing
and/or the recording of such releases as may be requested by the
Reorganized Debtors.
E. Manner of Payment. At the option of the Reorganized
Debtors, distributions may be made in cash, by wire transfer or
by a check drawn on a money center bank. Distributions of New
Securities shall be made by the issuance and, in the case of the
New Notes, the authentication of such New Notes.
F. Fractional Shares. No fractional shares of New Common
Stock shall be issued under the Plan. Each holder otherwise
entitled to an amount of the New Common Stock that includes
fractional amounts shall receive either one whole share (if such
fraction is equal to, or greater than, one-half) or no share (if
such fraction is less than one-half) in lieu of fractional
amount.
No New Warrants to purchase fractional shares of New
Common Stock shall be issued under the Plan. Each holder
otherwise entitled to a New Warrant that includes fractional
amounts of New Common Stock shall receive a New Warrant that has
been rounded down to the next whole number of shares (if such
fraction is less than one-half) or rounded up to the next whole
number of shares (if such fraction is equal to, or greater than,
one-half).
G. Compliance with Tax Requirements. The Reorganized
Debtors shall comply with all withholding and reporting
requirements imposed by federal, state or local taxing
authorities in connection with making distributions pursuant to
the Plan.
In connection with each distribution with respect to
which the filing of an information return (such as an Internal
Revenue Service Form 1099 or 1042) and/or withholding is
required, the Reorganized Debtors shall file such information
return with the Internal Revenue Service and provide any required
statements in connection therewith to the recipients of such
distribution, and/or effect any such withholding and deposit all
moneys so withheld to the extent required by law. With respect
to any Person from whom a tax identification number, certified
tax identification number or other tax information required by
law to avoid withholding has not been received by the Reorganized
Debtors (or the Distribution Agent), the Reorganized Debtors may,
at their sole option, withhold the amount required and distribute
the balance to such Person or decline to make such distribution
until the information is received; provided, however, the
Reorganized Debtors shall not be obligated to liquidate New
Securities to perform such withholding.
H. Allocation Between Principal and Interest. The
consideration paid to holders of Old Notes shall be allocated
first to accrued but unpaid interest and next to principal on the
Old Notes.
I. Distribution of Unclaimed Property. If any Person
entitled to receive cash or New Securities pursuant to the Plan
does not present itself on the Effective Date or on such other
date on which such Person becomes eligible for distribution of
such cash or securities, such cash or New Securities shall be set
aside and (in the case of cash) held in a segregated interest-
bearing fund to be maintained by the Distribution Agent. If such
Person presents itself within five years following the
Confirmation Date, such cash or New Securities, together with any
interest or dividends earned thereupon, shall be paid or
distributed to such Person. If such Person does not present
itself within five years following the Confirmation Date, any
such cash or securities and accrued interest or dividends thereon
shall become the property of, and shall be released to, the
relevant Reorganized Debtor. Nothing contained in the Plan shall
require the Reorganized Debtors to attempt to locate such
Persons.
J. Setoff. Each Reorganized Debtor may, but is not be
required to, setoff against any Claim and the payment to be made
pursuant to the Plan in respect of such Claim, any Claims of any
nature which the Reorganized Debtor may not have against the
holder of such Claim. Neither the failure by a Reorganized
Debtor to effect such a setoff nor the allowance of any Claim
shall constitute a waiver or a release of any Claim which the
Reorganized Debtors may have against the holder of a Claim.
K. Record Date. As of the close of business on the Record
Date, the transfer ledger shall be closed and the Reorganized
Debtors and the Old Trustee shall have no obligation to recognize
any transfer of the Old Common Stock or the Old Notes occurring
thereafter.
ARTICLE VII
PROCEDURES FOR RESOLVING CLAIMS AND INTERESTS
A. Bar Dates for Claims and Interests Generally. Each
holder of a Claim (other than an Administrative Claim) or
Interest shall file a proof of Claim or proof of Interest, as the
case may be, with the Bankruptcy Court (1) no later than the bar
dates previously established by the Bankruptcy Court or (2), to
the extent such holders were not subject to such bar date, (a)
within 30 days after the Effective Date or (b) by such other date
as may be established by the Bankruptcy Court. Any holder who
does not file a proof of Claim or a proof of Interest, as the
case may be, within the applicable time period shall be forever
barred from asserting its Claim or Interest, as the case may be,
unless, and to the extent such Claim or Interest is listed by the
Debtors in their respective Schedules filed with the Bankruptcy
Court as liquidated in amount, not disputed and not contingent.
B. Bar Dates for Administrative Claims. All requests for
payment of Administrative Claims shall be filed with the
Bankruptcy Court in the following manner:
1. Fee Claims. Each holder of a Fee Claim shall be
entitled to file an application for allowance of final
compensation and reimbursement of expenses for services rendered
on or before the Effective Date. All applications in respect of
such Fee Claims shall be filed not later than 45 days after the
Effective Date. If a holder of a Fee Claim fails to file an
application with respect to its Fee Claim within such 45-day
period, such holder shall be forever barred from asserting its
Fee Claim.
2. Other Administrative Claims. Except as otherwise
provided by Article III(A), all requests for payment of
Administrative Claims, other than Fee Claims and Administrative
Claims incurred and paid in ordinary course, must be filed with
the Bankruptcy Court within 30 days after the Effective Date.
Any holder of such an Administrative Claim that does not file a
request for payment within such a 30-day period shall be forever
barred from asserting its Administrative Claim.
C. Prosecution of Objections. After the Effective Date,
each Reorganized Debtor shall have the sole authority (1) to
object to Claims against, and Interests in, such Reorganized
Debtor, and (2) to litigate any Claim or any Interest to Final
Order, to settle or to compromise any Claim or any Interest or to
withdraw any objection to any Claim or any Interest (other than a
Claim or an Interest that is deemed to be allowed pursuant to the
Plan or a Final Order).
Unless another date is established by the Bankruptcy
Court or the Plan, any objection to a Claim or an Interest shall
be filed with the Bankruptcy Court and served on the holder of
such Claim or Interest within 90 days after the later of (1) the
Effective Date and (2) the date that a proof of Claim or a proof
of Interest, as the case may be, with respect to such Claim or
Interest is filed or is deemed to have been filed with the
Bankruptcy Court. The relevant Reorganized Debtor shall have the
right to petition the Bankruptcy Court for an extension of such
date if a complete review of such Claim or Interest cannot be
completed by such date.
Except as otherwise provided by Section III(A), any
objection to a Fee Claim shall be filed within the later of (1)
60 days after the Effective Date and (2) 30 days after the date
on which the application is filed with respect to such Fee Claim.
If no objection has been filed to a Claim or an Interest (other
than a Fee Claim which shall be allowed only by order of the
Bankruptcy Court) within the applicable period, the Claim or the
Interest shall be treated as an Allowed Claim or an Allowed
Interest, as the case may be, to the extent that the Claim or the
Interest has not been previously allowed or disallowed by the
Bankruptcy Court.
D. Treatment of Disputed Claims and Disputed Interests.
Disputed Claims and Disputed Interests shall be treated in the
following manner:
1. No Distribution Pending Allowance. If any portion
of a Claim is a Disputed Claim, no payment or distribution
provided under the Plan shall be made on account of the portion
of such Claim that is a Disputed Claim unless and until such
Disputed Claim becomes an Allowed Claim but the payment or
distribution provided for under the Plan shall be made on account
of the portion of such Claim that is an Allowed Claim.
2. Disputed Class 5 Claims Reserve. Notwithstanding
anything else to the contrary in this Article VII(D), on the
Effective Date, the Reorganized Debtors shall deposit into the
Disputed Class 5 Claims Reserve, the New Common Stock that would
otherwise have been distributed to holders of Disputed Claims
which, if allowed on the Effective Date, would have been Class 5
Claims (each, a "Disputed Class 5 Claim") in accordance with the
Plan as if such Disputed Class 5 Claims were Allowed Claims. No
interest or other amounts shall accrue on New Common Stock held
in the Disputed Class 5 Claims Reserve. In calculating the
amount to be held in the Disputed Class 5 Claims Reserve, the
Reorganized Debtors shall (a) treat all liquidated Disputed Class
5 Claims as if allowed in full and (b) make a good faith estimate
of the amounts, if any, likely to be allowed in respect of
contingent or unliquidated Class 5 Claims. If, and to the
extent, any such Disputed Class 5 Claim became an Allowed Claim,
the property so reserved for the creditor holding such Claim
shall be distributed to such creditor within thirty days of the
date that such Disputed Class 5 claim becomes an Allowed Claim.
In the event that, after the Effective Date, a Disputed
Claim is disallowed in whole or in part, the relevant Reorganized
Debtor shall distribute (or cause the Distribution Agent to
distribute) the property held in reserve for the disallowed
portion of such Disputed Class 5 Claim as follows: (a) such
property shall be distributed to holders of Allowed Class 5
Claims; (b) such distribution shall be based on the applicable
Ratable Share of each such holder, as adjusted to take into
account the disallowance or the allowance of all Disputed Claims
since the Effective Date; and (c) such distribution shall be made
on December 31, 1996, and on June 30 and December 31 of each
following year (each such date, a "Distribution Date"), to the
extent a Disputed Class 5 claim has been disallowed in whole or
in part since the Effective Date or the last Distribution Date,
as the case may be, until the earlier of (i) the date on which
all Disputed Class 5 Claims have been resolved and (ii) less than
5,000 shares of New Common Stock are on deposit in the Disputed
Class 5 Claims Reserve. If, at any time after the Effective Date,
the number of shares of New Common Stock held in the Disputed
Class 5 Claims Reserve is less than 5,000, the remaining shares
of Common Stock held in such reserve may, at the option of the
Reorganized Debtors, be canceled or treated as treasury stock.
3. No Other Reserves. The Reorganized Debtors shall
not be required to establish a reserve with respect to any class
of Disputed Claims or Disputed Interests other than Class 5
Disputed Claims.
4. Method of Resolution - General. Each Disputed
Claim (other than a Disputed Claim which involves a personal
injury, property damage or wrongful death claim) and each
Disputed Interest shall be resolved by the Bankruptcy Court.
5. Method of Resolution - Personal Injury and
Wrongful Death Claims. Each Disputed Claim involving a personal
injury, property damage or wrongful death claim shall be resolved
in the following manner:
a. Information Assembly. Within 30 days after
the Effective Date, the relevant Reorganized Debtor shall mail to
each holder of such a Disputed Claim a form prepared by such
Reorganized Debtor, requesting such information as such
Reorganized Debtor believes is necessary to evaluate such
Disputed Claim.
No later than 30 days after each holder of such a
Disputed Claim receives such form, the holder shall return the
completed form to such Reorganized Debtor and any Insurer on
such Claim. The completed form must be signed, under penalty of
perjury, by the holder and the holder's counsel, if any, and the
signature of the holder must be notarized. Each form must have
the following documentation attached to such form:
(i) For personal injuries and wrongful death
claims: (A) copies of all medical bills, (B) copies of all
medical reports, (C) copies of all expert reports, (D) copies of
all tax returns for the last five years, (E) copies of all
x-rays, (F) copies of all MRI's, (G) copies of all wage
statements, W-2 forms, W-4 forms, and 1099 forms for the past
five years, (H) copies of all pictures of any accident scene, (I)
an executed SSA-7004-SM, Social Security Administration Request
for Earnings and Benefit Statement, designating a Person
specified by such Reorganized Debtor as addressee, (J) an
executed IRS 4506 Form, Request for Copy of Transcript of Tax
Form, designating a Person specified by such Reorganized Debtor
as the recipient of the documents, and (K), in the case of
wrongful death claims, copies of all autopsy reports.
(ii) For property damage claims, (A) copies
of all repair invoices and records and (B) copies of all expert
reports.
If the form is not returned in accordance herewith within the
required 30-day period, the Disputed Claim shall be deemed
disallowed.
Within 90 days from the date on which such Reorganized
Debtor and the Insurer, if any, receive a form returned in
accordance herewith, such Reorganized Debtor or, if there is an
Insurer, the Insurer shall:
(i) offer to settle the Disputed Claim;
(ii) deny the Disputed Claim; or
(iii) request additional information from
the holder of the Disputed Claim, including, without limitation,
for personal injury claims, submission to an independent medical
examination.
If an offer of settlement is made, the holder must
accept or reject the offer of settlement within 30 days after the
offer of settlement is made. If the offer of settlement is not
accepted or rejected within such 30-day period, the Disputed
Claim shall be deemed disallowed. If the holder accepts the
offer of settlement, the Disputed Claim shall be deemed allowed
on the date on which such Reorganized Debtor or the Insurer, as
the case may be, receives notice of such acceptance.
If additional information is requested, the holder must
provide such additional information within 30 days of the
request. If the holder fails to provide such additional
information within such 30-day period, the Disputed Claim shall
be deemed disallowed. If the requested additional information is
provided within such 30-day time period, such Reorganized Debtor
or, if there is an Insurer, the Insurer must make an offer of
settlement or deny a Disputed Claim within 90 days after it
receives such additional information.
If a holder of a Disputed Claim rejects an offer of
settlement within 30 days after the offer of settlement is made
or the Disputed Claim is denied, the holder shall notify such
Reorganized Debtor and the Insurer, if any, that mediation is
requested. If a holder fails to request mediation, the Disputed
Claim shall be deemed disallowed.
b. Mediation. Each such Disputed Claim for
which mediation is requested shall be submitted to mediation by a
mediator assigned by the Bankruptcy Court. Such mediator shall
work with all Persons involved, including, without limitation,
any Insurer, to negotiate a mutually satisfactory resolution with
respect to the Disputed Claim. Within 30 days of the date on
which a mediator is appointed, the mediator shall schedule a
mediation conference in Oklahoma City, Oklahoma at which all
Persons involved shall either (i) appear personally or (ii) be
represented by a Person authorized to enter into a binding
settlement agreement on behalf of such involved Person. The
mediator shall give each such involved Person at least 10 days
prior written notice of the date, the time and the place of the
conference. If any Person which has received notice of such
mediation (or his, her or its designated representative) fails to
appear at such mediation conference, any other Person may
petition the Bankruptcy Court for an award of costs, including,
without limitation, reasonable attorneys' fees against the
non-attending Person. In addition, if the holder or the holder's
counsel, if any, fails to attend, the Disputed Claim shall be
deemed disallowed.
At the conclusion of the mediation conference, each
Person (or its designated representative) shall sign before the
mediator a statement to the effect that (i) the Disputed Claim
has been resolved by mutual agreement (subject to approval of the
Bankruptcy Court) and the basis of such resolution, (ii) that the
Disputed Claim shall be submitted to binding arbitration or (iii)
that the Disputed Claim shall proceed before the District Court.
c. Arbitration. If a Disputed Claim is
submitted to binding arbitration, the Disputed Claim shall be
resolved by binding arbitration conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association. No Person involved in such arbitration shall be
permitted to appeal any award except as expressly permitted by
Section 10 of the Federal Arbitration Act, as amended, and there
shall be no right to a de novo trial subsequent to the
arbitration.
d. Trial. Upon compliance with the procedures
set forth in this Article VII(D)(5), the holder of a Disputed
Claim subject to this Article VII(D)(5) shall have the right to
pursue such Disputed Claim in a federal district court in
accordance with 28 U.S.C. 157(b)(5) and the Federal Rules of
Civil Procedure. Any case filed prior to the Filing Date shall
be transferred from the forum in which it is pending to the
District Court and, regardless of whether a case has been filed
prior to the Filing Date, the District Court shall transfer the
case to the federal district court for the district in which the
Disputed Claim arose. The Disputed Claim shall be prosecuted in
the federal district court to which it is transferred by the
District Court.
ARTICLE VIII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE PLAN
Conditions to Consummation. The Plan shall not become
effective unless and until each of the following conditions have
been satisfied or have been waived in accordance with this
Article VIII:
A. Entry of the Confirmation Order. The Plan shall
have been confirmed by the Bankruptcy Court and the Confirmation
Order shall have become a Final Order.
B. New Credit Agreement. The New Credit Agreement
shall have been entered into and all conditions to the
effectiveness thereof shall have been satisfied or waived by the
lenders as required thereunder.
C. Other Agreements. All other agreements
contemplated by, or entered into pursuant to, the Plan,
including, without limitation, the Plan Documents, shall have
been duly and validly executed and delivered by the parties
thereto and all conditions to their effectiveness shall have been
satisfied or waived.
The Reorganized Debtors may waive at any time, without
notice, leave or order of the Bankruptcy Court, and without any
formal action other than proceeding to consummate the Plan, any
condition precedent to consummation of the Plan; provided,
however, that the Debtors may not waive the condition precedent
specified in Article VIII(A) insofar as it relates to the
execution, delivery and effectiveness of the New Indenture and
the Noteholder Registration Rights Agreement without the consent
of the Committee.
ARTICLE IX
CONFIRMABILITY AND SEVERABILITY OF A PLAN AND CRAMDOWN
If all of the applicable requirements for confirmation
of the Plan are met as set forth in Section 1129(a) of the
Bankruptcy Code except paragraph (8) thereof, the Debtors may, at
their option, amend the Plan as necessary to request the
Bankruptcy Court to confirm the Plan pursuant to Section 1129(b)
of the Bankruptcy Code, notwithstanding the requirements of
paragraph (8) of Section 1129(a) of the Bankruptcy Code, provided
that the Plan, as so amended, is fair and equitable and does not
discriminate unfairly with respect to any impaired Class or
Classes that have not accepted the Plan. The right of the
Debtors to modify the Plan under this Article IX does not limit
the ability of the Debtors to modify the Plan under Article
XII(A).
ARTICLE X
EFFECTS OF THE CONFIRMATION OF THE PLAN
A. Binding Effect. The provisions of the Plan shall bind
all holders of Claims and Interests, whether or not any such
holder has accepted the Plan.
B. Discharge. Except as otherwise expressly provided
herein, the confirmation of the Plan shall, provided the
Effective Date shall have occurred, discharge all Claims and
Interests to the fullest extent authorized or provided by the
Bankruptcy Code, including, without limitation, to the fullest
extent authorized or provided for by Section 524 of the
Bankruptcy Code.
C. Vesting of Assets; Reservation of Claims. Except as
expressly provided in, and governed by, the Plan, on the
Effective Date, the assets and property of each Debtor's Estate
shall vest in the relevant Reorganized Debtor free and clear of
all Claims, liens, encumbrances, charges and interests. Except
as provided in the Estate Release, all causes of action arising
under Chapter 5 of the Bankruptcy Code (other than fraudulent
conveyance and preference claims, if any, of the Debtors against
the Old Banks and the holders of the Old Notes), all Claims
against third parties, and all other causes of action against
third parties, and all other causes of action and rights
belonging to or in favor of the Debtors, including, without
limitation, under Section 502, Section 544, Section 545, Section
547, Section 548 and Section 549 of the Bankruptcy Code, are
hereby preserved and retained for assertion and enforcement
solely and exclusively by, and in the discretion of, the
Reorganized Debtors and shall revest in the relevant Reorganized
Debtor on the Effective Date.
D. Injunction. Except as otherwise expressly provided in,
and governed by, the Plan, the entry of the Confirmation Order
shall, provided that the Effective Date shall have occurred,
permanently enjoin all Persons that have held, currently hold or
may hold a Claim, or other debt or liability that is discharged
pursuant to the Plan or who have held, currently hold or may hold
an Interest that is terminated pursuant to the Plan from taking
any of the following actions in respect of such discharged Claim,
debt or liability or such terminated Interest:
(1) commencing, conducting or continuing in any
manner, directly or indirectly, any suit, action or other
proceeding of any kind against the Reorganized Debtors or the
property of the Reorganized Debtors;
(2) enforcing, levying, attaching, collecting or
recovering in any manner or by any means, whether directly or
indirectly, any judgment, award, decree or order against the
Reorganized Debtors or the property of the Reorganized Debtors;
(3) creating, perfecting or enforcing in any manner,
directly or indirectly, any lien or any security interest of any
kind against the Reorganized Debtors or the property of the
Reorganized Debtors;
(4) asserting a setoff, right of subrogation or
recoupment of any kind, directly or indirectly, against any
debt, liability or obligation due to the Reorganized Debtors or
the property of the Debtors; or
(5) commencing or continuing any action in any manner
or in any place that does not comply with, or is inconsistent
with, the Plan.
E. Insured Claims. Confirmation of the Plan shall not
discharge the duty of any Insurer under any contract of insurance
to continue to provide coverage to all parties covered under the
contract of insurance in accordance with the terms and subject to
the conditions of the contract of insurance.
ARTICLE XI
RETENTION OF JURISDICTION
Notwithstanding entry of the Confirmation Order or the
Effective Date having occurred, the Bankruptcy Court shall retain
jurisdiction over the Cases and any proceedings arising from, or
relating to, the Cases pursuant to Section 1142 of the Bankruptcy
Code and Section 1334 of Title 28 of the United States Code to
the fullest extent permitted by the Bankruptcy Code and any other
applicable law, including, without limitation, such jurisdiction
as is necessary to ensure that the purpose and the intent of the
Plan are carried out. Without limiting the generality of the
foregoing, the Bankruptcy Court shall retain the following
jurisdiction:
A. Executory Contract and Lease Determinations. The
Bankruptcy Court shall retain the jurisdiction to hear and to
determine any motions pending before the Bankruptcy Court on the
Effective Date to reject any executory contract or unexpired
lease to which a Debtor is a party or with respect to which a
Debtor may be liable and to hear and to determine the allowance
of any Claim resulting therefrom.
B. Pending Motions and Adversary Proceedings. The
Bankruptcy Court shall retain the jurisdiction to determine any
adversary proceedings, applications, contested matters and other
litigated matters that are pending on the Effective Date or that
may be commenced thereafter as provided in the Plan.
C. Distributions. The Bankruptcy Court shall retain the
jurisdiction to ensure that distributions to the holders of
Allowed Claims and Allowed Interests are accomplished as provided
in the Plan.
D. Claim Determinations. The Bankruptcy Court shall
retain the jurisdiction to hear and determine objections to, or
requests for estimation of, Claims, including, without
limitation, any objections to the classification of any Claim, in
whole or in part.
E. Stay Matters. The Bankruptcy Court shall retain the
jurisdiction to enter and to implement such orders as may be
appropriate in the event that the Confirmation Order is for any
reason stayed, revoked, modified or vacated.
F. Support of Plan. The Bankruptcy Court shall retain the
jurisdiction to issue appropriate orders in aid of the execution
of the Plan and to enforce the Confirmation Order and/or the
discharge, or the effect of the discharge, provided to the
Reorganized Debtors.
G. Modifications. The Bankruptcy Court shall retain the
jurisdiction to hear and to determine any applications to modify
the Plan, to cure any defect or any omission in any order of the
Bankruptcy Court or in the Plan, including, without limitation,
the Confirmation Order, and to reconcile any inconsistency in
any order entered by the Bankruptcy Court and the Plan,
including, without limitation, the Confirmation Order.
H. Compensation and Expense Determinations. The
Bankruptcy Court shall retain the jurisdiction to hear and to
determine any applications for compensation and reimbursement of
expenses of professionals and members of any Statutory Committee
(and, if applicable, the Committee) under Section 330, Section
331, Section 503(b), Section 1103 and/or Section 1129(a)(4) of
the Bankruptcy Code.
I. Resolution of Controversies. The Bankruptcy Court
shall retain the jurisdiction to hear and to determine resolve
any disputes arising in connection with the interpretation, the
implementation or the enforcement of the Plan.
J. Other Plan-Related Matters. The Bankruptcy Court shall
retain the jurisdiction to hear and to determine other issues
presented by, arising under, or related to, the Plan and other
matters related to the Plan and not inconsistent with the
Bankruptcy Code.
K. Final Decree. The Bankruptcy Court shall retain the
jurisdiction to enter a final decree closing the Cases.
L. Recovery of Assets. The Bankruptcy Court shall retain
the jurisdiction to enter such orders as may be appropriate in
connection with the recovery of the assets of the Debtors and the
Estates wherever located.
M. Tax Related Matters. The Bankruptcy Court shall retain
the jurisdiction to hear and to determine any motions or
contested matters involving taxes, tax refunds, tax attributes
and tax benefits and similar or related matters with respect to
the Debtors arising prior to the Effective Date or relating to
the administration of the Cases, including, without limitation,
matters involving federal, state and local taxes in accordance
with Section 346, Section 505 and Section 1146 of the Bankruptcy
Code.
N. Other Determinations. The Bankruptcy Court shall retain
the jurisdiction to determine any other matter not inconsistent
with the Bankruptcy Code.
ARTICLE XII
MISCELLANEOUS PROVISIONS
A. Modification of the Plan. The Plan may be modified at
any time or from time to time by the Debtors before or after the
Effective Date, whether or not the Plan has been substantially
consummated, upon such notice and hearing and other requirements
as shall be required by the Bankruptcy Code and applicable law.
B. Revocation and Withdrawal of Plan. The Debtors reserve
the right to revoke or to withdraw the Plan at any time before
the Confirmation Date. If the Debtors revoke or withdraw the
Plan prior to the Confirmation Date, or if the Confirmation Date
or the Effective Date does not occur, then the Plan shall be
deemed null and void. In such event, nothing contained herein or
in the Disclosure Statement shall be deemed to constitute an
admission of the validity, waiver or release of any Claims by or
against the Debtors or any other Person or to prejudice in any
manner the rights of the Debtors or any Person in any proceeding
involving the Debtors.
C. Exculpation. Neither the Reorganized Debtors, the Old
Banks, any Statutory Committee, the Committee, nor any of their
respective members, officers, directors, shareholders, employees,
agents, attorneys, accountants or other advisors, shall have or
incur any liability to any holder of a Claim or Interest for any
act or failure to act in connection with, or arising out of, the
pursuit of confirmation of the Plan, the consummation of the Plan
or the administration of the Plan or the property to be
distributed under the Plan, except for any act or failure to act
that constitutes willful misconduct or recklessness as determined
pursuant to a Final Order, and in all respects, such Persons (1)
shall be entitled to rely upon the advice of counsel with respect
to their duties and responsibilities under the Plan, and shall be
fully protected from liability in acting or in refraining from
action in accordance with such advice and (2) shall be fully
protected from liability with respect to any act or failure to
act that is approved or ratified by the Bankruptcy Court.
D. Payment Dates. Whenever any payment to be made under
the Plan is due on a day other than a Business Day, such payment
shall instead be made, without interest, on the next following
Business Day.
E. Payment of Statutory Fees. All fees payable pursuant
to Section 1930 of Title 28 of the United States Code, shall be
paid as required by the Bankruptcy Code.
F. Payment of Post-Petition Interest or Attorney Fees.
Unless otherwise expressly provided in the Plan, or allowed by
order of the Bankruptcy Court, the Debtors shall not be required
to pay any holder of a Claim any interest occurring on or after
the Filing Date, or any attorneys' fees, with respect to such
Claim.
G. Section 1146 Exemption. Pursuant to Section 1146(c) of
the Bankruptcy Code, the issuance, transfer or exchange of any
security under the Plan or the making or delivery of any
instrument of transfer pursuant to, in implementation of, or as
contemplated by, the Plan or the revesting, transfer or sale of
any real or personal property of the Debtors pursuant to, in
implementation of, or as contemplated by, the Plan shall not be
taxed under any state or local law imposing a stamp tax, transfer
tax or similar tax or fee.
H. Dissolution of Committees. On the Effective Date, each
Statutory Committee shall automatically dissolve and all members
of such committees shall be discharged from all rights and all
duties arising from, or related to, the Cases.
I. Governing Law. Except to the extent that the
Bankruptcy Code or the Bankruptcy Rules are applicable, the Plan
shall be governed by, and construed and interpreted in accordance
with, the internal laws of the State of Delaware.
J. Notices. After the Effective Date, any notice or other
communication to the Reorganized Debtors required or permitted
under the Plan shall be in writing and shall be hand delivered or
sent by certified or registered mail, postage pre-paid, return
receipt requested, as follows:
Homeland Stores, Inc. or Homeland Holding Corporation
2601 Northwest Expressway
Oklahoma City, Oklahoma 73112
Attn: President
Telephone: (405) 879-6600
Telecopy: (405) 879-4605
with a copy to:
Crowe & Dunlevy, A Professional Corporation
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
Attn: Judy Hamilton Morse
Telephone: (405) 235-7700
Telecopy: (405) 239-6651
and
Young, Conaway, Stargatt & Taylor
Eleventh Floor, Rodney Square North
1100 North Market Street
Wilmington Trust Center 19801
Attn: James L. Patton, Jr.
Telephone: (302) 571-6600
Telecopy: (302) 571-1253
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attn: Robert D. Drain
Telephone: (212) 373-3000
Telecopier: (212) 757-3990
After the Effective Date, any notice or other
communication to a holder of a Claim or an Interest required or
permitted under the Plan shall be hand delivered or shall be sent
by certified or registered mail, postage pre-paid, return
receipt requested, to the holder at the address set forth on any
proof of claim filed by the holder or, if the holder has not
filed or been deemed to have filed a proof of claim, at the last
known address of the holder as reflected by the records of the
relevant Reorganized Debtor.
A notice or other communication sent pursuant to this
Article XII(J) shall be deemed given and received upon delivery
if hand delivered and three business days after deposited in the
United States mail if sent by registered or certified mail.
K. Successors and Assigns. The rights of any Person named
or referred to in the Plan shall inure to the benefit of, and the
obligations of any Person named or referred to in the Plan shall
be binding on, any heir, executor, administrator, successor or
assign of such Person.
L. Severability. To the extent that any provision of the
Plan would, by its inclusion of the Plan, prevent or preclude the
Bankruptcy Court from entering the Confirmation Order, the
Bankruptcy Court, on the request of the Debtors, may modify or
amend, or permit the Debtors to modify or amend such provision,
in whole or in part as necessary to cure any defect or remove any
impediment to the confirmation of the Plan existing by reason of
such provision.
M. Objections to Claims or Interests. The failure by the
Debtors to object to or examine any Claim or Interest for
purposes of voting shall not be deemed a waiver of the Debtors'
right to object to or re-examine such Claim or Interest, in whole
or in part.
[REST OF PAGE INTENTIONALLY OMITTED]
. Dated this 13th day of May, 1996
HOMELAND STORES, INC.
By:
James A. Demme
President and Chief Executive Officer
HOMELAND HOLDING CORPORATION.
By:
James A. Demme
President and Chief Executive Officer
CROWE & DUNLEVY, A PROFESSIONAL
CORPORATION
By:
Judy Hamilton Morse, OBA #6450
Kenni B. Merritt, OBA #6147
Roger A. Stong, OBA #11710
William H. Hoch, OBA #15788
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
(405) 235-7700
COUNSEL TO HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
YOUNG, CONAWAY, STARGATT & TAYLOR
By:
James L. Patton, Jr.
Rodney Square North, 11th Floor
Wilmington, Delaware 19899
(302) 571-6600
LOCAL COUNSEL TO HOMELAND STORES, INC.
AND HOMELAND HOLDING CORPORATION
Appendix B
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 charges 6,600 8,202
Total assets $137,582 $239,134
Continued
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 - trade $ 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)
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 stockholders $(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 outstanding 33,223,675 34,752,527 34,946,460
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>
<S> <C> <C> <C> <C> <C> <C>
Minimum
Class A Additional Pension Total
Common Stock Paid-in Accumulated Liability Treasury Stock Stockholders'
Shares Amount Capital Deficit Adjustment Shares 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)
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 receivable
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)
Continued
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands, except share and per share amounts)
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 31, 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
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 adjustment (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.
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.
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 reserve 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 leases 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 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 agreement 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:
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
(a) Such amount is net of additional charges of $898 in 1995
14. Restructuring, continued:
The separately identifiable revenue and store
contribution to operating profit related to the stores
sold to AWG or closed during 1995 and expenses related
to the warehouse facility are as follows:
1995 1994 1993
Sales, net $91,462 $253,221 $262,460
Store contribution to
operating profit (loss)
before allocation of
administrative and
advertising expenses $ 2,494 $ 7,795 $ 9,854
Warehouse expenses $ 3,853 $ 12,455 $ 11,080
Under the AWG supply agreement, the ongoing costs of
warehousing are built into the cost of goods purchased
from AWG.
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.
Appendix C
LIQUIDATION ANALYSIS OF THE DEBTORS
General
The Debtors believe that the value of the property to
be received under the Plan by each holder of an impaired Claim
and/or impaired Interest exceeds any value such holder would
receive in a liquidation of each of the Debtors under Chapter 7
of the Bankruptcy Code. In order to arrive at that judgment, the
Debtors estimated and compared the likely returns to each holder
of an impaired Claim and an impaired Interest under a liquidation
pursuant to Chapter 7 of the Bankruptcy Code and under the Plan.
The results of such analysis are set forth below.
Chapter 7 Liquidation Analysis
To calculate what members of each impaired Class of
Claims and Interests would receive if each of the Debtors were
liquidated under Chapter 7 of the Bankruptcy Code, the Bankruptcy
Court must determine the "liquidation value" of each Debtor,
which would consist primarily of the proceeds from a forced sale
of each Debtor's assets by a Chapter 7 trustee. The Debtors'
assets consist primarily of (i) the Company's inventory and
accounts receivable (the "Quick Assets") and (ii) the Company's
property, plant and equipment (the "Fixed Assets").
In preparing this Chapter 7 liquidation analysis, the
Debtors evaluated several alternative methods of valuing the
Debtor's assets including a "piecemeal" sale of the Company's
assets and a sale of the Company as a going concern. The Company
believes that, for purposes of this liquidation analysis, a
piecemeal valuation of the Debtors' assets is more appropriate
than a going concern valuation because, absent a reorganization
of the Company along the lines provided for in the Plan, it is
unlikely that the Company would have going concern value to a
third party purchaser. See "THE RESTRUCTURING -- Restructuring
Discussions -- Strategic Sale Efforts." Accordingly, for purposes
of this liquidation analysis, the Debtors have valued the
Company's assets based on a "piecemeal" sale of the Company's
assets over a three-to-six month period.
Under a Chapter 7 liquidation, each Allowed Secured
Claim would be satisfied from the proceeds of the collateral
securing such Claim before any such proceeds would be distributed
to the holders of Unsecured Claims. The Debtors have three
groups of creditors who each hold Secured Claims: (i) the Old
Banks, whose Claims are secured primarily by the Company's Quick
Assets and certain cash collateral held by the Old Banks
(collectively, the "Bank Collateral"); (ii) the holders of the
Old Notes, whose claims are secured primarily by the Fixed Assets
and certain cash collateral held by the Old Trustee (the "Old
Indenture Collateral"); and (iii) certain equipment lessors (the
"Equipment Lessors"), whose claims are secured by the equipment
leased by such Equipment Lessor (the "Equipment Lease
Collateral"). The Debtors believe that (a) the proceeds from a
forced sale of the Bank Collateral would be sufficient to satisfy
the Claims of the Old Banks in full, (b) the proceeds from a
forced sale of the Indenture Collateral would not be sufficient
to satisfy the Claims of the holders of the Old Notes and (c) the
proceeds from a forced sale of the Equipment Lease Collateral
would not be sufficient to satisfy the Claims of the Equipment
Lessors. See Notes 10 through 13 to the Liquidation Analysis.
The remaining proceeds from a Chapter 7 liquidation
that would be available to be distributed to creditors on account
of their Claims would be reduced by the amount of administrative
expenses of the Chapter 7 case, which amount has priority over
payments to unsecured creditors pursuant to the Bankruptcy Code.
Administrative expenses of liquidation under Chapter 7 of the
Bankruptcy Code would include the fees of a trustee, and of
counsel and other professionals (including financial advisors and
accountants) retained by the trustee, asset disposition expenses,
litigation costs, and Claims arising from the operation of the
Company's business during the Chapter 7 case. The liquidation
itself could trigger certain priority Claims, such as Claims for
severance pay, and could accelerate other priority payments that
otherwise would be due in the ordinary course of business. Those
priority Claims would be paid in full out of the liquidation
proceeds (after payment of Secured Claims) before the balance
would be made available to pay Unsecured Claims or to make any
distributions in respect of equity interests.
In the event that proceeds remain after satisfaction of
all Allowed Secured Claims, administrative Claims and priority
Claims, the remaining assets would be distributed pursuant to the
absolute priority rule, which requires that no junior creditor
receive any distribution until all senior creditors are paid in
full, and no equity holder receive any distribution until all
creditors are paid in full. The Debtors believe that in a
liquidation under Chapter 7 of the Bankruptcy Code, holders of
the Old Notes and holders of General Unsecured Claims would
receive a smaller distribution of property than under the Plan,
and that holders of the Old Common Stock and the Old Warrants
would receive no distribution of property.
In applying Section 1129(a)(7) of the Bankruptcy Code,
the Bankruptcy Court would ascertain the hypothetical recoveries
in a Chapter 7 liquidation to secured creditors, priority
claimants, general unsecured creditors, and equity interest
holders. The Bankruptcy Court would then compare these
hypothetical Chapter 7 liquidation recoveries with the
distributions offered to each class of Claims or Interests under
the Plan to determine if the Plan satisfies the best interest
test set forth in Section 1129(a)(7) of the Bankruptcy Code.
The following Chapter 7 liquidation analysis is
provided solely to disclose the effects of a hypothetical Chapter
7 liquidation of the Debtors, based on and subject to the
assumptions set forth below. There can be no assurance that such
assumptions would be made or accepted by the Bankruptcy Court or
that the assumptions used in this liquidation analysis will
reflect actual conditions at the time of a liquidation. However,
as set forth in the following Chapter 7 liquidation analysis, the
Debtors believe, based on the assumptions set forth herein, that
the members of each class of impaired Claims or impaired
Interests will receive more under the Plan than they would in a
Chapter 7 liquidation.
Liquidation Proceeds Computation(1)
Estimated at July 13, 1996
(Dollars in Thousands)
ASSETS
Estimated Discounted
Liquidation Liquidation
Assets Book Value Value Value
(2)
Cash and cash $ $ 5,236 $ 4,982
equivalents (3) 5,236
Accounts receivable 3,486 (4) 3,317
8,379
Inventory 29,195 27,777
38,623 (5)
Prepaid expenses and
other 0 0
current assets 2,733
Total 37,917 36,075
current assets 54,971
Property, plant and
equipment (6) 70,087 19,646 18,691
Other assets and
deferred charges (7) 6,455 0 0
Total assets $ 131,513 $ 57,562 $ 54,766
Liquidation Proceeds Available for Distribution $ 54,766
SECURED CLAIMS
Estimated
Value of
Estimate Collateral
Description of Claim Amount of Securing Chapter 7 Liquidation
Claim Claim Distribution Recovery%
Revolving Loans (Class 2) $ 12,136 $ 33,992 (8) $ 12,136 100.0%
Equipment Leases (Class 4) 1,531 476 (9) 476 31.1
Old Notes (Class 3) 20,298 (10) 20,298 (11) 20.0
Total Secured Claim
Distributions $ 32,910
Liquidation Proceeds available for Distribution
after Secured Claims $ 21,856
ADMINISTRATIVE EXPENSES
Estimated Liquidation
Expenses
Chapter 7 Trustee's Fees $ 1,000
Chapter 7 Professional Fees
and Other Administrative $ 2,886
Expenses (12)
Total Administrative $ 3,886
Expenses
Liquidation Proceeds
Available for
Distribution $17,970
after Administrative
Expenses
UNSECURED CLAIMS/INTERESTS
Proceeds
Estimated Available
Description of Amount of to Satisfy Chapter 7
Claim/Interest Claim Claim Distribution
Priority Claims (Class 1)(13) $ 7,419 $17,970 $ 7,419
1)(13)
General Unsecured Claims (Class 5) 10,551
a. Unsecured Deficiency 81,300 5,878
Claim -- Old Notes (14)
b. Unsecured Deficiency Claim 1,055 76
-- Equipment Leases (14)
c. Other General Unsecured 63,589 4,597
Claims (14) (15)
Old Common Stock (Class 7) N/A N/A 0
AGGREGATE RECOVERIES
Estimated Total
Description of Amount of Chapter 7 Liquidation
Claim/Interest Claim Distribution Recovery %
Priority Claims (Class 1) $ 7,419 $ 7,419 100.0%
Revolving Loans (Class 2) 12,136 12,136 100.0
Equipment Leases 1,531
a. Secured Portion
of Claim (Class 4) 476
b. Unsecured Portion
of Claim (Class 5) 76
Total 552 36.1
Old Notes 101,598
a. Secured Portion
of Claim (Class 3) 20,298
b. Unsecured Portion
of Claim (Class 5) 5,878
Total 26,176 25.8
General Unsecured Claims
(Class 5)(16) 63,589 4,597 7.2
Old Common Stock (Class 7) N/A 0 0
Total $ 50,880
Notes to Liquidation Analysis
(Dollars in thousands)
(1) This Chapter 7 liquidation analysis was prepared by the
Company's management based in part on certain reports and apprai
sals prepared by professionals, including Schottenstein
Professional Asset Management Corporation, Coopers & Lybrand and
Manufacturers' Appraisal Company. In particular, (a) in valuing
the Company's inventory, the Debtors utilized certain information
contained in a liquidation report prepared by Schottenstein in
November 1995, (b) in valuing the Company's real property, the
Debtors utilized certain information contained in appraisals
prepared by Manufacturers' Appraisal Company in May 1994, and (c)
in valuing the Company's equipment, the Debtors utilized certain
information provided by Coopers & Lybrand in February 1996.
(2) The Debtors estimate that it would take six months to
complete a Chapter 7 liquidation. As a result of this expected
delay in the distribution of liquidation proceeds, the Debtors
have applied a 10% discount rate to the value of the estimated
liquidation proceeds.
(3) Includes approximately $2,189 in cash collateral
constituting Old Indenture Collateral which is being held by the
Old Trustee pursuant to the terms of the Old Indenture.
Approximately $684 of such cash collateral relates to sale
proceeds from the AWG Sale and is being held by the Old Trustee
pending the Company's reinvestment of such proceeds in Fixed
Assets. The remainder of such cash collateral relates to net
sale proceeds from asset sales occurring after the AWG Sale and
is required to be applied by the Company against a redemption of
the Old Notes once such sale proceeds equal or exceed $2,000.
(4) The Debtors estimate that the Company would be able to
recover 61% of the book value of its retail trade, pharmacy,
third-party and store charge receivables and 45% of the book
value of its coupon receivables. The Debtors believe there would
be a 0% recovery with respect to the Company's AWG-related
receivables (i.e. annual patronage rebates, concentrated purchase
allowances and earned consideration). The Debtors estimate that
the blended liquidation recovery percentage for all items of the
Company's receivables would be 42% of the receivables book value.
(5) The Debtors estimate that total gross liquidation proceeds
resulting from a forced sale of the Company's inventory would be
a blended recovery of 100% of inventory book value, or
approximately $38,623, which amount would be reduced by estimated
liquidation costs of $9,428 (including expenses relating to the
retention of a professional liquidator), resulting in estimated
net liquidation proceeds of $29,195, or 76% of inventory book
value.
(6) Property: The Company owns 13 stores and certain
miscellaneous parcels of land. The Debtors estimate that the
Company would receive gross proceeds of approximately $16,433
from a forced sale of the Company's property, which amount would
be reduced by estimated liquidation costs of $1,671 (including
projected "holding" costs such as property taxes, utilities,
insurance, security repairs, cleaning and equipment removal and
an estimated 5% sales commission on the sale of each store and
parcel), resulting in estimated net liquidation proceeds of
approximately $14,762. The Debtors estimate of the Company's
property values is based in part on certain appraisals prepared
by Manufacturers' Appraisal Company in May 1994. In the case of
such appraised properties, the Company applied certain discount
factors to the appraised values, to reflect, among other things,
the Company's assessment of the current value of such properties.
Equipment: The Debtors estimate that the
liquidation value of the Company's equipment is $4,884, including
approximately $4,384 relating to owned equipment and
approximately $500 relating to leased equipment. The Debtors
valued the Company's equipment based on 5% of the replacement
cost of such equipment, which the Debtors believe is an
appropriate method of valuing the Company's current equipment.
The proceeds resulting from the sale of the leased equipment
would be applied against the secured claims of the Equipment
Lessors. See Note 9 below.
(7) Other assets and deferred charges consist of prepaid
insurance, prepaid building and equipment rental, prepaid
supplies and other miscellaneous assets. The Debtors estimate
that there would be no liquidation recovery on such assets. To
the extent that value exists, such value was contemplated in the
Debtors' projections of Chapter 7 corporate operating costs. See
Note 13 below.
(8) The Claims of the Old Banks are secured by the Bank
Collateral. The Debtors estimate that the aggregate liquidation
proceeds from a forced sale of the Bank Collateral would be
approximately $33,992 (consisting of approximately $3,317 of
proceeds from the sale of accounts receivable, approximately
$27,777 of proceeds from the sale of inventory and approximately
$2,899 of cash collateral held by the Old Banks). Based on the
estimated liquidation value of the Bank Collateral, the claims of
the Old Banks would be paid in full. See Notes 2, 3, 4 and 5
above.
(9) Represents the average recovery for each Equipment
Lessor based on aggregate Class 4 Claims and the aggregate
proceeds of the Equipment Lease Collateral of $476. An Equipment
Lessor's actual recovery might be greater or less than such
aggregate recovery, depending on the value of the Equipment Lease
Collateral held by such Equipment Lessor.
(10) The Claims of the holders of the Old Notes are secured by
the Old Indenture Collateral. The Debtors estimate that the
aggregate liquidation proceeds from a forced sale of the Old
Indenture Collateral would be approximately $20,298 (consisting
of approximately $14,045 of proceeds from the sale of real
property, approximately $4,171 of proceeds from the sale of owned
equipment and approximately $2,083 of cash collateral held by the
Old Trustee). Based on the estimated liquidation value of the
Old Indenture Collateral, the holders of the Old Notes would be
entitled to receive only $20,298 in respect of their Claims under
the Old Notes. See Notes 2 and 6 above.
In connection with calculating the aggregate
Allowed Class 3 Claim under the Plan, the Committee and the
Debtors estimated that the going concern value of the Old
Indenture Collateral was approximately $65,000. For the reasons
discussed above, the Debtors believe that a going concern
valuation of the Company's assets (including the Old Indenture
Collateral) is not an appropriate valuation method in the context
of a Chapter 7 liquidation of the Debtors.
(11) The holders of the Old Notes would also be entitled to
distributions in respect of their Unsecured Claims. Based on
Unsecured Claims of $81,300 in respect of the Old Notes and other
General Unsecured Claims of approximately $63,589, the holders of
the Old Notes (as a class) would be entitled to receive an
additional $5,878 in respect of such Unsecured Claims.
(12) Includes $1,500 in estimated professional fees, $1,136
in corporate operating costs and $250 in collection fees.
(13) Priority Claims include accrued sales taxes and
property taxes.
(14) The holders of the Old Notes, the Equipment Lessors and
the holders of other Class 5 Claims would be entitled to receive
their ratable shares of $10,551.
(15) Includes estimated lease rejection Claims of $20,816,
estimated contingent Claims of $20,788 and estimated other
General Unsecured Claims of $21,985.
(16) Excludes General Unsecured Claims of the holders of the
Old Notes and Equipment Lessors.
Comparison of Estimated Distribution
The table below sets forth a comparison of
the estimated distributions under the Plan with the estimated
recoveries in a Chapter 7 liquidation of the Debtors with respect
to holders of impaired Claims and Interests. The fair market
value of the distributions under the Plan have been estimated by
the Debtors. See "FINANCIAL INFORMATION -- Projected and Pro
Forma Financial Information." The prices at which securities
issued under the Plan will trade may vary from the estimate.
Accordingly, there can be no assurance as to the value of the
distributions under the Plan.
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Approximate Appoxiamate
Description Amount of Amount of Distribution % Recovery
of Impaired Chapter 11 Distribution % Recovery Chapter 7 in Chapter 7 in Chapeter
Claim/Interest Claim Under Plan Under Plan Claim Liquidation Liquidation
Old Notes (Classes
3 and 5) $101,598 $ 92,400 90.9% $101,598 26,176(1) 25.8%
General
Unsecured Claims 23,000 17,687 76.9% 63,589 4,597 7.2
(Class 5((2)
Old Common
Stock N/A Greater Greater N/A 0 0
(Class 7) than than
zero(3) zero(3)
</TABLE>
(1) Reflects an estimated $20,298 distribution to
be received in respect of the secured portion of the Claims of the
holders of Old Notes and an estimated $5,878 distribution in
respect of the unsecured portion of the Claims of the holders of
Old Notes. See Notes 10 and 11 to the Liquidation Analysis.
(2) Excludes Unsecured Claims in respect of the
Old Notes. General Unsecured Claims would be greater in a
Chapter 7 liquidation than under the Plan as certain lease
rejection Claims and contingent Claims would be asserted which
would not be asserted in connection with the Restructuring.
(3) The holders of Old Common Stock will receive
(in the aggregate) 250,000 shares of New Common Stock and New
Warrants to purchase (in the aggregate) 263,158 shares of New
Common Stock.
150550.v2
FOR IMMEDIATE RELEASE NEWS
Contact: Thomas C. Franco
Rohit J. Menezes
(212) 229-2222
HOMELAND STORES ANNOUNCES FINAL DETAILS OF
RESTRUCTURING PLAN
- COMPANY TO CONDUCT BUSINESS AS USUAL THROUGHOUT PROCESS
- $27 MILLION IN WORKING CAPITAL FINANCING ARRANGED
- CEO SAYS HOMELAND TO MAINTAIN MARKET LEADERSHIP
________________________________________________________
OKLAHOMA CITY, OK, May 13, 1996 - Homeland Stores, Inc., a
private company, announced today that it will begin
implementing its previously announced financial
restructuring plan. As previously reported, the proposed
restructuring is supported by Homeland's bank group, a
committee representing approximately 80% of Homeland's
outstanding senior secured bonds, and Homeland's labor
unions. The restructuring is expected to reduce Homeland's
debt service obligations and labor costs, which will greatly
strengthen its financial position and permit the company to
maintain its market leadership. Homeland expects to
complete the restructuring by mid-summer 1996.
An integral part of Homeland's restructuring is its
previously announced pact with its labor unions to modify
certain elements of Homeland's collective bargaining
agreements. These modifications, which were overwhelmingly
ratified by the union members in March, 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.
-more -
The restructuring will be implemented by means of a
"pre-arranged" Chapter 11 plan of reorganization, which was
submitted today to the United States Bankruptcy Court,
District of Delaware, together with a disclosure statement
describing the plan. In order to facilitate the
restructuring process, Homeland has entered into a debtor-in-
possession lending facility with its existing bank group,
providing Homeland with up to $27 million of working capital
financing. This facility has been approved on an interim
basis by the court, with a final approval hearing scheduled
for May 31, 1996. Homeland 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 post-petition claims of
employees and trade vendors.
Homeland said that the financial restructuring will
have no impact on the company's normal store operating hours
or its in-store promotions, such as double coupons.
Homeland said that as part of a long-term effort to
rationalize its store network, it plans to close one store
at 1520 North Lewis Street in Tulsa, OK and one store at
5800 Bell Street in Amarillo, TX. The approximately 50
affected employees will have employment opportunities in
Homeland stores within their respective areas. Going
forward, the company expects to operate a total of 65 stores
and employ approximately 4,250 people.
Pursuant to the restructuring, the $95 million of
Homeland's senior secured bonds currently outstanding (plus
accrued interest) will be canceled, and the bondholders will
receive (in the aggregate) $60 million face amount of new
senior subordinated notes 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 bondholders and the company's
general unsecured creditors will receive approximately 60%
and 35%, respectively, of the equity of the reorganized
Homeland (assuming total unsecured claims of approximately
$63 million, including bondholder unsecured claims).
Homeland's existing equity holders will receive the
remaining 5% of the new equity together with 5-year warrants
to purchase an additional 5% of such equity.
- more -
"For fifty years we have been providing customers in
this area with superior levels of service and quality
products at goods prices, and we plan to be here for at
least another fifty doing this and more for our customers,"
said James A. Demme, Homeland's Chief Executive Officer.
"This agreement permits us to continue business as usual,
which is good news for our customers, our employees, our
creditors and other suppliers."
P. Eric Siegert, Senior Vice President of Houlihan,
Lokey, Howard & Zukin, the firm advising Homeland's
bondholders, said, "We believe that Homeland's financial
restructuring plan is sound and will put the company back on
solid footing. The bondholder committee unanimously
supports this plan of reorganization."
Mike DeFabis, President and Chief Executive Officer of
Associated Wholesale Grocers, one of the largest food
wholesalers in the U.S., which supplies 70% of Homeland's
requirements, said, "We strongly support Homeland, and the
long-term supply agreement we have with the company reflects
our confidence that it will remain the leader in the
communities it serves."
"These final steps represent a new beginning for
Homeland and will allow us to maintain both our recent
momentum and our long-standing market leadership," Mr. Demme
added. "We are gratified by the strong support that all
involved have given the restructuring plan. The cooperative
spirit demonstrated by employees, creditors, and suppliers
shows a genuine interest in the future success of Homeland."
Homeland is the leading supermarket chain in Oklahoma,
southern Kansas, and the Texas panhandle region.
###
