UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDEDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
HOMELAND HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-1311075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2601 N.W. Expressway
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 879-6600
Securities to be registred pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registred
None
Securities to be registred pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
HOMELAND HOLDING CORPORATION
FORM 10
TABLE OF CONTENTS
Page
Item 1. Business...........................................................1
General............................................................1
Restructuring......................................................1
Background.........................................................2
Business Strategy..................................................3
AWG Transaction....................................................4
Homeland Supermarkets..............................................5
Merchandising Strategy and Pricing.................................6
Customer Service...................................................6
Advertising and Promotion..........................................6
Products...........................................................7
Supply Arrangements................................................7
Employees and Labor Relations......................................9
Computer and Management Information Systems........................10
Competition........................................................10
Trademarks and Service Marks.......................................11
Regulatory Matters.................................................11
Item 2. Financial Information..............................................11
Selected Consolidated Financial Data...............................11
Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................14
Results of Operations..............................................14
General............................................................14
Liquidity and Capital Resources....................................19
Recently-Issued Accounting Standards...............................22
Inflation/Deflation................................................23
Item 3. Properties.........................................................23
Item 4. Security Ownership of Certain Beneficial Owners and Management.....23
Item 5. Directors and Executive Officers...................................25
Item 6. Executive Compensation.............................................28
Summary of Cash and Certain Other Compensation.....................28
Employment Agreements..............................................30
Management Incentive Plan..........................................31
Retirement Plan....................................................32
Management Stock Option Plan.......................................32
Compensation Committee Interlocks and Insider Participation........32
Item 7. Certain Relationships and Related Transactions.....................33
Item 8. Legal Proceedings..................................................34
Item 9. Market Price of and Dividends on the Registrants's
Common Equity and Related Stockholders Matters....................34
Item 10. Recent Sales of Unregistered Securities............................35
Item 11. Description of Registrant's Securities to be Registered............35
General............................................................35
Equity Registration Rights Agreement...............................36
Noteholder Registration Rights Agreement...........................37
Item 12. Indemnification of Directors and Officers..........................38
Transfer Agent.....................................................40
Item 13. Financial Statements and Supplementary Data........................40
Item 14. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................40
Item 15. Financial Statements and Exhibits..................................40
HOMELAND HOLDING CORPORATION
FORM 10
Item 1. Business
General
Homeland Holding Corporation ("Holding"), through its
wholly-owned subsidiary, Homeland Stores, Inc. ("Homeland," and,
together with Holding, the "Company"), is a leading supermarket
chain in the Oklahoma, southern Kansas and Texas Panhandle
region. The Company operates in four distinct market places:
Oklahoma City, Oklahoma, Tulsa, Oklahoma, Amarillo, Texas and
certain rural areas of Oklahoma, Kansas and Texas. As of
September 1, 1996, the Company operated 65 stores throughout
these markets.
The Company's executive offices are located at 2601
N.W. Expressway, Oklahoma City, Oklahoma 73112, and its telephone
number is (405) 879-6600.
Restructuring
On May 13, 1996, Holding and Homeland filed chapter 11
petitions with the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). Simultaneous with
such filings, the Company submitted a "pre-arranged" plan of
reorganization and a disclosure statement, which set forth the
terms of the restructuring of the Company (the "Restructuring").
The purposes of the Restructuring were 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
supported by the lenders under the Company's then existing
revolving credit facility, an ad hoc committee (the "Noteholders
Committee") representing approximately 80% of the Company's
outstanding Old Notes (as defined under "Management's Discussion
and Analysis of Financial Conditions and Results of Operations --
Liquidity and Capital Resources") and the Company's labor unions.
The Bankruptcy Court confirmed the Company's First Amended Joint
Plan of Reorganization, as modified (the "Plan of
Reorganization") on July 19, 1996, and the Plan of Reorganization
became effective on August 2, 1996 (the "Effective Date").
Pursuant to the Restructuring, the $95 million of the
Company's Old Notes (plus accrued interest) were canceled, and
the noteholders received (in the aggregate) $60 million face
amount of newly-issued 10% Senior Subordinated Notes Due 2003 of
the Company (the "New Notes") and $1.5 million in cash. In
addition, the noteholders and the Company's general unsecured
creditors received approximately 60% and 35%, respectively,
of the equity of reorganized Holding (assuming total unsecured
claims of approximately $63 million, including noteholder
unsecured claims). Holding's existing equity holders will
receive the remaining 5% of the new equity, together with five-
year warrants to purchase an additional 5% of such equity. The
aggregate number of shares issued pursuant to the Plan of Reorganization
on the Effective Date was 4,700,000 shares.
In connection with the Restructuring, the Company
negotiated an agreement with its labor unions to modify certain
elements of the Company's existing collective bargaining
agreements. These modifications 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 became effective on the Effective Date.
See "Business -- Employees and Labor Relations."
On the Effective Date, the Company entered into a loan
agreement (the "New Credit Agreement") with National Bank of
Canada ("NBC"), as agent and lender, and two other lenders,
Heller Financial, Inc. and IBJ Schroder Bank and Trust Company,
under which the lenders will provide a working capital and letter
of credit facility and a term loan. The New Credit Agreement
permits the Company to borrow, under the working capital and
letter of credit facility, up to the lesser of (a) $27.5 million
and (b) the applicable borrowing base. Funds borrowed under such
facility will be available for general corporate purposes of the
Company. The New Credit Agreement also provides the Company a
$10.0 million term loan, which will be used to fund certain
obligations of the Company under the Plan of Reorganization,
including an employee buyout offer and a health and welfare plan
required by the modified collective bargaining agreements,
professional fees and "cure amounts" which must be paid in
connection with executory contracts, secured financings and
unexpired leases. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for a description of the New Credit Agreement.
Background
The Company was organized in 1987 by a group of
investors led by Clayton, Dubilier & Rice, Inc. ("CD&R"), a
private investment firm specializing in leveraged acquisitions
with the participation of management, for the purpose of
acquiring substantially all of the assets and assuming specified
liabilities of the Oklahoma division (the "Oklahoma Division") of
Safeway Inc. ("Safeway") (the "Acquisition"). The stores changed
their name to Homeland in order to highlight the Company's
regional identity.
Prior to the Acquisition, the Company did not have any
significant assets or liabilities or engage in any activities
other than those incidental to the Acquisition. Holding owns all
of the outstanding capital stock of Homeland and has no other
significant assets. Prior to the Effective Date, the Clayton &
Dubilier Private Equity Fund III Limited Partnership ("C&D Fund
III"), a Connecticut limited partnership managed by CD&R, owned
35.9% of Holding's outstanding Class A Common Stock, par value
$.01 per share (including redeemable Class A Common Stock, the
"Common Stock"). Prior to the Effective Date, the Clayton &
Dubilier Private Equity Fund IV Limited Partnership ("C&D Fund
IV"), a Connecticut limited partnership also managed by CD&R,
owned 40.4% of the Class A Common Stock. Following consummation
of the Restructuring, C&D Fund III and C&D Fund IV will own less
than 5% of the New Common Stock outstanding.
Business Strategy
Following the Acquisition, Homeland adopted a business
strategy which was designed to maintain and improve its market
leadership in its operating area. The Company's business
strategy from 1987 through 1993 involved: (a) substantial
investment to upgrade and remodel the existing store network and
to build or acquire additional stores, which could be serviced by
Homeland's existing warehouse and distribution center; and (b)
adoption of a value-oriented merchandising concept combining a
flexible high-low pricing structure (i.e., pricing of advertised
or promotional items below the store's regular price and at or
below the price offered by the store's competitors while
allocating prime shelf space to high margin items) with a wide
selection of products and an emphasis on quality and service.
Increased advertising and promotion were used to expand the
Company's customer base. The Company's decision to commit
significant financing and human resources to upgrade and remodel
its existing stores marked a sharp turnaround for the supermarket
business that had constituted Safeway's Oklahoma Division.
The Company's business has been adversely affected in
recent years by the entry of new competition into the Company's
key markets, which has resulted in a decline in the Company's
comparable store sales. The Company was unable to effectively
respond to this increased competition because (a) the high labor
costs associated with the Company's unionized workforce made it
difficult for the Company to price its goods competitively with
competitors (none of which has a unionized workforce), and (b)
the high fixed overhead costs associated with its warehouse
operation made the closure of marginal and unprofitable stores
financially prohibitive.
In the fourth quarter of 1994, the Company developed a
plan to improve its financial position and to address the
operating problems discussed above. In November 1994, the
Company hired James A. Demme, a 35-year veteran of the wholesale
and retail food distribution business, to be the Company's new
President and Chief Executive Officer. Following the completion
of the AWG Transaction (as defined under "Business -- AWG
Transaction"), Mr. Demme and his new management team began
implementing the Company's new marketing plan consisting of the
following elements: (a) increasing sales of specialty items and
perishables; (b) distinguishing the Company from its competitors
by promoting and enhancing the Company's reputation for good
service and emphasizing the Company's local identity; (c)
increasing utilization of the Company's "high-low" pricing
approach; (d) upgrading the Company's management information
systems; (e) introducing the "Homeland Savings Card," a frequent-
shopper card; and (f) building customer loyalty and improving the
Company's "pricing image" through the Company's private label
program.
As part of its strategic plan, the Company's management
team also implemented a program to close marginal and
unprofitable stores. The Company closed 14 stores in 1995 (seven
prior to the AWG sale and seven after such sale) and closed two
additional stores during the second quarter of 1996. The Company
sold its store in Ponca City, Oklahoma in April 1996.
For additional information, see also "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
AWG Transaction
On April 21, 1995, the Company sold 29 of its stores
and its warehouse and distribution center to Associated Wholesale
Grocers, Inc. ("AWG") pursuant to an Asset Purchase Agreement
dated as of February 6, 1995 (the "AWG Purchase Agreement"), for
a cash purchase price of approximately $72.9 million including
inventory, and the assumption of certain liabilities by AWG. At
the closing, the Company and AWG also entered into a seven-year
supply agreement, whereby the Company became a retail member of
the AWG cooperative and AWG became the Company's primary
supplier. To become a member, it was necessary for the Company
to purchase 15 shares of AWG Class A Common Stock which represents
and equity position in AWG of 0.3% The transactions between the
Company and AWG are referred to herein as the "AWG Transaction."
AWG is a buying cooperative which sells groceries on a
wholesale basis to its retail member stores. AWG has 800 member
stores located in a ten-state region and is the nation's fourth
largest grocery wholesaler, with approximately $2.97 billion in
revenues in 1995.
Of the proceeds from the AWG Transaction, $25.0 million
was allocated to the Old Notes and $12.2 million was allocated to
indebtedness under the Prior Credit Agreement (as hereafter
defined under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources"). The remaining proceeds from the AWG Transaction
were (a) used to pay certain costs, expenses and liabilities
required to be paid in connection with the AWG Transaction and
(b) deposited into escrow for reinvestment by the Company.
The AWG Transaction enabled the Company: (a) to reduce
the Company's borrowed money indebtedness in respect of the Old
Notes and under the Prior Credit Agreement by approximately $37.2
million in the aggregate; (b) to have AWG assume, or provide
certain undertakings with respect to, certain contracts and
leases and certain pension liabilities of the Company; (c) to
sell the Company's warehouse and distribution center, which
eliminated the high fixed overhead costs associated with the
operation of the warehouse and distribution center and thereby
permit the Company to close marginal and unprofitable stores; and
(d) to obtain the benefits of becoming a member of the AWG
cooperative, including increased purchases of private label
products, special product purchases, dedicated support programs
and access to AWG's store systems and participation in the
membership rebate and patronage programs.
In August 1996, AWG filed a registration statement with
the Securities and Exchange Commission with respect to a proposed
conversion from a cooperative to a public general business
corporation and a related initial public offering. On November 3,
1996, AWG held a shareholders' meeting at which time the membership
voted to remain a cooperative and not to undertake the proposed
conversion and related public offering.
Homeland Supermarkets
The Company's current network of stores features three
basic store formats. Homeland's conventional stores are
primarily in the 25,000 total square feet range and carry the
traditional mix of grocery, meat, produce and variety products.
These stores contain more than 20,000 stock keeping units,
including food and general merchandise. Sales volumes of
conventional stores range from $60,000 to $125,000 per week.
Homeland's superstores are in the 35,000 total square feet range
and offer, in addition to the traditional departments, two or
more specialty departments. Sales volumes of superstores range
from $95,000 to $265,000 per week. Homeland's combo store format
includes stores of approximately 45,000 total square feet and
larger and was designed to enable the Company to expand shelf
space devoted to general merchandise. Sales volume of combo
stores range from $140,000 to $300,000 per week. The Company's
new stores and certain remodeled locations have incorporated
Homeland's new, larger superstore and combo formats.
Of the 65 stores operated by the Company at September
1, 1996, 10 are conventional stores, 44 are superstores and 11
are combo stores. The chart below summarizes Homeland's store
development over the last three years:
_____________Fiscal Year Ended__________
12/30/95 12/31/94 01/01/94
Average sale per store (in millions) $7.9(1) $7.1 $7.2
Average total square feet per store 38,204 34,700 34,700
Average sales per square feet $207(1) $208 $205
Number of stores:
Stores at start of period 111 112 113
Stores remodeled 5 10 3
New stores opened 0 0 1
Stores sold or closed 43 1 2
Stores at end of period 68 111 112
Size of stores:
Less than 25,000 sq. ft. 8 24 24
25,000 to 35,000 sq. ft. 24 38 39
35,000 sq. ft. or greater 36 49 49
Store formats:
Conventional 11 29 29
SuperStore 44 65 66
Combo 13 17 17
(1) Reflects the operation of 68 stores in 1995.
The Company's network of stores is managed by district
managers on a geographical basis through four districts. Each
district manager oversees store operations for approximately 16
stores. Store managers are responsible for determining staffing
levels, managing store inventories (within the confines of
certain parameters set by the Company's corporate headquarters)
and purchasing products. Store managers have significant
flexibility with respect to the quantities of items carried, but
not necessarily types of products purchased. The Company's
corporate headquarters is directly responsible for merchandising,
advertising, pricing and capital expenditure decisions.
Merchandising Strategy and Pricing
The Company's merchandising strategy emphasizes
competitive pricing through a high-low pricing structure, as well
as the Company's leadership in quality products and 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.
Customer Service
The Company's stores provide a variety of customer
services including, among other things, carry-out services,
postal services, automated teller machines, pharmacies, video
rentals, check cashing and money orders. The Company believes it
is able to attract new customers and retain its existing
customers because of its high level of customer service.
Advertising and Promotion
All advertising and promotion decisions are made by the
Company's central merchandising and advertising staff. The
Company's advertising strategy is designed to enhance its value-
oriented merchandising concept and emphasize its reputation for
fast, friendly service, variety and quality. Accordingly, the
Company is focused on presenting itself as a competitively-
priced, promotions oriented operator that offers value to its
customers and an extensive selection of high quality merchandise
in clean, attractive stores. This strategy allows the Company to
accomplish its marketing goals of attracting new customers and
building loyalty with existing customers. In May 1995, the
Company introduced a new weekly advertising layout that improved
product presentation and enhanced price perception. In addition,
new signage was implemented in the stores calling attention to
various in-store specials and creating a friendlier and more
stimulating shopping experience.
The Company currently utilizes a broad range of print
and broadcast advertising in the markets it serves, including
newspaper advertisements, advertising inserts and circulars,
television and radio commercials and promotional campaigns that
cover substantially all of the Company's markets. The Company
receives co-operative and performance advertising reimbursements
from vendors which reduce its advertising costs.
In September 1995, the Company introduced a frequent-
shopper card called the "Homeland Savings Card," in its Texas
stores. The Company believes that it is the only supermarket
chain in its market area that can capitalize on a frequent-
shopper card program because of the Company's advertising and
market share dominance. The Company introduced the Homeland
Savings Card in its other stores in August 1996.
Products
The Company provides a wide selection of name-brand and
private label products to its customers. All stores carry a full
line of meat, dairy, produce, frozen food, health and beauty aids
and selected general merchandise. As of the close of fiscal year
1995, approximately 82% of the Company's stores had service
delicatessens and/or bakeries and approximately 65% had in-store
pharmacies. In addition, some stores provide additional
specialty departments that offer ethnic food, fresh and frozen
seafood, floral services and salad bars.
The Company's private label name is "Pride of America."
The Company's private label program allows customers to purchase
high quality products at lower than national brand retail prices.
The Company's private label products include over 400 items
covering virtually every major category in the Company's stores,
including dairy products, meat, frozen foods, canned fruits and
vegetables, eggs, health and beauty care products and plastic
wrap.
As a result of the Company's supply relationship with
AWG, the Company's stores also offer certain AWG private label
goods, including Best 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."
Supply Arrangements
The Company is a party to the supply agreement with AWG
(the "Supply Agreement"), pursuant to which the Company became a
member of the AWG cooperative and AWG is the Company's primary
supplier. AWG currently supplies approximately 70% of the goods
sold in the Company's stores. AWG is a buying cooperative which
sells groceries on a wholesale basis to its retail member stores.
AWG has approximately 800 member stores located in a ten-state
region and is the nation's fourth largest grocery wholesaler,
with approximately $2.97 billion in revenues in 1995.
Pursuant to the Supply Agreement, AWG is required to
supply products to the Company at the lowest prices and on the
best terms available to AWG's retail members from time to time.
In addition, the Company is (a) eligible to participate in
certain cost-savings programs available to AWG's other retail
members and (b) is entitled to receive certain member rebates and
refunds based on the dollar amount of the Company's purchases
from AWG's distribution center and periodic cash payments from
AWG, up to a maximum of approximately $1.3 million per fiscal
quarter, based on the dollar amount of the Company's purchases
from AWG's distribution centers during such fiscal quarter.
The Company purchases goods from AWG on an open account
basis. AWG requires that each member's account be secured by a
letter of credit or certain other collateral in an amount based
on such member's estimated weekly purchases through the AWG
distribution center. The Company's open account with AWG is
currently secured by an $8.4 million letter of credit (the "AWG
Letter of Credit") issued in favor of AWG by NBC. In addition,
the Company's obligations to AWG are secured by a first lien on
all "AWG Equity" owned from time to time by the Company, which
includes, among other things, AWG membership stock, the Company's
right to receive monthly payments and certain other rebates,
refunds and other credits owed to the Company by AWG (including
patronage refund certificates, direct patronage or year-end
patronage and concentrated purchase allowances). See " -- AWG
Transaction" for description of AWG's proposed conversion from a
cooperative to a public general business corporation.
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. In the event AWG consummates its proposed conversion
to a general business corporation, patronage refund certificates
would no longer be issued to the Company to reduce the amount of
the AWG Letter of Credit.
Under the Supply Agreement, AWG has certain "Volume
Protection Rights," including (a) 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,
(b) the Company's agreement not to compete with AWG as a
wholesaler of grocery products during the term of the Supply
Agreement, and (c) 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 any proposed sale of such store. In addition, the
Supply Agreement provides AWG with certain purchase rights in the
event the Company closes 90% or more of the Supplied Stores.
Employees and Labor Relations
At September 1, 1996, the Company had a total of 4,697
employees, of whom 3,524, or approximately 75%, were employed on
a part-time basis. The Company employs 4,593 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 92% of the Company's employees are
union members, represented primarily by the United Food and
Commercial Workers of North America ("UFCW").
In March 1996, the Company and representatives of the
UFCW reached an agreement in principle regarding certain
modifications to the Company's existing collective bargaining
agreements. The modified union agreements were ratified during
the week of March 11, 1996, by substantially all of each of the
UFCW local union chapters. In addition the local union chapter
of the Bakery, Confectionery and Tobacco Workers International
Union (the "BCT"), representing 30 of the Company's in-store
bakery employees, ratified modifications to its union agreement
on the same terms and conditions as the modified union agreements
with the UFCW (the modified union agreements with the UFCW and
the BCT are referred to collectively as the "Modified Union
Agreements").
The Modified Union Agreements have a term of five years
commencing on the Effective Date. The Modified Union Agreements
consist of five basic elements: (a) wage rate and benefit
contribution reductions and work rule changes; (b) a buyout offer
extended to certain of the Company's unionized employees (the
"Employee Buyout Offer") in the aggregate amount of $6.5 million;
(c) the establishment of an employee stock ownership trust
(acting on behalf of the Company's unionized employees), which
will receive, or be entitled to purchase, up to 522,222 shares of
New Common Stock, or 10% of the New Common Stock, pursuant to the
terms of the Modified Union Agreements; (d) the UFCW's right to
designate one member of the Boards of Directors of Homeland and
Holding following the Restructuring; and (e) the elimination of
certain "snap back" provisions, incentive plans and "maintenance
of benefits" provisions.
As of August 3, 1996 consummation date of the Employee
Buyout Offer, 833 of the Company's unionized employees had
accepted the Employee Buyout Offer. On or about that date, the
Company paid 774 of these employees an aggregate "buyout price"
of $5.9 million, ranging from $4,500 to $11,000 per employee
(depending on job classification, date of hire and full- or part-
time status). The balance of $0.6 million was paid to the
remaining 59 employees who accepted the Employee Buyout Offer in
September 1996. The Company funded the Employee Buyout Offer
through borrowings under the New Credit Agreement.
The Company estimates that the Modified Union
Agreements will result in cost savings of approximately $10
million 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 will be offset in part by
certain wage and benefit increases including the recent federal
mandated minimum wage increase.
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 its outsourcing arrangements. The new
system includes the following features: time and attendance,
human resource, accounting and budget tracking, and scan support
and merchandising systems.
Prior to March 1996, the Company outsourced its
management information system and electronic data processing
functions pursuant to an agreement with K-C Computer Services,
Inc. The Company terminated the outsourcing agreement effective
March 31, 1996.
The Company has installed laser-scanning checkout
systems in all of its 65 stores. The Company utilizes the
information collected through its scanner systems to track sales
and to coordinate purchasing.
Competition
The supermarket business is highly competitive but very
fragmented and includes small independent operators. The Company
estimates that these operators represent over 40% of its markets.
The Company also competes with larger store chains such as
Albertson's and Wal-Mart, which operate 42 stores and 18 stores,
respectively, in the Company's market areas, "price impact"
stores such as Mega-Market, large independent store chains such
as IGA, regional chains such as United and discount warehouse
stores.
The Company is a leading supermarket chain in Oklahoma,
southern Kansas and the Texas Panhandle region. The Company
attributes its leading market position to certain advantages it
has over certain of its competitors including economies of scale
for purchasing and advertising, excellent store locations and a
strong reputation within the communities in which the Company
operates. The Company, under its capital expenditures program,
plans to open 1 new store in Amarillo in late 1996 and continue
to remodel and upgrade its store facilities.
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 1997, Albertson's will open 3 new stores,
Wal-Mart will open 2 new stores, Reasor's and Crest will each
open 1 new store in the Company's market areas.
Trademarks and Service Marks
During the transition from "Safeway" to "Homeland," the
Company was able to generate a substantial amount of familiarity
with the "Homeland" name. The Company continues to build and
enhance this name recognition through promotional advertising
campaigns. The "Homeland" name is considered material to the
Company's business and is registered for use as a service mark
and trademark. The Company has received federal and state
registrations of the "Homeland" mark as a service mark and a
trademark for use on certain products. The Company also received
a federal registration of the service mark "A Good Deal Better"
in 1994.
Regulatory Matters
Homeland is subject to regulation by a variety of
local, state and federal governmental agencies, including the
United States Department of Agriculture, state and federal
pharmacy regulatory agencies and state and local alcoholic
beverage and health regulatory agencies. By virtue of this
regulation, Homeland is obligated to observe certain rules and
regulations, the violation of which could result in suspension or
revocation of various licenses or permits held by Homeland. In
addition, most of Homeland's licenses and permits require
periodic renewals. To date, Homeland has experienced no material
difficulties in obtaining or renewing its regulatory licenses and
permits.
Item 2. Financial Information
Selected Consolidated Financial Data
The following selected consolidated financial
information is derived from the audited consolidated financial
statements of the Company and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements
and the notes thereto, appearing elsewhere herein.
The selected consolidated financial information for
the 36 weeks ended September 9, 1995, 32 weeks ended August 10,
1996, and 4 weeks ended September 7, 1996 is unaudited.
<TABLE>
<CAPTION>
Selected Consolidated Financial Data
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Predecessor Company
52 weeks 53 weeks 52 weeks 52 weeks 52 weeks 36 weeks
ended ended ended ended ended ended
12/28/91 01/02/93 01/01/94 12/31/94 12/30/95 09/9/95
Unaudited
Statement of Operations Data:
Sales, net $786,785 $830,964 $810,967 $785,121 $630,275 $458,088
Cost of sales 573,470 609,906 603,220 588,405 479,119 347,506
Gross profit 213,315 221,058 207,747 196,716 151,156 110,582
Selling and administrative 187,312 199,547 190,483 193,643 151,985 108,473
Amortization of excess
reorganization value - - - - - -
Operational restructuring
costs(1) - - - 23,205 12,639 -
Operating profit (loss) 26,003 21,511 17,264 (20,132) (13,468) 2,109
Gain on sale of plants - - 2,618 - - -
Interest expense (22,257) (24,346) (18,928) (18,067) (15,992) 11,677
Income(loss) before
reorganization items, income
taxes and extraordinary items 3,746 (2,835) 954 (38,199) (29,460) (9,568)
Reorganization items (2) - - - - - -
Income(loss) before income
taxes and extraordinary items 3,746 (2,835) 954 (38,199) (29,460) (9,568)
Income taxes benefit (provision) (992) (982) 3,252 (2,446) - -
Income(loss) before
extraordinary items 2,754 (3,817) 4,206 (40,645) (29,460) (9,568)
Extraordinary items (3)(4)(5)(6) - (877) (3,924) - (2,330) (2,330)
Net income(loss) 2,754 (4,694) 282 (40,645) (31,790) (11,898)
Reduction(accretion) in
redemption value of
redeemable common stock (132) - - 7,284 940 -
Net income(loss) available to
common stockholders $ 2,622 $(4,694) $ 282 $(33,361) $(30,850) $(11,898)
Net income(loss) per common
share (7) $ .07 $ (.13) $ .01 $ (.96) $ (.93) $ (.36)
Consolidated Balance Sheet Data: 12/28/91 01/02/93 01/01/94 12/31/94 12/30/95 9/9/95
Total assets $285,735 $305,644 $274,290 $239,134 $137,582 $160,067
Long-term obligations,
including current portion of
long-term obligations $179,680 $198,380 $172,600 $176,731 $124,242 $123,593
Redeemable common stock $ 10,616 $ 9,470 $ 8,853 $ 1,235 $ 17 $ 815
Stockholers' equity(deficit) $ 41,844 $ 37,150 $ 36,860 $ 4,071 $(28,106) $ (7,827)
Operating Data:
Stores at end of period 114 113 112 111 68 73
<S> <C> <C>
Successor
Company
32 weeks 4 weeks
ended ended
08/10/96 9/7/96
Sales, net $323,747 $ 39,536
Cost of sales 244,423 29,684
Gross profit 79,234 9,852
Selling and administrative 73,000 8,953
Amortization of excess
reorganization value - 1,154
Operational restructuring
costs (1) - -
Operating profit (loss) 6,324 (255)
Gain on sale of plants - -
Interest expense 5,639 627
Income (loss) before reorga-
nization items, income taxes
and extraordinary items 685 (882)
Reorganization items (2) 25,996 -
Income (loss) before income
taxes and extraordinary items (25,311) (882)
Income taxes benefit
(provision) - -
Income (loss) before
extraordinary items (25,311) (882)
Extraordinary items
(3)(4)(5)(6) 63,118 -
Net income (loss) 37,807 (882)
Reduction (accretion) in
redemption value of
redeemable common stock - -
Net income (loss) available
to common shareholders $ 37,807 $ (882)
Net income (loss) per
common share (7) $ 1.16 $ (.19)
Consolidated Balance
Sheet Data: 08/10/96 9/7/96
Total assets $167,405 $165,614
Long-term obligations,
including current portion of
long-term obligations $ 77,281 $ 76,988
Redeemable common stock $ - $ -
Stockholders' equity (deficit) $ 56,061 $ 55,179
Operating Data:
Stores at end of period 65 65
</TABLE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands)
(1) Operational restructuring costs during 1995 included the
write-off of software no longer utilized by the Company,
the write-off of goodwill in connection with the
Restructuring and a termination charge resulting from the
cancellation of the Company's computer outsourcing
agreement. Operational restructuring costs during 1994
included the estimated losses to be incurred on the AWG
Transaction and associated expenses and the estimated
losses and expenses in connection with the anticipated
closing of 15 stores during 1995.
(2) Reorganization items for the 32 weeks ended August 10, 1996
are primarily professional fees, employee buyout expense and
result from "fresh start" reporting requirements relating to the
Restructuring.
(3) Extraordinary items during 1995 included the payment of
$906 in premiums and consent fees on the redemption of
$15,600 of the Company's Old Notes and $1,424 in
unamortized financing costs related to the Old Notes so
redeemed as well as the replacement of the prior revolving
credit facility.
(4) Extraordinary items during 1993 included the payment of
approximately $2,776 in premiums on the redemption of
$47,750 in aggregate principal amount of the Company's
remaining 15-1/2% Subordinated Notes due November 1, 1997
(the "Subordinated Notes") at a purchase price of 105.8% of
the outstanding principal amount, and $1,148 in unamortized
financing costs related to the Subordinated Notes so
redeemed.
(5) Extraordinary items during 1992 included the payment of
approximately $1,225 in premiums on the repurchase of
$12,250 in aggregate principal amount of the Company's
Subordinated Notes at a purchase price of 110% of the
outstanding principal amount, $371 in unamortized financing
costs related to the Subordinated Notes so purchased, and a
credit representing the discount of $500 on the Company's
prepayment of $1,500 on the $5,000 note payable to Furrs,
Inc. issued in connection with the Company's acquisition of
certain stores from Furrs, Inc. in September 1991. The
extraordinary items have been shown net of income taxes of
$219.
(6) Extraordinary items for the 32 weeks ended August 10, 1996,
resulted from the gains recognized from debt discharged
relating to the Restructuring.
(7) Common Stock held by management investors prior to the
Restructuring is presented as redeemable common stock and
excluded from stockholders' equity since the Company has
agreed to repurchase such shares under certain defined
conditions, such as death, retirement or permanent
disability. In addition, net income (loss) per common
share reflects the accretion in/reduction to redemption
value as a reduction/increase in income available to all
common stockholders.
(8) The consolidated balance sheet data as of August 10, 1996,
reflects the effect of the Restructuring and the
implementation of "fresh start" reporting.
Results of Operations
General
As discussed in Note 3, in F-7, and 4, in page F-9, to the
accompanying Consolidated Financial Statements of Homeland Holding
Corporation, the Company's Plan of Reorganization become effective
on August 2, 1996. For financial reporting purposes, the Company
accounted for the consummation of the Restructuring effective as of
August 11, 1996. The Company has adopted "fresh start" reporting
pursuant to SOP No. 90-7. The periods prior to the Restructuring
have been designated "Predecessor Company" and the period subsequent
to the Restructuring has been designated "Successor Company." For
purposes of the discussion of Results of Operations and the Liquidity
and Capital Resources for the thirty-six weeks ended September 7, 1996,
the results of the Predecessor Company and Successor Company have
been combined.
The table below sets forth for the periods indicated,
the percentage relationship that the various consolidated
Statement of Operations items bear to sales:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Fiscal Year
36 weeks 36 weeks
ended ended
1993 1994 1995 Sept. 9, 1995 Sept. 7, 1996
Unaudited
Sales, net 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of sales 74.38 74.94 76.02 75.68 75.45
Gross Profit 25.62 25.06 23.98 24.14 24.55
Selling and administrative 23.49 24.67 24.11 23.68 22.56
Amortization of excess
reorganization value - - - - 0.32
Operational restructuring costs - 2.96 2.01 - -
Operational profit (loss) 2.13 (2.57) (2.14) 0.46 1.67
Gain on sale of plants 0.32 - - - -
Interest expense (2.33) (2.30) (2.53) (2.55) (1.72)
Income(loss) before
reorganization items, income
taxes and extraordinary items 0.12 (4.87) (4.67) (2.09) (0.05)
Reorganization items - - - - (7.16)
Income(loss) before income
taxes and extraordinary items 0.12 (4.87) (4.67) (2.09) (7.21)
Income tax benefit (provision) 0.40 (0.31) - - -
Income(loss) before
extraordinary items 0.52 (5.18) (4.67) (2.09) (7.21)
Extraordinary items (0.48) - (0.37) (0.51) 17.37
Net income(loss) 0.04 (5.18) (5.04) (2.60) 10.16
</TABLE>
Comparison of Thirty-Six Weeks Ended September 7, 1996
with Thirty-Six Weeks Ended September 9, 1995
Net sales for the 36 weeks ended September 7, 1996
decreased 20.7% over the net sales of the corresponding periods
of 1995. The decrease in net sales was due primarily to the sale
of 29 stores to AWG on April 21, 1995 and the closing of 14
stores in 1995, and 2 stores in the second quarter of 1996 and the
sale of the Ponca City store in April 1996. In addition, while the
Company believes it maintained well-stocked stores and good store
conditions during the bankruptcy proceedings, significant
management time and effort was expended to accomplish the demands
necessary for a timely, orderly reorganization which may have affected
sales negatively. Comparable store sales for the 36 weeks ended
September 7, 1996 decreased by 0.4% over the same period of 1995.
Gross profit was 24.6% of sales for the 36 weeks ended
September 7, 1996 as compared to 24.1% of sales for the corresponding
period of 1995. Gross profit for the 36 weeks ended September 7, 1996,
benefitted from higher vendor allowances and improved purchasing skills.
The improvement was offset somewhat by higher cost of goods from
being supplied by AWG versus self-supplied.
Selling and administrative expenses for the 36 weeks ended
September 7, 1996 decreased to 22.6% of sales from 23.7% for the
corresponding period of 1995. The Company's selling and administrative
expense as a percentage of sales had declined due to cost controls,
including reductions in corporate support functions, the newly
negotiated Modified Union Agreements, certain lease and secured financing
concessions and the rejection of certain burdensome executory contracts.
Cost savings from the Modified Union Agreements were somewhat offset
by increased costs associated with training new employees that were
hired to replace employees that accepted the employee buyout offer.
Interest expense for the 36 weeks ended September 7, 1996,
amounted to $6.3 million as compared to $11.7 million of the
corresponding period of 1995. The decrease in interest expense was
primarily due to the non-accrual of interest on the Old Notes during
the bankruptcy proceedings and was offset in part by the interest on the
New Notes and the $10.0 million term loan under the New Credit
Agreement, commencing on the Effective Date.
The Company recorded reorganization expenses amounting to
$26.0 million for the 36 weeks ended September 7, 1996. The reorganization
expenses consist primarily of professional fees, employee buyout expense
and result from "fresh start" reporting adjustments. The excess
reorganization value is being amortized over a three year period and
the amortization for the 36 week period ended September 7, 1996, amounted
to $1.2 million, reflecting amortization commencing after the
Effective Date.
As of the Effective Date, pursuant to the terms of the Plan
of Reorganization, certain debt of the Company was discharged. This
resulted in a recognition of extraordinary gain amounting to $63.1
million.
Comparison of Fifty-Two Weeks Ended December 30, 1995
with Fifty-Two Weeks Ended December 31, 1994
Sales. Net sales for 1995 declined to $630.3 million,
a 19.7% decrease from sales of $785.1 million in 1994. The
decrease in net sales was due primarily to the sale of 29 stores
to AWG on April 21, 1995 and the closing of 14 underperforming
stores over the course of 1995. These stores were closed
pursuant to the Company's plan to close certain marginal and
underperforming stores. Net sales were also impacted by
increased competition in the Company's market area resulting from
additional store openings of Wal-Mart supercenter stores and
Albertsons stores during 1994. There was one new Wal-Mart
supercenter store and three Albertson's stores that opened in the
Company's market area during 1995.
The Company's comparable stores sales for the 68 stores
increased by 0.2% compared to the prior year, due primarily to
improved store conditions, a new advertising program and
increased promotional pricing.
Cost and Expenses. Gross profit as a percentage of
sales decreased to 24.0% in 1995 compared to 25.1% in 1994. The
continued erosion of the Company's gross margins was the result
of a number of factors including (a) the difficulties in
transforming the Company from a self-supplier to a member of a
purchasing cooperative and (b) additional competitive openings
(there were eight additional competitive openings in the
Company's market areas in 1995) and the aggressive pricing
practices of certain competitors.
Selling and administrative expenses as a percentage of
sales decreased in 1995 to 24.1% from 24.7% in 1994. The Company
was able to implement personnel and other cost reductions at the
corporate office as a result of the sale of 29 stores and its
distribution center to AWG. This included a reduction of
headcount by approximately 50% at the corporate office, lower
travel, telephone, and service charges, computer expenses and
other related administrative expenses. The decrease was also due
to an additional workers compensation accrual during 1994 that
did not recur in 1995.
The Company is continuing its drive to contain and
reduce costs. New systems have recently been installed that
allowed the Company to terminate its expensive computer
outsourcing agreement, thereby reducing future computer and
information systems costs. Furthermore, the Company expects to
streamline numerous other processes that will benefit expense
reduction efforts.
Operational Restructuring Costs. Operational
restructuring costs for 1995 amounted to $12.6 million which
included the write-off of computer software no longer being
utilized by the Company, the write-off of goodwill in connection
with the Restructuring and a termination fee associated with the
cancellation of the Company's computer outsourcing agreement.
Operating Loss. Operating loss was $13.5 million in
1995 compared to an operating loss of $20.1 million in 1994. The
lower operating loss was due primarily to lower operational
restructuring costs which declined from $23.2 million in 1994 to
$12.6 million in 1995.
Interest Expense. Interest expense for 1995 decreased
to $16.0 million from $18.1 million in 1994. The lower interest
expense was due primarily to the redemption of $25.0 million of
Old Notes on June 1, 1995.
Income Tax Provision. The Company did not record any
provision for income taxes for 1995. At December 30, 1995, the
Company had tax net operating loss carryforwards of approximately
$48.6 million.
Extraordinary Items. Extraordinary items for the year
consist of the payment of $600,000 in consent fees to the holders
of the Old Notes (as defined in Liquidity and Capital Resources
of this section), $306,000 in premiums on the redemption of $15.6
million of New Fixed Rate Notes (as defined in Liquidity and
Capital Resources of this section) and $1.4 million in
unamortized financing costs related to the redemption of $25.0
million of Old Notes and the replacement of the Prior Credit
Agreement.
Net Loss. The Company had a net loss of $31.8 million
in 1995 compared to a net loss of $40.6 million in 1994. The
lower net loss in 1995 was due primarily to a reduction in
operational restructuring costs from $23.2 million in 1994 to
$12.6 million in 1995.
Comparison of Fifty-Two Weeks Ended December 31, 1994
with Fifty-Two Weeks Ended January 1, 1994
Sales. Net sales for 1994 decreased to $785.1 million,
a 3.2% decrease over 1993 net sales. The decrease in net sales
for fiscal 1994 is primarily attributable to the increased
competition in the Company's market area resulting primarily from
additional store openings of Wal-Mart supercenter stores during
1993 and 1994. There were 11 new Wal-Mart supercenter stores
opened in the Company's market area during 1994. The Company's
comparable store sales decreased by 2.6% compared to the prior
year due primarily to competitors' store openings in the
Company's market area.
Cost and Expenses. Gross profit as a percentage of
sales for 1994 decreased to 25.1% compared to 25.6% in 1993. The
decrease in the gross profit margin was partially due to
increased promotional pricing in response to the increased
competition in the Company's market area. The decrease was also
partially due to a decrease in the period of time for amortizing
video rental tapes. The decrease was partially offset by a
reduction in the inventory losses accounted for in the Company's
retail stores during 1994. The retail store inventory losses
were approximately $1.8 million less than inventory losses in
1993, resulting principally from a reduction in the losses in the
meat department. The improvement in the meat department losses
was due to a change in the procedures to process only the amount
of product anticipated to be sold and not processing excessive
quantities of fresh beef and pork to fill the display areas.
The decline in gross profit margin was also due in part
to an increase in warehouse and transportation expense as a
percent of sales in 1994 which was due to an increase in the
warehouse square footage and an increase in the number of
warehouse personnel resulting from converting the former ice
cream plant into additional frozen food warehouse space.
Selling and administrative expenses as a percentage of
sales increased in 1994 to 24.7% from 23.5% for 1993. The
increase in selling and administrative expenses as a percentage
of sales was due in large part to the decrease in sales for 1994
as compared to the prior year. However, the expenses also
increased during 1994 due in part to the contractual increase in
the monthly fees in connection with the Company's computer
services agreement and a one-time change in the administration of
the vacation policy which occurred during 1993 and did not recur
in 1994. Expenses also increased due to additional reserves
recorded for estimated bad debts on accounts receivable due from
vendors and wholesale customers which may not be collected in
full as a result of the AWG Transaction and the Company wrote
down certain fixed assets to fair market value. The Company also
recorded an increase of $5.7 million in the accrual for workers'
compensation claims in 1994 as compared to the prior year due to
an increase in the actuarially projected ultimate costs of the
self-insured plans reflecting increases in claims and related
settlements. These increases in expense were partially offset by
a reduction in retail wages and benefits resulting from the
modified collective bargaining agreement entered into with the
UFCW in December 1993.
Operational Restructuring Costs. Operational
restructuring costs for 1994 were $23.2 million which included an
estimate of the expenses to be incurred in connection with the
sale of the warehouse and 29 stores to AWG and the closing of 15
stores during 1995. The accrual included the fixed costs of the
closed stores from the time they were expected to be closed until
they could be sold or the leases expire.
Operating Loss. Operating loss was $20.1 million for
1994 compared to operating profit of $17.3 million in 1993. The
decrease in operating profit was due to the decrease in sales,
the decrease in gross profit margin, the increase in selling and
administrative expenses and the operational restructuring costs
recorded in 1994.
Gain on Sale of Plants. The Company recognized a $2.6
million gain from the sale of equipment and related assets
associated with its milk and ice cream plants in 1993.
Interest Expense. Interest expense for 1994 decreased
to $18.1 million from $18.9 million in 1993 due primarily to the
redemption of the Company's Subordinated notes which were
redeemed by the Company on March 1, 1993.
Income Tax Provision. The Company recognized income
tax expense of $2.4 million in 1994, compared to an income tax
benefit of $3.3 million in 1993. The expense in 1994 was the
result of increasing the valuation allowance on the Company's
deferred tax asset from the prior year due to the uncertainty of
realizing the future tax benefits. The expense was offset in
part by the recognition of a tax benefit for alternative minimum
tax net operating losses that were carried back to prior years.
The income tax benefit for 1993 was the result of the reversal of
the prior valuation allowance on the Company's deferred tax asset
due to the proposed disposition of assets, net of the estimated
amount management believed the Company may be required to pay in
connection with the IRS audit.
The IRS concluded in December 1993 a field audit of the
Company's income tax returns for the fiscal years 1990, 1991 and
1992. On January 31, 1994, the IRS issued a Revenue Agent's
Report for those fiscal years proposing adjustments that would
result in additional taxes in the amount of $1.6 million (this
amount is net of any available operating loss carryforwards,
which would be eliminated under the proposed adjustment). The
Company filed its protest with the IRS Appeals Office on June
14, 1994. On June 28, 1995, the Company reached a tentative
agreement with the IRS Appeals office to settle the above claims.
Management has analyzed the proposed settlement and has provided
for, in accordance with generally accepted accounting principles,
amounts which it currently believes are adequate.
Extraordinary Items. There were no extraordinary items
incurred during fiscal 1994. Extraordinary items in 1993
consisted of the payment of $2.776 million in premiums on the
redemption of $47.750 million in aggregate principal amount of
the Subordinated Notes at a purchase price of 105.8% of the
outstanding principal amount and $1.148 million in unamortized
financing costs related to the redemption of the subordinated
notes on March 1, 1993. See "Liquidity and Capital Resources" in
this section.
Net Income (Loss). The Company had net loss of $40.6
million during 1994 compared to net income of $282,000 in 1993.
The net loss experienced in 1994 was due primarily to the
operational restructuring costs, reduction of sales and gross
profit margin, increase in selling and administrative expenses
and an increase in income tax expense.
Liquidity and Capital Resources
Debt. The primary sources of liquidity for the
Company's operations have been borrowings under credit facilities
and internally generated funds. In March 1992, the Company
refinanced its indebtedness by entering into an Indenture with
United States Trust Company of New York, as trustee, pursuant to
which the Company had outstanding as of July 15, 1996, $59.4
million of Series C Senior Secured Fixed Rate Notes due 1999,
$26.1 million of Series D Senior Secured Floating Rate Notes due
1997 and $9.5 Series A Senior Secured Floating Rates Notes due
1997 (collectively, the "Old Notes").
On May 13, 1996, Holding and Homeland filed Chapter 11
petitions with the Bankruptcy Court. The Restructuring was
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 supported by the lenders
under the Prior Credit Agreement, the Noteholders Committee and
the Company's labor unions. On July 19, 1996, the Bankruptcy
Court confirmed the Company's Plan of Reorganization and the Plan
of Reorganization became effective on the Effective Date.
Under the Plan of Reorganization, holders of the Old
Notes were deemed to have two claims: (a) an aggregate secured
claim of $61.5 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 noteholders will receive
under the Plan of Reorganization (i) $60.0 million aggregate
principal amount of New Notes and (ii) $1.5 million in cash. The
New Notes will mature in 2003, bear interest semi-annually at a
rate of 10% per annum and will not be secured. In exchange for
their unsecured claims in respect of the Old Notes, the
noteholders will receive their ratable portion of 4,450,000
shares of New Common Stock, sharing ratably with other allowed
general unsecured claims against the Company. It is anticipated
that the noteholders and the Company's general unsecured
creditors will receive approximately 60% and 35%, respectively,
of the equity of the reorganized Company (assuming total
unsecured claims of approximately $63 million, including
noteholders' unsecured claims). The Company's existing equity
holders will receive 5% of the new equity, plus five-year
warrants to purchase an additional 5% of such equity.
On April 21, 1995, the Company entered into a revolving
credit agreement (the "Prior Credit Agreement") with National
Bank of Canada, ("NBC"), as agent and as lender, Heller
Financial, Inc. The Prior Credit Agreement permitted borrowings
up to $25 million, subject to a borrowing base, for working
capital needs including certain letters of credit.
On May 13, 1996, the Company entered into an interim
debtor-in-possession lending facility ("DIP Facility"), with its
existing bank group to provide up to $27 million of working
capital financing. The DIP Facility permitted the Company to
borrow up to the lesser of $27 million and the borrowing base.
The borrowings under the DIP Facility bear interest at a rate
equal to the prime rate announced publicly by NBC from time to
time in New York, New York plus two percent. The DIP Facility
matured on the Effective Date.
On the Effective Date, the Company entered into the New
Credit Agreement with NBC, as agent and lender, and two other
lenders, Heller Financial, Inc. and IBJ Schroder Bank and Trust
Company, under which those lenders provided a working capital and
letter of credit facility and a term loan. The New Credit
Agreement permits the Company to borrow, under the working
capital and letter of credit facility, up to the lesser of (a)
$27.5 million or (b) the applicable borrowing base. Funds
borrowed under such facility are available for general corporate
purposes of the Company.
The New Credit Agreement also provides the Company a
$10.0 million term loan, which will be used to fund certain
obligations of the Company under the Plan of Reorganization,
including the Employee Buyout Offer and a new health and welfare
plan required by the Modified Union Agreements, professional fees
and "cure amounts" which were required to be paid under the Plan
of Reorganization in connection with executory contracts, secured
financing and unexpired leases.
The interest rate under the New Credit Agreement is
based on the prime rate publicly announced by National Bank of
Canada from time to time in New York, New York plus a percentage
which varies based on a number of factors, including (a) the
amount which is part of the working capital and letter of credit
facility and the amount which is part of the term loan, (b) the
time period, (c) whether the Company elects to use a London
Interbank Offered Rate, and (d) the earnings of the Company
before interest, taxes, depreciation and amortization expenses.
The indebtedness under the New Credit Agreement will
mature three years from the Effective Date.
The obligations of the Company under the New Credit
Agreement are secured by liens on, and security interests in,
substantially all of the assets of Homeland and are guaranteed by
Holding, with a pledge of its Homeland stock to secure its
obligation. The collateral includes the assets which, prior to
the Effective Date, secured the obligations of the Company to the
holders of the Old Notes.
The New Credit Agreement includes certain customary
restrictions on acquisitions, asset dispositions, capital
expenditures, consolidations and mergers, distributions,
divestitures, indebtedness, liens and security interests and
transactions with affiliates. The New Credit Agreement also
requires the Company to comply with certain financial and other
covenants.
Labor Savings. An integral part of the Restructuring
is the Company's negotiated deal with its labor unions to modify
certain elements of the Company's existing collective bargaining
agreements. The Modified Union Agreements provide for, among
other things, wage and benefit modifications, the Employee Buyout
Offer and the issuance and purchase of new equity to a trust
acting on behalf of the unionized employees. The Modified Union
Agreements became effective on the Effective Date.
The Company estimates that the Modified Union
Agreements will result in cost savings of approximately $10
million 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 will be offset in part by
certain wage and benefit increases.
Working Capital and Capital Expenditures. The
Company's primary sources of capital have been borrowing
availability under the Prior Credit Agreement and cash flow from
operations, to the extent available. The Company uses the
available capital resources for working capital needs, capital
expenditures and repayment of debt obligations.
The Company suffered a negative cash flow from
operations of $8.0 million in 1995 compared to positive cash flow
of $0.3 million in 1994 and $13.0 million in 1993. The cash flow
deficit in 1995 is due to the Company incurring a net cash
outflow before working capital changes of $7.3 million, which is
the net loss of $31.8 million offset by $24.5 million of non-cash
charges. The remainder of the cash outflow from operations is
from net working capital changes that resulted primarily from the
AWG Transaction.
The Company's investing activities provided net cash of
$65.1 million in 1995 and used net cash of $4.0 million and $3.1
million in 1994 and 1993, respectively. The substantial increase
of cash provided by investing activities in 1995 was the result
of sale of the warehouse, 29 stores and associated inventory to
AWG. Capital expenditures were $4.7 million, $5.4 million and
$7.1 million in 1995, 1994 and 1993, respectively. The Company
expects to make total capital expenditures of approximately $8.3
million in 1996, primarily for one new store, remodel stores and
store information systems. As of August 10, 1996, the Company
has funded $2.4 million of capital expenditures with the
remaining escrow funds of approximately $1.7 million available
for reinvestment from the AWG transaction, cash flow from
operations, the Prior Credit Agreement and the DIP Facility. The
funds required for the remaining $5.9 million of 1996 capital
expenditures would come from cash flow from operations and the
New Credit Agreement.
Financing activities of the Company used net cash of
$51.0 million in 1995, provided net cash of $1.9 million in 1994
and used net cash of $33.5 million in 1993. The net cash usage
in 1995 was primarily due to the paydown of $25.0 million in Old
Notes and $21.0 million of revolving credit facility loans.
The Company expects to increase its capital
expenditures for fiscal 1997 and 1998 as compared to 1996,
subject to the limitations under the New Credit Agreement. The
New Credit Agreement limits the Company's capital expenditures
for 1997 to $12.0 million cash capital expenditures and for 1998
to $13.0 million cash capital expenditures and $7.0 million of
capital leases for each fiscal year. The Company intends to
remodel and upgrade certain stores plus continue to improve its
store and corporate information systems. The funds for such
capital expenditures are expected to be obtained from the
Company's operating cash flow and borrowings under the New Credit
Agreement.
For the 36 weeks ended September 7, 1996, The Company's net
cash used in operations was $1.3 million compared to $2.4 million for
the corresponding period in 1995. The Company expects to use $5.7 million
of capital expenditures in the fourth quarter, or an aggregate of
$8.3 million capital expenditures for fiscal 1996. The lower capital
expenditures for the 36 weeks ended September 7, 1996, reflects the
Company's cash preservation efforts prior to and during the
Restructuring process. The Company anticipates that the funds for
the capital expenditures would be obtained from the New Credit
Agreement and cash flows from operations. As of October 18, 1996,
the Company had $12.4 million of availability under the New
Credit Agreement.
The Company's ability to continue to meet its working
capital needs, meet its debt and interest obligations and capital
expenditure requirements is dependent on its future operating
performance. Management believes that the Restructuring will have
a favorable effect on the Company's future liquidity by (a) reducing
future interest cost, (b) reducing labor costs, (c) extending the
maturities of the Company's long-term debt, (d) reducing the Company's store
lease obligations by the rejection of seven store leases and (e)
permitting additional borrowings through the release of
collateral under the Indenture relating to the Old Notes. There
can be no assurance that future operating performance will
provide positive net cash or that the Restructuring will
ultimately be successful. If the Company is not able to generate
positive cash flow from its operations or if the Restructuring is
not ultimately successful, management believes that this could
have a material adverse effect on the Company's business and the
continuing viability of the Company.
Accounting Standards
The Company's Restructuring will be accounted for
pursuant to the American Institute of Certified Public
Accountants Statement of Position No. 90-7, entitled "Financial
Reporting by Entities in Reorganization under the Bankruptcy
Code" ("SOP No. 90-7"). SOP No. 90-7 is applicable because
holders of the Old Common Stock will receive less than 50% of the
Company's New Common Stock (see Item 4. Security Ownership of
Certain Beneficial Owners and Management) and the reorganized
value of the assets of the reorganized Company is less than the
total of all post-petition liabilities and allowed claims.
The accounting of SOP No. 9-7 will result in "fresh-
start" reporting, in which the Company's assets and liabilities
will be adjusted to their fair market value and a new reporting
entity will be created with no retained earnings or accumulated
deficit as of the Effective Date.
Inflation/Deflation
In recent years, deflation has not had a material
impact upon the Company's operating results. Although the
Company does not expect inflation or deflation to have a material
impact in the future, there can be no assurance that the
Company's business will not be affected by inflation or deflation
in future periods.
Item 3. Properties
Of the 65 supermarkets operated by the Company at
September 1, 1996, 12 are owned and the balance are held under
leases which expire at various times between 1996 and 2013. Most
of the leases are subject to six five-year renewal options. Out
of 53 leased stores, only seven have terms (including option
periods) of fewer than 20 years remaining. Most of the leases
require the payment of taxes, insurance and maintenance costs and
many of the leases provide for additional contingent rentals
based on sales. No individual store operated by Homeland is by
itself material to the financial performance or condition of
Homeland as a whole. The average rent per square foot under
Homeland's existing leases is $3.11 (without regard to
amortization of beneficial interest).
Substantially all of the Company's properties are
subject to mortgages securing the borrowings under the New Credit
Agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Although the Company believes that most of its existing
store leases are at or below the current market rate, certain of
the Company's stores were subject to burdensome lease terms. As
part of the Restructuring, the Company rejected seven store
leases.
Item 4. Security Ownership of Certain Beneficial Owners
and Management
Under the Company's Plan of Reorganization, each holder
of a general unsecured claim against the Company, including $40.1
million of general unsecured claims in respect of the Old Notes,
will receive its ratable share of 4,450,000 shares of New Common
Stock, based on the amount of such holder's claim relative to all
general unsecured claims.
In addition, under the Plan of Reorganization, all of
the Company's issued and outstanding Class A Common Stock, par
value $.01 per share (the "Old Common Stock"), will be exchanged
for (a) an aggregate of 250,000 shares of newly-issued common
stock, par value $.01 per share, of the Company (the "New Common
Stock"), representing approximately 5.3% of the New Common Stock
to be outstanding upon consummation of the Restructuring, and (b)
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 7.73 shares of New
Common Stock and 8.14 New Warrants for each 1,000 shares of Old
Common Stock held by such holders.
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 of Reorganization,
the persons who, as of the Effective Date, will own at least five
percent of the shares of New Common Stock may be significantly
different than the persons who owned at least five percent of the
shares of Old Common Stock prior to the Effective Date. The
Company is 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, the actual amount of general
unsecured claims (other than general unsecured claims in respect
of the Old Notes) has not been finally determined. The Company
does not anticipate any beneficial ownership of 5% or greater.
See "Legal Proceedings" for a description of the claims
resolution process.
Under the Plan of Reorganization, the Company will
reserve for the account of each creditor holding a disputed
general unsecured claim the New Common Stock that would otherwise
be distributable to such creditor on the Effective Date if such
disputed claim were allowed by the Bankruptcy Court. If a
disputed claim is disallowed in whole or in part, the Company
will distribute the New Common Stock held in reserve ratably to
holders of general unsecured claims allowed by the Bankruptcy
Court. Such distributions will be made on December 31, 1996, and
on June 30 and December 31 of each following year until the
earlier of (a) the date on which all disputed claims have been
resolved or (b) less than 5,000 shares of New Common Stock are on
deposit in the disputed claims reserve. If 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 will, at the Company's
option, be canceled or treated as treasury shares.
The Company estimates 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 (a) 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 and (b) holders of the other general
unsecured claims will receive (in the aggregate) approximately
1,622,029 shares of New Common Stock representing approximately
34.5% of the New Common Stock to be outstanding upon consummation
of the Restructuring.
Under the Plan of Reorganization, holders of the Old
Common Stock will receive the remaining approximately 5.3% of the
New Common Stock, together with New Warrants to purchase an
additional approximately 5.3% of the New Common Stock. None of
the directors of the Company will own any of the New Common Stock
immediately upon consummation of the Restructuring. The officers
of the Company who will own New Common Stock immediately upon
consummation of the Restructuring are as follows: Steven M.
Mason, Vice President - Marketing, who will own 324 shares of the
New Common Stock (less than 1%) and 341 New Warrants; and Alfred
F. Fideline, Sr., Vice President - Retail Operations, who will
own 8 shares of the New Common Stock (less than 1%) and 8 New
Warrants.
Item 5. Directors and Executive Officers
Set forth below are the names, ages, present positions
and years of service (in the case of members of management) of
the directors and management of Homeland:
Years with the
Name Age Position Company and/or
Safeway
James A. Demme* 56 Chairman of the 2
Board, President
and Chief
Executive Officer
Larry W. Kordisch* 49 Executive Vice 1
President-Finance,
Chief Financial Officer,
Treasurer and Secretary
Steven M. Mason 41 Vice President - 26
Marketing
Terry M. Marczewski* 41 Chief Accounting 1
Officer, Assistant
Treasurer and Assistant
Secretary
Alfred F. Fideline, Sr. 59 Vice President- 40
Retail Operations
Prentess E. Alletag, Jr. 49 Vice President- 29
Human Resources
Robert E. (Gene) Burris 49 Director --
Edward B. Krekeler, Jr. 52 Director --
Laurie M. Shahon 44 Director --
John A. Shields 53 Director --
William B. Snow 65 Director --
David M. Weinstein 37 Director --
*Holding's Board of Directors is identical to that of Homeland.
Mr. Demme serves as Holding's Chairman, President and Chief
Executive Officer, Mr. Kordisch as Executive Vice President -
Finance, Treasurer, Chief Financial Officer and Secretary and Mr.
Marczewski as Chief Accounting Officer, Assistant Treasurer and
Assistant Secretary.
James A. Demme was elected Chairman of the Board in
September 1996. He became President, Chief Executive Officer and
a director of the Company as of November 30, 1994. From 1992 to
1994, Mr. Demme served as Executive Vice President of Retail
Operations of Scrivner, Inc. He was responsible for the
operations of their 170 retail stores which had a total volume
exceeding $2 billion. From 1991 to 1992, Mr. Demme served as
Senior Vice President of Marketing of Scrivner, Inc. where he was
responsible for restructuring and refocusing the merchandising
department to retail orientation. From 1988 to 1991, Mr. Demme
was President and Chief Operating Officer of Shaws Supermarkets,
which was the nation's fifteenth largest retail chain with sales
of $1.7 billion.
Larry W. Kordisch joined the Company in February 1995
and became Executive Vice President - Finance, Treasurer, Chief
Financial Officer and Secretary as of May 1995. Prior to joining
Homeland, Mr. Kordisch served as Executive Vice President -
Finance and Administration, Chief Financial Officer and member of
the Board of Directors of Scrivner, Inc. and was responsible for
the Finance, Accounting, Risk Management, Legal and
Administrative functions.
Steven M. Mason joined Safeway in 1970 and the Oklahoma
Division in 1986. At the time of the Acquisition, he was serving
as Special Projects Coordinator for the Oklahoma Division. In
November 1987, he joined Homeland and in October 1988, he was
appointed to the position of Vice President - Retail Operations.
In October 1993, Mr. Mason was appointed to the position of Vice
President - Marketing.
Terry M. Marczewski joined the Company in April 1995
and became the Chief Accounting Officer, Assistant Treasurer and
Assistant Secretary as of May 1995. From July 1994 to April
1995, he was the controller at Fleming Companies, Inc.- Scrivner
Group. From 1990 to July 1994, Mr. Marczewski was the Vice
President and Controller at Scrivner, Inc., the nation's third
largest grocery wholesaler, prior to its acquisition by Fleming
Companies, Inc.
Alfred F. Fideline, Sr. joined Safeway in 1957. At the
time of the Acquisition, he was serving as a District Manager of
the Oklahoma Division. In November 1987, Mr. Fideline joined
Homeland as a District Manager and in May 1994, he was appointed
to the position of Vice President - Retail Operations.
Prentess E. Alletag, Jr. joined the Oklahoma Division
in October 1969, where, at the time of the Acquisition, he was
serving as Human Resources and Public Affairs Manager. In
November 1987, Mr. Alletag joined Homeland as Vice President -
Human Resources.
Robert E. (Gene) Burris became a director of the
Company and Holding on August 2, 1996. Since 1988, Mr. Burris
has been President of the UFCW Local No. 1000, which represents
approximately 65% of the Company's unionized employees. Pursuant
to the Modified UFCW Agreements, the UFCW has the right to
designate one member of the Boards of Directors of Holding and
Homeland. Mr. Burris is the designee of the UFCW. Since
February 1995, Mr. Burris has been the Chief Executive Officer
and owner of G&E Railroad, a retail store.
Edward B. Krekeler, Jr. became a director of the
Company and Holding on August 2, 1996. Since 1994, he has been
Managing Director of Creative Capital Consultancy, a financial
consulting firm. From 1984 to 1994, he served in various
positions as an officer of Washington Square Capital, Inc.,
including Vice-President, Special Investments, Vice-President,
Administration, Private Placements, Vice-President, Portfolio
Manager, Private Placements, and Chief Investment Analyst. From
1970 to 1984, Mr. Krekeler was Director, Fixed Income
Investments, of The Ohio National Life Insurance Company, Inc.
He was Chairman of the Board of Directors of Convenient Food
Marts, Inc. from 1990 to 1994.
Laurie M. Shahon became a director of the Company and
Holding on August 2, 1996. Ms. Shahon has been President of
Wilton Capital Group, a private direct investment firm since
January 1994. Ms. Shahon previously served as Vice Chairman and
Chief Operating Officer of Color Tile, Inc. in 1989. From 1988
to 1993, she served as Managing Director of `21' International
Holdings, Inc., a private holding company. From 1980 to 1988,
she was Vice President of Salomon Brothers, Inc., where she was
founder and head of the retailing and consumer products group.
From 1976 to 1980, Ms. Shahon was an Associate with Morgan
Stanley & Co., Incorporated. Ms. Shahon is a director of Arbor
Drugs, Inc., One Price Clothing Stores, Inc. and Ames Department
Stores, Inc.
John A. Shields became a director of the Company and
Holding in May 1993. Mr. Shields has been the Chairman and Chief
Executive Officer of Delray Farms Fresh Markets, a retail
perishables specialty chain, since January 1994. From 1983 to
1993, he served as President, Chief Executive Officer, Chief
Operating Officer and a member of the Board of Directors of First
National Supermarkets. Mr. Shields is also a director of D.I.Y.
Home Warehouse, Inc.
William B. Snow became a director of the Company and
Holding on August 2, 1996. Mr. Snow has served as Vice Chairman
of Movie Gallery, Inc., the second largest video specialty
retailer in the United States, since 1994. From 1985 to 1994, he
was Executive Vice President and a director of Consolidated
Stores Corporation. From 1980 to 1985, Mr. Snow was Chairman,
President and Chief Executive Officer of Amerimark, Inc., a
diversified supermarket retailer and institutional food service
distributor. From 1974 to 1980, he was President of Continental
Foodservice, Inc. From 1966 to 1974, Mr. Snow was Senior Vice
President of Hartmarx, Inc. Mr. Snow is a director of Movie
Gallery, Inc. and Action Industries, Inc.
David N. Weinstein became a director of the Company and
Holding on August 2, 1996. He is the Managing Director of the
High Yield Capital Markets group at Bank of Boston. From 1993 to
March 1996, he served as Managing Director and High Yield Capital
Market Specialist of Chase Securities, Inc. From 1990 to 1993,
Mr. Weinstein was head of the Capital Markets group in the High
Yield Department of Lehman Brothers and later was a director in
the High Yield/Private Financing Group of Smith Barney Shearson.
Item 6. Executive Compensation
Summary of Cash and Certain Other Compensation
The following table provides certain summary
information concerning compensation paid or accrued by the
Company to or on behalf of the Company's Chief Executive Officer,
each of the three other most highly compensated executive
officers of the Company and one former executive officer
(hereinafter referred to as the "Named Executive Officers") for
the fiscal years ended December 30, 1995, December 31, 1994, and
January 1, 1994:
SUMMARY COMPENSATION TABLE
Annual Compensation
All Other
Name and Principal Other Annual Compensation
Position Year Salary Bonus Compensation (3)(4)
James A. Demme(1)
Chairman, President and 1995 $200,000 $100,000 (2) $ 4,396
Chief Executive Officer 1994 11,538 - (2) -
Mark S. Sellers (6) 1995 $ 81,922 $140,656 $271,613(5) $208,207
Former Executive Vice Pres. 1994 153,000 130,050 114,474(5) 43,447
Finance, Treasurer, Chief 1993 160,192 153,000 80,852(5) 34,604
Financial Officer and
Secretary
Larry W. Kordisch (7) 1995 $126,923 $100,000 (2) $ 3,907
Executive Vice Pres.
Finance, Treasurer,
Chief Financial
Officer and Secretary
Steven M. Mason 1995 $130,500 $ 19,575 (2) $ 6,414
Vice President - 1994 130,500 110,925 (2) 8,963
Marketing 1993 107,250 103,500 (2) 3,904
Terry M. Marczewski(8) 1995 $ 69,326 $ 20,000 (2) $ 43
Chief Accounting
Officer, Assistant
Treasurer, and Assistant
Secretary
______________
(1) Mr. Demme joined the Company as President, Chief Executive
Officer and a director as of November 30, 1994. In
September 1996, he was elected Chairman of the Board.
(2) Personal benefits provided to the Named Executive Officer
under various Company programs do not exceed 10% of total
annual salary and bonus reported for the Named Executive
Officer.
(3) All other compensation includes contributions to the
Company's defined contribution plan on behalf of each of the
Named Executive Officers to match 1993 pre-tax elective
deferral contributions (there was no match for 1994 and
1995) (included under Salary) made by each to such plan, as
follows: Steven M. Mason, $2,956.
(4) The Company provides reimbursement for medical benefit
insurance premiums for the Named Executive Officers. These
persons obtain individual fully-insured private medical
benefit insurance policies with benefits substantially
equivalent to the medical benefits currently provided under
the Company's group plan. The Company also provides for
life insurance premiums for executive officers, including
the Named Executive Officers and one other executive
officer, who obtain fully-insured private term life
insurance policies with benefits of $500,000 per person.
Amounts paid during 1995 are as follows: James A. Demme,
$1,547; Mark S. Sellers, $11,069; Larry W. Kordisch, $2,073;
Steven M. Mason, $1,616; and Terry M. Marczewski, $43.
(5) Includes reimbursement of relocation expenses in the amount
of $271,613 in 1995, $95,378 in 1994 and $78,058 in 1993.
(6) Mr. Sellers was Executive Vice President-Finance and Chief
Financial Officer of the Company until his resignation in
May 1995.
(7) Mr. Kordisch joined the Company in February 1995 and was
appointed Executive Vice President-Finance, Chief Financial
Officer, Treasurer and Secretary of the Company as of May 5,
1995.
(8) Mr. Marczewski joined the Company in April 1995 and was
appointed the Chief Accounting Officer and Controller of the
Company as of May 5, 1995.
Directors who are not employees of the Company or
otherwise affiliated with the Company (presently consisting of
Ms. Shahon and Messrs. Burris, Krekeler, Shields, Snow and
Weinstein) are paid annual retainers of $15,000 and meeting fees
of $1,000 for each meeting of the board or any committee attended
in person and $250 for each meeting attended by telephone.
Directors are reimbursed for all reasonable travel and other
expenses of attending meetings of the Board or a Committee of the
Board. Mr. Shields also serves as a consultant to the Company
from time to time at the request of CD&R. During 1995, Mr.
Shields received $166,662 from CD&R for consulting fees for
services provided to the Company.
Employment Agreements
In November 1994, the Company entered into an
employment agreement with James A. Demme, the Company's President
and Chief Executive Officer, for an indefinite term. The
agreement provides a base annual salary of not less than $200,000
subject to increase from time to time at the discretion of the
Board of Directors. The agreement entitles Mr. Demme to
participate in the Company's Management Incentive Plan with a
maximum annual bonus equal to 100% of base salary. The agreement
also provides for awards under a long term incentive compensation
plan which is to be established by the Company and authorizes
reimbursement for certain business-related expenses. The
agreement was amended in April 1996, to provide that, if the
agreement is terminated by the Company for other than cause or
disability prior to December 31, 1997, or is terminated by Mr.
Demme following a change of control or a trigger event (as
defined), Mr. Demme is entitled to receive (a) payment, which
would not be subject to any offset as a result of his receiving
compensation from other employment, equal to two years' salary,
plus a pro rata amount of the incentive compensation for the
portion of the incentive year that precedes the date of
termination, and (b) continuation of welfare benefit arrangements
for a period of two years after the date of termination. The
Restructuring is a trigger event under the agreement only if Mr.
Demme terminates his employment for good reason (as defined) or
if, following the Effective Date, a subsequent trigger event
occurs, such as a change of control or sale of assets.
On September 26, 1995, the Company entered into an
employment agreement with Larry W. Kordisch, the Company's
Executive Vice President-Finance and Chief Financial Officer.
The agreement provides for a base annual salary of not less than
$150,000, subject to increase from time to time at the discretion
of the Board of Directors. Mr. Kordisch is also entitled to
participate in the Management Incentive Plan based upon the
attainment of performance objectives as the Board of Directors
shall determine from time to time. The agreement was amended in
April 1996, to provide that, if the agreement is terminated by
the Company for other than cause or disability prior to December
31, 1997, or is terminated by Mr. Kordisch following a change of
control or a trigger event (as defined), Mr. Kordisch is entitled
to receive (a) payment, which would not be subject to any offset
as a result of his receiving compensation from other employment,
equal to two years' salary, plus a pro rata amount of the
incentive compensation for the portion of the incentive year that
precedes the date of termination, and (b) continuation of welfare
benefit arrangements for a period of two years after the date of
termination. The Restructuring is a trigger event under the
agreement only if Mr. Kordisch terminates his employment for good
reason (as defined) or if, following the Effective Date, a
subsequent trigger event occurs, such as a change of control or
sale of assets.
On September 26, 1995, the Company entered into an
employment agreement with Terry M. Marczewski, the Company's
Controller and Chief Accounting Officer. The agreement, which is
for an indefinite term, provides for a base annual salary of
$90,000, subject to increase from time to time at the discretion
of the Board of Directors. Mr. Marczewski is also entitled to
participate in the Management Incentive Plan based upon the
attainment of performance objectives as the Board shall determine
from time to time. The agreement was amended in April 1996, to
provide that, in the event his employment is terminated prior to
December 31, 1997 for any reason other than cause or disability,
the Company will pay Mr. Marczewski his annual salary for a
period of one year after the termination date or until December
31, 1997, whichever is longer, plus a pro rata amount of the
incentive compensation for the portion of the incentive year that
precedes the date of terminations.
In April 1996, the Company entered into employment
agreements with Steve Mason, the Company's Vice President of
Marketing, and Alfred F. Fideline, Sr., the Company's Vice
President of Retail Operations. The agreements, which are for an
indefinite term, provide a base annual salary of $130,500 for Mr.
Mason and $80,000 for Mr. Fideline, subject to increase from time
to time at the discretion of the Board of Directors. In the
event their employment is terminated prior to December 31, 1997
for any reason other than cause or disability, the Company will
pay Mr. Mason and Mr. Fideline their annual salaries for a period
of one year after the termination date or until December 31,
1997, whichever is longer, plus a pro rata amount of the
incentive compensation for the portion of the incentive year that
precedes the date of termination
On January 30, 1995, the Company entered into an
agreement with Mark S. Sellers, the Company's former Executive
Vice President-Finance, Chief Financial Officer, Treasurer and
Secretary. Pursuant to such agreement, in May 1995, Mr. Sellers
was paid $348,139, which included $195,000 of retention payment,
$140,656 of pro rata bonus related to the Management Incentive
Plan and $12,483 of unpaid vacation and retroactive pay
adjustments.
The Company entered into a settlement agreement as of
August 31, 1995 with Jack M. Lotker, the Company's former Senior
Vice President-Administration, in connection with the termination
of his employment with the Company. In connection with the
settlement, the Company agreed to grant to Mr. Lotker warrants to
purchase 100,000 shares of Holding's Class A Common Stock at an
exercise price of $0.50 per share and at Mr. Lotker's discretion,
the Company agreed to either (a) pay Mr. Lotker a single lump sum
of $188,000 or (b) cause PHH Home Equity to purchase Mr. Lotker's
current principal residence at a price equal to the appraised
value but not less than $575,000. In November 1995, Mr. Lotker
elected for the Company to pay him a single lump sum of $188,000.
However, due to the Company's liquidity constraints, the Company
has not been able to make this payment and accordingly the
Company is in default with respect to the settlement agreement.
Mr. Lotker filed suit against the Company, demanding recovery
under the settlement agreement, together with penalties and
interest. This action was stayed by the Company's bankruptcy
case and Mr. Lotker has a general unsecured claim against the
Company.
Management Incentive Plan
Homeland maintains a Management Incentive Plan to
provide incentive bonuses for members of its management and key
employees. Bonuses are determined according to a formula based
on both corporate, store and individual performance and
accomplishments or other achievements and are paid only if
minimum performance and/or accomplishment targets are reached.
Minimum bonuses range from 0 to 100% of salary for officers (as
set forth in the plan), including the Chief Executive Officer.
Maximum bonus payouts range from 75% to 200% of salary for
officers and up to 200% of salary for the Chief Executive
Officer. Performance levels must significantly exceed target
levels before the maximum bonuses will be paid. Under limited
circumstances, individual bonus amounts can exceed these levels
if approved by the Compensation Committee of the Board.
Incentive bonuses paid to managers and supervisors vary according
to their reporting and responsibility levels. The plan is
administered by a committee consisting, unless otherwise
determined by the Board of Directors, of members of the Board who
are ineligible to participate in the plan. Incentive bonuses
earned for certain highly compensated executive officers under
the plan for performance during fiscal year 1995 are included in
the Summary Compensation Table.
Retirement Plan
Homeland maintains a retirement plan in which all
non-union employees, including members of management,
participate. Under the plan, employees who retire at or after
age 65 and after completing five years of vesting service
(defined as calendar years in which employees complete at least
1,000 hours of service) will be entitled to retirement benefits
equal to 1.50% of career average annual compensation (including
basic, overtime and incentive compensation) plus .50% of career
average annual compensation in excess of the social security
covered compensation, such sum multiplied by years of benefit
service (not to exceed 35 years). Service with Safeway prior to
the Acquisition is credited for vesting purposes under the plan.
Retirement benefits will also be payable upon early retirement
beginning at age 55, at rates actuarially reduced from those
payable at normal retirement. Benefits are paid in annuity form
over the life of the employee or the joint lives of the employee
and his or her spouse or other beneficiary.
Under the retirement plan, estimated annual benefits
payable to the named executive officers of Homeland upon
retirement at age 65, assuming no changes in covered compensation
or the social security wage base, would be as follows: James A.
Demme, $27,280; Larry W. Kordisch, $44,375; Steven M. Mason,
$85,129; and Terry M. Marczewski, $35,372.
Management Stock Option Plan
On the Effective Date, 263,158 shares of New Common
Stock were reserved for issuance under a new management stock
option plan (the "Management Stock Option Plan") to be
established by the Board of Directors following consummation of
the Restructuring. The terms and 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.
Compensation Committee Interlocks and Insider Participation
Ms. Laurie Shahon and Messrs. William B. Snow and John
A. Shields currently serve on the Company's Compensation and
Benefits Committee of the Board of Directors. During 1995, Mr.
Shields received $166,662 from CD&R for consulting fees for
services provided to the Company at the request of CD&R.
Item 7. Certain Relationships and Related Transactions
Prior to the Effective Date, the Company's largest
stockholders were C&D Fund III, which owned approximately 35.9%
of the Old Common Stock, and C&D Fund IV, which owned
approximately 40.4% of the Old Common Stock. After consummation
of the Restructuring, C&D Fund III and C&D Fund IV will own less
than 5% of the New Common Stock to be outstanding.
C&D Fund III and C&D Fund IV are private investment
funds managed by CD&R. Amounts contributed to C&D Fund III and
C&D Fund IV by the limited partners thereof are invested at the
discretion of the general partner in the equity of corporations
organized for the purpose of carrying out leveraged acquisitions
involving the participation of management, or, in the case of C&D
Fund IV, in corporations where the infusion of capital coupled
with the provision of managerial assistance by CD&R can be
expected to generate returns on investments comparable to returns
historically achieved in leveraged buy-out transactions. The
general partner of C&D Fund III is Clayton & Dubilier Associates
III Limited Partnership, a Connecticut limited partnership
("Associates III"). The general partner of C&D Fund IV is
Clayton & Dubilier Associates IV Limited Partnership, a
Connecticut limited partnership ("Associates IV"). B. Charles
Ames, a principal of CD&R, a holder of an economic interest in
Associates III and a general partner of Associates IV, also
served as Chairman of the Board of the Company until the
effective date of the Plan of Reorganization. Andrall E.
Pearson, a principal of CD&R and a former director of the
Company, is a general partner of Associates IV. Michael G.
Babiarz, a former director of the Company, is a professional
employee of CD&R. Hubbard C. Howe, a principal of CD&R and a
former director of the Company, is a general partner of
Associates IV.
Through 1995, CD&R received an annual fee for
management and financial consulting services provided to the
Company and reimbursement of certain expenses. The consulting
fees paid to CD&R were $125,000 in 1995, $150,000 in 1994 and
$200,000 in 1993. CD&R agreed to forgo the consulting fee after
October 1995, in view of the Company's financial position and in
order to facilitate the proposed Restructuring.
CD&R, C&D Fund III and the Company entered into an
Indemnification Agreement on August 14, 1990, pursuant to which
the Company agreed to indemnify CD&R, C&D Fund III, Associates
III and their respective directors, officers, partners,
employees, agents and controlling persons against certain
liabilities arising under the federal securities laws and certain
other claims and liabilities.
CD&R, C&D Fund III, C&D Fund IV and the Company entered
into a separate Indemnification Agreement, dated as of March 4,
1992, pursuant to which the Company agreed, subject to any
applicable restrictions in the Indenture relating to the Old
Notes (the "Old Indenture"), the Prior Credit Agreement, the
Subordinated Note Indenture, the 1987 Registration and
Participation Agreement, and the 1990 Registration and
Participation Agreement, to indemnify CD&R, C&D Fund III, C&D
Fund IV, Associates III, Associates IV and their respective
directors, officers, partners, employees, agents and controlling
persons against certain liabilities arising under the federal
securities laws and certain other claims and liabilities.
Homeland has made temporary loans to certain members of
management to enable such persons to make principal payments
under loans from third-party financial institutions. As of
September 1, 1996, $65,000 of such loans remains outstanding and
are currently due on January 21, 1997. The loans bear interest
at a variable rate equal to the rate applicable to the Company's
borrowings under the New Credit Agreement plus one percent.
Mr. Gene Burris, a director of the Company, is
President of UFCW Local No. 1000, which represents approximately
65% of the Company's unionized employees. Pursuant to the
Modified Union Agreements, the UFCW has the right to designate
one member of the Board of Directors of Holding and Homeland.
Mr. Burris is the designee of the UFCW.
Ms. Shahon and Messrs. Krekeler, Snow and Weinstein
were nominated by the Noteholders' Committee to serve as
directors of the Company.
Item 8. Legal Proceedings
The Company is a party to ordinary routine litigation
incidental to its business.
With respect to general unsecured claims against the
Company arising prior to the May 13, 1996 commencement of the
bankruptcy case, 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 Company is in the process of
analyzing the general unsecured claims and designating certain
general unsecured claims as disputed. The Company will file
objections to any such claims within 90 days after the later of
the Effective Date or the date that a proof of claim with respect
to such claim is filed or deemed to have been filed with the
Bankruptcy Court. The Company will reserve for the account of
each creditor holding a disputed general unsecured claim the New
Common Stock that would otherwise be distributable to such
creditor on the Effective Date is such disputed claim was a claim
allowed by the Bankruptcy Court.
Item 9. Market Price of and Dividends on the Registrants's
Common Equity and Related Stockholders Matters
There is no established public trading market for the
New Common Stock, the only class of common equity of Holding
currently issued and outstanding. Under the Plan of
Reorganization, the Company 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 the Company 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 that the New Common
Stock will ultimately be listed on NASDAQ (National Market
System) or any such other exchange or system.
Item 10. Recent Sales of Unregistered Securities
Under the Plan of Reorganization, the Old Common Stock
will be exchanged for (a) 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 (b) New Warrants to purchase (in the aggregate) up to 263,158
shares of New Common Stock at an exercise price of $11.85 per
share. Upon consummation of the Restructuring, each holder of
the Old Common Stock will receive 7.73 shares of New Common Stock
and 8.14 New Warrants for each 1,000 shares of Old Common Stock
held by such holders. In addition, under the Plan of
Reorganization, each holder of a general unsecured claim,
including holders of the Old Notes, will receive its ratable
portion of 4,450,000 shares of New Common Stock (representing the
remaining approximately 94.7% of the New Common Stock to be
outstanding upon consummation of the Restructuring), based on the
amount of such holder's claim relative to all general unsecured
claims. The issuance of the New Common Stock and the New
Warrants under the Plan of Reorganization is exempt from the
registration requirements of the Securities Act pursuant to
Section 1145(a)(1) of the Bankruptcy Code.
On April 21, 1995, the Company made an offer to
repurchase shares of its Common Stock owned by certain officers
and employees of the Company at a cash purchase price of $0.50
per share, plus a warrant equal to the number of shares purchased
with an exercise price of $0.50. As a result of this offer, the
Company redeemed 1,688,493 shares of its Common Stock and issued
1,550,493 warrants. The warrants were issued in reliance on the
exemption from registration provided by Section 4 (2) of the
Securities Act of 1933, as amended (the "Securities Act"), for
transactions not involving any public offering("Section 4 (2)").
In March 1995, the Company, pursuant to a settlement
agreement, repurchased from its former President and Chief
Executive Officer, Max E. Raydon, 455,000 shares of Common Stock
at $0.50 per share plus a warrant for the same number of shares
with an exercise price of $0.50. Exemption from registration was
claimed under Section 4 (2).
In 1993 and early 1994, the Company repurchased 134,000
and 106,000 shares of Common Stock, respectively, from certain of
its employees at $2.41 per share. The repurchases were made in
compliance with certain provisions in their respective Management
Stock Subscription Agreements. Again, exemption from
registration was claimed under Section 4 (2).
Section 4 (2) of the Securities Act exempts from the
registration provisions of the Securities Act transactions by an
issuer not involving any public offering.
Item 11. Description of Registrant's Securities to be Registered
General
The Company is authorized to issue 7,500,000 shares of
New Common Stock, with a par value of $0.01 per share, of which
4,700,000 million shares as issued under the Plan of
Reorganization, 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 of
Reorganization 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. At a meeting of stockholders at which a quorum
is present, a majority of the votes cast decides all questions,
unless the matter is one upon which a different vote is required
by express provisions of law or the Company's Certificate of
Incorporation or By-Laws. Cumulative voting for the election of
directors is not 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
such purposes. Holding does not anticipate paying any dividends
on shares of the New Common Stock. The New Credit Agreement and
the Indenture restrict the ability of Holding to pay dividends on
the New Common Stock.
Upon the dissolution or liquidation 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 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.
Equity Registration Rights Agreement
In connection with the Restructuring, Holding granted
certain registration rights to the holders of the Old Common
Stock who receive New Common Stock and New Warrants pursuant to
the Plan of Reorganization. Pursuant to an equity registration
rights agreement (the "Equity Registration Rights Agreement"),
Holding granted certain registration rights to (a) 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 and (b) certain permitted transferees of
such holders that satisfy certain eligibility, notice and other
requirements set forth in the Equity Registration Rights
Agreement (the "Remaining Stockholders"). Remaining
Stockholders will have registration rights only with respect to
New Securities issued to holders of Old Common Stock pursuant to
the Plan and shares of New Common Stock issuable upon exercise of
the New Warrants (the "Registrable Stockholder Securities").
The Equity Registration Rights Agreement provides that,
following the second anniversary of the Effective Date, Remaining
Stockholders holding at least 125,000 shares of New Common Stock
or 131,579 New Warrants issued to holders of the Old Common Stock
pursuant to the Plan of Reorganization have the right to initiate
one demand that Holding register under the Securities Act all or
any portion of the Registrable Stockholder Securities held by
such holders, provided that the aggregate number of shares of New
Common Stock requested to be registered may not be less than
125,000 shares and the aggregate number of New Warrants requested
to be registered may not be less than 131,579 New Warrants.
After receipt of a registration demand, Holding will notify all
other Remaining Stockholders (who have previously identified
themselves to Holding as Remaining Stockholders) of the
registration demand. Such other Remaining Stockholders will be
entitled to request that some or all of their Registrable
Stockholder Securities be included in such registration. Such
Registrable Stockholder 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 Stockholder
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.
The Equity Registration Rights Agreement terminates
with respect to the registration of the Registrable Stockholder
Securities on the earlier of (a) the seventh anniversary of the
Effective Date, (b) such time as the number of shares of New
Common Stock constituting Registrable Stockholder Securities is
less than 125,000 and the number of New Warrants constituting
Registrable Stockholder Securities is less than 131,579 and (c)
the date on which the effectiveness of a registration statement
that has become effective pursuant to a registration under the
Equity Registration Rights Agreement has been terminated.
Noteholder Registration Rights Agreement
In connection with the Restructuring, Holding granted
certain registration rights to the holders of the Old Notes who
receive New Common Stock and New Notes pursuant to the Plan of
Reorganization. Pursuant to a noteholder registration rights
agreement (the "Noteholder Registration Rights Agreement"),
Holding and/or the Company (as applicable) granted certain
registration rights to (a) holders of Old Notes who will receive
New Securities pursuant to the Plan and continue to hold such New
Securities and (b) certain permitted transferees of such holders
that satisfy certain eligibility, notice and other requirements
set forth in the Noteholder Registration Rights Agreement (the
"Remaining Noteholders"). Remaining Noteholders have
registration rights only with respect to New Securities issued to
holders of Old Notes pursuant to the Plan (the "Registrable
Noteholder Securities").
The Noteholder Registration Rights Agreement provides
that following the second anniversary of the Effective Date,
Remaining Noteholders holding at least 470,000 shares of New
Common Stock issued pursuant to the Plan (the "Registration
Trigger Amount") 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 Registrable Noteholder
Securities held by such holders, provided that the aggregate
number of shares of New Common Stock requested to be registered
may not be less than the Registration Trigger Amount and the
aggregate principal amount of New Notes requested to be
registered may not be less than $6 million. After receipt of a
registration demand, Holding and/or the Company (as applicable)
will notify all other Remaining Noteholders (who have previously
identified themselves to Holding as Remaining Noteholders) of the
registration demand. Such other Remaining Noteholders will be
entitled to request that some or all of their Registrable
Noteholder Securities be included in such registration. Such
Registrable Noteholder 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 Noteholder 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).
The Noteholder Registration Rights Agreement terminates
with respect to the registration of shares of Registrable
Noteholder Securities, on the earlier of (a) the seventh
anniversary of the Effective Date, (b) such time as the
Registrable Noteholder Securities no longer represent the
Requisite Percentage and (c) the date on which the effectiveness
of a registration statement that has become effective pursuant to
a registration under the Noteholder Registration Rights Agreement
has been terminated.
Item 12. Indemnification of Directors and Officers
The Certificates of Incorporation of Holding and
Homeland provide that no director of the Company shall be liable
to the Company or its stockholders for monetary damages for
breach of his or her fiduciary duty as a director. This
provision of the Certificates of Incorporation does not eliminate
or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii)
for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law or (iv) for any
transaction from which the director derived an improper personal
benefit. This provision also does not affect a director's
responsibilities under any other law, such as the state or
federal securities law.
Under the Delaware General Corporation Law, Holding and
Homeland have broad powers to indemnify their directors and
officers against liabilities they may incur in such capacities,
including liabilities under state or federal securities law. The
By-Laws of Holding and Homeland requires the Company to indemnify
its directors and officers against expenses, judgments, fines,
settlements and other amounts incurred in connection with any
proceedings, if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. However, in the case of a derivative
action, any officer or director will not be entitled to
indemnification in respect of any claim, issue or matter as to
which such person is adjudged to be liable to the Company, unless
and only to the extent that the court in which the action was
brought determines that such person is fairly and reasonably
entitled to indemnity for expenses.
The Company currently holds a directors and officers
insurance policy with an aggregate limit of $10,000,000, with a
deductible of $150,000, providing coverage for losses occurring
after the Effective Date. The Company also holds a similar
directors and officers insurance policy with an aggregate limit
of $20,000,000, with a deductible of $250,000, for coverage of
losses that occurred prior to the Effective Date. The directors
and officers policies provide coverage for losses of the Company,
their directors and officers that may arise from claims of
alleged wrongful acts of the directors and officers of the
Company in such capacities.
CD&R, C&D Fund III and the Company entered into an
Indemnification Agreement on August 14, 1990, pursuant to which
the Company agreed to indemnify CD&R, C&D Fund III, Associates
III and their respective directors, officers, partners,
employees, agents and controlling persons against certain
liabilities arising under the federal securities laws and certain
other claims and liabilities.
CD&R, C&D Fund III, C&D Fund IV and the Company entered
into a separate Indemnification Agreement, dated as of March 4,
1992, pursuant to which the Company agreed, subject to any
applicable restrictions in the Indenture relating to the Old
Notes (the "Old Indenture"), the Prior Credit Agreement, the
Subordinated Note Indenture, the 1987 Registration and
Participation Agreement, and the 1990 Registration and
Participation Agreement, to indemnify CD&R, C&D Fund III, C&D
Fund IV, Associates III, Associates IV and their respective
directors, officers, partners, employees, agents and controlling
persons against certain liabilities arising under the federal
securities laws and certain other claims and liabilities.
There is currently no pending litigation or proceeding
involving a director or officer of the Company as to which
indemnification is being sought nor is the Company aware of any
threatened litigation that may result in claims for
indemnification by any officer or director.
Transfer Agent
Fleet National Bank, Hartford, Connecticut, is the
transfer agent and registrar for the New Common Stock.
Item 13. Financial Statements and Supplementary Data
The Company's consolidated financial statements and
notes thereto are included in this Registration Statement
following the signature pages.
Item 14. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 15. Financial Statements and Exhibits
The following documents are filed as part of this
Registration Statement:
1. Financial Statements. The Company's
financial statements are included in this
report following the signature page. See
Index to Financial Statements and Financial
Statement Schedules on page F-1.
2. Exhibits. See attached Exhibit Index on page E-1.
SIGNATURES
Pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, the registrant has duly caused
this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOMELAND HOLDING CORPORATION
Date: November 15, 1996 By:______________________________
James A. Demme, Chairman, President
and Chief Executive Officer
INDEX TO FINANCIAL STATEMENTS
HOMELAND HOLDING CORPORATION
Unaudited Consolidated Balance Sheets as of September 7, 1996 F-2
(Successor Company) and December 30, 1995 (Predecessor
Company)
Unaudited Consolidated Statement of Operations
for the 4 weeks ended September 7, 1996 (Successor Company), F-4
32 weeks ended August 10, 1996 and 36 weeks ended September 9,
1995 (Predecessor Company)
Unaudited Consolidated Statement ofStockholders' Equity (Deficit)
for the 4 weeks ended September 7, 1996 (Successor Company), F-5
32 weeks ended August 10, 1996 and 36 weeks ended September 9,
1995 (Predecessor Company)
Unaudited Consolidated Statement of Cash Flows
for the 4 weeks ended September 7, 1996 (Successor Company), F-6
32 weeks ended August 10, 1996 and 36 weeks ended September 9,
1995 (Predecessor Company)
Notes to Unaudited Consolidated Financial Statements F-7
Report of Independent Accountants F-13
Consolidated Balance Sheets as of December 30, 1995
and December 31, 1994 F-14
Consolidated Statements of Operations for the 52 weeks
ended December 30, 1995, December 31, 1994 and January 1, 1994 F-16
Consolidated Statements of Stockholders' Equity (Deficit) for the
52 weeks ended December 30, 1995, December 31, 1994 and
January 1, 1994 F-17
Consolidated Statements of Cash Flows for the 52 weeks ended
December 30, 1995, December 31, 1994 and January 1, 1994 F-18
Notes to Consolidated Financial Statements F-20
F-1
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
Assets Successor Company Predecessor Company
September 7, December 30,
1996 1995
Current assets:
Cash and cash equivalents $ 3,062 $ 6,357
Receivables, net of allowance for
uncollectible accounts of $2,661 at
December 30, 1995 8,959 8,051
Inventories 39,450 42,830
Prepaid expenses and other current assets 3,250 2,052
Total current assets 54,721 59,290
Property, plant and equipment:
Land 8,701 9,919
Buildings 17,294 22,101
Fixtures and equipment 14,281 44,616
Land and leasehold improvements 10,956 23,629
Software 1,782 1,991
Leased assets under capital leases 7,623 29,062
Construction in progress 1,961 4,201
62,598 135,519
Less accumulated depreciation
and amortization 585 63,827
Net property, plant and equipment 62,013 71,692
Reorganization value in excess of amounts
allocable to identifiable assets, less
accumulated amortization of $1,154 at
September 7, 1996 43,864 -
Other assets and deferred charges 5,016 6,600
Total assets $165,614 $137,582
Continued
The accompanying notes are an integral part
of these consolidated financial statements
F-2
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Successor Company Predecessor Company
September 7, December 30,
1996 1995
Current liabilities:
Accounts payable - trade $ 14,411 $ 17,732
Salaries and wages 2,486 1,609
Taxes 5,405 4,876
Accrued interest payable 599 2,891
Other current liabilities 10,546 14,321
Long-term obligations in default classified
as current - 100,467
Current portion of obligations under capital
leases 1,559 2,746
Current portion of restructuring reserve - 3,062
Total current liabilities 35,006 147,704
Long-term obligations:
Long-term debt 70,000 -
Obligations under capital leases 3,348 9,026
Other noncurrent liabilities 2,081 6,133
Noncurrent restructuring reserve - 2,808
Total long-term obligations 75,429 17,967
Commitments and contingencies - -
Redeemable common stock, Class A, $.01 par value,
1,720,718 shares at December 30, 1995, at
redemption value - 17
Stockholders' equity (deficit):
Old common stock
Class A, $.01 par value, authorized - 40,500,000
shares, issued - at December 30, 1995, 33,748,482
outstanding - 30,878,989 shares - 337
New common stock, $0.01 par value, authorized -
7,500,000 shares, issued 4,758,025 shares at
September 7, 1996 48 -
Additional paid-in capital 56,013 55,886
Accumulated deficit (882) (80,188)
Minimum pension liability adjustment - (1,327)
Treasury stock, 2,869,493 shares at December 30,
1995 at cost - (2,814)
Total stockholders' equity (deficit) 55,179 (28,106)
Total liabilities and stockholders' equity
(deficit) $165,614 $137,582
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Successor Company Predecessor Company
4 weeks 32 weeks 36 weeks
ended ended ended
September 7, August 10, September 9,
1996 1996 1995
Sales, net $ 39,536 $323,747 $458,088
Cost of sales 29,684 244,423 347,506
Gross Profit 9,852 79,324 110,582
Selling and administrative 8,953 73,000 108,473
Amortization of excess reorganization
value 1,154 - -
Operating profit (loss) (255) 6,324 2,109
Interest expense 627 5,639 11,677
Income (loss) before reorganization
items, income taxes and
extraordinary items (882) 685 (9,568)
Reorganization items:
Allowed claims in excess of
liabilities - 7,200 -
Professional fees - 4,250 -
Employee buyout expense - 6,386 -
Adjustments of accounts to
estimated fair value - 8,160 -
- 25,996 -
Loss before income taxes and
extraordinary items (882) (25,311) (9,568)
Income tax expense - - -
Loss before extraordinary items (882) (25,311) (9,568)
Extraordinary items-debt discharged - 63,118 -
Extraordinary items-other - - (2,330)
Net income (loss) $ (882) $ 37,807 $(11,898)
Loss before extraordinary items per
common share $ (.19) $ (.78) $ (.29)
Extraordinary items per common share - 1.94 (.07)
Net income (loss) per common share $ (.19) $ 1.16 $ (.36)
Weighted average shares outstanding 4,758,025 32,599,707 33,500,994
The accompanying notes are an integral part
of these consolidated financial statements
F-4
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
<PART 1 of 2>
<S> <C> <C> <C> <C> <C> <C>
Minimum
Common Stock Additional Pension
Successor Predecessor Paid-in Accumulated Liability
Shares Shares Amount Capital Deficit Adjustment
Balance, December 31, 1994 - 31,604,989 $ 316 $ 53,896 $(48,398) $ -
Purchase of treasury stock - 2,143,493 21 1,050 - -
Net loss - - - - (11,898) -
Balance, September 9, 1995 - 33,748,482 $ 337 $ 54,946 $(60,296) $ -
Balance, December 30, 1995 - 33,748,482 $ 337 $ 55,886 $(80,188) $(1,327)
Net income - - - - 37,807 -
Eliminate predecessor equity - (33,748,482) (337) (55,886) (2,637) -
Issuance of successor's
common stock 4,758,025 - 48 56,013 - -
Eliminate adjustment of minimum
pension liability - - - - - 1,327
Record excess of reorganization
value - - - - 45,018 -
Balance, August 10, 1996 4,758,025 - $ 48 $ 56,013 $ - $ -
Net loss - - - - (882) -
Balance, September 7, 1996 4,758,025 - $ 48 $56,013 $ (882) $ -
</TABLE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICTI)
(in thousands, except share and per share amounts)
(Unaudited)
F-5
<TABLE>
<CAPTION>
<PART 2 of 2>
<S> <C> <C> <C>
Total
Treasury Stock Stockholders'
Shares Amount Equity (Deficit)
Balance, December 31, 1994 726,000 $(1,743) $ 4,071
Purchase of treasury stock 2,143,493 (1,071) -
Net loss - - (11,898)
Balance, September 9, 1995 2,869,493 $(2,814) $ (7,827)
Balance, December 30, 1995 2,869,493 $(2,814) $(28,106)
Net income - - 37,807
Eliminate predecessor equity (2,869,493) 2,814 (56,046)
Issuance of successor's common
stock - - 56,061
Eliminate adjustment of minimum
pension liability - - 1,327
Record excess of reorganization
value - - 45,018
Balance, August 10, 1996 - $ - $ 56,061
Net loss - - (882)
Balance, September 7, 1996 - $ - $ 55,179
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Successor Company Predecessor Company
4 weeks 32 weeks 36 weeks
ended ended ended
September 7, August 10, September 9,
1996 1996 1995
Cash flows from operating activities:
Net income (loss) $ (882) $37,807 $(11,898)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 588 4,163 8,908
Amortization of excess reorganization value 1,154 - -
Amortization of financing costs 5 359 771
Write-off of financing costs on long term debt retired - - 1,424
Reorganization items - 15,360 -
Extraordinary gain on debt discharge - (63,118) -
(Gain) loss on disposal of assets 85 - (275)
Amortization of beneficial interest in operating
leases 10 75 143
Change in assets and liabilities:
Increase in receivables (876) (32) (426)
Decrease in receivable for taxes - - 2,270
(Increase) decrease in inventories (666) 4,175 14,904
(Increase) decrease in prepaid expenses
and other current assets 41 (83) 3,097
(Increase) decrease in other assets and
deferred charges (21) (649) 228
(Increase) decrease in accounts payable - trade (545) 298 (8,989)
Increase (decrease) in salaries and wages (167) 105 131
Increase (decrease) in taxes 304 226 (317)
Increase (decrease) in accrued interest payable 582 3,823 (2,810)
Increase in other current liabilities (791) (2,656) (1,625)
Increase in noncurrent restructuring reserve - (1,396) (12,196)
Increase in other noncurrent liabilities (146) (886) (1,105)
Total adjustments (443) (41,716) 4,133
Net cash used in operating activities (1,325) (2,429) (7,765)
Cash flows from investing activities:
Capital expenditures (180) (2,395) (1,008)
Cash received from sale of assets 1 1,738 73,038
Net cash (used in) provided by
investing activities (179) (657) 72,030
Cash flows from financing activities:
Borrowings under term loan - 10,000 -
Payments under senior secured floating rate notes - - (9,375)
Payments under senior secured fixed rate notes - - (15,625)
Borrowings under revolving credit loans 6,273 74,250 62,811
Payments under revolving credit loans (6,273) (79,718) (85,095)
Payments under swing loans - - (1,500)
Principal payments under notes payable - - (750)
Principal payments under capital lease obligations (141) (1,596) (6,127)
Payments of secured debt obligations - (1,500) -
Payments to acquire treasury stock - - (1,072)
Net cash (used in) provided by
financing activities (141) 1,436 (56,733)
Net increase (decrease) in cash and cash equivalents (1,645) (1,650) 7,532
Cash and cash equivalents at beginning of period 4,707 6,357 339
Cash and cash equivalents at end of period $ 3,062 $ 4,707 $ 7,871
Supplemental information:
Cash paid during the period for interest $ 48 $ 1,566 $13,636
Cash paid during the period for income taxes $ - $ - $ -
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-6
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Preparation of Consolidated Financial Statements:
The accompanying unaudited consolidated financial statements
of Homeland Holding Corporation ("Holding") and its
Subsidiary, Homeland Stores, Inc ("Stores" and together
with Holding, the "Company"), reflect all adjustments,
consisting only of normal and recurring adjustments,
except for the fresh-start adjustments which are, in the opinion
of management, necessary to present fairly the consolidated
financial position and the consolidated results of
operations and cash flows for the periods presented. These
unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements of
the Company for the 52 weeks ended December 30, 1995 and the
notes thereto.
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The
consolidated financial statements also reflect certain fresh-
start adjustments (see Note 4) that resulted from the
bankruptcy proceedings (see Note 3).
2. Accounting Policies:
The significant accounting policies of the Company are summarized
in the consolidated financial statements of the Company for the 52
weeks ended December 30, 1995 and the notes thereto.
3. Reorganization:
On May 13, 1996, the Comapny filed chapter 11 petitions with
the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). Simultaneous with the
filing of such petitions, the Company filed a plan of
reorganization and disclosure statement, which set forth
the terms of the Company's restructuring (the "Restructuring"). On
June 13, 1996, the Company filed a first amended plan of
reorganization and disclosure statement. The Company's first amended
plan of reorganization, as modified (the "Plan") was confirmed by the
Bankruptcy Court on July 19, 1996 and became effective on
August 2, 1996 (the "Effective Date").
F-7
On the effective Date, each of Holding and Homeland adopted
amended and restated certificates of incorporation, the
principal effects of which are: (a) eliminate the old
common stock and old class B common stock of Holding, (b)
authorized 7,500,000 shares of new common stock of Holding
(the "New Common Stock") and (c) include a provision to
prohibit the issuance of non-voting securities as and to the
extent required by Section 1123 (a) (6) of the Bankruptcy
Code for both Homeland and Holding.
As of the Effective Date, the outstanding $59.4 million of
Series C Senior Secured Fixed Rate Notes due 1999, $26.1
million of Series D Senior Secured Floating Rate Notes due
1997 and $9.5 million of Series A Senior Secured Floating Rate
Notes due 1997, (collectively, the "Old Notes"), ($95 million
in aggregate face amount plus accrued interest), were
canceled and such holders received (in the aggregate)
$60 million face amount of newly issued 10% Senior Subordinated
Notes due 2003 (the "New Notes"), $1.5 million in cash and
approximately 60% of the New Common Stock. The New Notes
are unsecured and bear interest at 10% per annum and mature
in 2003.
As of the effective Date, all of the outstanding old common
stock of Holding was canceled and the holders received
their ratable share of (a) 250,000 shares of New Common
Stock and (b) warrants to purchase up to 263,158 shares of New
Common stock at an exercise price of $11.85. Holders of general
unsecured claims (including certain trade creditors for
unpaid prepetition trade claims and the allowed unsecured
noteholders' claims) are entitled to receive their ratable
share of 4,450,000 shares of New Common Stock.
As of the Effective Date, the Company entered into the New
Credit Agreement (as defined hereinafter) consisting of a
revolving credit facility of up to $27.5 million (subject to
a borrowing base requirements) and a term loan facility of
$10.0 million The New Credit Agreement is collaterized by a
security interest in, and liens on, substantially all of the
Company's assets and is guaranteed by Holding.
On the Effective Date, the modified union agreements
negotiated with the Company's labor unions (the "Modified
Union Agreements") became effective. The Modified Union Agreements,
which are effective for a term of five years, consist of five basic
elements: (a) wage rate and benefit contribution reductions
and work rule changes, (b) an employee buyout offer, (c) the
establishment of an employee stock bonus plan which will
receive, or be entitled to receive up to 522,222 shares of
New Common Stock, (d) the
F-8
right to designate one member of the Board of Directors and
(e) the elimination of certain wage reinstatement
provisions, incentive plans and "maintenance of benefits."
4. Fresh-Start Reporting
The Company's Restructuring was accounted for in accordance
with the American Institute of Certified Public Accountants
Statement of Position No. 90-7, entitled "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code"
("SOP No. 90-7"). The accounting of SOP No. 90-7 resulted in
"fresh-start" reporting for the Company in which a new entity was
created for financial reporting purposes. The
Company was able to adopt SOP No. 90-7 as the holders of the
old common stock received less than 50% of the New
Common Stock and the reorganized value of the assets of the
reorganized Company is less than the total of all post-
petition liabilities and allowed claims.
For financial reporting purposes, the Comapny accounted for
the consummation of the Restructuring effective August 10,
1996, which is the Company's normal four week period ending
date. The periods prior to the Effective Date have been
designated "Predecessor Company" and the period subsequent
to the Effective Date has been designated "Successor
Company". As a result of the adoption of the "fresh-start
reporting, the Company's financial statements are not
comparable to the Company's financial statements of prior
periods.
In accordance with the SOP No. 90-7, the Company valued its
assets and liabilities at their estimated fair value and
eliminated its accumulated deficits on the Effective Date. The
total reorganization value of the reorganized Company was
determined by analyzing market cash flow multiples as
applied to the Company's projected annual cash flows as well
as comparing the reorganization vaule to a discounted
projected cash flow calculation. Based on analysis prepared by the
Company's financial advisor and the financial advisor to the ad
hoc committee of noteholders, the total reorganization value
was agreed to by the parties and confirmed by the Bankruptcy Court.
The total reorganization value as of the Effective Date was estimated
to be $167.4 million, which was $45.0 million in excess of the
Company's tangible and identifiable assets. The excess of the
reorganization value over the value of the identifiable
assets is reported as "Reorganization value in excess of
amounts allocable to identifiable assets" and is being
amortized on a straight-line basis over a three year period.
F-9
The components of reorganization items and gain recognized
on debt discharged resulting from the Restructuring are as
follows (in thousands):
(i) Reorganization items:
Fresh-Start reporting
Allowed claims in excess of recorded
liabilities 7,200
Revalue of property, plant and
equipment, net 4,004
Other adjustments to estimated fair value 4,156
Total fresh-start 15,360
Professional fees incurred with
the Restruturing 4,250
Total reorganization items 19,610
(ii) Gain on debt discharged:
Elimination of Old Notes and accrued interest 101,697
Elimination of other liabilities 21,421
Issuance of New Notes (60,000)
Gain on debt discharged 63,118
F-10
The effects of the Restructuring and the implementation of "fresh-
start" reporting on the Company's balance sheet as of August 10,
1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pre "Fresh-Start" "Fresh-Start"
Balance Sheet Debt Discharge "Fresh-Start" Balance Sheet
August 10, 1996 Adjustments Adjustments August 10, 1996
Current assets:
Cash $ 6,207 $ (1,500) $ - $ 4,707
Receivables 8,083 - - 8,083
Inventories 38,655 129 - 38,784
Prepaid expenses and
other current assets 3,428 - (137) 3,291
Total current assets 56,373 (1,371) (137) 54,865
Property, plant and equipment, net 66,513 - (4,004) 62,509
Other assets and deferred charges 6,793 - (1,780) 5,013
Reorganization value in excess
of amounts allocable to
identifiable assets - - 45,018 45,018
Total assets $129,679 $ (1,371) $ 39,097 $167,405
Current liabilities:
Accounts payable-trade 18,030 (10,274) 7,200 14,956
Salaries and wages 1,703 - 950 2,653
Taxes 5,101 - - 5,101
Accrued interest payable 6,714 (6,697) - 17
Other current liabilities 11,760 (3,290) 2,866 11,336
Long-term obligations in
default classified as
current 105,000 (105,000) - -
Current portion of obligations
under capital leases 2,746 (1,187) - 1,559
Current portion of restructuring
reserves 3,062 (1,796) (1,266) -
Total current liabilities $154,116 $(128,244) $ 9,750 $ 35,622
Long-term obligations:
Long-term debt - 70,000 - 70,000
Obligations under capital leases 5,784 (1,870) (425) 3,489
Other noncurrent liabilities 6,407 (3,944) (230) 2,233
Noncurrent restructuring reserve 1,412 (431) (981) -
Total long-term obligations 118,603 63,755 (1,636) 75,722
Redeemable common stock 17 - (17) -
Stockholder's equity (deficit):
Common Stock 337 - (289) 48
Additional paid-in capital 55,886 - 127 56,013
Accumulated (deficit) equity (90,139) 63,118 27,021 -
Minimum pension liability adjustment (1,327) - 1,327 -
Treasury stock (2,814) - 2,814 -
Total stockholder's equity
(deficit) (38,057) 63,118 31,000 56,061
Total liabilities and
stockholder's equities
(deficit) $129,679 $(1,371) $39,097 $167,405
</TABLE>
F-11
5. Employee Buyout Offer Charges
As of August 3, 1996, the consummation date of the Modified
Union Agreements, 833 of the Company's unionized employees had
accepted the employee buyout offer. The employee buyout offer,
depending on the employee's job classification, date of hire and
full- or part-time status, ranges from $4,500 to $11,000 per
employee. The Company incurred approximately $6.6 million
of expense for the employee buyout offer.
6. Income Taxes
The Company did not record any provision of taxes for the 12
weeks and 36 weeks ended September 7, 1996. As of December
30, 1995, the Company has operating loss carry forward of
approximately $48.6 million. In connection with the Plan, the
Company recorded gains relating to the discharge of certain indebtedness,
which is expected to reduce the Company's operating loss carry
forward. As a result of the discharge of such indebtedness,
management estimates that the operating loss carryforward
as of September 7, 1996, is approximately $30.0 million, subject
to the projected values of the new securities issued by Holding
pursuant to the Plan.
F-12
Report of Independent Accountants
To the Board of Directors and Stockholders of
Homeland Holding Corporation
We have audited the accompanying consolidated financial statements of
Homeland Holding Corporation and Subsidiary listed in the index on page F-
1 of this Form 10-K. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Homeland
Holding Corporation and Subsidiary as of December 30, 1995 and December
31, 1994, and the consolidated results of their operations and their cash
flows for the 52 weeks ended December 30, 1995, December 31, 1994 and
January 1, 1994, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has incurred recurring
losses from operations, negative cash flows from operations for the year
ended December 30, 1995, a stockholders' deficit as of December 30, 1995
and has been unable to comply with its debt covenants. In addition, on
March 27, 1996, the Company reached an agreement in principle with members
of an ad-hoc noteholders committee with respect to a financial
restructuring of the Company. The Company and the ad-hoc noteholders
committee have agreed to implement the financial restructuring under a
pre-arranged plan of reorganization to be filed under Chapter 11 of the
United States Federal Bankruptcy Code. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The
continuation of its business as a going concern is contingent upon, among
other things, the ability to (1) complete the pre-arranged plan of
reorganization and (2) sustain satisfactory levels of future earnings and
cash flows. Management's plans with regard to such financial
restructuring are set forth in Note 15 to the financial statements. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties or adjustments relating to the
establishment, settlement and classification of liabilities that may be
required in connection with the pre-arranged plan of reorganization of
Homeland Holding Corporation and Subsidiary under Chapter 11 of the United
States Federal Bankruptcy Code.
Coopers & Lybrand, L.L.P.
New York, New York
March 27, 1996
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS (Note 4)
December 30, December 31,
1995 1994
Current assets:
Cash and cash equivalents (Notes 3 and 5) $ 6,357 $ 339
Receivables, net of allowance for uncollectible
accounts of $2,661 and $2,690 8,051 12,235
Receivable for taxes (Note 6) - 2,270
Inventories 42,830 89,850
Prepaid expenses and other current assets 2,052 6,384
Total current assets 59,290 111,078
Property, plant and equipment:
Land 9,919 10,997
Buildings 22,101 29,276
Fixtures and equipment 44,616 61,360
Land and leasehold improvements 23,629 32,410
Software (Note 3) 1,991 17,876
Leased assets under capital leases (Note 9) 29,062 46,015
Construction in progress 4,201 2,048
135,519 199,982
Less, accumulated depreciation
and amortization 63,827 82,603
Net property, plant and equipment 71,692 117,379
Excess of purchase price over fair
value of net assets acquired, net
of amortization of $830 in fiscal 1994 (Note 3) - 2,475
Other assets and deferred charg es 6,600 8,202
Total assets $137,582 $239,134
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 30, December 31,
1995 1994
Current liabilities:
Accounts payable - trad $ 17,732 $ 30,317
Salaries and wages 1,609 1,925
Taxes 4,876 6,492
Accrued interest payable 2,891 3,313
Other current liabilities 14,321 15,050
Current portion of long-term debt (Notes 4, 5 and 15) - 2,250
Long-term obligations in default classified as current
(Notes 4, 5 and 15) 100,467 -
Current portion of obligations under capital
leases (Note 9) 2,746 7,828
Current portion of restructuring reserve (Note 14) 3,062 -
Total current liabilities 147,704 67,175
Long-term obligations:
Long-term debt (Notes 4, 5 and 15) - 145,000
Obligations under capital leases (Note 9) 9,026 11,472
Other noncurrent liabilities 6,133 5,176
Noncurrent restructuring reserve (Note 14) 2,808 5,005
Total long-term obligations 17,967 166,653
Commitments and contingencies (Notes 8, 9 and 12) - -
Redeemable common stock, Class A, $.01 par value,
1,720,718 shares at December 30, 1995 and 3,864,211
shares at December 31, 1994, at redemption value
(Notes 10 and 11) 17 1,235
Stockholders' equity (deficit):
Common stock (Note 10):
Class A, $.01 par value, authorized - 40,500,000
shares, issued - 33,748,482 shares at December 30,
1995 and 31,604,989 at December 31, 1994,
outstanding - 30,878,989 shares 337 316
Additional paid-in capital 55,886 53,896
Accumulated deficit (80,188) (48,398)
Minimum pension liability adjustment (Note 8) (1,327) -
Treasury stock, 2,869,493 shares at December 30, 1995
and 726,000 shares at December 31, 1994, at cost (2,814) (1,743)
Total stockholders' equity (deficit) (28,106) 4,071
Total liabilities and stockholders' equity(deficit) $137,582 $239,134
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<C> <C> <C>
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 31, January 1,
1995 1994 1994
Sales, net $630,275 $785,121 $810,967
Cost of sales 479,119 588,405 603,220
Gross profit 151,156 196,716 207,747
Selling and administrative expenses 151,985 193,643 190,483
Operational restructuring costs
(Note 14) 12,639 23,205 -
Operating profit (loss) (13,468) (20,132) 17,264
Gain on sale of plants - - 2,618
Interest expense (15,992 ) (18,067) (18,928)
Income (loss) before income tax benefit
(provision) and extraordinary items (29,460) (38,199) 954
Income tax benefit (provision) (Note 6) - (2,446) 3,252
Income (loss) before extraordinary
items (29,460) (40,645) 4,206
Extraordinary items (Note 4) (2,330) - (3,924)
Net income (loss) (31,790) (40,645) 282
Reduction in redemption value -
redeemable common stock 940 7,284 -
Net income (loss) available to
common stockholder $(30,850) $(33,361) $ 282
Income (loss) before extraordinary
items per common share $ (.86) $ (.96) $ .12
Extraordinary items per common share (.07) - (.11)
Net income (loss) per common share $ (.93) $ (.96) $ .01
Weighted average shares outstandin 33,223,675 34,752,527 34,946,460
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
<TABLE>
<C> <C> <C> <C> <C> <C>
Class A Additonal Pension Total
Common Stock Paid-in Accumulated Liability Treasury Stock Stockholder's
Shares Amount Capital Deficit Adjustment Stock Amount Equity (Deficit)
Balance, January 2, 1993 31,364,989 $314 $46,036 $(8,035) $ - 486,000 $(1,165) $37,150
Purchase of treasury stock 134,000 1 322 - - 134,000 (323) -
Adjustment to recognize
minimum liability - - - - (572) - - (572)
Net income - - - 282 - - - 282
Balance, January 1, 1994 31,498,989 315 46,358 (7,753) (572) 620,000 (1,488) 36,860
Purchase of treasury stock 106,000 1 254 - - 106,000 (255) -
Adjustment to eliminate
minimum liability - - - - 572 - - 572
Redeemable common stock
reduction in redemption
value - - 7,284 - - - - 7,284
Net loss - - - (40,645) - - - (40,645)
Balance,December 31,1994 31,604,989 316 53,896 (48,398) - 726,000 (1,743) 4,071
Purchase of treasury stock 2,143,493 21 1,050 - - 2,143,493 (1,071) -
Adjustment to recognize
minimum liability - - - - (1,327) - - (1,327)
Redeemable common stock
reduction in redemption
value - - 940 - - - - 940
Net loss - - - (31,790) - - - (31,790)
Balance, December 30,1995 33,748,482 $337 $55,886 $(80,188) $(1,327) 2,869,493 $(2,814) $(28,106)
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
<TABLE>
<C> <C> <C>
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 31, January 1,
1995 1994 1994
Cash flows from operating activities:
Net income (loss) $(31,790) $(40,645) $ 282
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 11,192 17,458 16,797
Amortization of financing costs 1,019 1,443 1,484
Write-off of financing costs on long-term
debt retired 1,424 - 1,148
(Gain) loss on disposal of assets 8,349 384 (2,284)
(Gain) on sale of sold stores (15,795) - -
Amortization of beneficial interest in
operating leases 181 258 261
Impairment of assets 2,360 14,325 744
(Increase) decrease in deferred tax assets - 3,997 (3,997)
Provision for losses on accounts receivable 1,750 1,213 75
Provision for write down of inventories 847 - -
Change in assets and liabilities:
(Increase) decrease in receivables 3,227 2,301 (1,131)
(Increase) decrease in receivables for
taxes 2,270 (2,270) -
Decrease in inventories 18,297 2,097 1,236
(Increase) decrease in prepaid expenses and
other current assets 5,542 (2,687) (862)
(Increase) decrease in other assets and deferred
charges (1,215) 103 (238)
Increase (decrease) in accounts payable-
trade (12,587) 832 (5,464)
Decrease in salaries and wages (316) (821) (1,994)
Increase (decrease) in taxes (1,616) 1,768 (3,629)
Decrease in accrued interest payable (422) (53) (1,102)
Increase (decrease) in other current
liabilities (3,264) (34) 7,371
Increase in restructuring reserve 1,356 5,005 -
Increase (decrease) in other noncurrent
liabilities 1,157 (4,417) 4,301
Net cash provided by (used in) operating
activities (8,034) 257 12,998
Cash flows from investing activities:
Capital expenditures (4,681) (5,386) (7,129)
Purchase of assets under capital leases (3,966) - -
Cash received from sale of assets 73,721 1,363 3,991
Net cash provided by (used in) investing
activities 65,074 (4,023) (3,138)
Cash flows from financing activities:
Payments under senior secured floating
rate notes (9,375) - -
Payments under senior secured fixed
rate notes (15,625) - -
Payments on subordinated debt - - (47,750)
Borrowings under revolving credit loans 104,087 66,000 100,000
Payments under revolving credit loans (123,620) (56,000) (85,000)
Net borrowings (payments) under swing loans (1,500) (3,500) 5,000
Principal payments under notes payable (750) (1,000) (1,250)
Principal payments under capital lease
obligations (3,166) (3,334) (4,198)
Payments to acquire treasury stock (1,073) (255) (323)
Net cash provided by (used in) financing
activities (51,022) 1,911 (33,521)
</TABLE>
Continued
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands, except share and per share amounts)
<TABLE>
<C> <C> <C>
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 30, January 1,
1995 1994 1994
Net increase (decrease) in cash and cash equivalents $ 6,018 $ (1,855) $ (23,661)
Cash and cash equivalents at beginning of period 339 2,194 25,855
Cash and cash equivalents at end of period $ 6,357 $ 339 $ 2,194
Supplemental information:
Cash paid during the period for interest $ 13,439 $ 16,642 $ 18,738
Cash paid during the period for income taxes $ - $ 236 $ 890
Supplemental schedule of noncash investing activities:
Capital lease obligations assumed $ - $ 1,493 $ 3,218
Capital lease obligations retired $ - $ - $ 31
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. Organization:
Homeland Holding Corporation ("Holding"), a Delaware corporation,
was incorporated on November 6, 1987, but had no operations prior
to November 25, 1987. Effective November 25, 1987, Homeland
Stores, Inc. ("Homeland"), a wholly-owned subsidiary of Holding,
acquired substantially all of the net assets of the Oklahoma
Division of Safeway Inc. Holding and its consolidated subsidiary,
Homeland, are collectively referred to herein as the "Company".
Holding has guaranteed substantially all of the debt issued by
Homeland. Holding is a holding company with no significant
operations other than its investment in Homeland. Separate
financial statements of Homeland are not presented herein since
they are identical to the consolidated financial statements of
Holding in all respects except for stockholder's equity (which is
equivalent to the aggregate of total stockholders' equity and
redeemable common stock of Holding) which is as follows:
December 30, December
31,
1995 1994
Homeland stockholder's equity:
Common stock, $.01 par value,
authorized, issued and
outstanding 100 shares 1 1
Additional paid-in capital 53,435 53,713
Accumulated deficit (80,198) (48,408)
Minimum pension liability adju (1,327) -
Total Homeland stockholder's
equity (deficit) $(28,089) $ 5,306
2. Basis of Presentation:
The accompanying consolidated financial statements of Holding
have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the ordinary course of business. Accordingly,
the consolidated financial statements do not include any
adjustments relating to the recoverability or classification
of recorded asset amounts or the amount and classification of
liabilities that might be necessary should Holding be unable
to successfully complete the financial restructuring described
in Note 15 and continue as a going concern.
2. Basis of Presentation, continued:
As shown in the accompanying financial statements, the Company
incurred significant losses in 1995 and 1994 and, at December
30, 1995, had a stockholders' deficit of $28,106. As discussed
in Note 4, at December 30, 1995, as a consequence of
Homeland's financial position and the results of its
operations for the year ended December 30, 1995, the Company
was not in compliance with the Consolidated Fixed Charge
Coverage Ratio and Debt-to-Equity Ratio covenants under its
Senior Note Indenture and Revolving Credit Agreement; however,
waivers of such noncompliance through April 15, 1996 and May
20, 1996, respectively, have been received. In addition, the
Company failed to make a scheduled interest payment under its
Senior Note Indenture, due March 1, 1996, and the waiver under
such Senior Note Indenture thereby expired. Furthermore, as
discussed in Note 15, negotiations for the restructuring of
the Company's long-term debt and union agreements are being
conducted which, if unsuccessful, could have a material
adverse effect on the Company's financial condition.
3. Summary of Significant Accounting Policies:
Fiscal year - The Company has adopted a fiscal year which
ends on the Saturday nearest December 31.
Basis of consolidation - The consolidated financial
statements include the accounts of Homeland Holding
Corporation and its wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Revenue recognition - The Company recognizes revenue at the
"point of sale", which occurs when groceries and related
merchandise are sold to its customers.
<PAGE>
3. Summary of Significant Accounting Policies, continued:
Concentrations of credit and business risk - Financial
instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary
cash investments and receivables. The Company places its
temporary cash investments with high quality financial
institutions. Concentrations of credit risk with respect to
receivables are limited due to the diverse nature of those
receivables, including a large number of retail customers
within the region and receivables from vendors throughout the
country. The Company purchases approximately 70% of its
products from Associated Wholesale Grocers, Inc. ("AWG").
Although there are similar wholesalers that could supply the
Company with merchandise, if AWG were to discontinue
shipments, this could have a material adverse effect on the
Company's financial condition.
Restricted Cash - The Company has two escrow accounts at
United States Trust Company of New York, one for reinvestment
in capital expenditures to which the Company is committed
("Capital Escrow") and one for the redemption of Senior Notes
(as subsequently defined in Note 4) ("Redemption Escrow"). As
of December 30, 1995, the Company has $1,729 deposited in the
Capital Escrow and $800 deposited in the Redemption Escrow.
The deposited funds in the Capital Escrow is restricted for
reinvestment in capital expenditures to which the Company is
committed or must be used to permanently pay down the Senior
Notes. The Redemption Escrow consisting of net proceeds from
asset sales occurring after the AWG Transaction (as
subsequently defined in Note 14) is restricted to permanently
pay down the Senior Notes when the aggregate amount reaches
$2,000.
Inventories - Inventories are stated at the lower of cost or
market, with cost being determined primarily using the retail
method.
3. Summary of Significant Accounting Policies, continued:
Property, plant and equipment - Property, plant and equipment
obtained at acquisition are stated at appraised fair market
value as of that date; all subsequently acquired property,
plant and equipment are stated at cost or, in the case of
assets under capital leases, at the lower of cost or the
present value of future lease payments. Depreciation and
amortization, including amortization of leased assets under
capital leases, are computed on a straight-line basis over the
lesser of the estimated useful life of the asset or the
remaining term of the lease. Depreciation and amortization
for financial reporting purposes are based on the following
estimated lives:
Estimated lives
Buildings 10 - 40
Fixtures and equipment 5 - 12.5
Leasehold improvements 15
Transportation equipment 5 - 10
Software 5 - 10
The costs of repairs and maintenance are expensed as incurred,
and the costs of renewals and betterments are capitalized and
depreciated at the appropriate rates. Upon sale or
retirement, the cost and related accumulated depreciation are
eliminated from the respective accounts and any resulting gain
or loss is included in the results of operations for that
period. In the fourth quarter of 1995, approximately $7.9
million of capitalized software costs, net of accumulated
depreciation, have been charged to operational restructuring
costs in the Statement of Operations as a result of
management's decision to replace such software as part of its
operational restructuring initiatives.
Excess of purchase price over fair value of net assets
acquired - As discussed in Notes 2 and 14, the Board of
Directors approved a strategic plan in December 1995 to
refocus the Company's restructuring efforts, which commenced
in 1994, to address continuing significant losses from
operations as well as evaluating various financial
restructuring alternatives in an effort to improve cash flows
from operations and reduce interest costs on the Company's
long-term debt. There is no assurance that such restructuring
efforts will be successful and, accordingly, the Company
determined during the fourth quarter of 1995 that the recovery
of any remaining unamortized excess of purchase price over
fair value of net assets acquired could not be assured from
future operating cash flows. Consequently, the unamortized
3. Summary of Significant Accounting Policies, continued:
balance of the excess of purchase price over fair value of net
assets acquired was charged to operational restructuring costs
in the statement of operations.
Other assets and deferred charges - Other assets and deferred
charges consist primarily of financing costs amortized using
the effective interest rate method over the term of the
related debt and beneficial interests in operating leases
amortized on a straight-line basis over the remaining terms of
the leases, including all available renewal option periods.
Net income (loss) per common share - Net income (loss) per
common share is computed based on the weighted average
number of shares, including shares of redeemable common stock
outstanding during the period. Net income (loss) is reduced
(increased) by the accretion to (reduction in) redemption
value to determine the net income (loss) available to common
stockholders.
Cash and cash equivalents - For purposes of the statements of
cash flows, the Company considers all short-term investments
with an original maturity of three months or less when
purchased to be cash equivalents.
Capitalized interest - The Company capitalizes interest as a
part of the cost of acquiring and constructing certain assets.
No interest cost was capitalized in 1995. Interest costs of
$35 and $44 were capitalized in 1994 and 1993, respectively.
Advertising costs - Costs of advertising are expensed as
incurred. Gross advertising costs for 1995, 1994 and 1993,
respectively, were $10,700, $13,615 and $14,100.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. The most
significant assumptions and estimates relate to the reserve
for restructuring, the reserve for self-insurance programs,
the deferred income tax valuation allowance, the accumulated
benefit obligation relating to the employee retirement plan,
the allowance for bad debts and depreciation rates of property
and equipment. Actual results could differ from those
estimates.
3. Summary of Significant Accounting Policies, continued:
Income taxes - The Company provides for income taxes based on
enacted tax laws and statutory tax rates at which items of
income and expense are expected to be settled in the Company's
income tax return. Certain items of revenue and expense are
reported for Federal income tax purposes in different periods
than for financial reporting purposes, thereby resulting in
deferred income taxes. Deferred taxes also are recognized for
operating losses that are available to offset future taxable
income and tax credits that are available to offset future
Federal income taxes. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount
expected to be realized.
Self-insurance reserves - The Company is self-insured for
property loss, general liability and automotive liability
coverage and was self-insured for workers' compensation
coverage until June 30, 1994, subject to specific retention
levels. Estimated costs of these self-insurance programs are
accrued at their present value based on projected settlements
for claims using actuarially determined loss development
factors based on the Company's prior history with similar
claims. Accordingly, the insurance reserves were increased
by $2,300 in 1993 and by $5,700 in 1994; such amounts were
charged to current operations in each of those two years.
There were no increases in insurance reserves for 1995.
Impact of Recently Issued Accounting Pronouncement - The
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, " Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS No.121"), in March 1995 to establish
standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets
to be held and used. The Company has not yet adopted this
accounting standard, which becomes effective in 1996 for
Homeland, nor has it evaluated the potential impact of
adoption in 1996. The impact of SFAS No. 121 is not
reasonably estimable at this time due to certain factors
discussed in Note 2 to the consolidated financial statements;
although this standard may affect reported earnings and the
carrying values of long-lived assets, there will be no impact
on cash flows.
4. Current and long-term Debt:
In March 1992, the Company entered into an Indenture with
United States Trust Company of New York, as trustee, pursuant
to which the Company issued $45,000 in aggregate principal
amount of Series A Senior Secured Floating Rate Notes due 1997
(the "Old Floating Rate Notes") and $75,000 in aggregate
principal amount of Series B Senior Secured Fixed Rate Notes
due 1999 (the "Old Fixed Rate Notes", and collectively, the
"Old Notes"). Certain proceeds from this issuance were used
to repay all outstanding amounts under the previous credit
agreement. In October and November 1992, the Company
exchanged a portion of its Series D Senior Secured Floating
Rate Notes due 1997 (the "New Floating Rate Notes") and its
Series C Senior Secured Fixed Rate Notes due 1999 (the "New
Fixed Rate Notes", and collectively, the "New Notes") for
equal principal amounts of the Old Notes. The New Notes are
substantially identical to the Old Notes, except that the
offering of the New Notes was registered with the Securities
and Exchange Commission. At the expiration of the exchange
offer in November 1992, $33,000 in principal amount of the Old
Floating Rate Notes and $75,000 in principal amount of the Old
Fixed Rate Notes had been tendered and accepted for exchange.
On March 1, 1993, the Company redeemed all remaining
outstanding subordinated notes ($47,750 principal amount) at
the optional redemption price, including a premium of $2,776
or 5% of the outstanding principal amount specified in the
subordinated note agreement, together with accrued interest.
On April 21, 1995, the Company and the Indenture trustee
entered into a supplemental indenture effecting certain
amendments to the Indenture. On June 1, 1995, the Company
redeemed $15,625 of its New Fixed Rate Notes, $6,874 of New
Floating Rate Notes and $2,501 of Old Floating Rate Notes.
Also on April 21, 1995, the Company entered into a revolving
credit agreement (the "Revolving Credit Agreement") with
National Bank of Canada ("NBC") as agent and lender, Heller
Financial, Inc. and any other lenders thereafter parties
thereto. The Revolving Credit Agreement provides a commitment
of up to $25 million in collateralized revolving credit loans,
including certain documentary and standby letters of credit.
<PAGE>
4. Current and long-term Debt, continued:
As a result of the 1995 and 1993 redemptions, the Company
incurred the following extraordinary losses:
1995 1993
Premium on redemption/repurchase
of the Company's 15.5%
subordinated notes due
November 1, 1997 $ - $(2,776)
Unamortized financing costs
relating to the redemption/
repurchase of the Company's
15.5% subordinated notes
due November 1, 1997 - (1,148)
Consent fee equal to $5,000
for each principal amount
of the $120.0 million Senior
Notes (600) -
Premium on redemption of $15.6
million of the Senior Secured
Fixed Rate Notes, due
March 1, 1999 (306) -
Unamortized financing costs
relating to the redemption of
$25.0 million of the Senior Notes
and the replacement of the prior
revolving credit agreement (1,424) -
Net extraordinary loss $(2,330) $(3,924)
4. Current and long-term Debt, continued:
Long-term debt at year end consists of:
December 30, December 31,
1995 1994
Note payable* $ - $ 750
Senior Notes Series A** 9,499 12,000
Senior Notes Series D** 26,126 33,000
Senior Notes Series C** 59,375 75,000
Revolving credit loans*** 5,467 26,500
100,467 147,250
Less current portion - 2,250
Less long-term debt obligation
in default classified as current 100,467 -
Long-term debt due after
one year $ - $145,000
* The Company issued a $3,000 note payable in 1992 for the
purchase of fixed assets related to the acquisition of
five stores. The note matured on March 1, 1995 and was
repaid.
** The Series A and Series D Senior Secured Floating Rate
Notes mature on February 27, 1997. Interest payments are
due quarterly and bear interest at the applicable LIBOR
rate, as defined in the Indenture (8.43% at December 30,
1995). The Series C Senior Secured Fixed Rate Notes
mature on March 1, 1999. Interest payments are due
semiannually at an annual rate of 12.25%. The notes are
collateralized by substantially all of the consolidated
assets of the Company except for accounts receivable and
inventories.
The notes, among other things, require the maintenance of
a Debt-to-EBITDA and a consolidated fixed charge coverage
ratio, as defined, and a capital expenditure covenant, as
well as limiting the incurrence of additional
indebtedness, providing for mandatory prepayment of the
Senior Floating Rate Notes in an amount equal to 80% of
excess cash flow, as defined, upon certain conditions and
limiting the payment of dividends. At December 30, 1995,
the Company was not in compliance with the Debt-to-EBITDA
and the fixed charge coverage ratio covenants.
4. Current and long-term Debt, continued:
Although a waiver was received by the Company for such
noncompliance through April 15, 1996, the Company failed
to make a scheduled interest payment on March 1, 1996
and, accordingly, such waiver expired. As the Company
may not be able to comply with these debt covenants in
1996, the aggregate principal amount of the outstanding
debt was classified as current obligations.
*** Borrowings under the Revolving Credit Agreement bear
interest at the NBC Base Rate plus 1.5% for the first
year, payable on a quarterly basis in arrears. At
December 30, 1995, the interest rate on borrowings under
the Revolving Credit Agreement was 10.0%. Subsequent
year's interest rates will be dependent upon the
Company's earnings but will not exceed the NBC base rate
plus 2.0%. All borrowings under the Revolving Credit
Agreement are subject to a borrowing base, which was
$23.7 million as of December 30, 1995, and mature no
later than February 27, 1997, with the possibility of
extending the maturity date to March 31, 1998 if the
Company's Series A Senior Secured Floating Rate Notes due
February 27, 1997, are extended or refinanced on terms
acceptable to NBC.
The Revolving Credit Agreement, among other things,
requires the maintenance of a Debt-to-EBITDA ratio and
consolidated fixed charge coverage ratio, as defined, and
limits the Company's net capital expenditures, incurrence
of additional indebtedness and the payment of dividends.
The notes are collateralized by accounts receivable and
inventories of the Company. At December 30, 1995, the
Company was not in compliance with the Debt-to-EBITDA
coverage ratio and the consolidated fixed charge coverage
ratio. The lenders waived compliance of such default
through May 20, 1996. As the Company may not be able to
comply with existing covenants in 1996, the outstanding
borrowings have been classified as current obligations
(See Note 2 -Basis of Presentation and Note 15 -
Subsequent Events).
5. Fair Value of Financial Instruments:
The estimated fair value of financial instruments has been
determined by the Company using available market information
and appropriate valuation methodologies. However,
considerable judgment is necessarily required in interpreting
market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. The
carrying amount and fair value of financial instruments as of
December 30, 1995 and December 31, 1994 are as follows:
December 30, 1995 December 31, 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash and Cash
Equivalents $6,357 $6,357 $339 $339
Liabilities:
Current and Long-Term
Obligations in
default classified
as current $100,467 $56,411 - -
Long-Term Debt - - $147,250 141,250
Cash and cash equivalents - The carrying amount of this item
is a reasonable estimate of its fair value due to its short-
term nature.
Current and long-term obligations in default classified as
current; long-term debt - The fair value of publicly traded
debt (the Senior Secured Notes) is valued based on quoted
market values. The amount reported in the balance sheet for
the remaining long-term obligations in default classified as
current approximates fair value based on quoted market prices
of comparable instruments or by discounting expected cash
flows at rates currently available for debt of the same
remaining maturities.
6. Income Taxes:
The components of the income tax benefit (provision) for
fiscal 1995, 1994 and 1993 were as follows:
1995 1994 1993
Federal:
Current - AMT $ - $ 1,551 $ (36)
Deferred - (3,997) 3,288
Total income tax benefit
(provision) $ - $(2,446) $3,252
A reconciliation of the income tax benefit (provision) at the
statutory Federal income tax rate to the Company's effective
tax rate is as follows:
1995 1994 1993
Federal income tax at statutory
rate $11,127 $13,370 $1,010
AMT in excess of regular tax - - (36)
AMT loss carryback - 1,551 -
Change in valuation allowance (10,074) (16,075) 3,288
Other - net (1,053) (1,292) (1,010)
Total income tax benefit
(provision) $ - $(2,446) $3,252
During the year ended December 30, 1995, the Company received
an income tax refund amounting to $1,339, due to the
recognition of a tax benefit from its year ended December 31,
1994 for net alternative minimum tax operating losses that
were carried back to prior tax years.
6. Income Taxes, continued:
The components of deferred tax assets and deferred tax
liabilities are as follows:
December 30, December
31,
1995 1994
Current assets (liabilities):
Allowance for uncollectible
receivables $ 1,090 $ 942
Termination of Borden supply
agreement - 789
Operational restructuring re 1,282 5,918
Other, net 406 (800)
Net current deferred tax assets 2,778 6,849
Noncurrent assets (liabilities):
Property, plant and equipment 251 (4,577)
Targeted job credit carryforward 815 815
Self-insurance reserves 2,150 3,183
Operational restructuring reserve 969 1,745
Net operating loss carryforwards 17,001 7,048
AMT credit carryforwards 630 507
Capital leases 1,111 600
Other, net 444 (95)
Net noncurrent deferred tax
assets 23,371 9,226
Total net deferred assets 26,149 16,075
Valuation allowance (26,149) (16,075)
Net deferred tax assets $ - $ -
Due to the uncertainty of realizing the future tax benefits,
the full valuation allowance established in fiscal 1994 was
increased to entirely offset the net deferred tax assets as of
December 30, 1995. At December 30, 1995, the Company had the
following operating loss and tax credit carryforwards
available for tax purposes:
6. Income Taxes, continued:
Expiration
Amount Dates
Federal regular tax net
operating loss carryforwards $48,575 2002-2010
Federal AMT credit carryforwards
against regular tax $ 630 indefinite
Federal tax credit carryforwards
(Targeted Jobs Credit) $ 815 2003-2009
The Internal Revenue Service ("IRS") concluded a field audit
of the Company's income tax returns for the fiscal years 1990,
1991 and 1992. On January 31, 1994, the IRS issued a Revenue
Agent's Report for those fiscal years proposing adjustments
that would result in additional taxes of $1,589 (this amount
is net of any available operating loss carryforwards which
would be eliminated under the proposed adjustment). The
Company filed its protest with the IRS Appeals Office on June
14, 1994. On June 28, 1995, the Company reached a tentative
agreement with the IRS appeals office to settle the above
claim. Management has analyzed the proposed settlement and
has provided for amounts which it believes are adequate.
7. Incentive Compensation Plan:
The Company has bonus arrangements for store management and
other key management personnel. During 1995, 1994, and 1993,
approximately $934, $1,939, and $2,900, respectively, was
charged to costs and expenses for such bonuses.
8. Retirement Plans:
Effective January 1, 1988, the Company adopted a non-
contributory, defined benefit retirement plan for all
executive and administrative personnel. Benefits are based on
length of service and career average pay with the Company. The
Company's funding policy is to contribute an amount equal to
or greater than the minimum funding requirement of the
Employee Retirement Income Security Act of 1974, but not in
excess of the maximum deductible limit. (Assets were held in
investment mutual funds during 1995 and 1994.)
In accordance with the provisions of Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for
Pensions", the Company recorded an additional minimum
liability at December 30, 1995 and January 1, 1994
representing the excess of the accumulated benefit obligation
over the fair value of plan assets and accrued pension
liability. The liabilities have been offset by intangible
assets to the extent of previously unrecognized prior service
cost. The accumulated benefit obligation for December 30,
1995 was determined using a 7.25% discount rate; if the
discount rate used had been at least 7.35%, the additional
minimum liability would not have been recorded.
Net pension cost consists of the following:
1995 1994 1993
Service cost $ 517 $709 $663
Interest cost 465 366 292
Loss (return) on assets (1,140) 63 (319)
Net amortization and deferral 690 (419) 43
Curtailment charge (37) - -
Net periodic pension cost $ 495 $719 $680
The funded status of the plan and the amounts recognized in
the Company's balance sheet at December 30, 1995 and December
31, 1994 consist of the following:
1995 1994
Actuarial present value of benefit
obligations:
Vested benefits $(6,928) $(4,499)
Non-vested benefits (88) (151)
Accumulated benefit
obligations $(7,016) $(4,650)
8. Retirement Plans, continued:
1995 1994
Projected benefit obligations $(7,693) $(5,441)
Plan assets at fair value 6,902 4,960
Projected benefit obligations in
excess of plan assets (791) (481)
Unrecognized prior service cost (95) (144)
Unrecognized net loss from past
experience different from that
assumed and changes in actuarial
assumptions 2,096 1,340
Adjustment to recognize minimum
liability (1,327) -
Net pension asset (liability)
recognized in statement of
financial position $ (117) $ 715
Actuarial assumptions used to determine year-end plan status
were as follows:
1995 1994
Assumed rate for determination of net
periodic pension cost 9.0% 7.5%
Assumed discount rate to determine
the year-end plan disclosures 7.25% 9.0%
Assumed long-term rate of return
on plan assets 9.0% 9.0%
Assumed range of rates of future
compensation increases
(graded by age) for net
periodic pension cost 5.0% to 7.0% 3.5% to 5.5%
Assumed range of rates of future
compensation increases
(graded by age) for year-end
plan disclosures 3.5% to 5.5% 5.0% to 7.0%
The prior service cost is being amortized on a straight line
basis over approximately 13 years.
8. Retirement Plans, continued:
As a result of the sale of the Company's warehouse and
distribution center and 29 stores to AWG, as well as the
closure of 14 under-performing stores during 1995 (See Note
14), a significant number of employees were terminated that
participated in the Company's non-contributory defined benefit
retirement plan. The effect of the curtailment resulting from
the terminations of such employees was not material to the
Statement of Operations for the year ended December 30, 1995.
The Company also contributes to various union-sponsored,
multi-employer defined benefit plans in accordance with the
collective bargaining agreements. The Company could, under
certain circumstances, be liable for the Company's unfunded
vested benefits or other costs of these multi-employer plans.
The allocation to participating employers of the actuarial
present value of vested and nonvested accumulated benefits in
multi-employer plans as well as net assets available for
benefits is not available and, accordingly, is not presented.
The costs of these plans for 1995, 1994, and 1993 were $2,110,
$3,309, and $3,565, respectively.
Effective January 1, 1988, the Company adopted a defined
contribution plan covering substantially all non-union
employees of the Company. Prior to 1994, the Company
contributed a matching 50% for each one dollar the
participants contribute in pre-tax matched contributions.
Participants may contribute from 1% to 6% of their pre-tax
compensation which was matched by the Company. Participants
may make additional contributions of 1% to 6% of their pre-tax
compensation, but such contributions were not matched by the
Company. Effective January 2, 1994, the plan was amended to
allow a discretionary matching contribution formula based on
the Company's operating results. The cost of this plan for
1995, 1994, and 1993, was $0, $0, and $425, respectively.
9. Leases:
The Company leases substantially all of its retail store
properties under noncancellable agreements, the majority of
which range from 15 to 25 years. These leases, which include
both capital leases and operating leases, generally are
subject to six five-year renewal options. Most leases also
require the payment of taxes, insurance and maintenance costs
and many of the leases covering retail store properties
provide for additional contingent rentals based on sales.
Leased assets under capital leases consists of the following:
December 30, December 31,
1995 1994
Buildings $16,670 $21,616
Equipment 7,014 8,340
Beneficial interest
in capital s 5,378 16,059
29,062 46,015
Accumulated amortization 17,851 21,010
Net leased assets $11,211 $25,005
Future minimum lease payments under capital leases and
noncancellable operating leases as of December 30, 1995 are as
follows:
9. Leases, continued:
Capital Operating
Fiscal Year Leases Leases
1996 $ 4,035 $ 8,849
1997 2,754 8,239
1998 2,134 5,779
1999 1,707 5,448
2000 982 4,899
Thereafter 9,350 38,891
Total minimum obligations 20,962 $72,105
Less estimated interest 9,190
Present value of net minimum
obligations 11,772
Less current portion 2,746
Long-term obligations under
capital leases $ 9,026
Rent expense is as follows:
1995 1994 1993
Minimum rents $10,264 $12,560 $12,642
Contingent rents 107 178 214
$10,371 $12,738 $12,856
10. Common Stock and Warrants:
Holding has agreed to repurchase shares of stock held by
management investors under certain conditions (as defined),
such as death, retirement, or permanent disability.
Pursuant to requirements of the Securities and Exchange
Commission, the shares of Class A common stock held by
management investors have been presented as redeemable common
stock and excluded from stockholders' equity.
The changes in the number of shares outstanding and the value
of the redeemable common stock is as follows:
10. Common Stock and Warrants, continued:
Shares Amount
Balance, January 2, 1993 4,104,211 $ 9,470
Repurchase of common stock (134,000) (323)
Increase in management
stock loans - (294)
Balance, January 1, 1994 3,970,211 8,853
Repurchase of common stock (106,000) (255)
Reduction in redemption value - (7,284)
Increase in management stock
loans - (79)
Balance, December 31, 1994 3,864,211 1,235
Repurchase of common stock (2,143,493) (1,071)
Reduction in redemption value - (940)
Decrease in management stock loans - 793
Balance, December 30, 1995 1,720,718 $ 17
The shares of redeemable common stock are reported on the
balance sheets at redemption value (estimated fair value).
The reduction in redemption value has been reflected as an
increase in additional paid-in capital.
The shares of treasury stock are reported on the balance
sheets at cost.
Holding also has 40,500,000 shares of Class B nonvoting common
stock authorized at December 30, 1995 and December 31, 1994
with a $.01 par value. No shares were issued or outstanding
at either December 30, 1995 or December 31, 1994.
In 1995, Holding repurchased 2,143,493 shares of its Common
Stock from certain officers and employees of the Company at a
cash price of $0.50 per share plus, at the election of seller,
warrants up to the number of shares purchased. As a result of
the purchase, Holding issued 2,105,493 warrants to such
officers and employees of the Company. The warrant and the
shares issuable upon exercise, are subject to certain
restrictions on transferability, including certain first
refusal rights, as set forth in the warrant.
10. Common Stock and Warrants, continued:
The holders of the warrants may, at any time prior to the
expiration date (defined as five years after issuance date),
purchase from Holding the amount of Common Stock indicated on
such warrant, in whole or in part, at a purchase price of
$0.50 per share.
11. Related Party Transactions:
Clayton, Dubilier & Rice, Inc., a private investment firm of
which four directors of the Company are employees, received
$125 in 1995, $150 in 1994, and $200 in 1993, for financial
advisory and consulting services.
The Company made loans during 1995 and 1994 to certain members
of management and key employees for principal payments on
their loans made by the credit union in connection with their
purchase of common stock. The loans bear interest at a
variable rate equal to the Company's prime lending rate plus
1.0%. Loans outstanding at December 30, 1995 and December 31,
1994 were $82 and $794, respectively. The outstanding loans
mature in July 1996.
12. Commitments and Contingencies:
Effective January 1, 1989, the Company implemented stock
appreciation rights ("SAR's") plans for certain of its hourly
union and non-union employees as well as salaried employees.
Participants in the plans are granted at specified times
"appreciation units" which, upon the occurrence of certain
triggering events, entitle them to receive cash payments equal
to the increase in value of a share of the common stock over
$1.00 from the date of the plan's establishment. The Company
expects the SAR's to be triggered as a result of the
restructuring, discussed in Note 14, at no liability to the
Company due to the continued decline in per share value below
$1.00.
Effective October 1, 1991, the Company entered into an
outsourcing agreement whereby an outside party provides
virtually all of the Company's EDP requirements and assumed
substantially all of the Company's existing hardware and
software leases and related maintenance agreements. The ten
year agreement calls for minimum annual service charges,
increasing over its term, as well as other variable charges.
The Company terminated the outsourcing agreement as of March
31, 1996. Pursuant to the outsourcing agreement, there is a
12. Commitments and Contingencies, continued:
$3.0 million charge for the termination, of which AWG is
responsible for 52%. The Company has provided for amounts
in the financial statements that management believes to be
reasonable and adequate.
The Company has entered into employment contracts with certain
key executives providing for the payment of minimum salary and
bonus amounts in addition to certain other benefits in the
event of termination of the executives or change of control of
the Company.
The Company is also a party to various lawsuits arising in the
normal course of business. Management believes that the
ultimate outcome of these matters will not have a material
effect on the Company's consolidated financial position,
results of operations and cash flows.
The Company has outstanding at December 30, 1995, $12,000 in
letters of credit which are not reflected in the accompanying
financial statements. The letters of credit are issued under
the Revolving Credit Agreement and the Company paid associated
fees of $335 and $195 in 1995 and 1994, respectively.
13. Sale of Plants:
In November 1993 the Company entered into an asset purchase
agreement with Borden, Inc. ("Borden") whereby certain of the
Company's milk and ice cream processing equipment and certain
other assets and inventory relating to its milk and ice cream
plants was sold. In connection with the sale, the Company
entered into a seven-year agreement with Borden under which
Borden would supply all of the Company's requirements for most
of its dairy, juice and ice cream products and the Company
agreed to purchase minimum volumes of products. The Company
recognized a gain on the sale of personal property in the
amount of $2,618. A $4,000 payment received in connection
with the supply agreement was deferred and was to be
recognized as earned over the term of the supply agreement.
In December 1994, the Company entered into a settlement
agreement with Borden whereby the seven-year supply agreement
entered into in November 1993 was terminated and a temporary
supply agreement for a maximum period of 120 days was entered
into. As part of the settlement agreement, the Company repaid
$1,650 plus interest in December 1994 and $1,650 plus interest
in April 1995. Upon final settlement payment, the Company
13. Sale of Plants, continued:
recognized an additional gain of approximately $700 in 1995.
The Company has made arrangements with another dairy supplier
to begin supplying its dairy and ice cream requirements in
April 1995.
14. Restructuring:
In the fourth quarter of 1995, the Company refocused its
restructuring plan, which commenced in 1994. The intent of
the revised restructuring program and new business plan is to
further reduce the Company's indebtedness in respect of its
Senior Notes and its Revolving Credit Agreement, restructure
certain of its lease obligations and negotiate modifications
to certain of its union agreements in an effort to reduce
costs and improve profitability and cash flow.
In connection with the closing of stores following the sale of
29 stores and the warehouse facility to AWG, the Company
recognized charges aggregating $12,639 in 1995 and $23,205 in
1994. The major components of the restructuring charges in
1995 are summarized as follows:
Write-off of capitalized software costs
replaced as part of operational
restructuring initiatives $ 7,971
Write-off of unamortized balance of the
excess of purchase price over fair
value of net assets acquired due to
uncertainty of recovery from future
operating cash flows 2,360
Expense associated with the termination
of an EDP outsourcing agreement 1,410
Expenses associated with the remaining store
closings, primarily occupancy costs from
closing date to lease termination or
revised sublease date 898
Total restructuring charges $12,639
The asset write-offs described above, aggregating $10,331,
have been reflected in their respective balance sheet account
classifications, the EDP expense is included in Other current
liabilities and the expenses associated with the remaining
14. Restructuring, continued:
store closings are included in the Noncurrent restructuring
reserve as of December 30, 1995. In accordance with a
strategic plan approved by the Board of Directors in December
1994, the company entered into an aggreeent with Associated
Wholesale Grocers, Inc. ("AWG") on February 6, 1995, pursuant
to which the company sold 29 of its stores and its warehouse
and distribution center to AWG on April 21, 1995. In
connection with this strategic plan, the Company closed
fourteen under-performing stores during 1995 and expects to
close an additional store and sell one store by the second
quarter of 1996. During fiscal 1995, the Company incurred
expenses associated with the operational restructuring as
follows:
<TABLE>
<C> <C> <C>
Operational (Payments) proceeds Operational
restructuring applied against restructuring
reserve at restructuring reserve at
December 31, 1994 reserve in 1995 December 30, 1995
Expenses associated with the
planned store closings,
primarily occupancy costs
from closing date to lease
termination or sublease date $ 8,319 $ (3,459) (a) 4,860
Expenses associated with the AWG
transaction, primarily service
and equipment contract
cancellation fees 5,649 (5,591) 58
Estimated severance costs
associated with the AWG
transaction 5,624 (4,697) 927
Legal and consulting fees
associated with the AWG
transaction 4,905 (4,880) 25
Net gain on sale of
property, plant and
equipment to AWG (19,492) 19,492 -
Operational restructuring
reserve $ 5,005 865 5,870
</TABLE>
15. Subsequent Events:
On March 27, 1996, the Company entered into an agreement in
principle (the "Noteholder Agreement") with members of an ad-
hoc noteholders committee (the "Committee") with respect to a
financial restructuring of the Company. The Committee has
advised the Company that it represents approximately 80% of
the Company's outstanding Senior Notes. The Noteholder
Agreement provides for the filing by the Company of a
bankruptcy petition and simultaneously the submission of a
"pre-arranged" plan of reorganization and disclosure statement
under Chapter 11 of the United States Federal Bankruptcy Code.
(the "Restructuring"), all of which is expected to occur on or
about May 13, 1996. If approved by the United States
Bankruptcy Court (the "Bankruptcy Court"), the Company's
creditors and labor unions, the Restructuring will result in
a reduction of the Company's debt service obligations and
labor costs and a capital and cost structure that will allow
the Company to maintain and enhance the competitive position
of its business and operations.
15. Subsequent Events, continued:
Pursuant to the Noteholder Agreement, upon completion of the
Restructuring, the $95 million of Senior Notes currently
outstanding (together with accrued interest) will be canceled
and the noteholders will receive $60 million in aggregate
principal amount of new senior subordinated notes, a majority
of the new equity of the reorganized Company and approximately
$1.5 million in cash. The new senior subordinated notes will
mature in 2003, bear interest semi-annually at a rate of 10%
per annum and will not be secured.
In March 1996, the Company also reached agreements with
representatives of its unionized workforce regarding certain
modifications to the Company's existing collective bargaining
agreements. These modifications will provide for, among other
things, wage and benefit concessions, the severance of certain
employees and the issuance and purchase of new equity of the
reorganized Company to a trust acting on behalf of the
unionized employees. The modifications to the collective
bargaining agreements have been ratified by the union
membership and are conditioned on, and will be effective upon,
completion of the Restructuring.
In order to facilitate the Restructuring, as provided under
the Noteholder Agreement the Company intends to file papers
with the Bankruptcy Court seeking approval of a debtor-in-
possession financing facility. The Company anticipates that
such facility will provide it with the financing necessary to
maintain its normal business operations during its period of
operations under supervision of the Bankruptcy Court,
including the payment of postpetition claims of trade
creditors and salaries, wages and benefits of employees. The
Company anticipates that the Restructuring will be completed
by the third quarter of 1996.
EXHIBIT INDEX
Exhibit No. Description
2a Disclosure Statement for Joint Plan of
Reorganization of Homeland Stores, Inc. and
Homeland Holding Corporation dated as of May 13,1996
(Incorporated by reference to Exhibit 2a to Form 8-K
dated May 31, 1996)
2b First Amended Joint Plan of Reorganization,
as modified, of Homeland Holding
Corporation ("Holding") and Homeland
Stores, Inc. ("Homeland"), dated July 19, 1996
(Incorporated by reference to Exhibit 2b to Form
10-Q for the quarterly period ended June 15,1996).
3a* Restated Certificate of Incorporation of
Holding, dated August 2, 1996.
3b By-laws of Holding, as amended and restated
on November 14, 1989 and further amended
on September 23, 1992.
(Incorporated by reference to Exhibit 3b to Form 10-Q for
quarterly period ended June 19, 1993)
3c* Restated Certificate of Incorporation of
Homeland, dated August 2, 1996.
3d By-laws of Homeland, as amended and restated
on November 14, 1989 and further
amended on September 23, 1992.
(Incorporated by reference to Exhibit 3d to Form 10-Q for
quarterly period ended June 19, 1993)
4a Indenture, dated as of November 24, 1987,
among Homeland, The Connecticut National
Bank ("CNB"), as Trustee, and Holding, as
Guarantor. (Incorporated by reference to Exhibit 4a to
Form S-1 Registration Statement, Registration No. 33-22829)
4a.1 First Supplement to Indenture, dated as of
August 15, 1988, among Homeland, CNB and
Holding. (Incorporated by reference to Exhibit 4a.1
to Form S-1 Registration Statement, Registration
No. 33-22829)
4b Purchase Agreement, dated November 24, 1987,
among Homeland, Holding and initial
purchasers of Subordinated Notes. (Incorporated by
reference to Exhibit 4b to Form S-1 Registration Statement,
Registration No. 33-22829)
4c Form of Registration Rights Agreement, dated
as of November 24, 1987, among Homeland,
Holding and initial purchasers of Subordinated Notes.
(Incorporated by reference to Exhibit 4c to Form S-1
Registration Statement, Registration No. 33-22829)
4d Indenture, dated as of March 4, 1992, among
Homeland, United States Trust Company of New
York ("U.S.Trust"), as Trustee, and Holding, as
Guarantor. (Incorporated by reference to Exhibit 4d to
Form 10-K for fiscal year ended December 28, 1991)
4d.1 First Supplement to Indenture, dated as of
June 17, 1992, among Homeland, Holding
and U.S. Trust. (Incorporated by reference to Exhibit
4d.1 to Form S-1 Registration Statement, Registration No.
33-48862)
4d.3 Partial Release of Collateral, dated as of
May 22, 1992, by U.S. Trust, as Collateral
Trustee, in favor of Homeland. (Incorporated by
reference to Exhibit 4d.3 to Form S-1 Registration
Statement, Registration No. 33-48862)
4e Form of Purchase Agreement, dated as of March
4, 1992, among Homeland and initial
purchasers of Senior Notes. (Incorporated by
reference to Exhibit 4e to Form 10-K for fiscal year ended
December 28, 1991)
4f Form of Registration Rights Agreement, dated
as of March 4, 1992, among Homeland and the
initial purchasers of Senior Notes. (Incorporated by
reference to Exhibit 4f to Form 10-K for fiscal year ended
December 28, 1991)
4g Indenture, dated as of August 2, 1996, among
Homeland, Fleet National Bank, as Trustee,
and Holding, as Guarantor. (Incorporated by reference
to Exhibit T3C to Form T-3 of Homeland, SEC File
No. 22-22239)
4h* Warrant Agreement, dated as of August 2,
1996, between Holding and Liberty Bank and Trust
Company of Oklahoma City, N.A., as Warrant Agent.
4i* Equity Registration Rights Agreement, dated
as of August 2, 1996, by Holding for the
benefit of holders of Old Common Stock.
4j* Noteholder Registration Rights Agreement,
dated as of August 2, 1996, by Holding for the
benefit of holders of Old Notes.
10a Asset Purchase Agreement, dated as of
September 15, 1987. (Incorporated by
reference to Exhibit 10a to Form S-1 Registration Statement,
Registration No. 33-22829)
10b First Amendment to Asset Purchase Agreement,
dated November 24, 1987. (Incorporated by
reference to Exhibit 10b to Form S-1 Registration
Statement, Registration No. 33-22829)
10c Stock Subscription Agreement, dated as of
November 24, 1987, between Holding and The
Clayton & Dubilier Private Equity Fund III Limited
Partnership. (Incorporated by reference to Exhibit
10c to Form S-1 Registration Statement, Registration No.
33-22829)
10e Purchase Agreement for Safeway Brand Products,
dated as of November 24, 1987, between Homeland and
Safeway. (Incorporated by reference to Exhibit 10e
to Form S-1 Registration Statement, Registration No.
33-22829)
10f Manufacturing and Supply Agreement, dated as
of November 24, 1987, between Homeland and
Safeway. (Incorporated by reference to Exhibit 10f
to Form S-1 Registration Statement, Registration No.
33-22829)
10g Form of Common Stock Purchase Agreement,
dated November 24, 1987, between Holding and
certain institutional investors. (Incorporated by
reference to Exhibit 10g to Form S-1 Registration
Statement, Registration No. 33-22829)
10h 1 Form of Management Stock Subscription
Agreement, dated as of October 20, 1988,
between Holding and the purchasers named therein, involving
purchase of Holding common stock for cash. (Incorporated by
reference to Form 10-K for fiscal year ended
December 31, 1988)
10h.1 1 Form of Management Stock Subscription
Agreement, dated as of October 20, 1988,
between Holding and the purchasers named therein, involving
purchase of Holding common stock using funds held under
purchasers' individual retirement
accounts. (Incorporated by reference to Form 10-K
for fiscal year ended December 31, 1988)
10h.2 1 Form of Management Stock Subscription
Agreement, dated as of November 29, 1989,
between Holding and the purchasers named therein,
involving purchase of Holding common stock for cash.
(Incorporated by reference to Form 10-K for
fiscal year ended December 30, 1989)
10h.3 1 Form of Management Stock Subscription
Agreement, dated as of November 29, 1989,
between Holding and the purchasers named therein,
involving purchase of Holding common stock using funds
held under purchasers' individual retirement accounts.
(Incorporated by reference to Form 10-K for fiscal year
ended December 30, 1989)
10h.4 1 Form of Management Stock Subscription
Agreement dated as of August 14, 1990, between
Holding and the purchasers named therein, involving
purchase of Holding common stock for cash. (Incorporated
herein by reference to Exhibit 10h.4 to Form 10-K
for fiscal year ended December 29, 1990)
10h.5 1 Form of Management Stock Subscription Agreement dated as
of August 14, 1990, between Holding and the
purchasers named therein, involving
purchase of Holding common stock using funds held under
purchasers' individual retirement
accounts. (Incorporated herein by reference to
Exhibit 10h.5 to Form 10-K for fiscal year ended December
29, 1990)
10i.1 Form of Registration and Participation
Agreement, dated as of November 24, 1987, among
Holding, The Clayton & Dubilier Private Equity Fund III
Limited Partnership, and initial purchasers of Common Stock.
(Incorporated by reference to Exhibit 10i to Form S-1
Registration Statement, Registration No. 33-22829)
10i.2 1990 Registration and Participation
Agreement dated as of August 13, 1990,
among Homeland Holding Corporation, Clayton & Dubilier
Private Equity Fund IV Limited Partnership and certain
stockholders of Homeland Holding Corporation.
(Incorporated by reference to Exhibit 10y to Form 10-Q for
quarterly period ended September 8, 1990)
10i.3 Form of Store Managers Stock Purchase
Agreement. (Incorporated by reference to
Exhibit 10z to Form 10-Q for quarterly period ended
September 8, 1990)
10j Indenture, dated as of November 24, 1987.
(Incorporated by reference to Exhibit 10j to
Form S-1 Registration Statement, Registration No. 33-22829)
10j.1 First Supplement to Indenture, dated as
of August 15, 1988. (Incorporated by
reference to Exhibit 10j.1 to Form S-1 Registration
Statement, Registration No. 33-22829)
10k Form of Purchase Agreement, dated November
24, 1987, among Homeland, Holding and
initial purchasers of Subordinated Notes (Filed as
Exhibit 4b). (Incorporated by reference to Exhibit 10k
to Form S-1 Registration Statement, Registration No.
33-22829)
10l Form of Registration Rights Agreement, dated
as of November 24, 1987, among Homeland,
Holding and initial purchasers of Subordinated Notes.
(Incorporated by reference to Exhibit 10l to Form S-1
Registration Statement, Registration No.
33-22829)
10q 1 Homeland Profit Plus Plan, effective as
of January 1, 1988. (Incorporated by
reference to Exhibit 10q to Form S-1 Registration Statement,
Registration No. 33-22829)
10q.1 1 Homeland Profit Plus Plan, effective as
of January 1, 1989 (Incorporated by reference to
Exhibit 10q.1 to Form 10-K for the fiscal year ended
December 29, 1990)
10r Homeland Profit Plus Trust, dated March 8,
1988, between Homeland and the individuals
named therein, as Trustees. (Incorporated by reference to
Exhibit 10r to Form S-1 Registration Statement,
Registration No. 33-22829)
10r.1 Homeland Profit Plus Trust, dated
January 1, 1989, between Homeland and Bank of
Oklahoma, N.A., as Trustee (Incorporated by reference to
Exhibit 10r.1 to Form 10-K for the fiscal year ended
December 29, 1990)
10s 1 1988 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s to
Form S-1 Registration Statement, Registration No.
33-22829)
10s.1 1 1989 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.1
to Form 10-K for fiscal year ended December 31, 1988)
10s.2 1 1990 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.2
to Form S-1 Registration Statement, Registration No.
33-48862)
10s.3 1 1991 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.3
to Form S-1 Registration Statement, Registration No.
33-48862)
10s.4 1 1992 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.4
to Form S-1 Registration Statement, Registration No.
33-48862)
10s.5 1 1993 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit
10s.5 to Form 10-K for fiscal year ended January 1,
1994)
10s.6 1 1994 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10.s6
to Form 10-K for fiscal year ended December 31, 1994)
10s.7 1 1995 Homeland Management Incentive Plan.
(Incorporated by reference to Exhibit 10s.7
to Form 10-K for fiscal year ended December 30, 1995)
10t 1 Form of Homeland Employees' Retirement
Plan, effective as of January 1, 1988.
(Incorporated by reference to Exhibit 10t to Form S-1
Registration Statement, Registration No.
33-22829)
10t.1 1 Amendment No. 1 to Homeland Employees'
Retirement Plan effective January 1,
1989. (Incorporated herein by reference to Form 10-K
for fiscal year ended December 30, 1989)
10t.2 1 Amendment No. 2 to Homeland Employees'
Retirement Plan effective January 1,
1989. (Incorporated herein by reference to Form 10-K for
fiscal year ended December 30, 1989)
10t.3 1 Third Amendment to Homeland Employees'
Retirement Plan effective as of January 1,
1988. (Incorporated herein by reference to Exhibit 10t.3 to
Form 10-K for fiscal year ended December 29, 1990)
10t.4 1 Fourth Amendment to Homeland Employees'
Retirement Plan effective as of January 1, 1989.
(Incorporated herein by reference to Exhibit 10t.4 to
Form 10-K for the fiscal year ended December 28, 1991)
10t.5 1 Fifth Amendment to Homeland Employees'
Retirement Plan effective as of January 1, 1989
(Incorporated herein by reference to Form 10-Q for the
quarterly period ended September 9, 1995)
10u 1 Employment Agreement, dated as of
January 11, 1988, between Homeland and Jack
M. Lotker. (Incorporated by reference to Exhibit 10u to
Form S-1 Registration Statement, Registration No. 33-22829)
10v UFCW Stock Appreciation Rights Plan of
Homeland. (Incorporated by reference to Exhibit
10v to Form 10-Q for quarterly period ended March 25, 1989)
10v.1 Stock Appreciation Rights Plan of
Homeland for Non-Union Employees.
(Incorporated by reference to Exhibit 10v.1 to Form 10-Q for
quarterly period ended March 25, 1989)
10v.2 Teamsters Stock Appreciation Rights Plan
of Homeland. (Incorporated by reference to Exhibit
10v.2 to Form S-1 Registration Statement, Registration
No. 33-48862)
10v.3 BC&T Stock Appreciation Rights Plan of
Homeland. (Incorporated by reference to Exhibit
10v.3 to Form S-1 Registration Statement, Registration
No. 33-48862)
10w 1 Employment Agreement, dated as of
September 26, 1989, between Homeland and
Max E. Raydon. (Incorporated by reference to Exhibit 10w
to Form 10-Q for quarterly period ended September 9, 1989)
10x Indemnification Agreement, dated as of August
14, 1990, among Holding, Homeland, Clayton &
Dubilier, Inc. and The Clayton & Dubilier Private
Equity Fund III Limited Partnership. (Incorporated by
reference to Exhibit 10x to Form 10-Q for quarterly
period ended September 8, 1990)
10y Indenture, dated as of March 4, 1992, among
Homeland, United States Trust Company of
New York, as Trustee, ("U.S. Trust") and
Holding, as Guarantor. (Filed as Exhibit 4d)
10y.1 First Supplement to Indenture, dated as
of June 17, 1992, among Homeland, Holding
and U.S. Trust. (Filed as Exhibit 4d.1)
10y.2 Second Supplement to Indenture, dated as
of April 21, 1995, among Homeland,
Holding and United States Trust Company of New York, as
Trustee. (Incorporated by reference to Exhibit 10y.2 to
Form 10-Q for the quarterly period ended March 25, 1995)
10y.3 Amendment No. 2 to the Company Security
Agreement, dated as of April 21, 1995, between
Homeland and United States Trust Company of New
York as Collateral Trustee. (Incorporated by reference to
Exhibit 10y.3 to Form 10-Q for the quarterly
period ended March 25, 1995)
10y.4 Amendment No. 1 to the Intercreditor
Agreement, dated as of April 21, 1995, among
National Bank of Canada, United States Trust Company of
New York and such other persons as may become parties to the
Intercreditor Agreement as provided therein.
(Incorporated by reference to Exhibit 10y.4 to Form 10-Q
for the quarterly period ended March 25, 1995)
10y.5 Amendment No. 1 to the Mortgage Security
Agreement and Financing Statement, dated as
of April 21, 1995, from Homeland to United States
Trust Company of New York as Collateral Trustee.
(Incorporated by reference to Exhibit 10y.5 to Form 10-Q
for the quarterly period ended March 25, 1995)
10z Form of Purchase Agreement, dated as of March
4, 1992, among Homeland, Holding and the
initial purchasers of Senior Notes. (Filed as
Exhibit 4e)
10aa Form of Registration Rights Agreement, dated
as of March 4, 1992, among Homeland and the
initial purchasers of Senior Notes. (Filed as Exhibit 4f)
10bb Form of Parent Pledge Agreement, dated as of
March 4, 1992, made by Holding in favor of U.S.
Trust, as collateral trustee for the holders of the
Senior Notes. (Incorporated by reference to Exhibit 10bb
to Form 10-K for the fiscal year ended December 28, 1991)
10cc Revolving Credit Agreement, dated as of March
4, 1992, among Homeland, Holding, Union Bank
of Switzerland, New York Branch, as Agent and
lender, and any other lenders and other financial
institutions thereafter parties thereto.
(Incorporated by reference to Exhibit 10cc to Form 10-K
for the fiscal year ended December 28, 1991)
10cc.1 Letter Waiver (Truck Sale), dated as of
May 19, 1992, among Homeland, Holding, UBS,
as agent, and the other lenders and financial institutions
parties to the Revolving Credit Agreement. (Incorporated by
reference to Exhibit 10cc.1 to Form S-1
Registration Statement, Registration No. 33-48862)
10cc.2 Form of Amendment Agreement, dated as of
June 15, 1992, among Homeland, Holding,
UBS, as agent, and the other lenders and financial
institutions parties to the Revolving Credit Agreement.
(Incorporated by reference to Exhibit 10cc.2 to
Form S-1 Registration Statement,
Registration No. 33-48862)
10cc.3 Form of Second Amendment Agreement,
dated as of September 23, 1992, among Homeland,
Holding, UBS, as agent, and the other lenders and
financial institutions parties to the Revolving Credit
Agreement. (Incorporated by reference to Exhibit 10cc.3
to Form S-1 Registration Statement, Registration No.
33-48862)
10cc.4 Third Amendment Agreement, dated as of
February 10, 1993, among Homeland,
Holding, UBS, as agent, and the other lenders and financial
institutions parties to the Revolving Credit Agreement.
10cc.5 Fourth Amendment Agreement, dated as of
June 8, 1993, among Homeland, Holding,
UBS, as agent, and the other lenders and financial
institutions parties to the Revolving Credit Agreement.
(Incorporated by reference to Exhibit 10cc.5 to
Form 10-Q for the quarterly period ended June 19, 1993)
10cc.6 Fifth Waiver and Amendment Agreement,
dated as of April 14, 1994, among Homeland,
Holding, UBS, as agent, and the other lenders and
financial institutions parties to the Revolving Credit
Agreement. (Incorporated by reference to Exhibit 10cc.6
to Form 10-K for the fiscal year ended January 1, 1994)
10cc.7 Sixth Waiver and Amendment Agreement,
dated as of February 7, 1995, among Homeland,
Holding, UBS, as agent, and the other lenders and
financial institutions parties to the Revolving Credit
Agreement. (Incorporated by reference to Exhibit 10cc.7
to Form 10-K for the fiscal year ended December 30, 1995)
10dd Agreement for Systems Operations Services,
effective as of October 1, 1991, between
Homeland and K-C Computer Services, Inc. (Incorporated
by reference to Exhibit 10dd to Form 10-K for the fiscal
year ended December 28, 1991)
10dd.1 Amendment No. 1 to Agreement for Systems
Operations Services, dated as of September
10, 1993, between Homeland and K-C Computer Services,
Inc. (Incorporated by reference to Exhibit 10dd.1 to Form
10-K for the fiscal year ended January 1, 1994)
10ee Form of Indemnification Agreement, dated as
of March 4, 1992, among Homeland, Holding,
Clayton & Dubilier, Inc., The Clayton & Dubilier
Private Partnership Equity Fund III Limited Partnership,
and The Clayton & Dubilier Private Equity Fund IV
Limited Partnership. (Incorporated by reference
to Exhibit 10ee to Form 10-K for the fiscal year ended
December 28, 1991)
10ff Product Transportation Agreement, dated as of
March 18, 1992, between Homeland and Drake
Refrigerated Lines, Inc. (Incorporated by reference to
Exhibit 10ff to Form 10-K for the fiscal year ended
December 28, 1991)
10gg Assignment and Pledge Agreement, dated March
5, 1992, made by Homeland in favor of
Manufacturers Hanover Trust Company.
(Incorporated by reference to Exhibit 10gg to Form
10-K for the fiscal year ended December 28, 1991)
10hh Transportation Closure Agreement Summary,
dated May 28, 1992, between Homeland and the
International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America. (Incorporated by
reference to Exhibit 10hh to Form S-1 Registration
Statement, Registration No. 33-48862)
10ii 1 Description of terms of employment with
Mark S. Sellers. (Incorporated by reference
to Exhibit 10ii to Form 10-K for the fiscal year ended
January 2, 1993)
10jj 1 Settlement Agreement, dated as of July
26, 1993, between Homeland and Donald R.
Taylor. (Incorporated by reference to Exhibit 10jj
to Form 10-K for the fiscal year ended January 1, 1994)
10kk 1 Executive Officers Medical/Life
Insurance Benefit Plan effective as of December 9, 1993.
(Incorporated by reference to Exhibit 10kk to Form 10-K
for the fiscal year ended January 1, 1994)
10ll 1 Employment Agreement, dated as of August
11, 1994, between Homeland and Max E. Raydon.
(Incorporated by reference to Exhibit 10ll to Form 10-Q
for the quarterly period ended September 10, 1994)
10mm 1 Employment Agreement, dated as of August
11, 1994, between Homeland and Jack M. Lotker.
(Incorporated by reference to Exhibit 10mm to Form
10-Q for the quarterly period ended September 10, 1994)
10nn 1 Employment Agreement, dated as of August
11, 1994, between Homeland and Steve Mason.
(Incorporated by reference to Exhibit 10nn to Form 10-Q
for the quarterly period ended September 10, 1994)
10oo 1 Employment Agreement, dated as of August
11, 1994, between Homeland and Al Fideline.
(Incorporated by reference to Exhibit 10oo to Form 10-Q
for the quarterly period ended September 10, 1994)
10pp Letter of Intent, executed on November 30,
1994, between Homeland and Associated Wholesale
Grocers, Inc. (Incorporated by reference to Exhibit
10pp to Form 8-K dated November 29, 1994)
10pp.1 Asset Purchase Agreement, dated as of
February 6, 1995, between Homeland and
Associated Wholesale Grocers, Inc. (Incorporated by
reference to Exhibit 10pp.1 to Form 10-K for fiscal year
ended December 30, 1995)
10qq Solicitation Statement, dated April 4, 1995.
(Incorporated by reference to Exhibit 10qq to
Form 8-K dated April 4, 1995)
10rr 1 Employment Agreement, dated as of
November 22, 1994, between Homeland and
James A. Demme. (Incorporated by reference to Exhibit
10rr to Form 10-K for fiscal year ended December 30, 1995)
10rr.11 Amendment to Employment Agreement
between Homeland and James A. Demme, dated as
of April 29, 1996. (Incorporated by reference to Exhibit
10rr.1 to Form 10-K for fiscal year ended December 30, 1995)
10ss 1 Settlement Agreement, dated as of
December 31, 1994, between Homeland and Max E.
Raydon. (Incorporated by reference to Exhibit 10ss1 to
Form 10-K for fiscal year ended December 30, 1995)
10tt 1 Employment Agreement, dated as of
January 30, 1995, between Homeland and Mark
S. Sellers. (Incorporated by reference to Exhibit 10tt1
to Form 10-K for fiscal year ended December 30, 1995)
10uu Amended and Restated Revolving Credit
Agreement, dated as of April 21, 1995, among
Homeland, Holding, National Bank of Canada, as Agent and
lender, Heller Financial, Inc. and any other lenders
thereafter parties thereto. (Incorporated by
reference to Exhibit 10uu to Form 8-K dated
March 14, 1996)
10uu.1 Waiver Agreement, dated as of December
29, 1995 among Homeland, Holding, National Bank of
Canada and Heller Financial, Inc. (Incorporated
by reference to Exhibit 10uu.1 to Form 8-K dated March
14, 1996)
10uu.2 Second Waiver Agreement, dated as of
March 1, 1996 among Homeland, Holding,
National Bank of Canada and Heller Financial, Inc.
(Incorporated by reference to Exhibit 10uu.2 to Form 8-K
dated March 14, 1996)
10uu.3 Ratification and Amendment Agreement to
the $27,000,000 Amended and Restated Revolving
Credit Agreement, dated as of May 10, 1996, among
Homeland, Holding, National Bank of Canada, as Agent and
lender, Heller Financial, Inc. and any other lenders
thereafter parties thereto. (Incorporated
by reference to Exhibit 10uu.3 to Form 10-Q for quarterly
period ended March 23, 1996)
10vv 1 Employment Agreement dated as of July
10, 1995 and as amended September 26, 1995, between
Homeland and Larry W. Kordisch. (Incorporated by
reference to Exhibit 10pp to Form 10-K dated September 9,
1995)
10vv.1 Amendment to Employment Agreement
between Homeland and Larry W. Kordisch, dated
as of April 29, 1996. (Incorporated by reference to Exhibit
10vv.1 to Form 10-K for fiscal year ended December 30, 1995)
10ww 1 Employment Agreement dated as of April
29, 1996, between Homeland and Terry M.
Marczewski. (Incorporated by reference to Exhibit 10ww.1
to Form 10-K for fiscal year ended December 30, 1995)
10xx 1 Settlement Agreement, dated as of August
31, 1995, between Homeland and Jack M. Lotker.
(Incorporated by reference to Exhibit 10xx to Form 10-K
for fiscal year ended December 30, 1995)
10yy 1 Employment Agreement, dated as of April
29, 1996, between Homeland and Steve M. Mason.
(Incorporated by reference to Exhibit 10yy to Form
10-K for fiscal year ended December 30, 1995)
10zz 1 Employment Agreement, dated as of April
29, 1996, between Homeland and Alfred Fideline.
(Incorporated by reference to Exhibit 10zz to Form 10-K
for fiscal year ended December 30, 1995)
10aaa Indenture, dated as of August 2, 1996,
among Homeland, Fleet National Bank, as
Trustee, and Holding, as Guarantor. (Incorporated by
reference to Exhibit 10aaa to Form 8-K dated September
30, 1996)
10bbb * Loan Agreement, dated as of August 2,
1996, among IBJ Schroder Bank & Trust Company, Heller
Financial, Inc., National Bank of Canada,
Homeland and Holding.
22 Subsidiaries. (Incorporated by reference to
Exhibit 22 to Form S-1 Registration
Statement, Registration No. 33-22829)
27* Financial Data Schedule.
99a Press release issued by Homeland on November
30, 1994. (Incorporated by reference to
Exhibit 99a to Form 8-K dated November 29, 1994)
99b Unaudited Summary Financial Data for the 52
weeks ended December 31, 1994. (Incorporated
by reference to Exhibit 99b to Form 8-K dated
November 29, 1994)
99c Press Release issued by Homeland on April 13,
1995. (Incorporated by reference to Exhibit
99c to Form 8-K/A dated April 21, 1995)
99d Press Release issued by Homeland on April 24,
1995. (Incorporated by reference to Exhibit
99d to Form 8-K/A dated April 21, 1995)
99e Press Release issue by Homeland Stores, Inc.
on March 1, 1996. (Incorporated by
reference to Exhibit 99e to Form 8-K dated
March 14, 1996)
99f Press Release issued by Homeland Stores, Inc.
on March 27, 1996. (Incorporated
by reference to Exhibit 99f to Form 10-K for fiscal
year ended December 30, 1995)
99h Press Release issued by Homeland Stores, Inc.
on July 19, 1996. (Incorporated by reference to Exhibit
99h to Form 10-Q for quarterly period ended June 15, 1996)
