-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YJs0CxD0BfoCZD/s4ZNmAG+iX6YBhZ7hgBuiRFNvHMlQs+piR6/bzVCfFM1ZFoKM O5shhPapcIG+EVbyEVhoNA== 0000835582-95-000003.txt : 19950426 0000835582-95-000003.hdr.sgml : 19950426 ACCESSION NUMBER: 0000835582-95-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950425 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMELAND HOLDING CORP CENTRAL INDEX KEY: 0000835582 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FOOD STORES [5400] IRS NUMBER: 731311075 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-22829 FILM NUMBER: 95530798 BUSINESS ADDRESS: STREET 1: 400 N E 36TH ST CITY: OKLAHOMA CITY STATE: OK ZIP: 73105 BUSINESS PHONE: 4055575500 MAIL ADDRESS: STREET 1: 400 N E 36TH CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 FORMER COMPANY: FORMER CONFORMED NAME: SWO HOLDING CORP DATE OF NAME CHANGE: 19901017 FORMER COMPANY: FORMER CONFORMED NAME: SWO ACQUISTION CORP DATE OF NAME CHANGE: 19890716 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1994 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to . Commission file number 33-48862 HOMELAND HOLDING CORPORATION (Exact name of registrant as specified in its charter) Delaware 73-1311075 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 N.E. 36th Street Oklahoma City, Oklahoma 73105 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (405) 557-5500 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] (Not applicable to registrant) State the aggregate market value of the voting stock held by non- affiliates of the registrant: There is no established public trading market for the voting stock of Homeland Holding Corporation. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of April 14, 1995: Homeland Holding Corporation Class A Common Stock, including redeemable common stock: 34,288,200 shares Class B Common Stock: None Documents incorporated by reference: None. HOMELAND HOLDING CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 TABLE OF CONTENTS Page PART I ITEM 1. BUSINESS................................. 1 General.................................. 1 Background............................... 1 Business Strategy........................ 2 AWG Transaction.......................... 4 Homeland Supermarkets.................... 5 Merchandising Strategy and Pricing....... 6 Customer Service......................... 7 Advertising and Promotion................ 7 Product Selection........................ 8 Warehousing and Distribution............. 8 Transportation........................... 9 Supply of Dairy Products................. 10 Employees and Labor Relations............ 10 Computer and Management Information Systems................................. 12 Competition.............................. 13 Trademarks, Trade Names and Licenses..... 14 Regulatory Matters....................... 14 ITEM 2. PROPERTIES............................... 14 ITEM 3. LEGAL PROCEEDINGS........................ 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................... 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......... 16 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA..... 17 i Page ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 19 Results of Operations.................... 19 Liquidity and Capital Resources.......... 26 Recently-Issued Accounting Standards..... 29 Inflation/Deflation...................... 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................... 30 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................ 31 Changes in Management.................... 34 ITEM 11. EXECUTIVE COMPENSATION................... 35 Summary of Cash and Certain Other Compensation............................ 35 Employment Agreements.................... 37 Management Incentive Plan................ 39 Retirement Plan.......................... 39 Compensation Committee Interlocks and Insider Participation................... 40 Management Stock Purchases............... 40 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......... 42 Ownership of Certain Holders............. 42 Registration and Participation Agreements.............................. 43 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........ 47 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.................. 47 ii Page SIGNATURES......................................... II-1 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES................................ F-1 EXHIBIT INDEX...................................... E-1 iii HOMELAND HOLDING CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 ITEM 1. BUSINESS General Homeland Holding Corporation ("Holding"), through its wholly-owned subsidiary, Homeland Stores, Inc. ("Homeland," and, together with Holding, the "Company"), is the leading supermarket chain in the Oklahoma, southern Kansas and Texas Panhandle region. As of April 14, 1995, the Company operated 104 stores throughout these markets as well as a 659,000 square foot warehouse and distribution center in Oklahoma City. On April 21, 1995, the Company sold 29 of its stores and its warehouse and distribution center to Associated Wholesale Grocers, Inc. ("AWG") pursuant to an Asset Purchase Agreement dated as of February 6, 1995 (the "Purchase Agreement") for a cash purchase price of approximately $75 million including inventory. At the closing, the Company and AWG also entered into a seven-year supply agreement, whereby the Company became a retail member of the AWG cooperative and AWG became the Company's primary supplier. The transactions between the Company and AWG are referred to herein as the "AWG Transaction." See "Business--AWG Transaction." The Company estimates that in 1994 it accounted for approximately 27% of total supermarket sales over its entire market region through the operation of 111 stores. Approximately 58% of the Company's stores operated by the Company after the AWG Transaction are located in its three major metropolitan areas, Oklahoma City, Tulsa and Amarillo. The Company's executive offices are located at 400 N.E. 36th Street, Oklahoma City, Oklahoma 73105, and its telephone number is (405) 557-5500. Background The Company was organized in 1987 by a group of investors led by Clayton, Dubilier & Rice, Inc. ("CD&R"), a private investment firm specializing in leveraged acquisitions with the participation of management, for the purpose of acquiring substantially all of the assets and assuming specified liabilities of the Oklahoma division (the "Oklahoma Division") of Safeway Inc. ("Safeway") (the "Acquisition"). The stores changed their name to Homeland in order to highlight the Company's regional identity. A majority of the Company's current management (excluding store managers) consists of key executives of the Oklahoma Division and currently owns approximately 6.1% of the outstanding common stock of Holding. Prior to the Acquisition, the Company did not have any significant assets or liabilities or engage in any activities other than those incident to the Acquisition. Holding owns all of the outstanding capital stock of Homeland and has no other significant assets. The Clayton & Dubilier Private Equity Fund III Limited Partnership ("C&D Fund III"), a Connecticut limited partnership managed by CD&R, currently owns 34.1% of Holding's outstanding Class A Common Stock, par value $.01 per share (including redeemable Class A Common Stock, the "Common Stock"). The Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D Fund IV"), a Connecticut limited partnership also managed by CD&R, currently owns 38.4% of the Class A Common Stock. On April 21, 1995, the Company made an offer to repurchase shares of its Common Stock owned by certain officers and employees of the Company at a cash purchase price of $0.50 per share, plus a warrant equal to the number of shares purchased with an exercise price of $0.50. However, such repurchases shall not exceed $600,000 in the aggregate (net of amounts to be repaid in respect of loans from the Company) and individual repurchases shall not exceed any outstanding loan balance that the officers or employees may have related to their purchase of Common Stock. Business Strategy Following the Acquisition, Homeland adopted a business strategy which was designed to maintain and improve its market leadership in its operating area. The Company's business strategy from 1987 through 1993 involved: (a) substantial investment to upgrade and remodel the existing store network and to build or acquire additional stores, which could be serviced by Homeland's existing warehouse and distribution center; and (b) adoption of a value-oriented merchandising concept combining a flexible high-low pricing structure (i.e., pricing of advertised or promotional items below the store's regular price and at or below the price offered by the store's competitors while allocating prime shelf space to high margin items) with a wide selection of products and an emphasis on quality and service. Increased advertising and promotion were used to expand the Company's customer base. The Company's decision to commit significant financing and human resources to upgrade and remodel its existing stores marked a sharp turn-around for the supermarket business that had constituted Safeway's Oklahoma Division. The Company's business has been adversely affected in recent years by the entry of new competition into the Company's key markets, which has resulted in a decline in the Company's comparable store sales. The Company was unable to effectively respond to this increased competition because (i) the high labor costs associated with the Company's unionized workforce made it difficult for the Company to price its goods competitively with competitors (none of which has a unionized workforce), and (ii) the high fixed overhead costs associated with its warehouse operation made the closure of marginal and unprofitable stores financially prohibitive. In the fourth quarter of 1994, the Company developed a plan to improve its financial position and to address the operating problems discussed above. In December 1994, the Company hired James A. Demme to be the Company's new President and Chief Executive Officer. Mr. Demme has over 35 years of experience in wholesale and retail food distribution, most recently as Executive Vice President of Retail Operations for Scrivner, Inc. Mr. Demme and his management team have developed and have begun to implement a more effective strategy for responding to competitive pressures in the marketplace, including (i) exploiting the advantages the Company has over its competitors, such as convenience of store locations and variety of offerings, (ii) increasing the offering of competitively-priced, private label products, (iii) improving advertising and merchandising and coordinating marketing efforts, (iv) increasing sales of perishables and (v) reducing overhead and other costs in conjunction with the AWG Transaction. The AWG Transaction is an important step in the Company's effort to complete an operational restructuring that should allow the Company to reduce its debt burden and fixed operating costs and improve its financial performance. Furthermore, also in late 1994 the Company's new management team developed a plan to close certain marginal and unprofitable stores. Such a plan is now financially feasible because of the sale of the warehouse and the elimination of the high fixed costs associated with the warehouse operation. The Company closed one store in 1994 and seven stores during the first quarter of 1995 and expects to close an additional eight stores by the end of 1995. Also in connection with the AWG Transaction, the Company became a member of the AWG cooperative. The Company believes that its membership in the AWG cooperative will benefit the Company in a number of ways: (i) the Company will be able to increase its purchases of private label lines, which will allow it to improve mix and gross profits; (ii) as AWG's largest customer, the Company may receive special product purchases and may participate in dedicated support programs; and (iii) the Company will have access to AWG's store systems, which will allow the Company to manage its business strategically on a store-by-store and regional basis. In addition, the Company will also receive the benefit of membership rebate and patronage programs available to all AWG members as well as certain quarterly cash payments from AWG. See "Business--Warehousing and Distribution." For additional information, see also "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." AWG Transaction On February 6, 1995, the Company and AWG entered into the Purchase Agreement, pursuant to which the Company agreed to sell 29 of its stores (the "Purchased Stores") and its warehouse and distribution center to AWG for a purchase price of $45 million, plus the value of the inventory at the Purchased Stores and the warehouse (estimated to be approximately $30 million) subject to certain possible purchase price adjustments. The closing of the sale occurred on April 21, 1995. AWG is a buying cooperative which sells groceries on a wholesale basis to its retail member stores. AWG has 716 member stores located in a nine-state region and is the nation's fifth largest wholesale distributor, with approximately $2.6 billion in revenues in 1994. The Purchase Agreement requires AWG to assume, or provide certain undertakings with respect to, certain contracts and lease obligations and pension liabilities of the Company. The AWG sale was subject to the satisfaction of certain conditions precedent, including, without limitation, (i) the Company's receipt of the required consents under the Senior Notes (as hereafter defined under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources") and (ii) the execution and delivery of the supply agreement between the Company and AWG described below (See "Business--Warehousing and Distribution"). The Company estimates that net proceeds from the AWG Transaction will be approximately $37.2 million, approximately $25.0 million of which will be allocated to the Senior Notes and approximately $12.2 million of which will be allocated to indebtedness under the Revolving Credit Agreement (as hereafter defined under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources"). The remaining proceeds from the AWG Transaction will be (i) used to pay certain costs, expenses and liabilities required to be paid in connection with the AWG Transaction or (ii) deposited into escrow pending reinvestment by the Company or application against a subsequent offer to redeem the Senior Notes. Under the Senior Note Indenture (as hereafter defined under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources"), the Company is required to apply the net proceeds allocable to the Senior Notes to an offer to redeem the Senior Notes on a pro rata basis. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources".) The purposes of the AWG Transaction are: (i) to reduce the Company's borrowed money indebtedness in respect of the Senior Notes and under the Revolving Credit Agreement by approximately $37.2 million in the aggregate; (ii) to have AWG assume, or provide certain undertakings with respect to, certain contracts and leases and certain pension liabilities of the Company; (iii) to sell the Company's warehouse and distribution center, which will eliminate the high fixed overhead costs associated with the operation of the warehouse and distribution center and thereby permit the Company to close marginal and unprofitable stores; and (iv) to obtain the benefits of becoming a member of the AWG cooperative, including increased purchases of private label products, special product purchases, dedicated support programs and access to AWG's store systems. Homeland Supermarkets The Company's current network of stores features three basic store formats. Homeland's conventional stores range from 12,000 to 35,000 total square feet and carry the traditional mix of grocery, meat, produce and variety products. These stores contain more than 20,000 stock keeping units, including food and general merchandise. Sales volumes of conventional stores range from $60,000 to $150,000 per week. Homeland's superstores range in size from 35,000 to 50,000 total square feet and offer, in addition to the traditional departments, two or more specialty departments. Sales volumes of superstores range from $80,000 to $280,000 per week. Homeland's combo store format includes stores larger than 50,000 total square feet and was designed to enable the Company to expand shelf space devoted to general merchandise. Sales volume of combo stores range from $130,000 to $345,000 per week. The Company's new stores and certain remodeled locations have incorporated Homeland's new, larger superstore and combo formats. Of the 67 stores retained and operated by the Company following the sale to AWG (excluding 16 stores which the Company has closed in 1994 and 1995 or expects to close in 1995), 11 are conventional stores, 43 are superstores and 13 are combo stores. The chart below summarizes Homeland's store development over the last three years: Fiscal Year Ended 12/31/94 01/01/94 01/02/93 * Average sales per store (in millions)............... $ 7.1 $ 7.2 $ 7.3 Average total square feet per store................... 34,700 34,700 34,300 Average sales per square foot................. $205 $208 $213 Number of stores: Stores at start of period... 112 113 114 Stores remodeled............ 10 3 0 New stores opened........... 0 1 1 Stores acquired............. 0 0 0 Stores sold or closed....... 1 2 2 Stores at end of period..... 111 112 113 Size of stores: Less than 25,000 sq. ft..... 24 24 26 25,000 to 35,000 sq. ft..... 38 39 40 35,000 sq. ft. or greater... 49 49 47 Store formats: Conventional................ 29 29 28 SuperStore.................. 65 66 71 Combo....................... 17 17 14 * 53 week reporting period Merchandising Strategy and Pricing The Company's merchandising strategy emphasizes competitive pricing through a high-low pricing structure, as well as Homeland's leadership in quality product and service, selection, convenience and specialty departments with a focus on 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. In addition, Homeland's stores utilize a shelf management scanner-driven program which allocates shelf space based upon specific unit sales. This scanner program provides adequate information to evaluate shelf stock to avoid excessive inventories. The program allows allocation of products that are the best sellers and the products that contribute the greatest gross profit dollars, in each commodity group, to prime eye level shelves. Customer Service Homeland stores provide friendly and efficient customer services which emphasize, among other things, quick check out services and many stores offer additional services such as postal, pharmacy, video rental, check cashing and money orders. Some of the stores also offer in-store banking facilities and automated teller machines. Homeland helps to attract and retain its customers by providing a high level of customer service in clean, well-stocked stores with quality products. Advertising and Promotion 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, Homeland is focused on presenting itself in the media 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. An element of the Company's plan to improve its financial position includes improving its advertising and merchandising and coordinating marketing efforts by redesigning the advertising circulars to improve the promotions of advertised specials and organizing the in-store presentation of these items. 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 markets it serves. Gross advertising expenses were $13.6 million in fiscal 1994, $14.1 million in fiscal 1993 and $14.5 million in fiscal 1992. Homeland receives co-op advertising reimbursements from major vendors which reduces its gross advertising expenses. Product Selection The Company carries nationally advertised brands and a wide selection of private label products. Part of the Company's plan to improve its financial position involves increasing its offering of competitively-priced private label products and increasing sales of perishables. All stores carry a full line of meat, dairy, produce, frozen food, health and beauty aids and selected general merchandise. As of April 14, 1995, approximately 76% of the stores have service delicatessens and/or bakeries and approximately 52% have in- store pharmacies. In addition, some stores provide additional specialty departments that offer ethnic food, fresh and frozen seafood, floral services and salad bars. Warehousing and Distribution Until the consummation of the AWG Transaction, the Company supplied approximately 75% of the products sold in its supermarkets from its 659,000 square foot warehouse and distribution facility, which included 241,000 square feet of refrigerated space for storing produce and meats as well as a large freezer section for vegetables, ice cream and other frozen products. As part of the AWG Transaction, the Company sold its warehouse and distribution center to AWG and entered into a seven year supply agreement, pursuant to which the Company became a retail member of the AWG cooperative and AWG became the Company's primary supplier. Pursuant to the supply agreement, AWG will 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 will (i) be eligible to participate in certain cost-savings programs available to AWG's other retail members and (ii) be entitled to receive (a) certain member rebates and refunds based on the dollar amount of the Company's purchases from AWG's warehouse and (b) quarterly 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 warehouse during such fiscal quarter. The Company will purchase 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 warehouse. The Company's open account with AWG is secured by a $10 million letter of credit (the "Letter of Credit") issued in favor of AWG by one of the banks party to the Amended and Restated Revolving Credit Agreement (as hereafter defined under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources"). 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 quarterly payments and certain other rebates, refunds and other credits owed to the Company by AWG (including members deposit certificates, patronage refund certificates, members savings, direct patronage or year-end patronage and concentrated purchase allowances). The amount of the Letter of Credit may be decreased on a biannual basis upon the request of the Company (i) based on the Company's then-current average weekly volume of purchases and (ii) 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 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 Letter of Credit has been increased to make up for any such deficiency. Under the supply agreement, AWG has certain "Volume Protection Rights," including (i) the right of first offer (the "First Offer Rights") with respect to (a) proposed sales of stores to be owned or operated by the Company after the closing of the sale (the "Retained Stores") and, under certain circumstances, certain other stores which the Company has closed, or expects to close, during 1995 and (b) 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, (ii) the Company's agreement not to compete with AWG as a wholesaler of grocery products during the term of the supply agreement, and (iii) the Company's agreement to dedicate the Retained 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 are terminable with respect to a particular Retained 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 Retained Stores. Transportation In March 1992, the Company entered into a transportation agreement (the "Transportation Agreement") with Drake Refrigerated Lines, Inc. ("Drake"). Pursuant to the Transportation Agreement, the Company sold substantially all of its trailers and certain non-material related equipment at fair market value to Drake, which then provided all transportation services for Homeland products through a network of independent drivers. The Transportation Agreement has a five-year term and is terminable by either party on six months' notice and upon certain other conditions. In conjunction with the AWG Transaction, the Company's obligations under the Transportation Agreement were assumed by AWG. Supply of Dairy Products The Company previously produced private-label milk, water, juice and ice cream at two owned and managed facilities located in Oklahoma City. In November 1993, the Company sold 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 to Borden, Inc. ("Borden"). In connection with the sale, the Company entered into a seven- year supply agreement with Borden under which Borden was to 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 such personal property in the amount of $2.6 million in 1993 and received a $4 million payment in connection with the Borden supply agreement which was to be recognized over the seven-year term of the Supply Agreement. In December 1994, the Company entered into a settlement agreement with Borden whereby Borden ceased supplying the Company in April 1995. As part of the settlement agreement, the Company repaid $1.6 million plus interest in December 1994 and $1.7 million plus interest in April 1995. The Company has made arrangements for Farm Fresh, Inc. to begin supplying its dairy and ice cream requirements in April 1995. Farm Fresh, Inc. is a cooperative and 1% of the Company's purchases will be rebated to the Company at the end of each year in the form of stock in Farm Fresh,Inc.. Employees and Labor Relations At March 31, 1995, Homeland had a total of 5,938 employees, of whom 3,504 or approximately 59% were employed on a part-time basis. Homeland employs 5,499 and 234 persons in its supermarket operations and supply and distribution operations, respectively. The remaining employees are corporate and administrative personnel. Homeland is the only unionized grocery chain in its market areas and approximately 90% of the Company's employees are unionized, represented primarily by the United Food and Commercial Workers of North America ("UFCWNA"). In 1993, the UFCWNA ratified a modified collective bargaining agreement with the Company (the "Labor Agreement'). The term of the Labor Agreement is from December 1993 through October 1996. The Labor Agreement provides for average wages and benefits for store employees of $9.25 per hour compared to the average wages and benefits before modification of $10.47 per hour. Management estimates that this wage reduction will result in annualized savings of approximately $4.5 million less anticipated bumping costs of $1.3 million for a net savings of $3.2 million for the remaining 67 stores in each year of the Labor Agreement through October 1996. Homeland's average wages and benefits continue to exceed wages and benefits paid by its competitors by an estimated average of $2.40 per hour. This estimated average could increase by as much as 10% following the AWG Transaction due to the effects of bumping. Such higher labor costs is one of the reasons the Company has not been able to remain competitive and entered into the AWG Transaction. In conjunction with the sale to AWG, three class grievances have been filed by the UFCWNA and have been submitted to binding arbitration under the terms of the Labor Agreement. The grievances involve: (i) the question of whether a special termination pay provision in the Labor Agreement is triggered by the sale to AWG; (ii) the application of the severance pay provision in the Labor Agreement; and (iii) calculation of accrued but unused vacation pay due employees at the time of termination. The maximum aggregate amount being sought pursuant to the grievances is $5.1 million. The arbitrations will be held during May through July. The Company believes that its position on these grievances will be upheld by the arbitrator and that the disposition of these grievances through arbitration will not have a material adverse effect on the Company's financial position. Warehouse personnel are members of the International Brotherhood of Teamsters (the "Teamsters") and wages paid to these employees are on parity with those paid by other similar unionized warehouse operations in the area. In November 1992, the Company signed a three and one-half year contract with the Teamsters resulting in a 25 cent per hour wage increase effective July 1994 and an increase in the pension contribution per employee of $10 per week effective November 1992, an additional $4 per week effective November 1993, and another $2 per week effective November 1994. Homeland terminated the employment of all Teamsters on April 21, 1995. Effective January 1, 1989, the Company implemented a stock appreciation rights ("SAR") plan for certain of its hourly union employees and its non-union hourly and salaried employees. Effective as of November 4, 1989, the Company implemented a similar SAR plan for its hourly Teamster employees. A participant in the SAR plans is granted at specified times "appreciation units" which, upon the occurrence of certain triggering events, entitle the participant to receive cash payments equal to the product of the number of appreciation units then vested in such participant multiplied by the increase in value of a share of the Common Stock over $1.00 as determined in good faith by the Board of Directors. Trigger events include the sale or exchange of all or substantially all of the assets or stock of Homeland or Holding, the liquidation or dissolution of Homeland or Holding, the sale to the public of 20% or more of the Common Stock or of the common equity of Homeland and the sale, other than to Homeland or Holding, by C&D Fund III of more than 2,925,000 shares of Common Stock. The sale to AWG will not constitute a trigger event under any of the SAR plans. Under the SAR plans, Homeland may grant up to 200 appreciation units per employee to part-time employees, 500 units to full-time employees, 750 units to supervisors and 1,000 units to managers (e.g., store managers); provided that Homeland may not grant more than an aggregate of 1,939,500 appreciation units under all union and non-union SAR plans. Assuming all units were vested under the SAR plans, such units would represent approximately 5% of the equivalent equity in the Company. Computer and Management Information Systems Effective October 1, 1991, the Company entered into a ten-year agreement with K-C Computer Services, Inc. (a subsidiary of Kimberly-Clark Company), providing for the outsourcing of Homeland's management information system and electronic data processing functions. Pursuant to the outsourcing agreement, K-C Computer Services, Inc. assumed substantially all of the Company's existing hardware and software leases and related maintenance agreements. The outsourcing agreement provides for minimum annual service charges, increasing over the term of the agreement, as well as other variable charges. Based on current estimates, future minimum annual service charges under the ten-year outsourcing agreement as of December 31, 1994 were in the aggregate amount of $30.7 million. The agreement is cancelable by either party subject to a penalty that declines over the term of the agreement. In conjunction with the AWG Transaction, AWG has undertaken approximately 52% of the annual service charges of the outsourcing agreement incurred to June 1, 1997. The Company will remain liable for any service charges incurred after June 1, 1997. The Company and AWG have agreed to use their best efforts to terminate the outsourcing agreement by January 1, 1997, and arrange alternative service for the Company. The Company can terminate the outsourcing agreement at any time by payment to K-C Computer Services, Inc. of an early termination penalty. If the outsourcing agreement is terminated prior to June 1, 1997, AWG will be responsible for payment of approximately 52% of the early termination penalty. If the outsourcing agreement is terminated during 1997, the Company's portion of the early termination penalty will be $954,000. The Company has installed laser-scanning checkout systems in all of the 67 retained stores. The Company utilizes the information collected through its scanner systems to track product movement and inventory levels and to coordinate purchasing. Coupon scanning software upgrades were added in 1993 for all stores which have scanner systems. This software reduces the expense related to coupons by verifying that the coupon presented was for the product purchased and reduces clerical errors. A new store labor scheduling system was also installed in 1993 that determines the required hours to be worked based on engineered standards combined with sales projections and traffic patterns. Competition Although the supermarket business is highly competitive, as the only statewide operator of supermarkets in its entire market region, Homeland occupies a leading position in substantially all of the markets it serves. The Company's management believes that Homeland's principal competitive advantages include significant economies of scale for advertising, excellent store locations and continuity with experienced store management. The market in which Homeland competes is highly fragmented by many small independent operators. 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. For example, in 1994, there were 14 competitive openings in the Company's market areas (including 11 new Wal-Mart supercenters, 2 new Albertsons Inc. stores and 1 new Mega Market store). The 1994 competitive openings directly affected 28 of the Company's stores, where average weekly sales decreased by 10.9% as compared to 1993, including 19 of the 67 Retained Stores, where average weekly sales decreased by 10.7% as compared to 1993. By contrast, average weekly sales of the remaining 48 Retained Stores increased in 1994 by 2.7% as compared to 1993. The Company was unable to effectively respond to the competitive openings because (i) the high labor costs associated with the Company's unionized workforce made it difficult for the Company to price its goods competitively with competitors (none of which has a unionized workforce), and (ii) the high fixed overhead costs associated with its warehouse operation made the closure of marginal and unprofitable stores financially prohibitive. Trademarks, Trade Names and Licenses During the transition from "Safeway" to "Homeland" the Company has been able to generate a substantial amount of familiarity with the "Homeland" name. The Company continues to build and enhance this name recognition through advertising and annual birthday and anniversary promotional campaigns. The "Homeland" name is considered material to the Company's business and is registered for use as a service mark and trademark. Homeland 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. During 1990, Homeland began developing a private label line of products which currently includes over 350 items. The line includes every major category in the Company's stores, including dairy products, meat, frozen foods, canned fruits and vegetables, eggs and plastic wrap. As a result of the AWG Transaction, Homeland intends to further improve the private label offerings. Regulatory Matters Homeland is subject to regulation by a variety of local, state and federal governmental agencies, including the United States Department of Agriculture, state and federal pharmacy regulatory agencies and state and local alcoholic beverage and health regulatory agencies. By virtue of this regulation, Homeland is obligated to observe certain rules and regulations, violation of which could result in suspension or revocation of various licenses or permits held by Homeland. In addition, most of Homeland's licenses and permits require periodic renewals. Homeland has experienced no material difficulties with respect to obtaining or renewing its regulatory licenses and permits. ITEM 2. PROPERTIES Of the 111 supermarkets operated by Homeland at December 31, 1994, 19 are owned and the balance are held under leases which expire at various times between 1995 and 2017. Most of the leases are subject to six five-year renewal options. Out of 92 stores with leases, only eleven have terms (including option periods) of fewer than 20 years remaining. Most of the leases require the payment of taxes, insurance and maintenance costs and many of the leases provide for additional contingent rentals based on sales. The Company also leases its executive offices and warehouse and distribution center in Oklahoma City and owns the land and buildings in Oklahoma City in which its milk and ice cream plants were located. Substantially all of the Company's facilities are subject to mortgages securing the Company's Senior Notes (as hereinafter defined). See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." No individual store operated by Homeland is by itself material to the financial performance or condition of Homeland as a whole. The average rent per square foot under Homeland's existing leases is $3.77 (without regard to amortization of beneficial interest). Management believes that many of its existing leases, depending on the location of the store, provide the Company rents which are below the current market rate. Of the 67 stores remaining after the AWG Transaction and closing of certain stores, 11 are owned and 56 are leased. Of those stores which are leased, eight have terms (including option periods) of fewer than 20 years remaining. The average rent per square foot for these 67 stores under Homeland's existing leases is $3.90 (without regard to amortization of beneficial interest). On approximately June 12, 1995, the Company plans to relocate its executive offices to 2601 Northwest Expressway, Suite 1100 E, Oklahoma City, Oklahoma 73112. The Company will be leasing the new executive offices. ITEM 3. LEGAL PROCEEDINGS The Company is party to various lawsuits and proceedings in the ordinary course of its operations relating to alleged personal injuries and other claims. None of the proceedings pending against the Company or, to the knowledge of management, threatened against the Company, is expected to have a material effect on the Company's financial condition or results of operations. The Internal Revenue Service ("IRS") concluded in December 1993 a field audit of the Company's income tax returns for the fiscal years 1990, 1991 and 1992. On January 31, 1994, the IRS issued a Revenue Agent's Report for those fiscal years proposing adjustments that would result in additional taxes in the amount of $1.6 million (this amount is net of any available operating loss carryforwards, which would be eliminated under the proposed adjustment). The Company filed its protest to the IRS Appeals Office on June 14, 1994. The IRS Appeals Office is currently in the process of reviewing the Company's protest. The major proposed adjustment involves the allocation of the initial purchase price of the Company to inventory. The Company believes that it has meritorious legal defenses to the IRS adjustments and intends to vigorously protest the assessment. Management has analyzed all of these matters and has provided for, in accordance with generally accepted accounting principles, amounts which it currently believes are adequate. In conjunction with the sale to AWG, three class grievances have been filed by the UFCWNA and have been submitted to binding arbitration under the terms of the Labor Agreement. The grievances involve: (i) the question of whether a special termination pay provision in the Labor Agreement is triggered by the sale to AWG; (ii) the application of the severance pay provision in the Labor Agreement; and (iii) calculation of accrued but unused vacation pay due employees at the time of termination. The maximum aggregate amount being sought pursuant to the grievances is $5.1 million. The arbitrations will be held during May through July. The Company believes that its position on these grievances will be upheld by the arbitrator and that the disposition of these grievances through arbitration will not have a material adverse effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the quarter ended December 31, 1994, the Company obtained a consent to a waiver from United States Trust Company of New York, as trustee for the holders of the Senior Notes, waiving compliance with certain financial covenant requirements in effect as of fiscal year ended December 31, 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for information regarding the Company's consent solicitation in April 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for the Common Stock, the only class of common equity of Holding currently issued and outstanding. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data of the Company which have been derived from financial statements of the Company for the 52 weeks ended December 31, 1994 and January 1, 1994, the 53 weeks ended January 2, 1993, the 52 weeks ended December 28, 1991 and December 29, 1990 respectively, which have been audited by Coopers & Lybrand, L.L.P. See Notes to Selected Consolidated Financial Data for additional information. The selected consolidated financial data should be read in conjunction with the respective consolidated financial statements and notes thereto which are contained elsewhere herein.
(In thousands, except per share amounts) 52 weeks 52 weeks 53 weeks 52 weeks 52 weeks ended ended ended ended ended 12/31/94 01/01/94 01/02/93 12/28/91 12/29/90 Summary of Operations Date: Sales, net. . . . . . . . . . . . . . . . $785,121 $810,967 $830,964 $786,785 $767,804 Cost of Sales . . . . . . . . . . . . . . 588,405 603,220 609,906 573,470 575,935 Gross profit. . . . . . . . . . . . . . . 196,716 207,747 221,058 213,315 191,869 Selling and administrative. . . . . . . . 193,643 190,483 199,547 187,312 168,800 Operational restructuring costs (1). . . 23,205 - - - - Operating profit (loss) . . . . . . . . . (20,132) 17,264 21,511 26,003 23,069 Gain on sale of plants. . . . . . . . . . - 2,618 - - - Interest expense. . . . . . . . . . . . . (18,067) (18,928) (24,346) (22,257) (23,784) Income (loss) before income taxes and extraordinary items. . . . . . . . . . . (38,199) 954 (2,835) 3,746 (715) Income taxes. . . . . . . . . . . . . . . (2,446) 3,252 (982) (992) (1) Income (loss) before extraordinary items. (40,645) 4,206 (3,817) 2,754 (716) Extraordinary items (2) (3). . . . . . . - (3,924) (877) - - Net Income (loss) . . . . . . . . . . . . (40,645) 282 (4,694) 2,754 (716) (Accretion) Reduction in redemption value redeemable common stock . . . . . . . . . . . . . . 7,284 - - (132) (3,841) Net income (loss) available to common stockholders . . . . . . . . . . . . . . $(33,361) $ 282 $ (4,694) $ 2,622 $ (4,557) Net income (loss) per common share (4). . $ (.96) $ .01 $ (.13) $ .07 $ (.18) Consolidated Balance Sheet Data: 12/31/94 01/01/94 01/02/93 12/28/91 12/29/90 Total assets. . . . . . . . . . . . . . . $239,134 $274,290 $305,644 $285,735 $266,523 Long-term obligations, including current portion of long-term obligations . . . . $176,731 $172,600 $198,380 $179,680 $168,418 Redeemable common stock . . . . . . . . . $ 1,235 $ 8,853 $ 9,470 $ 10,616 $ 10,841 Stockholders' equity. . . . . . . . . . . $ 4,071 $ 36,860 $ 37,150 $ 41,844 $ 39,226
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA (In thousands) (1) Operational restructuring costs during 1994 included the estimated losses to be incurred on the AWG Transaction and associated expenses and the estimated losses and expenses in connection with the anticipated closing of 15 stores during 1995. (2) Extraordinary items during 1993 included the payment of approximately $2,776 in premiums on the redemption of $47,750 in aggregate principal amount of the Company's remaining 15-1/2% Subordinated Notes due November 1, 1997 (the "Subordinated Notes") at a purchase price of 105.8% of the outstanding principal amount, and $1,148 in unamortized financing costs related to the Subordinated Notes so redeemed. (3) Extraordinary items during 1992 included the payment of approximately $1,225 in premiums on the repurchase of $12,250 in aggregate principal amount of the Company's Subordinated Notes at a purchase price of 110% of the outstanding principal amount, $371 in unamortized financing costs related to the Subordinated Notes so purchased, and a credit representing the discount of $500 on the Company's prepayment of $1,500 on the $5,000 note payable to Furr's issued in connection with the Company's acquisition of certain stores from Furr's in September 1991. The extraordinary items have been shown net of income taxes of $219. (4) Common Stock held by management investors is presented as redeemable common stock and excluded from stockholders' equity since the Company has agreed to repurchase such shares under certain defined conditions, such as death, retirement or permanent disability. See "Management -- Management Stock Purchases." This presentation represents a change from previously issued financial statements. In addition, net income (loss) per common share reflects the accretion in/reduction to redemption value as a reduction/increase in income available to all common stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations General The Company's net sales declined by 3.2% in fiscal year 1994 to $785.1 million compared to fiscal year 1993. The Company's net sales declined by .5% in fiscal year 1993 to $811 million compared to a comparable 52 week year for fiscal year 1992. The preceding two fiscal years showed a compound annual growth rate of 3.0%, from $767.8 million in fiscal year 1990 to $815.3 million in fiscal year 1992 on a comparative 52 week basis. The decline in sales during 1994 was due to the increased competition in the Company's market area resulting primarily from additional store openings of Wal-Mart supercenter stores (see "Business--Competition"). The 67 stores retained following the AWG Transaction comprised 67.7% of the 1994 sales. The following table sets forth selected items from the Company's consolidated income statement as a percentage of net sales for the periods indicated: Percentage of Net Sales Fiscal Year 1994 1993 1992 Net Sales........................ 100.00% 100.00% 100.00% Cost of sales.................... 74.94 74.38 73.40 Gross profit................... 25.06 25.62 26.60 Selling and administrative....... 24.67 23.49 24.01 Operational restructuring costs 2.96 - - Operating profit (loss)........ (2.57) 2.13 2.59 Gain on sale of plants........... - .32 - Interest expense................. (2.30) (2.33) (2.93) Income (loss) before income taxes and extraordinary items.. (4.87) .12 (.34) Provision for income taxes....... ( .31) .40 (.12) Income (loss) before extraordinary items............ (5.18) .52 (.46) Extraordinary items.............. - (.48) (.11) Net income (loss)................ (5.18) (.04) (.57) Comparison of Fifty-Two Weeks Ended December 31, 1994 with Fifty-Two Weeks Ended January 1, 1994. Sales. Net sales for 1994 decreased to $785.1 million, a 3.2% decrease over 1993 net sales. The decrease in net sales for fiscal 1994 is primarily attributable to the increased competition in the Company's market area resulting primarily from additional store openings of Wal-Mart supercenter stores during 1993 and 1994. There were 11 new Wal-Mart supercenter stores opened in the Company's market area during 1994. The Company's comparable store sales decreased by 2.6% compared to the prior year due primarily to competitors' store openings in the Company's market area. The Company has developed and begun to implement a more effective strategy for responding to competitive pressures in the market place, including (i) exploiting the advantages the Company has over its competitors, such as convenience of store locations and variety of offerings, (ii) increasing the offering of competitively-priced, private label products, (iii) improving advertising and merchandising and coordinating marketing efforts and (iv) increasing sales of perishables. Cost and Expenses. Gross profit as a percentage of sales for fiscal 1994 decreased to 25.1% compared to 25.6% in fiscal 1993. The decrease in the gross profit margin was partially due to increased promotional pricing in response to the increased competition in the Company's market area. The decrease was also partially due to a decrease in the period of time for amortizing video rental tapes. The decrease was partially offset by a reduction in the inventory losses accounted for in the Company's retail stores during 1994. The retail store inventory losses were approximately $1.8 million less than inventory losses in 1993, resulting principally from a reduction in the losses in the meat department. The improvement in the meat department losses was due to a change in the procedures to process only the amount of product anticipated to be sold and not processing excessive quantities of fresh beef and pork to fill the display areas. The decline in gross profit margin was also due in part to an increase in warehouse and transportation expense as a percent of sales in 1994 which was due to an increase in the warehouse square footage and an increase in the number of warehouse personnel resulting from converting the former ice cream plant into additional frozen food warehouse space. Selling and administrative expenses as a percentage of sales increased in fiscal 1994 to 24.7% from 23.5% for fiscal 1993. The increase in selling and administrative expenses as a percentage of sales was due in large part to the decrease in sales for 1994 as compared to the prior year. However, the expenses also increased during 1994 due in part to the contractual increase in the monthly fees in connection with the Company's computer services agreement and a one-time change in the administration of the vacation policy which occurred during 1993 and did not recur in 1994. Expenses also increased due to additional reserves recorded for estimated bad debts on accounts receivable due from vendors and wholesale customers which may not be collected in full as a result of the AWG Transaction and the Company wrote down certain fixed assets to fair market value. The Company also recorded an increase of $5.7 million in the accrual for workers' compensation claims in 1994 as compared to the prior year due to an increase in the actuarially projected ultimate costs of the self-insured plans reflecting increases in claims and related settlements. These increases in expense were partially offset by a reduction in retail wages and benefits resulting from the modified collective bargaining agreement entered into with the United Food and Commercial Workers of North America in December 1993. Following the AWG Transaction, the Company plans to take steps to reduce its selling and administrative expenses as well as improve its overall financial position. The Company has developed a plan to close fifteen marginal and unprofit- able stores during 1995 (seven of which have already been closed in 1995). The Company also plans to reduce administra- tive headcount by approximately 110 people by the end of 1996 following the AWG Transaction. In conjunction with fewer stores and reduced headcount, the Company also plans to reduce related administrative expenses including travel, phone, bank service charges and computer services, among others. Operational restructuring costs. Operational restructuring costs for 1994 were $23.2 million which included an estimate of the expenses to be incurred in connection with the sale of the warehouse and 29 stores to AWG and the closing of 15 stores during 1995. The accrual includes the fixed costs of the closed stores from the time they are closed until they can be sold or the lease expires. Operating Loss. Operating loss was $20.1 million for 1994 compared to operating profit of $17.3 million in 1993. The decrease in operating profit was due to the decrease in sales, the decrease in gross profit margin, the increase in selling and administrative expenses and the operational restructuring costs recorded in 1994. Gain on Sale of Plants. The Company recognized a $2.6 million gain from the sale of equipment and related assets associated with its milk and ice cream plants in 1993. No similar gain was recognized in 1994. Interest Expense. Interest expense for fiscal 1994 decreased to $18.1 million from $18.9 million in fiscal 1993 due primarily to the redemption of the Company's Subordinated Notes. All remaining outstanding Subordinated Notes were redeemed by the Company on March 1, 1993. See "Liquidity and Capital Resources." Income Tax Provision. The Company recognized income tax expense of $2.4 million in 1994, compared to an income tax benefit of $3.3 million in 1993. The expense in 1994 was the result of increasing the valuation allowance on the Company's deferred tax asset from the prior year due to the uncertainty of realizing the future tax benefits. The expense was offset in part by the recognition of a tax benefit for alternative minimum tax net operating losses that were carried back to prior years. The income tax benefit for 1993 was the result of the reversal of the prior valuation allowance on the Company's deferred tax asset due to the proposed disposition of assets, net of the estimated amount management believed the Company may be required to pay in connection with the IRS audit (see below). At December 31, 1994, the Company had tax net operating loss carryforwards of approximately $20.1 million. The IRS concluded in December 1993 a field audit of the Company's income tax returns for the fiscal years 1990, 1991 and 1992. On January 31, 1994, the IRS issued a Revenue Agent's Report for those fiscal years proposing adjustments that would result in additional taxes in the amount of $1.6 million (this amount is net of any available operating loss carryforwards, which would be eliminated under the proposed adjustment). The Company filed its protest with the IRS Appeals Office on June 14, 1994. The IRS Appeals Office is currently in the process of reviewing the Company's protest. The major proposed adjustment involves the allocation of the initial purchase price of the Company to inventory. The Company believes that it has meritorious legal defenses to the IRS adjustments and intends to vigorously protest the assessment. Management has analyzed all of these matters and has provided for, in accordance with generally accepted accounting principles, amounts which it currently believes are adequate. Extraordinary Items. There were no extraordinary items incurred during fiscal 1994. Extraordinary items in 1993 consisted of the payment of $2.776 million in premiums on the redemption of $47.750 million in aggregate principal amount of the Subordinated Notes at a purchase price of 105.8% of the outstanding principal amount and $1.148 million in unamortized financing costs related to the redemption of the Subordinated Notes on March 1, 1993. See "Liquidity and Capital Resources." Income or Loss. The Company had net loss of $40.6 million during 1994 compared to net income of $282,000 in 1993. The net loss experienced in 1994 was due primarily to the operational restructuring costs, reduction of sales and gross profit margin, increase in selling and administrative expenses and an increase in income tax expense. Comparison of Fifty-Two Weeks Ended January 1, 1994 with Fifty-Three Weeks Ended January 2, 1993. Sales. Net sales for 1993 decreased to $811.0 million, a 2.4% decrease over 1992 net sales. The decrease in net sales for fiscal 1993 was primarily attributable to the 53 week year in fiscal 1992 as compared to a 52 week year in fiscal 1993. Net sales for 1993 compared to an adjusted comparable 52 week year for 1992 decreased 0.5%. Apart from the effect of a 53 week year in fiscal 1992, the decrease in net sales was primarily attributable to increased competition including the opening of seven Wal-Mart supercenter stores and Sam's Clubs in the Company's market area during 1993. The decrease in net sales was also due to a reduction in wholesale sales due to the loss of one wholesale customer and the termination by the Company of four other wholesale customers. Continuing store sales on a comparable 52 week basis decreased by .5% compared to the prior year due primarily to competitors' store openings in the Company's market area. Cost and Expenses. Gross profit as a percentage of sales for fiscal 1993 decreased to 25.6% compared to 26.6% in fiscal 1992. The decrease in gross profit margin was partially due to a reduction in prices and increased markdowns in response to the increased competition in the Company's market area. In addition, the decrease in gross profit margin was partially attributable to inventory losses accounted for in the Company's retail stores during the third and fourth quarters of 1993. The retail store inventory losses were approximately $2.2 million greater than inventory losses in 1992, resulting principally from above-normal losses in the produce and meat departments. The produce department losses were due to an isolated incidence of excess inventories in connection with a one-time promotional sale in the third quarter in response to increased competition. The meat department losses were due to processing excessive quantities of fresh beef and pork and taking earlier markdowns which created larger distress losses. Procedures were implemented in 1994 to process only the amount of product anticipated to be sold. The decrease in gross profit margin for 1993 was also due to lower vendor retail allowances than in 1992 because more nonrecurring vendor retail allowances were received during 1992 compared to 1993. Retail allowances were approximately $3.6 million less in 1993 compared to 1992. Consistent with general industry trends, many of the Company's major vendors have switched to a net pricing policy, which lowers overall item prices to the Company, but also reduces the retail allowances. The decline in gross profit margin was partially offset by a reduction in warehouse and transportation expense in 1993 which was due to a reduction of hours worked in the Company's warehouse and the outsourcing of the Company's transportation operations in the second quarter of 1992. The transportation charges incurred during fiscal 1993 were $7.4 million as compared to $8.6 million in 1992. Compared to costs prior to the outsourcing, annual savings under the Transportation Agreement are approximately $2.0 million. Gross profit without regard to warehouse and transportation costs as a percentage of sales decreased to 27.9% in fiscal 1993 compared to 29.1% in fiscal 1992. This decrease was primarily due to the reduced prices and higher markdowns as a result of the Company's response to increased competition, the above-normal inventory losses experienced at the Company's stores during the third and fourth quarters of 1993, and the reduction in vendor retail allowances. Selling and administrative expenses as a percentage of sales decreased for fiscal 1993 to 23.5% from 24.0% for fiscal 1992 on a total sales decline of $20 million. The decrease was partially due to management's cost reduction and containment program, including the reduction of retail store personnel hours, a staff reduction in the first quarter of 1993 and a reduction in management's salaries and non-union employee benefits effective June 1993. The expense reduction and control program is an on-going program, and the Company continued its efforts to reduce expenses during fiscal 1994. The decrease was also due to a smaller accrual for workers' compensation and general liability claims in 1993 compared to 1992. A contractual provision in the Company's agreement for computer services allowing for a reduction in the monthly fees as a result of any point of sale invoices paid during the month and a one-time change in the administration of the vacation policy, both of which occurred in fiscal 1993, also contributed significantly to the decreases in selling and administrative expenses. The decrease was partially offset by an increase in consulting expenses incurred to accelerate the Company's profit improvement plan, an increase in the bonuses paid under the Management Incentive Plan (as discussed in "Executive Compensation -- Management Incentive Plan") and expenses incurred in connection with the closing of two stores during the third quarter of 1993 (the closing of these two stores is not expected to have a material adverse effect on the Company's on-going operations and profitability). In the fourth quarter of 1993, the UFCWNA ratified a modified collective bargaining agreement which provides for average wages and benefits for store employees of $9.25 per hour compared to the average wages and benefits before modification of $10.47 per hour. Management estimates that this wage and benefit reduction will result in annualized savings of approximately $6.7 million in 1994 and each year thereafter through October 1996 as compared to fiscal 1993. Operating Profit. Operating profit was $17.3 million for 1993 compared with $21.5 million in 1992. The decrease in operating profit was due to the decrease in sales and the decrease in gross profit margin, offset in part by the decrease in selling and administrative expenses. Gain on Sale of Plants. The Company recognized a $2.6 million gain from the sale of equipment and related assets associated with its milk and ice cream plants in 1993. Interest Expense. Interest expense for fiscal 1993 decreased to $18.9 million from $24.3 million in fiscal 1992 due primarily to the redemption of the Company's Subordinated Notes. All remaining outstanding Subordinated Notes were redeemed by the Company on March 1, 1993. As a result of this redemption, the Company's average interest rate on its debt at the end of fiscal 1993 was 9.3% compared to 11.5% at the end of fiscal 1992. See "Liquidity and Capital Resources." Income Tax Provision. The Company recognized an income tax benefit of $3.3 million in 1993, compared to an expense of $763,000 in 1992. The income tax benefit for 1993 is the result of the reversal of the prior valuation allowance on the Company's deferred tax asset due to the proposed disposition of assets discussed below (see "Liquidity and Capital Resources"), net of the estimated amount management believes the Company may be required to pay in connection with the IRS audit (see below), while the expense for 1992 is comprised of alternative minimum tax expense. At January 1, 1994, the Company had tax net operating loss carryforwards of approximately $9.6 million, which might be affected by the outcome of the IRS proposed adjustments described above. Extraordinary Items. Extraordinary items in 1993 consist of the payment of $2.776 million in premiums on the redemption of $47.750 million in aggregate principal amount of the Subordinated Notes at a purchase price of 105.8% of the outstanding principal amount and $1.148 million in unamortized financing costs related to the redemption of the Subordinated Notes on March 1, 1993. See "Liquidity and Capital Resources." Income or Loss. The Company had net income of $282,000 during 1993 compared to a net loss of $4.7 million in 1992. The increase in net income was due primarily to the gain on the sale of the milk and ice cream plants, lower selling and administrative costs and interest expense and the tax benefit from the reversal of the prior valuation allowance, which was offset in part by a reduction of sales and gross profit margin and the extraordinary items described above. Liquidity and Capital Resources Debt. The major sources of liquidity for the Company's operations and expansion have been internally generated funds and borrowings under revolving credit facilities. In March 1992, the Company refinanced its indebtedness by entering into an Indenture with United States Trust Company of New York, as trustee (the "Senior Note Indenture"), pursuant to which the Company issued $45 million in aggregate principal amount of Series A Senior Secured Floating Rate Notes Due 1997, bearing interest at a floating rate of 3% over LIBOR (the "Old Floating Rate Notes"), and $75 million in aggregate principal amount of Series B Senior Secured Fixed Rated Rate Notes due 1999, bearing interest at 11-3/4% per annum (the "Old Fixed Rate Notes," and together with the old Floating Rate Notes, the "Old Notes"). The Old Fixed Rate Notes are not redeemable by the Company until on or after March 1, 1997. In October and November 1992, the Company conducted an offer to exchange its Series D Senior Secured Floating Rate Notes Due 1997 (the "New Floating Rate Notes") for an equal principal amount of its outstanding Old Floating Rate Notes, and Series C Senior Secured Fixed Rate Notes Due 1999 (the "New Fixed Rate Notes," and together with the New Floating Rate Notes, the "New Notes") for an equal principal amount of its Old Fixed Rate Notes. The Old Notes and the New Notes are collectively referred to herein as the "Senior Notes;" the Old Floating Rate Notes and the New Floating Rate Notes are collectively referred to herein as the "Senior Floating Rate Notes;" and the Old Fixed Rate Notes and the New Fixed Rate Notes are collectively referred to herein as the "Senior Fixed Rate Notes." The New Notes are substantially identical to the Old Notes, except that the offering of the New Notes was registered with the Securities and Exchange Commission. Holders of the New Notes are not entitled to certain rights of holders of the Old Notes, as described in the prospectus relating to the exchange offer. The Company conducted the exchange offer to satisfy its obligations under agreements with the holders of the Senior Notes. At April 14, 1995, $75 million of New Fixed Rate Notes, $33 million of New Floating Rate Notes and $12 million of Old Floating Rate Notes are outstanding. On April 13, 1995, the Company received consents for certain amendments to the Senior Note Indenture from a majority of the holders of Senior Notes. The amendments (a) increased the interest rate on each series of Notes by one- half of one percent (0.5%) per annum; (b) amended, added and deleted certain financial covenants and related definitions under the Senior Note Indenture (including modifying the Consolidated Fixed Charge Coverage Ratio covenant, adding a new Debt-to-EBITDA ratio and a new Capital Expenditures covenant, deleting the Adjusted Consolidated Net Worth covenant) to reflect the Company's size, operations and financial position following the AWG Transaction; (c) amended certain provisions of the Senior Note Indenture to permit the Company to incur certain liens and indebtedness and to make an investment in certain membership stock and receive or earn patronage certificates or other equity in connection with the supply agreement to be entered into with AWG; (d) amended certain provisions of the security agreement to provide that AWG will have a first lien on certain collateral to be acquired by the Company in connection with the AWG supply agreement; (e) amended certain other provisions of the Senior Note Indenture to, among other things, limit the Company's ability to incur certain future indebtedness and guarantees, and to provide that a certain amount of net proceeds from future asset sales must be applied to an offer to redeem the Senior Notes; (f) made certain technical amendments to the Senior Notes' Intercreditor Agreement; (g) and amended the Senior Notes' Mortgage to provide that defaults under, or modifications or terminations of, a certain lease related to a store to be closed, will not constitute a default or event of default under the Senior Notes' Mortgage. On April 21, 1995, the Company and United States Trust Company of New York, as trustee for the holders of the Senior Notes, entered into a supplemental indenture effecting these amendments. Also in March 1992, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") with Union Bank of Switzerland, New York Branch ("UBS"), as agent and as lender, and any other lenders and other financial institutions thereafter parties thereto. As a result of the Company's redemption of the remaining outstanding Subordinated Notes on March 1, 1993, and satisfying certain other conditions, the Revolving Credit Agreement provided a commitment of up to $50 million in secured revolving credit loans, including a swing loan and certain letters of credit (the "Revolving Credit Facility"). The Revolving Credit Agreement by its terms permitted borrowings (a) for working capital purposes and (b) subject to certain conditions, for corporate acquisitions. Borrowings under the Revolving Credit Agreement bore interest at the UBS Base Rate plus 1.5% or at an adjusted Eurodollar Rate plus 2.5%, which rates were subject to increase upon certain conditions. All borrowings under the Revolving Credit Agreement were subject to a borrowing base and mature no later than March 2, 1997. At April 14, 1995, $21.1 million was outstanding under the Revolving Credit Facility. On April 21, 1995, the Company replaced its Revolving Credit Agreement with a revised revolving facility (the "Amended and Restated Revolving Credit Agreement"). The Amended and Restated Revolving Credit Agreement is with National Bank of Canada, ("NBC") as agent and as lender, Heller Financial, Inc. and any other lenders thereafter parties thereto. The Amended and Restated Revolving Credit Agreement provides a commitment of up to $25 million in secured revolving credit loans, including certain letters of credit. The Amended and Restated Revolving Credit Agreement permits borrowings (a) to refinance the existing Revolving Credit Agreement, (b) for working capital needs and (c) issue standby letters of credit and documentary letters of credit. Borrowings under the Amended and Restated Revolving Credit Agreement bear interest at the NBC Base Rate plus 1.5% for the first year. Subsequent year's interest rates will be dependent upon the Company's earnings but will not exceed the NBC base rate plus 2.0%. All borrowings under the Amended and Restated Revolving Credit Agreement are subject to a borrowing base and mature no later than February 27, 1997, with the possibility of extending the maturity date to March 31, 1998 if the Company's Series A Senior Secured Floating Rate Notes due February 27, 1997, are extended or refinanced on terms acceptable to NBC. The obligations of the Company under the Senior Notes are secured by a pledge of substantially all present and future property, plant and equipment, trademarks, leaseholds and other assets of the Company, other than inventory, accounts and certain related collateral that is pledged to NBC under the Amended and Restated Revolving Credit Agreement. Holding has guaranteed the obligations of Homeland under the Senior Notes, and such guarantee is secured by Holding's pledge of 100% of the stock of Homeland. Commencing each year on and after June 1, 1993, Homeland must apply 80% of its Excess Cash Flow (as defined in the Senior Note Indenture), after accounting for reductions in amounts outstanding under the Amended and Restated Revolving Credit Agreement, to prepay the Senior Floating Rate Notes. Additionally, Homeland must apply net proceeds of asset dispositions (other than sales of inventory and certain other property in the ordinary course of business and certain other excepted dispositions) to prepay indebtedness under the Senior Notes and/or the Amended and Restated Revolving Credit Agreement. Working Capital, Cash Flow and Capital Expenditures. At December 31, 1994, the Company's working capital was $43.9 million or a current ratio of 1.65 to 1, compared to $53.6 million or 1.82 to 1 at January 1, 1994. The decrease in working capital in 1994 was due to the decrease in cash, the write off of certain inventory costs in connection with the restructuring, and an increase in sales tax payable. Cash flow from operations is used by the Company to support working capital needs and to reduce its debt level. The Company generated cash flow from operations of $.3 million in fiscal 1994, $13.0 million in fiscal 1993 and $11.2 million in fiscal 1992. The Company continues to review its cash flow to identify areas where the cash flow can be increased. Areas which are being reviewed include increasing inventory turnover levels, improving the collection of accounts receivable, and reducing the cash in the stores. Homeland made total capital expenditures (including capital leases) of approximately $6.9 million in fiscal 1994 compared to $10.4 million in fiscal 1993, $8.6 million in fiscal 1992, $23.2 million in fiscal 1991, and $32.8 million in fiscal 1990. Homeland expects to make total capital expenditures (including capital leases) of approximately $6.0 million in fiscal 1995, primarily for store remodels. The source of funds for the fiscal 1995 capital expenditures will be reinvestment of net proceeds generated from the AWG Transaction and the Amended and Restated Revolving Credit Facility, if needed. Other Liabilities. In fiscal 1994, the Company added $5.0 million to its existing accruals, in addition to its planned accrual of $4.7 million for 1994, for workers' compensation and general liability claims based upon newly available information and revised assumptions. The increase in the workers compensation and the general liability accruals is due to an increase in the actuarially projected ultimate costs of the self-insured plans reflecting increases in claims and related settlements. Recently-Issued Accounting Standards There are no recently issued accounting standards that effect the Company. Inflation/Deflation In recent years, deflation has not had a material impact upon the Company's operating results. Although the Company does not expect inflation or deflation to have a material impact in the future, there can be no assurance that the Company's business will not be affected by inflation or deflation in future periods. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements and notes thereto are included in this report following the signature pages. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names, ages, present positions and years of service (in the case of members of management) of the directors and management of Homeland:
Years with the Company and/or Age Position Safeway B. Charles Ames * 69 Chairman of the Board -- John A. Shields * 51 Vice Chairman of the Board -- James A. Demme* 54 President, Chief 1 Executive Officer and Director Mark S. Sellers * 43 Executive Vice President - 3 Finance, Treasurer, Chief Financial Officer and Secretary Jack M. Lotker 51 Senior Vice President - 7 Administration Steven M. Mason 40 Vice President - Marketing 25 Mary Mikkelson * 33 Chief Accounting Officer, 3 Assistant Treasurer, Assistant Secretary Alfred F. Fideline, Sr. 57 Vice President - Retail 38 Operations Prentess E. Alletag, Jr. 48 Vice President - Human 28 Resources Chester R. Misialek 65 Vice President - Warehousing 47 and Transportation Bernard S. Black 41 Director -- Richard C. Dresdale 39 Director -- Bernard Paroly 76 Director -- Andrall E. Pearson 69 Director -- Edward H. Meyer 68 Director -- Michael G. Babiarz 29 Director -- * Holding's Board of Directors is identical to that of Homeland. Mr. Ames serves as Holding's Chairman of the Board, Mr. Shields serves as Holding's Vice Chairman, Mr. Demme serves as Holding's President and Chief Executive Officer, Mr. Sellers as Executive Vice President - Finance, Treasurer, Chief Financial Officer and Secretary and Ms. Mikkelson as Chief Accounting Officer, Assistant Treasurer and Assistant Secretary. B. Charles Ames was elected as Chairman of the Board of Holding and Homeland in January 1991. Mr. Ames is a principal of CD&R and has been a director of the Company since January 1988. He is also a general partner of the general partner of C&D Fund IV. He was a limited partner of the general partner of C&D Fund III until October 1990, when he assigned his limited partnership interest to B. Charles Ames as Trustee of the trust created pursuant to a Declaration of Trust, dated July 25, 1982. From October 1987 to December 1990, Mr. Ames was a consultant to CD&R. From January 1988 to May 1990, Mr. Ames served as Chairman and Chief Executive Officer of The Uniroyal Goodrich Tire Company, a major tire manufacturer. From July 1983 to October 1987, Mr. Ames served as Chairman of the Board and Chief Executive Officer of Acme-Cleveland Corporation, a manufacturer of machine tools, telecommunication equipment and electrical and electronic controls, of which he was President and Chief Executive Officer from 1981 to 1983. Mr. Ames is a director of Diamond Shamrock R&M Inc., Warner Lambert Company, M.A. Hanna Company, The Progressive Corporation, Lexmark International, Inc. and its parent Lexmark Holding, Inc., and WESCO Distribution, Inc. and its parent CDW Holding Corporation. John A. Shields became a director of Homeland in May 1993 and in December 1993 he was elected Vice Chairman of the Board of Holding and Homeland. 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. James A. Demme became President, Chief Executive Officer and a director of the Company as of November 30, 1994. From 1992 to 1994, Mr. Demme served as Executive Vice President of Retail Operations of Scrivner, Inc. He was responsible for the operations of their 170 retail stores which had a total volume exceeding $2 billion. From 1991 to 1992, Mr. Demme served as Senior Vice President of Marketing of Scrivner, Inc. where he was responsible for restructuring and refocusing the merchandising department to retail orientation. From 1988 to 1991, Mr. Demme was President and Chief Operating Officer of Shaws Supermarkets, which was the fifteenth largest retail chain with sales of $1.7 billion. Mark S. Sellers became Executive Vice President - Finance, Chief Financial Officer, Treasurer and Secretary of the Company as of September 1, 1992. From 1984 to 1987, Mr. Sellers served as Senior Vice President and Chief Financial Officer of Sanger Harris, a division of Federated Department Stores. During this period, Sanger Harris merged with Foley's, Inc. and in 1987, Mr. Sellers was named Senior Vice President and Chief Financial Officer of Foley's, Inc. From 1988 to 1990, he was Executive Vice President, Chief Financial Officer and Chief Operating Officer of Marshall's, Inc., a division of Melville Corporation. From 1990 to 1992, he served R.H. Macy & Company as President and Chief Operating Officer of the Macy's South/Bullock's division and Vice Chairman and Chief Operating Officer of Macy's Northeast division and Vice Chairman and Chief Operating Officer of Macy's East division. Jack M. Lotker served as Vice President for Personnel at the Oroweat Food Company, Inc. from October 1978 until March 1984. In April 1984, Mr. Lotker became Vice President and Group Executive of Arnold Foods Company, Inc. where he remained until December 1986. In December 1986, Mr. Lotker became Vice President and General Manager of Best Foods Baking Group (a division of CPC International). Mr. Lotker left Best Foods in January 1988 and joined Homeland in February 1988 as Senior Vice President - Supply Operations. In 1993, he was appointed Senior Vice President - Administration. Steven M. Mason joined Safeway in 1970 and the Oklahoma Division in 1986. At the time of the Acquisition, he was serving as Special Projects Coordinator for the Oklahoma Division. In November 1987, he joined Homeland and in October 1988, he was appointed to the position of Vice President - Retail Operations. In October 1993, Mr. Mason was appointed to the position of Vice President - Marketing. Mary Mikkelson joined the Company in October 1992. In February 1993, she was appointed Chief Accounting Officer, Assistant Treasurer and Assistant Secretary. From 1988 to 1992, Ms. Mikkelson served as Audit Manager for Coopers & Lybrand. Alfred F. Fideline, Sr. joined Safeway in 1957. At the time of the Acquisition, he was serving as a District Manager of the Oklahoma Division. In November 1987, Mr. Fideline joined Homeland as a District Manager and in May 1994, he was appointed to the position of Vice President - Retail Operations. Prentess E. Alletag, Jr. joined the Oklahoma Division in October 1969, where, at the time of the Acquisition, he was serving as Human Resources and Public Affairs Manager. In November 1987, Mr. Alletag joined Homeland as Vice President - Human Resources. Chester R. Misialek joined the Oklahoma Division in May 1948, where, at the time of the Acquisition, he was serving as Distribution Center Manager. In November 1987, Mr. Misialek joined Homeland as Vice President - Warehousing and Transportation. Bernard S. Black is a Professor of Law at the Columbia Law School. He joined the Columbia law faculty in July, 1988. Professor Black served as counsel to Commissioner Joseph A. Grundfest of the Securities and Exchange Commission from January, 1987 through July, 1988. From 1983 to 1987, he practiced law in New York City, specializing in mergers and acquisitions and corporate and securities law. In September 1989, Professor Black became a director of Homeland. Richard C. Dresdale was designated a director of the Company in November 1987. He was Assistant Secretary of the Company from November 1987 until March 1994. He has been President of Fenway Partners, Inc., a private investment firm, since March 1, 1994. He was a professional employee of CD&R from June 1985 until his withdrawal from the firm on March 1, 1994. Mr. Dresdale holds directorships in Remington Arms Company, Inc., and its parent RACI Holding, Inc., Nu-kote International, Inc. and its parent Nu-kote Holding, Inc. He is a limited partner in the general partner of C&D Fund III. He was a limited partner in the general partner of C&D Fund IV until his withdrawal as a limited partner from such general partner effective March 1, 1994. Bernard Paroly served as Chairman and Chief Executive Officer of Pathmark Supermarkets from mid-1981 to July 1986. In November 1987, Mr. Paroly become a director of Homeland. Andrall E. Pearson is a director of the Company. He is a principal of CD&R. He is a limited partner of the general partner of C&D Fund IV. He was a Professor of Business Administration at the Graduate School of Business at Harvard University from 1985 until July 1993. From 1971 through 1985, Mr. Pearson was President and Chief Operating Officer of PepsiCo., Inc., a major soft drink producer. Mr. Pearson is a director of PepsiCo., Inc., May Department Stores Company, and The Travelers, Inc. (formerly Primerica Corporation). Edward H. Meyer became a director of Homeland in December 1992. He has served as Chairman, Chief Executive Officer and President of Grey Advertising, Inc. since 1956. Mr. Meyer is a director of May Department Stores Company, Bowne & Co., Inc., Harman International Industries, Inc., Ethan Allen Interiors, Inc., and director and trustee of 31 investment companies advised by Merrill Lynch Asset Management, Inc. or its affiliates. Michael G. Babiarz became a director of Homeland in January 1995. Mr. Babiarz has been a professional employee of CD&R since 1990. Changes in Management In addition to the change in the Chief Executive Officer, Mark Sellers, the Company's Chief Financial Officer will be resigning effective May 7, 1995, and Mary Mikkelson, the Company's Chief Accounting Officer will be resigning effective May 3, 1995. Larry Kordisch will become the Executive Vice President-Finance, Treasurer, Chief Financial Officer and Secretary. Mr. Kordisch was the Executive Vice President of Finance and Administration and the Chief Financial Officer of Scrivner, Inc. from August 1978 through 1994. Terry Marczewski will become the Chief Accounting Officer, Assistant Treasurer and Assistant Secretary. Mr. Marczewski was the Vice President and Controller of the Scrivner Group at Fleming Companies from July 1994 to April 1995. From 1981 to July 1994, Mr. Marczewski was the Vice President and Controller of Scrivner, Inc. ITEM 11. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation The following table provides certain summary information concerning compensation paid or accrued by the Company to or on behalf of the Company's Chief Executive Officer and each of the four other most highly compensated executive officers of the Company (hereinafter referred to as the "Named Executive Officers") for the fiscal years ended December 31, 1994, January 1, 1994, and January 2, 1993:
SUMMARY COMPENSATION TABLE Annual Compensation
Name and Other Principal Annual All Other Position Year Salary Bonus Compensation Compensation (4)(5) James A. Demme 1994 $ 11,538 (1) - - - President and Chief Executive Officer of the Company Max E. Raydon 1994 $193,154 (2) $153,000 (3) $31,295 Former President 1993 188,462 180,000 (3) 4,960 and Chief 1992 203,846 (6) 107,136 (3) 4,364 Executive Officer of the Company Mark S. Sellers 1994 $153,000 $130,050 $114,474 (8) $43,447 Executive Vice 1993 160,192 153,000 80,852 (8) 34,604 Pres. Finance, 1992 55,577 (7) 56,667 49,781 (8) - Treasurer, Chief Financial Officer and Secretary Jack M. Lotker 1994 $130,500 $110,925 (3) $ 7,826 Senior V. Pres. 1993 136,356 130,500 (3) 6,574 Administration 1992 147,789 (6) 60,168 (3) - Steven M. Mason 1994 $130,500 $110,925 (3) $ 8,963 Vice President - 1993 107,250 103,500 (3) 3,904 Marketing 1992 107,019 (6) 44,247 (3) 2,281 Chester R.Misialek 1994 $ 70,875 $ 64,883 (3) $ - Vice President - 1993 74,207 54,221 (3) - Warehousing and 1992 80,264 (6) 27,011 (3) - Transportation
(1) Mr. Demme joined the Company as President, Chief Executive Officer and a director as of November 30, 1994. (2) Mr. Raydon was President and Chief Executive Officer of the Company until his resignation on November 30, 1994. (3) 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. (4) All other compensation includes contributions to the Company's defined contribution plan on behalf of each of the Named Executive Officers to match 1993 and 1992 pre- tax elective deferral contributions (there was no match for 1994) (included under Salary) made by each to such plan, as follows: Max E. Raydon, $4,497; Jack M. Lotker, $4,497; and Steven M. Mason, $2,956. (5) 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 1994 are as follows: Max E. Raydon, $31,295; Mark S. Sellers, $38,972; Jack M. Lotker, $7,826; Steven M. Mason, $8,963; and Prentess E. Alletag, Jr., $4,467. (6) Salary in 1992 includes an extra week compared to fiscal years 1993 and 1994 (53 weeks versus 52 weeks). (7) Mr. Sellers joined the Company in September 1992. (8) Includes reimbursement of relocation expenses in the amount of $95,378 in 1994, $78,058 in 1993 and $49,781 in 1992. Directors who are not employees of the Company or otherwise affiliated with the Company (presently consisting of Messrs. Black, Paroly, Meyer, Dresdale and Shields) are paid annual retainers of $15,000 and meeting fees of $1,000 for each meeting of the board or any committee attended. Mr. John Bell, who was a director of the Company until his resignation in January 1995, also served as a consultant to the Company from time to time at the request of the Company. At such times as he provided such consulting services, Mr. Bell received $1,000 per day from the Company. During 1994, Mr. Bell received $36,000 from the Company for consulting fees and was also reimbursed for business expenses. Mr Shields also serves as a consultant to the Company from time to time at the request of CD&R. During 1994, Mr. Shields received $133,330 from CD&R for consulting fees for services provided to the Company. Employment Agreements In November 1994, the Company entered into an employment agreement with James A. Demme, the Company's President and Chief Executive Officer for an indefinite term. The Agreement provides a base annual salary of not less than $200,000 and entitles Mr. Demme to participate in the Company's Management Incentive Plan with a maximum annual bonus equal to 100% of base salary; provided that for calendar year 1995 Mr. Demme will receive a minimum bonus of $100,000. 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. If the agreement is terminated by Homeland for other than cause or disability prior to the third anniversary of the agreement or is terminated by Mr. Demme following the sale of at least 50% of the voting stock of the Company, the Company will continue to pay Mr. Demme his base salary for one year. On January 30, 1995, Homeland entered into a revised employment agreement with Mark S. Sellers, the Company's Executive Vice President-Finance, Chief Financial Officer, Treasurer and Secretary. The agreement is effective as of January 1, 1995 and expires on the thirtieth day following the closing of the AWG Transaction, unless terminated sooner due to death or disability. The agreement provides a base annual salary of not less than $170,000 and entitles Mr. Sellers to participate in the Management Incentive Plan established by Homeland including a pro rata bonus in 1995 based on the Company's performance. The agreement provides for reimbursement of all relocation expenses in connection with Mr. Sellers' move to Oklahoma including reimbursement of any loss incurred in connection with the sale of his previous home based on the total investment and expenses he had in the house not to exceed $271,613. The agreement provides for a retention payment of $195,000 within 10 business days after the date of expiration of the agreement. The agreement also provides that the Company will reimburse Mr. Sellers up to a maximum of $30,000 for all reasonable costs of moving his household goods from Oklahoma City and costs of selling his house in Oklahoma, subject to a reduction to the extent of any reimbursement received from other employment. In August 1994, the Company entered into a two-year employment agreement with Jack M. Lotker, the Company's Senior Vice President of Administration. The agreement provides a base annual salary of not less than $130,500, subject to increase from time to time at the discretion of the Board of Directors and authorizes reimbursement for certain business- related expenses. Under the agreement, Mr. Lotker is entitled to participate in the Management Incentive Plan established by Homeland. Mr. Lotker is also entitled to receive a special one-time non-recurring cash bonus in an amount to be determined pursuant to a formula based on the Company's stock price at the time of a transaction if a Trigger Event occurs on or prior to December 31, 1995 (or by February 28, 1996 if a definitive agreement is in place at December 31, 1995). If the agreement is terminated by Homeland for other than cause prior to a change of control or is terminated by Mr. Lotker for any reason prior to a change of control, Mr. Lotker is entitled to continue to receive his compensation until the first anniversary of such termination, subject to reduction to the extent of any compensation received from other employment. If the agreement is terminated, whether voluntary or involuntary, within 180 days following a change of control or a Trigger Event, Mr. Lotker is entitled to receive payment equal to one year's salary, plus a pro rata amount of the incentive compensation for the portion of the incentive year that precedes the date of termination, plus any amount forgone by Mr. Lotker under the 10% reduction in management salaries effected in June 1993, and would not be subject to any offset as a result or his receiving compensation from other employment. Furthermore, if Mr. Lotker is entitled to receive severance benefits as outlined or if his employment terminates due to his death or disability (as defined), Homeland will pay his relocation expenses from Oklahoma to any location in the continental United States and will reimburse him for any loss incurred on the sale of his current home following a reasonable effort to obtain a good sales price, subject to reduction to the extent of any compensation received from other employment. In August 1994, the Company entered into a two-year employment agreement, with both Steve Mason, the Company's Vice President of Marketing and Al Fideline, the Company's Vice President of Retail Operations. The agreements provide a base annual salary of not less than $130,500 and $80,000, respectively, subject to increase from time to time at the discretion of the Board of Directors and authorizes reimbursement for certain business-related expenses. Under the agreements, Messrs. Mason and Fideline are entitled to participate in the Management Incentive Plan established by Homeland. Messrs. Mason and Fideline are also entitled to receive a special one-time non-recurring cash bonus in an amount to be determined pursuant to a formula based on the Company's stock price at the time of a transaction if a Trigger Event occurs on or prior to December 31, 1995 (or by February 28, 1996 if a definitive agreement is in place at December 31, 1995). If the agreements are terminated by Homeland for other than cause prior to a change of control, Messrs. Mason and Fideline are each entitled to receive severance benefits in accordance with Homeland's generally applicable plans, policies or procedures, subject to any offset as a result of receiving compensation from other employment. If the agreements are terminated, whether voluntary or involuntary, within 180 days following a change of control or a Trigger Event, Messrs. Mason and Fideline are each entitled to receive payment equal to one year's salary, plus a pro rata amount of the incentive compensation for the portion of the incentive year that precedes the date of termination, plus any amount forgone by Messrs. Mason or Fideline under the 10% reduction in management salaries effected in June 1993, and would not be subject to any offset as a result of them receiving compensation from other employment. In December 1994, the Company entered into a settlement agreement with Max E. Raydon whereby his employment with the Company was terminated. In connection with the termination, Mr. Raydon received a lump sum amount of $600,000 and resigned as an officer and director of the Company. For a period of thirty-six months, the Company will continue to provide to Mr. Raydon the same medical, dental, vision, life and disability insurance and other welfare benefits as it provides to its executive officers. In March 1995, the Company repurchased 455,000 shares of Class A Common Stock of Holding from Mr. Raydon at $0.50 per share plus the issuance of a warrant for the same number of shares with an exercise price of $0.50. Management Incentive Plan Homeland maintains a Management Incentive Plan to provide incentive bonuses for members of its management and key employees. Bonuses are determined according to a formula based on both corporate, store and individual performance and accomplishments or other achievements and are paid only if minimum performance and/or accomplishment targets are reached. Minimum bonuses range from 0 to 100% of salary for officers (as set forth in the plan), including the Chief Executive Officer. Maximum bonus payouts range from 75% to 200% of salary for officers and up to 200% of salary for the Chief Executive Officer. Performance levels must significantly exceed target levels before the maximum bonuses will be paid. Under limited circumstances, individual bonus amounts can exceed these levels if approved by the Compensation Committee of the Board. Incentive bonuses paid to managers and supervisors vary according to their reporting and responsibility levels. The plan is administered by a committee consisting, unless otherwise determined by the Board of Directors, of members of the Board who are ineligible to participate in the plan. Incentive bonuses earned for certain highly compensated executive officers under the plan for performance during fiscal year 1994 are included in the Summary Compensation Table. Retirement Plan Homeland maintains a retirement plan in which all non-union employees, including members of management, participate. Under the plan, employees who retire at or after age 65 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). Service with Safeway prior to the Acquisition is credited for vesting purposes under the plan. Retirement benefits will also be payable upon early retirement beginning at age 55, at rates actuarially reduced from those payable at normal retirement. Benefits are paid in annuity form over the life of the employee or the joint lives of the employee and his or her spouse or other beneficiary. Under the plan, estimated annual benefits payable to the named executive officers of Homeland upon retirement at age 65, assuming no changes in covered compensation or the social security wage base, would be as follows: James A. Demme, $27,226; Max E. Raydon, $26,535; Mark S. Sellers, $62,026; Jack M. Lotker, $58,944; Steven M. Mason, $84,753; and Chester R. Misialek, $14,644. Compensation Committee Interlocks and Insider Participation Messrs. Ames, Paroly and Shields served on the Company's Compensation and Benefits Committee of the Board of Directors for the 1994 fiscal year. Mr. Ames, Chairman of the Board, is a principal of CD&R, the holder of an economic interest in the general partner of C&D Fund III and a general partner of the general partner of C&D Fund IV. See "Certain Relationships and Related Transactions". Mr. Shields serves as a consultant to the Company from time to time at the request of CD&R. During 1994, Mr. Shields received $133,330 from CD&R for consulting fees for services provided to the Company. Management Stock Purchases Shares of Common Stock purchased by members of management, including Named Executive Officers Max E. Raydon, Jack Lotker, Steven M. Mason, and Chester R. Misialek and key employees, (the "Management Investors"), directly and indirectly through an individual retirement account, are subject to certain transfer restrictions (including successive rights of first refusal on the part of Holding and C&D Fund III or, with respect to certain shares, C&D Fund IV) and repurchase rights (including successive rights by Holding and C&D Fund III or with respect to certain shares, C&D Fund IV, to purchase shares from Management Investors whose employment with Homeland terminates). In addition, the Management Investors have the right to require Holding to repurchase their shares upon the occurrence of certain events, such as a termination without "cause" (as defined) or death, retirement or permanent disability, subject to (a) there being no default under the Company's prior credit agreement with Manufacturers Hanover Trust Company, as agent and certain other banks (the "Prior Credit Agreement"), the Subordinated Note Indenture, any other financing or security agreement or document permitted under the Prior Credit Agreement or the Subordinated Note Indenture (including the Senior Note Indenture and the Revolving Credit Agreement), or certain other financing or security agreements or documents, (b) the repurchase not violating any such agreement or document or Holding's certificate of incorporation and (c) Holding having sufficient funds legally available for such repurchase under Delaware law. Holding has also agreed to use its best efforts to repurchase shares from any Management Investor who experiences certain unforeseen personal hardships, subject to the authorization of Holding's Board of Directors. During 1994, the Company exercised its repurchase rights to repurchase an aggregate of 106,000 shares of Common Stock at the fair market value as determined by the Board from Management Investors. The shares held by each Management Investor, directly and indirectly through an individual retirement account, are entitled to the benefits of and are bound by the obligations set forth in certain registration and participation agreements. See "Security Ownership of Certain Beneficial Owners and Management -- Registration and Participation Agreements." For information concerning the holdings of Common Stock as of April 14, 1995 by certain officers and directors, see "Security Ownership of Certain Beneficial Owners and Management -- Ownership of Certain Holders." The Common Stock sold to members of management and key employees has been accounted for as redeemable Common Stock. Homeland has made certain temporary loans which are due July 21, 1995, to certain members of management and key employees to enable such persons to make principal payments under loans to finance such persons' purchase of redeemable Common Stock. See "Certain Relationships and Related Transactions." On April 21, 1995, the Company made an offer to repurchase shares of its Common Stock owned by certain officers and employees of the Company at a cash purchase price of $0.50 per share, plus a warrant equal to the number of shares purchased with an exercise price of $0.50. However, such repurchases shall not exceed $600,000 in the aggregate (net of amounts to be repaid in respect of loans from the Company) and individual repurchases shall not exceed any outstanding loan balance that the officers or employees may have related to their purchase of Common Stock. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Ownership of Certain Holders Set forth below is information as of April 14, 1995, concerning certain holders of the currently outstanding shares of Common Stock (including Named Executive Officers, officers and directors of the Company and holders of 5% or more of the Common Stock). Shares Percent of Name of Beneficial Owner Beneficially Owned Class The Clayton & Dubilier Private Equity Fund III Limited Partnership, 270 Greenwich Avenue, Greenwich, CT 06830 11,700,000 34.1% The Clayton & Dubilier Private Equity Fund IV Limited Partnership, 270 Greenwich Avenue, Greenwich, CT 06830 13,153,089 38.4 B. Charles Ames (1)(2) 13,153,089 38.4 Joseph L. Rice, III (1)(3) 24,853,089 72.5 Alberto Cribiore (1)(3) 24,853,089 72.5 Donald J. Gogel (1) 13,153,089 38.4 Hubbard Howe (1) 13,153,089 38.4 James A. Demme -- -- Mark S. Sellers -- -- Jack M. Lotker 450,000 1.3 Steven M. Mason (4) 200,000 * Chester Misialek 200,000 * Alfred F. Fideline, Sr. 101,000 * Bernard S. Black (5) 70,000 * Bernard Paroly 50,000 * Richard C. Dresdale -- -- Andrall E. Pearson (2) -- -- Edward H. Meyer -- -- John A. Shields -- -- Michael G. Babiarz -- -- Officers and directors as a group (16 persons) (6)(7) 14,324,089 41.8 *Indicates less than 1% (1) Messrs. Ames, Rice, Cribiore, Gogel 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 and Howe each expressly disclaims such beneficial ownership of the shares owned by C&D Fund IV. Messrs. Ames, Rice, Cribiore, Gogel 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 and Howe is c/o Clayton, Dubilier & Rice, Inc., 126 East 56th Street, 25th Floor, New York, New York 10022. (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. Mr. Pearson is a limited partner in the general partner of C&D Fund IV, but does not share investment discretion with respect to securities held by C&D Fund IV. (3) Messrs. Rice and Cribiore may be deemed to share beneficial ownership of the shares owned of record by C&D Fund III by virtue of their status as general partners of the general partner of C&D Fund III, but Messrs. Rice and Cribiore each expressly disclaims such beneficial ownership of the shares owned by C&D Fund III. Messrs. Rice and Cribiore share investment and voting power with respect to securities owned by C&D Fund III. (4) Includes 27,900 shares held in Mr. Mason's individual retirement account. Shares held by officers in their respective individual retirement accounts ("IRA") are subject to a power of attorney authorizing Mr. Dresdale to instruct the trustee of the IRA to take certain actions with respect to the shares held in the IRA in accordance with the stock subscription agreements executed by such officers. (5) Includes 13,000 shares held in Mr. Black's individual retirement account. See note 4. (6) Includes shares owned by C&D Fund IV, over which Mr. Ames, a director of the Company, shares investment and voting control. See notes 1 and 2. (7) Includes 130,900 shares held by officers and directors in their respective individual retirement accounts. See note 4. Registration and Participation Agreements Holders of the 20,180,000 shares of Common Stock outstanding prior to the August 1990 private offering, net of 85,000 shares repurchased by the Company from former key employees (the "Existing Holders"), are entitled to the benefits of and are bound by the obligations set forth in a Registration and Participation Agreement, dated as of November 24, 1987 (the "1987 Registration and Participation Agreement"), among Holding, C&D Fund III and the other initial purchasers of Common Stock. Under the 1987 Registration and Participation Agreement, the holders of specified percentages of Common Stock may require the registration of such Common Stock, subject to certain limitations. Any number of such registrations may be requested, and Holding is required to bear all expenses in connection with the first three requests for registration. Prior to an initial public offering of Holding Common Stock, a demand for such registration can be made only by the holders of at least 40% of the Common Stock subject to the 1987 Registration and Participation Agreement (but not less than 3 million shares); thereafter, or at any time after November 24, 1994, such a demand may be made by the holders of at least 10% of the Common Stock subject to the Agreement (but not less than l.2 million shares). Holders of Common Stock also have the right to participate in any registered offering initiated by Holding, subject to certain conditions and limitations. In addition, the 1987 Registration and Participation Agreement entitles holders of Common Stock to participate proportionately in certain "qualifying sales" of Common Stock by C&D Fund III. Subject to certain qualifications, "qualifying sales" are sales by C&D Fund III of more than one million shares of Common Stock. Under the 1987 Registration and Participation Agreement, Holding must offer certain stockholders the right to purchase their pro rata share of Common Stock in connection with any proposed issuance of additional shares of Common Stock to C&D Fund III or any of its affiliates (other than persons who may be deemed affiliates solely by reason of being members of the management of the Company). Holders of the 15,000,000 shares of Common Stock purchased in the August 1990 private offering are entitled to the benefits of and are bound by the obligations set forth in the Registration and Participation Agreement dated as of August 13, 1990 (the "1990 Registration and Participation Agreement") among Holding, C&D Fund IV and those purchasers of such Common Stock (the "New Holders"). The registration rights are, however, expressly subordinate in nearly all respects to the registration rights granted to the Existing Holders with respect to the Common Stock that is covered by the 1987 Registration and Participation Agreement. The 1990 Registration and Participation Agreement provides, among other things, that New Holders of specified percentages of registrable Common Stock may initiate one or more registrations at Holding's expense, provided that the Existing Holders shall have the right to include their own shares of Common Stock in any such registration on a pro rata basis. In addition, if Holding proposes to register any equity securities, and certain conditions are met, New Holders will be entitled to include shares in the registration, provided that the Existing Holders shall have been given the opportunity to include all of their shares in such offering. The 1990 Registration and Participation Agreement does not entitle the New Holders to participate in sales of Common Stock by C&D Fund IV, but does give each New Holder the right to be offered additional shares of Common Stock if additional shares are proposed to be issued to C&D Fund IV or its affiliates. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company's largest stockholders, C&D Fund III and C&D Fund IV, are private investment funds managed by CD&R. Amounts contributed to C&D Fund III and C&D Fund IV by the limited partners thereof are invested at the discretion of the general partner in the equity of corporations organized for the purpose of carrying out leveraged acquisitions involving the participation of management, or, in the case of C&D Fund IV, in corporations where the infusion of capital coupled with the provision of managerial assistance by CD&R can be expected to generate returns on investments comparable to returns historically achieved in leveraged buy-out transactions. The general partner of C&D Fund III is Clayton & Dubilier Associates III Limited Partnership, a Connecticut limited partnership ("Associates III"). The general partner of C&D Fund IV is Clayton & Dubilier Associates IV Limited Partnership, a Connecticut limited partnership ("Associates IV"). B. Charles Ames, a principal of CD&R, a holder of an economic interest in Associates III and a general partner of Associates IV, also serves as Chairman of the Board of the Company. Andrall E. Pearson, a principal of CD&R and director of the Company, is a limited partner of Associates IV. Michael G. Babiarz, a director of the company, is a professional employee of CD&R. Richard C. Dresdale, a director of the Company, is a limited partner of Associates III. He was a professional employee of CD&R and was a limited partner of Associates IV until his withdrawal from CD&R and Associates IV effective March 1, 1994. He retains an economic interest in the investments in the Company by C&D Fund IV. CD&R receives an annual fee for management and financial consulting services provided to the Company and reimbursement of certain expenses. The consulting fees paid to CD&R were $150,000 in 1994 and $200,000 in each of the years 1992 and 1993. CD&R, C&D Fund III and the Company entered into an Indemnification Agreement on August 14, 1990, pursuant to which the Company agreed, subject to any applicable restrictions in the Prior Credit Agreement and the Subordinated Note Indenture, to indemnify CD&R, C&D Fund III, Associates III and their respective directors, officers, partners, employees, agents and controlling persons against certain liabilities arising under the federal securities laws and certain other claims and liabilities. CD&R, C&D Fund III, C&D Fund IV and the Company entered into a separate Indemnification Agreement, dated as of March 4, 1992, pursuant to which the Company agreed, subject to any applicable restrictions in the Senior Note Indenture, the Revolving Credit Agreement, the Subordinated Note Indenture, the 1987 Registration and Participation Agreement, and the 1990 Registration and Participation Agreement, to indemnify CD&R, C&D Fund III, C&D Fund IV, Associates III, Associates IV and their respective directors, officers, partners, employees, agents and controlling persons against certain liabilities arising under the federal securities laws and certain other claims and liabilities. Homeland has made temporary loans in 1993 and 1994 to certain members of management, in a maximum principal amount of $1,076,506, to enable such persons to make principal payments under loans from a third-party financial institution, which third-party loans were used solely to finance such persons' purchase of redeemable Common Stock of Holding. Such temporary loans are due July 21, 1995, and bear interest at a variable rate equal to the Company's Base Rate as determined by the Revolving Credit Agreement plus a margin of one percent per annum, and in any event no less than 11.5%. At April 14, 1995, $731,554 in aggregate principal amount of such loans was outstanding. In addition, the Company made a temporary loan in the aggregate principal amount of $200,000 to Mark S. Sellers, Executive Vice President-Finance, Treasurer, Chief Financial Officer and Secretary of the Company in connection with his relocation to Oklahoma and purchase of a new home. The loan bears interest at 8.3% and is to be repaid with the equity in his former home. At April 14, 1995, $23,446 of this loan remains outstanding. On April 21, 1995, the Company made an offer to repurchase shares of its Common Stock owned by certain officers and employees of the Company at a cash purchase price of $0.50 per share, plus a warrant equal to the number of shares purchased with an exercise price of $0.50. However, such repurchases shall not exceed $600,000 in the aggregate (net of amounts to be repaid in respect of loans from the Company) and individual repurchases shall not exceed any outstanding loan balance that the officers or employees may have related to their purchase of Common Stock. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as part of this Report: (a) Financial Statements and Financial Statement Schedules. 1. Financial Statements. The Company's financial statements are included in this report following the signature pages. See Index to Financial Statements and Financial Statement Schedules on page F-1. 2. Financial Statement Schedules. The Company's Financial Statement Schedules are included in this report following the signature pages. See Index to Financial Statements and Financial Statement Schedules on page F-1. 3. Exhibits. See attached Exhibit Index on page E-1. (b) Reports on Form 8-K. A report on Form 8-K was filed during the last quarter of the period covered by this Report disclosing the Company entering into a letter of intent with AWG to sell certain of its assets. The Form 8-K was dated November 29, 1994. SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT The Company has previously furnished to the Commission its proxy material in connection with the 1994 annual meeting of security holders. No separate annual report was distributed to security holders covering the Company's last fiscal year. The Company intends to furnish to its security holders proxy material in connection with the 1995 annual meeting of security holders. The Company will furnish copies of such material to the Commission when it is sent to security holders. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOMELAND HOLDING CORPORATION Date: April 24, 1995 By: James A. Demme James A. Demme, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date B. Charles Ames Chairman of the Board April 21, 1995 B. Charles Ames John A. Shields Vice Chairman of the Board April 21, 1995 John A. Shields James A. Demme President, Chief Executive April 24, 1995 James A. Demme Officer and Director (Principal Executive Officer) Mark S. Sellers Executive Vice President/ April 24, 1995 Mark S. Sellers Finance, Treasurer, C.F.O. and Secretary (Principal Financial Officer) Mary Mikkelson Chief Accounting Officer, April 24, 1995 Mary Mikkelson Assistant Treasurer and Assistant Secretary (Principal Accounting Officer) Signature Title Date Michael G. Babiarz Director April 21, 1995 Michael G. Babiarz Director April , 1995 Bernard S. Black Richard C. Dresdale Director April 20, 1995 Richard C. Dresdale Bernard Paroly Director April 20, 1995 Bernard Paroly Andrall E. Pearson Director April 19, 1995 Andrall E. Pearson Edward H. Meyer Director April 20, 1995 Edward H. Meyer INDEX TO FINANCIAL STATEMENTS HOMELAND HOLDING CORPORATION Consolidated Financial Statements Report of Independent Accountants . . . . . . . . . . . F-2 Consolidated Balance Sheets as of December 31, 1994 and January 1, 1994 . . . . . . . . . . . . . . . . . F-3 Consolidated Statements of Operations for the 52 weeks ended December 31, 1994 and January 1, 1994, and the 53 weeks ended January 2, 1993 . . . . . . . . F-5 Consolidated Statements of Stockholders' Equity for the 52 weeks ended December 31, 1994 and January 1, 1994, and the 53 weeks ended January 2, 1993 . . . . . F-6 Consolidated Statements of Cash Flows for the 52 weeks ended December 31, 1994 and January 1, 1994, and the 53 weeks ended January 2, 1993 . . .. . . F-7 Notes to Consolidated Financial Statements . . . . . . . F-9 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Homeland Holding Corporation We have audited the accompanying consolidated financial statements of Homeland Holding Corporation and Subsidiary listed in the index on page F-1 of this Form 10-K. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 15, subsequent to the year ended December 31, 1994, the Company completed the sale of its warehouse and distribution center and 29 retail stores to Associated Wholesale Grocers, Inc. In connection with this transaction, the Company executed a Supplemental Indenture, incorporating certain amendments to its Senior Note Indenture, and replaced its Revolving Credit Agreement. 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 31, 1994 and January 1, 1994, and the consolidated results of their operations and their cash flows for the 52 weeks ended December 31, 1994 and January 1, 1994, and the 53 weeks ended January 2, 1993, in conformity with generally accepted accounting principles. Coopers & Lybrand New York, New York March 24, 1995, except as to the information presented in Note 15, for which the date is April 21, 1995 HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) ASSETS (Note 3)
December 31, January 1, 1994 1994 ------------ ---------- Current assets: Cash and cash equivalents (Notes 2 and 4) $ 339 $ 2,194 Receivables, net of allowance for uncollectible accounts of $2,690 and $2,034 12,235 15,828 Receivable for taxes (Note 5) 2,270 - Inventories 89,850 93,145 Prepaid expenses and other current assets 6,384 3,697 Deferred tax assets (Note 5) - 3,997 -------- -------- Total current assets 111,078 118,861 Property, plant and equipment: Land 10,997 12,486 Buildings 29,276 30,335 Fixtures and equipment 61,360 60,043 Land and leasehold improvements 32,410 31,045 Software 17,876 17,410 Leased assets under capital leases (Note 8) 46,015 51,321 Construction in progress 2,048 2,564 -------- -------- 199,982 205,204 Less accumulated depreciation and amortization 82,603 67,509 -------- -------- Net property, plant and equipment 117,379 137,695 Excess of purchase price over fair value of net assets acquired, net of amortization of $830 and $717 2,475 3,815 Other assets and deferred charges 8,202 13,919 -------- -------- Total assets $239,134 $274,290 ======== ======== Continued
The accompanying notes are an integral part of these consolidated financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS, Continued (In thousands, except share and per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, January 1, 1994 1994 ------------ ---------- Current liabilities: Accounts payable - trade $ 30,317 $ 29,485 Salaries and wages 1,925 2,746 Taxes 6,492 4,724 Accrued interest payable 3,313 3,366 Other current liabilities 15,050 15,656 Current portion of long-term debt (Notes 3, 4 and 15) 2,250 6,000 Current portion of obligations under capital leases (Note 8) 7,828 3,334 -------- -------- Total current liabilities 67,175 65,311 Long-term obligations: Long-term debt (Notes 3, 4 and 15) 145,000 135,750 Obligations under capital leases (Note 8) 11,472 17,807 Other noncurrent liabilities 5,176 9,709 Noncurrent restructuring reserve (Note 14) 5,005 - -------- -------- Total long-term obligations 166,653 163,266 Commitments and contingencies (Notes 7 and 11) - - Redeemable common stock, Class A, $.01 par value, 3,864,211 shares at December 31, 1994 and 3,970,211 shares at January 1, 1994, at redemption value (Notes 9 and 10) 1,235 8,853 Stockholders' equity: Common stock (Note 9): Class A, $.01 par value, authorized - 40,500,000 shares, issued - 31,604,989 shares at December 31, 1994 and 31,498,989 at January 1, 1994, outstanding - 30,878,989 shares 316 315 Additional paid-in capital 53,896 46,358 Accumulated deficit (48,398) (7,753) Minimum pension liability adjustment (Note 7) - (572) Treasury stock, 726,000 shares at December 31, 1994 and 620,000 shares at January 1, 1994, at cost (1,743) (1,488) -------- -------- Total stockholders' equity 4,071 36,860 -------- -------- Total liabilities and stockholders' equity $239,134 $274,290 ======== ========
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 53 weeks ended ended ended December 31, January 1, January 2, 1994 1994 1993 ------------ ---------- ---------- Sales, net $785,121 $810,967 $830,964 Cost of sales 588,405 603,220 609,906 -------- -------- -------- Gross profit 196,716 207,747 221,058 Selling and administrative expenses 193,643 190,483 199,547 Operational restructuring costs (Note 14) 23,205 - - -------- -------- -------- Operating profit (loss) (20,132) 17,264 21,511 Gain on sale of plants - 2,618 - Interest expense (18,067) (18,928) (24,346) -------- -------- -------- Income (loss) before income tax benefit (provision) and extraordinary items (38,199) 954 (2,835) Income tax benefit (provision) (Note 5) (2,446) 3,252 (982) -------- -------- -------- Income (loss) before extraordinary items (40,645) 4,206 (3,817) Extraordinary items, net of applicable income taxes of $0 and $219 (Note 3) - (3,924) (877) -------- -------- -------- Net income (loss) (40,645) 282 (4,694) Reduction in redemption value - redeemable common stock 7,284 - - -------- -------- -------- Net income (loss) available to common stockholders $(33,361) $ 282 $ (4,694) ======== ======== ======== Income (loss) before extraordinary items per common share $ (.96) $ .12 $ (.11) Extraordinary items per common share - (.11) (.02) -------- -------- -------- Net income (loss) per common share $ (.96) $ .01 $ (.13) ======== ======== ======== Weighted average shares outstanding 34,752,527 34,946,460 35,089,486 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. /TABLE HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share and per share amounts)
Minimum Class A Additional Pension Total Common Stock Paid-in Accumulated Liability Treasury Stock Stockholders' ------------------ -------------- Shares Amount Capital Deficit Adjustment Shares Amount Equity ------ ------ --------- --------- ---------- ------ ------------------ Balance, December 28, 1991 31,063,989 $311 $45,314 $ (3,341) $ - 185,000 $ (440) $41,844 Purchase of treasury stock 301,000 3 722 - - 301,000 (725) - Net loss - - - (4,694) - - - (4,694) ---------- ---- ------- -------- ----- ------- ------- ------- 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, 199431,604,989 $316 $53,896 $(48,398) $ - 726,000 $(1,743) $ 4,071 ========== ==== ======= ======== ===== ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. /TABLE HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts)
52 weeks 52 weeks 53 weeks ended ended ended December 31, January 1, January 2, 1994 1994 1993 ------------ ---------- ---------- Cash flows from operating activities: Net income (loss) $(40,645) $ 282 $(4,694) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 17,458 16,797 16,135 Amortization of financing costs 1,443 1,484 1,858 (Gain) loss on disposal of assets 384 (2,284) 1,660 Amortization of beneficial interest in operating leases 258 261 377 Impairment of assets 14,325 744 - Discount on note payable - - (500) Write-off of financing costs on long-term debt retired - 1,148 371 (Increase) decrease in deferred tax assets 3,997 (3,997) - Provision for losses on accounts receivable 1,213 75 1,331 Change in assets and liabilities: (Increase) decrease in receivables 2,301 (1,131) (1,989) (Increase) in receivable for taxes (2,270) - - (Increase) decrease in inventories 2,097 1,236 (2,645) (Increase) decrease in prepaid expenses and other current assets (2,687) (862) 382 (Increase) decrease in other assets and deferred charges 103 (238) (10,510) Increase (decrease) in accounts payable -trade 832 (5,464) 1,656 Decrease in salaries and wages (821) (1,994) (360) Increase (decrease) in taxes 1,768 (3,629) 861 Increase (decrease) in accrued interest payable (53) (1,102) 1,538 Increase (decrease) in other current liabilities (34) 7,371 2,933 Increase in noncurrent restructuring reserve 5,005 - - Increase (decrease) in other noncurrent liabilities (4,417) 4,301 2,830 ------- ------- ------ Net cash provided by operating activities 257 12,998 11,234 ------- ------- ------- Cash flows from investing activities: Capital expenditures (5,386) (7,129) (4,987) Cash received from sale of assets 1,363 3,991 1,756 ------- ------- ------- Net cash used in investing activities (4,023) (3,138) (3,231) ------- ------ ------- Cash flows from financing activities: Borrowings under senior secured floating rate notes - - 45,000 Borrowings under senior secured fixed rate notes - - 75,000 Payments on subordinated debt - (47,750) (12,250) Payments on term notes - - (59,700) Borrowings under revolving credit loans 66,000 100,000 4,000 Payments under revolving credit loans (56,000) (85,000) (34,500) Net borrowings (payments) under swing loans (3,500) 5,000 - Principal payments under notes payable (1,000) (1,250) (1,500) Principal payments under capital lease obligations (3,334) (4,198) (2,519) Payments to acquire treasury stock (255) (323) (725) ------- ------- ------- Net cash provided by (used in) financing activities 1,911 (33,521) 12,806 ------- ------- ------- Continued /TABLE HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued (In thousands, except share and per share amounts)
52 weeks 52 weeks 53 weeks ended ended ended December 31, January 1, January 2, 1994 1994 1993 ----------- ---------- ---------- Net increase (decrease) in cash and cash equivalents $(1,855) $(23,661) $20,809 Cash and cash equivalents at beginning of period 2,194 25,855 5,046 -------- -------- ------- Cash and cash equivalents at end of period $ 339 $ 2,194 $25,855 ======== ======== ======= Supplemental information: Cash paid during the period for interest $ 16,642 $ 18,738 $20,411 ======== ======== ======= Cash paid during the period for income taxes $ 236 $ 890 $ 1,439 ======== ======== ======= Supplemental schedule of noncash investing activities: Capital lease obligations assumed $ 1,493 $ 3,218 $ 3,594 ======== ======== ======= Capital lease obligations retired $ - $ 31 $ 754 ======== ======== =======
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 and Basis of Presentation: 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 Stores, Incorporated. 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 31, January 1, 1994 1994 ------------ ---------- Homeland Stockholder's equity: Common stock, $.01 par value, authorized, issued and outstanding 100 shares 1 1 Additional paid-in capital 53,713 54,047 Accumulated deficit (48,408) (7,763) Minimum pension liability adjustment - (572) ------- ------- Total Homeland stockholder's equity $ 5,306 $45,713 ======= =======
2. Summary of Significant Accounting Policies: Fiscal year - The Company has adopted a fiscal year which ends on the Saturday nearest December 31. Basis of consolidation - The consolidated financial statements include the accounts of Homeland Holding Corporation and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. 2. Summary of Significant Accounting Policies, continued: Revenue recognition - The Company recognizes revenue when its retail or wholesale divisions distribute groceries and related items to its customers. Concentrations of credit 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 and wholesale customers within the region and receivables from vendors throughout the country. Restricted Cash - At December 31, 1994, the Company had $467 of cash in an escrow account at United States Trust Company of New York. The cash is restricted for reinvestment in capital expenditures within 180 days of being deposited in the account or must be used to permanently pay down the Senior Notes (as subsequently defined under Note 3). Inventories - Inventories are stated at the lower of cost or market. Cost is determined on a first-in first-out basis primarily using the retail method. Property, plant and equipment - Property, plant and equipment obtained at acquisition are stated at appraised fair market value as of that date; whereas all subsequently acquired property, plant and equipment are stated at cost or, in the case of leased assets under capital leases, at 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 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 2. Summary of Significant Accounting Policies, continued: 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. Excess of purchase price over fair value of net assets acquired - The excess of purchase price over fair value of net assets acquired is being amortized on a straight-line basis over 40 years. The net remaining balance of the excess of purchase price over fair value of net assets acquired is assessed periodically based on the estimated recoverable value related to the assets acquired. Approximately $250 was written off during 1994 as a result of this assessment. The net amount of the excess of purchase price over fair value of net assets acquired as of December 31, 1994, related to the 29 stores and stores to be closed in 1995 has been written off in 1994 as part of the operational restructuring costs (see Note 14). 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. Interest costs of $35, $44, and $195 were capitalized in 1994, 1993 and 1992, respectively. 2. Summary of Significant Accounting Policies, continued: Pre-opening costs - Costs associated with the opening of new stores are expensed in the year the stores are opened. Advertising Costs - Costs of advertising are expensed as incurred. Gross advertising costs for 1994, 1993 and 1992, respectively, were $13,615, $14,100 and $14,531. Income taxes - The Company accounts for income taxes on the liability method as required by Statement of Financial Accounting Standards No. 109. Accordingly, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. 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. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities, net of applicable valuation allowances. 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. 112, "Accounting for Postemployment Benefits" in November 1992. The adoption of this new standard in 1994, as required, did not have a material effect on the Company's consolidated results of operations or financial position. Reclassification - Certain reclassifications have been made to the 1993 consolidated financial statements to conform with the 1994 presentations. 3. Long-term Debt: Prior to a March 1992 refinancing, the Company's long-term debt consisted of borrowings under a credit agreement ("Prior Credit Agreement") from a group of banks that included term notes and revolving credit loans (including a swing loan and certain letters of credit), subordinated notes, and a note payable issued as a result of an acquisition of certain stores. 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 amounts outstanding under the Prior Credit Agreement, to repurchase $12,250 in aggregate principal amount of the subordinated notes at a purchase price of 110% of the principal amount and to make a prepayment of $1,500 on the note payable. In conjunction with the prepayment on the note payable, the Company issued a new $3,000 note. In October and November 1992, the Company exchanged a portion of its Series D Senior Secured Floating Rate Notes due 1997 and its Series C Senior Secured Fixed Rate Notes due 1999 (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 and $12,000 of the Old Floating Rate Notes remain outstanding. Also in March 1992, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") with Union Bank of Switzerland, New York Branch ("UBS"), as agent and as lender, and any other lenders and other financial institutions thereafter parties thereto. As a result of the Company's redemption of the remaining outstanding Subordinated Notes on March 1, 1993, and satisfying certain other conditions, the Revolving Credit Agreement provides a commitment of up to $50,000 in secured revolving credit loans, including a swing loan and certain letters of credit. 3. Long-term Debt, continued: 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 5.8% of the outstanding principal amount) specified in the subordinated notes, together with accrued interest. The Company borrowed $32,000 under its Revolving Credit Agreement and used $21,000 of the remaining net proceeds from the issuance of the Old Notes to redeem the Subordinated Notes. As a result of the March 1993 redemption and the March 1992 refinancing, the Company incurred the following extraordinary gains and losses:
1993 1992 ---- ---- Premium on redemption/repurchase of the Company's 15.5% Subordinated Notes due November 1, 1997 $(2,776) $(1,225) Unamortized financing costs relating to the redemption/ repurchase of the Company's 15.5% Subordinated Notes due November 1, 1997 (1,148) (371) Discount for prepayment of $1,500 on the $5,000 note payable - 500 ------- ------- Extraordinary loss before income tax effect (3,924) (1,096) Applicable income tax - 219 ------- ------- Net extraordinary loss $(3,924) $ (877) ======= =======
Long-term debt at year end consists of: December 31, January 1, 1994 1994 ------------ ---------- Notes payable* $ 750 $ 1,750 Senior Notes Series A** 12,000 12,000 Senior Notes Series D** 33,000 33,000 Senior Notes Series C** 75,000 75,000 Revolving credit loans*** 26,500 20,000 -------- -------- 147,250 141,750 Less current portion 2,250 6,000 -------- -------- Long-term debt due after one year $145,000 $135,750 ======== ======== /TABLE 3.Long-term Debt, continued: * The Company executed a note payable in 1991 for the purchase of fixed assets related to the acquisition of five stores. The $3,000 note issued in connection with the refinancing is due in annual installments and matures on March 1, 1995. Interest payments are due quarterly at an annual rate of 9%. The note is collateralized by the assets purchased. ** 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 (9.0625% at December 31, 1994). The Series C Senior Secured Fixed Rate Notes mature on March 1, 1999. Interest payments are due semiannually at an annual rate of 11.75%. 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 adjusted consolidated net worth and the maintenance of a consolidated fixed charge coverage ratio, both as defined, limit the incurrence of additional indebtedness, provide 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 limit the payment of dividends. At December 31, 1994, the Company was not in compliance with the adjusted consolidated net worth and the fixed charge coverage ratio covenants. The Senior Noteholders waived compliance with these covenants through June 30, 1995. See Note 15--Subsequent Events. *** The Revolving Credit Agreement with UBS provides a commitment up to $50,000 in revolving credit loans (including a swing loan and certain letters of credit). As of December 31, 1994, $26,500 was outstanding under the agreement, including $1,500 borrowed under the swing loan. Borrowings under the Revolving Credit Agreement bear interest at the UBS Base Rate plus 1.5% or at an adjusted Eurodollar Rate plus 2.5%, which rates are subject to increase upon certain conditions. The rates in effect at December 31, 1994 were 10.0% for borrowings under the swing loan and 8.875% for Eurodollar borrowings. Commitment fees paid in 1994 and 1993 for the unused portion of the Revolving Credit Agreement were $111 and $142, respectively. Eurodollar borrowings 3. Long-term Debt, continued: outstanding at December 31, 1994 were $20,000. The swing loan is due on demand and all borrowings under the Revolving Credit Agreement mature no later than February 25, 1997. The Revolving Credit Agreement, among other things, requires the maintenance of EBITDA, leverage ratio, coverage ratio and net worth, all as defined, and limits the Company's net capital expenditures and incurrence of additional indebtedness and limits the payment of dividends. The notes are collateralized by accounts receivable and inventories of the Company. At December 31, 1994, the Company was not in compliance with the EBITDA, leverage ratio, coverage ratio and net worth covenants. The lenders waived compliance with these covenants through June 30, 1995. See Note 15--Subsequent Events. Aggregate maturities of long-term debt outstanding at December 31, 1994 are as follows: 1995 $ 2,250 1996 - 1997 70,000 1998 - 1999 75,000 -------- $147,250 ======== 4. Fair Value of Financial Instruments: The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments". The estimated fair value amounts have 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 31, 1994 and January 1, 1994 are as follows: 4. Fair Value of Financial Instruments, continued:
December 31, 1994 January 1, 1994 ----------------- --------------- Carrying Fair Carrying Fair Amount Value Amount Value ------- ------ ------- ------ Assets: Cash and Cash Equivalents $339 $339 $2,194 $2,194 Liabilities: Long-Term Debt 147,250 141,250 141,750 147,750
Cash and cash equivalents - The carrying amounts of this item is a reasonable estimate of its fair value due to its short- term nature. 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 debt 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. 5. Income Taxes: The components of the income tax benefit (provision) for fiscal 1994, 1993 and 1992 were as follows:
1994 1993 1992 ---- ---- ---- Federal: Current - AMT $ 1,551 $ (36) $(763) Deferred (3,997) 3,288 - ------- ------ ----- Total income tax benefit (provision) $(2,446) $3,252 $(763) ======= ====== =====
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:
1994 1993 1992 ---- ---- ---- Federal income tax at statutory rate $13,370 $1,010 $1,337 Net operating loss generated (13,234) (967) (1,289) AMT in excess of regular tax - (36) (763) AMT loss carryback 1,551 - - (Increase) reversal of prior valuation allowance (3,997) 3,288 - Other - net (136) (43) (48) ------- ------ ------ Total income tax benefit (provision) $(2,446) $3,252 $ (763) ======= ====== ====== /TABLE 5. Income Taxes, continued: The Company has an income tax receivable amounting to $1,551, 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. The components of deferred tax assets and deferred tax liabilities are as follows:
December 31, January 1, 1994 1994 ------------ ---------- Current assets (liabilities): Allowance for uncollectible receivables $ 942 $ 692 Termination of Borden supply agreement 789 - Operational restructuring reserve 5,918 - Other (800) (501) -------- ------- Net current deferred tax assets 6,849 191 -------- ------- Noncurrent assets (liabilities): Property, plant and equipment (4,577) (4,635) Gain on sale of plants - 1,327 Self-insurance reserves 3,183 3,667 Operational restructuring reserve 1,745 - Net operating loss carryforward 7,048 1,581 AMT credit carryforwards 507 1,835 Other 1,320 31 -------- ------- Net noncurrent deferred tax assets 9,226 3,806 -------- ------- Total net deferred assets 16,075 3,997 Valuation allowance (16,075) - -------- ------- Net deferred tax assets $ - $ 3,997 ======== =======
A valuation allowance was established in the fourth quarter of fiscal 1994 to entirely offset the net deferred tax assets due to the uncertainty of realizing the future tax benefits, of which $3,997 related to net deferred tax assets carried forward from the prior year. 5. Income Taxes, continued: At December 31, 1994, the Company had the following operating loss and tax credit carryforwards available for tax purposes:
Expiration Amount Dates ------ ----- Federal regular tax net operating loss carryforwards $20,139 2002-2009 Federal AMT credit carryforwards against regular tax $ 507 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. The IRS Appeals Office is currently in the process of reviewing the Company's protest. The major proposed adjustment involves the allocation of the initial purchase price of the Company to inventory. The Company believes that it has meritorious legal defenses to the proposed adjustments and intends to vigorously protest the assessment. Management has analyzed all of the matters and has provided for amounts which it currently believes are adequate. 6. Incentive Compensation Plan: The Company has bonus arrangements for store management and other key management personnel. During 1994, 1993, and 1992, approximately $1,939, $2,900, and $2,319, respectively, was charged to costs and expenses for such bonuses. 7. 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 7. Retirement Plans, continued: Employee Retirement Income Security Act of 1974, but not in excess of the maximum deductible limit. Assets were held in short-term investment mutual funds during 1994 and 1993. 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 January 1, 1994 representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension liability. The additional liability was offset by intangible assets to the extent of previously unrecognized prior service cost. Amounts in excess of previously unrecognized prior service cost were recorded as a $572 reduction of stockholders' equity in 1993. During 1994, additional contributions were made to the plan resulting in the fair value of plan assets being in excess of the accumulated benefit obligation. The entry made in 1993 to stockholders' equity was reversed in 1994. Net pension cost consists of the following: 1994 1993 1992 ---- ---- ---- Service cost $709 $663 $659 Interest cost 366 293 222 Loss (return) on assets 63 (319) 17 Net amortization and deferral (419) 43 (230) ---- ---- ---- Net periodic pension cost $719 $680 $668 ==== ==== ==== The funded status of the plan and the amounts recognized in the Company's balance sheet at December 31, 1994 and January 1, 1994 consist of the following:
1994 1993 ----- ---- Actuarial present value of benefit obligations: Vested benefits $(4,499) $(4,102) Non-vested benefits (151) (156) ------- ------- Accumulated benefit obligations $(4,650) $(4,258) ======= ======= 7. Retirement Plans, continued: 1994 1993 ---- ----- Projected benefit obligations $(5,441) $(5,159) Plan assets at fair value 4,960 3,847 ------- ------- Projected benefit obligations in excess of plan assets (481) (1,312) Unrecognized prior service cost (144) (90) Unrecognized net loss from past experience different from that assumed and changes in actuarial assumptions 1,340 1,564 Adjustment to recognize minimum liability - (572) ------- ------- Net pension asset (liability) recognized in statement of financial position $ 715 $ (410) ======= =======
For 1994, a discount rate of 7 1/2% was used for the determination of net periodic pension cost and 9% for the determination of plan disclosure at the end of the plan year. For 1993, a discount rate of 7 1/2% was used. A long term rate of return of 9% was used for both 1994 and 1993. For 1994, assumed annual rates of future compensation increases ranging from 3 1/2% to 5 1/2% (graded by age) were used for the determination of net periodic pension cost and rates ranging from 5% to 7% (graded by age) were used for the plan disclosures at the end of the plan year. For 1993, assumed annual rates of future compensation increases ranging from 3 1/2% to 5 1/2% (graded by age) were used. The prior service cost is being amortized on a straight-line basis over approximately 13 years. 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 1994, 1993 and 1992 were $3,309, $3,565, and $3,766, respectively. 7. Retirement Plans, continued: 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 1994, 1993, and 1992, was $0, $425, and $616, respectively. 8. 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 31, January 1, 1994 1994 ------------ ---------- Buildings $21,616 $24,438 Equipment 8,340 9,803 Beneficial interest in capital leases 16,059 17,080 ------- ------- 46,015 51,321 Accumulated amortization 21,010 17,054 ------- ------- Net leased assets $25,005 $34,267 ======= =======
Future minimum lease payments under capital leases and noncancellable operating leases as of December 31, 1994 are as follows: 8. Leases, continued:
Capital Operating Fiscal Year Leases Leases ------------- -------- --------- 1995 $ 9,084 $ 9,312 1996 4,134 8,833 1997 2,846 8,304 1998 2,136 5,829 1999 1,707 5,482 Thereafter 10,404 45,756 ------- ------- Total minimum obligations 30,311 $83,516 ======= Less estimated interest 11,011 ------- Present value of net minimum obligations 19,300 Less current portion 7,828 ------- Long-term obligations under capital leases $11,472 =======
Rent expense is as follows: 1994 1993 1992 ---- ---- ---- Minimum rents $12,560 $12,642 $12,788 Contingent rents 178 214 265 ------- ------- ------- $12,738 $12,856 $13,053 ======= ======= =======
9. Common Stock: 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: 9. Common Stock, continued:
Shares Amount ------ ------ Balance, December 28, 1991 4,405,211 $10,616 Repurchase of common stock (301,000) (725) Management stock loans - (421) --------- ------- Balance, January 2, 1993 4,104,211 9,470 Repurchase of common stock (134,000) (323) Increase in management stock loans (see note 10) - (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 - (79) --------- ------- loans (see note 10) Balance, December 31, 1994 3,864,211 $ 1,235 ========= =======
The shares of redeemable common stock are reported on the balance sheets at redemption value, which is the estimated fair market value of the stock. In 1994, the reduction in redemption value has been reflected as an increase in additional paid-in capital. Holding also has 40,500,000 shares of Class B nonvoting common stock authorized at December 31, 1994 and January 1, 1994 with a $.01 par value. No shares were issued or outstanding at either December 31, 1994 or January 1, 1994. 10. Related Party Transactions: Clayton, Dubilier & Rice, Inc., a private investment firm of which three directors of the Company are employees, received $150 in 1994 and $200 annually during 1993 and 1992, for financial advisory and consulting services. The Company made loans during 1994 and 1993 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 31, 1994 and January 1, 1994 were $794 and $715, respectively, and are shown in the consolidated balance sheet as a reduction in the redeemable common stock. The loans mature in 1995. 11. Commitments and Contingencies: Effective January 1, 1989, the Company implemented stock appreciation rights plans for certain of its hourly union and non-union employees as well as salaried employees. Effective as of November 4, 1989, the Company implemented a similar stock appreciation rights plan for its Teamster union 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 from the date of the plan's establishment. It is uncertain whether such triggering events will occur. 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. Future minimum annual service charges under the agreement as of December 31, 1994 aggregate $30,653. The agreement is cancelable by either party subject to a penalty that declines over the term of the agreement. Effective May 26, 1992, the Company entered into an outsourcing agreement whereby an outside party provides transportation of grocery and other supermarket products from the Company's distribution facilities to the Company's stores and other locations designated by the Company. The agreement is effective through March 1997. Payments under the agreement are determined based on miles traveled in accordance with predetermined rates. During 1994 and 1993, the Company paid $6,473 and $7,367, respectively, for services received. 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. In conjunction with the sale to AWG, three class grievances have been filed by the United Food and Commercial Workers of North America ("UFCWNA") and have been submitted to binding arbitration under the terms of the Labor Agreement. The grievances involve: (i) the question of whether a special 11. Commitments and Contingencies, continued: termination pay provision in the Labor Agreement is triggered by the sale to AWG; (ii) the application of the severance pay provision in the Labor Agreement; and (iii) calculation of accrued but unused vacation pay due employees at the time of termination. The maximum aggregate amount being sought pursuant to the grievances is $5.1 million. The arbitrations will be held during May through July. The Company believes that its position on these grievances will be upheld by the arbitrator and that the disposition of these grievances through arbitration will not have a material adverse effect on the Company's financial position. 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 31, 1994, $7,345 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 fees of $195 and $97 in 1994 and 1993, respectively. 12. 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 must make another 12. Sale of Plants, continued: payment of $1,650 plus interest upon termination of the temporary supply agreement. The Company has made arrangements with another dairy supplier to begin supplying its dairy and ice cream requirements in April 1995. 13. Fourth Quarter Adjustment: In the fourth quarter of 1994, the Company made an adjustment to increase its workers compensation accruals by $5,000. This increase was due to an increase in the actuarially projected ultimate costs of the self-insured plans, reflecting increases in claims and related settlements. 14. Restructuring: 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 has agreed to sell 29 of its stores and its warehouse and distribution center to AWG for a purchase price of $45 million plus the value of the inventory in the 29 stores and the warehouse, subject to certain possible purchase price adjustments. In connection with this agreement, the Company will enter into a seven year supply agreement pursuant to which AWG will be the Company's primary supplier for the remaining stores. The AWG sale closed on April 21, 1995. The Company plans to use the net proceeds from the transaction to reduce its indebtedness under both the Senior Notes and the Revolving Credit Agreement. The Company also plans to close 15 under-performing stores during 1995. The Company plans to sell certain stores or lease some stores to other retailers and in some cases seek to abandon certain leases and dispose of any equipment in the most productive manner. The Company intends to buy-out operating and capital leased equipment related to the closed stores from current lessors and dispose of them in the same manner. Five stores were closed in February 1995 and two in March 1995. In connection with the sale of 29 stores and the warehouse facility to AWG and the closing of stores, the Company recorded a $23,205 charge in the fourth quarter of fiscal 1994. The major components of the restructuring charge are summarized as follows: 14. Restructuring, continued: Write-down of inventory to estimated realizable value $4,479 Write-down of prepaid expenses and other current assets associated with the AWG Transaction 898 Write-down of net property, plant and equipment associated with closed stores, net of estimated proceeds 7,402 Write-down of unamortized beneficial leaseholds, transportation outsourcing costs and other deferred charges 3,132 Write-down of unamortized excess of purchase price over fair value of net assets acquired associated with the stores sold to AWG or closed 977 Expenses associated with the planned store closings, primarily occupancy costs from closing date to lease termination or sublease date 8,319 Expenses associated with the AWG Transaction, primarily service and equipment contract cancellation fees 5,649 Estimated severance costs associated with the AWG Transaction (see below) 5,624 Legal and consulting fees associated with the AWG Transaction 6,217 Net gain on sale of property, plant and equipment to AWG (19,492) -------- Total restructuring charges $ 23,205 ======== The estimated severance costs accrued during the fourth quarter are for approximately 165 non-union employees and approximately 1,360 union employees whose employment will be 14. Restructuring, continued: terminated in connection with the sale of 29 stores and the warehouse facility to AWG. Approximately $1.0 million of severance costs are expected to be incurred subsequent to fiscal 1994 in connection with the planned store closings. These severance costs have not been accrued in fiscal 1994 since the affected employees were not notified prior to December 31, 1994. Approximately $1,300 of bank fees, noteholder fees and premium for early extinguishment of debt are expected to be incurred subsequent to fiscal 1994 in connection with the restructuring of debt discussed in Note 15. In addition, approximately $1,400 of refinancing costs previously capitalized are expected to be written off subsequent to fiscal 1994 when a portion of the debt is extinguished early. These costs have not been accrued in fiscal 1994 since the extinguishment of debt has not yet occurred. As of December 31, 1994, the Company had paid approximately $1,312 of legal and consulting fees associated with the AWG Transaction. The asset write-downs described above, aggregating $16,888, have been reflected in their respective balance sheet account classifications as of December 31, 1994. The remaining charges, aggregating $5,005, have been included in the consolidated balance sheet at December 31, 1994 under the caption Noncurrent restructuring reserve. In connection with the sale of 29 stores and the warehouse and distribution center to AWG, $29,375 net book value of property, plant and equipment is held for resale at December 31, 1994. In addition, $2,200 net book value of property, plant and equipment related to the 15 stores to be closed in 1995 is held for resale at December 31, 1994. The separately identifiable revenue and store contribution to operating profit (loss) related to the stores being sold to AWG or closed and expenses related to the warehouse facility are as follows:
1994 1993 1992 ----------- ----------- ----------- Sales, net $253,221 $262,440 $271,061 Store contribution to operating profit (loss) before allocation of administrative and advertising expenses 7,795 9,854 12,170 Warehouse expenses 12,455 11,080 12,132
14. Restructuring, continued: Under the AWG supply agreement, the ongoing costs of warehousing will be built into the cost of goods purchased from AWG. 15. Subsequent Events: On April 13, 1995, the Company received consents for certain amendments to the Senior Note Indenture from a majority of the holders of Senior Notes. The amendments include, among other things, (a) increasing the interest rate on each series of Notes by one-half of one percent (0.5%) per annum; (b) amending, adding and deleting certain financial covenants and related definitions under the Senior Note Indenture (including modifying the Consolidated Fixed Charge Coverage Ratio covenant, adding a new Debt-to-EBITDA ratio and a new Capital Expenditures covenant, deleting the Adjusted Consolidated Net Worth covenant) to reflect the Company's size, operations and financial position following the AWG Transaction. Until the consent was approved, the Company had obtained a waiver from the Senior Noteholders waiving compliance with certain financial covenant requirements in effect as of December 31, 1994 through June 30, 1995. On April 21, 1995, the Company and United States Trust Company of New York, as trustee for the holders of the Senior Notes, entered into a supplemental indenture effecting these amendments. The Company replaced its current Revolving Credit Agreement with a revised revolving facility (the "Amended and Restated Revolving Credit Agreement") on April 21, 1995. The Amended and Restated Revolving Credit Agreement is with National Bank of Canada, ("NBC") as agent and as lender, Heller Financial, Inc. and any other lenders thereafter parties thereto. The Amended and Restated Revolving Credit Agreement provides a commitment of up to $25 million in secured revolving credit loans, including certain letters of credit. The Amended and Restated Revolving Credit Agreement permits borrowings (a) to refinance the previous Revolving Credit Agreement, (b) for working capital needs and (c) to issue standby letters of credit and documentary letters of credit. Borrowings under the Amended and Restated Revolving Credit Agreement bear interest at the NBC Base Rate plus 1.5% for the first year (10.5% as of April 21, 1995). Subsequent year's interest rates will be dependent upon the Company's earnings but will not exceed NBC base rate plus 2.0%. All borrowings under the amended and Restated Revolving Credit Agreement are subject 15. Subsequent Events, continued: to a borrowing base and mature no later than February 27, 1997, with the possibility of extending the maturity date to March 31, 1998 if the Company's Series A Senior Secured Floating Rate Notes due February 27, 1997, are extended or refinanced on terms acceptable to NBC. The Amended and Restated Credit Agreement, among other things, requires the maintenance of leverage and coverage ratios as defined, and limits the Company's net capital expenditures and incurrence of additional indebtedness and limits the payment of dividends. The notes are collateralized by accounts receivable and inventories of the Company. The AWG sale described in Note 14 closed on April 21, 1995, on the same basis as described within Note 14. On April 21, 1995, the Company made an offer to repurchase shares of its Common Stock owned by certain officers and employees of the Company at a cash purchase price of $0.50 per share, plus a warrant equal to the number of share purchased with an exercise price of $0.50. However, such repurchases shall not exceed $600,000 in the aggregate (net of amounts to be repaid in respect of loans from the Company) and individual repurchases shall not exceed any outstanding loan balance that the officers or employees may have related to their purchase of Common Stock. EXHIBIT INDEX Exhibit No. Description 3a Restated Certificate of Incorporation of Homeland Holding Corporation ("Holding"), dated August 2, 1990. (Incorporated by reference to Exhibit 3a to Form 10-Q for quarterly period ended September 8, 1990) 3b By-laws of Holding, as amended and restated on November 14, 1989 and further amended on September 23, 1992. (Incorporated by reference to Exhibit 3b to Form 10-Q for quarterly period ended June 19, 1993) 3c Restated Certificate of Incorporation of Homeland Stores, Inc. ("Homeland"), dated March 2, 1989. (Incorporated by reference to Exhibit 3c to Form 10-K for fiscal year ended December 31, 1988) 3d By-laws of Homeland, as amended and restated on November 14, 1989 and further amended on September 23, 1992. (Incorporated by reference to Exhibit 3d to Form 10-Q for quarterly period ended June 19, 1993) 4a Indenture, dated as of November 24, 1987, among Homeland, The Connecticut National Bank ("CNB"), as Trustee, and Holding, as Guarantor. (Incorporated by reference to Exhibit 4a to Form S-1 Registration Statement, Registration No. 33-22829) 4a.1 First Supplement to Indenture, dated as of August 15, 1988, among Homeland, CNB and Holding. (Incorporated by reference to Exhibit 4a.1 to Form S-1 Registration Statement, Registration No. 33-22829) 4b Purchase Agreement, dated November 24, 1987, among Homeland, Holding and initial purchasers of Subordinated Notes. (Incorporated by reference to Exhibit 4b to Form S-1 Registration Statement, Registration No. 33-22829) 4c Form of Registration Rights Agreement, dated as of November 24, 1987, among Homeland, Holding and initial purchasers of Subordinated Notes. (Incorporated by reference to Exhibit 4c to Form S-1 Registration Statement, Registration No. 33-22829) 4d Indenture, dated as of March 4, 1992, among Homeland, United States Trust Company of New York ("U.S.Trust"), as Trustee, and Holding, as Guarantor. (Incorporated by reference to Exhibit 4d to form 10-K for fiscal year ended December 28, 1991) 4d.1 First Supplement to Indenture, dated as of June 17, 1992, among Homeland, Holding and U.S. Trust. (Incorporated by reference to Exhibit 4d.1 to Form S-1 Registration Statement, Registration No. 33-48862) 4d.3 Partial Release of Collateral, dated as of May 22, 1992, by U.S. Trust, as Collateral Trustee, in favor of Homeland. (Incorporated by reference to Exhibit 4d.3 to Form S-1 Registration Statement, Registration No. 33-48862) 4e Form of Purchase Agreement, dated as of March 4, 1992, among Homeland and initial purchasers of Senior Notes. (Incorporated by reference to Exhibit 4e to Form 10-K for fiscal year ended December 28, 1991) 4f Form of Registration Rights Agreement, dated as of March 4, 1992, among Homeland and the initial purchasers of Senior Notes. (Incorporated by reference to Exhibit 4f to Form 10-K for fiscal year ended December 28, 1991) 10a Asset Purchase Agreement, dated as of September 15, 1987. (Incorporated by reference to Exhibit 10a to Form S-1 Registration Statement, Registration No. 33-22829) 10b First Amendment to Asset Purchase Agreement, dated November 24, 1987. (Incorporated by reference to Exhibit 10b to Form S-1 Registration Statement, Registration No. 33-22829) 10c Stock Subscription Agreement, dated as of November 24, 1987, between Holding and The Clayton & Dubilier Private Equity Fund III Limited Partnership. (Incorporated by reference to Exhibit 10c to Form S-1 Registration Statement, Registration No. 33-22829) 10e Purchase Agreement for Safeway Brand Products, dated as of November 24, 1987, between Homeland and Safeway. (Incorporated by reference to Exhibit 10e to Form S-1 Registration Statement, Registration No. 33-22829) 10f Manufacturing and Supply Agreement, dated as of November 24, 1987, between Homeland and Safeway. (Incorporated by reference to Exhibit 10f to Form S-1 Registration Statement, Registration No. 33-22829) 10g Form of Common Stock Purchase Agreement, dated November 24, 1987, between Holding and certain institutional investors. (Incorporated by reference to Exhibit 10g to Form S-1 Registration Statement, Registration No. 33-22829) 10h (1) Form of Management Stock Subscription Agreement, dated as of October 20, 1988, between Holding and the purchasers named therein, involving purchase of Holding common stock for cash. (Incorporated by reference to Form 10-K for fiscal year ended December 31, 1988) 10h.1 (1) Form of Management Stock Subscription Agreement, dated as of October 20, 1988, between Holding and the purchasers named therein, involving purchase of Holding common stock using funds held under purchasers' individual retirement accounts. (Incorporated by reference to Form 10-K for fiscal year ended December 31, 1988) 10h.2 (1) Form of Management Stock Subscription Agreement, dated as of November 29, 1989, between Holding and the purchasers named therein, involving purchase of Holding common stock for cash. (Incorporated by reference to Form 10-K for fiscal year ended December 30, 1989) 10h.3 (1) Form of Management Stock Subscription Agreement, dated as of November 29, 1989, between Holding and the purchasers named therein, involving purchase of Holding common stock using funds held under purchasers' individual retirement accounts. (Incorporated by reference to Form 10-K for fiscal year ended December 30, 1989) 10h.4 (1) Form of Management Stock Subscription Agreement dated as of August 14, 1990, between Holding and the purchasers named therein, involving purchase of Holding common stock for cash. (Incorporated herein by reference to Exhibit 10h.4 to Form 10-K for fiscal year ended December 29, 1990) 10h.5 (1) Form of Management Stock Subscription Agreement dated as of August 14, 1990, between Holding and the purchasers named therein, involving purchase of Holding common stock using funds held under purchasers' individual retirement accounts. (Incorporated herein by reference to Exhibit 10h.5 to Form 10-K for fiscal year ended December 29, 1990) 10i.1 Form of Registration and Participation Agreement, dated as of November 24, 1987, among Holding, The Clayton & Dubilier Private Equity Fund III Limited Partnership, and initial purchasers of Common Stock. (Incorporated by reference to Exhibit 10i to Form S-1 Registration Statement, Registration No. 33-22829) 10i.2 1990 Registration and Participation Agreement dated as of August 13, 1990, among Homeland Holding Corporation, Clayton & Dubilier Private Equity Fund IV Limited Partnership and certain stockholders of Homeland Holding Corporation. (Incorporated by reference to Exhibit 10y to Form 10-Q for quarterly period ended September 8, 1990) 10i.3 Form of Store Managers Stock Purchase Agreement. (Incorporated by reference to Exhibit 10z to Form 10-Q for quarterly period ended September 8, 1990) 10j Indenture, dated as of November 24, 1987. (Incorporated by reference to Exhibit 10j to Form S-1 Registration Statement, Registration No. 33-22829) 10j.1 First Supplement to Indenture, dated as of August 15, 1988. (Incorporated by reference to Exhibit 10j.1 to Form S-1 Registration Statement, Registration No. 33-22829) 10k Form of Purchase Agreement, dated November 24, 1987, among Homeland, Holding and initial purchasers of Subordinated Notes (Filed as Exhibit 4b). (Incorporated by reference to Exhibit 10k to Form S-1 Registration Statement, Registration No. 33-22829) 10l Form of Registration Rights Agreement, dated as of November 24, 1987, among Homeland, Holding and initial purchasers of Subordinated Notes. (Incorporated by reference to Exhibit 10l to Form S-1 Registration Statement, Registration No. 33-22829) 10q (1) Homeland Profit Plus Plan, effective as of January 1, 1988. (Incorporated by reference to Exhibit 10q to Form S-1 Registration Statement, Registration No. 33-22829) 10q.1 (1) Homeland Profit Plus Plan, effective as of January 1, 1989 (Incorporated by reference to Exhibit 10q.1 to Form 10-K for the fiscal year ended December 29, 1990) 10r Homeland Profit Plus Trust, dated March 8, 1988, between Homeland and the individuals named therein, as Trustees. (Incorporated by reference to Exhibit 10r to Form S-1 Registration Statement, Registration No. 33-22829) 10r.1 Homeland Profit Plus Trust, dated January 1, 1989, between Homeland and Bank of Oklahoma, N.A., as Trustee (Incorporated by reference to Exhibit 10r.1 to Form 10-K for the fiscal year ended December 29, 1990) 10s (1) 1988 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s to Form S-1 Registration Statement, Registration No. 33-22829) 10s.1 (1) 1989 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.1 to Form 10-K for fiscal year ended December 31, 1988) 10s.2 (1) 1990 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.2 to Form S-1 Registration Statement, Registration No. 33-48862) 10s.3 (1) 1991 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.3 to Form S-1 Registration Statement, Registration No. 33-48862) 10s.4 (1) 1992 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.4 to Form S-1 Registration Statement, Registration No. 33-48862) 10s.5 (1) 1993 Homeland Management Incentive Plan. (Incorporated by reference to Exhibit 10s.5 to Form 10-K for fiscal year ended January 1, 1994) 10s.6* (1) 1994 Homeland Management Incentive Plan. 10t (1) Form of Homeland Employees' Retirement Plan, effective as of January 1, 1988. (Incorporated by reference to Exhibit 10t to Form S-1 Registration Statement, Registration No. 33-22829) 10t.1 (1) Amendment No. 1 to Homeland Employees' Retirement Plan effective January 1, 1989. (Incorporated herein by reference to Form 10-K for fiscal year ended December 30, 1989) 10t.2 (1) Amendment No. 2 to Homeland Employees' Retirement Plan effective January 1, 1989. (Incorporated herein by reference to Form 10-K for fiscal year ended December 30, 1989) 10t.3 (1) Third Amendment to Homeland Employees' Retirement Plan effective as of January 1, 1988. (Incorporated herein by reference to Exhibit 10t.3 to Form 10-K for fiscal year ended December 29, 1990) 10t.4 (1) Fourth Amendment to Homeland Employees' Retirement Plan effective as of January 1, 1989. (Incorporated herein by reference to Exhibit 10t.4 to Form 10-K for the fiscal year ended December 28, 1991) 10u (1) Employment Agreement, dated as of January 11, 1988, between Homeland and Jack M. Lotker. (Incorporated by reference to Exhibit 10u to Form S-1 Registration Statement, Registration No. 33- 22829) 10v UFCW Stock Appreciation Rights Plan of Homeland. (Incorporated by reference to Exhibit 10v to Form 10-Q for quarterly period ended March 25, 1989) 10v.1 Stock Appreciation Rights Plan of Homeland for Non-Union Employees. (Incorporated by reference to Exhibit 10v.1 to Form 10-Q for quarterly period ended March 25, 1989) 10v.2 Teamsters Stock Appreciation Rights Plan of Homeland. (Incorporated by reference to Exhibit 10v.2 to Form S-1 Registration Statement, Registration No. 33-48862) 10v.3 BC&T Stock Appreciation Rights Plan of Homeland. (Incorporated by reference to Exhibit 10v.3 to Form S-1 Registration Statement, Registration No. 33-48862) 10w (1) Employment Agreement, dated as of September 26, 1989, between Homeland and Max E. Raydon. (Incorporated by reference to Exhibit 10w to Form 10-Q for quarterly period ended September 9, 1989) 10x Indemnification Agreement, dated as of August 14, 1990, among Holding, Homeland, Clayton & Dubilier, Inc. and The Clayton & Dubilier Private Equity Fund III Limited Partnership. (Incorporated by reference to Exhibit 10x to Form 10-Q for quarterly period ended September 8, 1990) 10y Indenture, dated as of March 4, 1992, among Homeland, United States Trust Company of New York, as Trustee, ("U.S. Trust") and Holding, as Guarantor. (Filed as Exhibit 4d) 10y.1 First Supplement to Indenture, dated as of June 17, 1992, among Homeland, Holding and U.S. Trust. (Filed as Exhibit 4d.1) 10z Form of Purchase Agreement, dated as of March 4, 1992, among Homeland, Holding and the initial purchasers of Senior Notes. (Filed as Exhibit 4e). 10aa Form of Registration Rights Agreement, dated as of March 4, 1992, among Homeland and the initial purchasers of Senior Notes. (Filed as Exhibit 4f). 10bb Form of Parent Pledge Agreement, dated as of March 4, 1992, made by Holding in favor of U.S. Trust, as collateral trustee for the holders of the Senior Notes. (Incorporated by reference to Exhibit 10bb to Form 10-K for the fiscal year ended December 28, 1991) 10cc Revolving Credit Agreement, dated as of March 4, 1992, among Homeland, Holding, Union Bank of Switzerland, New York Branch, as Agent and lender, and any other lenders and other financial institutions thereafter parties thereto. (Incorporated by reference to Exhibit 10cc to Form 10-K for the fiscal year ended December 28, 1991) 10cc.1 Letter Waiver (Truck Sale), dated as of May 19, 1992, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.1 to Form S-1 Registration Statement, Registration No. 33-48862) 10cc.2 Form of Amendment Agreement, dated as of June 15, 1992, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.2 to Form S-1 Registration Statement, Registration No. 33-48862) 10cc.3 Form of Second Amendment Agreement, dated as of September 23, 1992, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.3 to Form S-1 Registration Statement, Registration No. 33-48862) 10cc.4 Third Amendment Agreement, dated as of February 10, 1993, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. 10cc.5 Fourth Amendment Agreement, dated as of June 8, 1993, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.5 to Form 10-Q for the quarterly period ended June 19, 1993) 10cc.6 Fifth Waiver and Amendment Agreement, dated as of April 14, 1994, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10cc.6 to Form 10-K for the fiscal year ended January 1, 1994) 10cc.7* Sixth Waiver and Amendment Agreement, dated as of February 7, 1995, among Homeland, Holding, UBS, as agent, and the other lenders and financial institutions parties to the Revolving Credit Agreement. 10dd Agreement for Systems Operations Services, effective as of October 1, 1991, between Homeland and K-C Computer Services, Inc. (Incorporated by reference to Exhibit 10dd to Form 10-K for the fiscal year ended December 28, 1991) 10dd.1 Amendment No. 1 to Agreement for Systems Operations Services, dated as of September 10, 1993, between Homeland and K-C Computer Services, Inc. (Incorporated by reference to Exhibit 10dd.1 to Form 10-K for the fiscal year ended January 1, 1994) 10ee Form of Indemnification Agreement, dated as of March 4, 1992, among Homeland, Holding, Clayton & Dubilier, Inc., The Clayton & Dubilier Private Partnership Equity Fund III Limited Partnership, and The Clayton & Dubilier Private Equity Fund IV Limited Partnership. (Incorporated by reference to Exhibit 10ee to Form 10-K for the fiscal year ended December 28, 1991) 10ff Product Transportation Agreement, dated as of March 18, 1992, between Homeland and Drake Refrigerated Lines, Inc. (Incorporated by reference to Exhibit 10ff to Form 10-K for the fiscal year ended December 28, 1991) 10gg Assignment and Pledge Agreement, dated March 5, 1992, made by Homeland in favor of Manufacturers Hanover Trust Company. (Incorporated by reference to Exhibit 10gg to Form 10-K for the fiscal year ended December 28, 1991) 10hh Transportation Closure Agreement Summary, dated May 28, 1992, between Homeland and the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America. (Incorporated by reference to Exhibit 10hh to Form S-1 Registration Statement, Registration No. 33-48862) 10ii (1) Description of terms of employment with Mark S. Sellers. (Incorporated by reference to Exhibit 10ii to Form 10-K for the fiscal year ended January 2, 1993) 10jj (1) Settlement Agreement, dated as of July 26, 1993, between Homeland and Donald R. Taylor. (Incorporated by reference to Exhibit 10jj to Form 10-K for the fiscal year ended January 1, 1994) 10kk (1) Executive Officers Medical/Life Insurance Benefit Plan effective as of December 9, 1993. (Incorporated by reference to Exhibit 10kk to Form 10-K for the fiscal year ended January 1, 1994) 10ll (1) Employment Agreement, dated as of August 11, 1994, between Homeland and Max E. Raydon. (Incorporated by reference to Exhibit 10ll to Form 10-Q for the quarterly period ended September 10, 1994) 10mm (1) Employment Agreement, dated as of August 11, 1994, between Homeland and Jack M. Lotker. (Incorporated by reference to Exhibit 10mm to Form 10-Q for the quarterly period ended September 10, 1994) 10nn (1) Employment Agreement, dated as of August 11, 1994, between Homeland and Steve Mason. (Incorporated by reference to Exhibit 10nn to Form 10-Q for the quarterly period ended September 10, 1994) 10oo (1) Employment Agreement, dated as of August 11, 1994, between Homeland and Al Fideline. (Incorporated by reference to Exhibit 10oo to Form 10-Q for the quarterly period ended September 10, 1994) 10pp Letter of Intent, executed on November 30, 1994, between Homeland and Associated Wholesale Grocers, Inc. (Incorporated by reference to Exhibit 10pp to Form 8-K dated November 29, 1994) 10pp.1* Asset Purchase Agreement, dated as of February 6, 1995, between Homeland and Associated Wholesale Grocers, Inc. 10qq Solicitation Statement, dated April 4, 1995. (Incorporated by reference to Exhibit 10qq to Form 8-K dated April 4, 1995) 10rr* (1) Employment Agreement, dated as of November 22, 1994, between Homeland and James A. Demme. 10ss* (1) Settlement Agreement, dated as of December 31, 1994, between Homeland and Max E. Raydon. 10tt* (1) Employment Agreement, dated as of January 30, 1995, between Homeland and Mark S. Sellers. 22 Subsidiaries. (Incorporated by reference to Exhibit 22 to Form S-1 Registration Statement, Registration No. 33-22829) 24* Consent of Coopers & Lybrand, L.L.P. 27* Financial Data Schedule. 99a Press release issued by Homeland on November 30, 1994. (Incorporated by reference to Exhibit 99a to Form 8-K dated November 29, 1994) 99b Unaudited Summary Financial Data for the 52 weeks ended December 31, 1994. (Incorporated by reference to Exhibit 99b to Form 8-K dated November 29, 1994) EX-10.S6 2 EXHIBIT 10s.6 HOMELAND STORES, INC. 1994 TOTAL COMPANY FISCAL 1994 PERFORMANCE BONUS PLAN AS OF 5-19-94 PAGE & SECTION PACKAGE CONTENTS: NUMBER: o General Assumptions for Fiscal 1994 1 Cash Bonus Plan Proposal. o Total Company Fiscal 1994 Bonus Plan 2 Matrix: Cash Bonus and Minimum Company Performance Levels Required. o Cash Bonus Level Categories & "%" Payout 3-1 to 3-3 and Number of People Eligible (based on performance of Company) o Retail Stores Bonus Plan 4-1 to 4-2 (INDEX PAGE) (LK-MATRIX4A/fw) Homeland Stores, Inc. Fiscal 1994 Performance Bonus Plan as of 5-19-94 GENERAL ASSUMPTIONS/REQUIREMENTS: o Anticipated minimum cash bonus payout is approximately $2.9m for fiscal 1994: Store bonus of $1.450m and management (Headquarters and Warehouse) of $1.450m at 1994 pre-bonus EBIT of $22.8m. o Incremental sharing of increased EBIT will be up to 40% of the profit improvement until the original refinancing numbers are achieved for fiscal 1994 (after Bonus EBIT of $31.4m). o Only those employees who are still actively employed at the time of payout for the cash awards based on fiscal 1994 results will receive the awards. No prorates to anyone who leaves prior to award distribution except for those that have received prior approval from the Compensation Committee of the Board of Directors. o In the event of a change of control (as defined in the Credit Agreement and Senior Note Indenture), the annual cash bonus will be awarded under the assumption that the annual plan is met and particpants will be required to stay through the Retention Period, as defined in the Retention Plan, in order to receive any additional payments. o Bonus, including any discretionary amount, will be paidout to participants on a quarterly basis execpt in the event of a change in control, any amount due will be paid as soon as practical. 1 Homeland Stores, Inc. Fiscal 1994 Performance Bonus Plan as of 5-19-94 TOTAL COMPANY FISCAL 1994 BONUS PLAN MATRIX: (A) (B) ($00 000) FINANCIAL AREA/CRITER IA BONUS $ BASE @ EBIT OF: INCREMEN TAL BONUS $'S @ EBIT OF: INCREMEN TAL BONUS $'S @ EBIT OF: (52) WEEKS FISCAL 1993 ACTUAL EBIT $ (PRE-BONUS) 22.8 22.8 TO 36.8 36.8 UP 22.8 EBITDA $ (PRE-BONUS) 38.1 38.1 TO 53.1 53.1 UP 38.1 CASH BONUS $'S 2.9 2.9 TO 5.4 5.4 UP 2.9 EBIT $ (AFTER BONUS) 19.9 19.9 TO 31.4 31.4 UP 19.9 EBITDA $ (AFTER BONUS) 35.2 35.2 TO 46.8 46.8 UP 35.2 CASH BONUS $'S AS A % OF PRE-BONUS EBITDA - 7.1% TO 10.2% 10.3% UP 7.6% CASH BONUS % "SHARING" OF INCREMENTAL PRE-BONUS EBITDA $ -0- UP TO 40% UP TO 60% N/A 2 Homeland Stores, Inc. Fiscal 1994 Performance Bonus Plan as of 5-19-94 CASH BONUS LEVEL CATEGORIES & " %" PAYOUT: "%" X SALARY (A) (B) BONUS CATEGORY (2): # OF PEOPLE ELIGIBL E 1994 PRE- BONUS EBIT 1994 PRE- BONUS EBIT 1993 TARGET % BONUS Officers (*)1 8 100/50 100/100 100/50 (A) (B) BONUS CATEGORY (3): # OF PEOPLE ELIGIBL E 1994 PRE- BONUS EBIT 1994 PRE- BONUS EBIT 1993 TARGET % BONUS . Directors (*)2 25 50/10 50/20 40 3-1 Homeland Stores, Inc. Fiscal 1994 Performance Bonus Plan as of 5-19-94 CASH BONUS LEVEL CATEGORIES & "%" PAYOUT: "%" X SALARY (A) (B) BONUS CATEGORY (4): # OF PEOPLE ELIGIB LE 1994 PRE- BONUS EBIT 1994 PRE- BONUS EBIT 1993 TARGET % BONUS . HQ, Whse. Managers 24 15 30 10 (A) (B) BONUS CATEGORY (5): # OF PEOPLE ELIGIBL E 1994 PRE- BONUS EBIT 1994 PRE- BONUS EBIT 1993 TARGET % BONUS . Other HQ, Whse Supervisors (*)3 81 5 10 5 (A) (B) BONUS CATEGORY OTHER (6): # OF PEOPLE ELIGIB LE 1994 PRE- BONUS EBIT 1994 PRE- BONUS EBIT 1993 TARGET % BONUS . District Managers 6 (SEE DIST.MGR SEPARAT E PLAN) . Store Managers 112 (SEE STORE SEPARAT E PLAN) . Assistant Store Managers # 1 115 (SEE STORE SEPARAT E PLAN) . Assistant Store Managers # 2 44 (SEE STORE SEPARAT E PLAN) . Pharmacy Managers 55 (SEE PHARMACY SEPARAT E PLAN) . Assistant Pharmacy Mgrs. 40 (SEE PHARMACY SEPARAT E PLAN) . Other (*)5 1 50 50 50 3-2 Homeland Stores, Inc. Fiscal 1994 Performance Bonus Plan as of 5-19-94 CASH BONUS LEVEL CATEGORIES & "%" PAYOUT: "%" X SALARY (A) (B) BONUS CATEGORY TOTAL: # OF PEOPLE ELIGIB LE 1994 PRE- BONUS EBIT 1994 PRE- BONUS EBIT 1993 TARGET % BONUS TOTAL COMPANY CASH BONUS $'S AVAILABLE 511 $2.9m to $5.4m $5.4m up - (*)1 Mary Mikkelson (Chief Accounting Officer, Asst. Secretary & Treasurer), Prentess Alletag (Vice President, Human Resources), Chester Misialek (Vice President, Distribution and Transportation) and Al Fideline (Vice President, Retail Operations). (*)2 Directors at Headquarters and Warehouse. (*)3 Headquarters and Warehouse Supervisors will be selected to participate based on job responsibilities and quantifiable goals. (*)4 100/50 and 100/100, et al, means that 100% would be paid for in the target in fiscal 1994. 50% or 100% would be paid for incremental improvement for above-plan performance in 1994. In the event of a change of control, the incremental incentive would be paid out at that time based on actual vs plan and using the same ratio for the full fiscal year. (*)5 Don Taylor (*)6 Incremental bonus level for 1993 at 100/50 and 100/100 is the same as note (*)4 for 1994. Note: Except for numbers of people eligible, EBITDA (in "m") and those otherwise indicated, all other numbers are as a % of salary. 3-3 STORE MANAGERS, ASSISTANT STORE MANAGERS, PHARMACY MANAGERS AND ASSISTANT PHARMACY MANAGERS 1994 PERFORMANCE INCENTIVE PLAN SUMMARY AS OF 2-7-94 ELIGIBILITY: All Store Managers, Assistant Store Managers, Pharmacy Managers and Assistant Pharmacy Managers are eligible to participate in the Plan. In order to receive a payout from the Plan, each participant must be actively employed in the position at the time of payment. However, no bonus will be paid unless the total company achieves or is expected to achieve its after bonus EBIT Plan for fiscal 1994. PERFORMANCE INCENTIVE BONUS: Individual stores are required to achieve not less than 97.0% of its Store Controllable Profit target before the following applies: 1. 0.4% of Store Controllable Profit. II. If the store meets or exceeds its Store Controllable Profit target, then an additional annual incentive will be earned based on the average weekly sales volume of the store for the period in which the bonus is paid. AVERAGE ADDITIONAL WEEKLY SALES ANNUAL INCENTIVE Less than $100,000 $ 2,000 $100,000 to $159,999 $ 4,000 $160,000 to $199,999 $ 8,000 $200,000 $10,000 III. PERCENTAGE OF BASE SALARY Wage, Benefit and Indirect 6.0% Employee Cost Plan Supplies and Returned Check Plan 1.0% Total Markdown % Plan 1.5% Workers Comp. and G/L Incident/ Dollar Plan 1.5% Total: 10.0% of Base Salary 4-1 PERFORMANCE INCENTIVE AWARD PAYMENT: The incentive (the sum of I, II, and III) will be paid out quarterly based on actual results vs. plan with the final payment made as soon as practical after the close of the fiscal year. Each quarterly payment will have 10% withheld until the final year-end payment is made. NOTE: As in the past, First Assistant Store Managers will receive 10% of the Store Manager's Bonus and Second Assistant Store Managers will receive 5% of the Store Manager's Bonus. TRANSFERS AND NEW HIRES: Store Managers shall receive a pro-rata portion of bonus from the previous store and a pro-rata portion from the new store based on length of time assigned to each within the bonus period. Assistant Store Manager's bonus is based on the store last assigned to at the end of the bonus period. Newly eligible or new hires will have their bonus pro-rated based on length of time in their current position. PHARMACY SALES BONUS: Pharmacy management will be paid a bonus based on their sales volume: Pharmacy Managers: 0.60% of Sales Assistant Pharmacy Managers: 0.45% of Sales This incentive will be paid out on a quarterly basis, one quarter in arrears, and is independent of the Corporate EBIT performance. 4-2 EX-10.CC7 3 EXHIBIT 10cc.7 SIXTH WAIVER AND AMENDMENT AGREEMENT SIXTH WAIVER AND AMENDMENT AGREEMENT, dated as of February 7, 1995 among Union Bank of Switzerland, New York Branch, individually ("UBS") and in its capacity as agent under the Revolving Credit Agreement referred to below (in such capacity, the "Agent"), the other lenders and financial institutions parties hereto (collectively, the "Lenders"), Homeland Stores, Inc., a Delaware corporation ("Borrower") and Homeland Holding Corporation, a Delaware corporation ("Parent"). Reference is hereby made to the U.S. $50,000,000 Revolving Credit Agreement, dated as of March 4, 1992 (as heretofore or hereafter amended, supplemented or modified from time to time in accordance with its terms, the "Credit Agreement"), among the Agent, the Lenders, Borrower and Parent. Capitalized terms used herein and not otherwise defined shall have the meanings attributed to them in the Credit Agreement. I. Amendments. Subject to the conditions as to effectiveness set forth below, the Credit Agreement is hereby amended as follows: 1. Section 1.1 of the Credit Agreement is amended as follows: (a) The definition of "Swing Line Commitment" is amended by substituting the figure "$8,000,000" for the figure "$5,000,000" appearing therein. (b) The definition of "Swing Line Lender" is amended and restated in its entirety as follows: "Swing Line Lender" shall mean Union Bank of Switzerland, New York Branch, in its individual capacity as maker of the Swing Line Advances, and its successors and assigns to the extent permitted hereunder." 2. Section 2.1(b) of the Credit Agreement is amended and restated in its entirety as follows: (b) Each Revolving Advance shall be in an amount equal to $1,000,000 (the "Minimum Advance Amount") or an integral multiple of $1,000,000 in excess thereof and shall be made on the date specified in the Written Notice or telephonic notice confirmed in writing as described in Section 2.6; provided, that if Borrower shall be deemed to request a Revolving Advance under Section 2.4(c) or 4.1(c) hereof no notice of a borrowing shall be necessary; provided, further, that if Borrower shall be deemed to request a Revolving Advance under Section 4.1(c) hereof such Revolving Advance shall be in an amount equal to the greater of (i) the reimbursement obligation of Borrower for the drawing made under the Letter of Credit for which such Revolving Advance is deemed requested and (ii) the Minimum Advance Amount. Each Revolving Advance shall be either a Base Rate Advance or a Eurodollar Advance, or a combination thereof, as Borrower shall request, subject to and in accordance with the provisions of this Agreement. 3. Section 2.4(a) of the Credit Agreement is amended and restated in its entirety as follows: (a) The Swing Line Lender, in its individual capacity, agrees to lend hereunder, subject to and upon the terms and conditions herein set forth, at any time or from time to time after the Closing Date and before the Maturity Date, a swing line loan or loans (each a "Swing Line Advance," and the outstanding principal balance of all Swing Line Advances from time to time, the "Swing Line Loan") to Borrower, which Swing Line Advances (i) shall be Base Rate Advances, (ii) shall not exceed in the aggregate at any time outstanding the Swing Line Commitment and (iii) shall be payable on demand. 4. Section 2.4(b) of the Credit Agreement is amended and restated in its entirety as follows: (b) Except as provided in Section 2.4(f) hereof, whenever Borrower desires to make a borrowing of a Swing Line Advance, Borrower shall give the Swing Line Lender, in its individual capacity, at its address set forth in Section 14.4 hereof, not later than 11:30 a.m. (New York time) on the proposed borrowing date, telephonic notice from an Authorized Representative confirmed promptly in writing (which notice shall be irrevocable) of its desire to make a borrowing of a Swing Line Advance. Each notice of borrowing of a Swing Line Advance under this Section 2.4 shall be substantially in the form of Exhibit 2.4 hereto and shall specify the date on which Borrower desires to make a borrowing of a Swing Line Advance (which shall be a Business Day) and the amount of such borrowing. 5. Section 2.4(c)(i) of the Credit Agreement is amended and restated in its entirety as follows: (i) On Thursday (or, in any week in which Thursday is not a Business Day, Friday) of each week, and, in addition, in the event that (A) any Swing Line Advance is not repaid in full upon demand by the Swing Line Lender, (B) the Swing Line Loan at any time exceeds the Swing Line Commitment or (C) the Swing Line Lender furnishes a Written Notice to Borrower and the Lenders requesting a settlement of all or any portion of outstanding Swing Line Advances, Borrower shall immediately borrow, and each of the Lenders hereby unconditionally and irrevocably agrees to immediately fund its pro rata share of, a Revolving Advance (which Revolving Advance shall initially be a Base Rate Advance) in the principal amount of such overdue or outstanding Swing Line Advances or excess Swing Line Loan, as the case may be, pursuant to the terms of this Agreement relating to the borrowing of Revolving Advances (regardless, however, of whether the conditions precedent thereto set forth in Section 6, 7 or 8 hereof are then satisfied and whether or not Borrower has provided a notice of borrowing under Section 2.6 hereof and whether or not the Revolving Credit Facility Commitment is then in effect, any Default or Event of Default exists or all or any of the Loans have been accelerated, but subject to clause (ii) of this subsection (c) and the final sentence of Section 2.2(a) hereof), and the proceeds of such Revolving Advance shall be immediately paid over to the Swing Line Lender for application to such overdue or outstanding Swing Line Advances or excess Swing Line Loan, as the case may be. 6. The following paragraph is hereby added as Section 2.4(f) of the Credit Agreement: (f) Without limiting the rights of the Agent, the Swing Line Lender or any other Lender under Section 12.1 hereof or under any provision of any other Loan Document, but subject to Section 2.4(e) hereof, Borrower hereby irrevocably authorizes and directs the Swing Line Lender to charge Borrower's account for all amounts that may now or hereafter be due and payable by Borrower hereunder or under any other Loan Document, including, without limitation, all amounts of principal and interest, fees and expenses; provided, that no Swing Line Advance shall be made by charging Borrower's account pursuant to this Section 2.4(f) in the event that (i) such Swing Line Advance would constitute an Unauthorized Advance or (ii) such Swing Line Advance would cause the Swing Line Loan to exceed the Swing Line Commitment; provided, further, that nothing contained in this Section 2.4(f) shall or shall be deemed to relieve Borrower from its obligation to repay any Lender Debt when due. Any amount charged against Borrower's account pursuant to this Section 2.4(f) shall be deemed to constitute a Swing Line Advance. 7. Section 2.17 of the Credit Agreement is amended and restated in its entirety as follows: 2.17. PRO RATA TREATMENT AND PAYMENTS. (a) Except as contemplated by Section 2.17(b) hereof and other express provisions of this Agreement, including, without limitation, Sections 2.7, 2.11, 2.12, 2.14, 3.5, 4, 14.1, 14.5, 14.13(h) and 14.14 hereof, each borrowing by Borrower from the Lenders and each payment (including each prepayment) on account of the principal of and interest on Advances and fees described in this Agreement shall be made pro rata to each Lender according to the respective percentages of each Lender set forth opposite its name on Schedule 1.1(A) hereto. The Agent will distribute each payment to the Lenders promptly following receipt thereof (and in any event on the same Business Day as the date when received, if such payment is received at or prior to 12:00 noon (New York time)). (b) Pursuant to the Concentration Account Agreement, Borrower has agreed that all amounts deposited into the Concentration Account Agreement shall be transferred to the Payment Office or as otherwise directed by the Agent on a daily basis. Subject to Section 12.5 hereof, all amounts so transferred shall be applied to the Lender Debt as mandatory prepayments thereof as follows: first, to the Swing Line Loan until the Swing Line Loan is paid in full; second, to the Revolving Loan (first, to Base Rate Advances until paid in full and then to Eurodollar Advances) until the Revolving Loan is paid in full; third, as cash collateral in a cash collateral account established with the Agent as security for outstanding Letters of Credit pursuant to agreements in form, scope and substance satisfactory to the Agent; and fourth, to the payment of all other Lender Debt that is then due and payable until such Lender Debt is paid in full. Any such amounts remaining after said application shall be deposited by the Agent in an operating account of Borrower with the Agent designated by Borrower, or paid over to such other Person or Persons as may be required by law. 8. Section 11.15(v)(y) of the Credit Agreement is amended and restated in its entirety as follows: (y) to the extent not required to be applied under (x) above, the Concentration Account (to the extent representing proceeds of Collateral); or 9. Exhibits 2.5 and 6.22(b) to the Credit Agreement are amended and restated in the respective forms of Exhibit 2.5 and 6.22(b) attached hereto. II. Waiver. Section 10.14 of the Credit Agreement requires, among other things, that Borrower cause its auditors to supervise and review a physical inventory of Inventory and Pledged Accounts of Borrower and its Subsidiaries twice during each Fiscal Year. Borrower performed only one physical inventory during Fiscal Year 1994. The Agent and the Lenders hereby waive any Default or Event of Default that may heretofore have occurred as a result of Borrower's failure to have caused its auditors to supervise and review a physical inventory of Inventory and Pledged Accounts of Borrower and its Subsidiaries twice during Fiscal Year 1994 as required under Section 10.14 of the Credit Agreement and the attendant failure to have delivered the compliance letter referred to in said Section in connection with each such physical inventory. III. Miscellaneous. 1. This Sixth Waiver and Amendment Agreement is subject to the provisions of Section 14.2 of the Credit Agreement. 2. On and after the effective date of this Sixth Waiver and Amendment Agreement, each reference in each of the Loan Documents (including the Credit Agreement) to "hereunder", "hereof", or words of like import referring to the Credit Agreement, or to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended by the Amendment Agreement, dated June 15, 1992, the Second Amendment Agreement, dated September 23, 1992, the Third Amendment Agreement, dated as of February 10, 1993, the Fourth Amendment Agreement, dated as of June 8, 1993, the Fifth Waiver and Amendment Agreement, dated as of February 14, 1994 and this Sixth Waiver and Amendment Agreement. 3. This Sixth Waiver and Amendment Agreement shall become effective upon the fulfillment of the following conditions: (a) The Agent shall not have notified Borrower in writing, prior to the Agent's receipt of fully executed counterparts of this Sixth Waiver and Amendment Agreement as contemplated by the immediately following clause (b), as to the continuance of any unwaived event which constitutes a Default or an Event of Default. (b) The Agent shall have received fully executed counterparts to this Sixth Waiver and Amendment Agreement signed by the Majority Lenders, UBS and Caisse Nationale de Credit Agricole in sufficient quantity for each Lender and Borrower to receive a fully executed counterpart of this Sixth Waiver and Amendment Agreement signed by the Agent and the Majority Lenders, UBS and Caisse Nationale de Credit Agricole. (c) UBS shall have received a duly executed Swing Line Note in the form of Exhibit 2.5 attached hereto signed by Borrower. (d) The Agent shall have received fully executed counterparts to a First Amended and Restated Concentration Account Agreement substantially in the form of Exhibit 6.22(b) attached hereto signed by Borrower, Bank of Oklahoma, N.A. and the Agent. 4. Parent, by signing below, confirms in favor of the Agent and the Lenders that it consents to the terms and conditions of this Sixth Waiver and Amendment Agreement and agrees that it has no defense, setoff or counterclaim with respect to any of its obligations or liabilities under its Guaranty and that all terms of its Guaranty shall continue in full force and effect. 5. Each of Parent and Borrower reaffirms and restates (after giving effect to the amendments contained herein) the representations and warranties set forth in Section 13 of the Credit Agreement, and all such representations and warranties are true and correct on the date hereof with the same force and effect as if made on such date (except to the extent that they relate expressly to an earlier date). In addition, each of Parent and Borrower represents and warrants (which representations and warranties shall survive the execution and delivery hereof) to the Agent and the Lenders that: (a) it has the power and authority to execute, deliver and carry out the terms and provisions of this Sixth Waiver and Amendment Agreement and the transactions contemplated hereby and has taken or caused to be taken all necessary actions to authorize the execution, delivery and performance of this Sixth Waiver and Amendment Agreement and the transactions contemplated hereby; (b) no consent of any other person (including, without limitation, shareholders or creditors of Parent or Borrower) is required to be obtained by Borrower or Parent and no action of, or filing with, any governmental or public body or authority is required to be obtained by Borrower or Parent to authorize, or is otherwise required in connection with the execution, delivery and performance of this Sixth Waiver and Amendment Agreement or the consummation of the transactions contemplated hereby; (c) this Sixth Waiver and Amendment Agreement has been duly executed and delivered by or on behalf of it and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally and the exercise of judicial discretion in accordance with general principles of equity; (d) the execution, delivery and performance of this Sixth Waiver and Amendment Agreement will not violate any law, statute or regulation, or any order or decree of any court or governmental instrumentality applicable to it, or conflict with, or result in the breach of, or constitute a default under any of its contractual obligations; and (e) as of the date hereof (after giving effect to this Sixth Waiver and Amendment Agreement) there exists no Default or Event of Default. 6. Each of the Loan Documents (including the Credit Agreement) is hereby ratified and confirmed in all respects, and all of the representations, warranties, terms, covenants and conditions of each of the Loan Documents shall remain unamended, unwaived and in effect in accordance with their respective terms, except to the extent previously waived or amended and except as waived or amended hereby. The amendments and consents set forth herein shall be limited precisely as provided for herein and shall not be deemed to be amendments or consents to, or waivers or modifications of, any term or provision of any of the Loan Documents or any other document or instrument referred to herein or therein or of any transaction or further or future action on the part of any of the Credit Parties, except to the extent specifically provided for herein. 7. This Sixth Waiver and Amendment Agreement may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all of which shall constitute one and the same agreement. 8. THIS SIXTH WAIVER AND AMENDMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. IN WITNESS WHEREOF, the parties have caused this Sixth Waiver and Amendment Agreement to be executed and delivered by their respective officers, hereunto duly authorized, as of the day and year specified at the beginning hereof. BORROWER: HOMELAND STORES, INC. By: Mark S. Sellers Name: Mark S. Sellers Title: Chief Financial Officer PARENT: HOMELAND HOLDING CORPORATION By: Mark S. Sellers Name: Mark S. Sellers Title: Chief Financial Officer AGENT: UNION BANK OF SWITZERLAND, NEW YORK BRANCH, as Agent By: Justin S. Maccarone Name: Justin S. Maccarone Title: Managing Director By: Jeanne L. Johnson Name: Jeanne L. Johnson Title: LENDERS: UNION BANK OF SWITZERLAND, NEW YORK BRANCH By: Justin S. Maccarone Name: Justin S. Maccarone Title: Managing Director By: Jeanne L. Johnson Name: Jeanne L. Johnson Title: CAISSE NATIONALE DE CREDIT AGRICOLE By: Dean Balice Name: Dean Balice Title: Senior Vice President Branch Manager NATIONAL BANK OF CANADA By: Larry L. Sears Name: Larry L. Sears Title: Group Vice President By: David L. Schreiber Name: David L. Schreiber Title: Assistant Vice President BANK OF OKLAHOMA, N.A. By: Jeffrey R. Dunn Name: Jeffrey R. Dunn Title: Vice President LIBERTY BANK AND TRUST COMPANY OF OKLAHOMA CITY, N.A. By:__________________________ Name: Title: EX-10.PP1 4 EXHIBIT 10pp.1 ASSET PURCHASE AGREEMENT THIS AGREEMENT ("Agreement"), dated as of February 6, 1995, is by and between HOMELAND STORES, INC., a Delaware corporation ("Seller"), and ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("Buyer"). The following Recitals are a material part of this Agreement and are being relied upon by Buyer and Seller in connection with the transaction contemplated hereby: R E C I T A L S A. Seller operates a chain of approximately one hundred eleven (111) grocery stores. B. Seller owns or leases certain assets which it uses in the conduct of its retail grocery business. C. Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, Seller's interest in certain assets identified herein. D. Buyer is a wholesaler of grocery and supermarket products operating in a cooperative manner. In entering into this Agreement, Buyer is seeking to enhance the interests of its retail members by (i) increasing its volume of wholesale sales and (ii) providing for the maintenance of such increase. E. Seller owns and/or operates the retail grocery stores listed on Exhibit "A", Schedule "2" attached hereto and incorporated herein by reference. Until such stores are closed or sold, Seller intends to continue to own and/or operate such stores as retail grocery stores, together with such additional retail grocery stores as may hereafter be acquired, operated or otherwise controlled by Seller or its affiliates (within the meaning of paragraph 7.a(i) of the Supply Agreement, as defined below) (collectively while owned and operated by Seller, the "Supplied Stores"). Subject to Buyer's Volume Protection Rights (as defined below), Seller has the right, in its sole discretion, to decide whether or not to sell or close Supplied Stores. For purposes (i) hereof and (ii) the Supply Agreement contemplated hereby and set forth on Exhibit "B", which is incorporated herein (the "Supply Agreement"), until a store listed on Exhibit "A", Schedule "2" is closed or sold by Seller in accordance with the terms of the Supply Agreement, it will be a Supplied Store. F. Based on its independent decision, Seller has informed Buyer that, upon the sale of its Warehouse and Warehouse Inventory (as such terms are defined below) to Buyer hereunder, Seller is terminating its internal wholesale distribution operations and network with which it has previously serviced the Supplied Stores. Seller acknowledges that Buyer is assuming no risk or liability with respect to this decision by Seller. The provisions of this recital are not intended to diminish, in any way, Buyer's specific assumption of liabilities as set forth in this Agreement or its obligations under the Supply Agreement. G. Seller has advised Buyer that Seller desires to become one of Buyer's retail members and obtain from Buyer products available from time to time from Buyer's warehouse in accordance with the terms of the Supply Agreement. H. Buyer is willing to supply its full line of available products and services to Seller for the Supplied Stores based on the terms, conditions and financial assurances contained herein and in the Supply Agreement. I. In addition to providing for a current purchaser of certain assets and a future supplier of its wholesale needs, Seller wishes to establish a potential market for the sale of certain of its assets, including the Supplied Stores. Inasmuch as Seller's desire to establish such market directly coincides with Buyer's desire to preserve the volume of sales which will be achieved by acquiring the Purchased Assets (as defined below) under this Agreement, supplying the Supplied Stores under the Supply Agreement and obtaining the Volume Protection Rights, Buyer is willing to facilitate the potential acquisition of certain of Seller's assets and/or Supplied Stores by one or more of Buyer's retail members all within the terms and conditions set forth in the Supply Agreement. J. The parties understand and acknowledge that in addition to the consideration set forth specifically herein, each party will be required to make a substantial and continuing commitment of its resources in reliance upon the other's respective commitment to provide and/or purchase products and services in the future, and that neither party nor their respective owners, retail members and/or affiliates will realize the full benefit of their anticipated bargain hereunder unless each party materially fulfills its obligations hereunder in accordance with the terms hereof. K. Because a portion of the value to the Buyer of the transactions provided for or referred to herein lies in Buyer's ongoing ability to sell its products to all of the Supplied Stores on a long term basis, Buyer is unwilling to enter into this Agreement and the related agreements unless it obtains those rights contemplated herein and set forth in the Supply Agreement pertaining to (i) the purchase by Buyer of the Supplied Stores, (ii) noncompetition and (iii) associated use restrictions (such rights collectively referred to herein as the "Volume Protection Rights"). Seller and Buyer agree that all such rights are an integral and non-severable part of this Agreement. L. Seller has requested and Buyer has agreed to commence simultaneous supply of all Supplied Stores. Seller and Buyer acknowledge that there are inherent difficulties in doing so. The parties will use their best efforts to minimize any such difficulties. M. Seller represents to Buyer that Seller has used its best efforts to obtain offers better than the transaction set forth herein with Buyer, but Seller has been unable to obtain any better offers. Seller has no knowledge of any facts which would indicate that the consideration being paid to Seller in connection with the transactions contemplated hereby is less than the fair market value associated therewith. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Defined Terms. As used herein, the terms below shall have the following meaning and the capitalized terms in the Recitals and introductory paragraph shall have the same meaning as defined therein: "Adverse Environmental Conditions" shall mean Hazardous Materials (as defined below) or conditions existing in, on, under or in the vicinity (as covered by the environmental reports described in Exhibit "F") of any Purchased Store with respect to the air, soil, surface waters, ground waters or stream sediments, which is reasonably likely to (i) pose a threat to human health or to the environment and/or is reasonably likely to require remedial action under applicable Environmental Laws or (ii) constitute a violation of any Environmental Laws (as defined below). "ASC" shall mean those contracts described in Section 5.1(b) and set forth on Exhibit "P". "Closing" shall mean the process and activities described in Article XII hereof. "Closing Date" shall mean April 21, 1995, or such other date as provided for herein or as Buyer and Seller shall mutually agree in writing. "Environmental Laws" shall mean any federal, state or local laws, statutes, ordinances, regulations or policies relating to the environment, health and safety, any hazardous materials (including, without limitation, the use, handling, transportation, production, disposal, discharge or storage thereof) or to industrial hygiene or the environmental conditions applicable to the Purchased Assets, including, without limitation, soil, subsurface and ground water conditions. "Equipment" shall mean all trade furniture, fixtures, equipment, machinery, totes, supplies and outdoor signage, complete with all additions, accessories and attachments thereto owned or to be owned by Seller on or before the Closing Date and located at the Purchased Stores and utilized in connection with Seller's business at the Purchased Stores, except supplies and sign faces which bear Seller's name or logo shall be excluded. The Equipment shall consist of all of the foregoing which are either (i) currently Owned Equipment (as defined below) or (ii) in the case of Leased Capital Equipment -Stores (as defined below), to be owned by Seller on or prior to the Closing Date. "Equipment Schedule" shall mean the schedule to be assembled and delivered to Buyer as provided in Section 4.8. When completed, the Equipment Schedule shall be affixed hereto as Exhibit "H" and incorporated herein. "ERISA Agreement" shall mean the Supplemental Agreement Regarding Section 4204 of ERISA set forth in Exhibit "V". "Excluded Assets" shall mean the following items which are not to be acquired by Buyer hereunder: (a) all rights to the "Homeland" name and identifying logo and all other trademarks, trade names, brand names and service marks owned by Seller, any confusingly similar name or term and the faces of any signage bearing the "Homeland" name; provided, however, that the Warehouse Inventory includes Seller's private label inventory, and except for "Homeland" and "Pride of America" private label inventory (which shall be sold exclusively to Seller), Buyer may resell such private label inventory in the ordinary course of Buyer's distribution business; (b) all items of unsalable inventory (as described on Exhibit "K") or consigned inventory wherever located; (c) all claims, choses in action and rights to action of Seller against third parties with respect to events occurring prior to or after the Closing, other than any claims, choses in action and rights to action with respect to warranties applicable to any of the Purchased Assets or with respect to any damage to or diminution in value of any of the Purchased Assets; (d) cash in the Purchased Stores, cash equivalents such as coupons, food stamps, certificates, postage stamps and other instruments representing a right to receive cash from a third party, accounts, lock boxes and other similar accounts that contain cash or cash equivalents of the Purchased Stores; (e) Seller's accounts receivable and rebates and refunds arising from the operation of the Purchased Stores prior to the Closing Date; (f) the equipment described on Exhibit "S" relating to Seller's corporate offices in Oklahoma City which Seller will utilize in connection with its ongoing business operations; (g) the store equipment described on Exhibit "T" that is currently stored in Seller's former milk plant at the Warehouse; (h) any inventory that is not located at the Warehouse (except for items subject to open warehouse purchase orders as contemplated in Section 5.4 hereof) or Purchased Stores; (i) in the event that Seller exercises its option pursuant to Section 15.14 with respect to the Edmond Store (as defined in Section 15.14), the Edmond Store inventory; and (j) assets relating to the Excluded Stores or Supplied Stores. "Excluded Stores" shall mean those stores listed on Exhibit "A", Schedule "3". "Exhibits" shall mean the following which shall be attached hereto and incorporated herein: Exhibit "A" - Schedule of Stores Schedule "1" - Purchased Stores Schedule "2" - Supplied Stores Schedule "3" - Excluded Stores Exhibit "B" - Supply Agreement Exhibit "C" - Store Leaseholds and Real Property Schedule "1" - Leases Schedule "2" - Legal Descriptions of Owned Property Exhibit "D" - List of Third Party Warranties and Guaranties Exhibit "E" - Schedule of Litigation Exhibit "F" - Schedule of Violations Schedule "1" - List of Environmental Remediation Plans Schedule "2" - Copies of Environmental Remediation Plans Exhibit "G" - Warehouse Facilities Schedule "1" - Leases Schedule "2" - Legal Descriptions of Owned Property Exhibit "H" - Equipment Schedule Schedule "1" - Owned Equipment Schedule "2" - Leased Capital Equipment - Stores Exhibit "I" - Schedule of Warehouse Inventory Exhibit "J" - Schedule of Store Inventory Exhibit "K" - Description of Unsalable Inventory Items Exhibit "L" - List of Seller's Prepaid Expenses Exhibit "M" - Documents Defining Percent Spread Exhibit "N" - List of Existing Contracts Schedule "1" - Assumed Contracts Schedule "2" - Undertaking Contracts Exhibit "O" - Form of Undertaking Form of Assignment and Assumption Agreement Exhibit "P" - List of contracts described as ASC Exhibit "Q" - Delivery Items Exhibit "R" - Schedule of Warehouse Equipment Schedule "1" - Owned Warehouse Equipment Schedule "2" - Leased Capital Equipment - Warehouse Exhibit "S" - List of Seller's Office Equipment Exhibit "T" - List of Seller's Store Equipment in Storage at Milk Plant Exhibit "U" - Seller's FIRPTA Certificate Form Exhibit "V" - Form of Supplemental Agreement Regarding Section 4204 of ERISA Exhibit "W" - List of Consents and Approvals - Seller Exhibit "X" - List of Litigation - Buyer Exhibit "Y" - List of Consents and Approvals - Buyer "Existing Contracts" shall mean those contracts described in Section 5.1(a) and set forth on Exhibit "N" herein. "Hazardous Materials" shall mean and include the existence in any form of: (i) polychlorinated biphenyls; (ii) asbestos or asbestos containing materials; (iii) urea formaldehyde foam insulation; (iv) oil, gasoline or other petroleum products (other than in vehicles operated in the ordinary course of business); (v) pesticides and herbicides; and (vi) any other chemical, material or substance (including, without limitation, those materials defined as "Hazardous Substances" in the Comprehensive Environmental Response Compensation and Liability Act, as amended), to which exposure is prohibited, limited or regulated by any Environmental Laws. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "HSR Filing" shall mean the filings required under the Antitrust Improvements Act Notification and Report Form for certain Mergers and Acquisitions pursuant to the HSR Act. "Inventory" shall mean collectively the Store Inventory and the Warehouse Inventory. "Inventory Certificate" shall mean certificates executed by Buyer and Seller prior to the end of Closing as contemplated by Section 4.2. When completed, all Inventory Certificates shall be affixed hereto and incorporated herein. "Inventory Valuation" shall mean the procedure for counting the Inventory and establishing its purchase price as set forth in Sections 4.1, 4.2, 4.5 and 4.6. "Leased Capital Equipment - Stores" shall mean that Equipment set forth on Schedule "2" of Exhibit "H". "Leased Capital Equipment - Warehouse" shall mean that Warehouse Equipment set forth on Schedule "2" of Exhibit "R". "Leases" shall mean, collectively, the Store Leases and Warehouse Leases. "Operating Assets" shall mean the (i) Purchased Stores set forth on Exhibit "A" and Exhibit "C", (ii) Equipment, (iii) Warehouse set forth on Exhibit "G" and (iv) Warehouse Equipment. "Owned Property" shall mean the real property owned in fee simple by Seller and set forth on Exhibit "C", Schedule "2" and Exhibit "G", Schedule "2". "Owned Store Equipment" shall mean the Equipment set forth on Schedule "1" of Exhibit "H". "Owned Warehouse Equipment" shall mean that Warehouse Equipment set forth on Schedule "1" of Exhibit "R". "Permitted Exceptions" shall mean all exceptions to title reasonably acceptable to Buyer contained in the title commitments required hereby. Permitted Exceptions shall not include those exceptions which materially adversely affect (i) good, marketable and insurable title to or (ii) use of the Purchased Assets. "Purchase Price" shall mean the aggregate sum determined pursuant to the provisions of Article III. "Purchased Assets" shall mean the Operating Assets and Inventory, collectively along with any goodwill associated therewith. "Purchased Stores" shall mean Store Leases and Owned Property associated with the store locations currently owned or leased and operated by Seller which are listed on Schedule "1" of Exhibit "A" and Exhibit "C". "Representative" shall mean any officer, director, principal, attorney, agent, consultant, affiliate, stockholder, employee or other representative of Seller or Buyer. "Store Inventory" shall mean all good and salable items of merchandise located at the Purchased Stores which are contemplated under Section 4.1. All items of Unsalable Inventory (defined below) are expressly excluded. A complete schedule of the Store Inventory shall be set forth on Exhibit "J". "Store Leases" shall mean those leases described on Schedule "1" of Exhibit "C". "System Cost" shall mean costing which is consistent with Seller's past practice as set forth in Seller's Listing of Warehouse Inventory dated September 20, 1994 heretofore provided to Buyer, which includes certain off-invoice allowances. "Unsalable Inventory" shall mean those items of Store Inventory or Warehouse Inventory which are described on Exhibit "K". "Violations" shall mean all material violations or notices of material violations of law or governmental ordinances, orders or requirements which exist or are noted in or issued by any housing and building, fire, labor, health, air resources, environmental, highways or any other Federal, state, county or municipal department, agency, authority or bureau having jurisdiction as to conditions affecting any of the Purchased Assets. "Warehouse" shall mean the Warehouse Leases and Owned Property associated with the warehouse complex utilized by Seller in connection with its current wholesale operation for the distribution of goods and products and associated services conducted at locations described on Exhibit "G". "Warehouse Equipment" shall mean all furniture, fixtures, equipment, machinery, totes, supplies and outdoor signage, along with all additions, accessories and attachments thereto owned or to be owned by Seller on or before the Closing Date and located at the Warehouse and utilized in connection with Seller's business, except (A) supplies and sign faces which bear Seller's name or logo, (B) Seller's office equipment located at Seller's corporate headquarters which is described on Exhibit "S" and (C) Seller's store equipment described on Exhibit "T" attached hereto that is in storage at Seller's former milk plant at the Warehouse. The Warehouse Equipment shall consist of all of the foregoing which are either (i) currently Owned Warehouse Equipment or (ii) in the case of Leased Capital Equipment - Warehouse, to be owned by Seller on or prior to the Closing Date. "Warehouse Equipment Schedule" shall mean the schedule to be assembled and delivered to Buyer as provided in Section 4.9. When completed, the Warehouse Schedule shall be affixed hereto as Exhibit "R" and incorporated herein. "Warehouse Inventory" shall mean all good and saleable items of merchandise located at the Warehouse which are contemplated under Section 4.6 All items of Unsalable Inventory are expressly excluded. A complete schedule of the Warehouse Inventory shall be set forth on Exhibit "I". "Warehouse Leases" shall mean those leases described on Schedule "1" of Exhibit "G". "Warranties and Guaranties" shall mean all assignable third party warranties, guaranties or similar rights owned by Seller or inuring to Seller's benefit in connection with the Purchased Assets which are in Seller's possession. All Warranties and Guaranties are set forth in Exhibit "D". ARTICLE II PURCHASE AND SALE OF PURCHASED ASSETS Subject to the terms and conditions set forth herein, Seller hereby agrees to sell, and Buyer hereby agrees to purchase, on the Closing Date, all of Seller's right, title and interest in and to the Purchased Assets. The Purchased Assets shall not include the Excluded Assets. ARTICLE III PURCHASE PRICE 3.1 Purchase Price. The Purchase Price for the Purchased Assets shall (subject to any adjustment hereinafter provided) be comprised of the following components: (a) The purchase price for the Operating Assets shall be the sum of Forty-Five Million Dollars ($45,000,000.00), plus (b) The purchase price to be paid by Buyer to Seller for the Inventory shall be the purchase price determined by the Inventory Valuation and as set forth on an Inventory Certificate, plus (c) The obligations, assumptions and/or undertakings set forth in Article V below. 3.2 Payment of Purchase Price. The Purchase Price shall be paid by wire transfer of immediately available funds to a bank account designated by Seller on the Closing Date and shall total the sum of $45,000,000 plus or minus (i) the prorations described in Section 12.5, plus (ii) an amount equal to 90% of the estimated value of the Inventory, as estimated two (2) days prior to the Closing Date by Seller in good faith and on the basis of the most current information available to Seller at that time. Such amount shall be adjusted after the Closing to conform to the Inventory Valuation. Any amounts owed by either party shall be paid as soon as practicable after the Inventory Valuation is available in immediately available funds by wire transfer to a bank account designated by the party to whom such funds are owed. In addition, following the Closing, Buyer or Seller, as the case may be, shall pay to the other any adjustments to any estimated prorated amounts in accordance with Section 12.5(f). ARTICLE IV INVENTORY AND EQUIPMENT 4.1 Count of Store Inventory. Seller shall close the Purchased Stores (excluding any pharmacies) at 6:00 p.m. on the day after the Closing Date. A physical count of the Store Inventory (excluding Unsalable Inventory) shall be conducted commencing on the day after the Closing Date by an inventory service company or companies (the "Inventory Service") selected and retained by Buyer and approved by Seller, which approval shall not be unreasonably withheld. The cost of utilizing the Inventory Service shall be borne equally by the parties by way of an appropriate adjustment at Closing. Representatives of Seller and Buyer shall have the right to be present during such physical count to verify the count, to request recounts of any questionable items and to settle all disputes as to Unsalable Inventory. Upon completion of such physical count, except for mathematical errors, other agreed upon changes and disputes regarding physical count or Unsalable Inventory, the count of the Inventory Service shall be final and binding on the parties for all purposes of this Agreement. The parties shall use their best efforts in good faith to cooperate toward the resolution of any disputes as to physical count or Unsalable Inventory prior to the completion of Closing. Any unresolved disputes not resolved by the completion of Closing shall be separately listed and settled by the Chief Executive Officers of the parties as expeditiously as practicable thereafter or, if the parties cannot agree, by an independent third party mutually acceptable to both parties ("Dispute Resolution Procedure"). Any such determination of any dispute shall be final and binding on the parties. All such physical counts shall be completed prior to the completion of Closing, or as otherwise agreed by the parties, and the final Inventory Valuation for the Store Inventory shall be completed as soon thereafter as practicable. 4.2 Valuation for Store Inventory. The Store Inventory shall be valued by applying the following methods to the count reported by the Inventory Service: (a) Grocery and Variety Items. The purchase price for the items identified by Seller as grocery and variety (except greeting cards, gift wrap and videos) will be determined pursuant to the calculation below: Cost of Store Inventory at Retail X Inventory Factor. For purposes herein, the Inventory Factor is calculated as follows: (Seller's Going-In Gross) + (W/T Expense/ Realized Sales) = Inventory Factor. For purposes herein, Seller's Going-In Gross is defined as the calculation described as "Percent Spread" on Exhibit "M" attached hereto. "Warehouse Expenses", "Transportation Expense" and "Realized Sales" will be defined as set forth on Exhibit "M". The "W/T Expense" is defined as the Warehouse Expenses, plus the Transportation Expense as set forth on Exhibit "M". When calculating the Going-In Gross, the parties will use the average of the Going-In Gross from January 1, 1995 through March 25, 1995. (b) Backroom. The following items consisting of unopened full cases shall be valued at System Cost: 1. Frozen Bakery (Bake off or items which need further processing) 2. Frozen Meat (Product to be fabricated for sale at retail) 3. Bakery Ingredients (Product to be processed for resale) 4. Dry Produce 5. Lunch Meat and Smoked Meat with 30 days or more shelf life 6. Non-Perishable Floral (consisting of items to be processed for sale at retail; it being understood that floral supplies are part of Equipment). (c) Greeting Cards and Gift Wrap. Greeting cards and gift wrap shall be valued at 50% of retail. (d) Videos. The amount to be paid by Buyer for all video tapes in the Purchased Stores will be mutually agreed upon by the parties on or before the Closing Date. In the event that the parties cannot agree upon such amount prior to the Closing Date (i) the video tapes shall be Excluded Assets for all purposes of this Agreement and shall be removed from the Purchased Stores or abandoned as provided in Section 4.3 herein and (ii) Seller may, at its option, designate as Excluded Assets all display racks and equipment utilized in connection with video sales and rentals in the Purchased Stores, including computers, software, computer peripherals and data bases, but excluding sales counters and other fixtures attached to the permanent improvements (collectively, "Video Equipment"). Upon any such designation, such Video Equipment shall be treated as Excluded Assets for all purposes of this Agreement and shall be removed from the Purchased Stores or abandoned as provided in Section 4.3 herein. (e) Inventory Certificates. Upon completion of the Inventory Valuation of Store Inventory, which shall be completed prior to the completion of Closing, the Buyer and Seller shall execute an Inventory Certificate which shall contain the Purchase Price for the Store Inventory at each Purchased Store and shall have incorporated therein a complete listing of the Store Inventory for each Purchased Store. (f) Pharmacy. The Store Inventory consisting of prescription pharmaceuticals ("Pharmacy Product"), which Buyer is legally permitted to purchase, will be calculated at Seller's acquisition cost less any rebates and allowances up to an aggregate of 3.7%. Any Pharmacy Product with less than a three-month shelf life will either be returned to the supplier by Seller; or if return is restricted, the purchase price for such Pharmacy Product will be Seller's acquisition cost times 50%. Seller will also have the option to transfer any Pharmacy Product with less than a three-month shelf life to another of Seller's stores. (g) Third Party Private Label. From the date hereof to the Closing Date, Seller will use its best efforts to deplete third party private label products, which shall include Best Buy, Townhouse and Lucerne. 4.3 Removal of Excluded Items from Purchased Stores. Seller shall have seven (7) business days from and after the Closing Date to remove all items from the Purchased Stores which are not included in the Purchased Assets. Thereafter, Buyer shall be free at any time to remove and dispose of any such item at its own cost. 4.4 Consigned Items; Third-Party Items. Seller and Buyer recognize that certain merchandise and equipment belonging to third parties, including items held on consignment and equipment owned or leased by persons permitted to sell their own merchandise in one or more of the Purchased Stores, is located in the Purchased Stores or Warehouse, including but not limited to, vending machines, vendor- owned display racks, broadcasting equipment, ATM equipment, electronic equipment, reverse vending machines, photo centers, cigarette machines, copy machines and telephone systems. All such items will be identified in the inventory count pursuant to Section 4.1. Seller shall notify all such third parties prior to Closing that they must pick up their property prior to the Closing Date unless Buyer, Seller and any such third party reach some mutually agreeable arrangement prior to the Closing Date. To the extent that any of the foregoing items are the subject of an Existing Contract, the provisions of Article V shall supercede the foregoing where applicable. 4.5 Count of Warehouse Inventory. Seller shall close the Warehouse at 4:00 p.m. on the Closing Date. A physical count of the Warehouse Inventory (excluding Unsalable Items) shall be conducted commencing on the Closing Date by the parties. Representatives of Seller and Buyer shall conduct and remain present during such physical count to verify the count, to request recounts of any questionable items and to settle all disputes as to Unsalable Inventory. Upon completion of such physical count, except for mathematical errors, other agreed upon changes and disputes regarding physical count or Unsalable Inventory, the count of the parties shall be final and binding on the parties for all purposes of this Agreement. Any disputes as to the physical count or Unsalable Inventory shall be resolved in accordance with the Dispute Resolution Procedure. Any such determination of any dispute shall be final and binding on the parties. All such physical counts shall be completed prior to the completion of Closing, or as otherwise agreed by the parties, and the Inventory Valuation for the Warehouse Inventory shall be completed as soon thereafter as practicable. 4.6 Inventory Valuation for Warehouse Inventory. The Warehouse Inventory shall be valued by applying the following methods to the count arrived at by the parties: (a) The purchase price for the Warehouse Inventory (other than perishable inventory) will be calculated at Seller's last System Cost, excluding cash discounts. (b) The purchase price for the Warehouse Inventory consisting of perishables will be calculated at Seller's last System Cost (which is Seller's acquisition cost), excluding cash discounts. (c) Seller will continue to employ System Cost in connection with the Warehouse Inventory until Closing. (d) Upon completion of the Inventory Valuation of Warehouse Inventory, which shall be completed as soon as practicable after the Closing Date, the Buyer and Seller shall execute an Inventory Certificate which shall contain the Purchase Price for the Warehouse Inventory and have incorporated therein a complete listing of the Warehouse Inventory. 4.7 Removal of Excluded Items from Warehouse. Seller shall have thirty (30) business days from and after the Closing Date to remove all items from the Warehouse which are not included in the Purchased Assets. Notwithstanding the foregoing, in the event any such items belonging to Seller unreasonably interfere with Buyer's use of any Purchased Asset, Buyer shall be free at any time after twenty-four (24) hours prior notice to Seller to remove and dispose of any such item. After the expiration of such thirty (30) day period, Buyer may dispose of such items at its own cost. 4.8 Equipment Schedule. Between the date hereof and the Closing Date, Seller and Buyer shall cooperate to prepare and deliver to Buyer the Equipment Schedule which shall set forth on a per store basis every item of Equipment in each Purchased Store. 4.9 Warehouse Equipment Schedule. Between the date hereof and the Closing Date, Seller and Buyer shall cooperate to prepare and deliver to Buyer the Warehouse Equipment Schedule which shall set forth on a location basis every item of Warehouse Equipment in each of the locations of the Warehouse. ARTICLE V ADDITIONAL CONSIDERATION 5.1 Assumption/Undertakings Regarding Certain Existing Contracts. On the Closing Date, Buyer shall undertake or assume certain obligations in connection with certain specified existing contracts: (a) With respect to certain equipment, service, supply or other contracts entered into by Seller prior to November 30, 1994 ("Existing Contracts") which are listed on Exhibit "N" attached hereto and incorporated herein, the parties shall either (i) agree to an assumption of such contract in the form set forth in Exhibit "O" attached hereto and incorporated herein (the "Assignment and Assumption Agreement"), or (ii) enter into an undertaking in the form set forth in Exhibit "O" attached hereto and incorporated herein ("Undertaking"), whereby the burdens and benefits of such agreement are apportioned between the parties in a manner consistent with this Section 5.1 and the agreements to be entered into in connection herewith. The contracts to be assumed are listed on Schedule "1" of Exhibit "N", and the contracts in connection with which an Undertaking shall be executed are listed on Schedule "2" of Exhibit "N". (b) For purposes hereof, it is agreed that the contracts which affect some or all of the Purchased Stores and some or all of the Supplied Stores ("ASC"), which are listed on Schedule "2" of Exhibit "N" and separately on Exhibit "P", attached hereto and incorporated herein, shall be subject to the following apportionments: (i) Except as set forth below, Buyer will undertake to be responsible for up to twenty-five percent (25%) of the obligations set forth in each ASC to the extent necessary to prevent the triggering of an obligation to repay, buy back or otherwise compensate ("Repayment") the other party to an ASC pursuant to the terms of such ASC or as a result of a default (as such term is defined in each undertaking) under such ASC. (ii) With respect to a Repayment: A. If Buyer's actions or omissions (or the actions or omissions of any Buyer member or purchaser of any of the Purchased Stores) trigger a Repayment, Buyer shall be responsible for all of such Repayment. B. If the Repayment is triggered by any event not covered by subparagraphs A or C, Buyer shall be responsible for twenty-five percent (25%) of the Repayment and Seller shall be responsible for the remainder. C. If the Repayment is triggered by Seller in connection with the eighty-two (82) remaining stores or Supplied Stores, Seller shall be responsible for all of such Repayment. (iii) With respect to obligations to deal exclusively, obligations to meet certain performance levels and promotional obligations under an ASC, Buyer will cause its retail members or any purchasers which operate the Purchased Stores to carry the required products and/or to otherwise comply with the required performance levels and promotional obligations and Buyer will be responsible for any breach. (iv) Any benefits, monetary or otherwise, relating to the ASC contracts received by Seller on an ongoing basis after the Closing Date will be prorated in a manner consistent with the allocation of obligations as set forth above. (c) Any contracts exclusively relating to the Warehouse (other than collective bargaining agreements) will be assumed by Buyer and all such contracts are listed on Schedule "1" of Exhibit "N". (d) With respect to any contracts which exclusively relate to one or more of the Purchased Stores (other than collective bargaining agreements), Buyer will cause the applicable retail member or purchaser of such Store(s) to (i) assume such contract or (ii) enter into an agreement whereby such retailer agrees to be responsible for such liability and Buyer will be responsible for any damages or liabilities resulting from any breach, non-performance or non-assumption. Such contracts are listed on Schedule "1" of Exhibit "N". (e) The K-C Computer Services, Inc. ("K-CCS") contract will be handled in the following manner: (i) Prior to Closing, Seller shall analyze its ongoing needs to operate the segment of its business which is not being sold to Buyer at this time. Seller shall advise Buyer of its requirements for services under the K-CCS contract. (ii) Buyer will undertake to satisfy and will be responsible for all obligations (including any payments) under the K-CCS contract which are above and beyond Seller's ongoing requirements. (iii) On or before the Closing Date the parties will enter into a mutually agreeable agreement to document such arrangement. (f) The Drake Refrigerated Lines, Inc. ("Drake") contract relating to Seller's fleet will be assumed by Buyer pursuant to a mutually agreeable assumption agreement to be entered into on or before the Closing Date. (g) The parties agree to enter into a contract which satisfies the requirements of Section 4204 of the Employee Retirement Income Security Act of 1974, as amended, with respect to the Seller's obligations relating to the Purchased Assets to the Central States, Southeast and Southwest Areas Pension Fund (the "Plan"). The form of such agreement shall be attached hereto as Exhibit "V" and incorporated herein. If any withdrawal liability to the Plan ("TPWL") is triggered by any of the transactions contemplated hereby or otherwise subsequent to the Closing, Buyer will reimburse Seller for such TPWL up to $3,471,000. If Seller and Buyer agree to alternative arrangements for the avoidance of TPWL, Buyer will reimburse Seller the costs associated with such alternative arrangements, if any, up to $3,471,000. (h) The parties acknowledge that Seller has entered into other contracts not listed on Exhibit "N" ("Excluded Contracts") and have both independently reviewed the Excluded Contracts and have determined that Buyer's purchase of the Purchased Stores shall not result in a default thereunder or any resultant liabilities or damages to Seller, and that Buyer does not undertake any liability or responsibility for the Excluded Contracts. (i) With respect to contracts Seller enters into after November 30, 1994 relating to the Purchased Assets, Seller and Buyer shall discuss such contracts in an effort to reach mutual agreement as to whether and to what extent Buyer may have any responsibility for such contracts or any portion thereof. 5.2 Assumption of Leases. On the Closing Date, Buyer and Seller shall execute such mutually agreeable documentation as may be reasonably required to assume Seller's obligations under the Leases. 5.3 Supply Agreement. On the Closing Date, Buyer and Seller shall execute the Supply Agreement. As further inducement in connection with all of the other provisions hereof relating to the purchase of and transfer of title to the Warehouse, Warehouse Inventory, Warehouse Equipment, and the goodwill associated therewith and the undertakings and/or assumptions in connection with contracts relating to the Warehouse and its operations, and as an integral and non-severable part thereof, the Supply Agreement shall contain the Volume Protection Rights. 5.4 Open Warehouse Purchase Orders. Commencing fifteen (15) days prior to the Closing Date, Buyer and Seller will coordinate all existing and future purchase orders for items to become Warehouse Inventory. Buyer shall designate a representative to be on site during such period. After the Closing Date all obligations under outstanding purchase orders for Warehouse Inventory will become part of Buyer's ongoing replenishment program, and Buyer will assume Seller's obligations under such purchase orders. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER In addition to any representations and warranties contained elsewhere in this Agreement, Seller hereby makes the following representations and warranties to and for the benefit of Buyer, its successors and assigns, in connection with the Purchased Assets, each of which warranties and representations (i) is material and being relied upon by Buyer, and (ii) is true in all respects as of the date hereof (or such other date as may be indicated), (iii) and shall be true and correct in all material respects on the Closing Date. 6.1 No Violations. Except as set forth on Exhibit "F", Seller is not aware of any existing or threatened Violations with respect to the Purchased Assets. Except as set forth on Exhibit "F", Seller has received no written notification alleging any existing material violation of any applicable statutes, rules, regulations, ordinances, codes, orders, licenses, permits or authorizations, as such now apply to the Purchased Assets, including without limitation, any applicable business, building, zoning, antipollution, occupational safety, health or other law, ordinance or regulation. 6.2 Leases. Included on Exhibit "C" is a complete, true and correct schedule (Schedule "1") of all documents comprising the Store Leases. Included on Exhibit "G" is a complete, true and correct schedule (Schedule "1") of all documents comprising the Warehouse Leases. All of said Leases are now in full force and effect. 6.3 Equipment Schedule. To the best of Seller's knowledge, the Equipment Schedule (also referred to as Exhibit "H") is a complete, true and correct schedule of the Equipment and its location as of the Closing Date. 6.4 Warranties and Guaranties. To the best of Seller's knowledge, Exhibit "D" includes a true and correct summary of all Warranties and Guaranties concerning the Equipment and other Purchased Assets. 6.5 Title. Seller has good, marketable and, where applicable, insurable title to the Purchased Assets, and agrees to convey free and clear (subject to any Permitted Exceptions), good, marketable and, where applicable, insurable title to such assets as provided for herein. 6.6 Taxes. All sales, excise, payroll, personal property, license, transaction, privilege, rental and real property taxes due and payable in connection with Seller's ownership or operation of the Purchased Assets prior to the Closing have been, or at the Closing will be paid in full. Any accrued but not yet payable amounts shall be prorated between Buyer and Seller as set forth herein. 6.7 Environmental Matters. Except as set forth on Exhibit "F", to the best of Seller's knowledge, there are no Adverse Environmental Conditions located in, on or under or existing in connection with any Purchased Asset. A list of all remediation plans existing in connection with Adverse Environmental Conditions is attached as Schedule "1" of Exhibit "F". Copies of all such remediation plans shall be attached as Schedule "2" of Exhibit "F". 6.8 Organization of Seller. Seller is duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller is duly licensed and qualified to do business as a foreign corporation and is in good standing in the States of Oklahoma, Kansas and Texas. 6.9 Authorization. Seller has all necessary corporate power and authority and has taken all corporate action necessary to enter into this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder, including approval of its Board of Directors. This Agreement has been duly executed and delivered by Seller and is a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. 6.10 Liens and Encumbrances. Seller shall convey all Purchased Assets free and clear of all liens, claims and encumbrances except for Permitted Exceptions. All obligations of every kind, character or description which do or could constitute a valid and perfected lien, claim or encumbrance on the Purchased Assets and which are payable by Seller prior to the Closing Date have been or will be paid or otherwise satisfied by Seller prior to the Closing Date. Specifically, as of the Closing Date, there shall be no mechanics', artisans' or other liens, contractors' or subcontractors' claims, unpaid bills for material or labor pertaining to the Purchased Assets or any other similar items which might in each case adversely affect the Purchased Assets or Seller's free and unencumbered title thereto. 6.11 Litigation, Proceedings and Applicable Law. Other than as set forth in Exhibit "E" hereto, there are no actions, suits, proceedings or investigations pending or, to the best knowledge of Seller, threatened against Seller, either at law or in equity or before or by any governmental authority or instrumentality or before any arbitrator of any kind which would materially adversely affect the Purchased Assets or the consummation or performance of the transactions contemplated hereby and, to the best knowledge of Seller, there is no valid basis for any such action, suit, proceeding or investigation. Except as set forth in Exhibit "E" hereto, to the best of Seller's knowledge, Seller is not in default with respect to any judgment, order, writ, injunction or decree of any court or governmental agency, and there are no unsatisfied judgments against Seller which would materially adversely affect the Purchased Assets or the consummation or performance of the transactions contemplated hereby. There is not a reasonable likelihood of an adverse determination in any pending proceeding which would, individually or in the aggregate, have a material adverse effect on the Purchased Assets or Seller's ability to perform hereunder or under the Supply Agreement. 6.12 No Conflict or Violation. Except as set forth on Exhibit "F", neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in (a) a material violation of or a conflict with any provision of the Certificate of Incorporation or Bylaws of Seller, (b) a material breach of, or a material default under, any material term or provision of any contract, agreement, lease, commitment, license, franchise, permit, authorization or concession to which Seller is a party or an event which, with notice, lapse of time, or both, would result in any such breach or default, or (c) a material violation by Seller of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or award, or an event which with notice, lapse of time, or both, would result in any such violation, which breach, default or violation would in the case of (a), (b) or (c) above have a material adverse effect on the Purchased Assets or on Seller's ability to consummate or perform the transactions contemplated hereby. 6.13 Consents and Approvals. The list attached hereto as Exhibit "W", is a true, correct and complete list of all individuals and/or entities from whom consent is required to consummate or perform all or any part of the transactions contemplated under this Agreement or the Supply Agreement. No other consents and/or approvals are required. No Physical Defects. Except as set forth on Exhibit "F", to the best of Seller's knowledge, there are no material physical or mechanical defects in the Purchased Assets and all of the Inventory is fit for resale to the public. 6.15 Omissions. None of the representations and warranties of Seller or other information contained in this Agreement or any certificate furnished or to be furnished by Seller or any of its representatives hereunder contains or will contain any untrue statement of material fact or omits or will omit any material fact necessary, in light of the circumstances under which it was made, to make the statements made therein not misleading taken as a whole. 6.16 Value of Assets. The consideration being received for the Purchased Assets hereunder equals or exceeds the fair market value of the Purchased Assets. 6.17 Brokerage Fees. Except for the commission owed to Lazard Freres & Co., which shall be paid by Seller, Seller has not engaged any other broker in connection with this transaction. 6.18 Existing Contracts and ASC. Included on Exhibit "N" is a complete, true and correct schedule of all documents comprising the Existing Contracts. Included on Exhibit "P" is a complete, true and correct schedule of all documents comprising the contracts referred to as ASC. All of the Existing Contracts and ASC contracts are in full force and effect. 6.19 Warehouse Equipment Schedule. To the best of Seller's knowledge, the Warehouse Equipment Schedule (also referred to as "Exhibit "R") is a complete, true and correct schedule of the Warehouse Equipment as of the Closing Date. 6.20 Supplied Stores. Schedule "2" of Exhibit "A" is a complete, true and correct schedule of the Supplied Stores. 6.21 Financial Restructuring. Seller represents that its current plans and intentions in connection with any financial restructuring or sale of assets do not include any type of bankruptcy proceeding. Prior to the Closing Date, Seller will keep Buyer fully advised in connection with any financial restructuring which would adversely affect Seller's ability to comply with the terms hereof or under the Supply Agreement and shall deliver any evidence of any such financial restructuring to Buyer. In addition any sale of assets will be conducted in a manner which is consistent with Buyer's Volume Protection Rights. 6.22 Insurance. The Purchased Assets are insured by Seller for Seller's benefit and will be so insured until the Closing Date in amounts and against risks deemed adequate by Seller. Seller has not received any notice or request from any insurance company or Board of Fire Underwriters or governmental agency, department, bureau or other entity requiring or demanding the performance of any work or alteration with respect to the Purchased Assets. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF BUYER In addition to any representations and warranties contained elsewhere in this Agreement, Buyer hereby makes the following representations and warranties to and for the benefit of Seller, its successors and assigns, in connection with the Purchased Assets, each of which warranties and representations (i) is material and being relied upon by Seller, and (ii) is true in all respects as of the date hereof (or such other date as may be indicated), (iii) and shall be true and correct in all material respects on the Closing Date. 7.1 Organization of Buyer. Buyer is duly organized, validly existing and in good standing under the laws of the State of Missouri and is qualified to do business in the States of Kansas, Texas and Oklahoma. 7.2 Authorization. Buyer has all necessary corporate power and authority and has taken all corporate action necessary to enter into this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder, including approval of its Board of Directors. This Agreement has been duly executed and delivered by Buyer and is a valid and binding obligation, enforceable against it in accordance with its terms. 7.3 No Conflict or Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in (a) a material violation of or a conflict with any provision of the Articles of Incorporation or Bylaws of Buyer, (b) a material breach of, or a default under, any term or provision of any contract, agreement, lease, commitment, license, franchise, permit, authorization or concession to which Buyer is a party or an event which with notice, lapse of time, or both, would result in any such breach or default, or (c) a material violation by Buyer of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree, or award, or an event which with notice, lapse of time, or both, would result in any such violation, which breach, default or violation would in the case of (a), (b) or (c) above, have a materially adverse effect on Buyer or its ability to consummate or perform the transactions contemplated hereby. 7.4 Litigation, Proceedings and Applicable Law. Other than as set forth in Exhibit "X" hereto, there are no actions, suits, proceedings or investigations pending or, to the best knowledge of Buyer, threatened against Buyer, either at law or in equity or before or by any governmental authority or instrumentality or before any arbitrator of any kind which would materially adversely affect the Purchased Assets or the consummation or performance of the transactions contemplated hereby and, to the best knowledge of Buyer, there is no valid basis for any such action, suit, proceeding or investigation. Except as set forth in Exhibit "X" hereto, to the best of Buyer's knowledge, Buyer is not in default with respect to any judgment, order, writ, injunction or decree of any court or governmental agency, and there are no unsatisfied judgments against Buyer which would materially adversely affect the Purchased Assets or the consummation or performance of the transactions contemplated hereby. There is not a reasonable likelihood of an adverse determination in any pending proceeding which would, individually or in the aggregate, have a material adverse effect on the Purchased Assets or Buyer's ability to perform hereunder or under the Supply Agreement. 7.5 Consents and Approvals. The list attached hereto as Exhibit "Y", is a true, correct and complete list of all individuals and/or entities from whom consent is required to consummate or perform all or any part of the transactions contemplated under this Agreement or the Supply Agreement. No other consents and/or approvals are required. 7.6 Omissions. None of the representations and warranties of Buyer or other information contained in this Agreement or any certificate furnished or to be furnished by Buyer or any of its representatives hereunder contains or will contain any untrue statement of material fact or omits or will omit any material fact necessary, in light of the circumstances under which it was made, to make the statements made therein not misleading. 7.7 Brokerage Fees. Buyer has not engaged any broker in connection with this transaction. ARTICLE VIII CONDITIONS TO SELLER'S OBLIGATIONS The obligations of Seller to consummate the transactions provided for hereby are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions: 8.1 Representations, Warranties and Covenants. All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date, except as and to the extent that the facts and conditions upon which such representations and warranties are based are expressly required or permitted to be changed by the terms hereof, and Buyer shall have performed, in all material respects, all agreements, covenants and obligations required hereby to be performed prior to or at the Closing Date, including the execution of all documents contemplated under Article XII. 8.2 Consents. Seller and Buyer shall have obtained all consents, approvals and waivers from governmental authorities and other parties necessary to permit Seller to transfer the Purchased Assets to Buyer and to consummate the transactions contemplated hereby. 8.3 No Governmental Proceedings or Litigation. No suit, action, eminent domain proceeding or other legal or administrative proceeding by any governmental authority shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected to materially damage Seller if the transactions contemplated hereunder are consummated. 8.4 Corporate Documents. Prior to the execution hereof, Seller shall have received from Buyer resolutions adopted by the board of directors of Buyer approving this Agreement and the transactions contemplated hereby, certified by Buyer's corporate secretary and reasonably satisfactory to Seller. Prior to Closing, Seller shall have received from Buyer a current certificate of good standing and/or authorization to conduct business by a foreign corporation from the offices of the Secretary of State of Missouri, Kansas, Texas and Oklahoma. 8.5 Legal Compliance. Seller shall have received satisfaction of all requirements, which in the reasonable opinion of legal counsel, need to be satisfied relating to the HSR Act, Department of Justice, Federal Trade Commission, Securities Exchange Commission and any other approval by any applicable regulatory authority required or requested to rule on this transaction. In connection with the foregoing, Seller shall have received a certificate from Buyer dated as of the Closing Date, stating that the HSR Filings by Buyer in connection with this Agreement have been properly filed with the appropriate agencies and that the waiting periods with respect to the HSR Filings have expired. This certificate shall also describe the date when the HSR Filings were made, the date on which any request from the Federal Trade Commission or Department of Justice for additional information was received and the date on which such additional information, if requested, was filed with the agency so requesting. 8.6 Buyer's Cooperation Regarding Legal Requirements. Buyer shall provide evidence of Buyer's compliance with all laws, ordinances, rules and regulations relating to the transfer of the Purchased Assets (including those related to the transfer of Inventory consisting of liquor and pharmaceuticals). For purposes hereof, "evidence" shall mean copies of all documents needed to reflect Buyer's ability to purchase the Purchased Assets. 8.7 Opinion of Counsel. Buyer shall have delivered to Seller an opinion of Rose, Brouillette & Shapiro, P.C., counsel to Buyer, dated as of the Closing Date, in form and substance satisfactory to Seller, to the effect that: (a) Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Missouri; Buyer is duly qualified to do business as a foreign corporation in the States of Kansas, Texas and Oklahoma; (b) Buyer has the necessary corporate power and authority to enter into this Agreement and the Supply Agreement and consummate the transactions contemplated hereby and thereby; (c) All corporate action by Buyer required in order to authorize the execution and delivery of this Agreement and the Supply Agreement and the consummation of the transactions contemplated hereby and thereby has been duly and validly taken and no approval of the retail members of Buyer is required in connection therewith or, if required, such approval has been duly obtained; (d) This Agreement and the Supply Agreement have been duly executed and delivered by Buyer and are the valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally or by equitable principles (whether considered in an action at law or in equity) or other customary limitations reasonably satisfactory to Seller's counsel; and (e) Neither the execution and delivery of this Agreement or the Supply Agreement by Buyer nor the consummation of the transactions contemplated by either this Agreement or the Supply Agreement will (i) violate the Articles of Incorporation or Bylaws of Buyer or (ii) to the best knowledge without independent investigation of such counsel, violate any judgment, decree, injunction, writ or order applicable to Buyer. In rendering such opinion, such counsel may rely as they deem advisable (a) as to matters governed by the laws of jurisdictions other than states in which they maintain offices, upon opinions of local counsel satisfactory to such counsel, and (b) as to factual matters, upon certificates and assurances of appropriate governmental agencies, public officials and officers of Buyer. 8.8 Supply Agreement. Seller and Buyer shall have entered into (i) a Supply Agreement in the form of Exhibit "B" attached hereto and incorporated herein which contains the Volume Protection Rights referred to in the recitals to this Agreement and (ii) all the instruments referred to in Section 12.2 hereof. 8.9 Physical Inventories and Equipment Schedules. The physical inventories and equipment schedules contemplated by Article IV shall have been completed. ARTICLE IX CONDITIONS TO BUYER'S OBLIGATIONS The obligations of Buyer to consummate the transactions provided for hereby are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions: 9.1 Representations, Warranties and Covenants. All representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date, except as and to the extent that the facts and conditions upon which such representations and warranties are based are expressly required or permitted to be changed by the terms hereof, and Seller shall have performed in all material respects all agreements, covenants and obligations required hereby to be performed by it prior to or on the Closing Date, including the execution of all documents contemplated under Article XII. 9.2 Consents. Seller and Buyer shall have obtained all consents, approvals and waivers from governmental authorities and other parties necessary to permit Seller to transfer the Purchased Assets to Buyer and to consummate the transactions contemplated hereby. 9.3 No Governmental Proceedings or Litigation. No action by any governmental authority shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and which could reasonably be expected to materially and adversely affect the right or ability of Buyer to purchase, own, operate or possess the Purchased Assets after the Closing Date. Corporate Documents. Prior to the execution hereof, Buyer shall have received from Seller resolutions adopted by the board of directors of Seller approving this Agreement and the transactions contemplated hereby, certified by Seller's corporate secretary and reasonably satisfactory to Buyer. Prior to Closing, Buyer shall have received from Seller a current certificate of good standing and/or authorization to conduct business by a foreign corporation from the offices of the Secretary of State of Delaware, Oklahoma, Texas and Kansas. 9.5 Physical Inventories and Equipment Schedules. The physical inventories and equipment schedules contemplated by Article IV shall have been completed. 9.6 Legal Requirements. Buyer shall have received the following: (a) Evidence of compliance with the Worker Adjustment and Retraining Notification Act ("WARN") and all related laws, regulations or ordinances in respect to plant closing. For purposes hereof, "evidence" shall consist of copies of all documentation posted and/or sent to third parties. (b) Evidence of compliance with all laws, ordinances, rules and regulations relating to the transfer of the Purchased Assets as contemplated hereby (including those related to the transfer of Inventory consisting of liquor and pharmaceuticals). For purposes hereof, "evidence" shall consist of the required licenses and permits. (c) Satisfaction of all requirements, which in the reasonable opinion of legal counsel, need to be satisfied relating to the HSR Act, Department of Justice, Federal Trade Commission, Securities and Exchange Commission and any other approval by any applicable regulatory authority required or requested to rule on this transaction. In connection with the foregoing, Buyer shall have received a certificate from Seller dated as of the Closing Date, stating that all HSR Filings by Seller in connection with this Agreement have been properly filed with the appropriate agencies and that the waiting periods with respect to the HSR Filings have expired. This certificate shall also describe the date when the HSR Filings were made, the date on which any request from the Federal Trade Commission or Department of Justice for additional information was received and the date on which such additional information, if requested, was filed with the agency so requesting. (d) Evidence of compliance with laws, ordinances, rules and regulations in connection with the Securities and Exchange Commission. For purposes hereof, "evidence" shall consist of copies of all documentation sent to and/or filed with the Securities and Exchange Commission in connection with this transaction from January 1, 1995 through the Closing Date. 9.7 Supply Agreement. Seller and Buyer shall have entered into a Supply Agreement in the form of Exhibit "B" attached hereto and incorporated herein which contains the Volume Protection Rights referred to in the recitals to this Agreement. 9.8 Owner of Purchased Assets. The Purchased Assets shall be owned by Seller on or prior to the Closing Date. 9.9 Title. Prior to the Closing Date Buyer shall obtain, at its expense, title commitments in connection with all of the Purchased Assets consisting of Owned Property or interests therein including, but not limited to leasehold estates, which commitments shall contain no exceptions which materially adversely affect the good, marketable and insurable title of such Purchased Assets. The commitments may include the Permitted Exceptions. Such title commitments (and the proper state of title being shown thereby) shall be a condition precedent to Buyer's obligations hereunder, but Seller shall not be obligated to cure any objectionable exceptions. 9.10 U. C. C. Prior to the Closing Date, Buyer shall have received, at its expense, UCC reports with respect to the Purchased Assets; provided that if such reports show liens and encumbrances, it shall be a condition precedent that Seller deliver the Purchased Assets free and clear of such liens and encumbrances, except for liens for accrued taxes which are not yet due and payable and Permitted Exceptions. 9.11 Changes. The existence of no material misrepresentations, material misstatements or material adverse changes relating to the Purchased Assets or the consummation or performance of the transactions contemplated hereby. 9.12 Intentionally Omitted. 9.13 Financial Statements. Receipt by Buyer of the most recent year-end audited, consolidated financial statements of Homeland Holding Corporation (which includes Homeland Stores, Inc.) available from time to time through the Closing Date. 9.14 Liens and Encumbrances. Except for liens for accrued taxes which are not yet due and payable and Permitted Exceptions, Seller shall transfer the Purchased Assets free and clear of all liens and encumbrances or cause such liens or encumbrances to be deleted from Buyer's title policies. 9.15 Consent and Non-Disturbance. Receipt by Buyer of the consents of the landlord/lessor of any leasehold interest in connection with the assignment of any leasehold interests, if required under the controlling document relating to such lease. Receipt by Buyer of nondisturbance and attornment agreements from any lienholder or mortgage holder with a superior position to Seller with respect to any leasehold. Seller and Buyer will not be required to give economic incentives in connection with obtaining the foregoing. Receipt by Buyer of the consents from any contracting party with Seller in connection with the assignment, assumption or undertakings relating to the Existing Contracts, if required under the controlling document relating to such lease. 9.16 Estoppel Certificates. Buyer's receipt of an estoppel certificate acceptable to Buyer from all landlords and/or lessors on any lease being assumed by Buyer, except where the failure to obtain any such certificate or certificates would not have a material adverse effect in connection with the Purchased Stores and Warehouse taken as a whole. Buyer's receipt of an estoppel certificate acceptable to Buyer from all third parties to any material contract being assumed by Buyer, except where the failure to obtain any such certificate or certificates would not have a material adverse effect on the Purchased Assets taken as a whole. Seller and Buyer will not be required to give economic incentives in connection with obtaining the foregoing. 9.17 Survey. Buyer shall have received, prior to the Closing Date surveys of the premises relating to the Leases and Owned Property in connection with the Purchased Assets. Such activities shall be conducted at Buyer's expense. 9.18 Environmental. At Buyer's expense, Buyer shall have received an environmental audit and studies of the premises relating to the Leases and Owned Property, and the results of audits and studies shall meet the approval of Buyer. Buyer shall promptly notify Seller of any material defects in the Purchased Assets. Cure of any such material defects shall be a condition precedent to Buyer's obligations hereunder; provided, however, Seller and Buyer shall not have to pay third parties any amounts in connection with any such material defect. Except as otherwise required by Environmental Laws, the results of such environmental audits and studies shall be held confidential by Buyer. 9.19 Lender Compliance. Seller providing to Buyer copies of all consents identified on Exhibit "W" as executed by all required parties. The form of consent to be obtained from the holders of the Indenture dated as of March 4, 1992 (the "Indenture") and lenders which are parties to the Revolving Credit Agreement dated as of March 4, 1992 (the "Revolving Credit Agreement") (each as further identified on Exhibit "W") shall be reasonably acceptable to Buyer. 9.20 Fair Market Value Opinion. Receipt by Buyer of a satisfactory fair market value opinion/appraisal of the Purchased Assets, and an auditor's review report from the date of Seller's last audited financial statements to the date closest to the Closing Date which is practicable from mutually agreeable experts. Seller shall engage experts reasonably acceptable to Buyer; provided, however, such activities will be at Buyer's expense. Such appraisal or report shall be reasonably satisfactory to Buyer in all material respects. For purposes hereof, The Manufacturers Appraisal Company will be an independent expert acceptable to Buyer. 9.21 Solvency. Receipt by Buyer of a report regarding the solvency of Seller (whether solvent or not) from an appropriate expert. Seller will engage experts reasonably acceptable to Buyer; provided however, such activities will be at Buyer's expense. For purposes hereof, Corporate Financial Consultants will be an independent expert acceptable to Buyer. 9.22 Opinion of Counsel. Seller shall have delivered to Buyer opinions of Crowe & Dunlevy as to items (a), (b), (c), (d), (e)(i) and (e)(ii), and Debevoise & Plimpton as to items (e)(iii) and (f), counsel to Seller, dated as of the Closing Date, in form and substance satisfactory to Buyer, to the effect that: (a) Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; Seller is duly qualified to do business as a foreign corporation in the States of Kansas, Texas and Oklahoma; (b) Seller has the necessary corporate power and authority to enter into this Agreement and the Supply Agreement and consummate the transactions contemplated hereby and thereby; (c) All corporate action by Seller required in order to authorize the execution and delivery of this Agreement and the Supply Agreement and the consummation of the transactions contemplated hereby and thereby has been duly and validly taken and no approval of the stockholders of Seller is required in connection therewith or, if required, such approval has been duly obtained; (d) This Agreement and the Supply Agreement have been duly executed and delivered by Seller and are the valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally or by equitable principles (whether considered in an action at law or in equity) or other customary limitations reasonably satisfactory to Buyer's counsel; (e) Neither the execution or delivery of this Agreement or the Supply Agreement by Seller nor the consummation of the transactions contemplated by either this Agreement or the Supply Agreement will (i) violate the Certificate of Incorporation or Bylaws of Seller, (ii) to the best knowledge without independent investigation of such counsel, violate any judgment, decree, injunction, writ or order applicable to Seller or (iii) constitute a default under the Indenture or Revolving Credit Agreement; and (f) Payments by the issuing bank under the Letter of Credit to Buyer will not be avoided as preferential payments pursuant to Section 547 of the Bankruptcy Code if Seller should become a debtor in a proceeding under the Bankruptcy Code. In rendering such opinion, such counsel may rely as they deem advisable (a) as to matters governed by the laws of jurisdictions other than states in which they maintain offices, upon opinions of local counsel satisfactory to such counsel, and (b) as to factual matters, upon certificates and assurances of appropriate governmental agencies, public officials and officers of Seller. 9.23 Physical Inspection. Buyer conducting a physical inspection of all Purchased Assets to be purchased and performing all tests and acts deemed reasonably necessary by Buyer, including without limitation, mechanical inspections, engineering and soil borings, such activities to be conducted at Buyer's expense. The foregoing is in addition to (and not in lieu of) a physical inventory of all Equipment, as described herein. Buyer shall promptly notify Seller of any material defects in the Purchased Assets. Cure of any such material defects shall be a condition precedent to Buyer's obligations hereunder. Seller may elect to cure such defects or not at its sole discretion. 9.24 Violations. To the extent not specifically covered in this Article IX, all Violations shall be cured prior to Closing. ARTICLE X AFFIRMATIVE COVENANTS 10.1 No Solicitation. Through June 1, 1995, Seller will not solicit further offers for the Purchased Assets. 10.2 Additional Actions. Seller and Buyer each hereby covenants that it shall (a) perform all respective acts or refrain from performing all respective omissions contemplated herein during the period from the signing of this Agreement through the Closing Date or such later date as may be specifically set forth herein and (b) proceed diligently to cause the satisfaction of all conditions precedent contained herein as expeditiously as possible. The foregoing shall not obligate either party to expend any consideration in connection with such activities other than as specifically contemplated hereby. 10.3 Estoppel Certificates. Buyer shall use its reasonable best efforts to obtain the consents and nondisturbance and attornment agreements described in Section 9.15 and the estoppel certificates described in Section 9.16. Seller shall cooperate with Buyer in obtaining such agreements, estoppel certificates and consents to assignments/assumptions in form and substance reasonably satisfactory to Buyer indicating, among other things, all landlords' or lessors' acquiescence to the transactions contemplated hereby. Neither party shall be required to give any consideration in order to obtain any of the foregoing from third parties. 10.4 Conduct of Business. Until the Warehouse and Purchased Stores are delivered to Buyer in accordance with the provisions of Article XII, unless otherwise agreed to in writing by Buyer, Seller shall operate the Warehouse and Purchased Stores. Seller shall cause all utilities and Equipment at all Purchased Stores and Warehouse facilities to be kept on until each such location is delivered to Buyer. As soon as the Warehouse and as soon as each of the Purchased Stores is delivered to Buyer, Buyer shall commence operation of such facility. 10.5 Access to Premises and Properties. Seller shall make available and give full access during mutually agreeable hours (or, failing agreement, during normal store or office hours) to Buyer, its attorneys, accountants, employees, consultants and other representatives to such of the premises, properties, records, reports, contracts, agreements, financial and tax information and any other data related to the Purchased Assets which is reasonably requested by Buyer and is in the possession of Seller or obtainable by Seller without cost. Buyer shall diligently pursue its review of documents and all investigations, inspections and due diligence and use its reasonable best efforts to complete all such due diligence as soon as practicable prior to the Closing Date. In addition, Buyer shall order the UCC search and surveys so that the condition in Sections 9.10 and 9.17 can be satisfied prior to Closing. It is specifically understood that Buyer shall have the right at its own cost, peril and risk with no liability to Seller, to enter upon the real property owned, leased or operated by Seller for purposes of surveying, conducting physical inspections and environmental audits and collecting such other data as Buyer deems desirable; provided, however, (i) Buyer will not take any action which may unreasonably interfere with the continued present use, operation and occupancy of such property by Seller or materially adversely affect such property, (ii) Buyer shall restore such property to substantially the same condition as exists immediately prior to the date of such activity and (iii) Buyer shall indemnify and hold Seller harmless from any and all claims, costs, demands or expenses resulting from or arising out of any such activities by Buyer upon the property of Seller. Seller shall use its reasonable best efforts to facilitate all of the foregoing due diligence on the part of Buyer. Neither party shall be required to give any consideration (other than fees negotiated for the performance of tasks by third parties) to any third party in connection with the performance by Buyer of its due diligence. 10.6 HSR Filings. Seller and Buyer shall each prepare and submit, in a timely manner, all necessary filings for Seller and Buyer in connection with this Agreement under the HSR Act and the rules and regulations thereunder. Seller and Buyer shall request expedited treatment of such filing by the Federal Trade Commission, shall make promptly any appropriate or necessary subsequent or supplemental filings, and shall furnish to each other copies of all HSR Filings at the same time as they are filed with the government. 10.7 Maintenance of Purchased Assets. From the date hereof, through and including the Closing Date, Seller will continue to maintain the Purchased Assets in current condition and repair, ordinary wear and tear and damage by fire or other casualty, or by acts of God and the elements, excepted; and Seller shall perform any and all of the obligations imposed upon it under the Leases. 10.8 Warranties and Guaranties. Seller shall convey to Buyer at Closing all Warranties and Guaranties relating to any of the Purchased Assets. 10.9 Changes. In the event either party becomes aware that any changes occur as to any information, documents or Exhibits referred to in this or the other sections in this Agreement, such party will disclose the same to the other party as soon as practicable. In the event either party discovers any information in the course of its due diligence investigation that is contrary to the information or representations and warranties of the other party set forth herein or in any documents delivered to such party pursuant hereto, such party shall inform the other of any such discrepancy as soon as practicable. 10.10 Supply Agreement. Prior to or concurrent with Closing, Buyer and Seller shall enter into (i) the Supply Agreement relating to the Supplied Stores and (ii) all instruments referred to in Section 12.2. 10.11 Pharmacy. Buyer shall cause the retailers which acquire Purchased Stores with pharmacy operations to diligently pursue the procurement of National Association Boards of Pharmacy ("NABP") numbers; however, Seller agrees that, to the extent legally permissible, it will allow Buyer's retailers to use the NABP number assigned to each store with pharmacy operations in order to process prescription payments under third-party contracts, until such time as such third party contracts are extended to the retailers under its own NABP number. Furthermore, Buyer shall cause the retailers which acquire stores with pharmacy operations to diligently pursue the procurement of Drug Enforcement Agency ("DEA") numbers; however, Seller agrees that, to the extent legally permissible, it will allow Buyer's retailers to use the DEA numbers until the DEA assigns each such retailer its own DEA number. 10.12 Seller's Cooperation Relating to Closing. Seller understands that Buyer intends to transfer certain of the Purchased Assets to its retail members and that a contemporaneous closing of all of these related transactions is imperative to Buyer to insure continuity of operations, and Seller agrees to use its best efforts to coordinate the timing of the Closing and other Closing mechanics with Buyer so as to permit the transfer of such Purchased Assets to its retail members. 10.13 Delivery Items. To the extent Seller has not already done so and as soon as reasonably possible following the execution of this Agreement, Seller shall provide to Buyer (i) the documents described on Exhibit "Q" attached hereto and incorporated herein, (ii) a complete list and complete, true and correct copies of the Existing Contracts, (iii) Seller's proforma opening balance sheet and profit and loss statement showing projections of Seller's operation for Seller's fiscal years 1995 and 1996 and (iv) a certified copy of the resolution by Seller's board of directors approving this transaction. To the extent Buyer has not already done so and as soon as reasonably possible following the execution of this Agreement, Buyer shall provide to Seller a certified copy of the resolution by Buyer's board of directors approving this transaction. 10.14 Acquisition of Title to Leased Capital Equipment - Stores and Leased Capital Equipment - Warehouse. On or before the delivery to Buyer of the Leased Capital Equipment - Stores and the Leased Capital Equipment - Warehouse, Seller shall obtain good, marketable and unencumbered title to such Purchased Assets. 10.15 Location of Equipment. The Equipment located in the Purchased Stores and the Warehouse Equipment shall remain in each respective Purchased Store and the Warehouse. No Equipment or Warehouse Equipment will be moved between and among the Warehouse, Purchased Stores, Supplied Stores or any other store owned, operated or closed by Seller, unless otherwise agreed to by Buyer. ARTICLE XI NEGATIVE COVENANTS From the date hereof to and including the Closing Date, Seller shall not take or permit to be taken any of the following actions, except with the prior written consent of Buyer: (a) Sale or Encumbrance of Purchased Assets. Sell, transfer, mortgage, pledge or encumber any of the Purchased Assets other than sales of Inventory; (b) Material Transactions or Agreements. Enter into any material transaction or material or long-term agreement pertaining to the Purchased Assets or Supplied Stores which would materially impair Seller's ability to perform its obligations under the Supply Agreement; or (c) Violation of Law. Take any action which would knowingly cause a Violation or otherwise knowingly violate in any material respect any law or regulation or impair in any material respect the value of the Purchased Assets. ARTICLE XII CLOSING 12.1 Closing. The Closing of the transactions contemplated herein shall be held at 10:00 a.m. central time on the Closing Date at the offices of Buyer, unless the parties hereto otherwise agree. 12.2 Conveyances at Closing. (a) Instruments. To effect the transfers referred to herein, subject to the provisions of Section 12.6, Seller will, on the Closing Date, execute and deliver to Buyer (or Buyer's designee): (i) One or more special warranty deeds conveying in the aggregate all of the Purchased Assets which constitute Owned Property; (ii) One or more assignment and assumption agreements conveying in the aggregate all of the Purchased Assets which are Leases; (iii) One or more bills of sale and/or assignments conveying in the aggregate all of the Purchased Assets which are personal property; (iv) Assignments of all Warranties and Guaranties relating to the Purchased Assets; (v) Such other instruments as shall be reasonably requested by Buyer or the Title Company to vest in Buyer title to the Purchased Assets in accordance with the provisions hereof. (b) Form of Instruments. All of the foregoing instruments shall be in form and substance, and shall be executed and delivered in a manner, reasonably satisfactory to Buyer and Seller. The parties shall agree upon the form and content of the foregoing instruments prior to Closing. 12.3 Other Deliveries at Closing. In addition to the foregoing matters, on the Closing Date (or such later date as set forth herein): (a) Purchase Price. Buyer shall deliver the required cash portion of the adjusted Purchase Price for the Purchased Assets by wire transfer of immediately available funds. (b) Assumptions and Undertakings. The parties shall execute, as required, the Undertakings pursuant to Section 5.1(a)(ii) and the Assignment and Assumption Agreements pursuant to Section 5.1(a)(i). (c) Certificates. Buyer and Seller shall deliver all required certificates or other documents required on the Closing Date as set forth below: (i) Equipment Schedule (ii) Warehouse Equipment Schedule (iii) Inventory Certificates (iv) Good Standing Certificates (v) Buyer's Hart-Scott-Rodino Certificate (vi) Seller's Hart-Scott-Rodino Certificate (vii) Officer's Certificate that all representations and warranties are still true (viii) FIRPTA Certificates (ix) Supplemental Agreement Regarding Section 4204 of ERISA (x) Certificates, affidavits or other documents required in connection with sales tax or other transfer taxes. (d) Possession. Seller shall deliver physical possession of the Purchased Assets to Buyer in accordance with the following: (i) Each of the Purchased Stores and the Store Inventory, Equipment and any other Purchased Assets associated with each of the Purchased Stores will be delivered by Seller to Buyer immediately after completion of the physical inventory of each Purchased Store. (ii) The Warehouse, Warehouse Inventory, Warehouse Equipment and all other Purchased Assets not covered in subparagraph (i) above shall be delivered by Seller to Buyer immediately after completion of the physical inventory of the Warehouse. (e) Closing Statements. Seller and Buyer shall each execute mutually agreeable closing statements reflecting the transaction. (f) Consents. Each party shall deliver any consents required to be obtained by it hereunder. (g) Supply Agreement. Seller shall deliver to Buyer the fully executed Supply Agreement along with the Letter of Credit more fully described in the Supply Agreement. (h) Leases. Seller shall deliver to Buyer all original and other documentation comprising or relating to the Leases in Seller's possession or control. (i) Titles. Seller shall deliver to Buyer all certificates of title reflecting ownership of the Purchased Assets, if any. (j) Environmental Reports. Buyer shall deliver to Seller copies of any environmental reports concerning the Purchased Assets which Buyer obtains prior to the Closing Date. (k) Further Documentation. Each party shall deliver such other and further documentation and materials as may be reasonably required to consummate the transactions contemplated hereby. 12.4 Closing Costs; Transfer Taxes. Seller and Buyer shall split evenly any documentary transfer taxes and any use or other taxes imposed by reason of the transfer of the Purchased Assets and any deficiency, interest or penalty asserted with respect thereto, except as otherwise provided by law. Buyer shall pay sales tax to Seller and Seller shall remit such tax as and when required by law. Seller and Buyer shall make such other adjustments as may be necessary or convenient in order to facilitate the Closing. 12.5 Prorations. (a) Prorations of Rent under the Leases. (i) Base Rent. Seller shall pay the base rents under the Leases through the end of the rent period in which the Closing occurs and the amount of such payments shall be prorated through the Closing Date. (ii) Percentage Rent. Seller shall pay any percentage rent which is due and payable prior to the Closing Date. Buyer shall pay percentage rent which is due and payable after the Closing Date. With respect to any percentage rent due on or after the Closing Date, Seller shall be responsible for that portion of such percentage rent from the commencement of the current percentage rent year (or other applicable period) through the Closing Date and Buyer shall be responsible for that portion due under the Lease after the Closing Date through the end of the percentage rent year (or other applicable period). On the Closing Date, to the extent that current percentage rent numbers are not available, Seller's prorata share of the percentage rent based on estimated amounts using the 1994 and 1995 gross sales figures available through March 25, 1995 shall be allocated to Seller on the closing statements, and a credit will be given to Buyer on the closing statements based on percentage rent calculations utilizing estimated numbers. Within 45 days following the end of any percentage rent year (or other applicable period) of a Lease, any differences between the estimated and actual amounts will be settled between the parties. Buyer shall provide Seller with copies of calculations which establish any such differences. (b) Taxes Relating to Owned Property and the Leases. Seller will pay in full all taxes and assessments that are required to be paid on or before the Closing Date and Buyer will pay all taxes and assessments that are not required to be paid until after the Closing Date; provided, however, that taxes and assessments for the tax period in which Closing occurs shall be prorated as hereinafter provided. Seller shall be responsible for that portion of the taxes or assessments from the commencement of the current tax year through the Closing Date and Buyer shall be responsible for that portion due under the tax bill or assessment from the Closing Date through the end of the tax year. In the event taxes and assessments for the tax period in which Closing occurs are not available at the Closing Date, then for purposes of the closing statements, such taxes and assessments will be estimated based on the last preceding tax period for which the amount of taxes and assessments is known, adjusted to reflect any changes in rates known to be in effect. Within 45 days following receipt of actual tax bill or assessment, any differences between the estimated and actual amount will be settled between the parties. (c) Other Lease Reimbursements by Tenants. To the extent Seller or any other tenant under the Leases or other leases whereby expenses are shared have payment obligations to the Landlord under the Leases which may be prorated, the parties agree to prorate such payments as of the Closing Date, which shall include without limitation: common area maintenance charges, merchants association dues and insurance payments. (d) Machines. Monies due Seller from third parties in connection with pay telephones, vending machines and video games shall be prorated between Sellers and Buyer as of the Closing Date. (e) Utilities. Seller shall attempt to obtain final meter readings at the Purchased Stores and Warehouse as of the Closing Date and shall pay for all utilities to such date. As to any utilities for which Seller cannot so obtain final readings, such utilities shall be prorated between Seller and Buyer as of the Closing Date based upon the best estimated figures available to the parties. Within forty-five (45) days after the actual figures are obtained, the parties shall settle any differences. (f) Adjustments. At the Closing, Buyer and Seller will estimate the amounts to be prorated pursuant to this Section 12.5, and at such time as the actual amounts are determined, any differences between estimated and actual amounts will be settled between the parties. (g) Prepaid Expenses. All prepaid expenses set forth on Exhibit "L" shall be prorated or allocated between Buyer and Seller as of the Closing Date. (h) Miscellaneous. Any other items commonly subject to proration shall be prorated between Seller and Buyer as of the Closing Date. 12.6 Adjustments. Notwithstanding anything to the contrary contained herein, in the event that Seller is unable to deliver one or more components of the Purchased Assets in accordance with the terms hereof, the parties agree to negotiate in good faith to reach a mutually acceptable agreement to cause either: (a) The Purchased Assets which are the subject matter of the problem to be dropped from the transaction with appropriate, mutually agreeable adjustments to the consideration to be paid and received hereunder, or (b) the Purchased Assets which are the subject matter of the problem to be made subject to a mutually agreeable escrow agreement which provides for (i) the segregation of funds and transfer documents pending resolution of the problem and (ii) a specific amount of time within which the problem may be resolved, failing which the segregated funds and documents will be returned to the party which placed such funds or documents in escrow, or (c) in the case of problems considered by the parties to be minor or which are otherwise capable of being resolved by way of a monetary adjustment, indemnity agreement or other mutually agreeable mechanism (collectively "Adjustments") the transaction to proceed with the Purchased Assets in question included with appropriate Adjustments. Nothing contained in this Section 12.6 shall in any way operate to eliminate or diminish either party's rights or obligations under this Agreement including, but not limited to, the right to insist upon the satisfaction of all conditions precedent to Closing. Seller and Buyer may make such other adjustments as may be necessary or appropriate in order to facilitate the Closing. 12.7 Notices. Each party shall give such notice to third parties advising them of this transaction as may be reasonably requested by the other party. 12.8 Post Closing Deliveries. Subsequent to Closing, and in accordance with the provisions hereof, the parties shall do, prepare, execute and/or deliver the following: (a) Payments required upon completion of final Inventory Valuations. (b) Amounts required to adjust estimated prorations. (c) Remove items set forth in Section 4.3 and 4.7. (d) Any amounts improperly paid to either party by third parties. (e) Confirmations of defense of indemnified matters, if required. (f) Further assurance as required pursuant to Section 14.3. ARTICLE XIII RISK OF LOSS 13.1 Personal Property. Until possession of the various components of the Purchased Assets are delivered to Buyer, all risk of loss or damage to such Purchased Assets shall be borne by Seller, and thereafter, as to each portion of the Purchased Assets which has been delivered, shall be borne by Buyer. If any material portion of the Purchased Assets is destroyed or damaged by fire or any other cause prior to delivery to Buyer, Seller shall promptly give notice to Buyer of such damage or destruction and the amount of insurance, if any, covering the Purchased Assets. Any Purchased Asset which is so destroyed shall be dealt with pursuant to the provisions of Section 12.6. ARTICLE XIV ACTIONS BY SELLER AND BUYER AFTER THE CLOSING 14.1 Office Sharing. During a transition period while Seller is relocating its headquarters and office space to service its remaining stores, Buyer will lease space to Seller (at zero rental cost) in the current corporate offices of Seller, which will be reconfigured to accommodate Buyer's and Seller's respective needs. The transition period will be the nine-month period after the Closing Date. The term of the foregoing lease will be agreed upon prior to the Closing Date by Buyer and Seller. 14.2 Indemnification. (a) By Seller. Seller shall indemnify, save and hold harmless Buyer, its affiliates and subsidiaries, and its and their respective Representatives, from and against any and all costs, losses (including, without limitation, diminution in value), liabilities, damages, lawsuits, deficiencies, claims and expenses (whether or not arising out of third-party claims) including, without limitation, interest, penalties, reasonable attorneys' fees and all amounts paid in investigation, defense or settlement for any of the foregoing (herein, the "Damages"), incurred in connection with or arising out of or resulting from (i) any breach of any covenant or warranty or the inaccuracy of any representation made by Seller in or pursuant to this Agreement or other transaction documents, or (ii) any liability, obligation or commitment of any nature (absolute, accrued, contingent or otherwise) of Seller which is due to or arises in connection with Seller's acts or omissions prior to or after the Closing Date and not specifically assumed by Buyer pursuant to this Agreement. Seller shall not be liable for any matter which is due to or arises in connection with Buyer's acts or omissions. With respect to any claim for indemnification pursuant to clause 14.2(a)(i) above, Seller shall not be required to indemnify Buyer unless and until the aggregate amount of all claims against Seller under such clause exceeds $100,000 and then only to the extent such aggregate exceeds $100,000. (b) By Buyer. Buyer shall indemnify and save and hold harmless Seller, its affiliates and subsidiaries, and its and their respective Representatives from and against any and all Damages incurred in connection with or arising out of or resulting from (i) any breach of any covenant or warranty, or the inaccuracy of any representation made by Buyer in or pursuant to this Agreement or other transaction documents, or (ii) any liability, obligation or commitment of any nature (absolute, accrued, contingent or otherwise) of Buyer which is due to or arises in connection with Buyer's acts or omissions prior to or after the Closing Date, including any claim, liability, or obligation which is specifically assumed by Buyer pursuant to this Agreement. Buyer shall not be liable for any matter which is due to or arises in connection with Seller's acts or omissions. With respect to any claim for indemnification pursuant to clause 14.2(b)(i) above, Buyer shall not be required to indemnify Seller unless and until the aggregate amount of all claims against Buyer under such clause exceeds $100,000 and then only to the extent such aggregate amount exceeds $100,000. (c) Product and Warranty Liability. The provisions of this Section 14.2 shall cover all obligations and liabilities of whatsoever kind, nature or description relating, directly or indirectly, to product liability, litigation or claims against Buyer or Seller in connection with, arising out of, or relating to the Purchased Assets. (d) Defense of Claims. If any lawsuit or enforcement action is filed against any party entitled to the benefit of indemnity hereunder, written notice thereof shall be given to the indemnifying party as promptly as practicable (and in any event within fifteen (15) days after the service of the citation or summons); provided, that the failure of any indemnified party to give timely notice shall not affect rights to indemnification hereunder except to the extent that the indemnifying party demonstrates actual damage caused by such failure. After such notice, if the indemnifying party shall acknowledge in writing to the indemnified party that the indemnifying party shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then the indemnifying party shall be entitled, if it so elects, to take control of the defense and investigation of such lawsuit or action and to employ and engage attorneys of its own choice to handle and defend the same, at the indemnifying party's cost, risk and expense; and such indemnified party shall cooperate in all reasonable respects with the indemnifying party and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, however, that the indemnified party may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. In the event the indemnifying party elects not to assume the defense or investigation of a lawsuit or an action, the indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or one firm of counsel for all parties indemnified by the indemnifying party in respect of such lawsuit or action, unless in the reasonable judgment of the indemnifying party a conflict of interest may exist between such indemnified party and any other of such indemnified parties in respect of such lawsuit or action. Notwithstanding the foregoing, no party may settle any matter in a manner which would have an adverse effect on the other party without the affected party's prior written consent. (e) Brokers and Finders. Pursuant to the provisions of this Section 14.2, Buyer and Seller shall indemnify, hold harmless and defend each other from the payment of any and all broker's and finder's expenses, commissions, fees or other forms of compensation which may be due or payable from or by the indemnifying party, or may have been earned by any third party acting on behalf of the indemnifying party in connection with the negotiation and execution hereof and the consummation of the transactions contemplated hereby. No Representative of any party shall be liable for any Damages under the provisions contained in this Section 14.2. Nothing herein shall relieve either party of any liability to make any payment expressly required to be made by such party pursuant to this Agreement. 14.3 Further Assurances. Both before and after the Closing Date each party will cooperate in good faith with the other and will take all appropriate action and execute any documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the transactions contemplated hereunder. ARTICLE XV MISCELLANEOUS 15.1 Termination. (a) Failure of Condition Precedent. If any condition precedent to Seller's obligations hereunder is not satisfied and such condition is not waived by Seller at or prior to the Closing Date, or if any condition precedent to Buyer's obligations hereunder is not satisfied and such condition is not waived by Buyer at or prior to the Closing Date, Seller or Buyer, as the case may be, may terminate this Agreement at its option by written notice to the other party. In the event of the termination of this Agreement by either party as above provided, neither party shall have any liability hereunder of any nature whatsoever (other than pursuant to Section 15.8 and Section 15.11 below) to the other party, including any liability for damages, unless either party is in default under its obligations hereunder, in which event the party in default shall be liable to the other party for such default. In the event that a condition precedent to its obligations is not satisfied, nothing contained herein shall be deemed to require any party to terminate this Agreement, rather than to waive such condition precedent and proceed with the Closing. (b) Default By Buyer. If Buyer shall fail to perform any material obligation hereunder, and Seller is ready, willing and able to perform as required by the terms of this Agreement, then Seller may pursue any remedies which it might have at law or in equity. No remedies conferred upon or reserved by a party is intended to be exclusive of any other available remedy or remedies herein. (c) Default By Seller. If Seller shall fail to perform any material obligation hereunder, and Buyer is ready, willing and able to perform as required by the terms of this Agreement, then Buyer may pursue any remedies which it might have at law or in equity. No remedies conferred upon or reserved by a party are intended to be exclusive of any other available remedy or remedies herein. Notwithstanding the foregoing or anything else contained herein or in the Supply Agreement and notwithstanding any default by Seller of its obligations hereunder or thereunder, except as set forth in paragraph 5(c) of the Supply Agreement in connection with the K-CCS Contract and the Drake Contract, and except as specifically provided in the Undertakings, the Assignment and Assumption Agreements, the ERISA Agreement and the other agreements to be entered into pursuant to Section 5.1 hereof, Buyer shall not have the right to otherwise rescind, terminate, modify or avoid its obligations with respect to the Existing Contracts under Section 5.1 hereof, or as specifically provided in the Undertakings, the Assignment and Assumption Agreements, the ERISA Agreement and the other agreements to be entered into pursuant to Section 5.1 hereof. (d) Outside Termination. Notwithstanding anything to the contrary contained herein, if the transactions contemplated hereunder are not closed on or before June 1, 1995, this Agreement shall terminate at 5:00 p.m. on June 1, 1995 unless the parties agree otherwise. Thereafter, neither party shall have any rights or obligations hereunder except with respect to any provision relating to confidential information and expenses. 15.2 Representations and Warranties as of the Closing Date. All of the representations and warranties contained in this Agreement and in any certificate delivered pursuant hereto shall be true as of the Closing Date, and shall survive the Closing Date for one year and one day after the Closing Date. Any claim for indemnification made within such period of one year and one day ("Timely Claim") under the provisions of Section 14.2 shall obligate the indemnitor to perform under the provisions of Section 14.2 with respect to each such Timely Claim until each such Timely Claim has been resolved. 15.3 Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by either party without the prior written consent of the other party; provided, however, Buyer may cause conveyance hereunder to be made directly to one or more retail members of Buyer; provided further however, that except as specifically provided herein, such retail member shall not be assigned and it shall not assume any of Buyer's other rights and obligations hereunder. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and no other person shall have any right, benefit or obligation hereunder. 15.4 Notices. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by either party to the other shall be in writing and (i) delivered personally, (ii) sent by way of a recognized, national overnight delivery service (to be effective on the date of receipt) or (iii) mailed by certified mail, postage prepaid, return receipt requested (such mailed notice to be effective on the date such receipt is acknowledged or refused), as follows: If to Seller, addressed to: Homeland Stores, Inc. 400 N.E. 36th Street Oklahoma City, Oklahoma 73105 Attention: James A. Demme, President With copies to: Crowe & Dunlevy 1800 Mid-America Tower 20 North Broadway Oklahoma City, Oklahoma 73102 Attention: Kenni B. Merritt, Esq. Clayton Dubilier & Rice, Inc. 126 East 56th Street New York, New York 10022 Attention: Alberto Cribiore Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Attention: Steven R. Gross, Esq. If to Buyer, addressed to: Associated Wholesale Grocers, Inc. P.O. Box 2932 5000 Kansas Avenue Kansas City, Kansas 66110-2932 Attention: General Counsel With a copy to: Rose, Brouillette & Shapiro, P.C. 4900 Main, Eleventh Floor Kansas City, Missouri 64112 Attention: C. Christian Kirley, Esq. or such other place and with such other copies as either party may designate as to itself by written notice to the others. 15.5 Choice of Law. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Kansas (without reference to the choice of law provisions of Kansas law) and provided further that with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters, the law of the jurisdiction under which the respective entity derives its powers shall govern. 15.6 Entire Agreement; Amendments and Waivers. This Agreement, together with all exhibits and schedules hereto, constitutes the entire Agreement among the parties pertaining to the subject matter hereof and, except for the Confidentiality Agreement as defined in Section 15.11, which shall remain in effect, this Agreement supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 15.7 Multiple Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 15.8 Expense. Each party hereto shall pay its own legal, accounting, out-of-pocket and other expenses incident to this Agreement and to any action taken by such party in preparation for carrying this Agreement into effect. 15.9 Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument and they shall be construed as if the invalid, illegal or unenforceable provision had never been present. However, none of the provisions hereof are severable for any purpose (including attempts to avoid portions hereof in a bankruptcy proceeding) other than to avoid invalidity, illegality or unenforceability. 15.10 Titles. The titles, captions or headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 15.11 Confidential Information. (a) The Confidentiality Agreement heretofore executed by the parties on or about April 12, 1994, as modified by that certain letter dated November 23, 1994 (collectively, "Confidentiality Agreement") shall remain in full force and effect. In addition, it is hereby agreed that operational information supplied by any party shall be included as either "Homeland Confidential Information" or "AWG Confidential Information" as the case may be. To the extent that any party believes that the terms of the Confidentiality Agreement need to be further expanded (or further defined) to protect their interests in proprietary information, all other parties shall agree to such modifications as are commercially reasonable under the circumstances. (b) Notwithstanding the foregoing, Seller acknowledges and agrees that Buyer does not operate retail grocery stores. Consequently, it is recognized that the Purchased Stores will be sold by Buyer to current or future retail members of Buyer contemporaneously with the Closing of this Agreement. Toward that end, Buyer has already (with the permission of Seller) provided certain information to its retail members and third parties interested in any of the Purchased Stores. In addition, with Seller's prior written approval which shall not be unreasonably withheld, Buyer may forward to its shareholders and such third parties additional information with respect to the Purchased Assets, including the location and size of stores. If an approved Buyer shareholder or third party requests additional information on one or more stores, such information may be provided to said shareholder by Buyer with Seller's prior written approval which shall not be unreasonably withheld. Buyer shall obtain or have obtained an executed confidentiality agreement by said shareholder or third parties receiving such information containing substantially the same terms and provisions as this Section and the Confidentiality Agreement. 15.12 No Assumption of Liabilities. This Agreement constitutes a sale of certain assets of Seller only and is not a sale of any stock in any entity comprising Seller. (a) By entering into this Agreement or performing any act or agreement hereunder, except as expressly set forth in Article V herein and the agreements to be entered into pursuant thereto, Buyer does not assume any obligations or liabilities of Seller and shall not be responsible for the payment of any liabilities of or obligations of Seller whatsoever, including, without limitation, the following: (i) Claims by Seller's employees, former employees or others under any private or collective contract, agreement or the like or any state, Federal, local or other laws, statutes, executive order, regulations, ordinances, codes or the like including, but not limited to, claims in connection with employee wages, vacation pay, severance pay, holiday pay, sick leave pay, other union claims, detrimental reliance claims, implied contract claims, WARN notice claims, worker's compensation claims, ERISA claims, COBRA claims, Civil Rights Laws claims, claims under the Fair Labor Standards Act or Labor Management Relations Act, employment discrimination claims of all types, claims regarding health and welfare benefits or premiums, claims regarding union collective bargaining agreements and/or supplemental agreements, sexual harassment claims, disability claims, Family and Medical Leave Act claims, except as provided otherwise in Section 5.1(h) herein, pension fund liability (whether for current or unfunded accrued liabilities), claims or other problems arising under OSHA, claims in connection with environmental problems, claims arising out of Seller's agreements with Safeway Stores, Inc. or its affiliates or any other obligations of any kind or character; (ii) Demands, causes of action, obligations or liabilities (including damages, costs and reasonable attorneys fees) from any claim of any third party including, but not limited to, those types of claims set forth in Section 15.12(a)(i) above. (b) There is no agency relationship between Seller and Buyer; Buyer is not a successor or assign or alter ego to Seller. Seller and Buyer are not involved in a joint venture; Buyer is not required to continue operations at any of Seller's former facilities; and Buyer, in its sole discretion, shall determine the extent, method and manner of how any of Seller's former facilities purchased or assigned to by Buyer, if any, will be operated. Seller shall remove on or before the Closing Date all of Seller's employees, supervisors, managers, subcontractors and agents from all facilities which are part of the Purchased Assets. If in its sole discretion, Buyer hires former employees, managers or supervisors of Seller, these individuals shall be employed as new employees of Buyer. Buyer repudiates all of Seller's union collective bargaining agreements, will not consider the seniority of Seller's former employees in deciding whether to employ them, and all individuals considered for employment by Buyer, if any, will be hired on the basis of qualifications, as determined by Buyer. Buyer shall not be bound by any arbitration decision issued under any of the Seller's union collective bargaining agreements and has no obligation to arbitrate any dispute under any such bargaining agreements. Buyer does not assume and is not responsible for any liability Seller may have to retired persons or former employees. Seller represents that it is stopping its distribution operations and ceasing all the business connected with the distribution operations. Seller further represents to Buyer that it has, or will before the Closing Date, satisfy all of its liabilities and/or obligations accruing prior to the Closing Date under union collective bargaining agreements, including obligations required by the National Labor Relations Act, and that it has, or will before the Closing Date, satisfy its liabilities and/or obligations accruing prior to the Closing Date to all other persons who are affected by the closing of Seller's distribution center operations; provided, however, if such obligations are of a nature such that they cannot be satisfied prior to the Closing Date, Seller shall diligently cause the satisfaction of such obligations as soon as practicable after the Closing Date. (c) By entering into this Agreement or performing any act or agreement hereunder, Seller does not assume any obligations or liabilities of Buyer, except as specifically provided herein in Section 5(c) of the Supply Agreement, including, without limitation, the following: (i) Claims by employees of Buyer, former employees or others under any private or collective contract, agreement or the like or any state, Federal, local or other laws, statutes, executive order, regulations, ordinances, codes or the like including, but not limited to, claims in connection with employee wages, vacation pay, severance pay, holiday pay, sick leave pay, other union claims, detrimental reliance claims, implied contract claims, WARN notice claims, worker's compensation claims, ERISA claims, COBRA claims, Civil Rights Laws claims, claims under the Fair Labor Standards Act or Labor Management Relations Act, employment discrimination claims of all types, claims regarding health and welfare benefits or premiums, claims regarding union collective bargaining agreements and/or supplemental agreements, sexual harassment claims, disability claims, Family and Medical Leave Act claims, pension fund liability (whether for current or unfunded accrued liabilities), claims or other problems arising under OSHA, claims in connection with environmental problems, or any other obligations of Buyer of any kind or character; (ii) Demands, causes of action, obligations or liabilities (including damages, costs and reasonable attorneys fees) from any claim of any third party including, but not limited to, those types of claims set forth above in Section 15.12(c)(i); and (iii) Buyer shall be responsible for all of its obligations to its employees. 15.13 Waiver. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 15.14 Edmond Store. Buyer hereby grants Seller an option to sublease ("Edmond Sublease") that certain grocery store located at 198 E. 33rd Street, Edmond, Oklahoma, ("Edmond Store"), along with the furniture, fixtures and equipment relating to the grocery operation at the Edmond Store ("Edmond Equipment"). The option will be exercisable on the Closing Date. Seller shall notify Buyer at least seven (7) business days prior to the Closing Date as to whether Seller desires to exercise the Edmond Sublease. If such option is exercised, the Edmond Sublease will commence on the Closing Date. In the event Seller exercises its option to sublease the Edmond Store, the Edmond Sublease shall: (i) be subject to all of the terms and conditions contained in the existing lease in connection with the Edmond Store ("Edmond Lease"), (ii) be subject to receipt by Buyer of the consent of the landlord thereunder, if required, (iii) provide that the Edmond Equipment shall be leased to Seller at a rental rate of $9,235.50 per month, (iv) provide for the lease rate which is specified in the Edmond Lease from time to time and (v) be for an initial term commencing with the exercise of Seller's option, but in no event sooner than the Closing Date, and expire on June 1, 1995. Upon expiration of the initial term of the Edmond Sublease, Seller may, at its election, sublease on a month-to-month term; provided, however, such month-to-month tenancy shall expire on January 1, 1996. (a) Edmond Inventory. Upon the termination or expiration of the Edmond Sublease, a physical inventory will be conducted pursuant to the procedures described in Article IV herein relating to Store Inventory ("Edmond Inventory") and Buyer will pay Seller for the Edmond Inventory at a price to be calculated pursuant to the formula described in Article IV herein for Store Inventory; provided, however, when calculating the Going-In-Gross, the parties will use the average of the Going-In-Gross for the twelve-month period ending immediately prior to the termination or expiration of the Edmond Lease. (b) Supply of Edmond Store. In the event Seller elects to exercise its option to enter into the Edmond Sublease, the Edmond Store will be considered a Supplied Store during the tenancy of the Edmond Sublease. 15.15 Failure of Retail Member to Close. In the event that any member of Buyer fails to close with Buyer in connection with the transfer of a Purchased Store during the week prior to the Closing Date, Buyer shall notify Seller of such fact on or prior to the Closing Date. Seller shall have the option to cause such Purchased Store to become an Excluded Asset at Closing, and in the event Seller exercises such option, the parties shall agree to a mutually satisfactory reduction of the Purchase Price. If Seller does not exercise such option, Buyer shall be required to purchase such Purchased Store (or Purchased Stores) in question. 15.16 Disclaimer of Warranties. Seller and Buyer acknowledge and agree that Buyer has made such inspections and/or tests of the Purchased Assets as Buyer, in its discretion, deems necessary and prudent. SELLER, NOT BEING THE MANUFACTURER, SUPPLIER OR DEALER IN THE PURCHASED ASSETS OR ANY PARTS OR ITEMS THEREOF, MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, TO ANYONE AS TO FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, DESIGN, CONDITION, CAPACITY, PERFORMANCE OR ANY OTHER ASPECT OF THE PURCHASED ASSETS OR ANY PARTS OR ITEMS THEREOF, OR ITS OR THEIR WORKMANSHIP OR MATERIALS, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH HEREIN. AS TO SELLER, BUYER PURCHASES AND TAKES ASSIGNMENT OF THE PURCHASED ASSETS "AS IS" AND "WHERE IS", EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH HEREIN. 15.17 Time of the Essence. Time is of the essence in connection with the transactions contemplated hereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their respective behalf, by their respective officers thereunto duly authorized, in multiple originals, all as of the day and year first above written. ASSOCIATED WHOLESALE GROCERS, INC. By: Mike DeFabis Mike DeFabis, President HOMELAND STORES, INC. By: James A. Demme James A. Demme, President g:\wp50\docs\acquisit\homeland\docs\asset-p\draft.17 EXHIBIT "A" to Asset Purchase Agreement SCHEDULE "1" Purchased Stores Homeland Store # Address City State Status 1. 64 220 E. 13th Street Ada OK Leased 2. 104 4439 N. W. 50th Oklahoma City OK Leased 3. 130 702 Fir Street Perry OK Leased 4. 134 409 W. Main Watonga OK Owned 5. 144 1205 E. Lindsey Norman OK Leased 6. 147 5324 Cache Road Lawton OK Leased 7. 168 310 S. Main Blackwell OK Leased 8. 171 616 N. Summit Arkansas City KS Leased 9. 172 1116 N. Main Altus OK Leased 10. 185 1648 S. W. 89th Oklahoma City OK Leased 11. 194 616 N. W. Sheridan Lawton OK Leased 12. 198 4510 Lee Blvd., S.E. Lawton OK Leased 13. 199 600 W. Independence Shawnee OK Owned 14. 487 1424 S. Yale Tulsa OK Owned 15. 491 105 N. Scraper Vinita OK Leased 16. 504 420 E. 8th Okmulgee OK Leased 17. 506 305 S. Broadway Cleveland OK Owned EXHIBIT "A" to Asset Purchase Agreement SCHEDULE "1" Purchased Stores Homeland Store # Address City State Status 18. 508 1530 S. Lewis Tulsa OK Leased 19. 516 316 E. Main Pawhuska OK Leased 20. 524 814 E. Cherokee Sallisaw OK Leased 21. 530 1000 Hall Street Coffeyville KS Leased 22. 531 416 W. Myrtle Independence KS Owned 23. 532 108 S. Division Okemah OK Leased 24. 535 2110 Broadway Parsons KS Leased 25. 537 601 E. Wyandotte McAlester OK Leased 26. 544 1500 S.E. Washington Idabel OK Owned 27. 555 332 N. Lynn Riggs Claremore OK Leased 28. 562 800 E. Okmulgee Muskogee OK Leased 29. 777 198 E. 33rd Edmond OK Leased EXHIBIT "A" to Asset Purchase Agreement SCHEDULE "2" Supplied Stores Homeland Store # Address City State 1. 26 520 Minnesota Chichasha OK 2. 61 400 Sunset Drive El Reno OK 3. 101 1100 W. Main Norman OK 4. 102 8922 S. Memorial Tulsa OK 5. 105 1315 N. Eastern Ave. Moore OK 6. 106 200 Air Depot Midwest City OK 7. 112 2005 N. 14th Ponca City OK 8. 118 2757 S. Memorial Rd. Tulsa OK 9. 122 6473 N. MacArthur Oklahoma City OK 10. 123 6410 N. May Oklahoma City OK 11. 125 3828 W. Owen K. Garriott Enid OK 12. 127 759 Grand Ave. Chichasha OK 13. 141 1402 N. Main St. Guymon OK 14. 145 1800 Central Dodge City KS 15. 146 1701 N. Milt Phillips Seminole OK 16. 148 1212 Choctaw Clinton OK EXHIBIT "A" to Asset Purchase Agreement SCHEDULE "2" Supplied Stores Homeland Store # Address City State 17. 151 4909 W. 23rd St. Oklahoma City OK 18. 153 1108 N.W. 18th Oklahoma City OK 19. 154 2016 N.W. 39th St. Oklahoma City OK 20. 159 1201 N. Cornwell Yukon OK 21. 161 510 N. Commerce Ardmore OK 22. 163 4308 S.E. 44th Oklahoma City OK 23. 164 706 Flynn Alva OK 24. 167 1310 Oklahoma Ave. Woodward OK 25. 169 723 Petree Anadarko OK 26. 170 412 W. Third Elk City OK 27. 177 730 N. Kansas Ave. Liberal KS 28. 178 505 S. Chickasha Pauls Valley OK 29. 181 12508 N. May Ave. Oklahoma City OK 30. 182 1401 Beech Duncan OK 31. 183 3020 N.W. 16th St. Oklahoma City OK 32. 188 220 E. Cleveland Guthrie OK EXHIBIT "A" to Asset Purchase Agreement SCHEDULE "2" Supplied Stores Homeland Store # Address City State 33. 192 415 S.W. 59th Oklahoma City OK 34. 195 4301 S. May Ave. Oklahoma City OK 35. 200 1724 W. Lindsey Rd. Norman OK 36. 204 115 E. Hiway 152 Mustang OK 37. 206 11120 N. Rockwell Oklahoma City OK 38. 207 9320 N. Penn Oklahoma City OK 39. 208 2205 W. Edmond Rd Edmond OK 40. 457 3948 S. Peoria Tulsa OK 41. 463 4229 S.W. Blvd. Tulsa OK 42. 495 310 W. Trudgeon Henryetta OK 43. 502 2235 E. 61st Tulsa OK 44. 503 1110 S. Denver Tulsa OK 45. 515 915 S. Madison Bartlesville OK 46. 528 12011 S. Memorial Bixby OK 47. 529 3405 S. Georgia Amarillo TX EXHIBIT "A" to Asset Purchase Agreement SCHEDULE "2" Supplied Stores Homeland Store # Address City State 48. 533 1250 W. Main Durant OK 49. 538 504 E. Graham Pryor OK 50. 548 501 E. 2nd St. Owasso OK 51. 549 400 Plaza Ct. Sand Springs OK 52. 550 6402 E. Pine Tulsa OK 53. 553 575 N. 26th W. Ave. Tulsa OK 54. 561 708 S. Aspen Broken Arrow OK 55. 563 811 E. Frank Phillips Blvd. Bartlesville OK 56. 564 712 S. Main Sapulpa OK 57. 567 3139 S. Harvard Tulsa OK 58. 569 720 W. New Orleans Broken Arrow OK 59. 573 19302 E. Admiral Blvd. Tulsa OK 60. 574 2351 E. Kenosha Broken Arrow OK 61. 578 700 E. Cherokee Wagoner OK 62. 582 230 W. 1st Dumas TX EXHIBIT "A" to Asset Purchase Agreement SCHEDULE "2" Supplied Stores Homeland Store # Address City State 63. 587 101 W. 10th St. Borger TX 64. 590 2545 Perryton Pkwy. Pampa TX 65. 600 7302 S.W. 34th Amarillo TX 66. 601 4111 Plains Amarillo TX 67. 602 5800 Bell Amarillo TX 68. 603 3505 N.E. 24th Amarillo TX 69. 604 202 N. 23rd Canyon TX 70. 605 535 N. 25 Mile Ave. Hereford TX 71. 701 201 S. Jackson Pratt KS 72. 778 4001 S. 97 Highway Sand Springs OK EXHIBIT "A" to Asset Purchase Agreement SCHEDULE "3" Excluded Stores Homeland Store # Address City State 1. 174 24 E. Second Edmond OK 2. 184 7137 N.W. 10th Oklahoma City OK 3. 488 1520 N. Lewis Tulsa OK 4. 505 316 N. Main Stillwater OK 5. 512 203 E. Choctaw Tahlequah OK 6. 525 414 N.E. 11th St. Amarillo TX 7. 539 8281 S. Harvard Tulsa OK 8. 545 12572 E. 21st Tulsa OK 9. 598 401 S. Western Amarillo TX 10. 4089 7136 S. Memorial Dr. Tulsa OK SUPPLY AGREEMENT THIS SUPPLY AGREEMENT ("Agreement") is made as of the __________ day of ____________________, 1995, by and between ASSOCIATED WHOLESALE GROCERS, INC., a Missouri corporation ("AWG") and HOMELAND STORES, INC., a Delaware corporation ("Homeland"). RECITALS: The following recitals are a material part of this Agreement and are being relied upon by AWG and Homeland in connection with the transaction contemplated hereby: A. AWG and Homeland have consummated that certain Asset Purchase Agreement ("APA") contemporaneously herewith. The execution of this Agreement was a condition precedent for both parties to the closing of the APA. Except as otherwise indicated or defined herein, all capitalized, defined terms shall have the same meanings as set forth in the APA which definitions are incorporated herein by reference. For convenient reference, a copy of the APA (without exhibits attached) is attached hereto as Exhibit "A". B. AWG is a wholesaler of grocery and supermarket products operating in a cooperative manner. In entering into this Agreement, AWG is seeking to enhance the interests of its retail members by (i) increasing its volume of wholesale sales, and (ii) providing for the maintenance of such increase. C. Homeland owns and/or operates the Supplied Stores listed on Exhibit "B" at the locations legally described on Schedule "1" of Exhibit "B", all of which are attached hereto and incorporated herein by reference. Until the Supplied Stores are closed or sold, Homeland intends to continue to own and/or operate such stores as retail grocery stores. Subject to AWG's Volume Protection Rights, Homeland has the right in its sole discretion to decide whether or not to sell or close Supplied Stores. D. Based on its independent decision, Homeland has informed AWG that, upon the sale of its Warehouse and Warehouse Inventory to AWG under the APA, Homeland is terminating its internal wholesale distribution operations and network with which it has previously serviced the Supplied Stores and the Excluded Stores. Homeland acknowledges that AWG is assuming no risk or liability with respect to this decision by Homeland. The provisions of this recital are not intended to diminish, in any way, AWG's specific assumption of liabilities as set forth in the APA or its obligations hereunder. E. Homeland desires to arrange for a reliable supply of quality food and grocery products and merchandise for distribution through Homeland's retail stores. F. To provide Homeland a reliable source of supply, AWG is willing to sell certain food and grocery products and merchandise to Homeland during the term of this Agreement and subject to the terms and conditions of this Agreement. G. Homeland has advised AWG that Homeland desires to become one of AWG's retail members and obtain from AWG products available from time to time from AWG's warehouse in accordance with the terms hereof. H. AWG is willing to supply its full line of available products and services to Homeland for the Supplied Stores and Excluded Stores based on the terms, conditions and financial assurances contained herein. I. In addition to providing for a current supplier of its wholesale needs, Homeland wishes to establish a potential market for the sale of certain of its assets, including the Supplied Stores. Inasmuch as Homeland's desire to establish such market directly coincides with AWG's desire to preserve the volume of sales which will be achieved by supplying the Supplied Stores hereunder and to give practical effect to the Volume Protection Rights, AWG is willing to facilitate the potential acquisition of certain Homeland assets and/or Supplied Stores by one or more of AWG's retail members all within the terms and conditions set forth herein. J. The parties understand and acknowledge that in addition to the consideration set forth specifically herein, each party will be required to make a substantial and continuing commitment of its resources in reliance upon the other's respective commitment to provide and/or purchase products and services in the future, and that neither party or their respective owners, retail members and or affiliates will realize the full benefit of their anticipated bargain hereunder unless each party materially fulfills its obligations hereunder in accordance with the terms hereof. K. Because the value of this transaction to AWG lies in AWG's ongoing ability to sell its products to all of the Supplied Stores on a long term basis, AWG is unwilling to enter into this Agreement unless it obtains the Volume Protection Rights pertaining to (i) the purchase by AWG of the Supplied Stores as set forth in paragraph 7 below, (ii) the noncompetition agreement as set forth in paragraph 8 below and (iii) the use restriction agreement set forth in paragraph 8 below. Homeland agrees that all such rights are an integral and non- severable part of this Agreement. L. Homeland represents to AWG that Homeland has used its best efforts to obtain offers better than the transaction set forth in the APA, but Homeland has been unable to obtain any better offers. Homeland has no knowledge of any facts which would indicate that the consideration being paid to Homeland in connection with the transactions contemplated hereby are less than the fair market value associated therewith. M. Homeland has requested and AWG has agreed to commence simultaneous supply of all Supplied Stores and Excluded Stores. Homeland and AWG acknowledge that there are inherent difficulties in doing so. The parties will use their best efforts to minimize any such difficulties. N. AWG agrees to commit its resources, personnel, facilities and equipment to perform its obligations hereunder. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: TERMS OF AGREEMENT: 1. Term. The term of this Agreement shall be for a period of seven (7) years commencing on April 23, 1995 ("Commencement Date") and ending on April 22, 2002. This Agreement shall be administered on the basis of a Contract Year. The term "Contract Year" as used herein shall mean a period of twelve (12) consecutive, full calendar months. The first Contract Year shall begin on the Commencement Date and end on the last day of the twelfth consecutive full calendar month thereafter. Each succeeding Contract Year shall commence on the day following the last day of the immediately preceding Contract Year. 2. Supply. Subject to the terms and conditions of this Agreement and except as otherwise provided herein, the following obligations of the parties shall begin on the Commencement Date and shall continue for the full term hereof: a. Products to be Supplied by AWG. AWG agrees to sell, supply and deliver to Homeland's Supplied Stores and Excluded Stores products available from time to time from AWG's warehouse, (hereinafter "Available Products"). Subject to agreement by AWG as to reasonable minimum volume and slotting requirements for each category, AWG agrees to carry in its warehouse and include in Available Products any products requested by Homeland. b. Products to be Purchased by Homeland. To the extent available within the category of Available Products and subject to the exceptions set forth herein, Homeland shall utilize AWG as Homeland's primary supplier (as such term is commonly used in the grocery industry) for Homeland's Supplied Stores and Excluded Stores and shall make purchases in a manner consistent with such relationship. To the extent inconsistent with the foregoing sentence, Homeland shall be allowed to make purchases pursuant to the provisions of the Existing Contracts until the expiration of the current terms of the respective Existing Contracts. The merchandise purchased by Homeland from AWG shall be referred to herein as the "Purchased Goods". c. Cost of Goods. AWG will supply Available Products to Homeland and Homeland shall pay for Purchased Goods at the lowest prices and best terms as are available to AWG's other retail members from time to time. Homeland shall have available to it all cost saving mechanisms available to other AWG retail members, including AWG's Concentrated Purchase Allowance Program ("CPA"). A schedule setting forth the terms of AWG's current CPA program is attached as Exhibit "C". Homeland acknowledges that AWG's prices of goods, terms and CPA (i) are affected by and/or are a direct function of the volume of purchases by Homeland and (ii) are amended periodically by AWG. d. Certain Assurances to Homeland. Where applicable and as appropriate for Homeland's level of purchases from AWG, AWG agrees that: (i) AWG will pass-through promotional and advertising allowances and rebates from manufacturers and vendors to Homeland on the same basis as any other AWG member, (ii) Homeland will receive seasonal, special promotions and advertising programs on the best terms available to other AWG members and (iii) AWG shall supply and offer to Homeland all advantages, opportunities and services that AWG offers to other retail members. AWG further agrees that: (i) Homeland will be given credit for unsalable products and pricing adjustments on the best terms available to other AWG members or retailers, (ii) the quality of the Purchased Goods will be consistent with other wholesalers within Homeland's market area, which shall include the area in which the Supplied Stores are located, (iii) the activities of AWG will meet all applicable legal and regulatory requirements, (iv) AWG will provide to Homeland a service level commensurate with all other members, (v) AWG will make timely deliveries (vi) AWG will provide quality Purchased Goods within acceptable fresh code dating and in a clean and healthy manner and (vii) AWG shall provide to Homeland from time to time during the term of this Agreement, in the same manner as provided to AWG's other retail members, information regarding the availability of all promotional and advertising allowances and rebates. e. Conditions Precedent. In addition to the conditions set forth in paragraph 13, AWG's obligation to supply Available Products is expressly contingent upon delivery by Homeland of all of the documents, consideration and security set forth in paragraphs 4, 5(a) and 5(b). 3. Terms of Payment. a. By Homeland to AWG. Subject to the provisions of paragraph 6, Homeland shall pay for the Purchased Goods in accordance with the following credit procedures: (i) weekly credit will be extended to Homeland for purchases from AWG in an amount not to exceed the Letter of Credit (and/or other collateral posted in accordance with the provisions of paragraph 5 below), (ii) invoices will be posted to a weekly statement which will be prepared by AWG and delivered to Homeland by Friday of each week or, if Friday is not a business day, Thursday of each week and (iii) Homeland shall pay for its purchases by bank wire transfer of funds to AWG which must be received (A) in the event Homeland satisfies the Friday Wire Credit Requirements (as defined below), by 11:00 a.m. central time on the following Friday (the "Friday Wire Credit Arrangement") or (B) in the event Homeland satisfies the Monday Wire Credit Requirements (as defined below), by 11:00 a.m. central time on the following Monday (the "Monday Wire Credit Arrangement"). If the payment date is a holiday, the payment shall be due on the next preceding business day. As of the Commencement Date, the Monday Wire Credit Arrangement shall be in effect. Thereafter, at Homeland's option, and upon written notice to AWG, Homeland may pay for purchases hereunder in accordance with the Monday Wire Credit Arrangement or the Friday Wire Credit Arrangement provided that Homeland satisfies (i) in the case of the Monday Wire Credit Arrangement, the Monday Wire Credit Requirement and (ii) in the case of the Friday Wire Credit Arrangement, the Friday Wire Credit Requirement. b. By AWG to Homeland. Subject to the terms and conditions hereof, AWG will pay to Homeland an amount calculated as follows at the end of each AWG fiscal quarter ("Quarterly Payments") during the term hereof: Quarterly Payment = Target Payment X Operative Fraction. (i) For purposes of the foregoing calculation, the Target Payment amounts shall be as set forth on the quarterly payment schedule ("QPS"), attached hereto as Exhibit "D" and the Operative Fraction shall be a function of the Purchase Percentage as set forth below. The Purchase Percentage shall be determined from a fraction, the numerator of which is the total amount of Warehouse Purchases (as defined below) through AWG's warehouse by Homeland during the fiscal quarter in question (or such shorter periods as may exist such as the short period commencing on the Commencement Date and ending on the last day of the fiscal quarter during which this Agreement goes into effect) and the denominator of which is $72,500,000 [$290,000,000/4] (it being understood that such $72,500,000 figure is based on four (4) equal fiscal quarters and that such figure shall be adjusted upwards or downwards based on the actual length of fiscal quarters) . The Operative Fraction to be utilized in conjunction with the indicated level of Purchase Percentage is reflected in the following table: If the Purchase The Operative Percentage is: Fraction shall be: 100 - 90.01% 100% 90 - 80.01% 90% 80 - 70.01% 80% 70 - 60.01% 70% 60 - 50.01% 60% 50 - 40.01% 50% 40 - 30.01% 40% 30% or below 0% Quarterly Payments shall be made to Homeland within three (3) weeks after the end of each fiscal quarter. (ii) For purposes of the foregoing, "Warehouse Purchases" by Homeland will include purchases that are billed or sold through AWG warehouses in connection with products which are carried in AWG's warehouses based on prices paid by Homeland as contemplated under paragraph 2(c) hereof. For purposes herein, the word "carried" includes products upon which AWG is able to realize a gross margin in contrast to products which may be handled on its docks for a handling fee on a cost recovery basis. Included in the definition of Warehouse Products are: SOLOS and continuities, as such terms are commonly used in the grocery industry. Notwithstanding the foregoing, qualifying purchases for purposes of calculating year-end patronage and CPA shall be calculated pursuant to AWG's policies then in effect during the term of this Agreement and nothing contained herein shall be construed to change AWG's policies in connection therewith. (iii) For reference purposes, the QPS sets forth the dollar amounts of the Quarterly Payments associated with the foregoing Purchase Percentage and related Operative Fractions; provided, however, the Quarterly Payments made for the first three quarters of any fiscal year during the term of the Supply Agreement shall be subject to a year-end adjustment such that the Purchase Percentage and the Operative Fraction shall be calculated on the basis of Homeland's cumulative purchases at AWG's fiscal year-end. (iv) In the event that Homeland sells any of the Supplied Stores directly to AWG or through AWG as required under paragraph 7 to one or more current or future AWG members, the purchases by such AWG member shall be credited to Homeland's benefit for purposes of the Operative Fraction and Purchase Percentage; provided, however, that the amount of such credit shall be equal to the purchases from AWG (and Homeland if such sale occurs prior to one year from the date hereof) by each such sold store for the four AWG fiscal quarters immediately preceding such sale during which the sold store was a Homeland store. Homeland shall not be entitled to such credit if Homeland (i) sells to any third party which is not an AWG member, (ii) sells directly to an AWG member rather than going through AWG as required under paragraph 7, or (iii) closes a store. (v) None of the consideration to be paid to Homeland pursuant to this subparagraph 3(b) shall be deemed under any circumstances to be earned until calculated at the end of each fiscal quarter. Until Quarterly Payments are earned and paid to Homeland, Homeland shall not transfer, assign, pledge, hypothecate or otherwise encumber such payments without the prior written consent of AWG; provided, however, that Homeland shall be permitted to grant junior liens on such collateral subject to such acknowledgements of AWG's rights by such junior lienholders (including a subordination by such junior lienholder) and such other matters as may be reasonably required by AWG. 4. Membership. AWG agrees to allow Homeland to become, and Homeland agrees to become a retail member of AWG. As a retail member of AWG, Homeland shall have the same rights and obligations as any other retail member of AWG. Specifically, as a condition precedent to AWG's obligations hereunder, Homeland agrees to do the following on or before the Commencement Date: a. To execute all documentation required of retail members ("Member Sign-Up Documents"). The Member Sign-Up Documents are attached hereto and incorporated herein as Exhibit "E". b. To acquire 15 shares of AWG Class A stock for actual book value of such stock on the Closing Date. c. Comply with AWG's credit requirements and provide the required security set forth herein. 5. Credit Requirements and Security for Performance. a. Letter of Credit. Contemporaneously with the execution of this Agreement and subject to the Monday Wire Credit Requirement, Homeland shall deliver to AWG an irrevocable and unconditional (except as to drawing procedures and conditions) standby letter of credit ("Letter of Credit") in the face amount of Ten Million Dollars ($10,000,000). The term of the Letter of Credit shall be for periods of not less than one year, and such periods shall run concurrently with Contract Years. The Letter of Credit shall be security for Homeland's obligations in connection with Homeland's open account arrangement with AWG. The Letter of Credit may be drawn upon to cure any payment default by Homeland in connection with such open account. The Letter of Credit shall be issued by a bank which is acceptable to AWG in its sole discretion, and shall contain such terms and conditions as are acceptable to AWG in its sole discretion. For purposes hereof, a Letter of Credit in substantially the form of Exhibit "F" attached hereto issued by an approved bank shall be acceptable to AWG. AWG acknowledges and agrees that the Union Bank of Switzerland (New York Branch) shall be an acceptable issuing bank. (i) If Homeland is not in default under this Agreement, upon the written consent of AWG (which consent will not be unreasonably withheld or delayed), the Letter of Credit (A) may be reduced dollar-for-dollar in an amount equal to the face value of Homeland's issued and outstanding AWG patronage refund certificates ("Patronage Refund Certificates") and (B) may be reduced to reflect Homeland's then current average weekly volume of purchases; provided, however, the combined face amount of the Patronage Refund Certificates and the Letter of Credit shall never be allowed to be less than either the Monday Wire Credit Requirement if a Monday Wire Credit Arrangement is in effect or the Friday Wire Credit Requirement if a Friday Wire Credit Arrangement is in effect. Homeland shall give AWG 30 days prior written notice of its request to reduce the Letter of Credit along with (i) the amount of the proposed reduction, and (ii) evidence that it has met the above criteria for such a reduction. AWG shall respond to Homeland's written notice within fifteen (15) days and shall either (i) agree to the amount of the reduction requested by Homeland, or (ii) set forth the amount of the reduction, if any, to which AWG reasonably believes Homeland is entitled. Promptly following such determination, AWG shall cooperate with Homeland as appropriate to effect such reduction, including, without limitation, delivering appropriate instructions to the bank issuing the Letter of Credit and informing such bank of the reduction. In no event shall the Letter of Credit be reduced until said calculations are reconciled. Homeland's requests for reductions of the Letter of Credit shall be made no more than twice in any Contract Year. AWG shall provide such notice of its consent to a reduction of the Letter of Credit to the issuing bank as Homeland may reasonably request. (ii) For purposes of this Agreement (A) "Monday Wire Credit Requirement" shall mean collateral (of a type acceptable to AWG) in an amount equal to the product of the average weekly purchases of Homeland from AWG for the prior twelve months times one and six tenths (1.6), (B) "Friday Wire Credit Requirement" shall mean collateral (of a type acceptable to AWG) in an amount equal to the product of the average weekly purchases of Homeland from AWG for the prior twelve months times two (2) and (C) "Minimum Credit Requirements" shall mean, collectively, the Monday Wire Credit Requirement and the Friday Wire Credit Requirement; it being understood that the Letter of Credit and AWG Equity shall be collateral of a type satisfactory to AWG. In the event that there are less than twelve (12) months of Homeland purchases from AWG, for purposes of calculating the foregoing credit requirements, Homeland's average weekly purchases shall be calculated by the parties based on information available to them at the time such calculation is made. b. Pledge of AWG Equity. Homeland hereby grants AWG a security interest in and pledges to AWG all AWG equity ("AWG Equity") owned by Homeland. For purposes hereof, AWG Equity shall be defined as all equity, deposits, credits, sums and indebtedness of any kind or description, whatsoever, at any time owed by AWG to Homeland or at any time standing in the name of or to the credit of Homeland on the books and/or records of AWG, including without limitation, Capital Stock of AWG, Members Deposit Certificates, Patronage Refund Certificates, Members Savings, Direct Patronage or Year-End Patronage, Concentrated Purchase Allowance, Quarterly Payments and any other sums due from AWG to Homeland hereunder (excluding any amounts due, if any, to Homeland by AWG pursuant to Section 5.1 of the APA or the agreements to be entered into pursuant thereto). The security under this subparagraph will be security for the performance of all of Homeland's obligations to AWG. Security shall be held in accordance with AWG's policies which are applicable to all retail members. No third party shall be given any security interest in any AWG Equity without the prior written consent of AWG; provided, however, Homeland shall be permitted to grant junior liens on the AWG Equity subject to such acknowledgements by such junior lienholders of AWG's rights (including a subordination by such junior lienholder) and such other matters as may be reasonably required by AWG. c. Drake and K-CCS. As a condition precedent to Homeland entering into the APA, AWG was required to (i) assume ("Assumption") that certain Product Transportation Agreement dated March 18, 1992 by and between Homeland and Drake Refrigerated Lines, Inc. ("Drake Contract") and (ii) enter into an undertaking ("K-CCS Undertaking") whereby AWG agreed to reimburse Homeland in connection with certain obligations under that certain Agreement for Systems Operations Services dated effective as of October 1, 1991, as amended on September 10, 1993, by and between Homeland and K-C Computer Services, Inc. ("K-CCS Contract"). In the event that Homeland materially breaches its obligations under any of the provisions of paragraphs 7 or 8 below within the first two Contract Years, whether by act, omission or operation of law ("Trigger Event"), all of AWG's obligations in connection with (i) the K-CCS Undertaking shall immediately terminate and become null and void and (ii) the Assumption shall revert to Homeland as its primary obligation, and Homeland shall be liable to and hereby indemnifies AWG for any cost or expense it may incur in connection with such Assumption from and after the date of such default. Notwithstanding anything else contained in this paragraph 5(c), Homeland's liability under the Drake Contract shall in no event be greater than Homeland's liability under the Drake Contract on the Closing Date and AWG shall be responsible to Drake for any such excess liability. The occurrence of a Trigger Event will not change the obligations of the parties with respect to any other Existing Contracts or other obligations described in Article V of the APA and AWG's obligations in connection with the other Existing Contracts or other obligations described in Article V of the APA will continue notwithstanding such breach. In addition, breaches of the Supply Agreement other than a Trigger Event will not change the obligations of the parties with respect to any Existing Contracts or other obligations described in Article V of the APA and AWG's obligations in connection with the other Existing Contracts or other obligations will continue notwithstanding such other breaches. If following a Trigger Event terminating AWG's obligations with respect to the Drake Contract and K-CCS Contract under the Assumption and/or K-CCS Undertaking, AWG brings suit against Homeland for damages resulting from such breach, AWG will not seek and will not be entitled to receive damages in respect of any liabilities under the Existing Contracts for which AWG's responsibility has terminated. In addition, upon the execution hereof, Homeland shall cooperate in obtaining the agreement of Drake that it will (i) recognize Homeland as Drake's obligor to the extent of Homeland's liability as of the Closing Date and (ii) release AWG from such liability under the Drake Contract in the event Drake receives a sworn affidavit executed by the President of AWG stating that a Trigger Event has occurred. 6. Limitation on Obligation to Extend Credit. Homeland acknowledges and agrees that under no circumstances shall AWG be required to accept orders or deliver Purchased Goods to Homeland (i) until the Letter of Credit is delivered, (ii) at any time that the Letter of Credit is not in full force and effect for a period which extends thirty (30) days beyond the end of the credit cycle in question, or (iii) if the addition of such orders or deliveries would cause the amount owed by Homeland to AWG for Purchased Goods and/or other items charged by Homeland to Homeland's open account with AWG to exceed the amount of Letter of Credit plus any Patronage Refund Certificates (or other AWG Equity) held as collateral for the open account. 7. AWG's Purchase Rights Upon Homeland's Sale of Stores. a. Supplied Stores. Subject to AWG's Volume Protection Rights described in this paragraph 7 and in paragraph 8, Homeland reserves the right, in its sole discretion, to close or sell any or all of the Supplied Stores during the term of this Agreement. AWG shall have the following purchase rights ("Purchase Rights") in connection with the Supplied Stores. In the event that Homeland wishes to sell (or otherwise transfer) any of the Supplied Stores, whether individually or in groups, it shall first make a written offer to sell (or otherwise transfer) such Supplied Store or group of Supplied Stores to AWG (an offer made directly to an AWG member shall not satisfy this requirement). The offer shall contain the price and general terms upon which the Supplied Store and any associated rights, equipment, inventory or related assets are being offered for sale (or otherwise being offered for transfer). As used in this paragraph 7, "terms" shall be required to include the proposed closing schedule (if one has been set). AWG shall have the right to accept or reject such offer by way of written notice delivered within forty-five (45) days after receipt of the offer and a definitive agreement regarding the subject matter of such offer entered into within such 45-day period. To the extent AWG has accepted such offer and the parties are engaged in good faith negotiations regarding the definitive agreement, such 45-day period shall be extended for one additional thirty (30) day period to allow for the conclusion of such negotiations and the drafting of the definitive agreement ("Acceptance Process"). If AWG elects to reject such offer or fails to make a timely acceptance or timely enter into a definitive agreement regarding the subject matter of such offer, Homeland shall be free to sell (or otherwise transfer) the Supplied Store(s) which is or are the subject of the offer to any third party at a price which is no less than ninety percent (90%) of the offer to AWG and on terms no more favorable in the aggregate to such third party than those set forth in the original offer to AWG. If Homeland is unable to consummate such a sale (or other transfer), but receives a bona fide third party counteroffer from a person who is not an AWG retail member and is at a price less than ninety percent (90%) of the original offer price and/or less favorable material terms, and Homeland is willing to sell in accordance with the price and material terms set forth in such counteroffer, Homeland shall provide AWG with a copy of such counteroffer. AWG shall have fifteen (15) days from the receipt of such counteroffer to either purchase the Supplied Store(s) in accordance with the material terms of the counteroffer or reject same. If AWG rejects same or fails to make a timely acceptance, including the signing of a definitive agreement in accordance with the Acceptance Process, Homeland shall be free to sell the Supplied Store(s) to the third-party offeror in accordance with the material terms and conditions of the counteroffer. Homeland acknowledges that AWG has exercised the Purchase Rights, the assets subject to the Purchase Rights shall be freely assignable by AWG in whole or in part to one or more of AWG's retail members. Until notified in writing by AWG of an assignment to an AWG member, Homeland shall not deal directly with any AWG member. (i) Sales to "affiliates" of Homeland shall not be subject to the foregoing Purchase Rights; provided, however, (A) affiliates shall include only entities which are wholly owned by Homeland or Homeland Holding Corporation; (B) the affiliate must agree in writing prior to such sale to use AWG as the affiliate's wholesale supplier in accordance with the terms of the Supply Agreement between the parties and such other terms relating to the financial ability of such affiliate as may be reasonably required by AWG (such other terms shall be consistent with AWG policy regarding the financial ability of AWG retail members which are similarly situated to such affiliate), (C) the affiliate must agree in writing that any subsequent sale by such affiliate is subject to the Volume Protection Rights, (D) such sale to an affiliate shall not be an event of default under any of Homeland's then outstanding loans, indebtedness or other material contracts, and (E) such transfer shall not result in the insolvency of either Homeland or the affiliate. b. Closure of Substantially All of the Supplied Stores; Sale of Stock. (i) Closure of Substantially All of the Supplied Stores. In the event that Homeland wishes to close substantially all (90% or more) of the Supplied Stores and such closure is not done in contemplation of a sale of such Supplied Stores, the closure of such Supplied Stores shall be deemed to be an offer hereunder to sell all (but not less than all) such Supplied Stores to AWG in consideration of AWG (A) assuming or otherwise undertaking any of Homeland's outstanding and/or ongoing lease obligations and property tax obligations in connection with such Supplied Stores plus (B) an amount equal to the fair market value of such Supplied Stores, including, without limitation, the fair market value of all Equipment, Inventory and interests in real property associated with such Supplied Stores. Such fair market value shall be determined by a nationally recognized appraisal firm selected by Homeland and reasonably satisfactory to AWG. The cost of such appraisal shall be paid for by Homeland; provided, however, that in the event the sale contemplated by such offer is consummated, the cost of such appraisal shall be split by the parties. Homeland shall give AWG written notice of Homeland's decision to close substantially all of the Supplied Stores at least forty-five (45) days prior to the implementation of such closure. AWG shall accept such offer (and enter into a definitive agreement) or reject such offer within such forty-five (45) day period. If AWG accepts, a definitive agreement will be entered into in accordance with the Acceptance Process. So long as Homeland complies with the foregoing, such closure shall not create an Event of Default. (ii) Sale of Stock. In the event that one or more of the stockholders of Homeland or Homeland Holding Corporation wish to sell shares of stock of Homeland or Homeland Holding Corporation (as the case may be) in a manner which would otherwise be in contravention of the provisions of paragraph 13.a(vii) hereof, if such stockholder(s) conduct the sale of their stock in the manner set forth in paragraphs 7(a), 7(c), 7(d), 7(e) and 7(f) such that AWG has an opportunity to buy all such stock in accordance with such sections, such sale shall not create an Event of Default for purposes of paragraph 13.a(vii) hereof. Any such sale of stock shall be deemed to be a sale of a "Supplied Store" for definitional purposes of this paragraph 7. c. Failure to Close the Sale of any Store. If, at any time, Homeland fails to consummate an allowed sale to a third party within the time frame set forth in the offer to AWG (such time frame for such third party sale will be measured from the date that AWG rejects or fails to timely accept the offer with respect to such allowed sale pursuant to clause (a) of paragraph 7 hereof, whichever is earlier), the provisions of this paragraph 7 shall once again be applicable; provided, however, that in the event the offer to AWG does not include a time frame within which to consummate the allowed sale, the offer to such third party must be accepted and a definitive agreement entered into between Homeland and such third party within nine (9) months from the date on which AWG rejects or fails to timely accept the offer with respect to such allowed sale pursuant to clause (a) of paragraph 7, whichever is earlier. d. Confirmation of Sales. Homeland shall provide AWG with confirmation of any sales (or other transfers) under this paragraph in which AWG is not a party. AWG shall have the right to inspect Homeland's books and records relating to such sale and receive copies of any pertinent closing documents in connection with any such sale. If such inspection would breach applicable confidentiality agreements between Homeland and such party, the Chief Financial Officer of Homeland or its President shall certify to AWG that the sales (or other transfers) in question were in compliance with the provisions of this paragraph 7 of this Agreement. Notwithstanding the foregoing, Homeland shall reveal its disclosure obligations under this paragraph to all potential transferees and shall attempt to negotiate a confidentiality agreement with such party which would permit or not prohibit the disclosure contemplated hereby. e. No Assumption. Unless excluded by the terms of the offer, the provisions of paragraph 17 shall be applicable to any purchase by AWG of a Supplied Store. f. Public Notice. Homeland shall execute such documents in recordable form as AWG may reasonably request from time to time in order to give public notice of its Purchase Rights under this paragraph 7. The form of such notice shall be as set forth on Exhibit "G" - Schedule "1" attached hereto and incorporated herein. Each recorded notice document shall be terminable in connection with each Supplied Store on the earlier of (i) the expiration of the term of this Agreement, (ii) compliance by Homeland with AWG's Purchase Rights as set forth in this paragraph 7 with respect to such Supplied Store, (iii) the date upon which any holder of a lien placed of record before the date hereof takes title to Homeland's interest in the described property whether by foreclosure or a deed in lieu of foreclosure with a recital that it is a deed in lieu of foreclosure, (iv) the date immediately preceding the expiration of any cure period in respect of a continuing event of default under a lease to which Homeland is a party, which default directly relates to Homeland's filing of such recorded notice, provided that (A) Homeland shall deliver prompt notice of such event of default to AWG, (B) AWG shall be permitted to contact the landlord under such lease for the purpose of obtaining a rescission or termination of such event of default and (C) AWG shall indemnify Homeland for any of its costs, liabilities and/or damages relating to or arising in connection with the foregoing, or (v) the expiration or earlier termination of Homeland's leasehold estate, if any. AWG agrees to allow each document to be released upon the recordation of a sworn affidavit by the President of Homeland stating that (i) the Purchase Rights have been complied with as set forth in paragraph 7 as to the particular Supplied Store covered by the document which is to be released or (ii) one of the events specified in clauses (i), (iii), (iv) or (v) of the preceding sentence has occurred with respect to the particular Supplied Store covered by the document to be released. g. Excluded Stores. During the term hereof, Homeland shall not sell the Excluded Stores to any third party for retail grocery use; provided, however, at Homeland's option, upon written notice to AWG, Homeland may designate one or more Excluded Stores to be Supplied Stores and, upon such designation, such Excluded Stores shall thereafter be treated as Supplied Stores for all purposes of this Agreement, including, without limitation, for purposes of the Volume Protection Rights and paragraph 3(b)(iv) herein. h. No Adequate Remedy. Subject to the limitations set forth in paragraph 5(c), if either party shall breach any of the foregoing agreements in this paragraph 7 by way of its actions, omissions or operation of law, either party agrees that the other will have no adequate remedy at law and that immediate injunctive relief will be appropriate. Subject to the limitations set forth in paragraph 5(c), in the event that a court of competent jurisdiction refuses to grant a party injunctive relief, such party shall be free to pursue any and all remedies, including remedies at law, which may be available to such party. 8. Non-Competition and Use Restriction Agreement. Pursuant to paragraph 5.3 of the APA, the parties agree as follows: (a) Homeland will not during the term of this Agreement compete directly or indirectly with AWG as a wholesaler of grocery products, including Available Products, in or to any counties in Oklahoma, Arkansas, Texas, Kansas or Missouri in which Supplied Stores are located. A sale of any of the Supplied Stores to a competitor of AWG in a manner which is not consistent with the provisions of paragraph 7 shall be a violation of the non- competition agreement. (b) Homeland agrees that, to the extent of Homeland's interest therein (including leasehold interests), the real estate comprising the Supplied Stores and the improvements thereon shall be dedicated 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. The foregoing use restriction agreement shall be reflected by way of an appropriate document (in the form of Exhibit "G" - Schedule "2", attached hereto and incorporated herein) executed by Homeland and recorded in the official records of each county in which a Supplied Store is located. Each recorded notice document shall be terminable in connection with each Supplied Store on the earlier of (i) the expiration of the term of this Agreement, (ii) compliance by Homeland with AWG's Purchase Rights as set forth in this paragraph 7 with respect to such Supplied Store, (iii) the date upon which any holder of a lien placed of record before the date hereof takes title to Homeland's interest in the described property whether by foreclosure or a deed in lieu of foreclosure with a recital that it is a deed in lieu of foreclosure, (iv) the date immediately preceding the expiration of any cure period in respect of a continuing event of default under a lease to which Homeland is a party, which default directly relates to Homeland's filing of such recorded notice, provided that (A) Homeland shall deliver prompt notice of such event of default to AWG, (B) AWG shall be permitted to contact the landlord under such lease for the purpose of obtaining a rescission or termination of such event of default and (C) AWG shall indemnify Homeland for any of its costs, liabilities and/or damages relating to or arising in connection with the foregoing, or (v) the expiration or earlier termination of Homeland's leasehold estate, if any. AWG agrees to allow each document to be released upon the recordation of a sworn affidavit by the President of Homeland stating that (i) the Purchase Rights have been complied with as set forth in paragraph 7 as to the particular Supplied Store covered by the document which is to be released or (ii) one of the events specified in clauses (i), (iii), (iv) or (v) of the preceding sentence has occurred with respect to the particular Supplied Store covered by the document to be released. (c) If Homeland or AWG shall breach the foregoing agreements in this paragraph 8 by way of its actions, omissions or operation of law, each agrees that the other will have no adequate remedy at law and that immediate injunctive relief will be appropriate. In the event that a court of competent jurisdiction refuses to grant a party injunctive relief, such party shall be free to pursue any and all remedies, including remedies at law, which may be available to such party. 9. Representations and Warranties of Homeland. In addition to any representations and warranties contained elsewhere in this Agreement, Homeland hereby makes the following representations and warranties to and for the benefit of AWG, its successors and permitted assigns, in connection with Homeland and/or the Supplied Stores, each of which warranties and representations (i) is material and being relied upon by AWG and (ii) is true in all respects as of the date hereof (or such other date as may be indicated). a. Organization of Homeland. Homeland is duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to own, lease and operate its business. Homeland is duly licensed and qualified to do business as a foreign corporation and is in good standing in the States of Oklahoma, Texas and Kansas. b. Authorization. Homeland has all necessary corporate power and authority and has taken all corporate action necessary to enter into this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder including approval of its Board of Directors. This Agreement has been duly executed and delivered by Homeland and is a valid and binding obligation of Homeland, enforceable against Homeland in accordance with its terms. c. Litigation, Proceedings and Applicable Law. Except as set forth on Exhibit "H" hereto, there are no material actions, suits or proceedings pending or, to the best knowledge of Homeland, threatened against, at law or in equity or before or by any governmental authority or instrumentality or before any arbitrator of any kind which would have a material adverse effect on Homeland's ability to perform its obligations hereunder and, to the best knowledge of Homeland, there is no valid basis for any such action, suit, proceeding or investigation. Except as set forth on Exhibit "H", to the best of Homeland's knowledge, Homeland is not in default with respect to any judgment, order, writ, injunction or decree of any court or governmental agency, and there are no unsatisfied judgments against Homeland or its business or activities, in each case, which would materially adversely affect Homeland's ability to perform hereunder. To the best of Homeland's knowledge, there is not a reasonable likelihood of an adverse determination of any pending proceeding which would, individually or in the aggregate, have a material adverse effect on Homeland's ability to perform its obligations hereunder. d. No Violations and Compliance with Laws. Except as set forth on Exhibit "I", there are no existing Violations with respect to the Supplied Stores, and Homeland is not aware of any threatened Violations or notices with respect to any Violations, which would have a material adverse effect on the performance by either party of its obligations hereunder. Except as set forth on Exhibit "I", Homeland has received no written notification alleging any existing material violation of any applicable statutes, rules, regulations, ordinances, codes, orders, licenses, permits or authorizations, as such now apply to the Supplied Stores, including without limitation, any applicable business, building, zoning, antipollution, occupational safety, health or other law, ordinance or regulation, which would have a material adverse effect on the performance by either party of its obligations hereunder. e. No Conflict or Violation. Except as otherwise set forth herein or in the exhibits hereto, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in (i) a violation of or a conflict with any provision of the Certificate of Incorporation or Bylaws of Homeland or Homeland Holding Corporation, (ii) a material breach of, or a material default under, any material term or provision of any material contract, agreement, lease, commitment, license, franchise, permit, authorization or concession to which Homeland is a party or an event which, with notice, lapse of time, or both, would result in any such breach or default, or (iii) a material violation by Homeland of any material statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or award, or an event which in the case of (i), (ii) or (iii) above, with notice, lapse of time, or both, would result in any such violation, which breach, default or violation would have a material adverse effect on either party's ability to perform it obligations, hereunder. f. Consents and Approvals. The list attached hereto as Exhibit "K", is a true, correct and complete list of all individuals and/or entities from whom consent is required to consummate or perform all or any part of the transactions contemplated under this Agreement or the APA. No other consents and/or approvals are required. g. Financial Statements. Homeland has heretofore delivered to AWG complete, true and accurate copies of the most recent financial statements of Homeland and fully audited financial statements for the year ending December 31, 1994. Except as otherwise set forth therein, Homeland's financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, and fairly present the financial condition and the results of operations of Homeland at the dates and for the periods covered thereby. h. Environmental Matters. Except as set forth on Exhibit "J", to the best of Homeland's knowledge, there are no Adverse Environmental Conditions, located in, on or under or existing in connection with any of the Supplied Stores which materially adversely affects either party's ability to perform its obligations hereunder. A list of all remediation plans existing in connection with Adverse Environmental Conditions is attached as Schedule "1" of Exhibit "J". Copies of all such remediation plans shall be attached as Schedule "2" of Exhibit "J". i. Financial Restructuring. Homeland represents that its current plans and intentions in connection with any financial restructuring or sale of assets do not include any type of bankruptcy proceeding. During the term hereof, Homeland will keep AWG fully advised in connection with any financial restructuring which would adversely affect Homeland's ability to comply with the terms hereof and shall deliver any evidence of any such financial restructuring to AWG. In addition, any sale of the Supplied Stores will be conducted in a manner which is consistent with AWG's Volume Protection Rights hereunder. j. Supplied Stores. Exhibit "B" is a complete, true and correct schedule of the Supplied Stores. 10. Representations and Warranties of AWG. In addition to any representations and warranties contained elsewhere in this Agreement, AWG hereby makes the following representations and warranties to and for the benefit of Homeland, its successors and assigns, in connection with AWG and/or the Supplied Stores, each of which warranties and representations (i) is material and being relied upon by Homeland and (ii) is true in all respects as of the date hereof (or such other date as may be indicated). a. Organization of AWG. AWG is duly organized, validly existing and in good standing under the laws of the State of Missouri and is qualified to do business in the States of Kansas, Texas and Oklahoma. b. Authorization. AWG has all necessary corporate power and authority and has taken all corporate action necessary to enter into this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder, including approval of its Board of Directors. This Agreement has been duly executed and delivered by AWG and is a valid and binding obligation of AWG, enforceable against AWG in accordance with its terms. c. No Conflict or Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in (i) a material violation of or a conflict with any provision of the Articles of Incorporation or Bylaws of AWG, (ii) a material breach of, or a default under, any term or provision of any contract, agreement, lease, commitment, license, franchise, permit, authorization or concession to which AWG is a party or an event which with notice, lapse of time, or both, would result in any such breach or default, or (iii) a material violation by AWG of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree, or award, or an event which in the case of (i), (ii) or (iii) above, with notice, lapse of time, or both, would result in any such violation, which breach, default or violation would have a materially adverse effect on either party's ability to perform its obligations hereunder. d. Compliance with Law. To the best of AWG's knowledge, AWG has received no written notification alleging any existing material violation of any applicable statutes, rules, regulations, ordinances, codes, orders, licenses, permits or authorizations which would have a materially adverse impact on either party's ability to perform its obligations hereunder. e. Litigation, Proceedings and Applicable Law. Except as set forth on Exhibit "L" hereto, there are no material actions, suits or proceedings pending or, to the best knowledge of AWG, threatened against, or materially adversely affecting AWG's ability to perform its obligations hereunder, at law or in equity or before or by any governmental authority or instrumentality or before any arbitrator of any kind and, to the best knowledge of AWG, there is no valid basis for any such action, suit, proceeding or investigation. Except as set forth on Exhibit "L", to the best of AWG's knowledge, AWG is not in default with respect to any judgment, order, writ, injunction or decree of any court or governmental agency, and there are no unsatisfied judgments against AWG or its business or activities, in each case, which would have a material adverse effect on AWG's ability to perform hereunder. To the best of AWG's knowledge, there is not a reasonable likelihood of an adverse determination of any pending proceeding which would, individually or in the aggregate, have a material adverse effect on AWG's ability to perform its obligations hereunder. 11. Covenants of Homeland and AWG. Homeland and AWG each covenant with the other as follows: a. Consents and Best Efforts. As soon as practicable, AWG and Homeland, as applicable, will commence and diligently pursue all reasonable action required hereunder (i) to obtain all required documents, consents, approvals and agreements, (ii) to give all notices and make all filings with, any third parties as may be necessary to authorize, approve or permit full and complete compliance with the terms of the Agreement, (iii) to identify and/or obtain all collateral required hereunder and (iv) to cause all documentation contemplated hereunder to be executed and delivered. b. Providing Copies of Documents. Homeland covenants to provide copies to AWG of all of Homeland's SEC filings and reports within ten (10) days after filing with or other delivery to the SEC. AWG covenants to make available to Homeland all information and reports which are available to other members at a cost, if any, equal to that charged to other members (Any such charge shall be based on a cost recovery for AWG.) c. Evidence of Insurance. During the term hereof, AWG shall provide Homeland with current evidence of all product liability and comprehensive insurance carried by AWG in connection with its wholesale operation under this Agreement. d. Material Changes to Representations and Warranties. During the term hereof, each party hereby covenants that it will provide the other with written notice of any change to their respective representations and warranties contained herein which materially adversely affects either party's ability to perform its obligations hereunder. e. Necessary Resources. After the Closing of the transactions contemplated under the APA, AWG will have the necessary resources, equipment and personnel to sell, supply and deliver the Purchased Goods to the Supplied Stores and to otherwise fulfill its obligations hereunder. 12. Conditions to Parties' Obligations. The Closing of the APA shall be a condition precedent to Homeland's and AWG's obligations hereunder. 13. Events of Default. The following shall be events of default ("Events of Default"): a. Homeland Defaults. The following shall be Events of Default by Homeland hereunder: (i) Failure to Maintain Letter of Credit. Homeland's failure to maintain the Letter of Credit as required herein or to renew such Letter of Credit within thirty (30) days prior to its expiration. (ii) Transfer of Security. Homeland's transfer or other failure to preserve any security pledged to AWG pursuant to the terms of this Agreement, except to the extent provided for in paragraphs 3b.(v) and 5b. (iii) Non-Payment/Failure to Perform. Homeland's failure to make any payment when due or failure to perform any of the other agreements, terms, covenants, provisions or conditions contained herein in any material respect; it being understood that the events of defaults specified in this paragraph 13.a(iii) are in addition to, but are not in limitation of, the other events of defaults specified in this paragraph 13.a. (iv) Breach of Other Agreements. Breach, in any material respect, by Homeland of the Member Sign-Up Documents; provided, however, there will be no cross-default between the Supply Agreement and the APA. (v) Bankruptcy Matters. If Homeland: (1) files a Petition under the Federal Bankruptcy Code or any similar law, state or federal, whether now or hereafter existing (hereinafter referred to as a "Bankruptcy Proceeding"); or (2) files any Answer admitting insolvency or inability to pay its debts; or (3) is the subject of any Petition of involuntary bankruptcy which is not dismissed within thirty (30) days after filing; or (4) becomes the subject of an order for relief against it in any bankruptcy proceeding; or (5) has a custodian or trustee or receiver appointed for it or has any court take jurisdiction of its property, or the major part thereof, in any involuntary proceeding for the purpose of reorganization, arrangement, dissolution or liquidation; or (6) makes an assignment for the benefit of creditors; (7) is generally not paying its debts as they become due; or (8) consents to an appointment of a custodian, receiver or trustee of all its property, or the major part thereof. (vi) Volume Protection Rights. Any breach by Homeland of its obligations and/or agreements contained in paragraphs 7 and/or 8 hereof. (vii) Subject to paragraph 7(b)(ii), the transfer by one or more stockholders of Homeland or Homeland Holding Corporation of greater than fifty percent (50%) of the outstanding stock of Homeland or Homeland Holding Corporation, as the case may be, during the term hereof, to an entity primarily engaged (including through a subsidiary or otherwise) in the retail or wholesale grocery business. b. AWG Defaults. The following shall be Events of Default by AWG: (i) Non-Payment/Failure to Perform. AWG's failure to make any payment when due or failure to perform any of the other agreements, terms, covenants, provisions or conditions contained herein in any material respect; it being understood that the events of defaults specified in this paragraph 13.b(i) are in addition to, but are not in limitation of, the other events of defaults specified in this paragraph 13.b. (ii) Breach of Other Agreements. There will be no cross- defaults between the Supply Agreement and the APA. (iii) Bankruptcy Matters. If AWG: (1) files a Petition under the Federal Bankruptcy Code or any similar law, state or federal, whether now or hereafter existing (hereinafter referred to as a "Bankruptcy Proceeding"); or (2) files any Answer admitting insolvency or inability to pay its debts; or (3) is the subject of any Petition of involuntary bankruptcy which is not dismissed within thirty (30) days after filing; or (4) becomes the subject of an order for relief against it in any bankruptcy proceeding; or (5) has a custodian or trustee or receiver appointed for it or has any court take jurisdiction of its property, or the major part thereof, in any involuntary proceeding for the purpose of reorganization, arrangement, dissolution or liquidation; or (6) makes an assignment for the benefit of creditors; (7) is generally not paying its debts as they become due; or (8) consents to an appointment of a custodian, receiver or trustee of all its property, or the major part thereof. (iv) Sale of AWG. The sale of ninety percent (90%) or more of the stock or assets of AWG. (v) Dissolution of AWG. The dissolution of AWG. 14. Remedies. With the exception of Homeland's obligations with respect to the Letter of Credit, its obligations under its open account arrangement with AWG and its obligations in paragraphs 7 and 8 hereof, each of which must be performed exactly when required without any notice or cure period, if any other Event of Default shall remain uncured for five (5) business days (thirty (30) days in the case of an Event of Default by Homeland in respect of its failure to deliver the documents required to be delivered pursuant to paragraphs 11(b) and 16) after written notice thereof has been given to the defaulting party, the non- defaulting party may declare this Agreement to be in default. At any time that Homeland materially breaches its obligations in connection with the Letter of Credit, its open account arrangement with AWG or any of AWG's Volume Protection Rights, AWG may immediately declare this Agreement to be in default. In such event, the non-defaulting party may exercise all remedies available to it at law or in equity including, but not limited to, the rights set forth herein. At any time that Homeland is in default hereunder, AWG shall be under no obligation to accept orders for or ship Purchased Goods. No remedies conferred upon or reserved by a party are intended to be exclusive of any other available remedy or remedies herein. Notwithstanding the foregoing or anything else contained herein or in the APA and notwithstanding any default by Homeland of its obligations hereunder or thereunder, except as set forth in paragraph 5(c) hereof in connection with the K-CCS Contract and the Drake Contract, and except as specifically provided in the Undertakings, the Assignment and Assumption Agreements, the ERISA Agreement and the other agreements to be entered into pursuant to Section 5.1 of the APA, AWG shall not have the right otherwise to rescind, terminate, modify or otherwise avoid its obligations with respect to the Existing Contracts under Section 5.1 of the Asset Purchase Agreement, or as specifically provided in the Undertakings, the Assignment and Assumption Agreements, the ERISA Agreement and the other agreements to be entered into pursuant to Section 5.1. 15. Force Majeure. In the event either party hereto shall be delayed or hindered in or prevented from the performance of any act required under this Agreement by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations (this does not include proceedings under any bankruptcy law), riots, insurrection, war or other reason of a like nature not the fault of the party delayed in performing work or doing acts required under the terms of this Agreement, then, upon written notice of such force majeure event from the affected party to the other party, performance of such act shall be excused for the period of the delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The affected party shall resume performance as soon as practicable thereafter. The mere inability to pay monetary amounts hereunder (no matter how caused) shall not be considered a force majeure event hereunder. a. For purposes hereof, (i) if AWG does not or cannot supply Homeland due to force majeure-type events or (ii) the levels for out of stock products exceed 10% in the aggregate subsequent to five (5) days notice by Homeland, and Homeland seeks alternative suppliers until such condition is cured by AWG, such purchases from alternative suppliers, shall be treated as Warehouse Purchases for purposes of computing the Operative Fraction and Purchase Percentage in paragraph 3 above ("Credit") and such purchases shall not be deemed to breach paragraph 2(b) hereof; provided, however, if the event described in clause 15.a(ii) results from Homeland's failure to meet Homeland's applicable Minimum Credit Requirements, Homeland shall not be entitled to the Credit and to the extent the aforementioned purchases from alternative suppliers violate the primary supplier provisions of paragraph 2(b) of this Agreement, such purchases shall constitute a breach of this Agreement. 16. Financial Statements. a. Proforma Statements. Homeland shall supply to AWG a proforma opening balance sheet and profit and loss statement showing projections of Homeland's operations during Homeland's fiscal years 1995 and 1996. b. Yearly. Homeland shall supply AWG with all audited, consolidated financial statements of Homeland Holding Corporation (which includes Homeland Stores, Inc.) within one hundred twenty (120) days after the end of each fiscal year of Homeland and unaudited consolidated quarterly financial statements of Homeland Holding Corporation (which include Homeland Stores, Inc.) within forty-five (45) days after the end of each of the first three (3) fiscal quarters of Homeland. c. General Notice. Each party shall give the other prompt notice of any change in such party's financial condition which would have a materially adverse effect on such party's ability to perform its obligations hereunder. 17. No Assumption of Liabilities. a. By entering into this Agreement or performing any act or agreement hereunder, AWG does not assume or undertake any obligations or liabilities of Homeland, except as specifically provided in paragraph 5(c) of this Agreement and Article V of the APA and the agreements to be entered into pursuant thereto, including, without limitation, the following: (i) Claims by Homeland employees, former employees or others under any private or collective contract, agreement or the like or any state, Federal, local or other laws, statutes, executive order, regulations, ordinances, codes or the like including, but not limited to, claims in connection with employee wages, vacation pay, severance pay, holiday pay, sick leave pay, other union claims, detrimental reliance claims, implied contract claims, WARN notice claims, worker's compensation claims, ERISA claims, COBRA claims, Civil Rights Laws claims, claims under the Fair Labor Standards Act or Labor Management Relations Act, employment discrimination claims of all types, claims regarding health and welfare benefits or premiums, claims regarding union collective bargaining agreements and/or supplemental agreements, sexual harassment claims, disability claims, Family and Medical Leave Act claims, except as provided otherwise in Section 5.1(h) of the APA, pension fund liability (whether for current or unfunded accrued liabilities), claims or other problems arising under OSHA, claims in connection with environmental problems, claims arising out of Homeland's agreements with Safeway Stores, Inc. or its affiliates or any other obligations of Homeland of any kind or character; (ii) Demands, causes of action, obligations or liabilities (including damages, costs and reasonable attorneys fees) from any claim of any third party including, but not limited to, those types of claims set forth above in paragraph 17(a)(i). b. Relationship. The relationship of AWG and Homeland under this Agreement is that of wholesale supplier and retail customer. This Agreement shall not be construed to create any other relationship between AWG and Homeland. There is no agency relationship between Homeland and AWG; AWG is not a successor or assign or alter ego to Homeland. Homeland and AWG are not involved in a joint venture or partnership; AWG is not required to continue operations at any of Homeland's former facilities; and AWG, in its sole discretion, shall determine the extent, method and manner of how any of Homeland's former facilities purchased or leased by AWG, if any, will be operated. Homeland shall remove on or before Closing all of Homeland's employees, supervisors, managers, subcontractors and agents from all facilities which are part of the Purchased Assets. If, in its sole discretion, AWG hires former employees, managers or supervisors of Homeland, these individuals shall be employed as new employees of AWG. AWG repudiates all of Homeland's union collective bargaining agreements, will not consider the seniority of Homeland's former employees in deciding whether to employ them, and all individuals considered for employment by AWG will be hired on the basis of qualifications, as determined by AWG. AWG shall not be bound by any arbitration decision issued under any of the Homeland's union collective bargaining agreements and has no obligation to arbitrate any dispute under any such bargaining agreements. AWG does not assume and is not responsible for any liability Homeland may have to retired persons or former employees. Homeland represents that it is stopping its distribution operations and ceasing all the business connected with the distribution operations. Homeland further represents to AWG that it has, or will before the Closing, satisfy all of its liabilities and/or obligations accruing prior to the Closing Date under union collective bargaining agreements, including obligations required by the National Labor Relations Act, and that it has, or will before the Closing, satisfy its liabilities and/or obligations accruing prior to the Closing Date to all other persons who are affected by Closing of Homeland's distribution center operations; provided, however, if such obligations are of a nature such that they cannot be satisfied prior to the Closing Date, Homeland shall diligently cause the satisfaction of such obligations as soon as practicable after the Closing Date. After the Closing Date, Homeland shall be responsible for Homeland's obligations to its employees. c. By entering into this Agreement or performing any act or agreement hereunder, Homeland does not assume or undertake any obligations or liabilities of AWG, except as specifically provided herein in paragraph 5(c) of this Agreement and Article V of the APA and the agreements to be entered into pursuant thereto, including, without limitation, the following: (i) Claims by AWG employees, former employees or others under any private or collective contract, agreement or the like or any state, Federal, local or other laws, statutes, executive order, regulations, ordinances, codes or the like including, but not limited to, claims in connection with employee wages, vacation pay, severance pay, holiday pay, sick leave pay, other union claims, detrimental reliance claims, implied contract claims, WARN notice claims, worker's compensation claims, ERISA claims, COBRA claims, Civil Rights Laws claims, claims under the Fair Labor Standards Act or Labor Management Relations Act, employment discrimination claims of all types, claims regarding health and welfare benefits or premiums, claims regarding union collective bargaining agreements and/or supplemental agreements, sexual harassment claims, disability claims, Family and Medical Leave Act claims, pension fund liability (whether for current or unfunded accrued liabilities), claims or other problems arising under OSHA, claims in connection with environmental problems, or any other obligations of AWG of any kind or character; (ii) Demands, causes of action, obligations or liabilities (including damages, costs and reasonable attorneys fees) from any claim of any third party including, but not limited to, those types of claims set forth above in paragraph 17(c)(i); and (iii) AWG shall be responsible for AWG's obligations to its employees. 18. Governing Law, Venue. The laws of the State of Kansas shall govern the interpretation, validity, performance and enforcement of this Agreement. Any dispute or cause of action under this Agreement shall be resolved in a court of competent jurisdiction in Johnson County, Kansas. 19. Counterparts. This Agreement may be executed in one or more identical counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 20. Headings; Construction. The headings which have been used throughout this Agreement have been inserted for convenience of reference only and do not constitute matters to be construed in interpreting this Agreement. Words of any gender used in this Agreement shall be held and construed to include any other gender and words in the singular numbers shall be held to include the plural, and vice versa, unless the context requires otherwise. The words "herein," "hereof," "hereunder" and other similar compounds of the word "here" when used in this Agreement shall refer to the entire Agreement and not any particular provision or section. If the last day of any time period stated herein shall fall on a Saturday, Sunday or legal holiday, then the duration of such time period shall be shortened so that it shall end on the next preceding day which is not a Saturday, Sunday or legal holiday. 21. Binding Agreement; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and to the respective permitted successors. Except as provided herein, neither this Agreement nor the rights or obligations hereunder may be assigned or delegated by either party without the prior written consent of the other party. 22. Invalidity. In the event any one or more of the provisions contained in this Agreement, or any other instrument referred to herein, shall for any reason be held invalid, illegal or unenforceable in any respect, then, to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any such instrument, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision had never been present. However, none of the provisions hereof are severable for any purpose (including attempts to avoid portions hereof in a bankruptcy proceeding) other than to avoid invalidity, illegality or unenforceability. 23. Amendments. This Agreement, together with all exhibits attached hereto, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect unless contained in a written amendment. Any amendment to this Agreement shall not be binding upon either of the parties hereto unless such amendment is in writing and executed by the authorized representatives of all the parties hereto. 24. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when presented personally or upon being deposited in a regularly maintained receptacle for United States postal service, postage prepaid, registered or certified, return receipt requested, or sent by a national overnight courier service, and addressed as set forth below or such other addresses as AWG or Homeland may from time to time designate by written notice to the others as required herein: If to Homeland, addressed to: Homeland Stores, Inc. 400 N.E. 36th Street Oklahoma City, Oklahoma 73105 Attention: James A. Demme With copies to: Crowe & Dunlevy 1800 Mid-America Tower 20 North Broadway Oklahoma City, Oklahoma 73102 Attention: Kenni B. Merritt, Esq. Clayton Dubilier & Rice, Inc. 126 East 56th Street New York, New York 10022 Attention: Alberto Cribiore Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Attention: Steven R. Gross, Esq. If to AWG, addressed to: Associated Wholesale Grocers, Inc. P.O. Box 2932 5000 Kansas Avenue Kansas City, Kansas 66110-2932 Attention: General Counsel With a copy to: Rose, Brouillette & Shapiro, P.C. 4900 Main, Eleventh Floor Kansas City, Missouri 64112 Attention: C. Christian Kirley, Esq. or such other place and with such other copies as either party may designate as to itself by written notice to the others. 25. Waiver. No waiver by either party of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 26. Confidential Information. a. The parties acknowledge that the transaction described herein is of a confidential nature and neither the transaction or any information obtained as a result of this Agreement or the underlying transaction shall be disclosed to anyone except to Representatives or as required by law. Until such time as the parties make a mutually agreeable public announcement regarding the transactions, neither Homeland nor AWG shall make any public disclosure of the specific terms of this Agreement without the prior written consent of the other party hereto, except as required by law. b. In connection with the negotiation of this Agreement, the preparation for the consummation of the transactions contemplated hereby, and the performance of obligations hereunder, each party acknowledges that it has had and will have access to confidential information relating to the other party. Each party shall treat such information as confidential, preserve the confidentiality thereof and not (except (i) as required by applicable law, (ii) with respect to Homeland's lenders and their authorized representatives and (iii) as permitted herein) use, duplicate or disclose such information in connection with the transactions and activities contemplated hereby, except to representatives who also agree to treat such information as confidential. c. In the event of the termination of this Agreement for any reason whatsoever, each party shall return to the other all documents, work papers and other material (including all copies thereof) obtained in connection with the transactions contemplated hereby, will use all reasonable efforts, including instructing its employees and others who have had access to such information, unless such information is now, or is hereafter disclosed, through no act or omission of such party, in any manner making it available to the general public, and agrees not to use any such information disclosed or learned. 27. Indemnification. In addition to any specific indemnifications contained herein (and not in derogation thereof) the following indemnifications shall be applicable: a. By Homeland. Homeland shall indemnify, save and hold harmless AWG, its affiliates and subsidiaries, and its and their respective Representatives, from and against any and all costs, losses (including, without limitation, diminution in value), liabilities, damages, lawsuits, deficiencies, claims and expenses (whether or not arising out of third-party claims) including, without limitation, interest, penalties, reasonable attorneys' fees and all amounts paid in investigation, defense or settlement for any of the foregoing (herein, the "Damages"), incurred in connection with or arising out of or resulting from (i) any breach of any covenant or warranty or the inaccuracy of any representation made by Homeland in or pursuant to this Agreement, or (ii) any liability, obligation or commitment of any nature (absolute, accrued, contingent or otherwise) of Homeland which is due to or arises in connection with Homeland's acts or omissions prior to or after the Closing Date and not specifically assumed by AWG pursuant to this Agreement or the APA. Homeland shall not be liable for any matter which is due to or arises in connection with AWG's acts or omissions. Notwithstanding the foregoing or anything else contained herein or in the APA and notwithstanding any default by Homeland of its obligations hereunder or thereunder, except as set forth in paragraph 5(c) hereof in connection with the K-CCS Contract and the Drake Contract, and except as specifically provided in the Undertakings, the Assignment and Assumption Agreements, the ERISA Agreement and the other agreements to be entered into pursuant to Section 5.1 of the APA, AWG shall not have the right to otherwise rescind, terminate, modify or avoid its obligations with respect to the Existing Contracts under Section 5.1 of the Asset Purchase Agreement, or as specifically provided in the Undertakings, the Assignment and Assumption Agreements, the ERISA Agreement and the other agreements to be entered into pursuant to Section 5.1. b. By AWG. AWG shall indemnify and save and hold harmless Homeland, its affiliates and subsidiaries, and its and their respective Representatives from and against any and all Damages incurred in connection with or arising out of or resulting from (i) any breach of any covenant or warranty, or the inaccuracy of any representation made by AWG in or pursuant to this Agreement or (ii) any liability, obligation or commitment of any nature (absolute, accrued, contingent or otherwise) of AWG which is due to or arises in connection with AWG's acts or omissions prior to or after the Closing Date, including any other claim, liability, or obligation which is specifically assumed by AWG pursuant to this Agreement or the APA. Except as provided herein or in the APA, AWG shall not be liable for any matter which is due to or arises in connection with Homeland's acts or omissions. c. Defense of Claims. If any lawsuit or enforcement action is filed against any party entitled to the benefit of indemnity under this Agreement, written notice thereof shall be given to the indemnifying party as promptly as practicable (and in any event within fifteen (15) days after the service of the citation or summons); provided, that the failure of any indemnified party to give timely notice shall not affect rights to indemnification hereunder except to the extent that the indemnifying party demonstrates actual damage caused by such failure. After such notice, if the indemnifying party shall acknowledge in writing to the indemnified party that the indemnifying party shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then the indemnifying party shall be entitled, if it so elects, to take control of the defense and investigation of such lawsuit or action and to employ and engage attorneys of its own choice to handle and defend the same, at the indemnifying party's cost, risk and expense; and such indemnified party shall cooperate in all reasonable respects with the indemnifying party and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, however, that the indemnified party may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. In the event the indemnifying party elects not to assume the defense or investigation of a lawsuit or an action, the indemnifying party shall not be obligated to pay the fees and expenses of more than one counsel or one firm of counsel for all parties indemnified by the indemnifying party in respect of such lawsuit or action, unless in the reasonable judgment of the indemnifying party a conflict of interest may exist between such indemnified party and any other of such indemnified parties in respect of such lawsuit or action. Notwithstanding the foregoing, no party may settle any matter in a manner which would have an adverse effect on the other party without the affected party's prior written consent. d. Brokers and Finders. Pursuant to the provisions of this paragraph, AWG and Homeland shall indemnify, hold harmless and defend each other from the payment of any and all broker's and finder's expenses, commissions, fees or other forms of compensation which may be due or payable from or by the indemnifying party, or may have been earned by any third party acting on behalf of the indemnifying party in connection with the negotiation and execution hereof and the consummation of the transactions contemplated hereby. No individual representative of any party shall be personally liable for any Damages under the provisions contained in this paragraph. Nothing herein shall relieve either party of any obligation to make any payment expressly required to be made by such party pursuant to this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year last above written. ASSOCIATED WHOLESALE GROCERS, INC. By: Mike DeFabis, President HOMELAND STORES, INC. By: James A. Demme, President g:\wp50\docs\acquisit\homeland\docs\supply.agr\draft.18 2/3/95 EX-10.RR 5 EXHIBIT 10rr November 22, 1994 Mr. James A. Demme 2608 Tahoe Drive Edmond, OK 73013 Dear Jim: We are pleased to confirm the terms of your proposed employment with Homeland Stores, Inc. (the "Company"). 1) Duties: You will become an employee of the Company on as soon as practicable after the execution of this agreement (the "Commencement Date"). Effective as of the Commencement Date, you will be the Chief Executive Officer of the Company and a member of the Board of Directors. You will devote all of your skill, knowledge and full working time (reasonable vacation time and absence for sickness or disability excepted) solely and exclusively to the conscientious performance of your duties hereunder. 2) Base Salary: As compensation for the duties to be performed by you under the terms of this letter agreement, the Company will pay you a base salary in the amount of $200,000 per annum, payable at the same time as the Company pays salary to its other executive employees. The Company will review your base salary from time to time and, at the discretion of the Board of Directors, may increase your base salary based upon your performance and other relevant factors. 3) Incentive Bonus: While you are providing services pursuant to this letter, you will be given the opportunity to receive an annual bonus upon the attainment of such performance objectives as the Board of Directors shall determine from time to time after consulting with you. Your maximum annual bonus opportunity will be equal to 100% of your Base Salary if all performance objectives are satisfied; provided that, for calendar year 1995 you will receive a minimum bonus of $100,000. Any bonus payable to you will be paid to you at the same time as bonuses are paid to other executives. 4) Long Term Incentive Plan: You shall be eligible to receive awards under a long term incentive compensation plan to be established by the Company at a level commensurate with your position and responsibilities with the Company. -2- 5) Employee Benefits: While you are providing services pursuant to this letter agreement, you will be eligible to participate in the employee benefit plans and programs generally available to the Company's employees (including, but not limited to, coverage under the Company's medical, dental, life and disability insurance plans and participation in the Company's qualified plans) as in effect from time to time on the same basis as the Company's other employees, subject to the terms and provisions of such plans and programs. 6) Executive Perquisites: You will be eligible to receive the perquisites and other personal benefits made available to the Company's senior executives from time to time. 7) Expenses: The Company will reimburse you for all reasonable expenses incurred by you in connection with your performance of services under this letter agreement in accordance with the Company's policies, practices and procedures. 8) Termination of Employment: If the Company terminates your employment prior to the third anniversary of the Commencement Date for any reason other than Cause or Disability or if you shall terminate your employment following the sale of at least 50% of the voting securities of the Company or its parent, the Company will continue to pay you your Base Salary (i) for one year after the date of your termination of employment or (ii) is terminated by the Company for Cause, you will only be entitled to receive the compensation and benefits payable to you under the Company's otherwise applicable employee benefit plans or programs. As used in the Agreement, "Cause" means (i) your willful failure to perform substantially your duties as an officer and employee of the Company (other than due to physical or mental illness), (ii) your engaging in serious misconduct that is injurious to the Company, (iii) your having been convicted of, or entered a plea of nolo contendere to, a crime that constitutes a felony, or (iv) your unauthorized disclosure of confidential information (other than to the extent required by an order of a court having competent jurisdiction or under subpoena from a appropriate government agency) that has resulted or is likely to result in material economic damage to the Company. "Disability" means that, as a result of your incapacity due to physical or mental illness, you have been absent from your duties to the Company on a substantially full-time basis for 180 days in any twelve-month period. -3- 9) Binding Effect: This letter agreement will inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you under this letter agreement if you had continued to live, all such amounts, unless otherwise provided herein, will be paid in personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees or estate, as the case may be. 10) Indemnification: The Company agrees to indemnify you to the fullest extent permitted under its By-laws as in effect from time to time. 11) General Provisions: No provisions of this letter agreement may be modified, waived or discharged unless such modification, waiver or discharge is approved by the Company's Board of Directors and is agreed to in a writing signed by you and such Company officer as may be specifically designated by the Board. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this letter agreement. The invalidity or unenforceability of any one or more provision of this letter agreement will not affect the validity or enforceability of any other provision of this letter agreement, which will remain in full force and effect. This letter agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument. All amounts payable to you hereunder will be paid net of any and all applicable income or employment taxes required to be withheld therefrom under applicable Federal, State or local laws or regulations. The validity, interpretation, construction and performance of this letter agreement will be governed by the laws of the State of Oklahoma, without giving effect to its conflict of laws provisions. -4- If the foregoing accurately sets forth the terms of your employment with the Company, please so indicate by signing below and returning one signed copy of this letter agreement to me. Sincerely, HOMELAND STORES, INC. B. Charles Ames B. Charles Ames ACCEPTED AND AGREED as of this 23 th day of November , 1994 James A. Demme EX-10.SS 6 EXHIBIT 10ss Settlement Agreement Settlement Agreement between Max E. Raydon (here- after referred to as "you") and Homeland Stores, Inc. (the "Corporation"), dated as of December 31, 1994. 1. Severance Payments. In connection with the termination of your employment by the Corporation, effective as of December 31, 1994 (the "Termination Date"), the Corporation agrees to pay you, in accordance with the terms of the Employment Agreement between you and the Corporation, dated as of August 11, 1994, a single lump sum amount equal to $600,000 upon the execution and delivery of this Settlement Agreement. This amount will not be subject to any offset, mitigation or other reduction as a result of your receiving salary or other compensation by reason of your securing other employment. 2. Resignation of Offices. Effective upon the Termination Date, you hereby voluntarily resign as President and Chief Executive Officer and as a member of the Board of Directors (the "Board"). Effective upon the date hereof, you hereby also voluntarily resign from each other position, whether as a director, officer or both, you hold on such date with Homeland Holding Corporation (the "Parent") and each of the Corporation's subsidiaries (the Parent and such subsidiaries hereinafter referred to as the "Affiliates"). 3. Employee Programs. For a period of thirty - six months, the Corporation shall provide you with the same medical, dental, vision, life and disability insurance and other welfare benefits as it provides to its executive offi- cers (the "Welfare Benefits Arrangements"). If the Corpora- tion is unable to or chooses not to continue any such cover- age for all or any portion of such period, it shall not be obligated to provide such coverage and shall instead pay you (within 15 days after such coverage is to cease) an amount equal to (A) the remainder of (x) 36 minus (y) the number of months that such coverage is so provided times (B) the monthly amount it would have paid with respect to such coverage under the applicable the Welfare Benefit Arrange- ment. 4. Release. In consideration of the Corpora- tion's payment to you of the amount described in paragraph 1 above and the benefits described in paragraph 3, you hereby release and discharge the Corporation and each of its sub- sidiaries, parents, officers, directors, employees, agents and assigns from any and all claims, liabilities, demands or causes of actions, known or unknown, arising out of or in any way connected with or related to the termination of your employment, including, without limitation, any claims: (i) based on any local, state or Federal statute relating to age, sex, race or other form of discrimination (including, without limitation, the Age Discrimination in Employment Act of 1967, as amended), (ii) of wrongful discharge, (iii) related to any breach of any implied or express contract (whether oral or written) and (iv) for intentional or negli- gent infliction of emotional harm, defamation or any other tort. However, expressly excluded from this Release are (i) any and all claims for vested benefits under any employee benefit plan maintained by the Corporation or any of its subsidiaries, and (ii) any and all claims (even if referred to above) arising from your incurrence of debt in connection with your acquisition of stock in the Parent during your employment. The Corporation hereby releases you from any and all claims, known or unknown, arising out of or relating to your employment with the Corporation, provided that expressly excluded from this Release are (i) any and all claims (even if referred to above) arising out of or relating to (A) any fraud against the Corporation or (B) your intentional and wilful misconduct and (ii) any and all claims (even if referred to above) arising out of or related to your acquisition of stock in the Parent during your employment. 5. Voluntary Action. You hereby acknowledge that (i) you have read this Settlement Agreement (including, without limitation, the release set forth in paragraph 4 hereof), (ii) you fully understand the terms of this Settlement Agreement and (iii) you have executed this Settlement Agreement voluntarily and without coercion, whether express or implied. 6. No Derogatory Comments. You agree to refrain from making any derogatory comment concerning the Corpora- tion or any of its Affiliates, or any of the current or former shareholders, officers, directors or employees of the Corporation or its subsidiaries or from taking any other action with respect to the Corporation which is reasonably expected to result, or does result, in damage to the business or reputation of the Corporation or any of its Affiliates or any of the current or former shareholders, officers, directors or employees of the Corporation or its subsidiaries, but expressly excluding herefrom any comments by you to enforce any rights or claims against the Corporation which are not released by you in paragraph 4 above. The Corporation agrees to refrain from making any derogatory comment about you, but expressly excluding herefrom any comments by the Corporation to enforce any rights or claims against you (or to defend any claims by you) which are not released in paragraph 4 above. 7. Non-disclosure. Without the prior written consent of the Corporation, except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, you shall not disclose any trade secrets, customer lists, drawings, designs, product development and related information, marketing plans and related information, sales plans and related information, manufacturing plans and related inform- ation, management organization and related information (including data and other information related to members of the Board and management), operating policies and manuals, business plans and related information, financial records and related information, packaging design and related information or other financial, commercial, business or technical information related to the Corporation or its Affiliates to any third person unless such information has been previously disclosed to the public by the Corporation or has become public knowledge other than by a breach of this Agreement. 8. Return of Documents and Property. You agree that upon your termination of employment you shall return to the Corporation (i) any documents and materials containing trade secrets and other confidential information relating to the Corporation's business and affairs, and (ii) any other documents, materials and other property belonging to the Corporation or any of its subsidiaries that are in your possession or control. 9. Indemnity. The Corporation or one of its Affiliates, as appropriate, shall indemnify you for any claim arising out of or in connection with Employee's serv- ice as a member of the Corporation's board of directors, as President or Chief Executive Officer of the Corporation and as an officer, director or employee of any of the Corpora- tion's Affiliates in the same manner and to the same extent as the Company or such Affiliate, as the case may be, indem- nifies its then current directors, officers or employees. 10. Entire Agreement. This Settlement Agreement constitutes the entire agreement among you and the Corpora- tion with respect to the subject matter hereof, and all promises, representations, understandings, arrangements and prior agreements relating to such subject matter (including, without limitation, the Employment Agreement referred to in paragraph 1) are merged herein and superseded hereby. 11. Binding Effect. This Settlement Agreement shall be binding on and inure to the benefit of the Corpora- tion and each of its successors and assigns. This Settle- ment Agreement shall also be binding on and inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distribu- tees, devisees and legatees. 12. Remedies. You acknowledge that a material part of the inducement for the Corporation to enter into this Agreement is your covenants set forth in Sections 6 through 8 hereof. You agree that if you shall breach any of those covenants, the Corporation shall have no further obli- gation to provide you any benefits otherwise payable here- under (except as may otherwise be required at law) and shall be entitled to such other legal and equitable relief as a court shall reasonably determine. 13. Governing Law. The validity, interpretation, construction and performance of this Separation Agreement shall be governed by the laws of the State of Oklahoma, without giving effect to its conflict of laws provisions. HOMELAND STORES, INC. Witnessed: Mark S. Sellers Linda Kenney MAX E. RAYDON Witnessed: Max E. Raydon Joe M. Hampton EX-10.TT 7 EXHIBIT 10tt January 30, 1995 Mr. Mark S. Sellers Homeland Stores, Inc. 400 N.E. 36th Street Oklahoma City, Oklahoma 73105 Dear Mark: The purpose of this letter agreement (the "Agreement") is to confirm, amend and restate the terms of your employment with the Homeland Stores, Inc. (the "Corporation"). This Agreement supersedes in all respects all prior agreements and understandings, whether written or oral, express or implied, between you and the Corporation and any of its affiliates relating to your employment and the termination thereof. 1. Duties. You will be employed as the Executive Vice President - Finance and Chief Financial Officer of the Corporation and, in addition, in such other executive capac- ities for the Corporation and the Homeland Holding Corpora- tion or any subsidiary of the Corporation (the "Affiliates") as may be determined from time to time by or under the authority of the Corporation's Board of Directors. You will devote all of your skill, knowledge and full working time (reasonable vacation time and absence for sickness or dis- ability excepted) solely and exclusively to the conscien- tious performance of such duties. 2. Term. This Agreement shall be effective as of January 1, 1995 and expire on the thirtieth day (or such later date as the parties may agree) following the closing of the asset purchase contemplated in the Letter of Intent between the Corporation and Associated Wholesale Grocers Inc., dated as of November 23, 1994 (such thirtieth day hereinafter referred to as the "Termination Date"), unless sooner terminated by reason of your death or Disability (as defined hereinafter) or in accordance with paragraph 10 hereof. For purposes of this Agreement, "Disability" is defined to mean that, as a result of your incapacity due to physical and mental illness, you shall have been absent from your duties to the Corporation and its Affiliates on a sub- stantially full-time basis for six consecutive months, and within 30 days after the Corporation notifies you in writing that it intends to replace you, you shall not have returned to the performance of your duties on a full-time basis. Notwithstanding the foregoing, if the Termination Date does not occur on or before December 31, 1995, this Agreement shall expire at the end of business on such date (in which event, December 31, 1995 shall be deemed to be the Termination Date for purposes of this Agreement), except that (i) any incentive compensation payable to you under the Corporation's annual incentive compensation program referred to in paragraph 5 shall be paid to you at the time annual incentive compensation is paid to other senior executives and (ii) the Corporation shall pay you the retention payment described in paragraph 6 below within 10 business days after December 31, 1995. 3. Resignation of Offices. Effective upon the Termination Date, you hereby voluntarily resign as Executive Vice President - Finance and Chief Financial Officer and as a member of the Board of Directors (the "Board"). Effective upon the Termination Date, you hereby also voluntarily resign from each position, whether as a director, officer or both, you hold on such date with each of the Corporation's Affiliates. 4. Base Salary. As compensation for the duties to be performed by you through the Termination Date, the Corporation shall pay you a base salary at the annual rate of $170,000 per annum. 5. Incentive Bonus. If you are still employed by the Corporation on the Termination Date and if the Corpora- tion meets or exceeds the applicable performance objectives under its generally applicable annual incentive compensation program, you shall receive for your services in 1995 a bonus equal to the product of (i) and (ii) below: (i) the amount which would have been payable to you under the Corporation's annual incentive compensa- tion plan for its senior officers for calendar year 1995, based on (A) a target bonus opportunity of $170,000, (B) the Corporation's actual performance through the end of the fiscal month in which the actual Termination Date occurs (the "End Date") and (C) the cumulative performance objectives and thresholds established under the Corpora- tion's annual incentive compensation plan with respect to the period ending on the End Date and (ii) a fraction, the numerator of which is the number of days in 1995 prior to and including the Termination Date and the denominator of which is 365. Any amount payable under this paragraph 5 shall be paid to you within 10 business days after the Termination Date. 6. Retention Payments. If you are still employed by the Corporation on the Termination Date, the Corporation will pay you $195,000 in a single lump sum within 10 business days after the Termination Date; provided that, such amount shall be reduced by the amount of any outstanding indebtedness you have to the Corporation (after giving effect to the reduction therein described in para- graph 9 below). The gross amount described in the preceding sentence includes a payment in respect of the salary that you agreed to forego as part of a general 10% reduction in the base salaries payable to the Corporation's executive officers. 7. Expenses. The Corporation will furnish, insure and maintain for your use while you are employed by the Corporation the automobile currently used by you. The Corporation will reimburse you for reasonable travel, lodg- ing, meal and other appropriate expenses incurred by you in connection with your performance of services under this letter agreement upon submission by you of evidence, satis- factory to the Corporation, of the incurrence and purpose of each such expense. 8. Employee Programs. During the period through the Termination Date, you shall receive from the Corporation the same employee benefits and perquisites as are provided to you on the date hereof. For your service for the Corporation during 1995, you shall accrue vacation days at the rate of one and two-thirds days for each full month of service (i.e., four weeks per annum). If you are still employed by the Corporation on the Termination Date, the Corporation shall pay you, at the end of each of the first twelve months commencing after the Termination Date, an amount equal to the monthly amount (the "Monthly Benefit Costs") it paid to you immediately prior to the date hereof in respect of the individual benefit arrangements that you currently maintain in effect (the "Individual Arrangements") in lieu of participating in the medical, dental, vision, life and disability insurance and other welfare benefits provided by the Corporation to its executive officers; provided that if you obtain employment with an employer that provides any similar benefits to its employees or senior officers, the Corporation's obligation to continue to pay for the related Individual Arrangements shall cease (with prorata payments to be made through the date of such cessation) as of the first date as of which you may receive such benefits under the employer's generally applicable plans, policies or arrangements. Effective as of the Termination Date, your continued participation in, or rights to receive compensation or other benefits under, any of the Corporation's other employee benefit plans, programs or arrangements shall be governed by the terms and conditions of the applicable plan, program or arrangement. 9. Relocation. (a) As soon as practicable after the execution hereof, the Corporation will apply for your benefit an amount equal to $271,613. This amount will be applied first to pay withholding taxes arising with respect to such payment and then to reduce your outstanding indebt- edness to the Corporation. This amount is in satisfaction of your contractual right to be reimbursed in respect of (i) costs and expenses that you incurred with respect to the sale of your home in Atlanta, Georgia, (ii) costs and expenses related to your relocation to Oklahoma in con- nection with initially becoming an employee of the Corpora- tion that have not previously been reimbursed and (iii) taxes related to the costs and expenses described in clauses (i) and (ii). (b) If you are still employed by the Corporation on the Termination Date, the Corporation shall also pay or reimburse you, up to a maximum of $30,000, for (i) all reasonable costs of moving your household goods between Oklahoma and Kansas City and (ii) the reasonable legal fees, closing costs and real estate commissions incurred by you in connection with the sale of your home in Oklahoma; provided that (x) the obligation of the Corporation to pay such relocation expenses shall be reduced, on a dollar for dollar basis, by any amount paid in respect of such relocation expenses by any person with whom you accept employment and (y) if the Corporation shall have paid any amount in respect of such expenses which exceeds the amount it is required to pay (after taking into account the adjustment described in clause (x) above) you shall return such excess amount to the Corporation within 10 days after such other employer pays or reimburses you for such expenses. As a condition to your receipt of the benefits payable under this Agreement, you agree immediately to notify the Corporation of any job offer you receive that may affect the Corporation's obligations under this paragraph 9(b). 10. Termination Prior to the Termination Date. Upon (a) the termination of your employment by the Corpora- tion for other than Cause (as hereinafter defined) or (b) the termination of your employment by you for Good Reason (as hereinafter defined), the Corporation shall pay you the amounts otherwise payable to you on the Termination Date pursuant to paragraphs 5 and 6 and provide to you the post- termination benefits otherwise to be provided to you follow- ing the Termination Date pursuant to paragraph 8. The fore- going amounts and benefits will be payable at the times determined under each such preceding paragraph, assuming for this purpose that the date your employment terminates is the Termination Date. Except to the extent expressly provided in paragraph 5 or 8, as incorporated herein, the amounts and benefits payable under this paragraph 10 will not be subject to any offset, mitigation or other reduction as a result of your receiving salary or other compensation by reason of your securing other employment. For purposes of this Agreement, "Cause" is defined to mean (a) your willful failure to substantially perform your duties and continuance of such failure for more than 30 days after the Corporation notifies you in writing that you are failing to substantially perform your duties, setting forth in reasonable detail the manner in which you are fail- ing so to perform your duties; (b) your engaging in serious misconduct which is injurious to the Corporation; or (c) your conviction in a court of proper jurisdiction of a crime which constitutes a felony. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there is delivered to you a copy of a reso- lution, duly adopted by the Corporation's Board of Direc- tors, finding that the Corporation has "Cause" to terminate you as contemplated in this paragraph. In the event that the Corporation shall terminate your employment for Cause, the Corporation shall only be obligated to pay you (a) your base salary earned through the date of such termination, (b) the amount payable in respect of the Individual Arrangements through the date of such termination and, (c) the amount necessary to reimburse you for expenses incurred prior to the date of such termination for which the Corporation has agreed to reimburse you as provided in this Agreement and, to the extent provided under the Corporation's generally applicable policies and procedures, any unused vacation time, plus (d) if your employment terminates upon your death or disability, incentive compensation for the portion of the incentive year that precedes the date of such termination, such incentive compensation to be a pro rata amount of the incentive compensation payable for the entire incentive year. For purposes of this Agreement, a termination by you shall be treated as having occurred for "Good Reason" if it occurs within 30 days following the occurrence of any of the following events without your prior written consent: (a) your removal or any failure to reelect or redesignate you to the position of Executive Vice President - Finance, Chief Financial Officer of the Corporation, except in connection with a termination of your employment by the Corporation for Cause, (b) a change in your location of employment from Oklahoma City or (c) a material reduction in your base salary. 11. Release. In consideration of the Corpora- tion's payment to you of the amount described in paragraphs 5, 6, 8 and 9 or paragraphs 9 and 10, as the case may be, you hereby release and discharge the Corporation and each of its Affiliates and each of their respective officers, directors, employees, agents and assigns from any and all claims, liabilities, demands or causes of actions, known or unknown, arising out of or in any way connected with or related to the termination of your employment, including, without limitation, any claims: (i) based on any local, state or Federal statute relating to age, sex, race or other form of discrimination (including, without limitation, the Age Discrimination in Employment Act of 1967, as amended), (ii) of wrongful discharge, (iii) related to any breach of any implied or express contract (whether oral or written) and (iv) for intentional or negligent infliction of emo- tional harm, defamation or any other tort, but expressly excluding claims for vested benefits under the generally applicable terms and conditions of any employee benefit plan maintained by the Corporation or any of its Affiliates. Effective as of the Termination Date, the Corpora- tion shall release you from any and all claims, known or unknown, arising out of or relating to your employment with the Corporation, provided that expressly excluded from this release are any and all claims (even if referred to above) arising out of or relating to (i) any fraud against the Corporation, (ii) your intentional or willful misconduct or (iii) any breach of the terms of this Agreement. 12. Voluntary Action. You hereby acknowledge that (i) you have read this Agreement (including, without limitation, the release set forth in paragraph 11 hereof), (ii) you fully understand the terms of this Agreement, (iii) you have had the opportunity to review this Agreement with your legal representative and (iv) you have executed this Agreement voluntarily and without coercion, whether express or implied. You have been advised by the Corporation that he should consult with an attorney regarding the arrange- ments set forth in this Agreement. 13. No Derogatory Comments. You agree to refrain from making any derogatory comment concerning the Corpora- tion or any of its Affiliates, or any of the current or former shareholders, officers, directors or employees of the Corporation or its Affiliates or from taking any other action with respect to the Corporation which is reasonably expected to result, or does result, in damage to the busi- ness or reputation of the Corporation or any of its Affil- iates or any of the current or former shareholders, offi- cers, directors or employees of the Corporation or its Affiliates, but expressly excluding herefrom any comments by you to enforce any rights or claims against the Corporation which are not released by you in paragraph 11 above. The Corporation agrees to refrain from making any derogatory comment about you, but expressly excluding herefrom any comments by the Corporation to enforce any rights or claims against you (or to defend any claims by you) which are not released in paragraph 11 above. 14. Non-disclosure. Without the prior written consent of the Corporation, except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, you shall not disclose any trade secrets, customer lists, drawings, designs, product development and related information, marketing plans and related information, sales plans and related information, manufacturing plans and related inform- ation, management organization and related information (including data and other information related to members of the Board and management), operating policies and manuals, business plans and related information, financial records and related information, packaging design and related information or other financial, commercial, business or technical information related to the Corporation or its Affiliates to any third person unless such information has been previously disclosed to the public by the Corporation or has become public knowledge other than by a breach of this Agreement. 15. Return of Documents and Property. You agree that upon the Termination Date or your earlier termination of employment you shall return to the Corporation (i) any documents and materials containing trade secrets and other confidential information relating to the Corporation's busi- ness and affairs, and (ii) any other documents, materials and other property belonging to the Corporation or any of its subsidiaries that are in your possession or control. 16. Indemnity. The Corporation or one of its Affiliates, as appropriate, shall indemnify you for any claim arising out of or in connection with Employee's serv- ice as an officer of the Corporation or as a trustee or plan administrator of any of the Corporation's employee benefit plans and as an officer, director or employee of any of the Corporation's Affiliates in the same manner and to the same extent as the Company or such Affiliate, as the case may be, indemnifies its then current directors, officers or employ- ees. 17. Binding Effect. This Agreement shall be binding on and inure to the benefit of the Corporation and each of its successors and assigns. This Agreement shall also be binding on and inure to the benefit of and be enforceable by your personal or legal representatives, exec- utors, administrators, heirs, distributees, devisees and legatees. If you should die while any amounts are still payable to you under this Agreement, the Corporation shall pay such amounts, unless otherwise provided herein, in accordance with the terms of this Agreement to your personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees or estate, as the case may be. 18. Remedies. You acknowledge that a material part of the inducement for the Corporation to enter into this Agreement is your covenants set forth in paragraphs 13 through 15 hereof. You agree that if you shall breach any of those covenants, the Corporation shall have no further obligation to provide you any benefits otherwise payable hereunder (except as may otherwise be required at law) and shall be entitled to such other legal and equitable relief as a court shall reasonably determine. 19. Notices. All notices and other communica- tions required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or sent by certified express mail, return receipt requested, postage prepaid, to you at Post Office Box 37, Lawson, Missouri 64062-0037 and at 6004 Morning Dove Lane, Edmond, OK 73003-2521 or to the Corpora- tion at 400 N.E. 36th Street, Oklahoma City, OK 73105, Attention: President, with a copy to Clayton, Dubilier & Rice, Inc., 126 East 56th Street, New York, NY 10022, Attention: B. Charles Ames, or to such other address as either party shall specify by notice to the other. 20. General Provisions. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is approved by the Corpor- ation's Board of Directors and is agreed to in a writing signed by you and the officer designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or impled, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 21. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Oklahoma City, Oklahoma, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. 22. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Oklahoma, without giv- ing effect to its conflict of laws provisions. HOMELAND STORES, INC. Witnessed: James A. Demme Linda Kenney MARK S. SELLERS Witnessed: Mark S. Sellers Linda Kenney EX-24 8 EXHIBIT 24 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Homeland Holding Corporation on Form S-8 (File No. 33- 37335) of our report dated March 24, 1995, except as to the information presented in Note 15, for which the date is April 21, 1995, which includes an explanatory paragraph regarding the sale of certain operations of Homeland Stores, Inc., a wholly owned subsidiary of Homeland Holding Corporation, and the restructuring of its debt, on our audits of the consolidated financial statements of Homeland Holding Corporation and Subsidiary as of December 31, 1994 and January 1, 1994 and for the 52 weeks ended December 31, 1994 and January 1, 1994, and the 53 weeks ended January 2, 1993, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand New York, New York April 21, 1995 EX-27 9
5 This schedule contains summary financial information extracted from Homeland Holding Corporation's Form 10-K for the year ended December 31, 1994 and is qualified in its entirety by reference to such financial statements. 1000 YEAR DEC-31-1994 DEC-31-1994 339 0 14,505 2,690 89,850 111,078 199,982 82,603 239,134 67,175 145,000 316 0 0 3,755 239,134 785,121 785,121 588,405 588,405 216,848 1,213 18,067 (38,199) 2,446 (40,645) 0 0 0 (40,645) (.96) (.96)
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