SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
AMENDMENT NO. 1 TO
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES UNDER
THE TRUST INDENTURE ACT OF 1939
Homeland Stores, Inc.
(Name of applicant)
2601 N.W. Expressway
Oklahoma City, Oklahoma 73112
(Address of principal executive offices)
SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED
TITLE OF CLASS AMOUNT
10% Senior Subordinated Notes Due 2003 $60,000,000
Approximate date of proposed public offering: June 30, 1996
Name and address of agent for service: Larry W. Kordisch
Homeland Stores, Inc.
2601 N.W. Expressway
Oklahoma City, Oklahoma 73112
- with a copy to -
Kenni B. Merritt
Crowe & Dunlevy
20 North Broadway
Oklahoma City, Oklahoma 73102
GENERAL
1. General Information. Furnish the following as
to the applicant:
(a) Form of organization.
The applicant, Homeland Stores, Inc.("Company"),
is a corporation.
(b) State or other sovereign power under the laws of
which organized.
The Company is organized under the laws of the
State of Delaware.
2. Securities Act exemption available. State briefly the
facts relied upon by the applicant as a basis for the
claim that registration of the indenture securities under
the Securities Act of 1933 is not required.
The indenture securities are exempt from
registration under the Securities Act of 1933,
as amended ("Securities Act"), by virtue of
Section 1145(a)(1) of the United States
Bankruptcy Code, as amended ("Bankruptcy
Code").
The Company is a debtor in a case filed under
Chapter 11 of the Bankruptcy Code styled In re
Homeland Stores. Inc.. Debtor, Case No. 96-747
(PJW), pending in the United States Bankruptcy
Court for the District of Delaware ("Bankruptcy
Court"). The case is jointly administered with
a case filed under Chapter 11 of the Bankruptcy
Code styled In re Homeland Holding Corporation.
Debtor, Case No. 96-748 (PJW), pending in the
Bankruptcy Court.
The indenture securities, the 10% Senior
Subordinated Notes Due 2003 ("New Notes"), are
securities being issued by the Company under
the First Amended Joint Plan of Reorganization
of Homeland Stores, Inc. and Homeland Holding
Corporation ("Plan") filed by the applicant and
its parent corporation Homeland Holding
Corporation ("Holding") on June 13, 1996. The
Plan, as modified, was confirmed by the
Bankruptcy Court on July 19, 1996.
The New Notes are being issued in exchange for
claims against the Company. These claims
consist of the allowed secured claims of the
holders of the Series A Senior Secured Floating
Rate Notes due 1997, the Series C Senior
Secured Fixed Rate Notes due 1999 and the
Series D Senior Secured Floating Rate Notes due
1997, in each case issued by the Company ("Old
Notes").
AFFILIATIONS
3. Affiliates. Furnish a list or diagram of all
affiliates of the applicant and indicate the
respective percentages of voting securities or
other bases of control.
Holding is the parent corporation of the
Company. Holding owns, prior to the
consummation of the Plan, all of the issued and
outstanding shares of Common Stock, par value
$0.01 per share ("Homeland Common Stock"), of
the Company and, upon the consummation of the
Plan, will continue to own all of the issued
and outstanding shares of Homeland Common
Stock.
As of May 31, 1996, the Clayton & Dubilier
Private Equity Fund III, Limited Partnership
("C&D Fund III") and The Clayton & Dubilier
Private Equity Fund IV, Limited Partnership
("C&D Fund IV") may be deemed to be
"affiliates" of the Company by virtue of their
beneficial ownership of 35.9% and 40.4%,
respectively, of the then outstanding shares of
Common Stock, par value $0.01 per share ("Old
Common Stock"), of Holding. Joseph L. Rice, III
and Alberto Cribore, who serve as general
partners of the general partner of C&D Fund III
and as general partners of the general partner
of C&D Fund III, may be deemed to share
beneficial ownership of the shares beneficially
owned by C&D Fund III and C&D Fund IV, though
each of them disclaims such beneficial
ownership. Likewise, B. Charles Ames, William
A. Barbe, Donald J. Gogel, Leon J. Hendrix,
Jr., Hubbard C. Howe and Andrall Pearson, who
also serve as general partners of the general
partner of C& D Fund IV, may deemed to share
beneficial ownership of the shares beneficially
owned by C&D Fund IV, though each of them
disclaims such beneficial ownership.
The Plan contemplates the issuance on the
consummation of the Plan of 4,700,000 new
shares of Common Stock, par value $0.01 per
share ("New Common Stock"), of Holding to the
holders of general unsecured claims against the
Company and the holders of Old Common Stock.
The holders of general unsecured claims,
including the holders of the Old Notes, will be
issued an aggregate of 4,450,000 shares of New
Common Stock and the holders of Old Common
Stock will be issued an aggregate of 250,000
shares of New Common Stock. As a result of the
equity recapitalization pursuant to the Plan,
the persons, if any, who are affiliates on
consummation by virtue of beneficial ownership
of capital stock of Holding may be
significantly different than the persons who
are affiliates prior to consummation. The
Company and Holding are unable to determine the
identity of the persons, if any, who will be
affiliates because, among reasons, a
significant amount of the Old Notes are
currently held in nominee name, the Old Notes
and the other general unsecured claims may be
transferred or acquired prior to the
consummation of the Plan and the actual amount
of general unsecured claims (other than
unsecured claims in respect of the Old Notes)
has not been finally determined.
As of May 31, 1996, the following persons may
be deemed to be affiliates by virtue of their
positions as directors and/or executive
officers of the Company:
B. Charles Ames Andrall S. Pearson Terry M. Marczewski
James A. Demme Hubbard C. Howe Alfred F. Fideline, Sr.
John A. Shields Michael G. Babiarz Prentess E. Alletag, Jr.
Bernard S. Black Larry W. Kordisch
Bernard Paroly Steven W. Mason
See Item 4.
On the consummation of the Plan, Messrs. Ames,
Black, Paroly, Pearson, Howe and Babiarz will cease
to serve as directors of the Company and should
therefore cease to be affiliates of the Company. The
Plan provides for the designation of five new
directors (in addition to Messrs. Demme and
Shields), four of whom will be designated by the ad
hoc committee which represents
approximately 75% of the holders of Old Notes
("Committee") and one of whom will he designated by
the United Food and Commercial Workers Union of
America ("Union"), the union which represents
approximately 90% of the employees of the Company.
The Union has designated Gene Burris and the
Committee has designated Edward B. Krekeler, Jr.,
Laurie M. Shahon, William B. Snow and David
Weinstein. All of the other persons (who serve as
executive officers of the Company) will continue to
hold the same positions after consummation of the
Plan. See Item 4.
MANAGEMENT AND CONTROL
4. Directors and executive officers. List the
name and the complete mailing addresses of all
directors and executive officers of the
applicant and all persons chosen to become
directors and executive officers. Indicate all
offices with the applicant held or to be held
by the person named.
Prior to the consummation of the Plan, the
following persons are serving as directors of
the Company:
B. Charles Ames (Chairman of the Board)
James A. Demme
John A. Shields
Bernard S. Black
Bernard Paroly
Andrall S. Pearson
Hubbard C. Howe
Michael G. Babiarz
The mailing address for each of these persons is as
follows:
c/o Homeland Stores, Inc.
2601 Northwest Expressway
Oklahoma City, Oklahoma 73112
Upon the consummation of the Plan, the Board of
Directors will be restructured to consist of seven
members. The following persons will continue to
serve as directors of the Company:
James A. Demme
John A. Shields
Gene Burris
Edward B. Krekeler, Jr.
Laurie M. Shahon
William B. Snow
David Weinstein
The mailing address for each of these persons will
be as follows:
c/o Homeland Stores, Inc.
2601 Northwest Expressway
Oklahoma City, Oklahoma 73112
The following persons are serving as executive
officers of the Company, holding the following
officer, and will serve as executive officers of the
Company, holding the same offices, upon the
consummation of the Plan:
Name Office(s)
James A. Demme President and Chief Executive Officer
Larry W. Kordisch Executive Vice President - Finance,
Chief Financial Officer, Treasurer
and Secretary
Steven M. Mason Vice President - Marketing
Terry M. Marczewski Chief Accounting Officer, Assistant
Treasurer and Assistant Secretary
Alfred F. Fideline, Sr. Vice President - Retail Operations
Prentess E. Alletag, Jr. Vice President - Human Resources
The mailing address for each of these persons is as
follows:
c/o Homeland Stores, Inc.
2601 Northwest Expressway
Oklahoma City, Oklahoma 73112
5. Principal owners of voting securities. Furnish
the following information as to each person
owning 10 percent or more of the voting
securities of the applicant.
As of May 31, 1996
Name and Complete Amount Percentage of Voting
Mailing Address Title of Class Owned Owned Secured Owned
Homeland Holding Common Stock 100 100%
Corporation (Par Value $0.01) Shares
2601 N.W. Expressway
Oklahoma City, OK 73112
Holding will continue to own all of the issued and
outstanding shares of Homeland Common Stock on the
consummation of the Plan.
UNDERWRITERS
6. Underwriters. Give the name and complete
address of (a) each person who, within three
years prior to the date of filing the
application, acted as an underwriter of any
securities of the obligor which were
outstanding on the date of filing the
application and (b) each proposed principal
underwriter of the securities proposed to be
offered. As to each person specified in (a),
give the title
of each class of securities underwritten.
There is no person who, within the three years
prior to the date of filing the application,
has served as an underwriter of any securities
of the Company.
There is no person who will be the proposed
principal underwriter of the securities
proposed to be offered.
CAPITAL SECURITIES
7. Capitalization. (a) Furnish the following
information as to each authorized class of
securities of the applicant.
As of May 31, 1996
Title of Class Amount Authorized Amount Outstanding
Common Stock
(Par Value $0.01) 100 Shares 100 Shares
(b) Give a brief outline of the voting rights
of each class of voting securities
referred to in paragraph (a) above.
The shares of Homeland Common Stock are the only
voting securities of the applicant. Each holder of
Homeland Common Stock will be entitled to one vote
for each share held of record on each matter
submitted to the shareholders. Cumulative voting for
the election of directors will not be permitted.
INDENTURE SECURITIES
8 Analysis of indenture provisions. Insert at
this point the analysis of indenture provisions
required under Section 305(a)(2).
The following discussion is a description of
certain provisions of the indenture ("New
Indenture") to which this filing relates
required by Section 305(a)(2) of the Trust
Indenture Act of 1939, as amended. This
discussion is qualified in its entirety by
reference to the New Indenture, a copy of which
is filed as Exhibit T3C. Capitalized terms
used in this Item 8 and not otherwise defined
have the respective meanings assigned to them
in the New Indenture.
A. Events of Default
The following events will be "Events of Default"
under the New Indenture:
(a) The Company defaults in the payment of
interest on any New Note when the same becomes
due and payable and such default continues for
a period of 30 days, whether or not such
payment shall be prohibited by the
subordination provisions of the New Indenture;
or
(b) The Company defaults in the payment of the
principal of (or premium, if any, on) any New
Note at its Maturity, whether or not such
payment shall be prohibited by the
subordination provisions of the New Indenture;
or
(c) The Company defaults in the performance
of, or breaches, any covenant or warranty of
the Company under the New Indenture (other than
a default specified in clause (a) or (b) above
or clause (g) below), and such default or
breach continues for a period of 30 days after
a written notice specifying such default or
breach and stating that such notice is a
"Notice of Default" under the New Indenture has
been given, by registered or certified mail, to
( i) the Company by the New Trustee or (ii) to
the Company and the New Trustee by the holders
of at least 25% in principal amount of the
Outstanding New Notes; or
(d) an event of default as defined in any
mortgage, bond, indenture, loan agreement or
other evidence of Indebtedness under which the
Company or any Subsidiary then has outstanding
Indebtedness in excess of $5 million in the
aggregate shall occur and such default (i) is
caused by a failure to pay principal of, or
premium, if any, or interest on, such
Indebtedness within the applicable grace
period, if any, of such Indebtedness or (ii)
results in such Indebtedness becoming or being
declared due and payable prior to the date on
which it would otherwise become due and payable
(if not already matured at its final maturity
in accordance with its terms); or
(e) final judgments or orders are rendered
against the Company, the Guarantor or any
Subsidiary which require the payment in money,
either individually or in an aggregate amount,
that is more than $5 million and such judgment
or order shall not have been discharged or
fully bonded, and there shall have been a
period of 60 days after the date on which any
period for appeal has expired and during which
a stay of enforcement of such judgment, order
or decree shall not be in effect; or
(f) certain events of bankruptcy, insolvency
or reorganization with respect to the Company
or any Subsidiary shall have occurred; or
(g) a default in the performance or breach of
any of the provisions of the New Indenture
relating to consolidation, merger, conveyance,
transfer or lease.
There are no provisions in the New Indenture with
respect to the withholding of notice to the holders
of the New Notes of any Event of Default.
B. Authentication and Delivery of Indenture
Securities; Application of Proceeds
The New Notes will be issued in registered form,
without coupons, and in denominations of $1,000
and integral multiples thereof. The New Notes are
required to be substantially in the form set forth
in Section 2.2 and Section 2.3 of the New
Indenture.
The New Notes shall be executed on behalf of the
Company by any two of the following: its Chairman
of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced
thereon and attested by its Secretary or one of
its Assistant Secretaries. The signature of any of
these officers on the New Notes may be manual or
facsimile.
New Notes bearing the manual or facsimile
signatures of individuals who were at the time of
the placement of their signatures on the New Notes
the proper officers of the Company shall bind the
Company, notwithstanding that such individuals or
any of them have ceased to hold such officers
prior to the authentication and delivery of such
New Notes or did not hold such officers at the
date of such New Notes.
The New Trustee shall (upon Company Order)
authenticate and deliver Securities for original
issue in an aggregate principal amount of up to
$60,000,000.
At any time and from time to time after the
execution and delivery of the New Indenture, the
Company may deliver New Notes executed by the
Company to the New Trustee for authentication,
together with a Company Order for the
authentication and delivery of such New Notes, and
the New Trustee in accordance with such Company
Order shall authenticate and deliver such New
Notes.
Each New Note shall be dated the date of its
authentication.
No New Note shall be entitled to any benefit under
the New Indenture or be valid or obligatory for any
purpose unless there appears on such New Note a
certificate of authentication substantially in the
form provided for in the New Indenture duly executed
by the New Trustee by manual signature of one of its
duly authorized signatories, and such certificate
upon any New Note shall be conclusive evidence, and
the only evidence, that such New Note has been duly
authenticated and delivered hereunder and is
entitled to the benefits of the New Indenture.
The New Notes are being issued in exchange for the
Old Notes as provided in the Plan and there are no
cash proceeds from the issuance of the New Notes
available for application by the Company.
C. Release and/or Substitution of Property
The New Indenture does not provide for any lien
on any property on any property of the Company or
Holding. Accordingly, there are no provisions with
respect to the release of such property or the
release and substitution of such property.
D. Satisfaction and Discharge
The New Indenture will be discharged and will
cease to be of further effect (except as to
surviving rights of registration of transfer or
exchange of the New Notes, as expressly provided
for in the New Indenture) as to all outstanding
New Notes when (a) either (i) all the New Notes
theretofore authenticated and delivered (except
(A) lost, stolen or destroyed New Notes which have
been replaced or paid and (B) New Notes for which
payment money has theretofore been deposited in
trust or segregated and held in trust by the
Company and thereafter repaid to the Company or
discharged from such trust) have been delivered to
the New Trustee for cancellation or (ii) all New
Notes not theretofore delivered (except lost,
stolen or destroyed New Notes which have been
replaced or repaid) to the New Trustee for
cancellation (A) have become due and payable or
(B) will become due and payable at their Stated
Maturity within one year or c are to be called for
redemption within one year under arrangements
satisfactory to the New Trustee for the giving of
notice of redemption by the New Trustee in the
name, and at the expense of the Company, and the
Company has, in the case of (A), (B) or c,
irrevocably deposited or caused to be deposited
with the New Trustee as trust funds in trust for
the purpose an amount sufficient to pay and
discharge the entire Indebtedness on such New
Notes (except lost, stolen or destroyed New Notes
which have been replaced or repaid) not
theretofore delivered to the New Trustee for
cancellation, for principal of, premium, if any,
and interest on the New Notes to the date of
deposit together with irrevocable instructions
from the Company directing the New Trustee to
apply such funds to the payment thereof at
maturity or redemption, as the case may be, (b)
the Company has paid all other sums payable under
the New Indenture by the Company, and c the
Company has delivered to the New Trustee an
officers' certificate and an opinion of counsel
stating that all conditions precedent under the
New Indenture relating to the satisfaction and
discharge of the New Indenture have been complied
with.
E. Evidence of Compliance
The Company will deliver to the New Trustee,
within 120 days after the end of each fiscal year
ending after the date hereof, an Officers_
Certificate stating that a review of the
activities of the Company and its Subsidiaries
during the preceding fiscal year has been made
under the supervision of the signing Officers with
a view to determining whether the Company has
kept, observed, performed and fulfilled its
obligations under the New Indenture, and further
stating as to each such Officer signing such
Certificate, that to the best of his or her
knowledge, the Company has kept, observed,
performed and fulfilled each and every covenant
contained in the New Indenture and is not in
default in the performance or observance of any of
the terms, provisions or conditions of the New
Indenture (or, if a Default or Event of Default
shall have occurred, describing all such Defaults
or Events of Default of which he or she may have
knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to
the best of his or her knowledge, no event has
occurred and remains in existence by reason of
which payments on the account of the principal of
(and premium, if any) or interest on the
Securities is prohibited or if such an event has
occurred, a description of the event and what
action the Company is taking or proposes to take
with respect thereto. Such compliance shall be
determined without regard to any period of grace
or requirement of notice under the New Indenture.
The Company shall deliver to the New Trustee, as
soon as possible following any Officer becoming
aware of any Default or Event of Default, an
Officers' Certificate specifying such Default or
Event of Default and what action the Company is
taking or proposes to take with respect thereto.
Upon any application or request by the Company
and/or the Guarantor to the New Trustee to take
any action or omit to take any action under the
New Indenture, the Company and/or the Guarantor,
as applicable, shall furnish to the New Trustee an
Officers' Certificate, in form and substance
reasonably satisfactory to the New Trustee,
stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in the
New Indenture (including any covenant compliance
with which constitutes a condition precedent, if
any) relating to the proposed action or inaction
have been complied with, and an Opinion of
Counsel, in form and substance reasonably
satisfactory to the New Trustee, stating that, in
the opinion of such counsel, all such conditions
precedent and covenants, compliance with which
constitutes a condition precedent, if any, have
been complied with, except that, in the case of
any such application or request as to which the
furnishing of such documents is specifically
required by any provision of the New Indenture
relating to such particular application or
request, no additional certificate or opinion need
be furnished.
Every certificate or opinion with respect to
compliance with a condition or covenant provided
for in the New Indenture shall include:
(a) a statement that each individual signing
such certificate or opinion has read such
covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and
scope of the examination or investigation upon
which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each
such individual, such individual has made such
examination or investigation as is necessary to
enable him or her to express an informed
opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion
of each such individual, such individual, such
condition or covenant has been complied with;
provided, however, that with respect to matters
of fact, an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public
officials.
9. Other Obligors. Give the name and complete
mailing address of each person, other than
the applicant, who is an obligor upon the
indenture securities.
Holding has guaranteed certain obligations of the
Company under the New Indenture. The name and
address of Holding is as follows:
Homeland Holding Corporation
2601 N.W. Expressway
Oklahoma City, Oklahoma 73112
Contents of application for qualification. This
amendment application for qualification comprises:
(a) Pages numbered 1 to 419, consecutively.
(b) The statement of eligibility and
qualification of each trustee under the
indenture to be qualified.
(c) The following exhibits in addition to
those filed as part of the statement of
eligibility and qualification of each trustee.
Exhibit T3A. Restated Certificate of Incorporation of
Homeland Stores, Inc. dated August 2, 1990
(incorporated by reference to Exhibit 38 to Form 10-
Q for quarterly period ended September 8, 1990)
Exhibit T3B. Bylaws of Homeland Stores, Inc. 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)
Exhibit T3C. Form of New Indenture
Exhibit T3D. Not Applicable
Exhibit T3E1. First Amended Disclosure Statement
for Joint Plan of Reorganization of Homeland Stores,
Inc. and Homeland Holding Corporation
Exhibit T3E2. Forms of Ballot
Exhibit T3E3. Notice of Order Approving Disclosure
Statement
Exhibit T3F. Cross Reference Sheet (contained in
Exhibit T3C)
SIGNATURE
Pursuant to the requirements of the Trust
Indenture Act of 1939, the applicant, Homeland
Stores, Inc., a corporation organized and existing
under the laws of Delaware, has duly caused this
amendment to application to be signed on its behalf
by the undersigned, thereunto duly authorized, and
its seal to be hereunto affixed and attested, all in
the City of Oklahoma City, and State of Oklahoma, on
the 26th day of July, 1996.
(SEAL) HOMELAND STORES, INC.
By: /s/Larry W.Kordisch
Larry Kordisch, Executive Vice President
By: /s/Francis T. Wong
Francis T. Wong, Assistant Secretary
Exhibit T3C
[PWRW&G DRAFT 6/26/96]
HOMELAND STORES, INC.,
as Issuer,
HOMELAND HOLDING CORPORATION,
as Guarantor,
and
FLEET NATIONAL BANK,
as Trustee.
INDENTURE
Dated as of __________, 1996
$60,000,000
10% Senior Subordinated Notes due 2003
Reconciliation and Tie between Trust Indenture Act
of 1939 and Indenture, dated as of , 1996
Trust Indenture Indenture
Act Section Section
310(a)(1) . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . 6.8
(b) . . . . . . . . . . 6.7, 6.9
312c . . . . . . . . . . 7.1
314(a) . . . . . . . . . . 7.3
(a)(4) . . . . . . . . . . 10.17
c(1) . . . . . . . . . . 1.3
c(2) . . . . . . . . . . 1.3
(e) . . . . . . . . . . 1.3
315(b) . . . . . . . . . . 6.1
316(a) (last
sentence) . . . . . . . . . 1.1 ("Outstanding")
(a)(1)(A) . . . . . . . . . . 5.2, 5.12
(a)(1)(B) . . . . . . . . . . 5.13
(b) . . . . . . . . . . 5.8
(c) . . . . . . . . . . 1.5
317(a)(1) . . . . . . . . . . 5.3
(a)(2) . . . . . . . . . . 5.4
318(a) . . . . . . . . . . 1.12
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION. . . . . . . . . . . . . 1
Section 1.1 Definitions. . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitions. . . . . . . . . . . . 24
Section 1.3 Compliance Certificates and Opinions . . 25
Section 1.4 Form of Documents Delivered to Trustee. 25
Section 1.5 Acts of Holders. . . . . . . . . . . . . 26
Section 1.6 Notices, etc., to Trustee and Company. . 27
Section 1.7 Notice to Holders; Waiver. . . . . . . . 28
Section 1.8 Conflict of any Provision of Indenture
with Trust Indenture Act . . . . . . . . 28
Section 1.9 Effect of Headings and Table of Contents 28
Section 1.10 Successors and Assigns. . . . . . . . . 28
Section 1.11 Separability Clause . . . . . . . . . . 29
Section 1.12 Benefits of Indenture . . . . . . . . . 29
Section 1.13 Governing Law . . . . . . . . . . . . . 29
Section 1.14 Legal Holidays. . . . . . . . . . . . . 29
Section 1.15 No Recourse Against Others. . . . . . . 29
ARTICLE II SECURITY FORMS . . . . . . . . . . . . . . . 30
Section 2.1 Forms Generally. . . . . . . . . . . . . 30
Section 2.2 Form of Face of Security . . . . . . . . 30
Section 2.3 Form of Reverse of Security. . . . . . . 32
Section 2.4 Form of Trustee's Certificate of
Authentication . . . . . . . . . . . . . 35
Section 2.5 Form of Parent Guarantee . . . . . . . . 35
ARTICLE III THE SECURITIES. . . . . . . . . . . . . . . 36
Section 3.1 Title and Terms. . . . . . . . . . . . . 36
Section 3.2 Denominations. . . . . . . . . . . . . . 37
Section 3.3 Execution, Authentication, Delivery
and Dating . . . . . . . . . . . . . . . 37
Section 3.4 Temporary Securities . . . . . . . . . . 38
Section 3.5 Registration, Registration of
Transfer and Exchange. . . . . . . . . . 39
Section 3.6 Mutilated, Destroyed, Lost and Stolen
Securities . . . . . . . . . . . . . . . 40
Section 3.7 Payment of Interest; Interest Rights
Preserved. . . . . . . . . . . . . . . . 40
Section 3.8 Persons Deemed Owners. . . . . . . . . . 42
Section 3.9 Cancellation . . . . . . . . . . . . . . 42
Section 3.10 Computation of Interest . . . . . . . . 42
Section 3.11 CUSIP Numbers . . . . . . . . . . . . . 42
ARTICLE IV SATISFACTION AND DISCHARGE . . . . . . . . . 43
Section 4.1 Satisfaction and Discharge of Indenture. 43
Section 4.2 Application of Trust Money . . . . . . . 44
ARTICLE V REMEDIES. . . . . . . . . . . . . . . . . . . 44
Section 5.1 Events of Default. . . . . . . . . . . . 44
Section 5.2 Acceleration of Maturity; Rescission . . 46
Section 5.3 Collection of Indebtedness and Suits
for Enforcement by Trustee . . . . . . . 47
Section 5.4 Trustee May File Proofs of Claim . . . . 47
Section 5.5 Trustee May Enforce Claims
Without Possession of Securities . . . . 48
Section 5.6 Application of Money Collected . . . . . 48
Section 5.7 Limitation on Suits. . . . . . . . . . . 49
Section 5.8 Unconditional Right of Holders to
Receive Principal, Premium and Interest. 50
Section 5.9 Restoration of Rights and Remedies . . . 50
Section 5.10 Rights and Remedies Cumulative . . . . . 50
Section 5.11 Delay or Omission Not Waiver . . . . . . 50
Section 5.12 Control by Holders . . . . . . . . . . . 51
Section 5.13 Waiver of Past Defaults. . . . . . . . . 51
Section 5.14 Undertaking for Costs. . . . . . . . . . 51
Section 5.15 Waiver of Stay or Extension. . . . . . . 52
Section 5.16 Event of Default from Willful Action . . 52
ARTICLE VI THE TRUSTEE. . . . . . . . . . . . . . . . . 52
Section 6.1 Notice of Defaults . . . . . . . . . . . 52
Section 6.2 Certain Rights of Trustee. . . . . . . . 53
Section 6.3 Not Responsible for Recitals or
Issuance of Securities . . . . . . . . . 54
Section 6.4 May Hold Securities. . . . . . . . . . . 54
Section 6.5 Money Held in Trust. . . . . . . . . . . 55
Section 6.6 Compensation and Reimbursement . . . . . 55
Section 6.7 Conflicting Interests. . . . . . . . . . 55
Section 6.8 Corporate Trustee Required; Eligibility. 56
Section 6.9 Resignation and Removal; Appointment
of Successor . . . . . . . . . . . . . . 56
Section 6.10 Acceptance of Appointment by Successor . 57
Section 6.11 Merger, Conversion, Consolidation
or Succession to Business. . . . . . . . 58
Section 6.12 Preferential Collection of Claims
Against Company. . . . . . . . . . . . . 58
ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE
AND COMPANY. . . . . . . . . . . . . . . . 58
Section 7.1 Disclosure of Names and Addresses of
Holders. . . . . . . . . . . . . . . . . 58
Section 7.2 Reports by Trustee . . . . . . . . . . . 59
ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE. . . . . . . . . . . . . 59
Section 8.1 Company May Consolidate, etc., Only
on Certain Terms . . . . . . . . . . . . 59
Section 8.2 Successor Substituted. . . . . . . . . . 60
ARTICLE IX SUPPLEMENTAL INDENTURES. . . . . . . . . . . 60
Section 9.1 Supplemental Indentures Without
Consent of Holders . . . . . . . . . . . 60
Section 9.2 Supplemental Indentures with Consent
of Holders; Payments for Consents. . . . 61
Section 9.3 Execution of Supplemental Indentures . . 62
Section 9.4 Effect of Supplemental Indentures. . . . 63
Section 9.5 Conformity with Trust Indenture Act. . . 63
Section 9.6 Reference in Securities to
Supplemental Indentures. . . . . . . . . 63
Section 9.7 Effect on Senior Indebtedness. . . . . . 63
ARTICLE X COVENANTS . . . . . . . . . . . . . . . . . . 64
Section 10.1 Payment of Principal, Premium and
Interest . . . . . . . . . . . . . . . . 64
Section 10.2 Maintenance of Office or Agency. . . . . 64
Section 10.3 Money for Security Payments to Be
Held in Trust. . . . . . . . . . . . . . 65
Section 10.4 SEC Reports. . . . . . . . . . . . . . . 66
Section 10.5 Corporate Existence . . . . . . . . . . 66
Section 10.6 Payment of Taxes and other Claims;
Compliance with Law . . . . . . . . . . 67
Section 10.7 Maintenance of Properties; Insurance. . 67
Section 10.8 Limitation on Indebtedness. . . . . . . 68
Section 10.9 Limitation on Restricted Payments . . . 68
Section 10.10 Transactions with Affiliates. . . . . . 71
Section 10.11 Limitation on Liens . . . . . . . . . . 71
Section 10.12 Limitation on Other Senior
Subordinated Indebtedness. . . . . . . 72
Section 10.13 Restriction on Issuance of Preferred
Stock of Subsidiaries. . . . . . . . . 72
Section 10.14 Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries. . 72
Section 10.15 Purchase of Securities upon Change
of Control . . . . . . . . . . . . . . 72
Section 10.16 Limitation on Asset Sales. . . . . . . 76
Section 10.17 Statement as to Compliance; Notice of
Default; Provision of Financial
Statements . . . . . . . . . . . . . . 80
Section 10.18 Subsidiary Guarantees. . . . . . . . . 80
ARTICLE XI REDEMPTION OF SECURITIES . . . . . . . . . . 81
Section 11.1 Right of Redemption . . . . . . . . . . 81
Section 11.2 Applicability of Article. . . . . . . . 81
Section 11.3 Election to Redeem; Notice to Trustee . 81
Section 11.4 Selection by Trustee of Securities
to Be Redeemed. . . . . . . . . . . . . 81
Section 11.5 Notice of Redemption. . . . . . . . . . 82
Section 11.6 Deposit of Redemption Price . . . . . . 82
Section 11.7 Securities Payable on Redemption Date . 83
Section 11.8 Securities Redeemed in Part . . . . . . 83
ARTICLE XII SUBORDINATION . . . . . . . . . . . . . 84
Section 12.1 Securities Subordinate to Senior
Indebtedness. . . . . . . . . . . . . . 84
Section 12.2 Payment Over of Proceeds upon
Dissolution, etc. . . . . . . . . . . . 84
Section 12.3 No Payment When Senior Indebtedness
in Default. . . . . . . . . . . . . . . 86
Section 12.4 Payment Permitted if No Default . . . . 86
Section 12.5 Subrogation to Rights of Holders of
Senior Indebtedness . . . . . . . . . . 87
Section 12.6 Provisions Solely to Define Relative
Rights. . . . . . . . . . . . . . . . . 87
Section 12.7 Trustee to Effectuate Subordination . . 88
Section 12.8 No Waiver of Subordination Provisions . 88
Section 12.9 Notice to Trustee . . . . . . . . . . . 88
Section 12.10 Reliance on Judicial Order or
Certificate of Liquidating Agent . . . 89
Section 12.11 Rights of Trustee as a Holder of Senior
Indebtedness; Preservation of Trustee's
Rights . . . . . . . . . . . . . . . . 89
Section 12.12 Article Applicable to Paying Agents. . 90
ARTICLE XIII DEFEASANCE . . . . . . . . . . . . . . 90
Section 13.1 Company's Option to Effect
Defeasance or Covenant Defeasance . . . 90
Section 13.2 Defeasance and Discharge. . . . . . . . 90
Section 13.3 Covenant Defeasance . . . . . . . . . . 91
Section 13.4 Conditions to Defeasance. . . . . . . . 91
Section 13.5 Deposited Money and U.S. Government
Obligations to Be Held in Trust;
Other Miscellaneous Provisions. . . . . 93
Section 13.6 Reinstatement . . . . . . . . . . . . . 94
ARTICLE XIV GUARANTEE OF SECURITIES . . . . . . . . 94
Section 14.1 Guarantee . . . . . . . . . . . . . . . 94
Section 14.2 Execution and Delivery of Guarantee . . 95
Section 14.3 Limitation of Guarantor's Liability . . 96
Section 14.4 Guarantee Unconditional, etc. . . . . . 96
Section 14.5 Covenant of Holding . . . . . . . . . . 98
Section 14.6 Guarantee Obligations Subordinated
to Guarantor Senior Indebtedness. . . . 98
Section 14.7 Payment over of Proceeds upon
Dissolution, etc., of a Guarantor . . . 98
Section 14.8 Suspension of Guarantee Obligations When
Senior Indebtedness in Default. . . . . 100
Section 14.9 Subrogation to Rights of Holders of
Guarantor Senior Indebtedness . . . . . 101
Section 14.10 Guarantor Provisions Solely to
Define Relative Rights . . . . . . . . 102
Section 14.11 Trustee to Effectuate Subordination
of Guarantee Obligations . . . . . . . 102
Section 14.12 No Waiver of Guarantee
Subordination Provisions . . . . . . . 103
Section 14.13 Release of a Guarantor . . . . . . . . 100
TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . 96
SIGNATURES AND SEALS. . . . . . . . . . . . . . . . . . 97
ACKNOWLEDGMENTS
INDENTURE, dated as of ________, 1996, by and among
HOMELAND STORES, INC., a Delaware corporation (the
"Company"), HOMELAND HOLDING CORPORATION, a Delaware
corporation and the guarantor of the Company's
obligations hereunder ("Holding" or the
"Guarantor"), and FLEET NATIONAL BANK, a national
banking association, as trustee (the"Trustee").
RECITALS
WHEREAS, the Company has duly authorized the
creation of an issue of its 10% Senior Subordinated
Notes due 2003 (the"Securities") on the terms and
in the amount hereinafter set forth, and Holding has
duly authorized the issuance of the Parent Guarantee
(as defined below), and each of the Company and
Holding has duly authorized the execution and
delivery of this Indenture;
WHEREAS, this Indenture is subject to, and shall be
governed by, the provisions of the Trust Indenture
Act (as defined below) that are required to be part
of, and to govern indentures qualified under, the
Trust Indenture Act;
WHEREAS, all acts and things necessary have been
done to make the Securities, when executed by the
Company and authenticated and delivered hereunder
and duly issued by the Company, the valid, binding
and legal obligations of the Company, and to make
this Indenture a valid agreement of the Company in
accordance with its terms; and
WHEREAS, all acts and things necessary have been
done to make the Parent Guarantee the valid, binding
and legal obligation of Holding, and to make this
Indenture a valid agreement of Holding in accordance
with its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the
acquisition of the Securities by the Holders (as
defined below) thereof, it is mutually covenanted
and agreed, for the equal and proportionate benefit
of all Holders of the Securities, as follows:
ARTICLE 1.
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions.
For all purposes of this Indenture, except as
otherwise expressly provided or unless the context
otherwise requires:
(a) the terms defined in this Article I have
the meanings assigned to them in this Article
and include the plural as well as the singular;
(b) all other terms used herein which are
defined in the Trust Indenture Act, either
directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined
herein have the meanings assigned to them in
accordance with GAAP (as defined below);
(d) the words "herein," "hereof" and
"hereunder" and other words of similar import
refer to this Indenture as a whole and not to
any particular Article, Section or other
subdivision;
(e) the word "or" is not exclusive; and
(f) provisions apply to successive events and
transactions.
Certain terms, used principally in Articles V and
XIII, are defined in those Articles.
"Acquired Indebtedness" means Indebtedness of a
Person (i) existing at the time such Person becomes
a Subsidiary of any other Person (or is merged with
any other Person) or (ii) assumed in connection with
the acquisition of assets from a Person, other than
Indebtedness Incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary
of such other Person or such merger or acquisition,
as the case may be.
"Additional Assets" means any property (other than
cash, Cash Equivalents or securities) used in any
business in which the Company or any Subsidiary is
engaged as of the date hereof or any business
ancillary thereto.
"Affiliate" means, with respect to any specified
Person, (i) any other Person directly or indirectly
controlling or controlled by or under direct or
indirect common control with such specified Person,
(ii) any spouse, immediate family member or other
relative who has the same principal residence of any
Person described in (i) above, (iii) any trust in
which any such Person described in clause or (i) or
(ii) above has a beneficial interest and (iv) any
corporation of which any such Person described in
clause (i), (ii) or (iii) above collectively owns
more than 50% of the equity of such entity. For
purposes of this definition, _beneficial ownership_
(as defined in Rule 13d-3 under the Exchange Act) of
10% or more of the Voting Stock of a Person shall be
deemed to be control of such Person.
"Asset Sale" has the meaning specified in Section
10.16.
"Average Life to Stated Maturity" means, as of the
date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i)
the sum of the products of (a) the number of years
from the date of determination to the date or dates
of each successive scheduled principal payment of
such Indebtedness multiplied by (b) the amount of
each such principal payment by (ii) the sum of all
such principal payments.
"AWG" means Associated Wholesale Grocers, Inc., a
Missouri corporation.
"AWG Equity" means all equity, deposits, credits,
sums and indebtedness of any kind or description
whatsoever, at any time owed by AWG to the Company
or at any time standing in the name of or to the
credit of the Company on the books and/or records of
AWG, including, without limitation, AWG Membership
Stock, members' deposit certificates, patronage
refund certificates, members' savings, direct
patronage or year-end patronage, concentrated
purchase allowance, quarterly payments and any other
amounts due from AWG to the Company under the AWG
Supply Agreement.
"AWG First Offer Rights" means (i) AWG's right of
first offer with respect to the stores owned or
operated by the Company listed on Exhibit B to the
AWG Supply Agreement and (ii) any public recordation
of such first offer rights, provided that any such
public recordation shall be terminable from time to
time as set forth in Section 7(f) of the AWG Supply
Agreement.
"AWG Liens" means (i) Liens on AWG Equity owned or
hereafter acquired by the Company to secure the
Company's obligations to AWG under the AWG Supply
Agreement and the AWG Membership Documents, (ii)
Liens consisting of the AWG Use Restrictions and
(iii) Liens consisting of the AWG First Offer
Rights.
"AWG Membership Documents" means (i) the Application
for Membership by Homeland Stores, Inc., between the
Company and AWG and (ii) the Stock Power of Attorney
granted to AWG by the Company with respect to the
AWG Membership Stock owned by the Company.
"AWG Membership Stock" means the Class A Common
Stock, par value $100 per share, of AWG.
"AWG Supply Agreement" means the Supply Agreement,
dated as of April 21, 1995, between the Company and
AWG, as such agreement may be amended, amended and
restated, supplemented or otherwise modified from
time to time.
"AWG Use Restrictions" means (i) the Company's
agreement under Sections 7(g) and 8(b) of the AWG
Supply Agreement to dedicate (to the extent of its
interest therein (including leasehold interests))
certain real property and the improvements thereon
to the exclusive use of a retail grocery facility
(including all activities which from time to time
are commonly associated with the operation of a
grocery facility) which is owned by a retail member
of AWG and (ii) any public recordation of such
agreement, provided that any such public recordation
shall be terminable from time to time as set forth
in Section 8(b) of the Supply Agreement.
"Board of Directors" of any Person means the board
of directors of such Person or any duly authorized
committee of such board.
"Board Resolution" of any Person means a copy of a
resolution certified by the Secretary or an
Assistant Secretary of such Person to have been duly
adopted by the Board of Directors of such Person and
to be in full force and effect on the date of such
certification and on the date delivered to the
Trustee.
"Business Day" means any day that is not a day on
which banking institutions in The City of New York
or the city in which the principal corporate trust
office of the Trustee is located are authorized or
obligated by law, regulation or executive order to
close.
"Capital Lease Obligation" of any Person means any
obligations of such Person and its Subsidiaries on a
consolidated basis under any capital lease that, in
accordance with GAAP, is required to be recorded as
a capitalized lease obligation; and for purposes of
the Indenture, the amount of such obligations at any
date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP.
_Capital Stock_ of any Person means any and all
shares, interests, participations, or other
equivalents (however designated) of such Person_s
capital stock (including any Preferred Stock)
whether now outstanding or issued after the Issue
Date.
"Cash Equivalents" means (i) securities issued
directly or fully guaranteed or insured by the
United States government or any agency or
instrumentality thereof having maturities of not
more than six months from the date of acquisition,
(ii) certificates of deposit and eurodollar time
deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight
bank deposits, in each case with any domestic
commercial bank having capital and surplus in excess
of $500 million and a Thomson Watch Rating of "B" or
better, (iii) repurchase obligations and reverse
repurchase obligations of the types described in
clauses (i) and (ii) entered into with any financial
institution meeting the qualifications specified in
clause (ii) above, in each case maturing within six
months from the date of acquisition and (iv)
commercial paper having the highest rating
obtainable from Moody's Investors Service, Inc. or
Standard & Poor's Corporation and in each case
maturing within six months after the date of
acquisition.
"Change of Control" means such time as:
(i) a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange
Act) (other than any Permitted Holders) is or
becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act; provided
that a "person" or "group" shall be deemed to
be a "beneficial owner" for purposes of this
definition even if its right to acquire
beneficial ownership of Voting Stock arises
after a 60-day period) of more than fifty
percent (50%) of the total voting power of the
then outstanding Voting Stock of the Company or
Holding;
(ii) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange
Act) (other than any Permitted Holders) has the
ability to designate a majority of the Board of
Directors of the Company or Holding;
(iii) the Company or Holding liquidates or dissolves
or adopts a plan of liquidation;
(iv) Holding shall cease to own and control,
beneficially and of record, 100% of the Capital
Stock of the Company;
(v) the Company or Holding sells, assigns,
transfers or otherwise disposes of all or
substantially all of its assets, in one
transaction or a series of related
transactions, to any Person other than a Wholly
Owned Subsidiary of the Company;
(vi) during any 24 month period, individuals who at
the beginning of such period constituted the
Board of Directors of the Company or Holding
(together with any new directors whose election
by such Board or whose nomination for election
by the stockholders of the Company or Holding
was approved by a vote of a majority of the
directors then still in office who were either
directors at the beginning of such period or
whose election or nomination for election was
previously so approved) ceases for any reason
to constitute a majority of the Board of
Directors of the Company or Holding then in
office; provided, however, that this clause
(vi) shall not be applicable if the continuing
directors do not constitute at least a majority
of the Board of Directors of the Company or
Holding, as the case may be, as a result of
directors nominated by any Permitted Holder
constituting a majority of the Board of
Directors of the Company or Holding); or
(vii) the Company or Holding consolidates with or
merges with or into another Person pursuant to
a transaction in which the outstanding Voting
Stock of the Company or Holding is changed into
or exchanged for cash, Cash Equivalents,
securities or other property, other than any
transaction in which (a) no Redeemable Capital
Stock is issued and (b) holders of Voting Stock
of the Company or Holding, as the case may be,
immediately prior to such transaction
"beneficially own" (as defined in Rule 13d-3
under the Exchange Act) not less than 70% of
the Voting Stock of the surviving corporation
of such merger or consolidation outstanding
immediately after such transaction.
"Commission" means the Securities and Exchange
Commission, as from time to time constituted,
created under the Exchange Act or, if at any time
after the execution of this Indenture such
Commission is not existing and performing the duties
now assigned to it under the Trust Indenture Act,
then the body performing such duties at such time.
"Company" means the Person named as the "Company" in
the first paragraph of this instrument, until a
successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and
thereafter "Company" shall mean such successor
Person. To the extent necessary to comply with the
requirements of the provisions of Sections 310
through 317 of the Trust Indenture Act as they are
applicable to the Company, the term "Company" shall
include any other obligor with respect to the
securities for the purposes of complying with such
provisions.
"Company Request" or "Company Order" means a written
request or order signed in the name of the Company
(i) by its Chairman of the Board, its President or a
Vice President and (ii) by its Treasurer, an
Assistant Treasurer, its Secretary or an Assistant
Secretary and delivered to the Trustee; provided,
however, that such written request or order may be
signed by any two of the officers or directors
listed in clause (i) above in lieu of being signed
by any of the officers listed in clause (ii) above.
"Consolidated Depreciation and Amortization Expense"
means, with respect to any Person for any period for
which the determination thereof is to be made, the
aggregate depreciation and amortization expense
(including, without limitation, amortization of
goodwill, other intangibles, debt discount and debt
issue costs) reducing Consolidated Net Income of
such Person and its Subsidiaries for such period,
determined on a consolidated basis in accordance
with GAAP.
"Consolidated EBITDA" means, with respect to any
Person for any period for which the determination
thereof is to be made, the sum (without duplication)
for such period of (i) Consolidated Net Income plus,
to the extent deducted in determining Consolidated
Net Income, each of (ii) Consolidated Income Tax
Expense, (iii) Consolidated Depreciation and
Amortization Expense, (iv) Consolidated Fixed
Charges, (v) Consolidated Post Retirement Benefits
Other Than Pensions and (vi) non-cash extraordinary
charges.
"Consolidated Fixed Charges" means, with respect to
any Person for any period for which the
determination thereof is to be made, the sum
(without duplication) of (i) the aggregate amount of
interest, whether expensed or capitalized, paid,
accrued or scheduled to be paid or accrued during
such period (including, without limitation, any non-
cash interest payments or accruals, the interest
portion of Capital Lease Obligations, all
amortization of original issue discount, net cash
costs pursuant to Interest Swap Obligations and
Currency Agreements (including amortization of fees)
and the interest component of any deferred payment
obligation) of such Person and its Subsidiaries,
determined on a consolidated basis in accordance
with GAAP, and (ii) dividends required to be made in
respect of Preferred Stock and Redeemable Capital
Stock.
"Consolidated Income Tax Expense" means, with
respect to any Person for any period for which the
determination thereof is to be made, the aggregate
of the income tax expense of such Person and its
Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Coverage Ratio" with respect
to any period for which the determination thereof is
to be made means the ratio of (i) the aggregate of
Consolidated EBITDA for such period (taken as one
accounting period) to (ii) the aggregate of
Consolidated Fixed Charges; provided that (x) in
making such computation, the Consolidated Fixed
Charges attributable to interest on any Indebtedness
computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the
rate in effect on the date of computation had been
the applicable rate for the entire period and (B)
bearing, at the option of the obligor thereon, a
fixed or floating rate of interest, shall be
computed by applying, at the option of the Company,
either the fixed or floating rate and (y) there
shall be excluded from the determination of
Consolidated Fixed Charges any dividends required to
be made in respect of Preferred Stock or Redeemable
Capital Stock of the Company or of a Wholly Owned
Subsidiary of the Company for the applicable period.
"Consolidated Net Income" means, with respect to any
Person for any period for which the determination
thereof is to be made, the consolidated net income
(or loss) of such Person and its Subsidiaries for
such period as determined in accordance with GAAP,
adjusted, to the extent included in calculating such
net income (or loss), by excluding (i) the non-
recurring cumulative effect of accounting changes,
(ii) the portion of net income (or loss) of such
Person and its Subsidiaries allocable to minority
interests in unconsolidated Persons to the extent
that cash dividends or distributions have not
actually been received by such Person or one of its
Subsidiaries, (iii) net income (or loss) of any
Person combined with such Person or any of its
Subsidiaries in a _pooling of interests_ basis
attributable to any period prior to the date of
combination, and (iv) the net income of any
Subsidiary to the extent that the declaration of
dividends or similar distributions by that
Subsidiary of that income is subject to a Payment
Restriction.
"Consolidated Net Worth" means, with respect to any
Person as of any date, the sum of (i) the
consolidated equity of the common stockholders of
such Person and its consolidated Subsidiaries as of
such date plus (ii) the respective amounts reported
on such Person's balance sheet as of such date with
respect to any series of Preferred Stock (other than
Redeemable Capital Stock) that by its terms is not
entitled to the payment of dividends unless such
dividends may be declared and paid only out of net
earnings in respect of the year of such declaration
and payment, but only to the extent of any cash
received by such Person upon issuance of such
Preferred Stock, less (x) all write-ups (other than
write-ups of tangible assets of a going concern
business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in
the book value of any asset owned by such Person or
a consolidated Subsidiary of such Person, (y) all
Investments as of such date in unconsolidated
Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of
such date, all of the foregoing determined in
accordance with GAAP.
"Consolidated Post Retirement Benefits Other Than
Pensions" means the noncash portion of retirement
benefits other than pensions as defined in FASB
Statements 88, 106 and 112, determined in accordance
with GAAP.
"Corporate Trust Office" means the office of the
Trustee at which at any particular time its
corporate trust business shall be principally
administered, which office at the date of execution
of this Indenture is located at 777 Main Street,
Hartford, Connecticut 06115; Attention: Corporate
Trust Department.
"corporation" includes corporations, associations,
partnerships, limited liability companies and
business trusts.
"Credit Agreement" means (i) the New Credit
Agreement, together with all amendments, documents
and instruments from time to time delivered in
connection with the New Credit Agreement (including,
without limitation, any guaranty agreements and
security documents), as in effect on the date hereof
and, subject to the proviso to the next succeeding
sentence, as the New Credit Agreement and such other
agreements, documents and instruments may be further
amended, amended and restated, renewed, extended,
restructured, supplemented or otherwise modified
from time to time, and (ii) any credit agreement,
loan agreement, note purchase agreement, indenture
or other agreement, document or instrument
refinancing, refunding or otherwise replacing the
New Credit Agreement or any other agreement deemed a
Credit Agreement under clause (i) or (ii) hereof,
whether or not with the same agent, trustee,
representative, lenders or holders, and, subject to
the proviso to the next succeeding sentence,
irrespective of any changes in the terms and
conditions thereof. Without limiting the generality
of the foregoing, the term "Credit Agreement" shall
include any amendment, amendment and restatement,
renewal, extension, restructuring, supplement or
modification to any Credit Agreement, including any
agreement (x) extending the maturity of any
Indebtedness incurred thereunder or contemplated
thereby, (y) adding or deleting borrowers or
guarantors thereunder, so long as borrowers and
issuers include only the Company and its
Subsidiaries and their respective successors and
assigns or (z) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed
thereunder, provided that on the date thereof such
Indebtedness would be Permitted Indebtedness under
clause (i) or (viii) of the definition of Permitted
Indebtedness.
"Currency Agreement" means any foreign exchange
contract, currency swap agreement or other similar
agreement or arrangement designed to protect the
Company or any Subsidiary against fluctuations in
currency values.
"Default" means any event that is, or after notice
or passage of time or both would be, an Event of
Default.
"Defaulted Interest" has the meaning given such
term in Section 3.7.
"Default Rate" means a rate of interest per annum
equal to the rate per annum of interest provided in
the Securities plus 200 basis points.
"Event of Default" has the meaning specified in
Article V.
"Excess Proceeds Amount" has the meaning specified
in Section 10.16.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Fair Market Value" means, with respect to any asset
or property, the sale value that would be obtained
in an arm's length transaction between an informed
and willing seller under no compulsion to sell and
an informed and willing buyer under no compulsion to
buy. "Fair Market Value" shall be determined by the
Board of Directors of the Company acting in good
faith and shall be evidenced by a duly and properly
adopted resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the
Trustee.
"Federal Bankruptcy Code" means the Bankruptcy Act
of Title 11 of the United States Code, as amended
from time to time.
"GAAP" means generally accepted accounting
principles set forth in the opinions and
pronouncements of the Accounting Principles Board of
the American Institute of Certified Public
Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such
other statements by such other entity as have been
approved by a significant segment of the accounting
profession, which are in effect as of the Issue
Date.
"Guarantee" means, collectively, the Parent
Guarantee and any Subsidiary Guarantee.
"Guarantor" means, collectively, (i) Holding, (ii)
any Subsidiary Guarantor and (iii) any successor or
assign of a Guarantor.
"Guarantor Senior Indebtedness" means the principal
of, premium, if any, and accrued and unpaid interest
on (including, without limitation, interest at the
contract rate subsequent to the commencement of any
bankruptcy, insolvency or similar proceeding with
respect to the Guarantor and with respect to the
Credit Agreement only, such interest whether or not
a claim therefor is allowed in such proceeding) and
all reasonable fees and reasonable expenses under or
in respect of Indebtedness of the Guarantor under
the Credit Agreement.
"Guaranty" means, as applied to any obligation or
liability, (i) a guaranty (other than by endorsement
of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in
any manner, of any part or all of such obligation,
liability or Indebtedness of another Person and (ii)
an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to
assure in any way the payment or performance (or
payment of damages in the event of nonperformance)
of any part or all of such obligation, liability or
Indebtedness of another Person, including, without
limiting the foregoing, the payment of amounts drawn
down by letters of credit, and the terms
"guarantees" and "guaranteed" shall have correlative
meanings. Notwithstanding anything herein to the
contrary, a guaranty shall not include any agreement
solely because such agreement creates a Lien on the
assets of any person.
"Holder" means a Person in whose name a Security is
registered in the Security Register.
"Holding" means Homeland Holding Corporation, a
corporation incorporated under the laws of the State
of Delaware.
"Incur" means, with respect to any Indebtedness or
other obligation of any Person, to create, issue,
incur (by conversion, exchange or otherwise),
assume, guaranty (including the guaranty of
Indebtedness of a Subsidiary or other Affiliate of
such Person) or otherwise become liable in respect
of such Indebtedness or other obligation or the
recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and
"Incurring" shall have meanings correlative to the
foregoing); provided that the accrual of interest
(whether such interest is payable in cash or in
kind) and the accretion of original issue discount
shall not be deemed an Incurrence of Indebtedness;
provided, further that (a) any Indebtedness or
Redeemable Capital Stock of a Person existing at the
time such Person becomes (after the date of this
Indenture) a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) of the
Company shall be deemed to be Incurred for purposes
of Section 10.8 by such Subsidiary at the time it
becomes a Subsidiary of the Company and (b) any
amendment, modification or waiver of any document
pursuant to which Indebtedness was previously
incurred shall be deemed to be an Incurrence of
Indebtedness unless such amendment, modification or
waiver does not (i) increase the principal or
premium thereof or interest rate thereon (including
by way of original issue discount), (ii) change to
an earlier date the stated maturity thereof or the
date of any scheduled or required principal payment
thereon or the time or circumstances under which
such Indebtedness may or shall be redeemed or the
Average Life to Stated Maturity thereof, (iii) if
such Indebtedness is subordinated to the Securities,
modify or affect, in any manner adverse to the
Holders, such subordination, (iv) if the Company is
the obligor thereon, provide that a Subsidiary of
the Company not already an obligor thereon shall be
an obligor thereon or (v) violate, or cause the
Indebtedness to violate, the provisions of Section
10.14.
"Indebtedness" means, with respect to any Person,
without duplication, (i) all liabilities, contingent
or otherwise, of such Person (a) for borrowed money
(whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a
portion thereof), (b) evidenced by bonds, notes,
debentures or similar instruments or representing
the balance deferred and unpaid of the purchase
price of any property or c for the payment of money
relating to a Capital Lease Obligation; (ii)
obligations of such Person in respect of letters of
credit (including reimbursement obligations with
respect thereto); (iii) Interest Swap Obligations of
such Person or obligations of such Person with
respect to the Currency Agreements; (iv) all
liabilities of others of the kind described in the
preceding clause (i), (ii), (iii) that (a) such
Person has guaranteed, (b) have been Incurred by a
partnership in which it is a general partner (to the
extent such Person is liable, contingently or
otherwise therefor) or c are otherwise its legal
liability (other than endorsements for collection in
the ordinary course of business); and (v) all
obligations of others secured by a Lien to which any
of the properties or assets (including, without
limitation, leasehold interests and any other
tangible or intangible property rights) of such
Person are subject, whether or not the obligations
secured thereby shall have been assumed by such
Person or shall otherwise be such Persons_s legal
liability; provided, however, that notwithstanding
anything in the forgoing that may be deemed to be to
the contrary, Indebtedness shall not include (i) any
Trade Payables and any other accrued current
liabilities Incurred in the ordinary course of
business as the deferred purchase price of property
acquired in the ordinary course of business; (ii)
liabilities arising from guarantees to suppliers,
lessors, contractors, franchisees or customers
Incurred in the ordinary course of business
(exclusive of obligations for the payment of money
borrowed); and (iii) liabilities from the draft or
similar instrument drawn against insufficient funds
in the ordinary course of business; provided that
such liabilities are extinguished within five
Business Days of their Incurrence and (iv)
prepayments of, or loans and advances with respect
to, any receivables owing to the Company or any
Subsidiary under the AWG Supply Agreement. The
amount of Indebtedness of any Person at any date
shall be, without duplication, (i) the outstanding
balance at such date of all unconditional
obligations as described above and the maximum
liability of any such contingent obligations at such
date and (ii) in the case of Indebtedness of others
secured by a Lien to which the property or assets
owned or held by such Person is subject but which is
otherwise nonrecourse to such Person, the lesser of
the Fair Market Value at such date of any assets
subject to a Lien securing the Indebtedness of
others and the amount of the Indebtedness secured.
"Indenture" means this instrument as originally
executed (including all exhibits and schedules
hereto) and as it may from time to time be
supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the
applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of
an installment of interest on the Securities.
"Interest Swap Obligations" means the obligations of
any Person pursuant to any arrangement with any
other Person whereby, directly or indirectly, such
person is entitled to receive from time to time
periodic payments calculated by applying either a
fixed or floating rate of interest on a stated
notional amount in exchange for periodic payments
made by such Person calculated by applying a fixed
or floating rate of interest on the same notional
amount and shall include any interest rate
protection agreement, interest rate future, interest
rate option or other interest rate hedge
arrangement.
"Investment" means, directly or indirectly, (i) any
advance, loan or other extension of credit or
capital contribution to (by means of any transfer of
cash or other property to others or any payment for
property or services for the account or use of
others), (ii) any purchase or acquisition by such
Person of any stock, bonds, notes, debentures or
other debt or equity interests or other securities
issued or owned by any other Person or (iii) any
purchase or acquisition by such Person of any group
of assets constituting a business. Investments
shall not include extensions of trade credit on
commercially reasonable terms in accordance with
normal trade practices of the Company and its
Subsidiaries.
"Issue Date" means , 1996.
"Lien" means any mortgage, charge, pledge, lien,
privilege, security interest or encumbrance of any
kind (including any conditional sale or other title
retention agreement).
"Material Adverse Effect" means, with respect to the
Company, any circumstance, change, event,
transaction, loss, failure or other occurrence of a
business, economic, financial or other operational
nature, any development involving compensation of or
relations with employees and any determination in
any litigation, arbitration or governmental
investigation or proceeding, having, in any such
case, a material adverse effect on (a) the business,
assets, properties, revenues, financial condition or
operations of the Company and its Subsidiaries,
taken as a whole, or (b) the ability of the Company
to perform any of its obligations hereunder.
"Maturity" when used with respect to any Security
means the date on which the principal of (and
premium, if any) and interest on such Security
becomes due and payable as therein or herein
provided, whether at Stated Maturity, Change of
Control Purchase Date, Asset Sale Purchase Date or
Redemption Date and whether by declaration of
acceleration, call for redemption or otherwise.
"Net Cash Proceeds" means, with respect to any Asset
Sale, the proceeds in the form of cash or Cash
Equivalents (including payments in respect of
deferred payment obligations when received in the
form of cash or Cash Equivalents) received by the
Company or any of its Subsidiaries from such Asset
Sale, net of (i) reasonable out-of-pocket expenses
and fees (including, without limitation, brokerage
commissions and fees and expenses of legal counsel
and investment bankers) relating to such Asset Sale,
(ii) taxes paid or payable as a result of such Asset
Sale (including, without limitation, income taxes
reasonably estimated to be actually payable as a
result of any disposition of property within two
years of the date of such disposition and after
taking into account any reduction in tax liability
due to available tax credits or deductions and any
tax sharing arrangements), (iii) repayment of
Indebtedness that is required to be repaid in
connection with such Asset Sale and (iv) appropriate
amounts to be provided by the Company or any
Subsidiary of the Company, as the case may be, as a
reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and
retained by the Company or any Subsidiary of the
Company, as the case may be, after such Asset Sale,
including, without limitation, pension and other
post-employment benefit liabilities, liabilities
related to environmental matters and liabilities
under any indemnification obligations associated
with such Asset Sale, all as reflected in an
Officers_ Certificate delivered to the Trustee;
provided, however, that the amount of any such
reserve shall constitute Net Cash Proceeds if and
when it no longer is required to be maintained in
accordance with GAAP but only to the extent that the
amount originally reserved was not utilized for its
specified purpose.
"New Credit Agreement" means the Credit Agreement,
dated as of , 1996, among the Company, Holding as
guarantor, the lenders named therein and
, as agent for such lenders.
"Obligations" means any principal, interest
(including, without limitation, any interest
accruing subsequent to an event specified in
Sections 5.1(f) and 5.1(g), whether or not such
interest is an allowed claim enforceable against the
debtor in a bankruptcy case under the Federal
Bankruptcy Code), penalties, fees, expenses and
other monetary liabilities payable under the
Securities or this Indenture.
"Officer" of any Person means the Chairman of the
Board, the President, any Senior or Executive Vice
President, any Vice President, the Treasurer, an
Assistant Treasurer, the Secretary, an Assistant
Secretary or the Controller of such Person.
"Officers' Certificate" means a certificate signed
by two Officers (one of whom must be the principal
executive officer, principal financial officer or
principal accounting officer) of any Person and
conforming to the requirements set forth in Section
1.3.
"Opinion of Counsel" means a written opinion of
counsel, who may be counsel for the Company, and who
shall be reasonably acceptable to the Trustee. Each
such opinion shall include the statements provided
for in Trust Indenture Act Section 314(e) to the
extent applicable.
"Other Permitted Liens" means (i) Liens for taxes,
assessments, governmental charges or claims which
are not yet delinquent or which are being contested
in good faith by appropriate proceedings, which
proceedings have the effect of preventing the
forfeiture or sale of the property or assets subject
to such Lien, and for which a reserve or other
appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii)
statutory Liens of landlords, vendors and laborers
and carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's, or other
like Liens arising in the ordinary course of
business and with respect to amounts which are not
yet delinquent or which are being contested in good
faith by appropriate proceedings, for which a
reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made;
(iii) Liens Incurred or deposits made in the
ordinary course of business in connection with
workers_ compensation, unemployment insurance and
other types of social security or other insurance-
related obligations (including, without limitation,
in respect of deductibles, self-insured retention
amounts and premiums and adjustments thereto); (iv)
Liens Incurred or deposits made to secure the
performance of tenders, bids, leases, public or
statutory obligations, surety and appeal bonds,
government contracts, progress payments, performance
and return-of-money bonds and other obligations of a
like nature Incurred in the ordinary course of
business (exclusive of obligations for the payment
of borrowed money); (v) zoning restrictions,
licenses, covenants, reservations, easements, rights-
of-way, restrictions, minor defects or
irregularities in title (and with respect to
leasehold interests, mortgages, obligations, liens
and other encumbrances Incurred or permitted to
exist and arising by, through or under a landlord or
owner of the leased property, with or without
consent of the lessee) and other similar charges or
encumbrances not interfering in any material respect
with the business of the Company or any Subsidiary
Incurred in the ordinary course of business; and
(vi) Liens Incurred in the ordinary course of
business securing reimbursement obligations with
respect to commercial letters of credit permitted
under this Indenture which encumber documents and
other property relating to such letters of credit or
products and proceeds thereof.
"Outstanding" when used with respect to the
Securities means, as of the date of determination,
all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore canceled by the
Trustee or delivered to the Trustee for
cancellation;
(b) Securities, or portions thereof, for whose
payment, redemption or purchase money in the
necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other
than the Company) in trust or set aside and
segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for
the Holders of such Securities, and the Trustee
or such Paying Agent is not prohibited from
paying such money to the Holders on that date
pursuant to the terms of Article XII; provided
that, if such Securities are to be redeemed,
notice of such redemption has been duly given
pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been
made;
(c) Securities, except to the extent provided
in Section 13.1, with respect to which the
Company has effected defeasance as provided in
Article XIII; and
(d) Securities in exchange for or in lieu of
which other Securities have been authenticated
and delivered pursuant to this Indenture, other
than any such Securities in respect of which
there shall have been presented to the Trustee
proof satisfactory to it that such Securities
are held by a bona fide purchaser in whose
hands the Securities are valid obligations of
the Company;
provided, however, that, in determining whether the
Holders of the requisite principal amount of
Outstanding Securities have given any request,
demand, direction, consent or waiver hereunder,
Securities owned by the Company, any Guarantor, or
any other obligor upon the Securities, or any
Affiliate of the Company or such other obligor,
shall be disregarded and deemed not to be
outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such
request, demand, direction, consent or waiver, only
Securities which a Responsible Officer of the
Trustee knows to be so owned shall be so
disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding
if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with
respect to such Securities and that the pledgee is
not the Company, any Guarantor, or any other obligor
upon the Securities or any Affiliate of the Company
or such other obligor.
"Parent Guarantee" means the Guarantee of Holding
incorporated in Section 14 of this Indenture and
made a part of the Securities.
"Paying Agent" means any Person authorized by the
Company to pay the principal of (or premium, if any)
or interest on any Securities on behalf of the
Company.
"Payment Restriction" means with respect to a
Subsidiary of any Person, any encumbrance,
restriction or limitation, whether by operation of
the terms of its charter or by reason of any
agreement, instrument, judgment, decree or order, on
the ability of (i) such Subsidiary to (a) pay
dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability
or Indebtedness owed to such Person or any other
Subsidiary of such Person, (b) make loans or
advances to such Person or any other Subsidiary of
such Person, or c transfer any of its properties or
assets to such Person or any other Subsidiary of
such Person, or (ii) such Person or any other
Subsidiary of such Person to receive or retain any
such (a) dividends, distributions or payments, (b)
loans or advances, or c transfer of properties or
assets.
"Permitted Holder" means any "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act) that "beneficially owns" (as
defined in Rule 13d-3 under the Exchange Act,
provided that a "person" or "group" shall be deemed
to be a "beneficial owner" for purposes of this
definition even if its right to acquire beneficial
ownership of Voting Stock arises after a 60-day
period) more than five percent (5%) of the Voting
Stock of Holding as of the Issue Date.
Notwithstanding the foregoing, "Permitted Holder"
shall not include any Person who, together with its
Affiliates, "beneficially owns" more than 50% of the
Voting Stock of the Company or Holding as of any
date after the Issue Date, excluding from the
calculation of such Person's "beneficial ownership"
any Voting Stock that such Person and its Affiliates
would be deemed to "beneficially own" solely by
reason of its (or their) membership in a "group."
"Permitted Indebtedness" means any of the following
Indebtedness of the Company or any Subsidiary, as
the case may be:
(i) Indebtedness of the Company under the Credit
Agreement in an aggregate principal amount at
any time outstanding not to exceed the greater
of (x) $37,500,000, less (1) the amount of any
scheduled principal payments actually made
(excluding, without limitation, any prepayments
required to be made based upon the Company's
excess cash flow) or the amount of any other
prepayments which are applied or credited
against scheduled principal payments on the
date such scheduled principal payments would
otherwise have been made (except to the extent
refinanced under a replacement Credit Agreement
at the time of the respective repayment) by the
Company or any Guarantor in respect of any term
loans under the Credit Agreement and (2) the
amount by which the aggregate commitment under
any revolving credit facility under the Credit
Agreement at any time has been permanently
reduced to the extent, if any, that any
repayments required to be made in connection
with effecting such permanent reduction have
been made (it being understood that to the
extent a reduction in commitments under any
revolving credit facility under the Credit
Agreement arises solely in connection with a
refinancing of outstanding amounts under such
revolving credit facility with borrowings under
a replacement Credit Agreement and the
commitments under the Credit Agreement are
thereby replaced with commitments under such
replacement Credit Agreement such a permanent
reduction shall not have occurred); and (y) the
amount equal to the sum of (1) 75% of the net
book value of accounts receivable not more than
90 days old, as determined in accordance with
GAAP, (2) 50% of the net book value of
inventory (determined on a first-in-first-out
basis) of the Company and its Subsidiaries on a
consolidated basis at the time such
Indebtedness is Incurred, as determined in
accordance with GAAP and (3) $10 million;
(ii) Indebtedness of the Company under the
Securities;
(iii) Indebtedness of the Company or any of its
Subsidiaries consisting of Capital Lease
Obligations and Purchase Money Obligations so
long as the aggregate amount of such
Indebtedness Incurred during any fiscal year
does not exceed $10 million;
(iv) Indebtedness of a Subsidiary to the Company or
to a Wholly Owned Subsidiary;
(v) Indebtedness of the Company to a Wholly Owned
Subsidiary of the Company which is unsecured
and, unless owing to a Guarantor, subordinated
in right of payment to the payment and
performance of the Company_s obligations under
the Indenture and the Notes; provided, however,
that any subsequent issuance or transfer of
Capital Stock that results in such Wholly Owned
Subsidiary ceasing to be such, or any
subsequent transfer of such Indebtedness (other
than to the Company or a Wholly Owned
Subsidiary) will be deemed, in each case, to
constitute the Incurrence of such Indebtedness
by the Company or of such Indebtedness by such
Wholly Owned Subsidiary;
(vi) Indebtedness which represents the assumption by
the Company of Indebtedness of any Wholly Owned
Subsidiary;
(vii) Indebtedness under Currency Agreements,
Interest Swap Obligations and other agreements
between the Company or a Subsidiary and one or
more financial institutions providing for
"swap," "cap," "collar" or other interest rate
protection on other Permitted Indebtedness;
(viii) Indebtedness not to exceed an aggregate
principal amount of $5 million at any one time
outstanding in addition to the Indebtedness
otherwise permitted hereby, which may be
Incurred under the Credit Agreement;
(ix) Indebtedness Incurred in respect of performance
bonds and surety bonds;
(x) Indebtedness represented by letters of
credit issued in the ordinary course of
business for the account of the Company or any
Subsidiary not exceeding an aggregate amount of
$2.5 million at any one time outstanding (in
addition to any letters of credit issued under
the Credit Agreement);
(xi) Indebtedness represented by the
obligations of the Company, as they may exist
from time to time, to repurchase from any
employee or director, or former employee or
director, of the Company or a Subsidiary,
Capital Stock of the Company, or options,
warrants or rights therefor, issued pursuant to
any compensatory plan of the Company;
(xii) Indebtedness consisting of guarantees,
indemnities or obligations in respect of
purchase price adjustments in connection with
the acquisition or disposition of assets
permitted under the Indenture;
(xiii) Guarantees in respect of Indebtedness
Incurred by officers or employees of the
Company or any Subsidiary in the ordinary
course of business and payments in discharge
thereof in an amount not to exceed the excess
of (x) $500,000 at any time outstanding over
(y) the aggregate amount, if any, paid after
the Issue Date in respect of such guarantees;
and
(xiv) Permitted Refinancing Indebtedness the
proceeds of which are used to refinance
outstanding Permitted Indebtedness of the
Company or any Subsidiary.
Any calculation of the amount of outstanding
Indebtedness under any of the foregoing clauses,
shall take into account: (A) the principal amount
then outstanding that was originally Incurred
pursuant to such clause; (B) any outstanding
Indebtedness Incurred pursuant to clause (xiv) to
refinance or refund Indebtedness originally Incurred
pursuant to such clause; and c any subsequent
refinancings or refundings thereof.
"Permitted Investment" means any of the following:
(i) Investments in Subsidiaries outstanding as of
the date hereof and additional Investments in
such Subsidiaries or other Persons so long as,
immediately after such Investment, such
Subsidiary or other Person will be a Wholly
Owned Subsidiary (including, without
limitation, Investments in the Capital Stock of
such Subsidiary or other Person but excluding
Investments in any other Person that would
constitute the acquisition of a business, which
is subject to clause (xiv) below);
(ii) Investments by Wholly Owned Subsidiaries in the
Company;
(iii) (a) Investments in commercial paper rated P-1
by Moody's Investors Service, Inc. or A-1 by
Standard & Poor's Corporation on the date of
acquisition, (b) certificates of deposit of
United States commercial banks (having a
combined capital and surplus in excess of
$100,000,000), c obligations of, or guaranteed
by, the United States government or any agency
thereof, (d) money market funds organized under
the laws of the United States or any state
thereof that invest substantially all their
assets in any of the types of investments
described in subclause (a), (b) or c of this
clause (iii), or (e) to the extent not
comprehended by subclauses (a) through (d) of
this clause (iii), Cash Equivalents;
(iv) Investments in, or consisting of, negotiable
instruments held for collection; outstanding
travel, entertainment, moving and other like
loans and advances to officers, employees and
consultants; lease, utility and other similar
deposits; or stock, obligations or securities
received in settlement of claims owing to the
Company or a Subsidiary as a result of a
composition or readjustment of debt or a
reorganization of any debtor, in each of the
foregoing cases in the ordinary course of
business of the Company or a Subsidiary, as the
case may be;
(v) Investments consisting of accounts receivable
owing to the Company or any Subsidiary created
in the ordinary course of business;
(vi) Investments in (a) AWG Membership Stock and (b)
AWG members deposit certificates, patronage
refund certificates or similar types of AWG
Equity received or earned by the Company from
time to time based on the Company_s gross
purchases from AWG pursuant to the AWG Supply
Agreement or in lieu of receiving cash rebates
or refunds from AWG;
(vii) Investments in (a) the capital stock of other
retail purchasing cooperatives in connection
with becoming a member of such cooperatives and
(b) additional capital stock of such
cooperatives which is received or earned by the
Company based on the Company's gross purchases
from such cooperatives or in lieu of receiving
cash rebates or refunds from such cooperatives,
provided that in each case, such stock is
purchased, received or earned in connection
with a supply agreement or arrangement between
the Company and such cooperative which is on
terms at least as favorable to the Company as
the terms that could be obtained by the Company
in a comparable transaction made on an arm's
length basis with another cooperative,
wholesaler or supplier;
(viii) Investments consisting of non-cash
consideration from any Asset Sale made pursuant
to and in compliance with Section 10.16;
(ix) Investments consisting of loans, advances,
dividends or distributions by the Company to
Holding not to exceed an amount necessary to
permit Holding to pay (a) its costs (including
all professional fees and expenses) Incurred to
comply with its reporting requirements under
Section 10.4 and (b) its other operational
expenses (other than taxes) incurred in the
ordinary course of business and not exceeding
$250,000 in the aggregate any fiscal year;
(x) Investments consisting of Indebtedness
permitted under item (vii) of the definition of
Permitted Indebtedness;
(xi) Investments in any of the Notes;
(xii) Investments consisting of guarantees in
respect of Indebtedness Incurred by officers or
employees in the ordinary course of business
and payments in discharge thereof in an amount
not to exceed the excess of (x) $500,000 at any
time outstanding over (y) the aggregate amount,
if any, paid after the Issue Date in respect of
such guarantees;
(xiii) Investments consisting of loans or
advances to officers, directors or employees
incurred prior to the Issue Date and any
extensions, renewals, refundings or
refinancings thereof, provided that the
aggregate amount of such loans and advances
shall not exceed $150,000 at any time
outstanding;
(xiv) Investments in any group of assets
constituting a business in an amount not to
exceed $5 million in the aggregate in any
fiscal year;
(xv) Investment in joint ventures formed for
the purpose of purchasing and operating grocery
stores, in the aggregate amount of $3 million
at any time outstanding; and
(xvi) Investments in the aggregate amount of $2
million at any time outstanding.
"Permitted Liens" means (i) Liens existing as of the
Issue Date, (ii) Liens securing Indebtedness
outstanding under the Credit Agreement (whether or
not existing on the Issue Date); (iii) Liens now or
hereafter securing any obligations with respect to
Interest Swap Obligations, Currency Agreements and
other agreements between the Company or a Subsidiary
and one or more financial institutions providing for
"swap," "cap," "collar" or other interest rate
protection on other Permitted Indebtedness; (iv)
Liens securing Acquired Indebtedness created prior
to (and not in connection with or in contemplation
of) the Incurrence of such Indebtedness by the
Company or any Subsidiary; (v) Purchase Money Liens
and Liens to secure Capital Lease Obligations
permitted hereunder covering only the property
acquired with such Indebtedness; (vi) Liens securing
Permitted Refinancing Indebtedness; provided that
such Liens extend to or cover only the property or
assets then securing the Indebtedness being
refinanced; (vii) any Liens which may be granted to
secure the Securities or any Guarantees; (viii)
Liens in favor of the Company or any Subsidiary of
the Company; (ix) Liens securing Indebtedness
permitted to be incurred under clause (x) of the
definition of Permitted Indebtedness liens; (x) the
AWG Liens; and (xi) Other Permitted Liens.
"Permitted Refinancing Indebtedness" means any
Indebtedness of the Company or any of its
Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness
of the Company or any of its Subsidiaries; provided
that (i) the principal amount of such Indebtedness
does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection
therewith), (ii) with respect to Indebtedness that
is not Senior Indebtedness (a) such Indebtedness has
an Average Life to Stated Maturity equal to or
greater than and a final maturity no earlier than
the Average Life to Stated Maturity and final
maturity of the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded,
and (b) such Indebtedness is subordinated in right
of payment pursuant to terms at least as favorable
to the Holders of Securities as those, if any,
contained in the documentation governing the
Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded and (iii) no such
Indebtedness Incurred by the Company is extended,
refinanced, renewed, replaced, defeased or refunded
with Indebtedness Incurred by a Subsidiary.
"Person" means any individual, corporation, limited
or general partnership, joint venture, limited
liability company, association, joint-stock company,
trust, unincorporated organization or government or
any agency or political subdivision thereof.
"Predecessor Security" of any particular Security
means every previous Security evidencing all or a
portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this
definition, any Security authenticated and delivered
under Section 3.6 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen
Security shall be deemed to evidence the same debt
as the mutilated, lost, destroyed or stolen
Security.
"Preferred Stock" means, with respect to any Person,
any and all shares, interests, participations or
other equivalents (however designated) of such
Person's preferred or preference stock whether now
outstanding or issued after the date hereof, and
includes, without limitation, all classes and series
of preferred or preference stock.
"Purchase Money Liens" means Liens to secure or
securing Purchase Money Obligations permitted to be
Incurred under this Indenture.
"Purchase Money Obligations" means Indebtedness
representing, or Incurred to finance, the cost (a)
of acquiring any assets and (b) of construction or
improvement of property, in each case for use in the
business of the Company and its Subsidiaries
(including Purchase Money Obligations of any other
Person at the time such other Person is merged with
or is otherwise acquired by the Company or a
Subsidiary); provided that (i) the principal amount
of such Indebtedness does not exceed 100% of such
cost, including construction or improvement costs,
(ii) any Lien securing such Indebtedness does not
extend to or cover any other asset or property other
than the asset or property being so acquired,
constructed or improved and (iii) such Indebtedness
is Incurred, and any Liens with respect thereto are
granted, within 180 days of the acquisition of such
property or asset.
"Redeemable Capital Stock" means Capital Stock that
either by its terms, by the terms of any security
into which it is convertible or exchangeable or
otherwise, is or upon the happening of an event or
passage of time would be required to be redeemed
prior to the Stated Maturity of the principal of the
Securities or is redeemable at the option of the
holder thereof at any time prior to the Stated
Maturity of the principal of the Securities, or is
convertible into or exchangeable for debt securities
at any time prior to such Stated Maturity.
"Redemption Date," when used with respect to any
Securities to be redeemed, means, in whole or in
part, the date fixed for such redemption pursuant to
this Indenture.
"Redemption Price," when used with respect to any
Security to be redeemed, means the price at which it
is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on
any Interest Payment Date means the January 15 or
July 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Responsible Officer," when used with respect to the
Trustee, means any officer in its corporate trust
department and any other officer of the Trustee
customarily performing functions similar to those
performed by any of the above designated officers or
assigned by the Trustee to administer corporate
trust matters at its Corporate Trust Office and also
means, with respect to a particular corporate trust
matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity
with the particular subject.
"Restricted Payments" has the meaning specified in
Section 10.9.
"Securities Act" means the Securities Act of 1933,
as amended from time to time.
"Securities" means the Securities that are issued
under this Indenture, as amended or supplemented
from time to time pursuant to this Indenture.
"Security Register" has the meaning specified in
Section 3.5.
"Senior Indebtedness" means the principal of,
premium, if any, and accrued and unpaid interest on
(including, without limitation, interest at the
contract rate subsequent to the commencement of any
bankruptcy, insolvency or similar proceeding with
respect to the Company and with respect to the
Credit Agreement only, such interest whether or not
a claim therefor is allowed in such proceeding) or
reasonable fees and reasonable expenses payable
under or in respect of Indebtedness of the Company
under the Credit Agreement.
"Special Record Date" means a date fixed by the
Trustee for the payment of any Defaulted Interest
pursuant to Section 3.7.
"Stated Maturity," when used with respect to any
Security or any installment of interest thereon,
means the date specified in such Security as the
fixed date on which the principal of such Security
or such installment of interest is due and payable.
"Subsidiary" means, with respect to any Person, (i)
a corporation a majority of whose Voting Stock is at
the time, directly or indirectly, owned by such
Person, by one or more Subsidiaries of such Person
or by such Person and one or more Subsidiaries
thereof or (ii) any other Person (other than a
corporation) in which such Person, one or more
Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the
date of determination thereof has at least a
majority ownership interest. Unless the context
indicates otherwise, the term "Subsidiary" shall
mean a Subsidiary of the Company or one or more
Subsidiaries of the Company.
"Subsidiary Guarantees" means the Guarantees of the
Subsidiary Guarantors, substantially in the form
attached as Exhibit __ hereto, as such Guarantee may
be amended, modified or supplemented from time to
time.
"Subsidiary Guarantor" means any Subsidiary that
executes a Subsidiary Guarantee and any successor or
assign of such Subsidiary Guarantor.
"Trade Payables" means any accounts payable or any
other indebtedness or monetary obligation to trade
creditors created, assumed or guaranteed by a Person
arising in the ordinary course of business of such
Person in connection with the acquisition of goods
and services.
"Trust Indenture Act" means the Trust Indenture Act
of 1939, as amended, and as in force at the date as
of which this instrument was executed, except as
provided in Section 9.5.
"Trustee" means the Person named as the _Trustee_ in
the first paragraph of this instrument, until a
successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and
thereafter "Trustee" shall mean such successor
Trustee.
"Voting Stock" means, with respect to any Person,
(i) one or more classes of the Capital Stock of such
Person having general voting power to elect at least
a majority of the board of directors, managers or
trustees of such Person (irrespective of whether or
not at the time Capital Stock of any other class or
classes have or might have voting power by reason of
the happening of any contingency) and (ii) any
Capital Stock of such Person convertible or
exchangeable without restriction at the option of
the holder thereof into Capital Stock of such Person
described in clause (i) above.
"Wholly Owned Subsidiary" means, with respect to any
Person, a Subsidiary of such Person all of the
outstanding Capital Stock of which shall at the time
be owned by such Person or by one or more Wholly
Owned Subsidiaries of such Person or by such Person
and one or more Wholly Owned Subsidiaries of such
Person.
Section 1.2 Other Definitions.
Term Defined in
Section
"Act" . . . . . . . . . . . . . . . . . . . . 1.5
"Asset Sale Notice" . . . . . . . . . . . . . 10.16
"Asset Sale Offer". . . . . . . . . . . . . .
"Asset Sale Offer Price". . . . . . . . . . .
"Asset Sale Purchase Date". . . . . . . . . . 10.16
"Asset Sale Purchase Notice". . . . . . . . . 10.16
"Asset Sale Purchase Price" . . . . . . . . . 10.16
"Asset Sale Trigger Date" . . . . . . . . . . 10.16
"Change of Control Notice". . . . . . . . . . 10.15
"Change of Control Offer" . . . . . . . . . . 10.15
"Change of Control Purchase Date" . . . . . . 10.15
"Change of Control Purchase Notice" . . . . . 10.15
"Change of Control Purchase Price". . . . . . 10.15
"defeasance". . . . . . . . . . . . . . . . . 13.1
"Default Notice". . . . . . . . . . . . . . . 5.1
"Defaulted Interest". . . . . . . . . . . . . 3.7
"incorporated provision". . . . . . . . . . . 1.8
"Payment Blockage Period" . . . . . . . . . . 12.3
"Payment Default" . . . . . . . . . . . . . . 12.3
"Security Registrar". . . . . . . . . . . . . 3.5
"U.S. Government Obligations" . . . . . . . . 13.2
Section 1.3 Compliance Certificates and Opinions.
Upon any application or request by the Company
and/or the Guarantor to the Trustee to take any
action or omit to take any action under this
Indenture, the Company and/or the Guarantor, as
applicable, shall furnish to the Trustee an
Officers' Certificate, in form and substance
reasonably satisfactory to the Trustee, stating
that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture
(including any covenant compliance with which
constitutes a condition precedent, if any) relating
to the proposed action or inaction have been
complied with, and an Opinion of Counsel, in form
and substance reasonably satisfactory to the
Trustee, stating that, in the opinion of such
counsel, all such conditions precedent and
covenants, compliance with which constitutes a
condition precedent, if any, have been complied
with, except that, in the case of any such
application or request as to which the furnishing of
such documents is specifically required by any
provision of this Indenture relating to such
particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to
compliance with a condition or covenant provided for
in this Indenture shall include:
(a) a statement that each individual signing
such certificate or opinion has read such
covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and
scope of the examination or investigation upon
which the statements or opinions contained in
such certificate or opinion are based;
(d) a statement that, in the opinion of each
such individual, such individual has made such
examination or investigation as is necessary to
enable him or her to express an informed
opinion as to whether or not such covenant or
condition has been complied with; and
(e) a statement as to whether, in the opinion
of each such individual, such condition or
covenant has been complied with; provided,
however, that with respect to matters of fact,
an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public
officials.
Section 1.4 Form of Documents Delivered to Trustee.
In any case where several matters are required to be
certified by, or covered by an opinion of, any
specified Person, it is not necessary that all such
matters be certified by, or covered by the opinion
of, only one such Person, or that they be so
certified or covered by only one document, but one
such Person may certify or give an opinion with
respect to some matters and one or more other such
Persons as to other matters, any such Person may
certify or give an opinion as to such matters in one
or several documents.
Any certificate or opinion of an officer of the
Company may be based, insofar as it relates to legal
matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should
know, that the certificate or opinion or
representations with respect to the matters upon
which his or her certificate or opinion is based are
erroneous. Any such certificate or Opinion of
Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of,
or representations of an officer or officers of the
Company stating that the information with respect to
such factual matters is in the possession of the
Company, unless such counsel knows, or in the
exercise of reasonable care should know, that the
certificate or opinion or representations with
respect to such matters are erroneous.
Section 1.5 Acts of Holders.
(a) Any request, demand, authorization,
direction, notice, consent, waiver or other
action provided by this Indenture to be given
or taken by Holders may be embodied in and
evidenced by one or more instruments of
substantially similar tenor signed by such
Holders in person or by agent duly appointed in
writing; and, except as herein otherwise
expressly provided, such action shall become
effective when such instrument or instruments
are delivered to the Trustee and, where it is
hereby expressly required, to the Company
and/or the Guarantor. Such instrument or
instruments (and the action embodied therein
and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of
execution of any such instrument or of a
writing appointing any such agent shall be
sufficient for any purpose of this Indenture
and (subject to Trust Indenture Act Section
315) conclusive in favor of the Trustee, the
Company and/or the Guarantor, as applicable, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any
Person of any such instrument or writing may be
proved in any reasonable manner which the
Trustee deems sufficient.
(c) The ownership of Securities shall be
proved by the Security Register.
(d) If the Company shall solicit from the
Holders any request, demand, authorization,
direction, notice, consent, waiver or other
Act, the Company may, at its option, by or
pursuant to a Board Resolution, fix in advance
a record date for the determination of such
Holders entitled to give such request, demand,
authorization, direction, notice, consent,
waiver or other Act, but the Company shall have
no obligation to do so. Notwithstanding Trust
Indenture Act Section 316c, any such record
date shall be the record date specified in or
pursuant to such Board Resolution, which shall
be a date not more than 30 days prior to the
first solicitation of Holders generally in
connection therewith and no later than the date
such solicitation is completed.
If such a record date is fixed, such request,
demand, authorization, direction, notice,
consent, waiver or other Act may be given
before or after such record date, but only the
Holders of record at the close of business on
such record date shall be deemed to be Holders
for the purposes of determining whether Holders
of the requisite proportion of Securities then
Outstanding have authorized or agreed or
consented to such request, demand,
authorization, direction, notice, consent,
waiver or other Act, and for this purpose the
Securities then outstanding shall be computed
as of such record date; provided that no such
request, demand, authorization, direction,
notice, consent, waiver or other Act by the
Holders on such record date shall be deemed
effective unless it shall become effective
pursuant to the provisions of this Indenture
not later than 90 days after the record date.
(e) Any request, demand, authorization,
direction, notice, consent, waiver or other Act
by the Holder of any Security shall bind every
future Holder of the same Security or the
Holder of every Security issued upon the
registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done
by the Trustee, any Paying Agent, the Company
and/or the Guarantor in reliance thereon,
whether or not notation of such action is made
upon such Security.
Section 1.6 Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction,
notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with
(a) the Trustee by any Holder, the Company
and/or the Guarantor shall be sufficient for
every purpose hereunder if made, given,
furnished or delivered, in writing, to or with
the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Administration
Department; or
(b) the Company and/or the Guarantor by the
Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise
herein expressly provided) if made, given,
furnished or delivered in writing to the
Company addressed to it at Homeland Stores,
Inc., 2601 Northwest Expressway Oil Center
East, 11th Floor, Oklahoma City, Oklahoma
73112, Attention: Chief Financial Officer, or
at any other address furnished in writing to
the Trustee by the Company.
Section 1.7 Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders
of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage
prepaid, to each Holder affected by such event at
its address as it appears in the Security Register
not later than the latest date and not earlier than
the earliest date prescribed for the giving of such
notice. In any case where notice to Holders is
given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to
any particular Holder shall affect the sufficiency
of such notice with respect to other Holders. Any
notice when deposited for mailing to a Holder in the
aforesaid manner shall be conclusively deemed to
have been received by such Holder whether or not
actually received by such Holder. Where this
Indenture provides for notice in any manner, such
notice may be waived in writing by the Person
entitled to receive such notice, either before or
after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by
Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the
validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail
service or by reason of any other cause, it shall be
impracticable to mail notice of any event as
required by any provision of this Indenture, then
any method of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.8 Conflict of any Provision of ndenture with Trust
Indenture Act.
If and to the extent that any provision of this
Indenture limits, qualifies or conflicts with the
duties imposed by Sections 3.10 to 3.18, inclusive,
of the Trust Indenture Act, or conflicts with any
provision (an "incorporated provision") required by
or deemed to be included in this Indenture by
operation of such Trust Indenture Act Sections, such
imposed duties or incorporated provision shall
control. If any provision of this Indenture
modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded,
the latter provision shall be deemed to apply to
this Indenture as so modified or excluded, as the
case may be.
Section 1.9 Effect of Headings and Table of Contents.
The Article and Section headings herein and the
Table of Contents are for convenience only and shall
not affect the construction hereof.
Section 1.10 Successors and Assigns.
All covenants and agreements in this Indenture by
the Company and/or the Guarantor shall bind its
respective successors and permitted assigns, whether
so expressed or not. All covenants and agreements
in this Indenture by the Trustee shall bind its
successors and permitted assigns.
Section 1.11 Separability Clause.
In case any provision in this Indenture, the
Securities or any Guarantee shall be invalid,
illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
Section l.12 Benefits of Indenture.
Nothing in this Indenture, the Securities or any
Guarantee, express or implied, shall give to any
Person (other than the parties hereto and their
successors hereunder, any Paying Agent, the Holders
and the holders of Senior Indebtedness) any benefit
or any legal or equitable right, remedy or claim
under this Indenture.
Section 1.13 Governing Law.
THIS INDENTURE, THE SECURITIES AND EACH GUARANTEE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 1.14 Legal Holidays.
In any case where any Interest Payment Date, any
date established for payment of Defaulted Interest
pursuant to Section 3.7, or any Maturity with
respect to any Security shall not be a Business Day,
then (notwithstanding any other provision of this
Indenture or of the Securities) payment of interest
or principal (and premium, if any) need not be made
on such date, but may be made on the next succeeding
Business Day with the same force and effect as if
made on the Interest Payment Date or date
established for payment of Defaulted Interest
pursuant to Section 3.7 or Maturity, and no interest
shall accrue with respect to such payment for the
period from and after such Interest Payment Date or
date established for payment of Defaulted Interest
pursuant to Section 3.7 or Maturity, as the case may
be, to the next succeeding Business Day.
Section 1.15 No Recourse Against Others.
A director, officer, employee or stockholder, as
such, of the Company or any other obligor on the
Securities shall not have any liability for any
obligations of the Company or such obligor, as the
case may be, under the Securities, this Indenture or
any Guarantee or for any claim based on, or in
respect of, or by reason of such obligations. Each
Holder by accepting any of the Securities waives and
releases all such liability.
ARTICLE II
SECURITY FORMS
Section 2.1 Forms Generally.
The Securities and the Trustee's certificate of
authentication shall be in substantially the forms
set forth in this Article, with such appropriate
insertions, omissions, substitutions and other
variations as are required or permitted by this
Indenture and may have such letters, numbers or
other marks of identification and such legends or
endorsements placed thereon as may be required to
comply with the rules of any securities exchange or
as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by
their execution of the Securities. Any portion of
the text of any Security may be set forth on the
reverse thereof, with an appropriate reference
thereto on the face of the Security.
The definitive Securities shall be printed or
produced by any combination of these methods or may
be produced in any other manner permitted by the
rules of any securities exchange on which the
Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by
their execution of such Securities.
Section 2.2 Form of Face of Security.
HOMELAND STORES, INC.
10% Senior Subordinated Note due 2003
No. _____ $________
HOMELAND STORES, INC., a Delaware corporation
(herein called the _Company,_ which term includes
any successor entity under the Indenture hereinafter
referred to), for value received, hereby promises to
pay to _______________ or registered assigns, the
principal sum of __________ Dollars on August 1,
2003, at the office or agency of the Company
referred to below, and to pay interest thereon on
February 1, 1997 and semiannually thereafter, on
February 1 and August 1 in each year, from ______
__, 199_ or from the most recent Interest Payment
Date to which interest has been paid or duly
provided for, at the rate of 10% per annum until the
principal hereof is paid or duly provided for. The
interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in
whose name this Security (or one or more Predecessor
Securities) is registered at the close of business
on the Regular Record Date for such interest, which
shall be the January 15 or July 15 (whether or not a
Business Day), as the case may be, next preceding
such Interest Payment Date. Interest shall be
calculated on the basis of a 360-day year of twelve
30-day months. Any such interest not so actually
paid or duly provided for shall forthwith cease to
be payable to the Holder on such Regular Record
Date, and may be paid to the Person in whose name
this Security (or one or more Predecessor
Securities) is registered at the close of business
on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee,
notice whereof shall be given to Holders of
Securities not less than 10 days prior to such
Special Record Date, or may be paid at any time in
any other lawful manner not inconsistent with the
requirements of any securities exchange on which the
Securities may be listed, and upon such notice as
may be required by such exchange, all as more fully
provided in said Indenture. Payment of the
principal of (and premium, if any) and interest on
this Security will be made at the office or agency
of the Company maintained for that purpose in The
City of New York, or at such other office or agency
of the Company as may be maintained for such
purpose, in such coin or currency of the United
States of America as at the time of payment is legal
tender for payment of public and private debts;
provided, however, that, at the option of the
Company payment of interest may be made by check
mailed to the address of the Person entitled thereto
as such address shall appear on the Security
Register or by wire transfer to an account
maintained by the payee located in the United
States.
Reference is hereby made to the further provisions
of this Security set forth on the reverse hereof,
which further provisions shall for all purposes have
the same effect as if set forth at this place.
Unless the certificate of authentication hereon has
been duly executed by the Trustee referred to on the
reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the
Indenture, or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed under its corporate
seal.
Dated: HOMELAND STORES, INC.
By _______________________
Attest:
_____________________
Authorized Signatory
Section 2.3 Form of Reverse of Security.
This Security is one of a duly authorized issue of
securities of the Company designated as its 10%
Senior Subordinated Notes due 2003 (herein called
the "Securities"), limited (except as otherwise
provided in the Indenture referred to below) in
aggregate principal amount to $60,000,000, which may
be issued under an indenture (herein called the
"Indenture") dated as of ______ ___, 1996, by and
among the Company, Homeland Holding Corporation, as
Guarantor, and Fleet National Bank, as trustee
(herein called the "Trustee," which term includes
any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the
respective rights, limitations of rights, duties,
obligations and immunities thereunder of the
Company, the Guarantor, the Trustee and the Holders
of the Securities, and of the terms upon which the
Securities are and are to be, authenticated and
delivered.
The Securities are subject to redemption upon not
less than 30 nor more than 60 days' notice, in
amounts of $1,000 or an integral multiple of $1,000,
at any time on or after ______ __, 1999,as a whole
or in part, at the election of the Company, at the
Redemption Price equal to the percentage of the
principal amount redeemed, as set forth in the table
below, together in the case of any such redemption
with accrued interest to the Redemption Date
(subject to the right of Holders of record on
relevant Regular Record Dates to receive interest
due on an Interest Payment Date), all as provided in
the Indenture.
If Redeemed On Redemption Price
or after: Shall Be:
August 1, 1999 105.00%
August 1, 2000 103.33%
August 1, 2001 101.67%
August 1, 2002 100.00%
In addition, upon the occurrence of a Change of
Control prior to August 1, 1999, the Securities are
subject to redemption upon not less than 30 nor more
than 60 days' notice, in amounts of $1,000 or an
integral multiple of $1,000, at any time on or after
______ __, 1999, as a whole or in part, at the
election of the Company, at the Redemption Price
equal to the percentage of the principal amount
redeemed, as set forth in the table below, together
in the case of any such redemption with accrued
interest to the Redemption Date (subject to the
right of Holders of record on relevant Regular
Record Dates to receive interest due on an Interest
Payment Date), all as provided in the Indenture.
If Redeemed On Redemption Price
or after: Shall Be:
August 1, 1996 108.00%
August 1, 1997 107.00%
August 1, 1998 106.00%
Notwithstanding the foregoing, if the aggregate
principal amount of Outstanding Securities after a
redemption would be less than $20 million, then the
Company shall redeem all Outstanding Securities.
The Securities are not entitled to the benefit of any sinking fund.
In the case of any redemption of Securities,
interest installments whose Stated Maturity is on or
prior to the Redemption Date will be payable to the
Holders of such Securities, or one or more
Predecessor Securities, of record at the close of
business on the relevant Regular Record Date
referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture
shall cease to bear interest from and after the
Redemption Date.
In the event of redemption of this Security in part
only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation
hereof.
Sections 10.15 and 10.16 of the Indenture provide
that upon the occurrence of a Change of Control and
following any Asset Sale, and subject to further
limitations contained therein, the Company shall
make an offer to purchase certain amounts of
Securities at the purchase price, and in accordance
with the procedures, set forth in the Indenture.
If an Event of Default shall occur and be
continuing, the principal of all the Securities may
be declared due and payable in the manner and with
the effect provided in the Indenture.
The Indenture contains provisions for defeasance at
any time of (a) the entire indebtedness of the
Company on this Security and (b) certain restrictive
covenants and related Defaults and Events of
Default, upon compliance by the Company with certain
conditions set forth therein, which provisions apply
to this Security.
The Securities enjoy the benefits of the Guarantee
contained in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the
modification of the rights and obligations of the
Company and the rights of the Holders under the
Indenture at any time by the Company and the Trustee
with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the
time Outstanding. The Indenture also contains
provisions permitting the Holders of specified
percentages in aggregate principal amount of the
Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance
by the Company with certain provisions of the
Indenture and certain past defaults under the
Indenture and their consequences. Any such consent
or waiver by or on behalf of the Holder of this
Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security
and of any Security issued upon the registration of
transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or
waiver is made upon this Security.
The Securities and the Guarantee are subordinated in
right of payment, in the manner and to the extent
set forth in the Indenture, to the prior payment in
full of all Senior Indebtedness of the Company
whether outstanding on the date of the Indenture or
thereafter created, Incurred, assumed or guaranteed.
Each Holder by his acceptance hereof agrees to be
bound by such provisions and authorizes and
expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate
to effectuate the subordination provided for in the
Indenture and appoints the Trustee his attorney-in-
fact for such purpose.
No reference herein to the Indenture and no
provision of this Security or of the Indenture shall
alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal
of (and premium, if any) and interest on this
Security at the times, place, and rate, and in the
coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this
Security is registrable on the Security Register of
the Company, upon surrender of this Security for
registration of transfer at the office or agency of
the Company maintained for such purpose in The City
of New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory
to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to
the designated transferee or transferees.
The Securities are issuable only in registered form,
without coupons in denominations of $1,000 and any
integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein
set forth, the Securities are exchangeable for a
like aggregate principal amount of Securities of a
different authorized denomination, as requested by
the Holder surrendering the same.
No service charge shall be made for any registration
of transfer or exchange or redemption of Securities,
but the Company may require payment of a sum
sufficient to pay all documentary, stamp or similar
issue or transfer taxes or other governmental
charges payable in connection with registration of
transfer or exchange.
Prior to the time of due presentment of this
Security for registration of transfer, the Company,
the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this
Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue,
and neither the Company, the Guarantor, the Trustee
nor any agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to
them in the Indenture.
Section 2.4. Form of Trustee's Certificate of Authentication.
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the
within-mentioned Indenture.
FLEET NATIONAL BANK
as Trustee
By_______________________
Authorized Signatory
Section 2.5 Form of Parent Guarantee.
GUARANTEE
The undersigned hereby unconditionally guarantees to
the holder of the within Security the due and
punctual payment of the principal of, interest, and
interest on overdue principal and interest, if any,
if lawful, on such Security and all other
Obligations payable by the Company under the
Indenture and such Security, as more fully set forth
in the Indenture.
HOMELAND HOLDING CORPORATION
By_______________________
Attest:
___________________________
Authorized Signatory
ARTICLE III
THE SECURITIES
Section 3.1 Title and Terms.
The aggregate principal amount of Securities
outstanding at any time and which may be
authenticated and delivered under this Indenture is
limited to $60,000,000, except for Securities
authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 3.3, 3.4, 3.5,
3.6, 9.6, 10.15 or 11.8.
The Securities shall be known and designated as the
"10% Senior Subordinated Notes due 2003" of the
Company. Their Stated Maturity shall be August 1,
2003, and they shall bear interest at the rate of
10% per annum from the date of issuance, or the most
recent Interest Payment Date to which interest has
been paid or duly provided for, as the case may be,
payable on February 1, 1997 and semiannually
thereafter on February 1 and August 1 in each year
and at said Stated Maturity, until the principal
thereof is paid or duly provided for.
The principal of (and premium, if any) and interest
on the Securities shall be payable at the office or
agency of the Company maintained for such purpose in
The City of New York, or at such other office or
agency of the Company as may be maintained for such
purpose; provided, however, that, at the option of
the Company, interest may be paid by check mailed to
addresses of the Persons entitled thereto as such
addresses shall appear on the Security Register or
by wire transfer to an account maintained by the
payee in the United States.
The Securities shall be redeemable as provided in Article XI.
The Securities shall be subordinated in right of
payment to Senior Indebtedness as provided in
Article XII.
The Securities shall not be entitled to the benefits of any
sinking fund.
Section 3.2 Denominations.
The Securities shall be issuable only in registered
form without coupons and only in denominations of
$1,000 and any integral multiple thereof.
Section 3.3 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the
Company by any two of the following: its Chairman
of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced
thereon and attested by its Secretary or one of its
Assistant Secretaries. The signature of any of
these officers on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile
signatures of individuals who were at the time of
the placement of their signatures on the Securities
the proper officers of the Company shall bind the
Company, notwithstanding that such individuals or
any of them have ceased to hold such offices prior
to the authentication and delivery of such
Securities or did not hold such offices at the date
of such Securities.
The Trustee shall (upon Company Order) authenticate
and deliver Securities for original issue in an
aggregate principal amount of up to $60,000,000.
At any time and from time to time after the
execution and delivery of this Indenture, the
Company may deliver Securities executed by the
Company to the Trustee for authentication, together
with a Company Order for the authentication and
delivery of such Securities, and the Trustee in
accordance with such Company Order shall
authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under
this Indenture or be valid or obligatory for any
purpose unless there appears on such Security a
certificate of authentication substantially in the
form provided for herein duly executed by the
Trustee by manual signature of one of its duly
authorized signatories, and such certificate upon
any Security shall be conclusive evidence, and the
only evidence, that such Security has been duly
authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company, pursuant to Article VIII, shall
be consolidated or merged with or into any other
Person or shall convey, transfer, lease or otherwise
dispose of substantially all of its properties and
assets to any Person, and the successor Person
resulting from such consolidation, or surviving such
merger, or into which the Company shall have been
merged, or the successor Person which shall have
received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee
pursuant to Article VIII, any of the Securities
authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease
or other disposition may, from time to time, at the
request of the successor Person, be exchanged for
other Securities executed in the name of the
successor Person with such changes in phraseology
and form as may be appropriate, but otherwise in
substance of like tenor as the Securities
surrendered for such exchange and of like principal
amount; and the Trustee, upon Company Order of the
successor Person, shall authenticate and deliver
Securities as specified in such request for the
purpose of such exchange. If Securities shall at
any time be authenticated and delivered in any new
name of a successor Person pursuant to this section
in exchange or substitution for or upon registration
of transfer of any Securities, such successor
Person, at the option of any Holder but without
expense to such Holder, shall provide for the
exchange of all Securities at the time outstanding
held by such Holder for Securities authenticated and
delivered in such new name.
Holding shall execute the Parent Guarantee in the
manner set forth in Section 14.2. Any Subsidiary
which is required to become a Subsidiary Guarantor
pursuant to Section 10.18, shall execute a
Subsidiary Guarantee and a supplemental indenture in
the manner set forth in Section 14.2.
Section 3.4 Temporary Securities.
Pending the preparation of definitive Securities,
the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary
Securities which are printed or otherwise produced,
in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which
they are issued and with such appropriate
insertions, omissions, substitutions and other
variations as the officers executing such Securities
may determine, as conclusively evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will
cause definitive Securities to be prepared without
unreasonable delay. After the preparation of
definitive Securities, the temporary Securities
shall be exchangeable for definitive Securities upon
surrender of the temporary Securities at the office
or agency of the Company designated for such purpose
pursuant to Section 10.2, without charge to the
Holder. Upon surrender for cancellation of any one
or more temporary Securities, the Company shall
execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount
of definitive Securities of authorized
denominations. Until so exchanged, the temporary
Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive
Securities.
Section 3.5 Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate
Trust Office of the Trustee a register (the register
maintained in such office and in any other office or
agency designated pursuant to Section 10.2 being
herein sometimes referred to as the "Security
Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall
provide for the registration of Securities and of
transfers of Securities. Said office or agency is
hereby initially appointed "Security Registrar" for
the purpose of registering Securities and transfers
of Securities as herein provided.
Upon surrender for registration of transfer of any
Security at the office or agency of the Company
designated pursuant to Section 10.2 for such
purpose, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more
new Securities of any authorized denomination or
denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be
exchanged for other Securities of any authorized
denomination or denominations of a like aggregate
principal amount upon surrender of the Securities to
be exchanged at such office or agency. Whenever any
Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the
Holder making the exchange is entitled to receive.
All Securities issued upon any registration of
transfer or exchange of Securities shall be the
valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under
this Indenture, as the Securities surrendered upon
such registration of transfer or exchange.
Every Security presented or surrendered for
registration of transfer, or for exchange or
redemption, shall (if so required by the Company or
the Security Registrar) be duly endorsed, or be
accompanied by a written instrument of transfer in
form reasonably satisfactory to the Company and the
Security Registrar, duly executed by the Holder
thereof or its attorney duly authorized in writing.
No service charge shall be made for any registration
of transfer or exchange or redemption of Securities,
but the Company may require payment of a sum
sufficient to pay all documentary, stamp or similar
issue or transfer taxes or other governmental
charges that may be imposed in connection with any
registration of transfer or exchange of Securities,
other than exchanges pursuant to Section 3.3, 3.4,
3.6, 9.6, 10.15, 10.16 or 11.8 not involving any
transfer.
The Company shall not be required (a) to issue,
register the transfer of or exchange any Security
during a period beginning at the opening of business
(i) 15 days before the mailing of a notice of
redemption of the Securities selected for redemption
under Section 11.4 and ending at the close of
business on the day of such mailing or (ii) 15 days
before an Interest Payment Date and ending on the
close of business on the Interest Payment Date, or
(b) to register the transfer of or exchange any
Security so selected for redemption in whole or in
part, except the unredeemed portion of Securities
being redeemed in part.
Section 3.6 Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the
Trustee, or (b) the Company and the Trustee receive
evidence to their satisfaction of the destruction,
loss or theft of any Security, and there is
delivered to the Company and the Trustee such
security or indemnity as may be required by them to
save each of them and any agent of them harmless,
then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and
upon Company Order the Trustee shall authenticate
and deliver, in exchange for any such mutilated
Security or in lieu of any such destroyed, lost or
stolen Security, a replacement Security of like
tenor and principal amount, and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or
stolen Security has become or is about to become due
and payable, the Company in its discretion may,
instead of issuing a replacement Security, pay all
amounts then due and payable on such Security.
Upon the issuance of any replacement Securities
under this Section, the Company may require the
payment of a sum sufficient to pay all documentary,
stamp or similar issue or transfer taxes or other
governmental charges that may be imposed in relation
thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this
section in lieu of any destroyed, lost or stolen
Security shall constitute a contractual obligation
of the Company, whether or not the destroyed, lost
or stolen Security shall be at any time enforceable
by anyone, and shall be entitled to all benefits of
this Indenture (including any Guarantee) equally and
proportionately, with any and all other Securities
duly issued hereunder.
The provisions of this Section are exclusive and
shall preclude (to the extent lawful) all other
rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen
Securities.
Section 3.7 Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is
punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor
Securities) is registered at the close of business
on the Regular Record Date for such interest at the
office or agency of the Company maintained for such
purpose pursuant to Section 10.2; provided, however,
that each installment of interest may at the
Company_s option be paid by (i) mailing a check for
such interest, payable to or upon the written order
of the person entitled thereto pursuant to Section
3.8, to the address of such person as it appears in
the Security Register or (ii) wire transfer to an
account maintained by the payee located in the
United States.
Any Interest on any Security which is payable, but
is not punctually paid or duly provided for, on any
Interest Payment Date (such defaulted interest
herein called "Defaulted Interest"), shall forthwith
cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such
Holder; and such Defaulted Interest may be paid by
the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of
any Defaulted Interest to the Persons in whose
names the Securities (or their respective
Predecessor Securities) are registered at the
close of business on a Special Record Date for
the payment of the Defaulted Interest, which
shall be fixed in the following manner. The
Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be
paid on each security and the date of the
proposed payment, and at the same time the
Company shall deposit with the Trustee an
amount of money equal to the aggregate amount
proposed to be paid in respect of such
Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such
money when deposited to be held in trust for
the benefit of the Persons entitled to such
Defaulted Interest as in this Subsection
provided. Thereupon, the Trustee shall fix a
Special Record Date for the payment of such
Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the
date of the proposed payment and not less than
10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee
shall promptly notify the Company of such
Special Record Date. In the name and at the
expense of the Company, the Trustee shall cause
notice of the proposed payment of such
Defaulted Interest and the Special Record Date
therefor to be mailed, first class postage
prepaid, to each Holder at its address as it
appears in the Security Register, not less than
10 days prior to such Special Record Date.
Notice of the proposed payment of such
Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose
names the Securities (or their respective
Predecessor Securities) are registered at the
close of business on such Special Record Date
and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any
Defaulted Interest in any other lawful manner
not inconsistent with the requirements of any
securities exchange on which the Securities may
be listed, and upon such notice as may be
required by such exchange, if, after notice
given by the Company to the Trustee of the
proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable
by the Trustee (acting reasonably).
Subject to the foregoing provisions of this
Section, each Security delivered under this
Indenture upon registration of transfer of or
in exchange for or in lieu of any other
Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were
carried by such other Security.
Section 3.8 Persons Deemed Owners.
Prior to the time of due presentment for
registration of transfer, the Company, the
Guarantor, the Trustee and any agent of the Company,
the Guarantor or the Trustee may treat the Person in
whose name any Security is registered as the owner
of such Security for the purpose of receiving
payment of principal of (and premium, if any) and
(subject to Section 3.7) interest on such Security
and for all other purposes whatsoever, whether or
not such Security be overdue, and neither the
Company, the Guarantor the Trustee nor any agent of
the Company, or the Trustee shall be affected by
notice to the contrary.
Section 3.9 Cancellation.
All Securities surrendered for payment, redemption,
registration of transfer or exchange shall, if
surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly
canceled by it. The Company shall deliver to the
Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the
Company may have acquired in any manner whatsoever,
and all Securities so delivered shall be promptly
canceled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any
Securities canceled as provided in this Section.
All canceled Securities held by the Trustee shall be
destroyed and certification of their destruction
delivered to the Company unless by a Company Order
the Company shall direct that canceled Securities be
returned to it.
Section 3.10 Computation of Interest.
Interest on the Securities shall be computed on the
basis of a 360-day year of twelve 30-day months.
Section 3.11 CUSIP Numbers. The Company in issuing
the Securities may use "CUSIP" numbers (if then
generally in use), and if so, the Trustee shall use
CUSIP numbers in notices of redemption or exchange
as a convenience to the Holders of the Securities;
provided that any such notice shall state that no
representation is made as to the correctness or
accuracy of such numbers either as printed on the
Securities or as contained in any notice of
redemption or exchange and that reliance may be
placed only on the other identification numbers
printed on the Securities. The Company will
promptly notify the Trustee of any change in the
CUSIP numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to
be of further effect (except as to surviving rights
of registration of transfer or exchange of
Securities herein expressly provided for) and the
Trustee, on demand of and at the expense of the
Company, shall execute proper instruments
acknowledging satisfaction and discharge of this
Indenture, when
(a) either (i) all Securities theretofore
authenticated and delivered (other than (x)
Securities which have been destroyed, lost or
stolen and which have been replaced or paid as
provided in Section 3.6 and (y) Securities for
whose payment money has theretofore been
deposited in trust or segregated and held in
trust by the Company and thereafter repaid to
the Company or discharged from such trust, as
provided in Section 10.3) have been delivered
to the Trustee for cancellation; or (ii) all
such Securities not theretofore delivered
(except lost, stolen or destroyed Securities
which have been replaced or repaid) to the
Trustee for cancellation (1) have become due
and payable, or (2) will become due and payable
at their Stated Maturity within one year, or
(3) are to be called for redemption within one
year under arrangements satisfactory to the
Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense,
of the Company and the Company, in the case of
(1), (2) or (3) above, has irrevocably
deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose
an amount sufficient to pay and discharge the
entire indebtedness on such Securities (except
lost, stolen or destroyed Securities which have
been replaced or repaid) not theretofore
delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to
the date of such deposit (in the case of
Securities which have become due and payable)
or to the Stated Maturity or Redemption Date,
as the case may be;
(b) the Company has paid or caused to be paid
all other sums payable hereunder by the
Company;
(c) the Company has delivered to the Trustee
an Officers' Certificate and an Opinion of
Counsel each stating that all conditions
precedent herein provided for relating to the
satisfaction and discharge of this Indenture
have been complied with. Notwithstanding the
satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee
under Section 6.6 shall survive.
Section 4.2 Application of Trust Money.
Subject to the provisions of the last paragraph of
Section 10.3, all money deposited with the Trustee
pursuant to Section 4.1 shall be held in trust and
applied by it, in accordance with the provisions of
the Securities and this Indenture, to the payment,
either directly or through any Paying Agent
(including the Company acting as its own Paying
Agent) as the Trustee may determine, to the persons
entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has
been deposited with the Trustee; but such money need
not be segregated from other funds except to the
extent required by law.
ARTICLE V
REMEDIES
Section 5.1 Events of Default.
An "Event of Default" occurs if:
(a) the Company defaults in the payment of
interest on any Security when the same becomes
due and payable and such default continues for
a period of 30 days, whether or not such
payment shall be prohibited by the provisions
of Article XII; or
(b) the Company defaults in the payment of the
principal of (or premium, if any, on) any
Security at its Maturity, whether or not such
payment shall be prohibited by the provisions
of Article XII; or
(c) the Company defaults in the performance
of, or breaches, any covenant or warranty of
the Company hereunder (other than a default
specified in Section 5.1(a), (b) or (h)), and
continuance of such default or breach for a
period of 30 days after a written notice
specifying such default or breach and stating
that such notice is a "Notice of Default"
hereunder has been given, by registered or
certified mail, to (x) the Company by the
Trustee or (y) to the Company and the Trustee
by the Holders of at least 25% in principal
amount of the Outstanding Securities; or
(d) an event of default as defined in any
mortgage, bond, indenture, loan agreement or
other evidence of Indebtedness under which the
Company or any Subsidiary then has outstanding
Indebtedness in excess of $5 million in the
aggregate, shall occur and such default (i) is
caused by a failure to pay principal of or
premium, if any, or interest on such
Indebtedness within the applicable grace
period, if any, of such Indebtedness or (ii)
results in such Indebtedness becoming or being
declared due and payable prior to the date on
which it would otherwise become due and payable
(if not already matured at its final maturity
in accordance with its terms); or
(e) final judgments or orders are rendered
against the Company, the Guarantor or any
Subsidiary which require the payment in money,
either individually or in an aggregate amount,
that is more than $5 million and such judgment
or order shall not have been discharged or
fully bonded, and there shall have been a
period of 60 days after the date on which any
period for appeal has expired and during which
a stay of enforcement of such judgment, order
or decree shall not be in effect; or
(f) a decree or order is entered by a court
having jurisdiction in the premises (i) for
relief in respect of the Company, the Guarantor
or any Subsidiary in an involuntary case or
proceeding under the Federal Bankruptcy Code or
any other federal or state bankruptcy,
insolvency, reorganization or similar law or
(ii) adjudging the Company, the Guarantor or
any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking
reorganization, arrangement, adjustment or
composition of or in respect of the Company,
the Guarantor or any Subsidiary under the
Federal Bankruptcy Code or any other applicable
federal or state law, or appointing a
custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar
official) of the Company, the Guarantor or any
Subsidiary or of any substantial part of any of
their properties, or ordering the winding up or
liquidation of any of their affairs, and any
such decree or order remains unstayed and in
effect for a period of 60 consecutive days; or
(g) the Company, the Guarantor or any
Subsidiary (i) institutes a voluntary case or
proceeding under the Federal Bankruptcy Code or
any other applicable federal or state law or
any other case or proceedings to be adjudicated
a bankrupt or insolvent, (ii) consents to the
entry of a decree or order for relief in
respect of the Company, the Guarantor or any
Subsidiary in any involuntary case or
proceeding under the Federal Bankruptcy Code or
any other applicable federal or state law or to
the institution of bankruptcy or insolvency
proceedings against the Company, the Guarantor
or any Subsidiary, (iii) files a petition or
answer or consent seeking reorganization or
relief under the Federal Bankruptcy Code or any
other applicable federal or state law, (iv)
consents to the filing of any such petition or
to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar
official) of any of the Company, the Guarantor
or any Subsidiary or of any substantial part of
its property, (v) makes an assignment for the
benefit of creditors, or (vi) admits in writing
its inability to pay its debts generally as
they become due or takes corporate action in
furtherance of any such action; or
(h) there is a default in the performance or
breach of any of the provisions of Article
VIII.
Section 5.2 Acceleration of Maturity; Rescission.
If an Event of Default (other than an Event of
Default specified in Section 5.1(f) or 5.1(g))
occurs and is continuing, the Trustee or the Holders
of at least 25% of the principal amount of the
Securities then Outstanding, by written notice to
the Company (and to the Trustee if such notice is
given by the Holders), may, and the Trustee at the
request of such Holders shall, declare all unpaid
principal of, premium, if any, and accrued interest
on all the Securities to be due and payable
immediately, and upon any such declaration such
principal, premium and accrued interest shall become
immediately due and payable. If an Event of Default
specified in Section 5.1(f) or 5.1(g) occurs and is
continuing, then the principal of, premium, if any,
on and accrued and unpaid interest, if any, on all
of the Outstanding Securities and all other amounts
owing hereunder shall ipso facto become and be
immediately due and payable without any declaration
or other act on the part of the Trustee or any
Holder.
At any time after a declaration of acceleration has
been made, but before a judgment or decree for
payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate
principal amount of the Securities Outstanding, by
written notice to the Company and the Trustee, may
rescind and annul such declaration and its
consequences if (a) the Company has paid or
deposited with the Trustee a sum sufficient to pay
(i) all sums paid or advanced by the Trustee under
this Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest on
all Securities, (iii) all unpaid principal of and
premium, if any, on any Outstanding Securities which
have become due otherwise than by such declaration
of acceleration and interest thereon at the Default
Rate, and (iv) to the extent that payment of such
interest is lawful, interest upon overdue interest
at the rate provided in the Securities; (b) all
Events of Default, other than the non-payment of
principal of the Securities which have become due
solely by the declaration of acceleration, have been
cured or waived; and c the rescission would not
conflict with any judgment or decree of a court of
competent jurisdiction.
Notwithstanding the preceding paragraph, in the
event of a declaration of acceleration in respect of
the Securities because of an Event of Default
specified in Section 5.1(d) shall have occurred and
be continuing, such declaration of acceleration
shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has
been discharged or the holders thereof have
rescinded their declaration of acceleration in
respect of such Indebtedness, and written notice of
such discharge or rescission, as the case may be,
shall have been given to the Trustee by the Company
and countersigned by the holders of such
Indebtedness or a trustee, fiduciary or agent for
such holders, within 30 days after such declaration
of acceleration in respect of the Securities, and no
other Event of Default has occurred during such 30-
day period which has not been cured or waived during
such period.
Section 5.3 Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if
(a) default is made in the payment of any
interest on any Security when such interest
becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the
principal of (or premium, if any, on) any
Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to
the Trustee, for the benefit of the Holders of such
Securities, the whole amount then due and payable on
such Securities for principal (and premium, if any)
and interest, with interest upon the overdue
principal (and premium, if any) and, to the extent
that payment of such interest shall be legally
enforceable, upon overdue installments of interest,
at the Default Rate; and, in addition thereto, such
further amount as shall be sufficient to cover the
costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith
upon such demand, the Trustee, in its own name and
as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums
so due and unpaid, may prosecute such proceeding to
judgment or final decree and may enforce the same
against the Company or any other obligor upon the
Securities and collect the moneys adjudged or
decreed to be payable in the manner provided by law
out of the property of the Company or any other
obligor upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the
Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders
under this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual
to protect and enforce such rights.
Section 5.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership,
insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any
other obligor upon the Securities or the property of
the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the
principal of the Securities shall then be due and
payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the
payment of overdue principal, premium, if any, or
interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole
amount of principal (and premium, if any) and
interest owing and unpaid in respect of the
Securities and to file such other papers or
documents as may be necessary or advisable in
order to have the claims of the Trustee
(including any claim for the reasonable
compensation, expenses, disbursements and
advances of the Trustee, its agents and
counsel) and of the Holders allowed in such
judicial proceeding, and
(b) to collect and receive any moneys or other
property payable or deliverable on any such
claims and to distribute the same; and any
custodian, receiver, assignee, trustee,
liquidator, sequestrator or similar official in
any such judicial proceeding is hereby
authorized by each Holder to make such payments
to the Trustee and, in the event that the
Trustee shall consent to the making of such
payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable
compensation, expenses, disbursements and
advances of the Trustee, its agents and
counsel, and any other amounts due the Trustee
under Section 6.6.
Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any
proposal, plan of reorganization, arrangement,
adjustment or composition or other similar
arrangement affecting the Securities or the rights
of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Holder in any
such proceeding.
Section 5.5 Trustee May Enforce Claims Without
Possession of Securities.
All rights of action and claims under this Indenture
or the Securities may be prosecuted and enforced by
the Trustee without the possession of any of the
Securities or the production thereof in any
proceeding relating thereto, and any such proceeding
instituted by the Trustee shall be brought in its
own name and as trustee of an express trust, and any
recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its
agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which
such judgment has been recovered.
Section 5.6 Application of Money Collected.
Subject to Article XII, any money collected by the
Trustee pursuant to this Article shall be applied in
the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any)
or interest, upon presentation of the Securities and
the notation thereon of the payment, if only
partially paid, and upon surrender thereof, if fully
paid:
FIRST: to the payment of all amounts due the
Trustee under Section 6.6;
SECOND: to the payment of the amounts then due and
unpaid for principal (and premium, if any) and
interest on the Securities, in respect of which or
for the benefit of which such money has been
collected, ratably, without preference or priority
of any kind, according to the amounts due and
payable on such Securities for principal (and
premium, if any) and interest;
THIRD: to the payment of any other Obligations
owing to the Holders; and
FOURTH: the balance, if any, to the Company or any
obligors on the Securities, as their interests may
appear or as a court of competent jurisdiction may
direct.
Section 5.7 Limitation on Suits.
No Holder of any Securities shall have any right to
institute any proceeding, judicial or otherwise,
with respect to this Indenture or the Securities, or
for the appointment of a receiver or trustee, or for
any other remedy hereunder, unless
(a) such Holder has previously given written
notice to the Trustee of a continuing Event of
Default;
(b) the Holders of not less than 25% in
principal amount of the Outstanding Securities
shall have made written request to the Trustee
to institute proceedings in respect of such
Event of Default in its own name as Trustee
hereunder;
(c) such Holder or Holders have offered to the
Trustee reasonable indemnity against the costs,
expenses and liabilities to be Incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt
of such notice, request and offer of indemnity
has failed to institute any such proceeding;
and
(e) no direction inconsistent with such
written request has been given to the Trustee
during such 60-day period by the Holders of a
majority in principal amount of the Outstanding
Securities;
it being understood and intended that no one or more
Holders shall have any right in any manner whatever
by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek
to obtain priority or preference over any other
Holders or to enforce any right under this Indenture
except in the manner provided in this Indenture and
for the equal and ratable benefit of all the
Holders.
Section 5.8 Unconditional Right of Holders to
Receive Principal, Premium and Interest.
Notwithstanding any other provision in this
Indenture, the Holder of any Security shall have the
right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if
any, on) and (subject to Section 3.7) interest on
such Security on the respective Stated Maturities
expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to institute
suit for the enforcement of any such payment, and
such rights shall not be impaired without the
consent of such Holder.
Section 5.9 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any
proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and
in every such case the Company, the Guarantor, the
Trustee and the Holders shall, subject to any
determination in such proceeding, be restored
severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of
the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
Section 5.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the
replacement or payment of mutilated, destroyed, lost
or stolen Securities in the last paragraph of
Section 3.6, no right or remedy herein conferred
upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in
addition to every other right and remedy given
hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of
any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment
of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder
of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by
law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders,
as the case may be.
Section 5.12 Control by Holders.
The Holders of a majority in principal amount of the
Outstanding Securities shall have the right to
direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the
Trustee; provided that
(a) such direction shall not be in conflict
with any rule of law or with this Indenture or
expose the Trustee to personal liability, and
(b) subject to the provisions of Trust
Indenture Act Section 315, the Trustee may take
any other action deemed proper by the Trustee
which is not inconsistent with such direction.
Section 5.13 Waiver of Past Defaults.
The Holders of not less than a majority in principal
amount of the Outstanding Securities may on behalf
of the Holders of all the Securities waive any past
Default or Event of Default hereunder and its
consequences, except a Default or Event of Default
(a) in respect of the payment of the principal
of (or premium, if any, on) or interest on any
Security at its Maturity, or
(b) in respect of a covenant or provision
hereof which under Article IX cannot be
modified or amended without the consent of the
Holder of each Outstanding Security affected
thereby.
Upon any such waiver, such Default shall cease to
exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair
any right consequent thereon.
Section 5.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder
of any Security by its acceptance thereof shall be
deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement
of any right or remedy under this Indenture, or in
any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by
any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made
by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Holder,
or group of Holders, holding in the aggregate more
than 10% in principal amount of the Outstanding
Securities, or to any suit instituted by any Holder
for the enforcement of the payment of the principal
of (or premium, if any, on) or interest on any
Security on or after the respective Stated
Maturities expressed in such Security (or, in the
case of redemption, on or after the Redemption
Date).
Section 5.15 Waiver of Stay or Extension.
The Company and any Guarantor covenant (to the
extent that they may lawfully do so) that they will
not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or
advantage of, any stay or extension wherever
enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of
this Indenture or any Guarantee; and the Company and
any Guarantor (to the extent that they may lawfully
do so) hereby expressly waive all benefit or
advantage of any such law, and covenant that they
will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will
suffer and permit the execution of every such power
as though no such law had been enacted.
Section 5.16 Event of Default from Willful Action.
In the case of any Event of Default occurring by
reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that
the Company would have had to pay if the Company
then had elected to redeem the Securities pursuant
to Section 11.1, a premium equal to the premium that
would have been payable had the Securities been
redeemed on the date of the occurrence of the Event
of Default shall also become and be immediately due
and payable to the extent permitted by law.
The Trustee will have no responsibility for making,
or obligation to make, any determination that any
such Event of Default has occurred by reason of any
willful action (or inaction) taken (or not taken) by
or on behalf of the Company pursuant to this Section
5.16. If such premium is payable hereunder, the
Company will provide the Trustee with an Officers_
Certificate setting forth the date such premium is
required to be paid at least 45 days prior to such
payment date.
ARTICLE VI
THE TRUSTEE
Section 6.1 Notice of Defaults.
Within 30 days after the occurrence of any Default
that is known to the Trustee, the Trustee shall
transmit by mail to all Holders, as their names and
addresses appear in the Security Register, notice of
such Default, unless such default shall have been
cured or waived; provided, however, that, except in
the case of a default in the payment of the
principal of (or premium, if any) or interest on any
Security, the Trustee shall be protected in
withholding such notice if and so long as the board
of directors, the executive committee or a trust
committee of directors and/or Responsible Officers
of the Trustee in good faith determines that the
withholding of such notice is in the interest of the
Holders.
Section 6.2 Certain Rights of Trustee.
Subject to the provisions of Trust Indenture Act
Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be
protected in acting or refraining from acting
upon any resolution, certificate, statement,
instrument. opinion, report, notice, request,
direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other
paper or document believed by it to be genuine
and to have been signed or presented by the
proper party or parties;
(b) any request or direction of the Company
mentioned herein shall be sufficiently
evidenced by a Company Request or Company Order
and any resolution of the Board of Directors of
the Company may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this
Indenture the Trustee shall deem it desirable
that a matter be proved or established prior to
taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an
Officers' Certificate;
(d) the Trustee may consult with counsel and
the written advice of such counsel or any
Opinion of Counsel shall be full and complete
authorization and protection in respect of any
action taken, suffered or omitted by it
hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation
to exercise any of the rights or powers vested
in it by this Indenture at the request or
direction of any of the Holders pursuant to
this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or
indemnity against the costs, expenses and
liabilities which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated
in any resolution, certificate, statement,
instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other
paper or document, but the Trustee, in its
discretion, may make such further inquiry or
investigation into such facts or matters as it
may see fit, and, if the Trustee shall
determine to make such further inquiry or
investigation, it shall be entitled to examine
the books, records and premises of the Company
or the Guarantor, personally or by agent or
attorney;
(g) the Trustee may execute any of the trusts
or powers hereunder or perform any duties
hereunder either directly or by or through
agents or attorneys and the Trustee shall not
be responsible for any misconduct or negligence
on the part of any agent or attorney appointed
with due care by it hereunder;
(h) no provision of this Indenture shall
require the Trustee to expend or risk its own
funds or otherwise incur any financial
liability in the performance of any of its
duties hereunder, or in the exercise of any of
its rights or powers, if it shall have
reasonable grounds for believing that repayment
of such funds or adequate indemnity against
such risk or liability is not reasonably
assured to it; and
(i) the Trustee shall not be liable for any
action it takes or omits to take in good faith
which it believes to be authorized or within
the rights or powers conferred upon it by this
Indenture.
Section 6.3 Not Responsible for Recitals or Issuance
of Securities.
The recitals contained herein and in the Securities,
except the Trustee's certificates of authentication,
shall be taken as the statements of the Company, and
the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations
as to the validity or sufficiency of this Indenture
or of the Securities. The Trustee shall not be
accountable for the use or application by the
Company of Securities or the proceeds thereof,
except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture,
authenticate the Securities and perform its
obligations hereunder and that the statements made
by it in a Statement of Eligibility and
Qualification on Form T-1 supplied to the Company
are true and accurate, subject to the qualifications
set forth therein.
Section 6.4 May Hold Securities.
The Trustee and any Paying Agent, Security Registrar
or other agent of the Company, in its individual or
any other capacity, may become the owner or pledgee
of Securities and, subject to Trust Indenture Act
Sections 310(b) and 311, may otherwise deal with the
Company with the same rights it would have if it
were not Trustee, Paying Agent, Security Registrar
or such other agent.
Section 6.5 Money Held in Trust.
Money held by the Trustee in trust hereunder need
not be segregated from other funds except to the
extent required by law. The Trustee shall be under
no liability for interest on any money received by
it hereunder except as otherwise agreed with the
Company.
Section 6.6 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee from time to time
reasonable compensation for all services
rendered by it hereunder (which compensation
shall not be limited by any provision of law in
regard to the compensation of a trustee of an
express trust);
(b) except as otherwise expressly provided
herein, to reimburse the Trustee upon its
request for all reasonable expenses,
disbursements and advances incurred or made by
the Trustee in accordance with any provision of
this Indenture (including the reasonable
compensation and the expenses and disbursements
of its agents and counsel), except any such
expense, disbursement or advance as may be
attributable to its negligence or bad faith;
and
(c) to indemnify the Trustee for, and to hold
it harmless against, any loss, liability or
expense incurred without negligence or bad
faith on its part, arising out of or in
connection with the acceptance or
administration of this trust, including the
costs and expenses of defending itself against
any claim or liability in connection with the
exercise or performance of any of its powers or
duties hereunder.
As security for the performance of the obligations
of the Company under this Section, the Trustee shall
have a claim prior to the Securities upon all
property and funds held or collected by the Trustee
as such, except funds held in trust for the benefit
of Holders of particular Securities.
If the Trustee incurs expenses or renders services
after the occurrence of an Event of Default
specified in Section 5.1(f) or (g), the expenses and
compensation for such services are intended to
constitute expenses of administration under the
Federal Bankruptcy Code or any similar federal or
state law for the relief of debtors.
Section 6.7 Conflicting Interests.
The Trustee shall comply with the provisions of
Section 3.10(b) of the Trust Indenture Act.
Section 6.8 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder
which shall be eligible to act as Trustee under
Trust Indenture Act Section 310(a)(1) and which
shall have a combined capital and surplus of at
least $25,000,000 and have its Corporate Trust
Office located in The City of New York (or if its
Corporate Trust Office shall not be located in The
City of New York, which shall maintain an office or
agency in The City of New York where the Securities
may be presented or surrendered and notices and
demands hereunder may be made or served) to the
extent there is such an institution eligible and
willing to serve. If such corporation publishes
reports of condition at least annually pursuant to
law or to the requirements of federal, state,
territorial or District of Columbia supervising or
examining authority, then, for the purposes of this
Section, the combined capital and surplus of such
corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent
report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign
immediately in the manner and with the effect
hereinafter specified in this Article VI.
Section 6.9 Resignation and Removal; Appointment
of Successor.
(a) No resignation or removal of the Trustee
and no appointment of a successor Trustee
pursuant to this Article shall become effective
until the acceptance of appointment by the
successor Trustee under Section 6.10.
(b) The Trustee may resign at any time by
giving written notice thereof to the Company.
If an instrument of acceptance by a successor
Trustee shall not have been delivered to the
Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee
may petition any court of competent
jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by
an Act of the Holders of a majority in
principal amount of the Outstanding Securities,
delivered to the Trustee and the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the
provisions of Trust Indenture Act Section
310(b) after written request therefor by the
Company or by any Holder who has been a bona
fide Holder of a Security for at least six
months, or
(2) the Trustee shall cease to be eligible under
Section 6.8 and shall fail to resign after
written request therefor by the Company or by
any Holder who has been a bona fide Holder of
a Security for at least six months, or
(3) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent,
or a receiver of the Trustee or of its
property shall be appointed or any public officer
shall take charge or control of the Trustee or of
its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then in any case, (i) the Company by a Board
Resolution may remove the Trustee, or (ii) subject
to Section 5.14, the Holder of any Security who has
been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others
similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or
become incapable of acting, or if a vacancy
shall occur in the office of Trustee for any
cause, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee.
If, within one year after such resignation,
removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority
in principal amount of the Outstanding
Securities delivered to the Company and the
retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance
of such appointment in accordance with Section
6.10, become the successor Trustee and
supersede the successor Trustee appointed by
the Company. If no successor Trustee shall
have been so appointed by the Company or the
Holders of the Securities and so accepted
appointment, the Holder of any Security who has
been a bona fide Holder for at least six months
may on behalf of himself and all others
similarly situated, petition any court of
competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each
resignation and each removal of the Trustee and
each appointment of a successor Trustee by
mailing written notice of such event by first
class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear
in the Security Register. Each notice shall
include the name of the successor Trustee and
the address of its Corporate Trust Office.
Section 6.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall
execute, acknowledge and deliver to the Company and
to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or
removal of the retiring Trustee shall become
effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of
the retiring Trustee; provided, however, that the
retiring Trustee shall continue to be entitled to
the benefit of Section 6.6c. On request of the
Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute
and deliver an instrument transferring to such
successor Trustee all such rights, powers and trusts
of the retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee
hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all
Instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment
unless at the time of such acceptance such successor
Trustee shall be qualified and eligible under this
Article VI.
Section 6.11 Merger, Conversion, Consolidation
or Succession to Business.
Any corporation into which the Trustee may be merged
or converted or with which it may be consolidated,
or any corporation resulting from any merger,
conversion or consolidation to which the Trustee
shall be a party, or any corporation succeeding to
all or substantially all of the corporate trust
business of the Trustee, shall be the successor of
the Trustee hereunder, provided such corporation
shall be otherwise qualified and eligible under this
Article, without the execution or filing of any
paper or any further act on the part of any of the
parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the
Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver
the Securities so authenticated with the same effect
as if such successor Trustee had itself
authenticated such Securities.
Section 6.12 Preferential Collection of Claims
Against Company.
If and when the Trustee shall be or become a
creditor of the Company (or any other obligor under
the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the
collection of claims against the Company (or any
such other obligor).
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY
TRUSTEE AND COMPANY
Section 7.1 Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding
the same, agrees with the Company and the Trustee
that neither the Company nor the Trustee or any
agent of either of them shall be held accountable by
reason of the disclosure of any information as to
the names and addresses of the Holders in accordance
with Trust Indenture Act Section 312, regardless of
the source from which such information was derived,
and that the Trustee shall not be held accountable
by reason of mailing any material pursuant to a
request made under Trust Indenture Act Section 312.
Section 7.2 Reports by Trustee.
Within 60 days after May 15 of each year commencing
with the first May 15 after the first issuance of
Securities, the Trustee shall transmit by mail to
all Holders, as their names and addresses appear in
the Security Register, as provided in Trust
Indenture Act Section 313c, a brief report dated as
of such May 15 if required by Trust Indenture Act
Section 313(a).
A copy of each report at the time of its mailing to
the Holders shall be mailed to the Company and filed
with the SEC and each securities exchange, if any,
on which the Securities are listed. The Company
shall notify the Trustee in writing when the
Securities are listed on any securities exchange.
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
Section 8.1 Company May Consolidate, etc., Only
on Certain Terms.
The Company shall not consolidate with or merge with
or into any other Person or sell, assign, convey,
transfer, lease or otherwise dispose of all or
substantially all of its properties and assets
substantially as an entirety to any Person or group
of affiliated Persons, whether in one transaction or
a series of related transactions, unless at the time
and after giving effect thereto:
(i) either (a) the Company shall be the continuing
or surviving corporation or (b) the Person (if
other than the Company) formed by such
consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or
disposition shall have been made (the
"Surviving Entity"), is a corporation duly
organized and validly existing under the laws
of the United States of America, any state
thereof or the District of Columbia and shall,
in either case, expressly assume by
supplemental indenture hereto, executed and
delivered to the Trustee, in form satisfactory
to the Trustee, all the Obligations of the
Company under the Securities and this
Indenture;
(ii) immediately prior to such transaction, and
immediately after giving effect to such
transaction, no Default or Event of Default
exists;
(iii) immediately after giving effect to such
transaction on a pro forma basis, the
Consolidated Net Worth (prior to any purchase
accounting adjustments resulting from the
transaction) of the Company (or the Surviving
Entity if the Company is not the continuing
obligor under this Indenture) is equal to or
greater than the Consolidated Net Worth of the
Company immediately prior to such transaction;
(iv) immediately after giving effect to such
transaction on a pro forma basis, the
Consolidated Interest Coverage Ratio of the
Company (or the Surviving Entity if the Company
is not the continuing obligor under this
Indenture), for the Company's (or the Surviving
Entity's, as the case may be) four most
recently completed full fiscal quarters is at
least 2.0 to 1.0; and
(v) the Company has delivered to the Trustee, in
form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate and an
Opinion of Counsel, each stating that such
consolidation, merger or sale, assignment,
transfer, lease, conveyance or disposition and
such supplemental indenture, if one is required
by this Section 8.1, comply with this Section
8.1 and that all conditions precedent herein
provided for relating to such transaction have
been complied with (and, in the case of the
Officers' Certificate, setting forth in
reasonable detail the calculations used in
determining compliance with the foregoing
provisions); provided that a Wholly Owned
Subsidiary may consolidate with, or merge with
or into, or convey, transfer or lease all or
substantially all of its assets to the Company
or another Wholly Owned Subsidiary.
Section 8.2 Successor Substituted.
Upon any consolidation or merger or any sale,
assignment, transfer, lease or conveyance or other
disposition of all or substantially all of the
assets of the Company in accordance with Section
8.1, the successor Person formed by such
consolidation or into which the Company is merged or
to which such sale, assignment, transfer, lease,
conveyance or other disposition is made shall
succeed to, and be substituted for, and may exercise
every right and power of, the Company under this
Indenture with the same effect as if such successor
Person had been named as the Company herein. When a
successor assumes all the obligations of its
predecessor under this Indenture and the Securities,
the predecessor (including the Guarantor) will be
released from those obligations; provided that in
the case of a transfer by lease, the predecessor
corporation shall not be released from the payment
of principal (and premium, if any) and interest on
the Securities.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures Without
Consent of Holders.
Without the consent of any Holders, the Company,
when authorized by a Board Resolution, and the
Trustee, at any time and from time to time, may
enter into one or more indentures supplemental
hereto in form satisfactory to the Trustee, for any
of the following purposes:
(a) to evidence the succession of another
Person to the Company and the assumption by any
such successor of the covenants of the Company
herein and in the Securities;
(b) to add to the covenants of the Company for
the benefit of the Holders, or to surrender any
right or power herein or in the Securities
conferred upon the Company;
(c) to add any additional Events of Defaults;
(d) to evidence and provide for the acceptance
of appointment hereunder by a successor Trustee
pursuant to the requirements of Section 6.10;
(e) to cure any ambiguity, to correct or
supplement any provision herein which may be
defective or inconsistent with any other
provision herein; provided that, in each case,
such provisions shall not adversely affect the
interests of the Holders in any material
respect;
(f) to add any Subsidiary as a Guarantor
pursuant to the terms of Article XIV;
(g) to secure the Securities;
(h) to make any other change that does not
adversely affect the rights of any Holder; or
(i) to comply with any requirements of the
Commission to maintain the qualification of the
Indenture under the Trust Indenture Act.
After an amendment or supplement under this Section
9.1 becomes effective, the Company shall mail to the
Holders a notice briefly describing the amendment or
supplement.
Section 9.2 Supplemental Indentures with Consent of
Holders; Payments for Consents.
With the consent of the Holders of not less than a
majority in principal amount of the Outstanding
Securities, by Act of such Holders delivered to the
Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee
may enter into one or more indentures supplemental
hereto for the purpose of adding any provisions to
or changing in any manner or eliminating any of the
provisions of this Indenture or of waiving or
modifying in any manner the rights of the Holders
under this Indenture; provided, however, that no
such supplemental indenture, amendment or waiver
shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(a) change the Stated Maturity of the
principal of, or any installment of interest
on, any Security or reduce the principal amount
thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or
change the coin or currency in which the
principal of any Security or any premium or the
interest thereon is payable, or impair the
right to institute suit for the enforcement of
any such payment after the Stated Maturity
thereof (or, in the case of redemption, on or
after the Redemption Date) or modify the
obligation of the Company to purchase
Securities upon a Change of Control Triggering
Event; or
(b) reduce the percentage in principal amount
of the Outstanding Securities, the consent of
whose Holders is required for any such
supplemental indenture or the consent of whose
Holders is required for any waiver of
compliance with certain provisions of this
Indenture or certain defaults hereunder and
their consequences provided for in this
Indenture; or
(c) modify any of the provisions of this
Section or Section 5.13, except to increase any
such percentage or to provide that certain
other provisions of this Indenture cannot be
modified or waived without the consent of the
Holder of each Security affected thereby; or
(d) modify any of the provisions of Article
XII in a manner adverse to the Holders of the
Securities.
Neither the Company nor any of its Subsidiaries
shall, directly or indirectly, pay or cause to be
paid, any consideration, whether by way of interest,
fee or otherwise, to any Holder of any Security for
or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this
Indenture or the Securities, unless such
consideration is offered to be paid or agreed to be
paid to all Holders of the Securities which so
consent, waive or agree to amend in the time frame
set forth in solicitation documents relating to such
consent, waiver or agreement.
It shall not be necessary for any Act of Holders
under this Section to approve the particular form of
any proposed supplemental indenture, but it shall be
sufficient if such Act shall approve the substance
thereof.
Notwithstanding the foregoing, no such supplemental
indenture, amendment or waiver shall without the
consent of all holders of the Senior Indebtedness or
Guarantor Senior Indebtedness, as the case may be,
amend or modify any of the provisions of Article XII
or Sections 14.6 through 14.12 in a manner adverse
to the holder of such Senior Indebtedness or
Guarantor Senior Indebtedness, as the case may be.
Section 9.3 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts
created by, any supplemental indenture permitted by
this Article or the modifications thereby of the
trusts created by this Indenture, the Trustee shall
be entitled to receive, and (subject to Trust
Indenture Act Section 315(a) through 315(d) and
Section 6.2 hereof) shall be fully protected in
relying upon, an Opinion of Counsel stating that the
execution of such supplemental indenture is
authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter
into any such supplemental indenture which affects
the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture
under this Article, this Indenture shall be modified
in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for
all purposes; and every Holder of Securities
theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
Section 9.5 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to
this Article shall conform to the requirements of
the Trust Indenture Act as then in effect.
Section 9.6 Reference in Securities to Supplemental
Indentures.
Securities authenticated and delivered after the
execution of any supplemental indenture pursuant to
this Article may, and shall if required by the
Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so
determine, new securities so modified as to conform,
in the opinion of the Trustee and the Company, to
any such supplemental indenture may be prepared and
executed by the Company and authenticated and
delivered by the Trustee in exchange for Outstanding
Securities.
Section 9.7 Effect on Senior Indebtedness.
No supplemental indenture shall adversely affect the
rights of the holders of Senior Indebtedness under
Article XII unless the requisite holders of each
issue of Senior Indebtedness affected thereby shall
have consented to such supplemental indenture.
ARTICLE X
COVENANTS
Section 10.1 Payment of Principal, Premium and
Interest.
The Company will duly and punctually pay the
principal of (and premium, if any), and interest on
the Securities in accordance with the terms of the
Securities and this Indenture.
An installment of principal (including any
redemption or repurchase of Securities pursuant to
Section 10.15, Section 10.16 or Article XI) or
interest shall be considered paid on the date it is
due if the Paying Agent (other than the Company, any
Guarantor, any Subsidiary of the Company or any of
their Affiliates), holds on that date money
deposited by the Company in available funds and
designated for and sufficient to pay all principal
(and premium, if any) and interest then due.
The Company shall pay interest (including post-
petition interest in any proceeding under any
federal or state bankruptcy law, whether or not
permitted thereby) on overdue principal at the
Default Rate; it shall pay interest (including post-
petition interest in any proceeding under any
federal or state bankruptcy law to the full extent
permitted thereby) on overdue installments of
interest at the Default Rate to the extent legally
permitted.
Section 10.2 Maintenance of Office or Agency.
The Company will maintain, in The City of New York,
an office or agency where Securities may be
presented or surrendered for payment, where
Securities may be surrendered for registration of
transfer or exchange and where notices and demands
to or upon the Company in respect of the Securities
and this Indenture may be served. If the Corporate
Trust Office is located in New York City, then it
shall be such office or agency of the Company,
unless the Company shall designate and maintain some
other office or agency for one or more of such
purposes. The Company will give prompt written
notice to the Trustee of any change in the location
of any such office or agency. If at any time the
Company shall fail to maintain any such required
office or agency or shall fail to furnish the
Trustee with the address thereof, such
presentations, surrenders, notices and demands may
be made or served at the Corporate Trust Office, and
the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one
or more other offices or agencies (in or outside of
The City of New York) where the Securities may be
presented or surrendered for any or all such
purposes, and may from time to time rescind such
designation; provided, however, that no such
designation or rescission shall in any manner
relieve the Company of its obligation to maintain an
office or agency in The City of New York for such
purposes. The Company will give prompt written
notice to the Trustee of any such designation or
rescission and any change in the location of any
such other office or agency.
Section 10.3 Money for Security Payments to Be
Held in Trust.
If the Company shall at any time act as its own
Paying Agent, it will, on or before each due date of
the principal of (and premium, if any) or interest
on any of the Securities, segregate and hold in
trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until
such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly
notify the Trustee of its action or failure so to
act; provided that (a) with respect to any such
sums, such trust shall arise and be enforceable only
on and after the date on which payment is due with
regard to such sums, and only to the extent payment
is then due, and (b) nothing in this Section 10.3
shall prevent the payment of sums that have been
deposited in trust with the Trustee in accordance
with Article XIII hereof.
Whenever the Company shall have one or more Paying
Agents for the Securities, it will, at or before
11:00 a.m. on each due date of the principal of (and
premium, if any, on) or interest on any Securities,
deposit with a Paying Agent a sum in same day funds
(or New York Clearing House funds if such deposit is
made prior to the date on which such deposit is
required to be mailed) sufficient to pay the
principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal,
premium or interest and (unless such Paying Agent is
the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than
the Trustee) to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(a) hold all sums held by it for the payment
of the principal of (and premium, if any, on)
or interest on Securities in trust for the
benefit of the Persons entitled thereto until
such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by
the Company (or any other obligor upon the
Securities) in the making of any payment of
principal (and premium, if any) or interest;
and
(c) at any time during the continuance of any
such Default, upon the written request of the
Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent.
The Company may at any time, for the purpose of
obtaining the satisfaction and discharge of
this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to
pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to
be held by the Trustee upon the same trusts as
those upon which such sums were held by the
Company or such Paying Agent; and, upon such
payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all
further liability with respect to such money.
Any money deposited with the Trustee or any
Paying Agent, or then held by the Company, in
trust for the payment of the principal of (and
premium, if any, on) or interest on any
Security and remaining unclaimed for two years
after such principal (and premium, if any) or
interest has become due and payable shall be
paid to the Company on Company Request or (if
then held by the Company) shall be discharged
from such trust; and the Holder of such
Security shall thereafter, as an unsecured
general creditor, look only to the Company for
payment thereof, and all liability of the
Trustee or such Paying Agent with respect to
such trust money, and all liability of the
Company as trustee thereof, shall thereupon
cease.
Section 10.4 SEC Reports. Notwithstanding that
the Company may not be required to remain subject
to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, to the extent permitted by the
Exchange Act, the Company will file with the SEC and,
in any event, will provide, within 15 days after the
Company is (or would be) required to file the same
with the SEC, the Trustee and Holders and prospective
Holders (upon request) with the annual reports and the
information, documents and other reports which are
specified in Sections 13 and 15(d) of the Exchange
Act. In the event that the Company is not permitted
to file such reports, documents and information with
the SEC, the Company will provide substantially
similar information to the Trustee, the Holders and
prospective Holders (upon request) as if the Company
were subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act. The
Company will be deemed to have satisfied such
requirements if Holding files and provides reports,
documents and information of the types otherwise so
required, in each case within the applicable time
periods, and the Company is not required to file
such reports, documents and information separately
under applicable rules and regulations of the SEC
(after giving effect to any exemptive relief)
because of the filings by Holding. The Company also
will comply with the other provisions of Section
314(a) of the Trust Indenture Act.
Section 10.5 Corporate Existence.
Subject to Article VIII and Section 10.17, the
Company shall do or cause to be done all things
necessary to preserve and keep in full force and
effect the corporate existence of the Company and
each Subsidiary of the Company and the corporate
rights (charter and statutory), corporate licenses
and corporate franchises of the Company and its
Subsidiaries in each jurisdiction in which the
character of the properties owned or leased by it
therein or in which the transaction of its business
is such that it is required to do so; provided that
the Company shall not be required to preserve any
such existence (except of the Company), right,
license or franchise if the Board of Directors of
the Company, or of the Subsidiary concerned, shall
determine that the preservation thereof is no longer
desirable in the conduct of the business of the
Company and its Subsidiaries as a whole and that the
loss thereof is not disadvantageous in any material
respect to the Holders.
Section 10.6 Payment of Taxes and other Claims;
Compliance with Law.
The Company will pay or discharge or cause to be
paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon it or
any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary and (b)
all material lawful claims for labor, materials and supplies
that, if unpaid, would have a Material Adverse
Effect; provided, however, that the Company shall
not be required to pay or discharge or cause to be
paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is
being contested in good faith by appropriate
proceedings.
The Company shall, and shall cause each of its
Subsidiaries to, comply with all statutes, laws,
ordinances or government rules and regulations to
which it is subject, noncompliance with which would
have a Material Adverse Effect.
Section 10.7 Maintenance of Properties; Insurance.
The Company shall cause all material properties
owned by or leased to it or any Subsidiary of the
Company and necessary in the conduct of its business
or the business of such Subsidiary to be maintained
and kept in normal condition, repair and working
order, ordinary wear and tear excepted; provided
that nothing in this Section shall prevent the
Company or any Subsidiary of the Company from
discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them,
if such discontinuance or disposal is, in the
judgment of the Company, desirable in the conduct of
the business of the Company or any Subsidiary of the
Company and if such discontinuance or disposal is
not adverse in any material respect to the Holders
of the Securities.
The Company shall provide or cause to be provided,
for itself and its Subsidiaries of the Company,
insurance (which may include appropriate self-
insurance) against loss or damage to the extent
customarily insured against by corporations
similarly situated and owning like properties in the
same general areas in which the Company or such
Subsidiaries operate, except where such failure to
do so could not reasonably be expected to have a
Material Adverse Effect.
Section 10.8 Limitation on Indebtedness.
The Company will not, and will not permit any of its
Subsidiaries to, Incur any Indebtedness (including
any Acquired Indebtedness, but excluding Permitted
Indebtedness) unless, at the time of the Incurrence
thereof and after giving effect thereto on a pro
forma basis, the Company's Consolidated Interest
Coverage Ratio for the four full fiscal quarters for
which financial information in respect thereof is
available immediately preceding such Incurrence,
taken as one period and calculated on the assumption
that such Indebtedness had been Incurred on the
first day of such four-quarter period and, in the
case of Acquired Indebtedness, on the assumption
that the related acquisition (whether by means of
purchase, merger or otherwise) also had occurred on
such date with the appropriate adjustments with
respect to such acquisition being included in such
pro forma calculation, would have exceeded 2.0 to
1.0.
Section 10.9 Limitation on Restricted Payments.
(a) The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly,
(i) declare or pay any dividend on, or make any
other distribution to holders (in their
capacities as such) of, any shares of the
Company's Capital Stock (other than dividends
or distributions payable in shares of its
Capital Stock or in options, warrants or
other rights to purchase such Capital Stock,
but excluding dividends or distributions
payable in Redeemable Capital Stock or in
options, warrants or other rights to purchase
Redeemable Capital Stock),
(ii) purchase, redeem or acquire or retire for
value any Capital Stock of the Company or any
Subsidiary or any options, warrants or other
rights to acquire such Capital Stock (other
than any such Capital Stock owed by a Wholly
Owned Subsidiary of the Company),
(iii) declare or pay any dividend or distribution
on any Capital Stock of any Subsidiary to any
Person (other than the Company or any of its
Wholly Owned Subsidiaries),
(iv) Incur any Indebtedness of any Affiliate
(other than with respect to (a) guarantees of
Indebtedness of any Wholly Owned Subsidiaries
by the Company or by another Wholly Owned
Subsidiary or (b) guarantees of Indebtedness
of the Company by any Wholly Owned Subsidiary, or
(v) make any Investment (other than any Permitted
Investment) in any Person other than in the
Company, a Wholly Owned Subsidiary of the
Company or a Person that becomes a Wholly
Owned Subsidiary of the Company as a result
of such Investment
(such payments or other actions described in the
foregoing clauses (i) through (v) are collectively
referred to as "Restricted Payments"), unless at the
time of and after giving effect to the proposed
Restricted Payment (the amount of any such
Restricted Payment, if other than cash, shall be as
determined by the Board of Directors of the Company,
whose determination shall be based on the Fair
Market Value thereof and shall be conclusive), (1)
no Default or Event of Default shall have occurred
and be continuing or shall occur as a result of such
Restricted Payment, (2) the Consolidated Interest
Coverage Ratio of the Company for the Company_s four
most recently completed fiscal quarters shall be at
least 2.0 to 1.0, and (3) the aggregate amount of
all Restricted Payments declared or made after the
date hereof shall not exceed the sum of:
(A) 50% of the aggregate cumulative
Consolidated Net Income of the Company (which
shall be treated as one accounting period)
during the period beginning on the last day of
the first full fiscal quarter occurring after
the date of this Indenture and ending on the
last day of the Company's last fiscal quarter
ending prior to the date of the declaration or
making of such proposed Restricted Payment (or,
if such aggregate cumulative Consolidated Net
Income shall be a loss, minus 100% of such
loss), plus
(B) the aggregate net proceeds, including the
Fair Market Value of property other than cash
(as determined by the Company_s Board of
Directors, whose determination shall be
conclusive), received after the date hereof by
the Company from the issuance or sale (other
than to any of its Subsidiaries) of shares of
Capital Stock of the Company (other than
Redeemable Capital Stock) or warrants, options
or rights to purchase such shares of Capital
Stock of the Company (other than Redeemable
Capital Stock), plus
(C) the aggregate net proceeds, including the
Fair Market Value of property other than cash
(as determined by the Board of Directors of the
Company, whose determination shall be
conclusive) received after the date hereof by
the Company (other than from any of its
Subsidiaries) upon the exercise of options,
warrants or rights to purchase shares of
Capital Stock of the Company (other than
Redeemable Capital Stock), plus
(D) the aggregate net proceeds, including the
Fair Market Value of property other than cash
(as determined by the Board of Directors of the
Company, whose determination shall be
conclusive) received after the date hereof by
the Company from the issue or sale of debt
securities or Redeemable Capital Stock that
have been converted into or exchanged for
Capital Stock of the Company (other than
Redeemable Capital Stock), plus the aggregate
amount of cash received by the Company at the
time of such conversion or exchange, plus
(E) the aggregate net proceeds, including the
Fair Market Value of property other than cash
(as determined by the Board of Directors of the
Company, whose determination shall be
conclusive) received after the date hereof by
the Company in disposition of any Investment
(or portion thereof) made after the date hereof
which was a Restricted Payment.
The foregoing provision will not be violated by reason of
(i) the payment of any dividend within 60 days
after the date of declaration thereof, if at
such declaration date such declaration complied
with the foregoing provision (in which event
such dividend shall be deemed to have been paid
on such date of declaration thereof for
purposes of the foregoing provision),
(ii) Restricted Payment by a Subsidiary solely to
the Company or a Wholly Owned Subsidiary of the Company,
or
(iii) the retirement redemption, repurchase or other
acquisition of any shares of Capital Stock or
Indebtedness that is expressly subordinated in
right of payment to the Securities, in exchange
for (including any such exchange pursuant to a
conversion right or privilege in connection
with which cash is paid in lieu of fractional
shares or scrip), or out of the proceeds of the
substantially concurrent sale for cash (other
than to a Subsidiary of the Company) of, shares
of Capital Stock (other than Redeemable Capital
Stock) of the Company.
(b) In computing Consolidated Net Income of
the Company under clause (A) of Section 10.9(a), (1)
the Company shall use audited financial statements for
the portions of the relevant period for which audited
financial statements are available on the date of
determination and unaudited financial statements and
other current financial data based on the books and
records of the Company for the remaining portion of
such period and (2) the Company shall be permitted to
rely in good faith on the financial statements and
other financial data derived from the books and records
of the Company that are available on the date of
determination. If the Company makes a Restricted Payment
which, at the time of the making of such Restricted Payment
would in the good faith determination of the Company
be permitted under the applicable provisions of this
Section 10.9, such Restricted Payment shall be deemed
to have been made in compliance with such provisions
notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements
affecting Consolidated Net Income of the Company
for any period.
Section 10.10 Transactions with Affiliates.
The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into
any transaction or series of related transactions
(including, without limitation, the sale, purchase,
exchange or lease of assets, property or services)
with any Affiliate of the Company (other than a
Wholly Owned Subsidiary thereof) unless (i) such
transaction or series of transactions is or are on
terms that are no less favorable to the Company or
such Subsidiary, as the case may be, than could have
been obtained at the time of such transaction or
transactions in a comparable transaction in arm's-
length dealings with Persons who are not Affiliates
and (ii) with respect to any transaction or series
of transactions involving aggregate consideration in
excess of $5 million, the Company delivers an
Officers' Certificate to the Trustee certifying that
such transaction or series of transactions complies
with clause (i) above and that such transaction or
series of transactions has received the approval of
a majority of the disinterested directors of the
Board of Directors of the Company; provided,
however, that the foregoing restriction shall not
apply to transactions pursuant to agreements in
effect at or entered into on the Issue Date (and not
otherwise in violation of this Indenture); provided
that any renewal or modification of the terms of any
such agreement after the Issue Date shall comply
with the provisions of this Section 10.10. For
purposes of this Section 10.10, any transaction or
series of related transactions between the Company
or any of its Subsidiaries and any Affiliate of the
Company that is approved as being on the terms
required by clause (i) above by a majority of the
disinterested directors of the Board of Directors of
the Company shall be deemed to be on terms as
favorable as those that might be obtained at the
time of such transaction or series of transactions
in a comparable transaction in arm_s-length dealings
with an unaffiliated third party, and thus shall be
permitted under this Section 10.10. This covenant
will not restrict the Company or any of its
Subsidiaries from (i) paying reasonable and
customary directors fees, executive compensation and
severance amounts, (ii) making loans and advances to
officers and employees in respect of travel, moving
and entertainment expenses Incurred, or to be
Incurred, by such officers, directors and employees
or (iii) entering into guarantees in respect of
Indebtedness incurred by officers or employees in
the ordinary course of business and payments in
discharge thereof in an amount not to exceed the
excess of (x) $500,000 at any time outstanding over
(y) the aggregate amount, if any, paid after the
Issue Date in respect of such guarantees.
Section 10.11 Limitation on Liens.
The Company shall not, and shall not permit any of
its Subsidiaries to, Incur any Lien of any kind
(other than Permitted Liens) upon any property or
assets of the Company or of any such Subsidiary or
with respect to any Indebtedness of any such
Subsidiary.
Section 10.12 Limitation on Other Senior Subordinated
Indebtedness.
The Company will not Incur any Indebtedness that is
subordinate or junior in ranking in any respect to
any Senior Indebtedness unless such Indebtedness is
also expressly subordinated in right of payment to
the Securities.
Section 10.13 Restriction on Issuance of Preferred
Stock of Subsidiaries.
The Company will not permit any of its Subsidiaries
to issue any Preferred Stock (other than to the
Company or a Wholly Owned Subsidiary of the Company)
or permit any Person (other than the Company or a
Wholly Owned Subsidiary of the Company) to own or
hold an interest in any Preferred Stock of any such
Subsidiary, except (i) replacements of then
outstanding Preferred Stock or (ii) stock splits,
stock dividends and similar issuances which do not
decrease the percentage ownership of the Company or
any of its Subsidiaries in such Subsidiary.
Section 10.14 Limitation on Dividends and Other
Payment Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any
Subsidiary to, create or otherwise cause or suffer
to exist or become effective any consensual Payment
Restriction except (i) any Payment Restriction
pursuant to the Credit Agreement or any other
agreement in effect at or entered into on the Issue
Date; (ii) any Payment Restriction with respect to a
Subsidiary that is not a Subsidiary of the Company
on the date hereof, in existence at the time such
Person becomes a Subsidiary of the Company or
created on the date it becomes a Subsidiary; and
(iii) any Payment Restriction pursuant to any
agreement that extends, refinances, renews or
replaces any agreement containing any of the
restrictions described in the foregoing clauses (i)
and (ii); provided that the terms and conditions of
any such restrictions are not materially less
favorable to the Holders of the Securities than
those under or pursuant to the agreement so
extended, refinanced, renewed or replaced.
Section 10.15 Purchase of Securities upon Change
of Control.
(a) Upon the occurrence of a Change of Control,
the Company shall be obligated to make an offer to purchase
(a "Change of Control Offer") and shall, subject to the
provisions described below, purchase, on a Business Day
(the "Change of Control Purchase Date") that is not earlier
than 30 days nor later than 60 days following the occurrence
of a Change of Control or such later date as may be necessary
for the Company to comply with requirements under the
Exchange Act, all of the then Outstanding Notes at a purchase
price payable in cash equal to 101% of the principal amount
of such Securities, plus accrued and unpaid interest
(including any Defaulted Interest), if any, to the Change
of Control Purchase Date (the "Change of Control Purchase
Price"); provided, however, that notwithstanding the
occurrence of a Change of Control, the Company shall not
be obligated to make a Change of Control Offer in the
event that it has exercised its rights to redeem all of
the Securities as described in Section 11.1 and the form
of Securities as described in Section 2.3 within 30 days
after the occurrence of such Change of Control.
(b) Within 30 days after the occurrence of a
Change of Control, the Company shall give written notice
(a "Change of Control Notice") of such Change of Control
Offer to the Trustee, and the Trustee shall promptly upon
its receipt of such notice give a copy of such notice to
Holders in the manner specified in Section 1.7. The
Trustee shall be under no obligation to ascertain whether
a Change of Control has occurred or to give notice with respect
thereto other than as provided above upon receipt of a
Change of Control Notice from the Company. The Change
of Control Notice shall include such disclosures as are
required by law and a form of Change of Control Purchase
Notice (as defined in Section 10.15c) to be completed
by the Holder and shall state:
(i) the events causing the Change of Control
and the date such Change of Control is
deemed to have occurred for purposes of
this Section 10.15;
(ii) that Holders electing to have Securities
purchased pursuant to a Change of
Control Offer will be required to
surrender their Securities to the Paying
Agent at the address specified in the
Change of Control Notice prior to 5:00
p.m., New York City time, on the Change
of Control Purchase Date and must
complete the Change of Control Purchase
Notice;
(iii) the Change of Control Purchase Price;
(iv) the Change of Control Purchase Date;
(v) that any Security not tendered will
continue to accrue interest;
(vi) that all Securities accepted for payment
will cease to accrue interest after the
Change of Control Purchase Date unless
the Company defaults in paying the
Change of Control Purchase Price;
(vii) that the Company will pay the Change of
Control Purchase Price for any
Securities that have been properly
tendered and not withdrawn promptly
following the Change of Control Purchase
Date;
(viii) that Holders whose Securities are
purchased only in part will be issued
one or more new Securities equal in
principal amount to the unpurchased
portion of the Securities surrendered;
and
(ix) the procedures a Holder must follow to
exercise rights under this Section 10.15
and a brief description of those rights.
(c) Prior to the mailing a Change of
control Notice, the company shall have (i)
terminated all commitments and paid in
full all Indebtedness under the Credit
Agreement, or offered (as required below)
to terminate such commitments and repay in
full such Indebtedness effective simultaneously
with the mailing of the Change of Control Notice
or (ii) obtained the requisite consents under
the Credit Agreement to permit the purchase of the
Securities in accordance with this Section 10.15.
If change of Control Notice has been mailed when
such condition precedent has not been satisfied,
the Company shall have no obligation to (and shall
not) effect the purchase of the Securities, until
such time as such condition precedent is satisfied.
The Company shall, no later than two (2) Business Days
after the occurrence of a Change of Control, (i)
terminate all commitments and pay in full all
Indebtedness under the Credit Agreement, or offer to
terminate such commitments and repay in full such
Indebtedness no later than 29 days after the occurrence
of the Change of Control, or (ii) obtain the requisite
consents under the Credit Agreement to permit purchase
of the Securities in accordance with the provisions of
this Section 10.15.
(d) A Holder may exercise its rights
specified in Section 10.15(a) upon (i)
delivery to any Paying Agent a written
notice (a "Change of Control Purchase
Notice") at any time prior to the close of
business on the Change of Control Purchase
Date, stating (A) the certificate number
of the Security that the Holder will
deliver to be purchased and (B) the
portion of the principal amount of the
Security that the holder will deliver to
be purchased, which portion must be $1,000
or an integral multiple thereof, and (ii)
delivery of such Security to such Paying
Agent at such office prior to, on or after
the Change of Control Purchase Date
(together with all necessary endorsements),
such delivery being a condition to receipt by
the Holder of the Change of Control Purchase
Price therefor.If a Holder has elected to deliver
to the Company for purchase a portion of a
Security, and if the principal amount of
such portion is $1,000 or an integral
multiple of $1,000, the Company shall
purchase such portion from the Holder
thereof pursuant to this Section 10.15.
Provisions of this Indenture that apply to
the purchase of all of a Security also
apply to the purchase of a portion of such
Security. Each Paying Agent shall promptly
notify the Company of the receipt by the
former of any and all Change ofControl Purchase
Notices.
(e) Upon receipt by any Paying Agent of a
Change of Control Purchase Notice, the
Holder of the Security in respect of which
such Change of Control Purchase Notice was
given shall thereafter be entitled to receive
solely the Change of Control Purchase Price
with respect to such Security. Such Change
of Control Purchase Price shall be paid to such
Holder promptly following the later of the Business
Day following the Change of Control Purchase Date
(provided the conditions in Section 10.15c have been
satisfied) and the time of delivery of such Security
to the relevant Paying Agent at the office of such
Paying Agent by the Holder thereof in the manner
required by Section 10.15c.
(f) On or prior to the Change of Control
Purchase Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company
is acting as its own Paying Agent, segregate and
hold in trust as provided in Section 10.3) an amount
of money in same day funds (or New York Clearing House
funds if such deposit is made prior to the Change of
Control Purchase Date) sufficient to pay the Change of
Control Purchase Price with respect to all the Securities
or portions thereof which are to be purchased on that
date. Any amounts remaining after the purchase of
Securities pursuant to a Change of Control Offer shall
be returned by the Trustee to the Company, which the
Company may apply in furtherance of its corporate
purposes.
(g) Upon receipt by the Company of the proper
tender of Securities, the Holder of the Security in
respect of which such proper tender was made shall
(unless the tender of such Security is properly
withdrawn) thereafter be entitled to receive solely
the Change of Control Purchase Price with respect to
such Security. Upon surrender of any such Security
for purchase in accordance with the foregoing provisions,
such Security shall be purchased by the Company at the
Change of Control Purchase Price; provided, however,
that installments of interest whose Stated Maturity is
on or after the Change of Control Purchase Date but
whose Regular Record Date is before the Change of Control
Purchase Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities,
registered as such on the relevant Regular Record Dates
according to the terms and the provisions of Section
3.7. If any Security tendered for purchase shall not
be so paid upon surrender thereof, the principal thereof
(and premium, if any, thereon) shall, until paid, bear
interest from the Change of Control Purchase Date at the
Default Rate.
(h) Any Security that is to be purchased only in
part shall be surrendered to a Paying Agent at the office
of such Paying Agent (with, if the Company or the Trustee
so requires, due endorsement by or a written instrument of
transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall
execute and the Trustee shall authenticate and deliver to
the Holder of such Security, without service charge, one
or more new Securities of any authorized denomination as
requested by such Holder in an aggregate principal amount
equal to, and in exchange for, the portion of the principal
amount of the Security so surrendered that is not purchased.
(i) In connection with any offer to purchase or
purchase of Securities under this Section 10.15, the Company
shall comply, to the extent applicable, with any other
requirements of Section 14e-1 of the Exchange Act, and any
other securities laws or regulations.
(j) The Company shall not be required to make a
Change of Control Offer upon a Change of Control if a third
party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Company
and purchases all Securities validity tendered and not
withdrawn under such Change of Control Offer.
(k)) Subject to applicable escheat laws, the Paying
Agent (if other than the Company) shall return to the
Company any cash that remains unclaimed, together with
interest or dividends, if any thereon, held by them for
payment of the Change of Control Purchase Price within
six months following the Change of Control Purchase Date
and, after the return of such cash to the Company, any
Holder entitled to the payment of such Change of Control
Purchase Price shall look solely to the Company for
payment.
Section 10.16 Limitation on Asset Sales.
(a) The Company will not, and will not permit
any of its Subsidiaries to, in one transaction
or a series of related transactions, other than
in the ordinary course of business, convey,
sell, transfer, assign or otherwise dispose of,
directly or indirectly, any of its property,
businesses or assets, including by merger or
consolidation and including any sale or other
transfer or issuance of any Capital Stock of
any Subsidiary of the Company, whether by the
Company or by such Subsidiary (any of the
foregoing, an "Asset Sale"), unless (i) the
Company or the applicable Subsidiary receives
consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the
assets sold or otherwise disposed of (as
determined in good faith by the Board of
Directors of the Company, as evidenced by a
Board Resolution), (ii) at least (x) 50% of the
first $5 million of consideration received by
the Company or the Subsidiary, as the case may
be, from such Asset Sale and (y) 75% of such
consideration in excess of $5 million, shall be
cash or Cash Equivalents and is received at the
time of such disposition, and (iii) the Company
delivers an Officers' Certificate to the
Trustee certifying that such Asset Sale
complies with the foregoing clauses (i) and
(ii); provided that (A) subject to the other
provisions of this Indenture, the Company,
together with its Subsidiaries, may make any
Asset Sale that is governed by Article VIII
hereof and (B) the first $3 million of Net Cash
Proceeds from Asset Sales in any fiscal year
will not be subject to the restrictions set
forth in the foregoing clauses (ii) and (iii).
(b) The Net Cash Proceeds of any Asset Sale
shall be applied by the Company or a Subsidiary
(i) to pay and permanently reduce any Senior
Indebtedness, (ii) to reinvest in Additional
Assets; or (iii) to redeem Securities in
accordance with this Section 10.16. To the
extent that such Net Cash Proceeds are not
applied as provided in clause (i) of the
preceding sentence, the Company or a
Subsidiary, as the case may be, may apply the
Net Cash Proceeds from such Asset Sale, within
360 days of such Asset Sale, to an investment
in Additional Assets so long as the Company or
such Subsidiary has notified the Trustee in
writing within 270 days of such Asset Sale that
it has determined to apply the Net Cash
Proceeds from such Asset Sale to an Investment
in such Additional Assets; provided however
that not more than $15 million of Net Cash
Proceeds may be reinvested in Additional Assets
during any rolling 18-month period. Any Net
Cash Proceeds from any Asset Sale not applied
as provided in clause (i) or (ii) of the first
sentence of this Section 10.16(b) within 360
days of such Asset Sale constitute _Excess
Proceeds' subject to disposition as provided
below.
(c) When the aggregate amount of Excess
Proceeds exceeds $5 million (the "Asset Sale
Trigger Date"), the Company shall make an offer
(an "Asset Sale Offer") to purchase, from all
Holders, an aggregate principal amount of
Securities equal to such Excess Proceeds, on a
Business Day that is not less than 30 days nor
more than 60 days thereafter or such later date
as may be necessary for the Company to comply
with the requirements of the Exchange Act (the
"Asset Sale Purchase Date"), at a price payable
in cash equal to 100% of the outstanding
principal amount of such Securities, plus
accrued and unpaid interest (including any
Defaulted Interest), if any, to the Asset Sale
Purchase Date (the "Asset Sale Purchase
Price"). To the extent that the aggregate
principal amount of Securities tendered
pursuant to an offer to purchase is less than
the Excess Proceeds, the Company may use such
deficiency for general corporate purposes. If
the aggregate principal amount of Securities
validly tendered by Holders thereof exceeds the
Excess Proceeds, Securities to be purchased
will be purchased on a pro rata basis. Upon
completion of such offer to purchase, the
amount of Excess Proceeds shall be reset to
zero.
(d) Within 30 days after the Asset Sale
Trigger Date, the Company shall give written
notice of such occurrence (an "Asset Sale
Notice") to the Trustee, and the Trustee shall
promptly upon its receipt of such notice give a
copy of such notice to Holders in the manner
specified in Section 1.7. The Trustee shall be
under no obligation to ascertain whether an
Asset Sale Trigger Date has occurred or to give
notice with respect thereto other than as
provided above upon receipt of an Asset Sale
Notice from the Company. The Asset Sale Notice
shall include such disclosures as are required
by law and a form of Asset Sale Offer Purchase
Notice (as defined in Section 10.16(e)) to be
completed by the Holder and shall state:
(i) that the offer to redeem Securities is
being made pursuant to Section 10.16;
(ii) that Holders electing to have Securities
purchased pursuant to an Asset Sale Offer will
be required to surrender their Securities to
the Paying Agent at the address specified in
the Asset Sale Notice prior to 5:00 p.m., New
York City time, on or prior to the Asset Sale
Purchase Date and must complete the Asset Sale
Purchase Notice;
(iii) the Asset Sale Purchase Price;
(iv) the Asset Sale Purchase Date;
(v) that any Security not tendered will
continue to accrue interest;
(vi) that all Securities accepted for payment
will cease to accrue interest after the Asset
Sale Purchase Date unless the Company
defaults in paying the Asset Sale Purchase Price;
(vii) that the Company will pay the Asset Sale
Purchase Price for any Securities that have
been properly tendered and not withdrawn
promptly following the Asset Sale Purchase
Date; provided, however, that if the
aggregate principal amount of the Securities
tendered pursuant to such redemption offer
exceeds the aggregate amount of the Excess
Proceeds Amount to be applied to such
redemption offer, the Company shall select
the Securities to be purchased on a pro rata
basis (with such adjustments as may be deemed
appropriate by the Company so that only
Securities in denominations of $1,000 or
multiples thereof shall be purchased);
provided, further, however, that if the
aggregate principal amount of Outstanding
Securities after the Asset Sale Purchase Date
would be less than $20,000,000, (assuming
100% acceptance of the offer), then the
Company shall offer to redeem all Outstanding
Securities;
(viii) that Holders whose Securities are
purchased only in part will be issued one or
more new Securities equal in principal amount
to the unpurchased portion of the Securities
surrendered; and
(ix) the procedures a Holder must follow to
exercise rights under this Section 10.16 and
a brief description of those rights.
(e) A Holder may exercise its rights
specified in Section 10.16(a) upon (i)
delivery to any Paying Agent a written
notice (an "Asset Sale Offer Purchase
Notice") at any time prior to the close of
business on the Asset Sale Offer Purchase
Date, stating (A) the certificate number
of the Security that the Holder will
deliver to be purchased and (B) the
portion of the principal amount of the
Security that the holder will deliver to
be purchased, which portion must be $1,000
or an integral multiple thereof, and (ii)
delivery of such Security to such Paying
Agent at such office prior to, on or after
the Asset Sale Offer Purchase Date
together with all necessary endorsements),
such delivery being a condition to receipt
by the Holder of the Asset Sale Offer Purchase
Price therefor. If a Holder has elected to
deliver to the Company for purchase a portion
of a Security, and if the principal amount of
such portion is $1,000 or an integral multiple
of $1,000, the Company shall purchase such portion
from the Holder thereof pursuant to this Section
10.16. Provisions of this Indenture that apply to
the purchase of all of a Security also apply to the
purchase of a portion of such Security. Each Paying
Agent shall promptly notify the Company of the
receipt by the former of any and all Asset Sale
Offer Purchase Notices.
(f) Upon receipt by any Paying Agent of
an Asset Sale Offer Purchase Notice, the
Holder of the Security in respect of which
such Asset Sale Offer Purchase Notice was
given shall thereafter be entitled to receive
solely the Asset Sale Offer Purchase Price with
respect to such Security. Such Asset Sale Offer
Purchase Price shall be paid to such Holder
promptly following the later of the Business Day
following the Asset Sale Offer Purchase Date
(provided the conditions in Section 10.16(e) have
been satisfied) and the time of delivery of such
Security to the relevant Paying Agent at the office
of such Paying Agent by the Holder thereof in the
manner required by Section 10.16(e).
(g) On or prior to the Asset Sale Offer
Purchase Date, the Company shall deposit
with the Trustee or with a Paying Agent
or, if the Company is acting as its own
Paying Agent, segregate and hold in trust
as provided in Section 10.3) an amount of
money in same day funds (or New York
Clearing House funds if such deposit is
made prior to the Asset Sale Offer
Purchase Date) sufficient to pay the Asset
Sale Offer Purchase Price with respect to
all the Securities or portions thereof
which are to be purchased on that date.
Any amounts remaining after the purchase
of Securities pursuant to an Asset Sale
Offer shall be returned by the Trustee to
the Company, which the Company may apply
in furtherance of its corporate purposes.
(h) Upon receipt by the Company of the
proper tender of Securities, the Holder of
the Security in respect of which such
proper tender was made shall (unless the
tender of such Security is properly withdrawn)
thereafter be entitled to receive solely the
Asset Sale Offer Purchase Price with respect
to such Security. Upon surrender of any such
Security for purchase in accordance with the
foregoing provisions, such Security shall be
purchased by the Company at the Asset Sale Offer
Purchase Price; provided, however, that
installments of interest whose Stated Maturity
is on or after the Asset Sale Offer Purchase Date
but whose Regular Record Date is before the Asset
Sale Offer Purchase Date shall be payable to the
Holders of such Securities, or one or more
Predecessor Securities, registered as such on the
relevant Regular Record Dates according to the terms
and the provisions of Section 3.7. If any Security
tendered for purchase shall not be so paid upon
surrender thereof, the principal thereof (and premium,
if any, thereon) shall, until paid, bear interest
from the Asset Sale Offer Purchase Date at the Default
Rate.
(i) Any Security that is to be purchased
only in part shall be surrendered to a
Paying Agent at the office of such Paying
Agent (with, if the Company or the Trustee
so requires, due endorsement by or a
written instrument of transfer in form
satisfactory to the Company and the
Trustee duly executed by, the Holder
thereof or such Holder's attorney duly
authorized in writing), and the Company
shall execute and the Trustee shall
authenticate and deliver to the Holder of
such Security, without service charge, one
or more new Securities of any authorized
denomination as requested by such Holder
in an aggregate principal amount equal to,
and in exchange for, the portion of the
principal amount of the Security so
surrendered that is not purchased.
(j) In connection with any offer to
purchase or purchase of Securities under
this Section 10.16, the Company shall
comply, to the extent applicable, with any
other requirements of Section 14e-1 of the
Exchange Act, and any other securities
laws or regulations.
(k) Subject to applicable escheat laws,
the Paying Agent (if other than the
Company) shall return to the Company any
cash that remains unclaimed, together with
interest or dividends, if any, thereon,
held by them for payment of the Asset Sale
Purchase Price within six months following
the Asset Sale Purchase Date, and after
the return of such cash to the Company,
any Holder entitled to payment of the
Asset Sale Purchase Price shall look
solely to the Company for payment.
Section 10.17 Statement as to Compliance;
Notice of Default; Provision of Financial Statements.
(a) The Company will deliver to the Trustee,
within 120 days after the end of each fiscal
year ending after the date hereof, an Officers_
Certificate stating that a review of the
activities of the Company and its Subsidiaries
during the preceding fiscal year has been made
under the supervision of the signing Officers
with a view to determining whether the Company
has kept, observed, performed and fulfilled its
obligations under this Indenture, and further
stating as to each such Officer signing such
Certificate, that to the best of his or her
knowledge, the Company has kept, observed,
performed and fulfilled each and every covenant
contained in this Indenture and is not in
default in the performance or observance of any
of the terms, provisions or conditions of this
Indenture (or, if a Default or Event of Default
shall have occurred, describing all such
Defaults or Events of Default of which he or
she may have knowledge and what action the
Company is taking or proposes to take with
respect thereto) and that to the best of his or
her knowledge, no event has occurred and
remains in existence by reason of which
payments on the account of the principal of
(and premium, if any) or interest on the
Securities is prohibited or if such an event
has occurred, a description of the event and
what action the Company is taking or proposes
to take with respect thereto. For purposes of
this Section 10.17, such compliance shall be
determined without regard to any period of
grace or requirement of notice under this
Indenture.
(b) The Company shall deliver to the Trustee,
as soon as possible following any Officer
becoming aware of any Default or Event of
Default, an Officers' Certificate specifying
such Default or Event of Default and what
action the Company is taking or proposes to
take with respect thereto.
Section 10.18. Subsidiary Guarantees.
The Company will not permit any of its Subsidiaries
to guarantee the payment of any Indebtedness of the
Company or any Subsidiary of the Company unless such
Subsidiary (i) is, or, concurrently with such
guarantee will become, a Subsidiary Guarantor under
this Indenture in the manner set forth in Section
14.2 hereof and (ii) the Company shall concurrently
comply with the requirements set forth in Section
14.2.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1 Right of Redemption.
At any time on or after the earlier of (i) the third
anniversary of the date of this Indenture and (ii)
the occurrence of a Change of Control, the
Securities may be redeemed at the election of the
Company as a whole or from time to time in part
subject to the conditions and at the Redemption
Prices specified in the form of Security, together
with accrued interest to the Redemption Date;
provided, however, that if the aggregate principal
amount of Outstanding Securities after a redemption
would be less than $20 million, then the Company
shall redeem all Outstanding Securities.
Section 11.2 Applicability of Article.
Redemption of Securities at the election of the
Company, as permitted by any provision of this
Indenture, shall be made in accordance with such
provision and this Article.
Section 11.3 Election to Redeem; Notice to
Trustee.
The election of the Company to redeem any Securities
pursuant to Section 11.1 shall be evidenced by a
Board Resolution. In case of any redemption at the
election of the Company the Company shall, at least
45 days but not more than 75 days prior to the
Redemption Date fixed by it (unless a shorter notice
period shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the
principal amount of Securities to be redeemed.
Section 11.4 Selection by Trustee of Securities
to Be Redeemed.
If less than all the Securities are to be redeemed,
the particular Securities or portions thereof to be
redeemed shall be selected not more than 60 days and
not less than 30 days prior to the Redemption Date
by the Trustee, from the Outstanding Securities not
previously called for redemption, either pro rata,
by lot or by such other method as the Trustee shall
deem fair and appropriate and which may provide for
the selection for redemption of portions of the
principal of Securities; provided, however, that no
such partial redemption shall reduce the portion of
the principal amount of a Security not redeemed to
less than $1,000.
The Trustee shall promptly notify the Company and
the Security Registrar in writing of the Securities
selected for redemption and, in the case of any
Securities selected for partial redemption, the
principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the
context otherwise requires, all provisions relating
to redemption of Securities shall relate, in the
case of any Security redeemed or to be redeemed only
in part, to the portion of the principal amount of
such Security which has been or is to be redeemed.
Section 11.5 Notice of Redemption.
Notice of redemption shall be given by first class
mail, postage prepaid, mailed not less than 30 nor
more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at its
address appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities
are to be redeemed, the identification (and, in
the case of a Security to be redeemed in part,
the principal amount) of the particular
Securities to be redeemed;
(d) that on the Redemption Date the Redemption
Price will become due and payable upon each
such Security or portion thereof, and, unless
the Company defaults in paying the Redemption
Price, that interest thereon shall cease to
accrue on and after said date; and
(e) the place or places where such Securities
are to be surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at
the election of the Company shall be given by the
Company or, at its request, by the Trustee in the
name and at the expense of the Company.
Section 11.6 Deposit of Redemption Price.
At least one Business Day prior to any Redemption
Date, the Company shall deposit with the Trustee or
with a Paying Agent (or, if the Company is acting as
its own Paying Agent, segregate and hold in trust as
provided in Section 10.3) an amount of money in same
day funds (or New York Clearing House funds if such
deposit is made prior to the applicable Redemption
Date) sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the
Securities or portions thereof which are to be
redeemed on that date.
Section 11.7 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid,
the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the
Redemption Price therein specified and from and
after such date (unless the Company shall default in
the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear
interest. Upon surrender of any such Security for
redemption in accordance with said notice, such
Security shall be paid by the Company at the
Redemption Price together with accrued interest to
the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on
or prior to the Redemption Date shall be payable to
the Holders of such Securities, or one or more
Predecessor Securities, registered as such on the
relevant Regular Record Dates according to the terms
and the provisions of Section 3.7. If any Security
is redeemed or purchased by the Company on or after
a Regular Record Date but on or prior to the related
Interest Payment Date, then any accrued and unpaid
interest shall be paid to the Person in whose name
such Security was registered at the close of
business on such Regular Record Date.
If any Security called for redemption shall not be
so paid upon surrender thereof for redemption, the
principal thereof (and premium, if any, thereon)
shall, until paid, bear interest from the Redemption
Date at the Default Rate.
Section 11.8 Securities Redeemed in Part.
Any Security which is to be redeemed only in part
shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to
Section 10.2 (with, if the Company, the Security
Registrar or the Trustee so requires, due
endorsement by, or a written instrument of transfer
in form satisfactory to the Company, the Security
Registrar or the Trustee duly executed by, the
Holder thereof or its attorney duly authorized in
writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder
of such Security without service charge, a new
Security or Securities, of any authorized
denomination as requested by such Holder in
aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the
Security so surrendered.
ARTICLE XII
SUBORDINATION
Section 12.1. Securities Subordinate to Senior
Indebtedness.
The Company covenants and agrees, and each Holder of
a Security, by its acceptance thereof, likewise
covenants and agrees, for the benefit of the
holders, from time to time, of Senior Indebtedness
that, to the extent and in the manner hereinafter
set forth in this Article, the indebtedness
represented by the Securities and the payment of the
principal of and premium, if any, and interest
(including any payments required due to the
occurrence of a Change of Control Triggering Event
or in connection with an Asset Sale Offer) on each
and all of the Securities are hereby expressly made
subordinate in right of payment to the prior payment
in full of all Senior Indebtedness (including any
interest accruing after the occurrence of an Event
of Default under Section 5.1(f) or (g)).
Section 12.2 Payment Over of Proceeds upon
Dissolution, etc.
In the event of (a) an insolvency or bankruptcy case
or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding
in connection therewith, relative to the Company or
to its assets, or (b) any liquidation, dissolution
or other winding up of the Company, whether
voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or c any
assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company,
then and in any such event:
(1) the holders of Senior Indebtedness shall be
entitled to receive payment in full of all
amounts due or to become due on or in respect
of all Senior Indebtedness, or provision shall
be made for such payment in cash or Cash
Equivalents, before the Holders of the
Securities are entitled to receive any payment
on account of principal of (or premium, if any)
or interest on the Securities; and
(2) any payment or distribution of assets of the
Company of any kind or character, whether in
cash, property or securities, by set-off or
otherwise, to which the Holders or the Trustee
would be entitled but for the provisions of
this Article XII (except, so long as the effect
of this parenthetical clause is not to cause
the Securities to be treated in any case or
proceeding or similar event described in
Subsection (a), (b) or c of this Section 12.2
as part of the same class of claims as the
Senior Indebtedness or any class of claims on a
Parity with or senior to the Senior
Indebtedness, for any such payment or
distribution (x) authorized by an order or
decree giving effect, and stating in such order
or decree that effect is given, to the
subordination of the Securities to the Senior
Indebtedness, and made by a court of competent
jurisdiction in a reorganization proceeding
under any applicable bankruptcy law, or (y) of
securities that are unsecured and are
subordinated, to at least the same extent as
the Securities, to the payment of all Senior
Indebtedness then outstanding), shall be paid
by the liquidating trustee or agent or other
Person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to
the holders of Senior Indebtedness or their
representative or representatives or to the
trustee or trustees under any indenture under
which any instruments evidencing any of such
Senior Indebtedness may have been issued,
ratably according to the aggregate amounts
remaining unpaid on account of the principal
of, and premium, if any, and interest on, and
other amounts due on or in connection with, the
Senior Indebtedness to the extent necessary to
make payment in full of all Senior Indebtedness
remaining unpaid, after giving effect to any
concurrent payment or distribution to the
holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the
foregoing provisions of this Section, the
Trustee or the Holder of any Security shall
have received any such payment or distribution
of assets of the Company of any kind or
character, whether in cash, property or
securities (except, so long as the effect of
this parenthetical clause is not to cause the
Securities to be treated in any case or
proceeding or similar event described in
Subsection (a), (b) or c of this Section 12.2
as part of the same class of claims as the
Senior Indebtedness or any class of claims on a
parity with or senior to the Senior
Indebtedness, for any such payment or
distribution (x) authorized by an order or
decree giving effect, and stating in such order
or decree that effect is given, to the
subordination of the Securities to the Senior
Indebtedness, and made by a court of competent
jurisdiction in a reorganization proceeding
under any applicable bankruptcy law, or (y) of
securities that are unsecured and are
subordinated, to at least the same extent as
the Securities, to the payment of all Senior
Indebtedness then outstanding), before all
Senior Indebtedness is paid in full or payment
thereof provided for, then and in such event
such payment or distribution shall be paid over
or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person
making payment or distribution of assets of the
Company for application to the payment of all
Senior Indebtedness remaining unpaid to the
extent necessary to pay all Senior Indebtedness
in full, after giving effect to any concurrent
payment or distribution to or for the holders
of Senior Indebtedness.
The consolidation of the Company with, or the merger
of the Company into, another corporation or the
liquidation or dissolution of the Company following
the conveyance, transfer or lease of its properties
and assets substantially as an entirety to another
corporation upon the terms and conditions set forth
in Article VIII shall not be deemed a dissolution,
winding up, liquidation, reorganization, assignment
for the benefit of creditors or marshaling of assets
and liabilities of the Company for the purposes of
this Section if the corporation formed by such
consolidation or into which the Company is merged or
the corporation which acquires substantially as an
entirety, as the case may be, shall, as a part of
such consolidation, merger, conveyance, transfer or
lease, comply with the conditions set forth in
Article VIII.
Section 12.3 No Payment When Senior Indebtedness
in Default.
(i) In the event of and during the
continuation of any default in the payment of
principal of (or premium, if any) or interest
on any Senior Indebtedness beyond any
applicable grace period with respect thereto (a
"Payment Default"), or (ii) in the event that
a ny other event of default with respect to any
Senior Indebtedness shall have occurred and be
continuing that permits the holders of such
Senior Indebtedness (or a trustee on behalf of
such holders) to declare such Senior
Indebtedness due and payable prior to the date
on which it would otherwise have become due and
payable either without further notice or upon
the expiration of any grace period applicable
to such event of default, and written notice
thereof shall have been given to each of the
Company and the Trustee in the case of either
clause (i) or (ii) by the Agent Bank under the
Credit Agreement (the "Payment Notice"), then
no payment or distribution of any assets of the
Company of any kind or character shall be made
by the Company on account of the Obligations
(including without limitation, the principal of
(or premium, if any) or interest on the
Securities or on account of the purchase or
redemption or other acquisition of Securities)
until (x) in case of an event of default
specified in clause (i) of this Section 12.3,
unless and until such payment event of default
shall have been cured or waived or shall have
ceased to exist or the holders of such Senior
Indebtedness or their agents have waived the
benefits of this Section, or (y) in case of an
event of default specified in clause (ii) of
this Section 12.3, until the earlier of (1) 179
days after the date on which a Payment Notice
shall have been given and (2) the date, if any,
on which such event of default is waived by the
holders of such Senior Indebtedness or
otherwise cured or has ceased to exist or the
Senior Indebtedness to which such event of
default relates is discharged (provided that
further written notice relating to the same or
any other event of default specified in clause
(ii) of this Section 12.3 with respect to any
Senior Indebtedness received by the Company or
the Trustee within 12 months after such prior
receipt of a Payment Notice shall not be
effective to further prohibit such payments)
(the "Payment Blockage Period").
In the event that, notwithstanding the foregoing,
the Company shall make any payment to the Trustee or
the Holder of any Security prohibited by the
foregoing provisions of this Section, then and in
such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section shall not apply to
any payment with respect to which Section 12.2 would
be applicable.
Section 12.4 Payment Permitted if No Default.
Nothing contained in this Article or elsewhere in
this Indenture or in any of the Securities shall
prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution,
liquidation or other winding up, assignment for the
benefit of creditors or other marshaling of assets
and liabilities of the Company referred to in
Section 12.2 or under the conditions described in
Section 12.3, from making payments at any time of
principal of (and premium, if any) or interest on
the Securities or the purchase, redemption or other
acquisition of the Securities.
Section 12.5 Subrogation to Rights of Holders of
Senior Indebtedness.
Subject to the payment in full of all Senior
Indebtedness, the Holders of the Securities shall be
subrogated (equally and ratably with the holders of
all indebtedness of the Company which by its express
terms is subordinated to Senior Indebtedness of the
Company to the same extent as the Securities are
subordinated and which is entitled to like rights of
subrogation) to the rights of the holders of such
Senior Indebtedness to receive payments and
distributions of cash, property and securities
applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest on
the Securities shall be paid in full. For purposes
of such subrogation, no payments or distributions to
the holders of Senior Indebtedness of any cash,
property or securities to which the Holders of the
Securities or the Trustee would be entitled except
for the provisions of this Article, and no payments
over pursuant to the provisions of this Article to
the holders of Senior Indebtedness by Holders of the
Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Securities, be
deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
Section 12.6 Provisions Solely to Define
Relative Rights.
The provisions of this Article are and are intended
solely for the purpose of defining the relative
rights of the Holders of the Securities on the one
hand and the holders of Senior Indebtedness on the
other hand. Nothing contained in this Article or
elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among the
Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Securities, the
obligation of the Company, which is absolute and
unconditional, to pay to the holders of the
Securities the principal of (and premium, if any)
and interest on the Securities as and when the same
shall become due and payable in accordance with
their terms; or (b) affect the relative rights
against the Company of the Holders of the Securities
and creditors of the Company other than the holders
of Senior Indebtedness; or c prevent the Trustee or
the Holder of any Security from exercising all
remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the express
limitations set forth in Article V and to the
rights, if any, under this Article of the holders of
Senior Indebtedness (1) in any case, proceeding,
dissolution, liquidation or other winding up,
assignment for the benefit of creditors or other
marshaling of assets and liabilities of the Company
referred to in Section 12.2, to receive, pursuant to
and in accordance with such Section, cash, property
and securities otherwise payable or deliverable to
the Trustee or such Holder, or (2) under the
conditions specified in Section 12.3, to prevent any
payment prohibited by such Section.
Section 12.7 Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof
authorizes and directs the Trustee on his behalf to
take such action as may be necessary or appropriate
to effectuate the subordination provided in this
Article and appoints the Trustee his attorney-in-
fact for any and all such purposes.
Section 12.8 No Waiver of Subordination Provisions.
No right of any present or future holder of any
Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act
on the part of the Company or by any act or failure
to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms,
provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder
may have or be otherwise charged with.
Without in any way limiting the generality of the
foregoing paragraph, the holders of Senior
Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or
the Holders of the Securities, without Incurring
responsibility to the Holders of the Securities and
without impairing or releasing the subordination
provided in this Article or the obligations
hereunder of the Holders of the Securities to the
holders of Senior Indebtedness, do any one or more
of the following: (a) change the manner, place or
terms of payment or extend the time of payment of,
or renew or alter, Senior Indebtedness or any
instrument evidencing the same or any agreement
under which Senior Indebtedness is outstanding; (b)
sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing
Senior Indebtedness; c release any Person liable in
any manner for the collection of Senior
Indebtedness; and (d) exercise or refrain from
exercising any rights against the Company and any
other Person.
Section 12.9 Notice to Trustee.
The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would
prohibit the making of any payment to or by the
Trustee in respect of the Securities.
Notwithstanding the provisions of this Article or
any other provision of this Indenture, the Trustee
shall not be charged with knowledge of the existence
of any facts which would prohibit the making of any
payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have
received written notice thereof from the Company or
a holder of Senior Indebtedness or from any trustee,
fiduciary or agent therefor; and, prior to the
receipt of any such written notice, the Trustee,
subject to the provisions of Section 6.1, shall be
entitled in all respects to assume that no such
facts exist; provided, however, that if the Trustee
shall not have received the notice provided for in
this Section at least three Business Days prior to
the date upon which by the terms hereof any money
may become payable for any purpose (including,
without limitation, the payment of the principal of
(and premium, if any) or interest on any Security),
then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power
and authority to receive such money and to apply the
same to the purpose for which such money was
received and shall not be affected by any notice to
the contrary which may be received by it within
three Business Days prior to such date.
Subject to the provisions of Section 6.1, the
Trustee shall be entitled to rely on the delivery to
it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor) to establish
that such notice has been given by a holder of
Senior Indebtedness (or a trustee, fiduciary or
agent therefor). In the event that the Trustee
determines in good faith that further evidence is
required with respect to the right of any Person as
a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this
Article, the Trustee may request that such Person
furnish evidence to the reasonable satisfaction of
the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person
is entitled to participate in such payment or
distribution and any other facts pertinent to the
rights of such Person under this Article, and if
such evidence is not furnished, the Trustee may
defer any payment to such Person pending judicial
determination as to the right of such Person to
receive such payment.
Section 12.10 Reliance on Judicial Order or
Certificate of Liquidating Agent.
Upon any amount or distribution of assets of the
Company referred to in this Article, the Trustee,
subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely
upon any order or decree entered by any court of
competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of
the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of
creditors, agent or other Person making such payment
or distribution, delivered to the Trustee or to the
Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in
such payment or distribution, the holders of Senior
Indebtedness and other indebtedness of the Company,
the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
Section 12.11 Rights of Trustee as a Holder of
Senior Indebtedness; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be
entitled to all the rights set forth in this Article
with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as any
other holder of Senior Indebtedness, and nothing in
this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.6.
Section 12.12 Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the
Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used
in this Article shall in such case (unless the
context otherwise requires) be construed as
extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as
if such Paying Agent were named in this Article in
addition to or in place of the Trustee; provided,
however, that Section 12.11 shall not apply to the
Company or any Affiliate of the Company if it or
such Affiliate acts as Paying Agent.
ARTICLE XIII
DEFEASANCE
Section 13.1 Company's Option to Effect Defeasance
or Covenant Defeasance.
The Company may, at its option by Board Resolution,
at any time, with respect to the Securities, elect
to have either Section 13.2 or 13.3 be applied to
all Outstanding Securities upon compliance with the
conditions set forth in this Article XIII.
Section 13.2 Defeasance and Discharge.
Upon the Company's exercise under Section 13.1 of
the option applicable to this Section 13.2, the
Company and any Guarantor shall be deemed to have
been discharged from their obligations with respect
to all Outstanding Securities on the date the
conditions set forth in Section 13.4 are satisfied
(hereinafter "defeasance"). For this purpose, such
defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness
represented by the Outstanding Securities, which
shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 13.3 and the other
Sections of this Indenture referred to in (A) and
(B) below, and to have satisfied all its other
obligations under such Securities and this Indenture
(and the Trustee, on demand of and at the expense of
the Company, shall execute proper instruments
acknowledging the same), except for the following
which shall survive until otherwise terminated or
discharged hereunder: (A) the rights of Holders of
Outstanding Securities to receive solely from the
trust fund described in Section 13.2 and as more
fully set forth in such Section, payments in respect
of the principal of (and premium, if any) and
interest on such Securities when such payments are
due, (B) the Company's obligations with respect to
such Securities under Sections 3.4. 3.5, 3.6, 10.2
and 10.3, c the rights, powers, trusts, duties and
immunities of the Trustee hereunder and the
Company_s obligations in connection therewith and
(D) this Article XIII. Subject to compliance with
this Article XIII, the Company may exercise its
option under this Section 13.2 notwithstanding the
prior exercise of its option under Section 13.3 with
respect to the Securities.
Section 13.3 Covenant Defeasance.
Upon the Company's exercise under Section 13.1 of
the option applicable to this Section 13.3, the
Company shall be released from its obligations under
any covenant contained in Section 8.1 and in
Sections 10.6 through 10.18 with respect to the
Outstanding Securities on and after the date the
conditions set forth in Section 13.4 are satisfied
(hereinafter, "covenant defeasance"), and the
Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction,
waiver, consent, declaration or Act of Holders (and
the consequences of any thereof) in connection with
such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder and
Holders of the Securities and the Guarantees and any
amounts deposited under Section 13.4 shall cease to
be subject to any obligations to, or the rights of,
any holder of Senior Indebtedness under Article XII,
Article XIV or otherwise. For this purpose, such
covenant defeasance means that, with respect to the
Outstanding Securities, the Company and any
Guarantor may omit to comply with and shall have no
liability in respect of any term, condition or
limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason
of any reference in any such covenant to any other
provision herein or in any other document and such
omission to comply shall not constitute a Default or
an Event of Default under Section 5.1c, but, except
as specified above, the remainder of this Indenture
and such Securities shall be unaffected thereby. In
addition, upon the Company's exercise under Section
13.1 of the option applicable to this Section 13.3,
Sections 5.1(f) and (g) shall not constitute
Defaults or Events of Default.
Section 13.4 Conditions to Defeasance.
The following shall be the conditions to application
of Section 13.1 and 13.2 or 13.3 to the Outstanding
Securities:
(1) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or
another trustee satisfying the requirements of
Section 6.8 who shall agree to comply with the
provisions of this Article XIII applicable to
it) as trust funds in trust for the purpose of
making the following payments, specifically
pledged as security for, and dedicated solely
to, the benefit of the Holders of such
Securities, (A) cash in U.S. Dollars in an
amount, (B) U.S. Government Obligations which
through the scheduled payment of principal and
interest in respect thereof in accordance with
their terms will provide, not later than one
day before the due date of any payment, cash in
U.S. Dollars in an amount, or c a combination
thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm
of independent public accountants expressed in
a written certification thereof delivered to
the Trustee, to pay and discharge and which
shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge the
principal of (and premium, if any) and interest
on the Outstanding Securities on the Stated
Maturity of such principal or installment of
principal (and premium, if any) or interest on
the day on which such payments are due and
payable in accordance with the terms of this
Indenture and of such Securities; provided that
the Trustee shall have been irrevocably
instructed to apply such money or the proceeds
of such U.S. Government Obligations to said
payments with respect to the Securities.
Before such a deposit, the Company may give to
the Trustee, in accordance with Section 11.3
hereof, a notice of its election to redeem all
of the Outstanding Securities at a future date
in accordance with Article XI, which notice
shall be irrevocable. For this purpose, "U.S.
Government Obligations" means securities that
are (x) direct obligations of the United States
of America for the timely payment of which its
full faith and credit is pledged or (y)
obligations of a Person controlled or
supervised by and acting as an agency or
instrumentality of the United States of America
the timely payment of which is unconditionally
guaranteed as a full faith and credit
obligation by the United States of America,
which, in either case, are not callable or
redeemable at the option of the issuer thereof;
(2) The Company shall have delivered to the Trustee
an Opinion of Counsel to the effect that (x)
the Company has received from, or there has
been published by, the Internal Revenue Service
a ruling or (y) since the date hereof there has
been a change in the applicable federal income
tax law, in either case to the effect that, and
based thereon such opinion shall confirm that,
the Holders of the Outstanding Securities will
not recognize income, gain or loss for federal
income tax purposes as a result of such
defeasance and will be subject to federal
income tax on the same amounts, in the same
manner and at the same times as would have been
the case if such defeasance had not occurred;
(3) No Default or Event of Default with respect to
the Securities shall have occurred and be
continuing on the date of such deposit or,
insofar as Subsection 5.1(f) or 5.1(g) is
concerned, at any time during the period ending
on the 93rd day after the date of such deposit
(it being understood that this condition shall
not be deemed satisfied until the expiration of
such period);
(4) Such defeasance shall not result in a breach or
violation of, or constitute a default under,
this Indenture (including, without limitation,
the provisions of Article XII) or any other
material agreement or instrument to which the
Company is a party or by which it is bound (and
in that connection, the Trustee shall have
received a certificate from the [Agent Bank]
under the Credit Agreement to that effect with
respect to the Credit Agreement if then in
effect);
(5) The Company shall have delivered to the Trustee
an Opinion of Counsel to the effect that:
(i) the irrevocable deposit of the trust funds
with the Trustee pursuant to Section 13.2(1)
will not constitute a transfer of property of
the Company or such other depositor voidable as
a fraudulent transfer or conveyance under
Sections 544(b) and 548 of the Federal
Bankruptcy Code, or any successor to such
Sections, or under Sections 273, 274, 275 and
276 of the New York Debtor and Creditor Law or
any successor to such Sections;
(ii) the irrevocable deposit of the trust funds
with the Trustee pursuant to Section 13.2(1)
will not constitute a transfer of property of
the Company or such other depositor voidable as
a preference under Section 547 of the Federal
Bankruptcy Code, or any successor to such
Section, in the event that after the passage of
a period of 93 days following such deposit a
voluntary or involuntary case under the Federal
Bankruptcy Code is commenced by or against the
Company or such other depositor; and
(iii) for so long as the trust funds are held
in trust by the Trustee pursuant to Section
13.2(1) for the benefit of the Holders, the
trust funds will not be considered assets of
the Company or such other depositor which may
be used to satisfy claims of creditors of the
Company or such other depositor in the event
that a voluntary or involuntary case under
the Federal Bankruptcy Code is commenced by
or against the Company or such other
depositor after the passage of a period of 93
days following the irrevocable deposit by the
Company or such other depositor of the trust
funds with the Trustee;
(6) The Company shall have delivered to the
Trustee an Officers' Certificate stating
that the deposit was not made by the
Company with the intent of defeating,
hindering, delaying or defrauding any
actual creditors of the Company; and
(7) The Company shall have delivered to the
Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all
conditions precedent provided for relating
to the defeasance under Section 13.2, or
the covenant defeasance under Section 13.3
(as the case may be) have been complied
with.
Section 13.5 Deposited Money and U.S. Government
Obligations to Be Held in Trust; Other Miscellaneous
Provisions.
Subject to the provisions of the last paragraph of
Section 10.3, all money and U.S. Government
Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this Section
13.5, the "Trustee") pursuant to Section 13.4 in
respect of the Outstanding Securities shall be held
in trust and applied by the Trustee, in accordance
with the provisions of such Securities and this
Indenture, to the payment, either directly or
through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all
sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but
such money need not be segregated from other funds
except to the extent required by law. Money and
U.S. Government Obligations so held in trust are not
subject to Article XII.
The Company shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or
assessed against the cash or U.S. Government
Obligations deposited pursuant to Section 13.4 or
the principal and interest received in respect
thereof other than any such tax, fee or other charge
which by law is for the account of the Holders of
the Outstanding Securities.
Section 13.6 Reinstatement.
If the Trustee or Paying Agent is unable to apply
any money in accordance with Section 13.5 by reason
of any order or judgment of any court or
governmental authority enjoining, restraining or
otherwise prohibiting such application, then the
Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though
no deposit had occurred pursuant to Section 13.2 or
Section 13.3, as the case may be, until such time as
the Trustee or Paying Agent is permitted to apply
all such money in accordance with Section 13.5;
provided, however, that, if the Company makes any
payment of principal of (or premium, if any) or
interest on any Security following the reinstatement
of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to
receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE XIV.
GUARANTEE OF SECURITIES
Section 14.1 Guarantee.
Subject to the provisions of this Article XIV, each
Guarantor hereby irrevocably and unconditionally
guarantees, as a primary obligor and not a surety,
to each Holder of a Security now or hereafter
authenticated and delivered by the Trustee and to
the Trustee and its successors and assigns,
irrespective of the validity and enforceability of
this Indenture, the Securities or obligations of the
Company hereunder or thereunder, the due and
punctual payment of the principal of, premium (if
any), interest (including post-petition interest in
any proceeding under any bankruptcy law whether or
not permitted thereby) and interest (including post-
petition interest in any proceeding under any
Bankruptcy Law to the full extent permitted thereby)
on overdue principal and interest, if any, if lawful
on such Security and all other Obligations payable
by the Company under this Indenture and the
Securities, when and as the same shall become due
and payable, whether by acceleration thereof, call
for redemption or otherwise (including amounts that
would become due but for the operation of the
automatic stay under Section 362(a) of the Federal
Bankruptcy Code), in accordance with the terms of
any such Security and of this Indenture. Each
Guarantor hereby agrees that its obligations
hereunder shall be absolute and unconditional,
irrespective of, and shall be unaffected by, any
failure to enforce the provisions of any such
Security or this Indenture, any waiver, modification
or indulgence granted to the Company with respect
thereto, by the Holder or the Trustee, or any other
circumstances which may otherwise constitute a legal
or equitable discharge of a surety or guarantor.
Each Guarantor hereby waives diligence, presentment,
filing of claims with a court in the event of a
merger or bankruptcy of the Company, any right to
require a proceeding first against the Company, the
benefit of discussion, protest or notice with
respect to any such Security or the Indebtedness
evidenced thereby and all demands whatsoever, and
covenants that this Guarantee shall not be
discharged as to any such Security except by payment
in full of the principal thereof, premium (if any),
all accrued interest thereon and all other
Obligations.
Each Guarantor shall be subrogated to all rights of
the Holders against the Company in respect of any
amounts paid to the Holders by such Guarantor
pursuant to the provisions of this Guarantee;
provided, however, that no Guarantor shall be
entitled to enforce, or to receive any payments
arising out of or based upon, such right of
subrogation until the principal of, premium (if any)
and interest on all of the Securities, all amounts
payable to the Trustee hereunder and all other
Obligations payable by the Company under this
Indenture and the Securities shall have been paid in
full.
No stockholder, officer, director, employer or
incorporator, past, present or future, of any
Guarantor, as such, shall have any personal
liability under this Guarantee by reason of his, her
or its status as such stockholder, officer,
director, employer or incorporator.
The Guarantee set forth in this Section 14.1 shall
not be valid or become obligatory for any purpose
with respect to a Security until the certificate of
authentication on such Security shall have been
signed by or on behalf of the Trustee.
Section 14.2 Execution and Delivery of Guarantee.
(a) To evidence its Guarantee set forth in
this Article XIV, each Guarantor hereby agrees
that a notation of such Guarantee, as
applicable, shall be placed on each Security
authenticated and delivered by the Trustee on
or after the date such Guarantor became a
Guarantor.
(b) Each Subsidiary required to become a
Subsidiary Guarantor hereunder pursuant to the
provisions of Section 10.18 shall execute and
deliver to the Trustee (i) a supplemental
indenture in form and substance satisfactory to
the Trustee, which subjects such person to the
provisions of this Indenture, as Guarantor and
(ii) an Opinion of Counsel to the effect that
such supplemental indenture has been duly
authorized and executed by such Subsidiary.
(c) This Indenture and the Parent Guarantee
shall be executed on behalf of Holding. Any
supplemental indenture and Subsidiary Guarantee
executed pursuant to the immediately preceding
clause (b) shall be executed on behalf of a
Subsidiary Guarantor by the Chairman of the
Board, the President or any Vice President of
Holding, or such Subsidiary Guarantor, as
applicable. If an Officer whose signature is
on this Indenture no longer holds that office
at the time the Trustee authenticates the
Security on which a Guarantee is endorsed, the
Guarantee shall be valid nevertheless. Each
Guarantor hereby agrees that the Guarantee set
forth in Section 14.1 shall remain in full
force and effect notwithstanding any failure to
endorse on each Security a notation of the
Guarantee.
(d) The delivery of any Security by the
Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the
Guarantee or Guarantees, as applicable, set
forth in this Indenture on behalf of the
Guarantor or Guarantors.
Section 14.3 Limitation of Guarantor's Liability.
Each Guarantor hereby confirms that it is its
intention that its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of
any bankruptcy law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal or state law. To effectuate
the foregoing intention, each Guarantor hereby
irrevocably agrees that the obligations under its
Guarantee shall be limited to the maximum amount as
will, after giving effect to such maximum amount and
all other (contingent or otherwise) liabilities of
such Guarantor that are relevant under such laws,
and after giving effect to any rights to
contribution pursuant to any agreement providing for
an equitable contribution among each Guarantor and
other Affiliates of the Company of payments made by
guarantees by such parties, such maximum amount
shall result in the obligations of each Guarantor in
respect of such maximum amount not constituting a
fraudulent transfer or conveyance.
Section 14.4 Guarantee Unconditional, etc.
Upon failure of payment when due of any amount so
guaranteed for whatever reason, each Guarantor will
be obligated to pay the same immediately. Each
Guarantor hereby agrees that its obligations
hereunder shall be continuing, absolute and
unconditional, irrespective of any of the following:
the recovery of any judgment against the Company or
any Guarantor, any extension, renewal, settlement,
compromise, waiver or release in respect of any
obligation of the Company under this Indenture or
any Security, by operation of law or otherwise; any
modification or amendment of or supplement to this
Indenture or any Security; any change in the
corporate existence, structure or ownership of the
Company, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting
the Company or its assets or any resulting release
or discharge of any obligation of the Company
contained in this Indenture or any Security; the
existence of any claim, set-off or other rights
which such Guarantor may have at any time against
the Company, the Trustee, any Holder or any other
Person, whether in connection herewith or any
unrelated transactions; provided that nothing herein
shall prevent the assertion of any such claim by
separate suit or compulsory counterclaim; any
invalidity or unenforceability relating to or
against the Company for any reason of this Indenture
or any Security, or any provision of applicable law
or regulation purporting to prohibit the payment by
the Company of the principal of or interest on any
Security or any other amount payable by the Company
under this Indenture; or any other act or omission
to act or delay of any kind by the Company, the
Trustee, any Holder or any other Person or any other
circumstance whatsoever which might, but for the
provisions of this paragraph, constitutes a legal or
equitable discharge of such Guarantor's obligations
hereunder. Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims
with a court in the event of insolvency or
bankruptcy of the Company, any right to require a
proceeding first against the Company, protest,
notice and all demand whatsoever and covenants that
this Guarantee will not be discharged except by the
complete performance of the obligations contained in
the Securities, this Indenture and in this Article
XIV. The Guarantor's obligations hereunder shall
remain in full force and effect until the Indenture
shall have terminated and the principal of, premium
(if any) and interest on the Securities and all
other Obligations payable by the Company under this
Indenture and the Securities shall have been paid in
full. If at any time any payment of the principal
of or interest on any Security or any other amount
payable by the Company under this Indenture or any
document is rescinded or must be otherwise restored
or returned upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, such
Guarantor_s obligations hereunder with respect to
such payment shall be reinstated as though such
payment had been due but not made at such time, and
this Article XIV, to the extent theretofore
discharged, shall be reinstated in full force and
effect. Each Guarantor further agrees that, as
between such Guarantor, on the one hand, and the
Holders and the Trustee, on the other hand, (i) the
maturity of the obligations guaranteed hereby may be
accelerated as provided in Article VI for the
purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition preventing
such acceleration in respect of the obligations
guaranteed hereby and (ii) in the event of any
declaration of acceleration of such obligations as
provided in Article VI, such obligations (whether of
not due and payable) shall forthwith become due and
payable by such Guarantor for the purpose of this
Article XIV. If at any time there is more than one
Guarantor, the obligation of each such Guarantor
hereunder shall be joint and several.
Section 14.5 Covenant of Holding.
The Guarantor will not engage in any type of
business activity other than: (i) maintenance of
its corporate existence and compliance with
applicable law, (ii) the issuance of equity
interests to any Person, (iii) the issuance of debt
securities or the borrowing of money unsecured by
any assets of the Guarantor, (iv) this Guarantee,
(v) any guarantee of any obligation of the Company
or any of its Subsidiaries not otherwise prohibited
by the Indenture, including without limitation, any
guarantee of the obligations under the Credit
Agreement; provided that any such guarantee is not
secured by any assets of the Guarantor, (vi) the
registration of any of its securities under the
Securities Act, the Exchange Act, or any state or
local securities law, (vii) the listing of any
securities with any securities exchange, any
interdealer quotation system or the National
Association of Securities Dealers, Inc. or its
successor, (vii) the ownership and disposition of
the Capital Stock of the Company, (ix) accounting,
legal, public relations, investor relations,
financial or management activities (including the
employment of employees, counsel, accountants,
consultants, bankers, advisors or other
professionals) in connection with, or which are
reasonably incidental to, any of the foregoing
activities, (x) merging with the Company or (xi)
activities in connection with, required by, or
reasonably incidental to, any of the foregoing.
This Section shall not apply to any Subsidiary
Guarantor.
Section 14.6 Guarantee Obligations Subordinated
to Guarantor Senior Indebtedness.
Each Guarantor covenants and agrees, and each Holder
of a Security, by his acceptance thereof, likewise
covenants and agrees, for the benefit of the
holders, from time to time, of Guarantor Senior
Indebtedness that, to the extent and in the manner
hereinafter set forth in this Article, the
Indebtedness represented by the Guarantee and all
payments pursuant to the Guarantee made by or on
behalf of such Guarantor are hereby expressly made
subordinate and subject in right of payment as
provided in this Article to the prior payment in
full in cash or Cash Equivalents of all Guarantor
Senior Indebtedness of such Guarantor; provided,
however, that the Guarantee, the Indebtedness
represented thereby and all payments pursuant to the
Guarantee made by or on behalf of such Guarantor in
all respects shall rank prior to all future
Subordinated Indebtedness.
Section 14.7 Payment over of Proceeds upon
Dissolution, etc., of a Guarantor.
In the event of (a) any insolvency or bankruptcy
case or proceeding, or any receivership,
liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to any
Guarantor or its assets, or (b) any liquidation,
dissolution or other winding up of any Guarantor,
whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or c any
assignment for the benefit of creditors or any other
marshaling of assets or liabilities of any
Guarantor, then and in any such event
(1) the holders of Guarantor Senior
Indebtedness of such Guarantor shall be
entitled to receive payment in full in cash or
Cash Equivalents of all amounts due on or in
respect of all Guarantor Senior Indebtedness,
or provision shall be made for such payment in
cash or Cash Equivalents, before the Holders of
the Securities are entitled to receive any
payment or distribution of any kind or
character by and on behalf of such Guarantor
(other than any payment or distribution in the
form of the Permitted Junior Securities of such
Guarantor); and
(2) any payment or distribution of assets of
such Guarantor of any kind or character,
whether in cash, property or securities (other
than a payment or distribution in the form of
Permitted Junior Securities of such Guarantor),
by set-off or otherwise, to which the Holders
or the Trustee would be entitled but for the
provisions of this Article shall be paid by the
liquidating trustee or agent or other person
making such payment or distribution, whether a
trustee in bankruptcy or liquidating trustee or
otherwise, directly to the holders of Guarantor
Senior Indebtedness of such Guarantor or their
representative or representatives or to the
trustee or trustees under any indenture under
which any instruments evidencing any of such
Guarantor Senior Indebtedness may have been
issued, ratably according to the aggregate
amounts remaining unpaid on account of the
Guarantor Senior Indebtedness held or
represented by each, to the extent necessary to
make payment in full in cash or Cash
Equivalents of all Guarantor Senior
Indebtedness remaining unpaid, after giving
effect to any concurrent payment or
distribution to the holders of such Guarantor
Senior Indebtedness; and
(3) in the event that, notwithstanding the
foregoing provisions of this Section, the
Trustee or the Holder of any Security shall
have received any payment or distribution of
assets of such Guarantor of any kind or
character, whether in cash, property or
securities, in respect of the Guarantor Senior
Subordinated Note Obligations before all
Guarantor Senior Indebtedness is paid in full
in cash or Cash Equivalents or payment thereof
provided for, then and in such event such
payment or distribution (other than a payment
or distribution in the form of Permitted Junior
Securities of such Guarantor) shall be paid
over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person
making payment or distribution of assets of
such Guarantor for application to the payment
of all Guarantor Senior Indebtedness remaining
unpaid, to the extent necessary to pay all
Guarantor Senior Indebtedness in full in cash
or Cash Equivalents, after giving effect to any
concurrent payment or distribution to or for
the holders of Guarantor Senior Indebtedness.
The consolidation of any Guarantor with, or the
merger of any Guarantor into, another person or
the liquidation or dissolution of any Guarantor
following the conveyance, transfer or lease of
its properties and assets substantially as an
entirety to another person upon the terms and
conditions set forth in Article Eight shall not
be deemed a dissolution, winding up,
liquidation, reorganization, assignment for the
benefit of creditors or marshaling of assets
and liabilities of the Guarantor for the
purposes of this Section if the person formed
by such consolidation or into which such
Guarantor is merged or the person which
acquires by conveyance, transfer or lease such
properties and assets substantially as an
entirety, as the case may be, shall, as a part
of such consolidation, merger, conveyance,
transfer or lease, comply with the conditions
set forth in Article Eight.
Section 14.8 Suspension of Guarantee Obligations
When Senior Indebtedness in Default.
(a) Upon (1) the occurrence of a Payment
Default and (2) receipt by the Trustee of
written notice of such occurrence, then no
payment or distribution of any assets of any
Guarantor of any kind or character shall be
made by such Guarantor on account of the
Guarantor Senior Subordinated Note
Obligations or on account of the purchase or
redemption or other acquisition of Securities
or Guarantee of such Guarantor unless and
until such Payment Default shall have been
cured or waived in writing or shall have
ceased to exist or the Senior Indebtedness as
to which such Payment Default relates shall
have been discharged or paid in full in cash
or Cash Equivalents, after which such
Guarantor shall resume making any and all
required payments in respect of the
Guarantee, including any missed payments.
(b) During the Payment Blockage Period in
respect of the Securities, no payment or
distribution of any assets of any Guarantor
of any kind or character shall be made by
such Guarantor on account of the Guarantor
Senior Subordinated Note Obligations or on
account of the purchase or redemption or
other acquisition of Securities or Guarantee
of such Guarantor; provided, however, that
the foregoing prohibition shall not apply
unless such Payment Blockage Period has been
instituted under Section 12.3(ii) by the
representative of holders of Specified Senior
Indebtedness which also constitutes Guarantor
Senior Indebtedness. Upon the termination of
any Payment Blockage Period, subject to
Section 14.7 and Section 14.8(a) (if
applicable), such Guarantor shall resume
making any and all required payments in
respect of its obligations under this
Guarantee.
(c) In the event that, notwithstanding the
foregoing, any Guarantor shall make any
payment to the Trustee or the Holder of any
Security prohibited by the foregoing
provisions of this Section, then and in such
event such payment shall be paid over and
delivered forthwith to such Guarantor.
Section 14.9 Subrogation to Rights of Holders of
Guarantor Senior Indebtedness.
Subject to the payment in full in cash or Cash
Equivalents of all Guarantor Senior Indebtedness of
the Guarantors and all Senior Indebtedness of the
Company, the Holders of the Securities shall be
subrogated to the rights of the holders of such
Guarantor Senior Indebtedness of the Guarantors to
receive payments and distributions of cash, property
and securities of a Guarantor applicable to such
Guarantor Senior Indebtedness of the Guarantors
until all amounts due under the Guarantee of such
Guarantor shall be paid in full. For purposes of
such subrogation, no payments or distributions to
the holders of Guarantor Senior Indebtedness of any
cash, property or securities of such Guarantor to
which the Holders of the Securities or the Trustee
would be entitled except for the provisions of this
Article, and no payments over pursuant to the
provisions of this Article to the holders of
Guarantor Senior Indebtedness of the Guarantors by
Holders of the Securities or the Trustee, shall, as
among such Guarantor, its creditors other than
holders of Guarantor Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment
or distribution by such Guarantor to or on account
of the Guarantor Senior Indebtedness.
Section 14.10 Guarantor Provisions Solely to
Define Relative Rights.
The subordination provisions of this Article are and
are intended solely for the purpose of defining the
relative rights of the Holders of the Securities on
the one hand and the holders of Guarantor Senior
Indebtedness of each Guarantor and, to the extent
set forth in Section 14.8, holders of Guarantor
Senior Indebtedness on the other hand. Nothing
contained in this Article (other than a release
pursuant to Section 14.13) or elsewhere in this
Indenture or in the Securities is intended to or
shall (a) impair, as between each Guarantor and the
Holders of the Securities, the obligations under the
Guarantee as and when the same shall become due and
payable in accordance with their terms; or (b)
affect the relative rights against such Guarantor of
the Holders of the Securities and creditors of such
Guarantor other than the holders of Guarantor Senior
Indebtedness of such Guarantor; or (c) prevent the
Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by
applicable law upon Default under this Indenture,
subject to the express limitations set forth in
Article Five and the rights, if any, under this
Article of the holders of Guarantor Senior
Indebtedness of the Guarantors hereunder and, to the
extent set forth in Section 14.8, holders of
Designated Senior Indebtedness (1) in any case,
proceeding, dissolution, liquidation or other
winding-up, assignment for the benefit of creditors
or other marshaling of assets and liabilities of the
Guarantor referred to in Section 14.7, to receive,
pursuant to and in accordance with such Section,
cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (2)
under the conditions specified in Section 14.8, to
prevent any payment prohibited by such Section or
enforce their rights pursuant to Section 14.8c.
The failure by any Guarantor to make a payment in
respect of its obligations under this Guarantee by
reason of any provision of this Article shall not be
construed as preventing the occurrence of a Default
or an Event of Default hereunder.
Section 14.11 Trustee to Effectuate Subordination
of Guarantee Obligations.
Each Holder of a Security by his acceptance thereof
authorizes and directs the Trustee on his behalf to
take such action as may be necessary or appropriate
to effectuate the subordination provided in this
Article and appoints the Trustee his attorney-in-
fact for any and all such purposes.
Section 14.12 No Waiver of Guarantee Subordination
Provisions.
(a) No right of any present or future holder
of any Guarantor Senior Indebtedness of any
Guarantor to enforce subordination as herein
provided shall at any time in any way be
prejudiced or impaired by any act or failure
to act on the part of the Company or any
Guarantor or by any act or failure to act, in
good faith, by any such holder, or by any non-
compliance by the Company or any Guarantor
with the terms, provisions and covenants of
this Indenture, regardless of any knowledge
thereof any such holder may have or be
otherwise charged with.
(b) Without limiting the generality of
subsection (a) of this Section 14.12, the
holders of Guarantor Senior Indebtedness of
any Guarantor may, at any time and from time
to time, without the consent of or notice to
the Trustee or the Holders of the Securities,
without incurring responsibility to the
Holders of the Securities and without
impairing or releasing the subordination
provided in this Article Fourteen or the
obligations hereunder of the Holders of the
Securities to the holders of such Guarantor
Senior Indebtedness, do any one or more of
the following: (1) change the manner, place
or terms of payment or extend the time of
payment of or renew or alter, such Guarantor
Senior Indebtedness or any Senior
Indebtedness as to which such Guarantor
Senior Indebtedness relates or any instrument
evidencing the same or any agreement under
which such Guarantor Senior Indebtedness or
such Senior Indebtedness is outstanding; (2)
sell, exchange, release or otherwise deal
with any property pledged, mortgaged or
otherwise securing such Guarantor Senior
Indebtedness or any Senior Indebtedness as to
which such Guarantor Senior Indebtedness
relates; (3) release any person liable in any
manner for the collection or payment of such
Guarantor Senior Indebtedness or any Senior
Indebtedness as to which such Guarantor
Senior Indebtedness relates; and (4) exercise
or refrain from exercising any rights against
such Guarantor and any other person.
Section 14.13 Release of a Guarantor.
(a) Notwithstanding anything to the contrary
contained in this Indenture, in the event
that a Guarantor is released from all
obligations which pursuant to Section 10.18
obligate it to become a Guarantor, such
Guarantor shall be released from all
obligations under its Guarantee (provided
that the provisions of Section 10.18 shall
apply anew in the event that such Guarantor
subsequent to being released incurs any
obligations that pursuant to Section 10.18
obligate it to become a Guarantor).
(b) In addition, except in the case where
the prohibition on transfer in Section 8.1 is
applicable, upon the sale or disposition of
all of the Capital Stock of a Guarantor by
the Company or a Subsidiary, or upon the
consolidation or merger of a Guarantor with
or into any person (in each case, other than
to the Company or an Affiliate of the
Company), such Guarantor shall be deemed
automatically and unconditionally released
and discharged from all obligations under
this Article without any further action
required on the part of the Trustee or any
Holder, and all obligations of such
Guarantor, if any, in respect of any Senior
Indebtedness shall also terminate upon such
transaction; provided, however, that each
such Guarantor is sold or disposed of in
accordance with Section 10.16; and provided
further that the foregoing proviso shall not
apply to the sale or disposition of a
Guarantor in a foreclosure to the extent that
such proviso would be inconsistent with the
requirements of the Uniform Commercial Code.
(c) The Trustee shall deliver an appropriate
instrument evidencing the release of a
Guarantor upon receipt of a request of the
Company accompanied by an Officers'
Certificate certifying as to the compliance
with this Section 14.13. Any Guarantor not
so released or the entity surviving such
Guarantor, as applicable, shall remain or be
liable under its Guarantee as provided in
this Article.
The Trustee shall execute any documents reasonably
requested by the Company or a Guarantor in order to
evidence the release of such Guarantor from its
obligations under its Guarantee endorsed on the
Securities and under this Article.
Except as set forth in Articles VII and X and this
Section 14.13, nothing contained in the Indenture or
in any of the Securities shall prevent any
consolidation or merger of a Guarantor with or into
the Company or another Guarantor or shall prevent
any sale or conveyance of the property of a
Guarantor as an entirety or substantially as an
entirety to the Company or another Guarantor.
* * * * *
This Indenture may be signed in any number of
counterparts with the same effect as if the
signatures to each counterpart were upon a single
instrument, and all such counterparts together shall
be deemed an original of this Indenture.
IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed, and their
respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above
written.
HOMELAND STORES, INC.
Attest:_________________ By_____________________
Title: Title:
HOMELAND HOLDING CORPORATION
Attest:_________________ By_____________________
Title: Title:
FLEET NATIONAL BANK
Attest:_________________ By_____________________
Title: Assistant Vice President
STATE OF )
: ss.:
COUNTY OF )
On the _____ day of __________, 1996, before me
personally came _________________, to me known, who,
being by me duly sworn, did depose and say that s/he
resides at
_________________________________________________;
that s/he is _______________ of HOMELAND STORES,
INC., one of the corporations described in and which
executed the above instrument; that s/he knows the
corporate seal of such corporation; that the seal
affixed to said instrument is such corporate seal;
that it was so affixed pursuant to authority of the
Board of Directors of such corporation; and that
s/he signed her/his name thereto pursuant to like
authority.
(NOTARIAL SEAL)
_____________________
Notary Public
STATE OF )
: ss.:
COUNTY OF )
On the _____ day of __________, 1996, before me
personally came _________________, to me known, who,
being by me duly sworn, did depose and say that s/he
resides at
_________________________________________________;
that s/he is _______________ of HOMELAND HOLDING
CORPORATION, one of the corporations described in
and which executed the above instrument; that s/he
knows the corporate seal of such corporation; that
the seal affixed to said instrument is such
corporate seal; that it was so affixed pursuant to
authority of the Board of Directors of such
corporation; and that s/he signed her/his name
thereto pursuant to like authority.
(NOTARIAL SEAL)
______________________
Notary Public
STATE OF )
: ss.:
COUNTY OF )
On the _____ day of __________, 1996, before me
personally came _________________, to me known, who,
being by me duly sworn, did depose and say that s/he
resides at
_________________________________________________;
that s/he is _______________ of UNITED STATES TRUST
COMPANY OF NEW YORK, one of the corporations
described in and which executed the above
instrument; that s/he knows the corporate seal of
such corporation; that the seal affixed to said
instrument is such corporate seal; that it was so
affixed pursuant to authority of the Board of
Directors of such corporation; and that s/he signed
her/his name thereto pursuant to like authority.
(NOTARIAL SEAL)
_________________________
Notary Public
Exhibit T3E1
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: )
)
HOMELAND STORES, INC., ) Case No. 96-747 (PJW)
) Chapter 11
Debtor. )
) (Jointly Administered)
IN RE: )
)
HOMELAND HOLDING CORPORATION, ) Case No. 96-748 (PJW)
) Chapter 11
Debtor. )
FIRST AMENDED
DISCLOSURE STATEMENT FOR
JOINT PLAN OF REORGANIZATION OF
HOMELAND STORES, INC. AND HOMELAND HOLDING CORPORATION
Homeland Stores, Inc., a Delaware corporation (the
"Company"), and Homeland Holding Corporation, a
Delaware corporation ("Holding" and, together with
the Company, the "Debtors"), hereby submit this
First Amended Disclosure Statement for Joint Plan of
Reorganization of Homeland Stores, Inc. and Homeland
Holding Corporation (the "Disclosure Statement")
pursuant to Section 1125 of the United States
Bankruptcy Code, as amended (the "Bankruptcy Code"),
in connection with (a) the solicitation of votes on
the First Amended Joint Plan of Reorganization of
Homeland Stores, Inc. and Homeland Holding
Corporation (the "Plan") filed with the United
States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") on May 13, 1996, and (b)
the hearing on confirmation of the Plan (the
"Confirmation Hearing") before the Bankruptcy Court
scheduled for July 19, 1996. A copy of the Plan is
set forth in Appendix A to this Disclosure
Statement. Capitalized terms used herein and not
otherwise defined herein have the respective
meanings assigned to them in the Plan.
On June 13, 1996, after notice and a hearing, the
Bankruptcy Court approved this Disclosure Statement
as containing _adequate information_ within the
meaning of Section 1125(d) of the Bankruptcy Code to
permit holders of Claims against, and Interests in,
the Debtors who are entitled to vote on the Plan to
make an informed judgment about the Plan. THE
APPROVAL BY THE BANKRUPTCY COURT OF THIS DISCLOSURE
STATEMENT DOES NOT CONSTITUTE A RECOMMENDATION BY
THE BANKRUPTCY COURT EITHER FOR OR AGAINST THE PLAN.
A description of the various Classes of Claims and
Interests is contained in this Disclosure Statement
under "SUMMARY OF THE PLAN" and a description of the
persons entitled to vote on the Plan, voting
procedures and requirements for confirmation is
contained in this Disclosure Statement under
"CONFIRMATION AND CONSUMMATION PROCEDURE." If you
hold a Claim in Class 3 or Class 5 or an Interest in
Class 7, you are entitled to vote on the Plan and a
ballot is enclosed. Before voting, you are urged to
read and carefully consider the Plan and this entire
Disclosure Statement.
To be counted for voting purposes, ballots must be
received no later than 5:00 p.m., New York City
time, on July 15, 1996, unless such date is extended
in the Debtors' sole discretion, at the following
address:
BY MAIL, HAND OR OVERNIGHT COURIER:
HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
C/O MORROW & CO., INC.
909 THIRD AVENUE
NEW YORK, NEW YORK 10022
If you are a beneficial holder and are sending your
ballot to your record holder or nominee, mail it
with enough time (7 business days) before the
deadline to enable your record holder or nominee to
complete its master ballot and send the master
ballot to the balloting agent by the deadline. In
voting for or against the Plan, please use only the
ballot sent to you with this Disclosure Statement.
If you do not have a ballot or need more than one,
please contact Morrow & Co., Inc. (212) 754-8000.
General unsecured creditors in Class 5 who hold
Claims that are contingent, disputed or unliquidated
will not be entitled to vote on the Plan unless,
upon timely motion of such creditor, the Bankruptcy
Court has estimated such Claim for voting purposes
pursuant to Bankruptcy Rule 3018, or a proof of
claim has been timely filed by such creditor which
sets forth a liquidated claim amount.
The Bankruptcy Court will hold the Confirmation
Hearing on July 19, 1996, at 12:00 p.m. (noon),
Wilmington, Delaware time, at the United States
Courthouse, Marine, Midland Plaza, 6th Floor, 824
Market Street, Wilmington, Delaware 19801-3577. The
hearing may be adjourned from time to time without
further notice. Any objection to the confirmation
of the Plan must be in writing and must be filed
with the Clerk of the Bankruptcy Court no later than
4:30 p.m., Wilmington, Delaware time, on July 15,
1996 and served on counsel for the Debtors and each
of the other persons listed on Schedule A no later
than 5:00 p.m., Wilmington, Delaware time, on July
15, 1996. Any such objection must comply with all
requirements of the Order and Notice accompanying
this Disclosure Statement.
NO REPRESENTATIONS WITH RESPECT TO THE DEBTORS,
THEIR ASSETS, FUTURE BUSINESS OPERATIONS, RESULTS OF
OPERATIONS OR FINANCIAL CONDITION HAVE BEEN
AUTHORIZED BY THE DEBTORS OR ANY OTHER PERSON OTHER
THAN REPRESENTATIONS CONTAINED HEREIN. THIS
DISCLOSURE STATEMENT HAS BEEN PREPARED BY THE
DEBTORS FROM INFORMATION CONTAINED IN THEIR BOOKS
AND RECORDS OR OBTAINED FROM OTHER SOURCES BELIEVED
BY THE DEBTORS TO BE ACCURATE. UNLESS OTHERWISE
INDICATED, NONE OF THE INFORMATION CONTAINED HEREIN
HAS BEEN SUBJECTED TO AN AUDIT.
THE SUMMARIES OF THE PLAN AND THE OTHER DOCUMENTS
CONTAINED HEREIN ARE QUALIFIED BY REFERENCE TO THE
PLAN AND THE OTHER DOCUMENTS THEMSELVES. ALL
SCHEDULES AND APPENDICES TO THE PLAN NOT INCLUDED
HEREWITH (INCLUDING THE PLAN SUPPLEMENT) WILL BE
FILED WITH THE BANKRUPTCY COURT AND AVAILABLE FOR
INSPECTION IN THE OFFICE OF THE CLERK OF THE
BANKRUPTCY COURT DURING NORMAL COURT HOURS, NOT
FEWER THAN TEN DAYS PRIOR TO THE CONFIRMATION
HEARING OR SUCH SHORTER PERIOD AS THE BANKRUPTCY
COURT MAY ALLOW.
THE STATEMENTS CONTAINED HEREIN ARE MADE AS OF THE
DATE HEREOF, UNLESS ANOTHER TIME IS SPECIFIED
HEREIN. THE DELIVERY OF THIS DISCLOSURE STATEMENT
DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
FACTS SET FORTH HEREIN SINCE THE DATE OF THIS
DISCLOSURE STATEMENT AND/OR THE DATE THAT THE
MATERIALS RELIED UPON IN PREPARATION OF THIS
DISCLOSURE STATEMENT WERE COMPILED. ANY ESTIMATES
OF CLAIMS AND INTERESTS SET FORTH IN THIS DISCLOSURE
STATEMENT MAY VARY FROM THE FINAL AMOUNTS OF CLAIMS
OR INTERESTS ALLOWED BY THE BANKRUPTCY COURT.
THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON FOR
ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON
THE PLAN. AS TO CONTESTED MATTERS, ADVERSARY
PROCEEDINGS AND OTHER PENDING OR THREATENED ACTIONS,
THIS DISCLOSURE STATEMENT SHALL NOT BE CONSTRUED AS
AN ADMISSION OR STIPULATION, BUT RATHER AS
STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS GOVERNED
BY RULE 408 OF THE FEDERAL RULES OF EVIDENCE AND ANY
OTHER STATUTE OR RULE OF SIMILAR IMPORT.
THIS DISCLOSURE STATEMENT SHALL NEITHER BE
ADMISSIBLE IN ANY PROCEEDING INVOLVING THE DEBTORS
OR ANY OTHER PARTY NOR BE CONSTRUED TO BE ADVICE ON
THE TAX, SECURITIES OR OTHER LEGAL EFFECTS OF THE
PLAN. EACH CREDITOR SHOULD, THEREFORE, CONSULT WITH
ITS OWN LEGAL, BUSINESS, FINANCIAL AND TAX ADVISORS
AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION,
THE PLAN OR THE TRANSACTIONS CONTEMPLATED THEREBY.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES AGENCY NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES AGENCY PASSED UPON THE ACCURACY OR THE
ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
TABLE OF CONTENTS
Page
I.INTRODUCTION AND SUMMARY . . . . . . . . . . . . . . .1
A.General . . . . . . . . . . . . . . . . . . . . . .1
B.Principal Elements of the Restructuring . . . . . .1
1.New Bank Financing. . . . . . . . . . . . . . . .2
2.Senior Secured Note Exchange. . . . . . . . . . .2
3.Trade Claims. . . . . . . . . . . . . . . . . . .3
4.General Unsecured Claims. . . . . . . . . . . . .4
5.Equity Recapitalization . . . . . . . . . . . . .5
6.Tradeability of New Securities. . . . . . . . . .6
7.Charter Amendments. . . . . . . . . . . . . . . .7
8.Modified Union Agreements . . . . . . . . . . . .8
9.Rejection of Certain Closed Store Leases. . . . .9
10. Management Stock Option Plan . . . . . . . 10
11. Releases . . . . . . . . . . . . . . . . . 10
12. Boards of Directors. . . . . . . . . . . . 11
II. THE RESTRUCTURING . . . . . . . . . . . . . . . 11
A.Background . . . . . . . . . . . . . . . . . . . 11
1.1992 Refinancing. . . . . . . . . . . . . . . . 11
2.Increased Competition and Lower Margins . . . . 11
3.AWG Transactions. . . . . . . . . . . . . . . . 12
4.Restructuring of Old Notes and Refinancing
of 1992 Credit Agreement . . . . . . . . . . . 13
5.New Management Team . . . . . . . . . . . . . . 13
6.Post-AWG Sale Operating Results . . . . . . . . 14
B.Restructuring Discussions . . . . . . . . . . . . 14
1.Retention of Restructuring Professionals;
Formation of Noteholders' Committee. . . . . . 14
2.Strategic Sale Efforts. . . . . . . . . . . . . 15
3.Waivers of Certain Events of Default. . . . . . 15
4.1996 Union Contract Modifications . . . . . . . 16
5.Agreement in Principle with the
Noteholders' Committee . . . . . . . . . . . . 17
6.Sale of Ponca City Store. . . . . . . . . . . . 17
C.Summary of Classification and Treatment of Claims 17
D.Conditions to Consummation of the Restructuring . 18
E.Certain Significant Effects of the Restructuring. 19
F.Business Plan . . . . . . . . . . . . . . . . . . 20
G.1996 Budget . . . . . . . . . . . . . . . . . . . 22
H.Capitalization. . . . . . . . . . . . . . . . . . 23
III. THE CHAPTER 11 CASES. . . . . . . . . . . . . . 24
A. Retention of Professionals. . . . . . . . 24
C DIP Facility. . . . . . . . . . . . . . . 24
D.Payment of Certain Pre-Petition Claims. . . . . . 25
E.Continuation of Certain Consumer Practices. . . . 26
F.Other First Day Orders. . . . . . . . . . . . . . 26
IV. RISK FACTORS. . . . . . . . . . . . . . . . . . 27
A.Business Risks. . . . . . . . . . . . . . . . . . 27
1.Continuing Leverage; Financial Covenant
Restrictions . . . . . . . . . . . . . . . . . 27
2.Competition . . . . . . . . . . . . . . . . . . 28
3.AWG Supply Relationship . . . . . . . . . . . . 28
4.Projections . . . . . . . . . . . . . . . . . . 29
5.Unions. . . . . . . . . . . . . . . . . . . . . 29
B.Bankruptcy Risks. . . . . . . . . . . . . . . . . 29
1.Disruption of Operations. . . . . . . . . . . . 29
2.Certain Risks of Non-Acceptance . . . . . . . . 30
3.Certain Risks of Non-Confirmation . . . . . . . 31
4.Certain Risks Regarding Classification of
Claims and Interests . . . . . . . . . . . . . 31
C.Risks Relating to the New Securities. . . . . . . 32
1.Potential Illiquidity of the New Securities . . 32
2.Restrictions on Transfer. . . . . . . . . . . . 32
3.Dilution. . . . . . . . . . . . . . . . . . . . 33
4.No Dividends. . . . . . . . . . . . . . . . . . 36
5.Subordination of the New Notes. . . . . . . . . 36
6.New Note Guarantee; Holding Company Structure . 37
D.Certain Federal Income Tax Consequences . . . . . 37
V.FINANCIAL INFORMATION. . . . . . . . . . . . . . . . 38
A.Selected Financial Information. . . . . . . . . . 38
B.Projected and Pro Forma Financial Information . . 39
1.Pro Forma Projected Balance Sheets. . . . . . . 41
2.Pro Forma Projected Capitalization. . . . . . . 45
3.Pro Forma Projected Statements of Operations. . 46
4.Projected Balance Sheets. . . . . . . . . . . . 53
5.Projected Statements of Cash Flow . . . . . . . 54
VI. THE COMPANY . . . . . . . . . . . . . . . . . . 55
A.General . . . . . . . . . . . . . . . . . . . . . 55
B.AWG Supply Agreement. . . . . . . . . . . . . . . 55
C.The Company's Supermarkets. . . . . . . . . . . . 56
D.Merchandising Strategy and Pricing. . . . . . . . 58
E.Customer Service. . . . . . . . . . . . . . . . . 58
F.Advertising and Promotion . . . . . . . . . . . . 58
G.Products. . . . . . . . . . . . . . . . . . . . . 59
H.Employees and Labor Relations . . . . . . . . . . 59
I.Computer and Management Information Systems . . . 60
J.Competition . . . . . . . . . . . . . . . . . . . 60
K.Trademarks and Service Marks. . . . . . . . . . . 61
L.Regulatory Matters. . . . . . . . . . . . . . . . 61
M.Properties. . . . . . . . . . . . . . . . . . . . 61
N.Legal Proceedings . . . . . . . . . . . . . . . . 62
1.Routine Litigation. . . . . . . . . . . . . . . 62
2.Withdrawal Liability Dispute. . . . . . . . . . 62
VII. BOARDS OF DIRECTORS . . . . . . . . . . . . . . 63
A.Current Members . . . . . . . . . . . . . . . . . 63
B.Proposed Members. . . . . . . . . . . . . . . . . 64
C.Biographical Information. . . . . . . . . . . . . 64
VIII. MANAGEMENT. . . . . . . . . . . . . . . . . . . 66
A.Management. . . . . . . . . . . . . . . . . . . . 66
B.Biographical Information. . . . . . . . . . . . . 66
C.Executive Compensation. . . . . . . . . . . . . . 67
D.Employment Agreements . . . . . . . . . . . . . . 69
E.Management Incentive Plan . . . . . . . . . . . . 70
F.Retirement Plan . . . . . . . . . . . . . . . . . 71
IX. STOCK OWNERSHIP . . . . . . . . . . . . . . . . 71
X.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . 73
XI. SUMMARY OF THE PLAN . . . . . . . . . . . . . . 74
A.Classification and Treatment of Claims and
Interests . . . . . . . . . . . . . . . . . . . . 75
1.General . . . . . . . . . . . . . . . . . . . . 75
2.Treatment of Unclassified Claims. . . . . . . . 76
(a) Administrative Claims . . . . . . . . . 76
(b) Priority Tax Claims . . . . . . . . . . 77
3.Classification and Treatment of Classified
Claims and Interests. . . . . . . . . . . . . . 77
(a) Class 1-Allowed Priority Claims . . . . . 77
(b) Class 2-Allowed Claims of the Old Banks . 77
(c) Class 3-Allowed Secured Noteholder Claims 78
(d) Class 4-Allowed Miscellaneous Secured
Claims. . . . . . . . . . . . . . . . . . 79
(e) Class 5-General Unsecured Claims. . . . . 79
(f) Class 6-Allowed Interests of Holding as
Sole Shareholder of the Company. . . . . 80
(g) Class 7-Allowed Interests of Holders of
Old Common Stock. . . . . . . . . . . . . 80
(h) Class 8-Allowed Interests of Holders of
Old Warrants. . . . . . . . . . . . . . . 81
B.Means for Implementation of the Plan. . . . . . . 81
1.Issuance of New Securities. . . . . . . . . . . 81
2.Listing of New Common Stock; 1934 Act Filing. . 81
3.Effectiveness of Agreements . . . . . . . . . . 81
4.Charter Amendments. . . . . . . . . . . . . . . 82
5.Management. . . . . . . . . . . . . . . . . . . 82
7.Surrender and Cancellation of Instruments . . . 82
8.Retiree Benefits. . . . . . . . . . . . . . . . 83
9.Workers-Compensation Claims under Prior
Self-Insurance Program. . . . . . . . . . . . . 83
C.Other Provisions of the Plan. . . . . . . . . . . 84
1.Executory Contracts and Unexpired Leases. . . . 84
2.Disputed Claims . . . . . . . . . . . . . . . . 85
3.Distributions . . . . . . . . . . . . . . . . . 86
4.Bar Dates . . . . . . . . . . . . . . . . . . . 88
5.Conditions to Consummation. . . . . . . . . . . 89
6.Amendments to or Modification of the Plan . . . 89
7.Revocation of the Plan. . . . . . . . . . . . . 90
8.Releases. . . . . . . . . . . . . . . . . . . . 90
D.Effects of Plan Confirmation. . . . . . . . . . . 91
1.Vesting of Assets; Reservation of Claims. . . . 91
2.Discharge . . . . . . . . . . . . . . . . . . . 91
3.Injunction. . . . . . . . . . . . . . . . . . . 91
4.Retention of Jurisdiction . . . . . . . . . . . 91
XII. CONFIRMATION AND CONSUMMATION PROCEDURE . . . . 92
A.Solicitation of Votes . . . . . . . . . . . . . . 92
1.Who May Vote. . . . . . . . . . . . . . . . . . 92
2.Ballots . . . . . . . . . . . . . . . . . . . . 93
B.Confirmation Hearing. . . . . . . . . . . . . . . 94
C.Confirmation. . . . . . . . . . . . . . . . . . . 94
1.Acceptance by Impaired Classes. . . . . . . . . 95
2.Confirmation Without Acceptance by All
Impaired Classes . . . . . . . . . . . . . . . 95
(a) Fair and Equitable. . . . . . . . . . . 95
(b) Unfair Discrimination . . . . . . . . . 96
3.Best Interests. . . . . . . . . . . . . . . . . 96
4.Feasibility . . . . . . . . . . . . . . . . . . 97
D.Consummation. . . . . . . . . . . . . . . . . . . 98
XIII. ALTERNATIVES TO THE PLAN. . . . . . . . . . . . 98
A.Alternative Plan of Reorganization. . . . . . . . 98
B.Liquidation Under Chapter 7 . . . . . . . . . . . 98
XIV. DESCRIPTION OF MODIFIED UNION AGREEMENTS. . . . 99
A.General . . . . . . . . . . . . . . . . . . . . . 99
B.Wage Rate, Benefit Contribution Reductions
and Work Rule Changes . . . . . . . . . . . . . .100
C.Employee Buyout Offer . . . . . . . . . . . . . .100
D.Stock Issuances to, and Purchases by, the ESOT. .100
E.Board Representation. . . . . . . . . . . . . . .101
XV. SECURITIES LAW CONSIDERATIONS . . . . . . . . .101
A.Original Issuance of Securities . . . . . . . . .101
B.Subsequent Transfers of Securities. . . . . . . .102
XVI. DESCRIPTION OF NEW NOTES. . . . . . . . . . . .104
A.General . . . . . . . . . . . . . . . . . . . . .104
B.Maturity, Interest and Principal. . . . . . . . .105
C.Optional Redemption . . . . . . . . . . . . . . .105
D.Subordination . . . . . . . . . . . . . . . . . .106
E.Certain Covenants . . . . . . . . . . . . . . . .108
F.Merger, Sale of Assets, Etc . . . . . . . . . . .114
G.Events of Default . . . . . . . . . . . . . . . .115
H.Defeasance or Covenant Defeasance of New
Indenture . . . . . . . . . . . . . . . . . . . .118
I.Satisfaction and Discharge. . . . . . . . . . . .120
J.Amendments and Waivers. . . . . . . . . . . . . .121
K.Governing Law . . . . . . . . . . . . . . . . . .121
L.The New Trustee . . . . . . . . . . . . . . . . .121
M.Certain Definitions . . . . . . . . . . . . . . .122
XVII. DESCRIPTION OF NEW COMMON STOCK . . . . . . . .137
A.General . . . . . . . . . . . . . . . . . . . . .137
B.Registration Rights Agreements. . . . . . . . . .137
1.General . . . . . . . . . . . . . . . . . . . .137
2.Equity Registration Rights Agreement. . . . . .138
3.Noteholder Registration Rights Agreement. . . .139
XVIII. DESCRIPTION OF NEW WARRANTS . . . . . . . . . .140
A.General . . . . . . . . . . . . . . . . . . . . .140
B.Exercise of New Warrants. . . . . . . . . . . . .140
C.Adjustments . . . . . . . . . . . . . . . . . . .141
D.Limitation on Right to Vote or Receive Dividends.143
XIX. DESCRIPTION OF THE NEW CREDIT AGREEMENT . . . .143
XX. ACCOUNTING TREATMENT. . . . . . . . . . . . . .144
XXI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . .145
A.Certain Federal Income Tax Consequences of
the Plan to Holders of Old Notes, to Holders
of General Unsecured Claims and to Holders of
Old Common Stock. . . . . . . . . . . . . . . . .146
1.Exchange of Old Notes . . . . . . . . . . . . .146
2.Exchange of General Unsecured Claims. . . . . .147
3.Exchange of Old Common Stock. . . . . . . . . .147
4.Accrued but Unpaid Interest . . . . . . . . . .148
5.Accrued Market Discount . . . . . . . . . . . .148
B.Certain Federal Income Tax Consequences of
Ownership and Disposition of New Notes, New
Common Stock and New Warrants . . . . . . . . . .149
1.Ownership and Disposition of New Notes. . . . .149
2.Ownership and Disposition of New Common Stock .151
3.Disposition, Exercise, Expiration and
Adjustment of New Warrants . . . . . . . . . .151
4.Backup Withholding. . . . . . . . . . . . . . .152
C.Certain Federal Income Tax Consequences of
the Restructuring to the Debtors. . . . . . . . .152
XXII. FINANCIAL ADVISORS. . . . . . . . . . . . . . .153
XXIII. CONCLUSION. . . . . . . . . . . . . . . . . . .155
APPENDICES
Appendix A Form of First Amended Joint Plan of
Reorganization of Homeland Stores, Inc. and Homeland
Holding Corporation
Appendix B Consolidated Financial Statements of
Homeland Holding Corporation
Appendix C Liquidation Analysis of the Debtors
I. INTRODUCTION AND SUMMARY
A. General
On May 13, 1996 (the "Filing Date"), each of the
Debtors filed a voluntary petition under Chapter 11
of the Bankruptcy Code. Simultaneously with the
filing of their petitions, the Debtors filed the
Plan and this Disclosure Statement, which the
Debtors amended on June 13, 1996. The Plan and
Disclosure Statement set forth the terms of a
proposed financial restructuring of the Debtors (the
"Restructuring"). The Restructuring, and the
related modifications to the Company's existing
collective bargaining agreements (which have been
agreed to by the Company's unions and are described
herein) are designed to reduce substantially the
Company's debt service obligations and labor costs
and to create a capital and cost structure that will
allow the Company to maintain and enhance the
competitive position of its business and operations.
The Restructuring was negotiated with, and is
supported by, the lenders (the"Old Banks") under
the Company's existing revolving credit facility
(the "1995 Credit Agreement") and the ad hoc
committee representing approximately 80% of the
Company's outstanding Senior Secured Notes (the
"Noteholders' Committee").
The Company is a leading supermarket chain in
Oklahoma, southern Kansas and the Texas Panhandle
region, operating a total of 67 stores as of the
Filing Date. The Company expects that, as of the
effective date of the Plan (the "Effective Date"),
it will operate 65 stores. See" -- Rejection of
Certain Closed Store Leases." The Company operates
in four distinct marketplaces: Oklahoma City,
Oklahoma; Tulsa, Oklahoma; Amarillo, Texas; and
certain rural areas of Oklahoma, Kansas and Texas.
The Company and Holding (its holding company) were
organized in 1987 by a group of investors led by
Clayton, Dubilier & Rice, Inc. ("CD&R") for the
purpose of acquiring substantially all of the assets
of the Oklahoma Division of Safeway, Inc. (the
"Acquisition"). The acquired stores changed their
name to "Homeland" in order to highlight the
Company's regional identity.
Prior to April 1995, the Company supplied its stores
with goods from a Company-owned distribution center.
As a result of the significant overhead costs
associated with operating the Company's distribution
center, in 1995 the Company discontinued its
distribution operation and became a member of a
buying cooperative. See "THE RESTRUCTURING"-
Background - AWG Transactions."
B. Principal Elements of the Restructuring
The principal elements of the Restructuring and the
principal effects of its consummation pursuant to
the Plan are summarized below.
1. New Bank Financing
On the Effective Date, the Company will enter into a
new bank credit agreement or an amendment and
restatement of the 1995 Credit Agreement (the "New
Credit Agreement"), the general terms of which must
be approved by the Noteholders' Committee. As of
the date of this Disclosure Statement, the Company
is in discussions with a number of banks potentially
interested in providing this credit facility,
including the Old Banks. There can be no assurance,
however, that any bank or group of banks will agree
to provide a bank credit facility on terms
acceptable to the Company and the Noteholders'
Committee. In the event the Company is unable to
enter into the New Credit Agreement, the Company
will not have sufficient financing to consummate the
Restructuring and may be forced to pursue an orderly
liquidation of its assets.
The Company anticipates that the New Credit
Agreement will provide for up to $37.5 million in
borrowings, including up to approximately $27.5
million under a revolving credit facility (subject
to borrowing base requirements) and a $10 million
term loan. Proceeds from the term loan will be used
primarily to fund certain obligations under the
Company's modified collective bargaining agreements
(see "INTRODUCTION AND SUMMARY - Modified Union
Agreements") and to pay certain transaction expenses
relating to the Restructuring. The Company expects
that its obligations under the New Bank Credit
Agreement will be secured by a security interest in,
and liens on, substantially all of the Company's
assets and will be guaranteed by Holding.
2. Senior Secured Note Exchange
Under the Plan, holders of the Company's outstanding
Series A Senior Secured Floating Rate Notes Due 1997
(the "Series A Notes"), Series C Senior Secured
Fixed Rate Notes Due 1999 (the "Series C Notes") and
Series D Senior Secured Floating Rate Notes Due 1997
(the "Series D Notes" and, together with the Series
A Notes and Series C Notes, the "Old Notes") will be
deemed to have two Claims: (a) an aggregate Secured
Claim of $61.5 million (which represents a
consensual reduction of the Old Noteholders' actual
aggregate Secured Claim of approximately $65.0
million); and (b) an aggregate Unsecured Claim of
approximately $40.1 million. In exchange for their
Secured Claims in respect of the Old Notes, the
holders of the Old Notes will receive (i) $60.0
million aggregate principal amount of newly-issued
10% Senior Subordinated Notes Due 2003 of the
Company (the "New Notes") and (ii) $1,500,000 of
cash (the "Cash Amount"). In exchange for their
Unsecured Claims in respect of the Old Notes, the
holders of the Old Notes will receive their ratable
portion of 4,450,000 shares of newly-issued common
stock, par value $.01 per share, of Holding (the
"New Common Stock"), sharing ratably with other
allowed general unsecured claims against the Debtors
(the "General Unsecured Claims"). The Debtors
estimate that total General Unsecured Claims will be
approximately $63.1 million, consisting of
approximately $40.1 million in General Unsecured
Claims in respect of the Old Notes and approximately
$23.0 million of other General Unsecured Claims.
Based on such estimate, holders of the Old Notes
will receive (in the aggregate) approximately
2,827,922 shares of New Common Stock, representing
approximately 60.2% of the New Common Stock to be
outstanding upon consummation of the Restructuring.
See "SUMMARY OF THE PLAN -- Classification and
Treatment of Classified Claims and Interests" and
"RISK FACTORS -- Risks Relating to the New Securities
- -- Dilution."
Upon consummation of the Restructuring, each holder
of the Old Notes will receive the following (assuming
total General Unsecured Claims of $63.1 million):
For each: The holder will receive:
$1,000 claim amount(including $590.56 principal amount of New Notes,
Secured and Unsecured Claims) 27.83 shares of the New Common Stock
and $14.76 in cash
The New Notes will bear interest at the rate of 10%
per annum (beginning on the Effective Date), payable
semiannually on February 1 and August 1 of each year
commencing on February 1, 1997. The New Notes will
mature on August 1, 2003, and will not be subject to
any sinking fund requirements. The New Notes will
be redeemable at the option of the Company, in whole
or in part, (a) at any time on or after August 1,
1999, and (b) upon the occurrence of a "Change of
Control" (as defined below under "DESCRIPTION OF NEW
NOTES -- Certain Definitions"), in each case at the
redemption prices set forth below under "DESCRIPTION
OF NEW NOTES -- Optional Redemption." If the Company
fails to redeem all the New Notes upon the
occurrence of a Change of Control, the Company will
be required to make an offer to purchase all
outstanding New Notes at the redemption price and
subject to the conditions described below under
"DESCRIPTION OF NEW NOTES -- Certain Covenants".
Unlike the Old Notes, the New Notes will be
unsecured obligations of the Company and will be
subordinated to indebtedness under the New Credit
Agreement and refinancings thereof.
The New Notes will be issued pursuant to an
indenture (the "New Indenture") among the Company,
as issuer, Holding, as guarantor, and Fleet National
Bank, as trustee (the "New Trustee"). A copy of
the New Indenture, substantially in the form to be
executed by the Company and the New Trustee, is set
forth in the Plan Supplement filed with the
Bankruptcy Court (the "Plan Supplement").
For further information regarding the New Notes see
"DESCRIPTION OF NEW NOTES" and the form of New
Indenture set forth in the Plan Supplement.
3. Trade Claims
SINCE THE COMMENCEMENT OF THE DEBTORS'
BANKRUPTCY CASES, THE COMPANY HAS REMAINED IN
POSSESSION OF, AND CONTINUES TO OPERATE, ITS
BUSINESS IN THE ORDINARY COURSE OF BUSINESS AND TO
PAY ALL POST-PETITION CLAIMS OF TRADE CREDITORS ON A
TIMELY BASIS. THE BANKRUPTCY COURT HAS ENTERED AN
ORDER (THE "TRADE CREDITOR ORDER") AUTHORIZING (BUT
NOT OBLIGATING) THE COMPANY TO PAY IN THE ORDINARY
COURSE THE PRE-PETITION CLAIMS OF ITS TRADE
CREDITORS. PURSUANT TO THE TRADE CREDITOR ORDER,
THE COMPANY HAS PAID THE PRE-PETITION TRADE CLAIMS
OF ALL TRADE CREDITORS THE COMPANY DEEMS TO BE
ESSENTIAL, SUBJECT TO SUCH TRADE CREDITORS_
AGREEMENT TO CONTINUE TO SUPPLY IN ACCORDANCE WITH
CUSTOMARY PRE-PETITION TRADE TERMS. THE COMPANY
ANALYZED ITS AVAILABLE SUPPLIERS TO DETERMINE THOSE
THAT IT DEEMS ESSENTIAL TO THE CONTINUED OPERATION
OF ITS BUSINESS BASED ON THE GOODS AND SERVICES
SUPPLIED AND THE AVAILABILITY OF OTHER SOURCES OF
SUPPLY OF SIMILAR COST AND QUALITY. THOSE TRADE
CREDITORS THE COMPANY DEEMS TO BE ESSENTIAL ARE
LISTED IN THE TRADE CREDITOR ORDER AND HAVE
CONTINUED TO SUPPLY PRODUCTS AND SERVICES TO THE
COMPANY IN ACCORDANCE WITH CUSTOMARY PRE-PETITION
TRADE TERMS.
PAYMENTS PURSUANT TO THE TRADE CREDITOR
ORDER ARE CONTINGENT ON A TRADE CREDITOR'S AGREEMENT
TO CONTINUE TO SUPPLY PRODUCTS OR SERVICES TO THE
COMPANY IN ACCORDANCE WITH CUSTOMARY PRE-PETITION
TRADE TERMS (INCLUDING PRIOR ALLOWANCES AND
PRACTICES). IF A TRADE CREDITOR REFUSES TO SUPPLY
PRODUCTS OR SERVICES IN ACCORDANCE WITH SUCH
CUSTOMARY PRE-PETITION TRADE TERMS, ANY PAYMENTS BY
THE COMPANY TO SUCH TRADE CREDITOR IN RESPECT OF ANY
PRE-PETITION CLAIMS WILL BE DEEMED TO HAVE BEEN MADE
IN PAYMENT OF THEN OUTSTANDING POST-PETITION
OBLIGATIONS OWED TO SUCH TRADE CREDITOR AND SUCH
TRADE CREDITOR WILL IMMEDIATELY REPAY TO THE COMPANY
ANY PAYMENTS MADE TO SUCH TRADE CREDITOR ON ACCOUNT
OF PRE-PETITION CLAIMS TO THE EXTENT THE AGGREGATE
AMOUNT OF SUCH PAYMENT EXCEEDS THE POST-PETITION
OBLIGATIONS THEN OUTSTANDING (WITHOUT ANY SETOFFS,
CLAIMS, PROVISIONS FOR PAYMENT OF RECLAMATION OR
TRUST FUND CLAIMS OR OTHER REDUCTIONS BY SUCH TRADE
CREDITOR). SEE "THE CHAPTER 11 CASES -- PAYMENT OF
CERTAIN PRE-PETITION CLAIMS."
THE COMPANY BELIEVES IT WILL HAVE
SUFFICIENT FUNDS FROM OPERATIONS AND ITS DIP
FACILITY (AS DEFINED BELOW UNDER "THE CHAPTER 11
CASES -- DIP FACILITY") FOR THE TIMELY PAYMENT OF THE
POST-PETITION CLAIMS OF ITS TRADE CREDITORS IN THE
ORDINARY COURSE OF BUSINESS THROUGH THE CONCLUSION
OF THE BANKRUPTCY CASES.
4. General Unsecured Claims
Under the Plan, each holder of a General Unsecured
Claim will receive its ratable portion of 4,450,000
shares of New Common Stock, based on the amount of
such holder's claim relative to all General
Unsecured Claims. The Debtors estimate that the
total amount of General Unsecured Claims will be
approximately $63.1 million, consisting of $40.1
million in General Unsecured Claims in respect of
the Old Notes and approximately $23.0 million of
other General Unsecured Claims. Based on such
estimate, holders of General Unsecured Claims (other
than the holders of Old Notes) will receive (in the
aggregate) approximately 1,622,078 shares of New
Common Stock, representing approximately 70.53
shares of New Common Stock for each $1,000 of Claims
held by such holders. The holders of General
Unsecured Claims (including the holders of the Old
Notes) will own approximately 94.7% of the New
Common Stock to be outstanding upon consummation of
the Restructuring. For further information
regarding the treatment of General Unsecured Claims
under the Plan, see "SUMMARY OF THE PLAN --_
Classification and Treatment of Classified Claims
and Interests" and "RISK FACTORS -- Risks Relating to
the New Securities -- Dilution."
5. Equity Recapitalization
(a) Old Common Stock
Under the Plan, all of Holding's issued and
outstanding Class A Common Stock, par value $.01 per
share (the "Old Common Stock"), will be exchanged
for (1) an aggregate of 250,000 shares of New Common
Stock, representing approximately 5.3% of the New
Common Stock to be outstanding upon consummation of
the Restructuring, and (2) warrants to purchase (in
the aggregate) up to 263,158 shares of New Common
Stock (the "New Warrants") at an exercise price of
$11.85 per share. Upon consummation of the
Restructuring, each holder of the Old Common Stock
will receive 7.67 shares of New Common Stock and
8.07 New Warrants for each 1,000 shares of Old
Common Stock held by such holders. See "SUMMARY OF
THE PLAN -- Classification and Treatment of
Classified Claims and Interests" and "RISK FACTORS
- -- Risks Relating to the New Securities -- Dilution."
The New Warrants are exercisable for a five-year
period commencing on the Effective Date. A copy of
the agreement governing the New Warrants (the _New
Warrant Agreement_), substantially in the form to be
executed by Holding, is set forth in the Plan
Supplement.
For further information regarding the New Common
Stock and the terms of the New Warrants, see
"DESCRIPTION OF NEW COMMON STOCK," "DESCRIPTION OF
NEW WARRANTS" and the form of New Warrant Agreement
set forth in the Plan Supplement.
(b) Homeland Common Stock
As of the Filing Date, Holding was the sole holder
of 100% of the issued and outstanding shares of
Common Stock, par value $.01 per share, of the
Company (the "Homeland Common Stock"). Under the
Plan, Holding will continue to be the sole holder of
the Homeland Common Stock and Holding's interest in
the Homeland Common Stock will not be impaired.
(c) Old Warrants
The Plan provides that Holding's existing warrants
to purchase (in the aggregate) up to 2,105,493
shares of Old Common Stock (the "Old Warrants"),
held by certain current and former members of the
Company's management, will not be impaired. The Old
Warrants are scheduled to expire in 2000, and are
exercisable at an exercise price of $0.50 per share,
or an aggregate exercise price of $1,052,746.50 for
all Old Warrants. Based on the aggregate exercise
price of the Old Warrants ($1,052,746.50) and the
aggregate number of shares of New Common Stock to be
received upon exercise of the Old Warrants
(approximately 15,167 shares, representing the
warrantholders' ratable share of the Class 7
distribution under the Plan had they exercised their
Old Warrants prior to the Effective Date), the
effective exercise price per share of New Common
Stock to be received upon exercise of the Old
Warrants is approximately $69.41. See "RISK FACTORS
- -- Risks Relating to the New Securities -- Dilution."
6. Tradeability of New Securities
Any person who receives New Notes, New Common Stock
or New Warrants (collectively, the "New Securities")
pursuant to the Plan will be able to resell such New
Securities without registration under federal and
state securities laws, unless such holder is an
"underwriter" as defined in Section 1145(b) of the
Bankruptcy Code, which may include certain
affiliates of the Debtors. See "RISK FACTORS --
Risks Relating to the New Securities -- Restrictions
on Transfer" and "SECURITIES LAW CONSIDERATIONS."
Holding will file a Form 10 registration statement
with respect to the New Common Stock under the
Securities Exchange Act of 1934, as amended (the
"1934 Act"), within 60 days following the Effective
Date and will use its best efforts to cause such
registration statement to become effective as soon
as practicable thereafter. Holding will keep such
registration effective until the earlier of (a) the
seventh anniversary of the Effective Date and (b)
the first date on which less than 10% of the
outstanding New Common Stock is publicly held. For
so long as such registration remains effective,
Holding will be required to comply with the
reporting requirements under the 1934 Act. In
addition, so long as the New Notes are outstanding,
the New Indenture will require the Company to comply
with the periodic reporting requirements under the
1934 Act, regardless of whether it is otherwise
subject thereto, as contemplated by the Trust
Indenture Act of 1939. See "SECURITIES LAW
CONSIDERATIONS."
Under the Plan, Holding has undertaken to use its
best efforts to secure the listing of the New Common
Stock on the NASDAQ National Market System (or, in
the event Holding fails to meet the listing
requirements of the NASDAQ National Market System,
on such other exchange or system on which the New
Common Stock may be listed) as soon as practicable
following the Effective Date. There can be no
assurance, however, that the New Common Stock will
be listed on the NASDAQ National Market System or on
such other exchange or system.
Holding will enter into a registration rights
agreement (the "Equity Registration Rights
Agreement") for the benefit of the holders of the
Old Common Stock who will receive New Common Stock
and New Warrants under the Plan. The Equity
Registration Rights Agreement will provide such
holders, and certain of their transferees, under
certain conditions, with registration rights under
the Securities Act of 1933, as amended (the
"Securities Act"), for the New Securities to be
issued to such holders under the Plan. In addition,
Holding and the Company will enter into a separate
registration rights agreement (the "Noteholder
Registration Rights Agreement" and, together with
the Equity Registration Rights Agreement, the
"Registration Rights Agreements"), for the benefit
of the holders of the Old Notes who will receive New
Notes and New Common Stock under the Plan. The
Noteholder Registration Rights Agreement will
provide such holders, and certain of their
transferees, under certain conditions, with
registration rights under the Securities Act for the
New Securities to be issued to such holders under
the Plan.
Copies of the Equity Registration Rights Agreement
and the Noteholder Registration Rights Agreement,
substantially in the forms to be executed by
Holding, are set forth in the Plan Supplement. For
further information regarding the Registration
Rights Agreements, see "DESCRIPTION OF NEW COMMON
STOCK -- Registration Rights Agreements" and the
forms of Registration Rights Agreements set forth in
the Plan Supplement.
7. Charter Amendments
As of the date hereof, Holding's certificate of
incorporation authorizes the issuance of 81,000,000
shares of capital stock, consisting of 40,500,000
shares of Old Common Stock and 40,500,000 shares of
Class B Common Stock, par value $.01 per share (the
"Old Class B Common Stock"). As of the Filing Date,
32,599,707 shares of Old Common Stock and no shares
of Old Class B Common Stock were issued and
outstanding.
The Plan provides for the filing with the Secretary
of State of the State of Delaware (the "Delaware
Secretary of State") of an Amended and Restated
Certificate of Incorporation of Holding (the
"Amended Holding Charter") which, among other
things, will amend and restate Article FOURTH of
Holding's current certificate of incorporation to
delete all provisions relating to the Old Common
Stock and the Old Class B Common Stock and to
authorize 7,500,000 shares of New Common Stock, par
value $.01 per share. If the Amended Holding
Charter becomes effective, all powers, privileges,
voting and other special or relative rights and
qualifications of the Old Common Stock and the Old
Class B Common Stock existing on the Effective Date
will be terminated and all currently issued and
outstanding shares of Old Common Stock will be
canceled. See "DESCRIPTION OF NEW COMMON STOCK."
In addition, the Amended Holding Charter will
prohibit the issuance of nonvoting stock as required
under the Bankruptcy Code.
The proposed Amended Holding Charter, substantially
in the form to be filed with the Delaware Secretary
of State, is set forth in the Plan Supplement. The
Amended Holding Charter is subject to the approval
of the Bankruptcy Court in the Confirmation Order
and will not take effect until the Effective Date.
In accepting the Plan, the holders of the Old Common
Stock will be consenting to the adoption of the
amendments to Holding's current certificate of
incorporation contained in the Amended Holding
Charter which, if the Plan is confirmed by the
Bankruptcy Court, will become effective on the
Effective Date. The adoption of such amendments is
necessary to, and an integral part of, the
Restructuring.
The Plan also provides for the filing with the
Delaware Secretary of State of an Amended and
Restated Certificate of Incorporation of the Company
(the "Amended Company Charter"), which will amend
and restate the Company's current certificate of
incorporation to prohibit the issuance of nonvoting
stock as required under the Bankruptcy Code. The
proposed Amended Company Charter, substantially in
the form to be filed with the Delaware Secretary of
State, is set forth in the Plan Supplement. The
amendments to be implemented thereby are subject to
the approval of the Bankruptcy Court in the
Confirmation Order and will not take effect until
the Effective Date.
8. Modified Union Agreements
On March 8, 1996, the Company and representatives of
the United Food and Commercial Workers Union of
North America (the "UFCW"), which represents
approximately 90% of the Company's employees
(including substantially all of its hourly
employees), reached an agreement in principle
regarding certain modifications to the Company's
existing collective bargaining agreements with the
UFCW (the "Modified UFCW Agreements"). The terms of
the Modified UFCW Agreements were ratified during
the week of March 11, 1996, by overwhelming
majorities of each of the local union chapters of
the UFCW.
In April 1996, the local union chapter of the
Bakery, Confectionery and Tobacco Workers
International Union (the "BCT"), representing 30 of
the Company's in-store bakery employees, ratified
modifications to its collective bargaining agreement
with the Company on the same terms and conditions as
the Modified UFCW Agreement (the "Modified BCT
Agreement" and, together with the Modified UFCW
Agreements, the "Modified Union Agreements").
The Modified Union Agreements will have a term of
five years commencing on the Effective Date and will
be conditioned on the consummation of the
Restructuring. The Modified Union Agreements will
consist of five basic elements: (a) wage rate and
benefit contribution reductions and work rule
changes; (b) an employee buyout offer, pursuant to
which the Company will make up to $6.4 million
available for the buyout of certain unionized
employees (the "Employee Buyout Offer"); c the
establishment of an employee stock bonus plan trust
(the "ESOT") on behalf of the Company's unionized
employees, which will receive, or be entitled to
purchase, up to 522,222 shares of New Common Stock
pursuant to the Modified Union Agreements; (d) the
UFCW's right to designate one member of the Boards
of Directors of the Company and Holding; and (e) the
elimination of certain "snap back" provisions
(provisions relating to the reinstatement of
previously reduced wage amounts), incentive plans
and "maintenance of benefits" provisions. See
"DESCRIPTION OF MODIFIED UNION AGREEMENTS."
The Company estimates that the Modified Union
Agreements will result in annual cost savings in the
first full contract year of approximately $7.2
million (assuming no employees accept the Employee
Buyout Offer) to $13.2 million (assuming the
Employee Buyout Offer is fully subscribed). There
can be no assurance, however, that such cost savings
will actually be realized. In addition, the amount
of such cost savings may be offset in part in
subsequent contract years as a result of certain
wage and benefit increases under the Modified Union
Agreements.
For further information regarding the Modified Union
Agreements, see "DESCRIPTION OF MODIFIED UNION
AGREEMENTS."
9. Rejection of Certain Closed Store Leases
The Company closed 14 under-performing stores during
1995 and, as of the Filing Date, was the "lessee"
under certain real property leases relating to seven
of such closed stores (certain of which leases may
have been terminated pre-petition by virtue of the
Company_s surrender of the leased property). As
part of the Restructuring, the Company has obtained
permission to reject (pursuant to Section 365 of the
Bankruptcy Code) four of these store leases located
in El Reno, Oklahoma (Store #61), Midwest City,
Oklahoma (Store #106), Oklahoma City, Oklahoma
(Store #184) and Tulsa, Oklahoma (Store #539). The
rejection of these four leases will result in annual
cash savings of approximately $0.8 million in the
aggregate. In addition, the Company is seeking
permission to reject one additional store lease in
Tulsa, Oklahoma (Store #118) which would otherwise
expire in August 1996. Also, the Company may reject
two additional store leases in the event the Company
is unable to assign or sublease such leases (Store
#4089 in Tulsa, Oklahoma and Store #533 in Durant,
Oklahoma) on acceptable terms. In addition, the
Company has announced that it will close one store
in Amarillo, Texas (Store #602) and one store in
Tulsa, Oklahoma (Store #488). The Company will
reject the real property leases associated with such
stores (resulting in annual cash savings of $0.6
million in the aggregate). As a result of these
additional store closures, the Company expects that,
on the Effective Date, it will own and operate 65
stores, as compared to 67 stores as of the Filing
Date.
10. Management Stock Option Plan
The Plan contemplates that 263,158 shares of New
Common Stock will be reserved for issuance under a
new management stock option plan (the "Management
Stock Option Plan") to be established by the Board
of Directors of Holding following the consummation
of the Restructuring. See "BOARDS OF DIRECTORS --
Proposed Members." The Board of Directors of
Holding will determine the terms and conditions of
the Management Stock Option Plan (including the
identity of the participants and the number of
options to be granted).
11. Releases
On the Effective Date, each Debtor and each holder
of a Claim or an Interest (a) who has accepted the
Plan, (b) whose Claim is in a class that has
accepted the Plan or is deemed, pursuant to Section
1126(f) of the Bankruptcy Code, to have accepted the
Plan, or c who may be entitled to receive a
distribution of property pursuant to the Plan, will
release or will be deemed to have released
unconditionally (i) each officer, director,
shareholder, affiliate, employee, consultant,
attorney, accountant, agent and other representative
of the Debtors (collectively, the "Affiliated
Released Parties") and (ii) (A) the Official
Committee and, solely in their capacity as members
or representatives of any Official Committee, each
member, consultant, attorney, accountant or other
representative of such Official Committee, (B) the
Noteholders' Committee and, solely in their capacity
as members or representatives of the Noteholders'
Committee, each member, consultant, attorney,
accountant or other representative of the
Noteholders' Committee, c the Old Banks, the Agent
and each consultant, attorney, accountant or other
representative of the Old Banks and the Agent and
(D) the Old Trustee and each consultant, attorney or
other representative of the Old Trustee
(collectively, the "Other Released Parties" and,
together with the Affiliated Released Parties, the
"Released Parties") from any and all Claims,
obligations, rights, causes of action and
liabilities, whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, in law,
equity or otherwise, based in whole or in part upon
any act or omission, transaction or other occurrence
taking place on or prior to the Effective Date in
any way relating to the Released Parties, the
Debtors, the Debtors' bankruptcy cases or the Plan.
The Debtors' release of the Affiliated Released
Parties does not include a release of any "Excluded
Claims," which include all Claims, obligations,
rights, causes of action or liabilities (a) relating
to any indebtedness for borrowed money owed by an
Affiliated Released Party to either Debtor, (b) any
setoff or counterclaim the Debtors may have or
assert against an Affiliated Released Party,
provided that the aggregate amount thereof shall not
exceed the aggregate amount of Claims held or
asserted by such Affiliated Released Party against
the Debtors, c the uncollected amount of any Claim
asserted by the Debtors prior to the Effective Date
(whether in a filed pleading, by letter or otherwise
in writing) against an Affiliated Released Party,
and not adjudicated to a Final Order of the
Bankruptcy Court, settled or compromised and (d)
Claims arising from fraud, willful misconduct or
gross negligence of an Affiliated Released Party.
Notwithstanding the foregoing, if and to the extent
that the Bankruptcy Court concludes that the Plan
cannot be confirmed with any portion of the
foregoing releases, then the Plan may be confirmed
with that portion excised so as to give maximum
effect to the foregoing releases without precluding
confirmation of the Plan. See "SUMMARY OF THE PLAN
- -- Other Provisions of the Plan."
12. Boards of Directors
In connection with the Restructuring, the Boards of
Directors of the Company and of Holding will be
reconstituted to include seven members. The initial
Board of Directors of each of the Company and
Holding will consist of James A. Demme, John A.
Shields, four directors selected by the Noteholders'
Committee and one director selected by the UFCW. See
"BOARD OF DIRECTORS -- Proposed Members".
II. THE RESTRUCTURING
A. Background
1. 1992 Refinancing
In March 1992, the Company refinanced (the "1992
Refinancing") its Acquisition-related indebtedness
and certain other indebtedness by (a) issuing and
selling $45 million aggregate principal amount of
its Series A Notes and $75 million aggregate
principal amount of its Series B Senior Secured
Fixed Rate Notes Due 1999 (the "Series B Notes") and
(b) making certain borrowings under a revolving
credit agreement ("1992 Credit Agreement"). Later
in 1992, the Company completed an exchange offer
pursuant to which (a) $33 million aggregate
principal amount of the Series A Notes were
exchanged for an equal principal amount of its
registered Series D Notes, leaving $12 million
aggregate principal amount of Series A Notes
outstanding, and (b) $75 million aggregate principal
amount of the Series B Notes were exchanged for an
equal principal amount of its registered Series C
Notes. The Old Notes were issued pursuant to an
Indenture dated as of March 4, 1992, as supplemented
(the "Old Indenture"), among the Debtors and United
States Trust Company of New York, as trustee (the
"Old Trustee"). Following the exchange offer, there
were $120 million aggregate principal amount of Old
Notes outstanding, consisting of $12 million of
Series A Notes, $33 million aggregate principal
amount of Series C Notes and $75 million aggregate
principal amount of Series D Notes.
2. Increased Competition and Lower Margins
Beginning in 1993, the Company was confronted with
increased competition in its market areas consisting
mainly of competitive store openings by retail
supermarket and general merchandising chains such as
Wal-Mart and Albertson's and aggressive pricing
practices by competitors. In 1994, there were 14
competitive openings in the Company's market areas
(including 11 new Wal-Mart supercenters, 2 new
Albertson's and 1 new Mega Market), directly
affecting 28 of the Company's stores, where average
weekly sales in 1994 decreased by 10.9% as compared
to 1993.
Largely as a result of these competitive pressures,
the Company's gross margins (as a percentage of
sales) declined in 1993 to 25.6%, compared to 26.6%
in 1992. The Company's gross margins declined still
further in 1994 to 25.1%. The Company was unable to
respond effectively to these competitive pressures
because (a) the high labor costs associated with the
Company's unionized workforce made it difficult for
the Company to price its goods competitively, (b)
the high fixed overhead costs associated with the
Company's distribution center operations made the
closure of marginal and unprofitable stores
financially prohibitive and c the Company's highly-
leveraged financial condition and the restrictive
covenants contained in the 1992 Credit Agreement and
the Old Indenture made it difficult for the Company
to fund the capital improvements necessary to
maintain the Company's competitive position.
In response to competitive pressures, the Company
entered into negotiations with the UFCW regarding
certain wage and benefit reductions. In late 1993,
the UFCW ratified modifications to its collective
bargaining agreement which implemented these wage
and benefit reductions. Notwithstanding these
modifications, the average wages and benefits paid
to the Company's unionized employees remained
significantly higher than those paid by the
Company's competitors.
3. AWG Transactions
After exploring a number of strategic responses to
the Company's competitive pressures and declining
gross margins, in April 1995, the Company sold 29
stores and the Company's distribution center to
Associated Wholesale Grocers, Inc. ("AWG") for
approximately $73 million and the assumption of
certain liabilities by AWG (the "AWG Sale"). In
connection with the AWG Sale, the Company became a
member of the AWG buying cooperative under a seven-
year supply agreement with AWG (the "Supply
Agreement" and, collectively with the AWG Sale, the
"AWG Transactions").
The purposes of the AWG Transactions were threefold:
(a) to reduce the Company's borrowed money
indebtedness by applying the net proceeds from the
AWG Sale to indebtedness in respect of the 1992
Credit Agreement and the Old Notes; (b) to sell the
Company's distribution center and to move from a
self-supply operation to an operation supplied
through the AWG retail buying cooperative, thereby
eliminating the high fixed costs associated with the
distribution center operation and permitting the
Company to close marginal and unprofitable stores;
and c to obtain the benefits of membership in the
AWG cooperative, including increased purchases of
private label products, special product purchases,
dedicated support programs and access to AWG's store
systems.
The AWG Sale generated approximately $37.2 in net
proceeds, approximately $24.8 million of which
(together with approximately $0.2 million of certain
borrowings) were used to partially redeem the Old
Notes (leaving $95 million aggregate principal
amount in Old Notes outstanding) and approximately
$12.4 million of which was applied against
indebtedness under the 1992 Credit Agreement.
Concurrently with the closing of the AWG Sale, the
Company and AWG entered into the Supply Agreement
pursuant to which the Company became a member of the
AWG cooperative and AWG became the Company's primary
supplier. See "THE COMPANY -- AWG Supply Agreement."
4. Restructuring of Old Notes and Refinancing of
1992 Credit Agreement
Concurrently with the closing of the AWG
Transactions, the Company also completed a
restructuring of the 1992 Credit Agreement and the
Old Notes (the "April 1995 Restructuring"). In
connection with the restructuring of Old Notes, the
Old Indenture was amended to add, modify and/or
delete certain covenants and related definitions to
(a) take account of the Company's size, operations
and financial position following the AWG
Transactions and (b) permit the Company to satisfy
its other obligations under the Supply Agreement
(including, without limitation, the granting of
certain liens to AWG). See "THE COMPANY -- AWG
Supply Agreement." In addition, the Old Indenture
was also amended to effect a 0.50% per annum
increase in the interest rate on each series of the
Old Notes. Holders of Old Notes who voted in favor
of these amendments received a consent fee of $5.00
for each $1,000 principal amount of Old Notes voted
by such holders. Each holder of the Old Notes also
received its pro rata portion of the $25 million
redemption amount.
The restructuring of the 1992 Credit Agreement
consisted of two separate but related transactions:
(a) the closing of the 1995 Credit Agreement, which
amended and restated the 1992 Credit Agreement and
provided for a $25 million revolving credit
facility; and (b) the refinancing in full of
borrowings under the 1992 Credit Agreement from the
proceeds of certain borrowings under the 1995 Credit
Agreement and approximately $12.4 million in net
proceeds from the AWG Sale.
5. New Management Team
In November 1994, the Company hired James A. Demme,
a 35-year veteran of the wholesale and retail food
distribution business, to be the Company's new
President and Chief Executive Officer. Following
the completion of the AWG Transactions, Mr. Demme
and his new management team began implementing the
Company's new marketing plan consisting of the
following elements: (a) increasing sales of
specialty items and perishables; (b) distinguishing
the Company from its competitors by promoting and
enhancing the Company's reputation for good service
and emphasizing the Company's local identity; c
increasing utilization of the Company's "high-low"
pricing approach; (d) upgrading the Company's
management information systems; (e) introducing the
"Homeland Savings Card," a frequent-shopper card;
and (f) building customer loyalty and improving the
Company's "pricing image" through the Company's
private label program. See "THE RESTRUCTURING --
Background -- Business Plan."
As part of its strategic plan, the Company's
management team also devised a program to close
marginal and unprofitable stores. The Company
closed 14 stores in 1995 (seven prior to the AWG
Sale and seven after such sale) and plans to close
two additional stores during 1996. See
"INTRODUCTION AND SUMMARY -- Principal Elements of
the Restructuring -- Rejection of Certain Closed
Store Leases."
6. Post-AWG Sale Operating Results
Despite the completion of the AWG Transactions and
the commencement of the Company's new marketing
plan, the Company's gross margins (as a percentage
of sales) continued to decline during 1995,
declining to 23.7% in the third quarter of 1995 and
23.6% in the fourth quarter of 1995. The continued
erosion of the Company's gross margins was the
result of a number of factors including (a) the
difficulties in transforming the Company from a self-
supplier to a member of a purchasing cooperative and
(b) additional competitive openings (there were
eight additional competitive openings in the
Company's market areas in 1995) and the aggressive
pricing practices of certain competitors.
As a result of the Company's operating difficulties,
the Company began experiencing significant liquidity
problems in the third quarter of 1995. The
Company's liquidity problems reached a critical
point in late August immediately prior to the
scheduled September 1, 1995 interest payment on the
Old Notes of approximately $4.5 million. Although
the Company made the September 1, 1995 interest
payment on the Old Notes, it had to assign certain
receivables and other benefits under the Supply
Agreement to AWG in order to fund this payment.
The Company responded to its operating and liquidity
problems by (a) seeking ways to improve the
Company's gross margins, such as improving sales mix
and reducing markdowns, and (b) addressing the AWG
"transitional" issues by monitoring store inventory
levels and AWG billings. Due to the Company's
efforts, the Company's gross margins improved to
24.3% in the first quarter of 1996. This
improvement was, however, lower than projected in
the 1996 Budget (as defined below under " -- 1996
Budget").
B. Restructuring Discussions
1. Retention of Restructuring Professionals;
Formation of Noteholders' Committee
In November and December 1995, the Company retained
Alvarez & Marsal, Inc. ("A&M") to act as the
Company's crisis consultant and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") to act as
the Company's financial advisor. In addition,
during this time, the Noteholders' Committee,
representing approximately 80% of the outstanding
Old Notes, was formed. The Noteholders' Committee
selected Houlihan, Lokey, Howard & Zukin ("Houlihan
Lokey") as the Noteholders' Committee's financial
advisor and Paul, Weiss, Rifkind, Wharton & Garrison
as the Noteholders' Committee's legal advisor
(collectively, the "Noteholder Advisors"). The
Company agreed to pay the reasonable fees and
expenses of the Noteholder Advisors. See "FINANCIAL
ADVISORS."
2. Strategic Sale Efforts
In late 1995 and early 1996, DLJ assisted the
Company in exploring certain strategic restructuring
alternatives, including the sale of the Company to a
third party. In connection with these efforts, DLJ
contacted a number of potential buyers and
investors. Although DLJ received indications of
interest to purchase individual stores or small
groups of stores, DLJ received only one offer to
purchase the Company as a whole. The Company and the
Noteholders' Committee, together with their
respective advisors, concluded that this offer was
inadequate and should be rejected.
The Company believes that the lack of greater
interest in a purchase of the Company's stores
probably resulted from (a) the perceived difficulty
in structuring a transaction given the Company's
difficult financial position, (b) the high labor
costs associated with the Company's unionized work
force, combined with the Company being the only
unionized supermarket chain in its market areas, and
c the perception that an extensive capital
expenditure program would be required to modernize
many of the Company's stores.
3. Waivers of Certain Events of Default
In December 1995, the Company informed the Old Banks
and the Old Trustee that it would be unable to
comply with certain year-end financial covenants
contained in the 1995 Credit Agreement and the Old
Indenture (including the Consolidated Fixed Charge
Coverage ratio and the Debt-to-EBITDA ratio) and
requested a temporary waiver of its obligations
under such covenants in order to facilitate a
restructuring of the Company's indebtedness or the
sale of the Company to a third party. The Old Banks
and the Old Trustee (acting at the direction of a
majority in principal amount of the Old Notes then
outstanding) waived compliance by the Company with
these financial covenants through the earlier of
April 15, 1996, and the date on which the Company
defaulted on any of its payment obligations with
respect to the Old Notes.
On March 1, 1996, the Company failed to make the
scheduled interest payment on the Old Notes in the
amount of approximately $4.4 million. This payment
default resulted in a termination of the December
1995 waiver under the Old Indenture.
Notwithstanding such termination, the Noteholders'
Committee advised the Company that, so long as
restructuring negotiations between the Company and
the Noteholders' Committee were proceeding, the
Noteholders' Committee would not exercise any
contractual or other remedies in response to the
interest payment default. Moreover, the Old Banks
agreed that their waiver would continue to be
effective, and that they would continue to fund,
through April 15, 1996, notwithstanding such payment
default. The Old Banks subsequently agreed to extend
the waiver and their commitment to fund through May
20, 1996.
4. 1996 Union Contract Modifications
In evaluating the Company's strategic alternatives,
the Company came to the conclusion that a successful
restructuring, including a possible sale of the
Company to a third party, depended in part on a
reduction in the Company's labor costs, which meant
negotiating modifications to the Company's existing
collective bargaining agreements with the UFCW (the
"Existing UFCW Agreements"). Accordingly, in early
1996, the Company commenced preliminary negotiations
with representatives of the UFCW regarding certain
proposed modifications to the Existing UFCW
Agreements. On March 8, 1996, the Company and
representatives of the UFCW reached an agreement in
principle relating to the Modified UFCW Agreements.
The terms of the Modified UFCW Agreements were
ratified during the week of March 11, 1996, by
overwhelming majorities of each of the local union
chapters of the UFCW.
In April 1996, the local chapter of the BCT ratified
modifications to its existing collective bargaining
agreement with the Company (the "Existing BCT
Agreement" and, together with the Existing UFCW
Agreements, the "Existing Union Agreements") on the
same terms and conditions as the Modified UFCW
Agreements.
The Modified Union Agreements will have a term of
five years commencing on the Effective Date and will
be conditioned on the consummation of the
Restructuring. The Modified Union Agreements will
consist of five basic elements: (a) wage rate and
benefit contribution reductions and work rule
changes; (b) the Employee Buyout Offer, pursuant to
which the Company will make up to $6.4 million
available for the buyout of certain unionized
employees; c the establishment of an ESOT on behalf
of the Company's unionized employees, which will
receive, or be entitled to purchase, up to 522,222
shares of New Common Stock pursuant to the terms of
the Modified Union Agreements; (d) the UFCW's right
to designate one member of the Boards of Directors
of the Company and Holding; and (e) the elimination
of certain "snap back" provisions (provisions
relating to the reinstatement of previously reduced
wage amounts), incentive plans and "maintenance of
benefits" provisions.
The Company estimates that the Modified Union
Agreements will result in annual cost savings in the
first full contract year of approximately $7.2
million (assuming no employees accept the Employee
Buyout Offer) to $13.2 million (assuming the
Employee Buyout Offer is fully subscribed). There
can be no assurance, however, that such cost savings
will actually be realized. In addition, the amount
of such cost savings may be offset in part in
subsequent contract years as a result of certain
wage and benefit increases under the Modified Union
Agreements.
For further information regarding the terms of
Modified Union Agreements, see "DESCRIPTION OF
MODIFIED UNION AGREEMENTS."
5. Agreement in Principle with the Noteholders'
Committee
On March 27, 1996, the Company and the Noteholders'
Committee reached an agreement in principle relating
to the terms of a restructuring of the Old Notes,
which terms are reflected in the Plan and this
Disclosure Statement. The agreement in principle
provides that, among other things, the holders of
the Old Notes will receive (in the aggregate) $60.0
million aggregate principal amount of New Notes,
approximately 2,827,922 shares of New Common Stock,
representing approximately 60.2% of the New Common
Stock to be issued under the Plan (based on
estimated total General Unsecured Claims of $63.1
million), and $1.5 million of cash.
THE NOTEHOLDERS' COMMITTEE SUPPORTS THE PLAN AND
RECOMMENDS THAT HOLDERS OF THE OLD NOTES VOTE IN
FAVOR OF THE PLAN.
6. Sale of Ponca City Store
On April 29, 1996, the Company sold its Ponca City,
Oklahoma store, including certain property
constituting collateral under the Old Indenture (the
"Old Indenture Collateral"), to Albertson's. The
net proceeds from this sale of Old Indenture
Collateral, together with the net proceeds of other
Old Indenture Collateral sold following the AWG
Transactions, will be used to fund the Cash Amount
to be paid to holders of the Old Notes under the
Plan.
C. Summary of Classification and Treatment of Claims
The following table summarizes the classification
and treatment of Allowed Claims and Interests under
the Plan. For a more detailed description of the
terms and provisions of the Plan, see "SUMMARY OF
THE PLAN."
Class Description Treatment under the Plan
Administrative Claims. Costs and expenses Paid in full, in cash, within 30
of bankruptcy cases, including post- days after the later of the Eff-
petition expenses and professional fees. ective Date ad the date when such
Claim becomes allowed.
Priority Tax Claims. Tax Claims entitled At the option of the Debtors, (a)
to priority under Section 507(a)(8) of paid in full, in cash, on the later
the Bankruptcy Code. of the Effective Date and the date
on which such Claim becomes allowed,
or (b) paid in deferred cash
payments over a period not exceeding
six years after the date of
assessment, including an interest
component as required under Section
1129(a)(9)c of the Bankruptcy Code.
Class 1. Claims given priority under the Unimpaired. Paid in full,in cash,on
Bankruptcy Code, including employee claims the later if the Effective Date and
for wages and certain benefits. the date on which such Claim
becomes allowed.
Class 2. Claims of the Old Banks under Unimpaired. Either (a) paid in
the 1995 Credit Agreement. cash in full or (b) satisfied by
the execution and delivery of the
New Credit Agreement by, among
other persons, the Old Banks and
the modification of the 1995 Credit
Agreement in accordance with the
terms of the New Credit Agreement.
Class 3. Secured Claims of Holders of Impaired. Each Holder of a Class
Old Notes 3 Claim will receive its ratable
share of (a) the New Notes and
(b) the Cash Amount.
Class 4. Miscellaneous Secured Claims Unimpaired. At the option of the
Debtors, (a) the legal, equitable
and contractual rights of each
holder of a Class 4 Claim will not
be altered by the Plan or (b)
such Claims will be treated in any
other manner that will result in
such Claims being unimpaired under
Section 1124 of the Bankruptcy
Code.
Class 5. General Unsecured Claims, Impaired. Each holder of a Class 5
including $40.1 million of General will receive its ratable share of
Unsecured Claims in respect of the Old 4,450,000 shares of New Common
Notes and an estimated $23.0 million in Stock.
other General Unsecured Claims.
Class 6. Interests of Holding as sole Unimpaired. The legal,equitable and
holder of Homeland Common Stock. contractual rights of Holding will
Unimpaired. The legal, equitable and not be altered by the Plan.
Class 7. Interests of holders of Old Impaired. Each holder will
Common Stock. receive its ratable share of
250,000 shares of New Common
Stock and New Warrants to
purchase 263,158 shares of New
Common Stock.
Class 8. Interests of holders of Old Unimpaired. The legal, equitable
Warrants. and contractual rights of each
holder will not be altered by the
Plan.
D. Conditions to Consummation of the Restructuring
The following conditions must be satisfied in order
for the Restructuring to be consummated: (1) the
Plan shall have been confirmed by the Bankruptcy
Court and the Confirmation Order shall not have been
vacated, reversed or stayed; (2) the New Credit
Agreement shall have been entered into and all
conditions to the effectiveness thereof shall have
been satisfied or waived by the New Banks as
required thereunder; and (3) all other agreements
contemplated by, or entered into pursuant to, the
Plan shall have been duly and validly executed and
delivered by the parties thereto and all conditions
to their effectiveness shall have been duly
satisfied or waived.
For a discussion of the conditions to the
effectiveness of the Plan, see "SUMMARY OF THE PLAN
- -- Other Provisions of the Plan -- Conditions to
Consummation."
E. Certain Significant Effects of the Restructuring
Implementation of the Restructuring will have
certain significant effects on the Company, its
creditors and equity security holders, including the
following:
(1) The exchange of (a) $95 million aggregate
principal amount of Old Notes (plus an
additional $6.6 million in accrued interest as
of the Filing Date) due in 1997 and 1999 and
bearing interest at a blended rate of 10.8% per
annum, for (b) $60 million aggregate principal
amount of New Notes due in 2003 and bearing
interest at 10% per annum, will result in a
reduction of the Company's total leverage, a
reduction of its annual debt service
obligations by approximately $4 million per
year (taking into account certain increased
borrowings expected to be made under the New
Credit Agreement) and the postponement of
maturities on the Company's outstanding
borrowed money indebtedness.
(2) The release of the Old Indenture
Collateral will permit the Company to pledge
such collateral to the lenders under the New
Credit Agreement as security for additional
borrowings.
(3) The Company projects that the Modified
Union Agreements will result in a reduction in
annual labor costs in the first full contract
year of approximately $7.2 million (assuming no
employees accept the Employee Buyout Offer) to
$13.2 million (assuming the Employee Buyout
Offer is fully subscribed), although such costs
savings will be subject to offset in subsequent
contract years as a result of certain wage and
benefit increases under the Modified Union
Agreements.
(4) The rejection of at least seven store
leases relating to stores closed or to be
closed, with a resulting annual cash savings of
approximately $1.6 million in the aggregate.
(5) The Company's ability to make capital
expenditures, and thereby maintain and enhance
its competitive position, will be improved by
the reduction in the Company's debt service
obligations and labor and other costs.
The implementation of the Restructuring will also
result in a substantial dilution of the ownership
interest in Holding held by the holders of the Old
Common Stock of Holding. Under the Plan, the holders
of Old Common Stock will receive (in the aggregate)
(a) 250,000 shares of New Common Stock, representing
approximately 5.3% of the New Common Stock to be
outstanding upon consummation of the Restructuring,
and (b) New Warrants to purchase 263,158 shares of
New Common Stock. Upon exercise of the New
Warrants, the holders of the Old Common Stock will
own approximately 8.9% of the New Common Stock on a
fully diluted basis (assuming the maximum amount of
New Common Stock issuable under the New Warrants,
the Old Warrants, the Management Stock Option Plan
and the Modified Union Agreements has been issued),
approximately 4.3% of which relates to New Common
Stock to be issued under the Plan and approximately
4.6% of which relates to New Common Stock to be
issued upon exercise of the New Warrants. See "RISK
FACTORS -- Risks Relating to the New Securities --
Dilution."
F. Business Plan
In May 1995, the Company began implementing a new
business strategy (the "Business Plan") to improve
the Company's financial performance and competitive
position. Prior to, and after completion of, the
Restructuring, the Company will continue to
implement the Business Plan, as well as explore
other strategies for maintaining and enhancing the
Company's competitive position. The key elements of
the Business Plan include: (1) increasing sales of
specialty items and perishables; (2) differentiating
the Company from its competitors by promoting and
enhancing the Company's reputation for good service
and emphasizing the Company's local identity; (3)
increasing utilization of the Company's "high-low"
pricing approach; (4) upgrading the Company's
management information systems; (5) introducing the
"Homeland Savings Card," a frequent-shopper card;
and (6) building customer loyalty and improving the
Company's "pricing image" through the Company's
private label program.
Sales of Perishables and Specialty Departments. The
Company believes that its broad range of specialty
departments (bakery, deli, floral and pharmacy) and
its consistent supply of varied, quality perishable
goods (meat, produce, baked goods and seafood) give
it an advantage over its competitors. The Company
intends to exploit this advantage by seeking to
increase sales of specialty items and perishables in
the future. The Company believes that this emphasis
on specialty items and perishables will improve the
Company's sales mix and increase gross profits
because specialty items and perishables have higher
gross margins than dry groceries.
Reputation for Good Service; Local Identity. The
Company intends to enhance and promote its
reputation for good service by, among other things,
improving the appearance of its stores (including
better lighting, replacing floor tiles, upgrading
shelving and installing new refrigerated cases),
improving "front-end" service (bagging and carry-out
service) and expanding specialty departments. The
Company believes that by emphasizing good service,
it will be able to distinguish itself from its
competitors and improve sales.
The Company also intends to continue its tradition
of community involvement, such as its participation
in the "Apples for Students" and "Easter Seals"
programs. The Company believes that its tradition
of community involvement, together with its
excellent "neighborhood" store locations, give it a
strong local identity, which contributes to customer
loyalty and differentiates the Company from its
national and regional competitors.
High-Low Pricing. The Company plans to emphasize
its "high-low" pricing approach whereby it combines
_higher_ everyday prices to enhance gross profits
and advertised "low" promotional prices to increase
sales. The Company's use of so-called "double
coupons," which are very popular with consumers and
contribute to increased store traffic, is one aspect
of this "high-low" pricing approach. The Company
believes it is better positioned than its
competitors to employ such a pricing strategy
because independent operators lack the resources and
customer base to advertise on the same scale as the
Company and "everyday low-price stores" like Wal-
Mart typically do not advertise much.
Upgrading of Management Information Systems. The
Company intends to continue its program of upgrading
the Company's management information systems. In
1995, the Company installed a new retail hosting
system, which links "point of sale" scanners with a
central monitoring system. The Company believes
that this system, coupled with certain other
technological improvements to be implemented in
1996, will facilitate store-by-store pricing,
improve shelf space allocation and permit more
accurate monitoring of direct store deliveries. In
addition, the Company believes that these
improvements will reduce costly errors in billing,
ensure that the Company receives correct promotional
credit and provide automatic invoicing for
allowances.
Homeland Savings Card. The Company plans to
introduce the Homeland Savings Card in all of the
Company's stores in the third quarter of 1996, after
a successful test-marketing program in the Company's
Amarillo, Texas stores. The card offers customers
special promotional prices on certain advertised
items. The Company believes the card will be an
important tool in maintaining and building customer
loyalty and distinguishing the Company from its
competitors (none of which offers such a program).
In future years, the Company plans to use the card
to identify customer purchasing frequency, which
will allow the Company to focus its promotional
dollars on its most loyal customers. In addition,
the Company intends to use the card to collect
shopping pattern information, which will allow the
Company to target promotional offers to certain
customers.
Private Label Program. The Company intends to
continue the promotion of its private label
products, including the Company's "Pride of America"
private label products as well as AWG's private
label products. Private label products generally
represent quality and value to customers and
typically contribute to a higher gross profit margin
than national brands. The promotion of private
label products is an integral part of the Company's
merchandising philosophy of building customer
loyalty while improving the Company's "pricing
image."
G. 1996 Budget
In January 1996, the Company completed its financial
projections for the 52 weeks ending December 28,
1996 (the "1996 Budget"). The 1996 Budget
represented the Company's estimate of the most
likely results of the Company"s operations in fiscal
1996 and was based on certain assumptions regarding
the Company and its business, including the
successful implementation of the Business Plan, an
ongoing store base of 67 stores and the Company's
operating on a "business as usual" basis, (i.e.,
without giving effect to the Restructuring).
The 1996 Budget included a sales and store expense
plan which was developed on a store-by-store basis.
Budgets were generated by each store manager, and
reviewed by the district managers and senior
management of the Company. In developing store
sales budgets, recent sales trends, local economic
factors, competitive activity, store improvements
and other factors were taken into account. The 1996
Budget also included a corporate overhead budget,
balance sheet and cash flow projections, all of
which were developed by the Company's financial
management team based on recent trends and
anticipated future changes.
The 1996 Budget was presented to and approved by the
Company's Board of Directors and was provided to the
Noteholders' Committee, the Old Banks and the UFCW.
The 1996 Budget confirmed that a restructuring of
the Company's outstanding indebtedness as well as
its collective bargaining agreements was required in
order for the Company to remain viable. The 1996
Budget formed the basis for discussions with the
Noteholders' Committee, the Old Banks and the UFCW
with respect to the Restructuring.
The 1996 Budget also provided the basis for the
development of the Plan and the Projections for the
three fiscal years ending December 28, 1996, through
December 26, 1998. See "FINANCIAL INFORMATION --
Projected and Pro Forma Financial Information."
H. Capitalization
The following table sets forth the projected
consolidated capitalization of the Debtors as of an
assumed Effective Date of July 13, 1996, and such
capitalization on a pro forma basis after giving
effect to the Restructuring as if it occurred on
July 13, 1996. This information should be read in
conjunction with the accompanying notes and with
Holding's consolidated financial statements and the
notes thereto attached as Appendix B to this
Disclosure Statement, as well as with the financial
and other information set forth below under
"FINANCIAL INFORMATION." The unaudited pro forma
information presented below has been prepared in
accordance with the principles of "fresh-start"
accounting. See "ACCOUNTING TREATMENT." Such
unaudited pro forma information has been derived
from, and should be read in conjunction with, the
pro forma unaudited consolidated financial
information included elsewhere in this Disclosure
Statement. See "FINANCIAL INFORMATION -- Projected
and Pro Forma Financial Information."
Pro Forma Projected Capitalization
(In thousands)
Projected Pro Forma Projected
Pre-Effective Date Post-Effective Date
July 13, 1996 July 13, 1996
Current maturities of long-term debt
and capital lease obligations $2,786 $1,631
Long-term debt and capital lease obligations:
Priority tax claims 2,659 2,659
DIP Facility 3,779 -
New Revolving Credit Facility - 2,000
Term Loan - 10,000
Capital lease obligations 7,963 5,149
Old Notes - principal 95,000 -
Old Notes - interest 6,520 -
New Notes - 60,000
Total long-term debt and capital lease
obligations 115,921 79,808
Redeemable common stock 17 -
Stockholders' equity (deficit):
Common stock 337 47
Additional paid-in capital 55,886 56,014
Accumulated deficit (87,955) -
Minimum pension liability adjustment (1,327) -
Treasury stock (2,814) -
Total stockholders' equity (deficit) (35,873) 56,061
Total Capitalization $82,851 $ 137,500
III. THE CHAPTER 11 CASES
On the Filing Date, each of the Debtors filed a
voluntary petition under Chapter 11 of the
Bankruptcy Code. The Debtors' bankruptcy cases were
procedurally consolidated by order of the Bankruptcy
Court. Since the Filing Date, the Debtors have
continued to operate their businesses and to manage
their properties as debtors-in-possession pursuant
to Section 1107 and Section 1108 of the Bankruptcy
Code.
A. Retention of Professionals
With the approval of the Bankruptcy Court, the
Debtors have retained various professionals,
including the following: (1) Crowe & Dunlevy, A
Professional Corporation, Oklahoma City, Oklahoma,
as general bankruptcy counsel; (2) Young, Conaway,
Stargatt & Taylor, Wilmington, Delaware, as local
bankruptcy counsel; (3) A&M, New York, New York, as
consultants (crisis management and other services);
and (4) Coopers & Lybrand, L.L.P., New York, New
York, as accountants.
B. Formation of the Official Committee
On May 28, 1996, the United States Trustee for the
District of Delaware formed the Official Committee
of Unsecured Creditors (the "Official Committee"),
which consists of Ryoshin Leasing (USA), Inc.
(chair), Farallon Capital Management, GNA Corp.,
Soros Fund Management, U.S. Trust Company of New
York, Kimberly-Clark Corporation and Frito-Lay, Inc.
The Official Committee has retained Hahn & Hessen
and Rosenthal, Monhait, Gross & Goddess, as its co-
counsel.
C. DIP Facility
On the Filing Date, the Bankruptcy Court approved,
on an interim basis, the Company's debtor-in-
possession facility (the "DIP Facility"), pursuant
to which the Old Banks have agreed to lend the
Company (on a revolving basis) up to $27 million
(subject to borrowing base availability) for its
working capital and other general corporate
purposes. The interim approval authorized the
Company to borrow up to $7 million (in excess of
existing indebtedness) under the DIP Facility. The
Bankruptcy Court entered a Final Order approving the
DIP Facility on June 7, 1996.
Under the DIP Facility, the Debtors are permitted to
borrow up to the lesser of $27 million and the
"Borrowing Base." The Borrowing Base is an amount
equal to the sum of (1) 65% of the net amount of
"eligible inventory," (2) 40% of the net amount of
"eligible pharmaceutical inventory," (3) 85% of the
net amount of "eligible coupons;' and (4) 50% of net
amount of "eligible pharmaceutical receivables."
Borrowings under the DIP Facility bear interest at
an interest rate equal to (1) the prime rate
announced publicly by National Bank of Canada from
time to time in New York, New York plus (2) two
percent. Interest is payable quarterly in arrears
on the last day of March, June, September and
December, commencing on June 30, 1996. The DIP
Facility will mature on the earlier of (1) one year
from the Filing Date, and (2) the Effective Date.
Pursuant to the terms of the DIP Facility, the
Debtors are required to pay the Old Banks (1) a
closing fee of $270,000 (plus an additional
$135,000 payable in six monthly payments of $22,500
each if the Effective Date has not occurred within
180 days of the Filing Date), (2) a commitment fee
equal to one-half of one percent per annum on the
unused portion of the loan commitment of $27 million
and (3) a quarterly letter of credit fee equal to
3.25% of the average face amount of outstanding
letters of credit (in addition to certain standard
letter of credit fees charged by such issuing bank).
The Debtors are also required to pay National Bank
of Canada, as Agent (the "DIP Agent") for itself
and the Old Banks, a monthly agency fee of $5,000.
The DIP Facility provides that the DIP Agent (on
behalf of itself and the Old Banks) will have liens
on, and security interests in, all of the pre-
petition and post-petition property (including
certain avoidance claims, if any) of the Debtors
(other than the Old Indenture Collateral), which
liens and security interests will have priority over
substantially all other liens on, and security
interests in, the Debtors' property (other than
properly perfected liens and security interests
which existed prior to the Filing Date).
The DIP Facility includes certain customary
restrictive covenants, including restrictions on
acquisitions, asset dispositions, capital
expenditures, consolidations and mergers,
distributions, divestitures, indebtedness, liens and
security interests and transactions with affiliates.
The DIP Facility also requires the Debtors to comply
with certain financial maintenance and other
covenants.
D. Payment of Certain Pre-Petition Claims
On the Filing Date, the Bankruptcy Court authorized
the Company to pay certain pre-petition Claims in
order to maintain the Company's normal business
operations. These pre-petition Claims include: (1)
the pre-petition trade Claims of AWG against the
Company under the Supply Agreement; (2) pre-petition
Claims against the Company arising under the
Perishable Agricultural Commodities Act, as amended;
(3) certain pre-petition Claims of the Company's
employees, including Claims with respect to salaries
and wages, benefit plans and expense reimbursements;
and (4) certain pre-petition tax Claims against, and
withholding obligations of, the Company.
In addition, on the Filing Date, the Bankruptcy
Court approved the Trade Creditor Order, pursuant to
which the pre-petition Claims of the Company_s trade
creditors (other than AWG, whose Claims will be paid
pursuant to a separate Bankruptcy Court order) will
be paid to the extent such trade creditor supplies
goods or provides services which the Company deems
to be essential to its business. The Company has
analyzed its available suppliers and has determined
those that it deems essential to the continued
operation of its business based on the goods and
services supplied and the availability of other
sources of supply of similar cost and quality.
Those trade creditors the Company deems to be
essential are listed in the Trade Creditor Order.
Pursuant to the Trade Creditor Order, the Company
has paid the pre-petition trade Claims of all of its
essential trade creditors and such creditors have
continued to supply products and services to the
Company in accordance with customary pre-petition
trade terms.
Payments pursuant to the Trade Creditor Order are
contingent on a trade creditor's agreement to
continue to provide goods or services in accordance
with customary pre-petition trade terms (including
prior allowances and practices). If a creditor
receives a payment pursuant to the Trade Creditor
Order and then later refuses to continue to provide
goods or services in accordance with such customary
pre-petition trade terms, then any payments by the
Company to such trade creditor in respect of any pre-
petition Claims will be deemed to have been made in
payment of then outstanding post-petition
obligations owed to such trade creditor and such
trade creditor will immediately repay to the Company
any payments made to such trade creditor on account
of pre-petition Claims to the extent the aggregate
amount of such payment exceeds the post-petition
obligations then outstanding (without any setoff,
claims, provisions for payment of reclamation or
trust fund claims or other reduction by such trade
creditor).
E. Continuation of Certain Consumer Practices
On the Filing Date, the Bankruptcy Court
authorized the Company to continue certain
consumer practices in order to maintain the
Company's normal business operations, including
its return, refund and exchange policy, its
gift certificate program, its community support
programs, its coupon program, its video coupon
program and money orders and money transfers.
F. Other First Day Orders
On the Filing Date, the Bankruptcy Court also
entered a number of other so-called "first day
orders," including: (1) an order authorizing
the Debtors to maintain their pre-petition bank
accounts, continue use of existing business
forms and cash management system and waiving
compliance with investment guidelines on
certain accounts; (2) an order establishing
administrative procedures for interim
compensation to professionals; (3) an order
regarding adequate assurance to utilities; and
(4) an order authorizing the Debtors to mail
initial notices.
G. Establishment of Bar Date
The Bankruptcy Court has established July 1, 1996 as
the last date for holders of Claims to file proofs
of claim.
IV. RISK FACTORS
A. Business Risks
1. Continuing Leverage; Financial Covenant Restrictions
The Company is highly leveraged and, although
completion of the Restructuring will significantly
reduce the Company's debt obligations, the Company
will remain highly leveraged after the
Restructuring. The Company's high leverage, and the
restrictions that will be placed on the Company
under the New Credit Agreement and the New
Indenture, pose substantial risks to the holders of
the Company's debt and equity securities.
First, although the Company believes that it will be
able to generate sufficient operating cash flow to
pay interest on all of its outstanding debt as those
payments become due; there can be no assurance it
will be able to do so. The Company's ability to
meet its ongoing debt service obligations will
depend on a number of factors, including its ability
to implement the Business Plan.
Second, there can be no assurance that the Company
will generate sufficient operating cash flow to
repay, when due, the principal amounts outstanding
under the New Credit Agreement at final maturity
(which is expected to be in 1999) and the principal
amount of the New Notes due in 2003. The Company
expects that it will be required to refinance such
amounts as they become due and payable; however,
there can be no assurance that any such refinancing
will be consummated, or if consummated, will be in
an amount sufficient to repay such obligations. If
the Company is unable to refinance all or any
significant portion of such indebtedness, it may be
required to sell assets of, or equity interests in,
the Company and there can be no assurance that such
sales will be consummated or, if consummated, will
be in an amount sufficient to repay such obligations
in full.
Third, the New Credit Agreement and the New
Indenture will contain restrictive financial and
operating covenants, including provisions which will
limit the Company's ability to make capital
expenditures. Although the Company believes that it
will have sufficient resources and flexibility under
the New Credit Agreement and the New Indenture to
make the capital expenditures necessary to maintain
its competitive position, there can be no assurance
that the Company will be able to make such necessary
capital expenditures. If the Company is unable to
make such necessary capital expenditures as a result
of these covenants, the Company's competitive
position could be adversely affected.
Fourth, the ability of the Company to comply with
the financial covenants to be contained in the New
Credit Agreement and the New Indenture will be
dependent on the Company's future performance, which
will be subject to prevailing economic conditions
and other factors beyond the control of the Company.
The Company's failure to comply with such covenants
could result in a default or an event of default,
permitting the lenders to accelerate the maturity of
indebtedness under such agreements and, in the case
of the lenders under the New Credit Agreement, to
foreclose upon any collateral securing such
indebtedness. Any such default, event of default or
acceleration could also result in the acceleration
of other indebtedness of the Company to the extent
the documents governing such other indebtedness
contain cross-default or cross-acceleration
provisions.
2. Competition
The food retailing business is highly competitive.
The Company competes with several national, regional
and local supermarket chains, particularly Wal-Mart
and Albertson_s. The Company also competes with
convenience stores, stores owned and operated or
otherwise affiliated with large food wholesalers,
unaffiliated independent food stores,
warehouse/merchandise clubs, discount drugstore
chains and discount general merchandise chains.
Most of the Company's principal competitors have
greater financial resources than the Company and
have used those resources to take steps which have
already adversely affected and could in the future
adversely affect the Company's competitive position
and financial performance, including the opening of
competitive stores with better physical facilities.
See "THE RESTRUCTURING -- Background-- Increased
Competition and Lower Margins."
The future competitive position of the Company may
suffer because (a) the Company, unlike all of its
competitors, has a unionized workforce, which will
likely result in the Company having higher labor
costs than its competitors and (b) the Company's
ability to maintain and to remodel its existing
stores and to open new stores may be limited as a
result of the Company's high leverage and the
restrictive financial and operating covenants
contained in the New Credit Agreement and the New
Indenture. Although the Company believes that the
Modified Union Agreements will result in lower, more
competitive labor costs, there can be no assurance
that such lower labor costs will be realized or,
even if they are realized, that they will be
sufficient to respond to competitive pressures. See
"DESCRIPTION OF MODIFIED UNION AGREEMENTS." In
addition, although the Company believes that it will
have sufficient resources and flexibility under the
New Credit Agreement and the New Indenture to make
the capital expenditures necessary to maintain its
competitive position, there can be no assurance that
the Company will be able to make such necessary
capital expenditures.
3. AWG Supply Relationship
AWG is the Company's primary supplier, supplying
approximately 70% of the goods that the Company
sells. The Supply Agreement between AWG and the
Company is scheduled to expire in April 2002. Under
the Supply Agreement, the Company is entitled to
receive certain benefits from AWG, including certain
periodic payments (up to a maximum of approximately
$1.3 million per quarter) based on the volume of the
Company's purchases and certain membership rebates,
credits and refunds. In the event that the Supply
Agreement were to be terminated for any reason, the
Company would be forced to find another supplier.
Although the Company believes that it would be able
to secure a substitute supplier on satisfactory
terms, there can be no assurance that a substitute
supplier could be secured in a timely enough fashion
so as to avoid a disruption in the Company's
operations or that the supply relationship with such
substitute supplier would be on terms as favorable
to the Company as the terms currently available with
AWG. See "THE COMPANY -- AWG Supply Agreement."
4. Projections
The financial projections included in this
Disclosure Statement represent the Debtor's best
estimate of the most likely results of the Company's
operations following the Restructuring and are
dependent on, among other things, the successful
implementation of the Business Plan. See "FINANCIAL
INFORMATION -- Projected and Pro Forma Financial
Information." These projections reflect numerous
assumptions, including confirmation and consummation
of the Plan in accordance with its terms, the
successful implementation of the Business Plan, the
anticipated future performance of the Company,
industry performance, general business and economic
conditions and other matters, most of which are
beyond the control of the Company and some of which
may not materialize. In addition, unanticipated
events and circumstances occurring after the
preparation of the projections may affect the actual
financial results of the Company. Therefore, the
actual results achieved throughout the periods
covered by the projections may vary significantly
from the projected results.
5. Unions
The Modified Union Agreements will have a term of
five years, commencing on the Effective Date.
Although the Company believes that it will be able
to negotiate new agreements, or extensions of the
Modified Union Agreements, with the UFCW and the BCT
prior to the termination of the Modified Union
Agreements, there can be no assurance that such
agreements will be reached or extended or that they
will be on terms as favorable to the Company as
those currently provided under the Modified Union
Agreements. In the event that the Company is unable
to negotiate new union agreements, or extensions of
the Modified Union Agreements on satisfactory terms,
the Company's business could be adversely affected.
B. Bankruptcy Risks
1. Disruption of Operations
Perceived difficulties from the Company_s bankruptcy
case could adversely affect the Company's
relationship with its suppliers, customers and
employees. The Company believes that such risks
have been and will be minimized because (a) the
"prearranged" nature of the Plan should result in an
expedited bankruptcy case and (b) pursuant to
certain "first day" orders entered by the Bankruptcy
Court, the Company will pay all of its employees and
all of its essential trade creditors in the ordinary
course of business. See "THE CHAPTER 11 CASE --
Payment of Certain Pre-Petition Claims." If the
Plan is not consummated on an expedited basis,
however, the Company's bankruptcy case could
adversely affect the Company's relationship with its
suppliers, customers and employees, resulting in a
material adverse effect on the Company's business.
Furthermore, even an expedited bankruptcy case could
have a detrimental effect on future sales and
patronage because it may create a negative image of
the Company in the eyes of its customers.
2. Certain Risks of Non-Acceptance
If the Plan is not accepted by each class of
impaired Claims and Interests thereunder, the
Debtors would be forced to evaluate the options then
available to them. One such option would be to
negotiate a revised plan of reorganization with the
Debtors' creditor and shareholder groups. There can
be no assurance, however, that any such revised plan
would be as favorable to the holders of the Old
Notes, the holders of General Unsecured Claims and
the holders of Old Common Stock as the Plan. In
addition, if the Debtors were unable to negotiate a
revised plan of reorganization on an expedited
basis, (a) the Company's relationship with its
suppliers, customers and employees could be
adversely affected, which could result in a material
adverse effect on the Company's business, and (b)
the Company could be placed at a distinct
competitive disadvantage because the effectiveness
of the Modified Union Agreements -- and the lower,
more competitive, labor cost structure provided for
thereunder -- is conditioned on the Company's
consummation of a plan of reorganization. As a
result of these factors, the Debtors might be forced
to abandon the reorganization process and pursue
instead an orderly liquidation of the Company's
assets. If a liquidation were to occur, the Debtors
believe that the holders of the Old Notes, the
holders of General Unsecured Claims and the holders
of Old Common Stock would receive substantially less
than they would under the Plan. See "ALTERNATIVES
TO THE PLAN -- Liquidation under Chapter 7."
Another option available to the Debtors in the event
of non-acceptance by any impaired class, would be to
pursue a so-called "cram-down" plan of
reorganization pursuant to Section 1129(b) of the
Bankruptcy Code. Section 1129(b) of the Bankruptcy
Code provides that, if certain conditions are met,
the Plan may be confirmed even if the Plan is not
accepted by each impaired class of Claims and
Interests. Section 1129(b) provides that, so long as
at least one impaired class of Claims or Interests
has accepted the Plan (without counting the votes of
insiders in such class), the Plan may be confirmed
if it does not "discriminate unfairly" and is "fair
and equitable" with respect to each of the
nonaccepting classes. It is generally accepted that
a plan of reorganization does not "discriminate
unfairly" if it does not violate the relative
priorities among unsecured creditors and equity
holders. In general terms, a plan is "fair and
equitable" with respect to (a) a nonaccepting class
of Secured Claims if either (i) provision is made
under the plan for the holders of such Claims to
retain the liens securing such Claims to the extent
of their allowed amount and to receive deferred cash
payments totalling at least the allowed amount of
such Claims, having a present value at least equal
to the value of such holders' interests in the
estate's interest in the collateral or (ii) the plan
provides such holders with the "indubitable
equivalent" of their Claims (which may be satisfied
by returning the collateral securing such Claims to
such holders), (b) a nonaccepting class of Unsecured
Claims if the plan provides that either (i) such
holders receive or retain property having a value,
as of the effective date of the plan, equal to the
allowed amount of such holders' Claims or (ii) the
holders of Claims and Interests that are junior to
any such nonaccepting class do not receive or retain
any property under the plan and (c) a nonaccepting
class of equity interests if the holders of any
Interest that is junior to such class do not receive
or retain any property under the plan. This means
that it is possible for a plan to be confirmed by a
bankruptcy court notwithstanding the nonacceptance
of a class of Claims or Interests under such plan
and the holders of such Claims and Interests must
accept whatever distribution, if any, is provided
for them under such plan, so long as the
requirements of Section 1129(b) are met. See
"CONFIRMATION AND CONSUMMATION PROCEDURE --
Confirmation -- Confirmation Without Acceptance by
All Impaired Classes." Although the Debtors reserve
the right to modify the terms of the Plan as may be
necessary for the confirmation of the Plan under
Section 1129(b) of the Bankruptcy Code in the event
that any impaired class fails to accept the Plan,
the Debtors' current intention is that they will not
pursue a "cram-down" plan of reorganization.
3. Certain Risks of Non-Confirmation
Even if all classes of Claims and Interests that are
entitled to vote accept the Plan, the Plan might not
be confirmed by the Bankruptcy Court. Section 1129
of the Bankruptcy Code sets forth the requirements
for confirmation and requires, among other things, a
finding by the Bankruptcy Court that the
confirmation of the Plan not be followed by a need
for further financial reorganization or liquidation,
and that the value of the distributions to classes
of impaired creditors and equity security holders
not be less than the value of distributions such
creditors and such equity security holders would
receive if the Debtors were liquidated under Chapter
7 of the Bankruptcy Code. See "CONFIRMATION AND
CONSUMMATION PROCEDURE -- Confirmation." The Debtors
believe that the requirements for confirmation will
be satisfied. However, there can be no assurance
that the Bankruptcy Court will conclude that these
requirements have been satisfied.
The consummation of the Plan is also subject to the
satisfaction of certain conditions. See" SUMMARY OF
THE PLAN -- Other Provisions of the Plan -- Conditions
to Consummation." No assurance can be given that
these conditions will be satisfied or, if not
satisfied, that the Debtors, or, in certain
instances, the Noteholders' Committee, would waive
such conditions.
4. Certain Risks Regarding Classification of
Claims and Interests
Section 1122 of the Bankruptcy Code provides that a
plan of reorganization may place a Claim or an
Interest in a particular class only if such Claim or
Interest is substantially similar to the other
Claims or the other Interests in such class. The
Debtors believe that the classifications of Claims
and Interests under the Plan comply with the
requirements of the Bankruptcy Code. There can be
no assurance, however, that the Bankruptcy Court
will conclude that such requirements have been
satisfied.
C. Risks Relating to the New Securities
1.Potential Illiquidity of the New Securities
The New Notes and the New Warrants will not be
listed on any exchange. There can be no assurance
that an active trading market for the New Notes or
the New Warrants will develop. Accordingly, there
can be no assurance that a holder of New Notes or
New Warrants will be able to sell such New
Securities in the future or as to the price at which
such New Securities might trade. The liquidity of
the market for such New Securities and the prices at
which such New Securities trade will depend upon the
number of holders thereof, the interest of
securities dealers in maintaining a market in such
New Securities and other factors beyond the Debtors'
control.
Under the Plan, Holding has undertaken to use its
best efforts to secure the listing of the New Common
Stock on the NASDAQ National Market System (or, in
the event Holding fails to meet the listing
requirements of the NASDAQ National Market System,
on such other exchange or system on which the New
Common Stock may be listed) as soon as practicable
following the Effective Date. There can be no
assurance, however, that the New Common Stock will
be listed on the NASDAQ National Market System or on
such other exchange or system. Accordingly, there
can be no assurance that a holder of the New Common
Stock will be able to sell New Common Stock in the
future or as to the price at which the New Common
Stock might trade.
2. Restrictions on Transfer
Holders of New Securities who are deemed to be
"underwriters" as defined in Section 1145(b) of the
Bankruptcy Code, including holders who are deemed to
be "affiliates" or "control persons" of the Debtors
within the meaning of the Securities Act, will be
unable freely to transfer or to sell their
securities except pursuant to (a) "ordinary trading
transactions" by an entity that is not an "issuer"
within the meaning of Section 1145(b), (b) an
effective registration of such securities under the
Securities Act and under equivalent state securities
or "blue sky" laws or c an available exemption from
such registration requirements. See "SECURITIES LAW
CONSIDERATIONS."
In connection with the Restructuring, certain
registration rights will be granted to holders of
the Old Notes and Old Common Stock, with respect to
the New Securities to be received by such holders
under the Plan. In addition, Holding will file a
Form 10 registration statement with respect to the
New Common Stock under the 1934 Act within 60 days
following the Effective Date and will use its best
efforts to cause such registration statement to
become effective as soon as practicable thereafter.
Holding must keep such registration effective until
the earlier of (a) the seventh anniversary of the
Effective Date and (b) the first date on which less
than 10% of the outstanding New Common Stock is
publicly held. For so long as such registration
remains effective, Holding will be required to
comply with the reporting requirements under the
1934 Act. In addition, so long as the New Notes are
outstanding, the New Indenture requires the Company
to comply with the periodic reporting requirements
under the 1934 Act, regardless of whether it is
otherwise subject thereto, as contemplated by the
Trust Indenture Act. See "SECURITIES LAW
CONSIDERATIONS" and "DESCRIPTION OF NEW COMMON STOCK
- -- Registration Rights."
Under the Supply Agreement, there are certain
restrictions with respect to the transfer of more
than 50% of New Common Stock to an entity primarily
engaged in the retail or wholesale grocery business.
See "THE COMPANY -- AWG Supply Agreement."
3. Dilution
If the Restructuring is consummated, the existing
equity interests of the holders of the Old Common
Stock will be canceled and such holders will receive
(in the aggregate) (a) 250,000 shares of New Common
Stock, or approximately 5.3% of the New Common Stock
to be issued under the Plan (without giving effect
to the New Warrants, any options granted under the
Management Stock Option Plan, the Old Warrants or
the issuance or purchase of any New Common Stock
pursuant to the Modified Union Agreements), and (b)
New Warrants, which will be exercisable for 263,158
shares of New Common Stock. The exercise of the Old
Warrants and the vesting and the exercise of any
options granted under the Management Stock Option
Plan will have a further dilutive effect on the
ownership interests of the holders of the Old Common
Stock to the extent the exercise prices for such
securities are less than the fair market value of
the New Common Stock at the time of exercise. In
addition, the issuance and the purchase of New
Common Stock under the Modified Union Agreements (to
the extent any such purchase is at less than fair
market of the New Common Stock at the time of such
purchase) also will have a dilutive effect on such
equity ownership interests. See "DESCRIPTION OF NEW
WARRANTS," "INTRODUCTION AND SUMMARY -- Principal
Elements of the Restructuring -- Management Stock
Option Plan" and "DESCRIPTION OF MODIFIED UNION
AGREEMENTS."
Assuming that (a) all the New Warrants that will be
outstanding following the Restructuring have been
exercised, (b) all the Old Warrants that will be
outstanding following the Restructuring have been
exercised,(c) management stock options covering all
the New Common Stock reserved under the Management
Stock Option Plan have been granted and exercised
and (d) all the New Common Stock that may be issued
pursuant to the Modified Union Agreements has been
issued, holders of General Unsecured Claims
(including Unsecured Claims in respect of the Old
Notes) would own approximately 77.2% of the New
Common Stock and holders of the Old Common Stock
would own approximately 8.9% of the New Common Stock
(approximately 4.3% of which relates to New Common
Stock to be issued under the Plan and approximately
4.6% of which relates to stock to be issued upon
exercise of the New Warrants). The chart set forth
below describes the dilutive effects (including the
cumulative dilutive effect) of stock issuances
under, or in connection with, the New Warrants, the
Management Stock Option Plan, the Old Warrants and
the Modified Union Agreements.
Shares of New Common Stock
Post-Restructuring
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
After Giving Ef- After Giving Ef-
After Giving Ef- fect to Manage- fect to Modified After Giving Ef-
Holders Upon Con- ffect to New War- ment Stock Op- Union Agree- fect to Old War-
summation rants (1) tions (2) ments(3) rants (4) Fully Diluted
General Unsecured
Claims 4,450,000(5) 4,450,000(5) 4,450,000(5) 4,450,000(5) 4,450,000(5) 4,450,000(5)
Old Common
Stock 250,000 250,000 250,000 250,000 250,000 250,000
New Warrants 0 263,158 0 0 0 263,158
Management 0 0 263,158 0 0 263,158
ESOT 0 0 0 522,222 0 522,222
Old Warrants(6) 0 0 0 0 15,167 15,167
4,700,000 4,963,158 4,963,158 5,222,222 4,715,167 5,763,705
</TABLE>
Percentage of New Common Stock
Post-Restructuring
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
After Giving Ef- After Giving Ef-
After Giving Ef- fect to Manage- fect to Modified After Giving Ef-
Upon Con- fect to New War- ment Stock Op- Union Agree- fect to Old War- Fully
Holders summation rants(1) tions(2) ments (3) rants(4) Diluted
General Unsecured
Claims 94.7%(5) 89.7% 89.7% 85.2% 94.4% 77.2%(5)
Old Common
Stock 5.3 5.0 5.0 4.8 5.3 4.3
New Warrants 0.0 5.3 0.0 0.0 0.0 4.6
Management 0.0 0.0 5.3 0.0 0.0 4.6
ESOT 0.0 0.0 0.0 10.0 0.0 9.0
Old Warrants(6) 0.0 0.0 0.0 0.0 0.3 0.3
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
(1) Assumes all New Warrants are exercised.
See "DESCRIPTION OF NEW WARRANTS."
(2) Assumes (a) options to purchase 263,158
shares of New Common Stock have been granted by
the new Board pursuant to the Management
Stock Option Plan and (b) such options are
vested and have been exercised. See
"INTRODUCTION AND SUMMARY -- Principal Elements
of the Restructuring -- Management Stock Option
Plan."
(3) Assumes 522,222 shares of New Common Stock
have been issued to, or purchased by, the ESOT
in accordance with the Modified Union
Agreements. See "DESCRIPTION OF MODIFIED UNION
AGREEMENTS."
(4) The Old Warrants entitle the holders
thereof to purchase (in the aggregate)
2,105,493 shares of Old Common Stock, at an
exercise price of $.50 per share, or an
aggregate exercise for all Old Warrants of
$1,052,746.50. Pursuant to the documents
governing the Old Warrants, upon a
reorganization of Holding, the holder of each
Old Warrant is entitled to receive the
securities of Holding that such holder would
have been entitled to receive had such holder
exercised the Old Warrant prior to the
consummation of the reorganization. Assuming
all Old Warrants had been exercised immediately
prior to the Filing Date, the holders of the
Old Warrants would own 2,105,493 shares of Old
Common Stock and, upon consummation of the
Restructuring, would be entitled to receive an
aggregate of approximately 15,167 shares of New
Common Stock under the Plan (their ratable
share of the Class 7 distribution). Based on
the aggregate exercise price of the Old
Warrants ($1,052,746.50) and the aggregate
number of shares of New Common Stock to be
received upon exercise of the Old Warrants
(approximately 15,167 shares), the effective
exercise price for each share of New Common
Stock to be received upon exercise of the Old
Warrants is approximately $69.41.
(5) Assuming aggregate General Unsecured
Claims of $40.1 million in respect of the Old
Notes and $23.0 million of other General
Unsecured Claims, the holders of the Old Notes
would receive approximately 2,827,922 shares of
New Common Stock (representing approximately
60.2% of the New Common Stock to be outstanding
upon consummation of the Restructuring, or
approximately 49.1% on a fully-diluted basis)
and the holders of all other General Unsecured
Claims would receive approximately 1,622,078
shares of New Common Stock (representing
approximately 34.5% of the New Common Stock to
be outstanding upon consummation of the
Restructuring, or approximately 28.1% on a
fully-diluted basis). See "INTRODUCTION AND
SUMMARY -- Principal Elements of the
Restructuring -- Senior Secured Note Exchange"
and "-- General Unsecured Claims."
(6) The Old Warrants are held by 18 current
and former members of the Company's management.
See "INTRODUCTION AND SUMMARY -- Principal
Elements of the Restructuring -- Equity
Recapitalization."
4. No Dividends
Under the New Credit Agreement and the New
Indenture, Holding will be prohibited from paying
dividends on the New Common Stock, subject to
certain exceptions. For a description of the
restrictions on dividends to be contained in the New
Indenture, see "DESCRIPTION OF NEW NOTES -- Certain
Covenants."
5. Subordination of the New Notes
The payment of principal and interest with respect
to the New Notes will be subordinated to Senior
Indebtedness (as defined in the New Indenture),
comprising all existing and future borrowings under
the New Credit Agreement and refinancings thereof.
Because of the subordination of the New Notes, in
the event of the Company's future insolvency,
liquidation, reorganization, dissolution or other
winding-up after consummation of the Restructuring,
or upon acceleration of, or certain defaults under
any Senior Indebtedness, the holders of any such
Senior Indebtedness must be paid in full before the
holders of New Notes may be paid. See "DESCRIPTION
OF NEW NOTES -- Subordination."
6. New Note Guarantee; Holding Company Structure
Holding will guarantee the Company's obligations
with respect to the New Notes. Holding is a holding
company with no independent operations, and its only
significant asset is its investment in the capital
stock of Homeland. Holding therefore is dependent
upon receipt of dividends or other distributions
from the Company to fund any obligations that it
incurs, including obligations under its guarantees
of the New Notes. However, the New Credit Agreement
and the New Indenture will not permit Homeland to
pay dividends or make other distributions to
Holding, other than for certain specified purposes.
See "--No Dividends." Accordingly, if the Company
at any time were unable to make interest or
principal payments on the New Notes, it is highly
unlikely that, even if funds were available, it
would be permitted to distribute to Holding the
funds necessary to enable Holding to met its
obligations under its guarantees of the New Notes.
Moreover, the obligations of Holding under its
guarantee of the New Notes will be subordinated to
the obligations of Holding as guarantor of the
Company's obligations under the New Credit Agreement
and any refinancings thereof. See "DESCRIPTION OF
NEW NOTES -- Subordination."
D. Certain Federal Income Tax Consequences
The Debtors expect that they will have substantial
consolidated net operating loss carryforwards (the
"NOL carryforwards") from their taxable year ended
December 30, 1995 and prior taxable years, but that,
as a result of the Restructuring, such NOL
carryforwards will be reduced substantially and the
use of the remaining NOL carryforwards will be
limited. The extent to which the Debtors' NOL
carryforwards will be reduced and their use limited
will depend upon a number of variables that are
difficult to estimate at this time. The reduction
of and limitations on the Debtors' NOL carryforwards
may substantially increase the amount of tax payable
by the Debtors following consummation of the Plan as
compared with the amount of tax that would be
payable if no such reduction and limitations were
required. For a further discussion of the federal
income tax consequences of the Plan, see "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES."
V. FINANCIAL INFORMATION
A. Selected Financial Information
The following table sets forth selected consolidated
financial data of the Debtors which has been derived
from financial statements of the Debtors for the 52
weeks ended December 28, 1991, the 53 weeks ended
January 2, 1993 and the 52 weeks ended January 1,
1994, December 31, 1994, and December 30, 1995,
respectively, which have been audited by Coopers &
Lybrand L.L.P. The audited financial statements for
the 52 weeks ended December 30, 1995, and the 52
weeks ended December 31, 1994, are set forth in
Appendix B hereto. The selected consolidated
financial data should be read in conjunction with
the respective consolidated financial statements and
notes thereto which are contained elsewhere herein.
Selected Consolidated Financial Data
(In thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C> <C> <C>
52 weeks ended 53 weeks ended 52 weeks ended 52 weeks ended 52 weeks ended
12/28/91 01/02/93 01/01/94 12/31/94 12/30/95
Summary of Operations Data:
Sales, net $786,785 $830,964 $810,967 $785,121 $630,275
Cost of sales 573,470 609,906 603,220 588,405 479,119
Gross profit 213,315 221,058 207,747 196,716 151,156
Selling and administrative 187,312 199,547 190,483 193,643 151,985
Operational restructuring costs - - - 23,205 12,639
Operating profit (loss) 26,003 21,511 17,264 (20,132) (13,468)
Gain on sale of plants - - 2,618 - -
Interest expense (22,257) (24,346) (18,928) (18,067) (15,992)
Income (loss) before income taxes
and extraordinary items 3,746 (2,835) 954 (38,199) (29,460)
Income taxes benefit (provision) (992) (982) 3,252 (2,446) -
Income (loss) before extraordinary
items 2,754 (3,817) 4,206 (40,645) (29,460)
Extraordinary items - (877) (3,924) - (2,330)
Net income (loss) 2,754 (4,694) 282 (40,645) (31,790)
Reduction (accretion) in redemption
value of redeemable common stock (132) - - 7,284 940
Net income (loss) available to common
stockholders $2,622 $(4,694) $282 (33,361) $(30,850)
Net income (loss) per common share $.07 $(.13) $.01 $(.96) $(.93)
12/28/91 01/02/93 01/01/94 12/31/94 12/30/95
Consolidated Balance Sheet Data:
Total assets $285,735 $305,644 $274,290 $239,134 $137,582
Long-term obligations, including
current portion of long-term
obligations $179,680 $198,380 $172,600 $176,731 $124,242
Redeemable common stock $10,616 $9,470 $8,853 $1,235 $17
Stockholders' equity (deficit) $41,844 $37,150 $36,860 $4,071 $(28,106)
Operating Data:
Stores at end of period 114 113 112 111 68
</TABLE>
B. Projected and Pro Forma Financial Information
As a condition to confirmation of a plan of
reorganization, Section 1129 of the Bankruptcy Code
requires, among other things, that the bankruptcy
court determine that confirmation is not likely to
be followed by a liquidation or a need for further
financial reorganization of the debtor. In
connection with the development of the Plan, and for
the purposes of determining whether the Plan
satisfies this feasibility standard, the Debtors
have analyzed the ability of the Company to meet its
obligations under the Plan with sufficient liquidity
and capital resources to conduct its business. In
this regard, the Debtors have prepared certain
unaudited projections of the Company's results of
operations, cash flow and related balance sheets
(the "Projections") for the three fiscal years
ending December 28, 1996, through December 26, 1998
(the 'Projection Period"). The Projections were
developed from the 1996 Budget. See "THE
RESTRUCTURING -- 1996 Budget." This financial
information reflects the Debtors' judgment as to the
information that is significant under the
circumstances. See "RISK FACTORS" for a discussion
of certain factors that may affect the future
financial performance of the Company and of various
risks associated with the New Securities. The
Projections should be read in conjunction with the
assumptions, qualifications and explanations set
forth herein.
The Debtors do not generally publish its strategies
or make external projections or forecasts of its
anticipated financial positions, results of
operations or cash flow. Accordingly, the Debtors
do not anticipate that they will, and disclaim any
obligation to, furnish updated Projections to
holders of Claims or Interests prior to the
Effective Date, or to holders of the New Securities
after the Effective Date, or to include such
information in documents required to be filed with
the Securities and Exchange Commission
("Commission"), or otherwise make such information
public in the future (other than as required under
applicable securities laws). The Projections should
not be relied upon for any purpose other than in
considering whether to accept or reject the Plan.
The independent auditors of the Debtors have not
examined or compiled the Projections presented
herein, and, accordingly, assume no responsibility
for them.
The Projections are based on and assume the
successful implementation of the Business Plan, and
reflect numerous assumptions, including assumptions
with respect to the future performance of the
Company, the performance of the industry, general
business and economic conditions and other matters,
most of which are beyond the control of the Debtors.
Therefore, while the Projections are necessarily
presented with numerical specificity, the actual
results achieved during the Projection Period will
vary from the projected results, and may vary
substantially. No representations can be or are
being made with respect to the accuracy of the
Projections or the ability of the Debtors to achieve
the projected results. While the Debtors believe
that the assumptions which underlie the Projections
are reasonable in light of current circumstances and
in light of the information available to the
Debtors, in deciding whether to vote to accept the
Plan, holders of claims must make their own
determinations as to the reasonableness of the
assumptions and the reliability of the Projections.
The Projections assume that the Plan will be
confirmed in accordance with its terms, and that all
transactions contemplated by the Plan will be
consummated by the Effective Date, which for
purposes of these Projections is assumed to be July
13, 1996. Any significant delay in the Effective
Date of the Plan could have a significant
unfavorable impact on projected EBITDA (defined as
the Debtors' earnings before interest expense,
income tax provision, depreciation and amortization,
Restructuring expense and extraordinary items) for
the 52 weeks ended December 28, 1996, and could
result in additional reorganization expenses.
The Projections were prepared assuming the economic
conditions in the markets served by the Debtors do
not differ markedly over the next three years from
current economic conditions. Inflation in revenues
and costs is assumed to remain relatively low.
1. Pro Forma Projected Balance Sheets
The following table summarizes (a) the balance sheet
of the Company as of December 30, 1995, and
projected as of July 13, 1996, respectively, before
giving effect to the transactions contemplated by
the Plan, (b) the pro forma adjustments to the
Company's balance sheet that would result from the
transactions contemplated by the Plan and (c) the pro
forma projected balance sheet of the Company as of
July 13, 1996, as adjusted to give effect to the
transactions contemplated by the Plan.
Balance Sheets
December 30, 1995 and July 13, 1996
(Unaudited)
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pro Forma
Actual Projected Projected
Required Plan Fresh Start
December 30, July 13, Financing Consummation ADjustments Fresh Start
1995 1996 (Note a) (Note b) (Note c) July 13, 1996
ASSETS
Current assets:
Excess cash $ - $ - $ 6,101 $ 689 $ - $ 6,790
Store cash 3,828 3,047 - - - 3,047
Restricted Cash -
US Trust escrow 2,529 2,189 - (2,189) - -
Receivables 7,903 8,379 - - - 8,379
Inventories 42,830 38,623 - - - 38,623
Prepaids and other
current assets 2,052 2,733 - - - 2,733
Total current assets 59,142 54,971 6,101 (1,500) - 59,572
Property, net 71,692 70,087 - - - 70,087
Reorganization value
in excess of amounts
allocable in
identifiable assets - - - - 32,771 32,771
AWG patronage
certificates 1,643 1,643 - - - 1,643
Other assets 5,105 4,812 120 - (1,619) 3,313
$137,582 $131,513 $6,221 $ (1,500) $31,152 $167,386
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Obligations under
revolving credit
facility 5,467 3,779 (3,779) - - -
Current portion of
obligations under
capital leases 2,746 - - 1,631 - 1,631
Professional fees and
other Restructuring
expenses - 2,000 - - - 2,000
Union contract
liabilities - - - 4,990 - 4,990
Accounts payable and
accrued liabilities 47,299 24,736 - - - 24,736
Total current
liabilities 55,512 30,515 (3,779) 6,621 - 33,357
Priority tax claims - - - 2,659 - 2,659
Term Loan - - 10,000 - - 10,000
Obligations under
capital leases 9,026 - - 5,149 - 5,149
Old Notes 95,000 - - - - -
New Notes - - - 60,000 - 60,000
Other noncurrent
liabilities 6,133 160 - - - 160
Liabilities subject to
compromise - 136,694 - (136,694) - -
Redeemable stock 17 17 - (17) - -
Stockholders'
equity (deficit):
Common stock 337 337 - (290) - 47
Additional paid-in
capital 55,886 55,886 - 128 - 56,014
Accumulated gain
(deficit) (80,188) (87,955) - 56,803 31,152 -
Minimum pension
liability adjustment (1,327) (1,327) - 1,327 - -
Treasury stock (2,814) (2,814) - 2,814 - -
Total stockholders'
equity (deficit) (28,106) (35,873) - 60,782 31,152 56,061
$137,582 $131,513 $6,221 $(1,500) $31,152 $167,386
</TABLE>
July 13, Liabilities Liabilities
1996 Compromised Assumed
Liabilities subject to compromise (Note d)
Accounts payable and accrued liabilities $14,350 $(11,691) $2,659
Interest payable 6,520 (6,520) -
Long-term debt 95,000 (35,000) 60,000
Obligations under capital leases 10,749 (3,969) 6,780
Other noncurrent liabilities 10,075 (10,075) -
Total liabilities subject to compromise $136,694 $(67,255) $69,439
Notes to Pro Forma Projected Balance Sheets
(In thousands)
(a) Required Financing. The pro forma
projected balance sheets reflect the Term Loan
(as defined under "DESCRIPTION OF THE NEW
CREDIT AGREEMENT -- General") of $10,000 to be
funded on the Effective Date. Proceeds of the
Term Loan will be applied as follows: (i) up
to $200 to pay certain fees in connection with
the New Credit Agreement; (ii) $3,779 to reduce
the Revolving Credit Facility under the New
Credit Agreement projected to be outstanding on
the Effective Date; (iii) up to $6,400 to fund
the Employee Buyout Offer (the Projections
assume funding of $3,600); (iv) $750 to
establish the Health and Welfare Benefit Plan
(as defined below under "DESCRIPTION OF
MODIFIED UNION AGREEMENTS -- Wage Rate, Benefit
Contribution Deductions and Work Rule
Changes"); and (v) $1,350 to pay projected
accrued professional fees relating to the
Restructuring. Any remaining proceeds would be
available to fund the Company's working capital
needs and thereby reduce the need for revolving
borrowings under the New Credit Agreement.
(b) Plan Consummation. Plan consummation
reflects (i) the elimination of Liabilities
Subject to Compromise (as defined below in Note
d) in the amount of $136,694, (ii) the
reinstatement of capital leases in the
aggregate amount of $6,780 (including current
portion of $1,631 and long-term portion of
$5,149), (iii) the reinstatement of priority
tax claims to be paid over 6 years in the
aggregate amount of $2,659, (iv) the assumption
of union contract liabilities in the aggregate
amount of $4,990, including funding the
Employee Buyout Offer at an estimated $3,600
and the Health and Welfare Benefit Plan at an
estimated $750, and assuming vacation liability
of $640, (v) the release of escrowed cash
proceeds from the sale of Old Indenture
Collateral of $2,189 and the distribution of
escrowed cash in the amount of $1,500 to the
holders of the Old Notes, (vi) the distribution
of the New Notes in the aggregate principal
amount of $60,000 and (vii) the distribution of
the New Common Stock at $56,061.
(c) Fresh Start Adjustments. Pursuant to SOP
90-7, the Company has determined the reorganization
value of the Company as of July 13, 1996, at
approximately $137,500. The total reorganization
value includes a value attributed to New Common Stock
of $56,061 (par - $47, additional paid in capital
- - $56,014), and the long-term indebtedness contemplated by
the Plan. In accordance with fresh start accounting
principles, this reorganization value has been allocated,
based on estimated fair market values, to specific
tangible or identifiable intangible assets. The
Company has recorded an intangible asset in the
amount of $32,771, which equals the Company's
reorganization value in excess of amounts
allocable to identifiable assets. The Debtor
will continue to assess the fair market values
of its assets, and consequently the value of
those assets and the reorganization value in
excess of amounts allocable to identifiable
assets are subject to change. The Projections
assume that the reorganization value in excess
of amounts allocable to identifiable assets
will be amortized over three years.
(d) Liabilities Subject to Compromise. As of
the Filing Date, the Projections classify all
liabilities which may be subject to compromise
pursuant to the Plan as "Liabilities Subject to
Compromise." Liabilities Subject to Compromise
are in the aggregate amount of $136,694,
including liabilities to the holders of the Old
Notes in the amount of $101,520 (which includes
accrued interest), liabilities on capital lease
obligations in the amount of $10,749,
Restructuring reserve of $5,095, accrued
workers' compensation and general liability of
$4,280, union maintenance of benefit liability
of $1,880, priority tax liabilities of $2,659,
accounts payable of $3,500 and accrued expenses
of $7,011.
2. Pro Forma Projected Capitalization
The following table summarizes (a) the projected
consolidated capitalization of the Company as of
July 13, 1996, before giving effect to the
transactions contemplated by the Plan, and (b) the
pro forma projected consolidated capitalization of
the Company as of July 13, 1996, as adjusted to give
effect to the transactions contemplated by the Plan.
Pro Forma Projected Capitalization
(In thousands)
Projected
Pro Forma Projected
Pre-Effective
Date Post-Effective Date
July 13, 1996 July 13, 1996
Current maturities of long-term debt and
capital lease obligations $2,786 $1,631
Long-term debt and capital lease obligations:
Priority tax claims 2,659 2,659
DIP Facility 3,779 -
New Revolving Credit Facility - 2,000
Term Loan - 10,000
Capital lease obligations 7,963 5,149
Old Notes - principal 95,000 -
Old Notes - interest 6,520 -
New Notes - 60,000
Total long-term debt and capital lease
obligations 115,921 79,808
Redeemable common stock 17 -
Stockholders' equity (deficit):
Common stock 337 47
Additional paid-in capital 55,886 56,014
Accumulated deficit (87,955) -
Minimum pension liability adjustment (1,327) -
Treasury stock (2,814) -
Total stockholders' equity (deficit) (35,873) 56,061
Total Capitalization $82,851 $137,500
3. Pro Forma Projected Statements of Operations
The Company has prepared the following unaudited pro
forma projected statements of operations to reflect
the Company's historical and projected operating
results for the periods indicated, as well as the
Company's estimated operating results (for the 65
stores expected to be operated as of the Effective
Date) for the first quarter of 1996 compared to
results projected for such period in the Projections
for fiscal 1996.
The 1995 Actual and 1996 Pro Forma Projected
Statements of Operations present the Company's
actual operating results for fiscal 1995 and
projected for fiscal 1996 in the Projections. The
Projections for fiscal 1996 assume (a) confirmation
and consummation of the Plan as of July 13, 1996,
(b) reduction in interest expense as a result of the
Restructuring, (c) the labor savings under the
Modified Union Agreements, (d) a 25% acceptance
level under the Employee Buyout Offer and (e)
implementation of the other provisions of the Plan.
The 1996 First Quarter Results Compared to the
Projections reflect the extent to which the Company
is tracking its Projections for fiscal 1996,
comparing the Company's estimated statement of
operations for the 12 weeks ended March 23, 1996, to
the Projections for such 12-week period, and
providing management's discussion and analysis as to
the significant variances from the Projections for
such 12-week period.
The 1995 - 1998 Pro Forma and Pro Forma Projected
Statements of Operations present a trend line for
the Company's historical and projected operations
for fiscal 1995 through 1998 reflecting the same pro
forma adjustments for the periods presented. The
pro forma adjustments assume (a) operation of 65
stores, (b) confirmation and consummation of the
Plan effective as of January 1, 1995, c reduction in
interest expense as a result of the Restructuring,
(d) the labor savings under the Modified Union
Agreements, (e) a 25% acceptance level under the
Employee Buyout Offer and (f) implementation of the
other provisions of the Plan.
(a) 1995 Actual and 1996 Pro Forma Projected
Statements of Operations
The following table sets forth statements of
operations (1) actual for the Company for the fiscal
year ended December 30, 1995, (2) projected for the
Company for the period from December 31, 1995,
through July 13, 1996, and (3) pro forma projected
for the Company for the period from July 14, 1996,
through December 28, 1996, after giving effect to
the transactions contemplated by the Plan.
1995 Actual and 1996 Pro Forma Projected Statements
of Operations Fiscal Years Ended December 30, 1995 and December 28, 1996
(Unaudited)
(In thousands)
<TABLE>
<S> <C> <C> <C> <C>
Pro Forma Pro Forma
Actual Projected Projected Projected
52 Weeks Ending 28 Weeks 24 Weeks Ending 52 Weeks Ending
December 30, Ending December 28, December 28,
1995 July 13,1996 1996 1996
Sales (a) $630,275 $279,866 $243,516 $523,382
Cost of sales (479,119) (209,665) (181,211) (390,876)
Gross profit (b) 151,156) 70,201 62,305 132,506
Percent of sales 23.98% 25.08% 25.59% 25.32%
Operating and administrative
expense (c) (140,612) (64,989) (50,470) (115,459)
Percent of sales 22.31% 23.22% 20.73% 22.06%
EBITDA 10,544 5,212 11,835 17,047
Percent of sales 1.67% 1.86% 4.86% 3.26%
Depreciation and
amortization (d) (11,373) (4,096) (8,552) (12,648)
Operational restructuring (12,639) - - -
Interest expense (e) (15,992) (5,735) (3,928) (9,663)
Income (loss) before
reorganization items,
income tax provision and
extraordinary items (29,460) (4,619) (645) (5,264)
Reorganization items
Professional fees - (3,150) (450) (3,600)
Fresh start adjustment (f) - 31,152 - 31,152
Income tax provision - - - -
Income (loss) before
extraordinary items (29,460) 23,383 (1,095) 22,288
Extraordinary items (2,330) - - -
Extraordinary gain on debt
discharge (g) - 56,803 - 56,803
Net income (loss) $(31,790) $80,186 $(1,095) $79,091
</TABLE>
Notes to 1995 Actual and 1996 Pro Forma Projected
Statements of Operations
(In thousands)
(a) Sales. Sales for fiscal 1996 reflect the
operation of 65 stores, while sales for fiscal
1995 reflect the operation of 111 stores at the
beginning of 1995, subsequently reduced to 68
stores at the end of 1995. See Note (a) under
1995 - 1998 Pro Forma and Pro Forma Projected
Statements of Operations for the Company,s
analysis of the sales trend.
(b) Gross Profit. Gross profit for fiscal
1996 as a percentage of sales is projected to
be at 25.32%, which reflects an improvement of
1.34% over the gross profit realized by the
Company in fiscal 1995. During 1995, the
Company sold its distribution center operations
and moved from a self-supply operation to an
operation supplied through the AWG retail
buying cooperative. Also during 1995, the
Company sold 29 of its stores and closed 14
other stores. The Company liquidated the
inventory from the 14 closed stores through its
other operating stores, thereby negatively
impacting gross profit. See Note (b) under
1995 - 1998 Pro Forma and Pro Forma Projected
Statements of Operations for the Company's
analysis of the gross profit trend.
(c) Operating and Administrative Expense.
Operating and administrative expense for fiscal
1996 as a percentage of sales is projected to
be at 22.06%, which reflects a 0.25%
improvement over fiscal 1995. The improvement
is primarily due to projected labor savings
under the Modified Union Agreements, offset in
part by projected increases in other operating
and administrative expense. The Projections
assume that the Modified Union Agreements will
become effective, and the Employee Buyout Offer
will be completed, on July 13, 1996, and will
thereby be in effect for six fiscal periods in
1996, yielding projected savings of $4,707.
See Note (c) under 1995 - 1998 Pro Forma and Pro
Forma Projected Statements of Operations for
the Company's analysis of the operating and
administrative expense trend.
(d) Depreciation and Amortization. The
Projections assume that the Company_s
reorganization value in excess of amount
allocable to identifiable assets will be
amortized over three years, beginning on July
13, 1996.
(e) Interest Expense. The Projections reflect
a reduction in interest expense as a result of
lower interest rates and lower levels of
indebtedness as contemplated under the Plan,
beginning on July 13, 1996.
(f) Fresh Start Adjustment. Pursuant to SOP
90-7, the Company determined that its
reorganization value as of July 13, 1996 will
be approximately $137,500. A corresponding
adjustment has been made to the Company's
equity account to reflect the reorganization
value of $56,061 attributed to the New Common
Stock.
(g) Extraordinary Gain on Discharge of
Indebtedness. An adjustment has been made to
the Company's equity account to reflect
consummation of the Plan effective as of July
13, 1996.
(b) 1996 First Quarter Results Compared to
Projections
The following table compares the Company's operating
results to its Projections for the twelve weeks
ended March 23, 1996. The operating results are for
the 65 stores expected to be operated by the Company
as of the Effective Date (although the Company
actually operated 68 stores in the first quarter of
1996).
Summary Results for First Quarter 1996
Actual
(Unaudited) Projection Better/(Worse)
Sales $ 119,454 $ 120,199 $ (745)
Gross Profit 29,067 29,969 (902)
Percent of sales 24.33% 24.93% (0.60%)
Operating Expenses 25,195 26,716 1,521
Percent of sales 21.09% 22.23% 1.14%
EBITDA $3,872 $3,253 $619
Percent of sales (EBITDA) 3.24% 2.71% 0.53%
Sales for the first quarter of 1996 were $745, or
0.6%, less than projected in the Projections for
the first quarter of 1996, primarily due to a
decrease in sales in the health and beauty
care/general merchandise category ("HBC/GM").
HBC/GM sales were lower than projected in the
Projections due to transitional difficulties
experienced by the Company as a result of its
November 1995 conversion from being supplied by a
rack jobber to supply by Value Merchandising
Company, a subsidiary of AWG, for its HBC/GM goods.
The Projections assume that the HBC/GM transitional
difficulties will be resolved during 1996.
Gross margin in the first quarter of 1996 was 0.60%
below that projected in the Projections, yielding
$902 fewer gross profit dollars than expected. This
shortfall was primarily due to lower HBC/GM sales,
lower HBC/GM margin and higher promotional spending
than projected in the Projections, offset somewhat
by higher vendor income and higher contribution from
the grocery category than projected in the
Projections.
The shortfall in gross profit margin in the first
quarter of 1996 was offset by operating expenses
which were $1,521 better than projected in the
Projections, primarily due to a lower union benefit
contribution rate, lower advertising expense and
lower corporate administrative expenses than
projected in the Projections.
(c) 1995--1998 Statements of Operations
The following table sets forth the Company_s
statements of operations for the periods indicated
assuming (a) operation of 65 stores, (b)
confirmation and consummation of the Plan effective
as of January 1, 1995, c reduction in interest
expense as a result of the Restructuring, (d) the
labor savings under the Modified Union Agreements,
(e) a 25% acceptance level under the Employee Buyout
Offer and (f) implementation of the other provisions
of the Plan.
Statements of Operations
Fiscal Years Ended 1995 through 1998
(In thousands)
<TABLE>
<S> <C> <C> <C> <C>
Pro Forma Pro Forma
Actual Projected Projected Projected
52 Weeks Ending 52 Weeks Ending 52 Weeks Ending 52 Weeks Ending
December 30,1995 December 28,1996 December 27, 1997 December 26, 1998
Sales (a) $517,191 $523,382 $525,999 $536,519
Cost of sales (392,434) (390,876) (392,830) (400,687)
Gross profit (b) 124,757 132,506 133,169 135,832
Percent of sales 24.12% 25.32% 25.32% 25.32%
Operating and admini-
strative expense(c) (105,324) (109,147) (108,154) (109,318)
Percent of sales 20.36% 20.85% 20.56% 20.38%
EBITDA 19,433 23,359 25,015 26,514
Percent of sales 3.76% 4.46% 4.76% 4.94%
Depreciation and
amortization (d) (19,209) (20,182)
EBIT 5,806 6,322
Interest expense (8,674) (8,458)
Loss before taxes (2,868) ( 2,126)
Income tax provision (e) (1,818) 1,754)
Loss $(4,686) $(3,880)
</TABLE>
Notes to 1995--1998 Statements of Operations
(In thousands)
(a) Sales. Sales increases are projected at
1.2% in fiscal 1996, 0.5% in fiscal 1997 and
2.0% in fiscal 1998. Food price inflation is
projected at 2.0% per annum for 1996 through
1998. The Projections assume real sales
decline of 0.8% for 1996, and 1.5% for 1997.
Real sales are projected to remain flat in
1998. The real sales declines in 1996 and 1997
reflect the impact of the recent and
anticipated future entry of new competition in
the Company's market areas. In late 1996 or
early 1997, the Company expects 3 Albertson's,
1 Crest and 1 Reasor's to open in the
Company's market areas. 1998 real sales are
expected to be flat as the impact of
competitive entries should be offset by the
opening of one new Homeland store in late 1997.
(b) Gross Profit. The Projections assume that
margins will stabilize and continue to improve
in fiscal 1996 over fiscal 1995. Gross margins
are then projected to remain flat in fiscal
1997 and fiscal 1998. As discussed under
"FINANCIAL INFORMATION -- Projected and Pro
Forma Financial Information -- First Quarter
Results Compared to Projections," the Company
has experienced continuing difficulties in
achieving projected margins, particularly in
the health and beauty care/general merchandise
category. To the extent the margins are lower
than those contained in the Projections, the
Company believes that it will still be able to
meet its projected EBITDA by continuing to
perform favorably with respect to its projected
operating expenses.
(c) Operating and Administrative Expense. Pro
forma operating and administrative expense as a
percentage of sales is projected to be 20.85%
in 1996, 20.56% in 1997 and 20.38% in 1998,
reflecting labor savings and other projected
expense reductions. The Projections assume
that the Modified Union Agreements will be in
effect and the Employee Buyout Offer will be
completed for full fiscal years 1996, 1997 and
1998. Combined pro forma projected savings,
net of union wage and health and welfare
benefit cost increases pursuant to the Modified
Union Agreements, are reflected at $10,200 in
1996, $9,437 in 1997 and $8,343 in 1998. The
Projections also give effect to the anticipated
cost savings expected to result from the
termination of the MIS Agreement. See "THE
COMPANY -- Computer and Management Information
Systems."
(d) Fresh Start Accounting. Pursuant to SOP
90-7, the Company has determined the
reorganization value of the Company. This
reorganization value has been allocated, based
on estimated fair market values, to specific
tangible or identifiable intangible assets.
The Company has recorded an intangible asset
equal to the reorganization value in excess of
amounts allocable to identifiable assets. The
Company will continue to assess the fair market
values of its assets, and consequently the
value of those assets and the reorganization
value in excess of amounts allocable to
identifiable assets is subject to change. The
Projections assume that the reorganization
value in excess of amounts allocable to
identifiable assets will be amortized over
three years. See "ACCOUNTING TREATMENT."
(e) Income Taxes. The Projections assume that
the Company's annual limitation under Code
Section 382(1)(6) will equal approximately
$2,900, computed assuming (among other things)
that the value of the Company as of the
Effective Date will equal the assumed
reorganization value. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES." The future benefits
from NOL carryforwards represent the Company's
estimate only and there can be no assurance
that such NOL carryforwards will result in a
reduction in the amount of federal income taxes
payable by the Company.
4. Projected Balance Sheets
The following table summarizes the projected balance
sheets of the Company as of December 28, 1996,
December 27, 1997 and December 26, 1998.
Projected Balance Sheets
As of Fiscal Years Ending 1996 through 1998
(In thousands)
December 28, December 27, December 26,
1996 1997 1998
ASSETS
Current assets:
Excess cash $ 431 $ _ $ _
Store cash 3,500 3,500 3,500
Receivables 11,450 11,679 11,818
Inventories 40,770 42,386 43,234
Prepaids and other current assets 2,816 3,500 3,500
Total current assets 58,967 61,065 62,051
Property, net 73,707 79,502 84,302
Reorganization value in excess of amounts
allocableto identifiable assets 27,729 15,108 3,052
AWG patronage certificates 1,643 3,897 6,196
Other assets 3,180 2,891 2,603
$165,227 $162,464 $158,204
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under revolving credit
facility $ - $ 3,944 $ 6,159
Current portion of obligations
under capital leases 1,631 1,108 927
Union contract liabilities 640 640 640
Accounts payable and accrued
liabilities 31,154 32,060 32,777
Total current liabilities 33,425 37,752 40,503
Priority tax claims 2,423 1,891 1,359
Term Loan 10,000 9,168 7,504
Obligations under capital leases 4,303 3,368 2,441
New Notes 60,000 60,000 60,000
Other noncurrent liabilities 112 8 -
Stockholders' equity:
Common stock 47 47 47
Additional paid-in capital 56,014 56,014 56,014
Accumulated deficit (1,098) (5,784) (9,664)
Total stockholders' equity 54,963 50,277 46,397
$165,227 $162,464 $158,204
5. Projected Statements of Cash Flow
The following table summarizes the projected
statements of cash flow for the 24 weeks ending
December 28, 1996, the 52 weeks ending December 27,
1997, and the 52 weeks ending December 26, 1998.
Projected Statements of Cash Flow
(In thousands)
24 Weeks Ending 52 weeks Ending 52 Weeks Ending
December 28, 1996 December 27, 1997 December 26, 1998
Operating activities:
Net loss $(1,095) $(4,686) $ (3,880)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization 8,479 21,415 21,844
AWG Patronage Certificates 0 (2,254) (2,299)
Receivables (3,071) (229) (139)
Inventories (2,147) (1,615) (848)
Store Cash (453) 0 0
Other current assets (86) (684) 0
Accounts payable and accrued
liabilities 4,133 269 178
Other accrued expenses (4,350) 0 0
Net cash from operating
activities 1,410 12,215 14,857
Investing activities:
Capital expenditures (6,924) (15,000) (15,000)
Proceeds from sale of assets 0 700 700
Net cash used in investing
activities (6,924) (14,300) (14,300)
Financing activities:
Revolver borrowings 0 3,944 2,215
Principal payments on capital
leases (846) (1,458) (1,108)
Term Loan payments 0 (832) (1,664)
Net cash from (used in) financing
activities (846) 1,654 (557)
Net decrease in cash (6,360) (431) 0
Excess cash at beginning of
period 6,791 431 0
Excess cash at end of period $431 $0 $0
VI. THE COMPANY
A. General
The Company is a leading supermarket chain in
Oklahoma, southern Kansas and the Texas Panhandle
region, operating a total of 67 stores as of the
Filing Date. The Company operates in four distinct
marketplaces: Oklahoma City, Oklahoma; Tulsa,
Oklahoma; Amarillo, Texas; and certain rural areas
of Oklahoma, Kansas and Texas. The Company expects
that, as of the Effective Date, it will operate 65
stores. See "INTRODUCTION AND SUMMARY -- Principal
Elements of the Restructuring -- Rejection of Certain
Closed Store Leases."
The Company and Holding (its holding company) were
organized in 1987 by a group of investors led by
CD&R for the purpose of acquiring substantially all
of the assets of the Oklahoma division of Safeway,
Inc. The acquired stores changed their name to
"Homeland" in order to highlight the Company's
regional identity.
B. AWG Supply Agreement
The Company is a party to the Supply Agreement with
AWG, pursuant to which the Company is a member of
the AWG cooperative and AWG is the Company's primary
supplier. AWG currently supplies approximately 70%
of the goods sold in the Company's stores. AWG is a
buying cooperative which sells groceries on a
wholesale basis to its retail member stores. AWG
has approximately 800 member stores located in a ten-
state region and is the nation's fourth largest
grocery wholesaler, with approximately $2.97 billion
in revenues in 1995.
Pursuant to the Supply Agreement, AWG is required to
supply products to the Company at the lowest prices
and on the best terms available to AWG's retail
members from time to time. In addition, the Company
is (1) eligible to participate in certain cost-
savings programs available to AWG's other retail
members and (2) is entitled to receive certain
member rebates and refunds based on the dollar
amount of the Company's purchases from AWG's
distribution center and periodic cash payments from
AWG, up to a maximum of approximately $1.3 million
per fiscal quarter, based on the dollar amount of
the Company's purchases from AWG's distribution
center during such fiscal quarter.
The Company purchases goods from AWG on an open
account basis. AWG requires that each member's
account be secured by a letter of credit or certain
other collateral in an amount based on such member's
estimated weekly purchases through the AWG
distribution center. The Company's open account
with AWG is currently secured by an $8.4 million
letter of credit (the "AWG Letter of Credit") issued
in favor of AWG by one of the Old Banks under the
1995 Credit Agreement. In addition, the Company's
obligations to AWG are secured by a first lien on
all "AWG Equity" owned from time to time by the
Company, which includes, among other things, AWG
membership stock, the Company's right to receive
periodic payments and certain other rebates,
refunds and other credits owed to the Company by AWG
(including patronage refund certificates, direct
patronage or year-end patronage and concentrated
purchase allowances).
The amount of the AWG Letter of Credit may be
decreased on a biannual basis upon the request of
the Company based on the Company's then-current
average weekly volume of purchases and by an amount
equal to the face amount of the Company's issued and
outstanding AWG patronage refund certificates. In
the event that the Company's open account with AWG
exceeds the amount of the AWG Letter of Credit plus
any other AWG Equity held as collateral for the
Company's open account, AWG is not required to
accept orders from, or deliver goods to, the Company
until the amount of the AWG Letter of Credit has
been increased to make up for any such deficiency.
Under the Supply Agreement, AWG has certain "Volume
Protection Rights," including (1) the right of first
offer (the "First Offer Rights") with respect to any
proposed sales of stores supplied under the Supply
Agreement (the "Supplied Stores") and proposed
transfers of more than 50% of the outstanding stock
of the Company or Holding to an entity primarily
engaged in the retail or wholesale grocery business,
(2) the Company's agreement not to compete with AWG
as a wholesaler of grocery products during the term
of the Supply Agreement, and (3) the Company's
agreement to dedicate the Supplied Stores to the
exclusive use of a retail grocery facility owned by
a retail member of AWG (the "Use Restrictions").
The Company's agreement not to compete and the Use
Restrictions contained in the Supply Agreement are
terminable with respect to a Supplied Store upon the
occurrence of certain events, including the
Company's compliance with AWG's First Offer Rights
with respect to proposed sales of such store. In
addition, the Supply Agreement provides AWG with
certain purchase rights in the event the Company
closes 90% or more of the Supplied Stores.
C. The Company's Supermarkets
The Company's current network of stores features
three basic store formats. The Company's
conventional stores are primarily in the 25,000
square foot range and carry the traditional mix of
grocery, meat, produce and variety products. These
stores contain more than 20,000 stock keeping units
("sku's"), including food and general merchandise.
Sales volumes of conventional stores range from
$60,000 to $125,000 per week. The Company's
superstores are in the 35,000 square foot range and
offer, in addition to the traditional departments,
two or more specialty departments. Sales volumes of
superstores range from $95,000 to $265,000 per week.
The Company's combo store format includes stores of
45,000 total square feet and larger and was designed
to enable the Company to expand shelf space devoted
to general merchandise. Sales volume of combo
stores ranges from $140,000 to $300,000 per week.
The Company's new stores and certain remodeled
locations have incorporated the Company's new,
larger superstore and combo formats. Of the 67
stores operated by the Company as of the Filing
Date, 11 are conventional stores, 44 are superstores
and 12 are combo stores.
The chart below summarizes the Company's store
profile over the last three years:
Fiscal Year Ended
01/01/94 12/31/94 12/30/95(1)
Average sales per store (in millions) $ 7.2 $ 7.1 $ 7.9
Average total square feet per store 34,700 34,700 38,204(1)
Average sales per square foot $208 $205 $207
Number of stores:
Stores at start of period 113 112 111
Stores remodeled 3 10 5
New stores opened 1 0 0
Stores sold or closed 2 1 43
Stores at end of period 112 111 68
Size of stores:
Less than 25,000 sq. ft. 24 24 8
25,000 to 35,000 sq. ft. 39 38 24
35,000 sq. ft. or greater 49 49 36
Store formats:
Conventional 29 29 11
Superstore 66 65 44
Combo 17 17 13
(1) Reflects the operation of 68 stores in
1995. The Company's Ponca City store, which
was sold in April 1996, was a combo store. See
"THE RESTRUCTURING -- Restructuring Discussions
-- Sale of Ponca City Store."
The Company's network of 67 stores is managed by
district managers on a geographical basis through
four districts. Each district manager oversees
store operations for approximately 17 stores. Store
managers are responsible for determining staffing
levels, managing store inventories (within the
confines of certain parameters set by the Company's
corporate headquarters) and purchasing products.
Store managers have significant flexibility with
respect to the quantities of items carried, but not
necessarily types of products purchased. The
Company's corporate headquarters is directly
responsible for merchandising, advertising, pricing
and capital expenditure decisions.
D. Merchandising Strategy and Pricing
The Company's merchandising strategy emphasizes
competitive pricing through a high-low pricing
structure, as well as the Company's leadership in
quality products, service, selection, convenient
store locations, specialty departments and
perishable products (i.e., meat, produce, bakery and
seafood). The Company's strategy is to price
competitively with each conventional supermarket
operator in each market area. In areas with
discount store competition, the Company attempts to
be competitive on high-volume, price sensitive
items. The Company's in-store promotion strategy is
to offer all display items at a lower price than the
store's regular price and at or below the price
offered by the store's competitors. The Company
also currently offers double coupons, with some
limitations, in all areas in which it operates.
E. Customer Service
The Company's stores provide a variety of customer
services including, among other things, carry-out
services, postal services, automated teller
machines, pharmacies, video rentals, check cashing
and money orders. The Company believes it is able
to attract new customers and retain its existing
customers because of its high level of customer
service.
F. Advertising and Promotion
All advertising and promotion decisions are made by
the Company's central merchandising and advertising
staff. The Company's advertising strategy is
designed to enhance its value-oriented merchandising
concept and emphasize its reputation for fast,
friendly service, variety and quality. Accordingly,
the Company is focused on presenting itself as a
competitively-priced, promotions-oriented operator
that offers value to its customers and an extensive
selection of high quality merchandise in clean,
attractive stores. This strategy allows the Company
to accomplish its marketing goals of attracting new
customers and building loyalty with existing
customers. In May 1995, the Company introduced a
new weekly advertising layout that improved product
presentation and enhanced price perception. In
addition, new signage was implemented in the stores
calling attention to various in store specials and
creating a friendlier and more stimulating shopping
experience.
The Company currently utilizes a broad range of
print and broadcast advertising in the markets it
serves, including newspaper advertisements,
advertising inserts and circulars, television and
radio commercials and promotional campaigns that
cover substantially all of the Company_s markets.
The Company receives co-op and performance
advertising reimbursements from vendors which reduce
its advertising costs.
In September 1995, the Company introduced a frequent-
shopper card called the _Homeland Savings Card,_ in
its Amarillo, Texas stores. The Company believes
that it is the only supermarket chain in its market
areas that can capitalize on a frequent-shopper card
system because of the Company's advertising and
market share dominance. The Company expects to
introduce the Homeland Savings Card in its other
stores in the third quarter of 1996.
G. Products
The Company provides a wide selection of name-brand
and private label products to its customers. All
stores carry a full line of meat, dairy, produce,
frozen food, health and beauty aids and selected
general merchandise. As of close of fiscal year
1995, approximately 82% of the Company_s stores had
delicatessens and/or bakeries and approximately 65%
had in-store pharmacies. In addition, some stores
have additional specialty departments offering
ethnic food, fresh and frozen seafood, floral
services and salad bars.
The Company's private label name is "Pride of
America." The Company's private label program
allows customers to purchase high quality products
at lower than national brand retail prices. The
Company's private label products include over 400
items covering virtually every major category of
goods in the Company's stores, including dairy
products, meat, frozen foods, canned fruits and
vegetables, eggs, health and beauty care products
and plastic wrap. As a result of the Company's
supply relationship with AWG, the Company's stores
also offer AWG private label goods, including Best
Choice and Always Save. Private label products
generally represent quality and value to customers
and typically contribute to a higher gross profit
margin than national brands. The promotion of
private label products is an integral part of the
Company's merchandising philosophy of building
customer loyalty as well as improving the Company's
"pricing image."
H. Employees and Labor Relations
At March 31, 1996, the Company had a total of 4,384
employees, of whom 2,762, or approximately 63%, were
employed on a part-time basis. The Company employs
4,267 in its supermarket operations. The remaining
employees are corporate and administrative
personnel.
The Company is the only unionized grocery chain in
its market areas. Approximately 90% of the
Company's employees are union members, represented
primarily by the UFCW. In 1993, the UFCW ratified
the Existing UFCW Agreements, implementing certain
wage and benefit concessions. In March 1996, the
local chapters of the UFCW ratified certain
modifications to the Existing UFCW Agreements, which
will become effective upon consummation of the
Restructuring. In April 1996, the local union
chapter of the BCT, representing 30 of the
Company's in-store bakery employees, ratified
modifications to its collective bargaining agreement
with the Company on the same terms and conditions as
the Modified UFCW Agreements. For a description of
the Modified Union Agreements, see "DESCRIPTION OF
MODIFIED UNION AGREEMENTS."
I. Computer and Management Information Systems
During 1995, the Company installed new client/server
systems in order to enhance its information
management capabilities, improve its competitive
position and enable the Company to terminate the MIS
Agreement (as defined below). The new systems
include the following features: time and
attendance, human resource, accounting and budget
tracking, and scan support and merchandising
systems.
On October 1, 1991, the Company entered into an
agreement (the "MIS Agreement") with K-C Computer
Services, Inc. ("K-CCS"), providing for the
outsourcing of the Company's management information
system and electronic data processing functions. As
a result of the installation of the new systems
described above, the Company terminated the MIS
Agreement effective as of March 31, 1996. The
Company estimates that the termination of the MIS
Agreement will reduce the Company's data processing
and support costs (net of replacement costs and
other expenses) by approximately $23.9 million over
fiscal years 1996 through 2001.
The MIS Agreement provides a schedule for the
payment of liquidated damages upon termination of
the MIS Agreement prior to its expiration in 2001.
Pursuant to the terms of the April 1995 purchase
agreement between the Company and AWG (the "AWG
Purchase Agreement"), AWG is responsible for 52.3%
of the payments under the MIS Agreement, including
any termination payment. According to the
liquidated damage schedule in the MIS Agreement, if
the MIS Agreement is terminated for "convenience" by
Homeland during 1996, the liquidated damage amount
is $3 million. The same schedule provides for $2
million in liquidated damages if the MIS Agreement
is terminated by the Company as a result of an
"acquisition." The Company is unable to determine
whether the liquidated damage amounts under the MIS
Agreement accurately reflect the actual damages
incurred by K-CCS as a result of the termination of
the MIS Agreement prior to its expiration date.
Pursuant to the AWG Purchase Agreement, the Company
and AWG are required to take all steps reasonably
practicable to achieve cost savings under the MIS
Agreement.
The Company has installed laser-scanning checkout
systems in substantially all of its 67 stores. The
Company utilizes the information collected through
its scanner systems to track sales and to coordinate
purchasing.
J. Competition
The supermarket business is highly competitive but
very fragmented and includes small independent
operators. The Company estimates that these
operators represent over 40% of its markets. The
Company also competes with larger store chains such
as Albertson's and Wal-Mart (which operate 42 stores
and 18 stores, respectively, in the Company's market
areas), "price impact" stores such as Mega-Market,
large independent store chains such as IGA, regional
chains such as United and discount warehouse stores.
The Company is a leading supermarket chain in
Oklahoma, southern Kansas and the Texas Panhandle
region. The Company attributes its leading market
position to certain advantages it has over certain
of its competitors, including significant economies
of scale for purchasing and advertising, excellent
store locations and a strong reputation within the
communities in which the Company operates.
The Company's business has been adversely affected
in recent years by the entry of new competition into
the Company's key markets, which has resulted in a
decline in the Company's comparable store sales. In
1994, there were 14 competitive openings in the
Company's market areas including 11 new Wal-Mart
supercenters, 2 new Albertson's and 1 new Mega
Market. In 1995, there were 8 additional
competitive openings in the Company's market areas,
including 3 new Albertson's and 1 new Wal-Mart.
Based on information publicly available, the Company
expects that, in late 1996 or early 1997,
Albertson's will open 3 new stores, Reasor's will
open 1 new store and Crest will open 1 new store in
the Company's market areas.
K. Trademarks and Service Marks
During the transition from "Safeway" to "Homeland,"
the Company was able to generate a substantial
amount of familiarity with the "Homeland" name. The
Company continues to build and enhance this name
recognition through promotional advertising
campaigns. The "Homeland" name is considered
material to the Company's business and is registered
for use as a service mark and trademark. The
Company has received federal and state registrations
of the "Homeland" mark as a service mark and a
trademark for use on certain products. The Company
also received a federal registration of the service
mark "A Good Deal Better" in early 1994.
L. Regulatory Matters
The Company is subject to regulation by a variety of
local, state and federal governmental agencies,
including the United States Department of
Agriculture, state and federal pharmacy regulatory
agencies and state and local alcoholic beverage and
health regulatory agencies. By virtue of this
regulation, the Company is obligated to observe
certain rules and regulations, the violation of
which could result in suspension or revocation of
various licenses or permits held by the Company. In
addition, most of the Company's licenses and permits
require periodic renewals. To date, the Company has
experienced no material difficulties in obtaining or
renewing its regulatory licenses and permits.
M. Properties
Of the 67 supermarkets currently operated by the
Company, 12 are owned facilities and the remainder
are leased facilities (with remaining lease terms
ranging from several months to 17 years). Most of
the leased facilities are subject to renewal
options. Out of 55 leased stores, only eight have
remaining terms (including option periods) of less
than 20 years. The average rent per square foot
under the Company's existing leases is $3.67
(without regard to amortization of beneficial
interest). Most of the leases require the payment
of taxes, insurance and maintenance costs and many
of the leases provide for additional contingent
rentals based on sales. Safeway, Inc., as assignor
to the Company, remains liable on many of these
leases.
Although the Company believes that most of its
existing store leases are at or below the current
market rate, certain of the Company_s stores
(including certain stores closed prior to the Filing
Date and certain stores to be closed after the
Filing Date) are subject to burdensome lease terms.
The Company has obtained permission to reject
(pursuant to Section 365 of the Bankruptcy Code)
certain real property leases relating to stores
closed prior to the Filing Date (certain of which
may have been terminated pre-petition by virtue of
the Company's surrender of the leased property) or
to be closed after the Filing Date. See
"INTRODUCTION AND SUMMARY -- Principal Elements of
the Restructuring -- Rejection of Certain Closed
Store Leases."
No individual store operated by the Company is by
itself material to the financial performance or
condition of the Company as a whole. Substantially
all of the Company's properties are currently
subject to certain mortgages securing the Old Notes
and, upon consummation of the Restructuring, will be
subject to certain mortgages securing the New Credit
Agreement.
On June 12, 1995, the Company relocated its
executive offices to a newly-leased facility located
at 2601 Northwest Expressway, Suite 1100 E, Oklahoma
City, Oklahoma 73112.
N. Legal Proceedings
1. Routine Litigation
The Company is a party to ordinary and routine
litigation incidental to its business. On the
Filing Date, all pre-petition litigation was stayed
pursuant to Section 362 of the Bankruptcy Code. See
"SUMMARY OF THE PLAN -- Classification and Treatment
of Claims and Interests -- Class 5 -- General
Unsecured Claims."
2. Withdrawal Liability Dispute
The Company received a notice and demand for payment
dated June 22, 1995, from Central States, Southeast
and Southwest Areas Pension Fund (the "Fund") in the
amount of approximately $4.4 million. The Fund has
asserted that the Company incurred a withdrawal
liability because the Fund contends that the
cessation of contributions to the Fund by the
Company was not solely because of the AWG Sale. The
Company believes that no liability was incurred
because the AWG Sale was in compliance with an
exemption from withdrawal liability provided by
Section 4204 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). To the
Company's knowledge, the action commenced by the
Fund was neither requested by, nor done in
consultation with, the UFCW or the BCT.
On September 29, 1995, the Fund filed a collection
action (the "Illinois Action") in the United States
District Court for the Northern District of
Illinois, Eastern Division, to compel the Company to
make payments on the asserted liability. On January
18, 1996, the Company initiated arbitration of the
withdrawal liability dispute by filing a Demand for
Arbitration with the American Arbitration
Association. No arbitration schedule had been set
as of the Filing Date.
Pursuant to the AWG Purchase Agreement, AWG is
obligated to reimburse the Company in an amount up
to approximately $3.4 million for any withdrawal
liability incurred with respect to "covered
operations" resulting from a failure to satisfy the
requirements of ERISA Section 4204 in respect of the
"covered operations." The Company has requested
that AWG make the withdrawal liability payments.
AWG has denied liability and has refused to
reimburse the Company for any withdrawal liability
or to make the withdrawal liability payments to the
Fund. On March 11, 1996, AWG filed an action in the
United States District Court for the District of
Kansas for a declaratory judgment as to the rights
and legal relations between the Company and AWG
arising out of AWG's agreement to reimburse the
Company.
On March 14, 1996, the Company filed a Motion to
Implead AWG as a third party defendant in the
Illinois Action. On March 15, 1996, the Fund filed
a Motion for Summary Judgment for the entire
withdrawal liability assessment of approximately
$4.4 million and for an unspecified amount of
liquidated damages, attorney's fees and costs. The
Company and the Fund have agreed to mediate the
dispute and the court has appointed a third party
mediator. No mediation date had been set as of the
Filing Date.
On the Filing Date, this action was stayed pursuant
to Section 362 of the Bankruptcy Code. For purposes
of the Plan, the Fund_s claim constitutes a Disputed
Class 5 Claim. The Company intends to resolve this
matter either pursuant to the Bankruptcy Court_s
normal claims resolution process or by filing an
adversary proceeding in the Bankruptcy Court or the
United States District Court for the District of
Delaware.
VII. BOARDS OF DIRECTORS
a. Current Members
The names and ages of the current members of the
Board of Directors of the Company are set forth in
the following table. Holding's Board of Directors
is identical to that of the Company. Biographical
information for these individuals is set forth under
"Biographical Information."
Name Age
B. Charles Ames 70
James A. Demme 55
John A. Shields 52
Bernard S. Black 42
Bernard Paroly 77
Andrall S. Pearson 70
Hubbard C. Howe 67
Michael G. Babiarz 30
B. Proposed Members
In connection with the Restructuring, the Boards of
Directors of the Company and Holding will be
reconstituted to include seven members. Upon
consummation of the Restructuring, the initial Board
of Directors of each of the Company and Holding will
consist of James A. Demme, John A. Shields, four
directors selected by the Noteholders' Committee and
one director selected by the UFCW.
C. Biographical Information
B. Charles Ames was elected as Chairman of the Board
of the Company and Holding in January 1991. Mr.
Ames is a principal of CD&R and has been a director
of the Company since 1988. He is also a general
partner of the general partner of Clayton & Dubilier
Private Equity Fund IV Limited Partnership ("C&D
Fund IV"). He was a limited partner of the general
partner of Clayton & Dubilier Private Equity Fund
III Limited Partnership ("C&D Fund III") until
October 1990, when he assigned his limited
partnership interest to B. Charles Ames as Trustee
of the trust created pursuant to a Declaration of
Trust, dated July 25, 1982. From October 1987 to
December 1990, Mr. Ames was a consultant to CD&R.
From January 1988 to May 1990, Mr. Ames served as
Chairman and Chief Executive Officer of The Uniroyal
Goodrich Tire Company, a major tire manufacturer.
From July 1983 to October 1987, Mr. Ames served as
Chairman of the Board and Chief Executive Officer of
Acme-Cleveland Corporation, a manufacturer of
machine tools, telecommunication equipment and
electrical controls, of which he was President and
Chief Executive Officer from 1981 to 1983. Mr. Ames
is a director of Diamond Shamrock R&M Inc., Warner
Lambert Company, M.A. Hanna Company, The Progressive
Corporation, Lexmark International, Inc. and its
parent Lexmark Holding, Inc. and WESCO Distribution,
Inc. and its parent CDW Holding, Inc.
James A. Demme became President, Chief Executive
Officer and a director of the Company and Holding as
of November 30, 1994. From 1992 to 1994, Mr. Demme
served as Executive Vice President of Retail
Operations of Scrivner, Inc. He was responsible for
the operations of 170 retail stores which had a
total sales volume exceeding $2 billion. From 1991
to 1992, Mr. Demme served as Senior Vice President
of Marketing of Scrivner, Inc., where he was
responsible for restructuring and refocusing the
merchandising department to retail orientation.
From 1988 to 1991, Mr. Demme was President and Chief
Operating Officer of Shaws Supermarkets, which was
then the fifteenth largest retail supermarket chain
in the United States with sales of $1.7 billion.
John A. Shields became a director of the Company and
Holding in May 1993. He served as president, Chief
Executive Officer, Chief Operating Officer and a
member of the Board of Directors of First National
Supermarkets from 1983 to 1993. Mr. Shields is also
a director of D.I.Y. Home Warehouse, Inc., Shore
Bank & Trust and Shore Bank Corporation.
Bernard S. Black is a Professor of Law at the
Columbia Law School. He joined the Columbia law
faculty in July 1988. Professor Black served as
counsel to Commissioner Joseph A. Grundfest of the
Securities and Exchange Commission from January
1987, through July 1988. From 1983 to 1987, he
practiced law in New York City, specializing in
mergers and acquisitions and corporate and
securities law. In September 1989, Professor Black
became a director of the Company and Holding.
Bernard Paroly served as Chairman and Chief
Executive Officer of Pathmark Supermarkets from mid-
1981 to July 1986. In November 1987, Mr. Paroly
became a director of the Company and Holding.
Andrall E. Pearson is a director of the Company. He
is a principal of CD&R and a limited partner of the
general partner of C&D Fund IV. He was a Professor
of Business Administration at the Graduate School of
Business at Harvard University from 1985 until
January 1993. From 1971 through 1985, Mr. Pearson
was President and Chief Operating Officer of PepsiCo
Inc. Mr. Pearson is a director of PepsiCo. Inc.,
May Department Stores Company, The Travelers, Inc.
(formerly Primerica Corporation) and Lexmark
International, Inc. and its parent Lexmark Holding,
Inc.
Hubbard C. Howe became a director of the Company and
Holding in August 1995. He has been a principal of
CD&R since 1990. Mr. Howe is also a director of
NuKote Holdings and APS Holdings.
Michael G. Babiarz became a director of the Company
and Holding in January 1995. Mr. Babiarz has been
employed by CD&R since 1990.
VIII. MANAGEMENT
A. Management
The following table sets forth the name, age and
position(s) which held by each of the persons who
serves as an executive officer of the Company:
Name Age Position(s)
James A. Demme 55 President, Chief Executive Officer and
Director
Larry W. Kordisch 48 Executive Vice President-Finance, Chief
Financial Officer, Treasurer Secretary
Steven M. Mason 41 Vice President-Marketing
Terry M. Marczewski 41 Chief Accounting Officer, Assistant
Treasurer and Assistant Secretary
Alfred F. Fideline, Sr. 58 Vice President-Retail Operations
Prentess E. Alletag, Jr. 49 Vice President-Human Resources
In addition, Messrs. Demme, Kordisch and Marczewski
hold the same positions with Holding as they hold
with the Company.
All of the executive officers identified above will
continue in their present positions with the Company
and Holding after the Restructuring.
B. Biographical Information
Set forth below is a description of recent business
positions held by the Company's executive officers
listed above. (For biographical information with
respect to Mr. Demme, see "BOARDS OF DIRECTORS--_
Biographical Information.")
Larry W. Kordisch joined the Company in February
1995 and became Executive Vice President-Finance,
Chief Financial Officer, Treasurer and Secretary of
the Company and Holding in May 1995. Prior to
joining the Company, Mr. Kordisch was employed by
Scrivner, Inc., serving as Executive Vice
President-Finance and Administration and a director.
As Executive Vice President-Finance and
Administration, Mr. Kordisch was responsible for the
accounting, administrative, finance, legal and risk
management functions.
Steven W. Mason became Vice President-Marketing of
the Company in October 1993. Mr. Mason joined
Safeway in 1970 and the Oklahoma Division of Safeway
in 1986. At the time of the Acquisition, he was
serving as Special Projects Coordinator for the
Oklahoma Division. He joined the Company in
November 1987, and served as Vice President-Retail
Operations from October 1988, to October 1993.
Terry M. Marczewski joined the Company in April 1995
and became Chief Accounting Officer, Assistant
Treasurer and Assistant Secretary of the Company and
Holding in May 1995. Prior to joining the Company,
Mr. Marczewski served as Controller of Fleming
Companies, Inc.--Scrivner Group from July 1994, to
April 1995. From 1990 to July 1994, Mr. Marczewski
served as Vice President and Controller of Scrivner,
Inc., then the third largest grocery wholesaler,
prior to its acquisition by Fleming Companies, Inc.
Alfred F. Fideline, Sr. became Vice President-Retail
Operations in May 1994. Mr. Fideline joined Safeway
in 1957 and, at the time of the Acquisition, was
serving as a District Manager of Oklahoma Division.
In November 1987, he joined the Company as a
District Manager.
Prentess E. Alletag, Jr. became Vice President-Human
Resources of the Company in November 1987. He
joined the Oklahoma Division of Safeway in October
1969, and, at the time of the Acquisition, was
serving as Human Resources and Public Affairs
Manager. He joined the Company in November 1987.
C. Executive Compensation
The following table provides certain summary
information concerning compensation paid or accrued
by the Company to, or on behalf of, the Company's
Chief Executive Officer, each of the three other
most highly compensated executive officers of the
Company and one former executive officer
(collectively, the "Named Executive Officer") for
the fiscal years ended December 30, 1995, December
31, 1994, and January 1, 1994 (Holding did not pay
compensation during these periods):
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and
Principal Other Annual All Other Com-
Position Year Salary Bonus Compensation pendation(3)(4)
James A. Demme (1) 1995 $200,000 $100,000 (2) $ 4,396
President and Chief 1994 11,538 - (2) -
Executive Officer
Mark S. Sellers (6) 1995 $ 81,922 $140,656 $271,613(5) $208,207
Former Executive 1994 153,000 130,050 114,474(5) 43,447
Vice Pres. Finance, 1993 160,192 153,000 80,852(5) 36,404
Treasurer, Chief
Financial Officer
and Secretary
Larry W. Kordisch(7) 1995 $126,923 $100,000 (2) $ 3,907
Executive Vice Pres.
Finance,Treasurer,
Chief Financial Off-
icer and Secretary
Steven M. Mason 1995 $130,500 $ 19,275 (2) $ 6,414
Vice President- 1994 130,500 110,925 (2) 8,963
Marketing 1993 107,250 103,500 (2) 3,904
Terry M. Marczewski(8)1995 $ 69,326 $ 20,000 (2) $ 43
Chief Accounting
Officer, Assistant
Treasurer, Assistant
Secretary
(1) Mr. Demme joined the Company as President,
Chief Executive Officer and a director as of
November 30, 1994.
(2) Personal benefits provided to the Named
Executive Officer under various Company
programs do not exceed 10% of total annual
salary and bonus reported for the Named
Executive Officer.
(3) All other compensation includes
contributions to the Company's defined
contribution plan on behalf of each of the
Named Executive Officers to match 1993 pre-tax
elective deferral contributions (included under
Salary) made by each to such plan, as follows:
Steven M. Mason, $2,956. There were no
matching contributions in 1994 and 1995.
(4) The Company provides reimbursement for
medical benefit insurance premiums for the
Named Executive Officers. These persons obtain
individual fully-insured private medical
benefit insurance policies with benefits
substantially equivalent to the medical
benefits currently provided under the Company's
group plan. The Company also provides for life
insurance premiums for executive officers,
including the Named Executive Officers and one
other executive officer, who obtain fully-
insured private term life insurance policies
with benefits of $500,000 per person. Amounts
paid during 1995 are as follows: James A.
Demme, $1,547; Mark S. Sellers, $11,069; Larry
W. Kordisch, $2,073; Steven M. Mason, $1,616;
and Terry M. Marczewski, $43.
(5) Includes reimbursement of relocation
expenses in the amount of $271,613 in 1995,
$95,378 in 1994 and $78,058 in 1993.
(6) Mr. Sellers was Executive Vice President-
Finance and Chief Financial Officer of the
Company until his resignation in May 1995.
(7) Mr. Kordisch joined the Company in
February 1995 and was appointed Executive Vice
President-Finance, Chief Financial Officer,
Treasurer and Secretary of the Company as of
May 5, 1995.
(8) Mr. Marczewski joined the Company in April
1995 and was appointed Chief Accounting Officer
and Controller in May 1995.
Directors who are not employees of the Company or
otherwise affiliated with the Company (presently
consisting of Messrs. Black, Paroly and Shields) are
currently paid annual retainers of $15,000 and
meeting fees of $1,000 for each meeting of the Board
of Directors or any committee attended.
D. Employment Agreements
In November 1994, the Company entered into an
employment agreement with James A. Demme, the
Company's President and Chief Executive Officer, for
an indefinite term. The agreement provides a base
annual salary of not less than $200,000, subject to
increase from time to time at the discretion of the
Board of Directors. The agreement entitles Mr.
Demme to participate in the Company's Management
Incentive Plan with a maximum annual bonus equal to
100% of base salary. The agreement also provides
for awards under a long term incentive compensation
plan which is to be established by the Company and
authorizes reimbursement for certain business-
related expenses. The agreement was amended in
April 1996, to provide that, if the agreement is
terminated by the Company for other than cause or
disability prior to December 31, 1997, or is
terminated by Mr. Demme following a change of
control or a trigger event (as defined), Mr. Demme
is entitled to receive (a) payment, which would not
be subject to any offset as a result of his
receiving compensation from other employment, equal
to two years_ salary, plus a pro rata amount of the
incentive compensation for the portion of the
incentive year that precedes the date of
termination, and (b) continuation of welfare benefit
arrangements for a period of two years after the
date of termination. The Restructuring is a trigger
event under the agreement only if Mr. Demme
terminates his employment thereafter for good reason
(as defined) or if, following the Effective Date, a
subsequent trigger event occurs, such as a change of
control or sale of assets.
On September 26, 1995, the Company entered an
employment agreement with Larry W. Kordisch, the
Company's Executive Vice President-Finance and Chief
Financial Officer. The agreement provides for a
base annual salary of not less than $150,000,
subject to increase from time to time at the
discretion of the Board of Directors. Mr. Kordisch
is also entitled to participate in the Management
Incentive Plan based upon the attainment of
performance objectives as the Board of Directors
shall determine from time to time. The agreement
was amended in April 1996, to provide that, if the
agreement is terminated by the Company for other
than cause or disability prior to December 31, 1997,
or is terminated by Mr. Kordisch following a change
of control or a trigger event (as defined), Mr.
Kordisch is entitled to receive (a) payment, which
would not be subject to any offset as a result of
his receiving compensation from other employment,
equal to two years' salary, plus a pro rata amount
of the incentive compensation for the portion of the
incentive year that precedes the date of
termination, and (b) continuation of welfare benefit
arrangements for a period of two years after the
date of termination. The Restructuring is a
trigger event under the agreement only if Mr.
Kordisch terminates his employment thereafter for
good reason (as defined) or if, following the
Effective Date, a subsequent trigger event occurs,
such as a change of control or sale of assets.
On September 26, 1995, the Company entered into an
employment agreement with Terry M. Marczewski, the
Company's Controller and Chief Accounting Officer.
The agreement, which is for an indefinite term,
provides for a base annual salary of $90,000,
subject to increase from time to time at the
discretion of the Board of Directors. Mr.
Marczewski is also entitled to participate in the
Management Incentive Plan based upon the attainment
of performance objectives as the Board shall
determine from time to time. The agreement was
amended in April 1996, to provide that, in the event
his employment is terminated prior to December 31,
1997 for any reason other than cause or disability,
the Company will pay Mr. Marczewski his annual
salary for a period of one year after the
termination date or until December 31, 1997,
whichever is longer, plus a pro rata amount of the
incentive compensation for the portion of the
incentive year that precedes the date of
termination.
In April 1996, the Company entered into employment
agreements with Steven M. Mason, the Company's Vice
President of Marketing, and Alfred F. Fideline, Sr.,
the Company's Vice President of Retail Operations.
The agreements, which are for an indefinite term,
provide a base annual salary of $130,500 for Mr.
Mason and $80,000 for Mr. Fideline, subject to
increase from time to time at the discretion of the
Board of Directors. In the event their employment
is terminated prior to December 31, 1997 for any
reason other than cause or disability, the Company
will pay Mr. Mason and Mr. Fideline their annual
salaries for a period of one year after the
termination date or until December 31, 1997,
whichever is longer, plus a pro rata amount of the
incentive compensation for the portion of the
incentive year that precedes the date of
termination.
In April 1996, the Company entered into an agreement
with Francis T. Wong, the Company's Director of
Finance, which provides that in the event his
employment is terminated prior to December 31, 1997,
for any reason other than cause or disability, the
Company will pay Mr. Wong his annual salary for a
period of one year after the termination date or
until December 31, 1997, whichever is longer, plus a
pro rata amount of the incentive compensation for
the portion of the incentive year that precedes the
date of termination.
The Company intends to assume all of these
employment agreements pursuant to the Plan.
E. Management Incentive Plan
The Company maintains a Management Incentive Plan
to provide incentive bonuses for members of its
management and key employees. Bonuses are
determined according to a formula based on both
corporate, store and individual performance and
accomplishments or other achievements and are paid
only if minimum performance and/or accomplishment
targets are reached. Minimum bonuses range from 0
to 100% of salary for officers (as set forth in the
Management Incentive Plan), including the Chief
Executive Officer. Maximum bonus payouts range from
75% to 200% of salary for officers and up to 200% of
salary for the Chief Executive Officer. Performance
levels must significantly exceed target levels
before the maximum bonuses will be paid. Under
limited circumstances, individual bonus amounts can
exceed these levels if approved by the Compensation
Committee of the Board of Directors (the
"Compensation Committee"). Incentive bonuses paid
to managers and supervisors vary according to their
reporting and responsibility levels. Unless
otherwise determined by the Board of Directors, the
Compensation Committee consists of members of the
Board who are ineligible to participate in the
Management Incentive Plan. Incentive bonuses earned
for certain highly compensated executive officers
under the Management Incentive Plan for performance
during fiscal year 1995 are included in the Summary
Compensation Table set forth above.
F. Retirement Plan
The Company maintains a retirement plan in which all
non-union employees, including members of
management, participate. Under the retirement plan,
employees who retire at or after age 65 after
completing five years of vesting service (defined as
calendar years in which employees complete at least
1,000 hours of service) will be entitled to
retirement benefits equal to 1.50% of career average
compensation (including basic, overtime and
incentive compensation) plus .50% of career average
compensation in excess of the social security
covered compensation, such sum multiplied by years
of benefit service (not to exceed 35 years).
Retirement benefits will also be payable upon early
retirement beginning at age 55, at rates actuarially
reduced from those payable at normal retirement.
Benefits are paid in annuity form over the life of
the employee or the joint lives of the employee and
his or her spouse or other beneficiary.
Under the retirement plan, estimated annual benefits
payable to the Named Executive Officers upon
retirement at age 65, assuming no changes in covered
compensation or the social security wage base, would
be as follows: James A. Demme, $27,280; Larry W.
Kordisch, $44,375; Steven M. Mason, $85,129; and
Terry M. Marczewski, $35,372.
IX. STOCK OWNERSHIP
Set forth below is certain information as of March
31, 1996, concerning certain holders of the
currently outstanding shares of Old Common Stock
(including officers and directors of the Company and
holders of 5% or more of the Old Common Stock).
Name of Beneficial Owner Shares Percent
Beneficially Owned of Class
The Clayton & Dubilier Private Equity Fund III 11,700,000 35.9%
Limited Partnership, 270 Greenwich Avenue,
Greenwich, CT 06830
The Clayton & Dubilier Private Equity Fund IV 13,153,089 40.4
Limited Partnership, 270 Greenwich Avenue,
Greenwich, CT 06830
B. Charles Ames (1)(2) 13,153,089 40.4
Joseph L. Rice, III (1)(3) 24,853,089 76.3
Alberto Cribiore (1)(3) 24,853,089 76.3
William A. Barbe (1) 13,153,089 40.4
Donald J. Gogel (1) 13,153,089 40.4
Leon J. Hendrix, Jr. (1) 13,153,089 40.4
Hubbard C. Howe (1) 13,153,089 40.4
Andrall E. Pearson (1) 13,153,089 40.4
James A. Demme _ _
Larry W. Kordisch _ _
Terry M. Marczewski _ _
Steven M. Mason (4) 41,912 *
Alfred F. Fideline, Sr. 1,000 *
Bernard S. Black (5) 70,000 *
Bernard Paroly 50,000 *
John A. Shields _ _
Michael G. Babiarz _ _
Officers and directors as
a group (13 persons) (6)(7) 13,366,001 41.0
*Indicates less than 1%
(1) Messrs. Ames, Rice, Cribiore, Gogel,
Hendrix, Barbe, Pearson and Howe may be deemed
to share beneficial ownership of the shares
owned of record by C&D Fund IV by virtue of
their status as general partners of the general
partner of C&D Fund IV, but Messrs. Ames, Rice,
Cribiore, Gogel, Hendrix, Barbe, Pearson and
Howe each expressly disclaim such beneficial
ownership of the shares owned by C&D Fund IV.
Messrs. Ames, Rice, Cribiore, Gogel, Hendrix,
Barbe, Pearson and Howe share investment and
voting power with respect to securities owned
by C&D Fund IV. The business address for
Messrs. Ames, Rice, Cribiore, Gogel, Hendrix,
Barbe, Pearson and Howe is c/o Clayton,
Dubilier & Rice, Inc., 375 Park Avenue, 18th
Floor, New York, NY 10152.
(2) Mr. Ames was a limited partner in the
general partner of C&D Fund III until October
1990, when he assigned his limited partnership
interest to B. Charles Ames as Trustee of the
trust created pursuant to a Declaration of
Trust, dated July 25, 1982. Thus, he does not
share investment discretion with respect to
securities held by C&D Fund III.
(3) Messrs. Rice and Cribiore may be deemed to
share beneficial ownership of the shares owned
of record by C&D Fund III by virtue of their
status as general partners of the general
partner of C&D Fund III, but Messrs. Rice and
Cribiore each expressly disclaim such
beneficial ownership of the shares owned by C&D
Fund III. Messrs. Rice and Cribiore share
investment and voting power with respect to
securities owned by C&D Fund III.
(4) Includes 27,900 shares held in Mr. Mason's
individual retirement account. Shares held by
officers in their respective individual
retirement accounts ("IRA") are subject to a
power of attorney to instruct the trustee of
the IRA to take certain actions with respect to
the shares held in the IRA in accordance with
the stock subscription agreements executed by
such officers.
(5) Includes 13,000 shares held in Mr. Black's
IRA. See note 4.
(6) Includes shares owned by C&D Fund IV, over
which Mr. Ames, a director of the Company,
shares investment and voting control. See
notes 1 and 2.
(7) Includes 90,900 shares held by officers
and directors in their respective individual
retirement accounts. See note 4.
As a result of the equity recapitalization and the
issuance of the shares of New Common Stock to the
holders of General Unsecured Claims pursuant to the
Plan, the persons who, on the Effective Date, will
own at least five percent of the shares of New
Common Stock may be significantly different than the
persons who currently own at least five percent of
the shares of Old Common Stock. The Debtors are
unable to determine at this time the identity of the
persons who will own at least five percent of the
New Common Stock to be outstanding upon consummation
of the Restructuring because, among other reasons, a
significant amount of the Old Notes are currently
held in nominee name, the Old Notes may be
transferred or acquired prior to the Effective Date
and the actual amount of General Unsecured Claims
(other than General Unsecured Claims in respect of
the Old Notes) has not been finally determined.
X. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
C&D Fund III, a private investment fund managed by
CD&R, owns approximately 35.9% of the Old Common
Stock outstanding as of the Filing Date, and C&D
Fund IV, another private investment fund managed by
CD&R, owns approximately 40.4% of the Old Common
Stock outstanding as of the Filing Date. Amounts
contributed to C&D Fund III and C&D Fund IV by the
limited partners thereof are invested at the
discretion of the general partner in the equity of
corporations organized for the purpose of carrying
out leveraged acquisitions involving the
participation of management, or, in the case of C&D
Fund IV, in corporations where the infusion of
capital coupled with the provision of managerial
assistance by CD&R can be expected to generate
returns on investments comparable to returns
historically achieved in leveraged buy-out
transactions. The general partner of C&D Fund III
is Clayton & Dubilier Associates III Limited
Partnership, a Connecticut limited partnership
("Associates III"). The general partner of C&D Fund
IV is Clayton & Dubilier Associates IV Limited
partnership, a Connecticut limited partnership
("Associates IV"). B. Charles Ames, a principal of
CD&R, a holder of an economic interest in Associates
III and a general partner of Associates IV, also
serves as Chairman of the Board of the Company.
Andrall E. Pearson, a principal of CD&R and director
of the Company, is a general partner of Associates
IV. Michael G. Babiarz, a director of the Company,
is a professional employee of CD&R. Hubbard C.
Howe, a principal of CD&R and a director of the
Company, is a general partner of Associates IV.
The Company paid CD&R annual fees of $200,000 in
1993, $150,000 in 1994 and $125,000 in 1995 for
management and financial consulting services. CD&R
agreed to forgo any such fees after November 1995,
in view of the Company's financial position and in
order to facilitate the Restructuring.
CD&R, C&D Fund III and the Company entered into an
Indemnification Agreement dated as of August 14,
1990 (the "1990 Indemnification Agreement"),
pursuant to which the Company agreed, subject to
certain applicable restrictions, to indemnify CD&R,
C&D Fund III, Associates III and their respective
directors, officers, partners, employees, agents and
controlling persons against certain liabilities
arising under the federal securities laws and
certain other claims and liabilities.
CD&R, C&D Fund III, C&D Fund IV and the Company
entered into a separate Indemnification Agreement,
dated as of March 4, 1992 (the "1992 Indemnification
Agreement"), pursuant to which the Company agreed,
subject to any applicable restrictions in the Old
Indenture, the 1992 Credit Agreement and certain
other agreements, to indemnify CD&R, C&D Fund III,
and C&D Fund IV, Associates III, Associates IV and
their respective directors, officers, partners,
employees, agents and controlling persons against
certain liabilities arising under the federal
securities laws and certain other claims and
liabilities.
The Company has made temporary loans to certain
members of the Company_s management to enable such
persons to make principal payments under loans from
third-party financial institutions. Such loans bear
interest at a variable rate equal to the rate
applicable to the Company's borrowings under the
1995 Credit Agreement plus one percent and are
scheduled to mature on July 21, 1996. As of March
31, 1996, the aggregate principal amount of such
loans outstanding was $81,500.
XI. SUMMARY OF THE PLAN
The provisions of the Plan are summarized in this
Article XI. THE SUMMARY IS ONLY A GENERAL
DESCRIPTION OF THE PLAN AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE PLAN, A COPY OF WHICH
IS SET FORTH IN APPENDIX A.
A. Classification and Treatment of Claims and Interests
1. General
Under Section 1122 of the Bankruptcy Code, the
Debtors are required to classify the Claims against,
and Interests in, the Debtors into Classes which
contain Claims or Interests that are substantially
similar to the other Claims or the other Interests
in such class. The Plan designates five classes of
Claims and three Classes of Interests and provides
separately for the treatment of each class. The
classification and the treatment of the Claims and
the Interests take into account their differing
nature and priority under the Bankruptcy Code and
other applicable laws. A Claim or an Interest is
classified in a class only to the extent that Claim
or that Interest falls within the description of
that class and is classified in another class to the
extent that Claim or that Interest falls within the
description of the other class.
While the Debtors believe that they have classified
all Claims and Interests in compliance with the
provisions of Section 1122 of the Bankruptcy Code,
it is possible that a party in interest may
challenge such classification of Claims or Interests
and the Bankruptcy Court may find that a different
classification is required in order for the Plan to
be confirmed. In such event, it is the present
intention of the Debtors to modify the Plan to
provide for whatever reasonable classification might
be required by the Bankruptcy Court for confirmation
of the Plan. See "RISK FACTORS -- Bankruptcy Risks--
Certain Risks Regarding Classification of Claims and
Interests."
Holders of Claims against, and Interests in, the
Debtors are entitled to receive a distribution under
the Plan only on account of Allowed Claims and
Allowed Interests. An "Allowed Claim" is a Claim
which (a) either is (i) listed by the Debtors in
their respective schedules filed with the Bankruptcy
Court pursuant to Section 521 of the Bankruptcy Code
as liquidated in amount, not disputed and not
contingent or (ii) the subject of a proof of Claim
filed with the Bankruptcy Court, and (b) has not
been objected to by the Debtors or any other party
in interest. If an objection is made, the validity
and amount of the Claim will be determined by order
of the Bankruptcy Court or the District Court. An
"Allowed Interest" is an Interest registered as of
the Record Date in the stock register maintained
by, or on behalf of, Holding or the Company, as the
case may be. See"-- Other Provisions of the Plan--
Disputed Claims."
Holding is a holding company, the principal asset of
which is the Homeland Common Stock. Holding is the
guarantor of, or co-obligor with respect to, certain
of the Company's obligations, including, without
limitation, the Company's obligations under the 1995
Credit Agreement, the Old Indenture and one store
lease. The Debtors believe that each creditor of
Holding is also a creditor of the Company.
2. Treatment of Unclassified Claims
Administrative Claims and Priority Tax Claims have
not been classified under the Plan.
(a) Administrative Claims
Administrative Claims are Claims for administrative
expenses allowed under Section 503(b) of the
Bankruptcy Code, including (i) the actual and
necessary costs and expenses of preserving and
operating the business of the Debtors' estates, (ii)
taxes incurred by the Debtors' Estates other than
taxes of a kind specified in Section 507(a)(8) of
the Bankruptcy Code, (iii) any compensation for
legal and other professional services and
reimbursement of expenses awarded under Section 330
of the Bankruptcy Code and (iv) fees due to the
United States Trustee under Section 1930, Chapter
123, Title 28, United States Code.
Pursuant to the Plan, unless otherwise agreed by a
holder of an Allowed Administrative Claim, each such
holder will be paid in full, in cash, on the later
of the Effective Date and the date on which such
Claim becomes an Allowed Claim; provided, however,
that fees due to the United States Trustee will be
paid in accordance with applicable law and that
Administrative Claims representing liabilities
incurred in the ordinary course of business by the
Debtors (including amounts owed to suppliers that
have sold products of furnished goods and services
to the Debtors after the Filing Date) will be paid
by the Debtors in accordance with the terms and
conditions of the particular transactions and any
agreements relating thereto.
The reasonable fees and expenses incurred on or
after the Filing Date by the Noteholder Advisors
with respect to the Debtors' bankruptcy cases will
be paid (without application by or on behalf of any
such professionals to the Bankruptcy Court, and
without notice and a hearing, unless specifically
ordered by the Bankruptcy Court upon request of a
party in interest) by the Debtors as an
Administrative Expense under the Plan (unless such
advisor is retained by the Official Committee
pursuant to Sections 327 or 1103 of the Bankruptcy
Code). If the Debtors and any Noteholder Advisor
cannot agree on the amount of fees and expenses to
be paid to such Noteholder Advisor, the amount of
such fees and expenses will be determined by the
Bankruptcy Court.
Assuming that (i) no significant litigation is
commenced and no significant objections are filed
with respect to the Plan, (ii) the Bankruptcy Court
approves the Company's motion for payment of interim
compensation and reimbursement of expenses of
professionals and (iii) the Plan is confirmed in
July 1996, the Debtors estimate that the aggregate
amount of unpaid Administrative Claims as of the
Effective Date (excluding expenses incurred by the
Company in the ordinary course of business) will not
exceed $0.5 million.
(b) Priority Tax Claims
Priority Tax Claims are Claims entitled to priority
pursuant to Section 507(a)(8) of the Bankruptcy
Code.
Pursuant to the Plan, unless otherwise agreed by a
holder of an Allowed Priority Tax Claim, each such
holder will (at the option of the Debtors) (i) be
paid in full, in cash, on the later of the Effective
Date and the date on which such Claim becomes on
Allowed Claim or (ii) be paid deferred cash payments
in an amount equal to (in the aggregate) the amount
of such Claim, over a period not exceeding six years
after the date of assessment of such Claim,
including an interest component as required by the
provisions of Section 1129(a)(9)c of the Bankruptcy
Code. In fixing such interest component, the
Debtors intend to use the federal judgement rate in
effect on the Confirmation Date, unless the
Bankruptcy Court determines otherwise. To the
extent that the Debtors elect to make deferred cash
payments on any Allowed Priority Tax Claim, the
Debtors may prepay the remaining amount of such
Allowed Priority Tax Claim at any time, without
penalty or premium.
Assuming the Plan is confirmed in July 1996, the
Debtors estimate that the aggregate amount of unpaid
Priority Tax Claims as of the Effective Date will
not exceed $2.7 million.
3. Classification and Treatment of Classified
Claims and Interests
(a) Class 1-Allowed Priority Claims
Class 1 consists of all Allowed Claims which are
entitled to priority under Section 507(a) of the
Bankruptcy Code (other than Administrative Claims
and Priority Tax Claims).
Pursuant to the Plan, unless otherwise agreed by a
holder of a Class 1 Claim, each Class 1 Claim will
be paid in full, in cash, on the later of the
Effective Date and the date on which such Claim
becomes an Allowed Claim.
Assuming that the Bankruptcy Court approves the
Company's motion for payment of certain pre-petition
Claims of the Company's employees, the Debtors
estimate that an aggregate amount of Class 1 Claims
as of the Effective Date will not exceed $0.5
million.
Class 1 is not impaired and the holders of Class 1
Claims are conclusively presumed, under Section
1126(f) of the Bankruptcy Code, to have accepted the
Plan.
(b) Class 2-Allowed Claims of the Old Banks
Class 2 consists of the Allowed Claims of the Old
Banks under the 1995 Credit Agreement. As of May
10, 1996, approximately $6.5 million of loans were
outstanding under the 1995 Credit Agreement. In
addition, as of such date, approximately $10.4
million of letters of credit were issued and
outstanding, including $8.4 million in respect of
the AWG Letter of Credit.
Pursuant to the Plan, Class 2 Claims will be (i)
paid in full, in cash, or (ii) satisfied by the
execution and delivery of the New Credit Agreement
by, among other persons, the Old Banks, and the
modification of the 1995 Credit Agreement in
accordance with the terms of the New Credit
Agreement (in which case, the Class 2 Claims, as so
modified, will continue to have the benefit of the
collateral securing such Claims as of the Filing
Date pursuant to the original security documents and
certain additional collateral). See "DESCRIPTION OF
NEW CREDIT AGREEMENT."
Class 2 is not impaired and the holders of Class 2
Claims are conclusively presumed, under Section
1126(f) of the Bankruptcy Code, to have accepted the
Plan.
(c) Class 3-Allowed Secured Noteholder Claims
Class 3 consists of the Allowed Secured Claims in
respect of the Old Notes.
The aggregate amount of Allowed Claims in respect of
the Old Notes is $101.6 million (the "Allowed
Noteholder Claims"), consisting of $95.0 million in
aggregate principal amount of Old Notes outstanding
as of the Filing Date and $6.6 million in accrued
and unpaid interest on the Old Notes as of the
Filing Date. The Allowed Noteholder Claims are
Secured Claims to the extent of the value of the Old
Indenture Collateral. In March 1996, the Debtors
and the Noteholders' Committee estimated that, based
on a going concern valuation of the Company's
assets, the value of the Old Indenture Collateral
was approximately $65.0 million. Based on this
estimated value of the Old Indenture Collateral, the
aggregate amount of Allowed Secured Claims in Class
3 would be not less than $65.0 million.
Notwithstanding such collateral value, the
Noteholders' Committee and the Debtors agreed that,
solely for purposes of facilitating the confirmation
of the Plan, the aggregate amount of Allowed Secured
Claims in Class 3 would be reduced to, and would be
deemed (for purposes of the Plan) to be $61.5
million (the "Allowed Secured Noteholder Claims").
The excess of the Allowed Noteholder Claims over the
Allowed Secured Noteholder Claims is $40.1 million
(the "Allowed Unsecured Noteholder Claims").
Pursuant to the Plan, the Allowed Unsecured
Noteholder Claims will be treated as Class 5 Claims
and will be deemed to be allowed in full.
Pursuant to the Plan, unless otherwise agreed by a
holder of a Class 3 Claim, each such holder will
receive its Ratable Share of (i) $60 million
principal amount of New Notes and (ii) the Cash
Amount. For further information regarding the New
Notes, see "DESCRIPTION OF NEW NOTES" and the form
of New Indenture set forth in the Plan Supplement.
The Debtors shall pay to the Old Trustee an amount
equal to the amount of the Old Trustee Expenses.
Payment of such expenses shall constitute
distributions on account of Class 3 Claims, in
addition to the distributions provided for under the
Plan to holders of Class 3 Claims; and distributions
otherwise provided under the Plan to holders of
Allowed Noteholder Claims shall not be reduced on
account of such payment of Old Trustee Expenses.
Notwithstanding anything in the Plan to the
contrary, the Debtors' obligation to pay the Old
Trustee Expenses shall be subject to the bar date
and dispute resolution provisions set forth in the
Plan.
Class 3 is impaired and the holders of Class 3
Claims are entitled to vote on the Plan.
(d) Class 4-Allowed Miscellaneous Secured Claims
Class 4 consists of Allowed Secured Claims (other
than Class 2 Claims and Class 3 Claims). Class 4
Claims include, but are not limited to, Claims
secured by equipment in connection with equipment
financings and Claims secured by mechanic's,
materialmen's and artisan's liens on miscellaneous
personal property. Under the Plan, each Class 4
Claim will be treated for all purposes of the Plan
and the Bankruptcy Code as a separate subclass.
Pursuant to the Plan, at the option of the Company,
Class 4 Claims will (i) be unaltered as to the
legal, equitable and contractual rights to which
such Class 4 Claim entitles the holder thereof or
(ii) be treated in any another manner that will not
result in the impairment of such Claim under Section
1124 of the Bankruptcy Code. The Plan does not
alter the rights of any holder of a Class 4 Claim in
any collateral securing the Class 4 Claim as of the
Filing Date, and the liens thereunder shall be
ratified and affirmed.
The Debtors estimate that the aggregate amount of
Class 4 Claims as of the Effective Date will be
approximately $1.5 million.
Class 4 is not impaired and the holders of Class 4
Claims are conclusively presumed, under Section
1126(f) of the Bankruptcy Code, to have accepted the
Plan.
(e) Class 5-General Unsecured Claims
Class 5 consists of all Allowed Claims other than
Claims in any other class and other than
Administrative Claims and Priority Tax Claims.
Class 5 Claims generally consist of Claims of trade
creditors for products and services provided to the
Debtors prior to the Filing Date (which Claims
either have not been paid pursuant to the Trade
Creditor Order or have been paid but have been later
reinstated as a result of such trade creditor's
failure to comply with the terms of such order), and
other contract and damage Claims, including Claims,
if any, for damages arising from the rejection of
executory contracts and unexpired leases subsequent
to the Filing Date. Class 5 Claims also include
Allowed Unsecured Noteholder Claims of $40.1
million.
The Debtors dispute certain of the Claims included
in Class 5, and certain of such Claims are the
subject of litigation. Following the Filing Date,
additional disputed Class 5 Claims may from time to
time be designated by the Debtors, and the Debtors
may become defendants in additional legal
proceedings arising in the ordinary course of
business. Disputed Claims will be treated in the
manner described below under "SUMMARY OF THE PLAN--
Other Provisions of the Plan -- Disputed Claims."
Certain of the litigation Claims in Class 5 are
covered by insurance maintained by the Debtors. To
the extent any Class 5 Claims are covered by
insurance, the covered portion of such Claims would
be paid by the insurance carrier of the relevant
Debtor. The Debtors reserve the right to (i)
consent to the modification of the automatic stay
provision of Section 362(a) of the Bankruptcy Code
so as to permit the prosecution of Claims covered by
insurance solely to the extent of such coverage, or
(ii) utilize any other Claims resolution procedure
approved by the Bankruptcy Court.
The Debtors estimate that, after all objections to
Claims are resolved, the ultimate amount of Claims
included in Class 5 will aggregate approximately
$63.1 million, including Allowed Unsecured
Noteholder Claims of $40.1 million. THIS IS AN
ESTIMATE REFLECTING THE COSTS AND UNCERTAINTIES OF
LITIGATION AND DOES NOT ADMIT THAT EITHER DEBTOR IS
LIABLE IN ANY AMOUNT WITH RESPECT TO ANY DISPUTED
CLAIM. IN ADDITION, THERE IS NO ASSURANCE THAT SUCH
ESTIMATE IS CORRECT AND, ACCORDINGLY, THERE IS A
RISK THAT THE AGGREGATE AMOUNT OF CLASS 5 CLAIMS
WILL BE GREATER THAN THE AMOUNT ESTIMATED BY THE
DEBTORS.
Pursuant to the Plan, unless otherwise agreed to by
a holder of a Class 5 Claim, each such holder will
receive such holder's Ratable Share of 4,450,000
shares of New Common Stock. For further information
regarding the New Common Stock, see "DESCRIPTION OF
NEW COMMON STOCK."
Class 5 is impaired and the holders of Class 5
Claims are entitled to vote on the Plan.
(f) Class 6-Allowed Interests of Holding as Sole
Shareholder of the Company
Class 6 consists of the Allowed Interests of Holding
as the sole holder of the issued and outstanding
shares of Homeland Common Stock.
Pursuant to the Plan, the legal, equitable and
contractual rights of the holder of Class 6
Interests will not be altered.
Class 6 is not impaired and the holder of the Class
6 Interest is conclusively presumed, under Section
1126(f) of the Bankruptcy Code, to have accepted the
Plan.
(g) Class 7-Allowed Interests of Holders of Old
Common Stock
Class 7 consists of the Allowed Interests of
holders of Old Common Stock.
Pursuant to the Plan, unless otherwise agreed to by
a holder of a Class 7 Interest, each such holder
will receive such holder's Ratable Share of (i)
250,000 shares of New Common Stock and (ii) the New
Warrants to purchase (in the aggregate) 263,158
shares of New Common Stock. For further information
regarding the New Common Stock and the New Warrants,
see "DESCRIPTION OF NEW COMMON STOCK" and
"DESCRIPTION OF NEW WARRANTS" and the form of New
Warrant Agreement set forth in Appendix E hereto.
Class 7 is impaired and the holders of Class 7
Interests are entitled to vote on the Plan.
(h) Class 8-Allowed Interests of Holders of Old
Warrants
Class 8 consists of the Allowed Interests of the
holders of Old Warrants.
Pursuant to the Plan, the legal, equitable and
contractual rights of the holder of Class 8
Interests will not be impaired.
Class 8 is not impaired and holders of Class 8
Interests are conclusively presumed, under Section
1126(f) of the Bankruptcy Code, to have accepted the
Plan.
B. Means for Implementation of the Plan
1. Issuance of New Securities
Holding will be deemed to have authorized and, on
the Effective Date, will be deemed to issue the
requisite shares of New Common Stock and the
requisite New Warrants, regardless of the date on
which distributions are effected. The Company will
be deemed to have authorized and, on the Effective
Date, will be deemed to issue the New Notes,
regardless of the date on which distributions are
effected. See "DESCRIPTION OF NEW COMMON STOCK,"
"DESCRIPTION OF NEW WARRANTS" and "DESCRIPTION OF
NEW NOTES."
2. Listing of New Common Stock; 1934 Act Filing
Holding will use its best efforts to (a) cause, as
promptly as practicable after the Effective Date,
the shares of New Common Stock to be listed on the
NASDAQ National Market System (or, in the event
Holding fails to meet the listing requirements of
the NASDAQ National Market System, on such other
exchange or system on which the New Common Stock may
be listed) and (b) file, within 60 days of the
Effective Date, a Form 10 registration statement
with respect to the New Common Stock under the 1934
Act.
3. Effectiveness of Agreements
On the Effective Date, the following agreements
shall become effective: (a) the New Credit
Agreement; (b) the New Indenture; c the New Warrant
Agreement; (d) the Registration Rights Agreements;
and (e) the Modified Union Agreements.
4. Charter Amendments
On the Effective Date, Holding will file the Amended
Holding Charter with the Delaware Secretary of State
and the Company will file the Amended Company
Charter with the Delaware Secretary of State.
5. Management/Board of Directors
The Plan provides for the officers of the Company
and Holding immediately before consummation of the
Plan to continue to serve in their respective
capacities after confirmation of the Plan. On the
Effective Date, the Boards of Directors of the
Company and Holding will consist of (a) James A.
Demme, (b) John A. Shields, c one person designated
by UFCW and (d) four persons designated by the
Noteholders' Committee. Prior to confirmation of
the Plan in accordance with Section 1129(a)(5) of
the Bankruptcy Code, the Company and Holding will
disclose (a) the identity of and affiliations of any
individual proposed to serve, after confirmation of
the Plan, as a director of the Company or Holding,
as the case may be, and (b) the identity of any
"insider" (as such term is defined in Section
101(31) of the Bankruptcy Code) that will be
employed and retained by the Company, and the nature
of any compensation for such insider. On and after
the Effective Date, each officer and director will
hold his or her office on the terms and subject to
the conditions set forth in the Amended Holding
Charter, the Amended Company Charter and the amended
and restated bylaws of the applicable Debtor. For
certain information regarding the current executive
officers and directors of the Company and Holding,
including a description of their employment
agreements and compensation, see "MANAGEMENT."
6. Management Stock Option Plan
On the Effective Date, 263,158 shares of New Common
Stock will be reserved for issuance under the
Management Stock Option Plan. The terms and the
conditions of the Management Stock Option Plan
(including the identity of the participants and the
number of options to be granted) will be determined
by the Board of Directors of Holding on or after
the Effective Date. See "INTRODUCTION AND SUMMARY--_
Principal Elements of the Restructuring -- Management
Stock Option Plan."
7. Surrender and Cancellation of Instruments
As a condition to receiving any distribution
pursuant to the Plan, each holder of an Old Note,
share certificate, or other instrument evidencing a
Claim or Interest (other than certificates
representing the Homeland Common Stock or the Old
Warrants) as of the record date established for
distribution under the Plan must surrender such Old
Note, share certificate or other instrument to the
Company or the entity selected by the Debtors as its
distribution agent (the "Distribution Agent") or
deliver to the Debtors or the Distribution Agent, as
the case may be, an affidavit of loss and indemnity
(in form and substance satisfactory to the Debtors),
in all cases, in proper form for transfer. In
accordance with the provisions of Section 1143 of
the Bankruptcy Code, any holders of such Claim or
Interest as of such record date that fail to
surrender such Old Notes, share certificates or
other instruments within five years from the
Confirmation Date will be deemed to have forfeited
all rights, Claims and Interests and will not
participate in any distribution under the Plan.
On the Effective Date (a) all Old Notes, share
certificates or other instruments will be canceled
and (b) the Company's obligations under the Old
Notes, share certificates and such other instruments
will be discharged (together with, in the case of
the Old Notes, the Old Indenture and any other
agreements governing such Old Notes).
On the Effective Date, the liens and security
interests of the Old Trustee in the Old Indenture
Collateral will be released and the Old Trustee will
be authorized and directed to release any Old
Indenture Collateral (including, without limitation,
any cash collateral) held by the Old Trustee and to
take such actions as may be requested by the Debtors
to evidence the release of such liens and the
security interests, including, without limitation,
the execution, the delivery and the filing and/or
the recording of such releases as may be requested
by the Debtors.
8. Retiree Benefits
On and after the Effective Date, to the extent
required by Section 1129(a)(13) of the Bankruptcy
Code, the Debtors will continue to pay all "retiree
benefits" (as such term is defined in Section
1114(a) of the Bankruptcy Code) if any, maintained
or established by the Debtors prior to the
Confirmation Date.
The Company maintains a defined benefit pension plan
known as the Homeland Stores, Inc. Employees_
Retirement Plan (the "Retirement Plan'). The
Retirement Plan is covered by Title IV of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), 29 U.S.C. 1301-1461 (1994). The
Company currently intends to continue to maintain
the Retirement Plan and to make the contributions
required by law. The Pension Benefit Guaranty
Corporation (the "PBGC") has the authority to
initiate termination proceedings regarding the
Retirement Plan. In the event the Retirement Plan
were to terminate prior to the Confirmation Date,
certain claims, including claims that may be
entitled to priority under various Bankruptcy Code
provisions, would arise. In the event that the
Retirement Plan does not terminate prior to the
Confirmation Date, all claims of, or with respect
to, the Retirement Plan (including the contingent
claim of the PBGC pursuant to 29 U.S.C. 1362(b) for
unfunded benefit liabilities of the Retirement Plan
and the contingent claim of the PBGC pursuant to 29
U.S.C. 1362c for due and unpaid employer
contributions owing to the Retirement Plan) shall be
unaffected by the confirmation of the Plan, and such
claims shall not be discharged, released or
otherwise affected by the Debtors' bankruptcy cases.
9. Workers' Compensation Claims under Prior Self-
Insurance Program
The Company's obligations with respect to its self-
insurance program in existence prior to July 1994
for Oklahoma workers' compensation purposes were
secured by a $2 million letter of credit payable to
the Oklahoma Workers' Compensation Court. On May
22, 1996, the Oklahoma Workers' Compensation Court
drew down the letter of credit in full and is
holding the $2 million cash proceeds, together with
interest accruing thereon from the draw date, to pay
workers' compensation claims, and expenses related
thereto, with respect to the period that the Company
maintained such self-insurance program. The Company
expects that it will consent to the modification of
the automatic stay provision of Section 362(a) of
the Bankruptcy Code so as to permit workers'
compensation claimants to prosecute their workers'
compensation claims with respect to such self-
insurance period in the Oklahoma Workers'
Compensation Court under Oklahoma law. To the
extent the proceeds from such letter of credit are
insufficient to pay all Oklahoma workers'
compensation claims with respect to the period that
the Company maintained such self-insurance program,
such excess claims shall be classified and treated
as Class 5 Claims. In the event that, upon the
liquidation and payment of all of the Oklahoma
workers_ compensation claims with respect to the
period that the Company maintained a self-insurance
program, there are any proceeds then remaining
available from such letter of credit, the Company
will have the right under the Plan to direct the
Oklahoma Workers_ Compensation Court to pay such
remaining proceeds to the Company.
C. Other Provisions of the Plan
1. Executory Contracts and Unexpired Leases
Subject to the approval of the Bankruptcy Court, the
Bankruptcy Code gives the Debtors the power to
assume or reject executory contracts and unexpired
leases. Generally, an "executory contract" is a
contract under which material performance (other
than payment of money) is still due by each party.
The Plan provides that all executory contracts and
unexpired leases shall be deemed to be assumed by
the relevant Debtor pursuant to Section 1123(b)(2)
of the Bankruptcy Code unless expressly rejected or
subject to a motion to reject filed by such Debtor
on or before 4:30 p.m., Wilmington, Delaware time,
on July 10, 1996. All cure payments that may be
required under Section 365(b)(i) of the Bankruptcy
Code in connection with such assumption shall be
made on, or promptly, after the Effective Date. The
Company anticipates that, in connection with its
restructuring efforts, it may reject certain
executory contracts or unexpired leases, including
certain leases relating to stores closed or to be
closed. See "INTRODUCTION AND SUMMARY -- Principal
Elements of the Restructuring -- Rejection of Certain
Closed Store Leases." If any executory contract or
unexpired lease is rejected, the other party to the
agreement may file a proof of claim with respect to
a Claim for damages by reason of the rejection. The
Plan provides that a proof of claim with respect to
any such Claim must be filed within 30 days of the
approval of the Bankruptcy Court of the rejection of
the relevant executory contract or unexpired lease.
Each Claim shall constitute a Class 4 Claim, if
secured, or a Class 5 Claim if unsecured, to the
extent such Claim is finally treated as an Allowed
Claim as described above under"--Classification
and Treatment of Claims and Interests -- General."
To the extent that either Debtor rejects an
unexpired lease of non-residential real property,
the Claim for damages resulting from such rejection
will be limited to the amount allowed under Section
502(b)(6) of the Bankruptcy Code.
The obligation of each Debtor to indemnify (a) its
present and former directors and officers pursuant
to their respective certificates of incorporation
and by-laws, applicable state law or by contract (or
any combination of the foregoing) and (b) the
indemnitees under the 1990 Indemnification Agreement
and the 1992 Indemnification Agreement, shall
survive the confirmation of the Plan, remain
unaffected thereby, and not be discharged,
irrespective of whether such indemnification is owed
in connection with an event occurring before, on or
after the Filing Date.
2. Disputed Claims
(a) Objection Deadline and Procedure
The Debtors and any other parties in interest shall
have the sole authority (1) to object to Claims
against, and Interests in, such Debtor and (2) to
litigate any Claim or Interest to Final Order, to
settle or compromise any Claim or Interest or
withdraw any objection to any Claim or Interest
(other than a Claim or Interest that is deemed
allowed pursuant to the Plan or any Claim or
Interest allowed pursuant to a Final Order). Unless
another date is established by the Bankruptcy Court
or the Plan, any objection to a Claim or Interest
must be filed with the Bankruptcy Court within 90
days after the later of the Effective Date and, in
the case of a Claim, the date that a proof of Claim
with respect to such Claim is filed or deemed to
have been filed with the Bankruptcy Court. Any
objection to a Fee Claim (as defined below) shall be
filed with the Bankruptcy Court within the later of
60 days after the Effective Date and 30 days after
the date on which an application is filed with
respect to such Fee Claim. If no objection has been
filed to a Claim or Interest (other than a Fee
Claim, which shall be allowed only by order of the
Bankruptcy Court) within the applicable period, such
Claim or Interest will be treated as an Allowed
Claim or an Allowed Interest, as the case may be, to
the extent such Claim or Interest has not been
previously allowed or disallowed by the Bankruptcy
Court.
(b) No Distributions Pending Allowance
If any portion of a Claim is a Disputed Claim, no
payment or distribution provided under the Plan will
be made on account of the portion of such Claim that
is a Disputed Claim unless and until such Disputed
Claim becomes an Allowed Claim but the payment or
distribution provided for under the Plan shall be
made on account of the portion of such Claim that is
an Allowed Claim.
(c) Disputed Class 5 Claims Reserve
On the Effective Date, the Debtors will reserve for
the account of each creditor holding a Disputed
Class 5 Claim the New Common Stock that would
otherwise be distributable to such creditor on the
Effective Date in accordance with the Plan if such
Disputed Class 5 Claim was an Allowed Claim (the
"Disputed Class 5 Claims Reserve"). No interest or
other amounts will accrue on the New Common Stock
held in the Disputed Class 5 Claims Reserve. In
calculating the amount to be held in the Disputed
Class 5 Claims Reserve, the Debtors will (i) treat
all liquidated Disputed Class 5 Claims as if allowed
in full and (ii) make a good faith estimate of the
amounts, if any, likely to be allowed in respect of
contingent or unliquidated Class 5 Claims. If, and
to the extent, any such Disputed Class 5 Claim
becomes an Allowed Claim, the property so reserved
for the creditor holding such Claim will be
distributed to such creditor within thirty days of
the date that such Disputed Class 5 Claim becomes an
Allowed Claim. If, and to the extent, any such
Disputed Class 5 Claim is disallowed by a Final
Order of the Bankruptcy Court, then the property
reserved for the disallowed portion of such Disputed
Class 5 Claim will be distributed in the manner
described below under "-- Disputed Claims--
Distributions."
(d) Other Disputed Claims
Under the Plan, the Debtors will not be required to
establish a reserve with respect to any class of
Disputed Claims or Disputed Interests other than
Disputed Class 5 Claims.
(e) Personal Injury and Wrongful Death Claims
Procedure
THE PLAN ALSO SETS FORTH SPECIFIC DISPUTE RESOLUTION
PROCEDURES WITH RESPECT TO PERSONAL INJURY AND
WRONGFUL DEATH CLAIMS. HOLDERS OF CLASS 5 CLAIMS OF
THIS TYPE ARE URGED TO REVIEW ARTICLE VII OF THE
PLAN FOR A DISCUSSION OF SUCH PROCEDURES.
3. Distributions
(a) General
All property to be distributed pursuant to the Plan
(other than property held in the Disputed Class 5
Claims Reserve) will be distributed by the
Distribution Agent on the Effective Date, or as soon
as practicable thereafter. Except with respect to
distributions from the Disputed Class 5 Claims
Reserve, any distribution required to be made on the
Effective Date or the date on which a Claim becomes
an Allowed Claim shall be deemed to be made on such
date if made as soon as practicable after such date,
and in any event, within 30 days after such date.
(b) Distributions from Disputed Class 5 Claims
Reserve
In the event that, after the Effective Date, a
Disputed Claim is disallowed in whole or in part,
the Debtors will distribute (or cause the
Distribution Agent to distribute) the property held
in reserve for the disallowed portion of such
Disputed Class 5 Claim as follows: (i) such property
will be distributed to holders of Allowed Class 5
Claims; (ii) such distribution will be based on the
applicable Ratable Share of each such Allowed Claim
holder, as adjusted to take into account the
disallowance or allowance of all Disputed Claims
since the Effective Date; and (iii) such
distribution will be made on December 31, 1996 and
on June 30 and December 31 of each following year
(each such date, a "Distribution Date"), to the
extent a Disputed Class 5 Claim has been disallowed
in whole or in part since the Effective Date or the
last Distribution Date, as the case may be, until
the earlier of (a) the date on which all Disputed
Class 5 Claims have been resolved and (b) less than
5000 shares of New Common Stock are on deposit in
the Disputed Class 5 Claims Reserve. If at any time
after the Effective Date, the number of shares of
New Common Stock in the Disputed Claims Reserve is
less than 5,000, the remaining shares of New Common
Stock held in such reserve shall, at the option of
the Debtors, be cancelled or treated as treasury
shares.
(c) Fractional Amounts
No fractional shares of New Common Stock will be
issued under the Plan. Each holder otherwise
entitled to an amount of the New Common Stock that
includes fractional amounts will receive either no
share (if such fraction is less than one-half) or
one whole share (if such fraction is equal to or
greater than one-half) in lieu of fractional
amounts.
No New Warrants to purchase fractional shares of New
Common Stock will be issued under the Plan. Each
holder otherwise entitled to a New Warrant that
includes fractional amounts of New Common Stock will
receive a New Warrant that has been rounded down to
the next whole number of shares (if such fraction is
less than one-half) or rounded up to the next whole
number of shares (if such fraction is equal to or
greater than one-half).
(d) Compliance with Tax Requirements
The Debtors will comply with all withholding and
reporting requirements imposed by federal, state or
local taxing authorities in connection with making
distributions pursuant to the Plan.
In connection with each distribution with respect to
which the filing of an information return (such as
an Internal Revenue Service Form 1099 or 1042)
and/or withholding is required, the Debtors will
file such information return with the Internal
Revenue Service and provide any required statements
in connection therewith to the recipients of such
distribution, and/or effect any such withholding and
deposit all moneys so withheld to the extent
required by law. With respect to any entity from
whom a tax identification number, certified tax
identification number or other tax information
required by law to avoid withholding has not been
received by the Debtors (or the Distribution Agent),
the Debtors may, at their sole option, withhold the
amount required and distribute the balance to such
entity or decline to make such distribution until
the information is received; provided, however, the
Debtors will not be obligated to liquidate New
Securities to perform such withholding.
(e) Allocation Between Principal and Accrued
Interest
The consideration paid to holders of Old Notes
pursuant to the Plan will be allocated first to
accrued but unpaid interest on the Old Notes and
next to principal on the Old Notes.
(f) Distribution of Unclaimed Property
If any person entitled to receive cash or New
Securities pursuant to the Plan does not present
itself on the Effective Date, such cash or
securities will be set aside and (in the case of
cash) held in a segregated, interest-bearing account
to be maintained by the Distribution Agent. If such
person presents itself within five years following
the Confirmation Date, such cash or New Securities,
together with any interest or dividends earned
thereon, will be paid or distributed to such person.
If such person does not present itself within five
years following the Confirmation Date, any such cash
or New Securities and accrued interest or dividends
thereon will become the property of and shall be
released to the Debtors. Nothing contained in the
Plan shall require the Debtors to attempt to locate
such person.
(g) Set-Offs
The Debtors may, but will not be required to, set
off against any Claim and the payment to be made
pursuant to the Plan in respect of such Claim, any
Claims of any nature whatsoever which the Debtors
may have against the holder of such Claim. Under
the Plan, neither the failure to exercise any setoff
right nor the allowance of any Claim will constitute
a waiver or release of any Claim that the Debtors
may have against the holder of a Claim.
(h) Manner of Payment
At the option of the Debtors, payments provided
under the Plan may be made in cash, by wire transfer
or by check drawn on any money market center bank.
Distributions of New Securities will be made by the
issuance, and (in the case of the New Notes) the
authentication, of such New Securities.
i. Record Date
The Confirmation Date shall be the "Record Date" for
determining the holders of Old Notes and Old Common
Stock entitled to receive distributions under the
Plan. Only holders of Old Notes and Old Common
Stock as of the Record Date will be entitled to
receive distributions under the Plan. As of the
close of business on the Record Date, the Old Note
and Old Common Stock transfer ledgers maintained by,
or on behalf of, the Debtors shall be closed and the
Debtors and the Old Trustee shall have no obligation
to recognize any transfer of the Old Notes or the
Old Common Stock occurring thereafter.
4. Bar Dates
(a) Bar Dates for Claims and Interests Generally
Each holder of a Claim (other than an Administrative
Claim) must file a proof of Claim with the
Bankruptcy Court (i) no later than July 1, 1996, or
(ii) to the extent any such holder is not subject to
such bar date, within 30 days after the Effective
Date or by such later date as may be established by
the Bankruptcy Court. Any such holder who does not
file a proof of Claim within the applicable time
period will be forever barred from asserting its
Claim unless, and to the extent, such Claim is
listed by the Debtors in their respective schedules
filed with the Bankruptcy Court pursuant to Section
521 of the Bankruptcy Code as liquidated in amount,
not disputed and not contingent.
(b) Fee Claims
Each person retained or requesting compensation in
the Debtors' bankruptcy cases pursuant to Sections
327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy
Code (collectively, the "Fee Claims") will be
entitled to file an application for allowance of
final compensation and reimbursement of expenses for
services rendered on or before the Effective Date.
All applications in respect of such Fee Claims must
be filed not later than 45 days after the Effective
Date. Any holder of a Fee Claim that does not file
an application within such 45-day period will be
forever barred from asserting its Fee Claim.
(c) Other Administrative Claims
All requests for payment of Administrative Claims
other than Fee Claims must be filed with the
Bankruptcy Court within 30 days after the Effective
Date. Any holder of such a Claim that does not file
a request for payment within such 30-day period
shall be forever barred from asserting its Claim.
5. Conditions to Consummation
The following are conditions precedent to the
consummation of the Plan: (a) the Plan shall have
been confirmed by the Bankruptcy Court and the
Confirmation Order shall not have been vacated,
reversed or stayed; (b) the New Credit Agreement
shall have been entered into and all conditions to
the effectiveness thereof shall have been satisfied
or waived by the New Banks as required thereunder;
and c all other agreements contemplated by or
entered into pursuant to the Plan shall have been
duly and validly executed and delivered by the
parties thereto and all conditions to their
effectiveness shall have been satisfied or waived.
The Debtors may waive at any time, without notice,
without leave or order of the Bankruptcy Court, and
without any formal action other than proceeding to
consummate the Plan, any condition precedent to
consummation of the Plan; provided, however, that
the Debtors may not waive the condition precedent
specified in clause 5c above insofar as it relates
to the execution, delivery and effectiveness of the
New Indenture and the Noteholder Registration Rights
Agreement without the consent of the Noteholders'
Committee.
6. Amendments to or Modification of the Plan
Section 1127 of the Bankruptcy Code allows the
Debtors to amend the Plan at any time prior to its
confirmation. If the Debtors file a modification of
the Plan with the Bankruptcy Court, the Plan as
modified shall become the Plan. If circumstances so
warrant, the Debtors may modify the Plan after the
confirmation but prior to substantial consummation
of the Plan (subject to compliance with the
applicable provisions of the Bankruptcy Code and the
Bankruptcy Rules). However, the Bankruptcy Court,
after notice and hearing, would then have to confirm
the Plan as modified. The Debtors reserve the right
to amend or modify the terms of the Plan in
accordance with the provisions of Section 1127 of
the Bankruptcy Code and Article XII of the Plan, if
and to the extent the Debtors determine that such
amendments or modification are necessary or
desirable in order to complete the Restructuring.
Under the Bankruptcy Rules, any amendments or
modifications of the Plan may be approved by the
Bankruptcy Court at confirmation without
resolicitation of the votes of the members of any
class whose treatment is not adversely affected by
such amendment or modification.
After the Confirmation Date, the Debtors may
institute proceedings in the Bankruptcy Court or
remedy any defects or omissions or reconcile any
inconsistencies in the Plan or the Confirmation
Order in such manner as may be necessary to carry
out the purposes and intent of the Plan so long as
the holders of Claims and Interests are not
adversely affected and prior notice of such
proceeding is served in accordance with Bankruptcy
Rules 2002 and 9014.
7. Revocation of the Plan
The Debtors may revoke or withdraw the Plan at any
time prior to the Confirmation Date. If the Debtors
revoke or withdraw the Plan prior to the
Confirmation Date or if confirmation of the Plan
does not occur, the Plan will be null and void and
nothing contained in the Plan will (a) constitute a
waiver or release of any Claims by or against, or
any Interests in, the Debtors or (b) prejudice in
any manner the rights of the Debtors in any further
proceedings involving the Debtors.
8. Releases
On the Effective Date, each Debtor will release
unconditionally (the "Estate Release") each Released
Party from any and all claims, obligations, rights,
causes of action and liabilities, whether known or
unknown, foreseen or unforeseen, existing or
hereafter arising, in law, equity or otherwise,
based in whole or in part upon any act or omission,
transaction or other occurrence taking place on or
prior to the Effective Date in any way relating to
such Released Party, the Debtors, the Debtors'
bankruptcy cases or the Plan, other than (in the
case of Affiliated Released Parties) the Excluded
Claims.
On the Effective Date, each holder of a Claim or
Interest (a) who has accepted the Plan, (b) whose
Claim or Interest is in a class that has accepted or
is deemed, pursuant to section 1126(f) of the
Bankruptcy Code, to have accepted the Plan, or c who
may be entitled to receive a distribution of
property pursuant to the Plan, will be deemed to
have released unconditionally the Released Parties
from any and all claims, obligations, rights, causes
of action and liabilities, whether known or unknown,
foreseen or unforeseen, existing or hereafter
arising, based in whole or in part upon any act or
omission, transaction or other occurrence taking
place on or prior to the Effective Date in any way
relating to such Released Party, the Debtors, the
Debtors' bankruptcy cases or the Plan.
Notwithstanding the foregoing, if and to the extent
that the Bankruptcy Court concludes that the Plan
cannot be confirmed with any portion of the
foregoing releases, then the Plan may be confirmed
with that portion excised so as to give maximum
effect to the foregoing releases without precluding
confirmation of the Plan.
D. Effects of Plan Confirmation
1. Vesting of Assets; Reservation of Claims
Except as expressly provided in, and subject to, the
Plan or the Confirmation Order, on the Effective
Date, all assets of the respective bankruptcy
estates of the Debtors will vest in the relevant
Debtor as reorganized pursuant to the Plan, free and
clear of all Claims, liens, encumbrances, charges
and Interests. Except as provided in the Estate
Release, all causes of action arising under Chapter
5 of the Bankruptcy Code (other than fraudulent
conveyance and preference Claims of the Debtors
against the holders of the Old Notes), all Claims
against third parties, and all other causes of
action belonging to or in favor of the Debtors are
hereby preserved and retained for assertion and
enforcement solely and exclusively by and in the
discretion of the Debtors and shall revest in the
relevant Debtor as reorganized on the Effective
Date.
2. Discharge
Except as otherwise expressly provided in, and
subject to, the Plan and provided that the
Effective Date shall have occurred, the confirmation
of the Plan will (a) bind all holders of Claims and
Interests and (b) discharge the Debtors and their
respective estates from all Claims and Interests, to
the fullest extent authorized or provided for by the
Bankruptcy Code, including, without limitation, to
the extent authorized or provided for by Sections
524 and 1141 thereof.
3. Injunction
Except as otherwise expressly provided in, and
subject to, the Plan, the entry of the Confirmation
Order will, provided that the Effective Date shall
have occurred, permanently enjoin all persons that
have held, currently hold or may hold a Claim or
other debt or liability that is discharged pursuant
to the Plan or who have held, currently hold or may
hold an Interest that is terminated pursuant to the
Plan, from taking any of the following actions in
respect of such discharged Claim, debt or liability
or such terminated Interest: (a) commencing,
conducting or continuing in any manner, directly or
indirectly, any suit, action or other proceeding of
any kind against the Debtors or any property of the
Debtors; (b) enforcing, levying, attaching,
collecting or recovering in any manner or by any
means, whether directly or indirectly, any judgment,
award, decree or order against the Debtors or the
property of the Debtors; (iii) creating, perfecting
or enforcing in any manner, directly or indirectly,
any lien or any security interest of any kind
against the Debtors or the property of the Debtors;
(iv) asserting a setoff, right of subrogation or
recoupment of any kind, directly or indirectly,
against any debt, liability or obligation due to the
Debtors or the property of the Debtors; or (v)
commencing or continuing any action in any manner or
in any place that does not comply with, or is
inconsistent with, the Plan.
4. Retention of Jurisdiction
Notwithstanding entry of the Confirmation Order or
the Effective Date having occurred, the Plan
provides for the retention of jurisdiction by the
Bankruptcy Court over the Debtors' bankruptcy cases
for the purposes of: (a) hearing and determining any
pending applications for the rejection of executory
contracts or unexpired leases, and the allowance of
Claims resulting therefrom; (b) determining any
adversary proceedings, applications, contested
matters and other litigated matters pending on the
Effective Date or that may be commenced thereafter
as provided in the Plan; c ensuring that
distributions to holders of Allowed Claims and all
other provisions of the Plan are accomplished as
provided in the Plan; (d) hearing and determining
objections to or requests for estimation of Claims,
including any objections to the classification of
any Claim, and to allow, disallow and/or estimate
any Claim, in whole or in part; (e) entering and
implementing such orders as may be appropriate in
the event the Confirmation Order is for any reason
stayed, revoked, modified or vacated; (f) issuing
any appropriate orders in aid of execution of the
Plan or to enforce the Confirmation Order and/or the
discharge, or the effect of such discharge, provided
to the Debtors (g) hearing and determining any
applications to modify the Plan, to cure any defect
or omission or to reconcile any inconsistency in the
Plan or in any order of the Bankruptcy Court,
including, without limitation, the Confirmation
Order; (h) hearing and determining all applications
for compensation, and reimbursement of expenses of
professionals or members of the Official Committee
(and, if applicable, the Noteholders' Committee),
under Sections 330, 331, 503(b), 1103 and/or
1129(a)(4) of the Bankruptcy Code; (i) hearing and
determining disputes arising in connection with the
interpretation, implementation or enforcement of the
Plan; (j) hearing and determining other issues
presented by, arising under or related to the Plan
and not inconsistent with Chapter 11 of the
Bankruptcy Code; (k) entering a final decree closing
the Debtor's bankruptcy cases; (l) recovering all
assets of the Company, wherever located; (m) hearing
and determining any motions or contested matters
involving taxes, tax refunds, tax attributes and tax
benefits and similar or related matters with respect
to the Company arising prior to the Effective Date
or relating to the period of administration of the
Debtors_ bankruptcy cases, including, without
limitation, matters concerning state, local and
federal taxes in accordance with Sections 346, 505
and 1146 of the Bankruptcy Code; and (n) hearing any
other matter not inconsistent with the Bankruptcy
Code.
XII. CONFIRMATION AND CONSUMMATION PROCEDURE
Under the Bankruptcy Code, the following steps are
required in connection with the confirmation and the
consummation of the Plan:
A. Solicitation of Votes
The Debtors must solicit votes from the holders of
Claims against, and Interests in, the Debtors who
are entitled to vote on the Plan.
1. Who May Vote
Under Section 1126 of the Bankruptcy Code, each
Class of impaired Claims or impaired Interests is
entitled to vote on the Plan. Holders of Claims and
Interests that are not impaired under the Plan are
conclusively presumed, pursuant to Section 1126(f)
of the Bankruptcy Code, to have accepted the Plan.
Under Section 1124 of the Bankruptcy Code, a class
is "impaired" under a plan of reorganization unless,
with respect to each Claim or each Interest in such
class, the plan of reorganization (a) leaves
unaltered the legal, equitable and contractual
rights to which such Claim or such Interest entitles
the holder; or (b), notwithstanding any applicable
law or any contractual provision that entitles the
holder to receive accelerated payment of such Claim
or such Interest after the occurrence of a default,
(i) cures any such default that occurred before or
after the commencement of the case under the
Bankruptcy Code, other than a default of a kind
specified in Section 365(b)(2) of the Bankruptcy
Code, (ii) reinstates the maturity of such Claim or
such Interest as such maturity existed before the
default, (iii) compensates the holder for any
damages incurred as a result of any reasonable
reliance by such holder on such applicable law or
such contractual provision, and (iv) does not
otherwise alter the legal, equitable or contractual
rights to which such claim or such interest entitles
the holder.
CLASS 1, CLASS 2, CLASS 4, CLASS 6 AND CLASS 8 ARE
NOT IMPAIRED, ARE DEEMED TO HAVE ACCEPTED THE PLAN
AND, ACCORDINGLY, ARE NOT ENTITLED TO VOTE ON THE
PLAN.
CLASS 3, CLASS 5 AND CLASS 7 ARE IMPAIRED AND ARE
ENTITLED TO VOTE ON THE PLAN.
2. Ballots
Ballots are provided herewith to persons holding
Claims in Classes 3 and 5 and Interests in Class 7.
A vote to accept or reject the Plan can only be made
by proper submission of a duly completed and
executed ballot. PLEASE FOLLOW CAREFULLY THE
DIRECTIONS CONTAINED ON EACH ENCLOSED BALLOT.
ANY CREDITOR HOLDING CLAIMS IN TWO OR MORE CLASSES
(INCLUDING THE HOLDERS OF THE OLD NOTES WHO, AT A
MINIMUM, HOLD CLAIMS IN CLASSES 3 AND 5) IS REQUIRED
TO VOTE SEPARATELY WITH RESPECT TO EACH CLASS.
If you submit more than one ballot with respect to
the same Claim, only the first ballot received will
be counted. If you wish to change or withdraw your
vote with respect to a Claim after submission of a
ballot, Bankruptcy Rule 3018(a) requires that you
provide notice and show cause at a hearing before
the Bankruptcy Court prior to July 19, 1996.
ANY BALLOT RECEIVED WHICH DOES NOT INDICATE EITHER
AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE
DEEMED TO BE VOID FOR PURPOSES OF DETERMINING
ACCEPTANCE OR REJECTION OF THE PLAN.
If you did not receive or have lost the proper
ballot, you may obtain a ballot by contacting: the
balloting agent, Morrow & Co., Inc., (212) 754-8000.
Further, if you have any questions concerning these
voting procedures, you should contact: the balloting
agent, Morrow & Co., Inc. (212) 754-8000.
3. Voting Deadline; Delivery Instructions
To be counted, your ballot must be received by 5:00
p.m., New York City time, on July 15, 1996.
BALLOTS RECEIVED AFTER SUCH TIME WILL NOT BE
COUNTED.
Deliveries of ballots by mail, hand delivery or
overnight courier should be to:
HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
C/O MORROW & CO., INC.
909 THIRD AVENUE
NEW YORK, NEW YORK 10022
B. Confirmation Hearing
The Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold the Confirmation Hearing to
determine whether the Plan meets the requirements
for confirmation set forth in the Bankruptcy Code.
The Confirmation Hearing is scheduled for July 19,
1996, at 12:00 p.m. (noon), Wilmington, Delaware
time, at the United States Courthouse, Marine
Midland Plaza, 6th Floor, 824 Market Street,
Wilmington, Delaware 19801-3577. This hearing may
be adjourned from time to time by the Bankruptcy
Court without further notice other than an
announcement made at the hearing.
Section 1128 of the Bankruptcy Code provides that
any party in interest, whether or not entitled to
vote on the Plan, may object to the confirmation of
the Plan. Any objection to confirmation of the Plan
must be filed with the Clerk of the Bankruptcy Court
no later than 4:30 p.m., Wilmington, Delaware time,
on July 15, 1996 and must be served on counsel for
the Debtors and on each of the other persons listed
on Schedule A no later than 5:00 p.m., Wilmington,
Delaware time, on July 15, 1996. Any such objection
must comply with all of the requirements of the
order and the notice accompanying this Disclosure
Statement.
C. Confirmation
The Bankruptcy Court will confirm the Plan at the
Confirmation Hearing only if the requirements set
forth in the Bankruptcy Code are satisfied. These
requirements include, among other requirements,
that: (i) the Plan (a) has been accepted by each
impaired class of Claims and Interests or (b) is
determined to be "fair and equitable" and not to
"discriminate unfairly" with respect to any impaired
class which has not accepted the Plan; (ii) the Plan
is in the "best interests" of the holders of the
impaired Claims and the impaired Interests; and
(iii) the Plan is feasible.
1. Acceptance by Impaired Classes
As a condition to confirmation of the Plan, the Plan
must be accepted by each impaired class of Claims or
Interests, except as otherwise described herein.
See "Confirmation and Consummation Procedure --
Confirmation -- Confirmation without Acceptance by
all Impaired Classes." Class 3 and Class 5 Claims
and Class 7 Interests are impaired under the Plan.
The Debtors are soliciting the acceptance of holders
of Class 3 and Class 5 Claims and Class 7 Interests.
Section 1126 of the Bankruptcy Code generally
defines acceptance of a plan of reorganization (a)
in the case of a class of Claims, as acceptance by
holders of two-thirds in dollar amount and a
majority in number of Allowed Claims of that class
with respect to which ballots have been submitted
and (b) in the case of a class of Interests, as
acceptance by two-thirds in amount of the Allowed
Interests of that class with respect to which
ballots have been submitted.
2. Confirmation Without Acceptance by All
Impaired Classes
The Bankruptcy Court may confirm the Plan
without acceptance by all of the impaired
classes of Claims and Interests if (a) the Plan
otherwise satisfies the requirements for
confirmation, (b) at least one impaired class
of Claims or Interests has accepted the Plan
(without counting acceptances by insiders in
such class) and c the Plan is "fair and
equitable" and does not "discriminate unfairly"
as to any impaired class that has not accepted
the Plan.
Article IX of the Plan expressly permits the
Debtors to modify the terms of the Plan to
permit the confirmation of the Plan pursuant to
Section 1129(b) of the Bankruptcy Code and to
request the Bankruptcy Court to confirm the
Plan pursuant to Section 1129(b) of the
Bankruptcy Code. Although the Debtors reserve
the right to modify the terms of the Plan as
may be necessary for confirmation of the Plan
under Section 1129 of the Bankruptcy Code, the
current intention of the Debtors is not to
pursue a "cram-down" plan of reorganization in
the event any impaired class of Claims or
Interests fails to accept the Plan.
(a) Fair and Equitable
The Bankruptcy Code establishes different "fair and
equitable" tests for secured creditors, unsecured
creditors and equity holders. The respective tests
in relevant part are:
Secured Creditors. The Plan is "fair and equitable"
to a class of Secured Claims if it provides that (i)
the Secured Creditors retain the liens securing such
creditor's Claims and receives deferred cash
payments of at least the allowed amount of such
Claims (of a value, as of the Effective Date, of at
least such secured creditor's interest in the
estate's interest in such property); or (ii) such
secured creditors receive the indubitable equivalent
of their Claim (which may be satisfied by returning
the collateral securing such creditor's Claim to
such creditor).
Unsecured Creditors. The Plan is "fair and
equitable" with respect to a class of Unsecured
Claims if such creditor's (i) each impaired
unsecured creditor receives or retains property of a
value equal to the amount of its Allowed Claim or
(ii) the holder of any Claim or Interest that is
junior to the Claims of the dissenting class do not
receive or retain any property under the Plan.
Equity Holders. The Plan is "fair and equitable"
with respect to a class of Interests if (i) each
holder of an Interest of such class receives or
retains property of a equal to the value of such
holder's Interest or (ii) the holder of any Interest
which is junior to the interests of such class will
not receive or retain any property under the Plan.
If all of the applicable requirements for
confirmation of the Plan are met as set forth in
Section 1129(a) of the Bankruptcy Code, except that
any impaired class rejects the Plan, the Debtors may
choose to amend the Plan as necessary to request the
Bankruptcy Court to confirm the Plan pursuant to the
"cram-down" provisions of Section 1129(b) of the
Bankruptcy Code, on the basis that the Plan, as so
amended, is fair and equitable and does not
discriminate unfairly with respect to such rejecting
class.
(b) Unfair Discrimination
A plan of reorganization does not "discriminate
unfairly" if a dissenting class is treated
substantially equally with respect to other classes
similarly situated and no class receives more than
it is legally entitled to received for its Claims or
Interests. The Debtors do not believe that the Plan
discriminates unfairly against any impaired class of
Claims or Interests.
3. Best Interests
As a condition to confirmation of the Plan, the Plan
must be in the best interests of the holders of
Claims against, and Interests in, the Debtors. To
satisfy the "best interests" test, each holder of an
impaired Claim or an impaired Interest that has not
accepted the Plan must receive or retain on account
of such Claim or such Interest, property that has a
value at least equal to the value of the
distribution which the holder would receive if the
Debtors were liquidated under Chapter 7.
To determine what the holders of Claims and
Interests in each impaired class would receive if
the Debtors were liquidated, the Bankruptcy Court
must determine the dollar amount that would be
generated from a liquidation of the assets of the
Debtors in the context of a hypothetical liquidation
under Chapter 7. Such determination must take into
account the fact that Secured Claims, the costs and
expenses of the liquidation case, and any costs and
expenses resulting from the original reorganization
case would have been paid in full from the
liquidation proceeds before the balance of those
proceeds were made available to pay the pre-petition
Unsecured Claims and Interests. See the Liquidation
Analysis attached hereto as Appendix C.
To determine if the Plan is in the best interests of
each impaired class, the present value of the
distributions from the proceeds of the hypothetical
liquidation of the assets (after subtracting the
amounts attributable to Secured Claims and costs and
expenses of the bankruptcy case) must be compared
with the present value of the consideration offered
to such classes under the Plan.
After consideration of the effect that a Chapter 7
liquidation would have on the ultimate proceeds
available for distribution to creditors and equity
holders of the Debtors, including (a) increased cost
and expenses of liquidation under Chapter 7 arising
from fees payable to the bankruptcy trustee and
attorneys and other professional advisors to such
trustee, (b) additional expenses and claims, some of
which would be entitled to priority, which would be
generated during the liquidation and from the
rejection of unexpired leases and executory
contracts in connection with the cessation of the
operations of the Debtors,(c) the erosion of the
value of the Company's assets in the context of an
expedited liquidation required under Chapter 7 and
the "fire sale" atmosphere that would prevail, (d)
the adverse effects on the salability of portions of
the business that could result from the possible
departure of key employees and the loss of customers
and vendors, (e) the cost and the expense
attributable to the time value of money resulting
from what is likely to be a more protracted
proceeding and (f) the application of the rule of
absolute priority to distributions in a Chapter 7
liquidation, the Debtors have determined that
confirmation of the Plan will provide each holder of
a Claim in an impaired class with a greater recovery
than such holder would receive pursuant to a Chapter
7 liquidation of the Debtors.
The Liquidation Analysis for the Debtors is set
forth in Appendix C hereto. The analysis set forth
in the consolidated Liquidation Analysis of the
estimated recoveries in a liquidation of the
Company's operating businesses was prepared by the
Debtors. A description of the procedures followed
and the assumptions and qualifications made by the
Debtors in connection with such analysis is set
forth in the Notes to the consolidated Liquidation
Analysis.
4. Feasibility
The Bankruptcy Code requires that confirmation of a
plan not be likely to be followed by liquidation or
need for further financial reorganization of the
debtor. For purposes of determining whether the
Plan meets this requirement, the Debtors have
analyzed the Company's ability to meet its
obligations under the Plan. As part of this
analysis, management has prepared projections of the
Company's financial performance for the period from
1996 through 1998. See "FINANCIAL INFORMATION--
Projected and Pro Forma Financial Information."
Although these projections do not reflect all
possible effects of the Restructuring, the Debtors
believe that the Plan provides a feasible means of
reorganization and operation, through which it can
be reasonably expected that, subject to the risks
disclosed herein, the Company, as reorganized under
the Plan, will be able to satisfy its obligations on
and after the Effective Date. For a description of
the assumptions underlying the projections, as well
as the related qualifications, see "FINANCIAL
INFORMATION -- Projected and Pro Forma Financial
Information."
D. Consummation
The Plan will be consummated on the Effective Date.
The Effective Date is the first business day on
which the conditions to consummation have been
satisfied or waived by the Debtors. See "SUMMARY OF
PLAN -- Other Provisions of the Plan -- Conditions to
Consummation."
XII. ALTERNATIVES TO THE PLAN
A. Alternative Plan of Reorganization
If the Plan is not confirmed, the Debtors or any
other party in interest could attempt to formulate a
different plan of reorganization. Such a different
plan of reorganization might contemplate either a
reorganization and continuation of all or part of
the Company's business or an orderly liquidation of
all of the assets of the Debtors.
With respect to an alternative plan, the Debtors
have explored various alternatives in connection
with the formulation and development of the Plan and
believe that the Plan enables the creditors to
realize greater value under the circumstances than
under other available alternatives. See "THE
RESTRUCTURING -- Background and Restructuring
Discussions." In a liquidation under Chapter 11,
the assets of the Company would be sold in a more
orderly fashion and over a more extended period of
time than in a liquidation under Chapter 7, probably
resulting in somewhat greater recoveries. Further,
a trustee is not required in a Chapter 11 case, and,
accordingly, the expenses for professional fees most
likely would be lower than in a Chapter 7 case. The
Debtors believe that, although preferable to a
Chapter 7 liquidation, a liquidation under Chapter
11 would still not realize the full going concern
value of its business and, as it would be more
protracted than the Restructuring contemplated by
the Plan, would involve greater administrative
expenses than the Plan. Consequently, the Debtors
believe that a liquidation under Chapter 11 is a
much less attractive alternative to holders of
impaired Claims and Interests than the Plan because
the Plan provides for a greater return to such
holders than would likely be realized in a Chapter
11 liquidation.
B. Liquidation Under Chapter 7
If a plan of reorganization is not confirmed, the
Debtors' bankruptcy cases may be converted to cases
under Chapter 7 of the Bankruptcy Code, in which a
bankruptcy trustee would be appointed to liquidate
the assets of the Debtors for distribution to the
holders of Claims against, and Interests in, the
Debtors in accordance with priorities established by
the Bankruptcy Code. A discussion of the effect
that a Chapter 7 liquidation would have on the
recovery of the holders of Claims and Interests is
set forth under "SUMMARY OF THE PLAN -- Confirmation
of the Plan -- Best Interests." The Debtors believe
that a liquidation under Chapter 7 would result in a
smaller distribution to such holders than those
provided for in the Plan because of (1) increased
costs and expenses arising from fees payable to a
bankruptcy trustee and attorneys and other
professional advisors to such trustee, (2)
additional expenses and claims, some of which would
be entitled to priority, which would be generated
during the liquidation and from the rejection of
unexpired leases and executory contracts in
connection with the cessation of the operations of
the Company, (3) the erosion of the value of the
Company's assets in the context of an expedited
liquidation required under Chapter 7 and the "fire
sale" atmosphere that would prevail, (4) the adverse
effects on the salability of portions of the
business that could result from the possible
departure of key employees and the loss of customers
and vendors, and (5) the cost attributable to the
time value of money resulting from what is likely to
be a more protracted proceeding. For more details,
see the Liquidation Analysis set forth in Appendix C
hereto.
XIV. DESCRIPTION OF MODIFIED UNION AGREEMENTS
A. General
On March 8, 1996, the Company and representatives of
the UFCW reached an agreement in principle relating
to the Modified UFCW Agreements. The terms of the
Modified UFCW Agreements were ratified during the
week of March 11, 1996, by overwhelming majorities
of each of the UFCW local union chapters. The
Modified BCT Agreement was ratified in April 1996,
by the BCT local union chapter.
The Modified Union Agreements will have a term of
five years commencing on the Effective Date and will
be conditioned on the consummation of the
Restructuring. The Modified Union Agreements will
consist of five basic elements: (a) wage rate and
benefit contribution reductions and work rule
changes; (b) the Employee Buyout Offer, pursuant to
which the Company will make up to $6.4 million
available for the buyout of certain unionized
employees; c the establishment of the ESOT (acting
on behalf of the Company's unionized employees),
which will receive, or be entitled to purchase, up
to 522,222 shares of New Common Stock, or 10% of the
New Common Stock, pursuant to the terms of the
Modified Union Agreements; (d) the UFCW's right to
designate one member of the Boards of Directors of
the Company and Holding following the Restructuring;
and (e) the elimination of certain "snap back"
provisions (provisions relating to the reinstatement
of previously reduced wage amounts), incentive plans
and "maintenance of benefits" provisions.
The Company estimates that the Modified Union
Agreements will result in annual cost savings of
approximately $7.2 million (assuming no employees
accept the Employee Buyout Offer) to $13.2 million
(assuming the Employee Buyout Offer is fully
subscribed) of cost savings per year during the
first full contract year following the
Restructuring. There can be no assurance, however,
that such cost savings will actually be realized.
In addition, cost savings in future contract years
may be offset in part by certain wage and benefit
increases. These include a 2.5% lump sum general
wage increase for employees on the payroll after the
second year of the Modified Union Agreements and a
2.5% general wage increase for the third year of the
Modified Union Agreements, in each case if the
Company's EBITDA exceeds $27.5 million for the
second year, and 2.5% general wage increases for
each of the fourth and fifth years of the Modified
Union Agreements.
B. Wage Rate, Benefit Contribution Reductions and
Work Rule Changes
The wage rate and benefit contribution reductions
and the work rule changes include changes in wage
schedules, a modification of the full-time/part-time
work ratio and the elimination of Sunday pay
premiums. The Modified Union Agreements also
contemplate other benefit changes, including (1) the
establishment by the Company of a new health and
welfare benefit plan (the "Health and Welfare
Benefit Plan") within 90 days of the Effective Date
and the Company's contribution of $750,000 to the
Health and Welfare Benefit Plan within 60 days of
the Effective Date (additional future contributions
by the Company will be based on a formula set forth
in the Modified Union Agreements); and (2) the
establishment of certain performance-based wage and
benefit payments based on the Company reaching
certain EBITDA levels set forth in the Modified
Union Agreements.
C. Employee Buyout Offer
Pursuant to the Employee Buyout Offer, the Company
will offer to pay certain of the Company's employees
a "buyout price" ranging from $4,500 to $11,000 per
employee (depending on job classification, date of
hire and full- or part-time status) in exchange for
such employee's agreement to resign from the
Company. The maximum aggregate amount to be funded
by the Company under the Employee Buyout Offer is
$6.4 million. The Company will fund the Employee
Buyout Offer by making certain borrowings under the
New Credit Agreement. As a result of the Employee
Buyout Offer, the Company will be able to replace
higher-salaried employees with lower-salaried
employees, which should result in substantial long-
term cost savings for the Company. Assuming the
Employee Buyout Offer is fully subscribed, the
Company expects to recoup its $6.4 million payment
under the plan within fifteen months following the
completion of the Employee Buyout Offer.
D. Stock Issuances to, and Purchases by, the ESOT
The stock issuances and purchases contemplated by
the Modified Union Agreements consist of three
separate elements: (1) the initial issuance of
174,074 shares of New Common Stock to certain of the
Company's unionized employees ("Initial Issuance");
(2) the purchase of up to 174,074 shares of New
Common Stock by the Company and Participants in the
ESOT ("ESOT Purchase"); and (3) the grant of up to
174,074 shares of New Common Stock upon the
Company's satisfaction of certain escalating EBITDA-
based performance goals ("Performance-Based
Issuances").
The Initial Issuance of New Common Stock will occur
upon completion of the Employee Buyout Offer and
will be made to the ESOT on behalf of the Company's
remaining unionized employees. The New Common Stock
so issued will be contributed in equal portions over
the first three years of the Modified Union
Agreements. In the event a departing employee has
New Common Stock which is not readily tradable on an
established securities market, the employee will
have the right to "put" to the Company the stock
allocated to such employee's ESOT account at a put
price equal to the appraised value of the New Common
Stock.
Under the terms of the ESOT Purchase, approximately
58,025 shares of New Common Stock may be purchased
on a pre-tax basis for ESOT participants' accounts
on each of the first, second and third anniversaries
of the Modified Union Agreements (or up to 174,074
shares of New Common Stock in the aggregate). The
purchase price for such shares will be equal to the
appraised value of the New Common Stock. For each
three shares of New Common Stock that a participant
purchases, the Company will purchase one share on
behalf of such participant (resulting in an
"effective' purchase price equal to 75% of the
appraised value of the New Common Stock). The
purchased stock will be held in the ESOT.
The Performance-Based Issuances will be made over
the course of the first three years of the Modified
Union Agreements. The ESOT will be entitled to
receive (on behalf of the Company's unionized
employees) approximately 58,025 shares of New Common
Stock on the first, second and third anniversaries
of the Modified Union Agreements (or up to 174,074
shares of New Common Stock in the aggregate), if,
during the year ending on such anniversary dates,
the Company's EBITDA (as defined in the New Credit
Agreement) equals at least $25 million, $27.5
million and $30.25 million, respectively. Only
union employees who are employed by the Company on
the applicable anniversary date will be entitled to
have any such stock allocated to their ESOT account.
E. Board Representation
Upon consummation of the Restructuring, the Board of
Directors of the Company and of Holding will consist
of seven members. So long as the Modified Union
Agreements are in effect, the UFCW will have the
right to designate one director of each Board of
Directors.
F. Other Modifications
The Modified Union Agreements will also eliminate
the Company's obligations with respect to any "snap
back" provisions (provisions relating to the
reinstatement of previously reduced wage amounts),
incentive plans and "maintenance of benefits"
provisions contained in the Existing Union
Agreements.
XV. SECURITIES LAW CONSIDERATIONS
A. Original Issuance of Securities
Section 1145(a)(1) of the Bankruptcy Code exempts
the original issuance of certain securities under a
plan of reorganization from the registration
requirements of the Securities Act and state law.
Under Section 1145, the offer and the sale of
securities is exempt if (1) the securities are
issued by the debtor, a successor to the debtor
under the plan of reorganization or an affiliate of
the debtor participating in a Plan of reorganization
with the debtor, (2) the recipients hold a Claim
(including a Claim for an administrative expense)
against, or Interest in, the debtor or such
affiliate and (3) the securities are issued
principally in exchange for the recipient's Claim
against, or Interest in, the debtor or such
affiliate or principally in such exchange and partly
for cash or property. The Debtors believe the offer
and the sale of the New Securities under the Plan
are exempt under Section 1145(a)(1).
Under Section 1145(a)(2), the offer of a security
through a warrant exempt under Section 1145(a)(1)
and the sale of a security upon the exercise of such
warrant are also exempt from the registration
requirements of the Securities Act and state law.
The Debtors believe that the offer of the shares of
New Common Stock underlying the New Warrants and the
sale of such shares upon the exercise of the New
Warrants will be exempt under Section 1145(a)(2).
Holding intends to rely, to the extent that Section
1145(a) does not so exempt the sale of any New
Common Stock upon exercise of the New Warrants, upon
Section 4(2) of the Securities Act and similar state
law provisions, and, to the extent applicable,
Regulation D and similar state law provisions, to
exempt such sales from such registration
requirements.
B. Subsequent Transfers of Securities
Under Section 4(1) of the Securities Act, the New
Securities may generally be resold by the holders
without registration under the Securities Act,
unless the holder is an "underwriter" (as defined in
the Securities Act) with respect to such securities.
In addition, the New Securities may generally be
resold without qualification or registration under
state securities laws under exemptions contained
therein.
Section 1145(b) defines four types of "underwriters:"
(1) persons who purchase a Claim against, or
an Interest in, the debtor with a view to
distributing the security received in exchange
for such Claim or such Interest;
(2) persons who offer to sell securities
offered or sold under a plan of reorganization
for holders of such securities;
(3) persons who offer to buy securities
offered or sold under the plan of
reorganization from the holders of such
securities if the offer to buy is (i) with a
view to distribution of such securities or (ii)
made under a distribution agreement; and
(4) a person who is an _issuer_ (as defined in
Section 2(11) of the Securities Act) with
respect to the securities.
Under Section 2(11) of the Securities Act, the term
"issuer" includes any person directly or indirectly
controlling, controlled by, or under common control
with, the issuer. Under Rule 405 promulgated under
the Securities Act, the term "control" means the
power to direct or to cause the direction of the
policies of a person, whether through the ownership
of voting securities, by contract or otherwise.
Accordingly, an officer or director of a reorganized
debtor (or its affiliate or successor) under a plan
of reorganization may be deemed to "control" such
debtor (and therefore be an underwriter for purposes
of Section 1145), particularly if such management
position is coupled with the ownership of a
significant percentage of a debtor's (or affiliate's
or successor's) voting securities.
To the extent that a person is deemed to be an
"underwriter," such person may make public offers
and sales of the New Securities only in accordance
with the registration requirements of the Securities
Act or an exemption therefrom, such as the
exemptions afforded by Rule 144 and Rule 144A
promulgated under the Securities Act or the
exemption for "ordinary trading transactions"
(within the meaning of Section 1145(b)(1) of the
Securities Act).
Rule 144A, promulgated under the Securities Act,
provides a non-exclusive safe harbor exemption from
the registration requirements of the Securities Act
for resales to certain "qualified institutional
buyers" of securities which are "restricted
securities" within the meaning of the Securities
Act, irrespective of whether the seller of such
securities purchased the securities with a view
towards reselling such securities under Rule 144A.
Under Rule 144A, a "qualified institutional buyer"
is defined to include, among other persons, any
entity which purchases securities for its own
account or for the account of another qualified
institutional buyer and which (in the aggregate)
owns and invests on a discretionary basis at least
$100 million in the securities of unaffiliated
issuers (e.g., "dealers" registered as such pursuant
to Section 15 of the Exchange Act and "banks" as
defined in Section 2(a)(2) of the Securities Act).
Subject to certain qualifications, Rule 144A does
not exempt the offer or sale of securities which, at
the time of their issuance, were securities of the
same class of securities then listed on a national
securities exchange (registered as such under
Section 6 of the Exchange Act), or quoted in a U.S.
automated interdealer quotation system (i.e.,
NASDAQ). Given that none of the New Notes or the
shares of the New Common Stock to be issued on the
Effective Date will be securities of a class then
listed or quoted as described above, holders of such
securities who are deemed to be "underwriters"
within the meaning of Section 1145(b)(1) of the
Bankruptcy Code or who may otherwise be deemed to be
"affiliates" of, or to exercise "control" over, the
Company or Holding within the meaning of Rule 405 of
Regulation C under the Securities Act should,
assuming that all other conditions of Rule 144A are
met, be entitled to avail themselves of the safe
harbor resale provisions thereof.
To the extent that Rule 144A is unavailable, holders
may, under certain circumstances, be able to sell
their securities pursuant to the safe harbor resale
provisions of Rule 144 under the Securities Act.
Generally, Rule 144 provides that if certain
conditions are met (e.g., two-year holding period
with respect to "restricted securities," volume
limitations, manner of sale, availability of current
information about the issuer), specified persons who
(1) resell "restricted securities" or (2) resell
securities which are not restricted but who are
"affiliates" of the issuer of the securities sought
to be resold, will not be deemed to be
"underwriters" as defined in Section 2(11) of the
Securities Act. Under Rule 144(k), those conditions
to resale will no longer apply to restricted
securities sold for the account of a holder who is
not an affiliate of the Company or Holding at the
time of such resale and has not been an affiliate
such during the three-month period next preceding
such resale, so long as a period of a least three
years have elapsed since the later of (1) the
Effective Date and (2) the date on which such holder
acquired his or its securities from an affiliate of
the Company or Holding.
In connection with the Restructuring, certain
registration rights will be granted to holders of
the Old Common Stock and Old Notes, with respect to
the New Securities received by such holders under
the Plan. In addition, Holding will file a Form 10
registration statement with respect to the New
Common Stock under the 1934 Act within 60 days
following the Effective Date and will use its best
efforts to cause such registration statement to
become and remain effective until the earlier of (1)
the seventh anniversary of the Effective Date and
(2) the first date on which less than 10% of the
outstanding New Common Stock is publicly held. For
so long as such registration statement remains
effective, Holding will be required to comply with
the reporting requirements under the 1934 Act. Such
filing, together with Holding's timely compliance
with such reporting requirements, will enable
holders of the New Common Stock to utilize the safe
harbor provisions of Rule 144, as described above.
Given the complex, subjective nature of the
determination whether a person is an"underwriter,"
the Debtors make no representation concerning the
right of any holder to resell the New Securities.
Holders are urged to consult with their own counsel
to determine whether they may resell such securities
under the Securities Act and state securities laws.
XVI. DESCRIPTION OF NEW NOTES
The New Notes will be issued under the New Indenture
to be dated as of the Effective Date, between the
Company and the New Trustee. The following summary
of the material provisions of the New Indenture
does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the
provisions of the New Indenture, including
definitions of certain terms contained therein and
those terms made part of the New Indenture by
reference to the Trust Indenture Act of 1939, as
amended, as in effect on the date of the New Note
Indenture. The definitions of certain capitalized
terms used in the following summary are set forth
below under"-- Certain Definitions."
A. General
The New Notes will be unsecured senior
subordinated obligations of the Company limited to
$60,000,000 aggregate principal amount. The New
Notes will be issued only in registered form without
coupons, in denominations of $1,000 and integral
multiples thereof. (Section 3.2) Principal of,
premium, if any, and interest on the New Notes will
be payable, and the New Notes will be transferable,
at the corporate trust office or agency of the New
Trustee in The City of New York maintained for such
purposes. (Section 3.5) In addition, interest may
be paid at the option of the Company by check mailed
to the person entitled thereto as shown on the
security register. (Section 3.7) No service charge
will be made for any registration of transfer or
exchange or redemption of New Notes, except in
certain circumstances for any documentary, tax or
other governmental charge that may be imposed in
connection therewith. (Section 3.5)
B. Maturity, Interest and Principal
The New Notes will mature on August 1, 2003.
Interest on the New Notes will accrue at the rate of
10% per annum and will be payable on February 1,
1997 and semi-annually thereafter on each February 1
and August 1, in each year, to the holders of record
of the New Notes at the close of business on the
January 15 and July 15 (whether or not a Business
Day), as the case may be, next preceding such
interest payment date. Interest on the New Notes
will accrue from the most recent date to which
interest has been paid or, if no interest has been
paid, from the original date of issuance (the _Issue
Date_). Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. The
New Notes are not subject to the benefit of any
mandatory sinking fund.
C. Optional Redemption
Optional Redemption. The New Notes are subject to
redemption upon not less than 30 nor more than 60
days' notice, in amounts of $1,000 or an integral
multiple of $1,000, at any time on or after August
1, 1999, as a whole or in part, at the election of
the Company, at the redemption price equal to the
percentage of the principal amount redeemed, as set
forth in the table below, together in the case of
any such redemption with accrued interest to the
redemption date (subject to the right of holders of
record on relevant regular record dates to receive
interest due on an interest payment date).
If redeemed Redemption
on or after Price will be
August 1, 1999 . . . . . . . . . . . . . 105.00%
August 1, 2000 . . . . . . . . . . . . . 103.33%
August 1, 2001 . . . . . . . . . . . . . 101.67%
August 1, 2002 . . . . . . . . . . . . . 100.00%
In addition, upon the occurrence of a Change of
Control prior to August 1, 1999, the New Notes are
subject to redemption, upon not less than 30 or more
than 60 days' notice, in amounts of $1,000, or an
integral multiple of $1,000, as a whole or in part,
at the election of the Company, at the redemption
price equal to the percentage of the principal
amount redeemed, as set forth in the table below,
together in the case of any such redemption with
accrued interest to the redemption date (subject to
the right of holders of record on relevant record
dates to receive interest due on an interest payment
date):
If redeemed Redemption
on or after Price will be
August 1, 1996 . . . . . . . . . . . . . 108.00%
August 1, 1997 . . . . . . . . . . . . . 107.00%
August 1, 1998 . . . . . . . . . . . . . 106.00%
Notwithstanding the foregoing, in either case, if
the aggregate principal amount of the Outstanding
New Notes would be less than $20 million after such
redemption, then the Company will be required to
redeem all Outstanding New Notes.
Selection and Notice. In the event that less than
all of the New Notes are to be redeemed at any time,
selection of such New Notes for redemption will be
made by the New Trustee, on a pro rata basis, by lot
or by such method as the New Trustee shall deem fair
and appropriate and which may provide for the
selection for redemption of portions of the
principal of New Notes; provided, however, that no
such partial redemption shall reduce the portion of
the principal amount of a New Note not redeemed to
less than $1,000. Notice of redemption shall be
mailed by first-class mail at least 30 but not more
than 60 days before the redemption date to each
holder of New Notes to be redeemed at its registered
address. If any New Note is to be redeemed in part
only, the notice of redemption that relates to such
New Note shall state the portion of the principal
amount thereof to be redeemed. A New Note or New
Notes, of any authorized denomination as requested
by such holder in aggregate principal amount equal
to and in exchange for the unredeemed portion of the
principal of the New Note so surrendered, will be
issued in the name of the holder thereof upon
surrender for cancellation of the original New Note.
On and after the redemption date, interest will
cease to accrue on New Notes or portions thereof
called for redemption. If any New Note called for
redemption is not so paid upon surrender thereof for
redemption, the principal thereof (and premium, if
any, thereon) shall, until paid, bear interest from
the redemption date at the default rate thereon.
(Sections 11.4, 11.5, 11.7 and 11.8)
D. Subordination
The indebtedness represented by the New Notes and
the payment of the principal of, premium, if any,
and interest on the New Notes will be subordinated,
to the extent set forth in the New Indenture, in
right of payment to the prior payment in full of all
existing and future Senior Indebtedness of the
Company, which comprises all obligations under the
New Credit Agreement and refinancings thereof.
(Section 12.1) See "RISK FACTORS -- Risks Related to
the New Securities -- Subordination of the New
Notes."
The New Indenture provides that in the event of (a)
any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or
other similar case or proceeding in connection
therewith, relative to the Company or its assets,
(b) any liquidation, dissolution or other winding-up
of the Company, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy,
or c any assignment for the benefit of creditors or
other marshaling of assets or liabilities of the
Company (except a distribution in connection with a
consolidation of the Company with, or the merger of
the Company into, another corporation or the
liquidation or dissolution of the Company following
conveyance, transfer or lease of its properties and
assets substantially as an entirety to another
corporation upon the terms and conditions described
below under "-- Merger, Sale of Assets, Etc."),
holders of Senior Indebtedness of the Company shall
be entitled to receive payment in full of all
amounts due or to become due on or in respect of all
Senior Indebtedness before the holders of the New
Notes are entitled to receive any payment on account
of the principal of, premium, if any, and interest
on the New Notes; and any payment or distribution of
assets of the Company of any kind or character,
whether in cash, property or securities, by set-off
or otherwise, to which the holders of the New Notes
or the New Trustee would be entitled but for the
provisions of the New Indenture relating to
subordination (excluding certain unsecured
subordinated securities) will be paid by the
liquidating trustee or agent or other Person making
such payment or distribution directly to the holders
of Senior Indebtedness ratably according to the
aggregate amounts remaining unpaid on account of the
Senior Indebtedness to the extent necessary to make
payment in full of all Senior Indebtedness remaining
unpaid. In the event that, notwithstanding the
foregoing, after an event described in clause (a),
(b) or c, the New Trustee or any holder of the New
Notes shall have received payment or distribution of
assets of the Company of any kind or character
(excluding certain permitted equity or subordinated
debt securities or as authorized by a bankruptcy
court) before all Senior Indebtedness is paid in
full, then such payment or distribution will be paid
over or delivered to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee,
agent or other person making payment or distribution
of assets of the company for application to the
payment of all Senior Indebtedness remaining unpaid
to the extent necessary to pay all Senior
Indebtedness in full. (Section 12.2)
(i) In the event of and during the continuance
of any default in the payment of principal,
premium, if any, or interest on any Senior
Indebtedness beyond any applicable grace period
with respect thereto, or (ii) in the event that
any other event of default with respect to any
Senior Indebtedness shall have occurred and be
continuing that permits the holders of such
Senior Indebtedness (or a trustee on behalf of
such holders) to declare such Senior
Indebtedness due and payable prior to the date
on which it would otherwise have become due and
payable either without further notice or upon
the expiration of any grace period applicable
to such event of default, and written notice
thereof shall have been given to each of the
Company and the New Trustee in the case of
either clause (i) or (ii) above by the agent
bank under the Credit Agreement (a "Payment
Notice"), then no payment or distribution of
any assets of the Company of any kind or
character shall be made by the Company on
account of the Obligations (including, without
limitation, the principal of (or premium, if
any) or interest on the New Notes or on account
of the purchase or redemption or other
acquisition of New Notes) (a) in the case of an
event of default specified in clause (i) above,
unless and until such payment of default shall
have been cured or waived or shall have ceased
to exist or the holders of such Senior
Indebtedness or their agents have waived the
benefits of such subordination or (b) in the
case of an event of default specified in clause
(ii) above, until the earlier of (x) 179 days
after the date on which a Payment Notice shall
have been given and (y) the date, if any, on
which such event of default is waived by the
holder of such Senior Indebtedness or otherwise
cured or has ceased to exist or the Senior
Indebtedness to which such event of default
relates is discharged (provided that a Payment
Notice relating to any event of default
specified in clause (ii) above with respect to
any Senior Indebtedness received by the Company
or the Trustee within 12 months after such
prior receipt of a Payment Notice shall not be
effective to further prohibit such payments).
If the Company fails to make any payment on the New
Notes when due or within any applicable grace
period, whether or not on account of the payment
blockage provisions referred to above, such failure
would constitute an Event of Default under the New
Indenture and would enable the holders of the New
Notes to accelerate the maturity thereof. See"--
Events of Default."
By reason of such subordination, in the event of
liquidation, receivership, reorganization or
insolvency, creditors of the Company who are holders
of Senior Indebtedness may recover more, ratably,
than the holders of the New Notes, and the funds
which would be otherwise payable to the holders of
the New Notes will be paid to the holders of the
Senior Indebtedness to the extent necessary to pay
the Senior Indebtedness in full, and the Company may
be unable to meet its obligations in full with
respect to the New Notes.
E. Certain Covenants
The New Indenture will contain the following covenants,
among others:
Limitation on Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to,
Incur any Indebtedness (including any Acquired
Indebtedness, but excluding Permitted Indebtedness)
unless, at the time of the Incurrence thereof and
after giving effect thereto on a pro forma basis,
the Company's Consolidated Interest Coverage Ratio
for the four full fiscal quarters for which
financial information in respect thereof is
available immediately preceding such Incurrence,
taken as one period and calculated on the assumption
that such Indebtedness had been Incurred on the
first day of such four-quarter period and, in the
case of Acquired Indebtedness, on the assumption
that the related acquisition (whether by means of
purchase, merger or otherwise) also had occurred on
such date with the appropriate adjustments with
respect to such acquisition being included in such
pro forma calculation, would have exceeded 2.0 to
1.0. (Section 10.8)
Limitation on Restricted Payments. (a) The Company
will not, and will not permit any of its
Subsidiaries to, directly or indirectly, (i) declare
or pay any dividend on, or make any other
distribution to holders (in their capacities as
such) of, any shares of the Company's Capital Stock
(other than dividends or distributions payable in
shares of its Capital Stock or in options, warrants
or other rights to purchase such Capital Stock, but
excluding dividends or distributions payable in
Redeemable Capital Stock or in options, warrants or
other rights to purchase Redeemable Capital Stock),
(ii) purchase, redeem or acquire or retire for value
any Capital Stock of the Company or any Subsidiary
or any options, warrants or other rights to acquire
such Capital Stock (other than any such Capital
Stock owed by a Wholly Owned Subsidiary of the
Company), (iii) declare or pay any dividend or
distribution on any Capital Stock of any Subsidiary
to any Person (other than the Company or any of its
Wholly Owned Subsidiaries), (iv) Incur any
Indebtedness of any Affiliate (other than with
respect to (a) guarantees of Indebtedness of any
Wholly Owned Subsidiaries by the Company or by
another Wholly Owned Subsidiary or (b) guarantees of
Indebtedness of the Company by any Wholly Owned
Subsidiary, or (v) make any Investment (other than
any Permitted Investment) in any Person other than
in the Company, a Wholly Owned Subsidiary of the
Company or a Person that becomes a Wholly Owned
Subsidiary of the Company as a result of such
Investment (such payments or other actions described
in the foregoing clauses (i) through (v) are
collectively referred to as "Restricted Payments")
unless at the time of and after giving effect to the
proposed Restricted Payment (the amount of any such
Restricted Payment, if other than cash, shall be as
determined by the Board of Directors of the Company,
whose determination shall be based on the Fair
Market Value thereof and shall be conclusive), (1)
no Default or Event of Default shall have occurred
and be continuing or shall occur as a result of such
Restricted Payment, (2) the Consolidated Interest
Coverage Ratio of the Company for the Company's four
most recently completed fiscal quarters shall be at
least 2.0 to 1.0, and (3) the aggregate amount of
all Restricted Payments declared or made after the
Issue Date shall not exceed the sum of: (A) 50% of
the aggregate cumulative Consolidated Net Income of
the Company (which shall be treated as one
accounting period) during the period beginning on
the last day of the first full fiscal quarter
occurring after the Issue Date and ending on the
last day of the Company_s last fiscal quarter ending
prior to the date of the declaration or making of
such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall
be a loss, minus 100% of such loss), plus (B) the
aggregate net proceeds, including the Fair Market
Value of property other than cash (as determined by
the Company_s Board of Directors, whose
determination shall be conclusive), received after
the Issue Date by the Company from the issuance or
sale (other than to any of its Subsidiaries) of
shares of Capital Stock of the Company (other than
Redeemable Capital Stock) or warrants, options or
rights to purchase such shares of Capital Stock of
the Company (other than Redeemable Capital Stock),
plus c the aggregate net proceeds, including the
Fair Market Value of property other than cash (as
determined by the Board of Directors of the Company,
whose determination shall be conclusive) received
after the Issue Date by the Company (other than from
any of its Subsidiaries) upon the exercise of
options, warrants or rights to purchase shares of
Capital Stock of the Company (other than Redeemable
Capital Stock), plus (D) the aggregate net proceeds,
including the Fair Market Value of property other
than cash (as determined by the Board of Directors
of the Company, whose determination shall be
conclusive) received after the Issue Date by the
Company from the issue or sale of debt securities or
Redeemable Capital Stock that have been converted
into or exchanged for Capital Stock of the Company
(other than Redeemable Capital Stock), plus the
aggregate amount of cash received by the Company at
the time of such conversion or exchange, plus (E)
the aggregate net proceeds, including the Fair
Market Value of property other than cash (as
determined by the Board of Directors of the Company,
whose determination shall be conclusive) received
after the Issue Date by the Company in disposition
of any Investment (or portion thereof) made after
the Issue Date which was a Restricted Payment. The
foregoing provision will not be violated by reason
of (i) the payment of any dividend within 60 days
after the date of declaration thereof, if at such
declaration date such declaration complied with the
foregoing provision (in which event such dividend
shall be deemed to have been paid on such date of
declaration thereof for purposes of the foregoing
provision), (ii) a Restricted Payment by a
Subsidiary solely to the Company or a Wholly Owned
Subsidiary of the Company, or (iii) the retirement
redemption, repurchase or other acquisition of any
shares of Capital Stock or Indebtedness that is
expressly subordinated in right of payment to the
New Notes, in exchange for (including any such
exchange pursuant to a conversion right or privilege
in connection with which cash is paid in lieu of
fractional shares or scrip), or out of the proceeds
of the substantially concurrent sale for cash (other
than to a Subsidiary of the Company) of, shares of
Capital Stock (other than Redeemable Capital Stock)
of the Company.
(b) In computing Consolidated Net Income of the
Company under the preceding clause (a), (1) the
Company will use audited financial statements for
the portions of the relevant period for which
audited financial statements are available on the
date of determination and unaudited financial
statements and other current financial data based on
the books and records of the Company for the
remaining portion of such period and (2) the Company
will be permitted to rely in good faith on the
financial statements and other financial data
derived from the books and records of the Company
that are available on the date of determination. If
the Company makes a Restricted Payment which, at the
time of the making of such Restricted Payment would
in the good faith determination of the Company be
permitted under the applicable provisions of this
covenant, such Restricted Payment will be deemed to
have been made in compliance with such provisions
notwithstanding any subsequent adjustments made in
good faith to the Company_s financial statements
affecting Consolidated Net Income of the Company for
any period. (Section 10.9)
Limitation on Liens. The Company will not, and will
not permit any of its Subsidiaries to, Incur any
Lien of any kind (other than Permitted Liens) upon
any property or assets of the Company or of any such
Subsidiary or with respect to any Indebtedness of
any such Subsidiary. (Section 10.11)
Purchase of New Notes upon Change of Control. Upon
the occurrence of a Change of Control, the Company
will be obligated to make an offer to purchase (a
"Change of Control Offer") and will, subject to the
provisions described below, purchase, on a Business
Day (the "Change of Control Purchase Date") that is
not earlier than 30 days nor later than 60 days
following the occurrence of a Change of Control or
such later date as may be necessary for the Company
to comply with requirements under the 1934 Act, all
of the then Outstanding New Notes at a purchase
price payable in cash equal to 101% of the principal
amount of such New Notes, plus accrued and unpaid
interest (including any Defaulted Interest), if any,
to the Change of Control Purchase Date (the "Change
of Control Purchase Price"); provided, however, that
notwithstanding the occurrence of a Change of
Control, the Company will not be obligated to make a
Change of Control Offer in the event that it has
exercised its rights to redeem all of the New Notes
as described in the redemption provisions of the New
Indenture (as described above under"--Optional
Redemption") within 30 days after the occurrence of
such Change of Control. Prior to the mailing of the
notice of a Change of Control Offer, the Company
shall have (i) terminated all commitments and paid
in full all Indebtedness under the Credit Agreement,
or offered (which offer the Company shall be
required to make) to terminate such commitments and
repay in full such Indebtedness effective
simultaneously with the consummation of the
transaction contemplated by the Change of Control
Offer or (ii) obtained the requisite consents under
the Credit Agreement to permit the purchase of the
New Notes as provided for under this covenant. If a
notice has been mailed when such condition precedent
has not been satisfied, the Company shall have no
obligation to (and shall not) effect the purchase of
the New Notes until such time as such condition
precedent is satisfied.
In order to effect such Change of Control Offer, the
Company will, not later than the 30th day after the
Change of Control, mail to each holder of New Notes
notice of the Change of Control Offer, which notice
will govern the terms of the Change of Control Offer
and shall state, among other things, the procedures
that holders of New Notes must follow to accept the
Change of Control Offer.
If a Change of Control Offer is made, there can be
no assurance that the Company will have available
funds sufficient to pay the Change of Control
Purchase Price for all of the New Notes that might
be delivered by holders of New Notes seeking to
accept the Change of Control Offer. The Company
shall not be required to make a Change of Control
Offer upon a Change of Control if a third party
makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the
requirements applicable to a Change of Control Offer
made by the Company and purchases all New Notes
validly tendered and not withdrawn under such Change
of Control Offer.
The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and
regulations are applicable, in the event that a
Change of Control occurs and the Company is required
to purchase New Notes as described above. The
obligation of the Company to make a Change of
Control Offer may deter a third party from acquiring
the Company in a transaction which constitutes a
Change of Control. (Section 10.15)
The use of the term "all or substantially all" in
New Indenture provisions such as clause (v) of the
definition of "Change of Control" and under"--
Merger, Sale of Assets, Etc." has no clearly
established meaning under New York law (which
governs the New Indenture) and has been the subject
of limited judicial interpretation in few
jurisdictions. Accordingly, there may be a degree
of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or
substantially all" of the assets of a person, which
uncertainty should be considered by prospective
purchasers of the New Notes.
Limitation on Asset Sales. The Company will not,
and will not permit any of its Subsidiaries to, in
one transaction or a series of related transactions,
other than in the ordinary course of business,
convey, sell, transfer, assign or otherwise dispose
of, directly or indirectly, any of its property,
businesses or assets, including by merger or
consolidation and including any sale or other
transfer or issuance of any Capital Stock of any
Subsidiary of the Company, whether by the Company or
by such Subsidiary (any of the foregoing, an "Asset
Salez"), unless (a) the Company or the applicable
Subsidiary receives consideration at the time of
such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of
(as determined in good faith by the Board of
Directors of the Company, as evidenced by a Board
Resolution), (b) at least (i) 50% of the first $5
million of consideration received by the Company or
the Subsidiary, as the case may be, from such Asset
Sale and (ii) 75% of such consideration in excess of
$5 million, shall be cash or Cash Equivalents and is
received at the time of such disposition, and c the
Company delivers an Officers' Certificate to the New
Trustee certifying that such Asset Sale complies
with the foregoing clauses (a) and (b); provided
that (A) subject to the other provisions of the New
Indenture, the Company, together with its
Subsidiaries, may make any Asset Sale that is
governed by the covenant described under "-- Merger,
Sale of Assets, Etc." and (B) the first $3 million
of Net Cash Proceeds from Asset Sales in any fiscal
year will not be subject to the restrictions set
forth in the foregoing clauses (a) and (b). The Net
Cash Proceeds of any Asset Sale shall be applied by
the Company or a Subsidiary (1) to pay and
permanently reduce any Senior Indebtedness, (2) to
reinvest in Additional Assets; or (3) to redeem New
Notes in accordance with this covenant. To the
extent that such Net Cash Proceeds are not applied
as provided in clause (1) of the preceding sentence,
the Company or a Subsidiary, as the case may be, may
apply the Net Cash Proceeds from such Asset Sale,
within 360 days of such Asset Sale, to an investment
in Additional Assets so long as the Company or such
Subsidiary has notified the New Trustee in writing
within 270 days of such Asset Sale that it has
determined to apply the Net Cash Proceeds from such
Asset Sale to an Investment in such Additional
Assets; provided, however, that not more than $15
million of Net Cash Proceeds may be reinvested in
Additional Assets during any rolling 18-month
period. Any Net Cash Proceeds from any Asset Sale
not applied as provided in clause (i) or (ii) of the
first sentence of clause (b) above within 360 days
of such Asset Sale constitute "Excess Proceeds"
subject to disposition as provided below.
When the aggregate amount of Excess Proceeds exceeds
$5 million (the "Asset Sale Trigger Date"), the
Company shall make an offer (an "Asset Sale Offer")
to purchase, from all holders, an aggregate
principal amount of New Notes equal to such Excess
Proceeds, on a Business Day that is not less than 30
days nor more than 60 days thereafter or such later
date as may be necessary for the Company to comply
with the requirements of the 1934 Act, at a price
payable in cash equal to 100% of the outstanding
principal amount of such New Notes, plus accrued and
unpaid interest (including any Defaulted Interest),
if any, to the purchase date. To the extent that
the aggregate principal amount of New Notes tendered
pursuant to an offer to purchase is less than the
Excess Proceeds, the Company may use such deficiency
for general corporate purposes. If the aggregate
principal amount of New Notes validly tendered by
holders thereof exceeds the Excess Proceeds, New
Notes to be purchased will be purchased on a pro
rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be
reset to zero.
In order to effect such Asset Sale Offer, the
Company will, not later than the Asset Sale Trigger
Date, mail to each holder of New Notes notice of the
Asset Sale Offer, which notice shall state, among
other things, the procedures that holders of the New
Notes must follow to accept the Asset Sale Offer.
The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and
regulations are applicable, in connection with any
Asset Sale Offer.
In the event that, following an Asset Sale Offer,
the aggregate principal amount of New Notes would be
less than $20 million (assuming 100% acceptance of
the Asset Sale Offer), then the Company will be
obligated to redeem all Outstanding New Notes.
(Section 10.16)
Transactions with Affiliates. The Company will not,
and will not permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction
or series of related transactions (including,
without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any
Affiliate of the Company (other than a Wholly Owned
Subsidiary thereof) unless (i) such transaction or
series of transactions is or are on terms that are
no less favorable to the Company or such Subsidiary,
as the case may be, than could have been obtained at
the time of such transaction or transactions in a
comparable transaction in arm's-length dealings with
Persons who are not Affiliates and (ii) with respect
to any transaction or series of transactions
involving aggregate consideration in excess of $5
million, the Company delivers an officers'
certificate to the New Trustee certifying that such
transaction or series of transactions complies with
clause (i) above and that such transaction or series
of transactions has received the approval of a
majority of the disinterested directors of the Board
of Directors of the Company; provided, however, that
the foregoing restriction shall not apply to
transactions pursuant to agreements in effect at or
entered into on the Issue Date (and not otherwise in
violation of this New Indenture); provided that any
renewal or modification of the terms of any such
agreement after the Issue Date shall comply with the
provisions of this covenant. For purposes of this
covenant, any transaction or series of related
transactions between the Company or any of its
Subsidiaries and any Affiliate of the Company that
is approved as being on the terms required by clause
(i) above by a majority of the disinterested
directors of the Board of Directors of the Company
shall be deemed to be on terms as favorable as those
that might be obtained at the time of such
transaction or series of transactions in a
comparable transaction in arm's-length dealings with
an unaffiliated third party, and thus shall be
permitted under this covenant. This covenant will
not restrict the Company or any of its Subsidiaries
from (i) paying reasonable and customary directors
fees, executive compensation and severance amounts,
(ii) making loans and advances to officers and
employees in respect of travel, moving and
entertainment expenses Incurred, or to be Incurred,
by such officers, directors and employees or (iii)
entering into guarantees in respect of Indebtedness
incurred by officers or employees in the ordinary
course of business and payments in discharge thereof
in an amount and not to exceed the excess of (x)
$500,000 at any time outstanding and (y) the
aggregate amount, if any, paid after the Issue Date
in respect of such guarantees. (Section 10.10)
Restriction on Issuance of Preferred Stock of
Subsidiaries. The Company will not permit any of its
Subsidiaries to issue any Preferred Stock (other
than to the Company or a Wholly Owned Subsidiary of
the Company) or permit any Person (other than the
Company or a Wholly Owned Subsidiary of the Company)
to own or hold an interest in any Preferred Stock of
any such Subsidiary, except (i) replacements of then
outstanding Preferred Stock or (ii) stock splits,
stock dividends and similar issuances which do not
decrease the percentage ownership of the Company or
any of its Subsidiaries in such Subsidiary.
(Section 10.13)
Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries. The Company
will not, and will not permit any Subsidiary to,
create or otherwise cause or suffer to exist or
become effective any consensual Payment Restriction
except (i) any Payment Restriction pursuant to the
Credit Agreement or any other agreement in effect at
or entered into on the Issue Date; (ii) any Payment
Restriction with respect to a Subsidiary that is not
a Subsidiary of the Company on the Issue Date, in
existence at the time such Person becomes a
Subsidiary of the Company or created on the date it
becomes a Subsidiary; and (iii) any Payment
Restriction pursuant to any agreement that extends,
refinances, renews or replaces any agreement
containing any of the restrictions described in the
foregoing clauses (i) and (ii); provided that the
terms and conditions of any such restrictions are
not materially less favorable to the holders of the
New Notes than those under or pursuant to the
agreement so extended, refinanced, renewed or
replaced. (Section 10.14)
Subsidiary Guarantees. The Company will not permit
any of its Subsidiaries to guarantee the payment of
any Indebtedness of the Company or any Subsidiary of
the Company unless such Subsidiary (i) is, or,
concurrently with such guarantee will become, a
Subsidiary Guarantor under this New Indenture in the
manner set forth in the New Indenture and (ii) the
Company shall concurrently comply with the
requirements set forth in the New Indenture.
(Section 10.18)
Limitation on Other Senior Subordinated
Indebtedness. The Company will not Incur any
Indebtedness (other than the New Notes) that is
subordinate in right of payment to any Senior
Indebtedness unless such Indebtedness is also pari
passu with or subordinate in right of payment to
the New Notes, pursuant to subordination provisions
substantially similar to those described under"--
Subordination" above. (Section 10.12)
SEC Reports. Notwithstanding that the Company may
not be required to remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange
Act, to the extent permitted by the Exchange Act,
the Company will file with the SEC and, in any
event, will provide, within 15 days after the
Company is (or would be) required to file the same
with the SEC, the New Trustee and holders and
prospective holders (upon request) with the annual
reports and the information, documents and other
reports which are specified in Sections 13 and 15(d)
of the Exchange Act. In the event that the Company
is not permitted to file such reports, documents and
information with the SEC, the Company will provide
substantially similar information to the New
Trustee, the holders and prospective holders (upon
request) as if the Company were subject to the
reporting requirements of Section 13 or 15(d) of the
Exchange Act. The Company will be deemed to have
satisfied such requirements if Holding files and
provides reports, documents and information of the
types otherwise so required, in each case within the
applicable time periods, and the Company is not
required to file such reports, documents and
information separately under applicable rules and
regulations of the SEC (after giving effect to any
exemptive relief) because of the filings by Holding.
The Company also will comply with the other
provisions of Section 314(a) of the Trust New
Indenture Act. (Section 10.4)
F. Merger, Sale of Assets, Etc.
The New Indenture provides that the Company will
not, in any transaction or series of transactions,
consolidate with or merge with or into any other
person, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its
properties and assets substantially as an entirety
to any person or group of affiliated persons, unless
at the time and after giving effect thereto (i)
either (A) the Company shall be the continuing or
surviving corporation or (B) the person (if other
than the Company) formed by such consolidation or
merger or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have
been made, (any such surviving person or transferee
person being the "Surviving Entity") shall be a
corporation organized and existing under the laws of
the United States of America, any state thereof or
the District of Columbia and shall, in either case,
expressly assume by a supplemental New Indenture
executed and delivered to the New Trustee, in form
satisfactory to the New Trustee, all the obligation
of the Company under the New Notes and the New
Indenture; (ii) immediately before and immediately
after giving effect to such transaction, no Default
or Event of Default shall exist; (iii) immediately
after giving effect to such transaction on a pro
forma basis, the Consolidated Net Worth of the
Company (or the Surviving Entity if the Company is
not the continuing obligor under the New Indenture)
shall be equal to or greater than the Consolidated
Net Worth (immediately after the transaction but
prior to any purchase accounting adjustments
resulting from the transaction) of the Company
immediately prior to such transaction; (iv)
immediately after giving effect to such transaction
on a pro forma basis, the Consolidated Interest
Coverage Ratio of the Company (or the Surviving
Entity if the Company is not the continuing obligor
under this New Indenture) for the Company's (or the
Surviving Entity's, as the case may be) four most
recently completed full fiscal quarters is at least
2.0 to 1.0; and (v) the Company shall deliver to the
New Trustee, in form and substance reasonably
satisfactory to the New Trustee, an officer's
certificate and an opinion of counsel, each stating
that such consolidation, merger or sale, assignment,
transfer, lease, conveyance or other disposition,
and the supplemental indenture, if required, in
respect thereof comply with the requirements under
the New Indenture; provided that a Wholly Owned
Subsidiary may consolidate with, or merge with or
into, or convey, transfer or lease all or
substantially all of its assets to the Company or
another Wholly Owned Subsidiary. (Section 8.1)
Upon any consolidation or merger or any sale,
assignment, transfer, lease or conveyance or other
disposition of all or substantially all of the
assets of the Company in accordance with the
foregoing, in which the Company is not the
continuing corporation, the successor corporation
formed by such a consolidation or into which the
Company is merged or to which such transfer is made,
shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under
the New Indenture with the same effect as if such
successor corporation had been named as the Company
therein. (Section 8.2)
G. Events of Default
The following will be "Events of Default" under
the New Indenture:
(a) the Company defaults in the payment of
interest on any New Note when the same becomes
due and payable and such default continues for
a period of 30 days, whether or not such
payment shall be prohibited by the
subordination provisions of the New Indenture;
or
(b) the Company defaults in the payment of the
principal of (or premium, if any, on) any New
Note at its Maturity, whether or not such
payment shall be prohibited by the
subordination provisions of the New Indenture;
or
(c) the Company defaults in the performance
of, or breaches, any covenant or warranty of
the Company under the New Indenture (other than
a default specified in clause (a) or (b) above
or clause (g) below), and continuance of such
default or breach for a period of 30 days after
a written notice specifying such default or
breach and stating that such notice is a
"Notice of Default" under the New Indenture has
been given, by registered or certified mail, to
(x) the Company by the New Trustee or (y) to
the Company and the New Trustee by the holders
of at least 25% in principal amount of the
Outstanding New Notes; or
(d) an event of default as defined in any
mortgage, bond, indenture, loan agreement or
other evidence of Indebtedness under which the
Company or any Subsidiary then has outstanding
Indebtedness in excess of $5 million in the
aggregate, shall occur and such default (i) is
caused by a failure to pay principal of or
premium, if any, or interest on such
Indebtedness within the applicable grace
period, if any, of such Indebtedness or (ii)
results in such Indebtedness becoming or being
declared due and payable prior to the date on
which it would otherwise become due and payable
(if not already matured at its final maturity
in accordance with its terms); or
(e) final judgments or orders are rendered
against the Company, the Guarantor or any
Subsidiary which require the payment in money,
either individually or in an aggregate amount,
that is more than $5 million and such judgment
or order shall not have been discharged or
fully bonded, and there shall have been a
period of 60 days after the date on which any
period for appeal has expired and during which
a stay of enforcement of such judgment, order
or decree shall not be in effect; or
(f) certain events of bankruptcy, insolvency
or reorganization with respect to the Company
or any Subsidiary shall have occurred; or
(g) a default in the performance or breach of
any of the provisions of the New Indenture
relating to consolidation, merger, conveyance,
transfer or lease.
If an Event of Default (other than an Event of
Default specified in clause (f) above) occurs and is
continuing, the New Trustee or the holders of at
least 25% of the principal amount of the New Notes
then Outstanding, by written notice to the Company
(and to the New Trustee if such notice is given by
the holders), may, and the New Trustee at the
request of such holders shall, declare all unpaid
principal of, premium, if any, and accrued interest
on all the New Notes to be due and payable
immediately, and upon any such declaration such
principal, premium and accrued interest shall become
immediately due and payable. If an Event of Default
specified in clause (f) above occurs and is
continuing, then the principal of, premium, if any,
on and accrued and unpaid interest, if any, on all
of the Outstanding New Notes and all other amounts
owing under the New Indenture shall ipso facto
become and be immediately due and payable without
any declaration or other act on the part of the New
Trustee or any holder. (Section 5.2)
At any time after a declaration of acceleration has
been made, but before a judgment or decree for
payment of the money due has been obtained by the
New Trustee, the holders of a majority in aggregate
principal amount of the Outstanding New Notes, by
written notice to the Company and the New Trustee,
may rescind and annul such declaration and its
consequences if (a) the Company has paid or
deposited with the New Trustee a sum sufficient to
pay (i) all sums paid or advanced by the New Trustee
under this New Indenture and the reasonable
compensation, expenses, disbursements and advances
of the New Trustee, its agents and counsel, (ii) all
overdue interest on all New Notes, (iii) all unpaid
principal of and premium, if any, on any Outstanding
New Notes which have become due otherwise than by
such declaration of acceleration and interest
thereon at the Default Rate, and (iv) to the extent
that payment of such interest is lawful, interest
upon overdue interest at the rate provided in the
New Notes; (b) all Events of Default, other than the
non-payment of principal of the New Notes which have
become due solely by the declaration of
acceleration, have been cured or waived; and c the
rescission would not conflict with any judgment or
decree of a court of competent jurisdiction.
(Section 5.2)
Notwithstanding the preceding paragraph, in the
event a declaration of acceleration in respect of
the New Notes because of an Event of Default
specified in clause (d) above shall have occurred
and be continuing, such declaration of acceleration
shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has
been discharged or the holders thereof have
rescinded their declaration of acceleration in
respect of such Indebtedness, and written notice of
such discharge or rescission, as the case may be,
shall have been given to the New Trustee by the
Company and countersigned by the holders of such
Indebtedness or a trustee, fiduciary or agent for
such holders, within 30 days after such declaration
of acceleration in respect of the New Notes, and no
other Event of Default shall have occurred during
such 30-day period which has not been cured or
waived during such period.
The holders of not less than a majority in principal
amount of the Outstanding New Notes may on behalf of
the holders of all the New Notes waive any past
Default or Event of Default under the New Indenture
and its consequences, except a Default or Event of
Default in respect of the payment of the principal
of, premium, if any, or interest on any New Note at
its maturity, or in respect of a covenant or
provision which under the New Indenture cannot be
modified or amended without the consent of the
holder of each Outstanding New Note affected
thereby. (Section 5.13)
No holder of any of the New Notes has any right to
institute any proceeding with respect to the New
Indenture or any remedy under the New Indenture,
unless such holder has previously given written
notice to the New Trustee of a continuing Event of
Default, the holders of not less than 25% in
principal amount of the Outstanding New Notes have
made written request, and offered reasonable
indemnity, to the New Trustee to institute such
proceeding and the New Trustee, within 60 days after
receipt of such notice, has failed to institute any
such proceeding and has not received directions
inconsistent with such written request by holders of
a majority in aggregate principal amount of the
Outstanding New Notes during such 60-day period.
Such limitations do not apply, however, to a suit
instituted by a holder of a New Note for the
enforcement of the payment of the principal of,
premium, if any, or interest on, such New Note on or
after the respective due dates expressed in such New
Note. (Sections 5.7 and 5.8)
Subject to the provisions of the New Indenture
relating to the duties of the New Trustee, whether
or not an Event of Default shall occur and be
continuing, the New Trustee under the New Indenture
is not under any obligation to exercise any of its
rights or powers under the New Indenture at the
request or direction of any of the holders of the
New Notes, unless such holders shall have offered to
the New Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights
of the New Trustee, the holders of a majority in
principal amount of the outstanding New Notes have
the right to direct the time, method and place of
conducting any proceeding for any remedy available
to the New Trustee, or exercising any trust or power
conferred on the New Trustee under the New
Indenture. (Sections 6.2 and 5.12)
Within 30 days after the occurrence of any Default
that is known to the New Trustee, the New Trustee
shall transmit by mail to all holders, as their
names and addresses appear in the security register,
notice of such Default, unless such Default shall
have been cured or waived; provided, however, that,
except in the case of a default in the payment of
the principal of (or premium, if any) or interest on
any New Notes, the New Trustee shall be protected in
withholding such notice if and so long as the board
of directors, the executive committee or a trust
committee of directors and/or responsible officers
of the New Trustee in good faith determines that the
withholding of such notice is in the interest of the
holders. (Section 6.1)
The Company is required to furnish to the New
Trustee an annual statement as to the performance by
the Company of its obligations under the New
Indenture and as to any default in such performance.
The Company is also required to deliver to the New
Trustee as soon as possible following an officer of
the Company becoming aware of a Default or Event of
Default, an officers' certificate specifying such
Default or Event of Default and what action the
Company is taking or proposes to take with respect
thereto. (Section 10.17)
H. Defeasance or Covenant Defeasance of New Indenture
The Company may, at its option by resolution of its
Board of Directors, at any time, terminate the
obligations of the Company and any Guarantor with
respect to all outstanding New Notes (hereinafter
"defeasance"), on the date the conditions set forth
in the next paragraph are satisfied. Such
defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness
represented by the Outstanding New Notes, and to
have satisfied all its obligations under such New
Notes and the New Indenture, except for the
following which will survive until otherwise
terminated or discharged under the New Indenture:
(i) the rights of holders of Outstanding New Notes
to receive payment in respect of the principal of,
premium, if any, and interest on such New Notes when
such payments are due, (ii) the Company's
obligations to issue temporary New Notes, register
the transfer or exchange of any New Notes, replace
mutilated, destroyed, lost or stolen New Notes,
maintain an office or agency for receipt of payments
in respect of the New Notes, and the Company's
obligation to segregate and hold in trust money for
the payment of principal, premium, if any or
interest, (iii) the rights, powers, trusts, duties
and immunities of the New Trustee, and (iv) the
defeasance provisions of the New Indenture. In
addition, the Company may, at its option and at any
time, elect to terminate its obligations with
respect to certain covenants that are set forth in
the New Indenture, some of which are described under
"-- Certain Covenants" above, on and after the date
the conditions set forth in the next paragraph are
satisfied and any subsequent failure to comply with
such obligations shall not constitute a Default or
an Event of Default with respect to the New Notes
(hereinafter, "covenant defeasance"). Such covenant
defeasance means that, with respect to the
Outstanding New Notes, the Company and any Guarantor
may omit to comply with and shall have no liability
in respect of any term, condition or limitation set
forth in any such covenant, whether directly or
indirectly, by reason of any reference in the New
Indenture to any such covenant or by reason of any
reference in any such covenant to any other
provision in the New Indenture or in any other
document and such omission to comply shall not
constitute Defaults or Events of Defaults under
paragraphs (c) or (f) of"-- Events of Default" above,
but, except as specified above, the remainder of the
New Indenture and the New Notes shall be unaffected.
(Sections 13.1, 13.2 and 13.3)
In order to exercise either defeasance or covenant
defeasance, (i) the Company shall irrevocably
deposit or cause to be deposited with the New
Trustee, as trust funds in trust for the benefit of
the holders of the New Notes, cash in United States
dollars, U.S. Government Obligations (as defined in
the New Indenture), or a combination thereof, in
such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent
public accountants, to pay and discharge the
principal of, premium, if any, and interest on the
outstanding New Notes to redemption or maturity
(except lost, stolen or destroyed New Notes which
have been replaced or repaid) (provided that before
such a deposit, the Company may give the New Trustee
a notice of its election to redeem all of the
Outstanding New Notes at a future date in accordance
with the redemption provisions of the New Indenture,
which notice shall be irrevocable), (ii) the Company
shall have delivered to the New Trustee an opinion
of counsel to the effect that (x) the Company has
received from, or there has been published by, the
Internal Revenue Service a ruling or (y) since the
date of the New Indenture there has been a change in
the applicable federal income tax law, in either
case to the effect that, and based thereon such
opinion shall confirm that the holders of the
outstanding New Notes will not recognize income,
gain or loss for federal income tax purposes as a
result of such defeasance or covenant defeasance and
will be subject to federal income tax on the same
amounts, in the same manner and at the same times as
would have been the case if such defeasance or
covenant defeasance had not occurred, (iii) no
Default or Event of Default shall have occurred and
be continuing on the date of such deposit, (iv) such
defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default
under, the New Indenture or any material agreement
or instrument to which the Company is a party or by
which the Company is bound, (v) the Company shall
have delivered to the New Trustee an opinion of
counsel to the effect that (x) the irrevocable
deposit of the trust funds with the New Trustee, as
described in clause (i) above, will not constitute a
transfer of property of the Company or such other
depositor voidable as a fraudulent transfer or
conveyance under Sections 544(b) and 548 of the
Bankruptcy Code, or any successor to such Sections,
or under Sections 273, 274, 275 and 276 of the New
York Debtor and Creditor Law or any successor to
such Sections; (y) the irrevocable deposit of the
trust funds with the New Trustee, as described in
clause (i) above, will not constitute a transfer of
property of the Company or such other depositor
voidable as a preference under Section 547 of the
Bankruptcy Code, or any successor to such Section,
in the event that after the passage of a period 93
days following such deposit a voluntary or
involuntary case under the Bankruptcy Code is
commenced by or against the Company or such other
depositor; and (z) for so long as the trust funds
are held in trust by the New Trustee, as described
in clause (i) above, for the benefit of the holders,
the trust funds will not be considered assets of the
Company or such other depositor which may be used to
satisfy claims of creditors of the Company or such
other depositor in the event that a voluntary or
involuntary case under the Bankruptcy Code is
commenced by or against the Company or such other
depositor after the passage of a period of 93 days
following the irrevocable deposit by the Company or
such other depositor of the trust funds with the New
Trustee, (vi) the Company shall have delivered to
the New Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions
precedent under the New Indenture to either
defeasance or covenant defeasance, as the case may
be, have been complied with and (vii) if the Credit
Agreement is in effect, the Company shall have
delivered to the New Trustee any required consent of
the lenders under the Credit Agreement to such
defeasance or covenant defeasance, as the case may
be. (Section 13.4)
I. Satisfaction and Discharge
The New Indenture will be discharged and will cease
to be of further effect (except as to surviving
rights of registration of transfer or exchange of
the New Notes, as expressly provided for in the New
Indenture) as to all outstanding New Notes when (i)
either (a) all the New Notes theretofore
authenticated and delivered (except (x) lost, stolen
or destroyed New Notes which have been replaced or
paid and (y) New Notes for which payment money has
theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust)
have been delivered to the New Trustee for
cancellation or (b) all New Notes not theretofore
delivered (except lost, stolen or destroyed New
Notes which have been replaced or repaid) to the New
Trustee for cancellation (x) have become due and
payable or (y) will become due and payable at their
Stated Maturity within one year or (z) are to be
called for redemption within one year under
arrangements satisfactory to the New Trustee for the
giving of notice of redemption by the New Trustee in
the name, and at the expense of the Company, and the
Company has, in the case of (x), (y) or (z),
irrevocably deposited or caused to be deposited with
the New Trustee as trust funds in trust for the
purpose an amount sufficient to pay and discharge
the entire Indebtedness on such New Notes (except
lost, stolen or destroyed New Notes which have been
replaced or repaid) not theretofore delivered to the
New Trustee for cancellation, for principal of,
premium, if any, and interest on the New Notes to
the date of deposit together with irrevocable
instructions from the Company directing the New
Trustee to apply such funds to the payment thereof
at maturity or redemption, as the case may be, (ii)
the Company has paid all other sums payable under
the New Indenture by the Company, and (iii) the
Company has delivered to the New Trustee an
officers' certificate and an opinion of counsel
stating that all conditions precedent under the New
Indenture relating to the satisfaction and discharge
of the New Indenture have been complied with.
(Section 4.1)
J. Amendments and Waivers
The Company, when authorized by a resolution of its
Board of Directors, and the New Trustee, at any time
and from time to time, may, without the consent of
the holders of any Outstanding New Notes, enter into
one or more indentures supplemental to the New
Indenture for certain specified purposes, including,
among other things, (i) curing ambiguities, defects
or inconsistencies, (ii) qualifying, or maintaining
the qualification of, the New Indenture under the
Trust Indenture Act of 1939, (iii) adding any
Subsidiary of the Company as a Guarantor or (iv)
making any other change that does not adversely
affect the rights of any holder. Other amendments
and modifications of the New Indenture for the
purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of
the New Indenture or of waiving or modifying in any
manner the rights of the holders under the New
Indenture may be made by the Company, when
authorized by a resolution of its Board of
Directors, and the New Trustee with the consent of
the holders of not less than a majority of the
aggregate principal amount of the Outstanding New
Notes; provided, however, that no such supplemental
indenture, amendment or waiver may, without the
consent of the holder of each Outstanding New Note
affected thereby, (i) change the stated maturity of
the principal of, or any installment of interest on,
any New Note or reduce the principal amount thereof
or the rate of interest thereon or any premium
payable upon the redemption thereof, or change the
coin or currency in which the principal of any New
Note or any premium or the interest thereon is
payable, or impair the right to institute suit for
the enforcement of any such payment after the stated
maturity thereof (or, in the case of redemption, on
or after the redemption date) or modify the
obligation of the Company to purchase New Notes upon
a Change of Control; (ii) reduce the percentage in
principal amount of the Outstanding New Notes, the
consent of whose holders is required for any such
supplemental indenture or the consent of whose
holders is required for any waiver of compliance
with certain provisions of the New Indenture or
certain defaults under the New Indenture and their
consequences provided for in the New Indenture;
(iii) modify any of the provisions of the New
Indenture sections relating to (x) supplemental
indentures with the consent of holders, (y) the
waiver of past defaults, or (z) the waiver of
certain covenants, except to increase any such
percentage or to provide that certain other
provisions of the New Indenture cannot be modified
or waived without the consent of the holder of each
New Note affected thereby; or (iv) modify any of the
provisions of the New Indenture with respect to
subordination in a manner adverse to the holders of
the New Notes. (Sections 9.1 and 9.2)
K. Governing Law
The New Indenture, the New Notes and any Guarantee
will be governed by the laws of the State of New
York, without regard to the principles of conflicts
of law. (Section 1.13)
L. The New Trustee
Fleet National Bank will be the New Trustee under
the New Indenture.
M. Certain Definitions
"Acquired Indebtedness" means Indebtedness of a
Person (i) existing at the time such Person becomes
a Subsidiary of any other Person (or is merged with
any other Person) or (ii) assumed in connection with
the acquisition of assets from a Person, other than
Indebtedness Incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary
of such other Person or such merger or acquisition,
as the case may be.
"Affiliate" means, with respect to any specified
Person, (i) any other Person directly or indirectly
controlling or controlled by or under direct or
indirect common control with such specified Person,
(ii) any spouse, immediate family member or other
relative who has the same principal residence of any
Person described in (i) above, (iii) any trust in
which any such Person described in clause or (i) or
(ii) above has a beneficial interest and (iv) any
corporation of which any such Person described in
clause (i), (ii) or (iii) above collectively owns
more than 50% of the equity of such entity. For
purposes of this definition, "beneficial ownership"
(as defined in Rule 13d-3 under the Exchange Act) of
10% or more of the Voting Stock of a Person shall be
deemed to be control of such Person.
"Average Life to Stated Maturity" means, as of the
date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i)
the sum of the products of (a) the number of years
from the date of determination to the date or dates
of each successive scheduled principal payment of
such Indebtedness multiplied by (b) the amount of
each such principal payment by (ii) the sum of all
such principal payments.
"AWG' means Associated Wholesale Grocers, Inc., a
Missouri corporation.
"AWG Equity' means all equity, deposits, credits,
sums and indebtedness of any kind or description
whatsoever, at any time owed by AWG to the Company
or at any time standing in the name of or to the
credit of the Company on the books and/or records of
AWG, including, without limitation, AWG Membership
Stock, members' deposit certificates, patronage
refund certificates, members' savings, direct
patronage or year-end patronage, concentrated
purchase allowance, quarterly payments and any other
amounts due from AWG to the Company under the AWG
Supply Agreement.
"AWG First Offer Rights" means (i) AWG's right of
first offer with respect to the stores owned or
operated by the Company listed on Exhibit B to the
AWG Supply Agreement and (ii) any public recordation
of such first offer rights, provided that any such
public recordation shall be terminable from time to
time as set forth in Section 7(f) of the AWG Supply
Agreement.
"AWG Liens" means (i) Liens on AWG Equity owned or
hereafter acquired by the Company to secure the
Company's obligations to AWG under the AWG Supply
Agreement and the AWG Membership Documents, (ii)
Liens consisting of the AWG Use Restrictions and
(iii) Liens consisting of the AWG First Offer
Rights.
"AWG Membership Documents" means (i) the Application
for Membership by Homeland Stores, Inc., between the
Company and AWG and (ii) the Stock Power of Attorney
granted to AWG by the Company with respect to the
AWG Membership Stock owned by the Company.
"AWG Membership Stock" means the Class A Common
Stock, par value $100 per share, of AWG.
"AWG Supply Agreement" means the Supply Agreement,
dated as of April 21, 1995, between the Company and
AWG, as such agreement may be amended, amended and
restated, supplemented or otherwise modified from
time to time.
"AWG Use Restrictions" means (i) the Company's
agreement under Sections 7(g) and 8(b) of the AWG
Supply Agreement to dedicate (to the extent of its
interest therein (including leasehold interests))
certain real property and the improvements thereon
to the exclusive use of a retail grocery facility
(including all activities which from time to time
are commonly associated with the operation of a
grocery facility) which is owned by a retail member
of AWG and (ii) any public recordation of such
agreement, provided that any such public recordation
shall be terminable from time to time as set forth
in Section 8(b) of the Supply Agreement.
"Capital Lease Obligation" of any Person means any
obligations of such Person and its Subsidiaries on a
consolidated basis under any capital lease that, in
accordance with GAAP, is required to be recorded as
a capitalized lease obligation; and for purposes of
the New Indenture, the amount of such obligations at
any date shall be the capitalized amount thereof at
such date, determined in accordance with GAAP.
"Capital Stock" of any Person means any and all
shares, interests, participations, or other
equivalents (however designated) of such Person_s
capital stock (including any Preferred Stock)
whether now outstanding or issued after the Issue
Date.
"Cash Equivalents" means (i) securities issued
directly or fully guaranteed or insured by the
United States government or any agency or
instrumentality thereof having maturities of not
more than six months from the date of acquisition,
(ii) certificates of deposit and Eurodollar time
deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight
bank deposits, in each case with any domestic
commercial bank having capital and surplus in excess
of $500 million and a Thomson Watch Rating of "B" or
better, (iii) repurchase obligations and reverse
repurchase obligations of the types described in
clauses (i) and (ii) entered into with any financial
institution meeting the qualifications specified in
clause (ii) above, in each case maturing within six
months from the date of acquisition and (iv)
commercial paper having the highest rating
obtainable from Moody's Investors Service, Inc. or
Standard & Poor's Corporation and in each case
maturing within six months after the date of
acquisition.
"Change of Control" means such time as:
(i) a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act) (other
than any Permitted Holders) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the 1934 Act; provided that a "person" or "group"
shall be deemed to be a "beneficial owner: for
purposes of this definition even if its right to
acquire beneficial ownership of Voting Stock arises
after a 60-day period) of more than fifty percent
(50%) of the total voting power of the then
outstanding Voting Stock of the Company or Holding;
(ii) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act) (other
than any Permitted Holders) has the ability to
designate a majority of the Board of Directors of
the Company or Holding; (iii) the Company or Holding
liquidates or dissolves or adopts a plan of
liquidation; (iv) Holding shall cease to own and
control, beneficially and of record, 100% of the
Capital Stock of the Company; (v) the Company or
Holding sells, assigns, transfers or otherwise
disposes of all or substantially all of its assets,
in one transaction or a series of related
transactions, to any Person other than a Wholly
Owned Subsidiary of the Company; (vi) during any 24
month period, individuals who at the beginning of
such period constituted the Board of Directors of
the Company or Holding (together with any new
directors whose election by such Board or whose
nomination for election by the stockholders of the
Company or Holding was approved by a vote of a
majority of the directors then still in office who
were either directors at the beginning of such
period or whose election or nomination for election
was previously so approved) ceases for any reason to
constitute a majority of the Board of Directors of
the Company or Holding then in office; provided,
however, that this clause (vi) shall not be
applicable if the continuing directors do not
constitute at least a majority of the Board of
Directors of the Company or Holding, as the case may
be, as a result of directors nominated by any
Permitted Holder constituting a majority of the
Board of Directors of the Company or Holding); or
(vii) the Company or Holding consolidates with or
merges with or into another Person pursuant to a
transaction in which the outstanding Voting Stock of
the Company or Holding is changed into or exchanged
for cash, Cash Equivalents, securities or other
property, other than any transaction in which (a) no
Redeemable Capital Stock is issued and (b) holders
of Voting Stock of the Company or Holding, as the
case may be, immediately prior to such transaction
"beneficially own" (as defined in Rule 13d-3 under
the 1934 Act) not less than 70% of the Voting Stock
of the surviving corporation of such merger or
consolidation outstanding immediately after such
transaction.
"Consolidated Depreciation and Amortization Expense"
means, with respect to any Person for any period for
which the determination thereof is to be made, the
aggregate depreciation and amortization expense
(including, without limitation, amortization of
goodwill, other intangibles, debt discount and debt
issue costs) reducing Consolidated Net Income of
such Person and its Subsidiaries for such period,
determined on a consolidated basis in accordance
with GAAP.
"Consolidated EBITDA" means, with respect to any
Person for any period for which the determination
thereof is to be made, the sum (without duplication)
for such period of (i) Consolidated Net Income plus,
to the extent deducted in determining Consolidated
Net Income, each of (ii) Consolidated Income Tax
Expense, (iii) Consolidated Depreciation and
Amortization Expense, (iv) Consolidated Fixed
Charges, (v) Consolidated Post Retirement Benefits
Other Than Pensions and (vi) non-cash extraordinary
charges.
"Consolidated Fixed Charges" means, with respect to
any Person for any period for which the
determination thereof is to be made, the sum
(without duplication) of (i) the aggregate amount of
interest, whether expensed or capitalized, paid,
accrued or scheduled to be paid or accrued during
such period (including, without limitation, any non-
cash interest payments or accruals, the interest
portion of Capital Lease Obligations, all
amortization of original issue discount, net cash
costs pursuant to Interest Swap Obligations and
Currency Agreements (including amortization of fees)
and the interest component of any deferred payment
obligation) of such Person and its Subsidiaries,
determined on a consolidated basis in accordance
with GAAP, and (ii) dividends required to be made in
respect of Preferred Stock and Redeemable Capital
Stock.
"Consolidated Income Tax Expense" means, with
respect to any Person for any period for which the
determination thereof is to be made, the aggregate
of the income tax expense of such Person and its
Subsidiaries, for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Coverage Ratio" with respect
to any period for which the determination thereof is
to be made means the ratio of (i) the aggregate of
Consolidated EBITDA for such period (taken as one
accounting period) to (ii) the aggregate of
Consolidated Fixed Charges; provided that (x) in
making such computation, the Consolidated Fixed
Charges attributable to interest on any Indebtedness
computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the
rate in effect on the date of computation had been
the applicable rate for the entire period and (B)
bearing, at the option of the obligor thereon, a
fixed or floating rate of interest, shall be
computed by applying, at the option of the Company,
either the fixed or floating rate and (y) there
shall be excluded from the determination of
Consolidated Fixed Charges any dividends required to
be made in respect of Preferred Stock or Redeemable
Capital Stock of the Company or of a Wholly Owned
Subsidiary of the Company for the applicable period.
"Consolidated Net Income" means, with respect to any
Person for any period for which the determination
thereof is to be made, the consolidated net income
(or loss) of such Person and its Subsidiaries for
such period as determined in accordance with GAAP,
adjusted, to the extent included in calculating such
net income (or loss), by excluding (i) the non-
recurring cumulative effect of accounting changes,
(ii) the portion of net income (or loss) of such
Person and its Subsidiaries allocable to minority
interests in unconsolidated Persons to the extent
that cash dividends or distributions have not
actually been received by such Person or one of its
Subsidiaries, (iii) net income (or loss) of any
Person combined with such Person or any of its
Subsidiaries in a "pooling of interests" basis
attributable to any period prior to the date of
combination, and (iv) the net income of any
Subsidiary to the extent that the declaration of
dividends or similar distributions by that
Subsidiary of that income is subject to a Payment
Restriction.
"Consolidated Net Worth" means, with respect to any
Person as of any date, the sum of (i) the
consolidated equity of the common stockholders of
such Person and its consolidated Subsidiaries as of
such date plus (ii) the respective amounts reported
on such Person's balance sheet as of such date with
respect to any series of Preferred Stock (other than
Redeemable Capital Stock) that by its terms is not
entitled to the payment of dividends unless such
dividends may be declared and paid only out of net
earnings in respect of the year of such declaration
and payment, but only to the extent of any cash
received by such Person upon issuance of such
Preferred Stock, less (x) all write-ups (other than
write-ups of tangible assets of a going concern
business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in
the book value of any asset owned by such Person or
a consolidated Subsidiary of such Person, (y) all
Investments as of such date in unconsolidated
Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of
such date, all of the foregoing determined in
accordance with GAAP.
"Consolidated Post Retirement Benefits Other Than
Pensions" means the noncash portion of retirement
benefits other than pensions as defined in FASB
Statements 88, 106 and 112, determined in accordance
with GAAP.
"Credit Agreement" means (i) the New Credit
Agreement, together with all amendments, documents
and instruments from time to time delivered in
connection with the New Credit Agreement (including,
without limitation, any guaranty agreements and
security documents), as in effect on the date of the
New Indenture and, subject to the proviso to the
next succeeding sentence, as the New Credit
Agreement and such other agreements, documents and
instruments may be further amended, amended and
restated, renewed, extended, restructured,
supplemented or otherwise modified from time to
time, and (ii) any credit agreement, loan agreement,
note purchase agreement, indenture or other
agreement, document or instrument refinancing,
refunding or otherwise replacing the New Credit
Agreement or any other agreement deemed a Credit
Agreement under clause (i) or (ii) hereof, whether
or not with the same agent, trustee, representative,
lenders or holders, and, subject to the proviso to
the next succeeding sentence, irrespective of any
changes in the terms and conditions thereof.
Without limiting the generality of the foregoing,
the term "Credit Agreement" shall include any
amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification
to any Credit Agreement, including any agreement (x)
extending the maturity of any Indebtedness incurred
thereunder or contemplated thereby, (y) adding or
deleting borrowers or guarantors thereunder, so long
as borrowers and issuers include only the Company
and its Subsidiaries and their respective successors
and assigns or (z) increasing the amount of
Indebtedness incurred thereunder or available to be
borrowed thereunder, provided that on the date
thereof such Indebtedness would be Permitted
Indebtedness under clause (i) or (viii) of the
definition of Permitted Indebtedness.
"Currency Agreement" means any foreign exchange
contract, currency swap agreement or other similar
agreement or arrangement designed to protect the
Company or any Subsidiary against fluctuations in
currency values.
"Default" means any event that is, or after notice
or passage of time or both would be, an Event of
Default.
"Default Ratez' means a rate of interest per annum
equal to the rate per annum of interest provided in
the New Notes plus 200 basis points.
"Event of Default" means the events described above
under "-- Events of Default."
"Fair Market Value" means, with respect to any asset
or property, the sale value that would be obtained
in an arm's length transaction between an informed
and willing seller under no compulsion to sell and
an informed and willing buyer under no compulsion to
buy. "Fair Market Value" shall be determined by the
Board of Directors of the Company acting in good
faith and shall be evidenced by a duly and properly
adopted resolution of the Board of Directors set
forth in an officers' certificate delivered to the
New Trustee.
"GAAP" means generally accepted accounting
principles set forth in the opinions and
pronouncements of the Accounting Principles Board of
the American Institute of Certified Public
Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such
other statements by such other entity as have been
approved by a significant segment of the accounting
profession, which are in effect as of the Issue
Date.
"Guarantee" means, collectively, the Parent
Guarantee and any Subsidiary Guarantee.
"Guarantor" means, collectively, (i) Holding, (ii)
any Subsidiary Guarantor and (iii) any successor or
assign of a Guarantor.
"Guaranty" means, as applied to any obligation or
liability, (i) a guaranty (other than by endorsement
of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in
any manner, of any part or all of such obligation,
liability or Indebtedness of another Person and (ii)
an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to
assure in any way the payment or performance (or
payment of damages in the event of nonperformance)
of any part or all of such obligation, liability or
Indebtedness of another Person, including, without
limiting the foregoing, the payment of amounts drawn
down by letters of credit, and the terms
"guarantees" and "guaranteed" shall have correlative
meanings. Notwithstanding anything herein to the
contrary, a guaranty shall not include any agreement
solely because such agreement creates a Lien on the
assets of any person.
"Incur" means, with respect to any Indebtedness or
other obligation of any Person, to create, issue,
incur (by conversion, exchange or otherwise),
assume, guaranty (including the guaranty of
Indebtedness of a Subsidiary or other Affiliate of
such Person) or otherwise become liable in respect
of such Indebtedness or other obligation or the
recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and
"Incurring" shall have meanings correlative to the
foregoing); provided that the accrual of interest
(whether such interest is payable in cash or in
kind) and the accretion of original issue discount
shall not be deemed an Incurrence of Indebtedness;
provided, further that (a) any Indebtedness or
Redeemable Capital Stock of a Person existing at the
time such Person becomes (after the date of the New
Indenture) a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) of the
Company shall be deemed to be Incurred for purposes
of the New Indenture covenant with respect to
limitations on indebtedness (see "-- Certain
Covenants" above) by such Subsidiary at the time it
becomes a Subsidiary of the Company and (b) any
amendment, modification or waiver of any document
pursuant to which Indebtedness was previously
incurred shall be deemed to be an Incurrence of
Indebtedness unless such amendment, modification or
waiver does not (i) increase the principal or
premium thereof or interest rate thereon (including
by way of original issue discount), (ii) change to
an earlier date the stated maturity thereof or the
date of any scheduled or required principal payment
thereon or the time or circumstances under which
such Indebtedness may or shall be redeemed or the
Average Life to Stated Maturity thereof, (iii) if
such Indebtedness is subordinated to the Securities,
modify or affect, in any manner adverse to the
holders, such subordination, (iv) if the Company is
the obligor thereon, provide that a Subsidiary of
the Company not already an obligor thereon shall be
an obligor thereon or (v) violate, or cause the
Indebtedness to violate, the provisions of the New
Indenture covenant with respect to limitation on
dividends and other payment restrictions affecting
Subsidiaries, as described above under"-- Certain
Covenants."
"Indebtedness" means, with respect to any Person,
without duplication, (i) all liabilities, contingent
or otherwise, of such Person (a) for borrowed money
(whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a
portion thereof), (b) evidenced by bonds, notes,
debentures or similar instruments or representing
the balance deferred and unpaid of the purchase
price of any property or (c) for the payment of money
relating to a Capital Lease Obligation; (ii)
obligations of such Person in respect of letters of
credit (including reimbursement obligations with
respect thereto); (iii) Interest Swap Obligations of
such Person or obligations of such Person with
respect to the Currency Agreements; (iv) all
liabilities of others of the kind described in the
preceding clause (i), (ii), (iii) that (a) such
Person has guaranteed, (b) have been Incurred by a
partnership in which it is a general partner (to the
extent such Person is liable, contingently or
otherwise therefor) or c are otherwise its legal
liability (other than endorsements for collection in
the ordinary course of business); and (v) all
obligations of others secured by a Lien to which any
of the properties or assets (including, without
limitation, leasehold interests and any other
tangible or intangible property rights) of such
Person are subject, whether or not the obligations
secured thereby shall have been assumed by such
Person or shall otherwise be such Persons_s legal
liability; provided, however, that notwithstanding
anything in the forgoing that may be deemed to be to
the contrary, Indebtedness shall not include (i) any
Trade Payables and any other accrued current
liabilities Incurred in the ordinary course of
business as the deferred purchase price of property
acquired in the ordinary course of business; (ii)
liabilities arising from guarantees to suppliers,
lessors, contractors, franchisees or customers
Incurred in the ordinary course of business
(exclusive of obligations for the payment of money
borrowed); and (iii) liabilities from the draft or
similar instrument drawn against insufficient funds
in the ordinary course of business; provided that
such liabilities are extinguished within five
Business Days of their Incurrence and (iv)
prepayments of, or loans and advances with respect
to, any receivables owing to the Company or any
Subsidiary under the AWG Supply Agreement. The
amount of Indebtedness of any Person at any date
shall be, without duplication, (i) the outstanding
balance at such date of all unconditional
obligations as described above and the maximum
liability of any such contingent obligations at such
date and (ii) in the case of Indebtedness of others
secured by a Lien to which the property or assets
owned or held by such Person is subject but which is
otherwise nonrecourse to such Person, the lesser of
the Fair Market Value at such date of any assets
subject to a Lien securing the Indebtedness of
others and the amount of the Indebtedness secured.
"Interest Swap Obligations" means the obligations of
any Person pursuant to any arrangement with any
other Person whereby, directly or indirectly, such
person is entitled to receive from time to time
periodic payments calculated by applying either a
fixed or floating rate of interest on a stated
notional amount in exchange for periodic payments
made by such Person calculated by applying a fixed
or floating rate of interest on the same notional
amount and shall include any interest rate
protection agreement, interest rate future, interest
rate option or other interest rate hedge
arrangement.
"Investment" means, directly or indirectly, (i) any
advance, loan or other extension of credit or
capital contribution to (by means of any transfer of
cash or other property to others or any payment for
property or services for the account or use of
others), (ii) any purchase or acquisition by such
Person of any stock, bonds, notes, debentures or
other debt or equity interests or other securities
issued or owned by any other Person or (iii) any
purchase or acquisition by such Person of any group
of assets constituting a business. Investments
shall not include extensions of trade credit on
commercially reasonable terms in accordance with
normal trade practices of the Company and its
Subsidiaries.
"Lien" means any mortgage, charge, pledge, lien,
privilege, security interest or encumbrance of any
kind (including any conditional sale or other title
retention agreement).
"Material Adverse Effect" means, with respect to the
Company, any circumstance, change, event,
transaction, loss, failure or other occurrence of a
business, economic, financial or other operational
nature, any development involving compensation of or
relations with employees and any determination in
any litigation, arbitration or governmental
investigation or proceeding, having, in any such
case, a material adverse effect on (a) the business,
assets, properties, revenues, financial condition or
operations of the Company and its Subsidiaries,
taken as a whole, or (b) the ability of the Company
to perform any of its obligations under the New
Indenture.
"Net Cash Proceeds" means, with respect to any Asset
Sale, the proceeds in the form of cash or Cash
Equivalents (including payments in respect of
deferred payment obligations when received in the
form of cash or Cash Equivalents) received by the
Company or any of its Subsidiaries from such Asset
Sale, net of (i) reasonable out-of-pocket expenses
and fees (including, without limitation, brokerage
commissions and fees and expenses of legal counsel
and investment bankers) relating to such Asset Sale,
(ii) taxes paid or payable as a result of such Asset
Sale (including, without limitation, income taxes
reasonably estimated to be actually payable as a
result of any disposition of property within two
years of the date of such disposition and after
taking into account any reduction in tax liability
due to available tax credits or deductions and any
tax sharing arrangements), (iii) repayment of
Indebtedness that is required to be repaid in
connection with such Asset Sale and (iv) appropriate
amounts to be provided by the Company or any
Subsidiary of the Company, as the case may be, as a
reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and
retained by the Company or any Subsidiary of the
Company, as the case may be, after such Asset Sale,
including, without limitation, pension and other
post-employment benefit liabilities, liabilities
related to environmental matters and liabilities
under any indemnification obligations associated
with such Asset Sale, all as reflected in an
Officers_ Certificate delivered to the New Trustee;
provided, however, that the amount of any such
reserve shall constitute Net Cash Proceeds if and
when it no longer is required to be maintained in
accordance with GAAP but only to the extent that the
amount originally reserved was not utilized for its
specified purpose.
"New Credit Agreement means the Credit Agreement,
dated as of the Effective Date, among the Company,
Holding, as guarantor, and the lenders and agent
named therein.
"Obligations" means any principal, interest
(including, without limitation, any interest
accruing subsequent to an event specified under
clause (f) above under"-- Events of Default,"
whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case
under the Bankruptcy Code), penalties, fees,
expenses and other monetary liabilities payable
under the New Notes or the New Indenture.
"Other Permitted Liens" means (i) Liens for taxes,
assessments, governmental charges or claims which
are not yet delinquent or which are being contested
in good faith by appropriate proceedings, which
proceedings have the effect of preventing the
forfeiture or sale of the property or assets subject
to such Lien, and for which a reserve or other
appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii)
statutory Liens of landlords, vendors and laborers
and carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's, or other
like Liens arising in the ordinary course of
business and with respect to amounts which are not
yet delinquent or which are being contested in good
faith by appropriate proceedings, which proceedings
have the effect of preventing the forfeiture or sale
of the property or assets subject to such Lien, and
for which a reserve or other appropriate provision,
if any, as shall be required by GAAP shall have been
made; (iii) Liens Incurred or deposits made in the
ordinary course of business in connection with
workers_ compensation, unemployment insurance and
other types of social security or other insurance-
related obligations (including, without limitation,
in respect of deductibles, self-insured retention
amounts and premiums and adjustments thereto); (iv)
Liens Incurred or deposits made to secure the
performance of tenders, bids, leases, public or
statutory obligations, surety and appeal bonds,
government contracts, progress payments, performance
and return-of-money bonds and other obligations of a
like nature Incurred in the ordinary course of
business (exclusive of obligations for the payment
of borrowed money); (v) zoning restrictions,
licenses, covenants, reservations, easements, rights-
of-way, restrictions, minor defects or
irregularities in title (and with respect to
leasehold interests, mortgages, obligations, liens
and other encumbrances Incurred or permitted to
exist and arising by, through or under a landlord or
owner of the leased property, with or without
consent of the lessee) and other similar charges or
encumbrances not interfering in any material respect
with the business of the Company or any Subsidiary
Incurred in the ordinary course of business; and
(vi) Liens Incurred in the ordinary course of
business securing reimbursement obligations with
respect to commercial letters of credit permitted
under the New Indenture which encumber documents and
other property relating to such letters of credit or
products and proceeds thereof.
"Outstanding" when used with respect to the New
Notes means, as of the date of determination, all
New Notes theretofore authenticated and delivered
under the New Indenture, except:(i) New Notes
theretofore canceled by the New Trustee or delivered
to the New Trustee for cancellation; New Notes, or
portions thereof, for whose payment, redemption or
purchase money in the necessary amount has been
theretofore deposited with the New Trustee or any
Paying Agent (other than the Company) in trust or
set aside and segregated in trust by the Company (if
the Company shall act as its own Paying Agent) for
the holders of such New Notes, and the New Trustee
or such Paying Agent is not prohibited from paying
such money to the holders on that date pursuant to
the terms of the subordination provisions of the New
Indenture (see "-- Subordination" above; provided
that, if such New Notes are to be redeemed, notice
of such redemption has been duly given pursuant to
the New Indenture or provision therefor satisfactory
to the New Trustee has been made; New Notes, except
to the extent provided in the defeasance provisions
of the New Indenture, with respect to which the
Company has effected defeasance as provided in the
defeasance provisions of the New Indenture; and New
Notes in exchange for or in lieu of which other New
Notes have been authenticated and delivered pursuant
to the New Indenture, other than any such New Notes
in respect of which there shall have been presented
to the New Trustee proof satisfactory to it that
such New Notes are held by a bona fide purchaser in
whose hands the New Notes are valid obligations of
the Company; provided, however, that, in determining
whether the holders of the requisite principal
amount of Outstanding New Notes have given any
request, demand, direction, consent or waiver under
the New Indenture, New Notes owned by the Company,
any Guarantor, or any other obligor upon the New
Notes, or any Affiliate of the Company or such other
obligor, shall be disregarded and deemed not to be
outstanding, except that, in determining whether the
New Trustee shall be protected in relying upon any
such request, demand, direction, consent or waiver,
only New Notes which the New Trustee knows to be so
owned shall be so disregarded. New Notes so owned
which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes
to the satisfaction of the New Trustee the pledgee's
right so to act with respect to such New Notes and
that the pledgee is not the Company, any Guarantor,
or any other obligor upon the New Notes or any
Affiliate of the Company or such other obligor.
"Parent Guarantee" means the Guarantee of Holding
incorporated in the guarantee provisions of the New
Indenture and made a part of the New Notes.
"Payment Restriction" means with respect to a
Subsidiary of any Person, any encumbrance,
restriction or limitation, whether by operation of
the terms of its charter or by reason of any
agreement, instrument, judgment, decree or order, on
the ability of (i) such Subsidiary to (a) pay
dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability
or Indebtedness owed to such Person or any other
Subsidiary of such Person, (b) make loans or
advances to such Person or any other Subsidiary of
such Person, or c transfer any of its properties or
assets to such Person or any other Subsidiary of
such Person, or (ii) such Person or any other
Subsidiary of such Person to receive or retain any
such (a) dividends, distributions or payments, (b)
loans or advances, or c transfer of properties or
assets.
"Permitted Holder" means any "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2)
of the 1934 Act) that "beneficially owns" (as
defined in Rule 13d-3 under the 1934 Act, provided
that a "person" or "group" shall be deemed to be a
"beneficial owner" for purposes of this definition
even if its right to acquire beneficial ownership of
Voting Stock arises after a 60-day period) more than
five percent (5%) of the Voting Stock of Holding as
of the Issue Date. Notwithstanding the foregoing,
"Permitted Holder" shall not include any Person who,
together with its Affiliates, "beneficially owns"
more than 50% of the Voting Stock of the Company or
Holding as of any date after the Issue Date,
excluding from the calculation of such Person's
"beneficial ownership" any Voting Stock that such
Person and its Affiliates would be deemed to
"beneficially own" solely by reason of its (or
their) membership in a 'group."
"Permitted Indebtedness" means any of the following
Indebtedness of the Company or any Subsidiary, as
the case may be: (i) Indebtedness of the Company
under the Credit Agreement in an aggregate principal
amount at any time outstanding not to exceed the
greater of (x) $37,500,000, less (1) the amount of
any scheduled principal payments actually made
(excluding, without limitation, any prepayments
required to be made based upon the Company_s excess
cash flow) or the amount of any other prepayments
which are applied or credited against scheduled
principal payments on the date such scheduled
principal payments would otherwise have been made
(except to the extent refinanced under a replacement
Credit Agreement at the time of the respective
repayment) by the Company or any Guarantor in
respect of any term loans under the Credit Agreement
and (2) the amount by which the aggregate commitment
under any revolving credit facility under the Credit
Agreement at any time has been permanently reduced
to the extent, if any, that any repayments required
to be made in connection with effecting such
permanent reduction have been made (it being
understood that to the extent a reduction in
commitments under any revolving credit facility
under the Credit Agreement arises solely in
connection with a refinancing of outstanding amounts
under such revolving credit facility with borrows
under a replacement Credit Agreement and the
commitments under the Credit Agreement are thereby
replaced with commitments under such replacement
Credit Agreement such a permanent reduction shall
not have occurred); and (y) the amount equal to the
sum of (1) 75% of the net book value of accounts
receivable not more than 90 days old, as determined
in accordance with GAAP (2) 50% of the net book
value of inventory (determined on a first-in-first-
out basis) of the Company and its Subsidiaries on a
consolidated basis at the time such Indebtedness is
Incurred, as determined in accordance with GAAP, and
(3) $10 million; (ii) Indebtedness of the Company
under the New Notes; (iii) Indebtedness of the
Company or any of its Subsidiaries consisting of
Capital Lease Obligations and Purchase Money
Obligations so long as the aggregate amount of such
Indebtedness Incurred during any fiscal year does
not exceed $10 million; (iv) Indebtedness of a
Subsidiary to the Company or to a Wholly Owned
Subsidiary; (v) Indebtedness of the Company to a
Wholly Owned Subsidiary of the Company which is
unsecured and, unless owing to a Guarantor,
subordinated in right of payment to the payment and
performance of the Company_s obligations under the
New Indenture and the New Notes; provided, however,
that any subsequent issuance or transfer of Capital
Stock that results in such Wholly Owned Subsidiary
ceasing to be such, or any subsequent transfer of
such Indebtedness (other than to the Company or a
Wholly Owned Subsidiary) will be deemed, in each
case, to constitute the Incurrence of such
Indebtedness by the Company or of such Indebtedness
by such Wholly Owned Subsidiary; (vi) Indebtedness
which represents the assumption by the Company of
Indebtedness of any Wholly Owned Subsidiary; (vii)
Indebtedness under Currency Agreements, Interest
Swap Obligations and other agreements between the
Company or a Subsidiary and one or more financial
institutions providing for "swap," "cap," "collar"
or other interest rate protection on other Permitted
Indebtedness; (viii) Indebtedness not to exceed an
aggregate principal amount of $5 million at any one
time outstanding in addition to the Indebtedness
otherwise permitted by the New Indenture, which
Indebtedness may be incurred under the Credit
Agreement; (ix) Indebtedness Incurred in respect of
performance bonds and surety bonds; (x) Indebtedness
represented by letters of credit issued in the
ordinary course of business for the account of the
Company or any Subsidiary not exceeding an aggregate
amount of $2.5 million at any one time outstanding
(in addition to any letters of credit issued under
the Credit Agreement); (xi) Indebtedness represented
by the obligations of the Company, as they may exist
from time to time, to repurchase from any employee
or director, or former employee or director, of the
Company or a Subsidiary, Capital Stock of the
Company, or options, warrants or rights therefor,
issued pursuant to any compensatory plan of the
Company; (xii) Indebtedness consisting of
guarantees, indemnities or obligations in respect of
purchase price adjustments in connection with the
acquisition or disposition of assets permitted under
the New Indenture; (xiii) Guarantees in respect of
Indebtedness Incurred by officers or employees of
the Company or any Subsidiary in the ordinary course
of business and payments in discharge thereof in an
amount not to exceed the excess of (x) $500,000 at
any time outstanding over (y) the aggregate amount,
if any, paid after the Issue Date in respect of such
guarantees; and (xiv) Permitted Refinancing
Indebtedness the proceeds of which are used to
refinance outstanding Permitted Indebtedness of the
Company or any Subsidiary.
Any calculation of the amount of outstanding
Indebtedness under any of the foregoing clauses,
shall take into account: (A) the principal amount
then outstanding that was originally Incurred
pursuant to such clause; (B) any outstanding
Indebtedness Incurred pursuant to clause (xiv) to
refinance or refund Indebtedness originally Incurred
pursuant to such clause; and c any subsequent
refinancings or refundings thereof.
"Permitted Investment" means any of the following:
(i) Investments in Subsidiaries outstanding as of
the Issue Date and additional Investments in such
Subsidiaries or other Persons so long as,
immediately after such Investment, such Subsidiary
or other Person will be a Wholly Owned Subsidiary
(including, without limitation, Investments in the
Capital Stock of such Subsidiary or other Person but
excluding Investments in any other Person that would
constitute the acquisition of a business, which is
subject to clause (xiv) below); (ii) Investments by
Wholly Owned Subsidiaries in the Company; (iii) (a)
Investments in commercial paper rated P-1 by Moody_s
Investors Service, Inc. or A-1 by Standard & Poor_s
Corporation on the date of acquisition, (b)
certificates of deposit of United States commercial
banks (having a combined capital and surplus in
excess of $100,000,000), c obligations of, or
guaranteed by, the United States government or any
agency thereof, (d) money market funds organized
under the laws of the United States or any state
thereof that invest substantially all their assets
in any of the types of investments described in
subclause (a), (b) or c of this clause (iii), or (e)
to the extent not comprehended by subclauses (a)
through (d) of this clause (iii), Cash Equivalents;
(iv) Investments in, or consisting of, negotiable
instruments held for collection; outstanding travel,
entertainment, moving and other like loans and
advances to officers, employees and consultants;
lease, utility and other similar deposits; or stock,
obligations or securities received in settlement of
claims owing to the Company or a Subsidiary as a
result of a composition or readjustment of debt or a
reorganization of any debtor, in each of the
foregoing cases in the ordinary course of business
of the Company or a Subsidiary, as the case may be;
(v) Investments consisting of accounts receivable
owing to the Company or any Subsidiary created in
the ordinary course of business; (vi) Investments in
(a) AWG Membership Stock and (b) AWG members deposit
certificates, patronage refund certificates or
similar types of AWG Equity received or earned by
the Company from time to time based on the Company_s
gross purchases from AWG pursuant to the AWG Supply
Agreement or in lieu of receiving cash rebates or
refunds from AWG; (vii) Investments in (a) the
capital stock of other retail purchasing
cooperatives in connection with becoming a member of
such cooperatives and (b) additional capital stock
of such cooperatives which is received or earned by
the Company based on the Company's gross purchases
from such cooperatives or in lieu of receiving cash
rebates or refunds from such cooperatives, provided
that in each case, such stock is purchased, received
or earned in connection with a supply agreement or
arrangement between the Company and such cooperative
which is on terms at least as favorable to the
Company as the terms that could be obtained by the
Company in a comparable transaction made on an arm's
length basis with another cooperative, wholesaler or
supplier; (viii) Investments consisting of non-cash
consideration from any Asset Sale made pursuant to
and in compliance with the asset sale provisions of
the New Indenture (see "-- Certain Covenants --
Limitations on Asset Sales;" (ix) Investments
consisting of loans, advances, dividends or
distributions by the Company to Holding not to
exceed an amount necessary to permit Holding to pay
(a) its costs (including all professional fees and
expenses) Incurred to comply with its reporting
requirement provisions of the New Indenture (see"
- -- Certain Covenants-- SEC Reports") and (b) its
other operational expenses (other than taxes)
incurred in the ordinary course of business and not
exceeding $250,000 in the aggregate any fiscal year;
(x) Investments consisting of Indebtedness permitted
under item (vii) of the definition of Permitted
Indebtedness; (xi) Investments in any of the New
Notes; (xii) Investments consisting of guarantees in
respect of Indebtedness Incurred by officers or
employees in the ordinary course of business and
payments in discharge thereof in an amount not to
exceed the excess of (x) $500,000 at any time
outstanding over (y) the aggregate amount, if any,
paid after the Issue Date in respect of such
guarantees; (xiii) Investments consisting of loans
or advances to officers, directors or employees
incurred prior to the Issue Date and any extensions,
renewals, refundings or refinancings thereof,
provided that the aggregate amount of such loans and
advances shall not exceed $150,000 at any time
outstanding; (xiv) Investments in any group of
assets constituting a business in an amount not to
exceed $5 million in the aggregate in any fiscal
year; (xv) Investments in joint ventures formed for
the purpose of purchasing and operating of grocery
stores in the aggregate amount of $3 million at any
time outstanding; and (xvi) Investments in the
aggregate amount of $5,000,000 at any time
outstanding.
"Permitted Liens" means (i) Liens existing as of the
Issue Date; (ii) Liens securing Indebtedness
outstanding under the Credit Agreement (whether or
not existing on the Issue Date); (iii) Liens as of
the date of the New Indenture or thereafter securing
any obligations with respect to Interest Swap
Obligations, Currency Agreements and other
agreements between the Company or a Subsidiary and
one or more financial institutions providing for
"swap," "cap," "collar" or other interest rate
protection on other Permitted Indebtedness; (iv)
Liens securing Acquired Indebtedness created prior
to (and not in connection with or in contemplation
of) the Incurrence of such Indebtedness by the
Company or any Subsidiary; (v) Purchase Money Liens
and Liens to secure Capital Lease Obligations
permitted under the New Indenture covering only the
property acquired with such Indebtedness; (vi) Liens
securing Permitted Refinancing Indebtedness;
provided that such Liens extend to or cover only the
property or assets then securing the Indebtedness
being refinanced; (vii) any Liens which may be
granted to secure the Securities or any Guarantees;
(viii) Liens in favor of the Company or any
Subsidiary of the Company (other than Liens in favor
of the Company or any Subsidiary); (ix) Liens
securing Indebtedness permitted to be incurred under
clause (x) of the definition of Permitted
Indebtedness; (xi) the AWG Liens; and (xii) Other
Permitted Liens.
"Permitted Refinancing Indebtedness" means any
Indebtedness of the Company or any of its
Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness
of the Company or any of its Subsidiaries; provided
that (i) the principal amount of such Indebtedness
does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection
therewith), (ii) with respect to Indebtedness that
is not Senior Indebtedness (a) such Indebtedness has
an Average Life to Stated Maturity equal to or
greater than and a final maturity no earlier than
the Average Life to Stated Maturity and final
maturity of the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded,
and (b) such Indebtedness is subordinated in right
of payment pursuant to terms at least as favorable
to the holders of Securities as those, if any,
contained in the documentation governing the
Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded and (iii) no such
Indebtedness Incurred by the Company is extended,
refinanced, renewed, replaced, defeased or refunded
with Indebtedness Incurred by a Subsidiary.
"Preferred Stock" means, with respect to any Person,
any and all shares, interests, participations or
other equivalents (however designated) of such
Person_s preferred or preference stock whether now
outstanding or issued after the date of the New
Indenture, and includes, without limitation, all
classes and series of preferred or preference stock.
"Purchase Money Liens" means Liens to secure or
securing Purchase Money Obligations permitted to be
Incurred under the New Indenture.
"Purchase Money Obligations" means Indebtedness
representing, or Incurred to finance, the cost (a)
of acquiring any assets and (b) of construction or
improvement of property, in each case for use in the
business of the Company and its Subsidiaries
(including Purchase Money Obligations of any other
Person at the time such other Person is merged with
or is otherwise acquired by the Company or a
Subsidiary); provided that (i) the principal amount
of such Indebtedness does not exceed 100% of such
cost, including construction or improvement costs,
(ii) any Lien securing such Indebtedness does not
extend to or cover any other asset or property other
than the asset or property being so acquired,
constructed or improved and (iii) such Indebtedness
is Incurred, and any Liens with respect thereto are
granted, within 180 days of the acquisition of such
property or asset.
"Redeemable Capital Stock" means Capital Stock that
either by its terms, by the terms of any security
into which it is convertible or exchangeable or
otherwise, is or upon the happening of an event or
passage of time would be required to be redeemed
prior to the Stated Maturity of the principal of the
New Notes or is redeemable at the option of the
holder thereof at any time prior to the Stated
Maturity of the principal of the New Notes, or is
convertible into or exchangeable for debt securities
at any time prior to such Stated Maturity.
"Senior Indebtedness" means the principal of,
premium, if any, and accrued and unpaid interest on
(including, without limitation, interest at the
contract rate subsequent to the commencement of any
bankruptcy, insolvency or similar proceeding with
respect to the Company and with respect to the
Credit Agreement only, such interest whether or not
a claim therefor is allowed in such proceeding) and
all reasonable fees and reasonable expenses payable
under or in respect of Indebtedness of the Company
under the Credit Agreement.
"Subsidiary" means, with respect to any Person, (i)
a corporation a majority of whose Voting Stock is at
the time, directly or indirectly, owned by such
Person, by one or more Subsidiaries of such Person
or by such Person and one or more Subsidiaries
thereof or (ii) any other Person (other than a
corporation) in which such Person, one or more
Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the
date of determination thereof has at least a
majority ownership interest. Unless the context
indicates otherwise, the term _Subsidiary_ shall
mean a Subsidiary of the Company or one or more
Subsidiaries of the Company.
"Subsidiary Guarantees" means the Guarantees of the
Subsidiary Guarantors, substantially in the form
attached as an exhibit to the New Indenture, as such
Guarantee may be amended, modified or supplemented
from time to time.
"Subsidiary Guarantor" means any Subsidiary that
executes a Subsidiary Guarantee and any successor or
assign of such Subsidiary Guarantor.
"Trade Payables" means any accounts payable or any
other indebtedness or monetary obligation to trade
creditors created, assumed or guaranteed by a Person
arising in the ordinary course of business of such
Person in connection with the acquisition of goods
and services.
"Voting Stock" means, with respect to any Person,
(i) one or more classes of the Capital Stock of such
Person having general voting power to elect at least
a majority of the board of directors, managers or
trustees of such Person (irrespective of whether or
not at the time Capital Stock of any other class or
classes have or might have voting power by reason of
the happening of any contingency) and (ii) any
Capital Stock of such Person convertible or
exchangeable without restriction at the option of
the holder thereof into Capital Stock of such Person
described in clause (i) above.
"Wholly Owned Subsidiary" means, with respect to any
Person, a Subsidiary of such Person all of the
outstanding Capital Stock of which shall at the time
be owned by such Person or by one or more Wholly
Owned Subsidiaries of such Person or by such Person
and one or more Wholly Owned Subsidiaries of such
Person.
XVII. DESCRIPTION OF NEW COMMON STOCK
A. General
On the Effective Date, Holding will be authorized to
issue 7,500,000 shares of New Common Stock, of which
4,700,000 million shares will be issued under the
Plan, 263,158 shares will be reserved for issuance
under the New Warrants, 263,158 shares will be
reserved for issuance under the Management Stock
Option Plan and 522,222 shares will be reserved for
issuance under the Modified Union Agreements. All
of the shares to be issued under the Plan will be
validly issued, fully paid and non-assessable.
Each holder of New Common Stock will be entitled to
one vote for each share held of record on each
matter submitted to the shareholders. Cumulative
voting for the election of directors will not be
permitted.
Holders of New Common Stock will be entitled to
receive dividends to the extent that Holding's Board
of Directors declares such dividends out of the
funds legally available for the payment of
dividends. The Debtors expect that the New Credit
Agreement and the New Indenture will restrict the
ability of Holding to pay dividends on the New
Common Stock. See "RISK FACTORS -- Risks Relating to
the New Securities -- No Dividends."
Upon the dissolution of Holding, each holder of New
Common Stock will participate, pro rata, in any
distribution of the assets of Holding after payment
of, or provision for, all of the other obligations
of Holding.
Holders of New Common Stock will have no conversion,
preemptive or redemption rights.
Under the Plan, Holding has undertaken to use its
best efforts to secure the listing of the New Common
Stock on the NASDAQ National Market System (or, in
the event Holding fails to meet the listing
requirements of the NASDAQ National Market System,
on such other exchange or system on which the New
Common Stock may be listed) as soon as practicable
following the Effective Date. There can be no
assurance, however, that the New Common Stock will
be listed on the NASDAQ National Market System or
such other exchange or system.
B. Registration Rights Agreements
1. General
In connection with the Restructuring, Holding will
grant certain registration rights under the Equity
Registration Rights Agreement to the holders of the
Old Common Stock (Class 7 Interests) who receive New
Common Stock and New Warrants pursuant to the Plan.
Pursuant to the Noteholder Registration Rights
Agreement, Holding and/or the Company (as
applicable) also will grant certain registration
rights to those holders of the Old Notes (Class 5
Claims) who receive New Common Stock and New Notes
pursuant to the Plan.
2. Equity Registration Rights Agreement
Pursuant to the Equity Registration Rights
Agreement, Holding will grant certain registration
rights to (a) holders of Old Common Stock who
receive New Securities pursuant to the Plan and
continue to hold such New Securities as of the date
of a registration request and (b) certain permitted
transferees of such holders that satisfy certain
eligibility, notice and other requirements set forth
in the Equity Registration Rights Agreement (the
"Remaining Class 7 Holders"). Remaining Class 7
Holders will have registration rights only with
respect to New Securities issued to holders of Old
Common Stock pursuant to the Plan and shares of New
Common Stock issuable upon exercise of the New
Warrants (the "Registrable Class 7 Securities").
The Equity Registration Rights Agreement will
provide that, following the second anniversary of
the Effective Date, Remaining Class 7 Holders
holding at least 125,000 shares of New Common Stock
or 131,579 New Warrants issued to holders of Class 7
Interests pursuant to the Plan will have the right
to initiate one demand that Holding register under
the Securities Act all or any portion of the
Registrable Class 7 Securities held by such holders,
provided that the aggregate number of shares of New
Common Stock requested to be registered may not be
less than 125,000 shares and the aggregate number of
New Warrants requested to be registered may not be
less than 131,579 New Warrants. After receipt of a
registration demand, Holding will notify all other
Remaining Class 7 Holders (who have previously
identified themselves to Holding as Remaining Class
7 Holders) of the registration demand. Such other
Remaining Class 7 Holders will be entitled to
request that some or all of their Registrable Class
7 Securities be included in such registration. Such
Registrable Class 7 Securities will be included in
such registration subject to certain priority
cutbacks.
Following receipt of a proper demand, Holding and/or
the Company will be required to file a registration
statement under the Securities Act for all
Registrable Class 7 Securities requested to be
included in such registration. Holding will pay all
expenses in connection with such registration,
including expenses of one counsel representing the
selling security holders. No registration request
may be made sooner than six months after the
termination of effectiveness of Holding's most
recent registration statement under the Securities
Act for New Common Stock or New Warrants. Holding
is entitled to postpone, once in any 360-day period,
any demand registration for a period not to exceed
180 days if Holding's Board of Directors determine
that such registration would interfere with any
proposed financing, acquisition or other
extraordinary corporate action or would otherwise
have a material adverse effect on Holding.
Holding will not grant any piggyback registration
rights to any other person with respect to the
registration covered by the Equity Registration
Rights Agreement. In addition, except as described
above, the Remaining Class 7 Holders will not have
any piggyback registration rights with respect to
any registration of Holding's equity securities
under the Securities Act. The Remaining Class 7
Holders will agree not to sell their New Securities
for seven days prior to, and 180 days after, the
effectiveness of any registration of shares of New
Securities, other than pursuant to such
registration.
The Equity Registration Rights Agreement will
terminate with respect to the registration of the
Registrable Class 7 Securities on the earlier of (a)
the seventh anniversary of the Effective Date, (b)
such time as the number of shares of New Common
Stock constituting Registrable Class 7 Securities is
less than 125,000 and the number of New Warrants
constituting Registrable Class 7 Securities is less
than 131,579 and (c) the date on which the
effectiveness of a registration statement that has
become effective pursuant to a registration under
the Equity Registration Rights Agreement has been
terminated.
3. Noteholder Registration Rights Agreement
Pursuant to the Noteholder Registration Rights
Agreement, Holding and/or the Company (as
applicable) will grant certain registration rights
to (a) holders of Old Notes who will receive New
Securities pursuant to the Plan and continue to hold
such New Securities and (b) certain permitted
transferees of such holders that satisfy certain
eligibility, notice and other requirements set forth
in the Noteholder Registration Rights Agreement (the
"Remaining Class 5 Holders"). Remaining Class 5
Holders will have registration rights only with
respect to New Securities issued to holders of Old
Notes pursuant to the Plan (the "Registrable Class 5
Securities").
The Noteholder Registration Rights Agreement will
provide that following the second anniversary of the
Effective Date, Remaining Class 5 Holders holding at
least 470,000 shares of New Common Stock issued
pursuant to the Plan (the "Class 5 Registration
Trigger Amount") will have the right to initiate one
demand that Holding and/or the Company (as
applicable) register under the Securities Act all or
any portion of the Registrable Class 5 Securities
held by such holders, provided that the aggregate
number of shares of New Common Stock requested to be
registered may not be less than the Class 5
Registration Trigger Amount and the aggregate
principal amount of New Notes requested to be
registered may not be less than $6 million. After
receipt of a registration demand, Holding and/or
the Company (as applicable) will notify all other
Remaining Class 5 Holders (who have previously
identified themselves to Holding as Remaining Class
5 Holders) of the registration demand. Such other
Remaining Class 5 Holders will be entitled to
request that some or all of their Registrable Class
5 Securities be included in such registration. Such
Registrable Class 5 Securities will be included in
such registration subject to certain priority
cutbacks.
Following receipt of a proper demand, Holding and/or
the Company (as applicable) will be required to file
a registration statement under the Securities Act
for all Registrable Class 5 Securities requested to
be included in such registration. Holding and/or
the Company (as applicable) also will pay all
expenses in connection with such registration,
including expenses of one counsel representing the
selling securityholders. No registration request
may be made sooner than six months after the
termination of effectiveness of Holding_s most
recent registration statement under the Securities
Act for New Common Stock or New Warrants. Holding
is entitled to postpone, once in any 360-day period,
any demand registration for a period not to exceed
180 days if the Board of Directors of Holding and/or
the Company (as applicable) determines that such
registration would interfere with any proposed
financing, acquisition or other extraordinary
corporate action or would otherwise have a material
adverse effect on Holding and/or the Company (as
applicable).
Holding and the Company will not grant any piggyback
registration rights to any other person with respect
to the registration covered by the Noteholder
Registration Rights Agreement. In addition, except
as described above, the Remaining Class 5 Holders
will not have any piggyback registration rights with
respect to any registration of Holding's equity
securities under the Securities Act. The Remaining
Class 5 Holders will agree not sell their New
Securities for seven days prior to, and 180 days
after, the effectiveness of any other registration
of shares of New Securities, other than pursuant to
such registration.
The Noteholder Registration Rights Agreement will
terminate with respect to the registration of shares
of Registrable Class 5 Securities, on the earlier of
(a) the seventh anniversary of the Effective Date,
(b) such time as the Registrable Class 5 Securities
no longer represent the Requisite Class 5 Percentage
and c the date on which the effectiveness of a
registration statement that has become effective
pursuant to a registration under the Noteholder
Registration Rights Agreement has been terminated.
XVII. DESCRIPTION OF NEW WARRANTS
A. General
In connection with the Restructuring, New Warrants
will be issued to the holders of the Old Common
Stock pursuant to a new warrant agreement (the "New
Warrant Agreement") between Holding and a financial
institution selected by Holding, as warrant agent
(the "Warrant Agent"). The New Warrants will be
transferable and evidenced by warrant certificates
issued in registered form. Holding will not issue
any New Warrants that are exercisable for fractional
shares of New Common Stock. Instead, the number of
shares of New Common Stock originally issuable upon
exercise of any such New Warrant will be rounded up
to the nearest whole number.
Holders of New Warrants will be entitled to benefits
under the Equity Registration Rights Agreement with
respect to their New Warrants. See "DESCRIPTION OF
NEW COMMON STOCK -- Registration Rights Agreements."
B. Exercise of New Warrants
Upon issuance, each New Warrant will entitle the
holder thereof to purchase, at any time prior to the
fifth anniversary of the Effective Date (the "New
Warrant Expiration Date"), a specified number of
shares of New Common Stock at an exercise price per
share ("Exercise Price") initially equal to $11.85,
subject to adjustment upon the occurrence of certain
events. See "DESCRIPTION OF NEW WARRANTS -- Adjustments."
The New Warrants may be exercised upon surrender of
a warrant certificate on or prior to the New Warrant
Expiration Date, accompanied by payment of the
applicable Exercise Price for the number of shares
of New Common Stock with respect to which the New
Warrants are being exercised. To the extent the
holder of a warrant certificate does not exercise
all of the New Warrants represented by such warrant
certificate, such holder shall receive a new warrant
certificate representing the New Warrants not yet
exercised.
C. Adjustments
The respective Exercise Prices and the number of
shares of New Common Stock issuable upon the
exercise of the New Warrants are subject to
adjustment upon the issuance or sale by Holding,
without consideration or at a price per share less
than the Current Market Price (as defined below) per
share of New Common Stock, of (a) any additional
shares of New Common Stock or (b) any indebtedness
or security convertible into, or exchangeable for,
shares of New Common Stock or of any right, option
or warrant to acquire shares of New Common Stock or
any security convertible into or exchangeable for
shares of New Common Stock.
If Holding declares or pays any dividend on the New
Common Stock payable in additional shares of New
Common Stock or subdivides the outstanding shares of
New Common Stock into a greater number of shares of
New Common Stock or combines the outstanding shares
of New Common Stock into a lesser number of shares
of New Common Stock, the current Exercise Price and
the number of shares of New Common Stock issuable
upon exercise of the New Warrants will be
proportionally adjusted.
If Holding declares or makes an extraordinary
dividend or other distribution on the New Common
Stock (including, without limitation, any
distribution of other or additional stock or other
securities or property or options by way of dividend
or spin-off, reclassification, recapitalization or
similar corporate rearrangement) other than a
regular periodic dividend payable out of Holding's
earned surplus, or a dividend payable in shares of
New Common Stock for which adjustment is provided
pursuant to the preceding paragraph, then, and in
each case, the current Exercise Price of the New
Warrants will be reduced by multiplying such current
Exercise Price by a fraction (1) the numerator of
which will be the Current Market Price (as defined
below) of the New Common Stock in effect on the date
of determination less the value of such dividend or
distribution (as determined in good faith by the
Board of Directors of Holding) applicable to one
share of New Common Stock, and (2) the denominator
of which will be such Current Market Price. For
purposes of the Warrant Agreement, (1) "Current
Market Price" means, with respect to the New Common
Stock or voting common stock of an acquiring person
or its parent, the average daily Market Price during
the period of the most recent 20 consecutive
business days ending on the date of determination
or, if shares of New Common Stock are not then
listed or admitted to trading on any national
securities exchange and if the closing bid and asked
prices thereof are not then quoted or published in
the over-the-counter market, the Market Price on
such date and (2) "Market Price" means, with respect
to the New Common Stock or voting common stock of an
acquiring person or its parent, (a) the last sale
price of shares of New Common Stock, regular way, on
such date or, if no such sale takes place on such
date, the average of the closing bid and asked
prices thereof on such date, in each case as
officially reported on the principal national
securities exchange on which the New Common Stock is
then listed or admitted to trading, or (b) if the
New Common Stock is not then listed or admitted to
trading on any national securities exchange but the
New Common Stock is designated as a national market
system security by the NASD, the last trading price
of the New Common Stock on such date, or if the New
Common Stock is not so designated, the average of
the reported closing bid and asked prices thereof on
such date as shown by the NASD automated quotation
system or, if no shares thereof are then quoted in
such system, as published by the National Quotation
Bureau, Incorporated or any successor organization,
and in either case as reported by any member firm of
the New York Stock Exchange selected by Holding, or
c if the New Common Stock is not then listed or
admitted to trading on any national exchange or
designated as a national market system security and
if no closing bid and asked prices thereof are then
so quoted or published in the over-the-counter
market, the higher of (i) the book value thereof as
determined by agreement between Holding and a
majority of the holders of the New Warrants, or if
Holding and such holders fail to agree, by any firm
of independent public accountants of recognized
national standing selected by the Board of Directors
of Holding, as of the last day of any month ending
within 60 days preceding the date as of which the
determination is to be made and (ii) the fair value
thereof (as determined by Holding and a majority of
the holders of the New Warrants or, if Holding and
such holders fail to agree, by two or more
independent investment banking firms in the manner
provided in the New Warrant Agreement). See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Federal
Income Tax Consequences of Ownership and Disposition
of New Notes, New Common Stock, and New Warrants--
Disposition, Exercise, Expiration and Adjustment of
New Warrants."
In the event of any capital reorganization or
reclassification or any merger or consolidation of
Holding or any sale by Holding of substantially all
of its assets, each holder of a New Warrant will be
entitled to receive, upon payment of the aggregate
Exercise Price then in effect, either of the
following (as such holder may elect by written
notice to Holding on or before the date immediately
preceding the date of the consummation of such
transaction): either (a) the securities, cash or
other property, if any, that would have been
distributable in respect of the shares of New Common
Stock issuable under such New Warrants if exercised
immediately prior to such transaction (provided that
if a purchase, tender or exchange offer shall have
been made to and accepted by the holders of New
Common Stock under circumstances in which, upon
completion of such purchase, tender or exchange
offer, the maker thereof and certain of its
affiliates own beneficially more than 50% of the
outstanding shares of New Common Stock, such holder
will be entitled to receive the securities, cash or
other property that would have been distributable in
respect of the shares of New Common Stock issuable
under such holders New Warrant if (i) such holder
had exercised its New Warrant prior to the
expiration of such purchase, tender or exchange
offer and such holder had accepted such offer (or,
if prorationing shall have been applicable to such
purchase, tender or exchange offer, the combined
amount per share of cash, securities or other
property to which such holder would have been
entitled if such holder had accepted such offer and
sold the same percentage of shares pursuant thereto
as other accepting shareholders, and as to the
shares not sold in such offer, had the same rights
to receive cash, securities or other property per
share as other shareholders holding shares
immediately prior to the consummation of such
transaction); or (b) if the consideration that would
have been distributable to such holder is stock (or
equivalent equity interests) of the acquiring
person, the number of shares of such stock (or
equivalent equity interests) of such acquiring
person equal to (i) the product of (1) the number of
shares of New Common Stock to which such holder
would have been entitled had such holder exercised
its New Warrant immediately prior to the
consummation of such time transaction, times (2) the
greater of the acquisition price and the Exercise
Price in effect on the date immediately preceding
the date of such consummation, divided by (ii) the
Current Market Price per share of such stock (or
equivalent equity interests) of such acquiring
person.
No adjustment of the Exercise Price of the New
Warrants will be required to be made until
cumulative adjustments amount to 0.1% or more of
such Exercise Price as last adjusted; provided that,
upon exercise of New Warrants, all adjustments
carried forward and not therefor made up to and
including the date of such exercise will be made to
the nearest one-hundredth of a cent. Upon the
expiration of any rights, options, warrants or
conversion or exchange privileges that previously
caused an adjustment to the Exercise Price for the
New Warrants, such Exercise Price will be subject to
certain readjustments. Whenever the number of
shares of New Common Stock purchasable upon exercise
of the New Warrants or the Exercise Price are
adjusted, the Warrant Agent will promptly notify
each holder of New Warrants of such adjustment or
adjustments to such holder's New Warrants.
D. Limitation on Right to Vote or Receive Dividends
No holder of New Warrants, as such, will be entitled
to any rights as a stockholder of Holding, including
the right to vote or to receive dividends or other
distributions with respect to the shares of New
Common Stock, until such holder has properly
exercised the New Warrants in accordance with the
terms of the New Warrant Agreement.
XIX. DESCRIPTION OF THE NEW CREDIT AGREEMENT
On the Effective Date, the Company will enter into
the New Credit Agreement, the general terms of which
must be approved by the Noteholders' Committee. As
of the date of this Disclosure Statement, the
Company is in discussions with a number of banks
potentially interested in providing this credit
facility, including the Old Banks. There can be no
assurance, however, that any bank or group of banks
will agree to provide a bank credit facility on
terms acceptable to the Company and the Noteholders'
Committee. In the event the Company is unable to
enter into the New Credit Agreement, the Company
will not have sufficient financing to consummate the
Restructuring and may be forced to pursue an orderly
liquidation of its assets.
The Company anticipates that the New Credit
Agreement will provide for up to $37.5 million in
borrowings, including up to approximately $27.5
million under a revolving credit facility (subject
to borrowing base requirements) and up to a $10
million term loan. Proceeds from the term loan will
be used primarily to fund certain obligations under
Company's modified collective bargaining agreements
(see "DESCRIPTION OF THE MODIFIED UNION AGREEMENTS")
and to pay certain transaction expenses relating to
the Restructuring. The Company expects that its
obligations under the New Bank Credit Agreement will
be secured by a security interest in, and liens on,
substantially all of the Company's assets and will
be guaranteed by Holding. While the covenants and
events of default under the New Bank Credit
Agreement are expected to be similar to those
contained in the 1995 Credit Agreement, the specific
nature of these covenants is subject to discussion
and will reflect, among other things, the
anticipated results of Company's operations and the
Company's revised capital structure following the
completion of the Restructuring.
XX. ACCOUNTING TREATMENT
The Debtors propose to account for the Restructuring
using the principles of "fresh-start" accounting as
required by SOP No. 90-7. Pursuant to such
principles, the Company's assets and liabilities
will be revalued as of the Effective Date. The
assets will be stated at their reorganized value
("Reorganization Value"), which is defined as the
value of the Company on a going-concern basis
following the Restructuring.
The restatement of the Company_s assets and
liabilities, referred to as "fresh-start" reporting,
applies the following principles:
(A) The Company_s Reorganization Value is
allocated to its assets as though the Company
had been acquired in a transaction reported
using the purchase method, under which specific
tangible assets and identified intangible
assets of the Company are adjusted to their
fair market values. If any portion of the
Reorganization Value cannot be attributed to
specific tangible or identified intangible
assets, such portion is reported as an
intangible asset identified as _reorganization
value in excess of identifiable assets,_ and
such excess would then be amortized in
accordance with applicable financial reporting
procedures.
(B) Each liability existing on the
Confirmation Date, other than deferred taxes,
is stated at the present value of the future
amounts to be paid thereon as determined by
discounting such payments at an appropriate
current interest rate, if material.
(C) Deferred taxes are reported in conformity
with generally accepted accounting principles.
When realized, benefits from pre-confirmation
net operating loss carryforwards reduce the
reorganization value in excess of identifiable
assets and other intangibles until such excess
is exhausted and thereafter are reported as a
direct addition to paid-in capital.
(D) Changes in accounting principles that will
be required in the Company's financial
statements within the twelve months following
the adoption of fresh-start reporting should be
adopted at the time the fresh-start reporting
is adopted.
Adopting fresh-start reporting in essence results in
a new reporting entity with no beginning retained
earnings or deficit. The unaudited pro forma
financial statements set forth under "FINANCIAL
INFORMATION -- Projected and Pro Forma Financial
Information" and the projected pro forma financial
information set forth in "FINANCIAL INFORMATION --
Projected and Pro Forma Financial Information"
reflect the adoption of fresh-start reporting on the
bases described herein.
XXI. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of (A) certain
federal income tax consequences of the Restructuring
to holders of Old Notes, to holders of General
Unsecured Claims, and to holders of Old Common
Stock, (B) certain federal income tax consequences
of the ownership and disposition of New Notes, New
Common Stock and New Warrants and c certain federal
income tax consequences of the Restructuring to the
Debtors.
This discussion is based on the provisions of the
Internal Revenue Code of 1986, as amended (the
"Code"), final, temporary and proposed Treasury
regulations thereunder (the "Treasury Regulations"),
and administrative and judicial interpretations
thereof, all as in effect as of the date hereof and
all of which are subject to change (possibly on a
retroactive basis). The statements of law and legal
conclusions set forth below reflect the Debtors'
view, based on the advice of their tax counsel, of
the appropriate interpretation of those provisions.
There can be no assurance that the Internal Revenue
Service (the IRS") will not take a contrary view as
to the federal income tax consequences discussed
below. No ruling from the IRS has been or will be
sought on any of the issues discussed below.
This discussion provides general information only
and does not purport to address all of the federal
income tax consequences that may be applicable to
any particular holder subject to special treatment
under federal income tax law or to any particular
holder in light of such holder's particular facts
and circumstances. Certain holders, including
broker-dealers, tax-exempt entities, insurance
companies, foreign persons, and persons who acquired
Old Notes or Old Common Stock in connection with the
performance of services, may be subject to special
rules not discussed below.
This discussion assumes that Old Notes and New Notes
each constitute debt rather than equity for federal
income tax purposes, and that holders hold Old Notes
and Old Common Stock, and will hold New Notes, New
Common Stock, and New Warrants, as capital assets
within the meaning of Code section 1221. This
discussion also assumes that holders (including
holders of General Unsecured Claims) compute their
federal income tax liability under the accrual
method of accounting.
This discussion further assumes that the Old Notes
and the General Unsecured Claims do not constitute
"securities" within the meaning of the provisions of
the Code governing reorganizations. In general, a
debt instrument constitutes a "security" if it
represents a participating, continuing interest in
the issuer, rather than merely the right to a cash
payment. Under present law, debt instruments with a
five-year term or less are generally not treated as
securities. The change in interest rate of the Old
Notes on April 21, 1995, caused the Old Notes to be
treated as newly issued for federal income tax
purposes. Because the maturity date of the Old
Notes is less than five years from April 21, 1995,
the Debtors believe that the Old Notes do not
constitute "securities" for federal income tax
purposes. However, this conclusion is not entirely
free from doubt and it is possible that the IRS
could take a different view. In that event, the
federal income tax consequences to holders of Old
Notes would be different from those described below.
In particular, in that event holders of Old Notes
might not be able to recognize for federal income
tax purposes any loss realized as a result of the
exchange, and the application of the original issue
discount and market discount rules could differ from
what is described below.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND
OF THE OWNERSHIP AND THE DISPOSITION OF THE NEW
NOTES, THE NEW COMMON STOCK AND THE NEW WARRANTS ARE
COMPLEX. ALL HOLDERS OF OLD NOTES, GENERAL
UNSECURED CLAIMS OR OLD COMMON STOCK SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MATTERS DISCUSSED
HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF
ANY STATE, LOCAL AND FOREIGN TAX LAWS.
A. Certain Federal Income Tax Consequences of the
Plan to Holders of Old Notes, to Holders of
General Unsecured Claims and to Holders of Old
Common Stock
1. Exchange of Old Notes
The following is a summary of what the Debtors
believe, based on the advice of their tax counsel,
are the likely federal income tax consequences to
holders of Old Notes as a result of the exchange of
Old Notes for cash, New Notes, and New Common Stock:
(a) Subject to the discussion below as to
accrued but unpaid interest, a holder will
recognize gain or loss on the exchange in an
amount equal to the difference between (i) the
sum of the cash received, the aggregate issue
price (as defined below) of the New Notes
received, and the fair market value of the New
Common Stock received as of the Effective Date
and (ii) such holder's adjusted tax basis in
its Old Notes.
(b) Subject to the discussion below as to
accrued market discount, any such gain or loss
will be capital gain or loss, and such gain or
loss will be long-term capital gain or loss if
such holder held the Old Notes for more than
one year as of the Effective Date.
(c) A holder's tax basis in the New Notes will
be equal to the issue price of such New Notes,
and a holder's holding period of the New Notes
will begin on the day immediately following the
Effective Date.
(d) A holder's tax basis in the New Common
Stock will be equal to the fair market value of
the New Common Stock as of the Effective Date,
and a holder's holding period of the New Common
Stock will begin on the day immediately
following the Effective Date.
Holders who may realize a gain as a result of the
exchange should discuss with their tax advisors the
possible application of the installment sale rules
of the Code to any such gain.
As described above, it is possible that the IRS
could take a different view regarding the tax
consequences of the exchange, and, in particular,
could attempt to deny to holders the recognition of
any loss realized on the exchange. In that event,
the federal income tax basis and holding period of
any property received in the exchange would be
determined by reference to the holder's tax basis
and holding period for the Old Notes.
2. Exchange of General Unsecured Claims
The following is a summary of what the Debtors
believe, based on the advice of their tax counsel,
are the likely federal income tax consequences to
holders of General Unsecured Claims (other than
claims in respect of Old Notes which are treated
under the Plan as General Unsecured Claims) as a
result of the exchange of such General Unsecured
Claims for New Common Stock:
(a) A holder will recognize gain or loss on
the exchange in an amount equal to the
difference between (i) the fair market value of
the New Common Stock received as of the
Effective Date and (ii) such holder's adjusted
tax basis in its General Unsecured Claim.
(b) Such gain or loss will generally
constitute ordinary income or loss.
(c) A holder's tax basis in the New Common
Stock will be equal to the fair market value of
the New Common Stock as of the Effective Date,
and a holder's holding period of the New Common
Stock will begin on the day immediately
following the Effective Date.
It is possible that the IRS could take a different
view regarding the tax consequences of the exchange,
and, in particular, could attempt to deny to holders
the recognition of any loss realized on the
exchange. In that event, the federal income tax
basis and holding period of any property received in
the exchange would be determined by reference to the
holders' tax basis and holding period for the
General Unsecured Claim.
3. Exchange of Old Common Stock
The exchange of shares of Old Common Stock for
shares of New Common Stock and New Warrants should
be treated as an exchange constituting a
recapitalization within the meaning of Code section
368(a)(1)(E). If the exchange is treated in that
manner, the federal income tax consequences to a
holder of Old Common Stock should be as follows:
(a) A holder of Old Common Stock will not
recognize any loss realized on the exchange,
but will recognize any gain realized on the
exchange to the extent of the lesser of (i) the
amount of gain realized and (ii) the fair
market value of the New Warrants received as of
the Effective Date. The amount of gain
realized will be equal to the excess (if any)
of (A) the fair market value of the New Common
Stock and the New Warrants received as of the
Effective Date over (B) the holder's tax basis
in the Old Common Stock.
(b) The tax basis of the New Common Stock
received by a holder of Old Common Stock will
equal the tax basis of the Old Common Stock
exchanged therefor, decreased by the fair
market value of the New Warrants received as of
the Effective Date and increased by the amount
of gain (if any) recognized by such holder on
the exchange. A holder's holding period of the
New Common Stock will include the holding
period of the Old Common Stock exchanged
therefor.
(c) A holder's tax basis in the New Warrants
will equal their fair market value as of the
Effective Date, and the holder's holding period
for the New Warrants will commence on the day
following the Effective Date.
4. Accrued but Unpaid Interest
The Plan provides that the consideration paid to
holders of Old Notes pursuant to the Plan will be
allocated first to accrued but unpaid interest on
the Old Notes and next to the principal on the Old
Notes. The consideration for the Old Notes will be
equal to the sum of the cash, the aggregate issue
price of the New Notes, and the fair market value of
the New Common Stock as of the Effective Date
received in exchange for the Old Notes. The Debtors
intend to prepare their own tax returns, and report
interest paid to holders in the information returns
and reports sent to holders and to the IRS in a
manner consistent with the above allocation. The
IRS, however, could challenge such allocation and
contend that some other allocation is required (for
example, a pro rata allocation between accrued but
unpaid interest and principal). Each holder of Old
Notes should consult its own tax advisor regarding
the allocation of the consideration received.
A holder of Old Notes should recognize interest
income as a result of the exchange if and to the
extent the consideration it is deemed to have
received in payment of accrued but unpaid interest
exceeds the amount the holder has included in income
as accrued but unpaid interest during the period
that the holder held such Old Notes. A holder of
Old Notes should recognize an ordinary loss as a
result of the exchange if and to the extent the
amount of the accrued but unpaid interest previously
included in income with respect to the Old Notes
exceeds the consideration it is deemed to have
received in payment of accrued but unpaid interest
(which would only occur if an allocation different
from the one described in the preceding paragraph
were determined to be correct).
5. Accrued Market Discount
A holder that acquired Old Notes subsequent to their
original issuance with more than a "de minimis"
amount of "market discount" will be subject to the
market discount rules of the Code. Under those
rules, assuming that no election to include market
discount in income on a current basis has been made
by the holder with respect to any market discount
instrument, any gain recognized on the exchange of
the Old Notes would be characterized as ordinary
income to the extent of the accrued market discount
as of the Effective Date. Because Treasury
Regulations with respect to the market discount
rules have not yet been issued, all holders of Old
Notes that may have been acquired with market
discount are particularly urged to consult their own
tax advisors.
B. Certain Federal Income Tax Consequences of
Ownership and Disposition of New Notes, New
Common Stock and New Warrants
1. Ownership and Disposition of New Notes
Original Issue Discount. A New Note generally will
have original issue discount ("OID") for federal
income tax purposes if its "stated redemption price
at maturity" exceeds its "issue price." Under a "de
minimi" rule provided in the Code, however, the
amount of OID will be considered to be zero if the
amount of such excess is less than the product of
(a) an amount equal to 0.25 percent of the stated
redemption price at maturity and (b) the number of
complete years to maturity of the debt instrument.
The determination of the "issue price" of a New Note
depends, in part, on whether the Old Notes or the
New Notes are publicly traded. In general, the Old
Notes or the New Notes will be treated as publicly
traded if, at any time during the 60-day period
ending 30 days after the issue date of the New
Notes, the Old Notes or the New Notes are traded on
an established market. Subject to certain
exceptions, a debt instrument is treated as traded
on an established market if (a) it is listed on
certain securities exchanges, interdealer quotation
systems, or certain foreign exchanges or boards of
trade, (b) it is traded either on certain boards of
trade that are designated as a contract market or on
an interbank market or c it appears on a system of
general circulation that provides a reasonable basis
to determine fair market value by disseminating
either recent price quotations of identified
brokers, dealers or traders or actual prices of
recent sales transactions. In addition, a debt
instrument is treated as traded on an established
securities market if price quotations are readily
available from brokers, dealers or traders but only
if, among other things, another debt instrument of
the issuer satisfies requirements set forth in
clause (a), (b) or c of the preceding sentence.
The issue price of a debt instrument that is traded
on an established market, or that is issued for
another debt instrument that is so traded, is equal
to the fair market value of such debt instrument or
such other debt instrument, as the case may be, on
the issue date.
The issue price of a debt instrument that (a) is not
traded on an established market and is not issued in
exchange for another debt instrument that is so
traded and (b) bears "adequate stated interest", is
equal to its stated principal amount. It is
expected that the interest payable under the New
Notes will constitute "adequate stated interest"
within the meaning of the Code.
The Debtors cannot predict whether the Old Notes or
the New Notes will be traded on an established
market during the 60-day period ending 30 days after
the issue date of the New Notes. If, based on the
facts at the relevant time, the Old Notes or the New
Notes are ultimately determined to be traded on an
established market, (a) the New Notes may have an
issue price less than their stated redemption price
at maturity and therefore may have OID, (b) the New
Notes could become subject to the applicable high
yield discount obligation provisions of Code section
163(e)(5), resulting in adverse tax consequences to
the Company with respect to, among other things, the
timing and amount of interest deductions, and c the
amount of cancellation of indebtedness income
realized by the Company could be significantly
increased.
In general, the "stated redemption price at
maturity" of a New Note will be equal to all amounts
payable under the New Note, other than amounts
payable as qualified stated interest. "Qualified
stated interest" is generally stated interest that
is unconditionally payable in cash or in property at
least annually at a single fixed rate. The New
Notes provide for semiannual payments of interest in
cash at a fixed rate. All of the Company's payments
of interest on the New Notes will therefore
constitute qualified stated interest payments, and
thus the stated redemption price at maturity of the
New Notes will be their stated principal amount.
If the stated redemption price at maturity of the
New Notes exceeds their issue price by more than the
applicable "de minimis" amount, the New Notes will
have OID. Accordingly, a holder of a New Note would
be required to include any OID in income in
accordance with the rules described below, and would
include cash interest payments in income in
accordance with the holder's method of tax
accounting. The amount of OID includible in income
by the initial holder of the New Note would be the
sum of the "daily portions" of OID with respect to
the New Note for each day during the taxable year or
portion of the taxable year in which such holder
held such New Note ("accrued OID"). The daily
portion would be determined by allocating to each
day in any "accrual period" a pro rata portion of
the OID allocable to that accrual period. The
amount of OID allocable to any accrual period with
respect to a New Note would be an amount equal to
the excess, if any, of (a) the product of the
"adjusted issue price" of the New Note at the
beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at
the close of each accrual period and properly
adjusted for the length of the accrual period) and
(b) the amount of qualified stated interest
allocable to the accrual period. The "adjusted
issue price" of the New Note at the start of any
accrual period would be equal to its issue price
increased by the accrued OID for each prior accrual
period and reduced by any prior payments with
respect to such New Note that were not qualified
stated interest payments. A holder's tax basis in a
New Note would be increased by the amounts of any
OID included in income by the holder and would be
decreased by the any payments (other than qualified
stated interest payments) received in respect to
such New Note.
Amortizable Bond Premium. If the tax basis of an
exchanging holder's New Note exceeds the "amount
payable at maturity" of such New Note, then such
excess may be deductible by the holder as
"amortizable bond premium" under Code section 171 on
a constant interest rate basis over the term of such
security. Such deductions are available only if the
holder makes (or has made) a timely election under
Code section 171.
If a holder of New Notes makes an election to
amortize bond premium, the amortization deductions
may be subject to certain limitations, including
possibly the investment interest limitations of Code
section 163(d) or the overall limitation on itemized
deductions under Code section 68. In addition, the
tax basis of such holder's New Notes must be reduced
by the amount of the aggregate amortization
deductions allowable for the bond premium. Finally,
any such election would apply to all debt
instruments held or subsequently acquired by the
electing holder and cannot be revoked without
permission from the IRS.
Disposition of New Notes. Generally, any sale or
redemption of a New Note will result in taxable gain
or loss equal to the difference between the amount
of any cash and fair market value of any property
received in exchange therefor and such holder's tax
basis in the obligation. Such gain or loss will be
capital gain or loss (except as noted above with
respect to the OID provisions).
2. Ownership and Disposition of New Common
Stock
Dividends, if any, paid on the New Common Stock
will be taxed as ordinary income. A dividends
received deduction (generally at a 70% rate)
may be available with respect to such dividends
to the holders of the New Common Stock that are
corporations, subject to limitations such as
those relating to holding periods or
indebtedness used to acquire or carry such
stock. The term "dividend" means a
distribution made out of current or accumulated
earnings and profits as determined for federal
income tax purposes. To the extent that a
distribution exceeds current and accumulated
earnings and profits, it is treated as a
nontaxable recovery of the holder's adjusted
tax basis to the extent thereof, and any
remaining amount is taxable as if received in a
disposition of the New Common Stock. A holder
of New Common Stock will generally recognize
capital gain or loss upon a sale or other
taxable disposition of the New Common Stock.
However, under Code section 108 (e) (7), gain
on the disposition of New Common Stock received
in exchange for a General Unsecured Claim
(other than a claim in respect of an Old Note
which is treated under the Plan as a General
Unsecured Claim) will generally be treated as
ordinary income to the extent that the holder
was allowed an ordinary loss (i) on such
exchange or (ii) under Code section 166 (a) or
(b) (by reason of the worthlessness or partial
worthlessness of such General Unsecured Claim).
3. Disposition, Exercise, Expiration and
Adjustment of New Warrants
The sale of a New Warrant will generally result
in the recognition of gain or loss to the
holder in an amount equal to the difference
between the amount realized from the sale and
the holder's tax basis in the New Warrant, and
such gain or loss generally will be a capital
gain or loss.
As a general rule, no gain or loss will be
recognized by a holder of a New Warrant on the
exercise of a New Warrant for New Common Stock.
The tax basis of New Common Stock so received
will generally be equal to the sum of the
holder's tax basis in the exercised New Warrant
plus the amount of cash tendered. The holding
period of such stock will not include the
holding period of such New Warrant.
If a New Warrant is permitted to expire without
being exercised, a holder will recognize a loss
equal to such holder's tax basis in the New
Warrant, and such loss will generally be a
capital loss.
An adjustment to the exercise price of a New
Warrant, an adjustment to the number of shares
of New Common Stock that may be purchased upon
the exercise of a New Warrant, or a failure to
make such an adjustment may, under certain
circumstances, result in a constructive
distribution to either the holders of New
Warrants or the holders of New Common Stock
that could be taxable as a dividend under
Section 301 and Section 305 of the Code.
4. Backup Withholding
A holder of New Notes and New Common Stock may,
under certain circumstances, be subject to "backup
withholding" at the rate of 31% with respect to cash
payments in respect of interest or original issue
discount (if any) accrued with respect to the New
Notes; dividends paid on New Common Stock; or the
proceeds of a sale, exchange or redemption of such
New Notes or New Common Stock unless such holder (a)
is a corporation or comes within certain other
exempt categories and, when required, demonstrates
this fact or (b) provides a correct taxpayer
identification number, certifies that such holder is
not subject to backup withholding and otherwise
complies with applicable requirements of the backup
withholding provisions.
C. Certain Federal Income Tax Consequences of the
Restructuring to the Debtors
A taxpayer generally realizes cancellation of debt
("COD") income for federal income tax purposes equal
to the amount of any indebtedness that is discharged
or canceled during the taxable year. If the
discharge is granted by a court in a Title 11
proceeding or is pursuant to a plan approved by such
a court, however, such income is excluded from the
taxpayer's taxable income under Code Section 108(a).
Under Code Section 108(b), the debtor is required to
reduce certain of its federal income tax attributes,
including any net operating loss for the taxable
year of the debt discharge and any net operating
loss carryforwards, by the amount of the COD income
excluded by reason of the Code Section 108(a).
The Company will recognize COD income to the extent
that the consideration received by its creditors
pursuant to the Plan is less than the amount of
their Claims. For this purpose, the amount of the
consideration paid to creditors is equal to the sum
of the cash, the aggregate issue price of the New
Notes (determined as described above) and the fair
market value of the New Common Stock issued to
creditors in respect of their Claims.
The amount of COD income that will be realized by
the Company will depend upon a number of variables
that cannot be predicted at this time, including the
fair market value of the New Common Stock and the
issue price of the New Notes (which, as described
above, will depend in part upon whether the Old
Notes or New Notes are traded on an established
securities market during the 60-day period ending 30
days after the issue date of the New Notes).
The Debtors expect to have substantial consolidated
NOL carryforwards from their taxable year ended
December 30, 1995, and prior taxable years. The
Debtors further expect that the amount of such NOL
carryforwards will be reduced substantially, and any
net operating loss arising in the taxable year of
the Restructuring will be eliminated, by the COD
income realized by the Company as a result of the
Restructuring (which, for the reason discussed
above, is difficult to estimate at this time). In
addition, as a result of the Restructuring, the
Company will undergo an "ownership change" within
the meaning of Code Section 382. Consequently, the
ability of the Debtors to use any remaining NOL
carryforwards, as well as any remaining net
operating loss arising in the taxable period ending
on the Effective Date of the Restructuring, in
taxable periods after the Restructuring will become
subject to an annual limitation under Code Section
382. See "FINANCIAL INFORMATION -- Projected and Pro
Forma Financial Information -- Pro Forma Projected
Statements of Operations -- Notes to 1995-1998
Statements of Operations -- Note (e)." The reduction
of and limitations on the Debtors' NOLs may
substantially increase the amount of tax payable by
the Debtors following consummation of the Joint Plan
as compared with the amount of tax that would be
payable if no such reduction and limitations were
required.
The Company presently intends to elect not to have
the provisions of Code Section 382(l)(5) apply to
the Restructuring. Rather, the Company intends to
take the position that it is entitled to determine
the Section 382 limitation under the special
exception provided in Code Section 382(l)(6) for
loss corporations that exchange stock for debt and
undergo an ownership change in a Title 11
proceeding. Under this position, the amount of
income that may be offset by the NOLs in any taxable
year ending after the Restructuring (subject to a
proration rule for the taxable year in which the
Restructuring occurs) generally will be limited to
an amount equal to the product of (a) the fair
market value of the Company's stock, determined
immediately prior to the Restructuring but taking
into account the increase in value resulting from
the cancellation of creditors' claims in the
Restructuring and (b) the "long-term tax-exempt
rate" prescribed the IRS.
If the Company has a "net unrealized built-in loss"
as of the date of the ownership change, subject to
certain limitations, any "built-in loss" recognized
during the five-year period beginning with the date
of the ownership change will be treated as a pre-
change loss and will be subject to the general
Section 382 limitation described above.
XXII. FINANCIAL ADVISORS
In December 1995, the Company retained DLJ to act as
the Company's financial advisor. DLJ has assisted
the Company in exploring certain strategic
alternatives, including the sale of the Company to a
third party, and in formulating various aspects of
the Restructuring. Also in December 1995, the
Noteholders' Committee selected Houlihan Lokey to
act as its financial advisor in connection with the
Restructuring. The Company has agreed to pay the
fees and expenses of Houlihan Lokey as described
below. See "THE RESTRUCTURING -- Restructuring
Discussions -- Retention of Restructuring
Professionals; Formation of Noteholders' Committee."
Pursuant to the letter agreement between the Company
and DLJ, DLJ received a $250,000 fee upon execution
of the agreement (which amount was paid by CD&R).
In addition, in order to facilitate the
Restructuring, CD&R intends to satisfy the Company's
other payment obligations under the DLJ letter
agreement, including the payment to DLJ of an
additional $500,000 upon acceptance and consummation
of the Plan and the reimbursement of DLJ's out-of-
pocket expenses incurred in connection with the
Restructuring. In addition, pursuant to the letter
agreement between the Company and Houlihan Lokey,
the Company has agreed to pay Houlihan Lokey a
monthly advisory fee of $80,000 through the
Effective Date, and to reimburse it for reasonable
out-of-pocket expenses arising from its work in
connection with the Restructuring. Pursuant to the
Plan, the Company will assume its agreement with
Houlihan Lokey.
The reasonable fees and expenses incurred on or
after the Filing Date by Houlihan Lokey and the
other Noteholder Advisor with respect to the
Debtors' bankruptcy cases will be paid (without
application by or on behalf of such professionals to
the Bankruptcy Court, and without notice and a
hearing, unless specifically ordered by the
Bankruptcy Court upon request of a party in
interest) by the Debtors as an Administrative
Expense under the Plan (unless any such advisor is
retained by a Official Committee pursuant to
Sections 327 or 1103 of the Bankruptcy Code). If
the Debtors and any Noteholder Advisor cannot agree
on the amount of such fees and expenses to be paid
to such Noteholder Advisor, the amount of such fees
and expenses will be determined by the Bankruptcy
Court. See "SUMMARY OF THE PLAN -- Treatment of
Unclassified Claims."
XXIII. CONCLUSION
In the view of the Debtors, the Plan presents the
holders of Claims against, and Interests in the
Debtors, their best opportunity for an early
recovery. The Debtors urge all holders of Claims
against, and Interests in, the Debtors who are
entitled to vote on the Plan to vote to accept the
Plan.
Dated: June 13, 1996.
HOMELAND STORES, INC.
By:/s/ James A. Demme
James A. Demme
President and Chief Executive Officer
HOMELAND HOLDING CORPORATION
By:/s/ James A. Demme
James A. Demme
President and Chief Executive Officer
CROWE & DUNLEVY, A PROFESSIONAL
CORPORATION
By:/s/ Kenni B. Merritt
Judy Hamilton Morse, OBA #6450
Kenni B. Merritt, OBA #6147
Roger A. Stong, OBA #11710
William H. Hoch, OBA # 15788
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
(405) 235-7700
COUNSEL TO HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
YOUNG, CONAWAY, STARGATT & TAYLOR
By:/s/ JLP/Scott D. Cousins (3079) w/permission
James L. Patton, Jr.
Rodney Square North, 11th Floor
Wilmington, Delaware 19899
(302) 571-6600
LOCAL COUNSEL TO HOMELAND STORES, INC.
AND HOMELAND HOLDING CORPORATION
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: )
)
HOMELAND STORES, INC., ) Case No. 96-747(PJW)
) Chapter 11
Debtor. )
IN RE: )
)
HOMELAND HOLDING CORPORATION, ) Case No. 96-748(PJW)
) Chapter 11
Debtor. ) Jointly Administered
FIRST AMENDED JOINT PLAN OF REORGANIZATION OF
HOMELAND STORES, INC. AND HOMELAND HOLDING CORPORATION
Homeland Stores, Inc., a Delaware corporation
("Company"), and Homeland Holding Corporation, a
Delaware corporation ("Holding" and, together with
the Company, the "Debtors"), hereby propose this
First Amended Joint Plan of Reorganization of
Homeland Stores, Inc. and Homeland Holding
Corporation ("Plan") to resolve claims against, and
interests in, the Company and Holding. The Debtors
are the proponents of the Plan within the meaning of
Section 1129 of the United States Bankruptcy Code,
as amended ("Bankruptcy Code").
The First Amended Disclosure Statement for Plan of
Reorganization of Homeland Stores, Inc. and Homeland
Holding Corporation ("Disclosure Statement")
provides certain information with respect to the
Debtors and the Plan.
Nothing in the Plan should be construed as
constituting a solicitation of acceptances of the
Plan unless and until the Disclosure Statement has
been approved and distributed to all holders of
claims and interests to the extent required by
Section 1125 of the Bankruptcy Code.
All holders are encouraged to read the Disclosure
Statement and the Plan in their entirety before
voting to accept or to reject the Plan.
ARTICLE I
DEFINED TERMS AND RULES OF INTERPRETATION
A. Defined Terms. The following terms used in the
Plan shall have the respective meanings
specified.
1. Administrative Claim. The term
"Administrative Claim" means a Claim for
administrative expenses allowed under Section
503(b) of the Bankruptcy Code and entitled to
priority in payment under Section 507(a)(1)
of the Bankruptcy Code, including, without
limitation, any actual and necessary costs
and expenses of preserving the respective
Estates and operating the businesses of the
Debtors during the Cases, any indebtedness or
obligations incurred by either Debtor during
the pendency of the Cases in connection with
the conduct of the business of, the
acquisition or the lease of property by, or
the rendition of services to, such Debtor,
all allowances of compensation for legal and
other professional services and reimbursement
of expenses to the extent allowed under
Section 330 or 503 of the Bankruptcy Code and
all Statutory Fees.
2. Affiliated Released Party. The term
"Affiliated Released Party" means each
officer, director, shareholder, affiliate,
employee, consultant, attorney, accountant,
agent and other representative of the
Debtors.
3. Allowed Claim. The term "Allowed Claim"
means any Claim against either Debtor, proof
of which has been filed with the Bankruptcy
Court, or, if no proof of Claim is filed,
which Claim has been or hereafter is listed
by such Debtor in its Schedules as liquidated
in amount, not disputed and not contingent,
and in all cases, as to which no objection to
the allowance thereof, or motion for
estimation thereof, has been interposed
within the applicable period of limitation
fixed by the Plan, the Bankruptcy Code, the
Bankruptcy Rules or the Bankruptcy Court, or
as to which an objection or motion for
estimation has been interposed, following
which such Claim has been allowed in whole or
in part by a Final Order or otherwise settled
as provided in Article VII.
4. Allowed . . . Claim. The term "Allowed . . .
Claim" means an Allowed Claim of the type
described or in the Class described, as the
case may be.
5. Allowed Interest. The term "Allowed
Interest" means an Interest registered as of
the Record Date in the stock register
maintained by, or on behalf of, Holding or
the Company, as the case may be.
6. Allowed . . . Interest. The term "Allowed .
. . Interest" means an Allowed Interest of
the type described or in the Class described,
as the case may be.
7. Amended Holding Charter. The term "Amended
Holding Charter" means the amended and
restated certificate of incorporation of the
Company containing substantially the terms
summarized in the Disclosure Statement and
contained in the Plan Supplement.
8. Amended Homeland Charter. The term "Amended
Homeland Charter" means the amended and
restated certificate of incorporation of the
Company containing substantially the terms
summarized in the Disclosure Statement and
contained in the Plan Supplement.
9. Bankruptcy Code. The term "Bankruptcy Code"
means the Bankruptcy Reform Act of 1978, as
amended, as set forth in Title 11 of the
United States Code.
10. Bankruptcy Court. The term "Bankruptcy
Court" means the United States Bankruptcy
Court for the District of Delaware or, if the
United States Bankruptcy Court for the
District of Delaware ceases to exercise
jurisdiction over the Cases, the court that
exercises jurisdiction over the Cases in lieu
of the United States Bankruptcy Court for the
District of Delaware.
11. Bankruptcy Rules. The term "Bankruptcy
Rules" means, collectively, the Federal Rules
of Bankruptcy Procedure, as amended, and the
Local Bankruptcy Rules for the United States
Bankruptcy Court for the District of
Delaware, as amended.
12. Business Day. The term "Business Day"
means any day, other than a Saturday, a
Sunday or a "legal holiday," as defined in
Rule 9006(a) of the Bankruptcy Rules.
13. Case. The term "Case" means the
Homeland Case or the Holding Case.
14. Cash Amount. The term "Cash Amount"
means the cash sum of $1,500,000.
15 Claim. The term "Claim" means any right
to payment from either Debtor arising before
the Effective Date, whether or not such right
is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal,
equitable, secured or unsecured; or any right
arising or incurred before the Effective Date
of the Plan to an equitable remedy for breach
of performance if such breach gives rise to a
right to payment from either Debtor, whether
or not such right to an equitable remedy is
reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed,
secured or unsecured.
16. Class. The term "Class" means a class
of Claims against, or Interests in, a Debtor
as defined in Article II of the Plan.
17. Company. The term "Company" means
Homeland Stores, Inc., a Delaware
corporation.
18. Confirmation. The term "Confirmation"
means the entry of the Confirmation Order
entered by the Bankruptcy Court with respect
to the Plan pursuant to Section 1129 of the
Bankruptcy Code.
19. Confirmation Date. The term
"Confirmation Date" means the date on which
the Bankruptcy Court enters the Confirmation
Order on its docket.
20. Confirmation Hearing. The term
"Confirmation Hearing" means the hearing
before the Bankruptcy Court on the
confirmation of the Plan pursuant to Section
1129 of the Bankruptcy Code.
21. Confirmation Order. The term
"Confirmation Order" means the order of the
Bankruptcy Court confirming the Plan pursuant
to Section 1129 of the Bankruptcy Code.
22. Debtor. The term "Debtor" means either
Homeland Stores, Inc., a Delaware
corporation, or Homeland Holding Corporation,
a Delaware corporation, in their respective
individual corporate or other capacity and in
their respective capacity as debtor and
debtor-in-possession under Chapter 11 of the
Bankruptcy Code.
23. Disclosure Statement. The term
"Disclosure Statement" means the First
Amended Disclosure Statement for Joint Plan
of Reorganization of Homeland Stores, Inc.
and Homeland Holding Corporation relating to
the Plan, as such statement is amended,
supplemented or modified from time to time,
that is prepared and distributed pursuant to
Sections 1125, 1126(b) and 1145 of the
Bankruptcy Code and Bankruptcy Rule 3018.
24. Disputed Claim. The term "Disputed
Claim" means any Claim against either Debtor
(a) listed on the schedules of either Debtor
as unliquidated, disputed or contingent, or
(b) as to which either Debtor or any other
party in interest has interposed a timely
objection or request for estimation in
accordance with the Bankruptcy Code and the
Bankruptcy Rules, which objection or request
has not been withdrawn or determined by a
Final Order or otherwise settled as provided
in Article VII.
25. Disputed Class 5 Claims Reserve. The
term "Disputed Class 5 Claims Reserve" means
the reserve established by the Debtors on the
Effective Date for the account of each a
holder of a Disputed Claim which, if allowed,
would be a Class 5 Claim.
26. Disputed Interest. The term "Disputed
Interest" means any asserted Interest (other
than an Allowed Interest) in either Debtor as
to which either Debtor or any other party in
interest has interposed a timely objection in
accordance with the Bankruptcy Code and the
Bankruptcy Rules, which objection or request
has not been withdrawn or determined by a
Final Order or otherwise settled as provided
in Article VII.
27. Distribution Agent. The term
"Distribution Agent" means the Person
selected by the Reorganized Debtors to make
distributions pursuant to the Plan, which
Person may be a Reorganized Debtor and shall
be employed on such terms as may be
determined by the Reorganized Debtors, in
their sole discretion.
28. District Court. The term "District
Court" means the United States District Court
for the District of Delaware.
29. Effective Date. The term "Effective
Date" means the first Business Day on which
all of the conditions to the Effective Date
set forth in Article VIII have been satisfied
or waived as provided in Article VIII.
30. Equity Registration Rights Agreement.
The term "Equity Registration Rights
Agreement" means the Equity Registration
Rights Agreement, dated as of the Effective
Date, executed by Reorganized Holding in
favor of the holders of the Old Common Stock
containing substantially the terms summarized
in the Disclosure Statement and contained in
the Plan Supplement.
31. Estate. The term "Estate" means the
Homeland Estate or the Holding Estate.
32. Estate Release. The term "Estate
Release" means the release of the Debtors
referred to in Article IV(J).
33. Excluded Claims. The term "Excluded
Claims" means any Claim, obligation, right,
cause of action or liability relating to: (a)
any indebtedness of any Affiliated Released
Party or any such entity for money borrowed;
(b) any set-off or any counterclaim which the
Debtors, or either of them, may have or
assert against an Affiliated Released Party,
provided that the aggregate amount thereof
shall not exceed the aggregate amount of any
Claims held or asserted by such Affiliated
Released Party against the Debtors; c the
uncollected amount of any Claim made by the
Debtors, or either of them, (whether in a
filed pleading, by letter or otherwise) prior
to the Effective Date against an Affiliated
Released Party, which Claim has not been
adjudicated to Final Order, settled or
compromised; or (d) any Claim arising from
the fraud, willful misconduct or gross
negligence of an Affiliated Released Party.
34. Fee Claim. The term "Fee Claim" means
any Claim asserted by a Person retained or
requesting compensation in the Cases pursuant
to Section 327, Section 328, Section 330,
Section 331, Section 503(b), Section 1103 or
Section 1129(a)(4) of the Bankruptcy Code.
35. Filing Date. The term "Filing Date"
means May 13, 1996, the date on which the
petitions for relief under Chapter 11 of the
Bankruptcy Code with respect to the Debtors
were filed.
36. Final Order. The term "Final Order"
means an order of the Bankruptcy Court, as
entered by the clerk of the Bankruptcy Court
on a docket in, or related to, the Cases, or
an order of another court of competent
jurisdiction that the Bankruptcy Court has
specifically permitted to proceed to enter
such order, as entered by the clerk of such
court on the appropriate docket, as to which
the time to appeal or to seek certiorari has
expired and no appeal or petition for
certiorari has been timely taken or as to
which any appeal that has been or may be
taken or any petition for certiorari that has
been or may be filed has been resolved by the
highest court to which the order was appealed
or from which certiorari was sought and the
time to appeal or any extension thereof or to
seek certiorari of such appellate order has
expired.
37. Financing Order. The term "Financing
Orders" means (a) the Joint Stipulation and
Agreed Order Authorizing Interim Financing,
Granting Senior Liens and Providing
Administrative Expense Status, Providing for
Adequate Protection, Modifying the Automatic
Stay, and Authorizing Debtors to Enter into
Agreements with Lenders and Agent, (b) the
Joint Stipulation and Agreed Order Extending
Interim Financing, Granting Senior Liens and
Priority Administrative Expense Status,
Providing for Adequate Protection and
Modifying Automatic Stay and (c) the Joint
Stipulation and Agreed Order Authorizing
Final Financing, Granting Senior Liens and
Providing Administrative Expense Status,
Providing for Adequate Protection, Modifying
the Automatic Stay, and Authorizing Debtors
to Enter into Agreements with Lenders and
Agent.
38. Holding. The term "Holding" means
Homeland Holding Corporation, a Delaware
corporation.
39. Holding Case. The term "Holding Case"
means the case styled In re Homeland Holding
Corporation, Debtor, Case No. 96-748(PJW),
pending before the Bankruptcy Court.
40. Holding Charter. The term "Holding
Charter" means the certificate of
incorporation of Holding as in effect on the
Filing Date.
41. Holding Estate. The term "Holding
Estate" means the estate created for Holding
pursuant to Section 541 of the Bankruptcy
Code upon commencement of the Holding Case.
42. Homeland Case. The term "Homeland Case"
means the case styled In re Homeland Stores,
Inc., Debtor, Case No. 96-747(PJW), pending
before the Bankruptcy Court.
43. Homeland Charter. The term "Homeland
Charter" means the certificate of
incorporation of the Company as in effect on
the Filing Date.
44. Homeland Common Stock. The term
"Homeland Common Stock" means the shares of
Common Stock, par value $.01 per share, of
the Company issued and outstanding on the
Filing Date.
45. Homeland Estate. The term "Homeland
Estate" means the estate created for the
Company pursuant to Section 541 of the
Bankruptcy Code upon commencement of the
Homeland Case.
46. Indemnification Agreements. The term
"Indemnification Agreements" means,
collectively, (a) the Indemnification
Agreement, dated as of August 14, 1990, by
and among Holding, the Company, Clayton &
Dubilier, Inc. and The Clayton & Dubilier
Private Equity Fund III Limited Partnership
and (b) the Indemnification Agreement, dated
as of March 4, 1992, by and among Holding,
the Company, Clayton & Dubilier, Inc., The
Clayton & Dubilier Private Equity Fund III
Limited Partnership and The Clayton &
Dubilier Private Equity Fund IV Limited
Partnership.
47. Indemnitees. The term "Indemnitees"
means those Persons named as "Indemnitees" in
the Indemnification Agreements.
48. Insured Claim. The term "Insured Claim"
means any Claim arising from an incident or
an occurrence that is covered, in whole or in
part, under a contract of insurance between
the Debtor and an Insurer.
49. Insurer. The term "Insurer" means any
Person that provides insurance to a Debtor
pursuant to a contract of insurance.
50. Interest. The term "Interest" means any
right or equity interest in either Debtor
represented by the Homeland Common Stock, the
Old Common Stock or the Old Warrants.
51. Management Stock Option Plan. The term
"Management Stock Option Plan" means the
management stock option plan of Reorganized
Holding.
52. Modified Union Agreements. The term
"Modified Union Agreements" means the
separate collective bargaining agreements,
dated no later than the Effective Date,
described in the Disclosure Statement under
"DESCRIPTION OF MODIFIED UNION AGREEMENTS"
and containing terms substantially similar to
the terms summarized therein.
53. New Common Stock. The term "New Common
Stock" means the shares of Common Stock, par
value $.01 per share, of Reorganized Holding
to be issued by Reorganized Holding pursuant
to the Plan and the Amended Holding Charter.
54. New Credit Agreement. The term "New
Credit Agreement" means an agreement, dated
as of the Effective Date, among the
Reorganized Debtors and certain financial
institutions, pursuant to which the
Reorganized Debtors shall have, among other
things, credit availability from and after
the Effective Date. Such agreement may be an
amendment and restatement of the Old Credit
Agreement.
55. New Indenture. The term "New Indenture"
means the Indenture, dated as of the
Effective Date, among the Reorganized
Company, as issuer, Reorganized Holding, as
guarantor, and the New Trustee containing
substantially the terms summarized in the
Disclosure Statement and contained in the
Plan Supplement.
56. New Notes. The term "New Notes" means
the 10% Senior Subordinated Notes due 2003 to
be issued in an aggregate principal amount of
$60,000,000 by the Reorganized Company
pursuant to the Plan and the New Indenture.
57. New Securities. The term "New
Securities" means, collectively, the New
Notes, the New Common Stock and the New
Warrants.
58. New Trustee. The term "New Trustee"
means the indenture trustee with respect to
the New Notes.
59. New Warrant Agent. The term "New
Warrant Agent" means the warrant agent with
respect to the New Warrants.
60. New Warrant Agreement. The term "New
Warrant Agreement" means the Warrant
Agreement, dated as of the Effective Date, by
and between Reorganized Holding and the New
Warrant Agent containing substantially the
terms summarized in the Disclosure Statement
and contained in the Plan Supplement.
61. New Warrants. The term "New Warrants"
means the Warrants to purchase up to 263,150
shares of New Common Stock to be issued by
Reorganized Holding pursuant to the Plan and
the New Warrant Agreement.
62. Noteholder Advisor. The term
"Noteholder Advisor" means Paul, Weiss,
Rifkind, Wharton & Garrison, Houlihan, Lokey,
Howard & Zukin and Potter, Anderson &
Corroon.
63. Noteholder Registration Rights
Agreement. The term "Noteholder Registration
Rights Agreement" means the Noteholder
Registration Rights Agreement, dated as of
the Effective Date, executed by the
Reorganized Debtors in favor of the holders
of Class 5 Claims who were the holders of the
Old Notes, containing substantially the terms
summarized in the Disclosure Statement and
contained in the Plan Supplement.
64. Noteholders' Committee. The term
"Noteholders' Committee" means the ad hoc
committee representing certain holders of Old
Notes.
65. Official Committee. The term "Official
Committee" means any official committee
appointed in the Cases pursuant to Section
1102 of the Bankruptcy Code.
66. Old Agent. The term "Old Agent"means
National Bank of Canada, in its capacity as
agent under the Old Credit Agreement.
67. Old Banks. The term "Old Banks" means
Heller Financial, Inc. and National Bank of
Canada, in their capacity as lenders, under
the Old Credit Agreement.
68. Old Class B Common Stock. The term "Old
Class B Common Stock" means Holding's Class B
Common Stock, par value $.01 per share.
69. Old Common Stock. The term "Old Common
Stock" means the shares of Class A Common
Stock, par value $.01 per share, of Holding
issued and outstanding as of the Filing Date.
70. Old Credit Agreement. The term "Old
Credit Agreement" means the Amended and
Restated Revolving Credit Agreement, dated as
of April 21, 1995, as amended, by and among
the Reorganized Debtors, the Old Banks and
the Old Agent.
71. Old Indenture. The term "Old Indenture"
means the Indenture, dated as of March 4,
1992, as supplemented, among the Company, as
issuer, Holding, as guarantor, and the Old
Trustee.
72. Old Notes. The term "Old Notes" means
the Series A Senior Secured Floating Rate
Notes due 1997, the Series C Senior Secured
Fixed Rate Notes due 1999 and the Series D
Senior Secured Floating Rate Notes due 1997,
in each case issued by the Company pursuant
to the Old Indenture.
73. Old Trustee. The term "Old Trustee"
means United States Trust Company of New
York, in its capacity as trustee and
collateral trustee under the Old Indenture.
74. Old Trustee Expenses. The term "Old Trustee
Expenses" means any unpaid Old Trustee's
fees, and reasonable unpaid out-of-pocket
costs or expenses incurred through the
Effective Date by the Old Trustee, including,
without limitation, reasonable out-of-pocket
costs and expenses and reasonable fees of
legal counsel to the Old Trustee, which are
secured or which are entitled to be secured
under the Old Indenture by a lien or other
priority in payment against distributions to
be made to holders of Claims under the Old
Indenture.
75. Old Warrants. The term "Old Warrants"
means the warrants to purchase Old Common
Stock issued and outstanding as of the Filing
Date.
76. Other Released Party. The term "Other
Released Party" means, collectively, (a) any
Official Committee and, solely in their
capacity as members or representatives of
such Official Committee, each member,
consultant, attorney, accountant or other
representative of such Official Committee,
(b) the Unofficial Committee and, solely in
their capacity as members or representatives
of the Unofficial Committee, each member,
consultant, attorney, accountant or other
representative of the Unofficial Committee,(c)
the Old Banks and each consultant, attorney,
accountant or other representative of the Old
Banks and (d) the Old Trustee and each
consultant, attorney, accountant or other
representative of the Old Trustee.
77. Person. The term "Person" means an
individual, a corporation, a partnership, an
association, a joint stock company, a joint
venture, a limited liability company, an
estate, a trust, an unincorporated
organization, a government or any public
subdivision thereof or other entity.
78. Plan. The term "Plan" means the First
Amended Joint Plan of Reorganization of
Homeland Stores, Inc. and Homeland Holding
Corporation as set forth herein, as the same
may be amended or modified by the Debtors
from time to time pursuant to the Plan, the
Bankruptcy Code or the Bankruptcy Rules.
79. Plan Documents. The term "Plan
Documents" means the New Indenture, the New
Warrant Agreement and the Registration Rights
Agreements, substantially in the form
contained in the Plan Supplement.
80. Plan Supplement. The term "Plan
Supplement" means the supplement which shall
be filed as soon as practicable after the
Filing Date with the clerk of the Bankruptcy
Court, containing the Plan Documents.
81. Priority Tax Claim. The term "Priority
Tax Claim" means a Claim entitled to priority
pursuant to Section 507(a)(8) of the
Bankruptcy Code, but only to the extent such
Claim is entitled to such priority.
82. Ratable Share. The term "Ratable Share"
means a number (expressed as a percentage)
equal to the proportion that an Allowed Claim
or an Allowed Interest, as the case may be,
in a particular Class bears to the aggregate
amount of all Allowed Claims or all Allowed
Interests, as the case may be, in such Class
as of the date of determination.
83. Record Date. The term "Record Date"
means the Confirmation Date.
84. Registration Rights Agreements. The
term "Registration Rights Agreements" means,
collectively, the Equity Registration Rights
Agreement and the Noteholder Registration
Rights Agreement.
85. Released Parties. The term "Released
Parties' means , collectively, (a) the
Affiliated Released Parties and (b) the Other
Released Parties.
86. Reorganized Company. The term
"Reorganized Company" means the Company on
and after the Effective Date.
87. Reorganized Debtor. The term
"Reorganized Debtor" means the Reorganized
Company or Reorganized Holding.
88. Reorganized Holding. The term
"Reorganized Holding" means Holding on and
after the Effective Date.
89. Schedules. The term "Schedules" means
the respective statements of assets and
liabilities and statements of financial
affairs filed by the Debtors with the
Bankruptcy Court pursuant to Section 521 of
the Bankruptcy Code and Bankruptcy Rule 1007.
90. Secured Claim. The term "Secured Claim"
means a Claim that is secured by a lien on,
or a security interest in, property in which
an Estate has an interest or that is subject
to setoff under Section 553 of the Bankruptcy
Code to the extent of the value of the
holder's interest in the interest of such
Estate in such property or to the extent of
the amount subject to setoff, as the case may
be, as determined pursuant to Section 506(a)
of the Bankruptcy Code.
91. Secured Noteholder Claims. The term
"Secured Noteholder Claims" means the Secured
Claims of the holders of the Old Notes
against either Debtor, arising from, under,
or in connection with, the issuance or the
ownership of the Old Notes or any guarantee
thereof.
92. Statutory Fees. The term "Statutory
Fees" means all of the fees payable to the
United States Trustee pursuant to 28 U.S.C.
1930.
93. Unsecured Claim. The term "Unsecured
Claim" means any Claim that is not an
Administrative Claim, a Priority Tax Claim or
a Secured Claim.
94. Unsecured Noteholder Claims. The term
"Unsecured Noteholder Claims" means the
Unsecured Claims of the holders of the Old
Notes against either Debtor, arising from,
under, or in connection with, the issuance or
the ownership of, the Old Notes or any
guarantee thereof.
B. Rules of Interpretation. The following rules
shall be used in construing and interpreting
the Plan:
1. Application of Section 102 of the Bankruptcy
Code. The rules of construction contained in
Section 102 of the Bankruptcy Code apply to
the construction and the interpretation of
the Plan.
2. Article and Section References. Unless
otherwise expressly stated in the Plan, all
references to Articles and Sections shall
refer to the Articles and the Sections of the
Plan.
3. Calculation of Time. Any period of time
under the Plan shall be computed in
accordance with Rule 9006(a) of the
Bankruptcy Rules.
4. Singular and Plural Terms. Whenever the
context is appropriate, each term, whether
stated in the singular or the plural, shall
include both the singular and the plural.
5. Use of Article and Section Headings.
Headings for Articles and Sections have been
inserted in the Plan solely for convenience
of reference and are not intended to be a
part of, or to affect the construction or the
interpretation of, the Plan.
C.Plan Supplement. Forms of the New Indenture,
the New Warrant Agreement, the Registration
Rights Agreements, the Amended Holding Charter
and the Amended Homeland Charter shall be
contained in a separate Plan Supplement which
shall be filed with the Bankruptcy Court as
soon as practicable after the Filing Date. The
Plan Supplement may be inspected after such
filing in the office of the clerk of the
Bankruptcy Court during normal office hours of
the clerk of the Bankruptcy Court. Holders of
Claims and Interests may obtain a copy of the
Plan Supplement upon written request to the
Debtors. The Plan Supplement is incorporated
into, and is a part of the Plan, as if set
forth in full herein, and all references herein
to the Plan shall refer to the Plan together
with the Plan Supplement.
ARTICLE II
CLASSES OF CLAIMS AND INTERESTS
A. Classification of Claims and Interests in the
Debtors. All Claims against, and Interests
in, the Debtors (other than Administrative
Claims and Priority Tax Claims) are classified
in the following Classes:
1. Class 1 - Allowed Priority Claims. Class 1
consists of Allowed Claims which are entitled
to priority under Section 507(a) of the
Bankruptcy Code (other than Administrative
Claims and Priority Tax Claims).
2. Class 2 - Allowed Secured Claims of the Old
Banks. Class 2 consists of the Allowed
Secured Claims of the Old Banks under the Old
Credit Agreement.
3. Class 3 - Allowed Secured Noteholder Claims.
Class 3 consists of the Allowed Secured
Noteholder Claims. The aggregate amount of
the Allowed Secured Noteholder Claims shall
be equal to $61,500,000.
4. Class 4 - Allowed Miscellaneous Secured
Claims. Class 4 consists of Allowed Secured
Claims (other than Class 2 Claims and Class 3
Claims). Class 4 Claims include, without
limitation, Claims secured by equipment in
connection with equipment financings and
Claims secured by mechanic_s, materialmen_s
and artisan_s liens on miscellaneous personal
and/or real property. Each Class 4 Claim is
treated for all purposes under the Bankruptcy
Code and the Plan as a separate sub-Class.
5. Class 5 - General Unsecured Claims. Class 5
consists of all Allowed Unsecured Claims
(other than Administrative Claims, Priority
Tax Claims and Claims otherwise classified).
Class 5 Claims shall include, without
limitation, Allowed Unsecured Noteholder
Claims. The aggregate amount of Allowed
Unsecured Noteholder Claims shall be equal to
$40,100,000.
6. Class 6 - Allowed Interests of Holding as
Sole Shareholder of Homeland Common Stock.
Class 6 consists of the Allowed Interests of
Holding as the sole holder of the Homeland
Common Stock.
7. Class 7 - Allowed Interests of Holders of Old
Common Stock. Class 7 consists of the Allowed
Interests of holders of the Old Common Stock.
8. Class 8 - Allowed Interests of Holders of Old
Warrants. Class 8 consists of the Allowed
Interests of holders of the Old Warrants.
A Claim or an Interest is classified in a Class only
to the extent that Claim or that Interest falls
within the description of that Class and is
classified in another Class to the extent that Claim
or that Interest falls within the description of the
other Class. For purposes of receiving a
distribution under the Plan, a Claim or an Interest
is classified in a Class only to the extent that the
Claim or the Interest is an Allowed Claim or an
Allowed Interest in that Class and only to the
extent the Claim or the Interest has not been
otherwise satisfied prior to the date on which any
distribution is to be made under the Plan.
B. Unclassified Claims. Administrative Claims and
Priority Tax Claims against the Company and
Holding are not classified under the Plan.
ARTICLE III
TREATMENT OF CLAIMS AND INTERESTS
A. Treatment of Administrative Claims. Unless
otherwise agreed to by a holder of an Allowed
Administrative Claim, each such holder shall
be paid in full, in cash, in an amount equal
to such holder_s Allowed Administrative Claim
on the later of (1) the Effective Date and
(2) the date on which such Claim becomes an
Allowed Claim; provided, however, that (a)
all Statutory Fees shall be paid in
accordance with applicable law and (b)
Administrative Claims which represent
liabilities incurred by a Debtor in the
ordinary course of business (including,
without limitation, Administrative Claims
owed to suppliers that have sold products or
furnished goods or services to either Debtor
after the Filing Date) shall be paid by the
relevant Debtor when due in accordance with
the terms of the particular transaction and
agreements relating thereto.
The Reorganized Debtors shall pay the
reasonable fees and expenses incurred on or after
the Effective Date by the Noteholder Advisors
(without application by, or on behalf of, any such
Noteholder Advisor to the Bankruptcy Court and
without notice and a hearing, unless specifically
ordered by the Bankruptcy Court upon request of a
party in interest) as an Administrative Claim
(unless any such Noteholder Advisor has been
retained by a Official Committee pursuant to
Sections 327 or 1103 of the Bankruptcy Code). If the
Reorganized Debtors and any Noteholder Advisor
cannot agree on the amount of fees and expenses to
be paid to such Noteholder Advisor, the amount of
such fees and expenses shall be determined by the
Bankruptcy Court.
Notwithstanding anything else contained in
the Plan and notwithstanding the confirmation of the
Plan, the secured Administrative Claims held by the
Old Banks in connection with post-petition advances
and other financial accommodations given by the Old
Banks under the Financing Orders shall be entitled
to all of the liens, protections, benefits and
priorities granted them in the Financing Orders
All such liens, protections, benefits and priorities
granted to the Old Banks in such orders shall
continue until their Administrative Claims are
indefeasibly paid in full, which Administrative
Claims, by reason of the Financing Orders, (1) are
allowed and payable in their entirety, (2) include
unpaid principal and accrued but unpaid interest
through the date of full payment of the
Administrative Claims of the Old Banks and (3) are
secured by the reason of the first, valid, prior and
perfected liens and security interests granted
under, or in connection with the Old Credit
Agreement and confirmed by the Financing Orders.
The Old Banks_ secured Administrative Claims shall
be paid in full on the Effective Date through
advances made under the New Credit Agreement.
B.Priority Tax Claims. Unless otherwise agreed
to by a holder of an Allowed Priority Tax
Claim, each such holder shall (at the option
of the Reorganized Debtors), (1) be paid in
full, in cash, on the later of (a) the
Effective Date and (b) the date on which such
Allowed Priority Tax Claim becomes an Allowed
Claim or (2) be paid deferred cash payments
over a period not exceeding six years after
the date of assessment equal to (in the
aggregate) the amount of the Allowed Priority
Tax Claim, including an interest component
as required by Section 1129(a)(9)c. In
fixing such interest component, the Debtors
shall use the federal judgment rate in effect
on the Confirmation Date, unless the
Bankruptcy Court determines otherwise. If a
Reorganized Debtor elects to make deferred
cash payments, the Reorganized Debtor shall
make six equal annual principal payments,
with accrued interest, commencing on the
later of (1) the Effective Date and (2) the
date on which such Allowed Priority Tax Claim
becomes an Allowed Claim.
To the extent that a Reorganized Debtor
elects to make deferred cash payments on any
Allowed Priority Tax Claim, the Reorganized
Debtor may prepay the remaining amount of
such Allowed Priority Tax Claim at any time,
without penalty or premium.
C. Treatment of Unimpaired Classes. Claims in
Class 1, Class 2, Class 4, Class 6 and Class
8 are not impaired under the Plan.
Therefore, pursuant to Section 1126(f) of the
Bankruptcy Code, the holders of Claims and
Interests in such Classes are conclusively
presumed to have accepted the Plan. The
unimpaired Claims against, and Interests in,
the Debtors will be treated in the following
manner under the Plan:
1. Class 1 - Allowed Priority Claims. Unless
otherwise agreed to by a holder of a Class
1 Claim, each such holder shall be paid in
full, in cash, in an amount equal to such
holder' Class 1 Claim on the later of (a)
the Effective Date and (b) the date on
which such Class 1 Claim becomes an
Allowed Claim.
2.Class 2 - Allowed Claims of the Old Banks.
Each Class 2 Claim shall be (a) paid in
full, in cash, or (b) satisfied by the
execution and the delivery of the New
Credit Agreement by, among other Persons,
the Old Banks and the modification of the
Old Credit Agreement in accordance with
the terms of the New Credit Agreement (in
which case, the Class 2 Claims, as so
modified, shall continue to be secured by
the collateral which secured the Class 2
Claims on the Filing Date and shall also
be secured by certain additional
collateral described in the Disclosure
Statement).
Notwithstanding anything else contained in
the Plan and notwithstanding the
confirmation of the Plan, the Old Banks
olding Class 2 Claims shall be entitled
to all of the liens, the protections, the
benefits and the priorities granted them
in, or confirmed by, the Financing Orders.
All such liens, protections, benefits and
priorities granted to the Old Banks in
such orders shall continue until their
Class 2 Claims are indefeasibly paid in
full, which Class 2 Claims, by reason of
the Financing Orders, (a) are allowed and
payable in their entirety, (b) include
unpaid principal and accrued but unpaid
interest through the date of full payment
of the Class 2 Claims of the Old Banks and
(iii) are secured by the reason of the
first, valid, prior and perfected liens
and security interests granted under, or
in connection with, the Old Credit
Agreement and confirmed by the Financing
Orders. Moreover, the contingent Class 2
Claims of the Old Banks, to the extent
that they become non-contingent, shall be
paid in full on the earlier of May 12,
1997, or the Effective Date.
3.Class 4 - Allowed Miscellaneous Secured
Claims. At the option of the relevant
Debtor, each Allowed Claim in any subclass
of Class 4 shall (unless the holder of any
such Class 4 Claim agrees to a different
treatment) (a) be unaltered as to the
legal, equitable and contractual rights to
which such Class 4 Claim entitles the
holder thereof or (b) be treated in
another manner that will not result in the
impairment of such Class 4 Claim under
Section 1124 of the Bankruptcy Code. Each
Class 4 Claim shall be treated for all
purposes of the Plan and the Bankruptcy
Code as a separate subclass. The Plan
does not alter the rights of any holder of
a Class 4 Claim in any collateral securing
the Class 4 Claim as of the Filing Date
and the liens and the security interests
securing each Class 4 Claim are ratified
and affirmed.
4.Class 6 - Allowed Interests of Holding as
Sole Holder of Homeland Common Stock. The
legal, equitable and contractual rights of
the holder of Class 6 Interests shall not
be altered by the Plan.
5.Class 8 - Allowed Interests of the Holders
of the Old Warrants. The legal, equitable
and contractual rights of each holder of a
Class 8 Interest shall not be altered by
the Plan.
D. Treatment of Impaired Classes. Claims and
Interests in Class 3, Class 5 and Class 7 are
impaired. Therefore, the holders of Claims
and Interests in such Classes are entitled to
vote to accept or to reject the Plan. The
impaired Classes of Claims against, and
Interests in, the Debtors will be treated in
he following manner under the Plan:
1.Class 3 - Allowed Secured Noteholder
Claims. Unless otherwise agreed to by a
holder of a Class 3 Claim, each such
holder shall receive its Ratable Share of
(a) the New Notes and (b) the Cash Amount.
The Debtors shall pay to the Old Trustee
an amount equal to the amount of the Old
Trustee Expenses. Payment of such
expenses shall constitute distributions on
account of Class 3 Claims, in addition to
the distributions provided for under the
Plan to holders of Class 3 Claims; and
distributions otherwise provided under the
Plan to holders of Allowed Secured
Noteholder Claims shall not be reduced on
account of such payment of Old Trustee
Expenses. Notwithstanding anything in the
Plan to the contrary, the Debtors'
obligation to pay the Old Trustee Expenses
shall be subject to the bar date and
dispute resolution provisions set forth in
the Plan.
2.Class 5 - General Unsecured Claims.
Unless otherwise agreed to by a holder of
a Class 5 Claim, each such holder shall
receive its Ratable Share of 4,450,000
shares of New Common Stock on the later of
(a) the Effective Date and (b) the date on
which such Claim becomes an Allowed Claim.
Any covered portion of any Class 5 Claim
which is an Insured Claim shall be paid by
the applicable Insurer to the extent of
such coverage. The Debtors reserve the
right to consent to the modification of
the automatic stay imposed by Section 362
of the Bankruptcy Court so as to permit
the prosecution of Insured Claims solely
to the extent of such coverage.
3.Class 7 - Allowed Interests of Holders of
Old Common Stock. Unless otherwise agreed
to by a holder of a Class 7 Interest, each
such holder shall receive its Ratable
Share of (a) 250,000 shares of New Common
Stock and (b) the New Warrants.
ARTICLE IV
MEANS FOR IMPLEMENTATION OF THE PLAN
A. Operation as Debtor-in-Possession Until
the Effective Date. Until the Effective Date, the
Debtors shall operate their respective businesses as
debtors-in-possession pursuant to Section 1107 and
Section 1108 of the Bankruptcy Code. After the
Effective Date, the Reorganized Debtors shall
operate their businesses and may buy, use, acquire
and dispose of their assets free of any restrictions
contained in the Bankruptcy Code or imposed by the
Bankruptcy Court, except as provided in the Plan,
the Plan Supplement and the Confirmation Order.
B. Issuance of New Securities. Reorganized
Holding shall be deemed to have authorized and, on
the Effective Date, shall issue the requisite shares
of New Common Stock and the requisite New Warrants.
The Reorganized Company shall be deemed to have
authorized and, on the Effective Date, shall issue
the New Notes.
C. Listing of New Common Stock; Exchange Act
Filing. Reorganized Holding shall use its best
efforts to (1) cause, as promptly as
practicable after the Effective Date, the
shares of New Common Stock to be listed on the
NASDAQ National Market System (or, in the event
Reorganized Holding fails to meet the listing
requirements of the NASDAQ National Market
System, on such other exchange or system on
which the New Common Stock may be listed) and
(2) (a) file, within 60 days of the Effective
Date, a Form 10 registration statement with
respect to the New Common Stock under the
Securities Act of 1934, as amended, and (b)
cause such registration statement to remain
effective until the earlier of (x) the seventh
anniversary of the Effective Date and (y) the
first date on which less than 10% of the
outstanding New Common Stock is publicly held.
D. Effectiveness of Agreements. On the Effective
Date, the following agreements shall become
effective: (1) the New Credit Agreement; (2)
the New Indenture; (3) the New Warrant
Agreement; (4) the Registration Rights
Agreements; and (5) the Modified Union
Agreements.
E. Charter Amendments. On the Effective Date, (1)
the Holding Charter shall be amended and
restated to eliminate the Old Common Stock and
the Old Class B Common Stock, to authorize the
issuance of the New Common Stock and to include
a provision that prohibits the issuance of
nonvoting securities to the extent required by
Section 1123(a)(6) of the Bankruptcy Code and
(2) the Homeland Charter shall be amended and
restated to include a provision that prohibits
the issuance of nonvoting securities to the
extent required by Section 1123(a)(6) of the
Bankruptcy Code.
F. Management/Boards of Directors. The executive
officers of the Company and Holding immediately
before confirmation of the Plan shall continue
to serve in their respective capacities after
confirmation of the Plan. On the Effective
Date, the Board of Directors of each
Reorganized Debtor shall consist of (1) James
A. Demme, (2) John A. Shields, (3) one Person
designated by the United Food and Commercial
Workers Union of North America and (4) four
Persons designated by the Unofficial Committee.
Prior to confirmation of the Plan, in
accordance with Section 1129(a)(5) of the
Bankruptcy Code, the Company and Holding shall
disclose (a) the identity and affiliations of
any individual proposed to serve, after
confirmation of the Plan, as a director of the
Company or Holding, as the case may be, and (b)
the identity of any "insider" (as such term is
defined in Section 101(31) of the Bankruptcy
Code) who shall be employed and retained by the
Company or Holding, and the nature of any
compensation for such insider. On and after
the Effective Date, each officer and director
shall hold his or her office on the terms, and
subject to the conditions, set forth in the
Amended Homeland Charter, the Amended Holding
Charter and the amended and restated bylaws of
the relevant Reorganized Debtor.
G. Management Stock Option Plan. On the Effective
Date, 263,158 shares of New Common Stock shall
be reserved for issuance under the Management
Stock Option Plan. The terms and the
conditions of the Management Stock Option Plan
(including the identity of the participants and
the number of options to be granted) shall be
determined by the Board of Directors of
Reorganized Holding.
H. Retiree Benefits. From and after the Effective
Date, to the extent required by Section
1129(a)(13) of the Bankruptcy Code, the
Reorganized Debtors shall continue to pay all
retiree benefits (as defined in Section 1114 of
the Bankruptcy Code), if any, established or
maintained by the Debtors prior to the
Effective Date.
Notwithstanding anything else contained in the
Plan, in the event that the Homeland Stores,
Inc. Employees' Retirement Plan does not
terminate prior to the Confirmation Date of the
Plan, all Claims of, or with respect to, such
retirement plan (including the contingent Claim
of the Pension Benefit Guaranty Corporation
pursuant to 29 U.S.C. 1362(b) for unfunded
benefit liabilities of such retirement plan and
the contingent Claim of the Pension Benefit
Guaranty Corporation pursuant to 29 U.S.C.
1362(b) for due and unpaid employer
contributions owing to such retirement plan)
shall not be affected by the confirmation of
the Plan, and such Claims shall not be
discharged or released or otherwise affected by
the Plan or the Cases.
I. Workers_ Compensation Claims under Prior Self-
Insurance Program. The Company's obligations
with respect to its self-insurance program in
existence prior to July 1994, for Oklahoma
workers' compensation purposes were secured by
a $2 million letter of credit payable to the
Oklahoma Workers' Compensation Court. On May
22, 1996, the Oklahoma Workers' Compensation
Court drew down the letter of credit in full
and is holding the $2 million cash proceeds,
together with interest accruing thereon from
the draw date, to pay workers' compensation
claims, and expenses related thereto, with
respect to the period that the Company
maintained such self-insurance program. The
Company expects that it will consent to the
modification of the automatic stay provision of
Section 362(a) of the Bankruptcy Code so as to
permit workers' compensation claimants to
prosecute their workers' compensation claims
with respect to such self-insurance period in
the Oklahoma Workers' Compensation Court under
Oklahoma law. To the extent the proceeds from
such letter of credit are insufficient to pay
all Oklahoma workers' compensation claims with
respect to the period that the Company
maintained such self-insurance program, such
excess claims shall be classified and treated
as Class 5 Claims. In addition, to the extent
that, upon the liquidation and the payment of
all of the Oklahoma workers' compensation
claims with respect to the period that the
Company maintained a self-insurance program,
there are any proceeds then remaining available
from such letter of credit, the Company shall
have the right to direct the Oklahoma Workers'
Compensation Court to pay such remaining
proceeds to the Reorganized Company.
J. Releases. On the Effective Date, each
Reorganized Debtor shall release
unconditionally each Released Party from any
and all Claims, obligations, rights, causes of
action and liabilities, whether known or
unknown, foreseen or unforeseen, existing or
hereafter arising, in law, equity or otherwise,
based in whole or in part upon any act or
omission, transaction or other occurrence
taking place on or prior to the Effective Date
in any way relating to such Released Party, the
Debtors, the Cases and the Plan other than, in
the case of an Affiliated Released Party, any
Excluded Claims.
On the Effective Date, each holder of a Claim
or an Interest who (1) has accepted the Plan,
(2) whose Claim or Interest is in a Class that
has accepted or been deemed to have accepted
the Plan, or (3) who may be entitled to receive
a distribution of property pursuant to the
Plan, shall be deemed to have released
unconditionally each Released Party from any
and all Claims, obligations, rights, causes of
action and liabilities, whether known or
unknown, foreseen or unforeseen, existing or
hereafter arising, in law, equity or otherwise,
based in whole or in part upon any act or
omission, transaction or other occurrence
taking place on or prior to the Effective Date
in any way relating to such Released Party, the
Debtors, the Cases or the Plan.
Notwithstanding the foregoing, if and to the
extent that the Bankruptcy Court concludes that
the Plan cannot be confirmed with any portion
of the foregoing releases, then the Plan may be
confirmed with that portion excised so as to
give maximum effect to the foregoing releases
without precluding confirmation of the Plan.
K. Final Order. Any requirement of the Plan for a
Final Order may be waived in the sole and
absolute discretion of the Debtors upon written
notice to the Bankruptcy Court; provided,
however that nothing contained herein or
elsewhere in the Plan shall prejudice the right
of any party in interest to seek a stay pending
appeal with respect to such Final Order.
L. Term of Injunction or Stays. Unless otherwise
provided, all injunctions or stays provided for
in the Cases pursuant to Section 105 and
Section 362 of the Bankruptcy Code or otherwise
and in effect on the Confirmation Date shall
remain in full force and effect until the
Effective Date. The Confirmation Order shall
provide that the distributions and transfers of
property to be made pursuant to the terms of
the Plan are made free and clear of all Claims
(except as otherwise provided in, and governed
by, the Plan) and that upon the confirmation
of the Plan (except as otherwise provided in,
and governed by, the Plan) all holders of
Claims and Interests shall be permanently
enjoined from, and restrained against,
commencing or continuing any suit, action or
proceeding or asserting against either
Reorganized Debtor or its assets any Claim,
interest or cause of action based upon any
Claim or Interest that arose or existed before
the Confirmation Date.
M. Waiver and Rescissions. Except as otherwise
provided in, , and governed by, the Plan or in
the Confirmation Order, the entry of the
Confirmation Order by the Bankruptcy Court
shall operate as a waiver of all defaults and
events of default and any accelerations that
have been declared or occurred with respect to
any such events of default through the
Effective Date.
N. Corporate Action. On the Effective Date, all
actions contemplated by the Plan shall be
authorized and approved in all respects
(subject to the provisions of the Plan),
including, without limitation, the following:
(1) the adoption and the filing with the
Secretary of State of the State of Delaware of
the Amended Holding Charter and the Amended
Homeland Charter; (2) the issuance by
Reorganized Holding of the New Common Stock and
New Warrants; (3) the issuance by the
Reorganized Company of the New Notes; and (4)
the execution, the delivery and the performance
of the New Credit Agreement, the New Indenture,
the New Warrant Agreement, the Registration
Rights Agreements, the Modified Union
Agreements and all documents and agreements
relating to any of the foregoing. All matters
provided for under the Plan involving the
corporate structure of the Debtors and/or the
Reorganized Debtors in connection with the Plan
and any corporate action required by the
Debtors and/or the Reorganized Debtors in
connection with the Plan shall be deemed to
have occurred and shall be in effect pursuant
to Section 303 of the Delaware General
Corporation Law and the Bankruptcy Code,
without any requirement of further action by
the shareholders or the directors of the
Debtors and/or the Reorganized Debtor. On the
Effective Date, the appropriate officers of the
relevant Reorganized Debtors are authorized and
directed to execute and to deliver the
agreements, documents and instruments
contemplated by the Plan, the Plan Supplement
and the Disclosure Statement in the name and on
behalf of such Reorganized Debtor.
O. Further Actions. The Debtors and the
Reorganized Debtors may make and may cause
their respective officers to make such other
filings, to execute and to deliver such other
documents and instruments and take such other
actions as may be appropriate or advisable in
connection with the Plan and the transactions
contemplated by the Plan and as are not
inconsistent with the Plan.
ARTICLE V
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. Assumption. All executory contracts and
unexpired leases shall be deemed assumed by the
relevant Debtor pursuant to Section 1123(b)(2)
of the Bankruptcy Code unless expressly
rejected or subject to a motion by such Debtor
to reject them filed on or prior to 4:30 p.m.,
Wilmington, Delaware time, on July 10, 1996.
All cure payments that may be required under
Section 365(b)(1) of the Bankruptcy Code in
connection with such assumption shall be made
on the Effective Date.
In the event of a dispute concerning (1)
the amount of any cure payment, (2) the ability of
the relevant Debtor to provide "adequate assurance
of future performance" (within the meaning of
Section 365 of the Bankruptcy Code) under the
executory contract or the unexpired lease to be
assumed or (3) any other matter pertaining to the
assumption of an executory contract or an unexpired
lease, such Debtor shall make such cure payment or
provide such assurance, as required, in accordance
with Final Orders of the Bankruptcy Court.
B. Rejection. An Allowed Claim under an executory
contract or an unexpired lease that has been
rejected, if any, shall constitute a Class 4
Claim, if secured, or a Class 5 Claim, if
unsecured. Any proof of Claim with respect to
Claims arising from the rejection of an
executory contract or an unexpired lease must
be filed with the Bankruptcy Court within 30
days after the rejection by the relevant Debtor
of such contract or such lease.
C. Indemnification Obligations. The obligations
of the Debtors to indemnify (1) their
respective present and former directors and
officers against any obligations pursuant to
their certificate of incorporation, by-laws,
applicable state law, specific agreements or
any combination of the foregoing and (2) the
Indemnitees under the Indemnification
Agreements, shall survive Confirmation, remain
unaffected thereby, and not be discharged,
irrespective of whether indemnification is owed
in connection with an event occurring before,
on or after the Filing Date.
ARTICLE VI
DISTRIBUTIONS
A. Distributions. The Distribution Agent shall
be responsible for making all of the
distributions required to be made by the
Reorganized Debtors under the Plan. All
costs and expenses in connection with such
distributions, including, without limitation,
the fees and the expenses, if any, of the
Distribution Agent, shall be borne by the
Reorganized Debtor required to make such
distributions.
Neither a Reorganized Debtor nor the
Distribution Agent shall be required to provide any
bond in connection with the making of any
distributions pursuant to the Plan.
B. Date of Distribution. The Distribution Agent
shall make each required distribution by the
date stated in the Plan with respect to such
distribution. Any distribution required to
be made on the Effective Date or the date on
which a Claim becomes an Allowed Claim shall
be deemed to be made on such date if made as
soon as practicable after such date and, in
any event, within 30 days after such date.
C. Undeliverable Distributions. If a
distribution is returned to the Distribution
Agent as undeliverable, the Distribution
Agent shall hold such distribution and shall
not be required to take any further action
with respect to the delivery of the
distribution unless and until the earlier of
(1) the date on which the Distribution Agent
is notified in writing of the then current
address of the holder entitled to receive the
distribution and (2) the date on which the
distribution reverts to a Reorganized Debtor
in accordance with the Plan. If the
Distribution Agent is notified in writing of
the then current address of the holder prior
to date on which the distribution reverts to
a Reorganized Debtor, the Distribution Agent
shall promptly make the distribution required
by the Plan to the holder at the then current
address.
The Distribution Agent shall not be entitled
to vote any securities which the Distribution
Agent holds as undeliverable.
D. Surrender and Cancellation of Instruments.
As a condition to receiving any distribution
pursuant to the Plan, each holder of an Old
Note, share certificate, or other instrument
evidencing a Claim or Interest (other than
certificates representing the Homeland Common
Stock or the Old Warrants) as of the Record
Date must surrender such Old Note, share
certificate or other instrument to the
Distribution Agent or deliver to the
Reorganized Debtors or the Distribution
Agent, as the case may be, an affidavit of
loss and indemnity (in form and substance
satisfactory to the Reorganized Debtors), in
all cases, in proper form for transfer. In
accordance with the provisions of Section
1143 of the Bankruptcy Code, any holders of
such Claims or Interests as of such Record
Date that fail to surrender such Old Notes,
share certificates or other instruments
within five years from the Confirmation shall
be deemed to have forfeited all rights,
Claims and Interests and shall not
participate in any distribution under the
Plan.
On the Effective Date, (1) all such Old
Notes, share certificates or other
instruments shall be canceled and (2) the
Company's obligations under such Old Notes,
share certificates and other instruments
(together with, in the case of the Old Notes,
the Old Indenture and the other agreements
governing such Old Notes) shall be
discharged.
On the Effective Date, the lien and the
security interest of the Old Trustee in the
Old Indenture collateral shall be released
and the Old Trustee shall be authorized and
directed to release any collateral or other
property of the Debtors (including without
limitation, any cash collateral) held by the
Old Trustee and to take such actions as may
be requested by the Reorganized Debtors to
evidence the release of such liens and the
security interests, including, without
limitation, the execution, the delivery and
the filing and/or the recording of such
releases as may be requested by the
Reorganized Debtors.
E. Manner of Payment. At the option of the
Reorganized Debtors, distributions may be
made in cash, by wire transfer or by a check
drawn on a money center bank. Distributions
of New Securities shall be made by the
issuance and, in the case of the New Notes,
the authentication of such New Notes.
F. Fractional Shares. No fractional shares of
New Common Stock shall be issued under the
Plan. Each holder otherwise entitled to an
amount of the New Common Stock that includes
fractional amounts shall receive either one
whole share (if such fraction is equal to, or
greater than, one-half) or no share (if such
fraction is less than one-half) in lieu of
fractional amount.
No New Warrants to purchase fractional shares
of New Common Stock shall be issued under the
Plan. Each holder otherwise entitled to a
New Warrant that includes fractional amounts
of New Common Stock shall receive a New
Warrant that has been rounded down to the
next whole number of shares (if such fraction
is less than one-half) or rounded up to the
next whole number of shares (if such fraction
is equal to, or greater than, one-half).
G. Compliance with Tax Requirements. The
Reorganized Debtors shall comply with all
withholding and reporting requirements
imposed by federal, state or local taxing
authorities in connection with making
distributions pursuant to the Plan.
In connection with each distribution with
respect to which the filing of an information
return (such as an Internal Revenue Service
Form 1099 or 1042) and/or withholding is
required, the Reorganized Debtors shall file
such information return with the Internal
Revenue Service and provide any required
statements in connection therewith to the
recipients of such distribution, and/or
effect any such withholding and deposit all
moneys so withheld to the extent required by
law. With respect to any Person from whom a
tax identification number, certified tax
identification number or other tax
information required by law to avoid
withholding has not been received by the
Reorganized Debtors (or the Distribution
Agent), the Reorganized Debtors may, at their
sole option, withhold the amount required and
distribute the balance to such Person or
decline to make such distribution until the
information is received; provided, however,
the Reorganized Debtors shall not be
obligated to liquidate New Securities to
perform such withholding.
H. Allocation Between Principal and Interest.
The consideration paid to holders of Old
Notes shall be allocated first to accrued but
unpaid interest and next to principal on the
Old Notes.
I. Distribution of Unclaimed Property. If any
Person entitled to receive cash or New
Securities pursuant to the Plan does not
present itself on the Effective Date or on
such other date on which such Person becomes
eligible for distribution of such cash or
securities, such cash or New Securities shall
be set aside and (in the case of cash) held
in a segregated interest-bearing fund to be
maintained by the Distribution Agent. If
such Person presents itself within five years
following the Confirmation Date, such cash or
New Securities, together with any interest or
dividends earned thereupon, shall be paid or
distributed to such Person. If such Person
does not present itself within five years
following the Confirmation Date, any such
cash or securities and accrued interest or
dividends thereon shall become the property
of, and shall be released to, the relevant
Reorganized Debtor. Nothing contained in the
Plan shall require the Reorganized Debtors to
attempt to locate such Persons.
J. Setoff. Each Reorganized Debtor may, but is
not be required to, setoff against any Claim
and the payment to be made pursuant to the
Plan in respect of such Claim, any Claims of
any nature which the Reorganized Debtor may
not have against the holder of such Claim.
Neither the failure by a Reorganized Debtor
to effect such a setoff nor the allowance of
any Claim shall constitute a waiver or a
release of any Claim which the Reorganized
Debtors may have against the holder of a
Claim.
K. Record Date. Only holders of Old Notes and
Old Common Stock as of the Record Date will
be entitled to receive distributions under
the Plan. As of the close of business on the
Record Date, the Old Note and Old Common
Stock transfer ledger as maintained by, or on
behalf of, the Debtors shall be closed and
the Reorganized Debtors and the Old Trustee
shall have no obligation to recognize any
transfer of the Old Common Stock or the Old
Notes occurring thereafter.
ARTICLE VII
PROCEDURES FOR RESOLVING CLAIMS AND INTERESTS
A. Bar Dates for Claims Generally. Each holder of
a Claim (other than an Administrative Claim)
shall file, or shall have filed, a proof of
Claim with the Bankruptcy Court (1) no later
than July 1, 1996, or (2), to the extent such
holders were not subject to such bar date, (a)
within 30 days after the Effective Date or (b)
by such other date as may be established by the
Bankruptcy Court. Any holder who does not file
a proof of Claim within the applicable time
period shall be forever barred from asserting
its Claim unless, and to the extent such Claim
is listed by the Debtors in their respective
Schedules as liquidated in amount, not disputed
and not contingent.
B. Bar Dates for Administrative Claims. All
requests for payment of Administrative Claims
shall be filed with the Bankruptcy Court in the
following manner:
1. Fee Claims. Each holder of a Fee Claim shall
be entitled to file an application for
allowance of final compensation and
reimbursement of expenses for services
rendered on or before the Effective Date.
All applications in respect of such Fee
Claims shall be filed not later than 45 days
after the Effective Date. If a holder of a
Fee Claim fails to file an application with
respect to its Fee Claim within such 45-day
period, such holder shall be forever barred
from asserting its Fee Claim.
2. Other Administrative Claims. Except as
otherwise provided by Article III(A), all
requests for payment of Administrative
Claims, other than Fee Claims and
Administrative Claims incurred and paid in
ordinary course, must be filed with the
Bankruptcy Court within 30 days after the
Effective Date. Any holder of such an
Administrative Claim that does not file a
request for payment within such a 30-day
period shall be forever barred from asserting
its Administrative Claim.
C. Prosecution of Objections. Each Reorganized
Debtor and any other party in interest shall
have the authority (1) to object to Claims
against, and Interests in, such Reorganized
Debtor, and (2) to litigate any Claim or any
Interest to Final Order, to settle or to
compromise any Claim or any Interest or to
withdraw any objection to any Claim or any
Interest (other than a Claim or an Interest
that is deemed to be allowed pursuant to the
Plan or a Final Order).
Unless another date is established by the
Bankruptcy Court or the Plan, any objection to
a Claim or an Interest shall be filed with the
Bankruptcy Court and served on the holder of
such Claim or Interest within 90 days after the
later of (1) the Effective Date and (2) in the
case of a Claim, the date that a proof of Claim
with respect to such Claim is filed or is
deemed to have been filed with the Bankruptcy
Court. The relevant Reorganized Debtor shall
have the right to petition the Bankruptcy Court
for an extension of such date if a complete
review of such Claim or Interest cannot be
completed by such date.
Except as otherwise provided by Section III(A),
any objection to a Fee Claim shall be filed
within the later of (1) 60 days after the
Effective Date and (2) 30 days after the date
on which the application is filed with respect
to such Fee Claim. If no objection has been
filed to a Claim or an Interest (other than a
Fee Claim which shall be allowed only by order
of the Bankruptcy Court) within the applicable
period, the Claim or the Interest shall be
treated as an Allowed Claim or an Allowed
Interest, as the case may be, to the extent
that the Claim or the Interest has not been
previously allowed or disallowed by the
Bankruptcy Court.
D. Treatment of Disputed Claims and Disputed
Interests. Disputed Claims and Disputed
Interests shall be treated in the following
manner:
1. No Distribution Pending Allowance. If any
portion of a Claim is a Disputed Claim, no
payment or distribution provided under the
Plan shall be made on account of the portion
of such Claim that is a Disputed Claim unless
and until such Disputed Claim becomes an
Allowed Claim but the payment or distribution
provided for under the Plan shall be made on
account of the portion of such Claim that is
an Allowed Claim.
2. Disputed Class 5 Claims Reserve.
Notwithstanding anything else to the contrary
in this Article VII(D), on the Effective
Date, the Reorganized Debtors shall deposit
into the Disputed Class 5 Claims Reserve, the
New Common Stock that would otherwise have
been distributed to holders of Disputed
Claims which, if allowed on the Effective
Date, would have been Class 5 Claims (each, a
"Disputed Class 5 Claim") in accordance with
the Plan as if such Disputed Class 5 Claims
were Allowed Claims. No interest or other
amounts shall accrue on New Common Stock held
in the Disputed Class 5 Claims Reserve. In
calculating the amount to be held in the
Disputed Class 5 Claims Reserve, the
Reorganized Debtors shall (a) treat all
liquidated Disputed Class 5 Claims as if
allowed in full and (b) make a good faith
estimate of the amounts, if any, likely to be
allowed in respect of contingent or
unliquidated Class 5 Claims. If, and to the
extent, any such Disputed Class 5 Claim
becomes an Allowed Claim, the property so
reserved for the creditor holding such Claim
shall be distributed to such creditor within
thirty days of the date that such Disputed
Class 5 claim becomes an Allowed Claim.
In the event that, after the Effective Date,
a Disputed Claim is disallowed in whole or in
part, the relevant Reorganized Debtor shall
distribute (or cause the Distribution Agent
to distribute) the property held in reserve
for the disallowed portion of such Disputed
Class 5 Claim as follows: (a) such property
shall be distributed to holders of Allowed
Class 5 Claims; (b) such distribution shall
be based on the applicable Ratable Share of
each such holder, as adjusted to take into
account the disallowance or the allowance of
all Disputed Claims since the Effective Date;
and c such distribution shall be made on
December 31, 1996, and on June 30 and
December 31 of each following year (each such
date, a "Distribution Date"), to the extent a
Disputed Class 5 claim has been disallowed in
whole or in part since the Effective Date or
the last Distribution Date, as the case may
be, until the earlier of (i) the date on
which all Disputed Class 5 Claims have been
resolved and (ii) less than 5,000 shares of
New Common Stock are on deposit in the
Disputed Class 5 Claims Reserve. If, at any
time after the Effective Date, the number of
shares of New Common Stock held in the
Disputed Class 5 Claims Reserve is less than
5,000, the remaining shares of Common Stock
held in such reserve shall, at the option of
the Reorganized Debtors, be canceled or
treated as treasury stock.
3. No Other Reserves. The Reorganized Debtors
shall not be required to establish a reserve
with respect to any class of Disputed Claims
or Disputed Interests other than Class 5
Disputed Claims.
4. Method of Resolution - General. Each
Disputed Claim (other than a Disputed Claim
which involves a personal injury, property
damage or wrongful death claim) and each
Disputed Interest shall be resolved by the
Bankruptcy Court.
5. Method of Resolution - Personal Injury and
Wrongful Death Claims. Each Disputed Claim
involving a personal injury, property damage
or wrongful death claim shall be resolved in
the following manner:
a.Information Assembly. Within 30 days
after the Effective Date, the relevant
Reorganized Debtor shall mail to each
holder of such a Disputed Claim a form
prepared by such Reorganized Debtor,
requesting such information as such
Reorganized Debtor believes is necessary
to evaluate such Disputed Claim.
No later than 30 days after each holder of
such a Disputed Claim receives such form,
the holder shall return the completed form
to such Reorganized Debtor and any
Insurer on such Claim. The completed form
must be signed, under penalty of perjury,
by the holder and the holder's counsel, if
any, and the signature of the holder must
be notarized. Each form must have the
following documentation attached to such
form:
(i) For personal injuries and wrongful
death claims: (A) copies of all medical
bills, (B) copies of all medical
reports, c copies of all expert reports,
(D) copies of all tax returns for the
last five years, (E) copies of all x-
rays, (F) copies of all MRI's, (G)
copies of all wage statements, W-2
forms, W-4 forms, and 1099 forms for the
past five years, (H) copies of all
pictures of any accident scene, (I) an
executed SSA-7004-SM, Social Security
Administration Request for Earnings and
Benefit Statement, designating a Person
specified by such Reorganized Debtor as
addressee, (J) an executed IRS 4506
Form, Request for Copy of Transcript of
Tax Form, designating a Person specified
by such Reorganized Debtor as the
recipient of the documents, and (K), in
the case of wrongful death claims,
copies of all autopsy reports.
(ii) For property damage claims, (A)
copies of all repair invoices and
records and (B) copies of all expert
reports.
If the form is not returned in accordance herewith
within the required 30-day period, the Disputed
Claim shall be deemed disallowed.
Within 90 days from the date on which such
Reorganized Debtor and the Insurer, if any, receive
a form returned in accordance herewith, such
Reorganized Debtor or, if there is an Insurer, the
Insurer shall:
(i) offer to settle the Disputed Claim;
(ii) deny the Disputed Claim; or
(iii) request additional information from the
holder of the Disputed Claim, including,
without limitation, for personal injury
claims, submission to an independent medical
examination.
If an offer of settlement is made, the holder must
accept or reject the offer of settlement within 30
days after the offer of settlement is made. If the
offer of settlement is not accepted or rejected
within such 30-day period, the Disputed Claim shall
be deemed disallowed. If the holder accepts the
offer of settlement, the Disputed Claim shall be
deemed allowed on the date on which such Reorganized
Debtor or the Insurer, as the case may be, receives
notice of such acceptance.
If additional information is requested, the holder
must provide such additional information within 30
days of the request. If the holder fails to provide
such additional information within such 30-day
period, the Disputed Claim shall be deemed
disallowed. If the requested additional information
is provided within such 30-day time period, such
Reorganized Debtor or, if there is an Insurer, the
Insurer must make an offer of settlement or deny a
Disputed Claim within 90 days after it receives such
additional information.
If a holder of a Disputed Claim rejects an offer of
settlement within 30 days after the offer of
settlement is made or the Disputed Claim is denied,
the holder shall notify such Reorganized Debtor and
the Insurer, if any, that mediation is requested.
If a holder fails to request mediation, the Disputed
Claim shall be deemed disallowed.
b. Mediation. Each such Disputed Claim for which
mediation is requested shall be submitted to
mediation by a mediator assigned by the
Bankruptcy Court. Such mediator shall work
with all Persons involved, including, without
limitation, any Insurer, to negotiate a
mutually satisfactory resolution with respect
to the Disputed Claim. Within 30 days of the
date on which a mediator is appointed, the
mediator shall schedule a mediation conference
in Oklahoma City, Oklahoma at which all Persons
involved shall either (i) appear personally or
(ii) be represented by a Person authorized to
enter into a binding settlement agreement on
behalf of such involved Person. The mediator
shall give each such involved Person at least
10 days prior written notice of the date, the
time and the place of the conference. If any
Person which has received notice of such
mediation (or his, her or its designated
representative) fails to appear at such
mediation conference, any other Person may
petition the Bankruptcy Court for an award of
costs, including, without limitation,
reasonable attorneys' fees against the non-
attending Person. In addition, if the holder or
the holder's counsel, if any, fails to attend,
the Disputed Claim shall be deemed disallowed.
At the conclusion of the mediation conference,
each Person (or its designated representative)
shall sign before the mediator a statement to
the effect that (i) the Disputed Claim has been
resolved by mutual agreement (subject to
approval of the Bankruptcy Court) and the basis
of such resolution, (ii) that the Disputed
Claim shall be submitted to binding arbitration
or (iii) that the Disputed Claim shall proceed
before the District Court.
c. Arbitration. If a Disputed Claim is submitted
to binding arbitration, the Disputed Claim
shall be resolved by binding arbitration
conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association. No Person involved in such
arbitration shall be permitted to appeal any
award except as expressly permitted by Section
10 of the Federal Arbitration Act, as amended,
and there shall be no right to a de novo trial
subsequent to the arbitration.
d. Trial. Upon compliance with the procedures set
forth in this Article VII(D)(5), the holder of
a Disputed Claim subject to this Article
VII(D)(5) shall have the right to pursue such
Disputed Claim in a federal district court in
accordance with 28 U.S.C. 157(b)(5) and the
Federal Rules of Civil Procedure. Any case
filed prior to the Filing Date shall be
transferred from the forum in which it is
pending to the District Court and, regardless
of whether a case has been filed prior to the
Filing Date, the District Court shall transfer
the case to the federal district court for the
district in which the Disputed Claim arose.
The Disputed Claim shall be prosecuted in the
federal district court to which it is
transferred by the District Court.
ARTICLE VIII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE PLAN
Conditions to Consummation. The Plan shall not
become effective unless and until each of the
following conditions have been satisfied or have
been waived in accordance with this Article VIII:
A. Entry of the Confirmation Order. The Plan
shall have been confirmed by the Bankruptcy
Court and the Confirmation Order shall not have
been vacated, reversed or stayed.
B. New Credit Agreement. The New Credit Agreement
shall have been entered into and all conditions
to the effectiveness thereof shall have been
satisfied or waived by the lenders as required
thereunder.
C. Other Agreements. All other agreements
contemplated by, or entered into pursuant to,
the Plan, including, without limitation, the
Plan Documents, shall have been duly and
validly executed and delivered by the parties
thereto and all conditions to their
effectiveness shall have been satisfied or
waived.
The Reorganized Debtors may waive at any time,
without notice, leave or order of the Bankruptcy
Court, and without any formal action other than
proceeding to consummate the Plan, any condition
precedent to consummation and effectiveness of the
Plan; provided, however, that the Debtors may not
waive the condition precedent specified in Article
VIIIc insofar as it relates to the execution,
delivery and effectiveness of the New Indenture and
the Noteholder Registration Rights Agreement without
the consent of the Noteholders' Committee.
ARTICLE IX
CONFIRMABILITY AND SEVERABILITY OF A PLAN AND CRAMDOWN
If all of the applicable requirements for
confirmation of the Plan are met as set forth in
Section 1129(a) of the Bankruptcy Code except
paragraph (8) thereof, the Debtors may, at their
option, amend the Plan as necessary to request the
Bankruptcy Court to confirm the Plan pursuant to
Section 1129(b) of the Bankruptcy Code,
notwithstanding the requirements of paragraph (8) of
Section 1129(a) of the Bankruptcy Code, provided
that the Plan, as so amended, is fair and equitable
and does not discriminate unfairly with respect to
any impaired Class or Classes that have not accepted
the Plan. The right of the Debtors to modify the
Plan under this Article IX does not limit the
ability of the Debtors to modify the Plan under
Article XII(A).
ARTICLE X
EFFECTS OF THE CONFIRMATION OF THE PLAN
A. Binding Effect. The provisions of the Plan
shall bind all holders of Claims and Interests,
whether or not any such holder has accepted the
Plan.
B. Discharge. Except as otherwise expressly
provided herein, the confirmation of the Plan
shall, provided the Effective Date shall have
occurred, discharge all Claims and Interests to
the fullest extent authorized or provided by
the Bankruptcy Code, including, without
limitation, to the fullest extent authorized or
provided for by Section 524 of the Bankruptcy
Code.
C. Vesting of Assets; Reservation of Claims.
Except as expressly provided in, and governed
by, the Plan or the Confirmation Order, on the
Effective Date, the assets and property of each
Debtor's Estate shall vest in the relevant
Reorganized Debtor free and clear of all
Claims, liens, encumbrances, charges and
interests. Except as provided in the Estate
Release, all causes of action arising under
Chapter 5 of the Bankruptcy Code (other than
fraudulent conveyance and preference claims, if
any, of the Debtors against the holders of the
Old Notes), all Claims against third parties,
and all other causes of action against third
parties, and all other causes of action and
rights belonging to or in favor of the Debtors,
including, without limitation, under Section
502, Section 544, Section 545, Section 547,
Section 548 and Section 549 of the Bankruptcy
Code, are hereby preserved and retained for
assertion and enforcement solely and
exclusively by, and in the discretion of, the
Reorganized Debtors and shall revest in the
relevant Reorganized Debtor on the Effective
Date.
D. Injunction. Except as otherwise expressly
provided in, and governed by, the Plan, the
entry of the Confirmation Order shall, provided
that the Effective Date shall have occurred,
permanently enjoin all Persons that have held,
currently hold or may hold a Claim, or other
debt or liability that is discharged pursuant
to the Plan or who have held, currently hold or
may hold an Interest that is terminated
pursuant to the Plan from taking any of the
following actions in respect of such discharged
Claim, debt or liability or such terminated
Interest:
(1) commencing, conducting or continuing in
any manner, directly or indirectly, any suit,
action or other proceeding of any kind
against the Reorganized Debtors or the
property of the Reorganized Debtors;
(2) enforcing, levying, attaching,
collecting or recovering in any manner or by
any means, whether directly or indirectly,
any judgment, award, decree or order against
the Reorganized Debtors or the property of
the Reorganized Debtors;
(3) creating, perfecting or enforcing in any
manner, directly or indirectly, any lien or
any security interest of any kind against the
Reorganized Debtors or the property of the
Reorganized Debtors;
(4) asserting a setoff, right of subrogation
or recoupment of any kind, directly or
indirectly, against any debt, liability or
obligation due to the Reorganized Debtors or
the property of the Debtors; or
(5) commencing or continuing any action in
any manner or in any place that does not
comply with, or is inconsistent with, the
Plan.
E. Insured Claims. Confirmation of the Plan shall
not discharge the duty of any Insurer under any
contract of insurance to continue to provide
coverage to all parties covered under the
contract of insurance in accordance with the
terms and subject to the conditions of the
contract of insurance.
ARTICLE XI
RETENTION OF JURISDICTION
Notwithstanding entry of the Confirmation Order or
the Effective Date having occurred, the Bankruptcy
Court shall retain jurisdiction over the Cases and
any proceedings arising from, or relating to, the
Cases pursuant to Section 1142 of the Bankruptcy
Code and Section 1334 of Title 28 of the United
States Code to the fullest extent permitted by the
Bankruptcy Code and any other applicable law,
including, without limitation, such jurisdiction as
is necessary to ensure that the purpose and the
intent of the Plan are carried out. Without
limiting the generality of the foregoing, the
Bankruptcy Court shall retain the following
jurisdiction:
A. Executory Contract and Lease Determinations.
The Bankruptcy Court shall retain the
jurisdiction to hear and to determine any
motions pending before the Bankruptcy Court on
the Effective Date to reject any executory
contract or unexpired lease to which a Debtor
is a party or with respect to which a Debtor
may be liable and to hear and to determine the
allowance of any Claim resulting therefrom.
B. Pending Motions and Adversary Proceedings. The
Bankruptcy Court shall retain the jurisdiction
to determine any adversary proceedings,
applications, contested matters and other
litigated matters that are pending on the
Effective Date or that may be commenced
thereafter as provided in the Plan.
C. Distributions. The Bankruptcy Court shall
retain the jurisdiction to ensure that
distributions to the holders of Allowed Claims
and Allowed Interests are accomplished as
provided in the Plan.
D. Claim Determinations. The Bankruptcy Court
shall retain the jurisdiction to hear and
determine objections to, or requests for
estimation of, Claims, including, without
limitation, any objections to the
classification of any Claim, in whole or in
part.
E. Stay Matters. The Bankruptcy Court shall
retain the jurisdiction to enter and to
implement such orders as may be appropriate in
the event that the Confirmation Order is for
any reason stayed, revoked, modified or
vacated.
F. Support of Plan. The Bankruptcy Court shall
retain the jurisdiction to issue appropriate
orders in aid of the execution of the Plan and
to enforce the Confirmation Order and/or the
discharge, or the effect of the discharge,
provided to the Reorganized Debtors.
G. Modifications. The Bankruptcy Court shall
retain the jurisdiction to hear and to
determine any applications to modify the Plan,
to cure any defect or any omission in any order
of the Bankruptcy Court or in the Plan,
including, without limitation, the Confirmation
Order, and to reconcile any inconsistency in
any order entered by the Bankruptcy Court and
the Plan, including, without limitation, the
Confirmation Order.
H. Compensation and Expense Determinations. The
Bankruptcy Court shall retain the jurisdiction
to hear and to determine any applications for
compensation and reimbursement of expenses of
professionals and members of any Official
Committee (and, if applicable, the Unofficial
Committee) under Section 330, Section 331,
Section 503(b), Section 1103 and/or Section
1129(a)(4) of the Bankruptcy Code.
I. Resolution of Controversies. The Bankruptcy
Court shall retain the jurisdiction to hear and
to determine resolve any disputes arising in
connection with the interpretation, the
implementation or the enforcement of the Plan.
J. Other Plan-Related Matters. The Bankruptcy
Court shall retain the jurisdiction to hear and
to determine other issues presented by, arising
under, or related to, the Plan and other
matters related to the Plan and not
inconsistent with the Bankruptcy Code.
K. Final Decree. The Bankruptcy Court shall
retain the jurisdiction to enter a final decree
closing the Cases.
L. Recovery of Assets. The Bankruptcy Court shall
retain the jurisdiction to enter such orders as
may be appropriate in connection with the
recovery of the assets of the Debtors and the
Estates wherever located.
M. Tax Related Matters. The Bankruptcy Court
shall retain the jurisdiction to hear and to
determine any motions or contested matters
involving taxes, tax refunds, tax attributes
and tax benefits and similar or related matters
with respect to the Debtors arising prior to
the Effective Date or relating to the
administration of the Cases, including, without
limitation, matters involving federal, state
and local taxes in accordance with Section 346,
Section 505 and Section 1146 of the Bankruptcy
Code.
N. Other Determinations. The Bankruptcy Court
shall retain the jurisdiction to determine any
other matter not inconsistent with the
Bankruptcy Code.
ARTICLE XII
MISCELLANEOUS PROVISIONS
A. Modification of the Plan. The Plan may be
modified at any time or from time to time by
the Debtors before or after the Effective Date,
whether or not the Plan has been substantially
consummated, upon such notice and hearing and
other requirements as shall be required by the
Bankruptcy Code and applicable law.
B. Revocation and Withdrawal of Plan. The Debtors
reserve the right to revoke or to withdraw the
Plan at any time before the Confirmation Date.
If the Debtors revoke or withdraw the Plan
prior to the Confirmation Date, or if the
Confirmation Date or the Effective Date does
not occur, then the Plan shall be deemed null
and void. In such event, nothing contained
herein or in the Disclosure Statement shall be
deemed to constitute an admission of the
validity, waiver or release of any Claims by or
against the Debtors or any other Person or to
prejudice in any manner the rights of the
Debtors or any Person in any proceeding
involving the Debtors.
C. Exculpation. Neither the Reorganized Debtors,
the Old Banks and the Agent, any Official
Committee, the Unofficial Committee, nor any of
their respective members, officers, directors,
shareholders, employees, agents, attorneys,
accountants or other advisors, shall have or
incur any liability to any holder of a Claim or
Interest for any act or failure to act in
connection with, or arising out of, the pursuit
of confirmation of the Plan, the consummation
of the Plan or the administration of the Plan
or the property to be distributed under the
Plan, except for any act or failure to act that
constitutes willful misconduct or recklessness
as determined pursuant to a Final Order, and in
all respects, such Persons (1) shall be
entitled to rely upon the advice of counsel
with respect to their duties and
responsibilities under the Plan, and shall be
fully protected from liability in acting or in
refraining from action in accordance with such
advice and (2) shall be fully protected from
liability with respect to any act or failure to
act that is approved or ratified by the
Bankruptcy Court.
D. Payment Dates. Whenever any payment to be made
under the Plan is due on a day other than a
Business Day, such payment shall instead be
made, without interest, on the next following
Business Day.
E. Payment of Statutory Fees. All fees payable
pursuant to Section 1930 of Title 28 of the
United States Code, shall be paid as required
by the Bankruptcy Code.
F. Payment of Post-Petition Interest or Attorney
Fees. Unless otherwise expressly provided in
the Plan, or allowed by order of the Bankruptcy
Court, the Debtors shall not be required to pay
any holder of a Claim any interest occurring on
or after the Filing Date, or any attorneys'
fees, with respect to such Claim.
G. Section 1146 Exemption. Pursuant to Section
1146c of the Bankruptcy Code, the issuance,
transfer or exchange of any security under the
Plan or the making or delivery of any
instrument of transfer pursuant to, in
implementation of, or as contemplated by, the
Plan or the revesting, transfer or sale of any
real or personal property of the Debtors
pursuant to, in implementation of, or as
contemplated by, the Plan shall not be taxed
under any state or local law imposing a stamp
tax, transfer tax or similar tax or fee.
H. Dissolution of Committees. On the Effective
Date, each Official Committee shall
automatically dissolve and all members of such
committees shall be discharged from all rights
and all duties arising from, or related to, the
Cases.
I. Governing Law. Except to the extent that the
Bankruptcy Code or the Bankruptcy Rules are
applicable, the Plan shall be governed by, and
construed and interpreted in accordance with,
the internal laws of the State of Delaware.
J. Notices. After the Effective Date, any notice
or other communication to the Reorganized
Debtors required or permitted under the Plan
shall be in writing and shall be hand delivered
or sent by certified or registered mail,
postage pre-paid, return receipt requested, as
follows:
Homeland Stores, Inc. or Homeland Holding Corporation
2601 Northwest Expressway
Oklahoma City, Oklahoma 73112
Attn: President Telephone:
Telephone: (405) 879-6600
Telecopy: (405) 879-4605
with copies to:
Crowe & Dunlevy, A Professional Corporation
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
Attn: Judy Hamilton Morse
Telephone: (405) 235-7700
Telecopy: (405) 239-6651
Young, Conaway, Stargatt & Taylor
Eleventh Floor, Rodney Square North
1100 North Market Street
Wilmington Trust Center 19801
Attn: James L. Patton, Jr.
Telephone: (302) 571-6600
Telecopy: (302) 571-1253
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attn: Robert D. Drain
Telephone: (212) 373-3000
Telecopier: (212) 757-3990
Hahn & Hessen, L.L.P.Empire State Building
350 Fifth Avenue
New York, New York 10118
Attn: Jeffrey L. Schwartz
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
Hughes & Luce, L.L.P,
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: David Weitman
Telephone: (214) 939-5500
Telecopier: (214) 939-6100
After the Effective Date, any notice or other
communication to a holder of a Claim or an Interest
required or permitted under the Plan shall be hand
delivered or shall be sent by certified or
registered mail, postage pre-paid, return receipt
requested, to the holder at the address set forth on
any proof of claim filed by the holder or, if the
holder has not filed or been deemed to have filed a
proof of claim, at the last known address of the
holder as reflected by the records of the relevant
Reorganized Debtor.
A notice or other communication sent pursuant to
this Article XII(J) shall be deemed given and
received upon delivery if hand delivered and three
business days after deposited in the United States
mail if sent by registered or certified mail.
K. Successors and Assigns. The rights of any
Person named or referred to in the Plan shall
inure to the benefit of, and the obligations of
any Person named or referred to in the Plan
shall be binding on, any heir, executor,
administrator, successor or assign of such
Person.
L. Severability. To the extent that any provision
of the Plan would, by its inclusion of the
Plan, prevent or preclude the Bankruptcy Court
from entering the Confirmation Order, the
Bankruptcy Court, on the request of the
Debtors, may modify or amend, or permit the
Debtors to modify or amend such provision, in
whole or in part as necessary to cure any
defect or remove any impediment to the
confirmation of the Plan existing by reason of
such provision.
M. Objections to Claims or Interests. The failure
by the Debtors to object to or examine any
Claim or Interest for purposes of voting shall
not be deemed a waiver of the Debtors' right to
object to or re-examine such Claim or Interest,
in whole or in part.
Dated: June 13, 1996.
HOMELAND STORES, INC.
By:
James A. Demme
President and Chief Executive Officer
HOMELAND HOLDING CORPORATION.
By:
James A. Demme
President and Chief Executive Officer
CROWE & DUNLEVY, A PROFESSIONAL CORPORATION
By:
Judy Hamilton Morse, OBA #6450
Kenni B. Merritt, OBA #6147
Roger A. Stong, OBA #11710
William H. Hoch, OBA #15788
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
(405) 235-7700
COUNSEL TO HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
YOUNG, CONAWAY, STARGATT & TAYLOR
By:
James L. Patton, Jr.
Rodney Square North, 11th Floor
Wilmington, Delaware 19899
(302) 571-6600
LOCAL COUNSEL TO HOMELAND STORES, INC.
AND HOMELAND HOLDING CORPORATION
Report of Independent Accountants
To the Board of Directors and Stockholders of
Homeland Holding Corporation
We have audited the accompanying consolidated financial statements of
Homeland Holding Corporation and Subsidiary listed in the index on page
F-1 of this Form 10-K. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Homeland Holding Corporation and Subsidiary as of December 30, 1995
and December 31, 1994, and the consolidated results of their operations
and their cash flows for the 52 weeks ended December 30, 1995, December
31, 1994 and January 1, 1994, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company has
incurred recurring losses from operations, negative cash flows from
operations for the year ended December 30, 1995, a stockholders'
deficit as of December 30, 1995 and has been unable to comply with its
debt covenants. In addition, on March 27, 1996, the Company reached
an agreement in principle with members of an ad-hoc noteholders
committee with respect to a financial restructuring of the Company.
The Company and the ad-hoc noteholders committee have agreed to
implement the financial restructuring under a pre-arranged plan of
reorganization to be filed under Chapter 11 of the United States
Federal Bankruptcy Code. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The continuation
of its business as a going concern is contingent upon, among other
things, the ability to (1) complete the pre-arranged plan of
reorganization and (2) sustain satisfactory levels of future earnings
and cash flows. Management's plans with regard to such financial
restructuring are set forth in Note 15 to the financial statements.
The financial statements do not include any adjustments that might
result from the outcome of these uncertainties or adjustments relating
to the establishment, settlement and classification of liabilities that
may be required in connection with the pre-arranged plan of
reorganization of Homeland Holding Corporation and Subsidiary under
Chapter 11 of the United States Federal Bankruptcy Code.
Coopers & Lybrand, L.L.P.
New York, New York
March 27, 1996
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS (Note 4)
December 30, December 31,
1995 1994
Current assets:
Cash and cash equivalents (Notes 3 and 5) $ 6,357 $ 339
Receivables, net of allowance for uncollectible
accounts of $2,661 and $2,690 8,051 12,235
Receivable for taxes (Note 6) - 2,270
Inventories 42,830 89,850
Prepaid expenses and other current assets 2,052 6,384
Total current assets 59,290 111,078
Property, plant and equipment:
Land 9,919 10,997
Buildings 22,101 29,276
Fixtures and equipment 44,616 61,360
Land and leasehold improvements 23,629 32,410
Software (Note 3) 1,991 17,876
Leased assets under capital leases (Note 9) 29,062 46,015
Construction in progress 4,201 2,048
135,519 199,982
Less, accumulated depreciation
and amortization 63,827 82,603
Net property, plant and equipment 71,692 117,379
Excess of purchase price over fair
value of net assets acquired, net
of amortization of $830 in fiscal 1994 (Note 3) - 2,475
Other assets and deferred charges 6,600 8,202
Total assets $137,582 $239,134
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share
amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 30, December 31,
1995 1994
Current liabilities:
Accounts payable - trade $ 17,732 $ 30,317
Salaries and wages 1,609 1,925
Taxes 4,876 6,492
Accrued interest payable 2,891 3,313
Other current liabilities 14,321 15,050
Current portion of long-term debt (Notes 4, 5 and 15) - 2,250
Long-term obligations in default classified as current
(Notes 4, 5 and 15) 100,467 -
Current portion of obligations under capital
leases (Note 9) 2,746 7,828
Current portion of restructuring reserve (Note 14) 3,062 -
Total current liabilities 147,704 67,175
Long-term obligations:
Long-term debt (Notes 4, 5 and 15) - 145,000
Obligations under capital leases (Note 9) 9,026 11,472
Other noncurrent liabilities 6,133 5,176
Noncurrent restructuring reserve (Note 14) 2,808 5,005
Total long-term obligations 17,967 166,653
Commitments and contingencies (Notes 8, 9 and 12) - -
Redeemable common stock, Class A, $.01 par value,
1,720,718 shares at December 30, 1995 and 3,864,211
shares at December 31, 1994, at redemption value
(Notes 10 and 11) 17 1,235
Stockholders' equity (deficit):
Common stock (Note 10):
Class A, $.01 par value, authorized - 40,500,000
shares, issued - 33,748,482 shares at December 30,
1995 and 31,604,989 at December 31, 1994,
outstanding - 30,878,989 shares 337 316
Additional paid-in capital 55,886 53,896
Accumulated deficit (80,188) (48,398)
Minimum pension liability adjustment (Note 8) (1,327) -
Treasury stock, 2,869,493 shares at December 30, 1995
and 726,000 shares at December 31, 1994, at cost (2,814) (1,743)
Total stockholders' equity (deficit) (28,106) 4,071
Total liabilities and stockholders'
equity (deficit) $137,582 $239,134
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 31, January 1,
1995 1994 1994
Sales, net $630,275 $785,121 $810,967
Cost of sales 479,119 588,405 603,220
Gross profit 151,156 196,716 207,747
Selling and administrative
expenses 151,985 193,643 190,483
Operational restructuring
costs (Note 14) 12,639 23,205 -
Operating profit (loss) (13,468) (20,132) 17,264
Gain on sale of plants - - 2,618
Interest expense (15,992) (18,067) (18,928)
Income (loss) before income tax
benefit (provision) and
extraordinary items (29,460) (38,199) 954
Income tax benefit
(provision) (Note 6) - (2,446) 3,252
Income (loss) before extraordinary
items (29,460) (40,645) 4,206
Extraordinary items (Note 4) (2,330) - (3,924)
Net income (loss) (31,790) (40,645) 282
Reduction in redemption value -
redeemable common stock 940 7,284 -
Net income (loss) available to
common stockholders $(30,850) $(33,361) $ 282
Income (loss) before extraordinary
items per common share $ (.86) $ (.96) $ .12
Extraordinary items per common share (.07) - (.11)
Net income (loss) per common share $ (.93) $ (.96) $ .01
Weighted average shares
outstanding 33,223,675 34,752,527 34,946,460
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Minimum
Class A Additional Pension Total
Common Stock Paid-in Accumulated Liability Treasury Stock Stockholders'
Shares Amount Capital Deficit Adjustment Shares Amount Equity (Deficit)
Balance, January 2,
1993 31,364,989 $314 $46,036 $(8,035) $ - 486,000 $(1,165) $37,150
Purchase of treasury
stock 134,000 1 322 - - 134,000 (323) -
Adjustment to recognize
minimum liability - - - - (572) - - (572)
Net income - - - 282 - - - 282
Balance, January 1,
1994 31,498,989 315 46,358 (7,753) (572) 620,000 (1,488) 36,860
Purchase of treasury
stock 106,000 1 254 - - 106,000 (255) -
Adjustment to eliminate
minimum liability - - - - 572 - - 572
Redeemable common stock
reduction in redemption
value - - 7,284 - - - - 7,284
Net loss - - - (40,645) - - - (40,645)
Balance, December 31,
1994 31,604,989 316 53,896 (48,398) - 726,000 (1,743) 4,071
Purchase of treasury
stock 2,143,493 21 1,050 - - 2,143,493 (1,071) -
Adjustment to recognize
minimum liability - - - - (1,327) - - (1,327)
Redeemable common stock
reduction in redemption
value - - 940 - - - - 940
Net loss - - - (31,790) - - - (31,790)
Balance, December 30,
1995 33,748,482 $337 $55,886 $(80,188) $(1,327) 2,869,493 $(2,814) $(28,106)
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 31, January 1,
1995 1994 1994
Cash flows from operating activities:
Net income (loss) $(31,790) $(40,645) $ 282
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 11,192 17,458 16,797
Amortization of financing costs 1,019 1,443 1,484
Write-off of financing costs on
long-term debt retired 1,424 - 1,148
(Gain) loss on disposal of assets 8,349 384 (2,284)
(Gain) on sale of sold stores (15,795) - -
Amortization of beneficial interest
in operating leases 181 258 261
Impairment of assets 2,360 14,325 744
(Increase) decrease in deferred tax assets - 3,997 (3,997)
Provision for losses on accounts
receivable 1,750 1,213 75
Provision for write down of inventories 847 - -
Change in assets and liabilities:
(Increase) decrease in receivables 3,227 2,301 (1,131)
(Increase) decrease in receivable for
taxes 2,270 (2,270) -
Decrease in inventories 18,297 2,097 1,236
(Increase) decrease in prepaid
expenses and other current assets 5,542 (2,687) (862)
(Increase) decrease in other assets
and deferred charges (1,215) 103 (238)
Increase (decrease) in accounts
payable -trade (12,587) 832 (5,464)
Decrease in salaries and wages (316) (821) (1,994)
Increase (decrease) in taxes (1,616) 1,768 (3,629)
Decrease in accrued interest payable (422) (53) (1,102)
Increase (decrease) in other current
liabilities (3,264) (34) 7,371
Increase in restructuring reserve 1,356 5,005 -
Increase (decrease) in other
noncurrent liabilities 1,157 (4,417) 4,301
Net cash provided by (used in) operating
activities (8,034) 257 12,998
Cash flows from investing activities:
Capital expenditures (4,681) (5,386) (7,129)
Purchase of assets under capital leases (3,966) - -
Cash received from sale of assets 73,721 1,363 3,991
Net cash provided by (used in) investing
activities 65,074 (4,023) (3,138)
Cash flows from financing activities:
Payments under senior secured floating
rate notes (9,375) - -
Payments under senior secured fixed
rate notes (15,625) - -
Payments on subordinated debt - - (47,750)
Borrowings under revolving credit loans 104,087 66,000 100,000
Payments under revolving credit loans (123,620) (56,000) (85,000)
Net borrowings (payments) under swing
loans (1,500) (3,500) 5,000
Principal payments under notes payable (750) (1,000) (1,250)
Principal payments under capital lease
obligations (3,166) (3,334) (4,198)
Payments to acquire treasury stock (1,073) (255) (323)
Net cash provided by (used in) financing
activities (51,022) 1,911 (33,521)
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands, except share and per share amounts)
52 weeks 52 weeks 52 weeks
ended ended ended
December 30, December 31, January 1,
1995 1994 1994
Net increase (decrease) in cash and
cash equivalents $ 6,018 $ (1,855) $(23,661)
Cash and cash equivalents at beginning
of period 339 2,194 25,855
Cash and cash equivalents at end of
period $ 6,357 $ 339 $ 2,194
Supplemental information:
Cash paid during the period for
interest $ 13,439 $16,642 $18,738
Cash paid during the period for
income taxes $ - $ 236 $ 890
Supplemental schedule of noncash investing activities:
Capital lease obligations assumed $ - $ 1,493 $ 3,218
Capital lease obligations retired $ - $ - $ 31
The accompanying notes are an integral part
of these consolidated financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. Organization:
Homeland Holding Corporation ("Holding"), a Delaware
corporation, was incorporated on November 6, 1987, but
had no operations prior to November 25, 1987.
Effective November 25, 1987, Homeland Stores, Inc.
("Homeland"), a wholly-owned subsidiary of Holding,
acquired substantially all of the net assets of the
Oklahoma Division of Safeway Inc. Holding and its
consolidated subsidiary, Homeland, are collectively
referred to herein as the "Company".
Holding has guaranteed substantially all of the debt
issued by Homeland. Holding is a holding company with
no significant operations other than its investment in
Homeland. Separate financial statements of Homeland
are not presented herein since they are identical to
the consolidated financial statements of Holding in all
respects except for stockholder's equity (which is
equivalent to the aggregate of total stockholders'
equity and redeemable common stock of Holding) which is
as follows:
December 30, December 31,
1995 1994
Homeland stockholder's equity:
Common stock, $.01 par value,
authorized, issued and
outstanding 100 shares 1 1
Additional paid-in capital 53,435 53,713
Accumulated deficit (80,198) (48,408)
Minimum pension liability adjustment (1,327) -
Total Homeland stockholder's
equity (deficit) $(28,089) $ 5,306
2. Basis of Presentation:
The accompanying consolidated financial statements of
Holding have been prepared on a going concern basis,
which contemplates the realization of assets and the
satisfaction of liabilities in the ordinary course of
business. Accordingly, the consolidated financial
statements do not include any adjustments relating to
the recoverability or classification of recorded asset
amounts or the amount and classification of
liabilities that might be necessary should Holding be
unable to successfully complete the financial
restructuring described in Note 15 and continue as a
going concern.
2. Basis of Presentation, continued:
As shown in the accompanying financial statements, the
Company incurred significant losses in 1995 and 1994
and, at December 30, 1995, had a stockholders' deficit
of $28,106. As discussed in Note 4, at December 30,
1995, as a consequence of Homeland's financial
position and the results of its operations for the
year ended December 30, 1995, the Company was not in
compliance with the Consolidated Fixed Charge Coverage
Ratio and Debt-to-Equity Ratio covenants under its
Senior Note Indenture and Revolving Credit Agreement;
however, waivers of such noncompliance through April
15, 1996 and May 20, 1996, respectively, have been
received. In addition, the Company failed to make a
scheduled interest payment under its Senior Note
Indenture, due March 1, 1996, and the waiver under
such Senior Note Indenture thereby expired.
Furthermore, as discussed in Note 15, negotiations for
the restructuring of the Company's long-term debt and
union agreements are being conducted which, if
unsuccessful, could have a material adverse effect on
the Company's financial condition.
3. Summary of Significant Accounting Policies:
Fiscal year - The Company has adopted a fiscal year
which ends on the Saturday nearest December 31.
Basis of consolidation - The consolidated financial
statements include the accounts of Homeland Holding
Corporation and its wholly owned subsidiary. All
significant intercompany balances and transactions
have been eliminated in consolidation.
Revenue recognition - The Company recognizes revenue
at the "point of sale", which occurs when groceries
and related merchandise are sold to its customers.
3. Summary of Significant Accounting Policies, continued:
Concentrations of credit and business risk - Financial
instruments which potentially subject the Company to
concentrations of credit risk consist principally of
temporary cash investments and receivables. The
Company places its temporary cash investments with
high quality financial institutions. Concentrations
of credit risk with respect to receivables are limited
due to the diverse nature of those receivables,
including a large number of retail customers within
the region and receivables from vendors throughout the
country. The Company purchases approximately 70% of
its products from Associated Wholesale Grocers, Inc.
("AWG"). Although there are similar wholesalers that
could supply the Company with merchandise, if AWG were
to discontinue shipments, this could have a material
adverse effect on the Company's financial condition.
Restricted Cash - The Company has two escrow accounts
at United States Trust Company of New York, one for
reinvestment in capital expenditures to which the
Company is committed ("Capital Escrow") and one for
the redemption of Senior Notes (as subsequently
defined in Note 4) ("Redemption Escrow"). As of
December 30, 1995, the Company has $1,729 deposited in
the Capital Escrow and $800 deposited in the
Redemption Escrow. The deposited funds in the Capital
Escrow is restricted for reinvestment in capital
expenditures to which the Company is committed or must
be used to permanently pay down the Senior Notes. The
Redemption Escrow consisting of net proceeds from
asset sales occurring after the AWG Transaction (as
subsequently defined in Note 14) is restricted to
permanently pay down the Senior Notes when the
aggregate amount reaches $2,000.
Inventories - Inventories are stated at the lower of
cost or market, with cost being determined primarily
using the retail method.
3. Summary of Significant Accounting Policies, continued:
Property, plant and equipment - Property, plant and
equipment obtained at acquisition are stated at
appraised fair market value as of that date; all
subsequently acquired property, plant and equipment
are stated at cost or, in the case of assets under
capital leases, at the lower of cost or the present
value of future lease payments. Depreciation and
amortization, including amortization of leased assets
under capital leases, are computed on a straight-line
basis over the lesser of the estimated useful life of
the asset or the remaining term of the lease.
Depreciation and amortization for financial
reporting purposes are based on the following
estimated lives:
Estimated
lives
Buildings 10 - 40
Fixtures and equipment 5 - 12.5
Leasehold improvements 15
Transportation equipment 5 - 10
Software 5 - 10
The costs of repairs and maintenance are expensed as
incurred, and the costs of renewals and betterments
are capitalized and depreciated at the appropriate
rates. Upon sale or retirement, the cost and related
accumulated depreciation are eliminated from the
respective accounts and any resulting gain or loss is
included in the results of operations for that period.
In the fourth quarter of 1995, approximately $7.9
million of capitalized software costs, net of
accumulated depreciation, have been charged to
operational restructuring costs in the Statement of
Operations as a result of management's decision to
replace such software as part of its operational
restructuring initiatives.
Excess of purchase price over fair value of net assets
acquired - As discussed in Notes 2 and 14, the Board
of Directors approved a strategic plan in December
1995 to refocus the Company's restructuring efforts,
which commenced in 1994, to address continuing
significant losses from operations as well as
evaluating various financial restructuring
alternatives in an effort to improve cash flows from
operations and reduce interest costs on the Company's
long-term debt. There is no assurance that such
restructuring efforts will be successful and,
accordingly, the Company determined during the fourth
quarter of 1995 that the recovery of any remaining
unamortized excess of purchase price over fair value
of net assets acquired could not be assured from
future operating cash flows. Consequently, the
unamortized
3. Summary of Significant Accounting Policies, continued:
balance of the excess of purchase price over fair
value of net assets acquired was charged to
operational restructuring costs in the statement of
operations.
Other assets and deferred charges - Other assets and
deferred charges consist primarily of financing costs
amortized using the effective interest rate method
over the term of the related debt and beneficial
interests in operating leases amortized on a straight-
line basis over the remaining terms of the leases,
including all available renewal option periods.
Net income (loss) per common share - Net income (loss)
per common share is computed based on the weighted
average number of shares, including shares of
redeemable common stock outstanding during the period.
Net income (loss) is reduced (increased) by the
accretion to (reduction in) redemption value to
determine the net income (loss) available to common
stockholders.
Cash and cash equivalents - For purposes of the
statements of cash flows, the Company considers all
short-term investments with an original maturity of
three months or less when purchased to be cash
equivalents.
Capitalized interest - The Company capitalizes
interest as a part of the cost of acquiring and
constructing certain assets. No interest cost was
capitalized in 1995. Interest costs of $35 and $44
were capitalized in 1994 and 1993, respectively.
Advertising costs - Costs of advertising are expensed
as incurred. Gross advertising costs for 1995, 1994
and 1993, respectively, were $10,700, $13,615 and
$14,100.
Use of estimates - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the
financial statements and the reported amounts of
revenues and expenses during the reporting periods.
The most significant assumptions and estimates relate
to the reserve for restructuring, the reserve for
self-insurance programs, the deferred income tax
valuation allowance, the accumulated benefit
obligation relating to the employee retirement plan,
the allowance for bad debts and depreciation rates of
property and equipment. Actual results could differ
from those estimates.
3. Summary of Significant Accounting Policies, continued:
Income taxes - The Company provides for income taxes
based on enacted tax laws and statutory tax rates at
which items of income and expense are expected to be
settled in the Company's income tax return. Certain
items of revenue and expense are reported for Federal
income tax purposes in different periods than for
financial reporting purposes, thereby resulting in
deferred income taxes. Deferred taxes also are
recognized for operating losses that are available to
offset future taxable income and tax credits that are
available to offset future Federal income taxes.
Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to
be realized.
Self-insurance reserves - The Company is self-insured
for property loss, general liability and automotive
liability coverage and was self-insured for workers'
compensation coverage until June 30, 1994, subject to
specific retention levels. Estimated costs of these
self-insurance programs are accrued at their present
value based on projected settlements for claims using
actuarially determined loss development factors based
on the Company's prior history with similar claims.
Any resulting adjustments to previously recorded
reserves are reflected in current operating results.
Impact of Recently Issued Accounting Pronouncement -
The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121,
" Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS
No.121"), in March 1995 to establish standards for the
impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be
held and used. The Company has not yet adopted this
accounting standard, which becomes effective in 1996
for Homeland, nor has it evaluated the potential
impact of adoption in 1996. The impact of SFAS No.
121 is not reasonably estimable at this time due to
certain factors discussed in Note 2 to the
consolidated financial statements; although this
standard may affect reported earnings and the carrying
values of long-lived assets, there will be no impact
on cash flows.
4 . Current and long-term Debt:
In March 1992, the Company entered into an Indenture
with United States Trust Company of New York, as
trustee, pursuant to which the Company issued $45,000
in aggregate principal amount of Series A Senior
Secured Floating Rate Notes due 1997 (the "Old
Floating Rate Notes") and $75,000 in aggregate
principal amount of Series B Senior Secured Fixed Rate
Notes due 1999 (the "Old Fixed Rate Notes", and
collectively, the "Old Notes"). Certain proceeds from
this issuance were used to repay all outstanding
amounts under the previous credit agreement. In
October and November 1992, the Company exchanged a
portion of its Series D Senior Secured Floating Rate
Notes due 1997 (the "New Floating Rate Notes") and its
Series C Senior Secured Fixed Rate Notes due 1999 (the
"New Fixed Rate Notes", and collectively, the "New
Notes") for equal principal amounts of the Old Notes.
The New Notes are substantially identical to the Old
Notes, except that the offering of the New Notes was
registered with the Securities and Exchange
Commission. At the expiration of the exchange offer
in November 1992, $33,000 in principal amount of the
Old Floating Rate Notes and $75,000 in principal
amount of the Old Fixed Rate Notes had been tendered
and accepted for exchange.
On March 1, 1993, the Company redeemed all remaining
outstanding subordinated notes ($47,750 principal
amount) at the optional redemption price, including
a premium of $2,776 or 5% of the outstanding principal
amount specified in the subordinated note agreement,
together with accrued interest.
On April 21, 1995, the Company and the Indenture
trustee entered into a supplemental indenture
effecting certain amendments to the Indenture. On
June 1, 1995, the Company redeemed $15,625 of its New
Fixed Rate Notes, $6,874 of New Floating Rate Notes
and $2,501 of Old Floating Rate Notes.
Also on April 21, 1995, the Company entered into a
revolving credit agreement (the "Revolving Credit
Agreement") with National Bank of Canada ("NBC") as
agent and lender, Heller Financial, Inc. and any other
lenders thereafter parties thereto. The Revolving
Credit Agreement provides a commitment of up to $25
million in collateralized revolving credit loans,
including certain documentary and standby letters of
credit.
4. Current and long-term Debt, continued:
As a result of the 1995 and 1993 redemptions, the
Company incurred the following extraordinary losses:
1995 1993
Premium on redemption/repurchase
of the Company's 15.5%
subordinated notes due
November 1, 1997 $ - $(2,776)
Unamortized financing costs
relating to the redemption/
repurchase of the Company's
15.5% subordinated notes
due November 1, 1997 - (1,148)
Consent fee equal to $5,000
for each principal amount
of the $120.0 million Senior
Notes (600) -
Premium on redemption of $15.6
million of the Senior Secured
Fixed Rate Notes, due
March 1, 1999 (306) -
Unamortized financing costs
relating to the redemption of
$25.0 million of the Senior Notes
and the replacement of the prior
revolving credit agreement (1,424) -
Net extraordinary loss $(2,330) $(3,924)
4. Current and long-term Debt, continued:
Long-term debt at year end consists of:
December 30, December 31,
1995 1994
Note payable* $ - $ 750
Senior Notes Series A** 9,499 12,000
Senior Notes Series D** 26,126 33,000
Senior Notes Series C** 59,375 75,000
Revolving credit loans*** 5,467 26,500
100,467 147,250
Less current portion - 2,250
Less long-term debt obligation
in default classified as current 100,467 -
Long-term debt due after
one year $ - $145,000
* The Company issued a $3,000 note payable in 1992
for the purchase of fixed assets related to the
acquisition of five stores. The note matured on
March 1, 1995 and was repaid.
** The Series A and Series D Senior Secured
Floating Rate Notes mature on February 27, 1997.
Interest payments are due quarterly and bear
interest at the applicable LIBOR rate, as
defined in the Indenture (8.43% at December 30,
1995). The Series C Senior Secured Fixed Rate
Notes mature on March 1, 1999. Interest
payments are due semiannually at an annual rate
of 12.25%. The notes are collateralized by
substantially all of the consolidated assets of
the Company except for accounts receivable and
inventories.
The notes, among other things, require the
maintenance of a Debt-to-EBITDA and a
consolidated fixed charge coverage ratio, as
defined, and a capital expenditure covenant, as
well as limiting the incurrence of additional
indebtedness, providing for mandatory prepayment
of the Senior Floating Rate Notes in an amount
equal to 80% of excess cash flow, as defined,
upon certain conditions and limiting the payment
of dividends. At December 30, 1995, the Company
was not in compliance with the Debt-to-EBITDA
and the fixed charge coverage ratio covenants.
4. Current and long-term Debt, continued:
Although a waiver was received by the Company
for such noncompliance through April 15, 1996,
the Company failed to make a scheduled interest
payment on March 1, 1996 and, accordingly, such
waiver expired. As the Company may not be able
to comply with these debt covenants in 1996, the
aggregate principal amount of the outstanding
debt was classified as current obligations.
*** Borrowings under the Revolving Credit Agreement
bear interest at the NBC Base Rate plus 1.5% for
the first year, payable on a quarterly basis in
arrears. At December 30, 1995, the interest
rate on borrowings under the Revolving Credit
Agreement was 10.0%. Subsequent year's interest
rates will be dependent upon the Company's
earnings but will not exceed the NBC base rate
plus 2.0%. All borrowings under the Revolving
Credit Agreement are subject to a borrowing
base, which was $23.7 million as of December 30,
1995, and mature no later than February 27,
1997, with the possibility of extending the
maturity date to March 31, 1998 if the Company's
Series A Senior Secured Floating Rate Notes due
February 27, 1997, are extended or refinanced on
terms acceptable to NBC.
The Revolving Credit Agreement, among other
things, requires the maintenance of a Debt-to-
EBITDA ratio and consolidated fixed charge
coverage ratio, as defined, and limits the
Company's net capital expenditures, incurrence
of additional indebtedness and the payment of
dividends. The notes are collateralized by
accounts receivable and inventories of the
Company. At December 30, 1995, the Company was
not in compliance with the Debt-to-EBITDA
coverage ratio and the consolidated fixed charge
coverage ratio. The lenders waived compliance
of such default through May 20, 1996. As the
Company may not be able to comply with existing
covenants in 1996, the outstanding borrowings
have been classified as current obligations (See
Note 2 -Basis of Presentation and Note 15 -
Subsequent Events).
5. Fair Value of Financial Instruments:
The estimated fair value of financial instruments has
been determined by the Company using available market
information and appropriate valuation methodologies.
However, considerable judgment is necessarily required
in interpreting market data to develop the estimates
of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts
that the Company could realize in a current market
exchange. The use of different market assumptions
and/or estimation methodologies may have a material
effect on the estimated fair value amounts. The
carrying amount and fair value of financial
instruments as of December 30, 1995 and December 31,
1994 are as follows:
December 30, 1995 December 31, 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash and Cash
Equivalents $6,357 $6,357 $339 $339
Liabilities:
Current and Long-Term
Obligations in
default classified
as current $100,467 $56,411 - -
Long-Term Debt - - $147,250 $141,250
Cash and cash equivalents - The carrying amount of
this item is a reasonable estimate of its fair value
due to its short-term nature.
Current and long-term obligations in default
classified as current; long-term debt - The fair value
of publicly traded debt (the Senior Secured Notes) is
valued based on quoted market values. The amount
reported in the balance sheet for the remaining long-
term obligations in default classified as current
approximates fair value based on quoted market prices
of comparable instruments or by discounting expected
cash flows at rates currently available for debt of
the same remaining maturities.
6. Income Taxes:
The components of the income tax benefit (provision)
for fiscal 1995, 1994 and 1993 were as follows:
1995 1994 1993
Federal:
Current - AMT $ - $ 1,551 $(36)
Deferred - (3,997) 3,288
Total income tax benefit
(provision) $ - $(2,446) $3,252
A reconciliation of the income tax benefit (provision)
at the statutory Federal income tax rate to the
Company's effective tax rate is as follows:
1995 1994 1993
Federal income tax at statutory
rate $11,127 $13,370 $1,010
AMT in excess of regular tax - - (36)
AMT loss carryback - 1,551 -
Change in valuation allowance (10,074) (16,075) 3,288
Other - net (1,053) (1,292) (1,010)
Total income tax benefit
(provision) $ - $(2,446) $3,252
During the year ended December 30, 1995, the Company
received an income tax refund amounting to $1,339, due
to the recognition of a tax benefit from its year
ended December 31, 1994 for net alternative minimum
tax operating losses that were carried back to prior
tax years.<PAGE>
6. Income Taxes, continued:
The components of deferred tax assets and deferred tax
liabilities are as follows:
December 30, December 31,
1995 1994
Current assets (liabilities):
Allowance for uncollectible
receivables $ 1,090$ 942
Termination of Borden supply
agreement - 789
Operational restructuring reserve 1,282 5,918
Other, net 406 (800)
Net current deferred tax assets 2,778 6,849
Noncurrent assets (liabilities):
Property, plant and equipment 251 (4,577)
Targeted job credit carryforward 815 815
Self-insurance reserves 2,150 3,183
Operational restructuring reserve 969 1,745
Net operating loss carryforwards 17,001 7,048
AMT credit carryforwards 630 507
Capital leases 1,111 600
Other, net 444 (95)
Net noncurrent deferred tax
assets 23,371 9,226
Total net deferred assets 26,149 16,075
Valuation allowance (26,149) (16,075)
Net deferred tax assets $ - $ -
Due to the uncertainty of realizing the future tax
benefits, the full valuation allowance established in
fiscal 1994 was increased to entirely offset the net
deferred tax assets as of December 30, 1995. At
December 30, 1995, the Company had the following
operating loss and tax credit carryforwards available
for tax purposes:
6. Income Taxes, continued:
Expiration
Amount Dates
Federal regular tax net
operating loss carryforwards $48,575 2002-2010
Federal AMT credit carryforwards
against regular tax $ 630 indefinite
Federal tax credit carryforwards
(Targeted Jobs Credit) $ 815 2003-2009
The Internal Revenue Service ("IRS") concluded a field
audit of the Company's income tax returns for the
fiscal years 1990, 1991 and 1992. On January 31,
1994, the IRS issued a Revenue Agent's Report for
those fiscal years proposing adjustments that would
result in additional taxes of $1,589 (this amount is
net of any available operating loss carryforwards
which would be eliminated under the proposed
adjustment). The Company filed its protest with the
IRS Appeals Office on June 14, 1994. On June 28,
1995, the Company reached a tentative agreement with
the IRS appeals office to settle the above claim.
Management has analyzed the proposed settlement and
has provided for amounts which it believes are
adequate.
7. Incentive Compensation Plan:
The Company has bonus arrangements for store
management and other key management personnel. During
1995, 1994, and 1993, approximately $934, $1,939, and
$2,900, respectively, was charged to costs and
expenses for such bonuses.
8. Retirement Plans:
Effective January 1, 1988, the Company adopted a non-
contributory, defined benefit retirement plan for all
executive and administrative personnel. Benefits are
based on length of service and career average pay with
the Company. The Company's funding policy is to
contribute an amount equal to or greater than the
minimum funding requirement of the Employee Retirement
Income Security Act of 1974, but not in excess of the
maximum deductible limit. (Assets were held in
investment mutual funds during 1995 and 1994.)
In accordance with the provisions of Statement of
Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions", the Company recorded an
additional minimum liability at December 30, 1995 and
January 1, 1994 representing the excess of the
accumulated benefit obligation over the fair value of
plan assets and accrued pension liability. The
liabilities have been offset by intangible assets to
the extent of previously unrecognized prior service
cost. The accumulated benefit obligation for December
30, 1995 was determined using a 7.25% discount rate;
if the discount rate used had been at least 7.35%, the
additional minimum liability would not have been
recorded.
Net pension cost consists of the following:
1995 1994 1993
Service cost $ 517 $709 $663
Interest cost 465 366 292
Loss (return) on assets (1,140) 63 (319)
Net amortization and deferral 690 (419) 43
Curtailment charge (37) - -
Net periodic pension cost $ 495 $719 $680
The funded status of the plan and the amounts
recognized in the Company's balance sheet at December
30, 1995 and December 31, 1994 consist of the
following:
1995 1994
Actuarial present value of benefit
obligations:
Vested benefits $(6,928) $(4,499)
Non-vested benefits (88) (151)
Accumulated benefit
obligations $(7,016) $(4,650)
8. Retirement Plans, continued:
1995 1994
Projected benefit obligations $(7,693) $(5,441)
Plan assets at fair value 6,902 4,960
Projected benefit obligations in
excess of plan assets (791) (481)
Unrecognized prior service cost (95) (144)
Unrecognized net loss from past
experience different from that
assumed and changes in actuarial
assumptions 2,096 1,340
Adjustment to recognize minimum
liability (1,327) -
Net pension asset (liability)
recognized in statement of
financial position $ (117) $ 715
Actuarial assumptions used to determine year-end plan
status were as follows:
1995 1994
Assumed rate for determination of net
periodic pension cost 9.0% 7.5%
Assumed discount rate to determine
the year-end plan disclosures 7.25% 9.0%
Assumed long-term rate of return
on plan assets 9.0% 9.0%
Assumed range of rates of future
compensation increases
(graded by age) for net
periodic pension cost 5.0% to 7.0% 3.5% to 5.5%
Assumed range of rates of future
compensation increases
(graded by age) for year-end
plan disclosures 3.5% to 5.5% 5.0% to 7.0%
The prior service cost is being amortized on a
straight line basis over approximately 13 years.
8. Retirement Plans, continued:
As a result of the sale of the Company's warehouse and
distribution center and 29 stores to AWG, as well as
the closure of 14 under-performing stores during 1995
(See Note 14), a significant number of employees were
terminated that participated in the Company's non-
contributory defined benefit retirement plan. The
effect of the curtailment resulting from the
terminations of such employees was not material to the
Statement of Operations for the year ended December
30, 1995.
The Company also contributes to various
union-sponsored, multi-employer defined benefit plans
in accordance with the collective bargaining
agreements. The Company could, under certain
circumstances, be liable for the Company's unfunded
vested benefits or other costs of these multi-employer
plans. The allocation to participating employers of
the actuarial present value of vested and nonvested
accumulated benefits in multi-employer plans as well
as net assets available for benefits is not available
and, accordingly, is not presented. The costs of
these plans for 1995, 1994, and 1993 were $2,110,
$3,309, and $3,565, respectively.
Effective January 1, 1988, the Company adopted a
defined contribution plan covering substantially
all non-union employees of the Company. Prior to
1994, the Company contributed a matching 50% for each
one dollar the participants contribute in pre-tax
matched contributions. Participants may contribute
from 1% to 6% of their pre-tax compensation which was
matched by the Company. Participants may make
additional contributions of 1% to 6% of their pre-tax
compensation, but such contributions were not matched
by the Company. Effective January 2, 1994, the plan
was amended to allow a discretionary matching
contribution formula based on the Company's operating
results. The cost of this plan for 1995, 1994, and
1993, was $0, $0, and $425, respectively.
9. Leases:
The Company leases substantially all of its retail
store properties under noncancellable agreements, the
majority of which range from 15 to 25 years. These
leases, which include both capital leases and
operating leases, generally are subject to six five-
year renewal options. Most leases also require the
payment of taxes, insurance and maintenance costs and
many of the leases covering retail store properties
provide for additional contingent rentals based on
sales. Leased assets under capital leases consists of
the following:
December 30, December 31,
1995 1994
Buildings $16,670 $21,616
Equipment 7,014 8,340
Beneficial interest
in capital leases 5,378 16,059
29,062 46,015
Accumulated amortization 17,851 21,010
Net leased assets $11,211 $25,005
Future minimum lease payments under capital leases and
noncancellable operating leases as of December 30,
1995 are as follows:<PAGE>
9. Leases, continued:
Capital Operating
Fiscal Year Leases Leases
1996 $ 4,035 $ 8,849
1997 2,754 8,239
1998 2,134 5,779
1999 1,707 5,448
2000 982 4,899
Thereafter 9,350 38,891
Total minimum obligations 20,962 $72,105
Less estimated interest 9,190
Present value of net minimum
obligations 11,772
Less current portion 2,746
Long-term obligations under
capital leases $ 9,026
Rent expense is as follows:
1995 1994 1993
Minimum rents $10,264 $12,560 $12,642
Contingent rents 107 178 214
$10,371 $12,738 $12,856
10. Common Stock and Warrants:
Holding has agreed to repurchase shares of stock held
by management investors under certain conditions (as
defined), such as death, retirement, or permanent
disability.
Pursuant to requirements of the Securities and
Exchange Commission, the shares of Class A common
stock held by management investors have been presented
as redeemable common stock and excluded from
stockholders' equity.
The changes in the number of shares outstanding and
the value of the redeemable common stock is as
follows:
10. Common Stock and Warrants, continued:
Shares Amount
Balance, January 2, 1993 4,104,211 $ 9,470
Repurchase of common stock (134,000) (323)
Increase in management
stock loans - (294)
Balance, January 1, 1994 3,970,211 8,853
Repurchase of common stock (106,000) (255)
Reduction in redemption value - (7,284)
Increase in management stock
loans - (79)
Balance, December 31, 1994 3,864,211 1,235
Repurchase of common stock (2,143,493) (1,071)
Reduction in redemption value - (940)
Decrease in management stock loans - 793
Balance, December 30, 1995 1,720,718 $ 17
The shares of redeemable common stock are reported on
the balance sheets at redemption value (estimated fair
value). The reduction in redemption value has been
reflected as an increase in additional paid-in
capital.
The shares of treasury stock are reported on the
balance sheets at cost.
Holding also has 40,500,000 shares of Class B
nonvoting common stock authorized at December 30, 1995
and December 31, 1994 with a $.01 par value. No
shares were issued or outstanding at either December
30, 1995 or December 31, 1994.
In 1995, Holding repurchased 2,143,493 shares of its
Common Stock from certain officers and employees of
the Company at a cash price of $0.50 per share plus,
at the election of seller, warrants up to the number
of shares purchased. As a result of the purchase,
Holding issued 2,105,493 warrants to such officers and
employees of the Company. The warrant and the shares
issuable upon exercise, are subject to certain
restrictions on transferability, including certain
first refusal rights, as set forth in the warrant.
10. Common Stock and Warrants, continued:
The holders of the warrants may, at any time prior to
the expiration date (defined as five years after
issuance date), purchase from Holding the amount of
Common Stock indicated on such warrant, in whole or
in part, at a purchase price of $0.50 per share.
11. Related Party Transactions:
Clayton, Dubilier & Rice, Inc., a private investment
firm of which four directors of the Company are
employees, received $125 in 1995, $150 in 1994, and
$200 in 1993, for financial advisory and consulting
services.
The Company made loans during 1995 and 1994 to certain
members of management and key employees for principal
payments on their loans made by the credit union in
connection with their purchase of common stock. The
loans bear interest at a variable rate equal to the
Company's prime lending rate plus 1.0%. Loans
outstanding at December 30, 1995 and December 31, 1994
were $82 and $794, respectively. The outstanding loans
mature in July 1996.
12. Commitments and Contingencies:
Effective January 1, 1989, the Company implemented
stock appreciation rights ("SAR's") plans for certain
of its hourly union and non-union employees as well as
salaried employees. Participants in the plans are
granted at specified times "appreciation units" which,
upon the occurrence of certain triggering events,
entitle them to receive cash payments equal to the
increase in value of a share of the common stock over
$1.00 from the date of the plan's establishment. The
Company expects the SAR's to be triggered as a result
of the restructuring, discussed in Note 14, at no
liability to the Company due to the continued decline
in per share value below $1.00.
Effective October 1, 1991, the Company entered into an
outsourcing agreement whereby an outside party
provides virtually all of the Company's EDP
requirements and assumed substantially all of the
Company's existing hardware and software leases and
related maintenance agreements. The ten year
agreement calls for minimum annual service charges,
increasing over its term, as well as other variable
charges. The Company terminated the outsourcing
agreement as of March 31, 1996. Pursuant to the
outsourcing agreement, there is a
12. Commitments and Contingencies, continued:
$3.0 million charge for the termination, of which AWG is
responsible for 52%. The Company has provided for
amounts in the financial statements that management
believes to be reasonable and adequate.
The Company has entered into employment contracts with
certain key executives providing for the payment of
minimum salary and bonus amounts in addition to
certain other benefits in the event of termination of
the executives or change of control of the Company.
The Company is also a party to various lawsuits arising in
the normal course of business. Management believes
that the ultimate outcome of these matters will not
have a material effect on the Company's consolidated
financial position, results of operations and cash
flows.
The Company has outstanding at December 30, 1995, $12,000
in letters of credit which are not reflected in the
accompanying financial statements. The letters of
credit are issued under the Revolving Credit Agreement
and the Company paid associated fees of $335 and $195
in 1995 and 1994, respectively.
13. Sale of Plants:
In November 1993 the Company entered into an asset purchase
agreement with Borden, Inc. ("Borden") whereby
certain of the Company's milk and ice cream processing
equipment and certain other assets and inventory
relating to its milk and ice cream plants was sold.
In connection with the sale, the Company entered into
a seven-year agreement with Borden under which Borden
would supply all of the Company's requirements for
most of its dairy, juice and ice cream products and
the Company agreed to purchase minimum volumes of
products. The Company recognized a gain on the sale
of personal property in the amount of $2,618. A
$4,000 payment received in connection with the supply
agreement was deferred and was to be recognized as
earned over the term of the supply agreement.
In December 1994, the Company entered into a settlement
agreement with Borden whereby the seven-year supply
agreement entered into in November 1993 was terminated
and a temporary supply agreement for a maximum period
of 120 days was entered into. As part of the
settlement agreement, the Company repaid $1,650 plus
interest in December 1994 and $1,650 plus interest in
April 1995. Upon final settlement payment, the
Company
13. Sale of Plants, continued:
recognized an additional gain of approximately $700 in
1995. The Company has made arrangements with another
dairy supplier to begin supplying its dairy and ice
cream requirements in April 1995.
14. Restructuring:
In the fourth quarter of 1995, the Company refocused its
restructuring plan, which commenced in 1994. The
intent of the revised restructuring program and new
business plan is to further reduce the Company's
indebtedness in respect of its Senior Notes and its
Revolving Credit Agreement, restructure certain of its
lease obligations and negotiate modifications to
certain of its union agreements in an effort to reduce
costs and improve profitability and cash flow.
In connection with the closing of stores following the sale
of 29 stores and the warehouse facility to AWG, the
Company recognized charges aggregating $12,639 in 1995
and $23,205 in 1994. The major components of the
restructuring charges in 1995 are summarized as
follows:
Write-off of capitalized software costs
replaced as part of operational
restructuring initiatives $ 7,971
Write-off of unamortized balance of the
excess of purchase price over fair
value of net assets acquired due to
uncertainty of recovery from future
operating cash flows 2,360
Expense associated with the termination
of an EDP outsourcing agreement 1,410
Expenses associated with remaining store
closings, primarily occupancy costs from
closing date to lease termination or
revised sublease date 898
Total restructuring charges $12,639
The asset write-offs described above, aggregating $10,331,
have been reflected in their respective balance sheet
account classifications, the EDP expense is included
in Other current liabilities and the expenses
associated with the remaining
14. Restructuring, continued:
store closings are included in the Noncurrent restructuring
reserve as of December 30, 1995. In accordance with
a strategic plan approved by the Board of Directors in
December 1994, the Company entered into an agreement
with Associated Wholesale Grocers, Inc. ("AWG") on
February 6, 1995, pursuant to which the Company sold
29 of its stores and its warehouse and distribution
center to AWG on April 21, 1995. In connection with
this strategic plan, the Company closed fourteen
under-performing stores during 1995 and expects to
close an additional store and sell one store by the
second quarter of 1996. During fiscal 1995, the
Company incurred expenses associated with the
operational restructuring as follows:
Operational (Payments) proceeds Operational
restructuring applied against restructuring
reserve at restructuring reserve at
December 31, 1994 reserve in 1995 December 30, 1995
Expenses associated with the
planned store closings,
primarily occupancy costs
from closing date to lease
termination or sublease date $ 8,319 $ (3,459) (a) $ 4,860
Expenses associated with the AWG
transaction, primarily service
and equipment contract
cancellation fees 5,649 (5,591) 58
Estimated severance costs
associated with the AWG
transaction 5,624 (4,697) 927
Legal and consulting fees
associated with the AWG
transaction 4,905 (4,880) 25
Net gain on sale of
property, plant and
equipment to AWG (19,492) 19,492 -
Operational restructuring
reserve $ 5,005 $ 865 $ 5,870
(a) Such amount is net of additional charges of $898 in 1995
14. Restructuring, continued:
The separately identifiable revenue and store
contribution to operating profit related to the stores
sold to AWG or closed during 1995 and expenses related
to the warehouse facility are as follows:
1995 1994 1993
Sales, net $91,462 $253,221 $262,460
Store contribution to
operating profit (loss)
before allocation of
administrative and
advertising expenses $ 2,494 $ 7,795 $ 9,854
Warehouse expenses $ 3,853 $ 12,455 $ 11,080
Under the AWG supply agreement, the ongoing costs of
warehousing are built into the cost of goods purchased
from AWG.
15. Subsequent Events:
On March 27, 1996, the Company entered into an
agreement in principle (the "Noteholder Agreement")
with members of an ad- hoc noteholders committee (the
"Committee") with respect to a financial restructuring
of the Company. The Committee has advised the Company
that it represents approximately 80% of the Company's
outstanding Senior Notes. The Noteholder Agreement
provides for the filing by the Company of a bankruptcy
petition and simultaneously the submission of a "pre-
arranged" plan of reorganization and disclosure
statement under Chapter 11 of the United States
Federal Bankruptcy Code. (the "Restructuring"), all
of which is expected to occur on or about May 13,
1996. If approved by the United States Bankruptcy
Court (the "Bankruptcy Court"), the Company's
creditors and labor unions, the Restructuring will
result in a reduction of the Company's debt service
obligations and labor costs and a capital and cost
structure that will allow the Company to maintain and
enhance the competitive position of its business and
operations.
15. Subsequent Events, continued:
Pursuant to the Noteholder Agreement, upon completion
of the Restructuring, the $95 million of Senior Notes
currently outstanding (together with accrued interest)
will be canceled and the noteholders will receive $60
million in aggregate principal amount of new senior
subordinated notes, a majority of the new equity of
the reorganized Company and approximately $1.5 million
in cash. The new senior subordinated notes will
mature in 2003, bear interest semi-annually at a rate
of 10% per annum and will not be secured.
In March 1996, the Company also reached agreements
with representatives of its unionized workforce
regarding certain modifications to the Company's
existing collective bargaining agreements. These
modifications will provide for, among other things,
wage and benefit concessions, the severance of certain
employees and the issuance and purchase of new equity
of the reorganized Company to a trust acting on behalf
of the unionized employees. The modifications to the
collective bargaining agreements have been ratified by
the union membership and are conditioned on, and will
be effective upon, completion of the Restructuring.
In order to facilitate the Restructuring, as provided
under the Noteholder Agreement the Company intends to
file papers with the Bankruptcy Court seeking approval
of a debtor-in-possession financing facility. The
Company anticipates that such facility will provide it
with the financing necessary to maintain its normal
business operations during its period of operations
under supervision of the Bankruptcy Court, including
the payment of postpetition claims of trade creditors
and salaries, wages and benefits of employees. The
Company anticipates that the Restructuring will be
completed by the third quarter of 1996.
LIQUIDATION ANALYSIS OF THE DEBTORS
General
The Debtors believe that the value of the property to be received under
the Plan by each holder of an impaired Claim and/or impaired Interest exceeds
any value such holder would receive in a liquidation of each of the Debtors
under Chapter 7 of the Bankruptcy Code. In order to arrive at that judgment,
the Debtors estimated and compared the likely returns to each holder of an
impaired Claim and an impaired Interest under a liquidation pursuant to
Chapter 7 of the Bankruptcy Code and under the Plan.
The results of such analysis are set forth below.
Chapter 7 Liquidation Analysis
To calculate what members of each impaired Class of Claims and Interests
would receive if each of the Debtors were liquidated under Chapter 7 of the
Bankruptcy Code, the Bankruptcy Court must determine the "liquidation value" of
each Debtor, which would consist primarily of the proceeds from a forced sale of
each Debtor's assets by a Chapter 7 trustee. The Debtors' assets consist
primarily of (i) the Company's inventory and accounts receivable (the
"Quick Assets") and (ii) the Company's property, plant and equipment
(the "Fixed Assets").
In preparing this Chapter 7 liquidation analysis, the Debtors evaluated
several alternative methods of valuing the Debtor's assets including a
"piecemeal" sale of the Company's assets and a sale of the Company as a
going concern. The Company believes that, for purposes of this liquidation
analysis, a piecemeal valuation of the Debtors' assets is more appropriate
than a going concern valuation because, absent a reorganization of the
Company along the lines provided for in the
Plan, it is unlikely that the Company would have going concern value to a third
party purchaser. See "THE RESTRUCTURING -- Restructuring Discussions --
Strategic Sale Efforts." Accordingly, for purposes of this liquidation
analysis, the Debtors have valued the Company's assets based on a
"piecemeal" sale of the Company's assets over a three-to-six month period.
Under a Chapter 7 liquidation, each Allowed Secured Claim would be
satisfied from the proceeds of the collateral securing such Claim before any
such proceeds would be distributed to the holders of Unsecured Claims.
The Debtors have three groups of creditors who each hold Secured Claims:
(i) the Old Banks, whose Claims are secured primarily by the Company's Quick
Assets and certain cash collateral held by the Old Banks (collectively,
the "Bank Collateral"); (ii) the holders of the Old Notes, whose claims are
secured primarily by the Fixed Assets and certain cash collateral held by
the Old Trustee (the "Old Indenture Collateral"); and (iii) certain equipment
lessors (the "Equipment Lessors"), whose claims are secured
by the equipment leased by such Equipment Lessor (the "Equipment Lease
Collateral"). The Debtors believe that (a) the proceeds from a forced sale
of the Bank Collateral would be sufficient to satisfy the Claims of the Old
Banks in full, (b) the proceeds from a forced sale of the Indenture
Collateral would not be sufficient to satisfy the Claims of the holders of
the Old Notes and (c) the proceeds from a forced sale of the Equipment
Lease Collateral would not be sufficient to satisfy the Claims of the
Equipment Lessors. See Notes 10 through 13 to the Liquidation Analysis.
The remaining proceeds from a Chapter 7 liquidation that would be
available to be distributed to creditors on account of their Claims would be
reduced by the amount of administrative expenses of the Chapter 7 case, which
amount has priority over payments to unsecured creditors pursuant to the
Bankruptcy Code. Administrative expenses of liquidation under Chapter 7 of
the Bankruptcy Code would include the fees of a trustee, and of counsel and
other professionals (including financial advisors and accountants) retained
by the trustee, asset disposition expenses, litigation costs, and Claims
arising from the operation of the Company's business during the Chapter 7
case. The liquidation itself could trigger certain priority Claims, such as
Claims for severance pay, and could accelerate other priority payments that
otherwise would be due in the ordinary course of business.
Those priority Claims would be paid in full out of the liquidation proceeds
(after payment of Secured Claims) before the balance would be made available
to pay Unsecured Claims or to make any distributions in respect of equity
interests.
In the event that proceeds remain after satisfaction of all Allowed Secured
Claims, administrative Claims and priority Claims, the remaining assets would be
distributed pursuant to the absolute priority rule, which requires that no
junior creditor receive any distribution until all senior creditors are
paid in full, and no equity holder receive any distribution until all creditors
are paid in full. The Debtors believe that in a liquidation under Chapter 7
of the Bankruptcy Code, holders of the Old Notes and holders of General
Unsecured Claims would receive a smaller distribution of property than under
the Plan, and that holders of the Old Common Stock and the Old Warrants
would receive no distribution of property.
In applying Section 1129(a)(7) of the Bankruptcy Code, the Bankruptcy
Court would ascertain the hypothetical recoveries in a Chapter 7 liquidation to
secured creditors, priority claimants, general unsecured creditors, and
equity interest holders. The Bankruptcy Court would then compare these
hypothetical Chapter 7 liquidation recoveries with the distributions offered
to each class of Claims or Interests under the Plan to determine if the Plan
satisfies the best interest test set forth in Section 1129(a)(7) of the
Bankruptcy Code.
The following Chapter 7 liquidation analysis is provided solely to disclose
the effects of a hypothetical Chapter 7 liquidation of the Debtors, based on and
subject to the assumptions set forth below. There can be no assurance that such
assumptions would be made or accepted by the Bankruptcy Court or that the
assumptions used in this liquidation analysis will reflect actual conditions
at the time of a liquidation. However, as set forth in the following Chapter
7 liquidation analysis, the Debtors believe, based on the assumptions set
forth herein, that the members of each class of impaired Claims or impaired
Interests will receive more under the Plan than they would in a Chapter 7
liquidation.
Liquidation Proceeds Computation(1)
Estimated at July 13, 1996
(Dollars in Thousands)
ASSETS
Assets
Estimated Discounted
Liquidation Liquidation
Book Value value value(2)
Cash and cash equivalents (3) $ 5,236 $ 5,236 $ 4,982
Accounts receivable 8,379 3,486 (4) 3,317
Inventory 38,623 29,195 (5) 27,777
Prepaid expenses and other
current assets 2,733 0 0
Total current assets 54,971 37,917 36,075
Property, plant and
equipment (6) 70,087 19,646 18,691
Other assets and deferred
charges (7) 6,455 0 0
Total assets $ 131,513 $ 57,562 $ 54,766
Liquidation Proceeds Available for Distribution $ 54,766
SECURED CLAIMS
Estimated
value of
Estimated Collateral
Description of Claim Amount of Securing Chapter 7 Liquidation
Claim Claim Distribution Recovery %
<PAGE>
Revolving Loans (Class 2)$ 12,136 $ 33,992 (8) $ 12,136 100.0%
Equipment Leases (Class 4) 1,531 476 (9) 476 31.1
Old Notes (Class 3) 101,598 20,298 (10) 20,298 (11) 20.0
Total Secured Claim
Distributions $ 32,910
Liquidation Proceeds Available for Distribution
after Secured Claims $ 21,856
ADMINISTRATIVE EXPENSES
Estimated Liquidation Expenses
Chapter 7 Trustee's Fees $ 1,000
Chapter 7 Professional Fees
and Other Administrative Expenses (12) $ 2,886
Total Administrative Expenses $ 3,886
Liquidation Proceeds
Available for Distribution
after Administrative Expenses $17,970
UNSECURED CLAIMS/INTERESTS
Proceeds
Estimated Available
Description of Claim/Interest Amount of to Satisfy Chapter 7
Claim Claim Distribution
Priority Claims (Class 1)(13) $ 7,419 $17,970 $ 7,419
General Unsecured Claims (Class 5) 10,551
a.Unsecured Deficiency 81,300 5,878
Claim -- Old Notes (14)
b.Unsecured Deficiency 1,055 76
Claim -- Equipment
Leases (14)
c.Other General Unsecured 63,589 4,597
Claims (14) (15)
Old Common Stock (Class 7) N/A N/A 0
AGGREGATE RECOVERIES
Estimated Total
Description of Claim/Interest Amount of Chapter 7 Liquidation
Claim Distribution Recovery %
Priority Claims (Class 1) $ 7,419 $ 7,419 100.0%
Revolving Loans (Class 2) 12,136 12,136 100.0
Equipment Leases 1,531
a.Secured Portion of Claim (Class 4) 476
b.Unsecured Portion of Claim (Class 5) 76
Total 552 36.1
Old Notes<PAGE>
101,598
a.Secured Portion of Claim (Class 3) 20,298
b.Unsecured Portion of Claim (Class 5) 5,878
Total 26,176 25.8
General Unsecured Claims
(Class 5)(16) 63,589 4,597 7.2
Old Common Stock (Class 7) N/A 0 0
Total $ 50,880
Notes to Liquidation Analysis
(Dollars in thousands)
1.This Chapter 7 liquidation analysis was prepared by the Company's
management based in part on certain reports and appraisals prepared by
professionals, including Schottenstein Professional Asset Management
Corporation, Coopers & Lybrand and Manufacturers' Appraisal Company.
In particular, (a) in valuing the Company's inventory, the Debtors
utilized certain information contained in a liquidation report prepared
by Schottenstein in November 1995, (b) in valuing the Company's real
property, the Debtors utilized certain information contained in appraisals
prepared by Manufacturers' Appraisal Company in May 1994, and (c) in valuing
the Company's equipment, the Debtors utilized certain information provided
by Coopers & Lybrand in February 1996.
2.The Debtors estimate that it would take six months to complete a
Chapter 7 liquidation. As a result of this expected delay in the distribution
of liquidation proceeds, the Debtors have applied a 10% discount rate to
the value of the estimated liquidation proceeds.
3.Includes approximately $2,189 in cash collateral constituting Old
Indenture Collateral which is being held by the Old Trustee pursuant to the
terms of the Old Indenture. Approximately $684 of such cash collateral relates
to sale proceeds from the AWG Sale and is being held by the Old Trustee
pending the Company's reinvestment of such proceeds in Fixed Assets. The
remainder of such cash collateral relates to net sale proceeds from asset
sales occurring after the AWG Sale and is required to be applied by the
Company against a redemption of the Old Notes once such sale proceeds equal
or exceed $2,000.
4.The Debtors estimate that the Company would be able to recover 61% of
the book value of its retail trade, pharmacy, third-party and store charge
receivables and 45% of the book value of its coupon receivables. The Debtors
believe there would be a 0% recovery with respect to the Company's
AWG-related receivables (i.e. annual patronage rebates, concentrated
purchase allowances and earned consideration). The Debtors estimate that
the blended liquidation recovery percentage for all items of the Company's
receivables would be 42% of the receivables book value.
5.The Debtors estimate that total gross liquidation proceeds resulting
from a forced sale of the Company's inventory would be a blended recovery of
100% of inventory book value, or approximately $38,623, which amount would
be reduced by estimated liquidation costs of $9,428 (including expenses
relating to the retention of a professional liquidator), resulting in
estimated net liquidation proceeds of $29,195, or 76% of inventory book value.
6.Property: The Company owns 13 stores and certain miscellaneous
parcels of land. The Debtors estimate that the Company would receive gross
proceeds of approximately $16,433 from a forced sale of the Company's
property, which amount would be reduced by estimated liquidation costs of
$1,671 (including projected "holding" costs such as property taxes, utilities,
insurance, security repairs, cleaning and equipment removal and an estimated
5% sales commission on the sale of each store and parcel), resulting in
estimated net liquidation proceeds of approximately $14,762. The Debtors
estimate of the Company's property values is based in part on certain
appraisals prepared by Manufacturers' Appraisal Company in May 1994.
In the case of such appraised properties, the Company applied certain
discount factors to the appraised values, to reflect, among other things,
the Company's assessment of the current value of such properties.
Equipment: The Debtors estimate that the liquidation value of the Company's
equipment is $4,884, including approximately $4,384 relating to owned
equipment and approximately $500 relating to leased equipment. The Debtors
valued the Company's equipment based on 5% of the replacement cost of such
equipment, which the Debtors believe is an appropriate method of valuing the
Company's current equipment. The proceeds resulting from the sale of the
leased equipment would be applied against the secured claims of the Equip-
ment Lessors. See Note 9 below.
7.Other assets and deferred charges consist of prepaid insurance,
prepaid building and equipment rental, prepaid supplies and other
miscellaneous assets. The Debtors estimate that there would be no
liquidation recovery on such assets. To the extent that value exists, such
value was contemplated in the Debtors' projections of Chapter 7 corporate
operating costs. See Note 13 below.
8.The Claims of the Old Banks are secured by the Bank Collateral. The
Debtors estimate that the aggregate liquidation proceeds from a forced sale
of the Bank Collateral would be approximately $33,992 (consisting of
approximately $3,317 of proceeds from the sale of accounts receivable,
approximately $27,777 of proceeds from the sale of inventory and
approximately $2,899 of cash collateral held by the Old Banks). Based on
the estimated liquidation value of the Bank Collateral, the claims of the
Old Banks would be paid in full. See Notes 2, 3, 4 and 5 above.
9.Represents the average recovery for each Equipment Lessor based on
aggregate Class 4 Claims and the aggregate proceeds of the Equipment Lease
Collateral of $476. An Equipment Lessor's actual recovery might be greater
or less than such aggregate recovery, depending on the value of the Equipment
Lease Collateral held by such Equipment Lessor.
10.The Claims of the holders of the Old Notes are secured by the Old Indenture
Collateral. The Debtors estimate that the aggregate liquidation proceeds from
a forced sale of the Old Indenture Collateral would be approximately $20,298
(consisting of approximately $14,045 of proceeds from the sale of real property,
approximately $4,171 of proceeds from the sale of owned equipment and
approximately $2,083 of cash collateral held by the Old Trustee). Based on the
estimated liquidation value of the Old Indenture Collateral, the holders of the
Old Notes would be entitled to receive only $20,298 in respect of their Claims
under the Old Notes. See Notes 2 and 6 above.
In connection with calculating the aggregate Allowed Class 3 Claim under the
Plan, Committee and the Debtors estimated that the going concern value of
the Old Indenture Collateral was approximately $65,000. For the reasons
discussed above, the Debtors believe that a going concern valuation of the
Company's assets (including the Old Indenture Collateral)
is not an appropriate valuation method in the context of a Chapter 7 liquidation
of the Debtors.
(11)The holders of the Old Notes would also be entitled to distributions
in respect of their Unsecured Claims. Based on Unsecured Claims of $81,300
in respect of the Old Notes and other General Unsecured Claims of
approximately $63,589, the holders of the Old Notes (as a class) would be
entitled to receive an additional $5,878 in respect of such Unsecured
Claims.
(12)Includes $1,500 in estimated professional fees, $1,136 in corporate
operating costs and $250 in collection fees.
(13)Priority Claims include accrued sales taxes and property taxes.
(14)The holders of the Old Notes, the Equipment Lessors and the holders of
other Class 5 Claims would be entitled to receive their ratable shares of
$10,551.
(15)Includes estimated lease rejection Claims of $20,816, estimated
contingent Claims of $20,788 and estimated other General Unsecured Claims of
$21,985.
(16)Excludes General Unsecured Claims of the holders of the Old Notes and
Equipment Lessors.
Comparison of Estimated Distribution
The table below sets forth a comparison of the estimated distributions
under the Plan with the estimated recoveries in a Chapter 7 liquidation of the
Debtors with respect to holders of impaired Claims and Interests. The fair
market value of the distributions under the Plan have been estimated by the
Debtors. See "FINANCIAL INFORMATION -- Projected and Pro Forma Financial
Information." The prices at which securities issued under the Plan
will trade may vary from the estimate. Accordingly, there can be no
assurance as to the value of the distributions under the Plan.
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Approximate Approxiamate
Description Amount of Amount of Distribution % Recovery
of Impaired Chapter 11 Distribution % Recovery Chapter 7 Chapter 7 in Chapter 7
Claim/Interest Claim Under Plan Under Plan Claim Liquidation Liquidation
Old Notes
(Classes 3 and 5) $101,598 $ 92,400 90.9% 101,598 $ 26,176(1) 25.8% (1)
General Unsecured
Claims (Class 5)(2) 23,000 17,687 76.9% 63,589 4,597 7.2
Old Common N/A Greater than Greater than
Stock (Class 7) zero(3) zero(3) N/A 0 0
</TABLE>
(1)Reflects an estimated $20,298 distribution to be received in respect of the
secured portion of the Claims of the holders of Old Notes
and an estimated $5,878 distribution in respect of the
unsecured portion of the Claims of the holders of Old
Notes. See Notes 10 and 11 to the Liquidation Analysis.
(2)Excludes Unsecured Claims in respect of the Old Notes. General Unsecured
Claims would be greater in a Chapter 7 liquidation than
under the Plan as certain lease rejection Claims and
contingent Claims would be asserted which would not be
asserted in connection with the Restructuring.
(3)The holders of Old Common Stock will receive (in the aggregate) 250,000
shares of New Common Stock and New Warrants to purchase
(in the aggregate) 263,158 shares of New Common Stock.
Exhibit T3E2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re )
)
HOMELAND STORES, INC., )Chapter 11Case Nos. 96-747 (PJW) and
)Case No. 96-748 (PJW)
and )
)
HOMELAND HOLDING CORPORATION, )
)
Debtors. )
)
BALLOT FOR JOINT PLAN OF REORGANIZATION
BALLOT FOR BENEFICIAL OWNERS OF OLD NOTES
(CLASSES 3 AND 5 UNDER JOINT PLAN OF REORGANIZATION)
SERIES A SENIOR SECURED FLOATING RATE NOTES DUE 1997
SERIES C SENIOR SECURED FIXED RATE NOTES DUE 1999
SERIES D SENIOR SECURED FLOATING RATE NOTES DUE 1997
(THE "OLD NOTES")
Homeland Stores, Inc. and Homeland Holding Corporation are soliciting
votes with respect to their First Amended Joint Plan of Reorganization
(the "Plan") under Chapter 11 of Title 11 of the United States Code
(the "Bankruptcy Code") referred to in the accompanying First Amended
Disclosure Statement, dated June 13, 1996 (the "Disclosure Statement").
All capitalized terms used herein, unless otherwise defined herein, shall
have the respective meanings assigned to them in the Disclosure Statement.
PLEASE READ THE FOLLOWING CAREFULLY, INCLUDING THE ATTACHED
INSTRUCTIONS. PLEASE COMPLETE, SIGN AND DATE THIS BALLOT AND RETURN IT
PROMPTLY IN THE ENCLOSED PRE-ADDRESSED ENVELOPE TO MORROW & CO., INC.
(THE "BALLOTING AGENT") OR TO YOUR NOMINEE OR RECORD HOLDER WHO IS
COMPILING A MASTER BALLOT THAT WILL REFLECT THIS BALLOT. IN ORDER FOR
YOUR VOTE TO BE COUNTED, THIS BALLOT OR A MASTER BALLOT REFLECTING THIS
BALLOT MUST BE RECEIVED BY THE BALLOTING AGENT BY 5:00 P.M., NEW YORK
CITY TIME, ON JULY 15, 1996, UNLESS SUCH TIME IS EXTENDED BY THE DEBTORS.
IF YOU ARE SENDING THIS BALLOT TO YOUR NOMINEE, YOU MUST MAIL IT WITH
ENOUGH TIME (7 BUSINESS DAYS) BEFORE THE BALLOT DEADLINE FOR YOUR
NOMINEE TO BE ABLE TO ADD THE INFORMATION TO ITS MASTER BALLOT AND
SEND THE MASTER BALLOT TO THE BALLOTING AGENT BY THE BALLOT DEADLINE.
As described in the Disclosure Statement under "SUMMARY OF THE PLAN --
Classification and Treatment of Claims and Interests -- Classification and
Treatment of Classified Claims and Interests," the total claim of the
undersigned beneficial owner of the Old Notes as set forth in Item 1 consists
of two separate and distinct claims: (a) a Class 3 (Secured Noteholder)
Claim; and (b) a Class 5 (General Unsecured) Claim. The Class 3 Claim of
the undersigned equals 60.533% of the undersigned's total claim with respect
to its Old Notes and the Class 5 Claim of the undersigned equals 39.467% of
the undersigned's total claims with respect to its Old Notes. This Ballot
should be used by beneficial owners of the Old Notes to cast votes with
respect to their Class 3 (Secured Noteholder) Claims and Class 5 (General
Unsecured) Claims.
The record date (the "Ballot Record Date") for purposes of determining
which holders of Old Notes are eligible to vote on the Plan is June 13, 1996.
Only holders of Old Notes who are registered holders on the Ballot Record
Date or any person or entity who has obtained a properly completed proxy from
such person are eligible to vote on the Plan.
PLEASE SUPPLY THE APPROPRIATE INFORMATION AND CHECK THE
APPROPRIATE BOXES BELOW.
Item 1. Amount of Noteholder Claims. Indicated below are the aggregate
principal amount of Old Notes beneficially owned by the undersigned as of the
Ballot Record Date and the accrued and unpaid interest on such Old Notes as
of May 13, 1996, which together constitute the total claim of the undersigned
with respect to such Old Notes pursuant to the terms of the Plan. In
addition, listed separately below are the amounts of the undersigned"s Class 3
(Secured Noteholder) Claim and Class 5 (General Unsecured) Claim,
which should be calculated by the undersigned in accordance with the
instructions set forth below.
A.Aggregate principal amount of each series of Old Notes (list amount of
Old Notes owned in each series, and serial or certificate numbers (if
available), in the spaces provided below):
Series Serial/Certificate Nos.
Series A Notes: $___________________________________
Series C Notes: $___________________________________
Series D Notes: $___________________________________
Aggregate Principal Amount:$____________
B.Accrued and unpaid interest on each series of Old Notes as of May 13,
1996 ($41.97 per $1,000 principal amount of Series A Notes, $86.09 per
$1,000 principal amount of Series C Notes and $41.97 per $1,000 principal
amount of Series D Notes):
Aggregate accrued and unpaid interest:$ ___________
C.Total Noteholder Claim (sum of Items A and B above):$______________
D.Class 3 (Secured Noteholder) Claim Amount
(Item C multiplied by .60533): $______________
E.Class 5 (General Unsecured) Claim Amount
(Item C multiplied by .39467): $______________
Item 2. Class 3 (Secured Noteholder) Claim Vote. The beneficial owner
of the Class 3 (Secured Noteholder) Claim set forth in Item 1 hereby votes
to (please check one box below):
Accept the Plan [ ]
Reject the Plan [ ]
Item 3. Class 5 (General Unsecured) Claim Vote. The beneficial owner
of the Class 5 (General Unsecured) Claim set forth in Item 1 hereby votes to
(please check one box below):
Accept the Plan [ ]
Reject the Plan [ ]
Item 4. Certification as to Old Notes Held in Additional Accounts.
By signing and returning this Ballot, the undersigned certifies that,
except as specified below, the undersigned has not submitted any additional
Ballots with respect to the Old Notes (please use additional sheets of paper
if necessary):
_________________ ________________ $_________________
Account Number Name of Registered Face Amount of
Holder or Nominee Old Notes
_________________ ________________ $_________________
Account Number Name of Registered Face Amount of
Holder or Nominee Old Notes
Item 5. By signing this Ballot, the undersigned certifies that (a) the
beneficial owner of the Old Notes set forth in Item 1 has full power and
authority to vote to accept or reject the Plan, (b) such beneficial owner
has voted its Class 3 (Secured Noteholder) Claim to accept or reject the
Plan as set forth in Item 2 above, (c) such beneficial owner has voted its
Class 5 (General Unsecured) Claim to accept or reject the Plan as set forth
in Item 3 above and (d) this Ballot has been executed on behalf of
a single beneficial owner. The undersigned further certifies that it either
(a) is the record holder of Old Notes set forth in Item 1 and is sending this
Ballot directly to the Ballot Agent or (b) is sending this Ballot to the
record holder of, or other nominee of the undersigned with respect to, such
Old Notes, whom the undersigned hereby authorizes and instructs to (i)
execute a Master Ballot reflecting this Ballot and (ii) deliver such Master
Ballot together with this Ballot (or a copy thereof) to the Balloting Agent.
The undersigned also acknowledges that (a) the undersigned has been
provided with a copy of the Disclosure Statement, including all Appendices
thereto, (b) this solicitation of acceptance is subject to all the terms and
conditions set forth in the Disclosure Statement, and (c) this Ballot shall
be counted as the undersigned's vote with respect to its Class 3 (Secured
Noteholder) Claims and Class 5 (General Unsecured) Claims against both
Debtors.
Name: Address:
(Print or type) Street
Social Security or Federal Tax I.D. No. City, State, Zip Code
(Optional)
Signature: Telephone No.: ( )
By: Date Completed: , 1996
(If Appropriate)
Title:
(If Appropriate)
Note:If the holder entitled to vote is a corporation, please sign in corporate
name by authorized agent, or if a partnership, please sign in partnership
name by a general partner.
Your original signature is required for your vote to count. Ballots received
by facsimile transmission will not be counted.
INSTRUCTIONS FOR COMPLETING THE BALLOT
The Ballot is not a letter of transmittal and may not be used for any
purpose other than to vote to accept or reject the Plan. Accordingly, holders
should not surrender certificates representing their securities in connection
with this Ballot, and the Balloting Agent will not accept delivery of any such
certificates tendered together with this Ballot. Surrender of Old Notes for
exchange may only be made pursuant to a letter of transmittal which would be
furnished at a later date by the Debtors or their agent following the
confirmation of the Plan by the Bankruptcy Court.
The Ballot Record Date for purposes of determining which holders of Old
Notes are eligible to vote on the Plan is June 13, 1996. Only holders of the
Old Notes who are registered holders on that date, or any person or entity who
has obtained a properly completed proxy from such person, are eligible
to vote on the Plan.
The Plan may be confirmed by the Bankruptcy Court and thereby made
binding on you if it is accepted by the holders of two-thirds in amount and
more than one-half in number of claims in each class and the holders of
two-thirds in amount of equity security interests, in each case voting on the
Plan. In the event the requisite acceptances are not obtained, the Bankruptcy
Court may nevertheless confirmm the Plan if the Bankruptcy Court finds that
the Plan accords fair and equitable treatment to the class or
classes rejecting it and otherwise satisfies the requirements of Section
1129(b) of the Bankruptcy Code. If the Plan is confirmed by the Bankruptcy
Court, all holders of Old Notes and any and all other holders of claims
against, and interests in, the Debtors (including those who abstain or
reject the Plan or are not entitled to vote thereon) will be bound by the
confirmed Plan and the transactions contemplated thereby.
To have your vote count, you must complete, sign and return this Ballot
so that it is received (a) in the case of those beneficial owners who are
also record holders, for receipt by the Balloting Agent not later than 5:00
p.m., New York City time, on July 15, 1996, unless such time is extended in
the sole discretion of the Debtors (the "Ballot Deadline"), or (b) in the
case of those beneficial owners who are not record holders, to the record
holder or other nominee of such beneficial owner who must complete and
submit a Master Ballot so that it is received by the Balloting Agent by the
Ballot Deadline. Because of this two-step process, it is important for a
beneficial owner to mail its Ballot to its record holder or other nominee
sufficiently in advance (7 business days) of the Ballot Deadline so that the
record holder or other nominee can complete the Master Ballot and mail it to
the Balloting Agent by the Ballot Deadline.
If you are the registered or record holder or nominee and not the
beneficial owner, please immediately forward this beneficial owner Ballot
together with the Disclosure Statement to the beneficial owner. The
Balloting Agent will provide you with additional Ballots and Disclosure
Statements in the event you are a registered holder for more than one
beneficial owner.
Your original signature is required on the Ballot in order for your vote
to count. Ballots received by facsimile transmission will not be counted.
Deliveries of Ballots by mail, hand delivery or overnight courier to the
Balloting Agent should be to:
HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
C/O MORROW & CO., INC.
909 THIRD AVENUE
NEW YORK, NEW YORK 10022
To properly complete the Ballot, you must follow the procedures
described below:
(a)make sure that the information required in Item 1 has been inserted;
if you do not know the aggregate principal amount or the accrued and unpaid
interest of your Old Notes, please contact either the Balloting Agent, or, if
ou are not the record holder, your broker, your bank or your nominee;
(b)cast one vote with respect to your Class 3 (Secured Noteholder)
Claim to accept or reject the Plan by checking the appropriate box in Item 2,
and cast one vote with respect to your Class 5 (General Unsecured) Claim to
accept or reject the Plan by checking the appropriate box in Item 3;
(c)if you are completing this Ballot on behalf of another entity,
indicate your relationship with such entity and the capacity in which you are
signing and submit satisfactory evidence of your authority to so act
(e.g. a power of attorney or a certified copy of board resolutions
authorizing you to so act);
(d)please use additional sheets of paper if additional space is required
to respond to any item on the Ballot (clearly marked to indicate the
applicable item of the Ballot);
(e)return your Ballot using the enclosed pre-addressed return envelope.
If you received a return envelope addressed directly to the Balloting Agent,
please mail or deliver your Ballot so that it will be received by the Ballot
Deadline. If you received a return envelope addressed to a broker, bank
or nominee, you must return your Ballot early enough (7 business days) for
your vote to be processed by such broker, bank or nominee and then forwarded
to the Balloting Agent so that it is received by the Ballot Deadline.
Please allow additional time;
(f)if you hold claims or interests in a class other than Class 3 (Secured
Noteholder) Claims and Class 5 (General Unsecured) Claims, you may receive more
than one Ballot, labeled for different classes of claims or interests. Your
vote will be counted in determining acceptance or rejection of the Plan by a
particular class only if you complete, sign and return the Ballot labeled for
hat class in accordance with the instructions on that Ballot.
(g)provide the information required by Item 4 if you have submitted any
other Ballots for Old Notes held in other accounts or other record names;
(h)the Debtors are asking you in Item 5 to authorize your nominee to
deliver your Ballot (or a copy thereof) to the Balloting Agent;
(i)sign and date your Ballot;
(j)if you believe that you have received the wrong Ballot, please
contact either the Balloting Agent or your broker, bank or nominee
immediately; and
(k)provide your name and mailing address if different from the printed
address which appears on the Ballot, or if no preprinted address appears on
the Ballot.
IF YOU DID NOT RECEIVE A RETURN ENVELOPE WITH YOUR BALLOT, OR
YOU DID NOT RECEIVE A COPY OF THE DISCLOSURE STATEMENT OR PLAN, OR IF
YOU NEED ADDITIONAL COPIES OF THE BALLOT OR OTHER ENCLOSED MATERIALS,
PLEASE CONTACT MORROW & CO., INC. AT (212) 754-8000, OR YOUR BROKER, BANK
OR NOMINEE.
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT, PLEASE CALL
THE BALLOTING AGENT AT (212) 754-8000.
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
)
In re )
)
HOMELAND STORES, INC., )Chapter 11 Case Nos. 96-747 (PJW) and
)Case No. 96-748 (PJW)
and )
)
HOMELAND HOLDING CORPORATION, )
)
Debtors. )
)
BALLOT FOR JOINT PLAN OF REORGANIZATION
MASTER BALLOT FOR RECORD HOLDERS OF OLD NOTES
(CLASSES 3 AND 5 UNDER JOINT PLAN OF REORGANIZATION)
SERIES A SENIOR SECURED FLOATING RATE NOTES DUE 1997
SERIES C SENIOR SECURED FIXED RATE NOTES DUE 1999
SERIES D SENIOR SECURED FLOATING RATE NOTES DUE 1997
(THE "OLD NOTES")
Homeland Stores, Inc. and Homeland Holding Corporation are soliciting
votes with respect to their First Amended Joint Plan of Reorganization
(the "Plan") under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") referred to in the accompanying First Amended Disclosure
Statement, dated June 13, 1996 (the "Disclosure Statement"). All capitalized
terms used herein, unless otherwise defined herein, shall have the respective
meanings assigned to them in the Disclosure Statement.
PLEASE READ THE FOLLOWING CAREFULLY, INCLUDING THE ATTACHED
INSTRUCTIONS. PLEASE COMPLETE, SIGN AND DATE THIS MASTER BALLOT AND RETURN IT
PROMPTLY IN THE ENCLOSED PRE-ADDRESSED ENVELOPE TO MORROW & CO., INC. (THE
"BALLOTING AGENT"). IF YOUR MASTER BALLOT HAS NOT BEEN RECEIVED BY THE
BALLOTING AGENT BY 5:00 P.M., NEW YORK CITY TIME, ON JULY 15, 1996, UNLESS
SUCH TIME IS EXTENDED BY THE DEBTORS (THE "BALLOT DEADLINE"), IT WILL NOT BE
COUNTED.
As described in the Disclosure Statement under "SUMMARY OF THE PLAN --
Classification and Treatment of Claims and Interests -- Classification and
Treatment of Classified Claims and Interests," the total claim of a beneficial
owner of the Old Notes as set forth in Item 1 consists of two separate and
distinct claims: (a) a Class 3 (Secured Noteholder) Claim; and (b) a Class
5 (General Unsecured) Claim. The Class 3 Claim of a beneficial owner equals
60.533% of the undersigned's total claim with respect to its Old Notes and
such beneficial owner's Class 5 Claim equals 39.467% of such beneficial
owner's total claims with respect to its Old Notes. This Master Ballot
should be used by record holders of the Old Notes to cast votes on behalf
of the beneficial owners of the Old Notes with respect to their Class 3
(Secured Noteholder) Claims and Class 5 (General Unsecured) Claims.
The record date (the "Ballot Record Date") for purposes of determining
which holders of Old Notes are eligible to vote on the Plan is June 13, 1996.
Only holders of Old Notes who are registered holders on the Ballot Record Date
or any person or entity who has obtained a properly completed proxy from such
person are eligible to vote on the Plan.
PLEASE SUPPLY THE APPROPRIATE INFORMATION AND CHECK THE
APPROPRIATE BOXES BELOW.
Item 1. Aggregate Amount of Noteholder Claims as to Which Votes Are
Cast. The undersigned hereby certifies that the undersigned is the registered
record holder of the following aggregate principal amount of Old Notes and
the accrued and unpaid interest on such Old Notes as of May 13, 1996 ($41.97
per $1,000 principal amount of Series A Notes, $86.09 per $1,000 principal
amount of Series C Notes and $41.97 per $1,000 principal amount of Series D
Notes):
<TABLE>
<S> <C> <C> <C> <C> <C>
A. B. C. D. E. F.
Acct. No. Aggregate Accrued and Total Noteholder Class 3 Claim Class 5 Claims
and Principal Unpaid Interest Claim (D multiplied (D multiplied
Series Amount as of 05/13/96 (B plus C) by .60533) by .39467)
</TABLE>
Item 2. Class 3 (Secured Noteholder) Claim Vote. As authorized and
instructed by the beneficial owners of the Class 3 (Secured Noteholder)
Claims set forth in Item 1, the undersigned transmits the votes of such
beneficial owners as follows:
Accept the Plan:$____________________
(Aggregate amount of
Class 3 Claims)
Reject the Plan:$____________________
(Aggregate amount of
Class 3 Claims)
Item 3. Class 5 (General Unsecured) Claim Vote. As authorized and
instructed by the beneficial owners of the Class 5 (General Unsecured) Claims
set forth in Item 1, the undersigned transmits the votes of such beneficial
owners as follows:
Accept the Plan:$____________________
(Aggregate amount of
Class 5 Claims)
Reject the Plan:$____________________
(Aggregate amount of
Class 5 Claims)
Item 4. Vote - Number of Beneficial Owners. The undersigned certifies
that the following beneficial owners have delivered to the undersigned
properly completed and duly executed Ballots casting votes as follows
(please use additional sheets of paper if necessary):
Acct. No. and Class 3 Claims Voted to Class 5 Claims Voted to
Series Accept Reject Accept Reject
(ATTACH ADDITIONAL PAGES IF NECESSARY)
ADDITIONAL SCHEDULES ARE [ ] ARE NOT [ ] ATTACHED
Item 5. By signing this Master Ballot, the undersigned certifies that
each beneficial owner of Old Notes whose votes are reflected in this Master
Ballot has been provided with a copy of the Disclosure Statement, including
all Appendices thereto.
Item 6. By signing this Master Ballot, the undersigned certifies that it
is the registered record holder in its own name or through a position held at
a securities depository of the Old Notes referred to in Item 1 above.
Name:
(Print or type)
S.S. or Federal Tax I.D. No. (Optional)
Signature:
By:
(If Appropriate)
Title:
(If Appropriate)
Address:
Street
City, State, Zip Code
Telephone No.: ( )
Date Completed: , 1996
THIS MASTER BALLOT MUST BE RECEIVED BY THE BALLOTING AGENT
BY THE BALLOT DEADLINE OR THE VOTES TRANSMITTED HEREBY WILL NOT BE
COUNTED.
Note:Your original signature is required in order for your vote to count.
Ballots received by facsimile transmission will not be counted.
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
The Master Ballot is not a letter of transmittal and may not be used
for any purpose other than for record holder nominees of beneficial owners
of Old Notes to record, summarize and transmit votes to accept or reject the
Plan by their respective beneficial owners. Accordingly, record holder
nominees should not surrender certificates representing their securities in
connection with this Master Ballot, and the Balloting Agent will not accept
delivery of any such certificates tendered together with this Master Ballot.
Surrender of Old Notes for exchange may only be made pursuant to a letter of
transmittal which would be furnished at a later date by the Debtors or their
agent following the confirmation of the Plan by the Bankruptcy Court.
The Ballot Record Date for purposes of determining which holders of Old
Notes are eligible to vote on the Plan is June 13, 1996. Only holders of the
Old Notes who are registered holders on that date, or any person or entity
who has obtained a properly completed proxy from such person, are eligible
to vote on the Plan.
With respect to any Ballots returned to you by a beneficial owner, you
must complete and sign a Master Ballot and return the Master Ballot to the
Balloting Agent so that it is actually received by the Balloting Agent not
later than the Ballot Deadline. Master Ballots not received by the Ballot
Deadline will not be counted.
Deliveries of Ballots by mail, hand delivery or overnight courier to the
Balloting Agent should be to:
HOMELAND STORES, INC. AND
HOMELAND HOLDING CORPORATION
C/O MORROW & CO., INC.
909 THIRD AVENUE
NEW YORK, NEW YORK 10022
BALLOTS RECEIVED BY FACSIMILE TRANSMISSION ARE NOT TO BE
COUNTED.
Multiple Master Ballots may be completed and delivered to the Balloting
Agent. Votes reflected on multiple Master Ballots will be counted to the
extent that they are not duplicative of other Master Ballots. If two or more
Master Ballots are inconsistent, the latest dated Master Ballot received
prior to the Ballot Deadline will, to the extent of such inconsistency,
supersede and revoke any prior Master Ballot. If more than one Master Ballot
is submitted and the later Master Ballot(s) supplements rather than supersedes
earlier Master Ballots, please mark the subsequent Master Ballot(s) with such
language as you customarily use to indicate that an additional vote is being
cast that is not meant to revoke an earlier vote.
Please note that Items 1 and 4 of the Master Ballot request that you
transcribe information to the Master Ballot in the indicated format providing
information for each individual beneficial owner of Old Notes on whose behalf
you are executing a Master Ballot. To identify each such beneficial owner
without disclosing its identity, please use the customer account number
assigned by you to each such beneficial owner and indicate the Series (A,
C or D) of Old Notes held by such beneficial owner. In the event that a
single customer has more than one account with you, you must list each
account in respect of which votes have been cast on the Plan.
Each beneficial owner must vote all of its Class 3 (Secured Noteholder)
Claims either to accept or reject the Plan and each beneficial owner must
vote all of its Class 5 (General Unsecured) Claims either to accept or reject
the Plan. Accordingly, a Ballot in which Class 3 Claims partially accept
and partially reject the Plan or Class 5 Claims partially accept and
partially reject the Plan must not be counted by you with respect to such
Class. Furthermore, for purposes of computing the Master Ballot vote, each
voting beneficial owner should be deemed to have voted the full amount of its
Class 3 Claims and the full amount of its Class 5 Claims in each Account
identified by the beneficial owner on the Ballot according to your records.
Any executed Ballot that does not indicate either an acceptance or rejection
of the Plan or indicates both an acceptance and a rejection of the Plan
should not be counted.
IF YOU DID NOT RECEIVE A RETURN ENVELOPE WITH YOUR MASTER BALLOT, OR
IF YOU NEED ADDITIONAL COPIES OF THE MASTER BALLOT OR OTHER ENCLOSED
MATERIALS, PLEASE CONTACT MORROW & CO., INC. AT (212) 754-8000.
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE VOTING
PROCEDURES, PLEASE CALL THE BALLOTING AGENT AT (212) 754-8000.
Exhibit T3E3
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
_______________________________________
)
In re: )
)
HOMELAND STORES, INC. ) Case No. 96-747 (PJW)
(Fed. Tax ID# 73-1310085), ) Chapter 11
)
and ) (Jointly Administered)
)
HOMELAND HOLDING CORPORATION, ) Case No. 96-748 (PJW)
(Fed. Tax ID# 73-1311075), ) Chapter 11
)
Debtors. )
__________________________________)
Notice of
Order Approving First Amended Disclosure Statement for Joint
Plan of Reorganization of Homeland Stores, Inc. and Homeland Holding Corporation
and Fixing Time for Voting on, and Filing Objections to, the First Amended
Joint Plan of Reorganization of Homeland Stores, Inc. and Homeland Holding
Corporation
TO ALL CREDITORS, EQUITY HOLDERS AND PARTIES IN INTEREST:
PLEASE TAKE NOTICE that, on June 13, 1996, the United States
Bankruptcy Court for the District of Delaware ("Bankruptcy Court") approved
the First Amended Disclosure Statement for Joint Plan of Reorganization of
Homeland Stores, Inc. and Homeland Holding Corporation ("Disclosure Statement"),
under Chapter 11 of the Bankruptcy Code, filed by Homeland Stores, Inc.
("Homeland") and Homeland Holding Corporation ("Holding" and, together with
Homeland, "Debtors") as containing adequate information within the meaning of
Section 1125 of the United States Bankruptcy Code, as amended ("Bankruptcy
Code").
PLEASE TAKE FURTHER NOTICE that, in order to be counted for
purposes of voting on the acceptance or the rejection of the Plan, each
ballot must be delivered by mail, hand delivery or overnight courier no later
than 5:00 p.m., New York City time, on July 15, 1996 ("Voting Deadline"), to:
Homeland Stores, Inc.
and
Homeland Holding Corporation
c/o Morrow & Co., Inc.
909 Third Avenue
New York, New York 10022
PLEASE TAKE FURTHER NOTICE that any ballot (a) that is not properly
executed or (b) that is received after the Voting Deadline will not be counted
for purposes of confirmation of the Plan other than as specified below.
PLEASE TAKE FURTHER NOTICE that any ballot that (a) does not
indicate either an acceptance or a rejection of the Plan or (b) indicates
both an acceptance and a rejection within a particular class will be deemed
void and will not be counted for purposes of confirmation of the Plan.
PLEASE TAKE FURTHER NOTICE that, pursuant to Section 1128 of the
Bankruptcy Code and Rule 3020(b), Rule 9006 and Rule 9019 of the Federal Rules
of Bankruptcy Procedure, any objection to confirmation of the Plan must be filed
with the Clerk of the Bankruptcy Court, together with proof of service, no
later than 4:30 p.m., Wilmington, Delaware time, on July 15, 1996, and must
be served on counsel to the Debtors and each of the persons listed on
Schedule A thereto so as to be received by them no later than 5:00 p.m.,
Wilmington, Eastern Standard time, on July 15, 1996. Any confirmation
objection must be in writing and (a) must state the name and the address of
the objecting party and the amount of its claims or the nature of its interest
and (b) must state, with particularity, the nature of its objection. Any
confirmation objection not filed and served as set forth herein shall be
deemed waived and shall not be considered by the Court.
PLEASE TAKE FURTHER NOTICE that the Debtors shall have the ability
to extend the voting deadline at the Debtor's sole discretion and without
notice.
PLEASE TAKE FURTHER NOTICE that the hearing on confirmation
("Confirmation Hearing") of the Plan is scheduled for July 19, 1996, at
12:00 noon, Eastern Standard Time, at the United States Courthouse, Marine
Midland Plaza, 6th Floor, 824 Market Street, Wilmington, Delaware before
Hon. Peter J. Walsh. The Confirmation Hearing may adjourned from time to
time without further notice other than an announcement at the Confirmation
Hearing or any adjourned hearing thereon and any continued Confirmation
Hearing will be without further notice other than as provided at the
Confirmation Hearing.
DATED this 13th day of June, 1996.
/s/ Peter J. Walsh
UNITED STATES BANKRUPTCY JUDGE
Schedule A
List of Persons to Receive Notice of Objection to Confirmation of
Plan
John R. Stonitsch
United States Trustee
601 Walnut Street
Curtis Center, Suite 961W
Philadelphia, Pennsylvania 19106
Judy Hamilton Morse
Crowe & Dunlevy
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102
James L. Patton, Jr.
Young, Conaway, Stargatt & Taylor
Wilmington Trust Center
1100 North Market Street
Wilmington, Delaware 19801
Steven R. Gross
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Robert D. Drain
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
David Weitman
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Jeffrey L. Schwartz
Hahn & Hessen
Empire State Building
350 Fifth Avenue
New York, New York 10118
Mark Collins
Richard, Layton & Finger
920 King Street
Wilmington, Delaware 19801
Laurie Silverstein
Potter, Anderson & Corroon
350 Delaware Trust Building
902 Market Street
Wilmington, Delware 19801
Kevin Gross
Rosenthal, Monhait, Gross & Goddess
First Federal Plaza
P.O. Box 1070
Wilmington, Delware 19899
