UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Annual report pursuant to Section 13 or 15(d) of the Securities
X Exchange Act of 1934 [No Fee Required]
For the fiscal year ended January 1, 2000
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to .
Commission file number 33-48862
HOMELAND HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-1311075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2601 N. W. Expressway
Oil Center - East, Suite 1100E
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 879-6600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $ .01 per share.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 27, 2000:
$17,716,797, based on a closing price of $4.1875 of the registrant's
common stock on the NASDAQNMS.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 27, 2000:
Homeland Holding Corporation
Common Stock: 4,920,608 shares
Documents incorporated by reference: Portions of the definitive Proxy
Statement for the 2000 Annual Stockholders Meeting are incorporated into
Part III of this Form 10-K by reference.
HOMELAND HOLDING CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS................................................... 1
General.................................................... 1
Background................................................. 1
AWG Transaction............................................ 1
Restructuring.............................................. 2
Business Strategy.......................................... 2
Homeland Supermarkets...................................... 3
Merchandising Strategy and Pricing......................... 5
Customer Services.......................................... 5
Advertising and Promotion.................................. 5
Products................................................... 6
Supply Arrangements........................................ 6
Employees and Labor Relations.............................. 7
Computer and Management Information Systems................ 8
Competition................................................ 8
Trademarks and Service Marks............................... 9
Regulatory Matters......................................... 9
ITEM 2. PROPERTIES................................................. 9
ITEM 3. LEGAL PROCEEDINGS.......................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS........................................ 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDERS MATTERS........................... 11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA....................... 11
i
Page
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.............................................. 15
Results of Operations...................................... 15
Liquidity and Capital Resources............................ 18
Year 2000.................................................. 23
Inflation/Deflation........................................ 23
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA......................................... 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE....................................... 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT.......................................... 25
ITEM 11. EXECUTIVE COMPENSATION..................................... 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT........................... 25
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS....................................... 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K.......................... 26
ii
Page
SIGNATURES............................................................. II-1
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS............................. F-1
EXHIBIT INDEX.......................................................... E-1
iii
HOMELAND HOLDING CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000
ITEM 1. BUSINESS
General
Homeland Holding Corporation ("Holding"), through its wholly-owned
subsidiary, Homeland Stores, Inc. ("Homeland") and Homeland's wholly-owned
subsidiary, JCH Beverage, Inc. ("JCH") and JCH's wholly-owned subsidiary, SLB
Marketing, Inc. (collectively referred to herein as 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 January 1, 2000, the Company operates 80 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.
Background
Holding and Homeland were organized as Delaware corporations 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 of
Safeway Inc. ("Safeway"). The stores changed their name to "Homeland" in order
to highlight the Company's regional identity.
AWG Transaction
On April 21, 1995, the Company sold 29 of its stores and its
warehouse and distribution center to Associated Wholesale Grocers, Inc. ("AWG")
pursuant to an Asset Purchase Agreement dated as of February 6, 1995 (the "AWG
Purchase Agreement"), for a cash purchase price of approximately $72.9 million,
including inventory, and the assumption of certain liabilities by AWG. At the
closing, the Company and AWG also entered into a seven-year supply agreement,
whereby the Company became a retail member of the AWG cooperative and AWG became
the Company's primary supplier. The Company has purchased 15 shares of AWG
Class A Common Stock, representing an equity position of 0.3%, in order to be
a member of AWG. The transactions between the Company and AWG are referred to
herein as the "AWG Transaction."
1
AWG is a buying cooperative which sells groceries on a wholesale
basis to its retail member stores. AWG serves more than 800 member stores
located in a ten state region with approximately $3.4 billion in revenues in
1999.
The AWG Transaction enabled the Company: (a) to reduce the Company's
borrowed money indebtedness 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 permitted 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.
Restructuring
On May 13, 1996, Holding and Homeland filed voluntary petitions under
Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
Simultaneously with such filings, the Company submitted a "pre-arranged" plan
of reorganization which set forth the terms of the restructuring of the Company
(the "Restructuring"). The purpose of the Restructuring was to substantially
reduce the Company's debt service obligations and labor costs and to create a
capital and cost structure that would 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 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").
Business Strategy
The Company's general business strategy is to improve the sales and
profitability of its core business through a consumer marketing strategy which
positions the Company as a faster, fresher, better alternative to other food
outlets. Usage of the Homeland Savings Card as a relationship marketing tool,
as well as strong weekly promotions communicated through extensive use of print,
television and radio are intended to help the Company achieve this business
strategy. The Company is committed to high quality perishable departments and
quick and friendly checkout.
2
In addition to improving its current base of stores, the Company
seeks to leverage its costs and buying power through acquisitions that will
improve market share, sales and earnings.
Having been in its market for more than 67 years (through its
predecessor Safeway), the Company enjoys a high recognition with its customers.
The Company continues to build this rapport with its customers by participating
in local community events and offering the "Apples for Students" program,
whereby schools can obtain computers and other educational products by
collecting Homeland receipts. The Company is also a major sponsor of the Easter
Seals program in its markets.
The Company's plan also involves reviewing marginal and unprofitable
stores for closing and reviewing new sites, independent stores or new markets
for growth in its market share. In 1997, the Company acquired 4 stores, two in
Oklahoma City, Oklahoma, one in Shawnee, Oklahoma and one in Lawton, Oklahoma.
The Company closed 1 store in Amarillo, Texas in 1998. During 1999, the Company
completed the acquisition of 9 stores located in eastern Oklahoma, one of which
was subsequently closed, completed the acquisition of 4 stores in Muskogee,
Oklahoma, and closed 1 store in Yukon, Oklahoma. In the first quarter of 2000,
the Company completed the acquisition of 3 stores located in Oklahoma City,
Oklahoma, and signed a letter of intent for the purchase of 4 stores, 3 of which
are in Oklahoma City, and one in Lawton, Oklahoma.
For additional information, see also "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Homeland Supermarkets
The Company's current network of stores features three basic store
formats. The Company's conventional stores are primarily in the 21,000 total
square feet range and carry the traditional mix of grocery, meat, produce and
general merchandise 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 $110,000 per week. The Company's
superstores are in the 36,000 total square feet range and offer, in addition to
the traditional departments, two or more specialty departments. Sales volumes
of superstores range from $80,000 to $270,000 per week. The Company'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 volumes of combo stores range from $150,000 to
$270,000 per week. The Company's new stores and certain remodeled locations
have incorporated the Company's new, larger superstore and combo formats.
Of the 80 stores operated by the Company as of January 1, 2000, 18
are conventional stores, 49 are superstores and 13 are combo stores.
3
The chart below summarizes Homeland's store development over the last
three fiscal years:
Fiscal Year Ended
1/1/00 1/2/99 1/3/98 (1)
Average sales per store (2)
(in millions) $ 7.8 $ 7.6 $ 7.9
Average total square feet
per store 35,786 37,473 37,232
Average sales per
square foot (2) $206 $206 $212
Number of stores:
Stores at start of period 69 70 66
Stores remodeled 5 8 7
New stores opened 13 0 4
Stores sold or closed 2 1 0
Stores at end of period 80 69 70
Size of stores:
Less than 25,000 sq. ft. 13 7 7
25,000 to 35,000 sq. ft. 28 25 28
35,000 sq. ft. or greater 39 37 35
Store formats:
Conventional 18 10 10
SuperStore 49 47 49
Combo 13 12 11
(1) 53 weeks' data.
(2) For those stores open entire fiscal year.
The Company's network of stores is managed by district managers on a
geographical basis through four districts. 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 while the Company's corporate headquarters is
directly responsible for merchandising, advertising, pricing and capital
expenditure decisions.
4
Merchandising Strategy and Pricing
The Company's merchandising strategy emphasizes a competitive pricing
structure, as well as 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 targeted supermarket operators in each market area. The
Company also offers double coupons, with some limitations, in all areas in which
it operates.
The in-store merchandising strategy combines a strong presentation of
fresh products along with meaningful values throughout the store on a wide
variety of fresh and shelf stable products each week. The Company's main vehicle
of value delivery is its "Homeland Savings Card" which allows customers with the
card, the opportunity to purchase over 2,000 items at a reduced cost each week.
Customer Services
The Company's stores provide a variety of customer services
including, among other things, carry-out services, facsimile services, automated
teller machines, pharmacies, video rentals, check cashing, utility payments,
money transfers and money orders. The Company believes it is able to attract
new customers and retain its existing customers because of its level of customer
service and convenience.
Advertising and Promotion
All advertising and promotion decisions are made by the Company's
corporate merchandising and advertising staff. The Company's advertising
strategy is designed to enhance its value-oriented merchandising concept and
emphasize its reputation for 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 addition, signage in the stores
calls attention to various in-store specials thereby 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 cooperative and performance advertising reimbursements
from vendors which reduce its advertising costs.
5
In September 1995, the Company introduced a customer loyalty card
called the "Homeland Savings Card" in its Amarillo, Texas stores. The Company
introduced the "Homeland Savings Card" in its other stores in August 1996. The
Company has not only used the card as a promotional tool but has begun to use
the data gained from card users to target product and service offerings in order
to increase the levels of loyalty among targeted customers.
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 care and selected general merchandise.
As of the close of fiscal year 1999, approximately 81% of the Company's stores
had service delicatessens and/or bakeries and approximately 59% 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.
As a result of the Company's supply relationship with AWG, the
Company's stores also offer AWG private label goods, including Best Choicer and
Always Saver.
Private label products generally represent quality and value to
customers and typically contribute to a higher gross profit margin than national
brands. The promotion of private label products is an integral part of the
Company's merchandising philosophy of building customer loyalty as well as
improving the Company's "pricing image." The Company intends to use the Best
Choicer line of products as the main vehicle to accomplish these goals.
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 became the Company's primary supplier. AWG currently
supplies approximately 70% of the goods sold in the Company's stores. See
"Business -- AWG Transaction."
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. In addition, the Company is: (a) eligible to participate in
certain cost-savings programs available to AWG's other retail members; (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 (c) is
to receive periodic cash payments from AWG, up to a maximum of $1.2 million per
fiscal quarter, based on the dollar amount of the Company's purchases from AWG's
distribution centers during such fiscal quarter.
6
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, as of
January 1, 2000, is secured by a $0.9 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).
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.
The Supply Agreement with AWG contains 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 a sale of more than 50% of the outstanding stock of
Holding or Homeland 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 January 1, 2000, the Company had a total of 5,452 employees, of
whom 3,943, or approximately 72%, were employed on a part-time basis. The
Company employs 5,354 in its supermarket operations. The remaining employees are
corporate and administrative personnel.
7
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
("UFCWNA").
Computer and Management Information Systems
The Company utilizes client/server systems in order to enhance its
information management capabilities and improve its competitive position. The
systems include the following features: time and attendance, human resource,
accounting and budget tracking, and scan support and merchandising systems. In
1997, the Company installed a direct store delivery system and a check
verification and credit card system. The Company installed a centralized scale
and pricing system for its meat, deli and bakery departments in 1998.
The Company has scanning checkout systems in all of its 80 stores.
The Company will continue to invest and upgrade its scanning and point-of-sale
systems to improve efficiency. The Company utilizes the information collected
through its scanner systems to track sales and to coordinate purchasing. The
Company also utilizes the information collected on the purchases made by its
"Homeland Savings Card" holders to target its promotional activities on this
market segment. See "Business -- Advertising and Promotion" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000."
Competition
The supermarket business in the Company's market area is highly
competitive, but very fragmented, and includes numerous independent operators.
The Company estimates that these operators represent a substantial percentage of
its markets. The Company also competes with larger store chains such as
Albertson's and Wal-Mart, which operate 28 stores and 20 stores, respectively,
in the Company's market areas, "price impact" stores such as Crest, large
independent store groups 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 market
position to certain advantages it has over certain of its competitors including
its high quality perishable departments, effective advertising, excellent long-
standing store locations and a strong reputation within the communities in which
the Company operates.
The Company's business has been adversely affected in recent years by
the entry of new competition into the Company's key markets, which has resulted
in a decline in the Company's comparable store sales in 1997 and 1998. In 1997,
there were 8 competitive openings in the Company's market area, including 3 new
Wal-Mart Supercenters and 2 new Albertson's. In 1998, there were 7 additional
competitive openings, including 4 new Wal-Mart Supercenters and 3 new
independent stores. In 1999, the Company's comparable sales increased despite
8
8 competitive openings, including 4 new Albertson's, 3 new Wal-Mart Supercenters
and one new independent store. Based on information publicly available, the
Company expects that, during 2000, Wal-Mart will open 5 new Supercenters and 6
Neighborhood Markets, and independents will open 4 new stores in the Company's
markets.
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 certain 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."
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.
ITEM 2. PROPERTIES
Of the 80 supermarkets operated by the Company, 15 are owned by
Homeland and the balance are held under leases which expire at various times
between 2000 and 2030. Most of the leases are subject to up to six (6) five-year
renewal options. Out of 65 leased stores, only 6 have terms (including option
periods) of fewer than 10 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 in excess of certain stipulated
amounts. No individual store operated by Homeland is by itself material to the
financial performance or condition of Homeland as a whole.
Substantially all of the Company's properties are subject to
mortgages and security agreements securing the borrowings under the Loan
Agreement and a number of the stores acquired from AWG and its retail members
are subject to mortgages and security agreements in favor of AWG. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources."
9
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to ordinary routine litigation incidental to
its business.
Homeland and Holding were debtors in cases styled In re Homeland
Holding Corporation, Debtor, Case No. 96-748 (PJW), and In re Homeland Stores,
Inc., Debtor, Case No. 96-747 (PJW), initiated with the Bankruptcy Court on May
13, 1996. While the Plan of Reorganization was confirmed on July 19, 1996, and
became effective on August 2, 1996, the Company is still involved in the
resolution of claims filed in these proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by Holding to a vote of Holding's security
holders during the quarter ended January 1, 2000.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Common Stock of Holding commenced public trading on the Nasdaq
National Market System ("Nasdaq/NMS") on April 14, 1997. High and low sales
prices of the Common Stock as reported by Nasdaq/NMS for each fiscal quarter of
1998 and 1999 are listed below:
High Low
March 28, 1998 $8.250 $5.375
June 20, 1998 $8.063 $6.250
September 12, 1998 $7.563 $4.188
January 2, 1999 $5.000 $3.000
March 27, 1999 $4.000 $3.000
June 19, 1999 $3.625 $2.875
September 11, 1999 $4.125 $3.000
January 1, 2000 $3.938 $3.281
On March 27, 2000, there were 922 stockholders of record. As
additional claims are resolved pursuant to the Plan of Reorganization, the
Company expects that the number of stockholders will increase, assuming that
there is no change in the number of current stockholders.
No cash dividends were declared or paid since the effective date of
the Plan of Reorganization. Holding is restricted from paying dividends by the
Loan Agreement and Indenture. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
of the Company which has been derived from financial statements of the Company
for the 52 weeks ended January 1, 2000, the 52 weeks ended January 2, 1999, the
53 weeks ended January 3, 1998, and the 20 weeks ended December 28, 1996
(Successor Company), the 32 weeks ended August 10, 1996 (Predecessor Company),
and the 52 weeks ended December 30, 1995 (Predecessor Company), respectively.
See "Notes to Selected Consolidated Financial Data" for additional information.
11
As discussed in "Business -- Restructuring," the Company emerged from
Chapter 11 proceedings effective August 2, 1996. For financial reporting
purposes, the Company accounted for the consummation of the Restructuring
effective as of August 10, 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 periods subsequent to the
Restructuring have been designated "Successor Company." Because of the
adjustments associated with the adoption of "fresh-start" reporting, historical
financial data of the Predecessor Company and Sucessor Company is not
necessarily comparable.
The selected consolidated financial data should be read in
conjunction with the respective consolidated financial statements and notes
thereto which are contained elsewhere herein.
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Successor Company
52 weeks 52 weeks 53 weeks 20 weeks
ended ended ended ended
1/1/00 1/2/99 1/3/98 12/28/96
<S> <C> <C> <C> <C>
Summary of Operating Data:
Sales, net $ 559,554 $ 529,576 $ 527,993 $ 204,026
Cost of sales 425,394 402,261 401,691 154,099
Gross profit 134,160 127,315 126,302 49,927
Selling and administrative expenses 120,594 114,335 112,590 43,995
Operational restructuring costs (1) - - - -
Amortization of excess reorganization value (2) 6,890 13,672 14,527 5,819
Asset impairment 925 - - -
Operating profit (loss) 5,751 (692) (815) 113
Gain (loss) on disposal of assets (15) 34 (117) (90)
Interest income 569 426 385 56
Interest expense (9,011) (8,484) (8,408) (3,199)
Income (loss) before reorganization items, income
taxes and extraordinary items (2,706) (8,716) (8,955) (3,120)
Reorganization items (3) - - - -
Income tax provision (1,588) (1,875) (1,689) -
Loss before extraordinary items (4,294) (10,591) (10,644) (3,120)
Extraordinary items (4) (5) - - - -
Net income (loss) (4,294) (10,591) (10,644) (3,120)
Reduction in redemption value -
redeemable common stock - - - -
Net income (loss) available to common
stockholders $ (4,294) $ (10,591) $ (10,644) $ (3,120)
Basic and diluted net income (loss) per
common share (6) $ (0.87) $ (2.18) $ (2.23) $ (0.66)
Consolidated Balance Sheet Data: 1/1/00 1/2/99 1/3/98 12/28/96
Total assets $ 167,854 $ 159,204 $ 166,041 $ 168,486
Long-term obligations, including current
portion of long-term obligations $ 100,785 $ 89,979 $ 86,002 $ 80,568
Redeemable common stock $ - $ - $ - $ -
Stockholders' equity (deficit) $ 27,654 $ 31,868 $ 42,324 $ 52,941
continued
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company
32 weeks 52 weeks
ended ended
8/10/96 12/30/95
<S> <C> <C>
Summary of Operating Data:continued
Sales, net $ 323,747 $ 630,275
Cost of sales 244,423 479,119
Gross profit 79,324 151,156
Selling and administrative expenses 73,183 144,052
Operational restructuring costs (1) - 12,639
Amortization of excess reorganization value (2) - -
Asset impairment - -
Operating profit (loss) 6,141 (5,535)
Gain (loss) on disposal of assets 114 (8,349)
Interest income 69 416
Interest expense (5,639) (15,992)
Income (loss) before reorganization items, income
taxes and extraordinary items 685 (29,460)
Reorganization items (3) (25,996) -
Income tax provision - -
Loss before extraordinary items (25,311) (29,460)
Extraordinary items (4)(5) 63,118 (2,330)
Net income (loss) 37,807 (31,790)
Reduction in redemption value -
redeemable common stock - 940
Net income (loss) available to common
stockholders $ 37,807 $ (30,850)
Basic and diluted net income (loss) per
common share (6) $ 1.16 $ (0.93)
Consolidated Balance Sheet Data: 8/10/96 12/30/95
Total assets $ 129,679 $ 137,582
Long-term obligations, including current
portion of long-term obligations $ 124,411 $ 124,242
Redeemable common stock $ 17 $ 17
Stockholders' equity (deficit) $ (38,057) $ (28,106)
13
</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.
(2) The Company's reorganization value in excess of amounts allocable to
identifiable assets, established in accordance with "fresh-start"
reporting, of $40,908 was amortized on a straight-line basis over three
years. The excess reorganization value was fully amortized during the
Company's third quarter ended September 11, 1999.
(3) As a result of the Company's Restructuring, the Company recorded certain
reorganization expenses separately in accordance to SOP 90-7.
Reorganization items for 1996 consist of: (a) $7,200 of allowed claims in
excess of liabilities; (b) $4,250 in professional fees; (c) $6,386 in
employee buyout expenses; and (d) $8,160 in adjusting certain assets and
liabilities to estimated fair value.
(4) Extraordinary items during 1996 consist of obligations of the Company that
were discharged by the Bankruptcy Court pursuant to the Company's Plan of
Reorganization.
(5) Extraordinary items during 1995 included the payment of $906 in premiums
and consent fees on the redemption of $15,600 of the Company's previous
secured notes and the write-off of $1,424 in unamortized financing costs
related to the previous secured notes so redeemed and the prior revolving
credit facility.
(6) Common Stock held by management investors prior to the Effective Date is
presented as redeemable common stock and excluded from stockholder's
equity since the Company had 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.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The table below sets forth selected items from the Company's
Consolidated Statements of Operations as a percentage of net sales for the
periods indicated:
Fiscal Year
1999 1998 1997
Sales, net 100.00% 100.00% 100.00%
Cost of sales 76.02 75.96 76.08
Gross profit 23.98 24.04 23.92
Selling and administrative expenses 21.55 21.59 21.32
Amortization of excess
reorganization value 1.23 2.58 2.75
Asset impairment 0.17 - -
Operating profit (loss) 1.03 (0.13) (0.15)
Gain (loss) on disposal of assets - 0.01 (0.02)
Interest income 0.10 0.08 0.07
Interest expense (1.61) (1.60) (1.59)
Loss before income taxes (0.48) (1.64) (1.69)
Income tax provision (0.28) (0.36) (0.32)
Net loss (0.76)% (2.00)% (2.01)%
Comparison of Fifty-Two Weeks Ended January 1, 2000 ("1999"), with
Fifty-Two Weeks Ended January 2, 1999 ("1998").
Net sales increased $30.0 million, or 5.7%, from $529.6 million for
1998 to $559.6 million for 1999. The increase in sales is attributable to the
acquisition of nine stores in April 1999, the acquisition of four stores in
November 1999, and a 1.2% increase in comparable store sales, partially offset
by the closing of one store in 1999. The increase in comparable store sales
during 1999 was achieved despite 8 competitive openings, including 4 new
Albertson's, 3 new Wal-Mart Supercenters and 1 new independent store, the loss
of sales during the remodeling of Company stores, and limited inflation in
selected food categories. The Company is conducting an ongoing store development
and remodeling program, and believes that it will continue to experience
temporary disruptions and lost sales during store remodelings in the future.
Sales in comparable stores were positively impacted by grand opening events at
certain of the Company's stores, incremental improvements from
15
continued usage of frequency card based promotions and direct marketing efforts,
and additional sales in the final week of the year attributable to year 2000
events.
Based in part on the anticipated impact of proposed and recent new
store openings and remodelings by competitors, management believes that market
conditions will remain highly competitive, placing continued pressure on
comparable store sales and net sales. As a result of competitive openings
during the first quarter of fiscal year 2000, the advancement of purchases by
customers into the final week of 1999 due to uncertainty with the year 2000 year
- -end transition, the cycling of strong promotions in the first quarter of 1999,
and the mild winter weather in the Company's trade areas, management believes
that comparable store sales will decline approximately 2.0% to 3.0%, during the
first quarter of 2000. In response to this highly competitive environment, the
Company intends to build on its strengths which consist of: (a) high quality
perishable departments; (b) market position and competitive pricing; (c)
customer service; (d) excellent locations; and (e) the "Homeland Savings Card,"
a customer loyalty card program. The Company is upgrading its stores by focusing
its capital expenditures on projects that will improve the overall appeal of its
stores to targeted customers and is using its merchandising strategy to
emphasize a competitive pricing structure, as well as leadership in quality
products and services, selection and convenient store locations. Additionally,
the in-store merchandising strategy combines a strong presentation of fresh
products along with meaningful values throughout the store on a wide variety
of fresh and shelf stable products each week. The Company's main vehicle of
value delivery is its Homeland Savings Card which allows customers with the card
the opportunity to purchase over 2,000 items at a reduced cost each week.
Finally, the Company continues the use of market research in order to maintain a
better understanding of customer behavior and trends in certain markets.
Gross profit as a percentage of sales of 24.0% was the same as in
1998. Gross profit margin reflects the impact of specific promotional activities
as the Company responded to certain new competitive store openings and special
advertisements for the grand openings of the Company's remodeled and acquired
stores; the increased cost of goods for pharmaceutical products; and, the
increased shrink in certain perishable departments. The pressure on gross profit
margin described above was offset by a general improvement in the management of
promotional spending and the implementation of initiatives to lower cost of
goods.
Selling and administrative expenses as a percentage of sales of 21.6%
was the same as in 1998. The expense ratio includes improvements in labor
productivity; reductions in costs associated with advertising expenditures;
increased sales which has allowed the Company to leverage certain fixed and
administrative costs; the reduction in reserves for general liability expenses
as a result of improved claims experience by the Company; and, the return of net
premiums relating to the final settlement of pre-bankruptcy workers compensation
claims. The improvements in the expense ratio described above were offset by an
increase in expenses associated with the acquired stores, an increase in
depreciation costs attributable to the Company's capital expenditure program
for store remodels and maintenance and modernization, and an increase in the
reserve for doubtful accounts relating to the uncertainty of an accounts
receivable from one of the Company's vendors. The Company continues to review
alternatives to reduce selling and administrative expenses and cost of sales in
order
16
to provide opportunities to pass additional savings along to its customers in
the form of price reductions in certain categories.
The amortization of the excess reorganization value amounted to $6.9
million in 1999. The excess reorganization value was amortized over three
years, on a straight-line basis, and became fully amortized in the third quarter
of 1999.
The Company recorded an asset impairment provision in the amount of
$0.9 million related to a previously closed store. The provision reduced the
carrying value of the real property to a current estimate of fair value.
Interest expense, net of interest income, increased $0.3 million from
$8.1 million in 1998 to $8.4 million in 1999. The increase reflects additional
interest expense attributable to the acquired stores and increases in variable
interest rates, partially offset by additional interest income from the interest
bearing certificates of AWG. During 2000, the Company anticipates that interest
expense will increase due to the increased debt and additional increases in
variable interest rates. See "Liquidity and Capital Resources."
The Company recorded $1.6 million of income tax expense for 1999, of
which $1.5 million was deferred income tax. In accordance with SOP 90-7, the tax
benefit realized from utilizing the pre-reorganization net operating loss
carryforwards is recorded as a reduction of the reorganization value in excess
of amounts allocable to identifiable assets rather than realized as a benefit
on the statement of operations. Additionally, upon the completion of the
amortization of reorganization value in excess of amounts allocable to
identifiable assets, the tax benefit realized from utilizing the pre-
reorganization net operating loss carryforwards is recorded as a reduction of
other intangibles existing at the reorganization date until reduced to zero and
then as an increase to stockholder's equity. At January 1, 2000, the Company
had a tax net operating loss carryforward of approximately $29.5 million, which
may be utilized to offset future taxable income to the limited amount of $5.1
million for 2000 and $3.3 million each year thereafter. Due to the uncertainty
of realizing future tax benefits, a full valuation allowance was deemed
necessary to entirely offset the net deferred tax assets as of January 1, 2000.
If the Company's current trend toward profitability continues, then net deferred
tax assets of up to $16.2 million could be recognized.
EBITDA (as defined hereinafter) increased $1.4 from $22.9 million, or
4.3% of sales, in 1998 to $24.3 million, or 4.4% of sales in 1999. The Company
believes that EBITDA is a useful supplemental disclosure for the investment
community. EBITDA, however, should not be construed as a substitute for earnings
or cash flow information required under generally accepted accounting
principles.
Comparison of Fifty-Two Weeks Ended January 2, 1999 ("1998"), with
Fifty-Three Weeks Ended January 3, 1998 ("1997").
Net sales increased $1.6 million, or 0.3%, from $528.0 million for
1997 to $529.6 million for 1998. Fiscal 1997 was a 53-week year for the
Company. Excluding the net sales for the 53rd week in 1997, net sales increased
17
$12.3 million, or 2.4%, from $517.3 million for 1997 to $529.6 million for 1998.
The increase in sales is attributable to four stores which were acquired during
1997 and were first included for a full year in 1998 (one in August and three
in October), partially offset by a 1.0% decline in comparable store sales and
the closing of one store during 1998. The decline in comparable store sales
during 1998 was attributable to the seven new competitive store openings (four
Wal-Mart's and three independent stores), the loss of sales during the
remodeling of Company stores, and limited inflation in selected food categories.
The decline in comparable store sales was somewhat offset by grand opening
events at certain of the Company's stores and incremental improvements from
continued usage of frequency card based promotions and direct marketing efforts.
Gross profit as a percentage of sales increased 0.1% from 23.9% in
1997 to 24.0% in 1998. The increase in gross profit margin reflects lower cost
of goods in certain categories, additional incentive allowances in selected
product categories and increased volume rebates, partially offset by increased
promotional activities as the Company responded to certain new competitive store
openings and special advertisements for the grand openings of the Company's
remodeled stores.
Selling and administrative expenses as a percentage of sales increased 0.3%
from 21.3% in 1997 to 21.6% in 1998. The increase is attributable to an
increase in occupancy costs associated with a full year of operation in 1998
for the four stores acquired in 1997; an increase in depreciation as a result
of the capital expenditure program for store remodels and maintenance and
modernization; and, an increase in administrative expenses. The increase in
expenses was partially offset by a reduction in general liability insurance
expenses as a result of improved claims experience by the Company.
The amortization of the excess reorganization value amounted to $13.7
million in 1998.
Interest expense, net of interest income, increased $0.1 million from
$8.0 million in 1997 to $8.1 million in 1998. The increase reflects an
additional amount of debt outstanding partially offset by lower interest rates.
See "Liquidity and Capital Resources."
The Company recorded $1.9 million of income tax expense for 1998, of
which $1.7 million was deferred income tax. At January 2, 1999, the Company had
a tax net operating loss carryforward of approximately $36.2 million.
EBITDA increased $0.7 from $22.2 million, or 4.2% of sales, in 1997
to $22.9 million, or 4.3% of sales in 1998.
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.
18
On December 17, 1998, the Company entered into a Loan Agreement with
NBC, as agent and lender, and two other lenders, Heller Financial, Inc. and IBJ
Whitehall Business Credit, Inc., under which these lenders provide a working
capital and letter of credit facility ("Revolving Facility"), a term loan ("Term
Loan") and an acquisition term loan ("Acquisition Term Loan") through August 2,
2002.
The Loan Agreement, as amended, permits the Company to borrow under
the Revolving Facility up to the lesser of (a) $37.0 million or (b) the
applicable borrowing base. Funds borrowed under the Revolving Facility are
available for general corporate purposes of the Company.
The Term Loan, which is presently $5.8 million, represents the
balance of $10.0 million borrowed under the prior loan agreement to finance
costs and expenses associated with the consummation of the Restructuring and
the Company is required to make quarterly principal paydowns of approximately
$0.4 million. The Acquisition Term Loan presently permits borrowings of up to
$5.0 million (though no amount is presently outstanding) in connection with
permitted acquisitions.
The interest rate payable quarterly under the Loan 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) whether it is the Revolving Facility or the Term Loan
and the amount, if any, which is part of the Acquisition Term Loan; (b) the time
period; and (c) whether the Company elects to use a London Interbank Offered
Rate.
The obligations of the Company under the Loan 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 Loan 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 and payment of dividends. The Loan Agreement
also requires the Company to comply with certain financial and other covenants.
As of the Effective Date, the Company entered into an Indenture with
Fleet National Bank (predecessor to State Bank and Trust Company), as trustee,
under which the Company issued $60.0 million of 10% Senior Subordinated Notes
due 2003 ("New Notes"). The New Notes, which are unsecured, will mature on
August 1, 2003. Interest on the New Notes accrues at the rate of 10% per annum
and is payable on February 1 and August 1 of each year.
The Indenture contains certain customary restrictions on
acquisitions, asset sales, consolidations and mergers, distributions,
indebtedness, transactions with affiliates and payment of dividends.
19
Working Capital and Capital Expenditures. The Company's primary
sources of capital have been borrowing availability under the Revolving Facility
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's EBITDA (earnings before net interest expense, taxes,
depreciation and amortization, asset impairment, and gain/loss on disposal of
assets), as presented below, is the Company's measurement of internally-
generated operating cash for working capital needs, capital expenditures and
payment of debt obligations:
52 Weeks Ended 52 Weeks Ended 53 Weeks Ended
January 1, 2000 January 2, 1999 January 3, 1998
Loss before income taxes $ (2,706) $ (8,716) $ (8,955)
Interest income (569) (426) (385)
Interest expense 9,011 8,484 8,408
(Gain) loss on disposal of assets 15 (34) 117
Amortization of excess
reorganization value 6,890 13,672 14,527
Asset impairment 925 - -
Depreciation and amortization 10,774 9,923 8,525
EBITDA $ 24,340 $ 22,903 $ 22,237
As a percentage of sales 4.35% 4.32% 4.21%
As a multiple of interest expense,
net of interest income 2.88x 2.84x 2.77x
Net cash provided by operating activities increased $1.2 million,
from $10.5 million in 1998 to $11.7 million in 1999. The increase principally
reflects an increase in EBITDA and an increase in trade payables partially
offset by an increase in inventory.
Net cash used in investing activities decreased $1.0 million, from
$11.6 million in 1998 to $10.6 million in 1999. The Company invested $9.0
million, $12.4 million, and $14.0 million in capital expenditures for 1999,
1998, and 1997, respectively.
20
In April 1999, the Company completed its acquisition of nine stores
from AWG, in eastern Oklahoma. The net purchase price was $1.3 million which
represents $5.6 million for real property, fixtures and equipment, goodwill and
a non-compete agreement, plus $2.3 million for inventory, $0.2 million for
transaction costs, offset by $6.8 million in long-term debt assumed by the
Company. The Company acquired title to one store and leases the remaining
eight from AWG. The one store to which Homeland acquired title in Pryor,
Oklahoma, was closed (and subsequently sold to a non-grocery user) as a result
of the proximity to an existing Company store. The Company financed this
acquisition principally through the assumption of $6.8 million in long-term
debt, together with increased borrowings under its Revolving Facility. The debt
incurred by the Company to AWG is secured by liens on, and security interest
in, the assets associated with the nine stores. Subsequent to the closing of
the acquisition, the Company repaid a portion of its indebtedness to AWG which
related to inventory and the Pryor store which was sold. Therefore, AWG
released its security interest in the assets relating to the Pryor store and the
inventory.
In November 1999, the Company completed its acquisition of four
stores from Brattain Foods, Inc. ("BFI"), in Muskogee, Oklahoma. The net
purchase price was $1.1 million which represents $6.0 million for fixtures and
equipment, goodwill and a non-compete agreement, plus $1.9 million for
inventory, $0.2 million for transaction costs, offset by $7.0 million of long-
term debt (BFI's obligation to AWG) assumed by the Company. The Company will
lease three of the stores from AWG and lease the fourth from a third party. The
Company financed this acquisition principally through the assumption of $7.0
million in long-term debt, together with increased borrowings under its
Revolving Facility. The debt incurred by the Company to AWG is secured by liens
on, and security interest in, the assets associated with the four stores.
Subsequent to the closing of the acquisition, the Company repaid a portion of
its indebtedness to AWG, which related to inventory and therefore, AWG released
its security interest in the inventory.
As of January 1, 2000, the Company had an outstanding balance on
these assumed obligations to AWG of $8.4 million. The loans have a seven year
term with principal and interest payments scheduled each week, and have a
variable interest rate equal to the prime rate plus 100 basis points. Under
the various agreements of both acquisitions, the individual markets where the
stores are located are subject to non-compete, supply and right-of-first-refusal
agreements with AWG. In addition to the other customary terms associated with
a right-of-first refusal agreement, the right-of-first refusal agreement
provides for the repurchase by AWG of the stores based upon the occurrence of
certain exercise events. The exercise events include, among other events, a
change in control of Homeland and a transfer of more than 20% of the ownership
interest of Holding or Homeland.
Net cash used in financing activities increased $7.1 million, from
$4.2 million provided by financing activities in 1998 to $2.9 million used in
financing activities in 1999. The increase primarily reflects the principal
payments made to AWG under the terms of the obligations assumed by the Company
in conjunction with the 1999 acquisitions.
21
The Company considers its capital expenditure program a critical and
strategic part of the overall plan to support its market competitiveness. Cash
capital expenditures for 2000 are expected to be at approximately $10.0 million.
The Loan Agreement limits the Company's capital expenditures for 2000 to $13.0
million plus $2.6 million in carryover from the previous year, and $2.6 million
for capital expenditures which are financed through capital leases or equipment
loans. The estimated 2000 capital expenditures of $10.0 is expected to be
invested primarily in remodeling and maintenance of certain stores and does not
include provisions for acquisitions. The funds for the capital expenditures are
expected to be provided by internally-generated cash flows from operations and
borrowings under the Loan Agreement. As of January 1, 2000, the Company had
$23.2 million of borrowings, $0.9 million of letters of credit outstanding and
$9.8 million of availability under its Revolving Facility.
On January 18, 2000, the Company entered into an agreement in
principle to acquire three Price Chopper Stores, in Oklahoma City, operated by
Belton Food Center, Inc. ("BFC"). On February 29, 2000, the Company completed
its acquisition of these three stores from BFC. The net purchase price was $0.2
million which represents $4.2 million for fixtures and equipment, leasehold
improvements, and goodwill, plus $2.0 million for inventory, $0.2 million for
transaction costs, offset by $6.2 million of long-term debt (BFC's obligation to
AWG) assumed by the Company. The Company will lease all three of the stores
from AWG. The Company financed this acquisition principally through the
assumption of $6.2 million in long-term debt, together with increased borrowings
under its Revolving Facility. The debt incurred by the Company to AWG is secured
by liens on, and security interest in, the assets associated with the three
stores. Subsequent to the closing of the acquisition, the Company repaid a
portion of its indebtedness to AWG, which related to inventory and therefore,
AWG released its security interest in the inventory.
On February 18, 2000, the Company signed a letter of intent with
Fleming Companies Inc. for the purchase of four Baker's Supermarkets, including
one store which is under construction. Consummation of the transaction, which is
expected during the second quarter of 2000, is subject to, among other things,
the execution of a definitive purchase agreement, completion of due diligence,
and certain customary closing conditions. The financing for this acquisition
will be accomplished through the utilization of the Company's Revolving
Facility.
The Company's ability to meet its working capital needs, meet its debt
and interest obligations and meet its capital expenditure requirements is
dependent on its future operating performance. There can be no assurance that
future operating performance will provide positive net cash and, if the Company
is not able to generate positive cash flow from its operations, management
believes that this could have a material adverse effect on the Company's
business.
22
Information discussed herein includes statements that are forward-
looking in nature, as defined in the Private Securities Litigation Reform Act.
As with any forward-looking statements, these statements are subject to a number
of factors and assumptions, including competitive activities, economic
conditions in the market area and results of its future capital expenditures.
In reviewing such information, it should be kept in mind that actual results may
differ materially from those projected or suggested in such forward-looking
statements.
Year 2000
The Year 2000 issue results from computer programs being written
using two digits rather than four to define the applicable year. As the Year
2000 approached, systems using such programs were projected to be unable to
accurately process certain date-based information. Commencing in October 1996,
the Company implemented a program of evaluating its computer systems to identify
areas of potential concern, both with respect to information technology and non-
information technology systems (e.g., microcontrollers), remediating / replacing
systems to address those potential areas of concern, and ultimately testing
those changes for compliance. This assessment was implemented on a system-by-
system basis and included the readiness of external entities, such as vendors,
which interface with the Company. The Company assessed its vendors' Year 2000
readiness through the review of questionnaires circulated to its vendors,
consultation by the Company with the vendors who provided its computer systems
and internal testing by the Company of those computer systems. During 1999, the
Company completed the evaluation of systems, the remediation / replacement
efforts and the testing procedures. Through testing procedures, a significant
portion of the Company's systems were found to be Year 2000 compliant without
any remediation or replacement efforts.
The area of most concern for management had been the point of sale
("POS") systems and power management systems which operate various systems in
the stores. These systems were upgraded or replaced prior to January 1, 2000.
The total cost of the program was approximately $2.0 million, the
majority of which was for upgrades to POS software and replacement of power
management systems described above. The Company has funded these costs under
its Revolving Facility.
The Company has not experienced any material disruptions to its
business as a result of Year 2000 issues relating to Company systems or its
primary vendors' Year 2000 readiness. Management will continue to monitor the
extent of such compliance and the effects associated with any non-compliance.
Inflation/Deflation
Although the Company does not expect inflation or deflation to have a
material impact in the future, there can be no assurance that the Company's
business will not be affected by inflation or deflation in future periods.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and notes thereto
are included in this report following the signature pages.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with the provisions of General Instruction G (3), the
information required by this item will be contained in the Company's Proxy
Statement for its Annual Stockholders Meeting to be held June 1, 2000, to be
filed with the Securities and Exchange Commission within 120 days after January
1, 2000, and is incorporated herein by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with the provisions of General Instruction G (3), the
information required by this item will be contained in the Company's Proxy
Statement for its Annual stockholders Meeting to be held June 1, 2000, to be
filed with the Securities and Exchange Commission within 120 days after January
1, 2000, and is incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
In accordance with the provisions of General Instruction G (3), the
information required by this item will be contained in the Company's Proxy
Statement for its Annual Stockholders Meeting to be held June 1, 2000, to be
filed with the Securities and Exchange Commission within 120 days after January
1, 2000, and is incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with the provisions of General Instruction G (3), the
information required by this item will be contained in the Company's Proxy
Statement for its Annual Stockholders Meeting to be held June 1, 2000, to be
filed with the Securities and Exchange Commission within 120 days after January
1, 2000, and is incorporated herein by reference thereto.
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
(a) Financial Statements and Exhibits.
1. Financial Statements. The Company's financial statements are
included in this report following the signature pages. See Index
to Financial Statements and Financial Statement Schedules on page
F-1.
2. Exhibits. See attached Exhibit Index on page E-1.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
last quarter of the period covered by this report.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOMELAND HOLDING CORPORATION
Date: March 28, 2000 By: / s / David B. Clark
David B. Clark, President & C.E.O.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/ s / John A. Shields Chairman of the Board March 28, 2000
John A. Shields
/ s / David B. Clark President, Chief Executive March 28, 2000
David B. Clark Officer and Director
(Principal Executive Officer)
/ s / Wayne S. Peterson Senior Vice President/ March 28, 2000
Wayne S. Peterson Finance, C.F.O. and Secretary
(Principal Financial Officer)
/ s / Deborah A. Brown Vice President, Controller, March 28, 2000
Deborah A. Brown Treasurer and Asst. Secretary
(Principal Accounting Officer)
II-1
Signature Title Date
/ s / Robert E. (Gene) Burris Director March 28, 2000
Robert E. (Gene) Burris
/ s / Edward B. Krekeler, Jr. Director March 28, 2000
Edward B. Krekeler, Jr.
/ s / Laurie M. Shahon Director March 28, 2000
Laurie M. Shahon
/ s / William B. Snow Director March 28, 2000
William B. Snow
/ s / David N. Weinstein Director March 28, 2000
David N. Weinstein
II-2
INDEX TO FINANCIAL STATEMENTS
HOMELAND HOLDING CORPORATION
Consolidated Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets as of January 1, 2000,
and January 2, 1999 F-3
Consolidated Statements of Operations
for the 52 weeks ended January 1, 2000, and
January 2, 1999, and the 53 weeks
ended January 3, 1998 F-5
Consolidated Statements of Stockholders' Equity
for the 52 weeks ended January 1, 2000, and
January 2, 1999, and the 53 weeks
ended January 3, 1998 F-6
Consolidated Statements of Cash Flows
for the 52 weeks ended January 1, 2000, and
January 2, 1999, and the 53 weeks
ended January 3, 1998 F-7
Notes to Consolidated Financial Statements F-9
F-1
Report of Independent Accountants
To the Board of Directors and Stockholders of
Homeland Holding Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Homeland
Holding Corporation and its subsidiaries, (the "Company") at January 1, 2000
and January 2, 1999, and the results of their operations and their cash flows
for the 52 weeks ended January 1, 2000, the 52 weeks ended January 2, 1999, and
the 53 weeks ended January 3, 1998, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
February 29, 2000, except for Note14,
as to which the date is March 9, 2000
F-2
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
January 1, January 2,
2000 1999
Current assets:
Cash and cash equivalents $ 6,136 $ 7,856
Receivables, net of allowance for uncollectible
accounts of $1,361 and $972 11,353 9,961
Inventories 52,663 46,280
Prepaid expenses and other current assets 2,176 2,527
Total current assets 72,328 66,624
Property, plant and equipment:
Land and land improvements 9,046 9,346
Buildings 21,962 20,216
Fixtures and equipment 36,818 28,466
Leasehold improvements 20,446 17,488
Software 7,181 5,396
Leased assets under capital leases 8,737 9,053
Construction in progress 19 3,278
104,209 93,243
Less, accumulated depreciation
and amortization 30,728 20,832
Net property, plant and equipment 73,481 72,411
Reorganization value in excess of amounts
allocable to identifiable assets, less
accumulated amortization of $40,908 and
$34,018 at January 1, 2000, and January 2,
1999, respectively - 7,791
Other assets and deferred charges 22,045 12,378
Total assets $ 167,854 $ 159,204
Continued
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
January 1, January 2,
2000 1999
Current liabilities:
Accounts payable - trade $ 22,968 $ 20,267
Salaries and wages 3,168 2,827
Taxes 3,616 3,093
Accrued interest payable 2,671 2,622
Other current liabilities 6,992 8,548
Current portion of long-term debt 2,918 1,728
Current portion of obligations under capital
leases 501 1,235
Total current liabilities 42,834 40,320
Long-term obligations:
Long-term debt 94,668 83,852
Obligations under capital leases 1,197 1,700
Other noncurrent liabilities 1,501 1,464
Total long-term obligations 97,366 87,016
Commitments and contingencies - -
Stockholders' equity:
Common stock $0.01 par value, authorized -
7,500,000 shares, issued 4,917,860 shares
and 4,904,417 shares at January 1, 2000,
and January 2, 1999, respectively 49 49
Additional paid-in capital 56,254 56,174
Accumulated deficit (28,649) (24,355)
Total stockholders' equity 27,654 31,868
Total liabilities and stockholders' equity $ 167,854 $ 159,204
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
52 weeks 52 weeks 53 weeks
ended ended ended
January 1, January 2, January 3,
2000 1999 1998
Sales, net $ 559,554 $ 529,576 $ 527,993
Cost of sales 425,394 402,261 401,691
Gross profit 134,160 127,315 126,302
Selling and administrative expenses 120,594 114,335 112,590
Amortization of excess reorganization
value 6,890 13,672 14,527
Asset Impairment 925 - -
Operating profit (loss) 5,751 (692) (815)
Gain (loss) on disposal of assets (15) 34 (117)
Interest income 569 426 385
Interest expense (9,011) (8,484) (8,408)
Loss before income taxes (2,706) (8,716) (8,955)
Income tax provision (1,588) (1,875) (1,689)
Net loss $ (4,294) $ (10,591) $ (10,644)
Basic and diluted earnings per share:
Net loss per share $ (0.87) $ (2.18) $ (2.23)
Weighted average shares outstanding 4,911,958 4,857,130 4,782,938
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<TABLE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, December 28, 1996 4,758,025 $ 48 $ 56,013 $ (3,120) $ 52,941
Net loss - - - (10,644) (10,644)
Issuance of common stock 62,612 - 27 - 27
Balance, January 3, 1998 4,820,637 48 56,040 (13,764) 42,324
Net loss - - - (10,591) (10,591)
Issuance of common stock 83,780 1 134 - 135
Balance, January 2, 1999 4,904,417 49 56,174 (24,355) 31,868
Net Loss - - - (4,294) (4,294)
Issuance of common stock 13,443 - 80 - 80
Balance, January 1, 2000 4,917,860 $ 49 $ 56,254 $ (28,649) $ 27,654
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<TABLE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
<CAPTION>
52 weeks 52 weeks 53 weeks
ended ended ended
January 1, January 2, January 3,
2000 1999 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,294) $ (10,591) $ (10,644)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 10,427 9,802 8,404
Amortization of beneficial interest in operating leases 121 121 121
Amortization of excess reorganization value 6,890 13,672 14,527
Amortization of goodwill 226 - -
Amortization of financing costs 42 120 64
Loss (gain) on disposal of assets 15 (34) 117
Asset impairment 925 - -
Deferred income taxes 1,451 1,699 1,589
Change in assets and liabilities:
Increase in receivables (1,392) (648) (791)
Increase in inventories (2,355) (334) (937)
Decrease in prepaid expenses and other current assets 458 54 179
Increase in other assets and deferred charges (2,498) (2,487) (2,722)
Increase in accounts payable - trade 2,701 1,326 1,525
Increase (decrease) in salaries and wages 293 319 (991)
Increase (decrease) in taxes 426 (512) 702
Increase (decrease) in accrued interest payable 49 3 (70)
Increase (decrease) in other current liabilities (1,813) (1,494) 1,572
Increase (decrease) in other non-current liabilities 69 (531) (283)
Net cash provided by operating activities 11,741 10,485 12,362
Continued
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<TABLE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands, except share and per share amounts)
<CAPTION>
52 weeks 52 weeks 53 weeks
ended ended ended
January 1, January 2, January 3,
2000 1999 1998
<S> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures (8,980) (12,404) (14,021)
Store acquisitions (2,374) - -
Cash received from sale of assets 750 775 70
Net cash used in investing activities (10,604) (11,629) (13,951)
Cash flows from financing activities:
Payments under term loan (1,667) (1,667) (833)
Borrowings under revolving credit loans 142,707 129,567 141,463
Payments under revolving credit loans (137,400) (122,340) (134,106)
Principal payments under notes payable (46) (61) (61)
Principal payments under AWG notes (5,294) - -
Principal payments under capital lease obligations (1,237) (1,412) (1,615)
Proceeds from issuance of common stock 80 135 27
Net cash provided by (used in) financing activities (2,857) 4,222 4,875
Net increase (decrease) in cash and cash equivalents (1,720) 3,078 3,286
Cash and cash equivalents at beginning of period 7,856 4,778 1,492
Cash and cash equivalents at end of period $ 6,136 $ 7,856 $ 4,778
Supplemental information:
Cash paid during the period for interest $ 8,993 $ 8,419 $ 8,414
Cash paid during the period for income taxes $ 110 $ 100 $ 100
Supplemental schedule of non-cash investing activities:
Capital lease obligations assumed $ - $ 453 $ 1,161
Debt assumed in acquisitions $ 13,706 $ - $ -
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-8
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(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, its consolidated
subsidiary, Homeland, Homeland's wholly-owned subsidiary, SLB Marketing,
Inc., and SLB's wholly-owed subsidiary, JCH Beverage, Inc., are
collectively referred to herein as the "Company." 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.
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 stockholders' equity which
is as follows:
January 1, January 2,
2000 1999
Homeland stockholder's equity:
Common stock, $.01 par value,
authorized, issued and
outstanding 100 shares $ 1 $ 1
Additional paid-in capital 56,302 56,222
Accumulated deficit (28,649) (24,355)
Total Homeland stockholder's
equity $ 27,654 $ 31,868
2. Summary of Significant Accounting Policies:
Fiscal year - The Company has adopted a fiscal year which ends on the
Saturday nearest December 31.
Basis of consolidation - The consolidated financial statements include the
accounts of Homeland Holding Corporation and its wholly-owned subsidiaries.
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.
F-10
2. 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.
Inventories - Inventories are stated at the lower of cost or market, with
cost being determined primarily using the gross margin method.
Property, plant and equipment - In conjunction with the emergence from
Chapter 11 proceedings in August, 1996, the Company implemented "fresh-
start" reporting and, accordingly, all property, plant and equipment was
restated to reflect reorganization value, which approximates fair value in
continued use. 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. Property, plant and equipment acquired subsequent to
"fresh start" are stated at cost. Depreciation and amortization of newly
acquired assets, 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
Software 3 - 5
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.
F-11
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
2. Summary of Significant Accounting Policies, continued:
Reorganization value in excess of amounts allocable to identifiable assets
- The Company's reorganization value in excess of amounts allocable to
identifiable assets, established in accordance with "fresh start"
reporting, had been amortized on a straight-line basis over three years
and became fully amortized in the third quarter of 1999.
Store Closings / Asset Impairment - Provision is made on a current basis
for the write-down of identified owned-store closings to their net
realizable value. For identified leased-store closings, leasehold
improvements are written down to their net realizable value and a provision
is made on a current basis if anticipated expenses are in excess of
expected sublease rental income. The Company's long-lived assets,
including goodwill, are reviewed for impairment and written down to fair
value whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.
Other assets and deferred charges - Other assets and deferred charges
consist primarily of patronage refund certificates issued by AWG (as part
of its year-end distribution of income from AWG's cooperative operations),
beneficial interests in operating leases, and goodwill acquired in the
Company's 1999 acquisitions. The beneficial interest in operating leases
is being amortized on a straight-line basis over the remaining terms of the
leases, including all available renewal option periods, and the goodwill is
being amortized over a 15 year period. The AWG patronage refund
certificates bear annual interest of 6% and are redeemable for cash seven
years from the date of issuance. The carrying value of certificates,
including those earned not yet received, at January 1, 2000 and January 2,
1999 was $11,726 and $9,118, respectively.
Earnings per share - The Company presents the two earnings per share
("EPS") amounts as required under Statement of Accounting Standard No. 128,
Earnings Per Share ("SFAS 128"). Basic EPS is computed using the weighted
average number of common shares outstanding. Diluted earnings per share is
computed using the weighted average number of common shares outstanding and
equivalent shares based on the assumed exercise of stock options and
warrants (using the treasury method).
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.
Advertising costs - Costs of advertising are expensed as incurred. Gross
advertising costs for 1999, 1998 and 1997, were $9,112, $8,349 and $7,906,
respectively.
F-12
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
2. 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 amounts expected to be realized.
Self-insurance reserves - The Company is self-insured for property loss,
general liability and automotive liability coverage subject to specific
retention levels. Estimated costs of these self-insurance programs are
accrued based on projected settlements for claims using actuarially
determined loss development factors based on the Company's prior experience
with similar claims. Any resulting adjustments to previously recorded
reserves are reflected in current operating results.
Pre-opening costs - Store pre-opening costs are charged to expense as
incurred.
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 self-insurance programs, the
deferred income tax valuation allowance, the accumulated benefit obligation
relating to the employee retirement plan and the allowance for bad debts.
It is reasonably possible that the Company's estimates for such items could
change in the near term.
Comprehensive Income - There were no components of other comprehensive
income during the three year period ended January 1, 2000.
3. Store Acquisitions:
In April 1999, the Company completed its acquisition of nine stores from
AWG, in eastern Oklahoma. The net purchase price was $1.3 million which
represents $5.6 million for real property, fixtures and equipment and
goodwill, plus $2.3 million for inventory, $0.2 million for transaction
costs, offset by $6.8 million in long-term debt assumed by the Company.
The
F-13
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
3. Store Acquisitions, continued:
Company acquired title to one store and leases the remaining eight from
AWG. The one store to which Homeland acquired title in Pryor, Oklahoma,
was closed (and subsequently sold to a non-grocery user) as a result of the
proximity to an existing Company store. The Company financed this
acquisition principally through the assumption of $6.8 million in long-term
debt, together with increased borrowings under its Revolving Facility. The
debt incurred by the Company to AWG is secured by liens on, and security
interest in, the assets associated with the nine stores. Subsequent to the
closing of the acquisition, the Company repaid a portion of its
indebtedness to AWG which related to inventory and the Pryor store which
was sold. Therefore, AWG released its security interest in the inventory
and the assets relating to the Pryor store.
In November 1999, the Company completed its acquisition of four stores from
Brattain Foods, Inc. ("BFI"), in Muskogee, Oklahoma. The net purchase
price was $1.1 million which represents $6.0 million for fixtures and
equipment and goodwill, plus $1.9 million for inventory, $0.2 million for
transaction costs, offset by $7.0 million of long-term debt (BFI's
obligation to AWG) assumed by the Company. The Company will lease three
of the stores from AWG and lease the fourth from a third party. The Company
financed this acquisition principally through the assumption of $7.0
million in long-term debt, together with increased borrowings under its
Revolving Facility. The debt incurred by the Company to AWG is secured by
liens on, and security interest in, the assets associated with the four
stores. Subsequent to the closing of the acquisition, the Company repaid a
portion of its indebtedness to AWG, which related to inventory and
therefore, AWG released its security interest in the inventory.
The result of operations from these stores from the acquisition date
through fiscal year-end are included in the fiscal 1999 Consolidated
Statements of Operations.
On January 18, 2000, the Company entered into an agreement in principle
to acquire three Price Chopper Stores, in Oklahoma City, operated by Belton
Food Center, Inc. ("BFC"). On February 29, 2000, the Company completed
its acquisition of these three stores from BFC. The net purchase price
was $0.2 million which represents $4.2 million for fixtures and equipment,
leasehold improvements and goodwill, plus $2.0 million for inventory, $0.2
million for transaction costs, offset by $6.2 million of long-term debt
(BFC's obligation to AWG) assumed by the Company. The Company will lease
all three of the stores from AWG. The Company financed this acquisition
principally through the assumption of $6.2 million in long-term debt,
together with increased borrowings under its Revolving Facility. The
F-14
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
3. Store Acquisitions, continued:
debt incurred by the Company to AWG is secured by liens on, and security
interest in, the assets associated with the three stores. Subsequent to the
closing of the acquisition, the Company repaid a portion of its
indebtedness to AWG, which related to inventory and therefore, AWG released
its security interest in the inventory.
On February 18, 2000, the Company signed a letter of intent with Fleming
Companies Inc. for the purchase of four Baker's Supermarkets, including one
store which is under construction. Consummation of the transaction, which
is expected during the second quarter of 2000, is subject to, among other
things, the execution of a definitive purchase agreement, completion of due
diligence, and certain customary closing conditions. The financing for
this acquisition will be accomplished through the utilization of the
Company's Revolving Facility.
4. Asset Impairment:
During 1999, the Company made the decision to dispose of a previously
closed store and related assets. The Company decided to sell these assets
rather than continue the previous plan of leasing the assets. The carrying
value of the assets held for sale was reduced to a value of $385, based
on current estimates of selling value less costs to dispose. The resulting
adjustment of $925 was recorded. Subsequent to year end, the assets were
sold for an amount which approximated the then carrying value.
5. Long-Term Debt:
Long-term debt at year-end consists of:
January 1, January 2,
2000 1999
10% Notes due 2003 (the "Notes") $ 60,000 $ 60,000
Term Loan 5,833 7,500
Revolving Credit Loans 23,194 17,887
AWG Loans 8,412 -
Note Payable 147 193
97,586 85,580
Less current portion 2,918 1,728
Long-term debt due after one year $ 94,668 $ 83,852
The Notes bear an interest rate of 10%, which is payable semi-annually each
February 1 and August 1. The Notes are uncollateralized and will mature
on August 1, 2003. The Indenture relating to the New Notes has certain
customary restrictions on consolidations and mergers, indebtedness,
issuance of preferred stocks, asset sales and payment of dividends.
F-15
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
5. Long-Term Debt, continued:
The Loan Agreement, as amended, consists of a $37,000 revolving facility
for working capital and letters of credit (the "Revolving Facility"), a
$10,000 term loan (the "Term Loan") and an additional term loan of $5,000
for acquisitions ("Acquisition Term Loan"). The Revolving Facility permits
the Company to borrow up to the lesser of $37,000 or the applicable
borrowing base. As of January 1, 2000, there were no borrowings outstanding
under the Acquisition Term Loan facility.
The interest rate, payable quarterly, under the Loan Agreement is based on
the Prime Rate, as defined, plus a percentage that varies based on a number
of factors, including (a) whether it is the Revolving Facility or the Term
Loan, (b) the time period, and (c) whether the Company elects to use the
London Interbank Offered Rate. At January 1, 2000, the interest rate on
borrowings on the Revolving Facility was 8.73% (weighted average) and the
Term Loan was 8.87%.
The Revolving Facility provides for certain mandatory prepayments based on
occurrence of certain defined and specified transactions. The Term Loan
requires quarterly principal payments of $417 and will mature, along with
the Revolving Facility, on August 2, 2002.
The obligations of the Company under the Loan Agreement are collateralized
by liens on, and a security interest in, substantially all of the assets of
Homeland and are guaranteed by Holding. The Loan Agreement, among other
things, requires a maintenance of EBITDA, consolidated fixed charge ratio,
debt-to-EBITDA ratio, current ratio, excess cash flow paydown, each as
defined, and limits the Company's capital expenditures, incurrence of
additional debt, consolidation and mergers, acquisitions and payments of
dividends.
The obligations of the Company as it relates to AWG Loans are secured
by liens on, and security interest in, the fixtures and equipment
associated with the stores acquired in 1999, as referenced in Note 3.
Each of the AWG Loans is a seven-year note, which is amortized weekly,
and has interest rates associated with it equal to the prime rate plus
1%. At January 1, 2000, the interest rate was 9.50%.
At January 1, 2000, the aggregate annual debt maturities were as follows:
2000 $ 2,918
2001 2,907
2002 27,042
2003 61,420
2004 1,535
Thereafter 1,764
$ 97,586
F-16
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
5. Long-Term Debt, continued:
The Company has outstanding at January 1, 2000, $912 in letters of credit
which are not reflected in the accompanying financial statements. The
letters of credit are issued under the credit agreements and the Company
paid associated fees of $12, $43, and $146 in 1999, 1998 and 1997,
respectively.
6. Stockholders' Equity:
At January 1, 2000, the Company has warrants outstanding to purchase
263,158 shares of common stock. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $11.85 at any
time up to August 2, 2001.
7. Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, receivables, AWG
patronage refund certificates, accounts payable and accrued expenses and
other liabilities are reasonable estimates of their fair values. Based on
borrowing rates currently available to the Company for borrowings with
similar terms and maturities, the Company believes the carrying amount of
borrowings under the Loan Agreement and the AWG Loans approximate fair
value. The fair value of publicly-traded debt is valued based on quoted
market values. At January 1, 2000, the carrying amount and the fair value
of the Notes were $60,000 and $48,330, respectively.
8. Income Taxes:
The components of the income tax provision for 1999, 1998 and 1997 were as
follows:
52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended
January 1, January 2, January 3,
Federal and State:
Current - AMT $ (137) $ (176) $ (100)
Deferred (1,451) (1,699) (1,589)
Total income tax provision $ (1,588) $ (1,875) $ (1,689)
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:
52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended
January 1, January 2, January 3,
Federal income tax benefit
at statutory rate $ 947 $ 3,051 $ 3,134
Amortization of intangibles (2,412) (4,785) (5,084)
Change in valuation
allowance (123) (141) 261
Total income tax provision $ (1,588) $ (1,875) $ (1,689)
F-17
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
8. Income Taxes, continued:
The components of deferred tax assets and deferred tax liabilities are as
follows:
January 1, January 2,
2000 1999
Current assets (liabilities):
Allowance for uncollectible
receivables $ 517 $ 340
Prepaid pension (224) (347)
Other, net 22 19
Net current deferred tax assets 315 12
Noncurrent assets (liabilities):
Property, plant and equipment 2,221 1,402
Employee compensation and benefits 285 262
Self-insurance reserves 606 574
Net operating loss carryforwards 11,210 12,668
AMT credit carryforwards 963 826
Capital leases (71) 5
Other, net 627 (177)
Net noncurrent deferred tax
assets 15,841 15,560
Total net deferred tax assets 16,156 15,572
Valuation allowance (16,156) (15,572)
Net deferred tax assets $ - $ -
Due to the uncertainty of realizing the future tax benefits, a full
valuation allowance was deemed necessary to entirely offset the net
deferred tax assets as of January 1, 2000, and January 2, 1999. If the
Company's current trend toward profitability continues, then net deferred
tax assets of up to $16.2 million could be recognized. At January 1, 2000,
the Company had the following operating loss and tax credit carryforwards
available for tax purposes:
F-18
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
8. Income Taxes, continued:
Expiration
Amount Dates
Federal regular tax net
operating loss carryforwards $29,499 2002-2010
Federal AMT credit carryforwards
against regular tax $963 indefinite
The net operating loss carryforwards are subject to utilization limitations
due to ownership changes. The net operating loss carryforwards may be
utilized to offset future taxable income as follows: $5,147 in 2000, $3,251
in each of years 2001 through 2007 and $1,595 in 2009. Loss carryforwards
not utilized in any year that they are available may be carried over and
utilized in subsequent years, subject to their expiration provisions.
In accordance with SOP 90-7, the tax benefit realized from utilizing the
pre-reorganization net operating loss carryforwards is recorded first as
a reduction of the reorganization value in excess of amounts allocable to
identifiable assets, then as a reduction of noncurrent intangible assets
existing at the reorganization date, and finally as an increase to
stockholders' equity rather than realized as a benefit in the statement
of operations. The Company recorded $1,451 and $1,699 of reductions to
reorganization value and/or intangible assets in 1999 and 1998,
respectively.
9. Incentive Compensation Plans:
The Company has bonus arrangements for store management and other key
management personnel. During 1999, 1998, and 1997, approximately $1,760,
$1,480 and $981, respectively, were charged to costs and expenses for such
bonuses.
In December 1996, the Board of Directors of the Company adopted the
Homeland Holding Corporation 1996 Stock Option Plan (the "Stock Option
Plan"). In 1997, the Company established the 1997 Non-Employee Directors
Stock Option Plan (the "Directors Stock Option Plan"). The Company applies
APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for these plans. SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") was issued by the FASB in
F-19
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
9. Incentive Compensation Plans, continued:
1995 and, if fully adopted, changes the methods for recognition of expense
on plans similar to the Company's. Adoption of SFAS 123 is optional;
however, pro forma disclosures as if the Company adopted the cost
recognition requirements under SFAS 123 in 1999, 1998 and 1997 are
presented below.
The Stock Option Plan and the Directors Stock Option Plan, to be
administered by the Board of Directors (the "Board"), or a committee of
the Board (the "Committee"), provides for the granting of options to
purchase up to an aggregate of 432,222 and 200,000 shares of Common Stock,
respectively. Options granted under the plans must be "non-qualified
options." The option price of each option is determined by the Board or
the Committee and it must be not less than the fair market value at the
date of grant. Unless the Board or the Committee otherwise determines,
options must become exercisable ratably over a five-year period or
immediately in the event of a "change of control" as defined in each of the
plans. Each option must be evidenced by a written agreement and must expire
and terminate on the earliest of: (a) ten years from the date the option
is granted; (b) termination for cause; or (c) three months after
termination for other than cause.
Options granted under the Company's stock option plans have exercise prices
ranging from $3.00 to $7.63 per share and have a weighted average remaining
contractual life of 8.5 years. A summary of the status of the Company's
outstanding stock options as of January 1, 2000, January 2, 1999, and
January 3, 1998, and changes during the years ended on those dates is as
follows:
1999 1998 1997
Wgtd. Avg. Wgtd. Avg. Wgtd. Avg.
Exer. Exer. Exer.
Shares Price Shares Price Shares Price
Outstanding as of
beginning of
year 429,000 $ 6.09 198,500 $ 7.48 197,500 $ 8.00
Granted 120,500 3.01 319,000 5.64 136,000 7.24
Exercised - - 13,200 6.50 - -
Forfeited 7,500 7.63 75,300 7.80 135,000 8.00
Outstanding at
end of
year 542,000 5.38 429,000 6.09 198,500 7.48
F-20
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
8. Incentive Compensation Plans, continued:
Stock options outstanding and exercisable on January 1, 2000 are as
follows:
Shares Weighted average Weighted average
Range of exercise under exercise price remaining contractual
prices per share option per share life in years
Outstanding:
$3.00 - $3.63 200,500 $3.22 9.1
4.75 - 7.63 341,500 6.65 8.1
$3.00 - $7.63 542,000 $5.38 8.5
Exercisable:
$3.00 - $3.63 46,000 $3.19 -
4.75 - 7.63 168,500 7.09 -
$3.00 - $7.63 214,500 $6.26 -
The weighted average fair value of options granted during 1999, 1998 and
1997 was $1.46, $2.83 and $3.53, respectively. No compensation was charged
against income in 1999, 1998 and 1997.
The fair value of the options granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions
used:
1999 1998 1997
Expected dividend yield 0% 0% 0%
Expected stock price volatility 40% 37% 39%
Weighted average risk-free
interest rate 5.8% 5.3% 6.4%
Weighted average expected
life of options 6 years 6 years 8 years
Had compensation cost of the Company's option plans determined using the
fair value at the grant date of awards consistent with the method of SFAS
123, the Company's net loss and
F-21
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
9. Incentive Compensation Plans, continued:
net loss per common share for the Successor Company would have been reduced
to the pro forma amounts indicated in the table below:
1999 1998 1997
Net loss - as reported $ (4,294) $ (10,591) $ (10,644)
Net loss - pro forma $ (4,466) $ (10,722) $ (10,846)
Basic EPS - as reported $(0.87) $ (2.18) $ (2.23)
Basic EPS - pro forma $(0.91) $ (2.21) $ (2.27)
No options or warrants outstanding at January 1, 2000, January 2, 1999,
and January 3, 1998, were included in the computation of diluted earnings
per share because the effect would be antidilutive to applicable periods.
Pursuant to the terms of the Union Agreements, the Company established an
employee stock bonus plan for the benefit of the unionized employees (the
"Stock Bonus Plan"). The Stock Bonus Plan consists of three separate
elements: (a) the issuance of 58,025 shares of Common Stock each plan year
of the three year period ended July 31, 1999; (b) up to 58,025 shares of
Common Stock may be purchased by the plan participants during each plan
year of the three year period ending July 31, 2000 (the "Stock Purchase")
and (c) the granting of 58,025 shares of Common Stock for each plan year
of the three year period ended July 31, 1999 upon the Company's achievement
of certain escalating EBITDA-based performance goals. The purchase price
of the shares under the Stock Purchase element shall be equal to their
appraised value or at fair value if the shares are readily tradable on a
securities market. For each share of Common Stock purchased by a
participant under the Stock Purchase element, the Company will match 33
1/3% of such purchase in the form of stock. The Stock Bonus Plan does not
fall under the provisions of SFAS 123.
10. 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. Plan assets were invested in mutual funds during 1999, 1998 and
1997.
F-22
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
10. Retirement Plans, continued:
Information regarding the plan follows:
1999 1998
Change in benefit obligation:
Benefit obligation at beginning
of year $ 11,432 $ 9,911
Service cost 562 514
Interest cost 792 725
Actuarial (gain) loss (1,980) 513
Benefits paid (278) (231)
Benefit obligation at end of year $ 10,528 $ 11,432
Change in plan assets:
Fair value of plan assets at
beginning of year $ 10,692 $ 9,673
Actual return on plan assets 820 1,075
Employer contribution - 175
Benefits paid (278) (231)
Fair value of plan assets at
end of year $ 11,234 $ 10,692
Reconciliation of funded status:
Funded status $ 707 $ (739)
Unrecognized net actuarial (gain) loss (66) 1,793
Unrecognized prior service cost (51) (62)
Prepaid benefit cost $ 590 $ 992
Weighted-average assumptions as
of end of year:
Discount rate 7.75% 6.75%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase
Before Age 35 5.50% 5.50%
Ages 35 - 49 4.50% 4.50%
After Age 49 3.50% 3.50%
Components of net periodic pension cost: 1999 1998 1997
Service Cost $ 562 $ 514 $ 449
Interest Cost 792 725 630
Expected return on plan assets (953) (868) (748)
Amortization of prior service cost (11) (11) (11)
Recognized net actuarial loss 11 46 7
Net periodic pension cost $ 401 $ 406 $ 327
The Company also contributes to various union-sponsored, multi-employer
defined benefit plans in accordance with 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
F-23
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
10. Retirement Plans, continued:
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
1999, 1998, and 1997, were $1,271, $1,235 and $1,188, respectively.
Effective January 1, 1988, the Company adopted a defined contribution plan
covering substantially all non-union employees of the Company.
Participants may contribute from 1% to 12% of their pre-tax compensation.
The plan allows for a discretionary Company matching contribution formula
based on the Company's operating results. The Company did not make any
contributions to this plan in 1999, 1998 or 1997.
11. Leases:
The Company leases 65 of its retail store locations under noncancellable
agreements, which expire at various times between 2000 and 2030. 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 in excess of certain stipulated amounts.
Leased assets under capital leases consists of the following:
January 1, January 2,
2000 1999
Buildings $ 2,554 $ 2,706
Equipment 3,169 3,174
Beneficial interest in capital leases 3,014 3,173
8,737 9,053
Less accumulated amortization 4,163 3,204
Net leased assets $ 4,574 $ 5,849
F-24
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
11. Leases, continued:
Future minimum lease payments under capital leases and noncancellable
operating leases as of January 1, 2000, are as follows:
Capital Operating
Fiscal Year Leases Leases
2000 $ 707 $ 8,164
2001 276 7,128
2002 182 5,687
2003 182 5,087
2004 182 4,475
Thereafter 1,107 21,385
Total minimum obligations 2,636 $ 51,926
Less estimated interest 938
Present value of net minimum
obligations 1,698
Less current portion 501
Long-term obligations under
capital leases $ 1,197
Rent expense for 1999, 1998 and 1997 is as follows:
1999 1998 1997
Minimum rents $ 7,200 $ 6,680 $ 6,067
Contingent rents 86 115 105
$ 7,286 $ 6,795 $ 6,172
12. Commitments and Contingencies:
In 1995, the Company and AWG entered into a seven-year supply agreement
(the "Supply Agreement"), whereby the Company became a retail member of the
AWG cooperative and AWG became the Company's primary supplier (see Note 2
- Concentrations of credit and business risk). The terms of the Supply
Agreement allow the Company to purchase products at the lowest prices and
best terms available to AWG members and also entitle the Company to
F-25
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except, share and per share amounts)
12 Commitments and Contingencies, continued:
participate in its store savings programs and receive member rebates and
refunds on purchases. In addition, the Supply Agreement includes certain
Volume Protection Rights, as defined therein.
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 party to various lawsuits arising from the 1996 Chapter 11
proceedings and also 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.
13. Fourth Quarter Items:
In the fourth quarter of 1999, the Company received a return of net
premiums totaling $1,332 related to the final settlement of pre-bankruptcy
workers compensation claims. Also, the Company increased its reserves
for doubtful accounts by approximately $600 related to the uncertainty
of collection of accounts receivable from a vendor. Each of these amounts
impacted selling and administrative expenses for the quarter.
14. Subsequent Event:
On March 9, 2000, the Company received a letter from the U.S. Department
of Labor alleging violations, applicable to a limited number of the
Company's employees, of certain wage laws. The Company has engaged legal
counsel and is currently investigating the allegations. At this time,
it is not possible to reasonably estimate the amount, if any, of the
financial impact.
F-26
EXHIBIT INDEX
Exhibit No. Description
2a Disclosure Statement for Joint Plan of Reorganization of
Homeland Stores, Inc. ("Homeland") and Homeland Holding
Corporation ("Holding") 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 and Holding, 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. (Incorporated by reference to Form 10 filed
as of November 20, 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. (Incorporated by reference to Form 10 filed
as of November 20, 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 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.)
4b Warrant Agreement, dated as of August 2, 1996, between
Holding and Liberty Bank and Trust Company of Oklahoma City,
N.A., as Warrant Agent. (Incorporated by reference to
Exhibit 4h to Amendment No. 1 to Form 10.)
4c Equity Registration Rights Agreement, dated as of August 2,
1996, by Holding for the benefit of holders of Old Common
Stock. (Incorporated by reference to Exhibit 4i to
Amendment No. 1 to Form 10.)
4d Noteholder Registration Rights Agreement, dated as of August
2, 1996, by Holding for the benefit of holders of Old Notes.
(Incorporated by reference to Exhibit 4j to Amendment No. 1
to Form 10.)
10a 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.)
10a.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.)
E-1
Exhibit No. Description
10b 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.)
10c 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.)
10d.1 1 1995 Homeland Management Incentive Plan. (Incorporated by
reference to Exhibit 10s.7 to Form 10-K for fiscal year ended
December 30, 1995.)
10d.21 1996 Homeland Management Incentive Plan. (Incorporated by
reference to Exhibit 10.d3 to Form 10-K for fiscal year ended
December 28, 1996.)
10d.31 1997 Homeland Management Incentive Plan.
10e 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.)
10e.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.)
10e.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.)
10e.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.)
10e.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.)
10e.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.)
10f 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.)
10g 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.)
E-2
Exhibit No. Description
10h1 Employment Agreement dated as of February 25, 1998, between
Homeland and Steven M. Mason.
10i1 Employment Agreement dated as of February 17, 1998, between
Homeland and David B. Clark.
10j 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.)
10k1 Employee Stock Bonus Plan for union employees effective as of
August 2, 1996. (Incorporated by reference to Exhibit 10s to
Form 10-K for fiscal year ended December 28, 1996.)
10l1 Management Stock Option Plan effective as of December 11,
1996. (Incorporated by reference to Exhibit 10t to Form 10-K
for fiscal year ended December 28, 1996.)
10m Loan Agreement dated as of December 17, 1998, among IBJ
Schroder Business Credit Corporation, Heller Financial, Inc.,
and National Bank of Canada, Homeland and Holding.
10n1 1998 Homeland Management Incentive Plan.
10o1 Employment Agreement dated as of July 6, 1998, between
Homeland and Wayne S. Peterson.
10p1 Employment Agreement dated as of September 14, 1998, between
Homeland and John C. Rocker.
10q1 Letter agreement regarding severance arrangements dated as of
December 8, 1998, between Homeland and Steven M. Mason.
10r1 Letter agreement regarding severance arrangements dated as of
December 8, 1998, between Homeland and Prentess E. Alletag,
Jr.
10s1 Letter agreement regarding severance arrangements dated as of
December 8, 1998, between Homeland and Deborah A. Brown.
10t1 Stock Option Agreement dated as of October 21, 1998, between
Homeland and Wayne S. Peterson.
10u1 Stock Option Agreement dated as of September 14, 1998,
between Homeland and John C. Rocker.
10v*1 Letter agreement regarding severance arrangements dated as of
December 8, 1999, between Homeland and Prentess E. Alletag,
Jr.
10w*1 Letter agreement regarding severance arrangements dated as of
December 8, 1999, between Homeland and Deborah A. Brown.
10x*1 Letter agreement regarding severance arrangements dated as of
December 8, 1999, between Homeland and Steven M. Mason.
E-3
Exhibit No. Description
10y*1 Letter agreement regarding severance arrangements dated as of
December 8, 1999, between Homeland and John C. Rocker.
10z First Amendment to Loan Agreement dated as of December 17,
1998, among IBJ Whitehall Business Credit Corporation, Heller
Financial, Inc., and National Bank of Canada, Homeland and
Holding.
11a Second Amendment to Loan Agreement dated as of December 17,
1998, among IBJ Whitehall Business Credit Corporation, Heller
Financial, Inc., and National Bank of Canada, Homeland and
Holding.
11b Third Amendment to Loan Agreement dated as of December 17,
1998, among IBJ Whitehall Business Credit Corporation, Heller
Financial, Inc., and National Bank of Canada, Homeland and
Holding.
11c Fourth Amendment to Loan Agreement dated as of December 17,
1998, among IBJ Whitehall Business Credit Corporation, Heller
Financial, Inc., and National Bank of Canada, Homeland and
Holding.
11d Fifth Amendment to Loan Agreement dated as of December 17,
1998, among IBJ Whitehall Business Credit Corporation, Heller
Financial, Inc., and National Bank of Canada, Homeland and
Holding.
21* Subsidiaries.
23* Consent of Independent Accountants.
27* Financial Data Schedule.
E-4
FIRST AMENDMENT TO LOAN AGREEMENT
This FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made
and entered into effective as of April 23, 1999 by and among the following
parties:
(a) HOMELAND STORES, INC. ("Borrower"), a Delaware corporation,
(b) HOMELAND HOLDING CORPORATION ("Parent"), a Delaware corporation
(Borrower and Parent are sometimes hereinafter collectively
referred to as the "Companies" and individually as a "Company"),
(c) IBJ WHITEHALL BUSINESS CREDIT CORPORATION ("IBJ"), formerly IBJ
Schroder Business Credit Corporation, the assignee of IBJ
Schroder Bank & Trust Company,
(d) HELLER FINANCIAL, INC. ("Heller"),
(e) NATIONAL BANK OF CANADA ("NBC"),
(such lenders and other financial institutions and their
respective successors and assigns, individually, a "Lender" and
collectively, the "Lenders"), and
(f) NBC, as agent for the Lenders (in such capacity, the "Agent").
RECITALS:
A. Pursuant to that certain Loan Agreement dated as of December 17, 1998,
by and among Borrower, Parent, Lenders and Agent, (as the same may be amended,
renewed, extended, restated or otherwise modified from time to time, the "Loan
Agreement"), Lenders agreed to provide to Borrower a senior secured revolving
credit and letter of credit facility in the maximum aggregate principal amount
of Thirty-Two Million Dollars ($32,000,000), a senior secured term loan facility
in the maximum aggregate principal amount of Ten Million Dollars ($10,000,000)
and two secured acquisition term loan facilities in the maximum aggregate
principal amount of Ten Million Dollars ($10,000,000).
B. Borrower and Parent have requested that Agent and Lenders amend the
Loan Agreement, to reflect Borrower's acquisition of certain property and assets
originally owned by Horner Foods, Inc. from Associated Wholesale Grocers, Inc.
(the "Horner Acquisition").
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Terms Defined. Unless otherwise defined in this Amendment, each
capitalized term used in this Amendment has the meaning given to such term in
the Loan Agreement (as amended by this Amendment).
2. Amendment to Consolidated Tax Expense. Section 1.1 of the Loan
Agreement is hereby amended by amending the following definition contained
therein to read in its entirety as follows:
"Consolidated Tax Expense" of any Person for any period shall mean
the amount of taxes upon or determined by reference to such Person's net
income, in each case, paid by such Person during such period.
3. Amendment to Supply Agreement. Section 1.1 of the Loan Agreement is
hereby amended by amending the following definition contained therein to read in
its entirety as follows:
"Supply Agreement" shall mean (i) the Supply Agreement, dated as of
April 21, 1995, by and between AWG and Borrower, as amended by that certain
First Amendment to Supply Agreement, dated effective as of August 2, 1996, and
(ii) the Supply Agreement, dated as of April 23, 1999, by and between AWG and
Borrower.
4. Amendment to Schedules. The Loan Agreement is hereby amended as
follows:
(a) Environmental Report Stores. Schedule 12.18 is amended by
supplementing the existing Schedule 12.18 with Schedule 12.18 attached
hereto.
(b) Existing Liens. Schedule 13.2(c) is amended by supplementing
the existing Schedule 13.2(c) with Schedule 13.2(c) attached hereto.
(c) Existing Indebtedness for Borrowed Money and Contingent
Obligations. Schedule 13.3(c) is amended by supplementing the existing
Schedule 13.3(c) with Schedule 13.3(c) attached hereto.
(d) Real Property. Schedule 15.5(a) is amended by supplementing the
existing Schedule 15.5(a) with Schedule 15.5(a) attached hereto.
(e) Environmental Information. Schedule 15.15 is amended by
supplementing the existing Schedule 15.15 with Schedule 15.15 attached
hereto.
5. Amendment to Form of Borrowing Base Certificate. Exhibit 12.1(j) to
the Loan Agreement is amended and restated to read in its entirety as set forth
on Exhibit 12.1(j) attached hereto.
6. Representations and Warranties. Each Company hereby represents
and warrants to Agent and Lenders that, as of the date of and after giving
effect to this Amendment, (a) the execution, delivery and performance of this
Amendment has been authorized by all requisite corporate action on the part of
each Company and will not violate the corporate charter or bylaws any Company,
(b) all representations and warranties set forth in the Loan Agreement and in
any other Loan Documents are true and correct, in all material respects, as
if made again on and as of such date (including, without limitation, the
representations and warranties previously made as of the Closing Date in the
Loan Agreement), (c) no Default or Event of Default has occurred and is
continuing (after giving effect to Sections 2 and 3 of this Amendment), and
(d) the Loan Agreement (as amended by this Amendment), the Notes and the
other Loan Documents are and remain legal, valid, binding and enforceable
obligations of each Company, as applicable.
7. Liens. Each of Borrower and Parent hereby covenants and agrees
that Section 13.2 of the Loan Agreement, which prohibits each of Borrower and
Parent from incurring Liens upon any of its property or assets, other than
the Liens permitted in such Section 13.2, shall apply to each of the stores
acquired by Borrower in the Horner Acquisition.
8. Leasehold Mortgages. Borrower hereby covenants and agrees that
upon the payment in full by Borrower of all debt owed by Borrower to Associated
Wholesale Grocers, Inc. as a result of the Horner Acquisition, Borrower, to the
extent permitted by the relevant sublease between AWG and Borrower and in
accordance with Section 8.2 of the Loan Agreement, will execute a Mortgage
for each property subleased by Borrower under the terms of the Horner
Acquisition.
9. Amendment Documents as Loan Documents. The term Loan Documents
as defined in the Loan Agreement and as used in any of the Loan Documents
includes, without limitation, this Amendment and each of the other Amendment
Documents executed in connection herewith.
10. Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
11. Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
12. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE LOAN AGREEMENT
AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN
AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN (A) BORROWER, OR PARENT, AND (B) AGENT OR ANY
LENDER.
13. Loan Agreement Remains in Effect: No Waiver. Except as expressly
provided herein, all terms and provisions of the Loan Agreement and the other
Loan Documents shall remain unchanged and in full force and effect and are
hereby ratified and confirmed. No waiver by Agent or any Lender of any Default
or Event of Default shall be deemed to be a waiver of any other Default or
Event of Default. No delay or omission by Agent or any Lender in exercising any
power, right or remedy shall impair such power, right or remedy or be construed
as a waiver thereof or an acquiescence therein, and no single or partial
exercise of any power, right or remedy shall preclude other or further exercise
thereof or the exercise of any other power, right or remedy under the Loan
Agreement, the Loan Documents or otherwise.
14. Ratification of Guaranties. Each of Parent and by its signature
below SLB Marketing, Inc., a Texas corporation ("SLB") reaffirms their
respective obligations under the Guaranty, agrees that the Guaranty shall
remain in full force and effect not withstanding execution of this Amendment
and the Amendment Documents, and agrees that the Guaranty and the Loan
Agreement shall continue to be legal, valid and binding obligations of the
Guarantor, enforceable in accordance with the terms therein with regard to
the Indebtedness, as increased pursuant to this Amendment.
15. Survival of Representations and Warranties. All representations
and warranties made in this Amendment or any other Amendment Document shall
survive the execution and delivery of this Amendment and the other Amendment
Documents, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon them.
16. Reference to Loan Agreement. Each of the Loan Documents, including
the Loan Agreement, the Amendment Documents and any and all other agreements,
documents or instruments now or hereafter executed and/or delivered pursuant
to the terms hereof or pursuant to the terms of the Loan Agreement as amended
hereby, are hereby amended so that any reference in such Loan Documents to the
Loan Agreement shall mean a reference to the Loan Agreement as amended hereby.
17. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
18. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of Agent, Lenders, Borrower, and Parent and their
respective successors and assigns, except Borrower, and Parent may not assign
or transfer any of their rights or obligations hereunder without the prior
written consent of Lenders.
19. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
[This space intentionally left blank].
IN WITNESS WHEREOF, Borrower, Parent, Agent and Lenders have caused this
Amendment to be executed and delivered by their duly authorized officers
effective as of the date first above written.
BORROWER:
HOMELAND STORES, INC.
By:
Wayne S. Peterson,
President
PARENT:
HOMELAND HOLDING CORPORATION
By:
Wayne S. Peterson,
President
AGENT AND A LENDER:
NATIONAL BANK OF CANADA
By:
Larry L. Sears,
Vice President and Manager
By:
Randall K. Wilhoit,
Vice President
ADDITIONAL LENDERS:
IBJ WHITEHALL BUSINESS CREDIT CORPORATION
By:
James M. Steffy,
Vice President
HELLER FINANCIAL, INC.
By:
Elizabeth Geannopulos,
Vice President
AGREED AND ACCEPTED:
SLB MARKETING, INC.
Wayne S. Peterson,
President
Schedule 12.18
(Supplemental)
ENVIRONMENTAL REPORT STORES
Store No. Address State County
850 316 East Main Oklahoma Osage
Pawhuska, Oklahoma
852 305 South Broadway Street Oklahoma Pawnee
Cleveland, Oklahoma
Schedule 13.2(c)
(Supplemental)
EXISTING LIENS
Liens granted to AWG pursuant to that certain Purchase and Sale Agreement,
dated April 23, 1999 between AWG and the Borrower.
Schedule 13.3(c)
(Supplemental)
EXISTING INDEBTEDNESS FOR BORROWED MONEY
AND CONTINGENT OBLIGATIONS
PRINCIPAL BALANCE ON CAPITAL LEASES
AS OF 4/23/99
Principal
Description Location Balance
Real Property Sublease 850 $ 0.00
Real Property Sublease 851 $ 0.00
Real Property Sublease 852 $ 0.00
Real Property Sublease 853 $ 0.00
Real Property Sublease 854 $ 0.00
Real Property Sublease 855 $ 0.00
Real Property Sublease 856 $ 0.00
Real Property Sublease 857 $ 0.00
Schedule 15.5(a)
(Supplemental)
REAL PROPERTY
I. Owned Real Property
Store # and Location Comments
858 506 South Elliot
Pryor, OK
Mayes County
II. Leased Real Property
Store # and Location Comments
850 316 East Main Street
Pawhuska, OK
Osage County
851 702 Fir Street
Perry, OK
Noble County
852 305 South Broadway Street
Cleveland, OK
Pawnee County
853 Highway 59
Jay, Oklahoma
Delaware County
854 310 South Main
Blackwell, OK
Kay County
855 108 South Division
Okemah, OK
Okfuskee County
856 813 East Cherokee
Nowata, OK
Nowata County
857 102 Haskell Boulevard
Haskell, OK
Muskogee County
Schedule 15.15
(Supplemental)
ENVIRONMENTAL INFORMATION
Store No.
850 Environmental Site Assessment - Stanley Engineering, Inc. - March 24, 1999
852 Environmental Site Assessment - Stanley Engineering, Inc. - March 24, 1999
SECOND AMENDMENT TO LOAN AGREEMENT
This SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into effective as of October 22, 1999 by and among the following
parties:
(a) HOMELAND STORES, INC. ("Borrower"), a Delaware corporation,
(b) HOMELAND HOLDING CORPORATION ("Parent"), a Delaware corporation,
(Borrower and Parent are sometimes hereinafter referred to as
the "Companies" and individually as a "Company"),
(c) SLB MARKETING, INC. ("SLB"), a Texas corporation, as a Credit
Party under the Loan Agreement,
(d) IBJ WHITEHALL BUSINESS CREDIT CORPORATION ("IBJ"), formerly IBJ
Schroder Business Credit Corporation, the assignee of IBJ
Schroder Bank & Trust Company,
(e) HELLER FINANCIAL, INC. ("Heller"),
(f) NATIONAL BANK OF CANADA ("NBC"),
(such lenders and other financial institutions and their
respective successors and assigns, individually, a "Lender" and
together, the "Lenders"), and
(g) NBC, as agent for the Lenders (in such capacity, the "Agent").
RECITALS:
A. Pursuant to that certain Loan Agreement, dated as of December 17,
1998, by and among Borrower, Parent, Lenders and Agent, as amended by that
certain First Amendment to Loan Agreement, dated as of April 23, 1999, by and
among Borrower, Parent, Lenders and Agent (as the same may be amended, renewed,
extended, restated or otherwise modified from time to time, the "Loan
Agreement"), Lenders agreed to provide to Borrower a senior secured revolving
credit and letter of credit facility, a senior secured term loan facility, and
two secured acquisition term loan facilities.
B. SLB is forming a subsidiary for the purpose of owning and holding
certain liquor and alcoholic beverage licenses in the State of Texas, which
subsidiary will be a Texas corporation and will be named JCH Beverage, Inc.
("JCH").
C. Section 13.4 of the Loan Agreement requires that Borrower and Parent
obtain the written consent of Agent and Required Lenders prior to permitting the
creation of a Subsidiary by any of Borrower's Subsidiaries.
D. Borrower and Parent have requested that Agent and Required Lenders
(1) consent to the formation of JCH, and (2) amend the Loan Agreement to permit
the payment by Borrower of the reasonable and necessary operating costs and
taxes incurred by JCH in the ordinary course of business.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Terms Defined. Unless otherwise defined in this Amendment, each
capitalized term used in this Amendment has the meaning given to such term in
the Loan Agreement (as amended by this Amendment).
2. JCH as Guarantor. The definition of Guarantor in Section 1.1 of the
Loan Agreement is hereby amended to read in its entirety as follows:
"Guarantor" shall mean, at any time, the Parent, each of Borrower's present
and future Subsidiaries, and each present and future Subsidiary of
Borrower's present and future Subsidiaries.
3. Payments on behalf of JCH. The definition of "Permitted Transaction"
in Section 1.1 of the Loan Agreement is hereby amended by restating the
beginning of clause (a) to read as follows:
(a) payments on behalf of Parent, SLB Marketing, Inc., and JCH
Beverage, Inc.:
4. Guarantees by Subsidiaries of Subsidiaries of Borrower. Section
8.5(b) of the Loan Agreement is hereby amended to read in its entirety as
follows:
(b) Upon the formation or acquisition, after the Closing Date, of
any Subsidiary of Borrower or of any Subsidiary of a Subsidiary of
Borrower, such Subsidiary shall execute and deliver to Agent a guaranty,
substantially in the form of Exhibit 8.5 hereto, of all then existing or
thereafter incurred Lender Debt. Nothing contained in this Section 8.5
shall permit Borrower or any Subsidiary to form or acquire any Subsidiary
which is otherwise prohibited by this Amendment.
5. Covenants Regarding Subsidiaries. Section 12 of the Loan Agreement is
amended by adding the following covenant:
SEC. 12.27 SUBSIDIARIES' OPERATIONS. Borrower covenants (a) that
the business and operations of SLB Marketing, Inc., a Texas corporation
and a wholly-owned Subsidiary of Borrower ("SLB"), will be limited to
the ownership of the stock of JCH Beverage, Inc., a Texas corporation
and wholly-owned Subsidiary of SLB ("JCH"), and (b) that the business
and operations of JCH will be limited to the purchase and sale of alcoholic
beverages conducted in and from stores operated by Borrower.
6. Consent of Formation of JCH. Subject to the satisfaction of and
compliance with all other terms and conditions set forth in this Amendment,
Agent and Required Lenders consent to the formation of JCH.
7. Conditions Precedent. The effectiveness of this Amendment is
expressly conditioned upon the satisfaction of the following conditions
precedent:
(a) Agent shall have received all of the following, each dated
(unless otherwise indicated) the date of this Consent, in form and
substance satisfactory to Agent:
(i) Amendment Documents. This Amendment and any other
instrument, document or certificate required by Agent to be executed
or delivered by Borrower, Parent or any other party in connection
with this Amendment, duly executed by the parties thereto (the
"Amendment Documents").
(ii) Security Documents and Instruments. All the instruments
and documents then required to be delivered pursuant to Section 8
of the Loan Agreement or any other provision of the Loan Agreement
or pursuant to the instruments and documents referred to in Section 8
of the Loan Agreement with regard to the formation of JCH; and the
same shall be in full force and effect and shall grant, create or
perfect the Liens, rights, powers, priorities, remedies and benefits
contemplated herein or therein, as the case may be.
(iii) Legal Opinion. A legal opinion from Companies' counsel,
Crowe & Dunlevy, a professional corporation, in form and substance
satisfactory to Agent and dated as of the date of this Amendment.
(iv) Additional Information. Such additional documents,
instruments and information as Agent may reasonably request to effect
the transactions contemplated hereby.
(b) Litigation. There shall be no pending or, to the knowledge of
any Company, threatened litigation with respect to any Company or any
of its Subsidiaries or (relating to the transactions contemplated herein)
with respect to Agent or any of the Lenders, which relates to the
business, operations, liabilities, assets, properties, prospects or
condition (financial or otherwise) of any Company or its Subsidiaries,
which pending or threatened litigation could, in Agent's reasonable
judgment, be expected to have a Material Adverse Effect. There shall
exist no judgment, order, injunction or other similar restraint
prohibiting any transaction contemplated hereby.
(c) Compliance with Law. The Agent shall be satisfied that each
Company, and JCH (i) has obtained all authorizations and approvals of
any governmental authority or regulatory body required for the due
execution, delivery and performance by such company, of this Amendment
and any document related to each of the Amendment Documents and the
formation of JCH, to which it is or will be a party and for the
perfection of or the exercise by Agent and each Lender of their
respective rights and remedies under the Loan Documents, and (ii) shall
be in compliance with, and shall have obtained appropriate approvals
pertaining to, all applicable laws, rules, regulations and orders,
including, without limitation, all governmental, environmental, ERISA
and other requirements, regulations and laws, the violation or failure
to obtain approvals for which could reasonably be expected to have a
Material Adverse Effect.
(d) Delivery of Documents. All corporate proceedings taken
in connection with the transactions contemplated by this Amendment and
all other agreements, documents and instruments executed and/or
delivered pursuant hereto, and all legal matters incident thereto, shall
be satisfactory to Agent and its legal counsel.
(e) No Default. No Default or Event of Default shall have occurred
and be continuing after giving effect to the formation of JCH.
(f) Expiration of Consent. All of the conditions precedent to
the effectiveness of this Amendment must have been satisfied on or
prior to 5 p.m., Dallas, Texas time, on October ___, 1999.
8. Amendment Fee. Borrower agrees to pay to Agent for the account
of the Lenders, on or before the date of this Consent and in addition to any
other amount due hereunder, an amendment fee equal to the sum of Fifteen
Thousand and No/100 Dollars ($15,000.00).
9. Representations and Warranties. Each Company hereby represents
and warrants to Agent and Lenders that, as of the date of and after giving
effect to this Amendment, (a) the execution, delivery and performance of this
Amendment has been authorized by all requisite corporate action on the part of
each Company, and will not violate the corporate charter or bylaws of any
Company, (b) all representations and warranties set forth in the Loan Agreement
and in any other Loan Documents are true and correct, in all material respects,
as if made again on and as of such date (including, without limitation, the
representations and warranties previously made as of the Closing Date in the
Loan Agreement), (c) no Default or Event of Default has occurred and is
continuing, and (d) the Loan Agreement (as amended by this Amendment), the
Notes and the other Loan Documents are and remain legal, valid, binding and
enforceable obligations of each Company, as applicable.
10. Amendment Documents as Loan Documents. The term Loan Documents,
as defined in the Loan Agreement and as used in any of the Loan Documents,
includes, without limitation, this Amendment and each of the other Amendment
Documents.
11. Governing Law. THIS AMENDMENT AND THE OTHER AMENDMENT DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
12. Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
13. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE LOAN
AGREEMENT AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL
AGREEMENTS BY AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN (A) BORROWER, PARENT
OR SLB, AND (B) AGENT OR ANY LENDER.
14. Loan Agreement Remains in Effect; No Waiver. Except as expressly
provided herein, all terms and provisions of the Loan Agreement and the other
Loan Documents shall remain unchanged and in full force and effect and are
hereby ratified and confirmed. No waiver by Agent or any Lender of any Default
or Event of Default shall be deemed to be a waiver of any other Default or Event
of Default. No delay or omission by Agent or any Lender in exercising any
power, right or remedy shall impair such power, right or remedy or be construed
as a waiver thereof or an acquiescence therein, and no single or partial
exercise of any power, right or remedy shall preclude other or further exercise
thereof or the exercise of any other power, right or remedy under the Loan
Agreement, the Loan Documents or otherwise.
15. Ratification of Guaranties. Each of Parent and SLB reaffirms
their respective obligations under their respective Guaranty, agrees that their
respective Guaranty shall remain in full force and effect notwithstanding
execution of this Amendment and the Amendment Documents, and agrees that their
respective Guaranty and the Loan Agreement shall continue to be legal, valid and
binding obligations of such Guarantor, enforceable in accordance with the terms
therein with regard to the Obligations (as defined in such Guaranty).
16. Survival of Representations and Warranties. All representations
and warranties made in this Amendment or any other Amendment Document shall
survive the execution and delivery of this Amendment and the other Amendment
Documents, and no investigation by Agent or any Lender or any closing shall
affect the representations and warranties or the right of Agent or any Lender
to rely upon them.
17. Reference to Loan Agreement. Each of the Loan Documents, including
the Loan Agreement, the Amendment Documents and any and all other agreements,
documents or instruments now or hereafter executed and/or delivered pursuant to
the terms hereof or pursuant to the terms of the Loan Agreement, as amended
hereby, are hereby amended so that any reference in such Loan Documents to the
Loan Agreement shall mean a reference to the Loan Agreement as amended hereby.
18. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
19. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of Agent, Lenders, Borrower, Parent, and SLB and their
respective successors and assigns, except that neither Borrower, Parent nor SLB
may assign or transfer any of their rights or obligations hereunder without the
prior written consent of Agent and Lenders.
20. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
[This space intentionally left blank].
IN WITNESS WHEREOF, Borrower, Parent, SLB, Agent and Lenders have caused
this Amendment to be executed and delivered by their duly authorized officers
effective as of the date first above written.
BORROWER:
HOMELAND STORES, INC.
By:
Wayne S. Peterson,
Senior Vice President - Finance,
Chief Financial Officer and Secretary
PARENT:
HOMELAND HOLDING CORPORATION
By:
Wayne S. Peterson,
Senior Vice President - Finance,
Chief Financial Officer and Secretary
CREDIT PARTY:
SLB MARKETING, INC.
By:
Jack C. Hensley,
President and Secretary
AGENT AND A LENDER:
NATIONAL BANK OF CANADA
By:
Larry L. Sears,
Vice President and Manager
By:
Randall K. Wilhoit,
Vice President
ADDITIONAL LENDERS:
IBJ WHITEHALL BUSINESS CREDIT
CORPORATION
By:
John C. Williams,
Vice President
HELLER FINANCIAL, INC.
By:
Thomas W. Bukowski,
Senior Vice President
THIRD AMENDMENT TO LOAN AGREEMENT
This THIRD AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into effective as of November 2, 1999 by and among the following
parties:
(a) HOMELAND STORES, INC. ("Borrower"), a Delaware corporation,
(b) HOMELAND HOLDING CORPORATION ("Parent"), a Delaware corporation
(Borrower and Parent are sometimes hereinafter referred to as
the "Companies" and individually as a "Company"),
(c) IBJ WHITEHALL BUSINESS CREDIT CORPORATION ("IBJ"), formerly IBJ
Schroder Business Credit Corporation, the assignee of IBJ
Schroder Bank & Trust Company,
(d) HELLER FINANCIAL, INC. ("Heller"),
(e) NATIONAL BANK OF CANADA ("NBC"),
(such lenders and other financial institutions and their
respective successors and assigns, individually, a "Lender" and
collectively, the "Lenders"), and
(f) NBC, as agent for the Lenders (in such capacity, the "Agent").
RECITALS:
A. Pursuant to that certain Loan Agreement, dated as of December
17, 1998, by and among Borrower, Parent, Lenders and Agent, as amended by that
certain First Amendment to Loan Agreement, dated as of April 23, 1999, by and
among Borrower, Parent, Lenders and Agent, and by that certain Second Amendment
to Loan Agreement, dated as of October 22, 1999, by and among Borrower, Parent,
Lenders, Agent and SLB Marketing, Inc., a Texas corporation ("SLB") (as the same
may be amended, renewed, extended, restated or otherwise modified from time
to time, the "Loan Agreement"), Lenders agreed to provide to Borrower a senior
secured revolving credit and letter of credit facility, a senior secured term
loan facility and two secured acquisition term loan facilities.
B. Borrower and Parent have requested that Agent and Lenders amend
the Loan Agreement to: (1) reflect Borrower's acquisition of certain property
and assets from Brattain Foods, Inc. (the "Brattain Acquisition"); (2) reduce
the Acquisition Term Loan B Facility Commitment from Five Million Dollars
($5,000,000) to Zero Dollars ($0); (3) increase the Revolving Credit Facility
Commitment from Thirty-Two Million Dollars ($32,000,000) to Thirty-Seven Million
Dollars ($37,000,000); and (4) increase the time allotted to Parent to furnish
the monthly Borrowing Base Certificate from fifteen (15) days after the end of
each calendar month to twenty (20) days after the end of each calendar month.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Terms Defined. Unless otherwise defined in this Amendment, each
capitalized term used in this Amendment has the meaning given to such term in
the Loan Agreement (as amended by this Amendment).
2. Amendment to Acquisition Term Loan B Facility Commitment. Section
1.1 of the Loan Agreement is hereby amended by amending the following definition
contained therein to read in its entirety as follows:
"Acquisition Term Loan B Facility Commitment" shall mean Zero
Dollars ($0).
3. Amendment to Revolving Credit Facility Commitment. Section 1.1 of
the Loan Agreement is hereby amended by amending the following definition
contained therein to read in its entirety as follows:
"Revolving Credit Facility Commitment" shall mean Thirty-Seven
Million Dollars ($37,000,000).
4. Amendment to Supply Agreement. Section 1.1 of the Loan Agreement
is hereby amended by amending the following definition contained therein to
read in its entirety as follows:
"Supply Agreement" shall mean (i) the Supply Agreement, dated as of
April 21, 1995, by and between AWG and Borrower, as amended by that certain
First Amendment to Supply Agreement, dated effective as of August 2, 1996,
(ii) the Supply Agreement, dated as of April 23, 1999, by and between AWG and
Borrower, and (iii) the Supply Agreement, dated as of November 2, 1999, by and
between AWG and Borrower.
5. Amendment to Requirement to Furnish Monthly Borrowing Base
Certificate. Section 12.1(j) of the Loan Agreement is hereby amended to read
in its entirety as follows:
(j) not later than twenty (20) calendar days after the end of each
calendar month, a certificate dated the last day of such calendar month
just ended, from Parent, in substantially the form of Exhibit 12.1(j)
hereto and signed by the chief executive officer, chief financial officer
or chief accounting officer of Parent (each such certificate, a "Borrowing
Base Certificate");
6. Amendment to Schedules. The Loan Agreement is hereby amended as
follows:
(a) Lenders and Commitments. Schedule 1.1(A) to the Loan Agreement
is hereby amended by replacing the existing Schedule 1.1(A) in its
entirety with Schedule 1.1(A) attached hereto.
(b) Existing Liens. Schedule 13.2(c) to the Loan Agreement is
hereby amended by supplementing the existing Schedule 13.2(c) with
Schedule 13.2(c) attached hereto.
(c) Real Property. Schedule 15.5(a) to the Loan Agreement is
hereby amended by supplementing the existing Schedule 15.5(a) with
Schedule 15.5(a) attached hereto.
(d) Environmental Information. Schedule 15.15 to the Loan Agreement
is hereby amended by supplementing the existing Schedule 15.15 with
Schedule 15.15 attached hereto.
(e) Medicare/Medicaid and Third Party Payor Agreements. Schedule
15.16 to the Loan Agreement is hereby amended by supplementing the
existing Schedule 15.16 with Schedule 15.16 attached hereto.
7. Conditions Precedent. The effectiveness of this Amendment is
expressly conditioned upon the satisfaction of the following conditions
precedent:
(a) the Agent shall have received all of the following, each dated
(unless otherwise indicated) the date of this Amendment, in form and
substance satisfactory to Agent:
(i) Amendment Documents. This Amendment and any other instrument
(including, document or certificate required by the Agent to be
executed or delivered by the Borrower, the Parent or any other party
in connection with this Amendment, duly executed by the parties
thereto.
(ii) Revolving Notes. Amended and Restated Revolving Notes,
evidencing the cumulative total amount of the Revolving Commitment,
as modified by this Amendment.
(iii) Additional Information. Such additional documents,
instruments and information as Agent or its legal counsel, may
reasonably request to effect the transactions contemplated hereby.
(b) all of the conditions precedent to the effectiveness of that
certain Consent, dated as of the date hereof, by and among Borrower,
Parent, Lenders and Agent, shall have been satisfied in accordance with
the terms thereof.
8. Representations and Warranties. Each Company hereby represents and
warrants to Agent and Lenders that, as of the date of and after giving effect to
this Amendment, (a) the execution, delivery and performance of this Amendment
has been authorized by all requisite corporate action on the part of each
Company and will not violate the corporate charter or bylaws of any Company,
(b) all representations and warranties set forth in the Loan Agreement and in
any other Loan Documents are true and correct, in all material respects, as
if made again on and as of such date (including, without limitation, the
representations and warranties previously made as of the Closing Date in the
Loan Agreement), (c) no Default or Event of Default has occurred and is
continuing (after giving effect to Sections 2 through 6 of this Amendment),
and (d) the Loan Agreement (as amended by this Amendment), the Notes (as the
same may be amended and restated from time to time) and the other Loan Documents
are and remain legal, valid, binding and enforceable obligations of each
Company, as applicable.
9. Liens. Each of Borrower and Parent hereby covenants and agrees that
Section 13.2 of the Loan Agreement, which prohibits each of Borrower and Parent
from incurring Liens upon any of its property or assets, other than the Liens
permitted in such Section 13.2, shall apply to each of the stores acquired by
Borrower in the Brattain Acquisition.
10. Leasehold Mortgages. Borrower hereby covenants and agrees that
upon the payment in full by Borrower of all debt owed by Borrower to Associated
Wholesale Grocers, Inc. as a result of the Brattain Acquisition, Borrower, to
the extent permitted by the relevant lease or sublease and in accordance with
Section 8.2 of the Loan Agreement, will execute a Mortgage for each property
leased or subleased by Borrower under the terms of the Brattain Acquisition.
11. Amendment Documents as Loan Documents. The term Loan Documents as
defined in the Loan Agreement and as used in any of the Loan Documents includes,
without limitation, this Amendment and each of the other Amendment Documents
executed in connection herewith.
12. Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
13. Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
14. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE LOAN AGREEMENT
AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN
AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN (A) BORROWER, OR PARENT, AND (B) AGENT OR
ANY LENDER.
15. Loan Agreement Remains in Effect: No Waiver. Except as expressly
provided herein, all terms and provisions of the Loan Agreement and the other
Loan Documents shall remain unchanged and in full force and effect and are
hereby ratified and confirmed. No waiver by Agent or any Lender of any Default
or Event of Default shall be deemed to be a waiver of any other Default or Event
of Default. No delay or omission by Agent or any Lender in exercising any
power, right or remedy shall impair such power, right or remedy or be construed
as a waiver thereof or an acquiescence therein, and no single or partial
exercise of any power, right or remedy shall preclude other or further exercise
thereof or the exercise of any other power, right or remedy under the Loan
Agreement, the Loan Documents or otherwise.
16. Ratification of Guaranties. Each of Parent and by their signature
below SLB and JCH Beverage, Inc., a Texas corporation, reaffirms its respective
obligations under its respective Guaranty, agrees that its respective Guaranty
shall remain in full force and effect not withstanding execution of this
Amendment and the Amendment Documents, and agrees that its respective Guaranty
and the Loan Agreement shall continue to be legal, valid and binding obligations
of such Guarantor, enforceable in accordance with the terms therein with regard
to the Indebtedness.
17. Fees and Expenses. Borrower agrees to pay all expenses paid or
incurred by the Agent in connection with this Amendment and any related
documents, including but not limited to recording fees, computer fees,
duplication fees, telephone and telecopier fees, travel and transportation fees,
search and filing fees, and the reasonable fees and expenses of Hughes & Luce,
L.L.P., counsel to the Agent and the Lenders.
18. Survival of Representations and Warranties. All representations
and warranties made in this Amendment or any other Amendment Document shall
survive the execution and delivery of this Amendment and the other Amendment
Documents, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon them.
19. Reference to Loan Agreement. Each of the Loan Documents, including
the Loan Agreement, the Amendment Documents and any and all other agreements,
documents or instruments now or hereafter executed and/or delivered pursuant to
the terms hereof or pursuant to the terms of the Loan Agreement as amended
hereby, are hereby amended so that any reference in such Loan Documents to the
Loan Agreement shall mean a reference to the Loan Agreement as amended hereby.
20. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
21. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of Agent, Lenders, Borrower, and Parent and their
respective successors and assigns, except Borrower, and Parent may not assign
or transfer any of their rights or obligations hereunder without the prior
written consent of Lenders.
22. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
IN WITNESS WHEREOF, Borrower, Parent, Agent and Lenders have caused this
Amendment to be executed and delivered by their duly authorized officers
effective as of the date first above written.
BORROWER:
HOMELAND STORES, INC.
By:
Wayne S. Peterson,
Senior Vice President - Finance and
Chief Financial Officer and Secretary
PARENT:
HOMELAND HOLDING CORPORATION
By:
Wayne S. Peterson,
Senior Vice President - Finance and
Chief Financial Officer and Secretary
AGENT AND A LENDER:
NATIONAL BANK OF CANADA
By:
Larry L. Sears,
Vice President and Manager
By:
Randall K. Wilhoit,
Vice President
ADDITIONAL LENDERS:
IBJ WHITEHALL BUSINESS CREDIT
CORPORATION
By:
John Williams,
Vice President
HELLER FINANCIAL, INC.
By:
Thomas W. Bukowski,
Senior Vice President
AGREED AND ACCEPTED:
SLB MARKETING, INC.
By:
Jack C. Hensley,
President and Secretary
JCH BEVERAGE, INC.
By:
Jack C. Hensley,
President and Secretary
<TABLE>
Schedule 1.1(A)
LENDERS AND COMMITMENTS
<CAPTION>
Revolving Term Acquisition Term Acquisition Term Total Lender
Lenders: Commitment Commitment* Loan A Commitment Loan B Commitment Commitments*
<S> <C> <C> <C> <C> <C>
National Bank of Canada $14,800,000.00 $2,500,000.00 $2,000,000.00 $0 $19,300,000.00
125 West 55th
New York, New York 10019
Heller Financial, Inc. $10,508,000.00 $1,775,000.00 $1,420,000.00 $0 $13,703,000.00
500 West Monroe Street
Chicago, Illinois 60661
IBJ Whitehall Business $11,692,000.00 $1,975,000.00 $1,580,000.00 $0 $15,247,000.00
Credit Corporation
One State Street
New York, New York 10004
______________ _____________ _____________ ____________ ______________
Total Facility
Commitment $37,000,000.00 $6,250,000.00 $5,000,000.00 $0 $48,250,000.00
</TABLE>
* Effective as of the Third Amendment to Loan Agreement.
Schedule 13.2(c)
(Supplemental)
EXISTING LIENS
Liens granted to AWG pursuant to that certain Purchase and Sale Agreement, dated
November 2, 1999 between AWG and the Borrower.
Schedule 15.5(a)
(Supplemental)
REAL PROPERTY
II. Leased Real Property
Store # and Location Comments
880 3115 West Okmulgee None
Muskogee, OK
Muskogee County
881 1300 York None
Muskogee, OK
Muskogee County
882 800 East Okmulgee None
Muskogee, OK
Muskogee County
883 6 East Shawnee None
Muskogee, OK
Muskogee County
Schedule 15.15
(Supplemental)
ENVIRONMENTAL INFORMATION
Store No.
880 Environmental Site Assessment - Stanley Engineering, Inc., October 13, 1999
881 Environmental Site Assessment - Stanley Engineering, Inc., October 13, 1999
882 Environmental Site Assessment - Stanley Engineering, Inc., October 11, 1999
883 Environmental Site Assessment - Stanley Engineering, Inc., October 11, 1999
Schedule 15.16
(Supplemental)
MEDICARE/MEDICAID AND
THIRD PARTY PAYOR AGREEMENTS
S
FOURTH AMENDMENT TO LOAN AGREEMENT
This FOURTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into effective as of November 19, 1999 by and among the following
parties:
(a) HOMELAND STORES, INC. ("Borrower"), a Delaware corporation,
(b) HOMELAND HOLDING CORPORATION ("Parent"), a Delaware corporation,
(Borrower and Parent are sometimes hereinafter referred to as
the "Companies" and individually as a "Company"),
(c) JCH BEVERAGE, INC. ("JCH"), a Texas corporation, as a Credit
Party under the Loan Agreement,
(d) SLB MARKETING, INC. ("SLB"), a Texas corporation, as a Credit
Party under the Loan Agreement,
(e) IBJ WHITEHALL BUSINESS CREDIT CORPORATION ("IBJ"), formerly IBJ
Schroder Business Credit Corporation, the assignee of IBJ
Schroder Bank & Trust Company,
(f) HELLER FINANCIAL, INC. ("Heller"),
(g) NATIONAL BANK OF CANADA ("NBC"),
(such lenders and other financial institutions and their
respective successors and assigns, individually, a "Lender" and
together, the "Lenders"), and
(h) NBC, as agent for the Lenders (in such capacity, the "Agent").
RECITALS:
A. Pursuant to that certain Loan Agreement, dated as of December 17,
1998, by and among Borrower, Parent, Lenders and Agent, as amended by that
certain First Amendment to Loan Agreement, dated as of April 23, 1999, by and
among Borrower, Parent, Lenders and Agent, that certain Second Amendment to Loan
Agreement (the "Second Amendment"), dated as of October 22, 1999, by and among
Borrower, Parent, Lenders, Agent and SLB, and that certain Third Amendment to
Loan Agreement, dated as of November 2, 1999, by and among Borrower, Parent,
Lenders and Agent (as the same may be amended, renewed, extended, restated or
otherwise modified from time to time, the "Loan Agreement"), Lenders agreed
to provide to Borrower a senior secured revolving credit and letter of credit
facility, a senior secured term loan facility, and two secured acquisition term
loan facilities.
B. Pursuant to the Second Amendment, the Agent and the Required Lenders
consented to the formation by SLB, a wholly-owned Subsidiary of Borrower, of
JCH as a wholly-owned Subsidiary of SLB, for the purpose of owning and holding
certain liquor and alcoholic beverage licenses in the State of Texas.
C. Borrower and Parent wish to restructure the ownership interests in
SLB and JCH, with such restructuring being effective as of October 14, 1999,
thereby making JCH a wholly-owned Subsidiary of Borrower and SLB a wholly-owned
Subsidiary of JCH.
D. Section 13.4 of the Loan Agreement requires that Borrower and Parent
obtain the written consent of Agent and Required Lenders prior to the
acquisition by Borrower or any of Borrower's Subsidiaries of a Subsidiary.
E. Section 13.5 of the Loan Agreement requires that Borrower and Parent
obtain the written consent of Agent and Required Lenders prior to the sale or
transfer by Borrower or any of Borrower's Subsidiaries of any stock of any of
Borrower's Subsidiaries.
F. Section 13.7 of the Loan Agreement requires that Borrower and Parent
obtain the written consent of Agent and Required Lenders prior to any
transaction between Borrower, Parent or any of Borrower's Subsidiaries, and
any Affiliate of Borrower, Parent or any Subsidiary thereof, involving the sale
of exchange of property or assets that is not specifically required or permitted
by the terms of the Loan Agreement.
G. Borrower and Parent have requested that Agent and Required Lenders
consent to the restructure of the ownership interests in SLB and JCH.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Terms Defined. Unless otherwise defined in this Amendment, each
capitalized term used in this Amendment has the meaning given to such term in
the Loan Agreement (as amended by this Amendment).
2. Covenants Regarding Subsidiaries. Section 12.27 of the Loan Agreement
is amended and restated to read in its entirety as follows:
SEC. 12.27 SUBSIDIARIES' OPERATIONS. Borrower covenants (a) that
the business and operations of JCH Beverage, Inc., a Texas corporation
and a wholly-owned Subsidiary of Borrower ("JCH"), will be limited to the
ownership of the stock of SLB Marketing, Inc., a Texas corporation and
wholly-owned Subsidiary of JCH ("SLB"), and (b) that the business and
operations of SLB will be limited to the purchase and sale of alcoholic
beverages conducted in and from stores operated by Borrower.
3. Consent to Restructure of Ownership Interests in SLB and JCH.
Subject to the satisfaction of and compliance with all other terms and
conditions set forth in this Amendment, Agent and Required Lenders consent to:
(a) the acquisition by Borrower from SLB of all of the issued and outstanding
shares of common stock of JCH; and (b) the acquisition by JCH from Borrower of
all of the issued and outstanding shares of common stock of SLB.
4. Termination of Stock Pledge Agreements. Subject to the satisfaction
of and compliance with all other terms and conditions set forth in this
Amendment, the following stock pledge agreements shall be terminated and
void: (a) that certain Stock Pledge Agreement, dated December 17, 1998, made
by Borrower in favor of Agent for the ratable benefit of Lenders; and (b) that
certain Stock Pledge Agreement, dated October 22, 1999, made by SLB in favor of
Agent for the ratable benefit of Lenders.
5. Conditions Precedent. The effectiveness of this Amendment is
expressly conditioned upon the satisfaction of the following conditions
precedent:
(a) Agent shall have received all of the following, each dated
(unless otherwise indicated) the date of this Consent, in form and
substance satisfactory to Agent:
(i) Amendment Documents. This Amendment and any other
instrument, document or certificate required by Agent to be executed
or delivered by Borrower, Parent or any other party in connection
with this Amendment, duly executed by the parties thereto (the
"Amendment Documents").
(ii) Security Documents and Instruments. All the instruments
and documents then required to be delivered pursuant to Section 8 of
the Loan Agreement or any other provision of the Loan Agreement or
pursuant to the instruments and documents referred to in Section 8 of
the Loan Agreement with regard to the restructure of the ownership
interests in SLB and JCH; and the same shall be in full force and
effect and shall grant, create or perfect the Liens, rights, powers,
priorities, remedies and benefits contemplated herein or therein,
as the case may be.
(iii) Legal Opinion. A legal opinion from Companies' counsel,
Crowe & Dunlevy, a Professional Corporation, in form and substance
satisfactory to Agent and dated as of the date of this Amendment.
(iv) Additional Information. Such additional documents,
instruments and information as Agent may reasonably request to effect
the transactions contemplated hereby.
(b) Litigation. There shall be no pending or, to the knowledge of
any Company, threatened litigation with respect to any Company or any of
its Subsidiaries or (relating to the transactions contemplated herein)
with respect to Agent or any of the Lenders, which relates to the business,
operations, liabilities, assets, properties, prospects or condition
(financial or otherwise) of any Company or its Subsidiaries, which
pending or threatened litigation could, in Agent's reasonable judgment,
be expected to have a Material Adverse Effect. There shall exist no
judgment, order, injunction or other similar restraint prohibiting any
transaction contemplated hereby.
(c) Compliance with Law. The Agent shall be satisfied that
each Company, SLB and JCH (i) has obtained all authorizations and
approvals of any governmental authority or regulatory body required for
the due execution, delivery and performance by such company, of this
Amendment and any document related to each of the Amendment Documents and
the restructuring of the ownership interests in SLB and JCH, to which it
is or will be a party and for the perfection of or the exercise by Agent
and each Lender of their respective rights and remedies under the Loan
Documents, and (ii) shall be in compliance with, and shall have obtained
appropriate approvals pertaining to, all applicable laws, rules,
regulations and orders, including, without limitation, all governmental,
environmental, ERISA and other requirements, regulations and laws, the
violation or failure to obtain approvals for which could reasonably be
expected to have a Material Adverse Effect.
(d) Delivery of Documents. All corporate proceedings taken in
connection with the transactions contemplated by this Amendment and all
other agreements, documents and instruments executed and/or delivered
pursuant hereto, and all legal matters incident thereto, shall be
satisfactory to Agent and its legal counsel.
(e) No Default. No Default or Event of Default shall have occurred
and be continuing after giving effect to the restructuring of the ownership
interests in JCH and SLB contemplated hereby.
(f) Expiration of Consent. All of the conditions precedent to the
effectiveness of this Amendment must have been satisfied on or prior to
5 p.m., Dallas, Texas time, on November 30, 1999.
6. Representations and Warranties. Each Company, SLB and JCH hereby
represents and warrants to Agent and Lenders that, as of the date of and after
giving effect to this Amendment, (a) the execution, delivery and performance of
this Amendment has been authorized by all requisite corporate action on the
part of such company, and will not violate the corporate charter or bylaws of
such company, (b) all representations and warranties set forth in the Loan
Agreement and in any other Loan Documents are true and correct, in all material
respects, as if made again on and as of such date (including, without
limitation, the representations and warranties previously made as of the Closing
Date in the Loan Agreement). (c) no Default or Event of Default has occurred
and is continuing, and (d) the Loan Agreement (as amended by this Amendment),
the Notes and the other Loan Documents are and remain legal, valid, binding and
enforceable obligations of each Company, SLB and JCH, as applicable.
7. Amendment Documents as Loan Documents. The term Loan Documents,
as defined in the Loan Agreement and as used in any of the Loan Documents,
includes, without limitation, this Amendment and each of the other Amendment
Documents.
8. Governing Law. THIS AMENDMENT AND THE OTHER AMENDMENT DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
9. Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
10. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE LOAN AGREEMENT
AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BY AND
AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN (A) BORROWER, PARENT, SLB OR JCH, AND (B)
AGENT OR ANY LENDER.
11. Loan Agreement Remains in Effect; No Waiver. Except as expressly
provided herein, all terms and provisions of the Loan Agreement and the other
Loan Documents shall remain unchanged and in full force and effect and are
hereby ratified and confirmed. No waiver by Agent or any Lender of any Default
or Event of Default shall be deemed to be a waiver of any other Default or Event
of Default. No delay or omission by Agent or any Lender in exercising any
power, right or remedy shall impair such power, right or remedy or be construed
as a waiver thereof or an acquiescence therein, and no single or partial
exercise of any power, right or remedy shall preclude other or further exercise
thereof or the exercise of any other power, right or remedy under the Loan
Agreement, the Loan Documents or otherwise.
12. Ratification of Guaranties. Each of Parent, SLB and JCH reaffirms
their respective obligations under their respective Guaranty, agrees that their
respective Guaranty shall remain in full force and effect notwithstanding
execution of this Amendment and the Amendment Documents, and agrees that their
respective Guaranty and the Loan Agreement shall continue to be legal, valid and
binding obligations of such Guarantor, enforceable in accordance with the terms
therein with regard to the Obligations (as defined in such Guaranty).
13. Survival of Representations and Warranties. All representations
and warranties made in this Amendment or any other Amendment Document shall
survive the execution and delivery of this Amendment and the other Amendment
Documents, and no investigation by Agent or any Lender or any closing shall
affect the representations and warranties or the right of Agent or any Lender
to rely upon them.
14. Reference to Loan Agreement. Each of the Loan Documents, including
the Loan Agreement, the Amendment Documents and any and all other agreements,
documents or instruments now or hereafter executed and/or delivered pursuant
to the terms hereof or pursuant to the terms of the Loan Agreement, as amended
hereby, are hereby amended so that any reference in such Loan Documents to the
Loan Agreement shall mean a reference to the Loan Agreement as amended hereby.
15. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
16. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of Agent, Lenders, Borrower, Parent, SLB and JCH and their
respective successors and assigns, except that neither Borrower, Parent, SLB nor
JCH may assign or transfer any of their rights or obligations hereunder without
the prior written consent of Agent and Lenders.
17. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
[This space intentionally left blank].
IN WITNESS WHEREOF, Borrower, Parent, SLB, JCH, Agent and Lenders have
caused this Amendment to be executed and delivered by their duly authorized
officers effective as of the date first above written.
BORROWER:
HOMELAND STORES, INC.
By:
Wayne S. Peterson,
Senior Vice President - Finance,
Chief Financial Officer and Secretary
PARENT:
HOMELAND HOLDING CORPORATION
By:
Wayne S. Peterson,
Senior Vice President - Finance,
Chief Financial Officer and Secretary
CREDIT PARTIES:
SLB MARKETING, INC.
By:
Jack C. Hensley,
President and Secretary
JCH BEVERAGE, INC.
By:
Jack C. Hensley,
President and Secretary
AGENT AND A LENDER:
NATIONAL BANK OF CANADA
By:
Larry L. Sears,
Vice President and Manager
By:
Randall K. Wilhoit,
Vice President
ADDITIONAL LENDERS:
IBJ WHITEHALL BUSINESS CREDIT CORPORATION
By:
John C. Williams,
Vice President
HELLER FINANCIAL, INC.
By:
Thomas W. Bukowski,
Senior Vice President
FIFTH AMENDMENT TO LOAN AGREEMENT
This FIFTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into effective as of February 29, 2000 by and among the following
parties:
(a) HOMELAND STORES, INC. ("Borrower"), a Delaware corporation,
(b) HOMELAND HOLDING CORPORATION ("Parent"), a Delaware corporation
(Borrower and Parent are sometimes hereinafter referred to as
the "Companies" and individually as a "Company"),
(c) SLB MARKETING, INC. ("SLB"), a Texas corporation, as a Credit
Party under the Loan Agreement,
(d) JCH BEVERAGE, INC. ("JCH"), a Texas corporation, as a Credit
Party under the Loan Agreement,
(e) IBJ WHITEHALL BUSINESS CREDIT CORPORATION ("IBJ"), formerly IBJ
Schroder Business Credit Corporation, the assignee of IBJ
Schroder Bank & Trust Company,
(f) HELLER FINANCIAL, INC. ("Heller"),
(g) NATIONAL BANK OF CANADA ("NBC"),
(such lenders and other financial institutions and their
respective successors and assigns, individually, a "Lender" and
collectively, the "Lenders"), and
(h) NBC, as agent for Lenders (in such capacity, the "Agent").
RECITALS:
A. Pursuant to that certain Loan Agreement, dated as of December 17,
1998, by and among Borrower, Parent, Lenders and Agent, as amended by that
certain First Amendment to Loan Agreement, dated as of April 23, 1999, by and
among Borrower, Parent, Lenders and Agent, by that certain Second Amendment to
Loan Agreement, dated as of October 22, 1999, by and among Borrower, Parent,
Lenders, Agent and SLB, by that certain Third Amendment to Loan Agreement,
dated as of November 2, 1999, by and among Borrower, Parent, Lenders and Agent,
and by that certain Fourth Amendment to Loan Agreement, dated as of November 19,
1999, by and among Borrower, Parent, Lenders, Agent, SLB and JCH (as the same
may be amended, renewed, extended, restated or otherwise modified from time to
time, the "Loan Loan Agreement"), Lenders agreed to provide to Borrower a senior
secured revolving credit and letter of credit facility, a senior secured term
loan facility, and two secured acquisition term loan facilities.
B. Borrower and Parent have requested that Agent and Lenders amend
the Loan Agreement to: (1) reflect Borrower's acquisition (the "Belton
Acquisition") of certain property and assets from Belton Food Center, Inc.,
a Missouri corporation ("Belton Food"), pursuant to the terms of that certain
Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as of February
29, 2000, between Borrower and Belton Food; and (2) increase the maximum
permitted principal amount of the aggregate Indebtedness for purchase money
Liens under Subsection 13,2(d)(y) of the Loan Agreement from $12,000,000 in
the aggregate to $14,000,000 in the aggregate.
C. Borrower and Parent have requested that Agent and Lenders, pursuant
to the terms of the Loan Agreement, consent to: (1) the assumption by Borrower
of certain Liens and Indebtedness as contemplated in that certain Assignment,
Assumption and Release Agreement (the "Assumption Agreement"), dated as of
February 29, 2000, among Belton Food, Ronald M. Bowes, Susan L. Bowes and
Ronald M. Bowes, Trustee of Trust, a Created by Trust Indenture, dated
January 7, 1997, with Ronald M. Bowes, as Settlor, Borrower and Associated
Wholesale Grocers, Inc., a Missouri corporation ("AWG"); (2) the acquisition
by Borrower of a substantial portion of the assets of Belton Food under the
terms of the Asset Purchase Agreement; (3) Overadvances during the period
beginning on March 1, 2000 and ending on March 31, 2000 (the "Overadvance
Period"), up to the maximum amount permitted under Section 2.2(c) of the Loan
Agreement; and (4) the use by Borrower of proceeds of the Revolving Facility
to purchase certain non-Inventory items in accordance with the terms of the
Asset Purchase Agreement.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Terms Defined. Unless otherwise defined in this Amendment, each
capitalized term used in this Amendment has the meaning given to such term in
the Loan Agreement (as amended by this Amendment).
2. Amendment to Supply Agreement. Section 1.1 of the Loan Agreement is
hereby amended by amending the following definition contained therein to read in
its entirety as follows:
"Supply Agreement" shall mean (i) the Supply Agreement, dated as of
April 21, 1995, by and between AWG and Borrower, as amended by that certain
First Amendment to Supply Agreement, dated effective as of August 2, 1996, by
and between AWG and Borrower, (ii) the Supply Agreement, dated as of April 23,
1999, by and between AWG and Borrower, (iii) the Supply Agreement, dated as of
November 2, 1999, by and between AWG and Borrower, and (iv) the Supply
Agreement, dated as of February 29, 2000, by and between AWG and Borrower.
3. Amendment to Maximum Amount of Permitted Aggregate Indebtedness:
Subsection 13,2(d)(y) of the Loan Agreement is hereby amended to read in its
entirety as follows:
(y) the principal amount of the aggregate Indebtedness incurred
from and after the Closing Date and secured by all such purchase money
Liens (including Capital Leases) does not exceed $14,000,000 in the
aggregate; and
4. Amendment to Schedules. The Loan Agreement is hereby amended as
follows:
(a) Existing Liens. Schedule 13,2(c) to the Loan Agreement is
hereby amended by supplementing the existing Schedule 13,2(c) with
Schedule 13,2(c) attached hereto.
(b) Real Property. Schedule 15.5(a) to the Loan Agreement is
hereby amended by supplementing the existing Schedule 15.5(a) with
Schedule 15.5(a) attached hereto.
(c) Environmental Information. Schedule 15.15 to the Loan
Agreement is hereby amended by supplementing the existing Schedule 15.15
with Schedule 15.15 attached hereto.
(d) Medicate/Medicaid and Third Party Payor Agreements. Schedule
15.16 to the Loan Agreement is hereby amended by supplementing the
existing Schedule 15.16 with Schedule 15.16 attached hereto.
5. Consent. Subject to satisfaction of and compliance with all terms
and conditions set forth in this Amendment and in the Loan Agreement, Agent
and Lenders consent to:
(a) the assumption by Borrower of certain Liens and Indebtedness,
in accordance with the terms and conditions of the Assumption Agreement;
(b) the acquisition by Borrower of a substantial portion of the
assets of Belton Food, in accordance with the terms and conditions of
the Asset Purchase Agreement;
(c) Overadvances during the Overadvance Period, up to the maximum
amount permitted under Section 2.2(c) of the Loan Agreement; and
(d) the use by Borrower of proceeds of the Revolving Credit Facility
to purchase certain non-Inventory items, in accordance with the terms
of the Asset Purchase Agreement.
6. Conditions Precedent. The effectiveness of this Amendment is
expressly conditioned upon the satisfaction of the following conditions
precedent:
(a) Agent shall have received all of the following, each dated
(unless otherwise indicated) the date of this Amendment, in form and
substance satisfactory to Agent:
(i) Amendment Documents. This Amendment and any other
instrument (including, document or certificate required by Agent to
be executed or delivered by Borrower, Parent or any other party in
connection with this Amendment or any consent granted herein, duly
executed by the parties thereto (collectively, the "Amendment
Documents").
(ii) Security Documents and Instruments. All the instruments
and documents then required to be delivered pursuant to Section 8 of
the Loan Agreement or any other provision of the Loan Agreement or
pursuant to the instruments and documents referred to in Section 8
of the Loan Agreement with regard to the assets being acquired by
Borrower in the Belton Acquisition; and the same shall be in full
force and effect and shall grant, create or perfect the Liens, rights,
powers, priorities, remedies and benefits contemplated herein or
therein, as the case may be.
(iii) Financial Covenants. A pro forma statement for each
Company detailing the financial covenants listed in Section 12.16
of the Loan Agreement after giving effect to the Belton Acquisition,
for the Fiscal Year ending December 30, 2000.
(iv) Revised Budget for Fiscal Year 2000. A budget of the
financial condition and results of operations of each Company after
giving effect to the Belton Acquisition, for the Fiscal Year ending
December 30, 2000.
(v) Sublease Payments. A statement listing the monthly rent
payable by Borrower to AWG under each sublease executed by Borrower
in connection with the Belton Acquisition.
(vi) Sublandlord's Agreement. A Sublandlord's Agreement duly
executed by AWG, Borrower, IBJ, Heller and Agent.
(vii) Legal Opinion. A legal opinion from Companies' counsel,
Crowe & Dunlevy, a professional corporation, in form and substance
satisfactory to Agent, dated as of the date of the Belton Acquisition,
stating, among other things, that the assumption of debt, the
borrowings and all transactions contemplated by the Belton
Acquisition, will not violate any term of the Indenture.
(viii) Certificate of No Default. A Certificate executed by each
of the Companies, in form and substance satisfactory to Agent and
dated as of the date of the Belton Acquisition, stating that no
Default or Event of Default shall have occurred and be continuing
after giving effect to the Belton Acquisition.
(ix) Subordination Agreending or threatened litigation could,
in Agent's reasonable judgment, be expected to have a Material
Adverse Effect. There shall exist no judgment, order, injunction or
other similar restraint prohibiting any transaction contemplated
hereby.
(x) Evidence of Insurance. Within fourteen (14) days of the
date of this Amendment, evidence, in form, scope and substance and
with such insurance carriers reasonably satisfactory to Agent, of
all insurance policies required pursuant to Section 12.3(a) of the
Loan Agreement with regard to the assets being acquired by
Borrower in the Belton Acquisition.
(xi) Additional Information. Such additional documents,
instruments and information as Agent or its legal counsel, Hughes
& Luce, L.L.P., special counsel to Agent, and all local counsel to
Agent, may reasonably request to effect the transactions
contemplated hereby.
(b) AWG Documents. Agent and Lenders shall have had the opportunity
to examine all documents between Borrower and AWG relating to the Belton
Acquisition and the related material contracts, properties, books of
account, records, leases, contracts, insurance coverage and properties of
each Company, and to perform such other due diligence regarding the Belton
Acquisition and each Company as Agent or any Lender shall have requested,
the results of all of which shall have been satisfactory to Agent and
Lenders in all material respects.
(c) Litigation. There shall be no pending or, to the knowledge of
any Company, threatened litigation with respect to any Company or any of
its Subsidiaries or (relating to the transactions contemplated herein)
with respect to Agent or any of the Lenders, which challenges or relates
to the financing arrangements to be provided to fund the Belton Acquisition
or to the business, operations, liabilities, assets, properties, prospects
or condition (financial or otherwise) of any Company or its Subsidiaries,
which pending or threatened litigation could, in Agent's reasonable
judgment, be expected to have a Material Adverse Effect. There shall exist
no judgment, order, injunction or other similar restraint prohibiting any
transaction contemplated hereby.
(d) Compliance with Law. Agent shall be satisfied that each Company
(i) has obtained all authorizations and approvals of any governmental
authority or regulatory body required for the due execution, delivery and
performance by such Company, of this Amendment and any document related to
each of the Amendment Documents and the Belton Acquisition, to which it is
or will be a party and for the perfection of or the exercise by Agent and
each Lender of their respective rights and remedies under the Loan
Documents, and (ii) shall be in compliance with, and shall have obtained
appropriate approvals pertaining to, all applicable laws, rules,
regulations and orders, including, without limitation, all governmental,
environmental, ERISA and other requirements, regulations and laws, the
violation or failure to obtain approvals for which could reasonably be
expected to have a Material Adverse Effect.
(e) No Market Disruption. There shall have occurred no disruption
or adverse change in the financial or capital markets generally which
Agent, in its reasonable discretion, deems material.
(f) Landlord's Liens. None of the Collateral shall be subject
to any contractual or statutory Lien or Liens in favor of any lessor
under any Lease, except (i) such Liens as Agent, in its sole discretion,
shall deem not material, (ii) such Liens that are created under the terms
of the subleases between AWG and Borrower executed in connection with the
Belton Acquisition, and (iii) such Liens that have been waived or
subordinated to the Liens in favor of Agent and Lenders in a manner
satisfactory to Agent, in its sole discretion.
(g) Delivery of Documents. All corporate proceedings taken in
connection with the transactions contemplated by this Amendment and all
other agreements, documents and instruments executed and/or delivered
pursuant hereto, and all legal matters incident thereto, shall be
satisfactory to Agent and its legal counsel, Hughes & Luce, L.L.P.
(h) No Default. No Default or Event of Default shall have occurred
and be continuing after giving effect to the Belton Acquisition.
7. Representations and Warranties. Each Company hereby represents
and warrants to Agent and Lenders that, as of the date of and after giving
effect to this Amendment, (a) the execution, delivery and performance of this
Amendment has been authorized by all requisite corporate action on the part of
each Company and will not violate the corporate charter or bylaws of any
Company, (b) all representations and warranties set forth in the Loan Agreement
and in any other Loan Documents are true and correct, in all material respects,
as if made again on and as of such date (including, without limitation, the
representations and warranties previously made as of the Closing Date in the
Loan Agreement), (c) no Default or Event of Default has occurred and is
continuing (after giving effect to Sections 2 through 4 of this Amendment),
and (d) the Loan Agreement (as amended by this Amendment), the Notes (as the
same may be amended and restated from time to time) and the other Loan
Documents are and remain legal, valid, binding and enforceable obligations of
each Company, as applicable.
8. Liens. Each of Borrower and Parent hereby covenants and agrees
that Section 13.2 of the Loan Agreement (as amended by this Amendment), which
prohibits each of Borrower and Parent from incurring Liens upon any of its
property or assets, other than the Liens permitted in such Section 13.2, shall
apply to each of the stores acquired by Borrower in the Belton Acquisition.
9. Leasehold Mortgages. Borrower hereby covenants and agrees that
upon the payment in full by Borrower of all debt owed by Borrower to AWG
as a result of the Belton Acquisition, Borrower, to the extent permitted by
the relevant lease or sublease and in accordance with Section 8.2 of the Loan
Agreement, will execute a Mortgage for each property leased or subleased by
Borrower under the terms of the Belton Acquisiton.
10. Amendment Documents as Loan Documents. The term Loan Documents
as defined in the Loan Agreement and as used in any of the Loan Documents
includes, without limitation, this Amendment and each of the other Amendment
Documents executed in connection herewith.
11. Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
12. Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any
such counterpart.
13. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE LOAN
AGREEMENT AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL
AGREEMENTS BETWEEN AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN (A) BORROWER, OR
PARENT, AND (B) AGENT OR ANY LENDER.
14. Loan Agreement Remains in Effect: No Waiver. Except as expressly
provided herein, all terms and provisions of the Loan Agreement and the other
Loan Documents shall remain unchanged and in full force and effect and are
hereby ratified and confirmed. No waiver by Agent or any Lender of any Default
or Event of Default shall be deemed to be a waiver of any other Default or
Event of Default. No delay or omission by Agent or any Lender in exercising
any power, right or remedy shall impair such power, right or remedy or be
construed as a waiver thereof or an acquiescence therein, and no single or
partial exercise of any such power, right or remedy shall preclude other
or further exercise thereof or the exercise of any power, right or remedy
under the Loan Agreement, the Loan Documents or otherwise.
15. Ratification of Guaranties. Each of Parent and by their signature
below SLB and JCH, reaffirms its respective obligations under its respective
Guarany, agrees that its respective Guaranty shall remain in full force and
effect not withstanding execution of this Amendment and the Amendment Documents,
and agrees that its respective Guaranty and the Loan Agreement shall continue
to be legal, valid and binding obligations of such Guarantor, enforceable in
accordance with the terms therein with regard to the Indebtedness.
16. Fees and Expenses. Borrower agrees to pay all expenses paid or
incurred by Agent in connection with this Amendment and any related documents,
including but not limited to recording fees, computer fees, duplication fees,
telephone and telecopier fees, travel and transportation fees, search and
filing fees, and the reasonable fees and expenses of Hughes & Luce, L.L.P.,
counsel to Agent and Lenders.
17. Survival of Representations and Warranties. All representations
and warranties made in this Amendment or any other Amendment Document shall
survive the execution and delivery of this Amendment and the other Amendment
Documents, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon them.
18. Reference to Loan Agreement. Each of the Loan Documents, including
the Loan Agreement, the Amendment Documents and any and all other agreements,
documents or instruments now or hereafter executed and/or delivered pursuant
to the terms hereof or pursuant to the terms of the Loan Agreement as amended
hereby, are hereby amended so that any reference in such Loan Documents to
the Loan Agreement shall mean a reference to the Loan Agreement as amended
hereby.
19. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
20. Successors and Assigns. This Amendment if binding upon and shall
inure to the benefit of Agent, Lenders, Borrower, Parent, SLB and JCH and
their respective successors and assigns, except Borrower, Parent, SLB and
JCH may not assign or transfer any of their rights or obligations hereunder
without the prior written consent of Lenders.
21. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
[Signature Page Follows]
IN WITNESS WHEREOF, Borrower, Parent, SLB, JCH, Agent and Lenders have
caused this Amendment to be executed and delivered by their duly authorized
officers effective as of the date first above written.
BORROWER:
HOMELAND STORES, INC.
By:_____________________________
Wayne S. Peterson
Senior Vice President-Finance and
Chief Financial Officer and Secretary
PARENT:
HOMELAND HOLDING CORPORATION
By:_____________________________
Wayne S. Peterson
Senior Vice President-Finance and
Chief Financial Officer and Secretary
CREDIT PARTIES:
SLB MARKETING, INC.
By:_____________________________
Jack C. Hensley,
President and Secretary
JCH BEVERAGE, INC.
By:_____________________________
Jack C. Hensley,
President and Secretary
AGENT AND LENDER:
NATIONAL BANK OF CANADA
By:_____________________________
Larry L. Sears,
Vice President and Manager
By:_____________________________
Randall K. Wilhoit,
Vice President
ADDITIONAL LENDERS:
IBJ WHITEHALL BUSINESS CREDIT
CORPORATION
By:_____________________________
John C. Williams,
Vice President
HELLER FINANCIAL, INC.
By:_____________________________
Thomas W. Bukowski,
Senior Vice President
Schedule 13.2(c)
(Supplemental)
EXISTING LIENS
Liens granted to AWG pursuant to (a) that certain Amended and Restated Security
Agreement, dated February 29, 2000, between AWG and Belton Food Center, Inc.,
a Missouri Corporation ("Belton Food"), and (b) that certain Amended and
Restated Pledge Agreement, dated February 29, 2000, between AWG and Belton
Food; such Liens were assumed by Borrower under that certain Assignment,
Assumption and Release Agreement, dated February 29, 2000, among AWG,
Borrower, Belton Food Center, Inc., a Missouri corporation, Ronald M. Bowes,
and Susan L. Bowes and Ronald M. Bowes, Trustee of a Trust Created by Trust
Indenture, dated January 7, 1997, with Ronald M. Bowes, as Settlor.
Schedule 15.5(a)
(Supplemental)
REAL PROPERTY
II. Leased Real Property
Store # and Location Comments
885 7012 Northwest Expressway None
Oklahoma City, Oklahoma
Oklahoma County
886 24 S.E. 33rd Street None
Edmond, Oklahoma
Oklahoma County
887 2213 S.W. 74th Street None
Oklahoma City, Oklahoma
Oklahoma County
Schedule 15.15
(Supplemental)
ENVIRONMENTAL INFORMATION
Store No.
885 Phase I Environmental Site Assessment - Kingston Environmental Audit,
July 10, 1998
886 Phase I Environmental Site Assessment - Kingston Environmental Audit,
July 10, 1998
887 Phase I Environmental Site Assessment - Kingston Environmental Audit,
July 10, 1998
Schedule 15.16
(Supplemental)
MEDICARE/MEDICAID AND
THIRD PARTY PAYOR AGREEMENTS
STORE PHONE # HOMELAND PHARMACIES MM/NABP
885 7012 Northwest Expressway Oklahoma City, OK 73132 371-9032
886 24 East 33rd Edmond, OK 73013 372-0148
887 2213 S.W. 74th Oklahoma City, OK 73159 371-9359
EFFECTIVE
PROVIDER ADDRESS CITY ST ZIP DATE
1 Advanced BC BS Tex
2 Advance BC BS
3 Allied National
4 Alpha Scrip Incorporated
5 Alta RX
6 Provantage Amer Med Secur
7 Advance RX Mang.
8 Adv Ark
9 Alpha Scrips
10 Automated RX Net
11 Prud. PLU AT&T Manual
12 BC/BS of Alabama
13 BC California (Proserv)
14 Bravell
15 Lincsrx BC/BS of Ok
16 BC/BS Illinois - Proserv
17 BCBS Utica - Watertown
18 Beniscript All Plans
19 BCBS Maryland
20 BCBS of Nebraska
21 Cash Sales
22 Community Care HMO
23 Choice RX
24 Cigna RX Prima & HMO
25 Claimspro Preferred
EFFECTIVE
PROVIDER ADDRESS CITY ST ZIP DATE
26 Champus OK
27 Columbia Pharmacy
28 Complete RX Network
29 Complete Pharmacy Network
30 Caremark Inc.
31 AIA
32 CPS
33 Dun and Bradstreet
34 Diversified Pharm Service
35 DPS Healthcare Oklahoma
36 Darden Restaurants, Inc.
37 Employers Health Option
38 Eckerd Health Care
39 Executive RX Admin
40 Fireman's Worker's Comp
41 FHS IPS (Sooercare) Foundation
42 Foundation Health HMO
43 Foundation
44 BC/BS Generic
45 Gold Net (Pharmacy Gold)
46 Healthcomp
47 Healthcare Oklahoma
48 Health Care Delivery System
49 Heartland Health Plan
50 Healthsource RX
51 Systemed
52 IPS
53 Lincsrx BC/BS of OK
54 Mature RX
55 Mede America
56 Medimet-Met Life
57 Mutually Preferred
58 Managed Pharmacy Benefits
59 Managed Presc Network
60 Managed RX Service
61 Medical Security Card
62 Mutual Preferred Omaha
63 Northwestern National Life
EFFECTIVE
PROVIDER ADDRESS CITY ST ZIP DATE
64 National Prescription Adm
65 Nat'l Pharmaceutical Serv
66 Plan Plus
67 Blue Cross Plan 65 Plan H
68 RX Solutions
69 Allied Health Presc. Solut
70 Pacificare of OK
71 Paid GM Health Care Program
72 Paid Management Care Pharmacy
73 Paid Occidental Pet Corp
74 Paid Samba RX Plan
75 PAI Pharmacy Assoc., Inc.
76 PCN
77 Prescription Card Services
78 PCS Managed Care Program
79 PCS Recap Network Plans
80 PCS MCP Fed Government Emp
81 PCS Recap Network Plans
82 Pharmacy Direct Network
83 Prescription D Service
84 Pod GM Strike
85 BC/BS Perform Cost Management
86 Perform Okla Farm Bureau
87 Pharmacare
88 PHS Caremark
89 Physicians, Inc.
90 Provider Medical Pharmacies
91 PPO-Argus
92 PPO Oklahoma
93 Polling
94 AT&T Claims
95 RX Providers of OK Send DEA
96 PPSI
97 Prescript (Stockton Group)
98 Prucare OKC Pru Plus & Ne - HMO
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, Oklahoma 73125
December 8, 1999
Mr. Prentess E. Alletag, Jr.
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, OK 73125
Dear Prentess:
The purpose of this letter is to confirm our understanding with
respect to a termination of your employment with Homeland Stores, Inc. (the
"Company"). This letter agreement supersedes all prior agreements between you
and the Company with respect to your employment with the Company, including,
without limitation, the letter agreement dated December 8, 1998.
The Company may terminate your employment at any time for any reason.
If the Company terminates your employment prior to December 31, 2000 for any
reason other than Cause or Disability, the Company will (i) continue to pay you
your base salary for one year after the date of your termination of employment,
and (ii) within 5 business days after your employment terminates, pay you in a
lump sum payment an amount equal to the product of (A) your target bonus under
the Company's incentive bonus plan for the year in which your employment
terminates and (B) a fraction, the numerator of which is the number of days
during such year prior to and including the date of your termination of
employment and the denominator of which is 365; provided, however, that such
prorated bonus amount under clause (ii) above shall only be payable if, as of
the date of such termination, the Company's actual results of operations, on a
year-to-date basis for the most recently completed and publicly released fiscal
quarter, are within 90% of the target level under the Company's Management
Incentive Bonus Program.
In the event (i) you terminate your employment for any reason, (ii)
your employment terminates due to your death or Disability or (iii) your
employment is terminated by the Company for Cause, you will only be entitled to
receive the compensation and benefits payable to you under the Company's
otherwise applicable employee benefit plans or programs.
As used in this letter agreement, "Cause" means (i) your willful
failure to perform substantially your duties as an officer and employee of the
Company (other than due to physical or mental illness), (ii) your engaging in
serious misconduct that is injurious to the Company, (iii) your having been
convicted of, or entered a plea of nolo contendere to, a crime that constitutes
a felony, (iv) your unauthorized disclosure of confidential information (other
than to the extent required by an order of a court having competent jurisdiction
or under subpoena from an appropriate government agency) that has resulted or
is likely to result in material economic damage to the Company, or (v) any act
of moral turpitude which has or may have an adverse effect on the Company,
including, without limitation, commission of a felony or a misdemeanor involving
moral turpitude. As used in this letter agreement, "Disability" means that, as
a result of your incapacity due to physical or mental illness, you have been
absent from your duties to the Company on a substantially full-time basis for
180 days in any twelve-month period and within 30 days after the Company
notifies you in writing that it intends to replace you, you shall not have
returned to the performance of your duties on a full-time basis.
All amounts payable to you hereunder will be paid net of any and all
applicable income or employment taxes required to be withheld therefrom under
applicable Federal, State or local laws or regulations.
If the foregoing accurately sets forth our understanding, please so
indicate by signing below and returning one signed copy of this letter agreement
to me.
Sincerely,
HOMELAND STORES, INC.
/s/ David B. Clark
David B. Clark
President and Chief Executive Officer
ACCEPTED AND AGREED
as of this 13th day of December,
1999.
/s/ Prentess E. Allegag, Jr.
Prentess E. Alletag, Jr.
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, Oklahoma 73125
December 8, 1999
Ms. Deborah A. Brown
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, OK 73125
Dear Debbie:
The purpose of this letter is to confirm our understanding with
respect to a termination of your employment with Homeland Stores, Inc. (the
"Company"). This letter agreement supersedes all prior agreements between you
and the Company with respect to your employment with the Company, including,
without limitation, the letter agreement dated December 8, 1998.
The Company may terminate your employment at any time for any reason.
If the Company terminates your employment prior to December 31, 2000 for any
reason other than Cause or Disability, the Company will (i) continue to pay you
your base salary for one year after the date of your termination of employment,
and (ii) within 5 business days after your employment terminates, pay you in a
lump sum payment an amount equal to the product of (A) your target bonus under
the Company's incentive bonus plan for the year in which your employment
terminates and (B) a fraction, the numerator of which is the number of days
during such year prior to and including the date of your termination of
employment and the denominator of which is 365; provided, however, that such
prorated bonus amount under clause (ii) above shall only be payable if, as of
the date of such termination, the Company's actual results of operations, on
a year-to-date basis for the most recently completed and publicly released
fiscal quarter, are within 90% of the target level under the Company's
Management Incentive Bonus Program.
In the event (i) you terminate your employment for any reason, (ii)
your employment terminates due to your death or Disability or (iii) your
employment is terminated by the Company for Cause, you will only be entitled to
receive the compensation and benefits payable to you under the Company's
otherwise applicable employee benefit plans or programs.
As used in this letter agreement, "Cause" means (i) your willful
failure to perform substantially your duties as an officer and employee of the
Company (other than due to physical or mental illness), (ii) your engaging in
serious misconduct that is injurious to the Company, (iii) your having been
convicted of, or entered a plea of nolo contendere to, a crime that constitutes
a felony, (iv) your unauthorized disclosure of confidential information (other
than to the extent required by an order of a court having competent jurisdiction
or under subpoena from an appropriate government agency) that has resulted or
is likely to result in material economic damage to the Company, or (v) any
act of moral turpitude which has or may have an adverse effect on the Company,
including, without limitation, commission of a felony or a misdemeanor involving
moral turpitude. As used in this letter agreement, "Disability" means that, as
a result of your incapacity due to physical or mental illness, you have been
absent from your duties to the Company on a substantially full-time basis for
180 days in any twelve-month period and within 30 days after the Company
notifies you in writing that it intends to replace you, you shall not have
returned to the performance of your duties on a full-time basis.
All amounts payable to you hereunder will be paid net of any and all
applicable income or employment taxes required to be withheld therefrom under
applicable Federal, State or local laws or regulations.
If the foregoing accurately sets forth our understanding, please so
indicate by signing below and returning one signed copy of this letter agreement
to me.
Sincerely,
HOMELAND STORES, INC.
/s/ David B. Clark
David B. Clark
President and Chief Executive Officer
ACCEPTED AND AGREED
as of this 16th day of December,
1999.
/s/ Deborah A. Brown
Deborah A. Brown
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, Oklahoma 73125
December 8, 1999
Mr. Steven M. Mason
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, OK 73125
Dear Steve:
The purpose of this letter is to confirm our understanding with
respect to a termination of your employment with Homeland Stores, Inc. (the
"Company"). This letter agreement supersedes all prior agreements between you
and the Company with respect to your employment with the Company, including,
without limitation, the letter agreement dated December 8, 1998.
The Company may terminate your employment at any time for any reason.
If the Company terminates your employment prior to December 31, 2000 for any
reason other than Cause or Disability, the Company will (i) continue to pay you
your base salary for one year after the date of your termination of employment,
and (ii) within 5 business days after your employment terminates, pay you in a
lump sum payment an amount equal to the product of (A) your target bonus under
the Company's incentive bonus plan for the year in which your employment
terminates and (B) a fraction, the numerator of which is the number of days
during such year prior to and including the date of your termination of
employment and the denominator of which is 365; provided, however, that such
prorated bonus amount under clause (ii) above shall only be payable if, as of
the date of such termination, the Company's actual results of operations, on
a year-to-date basis for the most recently completed and publicly released
fiscal quarter, are within 90% of the target level under the Company's
Management Incentive Bonus Program.
In the event (i) you terminate your employment for any reason, (ii)
your employment terminates due to your death or Disability or (iii) your
employment is terminated by the Company for Cause, you will only be entitled to
receive the compensation and benefits payable to you under the Company's
otherwise applicable employee benefit plans or programs.
As used in this letter agreement, "Cause" means (i) your willful
failure to perform substantially your duties as an officer and employee of the
Company (other than due to physical or mental illness), (ii) your engaging in
serious misconduct that is injurious to the Company, (iii) your having been
convicted of, or entered a plea of nolo contendere to, a crime that constitutes
a felony, (iv) your unauthorized disclosure of confidential information (other
than to the extent required by an order of a court having competent jurisdiction
or under subpoena from an appropriate government agency) that has resulted or
is likely to result in material economic damage to the Company, or (v) any act
of moral turpitude which has or may have an adverse effect on the Company,
including, without limitation, commission of a felony or a misdemeanor involving
moral turpitude. As used in this letter agreement, "Disability" means that, as
a result of your incapacity due to physical or mental illness, you have been
absent from your duties to the Company on a substantially full-time basis for
180 days in any twelve-month period and within 30 days after the Company
notifies you in writing that it intends to replace you, you shall not have
returned to the performance of your duties on a full-time basis.
All amounts payable to you hereunder will be paid net of any and all
applicable income or employment taxes required to be withheld therefrom under
applicable Federal, State or local laws or regulations.
If the foregoing accurately sets forth our understanding, please so
indicate by signing below and returning one signed copy of this letter agreement
to me.
Sincerely,
HOMELAND STORES, INC.
/s/ David B. Clark
David B. Clark
President and Chief Executive Officer
ACCEPTED AND AGREED
as of this 13th day of December,
1999.
/s/ Steven M. Mason
Steven M. Mason
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, Oklahoma 73125
December 8, 1999
Mr. John C. Rocker
Homeland Stores, Inc.
P.O. Box 25008
Oklahoma City, OK 73125
Dear John:
The purpose of this letter is to confirm our understanding with
respect to a termination of your employment with Homeland Stores, Inc. (the
"Company"). This letter agreement supersedes all prior agreements between you
and the Company with respect to your employment with the Company, including,
without limitation, the letter agreement dated September 14, 1998.
The Company may terminate your employment at any time for any reason.
If the Company terminates your employment prior to December 31, 2000 for any
reason other than Cause or Disability, the Company will (i) continue to pay you
your base salary for one year after the date of your termination of employment,
and (ii) within 5 business days after your employment terminates, pay you in a
lump sum payment an amount equal to the product of (A) your target bonus under
the Company's incentive bonus plan for the year in which your employment
terminates and (B) a fraction, the numerator of which is the number of days
during such year prior to and including the date of your termination of
employment and the denominator of which is 365; provided, however, that such
prorated bonus amount under clause (ii) above shall only be payable if, as of
the date of such termination, the Company's actual results of operations, on a
year-to-date basis for the most recently completed and publicly released fiscal
quarter, are within 90% of the target level under the Company's Management
Incentive Bonus Program.
In the event (i) you terminate your employment for any reason, (ii)
your employment terminates due to your death or Disability or (iii) your
employment is terminated by the Company for Cause, you will only be entitled to
receive the compensation and benefits payable to you under the Company's
otherwise applicable employee benefit plans or programs.
As used in this letter agreement, "Cause" means (i) your willful
failure to perform substantially your duties as an officer and employee of the
Company (other than due to physical or mental illness), (ii) your engaging in
serious misconduct that is injurious to the Company, (iii) your having been
convicted of, or entered a plea of nolo contendere to, a crime that constitutes
a felony, (iv) your unauthorized disclosure of confidential information (other
than to the extent required by an order of a court having competent jurisdiction
or under subpoena from an appropriate government agency) that has resulted or
is likely to result in material economic damage to the Company, or (v) any act
of moral turpitude which has or may have an adverse effect on the Company,
including, without limitation, commission of a felony or a misdemeanor involving
moral turpitude. As used in this letter agreement, "Disability" means that, as
a result of your incapacity due to physical or mental illness, you have been
absent from your duties to the Company on a substantially full-time basis for
180 days in any twelve-month period and within 30 days after the Company
notifies you in writing that it intends to replace you, you shall not have
returned to the performance of your duties on a full-time basis.
All amounts payable to you hereunder will be paid net of any and all
applicable income or employment taxes required to be withheld therefrom under
applicable Federal, State or local laws or regulations.
If the foregoing accurately sets forth our understanding, please so
indicate by signing below and returning one signed copy of this letter agreement
to me.
Sincerely,
HOMELAND STORES, INC.
/s/ David B. Clark
David B. Clark
President and Chief Executive Officer
ACCEPTED AND AGREED
as of this 16th day of December,
1999.
/s/ John C. Rocker
John C. Rocker
EXHIBIT 21
HOMELAND HOLDING CORPORATION
LIST OF SUBSIDIARIES
Jurisdiction
Name of Subsidiaries Where Incorporated
Homeland Stores, Inc. Delaware
SLB Marketing, Inc. Texas
JCH Beverage, Inc. Texas
EXHIBIT 23
CONSENT OF INDEPEDENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Homeland Holding Corporation on Forms S-8 (File Nos. 333-78693, 333-52267,
333-56387, and 333-61203) of our report dated February 29, 2000, except for
Note 14, as to which the date is March 9, 2000, on our audits of the
consolidated financial statements of Homeland Holding Corporation and
subsidiaries as of January 1, 2000 and January 2, 1999 and for the 52 weeks
ended January 1, 2000, the 52 weeks ended January 2, 1999, and the 53 weeks
ended January 3, 1998, which report is included in this Annual Report on Form
10-K.
PRICEWATERHOUSECOOPERS LLP
March 29, 2000
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